Posts Tagged ‘Federal Trade Commission’

For LabMD, the consolation of a big win in court

Readers who watched the Cato forum last November on prosecutorial fallibility and accountability, or my coverage at Overlawyered, may recall the story of how a Federal Trade Commission enforcement action devastated a thriving company, LabMD, following a push from a spurned vendor. Company founder and president Mike Daugherty, who took part on the Cato panel, wrote a book about the episode entitled The Devil Inside the Beltway: The Shocking Exposé of the U.S. Government’s Surveillance and Overreach into Cybersecurity, Medicine and Small Business.

Last month two separate federal appeals courts issued rulings offering, when combined, some consolation for Daugherty and his now-shuttered company. True, a panel of the D.C. Circuit Court of Appeals, finding qualified immunity, disallowed the company’s claims that FTC staffers had violated its constitutional rights by acting in conscious retaliation for its criticism of the agency. On the other hand, an Eleventh Circuit panel sided with the company and (quoting TechFreedom) “decisively rejected the FTC’s use of broad, vague consent decrees, ruling that the Commission may only bar specific practices, and cannot require a company ‘to overhaul and replace its data-security program to meet an indeterminable standard of reasonableness.’” [More on the ruling here and here]

As usual, John Kenneth Ross’s coverage at the Institute for Justice’s Short Circuit newsletter is worth reading, both descriptions appearing in the same roundup since they were decided in such quick succession:

Allegation: Days after LabMD, a cancer-screening lab, publicly criticized the FTC’s yearslong investigation into a 2008 data breach at the lab, FTC staff recommend prosecuting the lab. Two staffers falsely represent to their superiors that sensitive patient data spread across the internet. (It hadn’t.) The FTC prosecutes; the lab lays off all workers and ceases operations. District court: Could be the staffers were unconstitutionally retaliating for the criticism. D.C. Circuit: Reversed. Qualified immunity. (Click here for some long-form journalism on the case.)…

Contrary to company policy, a billing manager at LabMD—a cancer-screening lab—installs music-sharing application on her work computer; a file containing patient data gets included in the music-sharing folder. In 2008 a cybersecurity firm finds it and tells LabMD the file has spread across the internet. (Which is false.) When LabMD declines to hire the cybersecurity firm, the firm reports the breach to the FTC, which prosecutes the case before its own FTC judge. LabMD does not settle; the expense of fighting forces the company to shutter. The FTC orders LabMD to adopt “reasonably designed” cybersecurity measures. Eleventh Circuit: The FTC’s vague order is unenforceable because it doesn’t tell LabMD how to improve its cybersecurity.

Our friend Berin Szóka of TechFreedom sums it up: “The court could hardly have been more clear: the FTC has been acting unlawfully for well over a decade.” He continues by calling this “a true David and Goliath story”:

Well over sixty companies, many of them America’s biggest corporations, have simply rolled over when the FTC threatened to sue them [over data security practices]. … Only Mike Daugherty, the entrepreneur who started and ran LabMD, had the temerity to see this case through all the way to a federal court. …After losing his business and a decade of his life, Daugherty is a hero to anyone who’s ever gotten the short end of the regulatory stick.

[cross-posted from Cato at Liberty]

August 17 roundup

  • Upcoming evening panel on the Olympics and aggressive trademark/copyright policing, with Jim Harper, Julian Sanchez, and me, Kat Murti moderating [at Cato, August 24]
  • “We are drowning in law.” New reform project from Philip K. Howard’s Common Good [Take-Charge.org]
  • “Extremely Rare Deadly Balloon Tragedy Leads to Familiar Calls for More Regulation” [Scott Shackford, Reason]
  • FTC, reversing its administrative law judge, asserts widened authority over data security practices in LabMD case [James Cooper, earlier here, etc.]
  • Baltimore police matters, gerrymandering, historic preservation and more in my latest Maryland roundup at Free State Notes;
  • “Shark-Attack Lawsuit Raises Interesting Questions, Like What Were You Doing in the Ocean to Begin With” [Lowering the Bar]

Politics roundup

  • Disparage at thy peril: three Democratic lawmakers demand FTC investigation of private group that purchased $58,000 in ads disparaging CFPB, a government agency [ABC News] So many politicos targeting their opponents’ speech these days [Barton Hinkle]
  • A pattern we’ve seen over the years: promoting himself as outspoken social conservative, trial lawyer running for chairman of Republican Party of Texas [Mark Pulliam, SE Texas Record]
  • Some of which goes to union political work: “Philly Pays $1.5 Million to ‘Ghost Teachers'” [Evan Grossman, Pennsylvania Watchdog via Jason Bedrick]
  • “However objectionable one might find Trump’s rhetoric, the [event-disrupting] protesters are in the wrong.” [Bill Wyman/Columbia Journalism Review, earlier]
  • Hillary Clinton’s connections to Wal-Mart go way back, and hooray for that [Ira Stoll and column]
  • I went out canvassing GOP voters in Maryland before the primary. Here’s what they told me. [Ricochet]

Economics, not competitor resentments, should guide FTC

George Mason lawprof and former Federal Trade Commission commissioner Joshua Wright, who specializes in antitrust, guestblogging at Daniel Fisher’s on FTC v. McWane:

Proving antitrust harm with rigorous economic evidence is hard. The FTC would prefer to avoid that route and instead favor an approach where lower courts would just defer to its “expert” judgment and conclude that whatever business practices the agency says are anticompetitive are in fact so. This outcome is unsurprising given that the FTC has ruled for itself in 100 percent of its cases over the past three decades – though it is reversed more often than the decisions of federal court judges. So much for unbiased rigor and expertise. But the Supreme Court has consistently rejected the view that the FTC or any antitrust plaintiff can make out a case with a stack of complaints from disgruntled rivals. Instead, the Supreme Court has made clear that the antitrust rules applied to the behavior of a single firm acting alone – that is, a firm alleged to have monopolized an industry on its own rather than joined a cartel with rivals – are to be governed by economic thinking and economic evidence instead of hand-waving and complaints from rivals alone.

January 27 roundup

June 10 roundup

  • Alan Dershowitz, Harvard lawprof, suing TD Garden over slip and fall in bathroom three years back [Boston Globe]
  • “Harsh Sanction Proposed For Attorney Who Blogged About Probate Case” [Mike Frisch, Legal Profession Blog]
  • Maryland veto sets back reform: “Governor Hogan, Civil Asset Forfeiture Is Inherently Abusive” [Adam Bates, Cato]
  • “‘Vape’ bans have little to do with public health” [Jacob Grier, Oregonian in February]
  • Academics prosper through expert witness work, part one zillion [Ira Stoll]
  • Sounds good: call for civil procedure reform includes fact-based pleading, strict discovery limits, case-specific rules, and more [Jordy Singer, Prawfs, on recommendations from American College of Trial Lawyers Task Force on Discovery and Civil Justice and Institute for the Advancement of the American Legal System]
  • Draft plan would arm FTC with vast power over data practices [James C. Cooper, Morning Consult, via @geoffmanne]

Buy our protective services, or we’ll rat you out to the feds

I’ve got a new post at Cato summarizing dramatic new testimony in the case (briefly noted here last year) of a laboratory company that got reported to the Federal Trade Commission for data breach — and drawn into a crushingly expensive legal battle — after it declined to buy data security services offered by a company with Homeland Security contracts. The battle has been raging for a while, with the nonprofit Washington, D.C. group Cause of Action representing LabMD and outlets like Mother Jones running coverage unsympathetic to its case.