Beware of the Man-in-the-Middle: Lessons from the FTC’s Lenovo Settlement

Beware of the Man-in-the-Middle: Lessons from the FTC’s Lenovo Settlement

By Linda Henry


See all of Our JDSupra Posts by Clicking the Badge Below

View Patrick Law Group, LLC

The Federal Trade Commission’s recent approval of a final settlement with Lenovo (United States) Inc., one of the world’s largest computer manufacturers, offers a reminder that when it comes to consumers’ sensitive personal information, transparency is key, and failure to assess and address security risks created by third-party software vendors may be deemed an unfair act or practice under Section 5 of the FTC Act.

Lenovo’s problems began in August 2014 when Lenovo began selling laptops to consumers with preinstalled “man-in-the-middle” software provided by a third-party vendor, Superfish, Inc.  The software delivered pop-up ads notifying consumers of similar products sold by Superfish’s retail partners when consumers hovered over a product image on a shopping website.

In order to inject pop-up ads into encrypted connections, the software replaced the digital certificates for websites visited by consumers with Superfish’s own digital certificate, which had been installed in the laptop’s operating system.  As a result, there was no longer a direct, encrypted connection between the websites visited by consumers and their Internet browsers.  Superfish’s software was acting as a man-in-the-middle, and was decrypting and then re-encrypting the information traveling between the browsers and the websites. Consequently, Superfish’s software provided access to all personal information transmitted by consumers over the Internet, including login credentials, Social Security numbers, medical information, and financial information.  The FTC noted that although Superfish collected a more limited subset of consumer information, the software had the ability to collect additional information at any time.

In addition, the Superfish software replaced websites’ digital certificates without sufficiently verifying that the websites’ certificates were valid, and Superfish used the same insufficiently complex encryption key password on all laptops.  As a result, potential attackers could intercept consumers’ communications with websites by hacking the encryption key’s password “Komodia” (the name of the vendor that provided the code used by Superfish in its software).

The FTC’s complaint alleged that Lenovo’s failure to disclose the fact that pre-installed software would act as a man-in-the-middle between consumers and all websites with which consumers communicated, and that the Software would also collect and transmit consumer Internet browsing data to Superfish, was an unfair or deceptive act or practice.  The FTC also maintained that Lenovo had engaged in an unfair act or practice by failing to adequately assess (and then address) security risks created by the Superfish software Lenovo pre-loaded on consumer laptops.

“Lenovo compromised consumers’ privacy when it preloaded software that could access consumers’ sensitive information without adequate notice or consent to its use,” said Acting FTC Chairman Maureen Ohlhausen. “This conduct is even more serious because the software compromised online security protections that consumers rely on.”

The FTC’s subsequent commentary on the Lenovo settlement, together with past guidance provided by the FTC, offers several takeaways:

  • Be transparent.  Transparency is always the best policy when considering the privacy of consumers’ personal information.  Lenovo failed to adequately disclose to consumers (let alone get their consent) that a third-party would be able to intercept all of their online communications, or that man-in-the-middle software would transmit browsing data to a third party.  The FTC has made clear that businesses must clearly explain to consumers how their data will be used and provide an easy way for consumers to opt out of data use or collection practices involving their personal information.
  • Disclosures must be conspicuous and complete.  On the Lenovo laptops, a consumer did see a one-time popup window the first time the consumer visited a shopping website.  The popup window included the following message: “Explore shopping with VisualDiscovery: Your browser is enabled with VisualDiscovery which lets you discover visually similar products and best prices while you shop.”  Although the pop-up window did include a small opt-out link, it was not conspicuous and thus easy for consumers to miss.  If a consumer clicked anywhere on the screen, or on the “x” button to close the pop-up, the consumer was automatically opted in to the software.

The FTC found that this initial pop-up window did not adequately disclose that the pre-installed software would act as a man-in-the-middle between consumers and the websites they visited, and consumers would have found the collection and transmittal of their sensitive information through this software a material fact when deciding whether to opt-into the pre-installed software.  In addition, had a consumer clicked on the opt-out link, although the consumer would have successfully opted-out of receiving the pop-up ads, the software would continue to act as man-in-the-middle, and thus would continue to expose consumer information despite the election to opt out.  The FTC also noted that neither the End User License Agreement nor the Privacy Policy for the Superfish software included a disclosure regarding the collection and use of consumers’ sensitive information.

  • Undertake adequate due diligence and include security requirements in Agreements. Companies are ultimately responsible for their third-party vendors and are expected to ensure that service providers implement reasonable measures to address security risks. As the FTC noted in its Stick with Security guide published in 2017, companies should take a “trust, but verify” approach to their service providers and undertake adequate due diligence to confirm that their service providers have sufficient security controls in place to maintain the security of sensitive data.  Companies should also include appropriate security requirements in their agreements with service providers.  The FTC may view a company’s failure to hold service providers to specific security requirements as a missed opportunity to take reasonable steps to safeguard customers’ data.
  • Verify compliance.  Although due diligence and contractual requirements with service providers are important components of a company’s data security policy, a company should also verify that its service providers are complying with contractual requirements.

