Privacy & Information Security Law Blog : Privacy Lawyer & Attorney : Hunton & Williams Law Firm : Personal Data, Information Security

On March 9, 2010, the Federal Trade Commission announced that LifeLock, Inc., has agreed to pay $12 million to settle charges of deceptive advertising related to its identity theft protection services.  The FTC and the attorneys general of 35 states obtained the coordinated settlement pursuant to charges that LifeLock made false representations regarding the effectiveness of the protection its services offer consumers.  The FTC alleged that, contrary to assertions made in LifeLock’s advertisements, its products provide no protection from the most common form of identity theft, and only limited protection against other types of fraud.

The FTC’s complaint and further details concerning the settlement are available on the FTC’s website.  The FTC also has posted a page to provide information on the redress program for current and former LifeLock customers.

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On February 24, 2010, the French Senate’s Committee of Laws published an amended bill on the right to privacy in the digital age (“Proposition de loi visant à garantir le droit à la vie privée à l’heure du numérique”) (the “Bill”).  Following the initial draft presented by Senators Yves Détraigne and Anne-Marie Escoffier, this revised version is based on a second Senate Report in which concrete proposals are made to amend the Data Protection Act.

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On February 22, 2010, the Federal Trade Commission issued a news release indicating that it had notified almost 100 organizations that personal data about their customers, students or employees had been shared from their computer networks on peer-to-peer (“P2P”) file sharing sites, thereby exposing the data of affected individuals to possible identity theft and fraud.  In its letters, the FTC urged recipient entities to review their internal security procedures and the security procedures of their third party service providers.  The letters also recommended that the companies identify affected individuals and consider whether to notify them of the possible risks to their personal information pursuant to applicable state and federal data security breach notification laws.  Samples of the FTC’s letters were published with the news release and are available on the FTC’s website.

In addition, to help companies manage security risks related to P2P networks, the FTC published a Guide for Businesses on Peer-to-Peer file sharing and provided a link to a P2P Security Guide for consumers. 

Hunton & Williams partner, Lisa J. Sotto, discussed the FTC’s release in USA Today's Technology Live Blog.

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Cloud computing raises complex legal issues related to privacy and information security.  As legislators and regulators around the world grapple with the privacy and data security implications of cloud computing, companies seeking to implement cloud-based solutions should closely monitor this rapidly evolving legal landscape for developments.  In an article published on February 3, 2010, Lisa Sotto, Bridget Treacy and Melinda McLellan explore U.S. and EU legal requirements applicable to data stored by cloud providers, and highlight some of the risks associated with the use of cloud computing.

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In a lawsuit he described as “[s]adly . . . historic,” Connecticut Attorney General Richard Blumenthal sued Health Net of Connecticut, Inc. for allegedly failing to secure private patient medical records and financial information involving hundreds of thousands of Connecticut enrollees and promptly notify consumers endangered by the security breach.  The case marks the first action by a state attorney general under the Health Information Technology for Economic and Clinical Health (“HITECH”) Act to enforce provisions of the Health Insurance Portability and Accountability Act (“HIPAA”).  The suit also alleges a violation of Connecticut’s breach notification statute.

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On January 12, 2010, the UK government laid regulations before Parliament to bring into force civil monetary penalties of up to £500,000 ($800,000) for serious data breaches.  These penalties are likely to take effect starting April 6, 2010.  Significantly, the penalties will apply not only to data security breaches, but also to all serious breaches of the UK Data Protection Act 1998.  Accordingly, collecting personal data for a sweepstakes contest then deliberately, and without consent, disclosing the data to a third party to populate a tracing database for commercial purposes might well be subject to a penalty.

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The court in In re Heartland Payment Systems, Inc. Securities Litigation, Civ. No. 09-1043 (D. N.J. Dec. 12, 2009) recently dismissed a class action lawsuit brought by investors in Heartland, a processor of payment card transactions whose stock value dropped significantly after it suffered a data security breach in which hackers allegedly stole 130 million payment card numbers.  The plaintiffs argued that Heartland’s statements to the effect that it had adequate security systems and that it took the issue of computer network security very seriously were fraudulent because Heartland knew it had poor data security and failed to remedy critical problems soon enough to prevent the theft.

