A small private cybersecurity firm recently revealed that a Russian computer hacking organization amassed more than 1.2 billion username and password combinations. The data was collected across a wide swath of websites, from both large companies and small independent websites across the globe. This finding highlights a well-known vulnerability in password security—namely, people tend to employ the same usernames and passwords across websites, which can put their personal and financial information at risk, should the username and password combination be obtained by hacking from an unrelated website. The revelation of yet another large cybersecurity breach may place additional pressure on both lawmakers and regulators to take action to ensure consumers' electronic information is safeguarded.

On August 5, 2014, Hold Security announced that it had uncovered the hacking operation after months of research. When the firm combined the affected username and password combinations with repetitive pieces of data, it determined that the criminals held more than 4.5 billion records. While some of the data was purchased from black market databases, the criminals also collected information by exploiting security vulnerabilities in hundreds of thousands of websites. The criminals used the information to distribute spam messages to spread malware to additional potential victims.

The breach reveals the weakness of passwords in cybersecurity efforts. When users use the same credentials across websites and systems, a breach of any one of those websites or systems can pose a threat to the others. Companies should ensure they have strong information security policies in place so that passwords are sufficiently complicated, are updated regularly, and are not recycled.

A security breach of this magnitude also has the potential to draw both lawmakers' and regulators' attention. Following the breach, the Federal Trade Commission, the lead privacy and data security regulator, issued guidance to consumers and businesses on how to create and protect strong passwords. The incident also could provide momentum for stalled breach notification legislation, cybersecurity information-sharing legislation, and funding for federal research efforts to develop password alternatives. Editorial boards are calling on Congress to act, claiming that such a massive breach should be a "wake-up call." The FTC has actively promoted a federal data breach notification law and may use news of this breach to bolster its stance.

Likewise, FTC and state regulators could investigate companies that were targeted by these cybercriminals. While no security program is foolproof, companies are obligated to take reasonable measures to protect consumers' personal information. Failure to take reasonable security precautions can be an unfair or deceptive practice under Section 5 of the FTC Act. The companies targeted in this breach could find themselves subject to FTC scrutiny regarding whether they were taking adequate steps to secure consumer information and to identify when breaches occur.

Similarly, state regulators may question whether these companies had an obligation under state data breach notification laws to notify consumers that their personal information had been compromised. To avoid a finding of unfairness by a regulator, companies should have sufficient security in place to identify when consumer information has been hacked and also have data breach response policies in place that define how the companies should assess the severity of the breach, stop the breach (if ongoing), and begin working with regulators, law enforcement, and consumers, when appropriate.

Ballard Spahr's Privacy and Data Security Group assists clients in responding to data breaches and regulatory data security requirements. Members of the Group regularly work with clients to develop and implement data security plans and privacy policies.

If you have questions about best privacy and data security practices or the FTC’s guidance on this issue, please contact Philip N. Yannella at 215.864.8180 or yannellap@ballardspahr.com or Daniel JT McKenna at 215.864.8321 or mckennad@ballardspahr.com.

Copyright © 2014 by Ballard Spahr LLP.
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