FTC Ordered to Pay Attorney’s Fees After Failed Action

On December 23, the Federal Trade Commission was ordered to pay attorney’s fees by the United States Court of Appeals for the Eleventh Circuit in its case against LabMD (LabMD, Inc. v. Federal Trade Commission 16-16270). LabMD is represented by Orrick, Herrington & Sutcliffe, Ropes & Gray, and James W. Hawkins. The FTC will have to pay LabMD’s attorney’s fees and other expenses totaling $843,173.67 under the Equal Access to Justice Act. LabMD is a defunct medical diagnostic testing company,

The order was made after the FTC’s failed enforcement action. The FTC alleged that LabMD’s “data-security program was inadequate and thus constituted an ‘unfair act or practice’” under the Federal Trade Commission Act. The court agreed to vacate the order, “arguing that the order is unenforceable because it does not direct LabMD to cease committing an unfair act or practice within the meaning of Section 5(a).”

LabMD is subject to Health Insurance Portability and Accountability Act (HIPAA) regulations. The billing manager exposed the contents of a sensitive file to other users of the filesharing service LimeWire.  The file contained the personal information of 9,300 consumers. LimeWire was later removed from the billing manager’s computer. A third-party data security company, Tiversa, contacted LabMD about the issue; LabMD instructed Tiversa to contact its lawyer, after which, Tiversa gave the files to the FTC. In the FTC’s complaint it alleged that LabMD committed an “unfair act or practice,” however, the complaint did not give specific acts or examples, it only gave the data-security measures LabMD failed to use.  As a result, the court would eventually vacate that order.