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On November 9, 2009, Connecticut’s Attorney General, Richard Blumenthal, announced an investigation of whether Blue Cross and Blue Shield (“BCBS”) violated Connecticut’s data breach notification law by waiting until two months after a data breach had occurred to notify affected Connecticut residents.  The data breach, which Attorney General Blumenthal called “one of the most sizable and significant in Connecticut’s history,” involved the theft of a laptop containing confidential unencrypted data from the car of a BCBS employee in late August.  BCBS notified affected Connecticut residents of the breach in late October.

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Background

On November 9, 2009, the UK's Ministry of Justice launched a consultation seeking the public's views on the proposed implementation of a maximum penalty of £500,000 (approximately US$837,950) for serious breaches of the UK Data Protection Act 1998 (the "DPA").  This Consultation follows the Information Commissioners' publication of draft guidance this week, explaining the circumstances in which a fine will be imposed.  The launch of the Consultation puts to rest recent speculation as to the level of fine likely to be imposed for a deliberate or serious breach of the DPA, including for data security breaches.

The DPA imposes obligations on data controllers that process personal data to: (i) process personal data fairly and lawfully; (ii) obtain personal data only for specified lawful purposes, and not further process personal data in any manner incompatible with such purposes; (iii) ensure that personal data are adequate, relevant and not excessive in relation to the purposes for which they are processed; (iv) ensure that personal data are accurate and, where necessary, kept up-to-date; (v) keep personal data only for as long as is necessary for the purposes for which they are collected; (vi) process personal data in accordance with individuals' rights; (vii) implement appropriate technical and organizational measures against unauthorized or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data; and (viii) not transfer personal data to a jurisdiction outside the European Economic Area unless that jurisdiction affords adequate protection levels for individuals' rights and freedoms in relation to the processing of personal data.

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The Federal Trade Commission is having a very busy week, announcing settlements in three high profile cases all before the close of business Tuesday.

The FTC today announced a settlement with MoneyGram International, Inc., the second largest provider of money transfer services in the U.S., which allegedly facilitated a host of fraudulent activities undertaken by telemarketers and other con artists.  The FTC charged that these practices violated both the FTC Act and the Telemarketing Sales Rule.  MoneyGram has agreed to pay $18 million into a fund that will be used to pay restitution to consumers for facilitating fraud on American consumers from Canada.  The $18 million settlement represents MoneyGram’s total return on $84 million in fraudulent transactions.  The settlement further requires implementation of a comprehensive anti-fraud program that is reminiscent of the Identity Theft Prevention Programs mandated by the FTC's Red Flags Rule, including employee training and ongoing monitoring to detect fraud.

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The Department of Health and Human Services (“HHS”) has posted to its website a notification form that may be used to report breaches of unsecured protected health information to the agency.  Although some state agencies requiring notice of a breach employ a standard reporting form, the form issued by HHS has several unique features and requests more information than a typical breach reporting form.  Some interesting features of the form include:

• The form may be used to report both breaches affecting 500 or more individuals, as well as breaches affecting fewer than 500 individuals, although the former must be notified to the agency within 60 days of discovery and the later need only be logged over the course of the year and reported to the agency on an annual basis.
• The form requires that, if the breach occurred "at or by" a business associate, that business associate must be identified by name and contact information must be provided.  The form is, however, required to be completed by the covered entity.
• The form requires a description of the breach and provides drop-down lists to facilitate the description of the type of breach (e.g., theft, loss, improper disposal, etc.), the location of the "breached information" (e.g., laptop, desktop computer, network server, etc.) and the type of PHI affected (e.g., demographic information, financial information, clinical information or "other").
• The form further requests a description of the safeguards that were in place prior to the breach and a description of actions taken in response to the breach, again via selection from a drop-down list.  Actions taken in response to the breach also may be described in narrative form.
• The form requires completion of an attestation that the information provided is accurate, and acknowledgement that the Office of Civil Rights ("OCR") may be required to release information provided via the form pursuant to the Freedom of Information Act, that some of the information will be posted to HHS's web site, and that OCR will use the information to provide an annual report to Congress, as required by the HITECH Act.
• The form also may be used to submit an "initial breach report" or an "addendum to previous report," implying that covered entities could submit the form based on then-available information and later file an addendum, which may be necessary in some cases to avoid missing the 60-day reporting deadline.

