Friday, August 24, 2007

7th Circuit Says No Private Right of Action for Data Breach

As described in this post on the threat level blog, the seventh circuit court of appeals has ruled against consumer's whose personal data was stolen from a bank database (the opinion can be found here). As described in the opinion, the consumers' data was stolen as the result of an intrusion which was "sophisticated, intentional and malicious." The consumers requested that the court grant them, among other relief, payment for the cost of credit monitoring services - a seemingly reasonable request, given the fact that their personal data was now in the hands of criminals who had likely stolen it for the specific purpose of facilitating identify theft. However, the seventh circuit decided that the harm suffered by the consumers was only potential harm, and therefore was not compensable under the relevant state law. True, the consumers had to pay for credit monitoring, but the court pointed out that they could not show that their identities had been stolen (yet), so the case was thrown out.

What does all this mean for consumers? There are two primary lessons to be drawn. The first is that courts remain an extremely hostile environment for trying to vindicate privacy rights. The (in my opinion) classic case on this subject is In re Northwest Airlines Litigation which found that Northwest's privacy policy was not a contract with customers, and that customer data collected by Northwest belonged to Northwest, not the customers. The new decision from the seventh circuit just confirms what was already clear: consumers should not expect courts to protect privacy. The second lesson to be drawn from the seventh circuit's new decision is that states which wish to provide meaningful privacy protections for their citizens should include private rights of action in their privacy legislation. In finding against the consumers, the seventh circuit referred to the fact that the relevant data breach notification act did not provide a private right of action. Thus, if state legislators want to avoid their citizens being thrown out of court, they should make sure to explicitly create a way (by statute) for the citizens to protect themselves.

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