A U.S. appeals court said the Federal Trade Commission has authority to regulate corporate cybersecurity, and may pursue a lawsuit accusing hotel operator Wyndham Worldwide Corp. of failing to properly safeguard consumers’ information.
Monday’s 3-0 decision by the 3rd U.S. Circuit Court of Appeals in Philadelphia upheld an April 2014 ruling allowing the case to go forward, without ruling on the merits.
Noting the Federal Trade Commission’s broad authority under a 1914 law to protect consumers from unfair and deceptive trade practices, Circuit Judge Thomas Ambro said Wyndham failed to show its alleged conduct “falls outside the plain meaning of ‘unfair.’”
Wyndham brands also include Days Inn, Howard Johnson, Ramada, Super 8 and Travelodge. A spokesman said the Parsippany, New Jersey-based company is reviewing the decision.
Congress has not adopted wide-ranging legislation governing data security, a growing concern amid high-profile breaches, such as at retailer Target Corp., the infidelity website AshleyMadison.com and even U.S. government databases.
The Wyndham case is a test of Federal Trade Commission’s power to fill this void and police how companies protect against data breaches.
It arose from three breaches in 2008 and 2009 in which hackers broke into Wyndham’s computer system.
These hackers stole credit card and other personal details from more than 619,000 consumers, leading to more than $10.6 million in fraudulent charges.
The Federal Trade Commission sued Wyndham in June 2012, claiming the company’s computer systems unreasonably and unnecessarily exposed consumer data to the risk of theft.
Wyndham accused the Federal Trade Commission of overreaching, but U.S. District Judge Esther Salas in Newark, New Jersey, refused to dismiss the case.
In upholding that ruling, Ambro rejected Wyndham’s argument the company lacked “fair notice” that its practices fell short of what the Federal Trade Commission could require.
He also rejected what he called Wyndham’s “alarmist” argument that letting the Federal Trade Commission regulate its conduct could give the agency effective authority to regulate hotel room door locks, or sue supermarkets that fail to sweep up banana peels.
“It invites the tart retort that, were Wyndham a supermarket, leaving so many banana peels all over the place that 619,000 customers fall hardly suggests it should be immune from liability,” Ambro wrote.
The FTC did not immediately respond to requests for comment.