June 12, 2018Nelson Mullins’ Trish Markus appointed to N.C. Institute of Medicine
July 2, 2018
The California legislature passed AB 375, the California Consumer Privacy Act of 2018, on Thursday, June 28, 2018, effective January 1, 2020 (the “CCPA”). The CCPA law follows a trend in the law and market towards greater transparency and protection of consumers’ personal information. The European Union kicked-off the major legal trend of laws, passing the General Data Protection Regulation (“GDPR”) that became effective on May 25, 2018. The GDPR is the EU’s response to the plethora of data breaches and concerns over privacy. The CCPA is a major piece of privacy legislation addressing the same concerns. The California legislature further explained its motivation, noting that: “[I]n March 2018, it came to light that tens of millions of people had their personal data misused by a data mining firm called Cambridge Analytica. A series of congressional hearings highlighted that our personal information may be vulnerable to misuse when shared on the Internet. As a result, our desire for privacy controls and transparency in data practices is heightened.”
The California Attorney General is charged with enforcing and promulgating regulations to help explain, clarify or even “modify” the CCPA, and businesses are also encouraged to request guidance. It is highly likely that amendments to the CCPA itself will be made prior to its effective date. Having said that, the CCPA outlines some basic tenets giving Californians’ the right to privacy by ensuring the following:
Businesses usually want to know (at least) the following information relating to any new law such as the CCPA: (1) the cost of non-compliance; (2) the cost and method of compliance operationally; (3) whether changes should be made only with respect to California consumers; and (4) whether there are changes that should be made on a more enterprise-wide basis, considering the nature of the business and future laws and market conditions. The following provides some information that is responsive to some of those requests, along with other thoughts and potential actions to consider. Of course, companies that have moved towards becoming GDPR compliant are probably ahead of the game, but the CCPA is different from the GDPR in many respects.
Issues and Damages for Non-Compliance
“What is the cost of non-compliance?” The GDPR’s answer got everybody’s attention—4% of annual global turnover or €20 Million (whichever is greater). The CCPA is not as draconian, but not exactly light both in terms of enforcement and costs:
Note that the private right of action is limited in scope and does not apply to general violations of the CCPA:
Any consumer whose nonencrypted or nonredacted personal information as defined in subparagraph (A) of paragraph (1) of subdivision (d) of Section 1798.81.5, is subject to an unauthorized access and exfiltration, theft, or disclosure as a result of the business’ violation of the duty to implement and maintain reasonable security procedures and practices appropriate to the nature of the information to protect the personal information may institute a civil action . . . .
Prior versions of AB 375 included the words “security breach” in the language above, but that was replaced by the language in italics. A cause of action therefore requires establishing all three of the prongs: (1) the data is unencrypted or nonredacted; (2) is subject to an unauthorized access and exfiltration, theft, or disclosure; and (3) a very generalized requirement that the “data breach” was a result of violation to implement reasonable security procedures and practices. We can imagine that, without more guidance, IT and privacy and security experts (at least) will all be necessary to prove up each of these elements.
In addition, note that a claim for statutory damages cannot move forward if a business has “cured” its violation. Practitioners often agree that once a “breach” has happened, it is not possible to provide a cure, other than to take measures to prevent it from happening again. This appears to be an attempt to limit the number of actions taken by consumers who have not had actual harm.
CCPA Summary and Practical Thoughts:
The following are some additional highlights and comments regarding the CCPA:
- Without requiring a consumer to create an account, provide a clear and conspicuous link on the business’ Internet homepage, titled “Do Not Sell My Personal Information,” to an Internet Web page that enables a consumer to opt out of the sale of the consumer’s personal information.
- The categories of personal information it has collected about that consumer.
- The categories of sources from which the personal information is collected.
- The business or commercial purpose for collecting or selling personal information.
- The categories of third parties with whom the business shares personal information.
- The specific pieces of personal information it has collected about that consumer.
- The categories of personal information that the business sold about the consumer, and the categories of third parties to whom the personal information was sold, by category or categories of personal information for each third party to whom the personal information was sold.
- Disclosure by the business that it has not disclosed the consumer’s personal information for a business purpose.
