A Privacy Bill A Week: The Data Care Act

As we wait for stakeholders in Congress to finalize and release their proposals to regulate how private sector companies handle, use, and distribute the private information of Americans, we thought there would be value in reviewing some of the key bills already introduced this Congress and some introduced over the last few Congresses so when bills are finally introduced, we will have a baseline by which to judge the proposal.

This week, let’s examine the “Data Care Act” (S. 3744). In December 2018, fifteen Democratic Senators led by Senator Brian Schatz (D-HI) and including presidential candidates Senators Michael Bennet (D-CO), Amy Klobuchar (D-MN) and Cory Booker (D-NJ) introduced a bill that would extend the concept of fiduciary responsibility currently binding on health care professionals and attorneys with respect to the patients and clients’ information to “online service providers.”

This bill built on a concept fleshed out by law professor Jack Balkin in his article “Information Fiduciaries and the First Amendment“ that would place duties on companies collecting and using consumer data similar to those that lawyers and doctors must meet in how they handle client and patient information. Balkin explained that these so-called “information fiduciaries” should “have special duties to act in ways that do not harm the interests of the people whose information they collect, analyze, use, sell, and distribute.”

Schatz has been in negotiations with other members of the Senate Commerce, Science, and Transportation Committee with the goal of developing a bipartisan bill to regulate privacy at a federal level. As discussed in past issues of the Technology Policy Update, stakeholders in both the House and Senate continue to negotiate privacy bills but significant disagreements have been reported regarding whether such a bill has a private right of action, preempts the “California Consumer Privacy Act” (CCPA) (A.B. 375) and other state laws, and whether a new regime is primarily enhanced notice and consent or certain conduct would no longer be allowed amongst other issues.

In short, under the “Data Care Act,” “online service providers” would be severely be limited on how they collect, share, and sell the personally identifiable information (PII), for these companies would need to treat their customers’ PII as privileged and deserving of a greater level of protection, much like the HIPAA regulations impose this standard on health care providers or bar associations’ rules on attorneys. However, the scope of who is an online service provider would seem to encompass most consumer-oriented companies doing business on the internet. Yet, like most other privacy and data security bills, the Federal Trade Commission (FTC) would enforce the new regime.

An “online service provider” is defined as an entity “engaged in interstate commerce over the internet or any other digital network; and in the course of business, collects individual identifying data about end users, including in a manner that is incidental to the business conducted.” This very sweeping definition would cover almost any business or entity doing business in the U.S. even if it is not across state lines as the Supreme Court has often construed the Commerce Clause. However, the FTC would have the discretionary authority to exclude categories of online service providers from the fiduciary duties the bill would otherwise impose. The FTC is directed to consider the privacy risks posed by the category of online service provider.

The bill requires that “[a]n online service provider shall fulfill the duties of care, loyalty, and confidentiality” towards consumers’ personal information, which is also broadly defined in the bill.  The duty of care requires online service providers to “reasonably” safeguard “individual identifying data” from unauthorized access and notify consumers of any breach of this duty, subject to FTC regulations that would be promulgated. The duty of loyalty would require online service providers to not use the information in a way that benefits them to the detriment of consumers, including uses that would result in reasonably foreseeable material physical or financial harm to the consumer. Finally, the duty of confidentiality limits the disclosure or sale of consumers’ information to instances where the duties of care and loyalty are observed (i.e. when the information must be safeguarded and not used to the detriment of consumers). Moreover, under this duty, should an online service provider wish to share or sell consumers’ information with a third party, they would need to enter into a contract with the other party that requires them to meet the same duties of care, loyalty, and confidentiality.

As noted, the FTC would enforce the act and would have the authority to levy fines in the first instance for violations, but state attorneys general would also be able to bring actions for violations in the event the FTC does not act or after FTC action. This latter power has long been a Democratic priority in the realm of data security and may be a non-starter with Republicans. Moreover, the bill does not preempt state laws, meaning the FTC could investigate a violation under this act and states could investigate under their laws. The FTC would be given authority under the Administrative Procedure Act (APA) to promulgate regulations regarding data breach notification instead of the much more onerous Moss-Magnuson rulemaking procedures the FTC must otherwise use. These regulations include the aforementioned regulations on breach notification and some possible exemptions to the duties that would otherwise apply to online service providers (e.g. small companies). The bill expands the FTC’s jurisdiction over non-profit entities and common carriers that may also be online service providers.

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