As part of the settlement, Lenovo is prohibited from pre-installing similar software unless Lenovo (i) obtains a consumer’s affirmative, express consent, (ii) provides instructions as to how a consumer can revoke consent, and (iii) provides an option for consumers to opt-out, disable or remove the software or its offending features.  In addition, for the next twenty years, Lenovo must maintain a comprehensive software security program that is reasonably designed to address software security risks related to the development and management of new and existing application software, and protect the security, confidentiality, and integrity of sensitive information.  Acting Chairman Ohlhausen noted that the Lenovo settlement sends a message that “everyone in the chain really needs to pay attention.”

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Influencer marketing, hashtags and proper disclosures were the hot button topic for the Federal Trade Commission (the “FTC”) in 2017, so let’s take a look at just how the FTC has influenced Social Media Influencer Marketing in 2017.

First, following up on the more than 90 educational letters FTC staff sent to social media influencers and brands in April, the staff then sent warning letters to 21 of the influencers previously contacted. The earlier educational letters informed the influencers that if they are endorsing a brand and have a “material connection” to the marketer, this connection must be clearly and conspicuously disclosed, unless the connection is already clear from the context of the endorsement.

The warning letters cited specific social media posts of concern to FTC staff and provided details on why the influencers may not be in compliance with the FTC Act as explained in the FTC’s Endorsement Guides. For example, some of the letters noted that tagging a brand in an Instagram picture is an endorsement of the brand and does actually require an appropriate disclosure.

Second, the FTC then issued an updated version of The FTC’s Endorsement Guides (the “Guides”): “What People are Asking”, a staff guidance document that answers frequently asked questions. Previously revised in 2015, the newly updated Guides includes more than 20 additional questions and answers addressing specific questions social media influencers and marketers may have about whether and how to disclose material connections in their posts. For example, the Guides includes additional information depicting Instagram tags and how to meet FTC standards for disclosure on Snapchat or Instagram Stories.

The FTC suggests:

(1) #ambassador is not likely to be acceptable, while #[BRAND]Ambassador may be, assuming the brand name is one consumers would recognize; and

(2) #consultant is not permissible, while #[BRAND]Consultant may very well be allowable. While the FTC Staff seems to like the brand name in the disclosure, and we know they like #ad, they do not appear to support #[brand]ad using all lowercase letters, as readers’ might not discern that the disclosure clearly indicates the post is an ad for a brand.

In conjunction with the with 21 warning letters sent and the updated Guides, on September 7, 2017, the FTC announced its complaint against social media influencers, Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell.  According to FTC Acting Chairman Maureen Ohlhausen, “Consumers need to know when social media influencers are being paid or have any other material connection to the brands endorsed in their posts…this action, the FTC’s first against individual influencers, should send a message that such connections must be clearly disclosed so consumers can make informed purchasing decisions.”

The complaint alleged that in late 2015, CSGOLotto, Inc., Martin, the company’s president and Cassell, the company’s vice-president, operated and advertised the csglotto.com website, which enabled consumers to gamble virtually. As further alleged in the complaint, Martin and Cassell each posted YouTube videos of themselves gambling on their website and encouraging others to use the service. Martin’s videos had titles such as, “HOW TO WIN $13,000 IN 5 MINUTES (CS-GO Betting)” and “$24,000 COIN FLIP (HUGE CSGO BETTING!) + Giveaway.”

Cassell posted videos with titles such as “INSANE KNIFE BETS! (CS:GO Betting),” and “ALL OR NOTHING! (CS:GO Betting).” In all, Cassell’s videos promoting the CSGO Lotto website were viewed more than 5.7 million times. Martin and Cassell also allegedly promoted the site on Twitter without adequately disclosing their connection to CSGO Lotto.

According to the FTC’s complaint, Martin, Cassell, and CSGO Lotto also had an “influencer program” and paid other gaming influencers between $2,500 and $55,000 to promote the CSGO Lotto website to their social media circles, while prohibiting them from saying anything negative about the site.  Specifically, the complaint stated that Martin, Cassell, and CSGO Lotto misrepresented that videos of themselves and other influencers gambling on the CSGO Lotto website and their social media posts about the website reflected the independent opinions of impartial users of the service. The complaint charged that, in truth, Martin and Cassell are owners and officers of the company operating the CSGO Lotto website and the other influencers were paid to promote the website and were prohibited from challenging its reputation.

The FTC ultimately approved the final consent order On November 28, 2017, settling its first ever case against individual social media influencers, and the order prohibits Martin, Cassell, and CSGOLotto, Inc. from misrepresenting that any endorser is an independent user or ordinary consumer of a product or service. The order also requires clear and conspicuous disclosures of any unexpected material connections with endorsers.