The form, which is intended to be submitted electronically, includes all of the required elements specified by the HITECH Act and HHS's implementing regulations.  HHS also has provided instructions for completing the form.

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The Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), which was signed into law in February 2009 as part of the economic stimulus package, substantially impacts requirements imposed by the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). The HITECH Act creates several new and potentially burdensome obligations that affect the relationship between covered entities and business associates. Because these changes are quite substantial and necessitate revisions to existing business associate agreements (“BAAs”), covered entities and business associates should begin compliance efforts as soon as possible. Read more on actions to take to comply with the requirements of the HITECH Act.

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On August 17, the Federal Trade Commission ("FTC") issued a final rule ("FTC Final Rule") addressing security breaches of personal health records ("PHRs").  The FTC Final Rule applies to all breaches discovered on or after September 24, 2009, and to “foreign and domestic vendors of personal health records, PHR related entities, and third party service providers” that “maintain information of U.S. citizens or residents.”  The FTC Final Rule does not apply to covered entities or business associates as defined under regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA").  Full compliance is required by February 22, 2010.

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July saw a flurry of activity involving data security breach notification laws. 

• On July 1, breach notification laws in Alaska and South Carolina went into effect.
• On July 9, Missouri became the 45th state to enact a data breach notification law. 
• On July 22, Senator Patrick Leahy reintroduced a comprehensive federal data security bill calling it one of his “highest legislative priorities.”
• On July 27, North Carolina amended its breach notification law to require notification of the state attorney general any time consumers are notified of a breach involving their personal information.  The amendment also included content requirements for the attorney general’s notice.

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On July 3, 2009, the German Federal Parliament passed comprehensive amendments to the Federal Data Protection Act (the "Federal Act"). These amendments also passed the Federal Council on July 10, 2009, and the revised law will enter into force on September 1, 2009. The new amendments cover a range of data protection-related issues, including marketing, security breach notification, service provider contracts and protections for employee data. They also include new powers for data protection authorities and provide for increased fines for violations of data protection law provisions.  To read more, click here.

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The UK Financial Services Authority (FSA) has announced today fines for three HSBC entities totaling £3 million for failing to have adequate systems and controls in place to protect their customers' confidential data. HSBC Life UK Limited (HSBC Life) was fined £1,610,000, HSBC Actuaries and Consultants Limited (HSBC Actuaries) was fined £875,000 and HSBC Insurance Brokers Limited (HSBC Insurance Brokers) was fined £700,000.

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Kaiser Permanente Bellflower Hospital has again been penalized for failing to prevent unauthorized access to confidential patient information.  On July 16, 2009, the California Department of Public Health announced that it had levied administrative penalties totaling $187,500 on the hospital after it was determined that eight Kaiser employees had compromised the privacy of four patients' medical information.  On May 14, 2009, the same facility was fined $250,000 -- the maximum allowable penalty under the new state health privacy provisions that came into effect on January 1st -- for violations related to unauthorized employee access to the medical records of Nadya Suleman.  The latest fine included a $25,000 penalty for each of four patients whose medical records allegedly were breached, plus $17,500 per incident for five subsequent alleged breaches of those medical records after the first.

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On July 1, 2009, new laws will take effect in Alaska and South Carolina that will require entities that have experienced data security breaches involving personal information to notify affected individuals of the breaches.  With these additions, a total of 44 states, plus the District of Columbia, Puerto Rico and the U.S. Virgin Islands, will have active breach notification laws in place.  There are no breach notification laws in Alabama, Kentucky, Mississippi, Missouri, New Mexico and South Dakota.

