What to Do about Data Security? A Discussion of the FTC’s LabMD & Wyndham Cases

What to Do about Data Security? A Discussion of the FTC’s LabMD & Wyndham Cases

Over the last decade, the Federal Trade Commission has settled nearly four dozen cases alleging that a failure to have “reasonable” data security constitutes an unfair or deceptive trade practice. The FTC has established no clear data security standards, and no court has ever ever ruled on the FTC’s assertions, but two pending litigations may finally finally allow the courts to rule on the legal validity of what the FTC calls its “common law of settlements” — and whether the agency can continue bringing such data security enforcement actions.

Join TechFreedom and Cause of Action for a livestreamed luncheon discussion on September 12 about these two cases and what they might mean for the future of consumer protection and competition regulation. We’ll hear from Mike Daugherty, founder of LabMD, a small cancer diagnostic lab based in Atlanta. Represented by Cause of Action, a non-profit dedicated to government transparency and accountability, LabMD is defending against the FTC complaint, which focuses on the fact that, in 2007, a government-funded surveillance program was able to access a file containing patient information on LabMD’s network through the Limewire filesharing program. Mike will preview his new bookThe Devil Inside the Beltway: The Shocking Exposé of the US Government’s Surveillance and Overreach into Cybersecurity, Medicine and Small Business, due out September 17. (Hint: the “devil” is a broader regulatory mentality.)

Our panel of legal experts will discuss the unique aspects of the LabMD case, especially the FTC’s decision not to prosecute filesharing services like Limewire for unfair trade practices in configuring their software to trick users into sharing files unintentionally — a decision the FTC eventually reversed, but not until it finally brought an enforcement action against Frostwire in 2011 for the same unfair practice. The panel will also discuss the larger legal issues raised by the LabMD case, the FTC’s pending litigation with Wyndham Hotels, and other recent cases settled by the FTC. Is the FTC’s approach consistent with the rule of law? Could it be? Does it actually protect consumers? What should the courts and Congress do?

Space is limited so RSVP now if you plan to attend in person. A livestream of the event will be availablehere. You can follow the conversation on Twitter on the #LabMD hashtag.

Thursday, September 12, 2013
12 p.m. (registration and coffee opens at 11:45, event and livestream at 12:15)

100 Maryland Ave NE
Washington D.C. 20002

Email contact@techfreedom.org.

Read TechFreedom’s amicus brief in the recent Wyndham and POM Wonderful cases for more legal analysis of how the FTC’s extra-legal regulations.

LabMD Responds to Federal Trade Commission’s Witch Hunt

FOR IMMEDIATE RELEASE                                                                                                 

August 29, 2013

LabMD Responds to Federal Trade Commission’s Witch Hunt

FTC action a clear example of federal government overreach


WASHINGTON – Today, the Federal Trade Commission (FTC) filed a complaint against LabMD claiming a violation of the Federal Trade Commission Act.

LabMD responded:

“The Federal Trade Commission’s enforcement action against LabMD based, in part, on the alleged actions of Internet trolls, is yet another example of the FTC’s pattern of abusing its authority to engage in an ongoing witch hunt against private businesses. The allegations in the FTC’s complaint are just that: allegations. LabMD looks forward to vigorously fighting against the FTC’s overreach by seeking recourse through the available legal processes.”

The FTC has repeatedly overstepped its statutory authority under Section 5 of the Federal Trade Commission Act and the FTC does not have the authority to bring this enforcement action.

LabMD is a cancer detection facility that specializes in analysis and diagnosis of blood, urine, and tissue specimens for cancers, micro-organisms and tumor markers.


About Cause of Action:

Cause of Action is a nonprofit, nonpartisan organization that uses investigative, legal, and communications tools to educate the public on how government accountability and transparency protects taxpayer interests and economic opportunity. For more information, visit www.causeofaction.org.

For any further follow up contact Mary Beth Hutchins,  202-400-2721


Regulating Social Media


The legal implications of using social media as an organization and as part of an organization have not yet been fully vetted. Yesterday, Forbes reported on a growing controversy over Federal Trade Commission (FTC) regulation of advertising on social media. The FTC imposed new regulations covering social media a few years ago and is now taking a PR agency, Reverb, to court over their practice of having paid employees post reviews for products without disclosing their employment.  This brings up serious questions about free speech and FTC regulation of Social Media.

The expanding regulations related to Social Media use are a topic that has continues to interest to Cause of Action. See our previous discussion of social media standing in court here.


Reviews Can Work Wonders, but They Can’t be Faked

By Ed Keller
August 30, 2012

An article in the New York Times caught my eye recently.  Entitled “The Best Book Reviews Money Can Buy”, the article says there is a growing practice of authors who commission reviews for their books, rather than letting them spring up organically on online sites such as Amazon.com or BN.com.


