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Target Settles Out

DISCLAIMER: This post is based on preliminary reports from press accounts without having reviewed the full and final settlement terms.

It’s no secret, I’d like to see a more “cyber secure” nation. If you’ve read some of my past posts, you’ve probably heard me struggle with the effects of giving incentives (right, wrong and outright “disincentives”) to both every day folks and security pros to help improve our cybersecurity posture.   Earlier this month I gave a (dry even by sauvignon blanc standards) synopsis of some legislative developments as legwork for a following discussion on the incentives government gives and industry responds (or doesn’t respond) to in order improve our collective security. At least that was “the plan.” Skipping ahead a few steps, but definitely related, we have more developments in the Target data breach litigation.

As of this writing, Target appears poised to settle litigation over the massive 2013 data breach of their IT systems for a total of $10M (plus up to $6.75M in fees to settlement class counsel.) The breach affected 40 million accounts and up to 110 million individuals. From an “industry incentives” point of view, there are some mixed messages about security incentives in this news.

STANDING –Traditionally, cases like this are dismissed early in the process on the basis that cardholders and customers lack standing to sue because they suffered no actual, demonstrable harm as a result of the breach. The Target case (as one of a recent “four-pack” of cases indicating a coming change in this view of standing, see “CASES” below) is somewhat notable from the standpoint that it survived a standing challenge. Or as I heard defense counsel recently quip, “It’s getting to the point where I may actually have to defend one of these cases on the merits soon.” Talking incentives, this seems to be a clear indicator courts are giving more weight to favoring standing on likelihood of harm to customers grounds.

ACTUAL HARM – Surviving a challenge to standing hasn’t exactly paved a road to compensation, however. Let’s pause for a moment to do some math. Assuming a maximum potential affected class of 40 million accounts and/or 110 million individuals, Target and plaintiffs’ counsel are contemplating 25¢ or 9¢ in full-class compensation respectively? Not exactly. The low compensation to class member ratio probably lies in the likely difficulty class members will face in proving they’re entitled to compensation under the terms of the settlement. Individuals must:

  • Prove they used a debit or credit card at a US Target store (not the Target.com website) over the 19 day range of November 27, 2013 through December 15, 2013 [i]
  • Declare if they actually received a breach notice or if they simply believe their information was compromised [ii]
  • And must demonstrate they experienced at least one of the following:
    • Unauthorized, unreimbursed charges on their credit or debit card
    • Time spent addressing those charges
    • Fees to hire someone to correct their credit report
    • Higher interest rates or fees on the accounts
    • Credit-related costs
    • Costs to replace their identification, Social Security number or phone number
    • Loss of access or restricted access to funds

If you set the “way-back” machine to last December and my comments on Breach Fatigue (specifically, the difficulty in collecting and assessing information about your exposure as an “included individual” in a breach) it’ll be interesting to see how many people actually get compensation as a result of this settlement. But settlements are all about controlling risk and outcomes. While Federal District Judge Paul Magnuson got to decide that standing existed for litigation to proceed, Target gets to decide the parameters of what constitutes “actual harm” with these settlement compensation requirements.

DUTY OF CARE/SECURITY IMPROVEMENTS – It’s worth noting that this settlement affects consumer negligence claims that survived dismissal. Why’s that important? Because if the litigation proceeds to trial it then opens up the possibility the court carves out a duty of care for security and handling of customer data for data stewards like Target. Again on the notion of controlling risk, it’d be risky to roll the dice on that standard being developed at Target’s peril if an affordable alternative exists. It’s also somewhat unique that as part of the settlement, Target has agreed certain security improvements be imposed as part of the court order. Similar to controlling the terms of determining actual harm, Target gets to control the dialogue around what steps should be taken in light of the breach. Settlement steps include:

  • Appointing a Chief Information Security Officer
  • Maintain a security program that identifies risks to shoppers’ personal information
  • Have a process for monitoring security risks
  • Give security training to employees

To be fair, as a level 1 PCI merchant with nearly $52B in market cap, you could probably argue that these are “Security 101” steps for such an organization. And most, if not all, were probably already implemented between the time of the breach and the settlement. [iii]  But by including these security improvements in the final order, we are getting some market indicators of thoughts around an evolving duty of care regarding security, even if this particular settlement provides no acknowledgement or precedent to that effect.

With new info from the Target consumer case regarding valuation (40M consumers and payout likely far south of the maximum $10M), standing (broader inclusion), actual harm and security duty of care (negligence claims allowed to proceed and parties including security improvements as part of order), are these more and better incentives to secure information or is this just an exercise in post breach risk management?


CASES

  • In re Adobe Sys. Privacy Litig., F. Supp. 2d, 2014 WL 4379916 (N.D. Cal. Sept. 4, 2014) – expansive treatment of “standing”, accepting notion of “increased risk of future harm” & cost of steps to mitigate fraud & malfeasance.
  • FTC v. Wyndham Worldwide Corp., 10 F. Supp. 3d (D.N.J.2014) – Refusal to dismiss claims and FTC contention that “reasonable” steps were not taken to protect data.
  • In re LinkedIn User Privacy Litig., 2014 WL 1323713 (N.D. Cal. Mar. 28, 2014) – for paying premium users, payment of fee with misrepresentation of own privacy policy gives rise to standing

 

[i]  Can’t help but wonder then (here we go again with the math…) for a breach scope of 40M compromised accounts, does citing this specific date range mean that 12.6% of the US population (2013) shopped at Target using credit/debit over those 19 days??

[ii]  As discussed in the opening disclaimer, I’m not intimately acquainted with the 97 page potential settlement doc, but I’m guessing not receiving a notification will be a barrier to receiving compensation.

[iii]  For example, Target appointed Brad Maiorino CISO last summer.

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