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As of January 1, 2010, Nevada law will require businesses to use encryption when data storage devices that contain personal information are moved beyond the physical or logical controls of the business, in addition to continuing to require that personal information be encrypted if it is transferred outside the secure system of the business. The new law repeals the existing Nevada encryption law, which will remain in effect until January 1, 2010. (For more information on the existing Nevada encryption law, please see our previous Client Alert.) The new law also mandates compliance with the Payment Card Industry Data Security Standard (“PCI DSS”) for businesses that accept payment cards. The law applies to organizations doing business in Nevada and provides that compliance will shield such businesses from liability for damages from a security breach.  To read more, click here.

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A lawsuit that will soon commence in Arizona has the potential to alter the data breach liability landscape by making data security auditors liable for data breaches experienced by the companies they audit.  The case, Merrick Bank Corp. v. Savvis Inc., has its origins in events that began in 2003, when Merrick Bank (“Merrick”) offered to hire CardSystems Solutions (“CardSystems”) to process credit card transactions for its merchant customers.  The offer was contingent upon CardSystems achieving certification under VISA’s Cardholder Information Security Program (“CISP”), which is the predecessor to the Payment Card Industry Data Security Standard (“PCI DSS”).  Savvis audited CardSystems in 2004 and found that it had “implemented sufficient security solutions” and followed “industry best practices.”  VISA certified CardSystems shortly after receiving Savvis’ audit report.  In 2005, CardSystems revealed that it had experienced an information security breach that compromised forty million payment cards.

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On April 27, 2009, the Article 29 Working Party issued a new working document (WP 155 rev.04) on frequently asked questions (FAQs) relating to binding corporate rules (BCRs). Two new FAQs were adopted: (1) FAQ 10 deals with the relationship between EEA data protection laws and BCRs; and (2) FAQ 11 relates to the reversal of the burden of proof in the context of BCRs. The Working Party reiterated that, although BCRs may offer an adequate level of protection to personal data being transferred within the same company, they do not exempt multinationals from complying with national data protection laws and taking local compliance steps. The Working Document is available here.

To read more and for additional EU data protection updates, please click here.

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On May 19, Maine Governor John Baldacci signed legislation limiting the time that breach notification may be delayed following a determination by law enforcement that providing notice will not compromise a criminal investigation. The provision, which will take effect 90 days after the close of the Legislature's 2009 session (scheduled to occur on June 17), will limit the permissible delay to seven business days.

Pursuant to Maine's current breach notification law, entities that become aware of a breach "shall conduct in good faith a reasonable and prompt investigation to determine the likelihood that personal information has been or will be misused." If the entity concludes, following its investigation, that notification to affected individuals is required, notice may be delayed if a law enforcement agency determines that notice would "compromise a criminal investigation." Once the law enforcement agency concludes that notification will not compromise its criminal investigation, the entity will have no more than seven business days to provide notice of the breach to affected individuals.

Text of the legislation, L.D. 970, is available here.
 

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On May 14, 2009, the California Department of Public Health issued an Administrative Penalty Notice to the Kaiser Foundation Hospital — Bellflower for patient medical information privacy violations. Although the state did not identify the affected patient by name, the facts and circumstances described in the Notice correspond to the case of Nadya Suleman, the single mother of six who gave birth to octuplets at Bellflower in January 2009. The hospital was fined $250,000 for failure to prevent unlawful or unauthorized access to, or use or disclosure of, a patient’s medical information as required by new provisions recently added to California’s Health and Safety Code. California law also requires health care providers and facilities to notify the Department of any unlawful or unauthorized access to patient medical information within five days of detecting such access. These provisions were reportedly enacted in the wake of several high-profile health data compromises at California health care facilities involving celebrities such as Farrah Fawcett, Britney Spears and California first lady Maria Shriver.  To read more, click here.

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On May 6, 2009, the proposed amendments to the e-Privacy Directive received a second reading in the European Parliament.  In addition to other measures, it will include a definition of “personal data breach” and will introduce a data breach notification requirement. 

