Did You Notice that California’s Data Breach Law Weather Vane Stopped Moving?

Authors: Jon Neiditz and Rishad Patel

California continues to lead the nation in privacy laws about which the nation has not begun to get excited enough.  Jon, for one, feels much safer now that paparazzi drones are prohibited.  And minors can say what they want on social media without scarring their academic records, as long as their parents are willing to leave the district (or move to California) and lie low for a year.

Against this backdrop of new ideas, the bill that had much of the business world scared in “the year of the data breach”—this year’s modification to California’s 2003 world-leading data breach notification statute—turned out not to change the status quo much at all.  A.B. 1710 had a wild youth, shooting arrows at merchants, then banks, then merchants again, but by the time Governor Jerry Brown signed it on September 30, it had grown older and wiser.  Its Bildungsroman tells us a lot about where data breach laws may come to rest.

“Maintainers” of Information Just Have One More “Reasonable Security” Obligation

In its wild youth, A.B. 1710 started out wanting to require “maintainers” of information on behalf of “owners or licensees” of that information (the old formulation from the 2003 law that spread across the country) to get consumer notification obligations just like the ones owners or licensees have.  Yes, in a brave gesture of economic self-destructiveness, the center of the big data, cloud computing universe was going to require all organizations holding information to go directly to their customers’ customers, rather than continuing to require them to tell their customers so that their customers can give consumer notice.

Having put away childish things, A.B. 1710 now just requires the maintainers to  implement reasonable security procedures and practices appropriate to the nature of the information.  Not only were they already to be required by contract to do the same thing, but in most cases the FTC holds them to a very similar standard, so the net-net is no big deal.  Of course, connoisseurs of “reasonable security” know that it exists only in the eyes of the regulator, so the maintainers have a strong interest now in consistent understandings between the California Attorney General and the FTC, which is not always easy.

 “If Any,” Identity Theft Prevention and Remediation Services Must Be Free for a Year

In its wild youth, AB 1710 would have required credit monitoring in response to all breaches. We have been trying to depict this as a crazy idea for years, even though the big retailers keep the craziness going, to the benefit of  lawyers, crisis managers and credit monitoring companies and detriment of stock prices and career longevity.  Having put away childish things, A.B.1710 rightly contemplates “identity theft prevention and mitigation services” for breaches of social security numbers, driver’s license numbers and California ID numbers (i.e., numbers that are hard to change), and does not contemplate such services for breaches of credit or debit card numbers, financial account numbers or medical or health insurance information (where protection can be offered in other ways).  So now you know what to think of  authors of articles telling you that A.B. 1710 was passed in response to highly visible retail breaches like Target and Home Depot (which involved types of information not touched by the new law).

Moreover, the late inclusion of  the magic words “if any” in connection with such services clearly indicates that the law does not mandate such services, but requires that if they are offered, they must be offered at no cost to the affected individuals for at least 12 months.  This is, of course, the standard minimum offering of such services (after which the “identity theft prevention and mitigation services” will begin to upsell unless you require them by contract not to do so).  So contrary to what you read as recently as a few days ago, California did NOT become the first jurisdiction in the world to require such services.

Prohibition on Sales of Social Security Numbers with Business Transaction Exception

The final substantive change introduced by A.B. 1710 is the prohibition on selling, advertising for sale, or offering to sell an individual’s social security number.  The law further prohibits releasing an individual’s social security number for marketing purposes. The prohibition is subject to the exceptions already contained within the bill, such as releasing information for internal verification or administrative purposes and exceptions for healthcare providers.  The final version added an additional exception that will allow businesses to sell or release an individual’s social security number when such release or sale is incidental to a larger, legitimate business transaction.

The wording of the exception – “incidental to a larger transaction and is necessary to identify the individual in order to accomplish a legitimate business purpose” – could be problematic.  While clearly aimed at not hindering legitimate business activities such as a merger, whether a social security number is “necessary” to identify an individual, as opposed to using another type of identification verification, will be open for interpretation and could lead to uncertainty in application.

The Calm Before the Storm?

Is the wind going out of the data breach sails?  Not the encryption sails, to be sure; we are indeed entering the age of encryption.  Yes, one of the sponsors of A.B. 1710 says he is going to fight for stricter notification as well as encryption standards.  As the other sponsor said, breaches are not going away.  What happened with A.B. 1710, however, involved some pointless and expensive overreach going away.  By treating breaches of social security and driver’s license numbers differently than breaches of other sensitive information, California lawmakers have shown that they are beginning to understand that all data breaches, and the underlying sensitive information, are not the same and require different types and levels of attention and remediation.  The next step would be finally facing up to the fact that data breaches of credit card primary account numbers and email addresses need not actually harm consumers or even merchants or banks (except for reissue costs) if handled better.  Be safe, though; don’t hold your breath.