Duff on Hospitality Law

Lawyers often say “bad facts make bad law”. Combine that with weak legal arguments and, well, things can get really bad, really fast. That’s precisely what happened to Wyndham yesterday when the Third Circuit affirmed a federal District Court decision that the Federal Trade Commission (“FTC”) has authority to regulate cybersecurity under the unfairness prong of § 45(a) of the Federal Trade Commission Act. While commentators may disagree on the result from a legal or policy perspective, one thing is for certain, it was a bad result for Wyndham. The decision rejected in no uncertain terms Wyndham's argument that the FTC lacked authority; and not kindly.

Last month the Federal Trade Commission filed a lawsuit against Wyndham Worldwide Corporations and three of its subsidiaries (“Wyndham”) in U.S. District Court in Arizona. The complaint alleges that Wyndham engaged in unfair and deceptive practices by failing to implement reasonable data security protections on computers used by independently owned Wyndham hotels and because the company’s public privacy policy misrepresented the security measures it actually employed to protect customer’s personal information. Specifically, the Commission alleged that Wyndham:

• • failed to use strong (and in some cases any) passwords to limit access to computer files;
  • failed to use firewalls to separate corporate and hotel computer systems;
  • improperly stored payment information in clear text;
  • failed to implement reasonable measures to detect security breaches;
  • failed to implement proper incident response procedures or  remedial steps after learning of a data breach; and
  • failed to adequately restrict access to company systems by third party vendors.

The claims stem from three separate data breaches over a period of two years in which hackers obtained the private information of more than 600,000 customers, which led to more than $10.6 million in fraudulent charges.