The review of the e-Privacy Directive forms part of a wider review of telecoms legislation.  The objective of that review is to improve network security and integrity, to increase protection for user personal data and to improve measures to prevent spam and “cyber attacks.”  The scope of the amended Directive will include the processing of personal data in connection with the provision of publicly available electronic communications services in public communications networks within the European Community, including public communications networks supporting data collection and identification devices.

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In February 2009, the Ponemon Institute published the results of its inaugural study "Germany - 2008 Annual Study: Cost of a Data Breach."  The study is the first such research study undertaken in Germany, using data from actual incidents to estimate the costs of dealing with data breaches by German companies.  The study examined the experience of 18 German organizations that suffered a breach.  These case studies reviewed ranged in size an incident involving less than 3,750 records to an incident involving more than 90,000 records.  The breaches reviewed occurred across ten industry sectors. 

According to the study, the average cost of a data breach in Germany is € 112 per compromised record.  The total cost of handling the breaches ranged from € 267,000  to € 6.75 million, the average being over € 2.41 million.  To access the study, click here.

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On May 5, 2009, the Federal Trade Commission’s ("FTC's") Acting Director of the Bureau of Consumer Protection, Eileen Harrington, testified before the House Energy and Commerce Committee Subcommittee on Commerce, Trade and Consumer Protection in support of the proposed federal Data Accountability and Trust Act (H.R. 2221).  The Act would require companies to implement reasonable data security policies and procedures to protect personal information.  It would also mandate security breach notifications for consumers affected by data security breaches.

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Last week, the Federal Trade Commission published a Notice of Proposed Rulemaking regarding notification for security breaches involving electronic health information. The FTC issued the proposal pursuant to certain health information technology provisions in the American Recovery and Reinvestment Act, signed into law on February 17th, 2009. The Commission's proposal includes a requirement that vendors of personal health records notify U.S. citizens and residents if their personal health information is subject to a security breach. In addition, vendors must notify the FTC no later than five business days following the discovery of a breach that affects 500 or more individuals, or, for breaches affecting fewer than 500 individuals, maintain a log to be submitted annually to the Commission.

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On April 17, the U.S. Department of Health and Human Services (HHS) issued proposed information security guidance, as required by the Health Information Technology for Economic and Clinical Health (HITECH) Act passed as part of American Recovery and Reinvestment Act of 2009 on February 17.  The HITECH Act requires covered entities and business associates, as well as vendors of personal health records, to provide notice of information security breaches affecting “unsecured protected health information” or “unsecured personal health record information,” respectively.  The HITECH Act further requires the Secretary of HHS to specify technologies and methodologies that would render protected health information (PHI) unusable, unreadable, or indecipherable to unauthorized individuals.  If covered entities, business associates and vendors of personal health records apply the technologies and methodologies specified in the guidance to protected health information, they will not be required to provide notice to affected individuals, HHS or the media, as otherwise required by the HITECH Act, in the event the information is breached.

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The mere increased risk of identity theft following a data breach is sufficient to give the data subjects standing to bring a lawsuit in federal court but, absent actual identity theft or other actual harm, claims against the data owner and its service provider for negligence and breach of contract cannot survive, a federal judge ruled this month.  Ruiz v. Gap, Inc., et al., No. 07-5739 SC (N.D. Cal. April 6, 2009).

Plaintiff Joel Ruiz brought a putative class action against Gap, Inc. and its service provider Vangent, Inc. after a thief stole a laptop computer from Vangent containing unencrypted Social Security numbers and other personal information of Ruiz and approximately 750,000 other Gap job applicants.  Shortly after the theft, Gap notified Ruiz and the other applicants of the breach and offered them 12 months of free credit monitoring and fraud assistance.  Ruiz sought damages under various theories, including negligence (failure to exercise due care to protect the data) and breach of contract (breach of the security provisions of Gap’s contract with Vangent, under the theory that Ruiz was a third-party beneficiary of the contract).