Some Final (Practical) Thoughts:
Current and anticipated business models and should be reviewed under the CCPA, keeping in mind that the new law is subject to change and modification (not to mention other states laws will most likely follow, and federal legislation and regulation is being considered).
The CCPA is part of a general trend for more regulation regarding privacy and security. January1, 2020 may seem far away, but compliance will take time to make the required investments, processes and procedures, even as we wait for further clarification and additional laws. It is notable that there is already some push towards federal legislation that would create uniformity instead of a “patchwork” of states laws. In any event, there will be common themes to most of these laws and companies will need to consider taking an “enterprise wide” approach.
Unlike the GDPR, the CCPA does not require a data privacy officer. Many companies that are consumer-data “heavy” either have or are realizing that they need a true, privacy “office.” If a business does not have a privacy office, now is a good time to create one and also create the processes needed to comply with the CCPA.
The CCPA also offers an opportunity to think about some “best practices” in terms of policies, practices and even the negotiation of privacy and security provisions. The definition of what is considered “personal information” and what is “publicly available” is a good example, as those terms are defined under the CCPA.
Under the CCPA, Personal Information is not information that is “publicly available.” The statute provides greater insight into this definition:
“[P]ublicly available” means information that is lawfully made available from federal, state, or local government records, if any conditions associated with such Information [sic]. “Publicly available” does not mean biometric information collected by a business about a consumer without the consumer’s knowledge. Information is not “publicly available” if that data is used for a purpose that is not compatible with the purpose for which the data is maintained and made available in the government records or for which it is publicly maintained. “Publicly available” does not include consumer information that is deidentified or aggregate consumer information.
There is a lot to “unpack” in this definition, including the fact that “publicly available” does not include the classic definition we might consider when doing deals or non-disclosure and confidentiality agreements; i.e., information that is already made public by private parties. There is also the concept that in order to be publicly available, it must be used for a purpose that is compatible with which it was first maintained—meaning that it is not just how data is gathered, but also the way it is used consistent with the purpose of its first collection. This concept of use consistent with data’s first collection is one that can permeate through privacy policies, contracts and also provide operation guidance.
Also, the CCPA is one of the first major pieces of legislation regulating “geolocation.” Many businesses rely on geolocation and have struggled with how to obtain consent and otherwise feel comfortable using such data. Those businesses using that data (including just generic websites that track location) will need to consider the CCPA, and especially how to provide opt-out mechanisms.
The definition of personal information also includes “inferences” drawn from any of the terms that are included in the definition of personal information under the CCPA to create a profile about a consumer reflecting the consumer’s “preferences, characteristics, psychological trends, preferences, predispositions, behavior, attitudes, intelligence, abilities, and aptitudes.” There are companies whose sole existence is based on making inferences and tracking behaviors. A business cannot escape the CCPA merely because of the derivative nature of the personal information that was originally captured—it also includes inferences made by the data captured. This is a concept that is often negotiated in a technology deal both in terms ownership and use of “inferences,” but which now has more direction with respect to the CCPA.
While there are other things to consider, a final thought is how the CCPA treats “deidentified” information in order to take advantage of an exception to compliance with the CCPA. The CCPA does not restrict a business’s ability to collect, use, retain, sell, or disclose consumer information that is deidentified or in the aggregate consumer information. As practitioners are aware, just because information is “deidentified” does not mean that there are third parties that can “reidentify” such information. This does not seem to be considered in the definition of “Deidentified” under the CCPA:
(h) “Deidentified” means information that cannot reasonably identify, relate to, describe, be capable of being associated with, or be linked, directly or indirectly, to a particular consumer, provided that a business that uses deidentified information:
- Has implemented technical safeguards that prohibit reidentification of the consumer to whom the information may pertain.
- Has implemented business processes that specifically prohibit reidentification of the information.
- Has implemented business processes to prevent inadvertent release of deidentified information.
- Makes no attempt to reidentify the information.
The focus is on the culpability of the business sharing the information, not on the fact that there exist tools that can often reidentify individuals by third parties. We stand ready to hear more about this exception in practice.
We will continue to look at the CCPA and any related amendments or regulations.
These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel.