The FTC first recognized the immense potential benefits of the IoT:
In the health arena, where connected medical devices can allow consumers with serious medical conditions to work with their physicians to manage their diseases. In the home, smart meters can enable energy providers to analyze consumer energy use, identify issues with home appliances, and enable consumers to be more energy-conscious. On the road, sensors on a car can notify drivers of dangerous road conditions, and software updates can occur wirelessly, obviating the need for consumers to visit the dealership. (pp i-ii).
However, the focus of the report was on the risks: “(1) enabling unauthorized access and misuse of personal information; (2) facilitating attacks on other systems; and (3) creating risks to personal safety.” (p. ii). Additional risks include collection personal information, locations, activities, and physical conditions over extended periods, allowing companies (and potentially hackers) to develop very detailed “profiles” of consumers’ lives. The concern is that companies can use this data to make credit, insurance, and employment decisions.
The report discusses four primary issues relating to IoT — security, data minimization, notice and choice, and legislation. It provides businesses with additional insight into FTC standards and expectations, with respect to not only devices, but privacy and security in general. The report can thus be used as a road map to complying with FTC standards, and adopting best practices for privacy and security.
The FTC noted that reasonable security for a given device will depend on a number of factors, including the amount and sensitivity of data collected and the costs of remedying the security vulnerabilities. The FTC recommended the following best practices:
Data minimization refers to the concept or limiting collection and retention of data to that which is reasonably necessary for legitimate business purposes, and disposal of it once it is no longer needed. The FTC recognizes the inherent conflict between data, the benefit of data collection, and Big Data analytics on the one hand, and data minimization on the other. Nonetheless, the FTC noted two drivers of data minimization.
First, storage of larger volumes of data presents a more attractive target for hackers, both inside and outside the organization, and therefore, increases the risk of harm to consumers from data misappropriation. Second, when companies collect and retain large amounts of data, the company is more likely to use the data in a way that departs from consumers’ reasonable expectations. Recognizing the conflict between the benefits of Big Data analytics and data minimization, the FTC’s recommendation is a flexible approach that gives companies a number of options: (1) collect no personal information; (2) collect only the types of data necessary to the product or service; (3) only collect data that is less sensitive; or (4) de-identify the data they collect. If a company believes none of these alternatives will satisfy its goals, it can seek consumers’ consent (notice and choice) for collecting additional, unexpected categories of data.
Notice and Choice
Notice and choice is the backbone of consumer privacy, and will continue to be relevant to the IoT, despite the inherent challenges of providing notice and choice through an object rather than a computer with a user interface. The FTC recognizes, however, that not every data collection requires choice. Choice is not necessary before collecting and using consumer data for practices that are consistent with the context of a transaction or the company’s relationship with the consumer, e.g., has provided the products and services purchased, and is receiving many types of marketing communications from the company.
Where notice and choice is required or used, options include developing video tutorials, affixing QR codes on devices, and providing choices at point of sale, within set-up wizards, or in a privacy dashboard. Privacy choices must be clear and prominent, and not buried within lengthy documents and legal boilerplate.
Some companies urged the FTC to adopt “use limitations” as a supplement to, or in lieu of, notice and choice. With a use-based approach, legislators, regulators, self-regulatory bodies, or individual companies set “permissible” and “impermissible” uses of certain consumer data, thereby minimizing or avoiding the need for notice and choice. The FTC chose not to rely solely on use limitations, noting that because “use-based limitations are not comprehensively articulated in legislation, rules, or widely-adopted codes of conduct, it is unclear who would decide which additional uses are beneficial or harmful.” Additionally use limitations alone do not address the risks from voluminous data collection and retention. Finally, a pure use-based approach would not be consistent with consumers’ concerns about the collection of sensitive information, such as health information, sexual orientation and preferences, children’s information, and so forth.
Lastly, the FTC discussed the hot button topic of legislation, concluding that IoT-specific legislation at this stage would be premature. Rather, development of self-regulatory programs designed for particular industries to encourage the adoption of privacy- and security-sensitive practices is a more workable approach. Nonetheless, the FTC did not entirely drop its push for Congress to enact strong, flexible, and technology-neutral federal legislation to strengthen current data security enforcement tools and to provide notification to consumers when there is a security breach. (As we reported earlier this month, the White House has proposed just such legislation.)
The FTC noted the security risks arise out of not only the personal information, but also device functionality itself. If a pacemaker is not properly secured, not only can one’s health be compromised, but also the person wearing it could be seriously harmed through a hacker-caused malfunction. Doors can be unlocked, and control of smart cars can be taken over. Thus the FTC recommended the enactment of broad-based (as opposed to IoT-specific) privacy and security legislation.
Impact to Businesses
The FTC report provides critical guidance to manufacturers — all manufacturers. With the current and future advancement of sensors, virtually any object can collect information and transmit it anywhere in the world through the Internet. Indeed sensors can collect information from all five senses — sight, hearing, smell, touch, and (yes, even) taste. The report presents a road map for manufacturers when developing their connected products and complying with privacy and security laws, regulations, and standards.
The report is useful for all companies — not just manufacturers. Presenting a detailed discussion of security, data minimization, notice and choice, and privacy and security legislation, the FTC provides valuable insight into its expectations and standards for privacy and security compliance.
Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:
Chanley T. Howell
Los Angeles, California
Michael R. Overly
Los Angeles, California
Steven M. Millendorf
San Diego, California