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The Federal Trade Commission, the Asia-Pacific Economic Cooperation forum, and the Organisation for Economic Co-operation and Development are hosting a multinational workshop on "Securing Personal Data in the Global Economy" in Washington, D.C. on March 16-17, 2009. In anticipation of that workshop, the Centre for Information Policy Leadership at Hunton & Williams LLP is releasing this white paper with ten key recommendations for data breach and information security policy, drawn from published research and extensive experience with data breaches, breach notices, and information security broadly.

Continue Reading...

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The Information Commissioner’s Office (the “ICO”) has conducted a dawn raid on a business which operated a covert database containing details of 3,213 workers in the construction industry (the “Database”). Subscribers included over 40 construction companies, publicly named by the ICO, who used the database to vet prospective employees, without their knowledge or consent.

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CVS Pharmacy (“CVS”), reportedly the largest retail pharmacy chain, has agreed to pay the Department of Health and Human Services (“HHS”) $2.25 million and submit a Corrective Action Plan (“CAP”) to HHS after an extensive nationwide investigation by the HHS Office of Civil Rights (“OCR”) and the Federal Trade Commission (“FTC”) which revealed that CVS employees disposed of protected health information (“PHI”) in violation of the Health Insurance Portability and Accountability Act’s (“HIPAA”) Privacy Rule.  In addition, CVS Caremark, the parent company of CVS, simultaneously entered into a Consent Order with the FTC to resolve claims that CVS had engaged in unfair or deceptive trade practices in violation of the FTC Act by failing to use reasonable and appropriate measures to prevent unauthorized access to PHI and by disseminating a false or misleading privacy notice about CVS’s protection of PHI.  In the Consent Order, the FTC specifically highlighted CVS’s failure to render PHI unreadable before disposal as well as its claim in its privacy notice that maintaining the privacy of its customers’ PHI was central to its operations as examples of unfair or deceptive trade practices.  The CVS settlement is noteworthy for two reasons: (1) it is the first joint enforcement action between OCR and the FTC and (2) although it is the second substantial monetary settlement for alleged HIPAA violations, the $2.25 million resolution amount dwarfs the first settlement for $100,000 between HHS and Providence Health in July 2008.

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A recent federal court decision offers a detailed analysis of several theories of liability for violations of a privacy policy.  Pinero v. Jackson Hewitt Tax Service Inc., No. 08-3535, 2009 WL 43098 (E.D. La. January 7, 2009). 

Plaintiff Pinero visited Jackson Hewitt Tax Service in Louisiana to have her tax returns prepared.  During her visit, she provided Jackson Hewitt with confidential information such as her Social Security number, date of birth and driver’s license number.  Pinero signed Jackson Hewitt’s privacy policy, which stated that Jackson Hewitt had policies and procedures in place, including physical, electronic, and procedural safeguards, to protect customers' private information.  Pinero alleged that she relied on this statement in her decision to turn over her information.

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Provisions of the economic stimulus legislation (known as the American Recovery and Reinvestment Act (“ARRA”)), recently passed by the U.S. House of Representatives, require certain entities to notify affected individuals, government agencies and the media of breaches of “unsecured protected health information.” Additional provisions substantially revise regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). While these provisions are specifically limited to the context of health data, they have far-reaching implications for businesses across industry that manage personal information.  Read more...

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 Scarcely a month after the world media was flooded with news of the catastrophic terrorist attacks in Mumbai, headlines are once again rife with articles on the global impact of events in India. This time, the news has focused on Satyam Computer Services (“Satyam”), previously one of India’s largest and most prestigious outsourcing providers, and a series of missteps that began in October 2008, when alarming allegations of possible involvement in a customer security breach surfaced in the media. After that news, there were allegations of misdeeds with customers, a failed takeover attempt, and now the chairman’s confession of massive accounting irregularities.

 To read more on the Satyam crisis, please click here.  Hunton & Williams has organized a cross-disciplinary team of lawyers to respond to the Satyam situation, including leading outsourcing, data security and insolvency practitioners, as well as local counsel in India. We have also released a second client alert on how Satyam customers should consider dealing with agreements, please click here to read this alert.

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