It’s not just authors who crave positive reviews. The products and services from businesses of all sizes and sectors are now being reviewed online, whether on Amazon, or travel sites such as Trip Advisor or Expedia, or restaurant sites such as Open Table, or sites relating to local service providers, like Angie’s List and Yelp, or the many retail and manufacturers offer online ratings on their websites.


It’s not a surprise that there should be such a surfeit of ratings and reviews.  The research is very clear that online reviews are popular with consumers and are a powerful driver of online (and offline) commerce. According to Google, 70% of Americans say they look at reviews before taking the next step to purchase products.  And according to a 2012 global study by Nielsen, online consumer reviews are the second most trusted form of advertising with 70 percent of global consumers surveyed online indicating they trust this platform, an increase of 15 percent in four years; only word of mouth recommendations directly from friends or family is more trusted.  The Timesarticle quotes professor Bing Liu from the University of Illinois who says “The wheels of online commerce run on positive reviews.”


The troubling part about the Times article is the underlying premise that people with something to sell feel so strongly motivated to get positive reviews that they would fake it by writing them themselves or paying people to write positive reviews, rather than building up a stable to authentic reviews from customers.  This is a bad business practice on two counts. First, the marketplace is too wise to let fake reviews go unnoticed, and there is a very good chance the people who do so will be “smoked out” and publicly embarrassed, thereby negating whatever benefit they might have otherwise achieved. Second, it is potentially against the law and many businesses do not realize that.   A few years ago the Federal Trade Commission issued new advertising guidelines that cover social media and word of mouth marketing.    The guidelines make clear that companies are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose a material connection between themselves and their endorsers.


In one of the first cases the FTC brought under these new guidelines, a PR agency, Reverb , was charged with having engaged in deceptive advertising by having employees pose as ordinary citizens while posting game reviews online and not disclosing that the reviews came from paid employees working on behalf of the game developers.  In the press release announcing the action, Mary Engle, the Director of the FTC’s Division of Advertising Practices stated: “Companies, including public relations firms involved in online marketing, need to abide by long-held principles of truth in advertising. Advertisers should not pass themselves off as ordinary consumers touting a product, and endorsers should make it clear when they have financial connections to sellers.”

If you’re unsure what constitutes ethical business practices in this area, you might want to check out the Word of Mouth Marketing Association.  The WOMMA Ethics Code provides a strong guidepost to help businesses, whether large or small, plan your social media disclosure activities. (Disclosure: my business partner, Brad Fay, is on the WOMMA Board of Directors and I am a former President of the association.)

In part, they say that any word of mouth or social media marketing should include:

  • Disclosure of identity: Make meaningful disclosures of your relationships or identities with consumers in relation to any marketing initiatives that could influence a consumer’s purchasing decisions.
  • Disclosure of consideration or compensation received: Do not engage in marketing practices where the marketer/sponsor or its representative provides goods, services, or compensation to the consumer as consideration for recommendations, reviews, or endorsements, unless full, meaningful, and prominent disclosure is provided.
  • Disclosure of relationship: Any brand or representatives involved in a word of mouth initiative on their behalf should disclose the material aspects of their commercial relationship with a marketer, including the specific type of any remuneration or consideration received.

What it all comes down in the end is that there should be genuine honesty in communication. That’s what makes consumers turn to word of mouth and social media for advice, recommendations, and help in making product choices. If you’re honest, your efforts will be rewarded. If you’re dishonest, it will be come back to haunt you.

The bottom line for all businesses is that you are being watched, both by the FTC and also by consumers who have an uncanny sense of smell for what’s real and what’s fake.

Free Beacon: CoA sues Federal Trade Commission over FOIA denials

Read the full story here. Freebeacon

“A government watchdog group has filed a court complaint against the Federal Trade Commission, claiming the agency arbitrarily denied its public records requests while granting those of liberal organizations.

Cause of Action, a non-profit organization that promotes government transparency, filed an injunction for relief Friday in the United States District Court of the District of Columbia, requesting the court to force the agency to disclose records it has so far withheld. Cause of Action filed the complaint after filing three separate Freedom of Information Act requests and sparring with the agency for nearly nine months.

“For an administration that has publicly committed itself to transparency, the Federal Trade Commission’s refusal to produce documents in response to Cause of Action’s several month-long FOIA investigation reeks of arbitrariness,” Cause of Action executive director Dan Epstein said in a statement to the Free Beacon. “As we state in our complaint, the FTC has wrongfully withheld requested agency records and has repeatedly denied our appeals.”

Federal Trade Commission