Wyndham Case Could Boost FTC Commish’s ‘Unfairness’ Fight

December 12, 2012 – In The News

Federal Trade Commissioner, J. Thomas Rosch, continued his crusade to stop the commission from deeming privacy practices “unfair” as opposed to “deceptive” in the appendix of a report released Monday, December 11. The report bashed the mobile app industry for failing to properly disclose how children’s apps are sharing and collecting information. This renewed Rosch’s call for the commission to base enforcement efforts on the “deception” prong of its authority under Section 5 of the FTC Act, as opposed to the “unfairness” prong.

Because fair and reasonable privacy practices haven’t yet been defined by law, Rosch’s position could ultimately benefit companies by helping them escape liability for data uses that coincide with their stated policies but don’t match up with the agency’s idea about handling the data.

“Rosch’s argument plays to the FTC’s strengths and sidesteps murkier issues about what the agency can and can’t do under the unfairness prong,” Fox Rothschild LLP partner Scott Vernick told Law360.

Rosch’s stance has not yet won the support of his fellow commissioners and attorneys remain skeptical that his argument alone will change the commission’s enforcement approach. However, a rare federal court challenge to the FTC’s enforcement authority, mounted by Wyndham Hotel & Resorts LLC, has the potential to propel Rosch’s fight, attorneys said.

“The case could define how broad the agency’s authority will be in the future,” Vernick said. “It’s certainly on the cutting edge in addressing the question of what is the breadth and depth and what are the parameters of the FTC’s authority to regulate privacy and security in the private sector.”

The FTC has accused the hotel chain of failing to adequately secure guests’ personal information, stating that the company did not employ “reasonable and appropriate” security measure to protect personal information, violating Section 5 of the FTC Act.

While the statute permits the agency to bring enforcement against a company that makes “deceptive” statements to consumers, it’s prohibition on “unfair” trade practices – traditionally read as covering “unconscionable or oppressive acts” towards consumers – doesn’t entitle the FTC to set data security standards for the private sector and enforce them in federal court, according to Wyndham’s motion.

In his latest attempt to change the FTC’s approach, Rosch said while he supported its findings that the mobile app industry had made “little progress” toward providing parents adequate information on data gathering, this conclusion should not give the agency the broad mandate to expand its unfairness authority.