WASHINGTON D.C. — Today, the Federal Trade Commission announced that it had reached a settlement with Wyndham Hotels over charges that the company had “unreasonable” data security. In 2009, Russian hackers stole customer information, including credit card numbers, from Wyndham hotel systems. The company initially refused to settle an FTC enforcement action, becoming the first to challenge the FTC’s approach to data security in federal court. The FTC has used a decade of settlements with dozens of companies to establish fuzzy de facto standards for data security. In August, the Third Circuit denied Wyndham’s appeal of the district court’s decision to let the case proceed.

“The FTC has, once again, avoided having a federal court definitively answer fundamental questions about the constitutionality of the FTC’s approach to data security,” said Berin Szoka, President of TechFreedom, which joined an amicus brief in the case. “The FTC will no doubt claim the Third Circuit vindicated its approach, but all the court really said was that Wyndham’s specific practices may have been unfair. Indeed, the appeals court agreed with Wyndham that the FTC’s so-called ‘common law of consent decrees’ cannot provide the ‘fair notice’ required by the Constitution’s Due Process clause. This implied that the FTC needs to do much more to guide companies on what ‘reasonable’ data security would be. By settling the case, the FTC avoided having the district court resolve those questions.”

“It’ll take years for another case to work its way through the courts,” explained Szoka. “LabMD’s recent victory before the FTC’s chief administrative law judge is encouraging, and may allow a federal court to weigh in on the requirements of Section 5’s amorphous unfairness standard, if the full Commission overrules the ALJ. But that case focuses more on how the FTC weighs costs and benefits in each enforcement action than on the issue of how much guidance it provides guidance to industry.”

“It’s high time Congress reasserted itself here,” concluded Szoka. “The FTC has demonstrated little willingness to change from within, and we can’t wait for the courts to address these questions. Congress needs to put the FTC on sounder footing across the board — from data security to privacy and other consumer protection issues. Far from hamstringing the agency, requiring better explanation of what the law requires and weighing of costs and benefits would actually help consumers — both by promoting better business practices and by avoiding FTC actions that end up harming consumers. Such common sense reforms should be bipartisan, just as they were back in 1980, the last time Congress really checked the FTC’s vast discretion.”

Szoka is co-author, along with Geoffrey Manne and Gus Hurwitz, of the FTC: Technology & Reform Project’s initial report, “Consumer Protection & Competition Regulation in a High-Tech World: Discussing the Future of the Federal Trade Commission,” which critiques the FTC’s processes and suggests areas where the FTC, the courts and Congress could improve how the FTC applies its sweeping unfairness and deception powers in data security, privacy and other cases, especially related to technology.

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We are available for comment at media@techfreedom.org. See our other work on FTC Reform and Wyndham, including:

  • “Wyndham Decision Unsurprising but Misses the Point,” a statement from TechFreedom
  • “What LabMD & Wyndham Mean for Internet Regulation,” a luncheon discussion co-hosted by TechFreedom and Cause of Action
  • “FTC’s Competition Policy Statement is Long Overdue,” a statement from TechFreedom
  • Amici curiae brief in the federal District Court of New Jersey arguing that the FTC’s unfairness claim against Wyndham Hotels is unconstitutionally vague and inadequately pleaded

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