Privacy & Information Security Law Blog

The Federal Trade Commission (“FTC”) has secured a temporary restraining order against a company that allegedly falsely claimed to have self-certified to the EU/U.S. Safe Harbor Program.  One count of the FTC's complaint claims that the company (named Balls of Kryptonite, LLC) misled consumers by inaccurately representing that it had self-certified to the U.S. Department of Commerce that it was Safe Harbor compliant.  While the FTC has not alleged a substantive violation of the Safe Harbor, this case is significant for two reasons.  First, it marks the first time the FTC has brought an enforcement action with respect to the Safe Harbor Program.  The court order prohibits the defendants from misrepresenting the extent to which they “are members of, adhere to, comply with, are certified by, are endorsed by, or otherwise participate in any privacy, security, or any other compliance program sponsored by any government or third party.”  Second, the FTC acted in concert with the UK Office of Fair Trading after consumers in the UK registered complaints with the FTC using a website established by 25 international consumer protection agencies to facilitate global consumer protection efforts.  This is the first time the FTC has used the U.S. SAFE WEB Act of 2006 to enforce consumer protection regulations against a U.S. company operating exclusively outside the United States.

The European Union Data Protection Directive requires EU Member States to implement legislation that prohibits the transfer of personal data outside the EU unless the EU has made a determination that the laws of the recipient jurisdiction are substantially equivalent to those of the EU, and thus provide “adequate” protection for personal data.  Because the EU has determined that laws of the United States do not meet its adequacy standard, the U.S. Department of Commerce and the EU developed the Safe Harbor Framework, which went into effect in November 2000. The Safe Harbor Program allows participating U.S. companies under the jurisdiction of the FTC or the U.S. Department of Transportation to transfer personal data lawfully from the EU.  To join the Safe Harbor, a company must self-certify to the U.S. Department of Commerce that it complies with seven principles that have been deemed to meet the EU’s adequacy standard.  A company under the FTC’s jurisdiction that self-certifies to the Safe Harbor principles but fails to implement them may be subject to an enforcement action under Section 5 of the FTC Act, which prohibits deceptive trade practices. 

In this case, the FTC successfully argued that, regardless of the company’s data protection practices, falsely claiming to be Safe Harbor certified could constitute a violation of the FTC Act in and of itself.  The defendants have been ordered to appear on September 25, 2009 to show cause why the court should not enter a preliminary injunction prohibiting further violations.