It is important to point out that the FTC, in this case, charged two specific social media influencers and their company but has yet to charge an independent social media influencer for failing to disclose a material connection to a separate company.  However, social media platforms have already responded to the FTC’s scrutiny this year.  For example, earlier this year, Instagram unveiled a new disclosure tool to a select group of influencers.  The tool was designed to streamline compliance with FTC disclosure requirements and bring more transparency to the platform.  Previously, influencers were responsible for how and where to disclose the sponsored nature of their posts.  Instagram’s new tool, however, removes this discretion by providing one clear, conspicuous and standardized form of disclosure.  Instagram described its new tool as a “first step” and promised to take additional actions in the area of sponsored posts.

Clearly, the FTC’s view of how to avoid consumer deception will continue to evolve in 2018 just as the forms of advertising and digital media advance; however, regardless of this evolution the FTC is likely to continue to reinforce tried and true advertising principles while leaning on the updated Guides.  Consequently, educating influencers and brands will be paramount, along with providing the technology and practical tools that enable these stakeholders to achieve their goals, while still protecting consumers.

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See all of Our JDSupra Posts by Clicking the Badge Below

View Patrick Law Group, LLC

This is the third in a series of three articles on the FTC’s Stick with Security blog. Part I and Part II of this series can be found here and here.

Over the past 15 years, the Federal Trade Commission (FTC) has brought more than 60 cases against companies for unfair or deceptive data security practices that put consumers’ personal data at unreasonable risk.  Although the FTC has stated that the touchstone of its approach to data security is reasonableness, the FTC has faced considerable criticism from the business community for lack of clarity as to as to what it considers reasonable data security.

Earlier this year, FTC Acting Chairman Maureen Ohlhausen pledged greater transparency concerning practices that contribute to reasonable data security.  As a follow-up to Ohlhausen’s pledge, the FTC published a weekly blog over the past few months, Stick with Security, that focuses on the ten principles outlined in its Start with Security Guide for Businesses. In the blog, the FTC uses examples taken from complaints and orders to offer additional clarity on each principle included in the Start with Security guidelines.

This is the third of three articles reviewing the security principles discussed by the FTC in its Stick with Security blog.

Apply sound security practices when developing new products

Train your engineers in secure coding.  Sound security practices should be part of the product development process, and security should be considered at every stage.  The FTC stresses that companies must create a work environment that encourages employees to consider potential security issues throughout development.  The push to launch a product should not come at the cost of data security.

Follow platform guidelines for security.   All major platforms provide security guidelines and best practices, and the FTC strongly urges companies to consider such recommendations during product development.  For example, if a platform makes an API available to mobile app developers that will provide industry-standard encryption, a company would be well advised to consider using the platform’s API to help protect sensitive data that will be collected by the mobile app.

Verify that security features work.  Products should be tested for security vulnerabilities prior to launch.  In addition, any representation made to consumers with respect to a product’s security must be supported by demonstrable evidence prior to making the product available to consumers.  Under the FTC Act, companies will be responsible for any express or implied representation made to consumers.  Consequently, companies should consider whether any statement or depiction included in any marketing materials, packaging, social media posts, privacy policies, or in any other company content would be understood by a consumer acting reasonably under the circumstance to constitute a promise or representation regarding the product’s security.  If so, such statements or depictions must meet truth-in-advertising standards.

Test for common vulnerabilities.  Although it may not be possible to remove the threat of all security vulnerabilities, companies should use the security tools that are available to reduce the risk of a data breach and protect against known risks.  In addition, companies must view security as a dynamic process, and take new threats and vulnerabilities into account when designing new or updated products.

Make sure your service providers implement reasonable security measures

Do your due diligence.  The FTC cautions companies to take a “trust, but verify” approach to their service providers.  Companies must undertake adequate due diligence to confirm that their service providers have sufficient security controls in place to maintain the security of sensitive data.

Put it in writing. In order to reduce the risk of a service provider failing to maintain adequate security practices, companies must include appropriate security requirements in their agreements with service providers.  Failure to hold service providers to specific security requirements as a contractual matter is a missed opportunity to take reasonable steps to safeguard customers’ data.

Verify Compliance.  Although due diligence and contractual requirements with service providers are important components of a company’s data security policy, a company should also verify that its service providers are complying with contractual requirements.  For example, if a retailer engages a third party to develop and launch a mobile app but wants to ensure that geolocation data is not collected, the retailer’s agreement with the mobile app developer should include a prohibition on the mobile app being enabled to collect geolocation data from end users unless an individual affirmatively opts in.  Prior to launching the app, the retailer should conduct a test of the app to ensure that any compliance issues are corrected prior to launch.

Put procedures in place to keep your security current and address vulnerabilities that may arise.

Update and patch software.  Security is an ever-evolving process, thus companies need to ensure that third-party software is kept up-to date by promptly applying security patches and updates. In addition, if a company has made its own proprietary software available to customers, the company must ensure that it has a way to alert customers to known vulnerabilities and can provide the necessary patches and updates.  A company that fails to alert its customers to a patch that is necessary to address a software vulnerability is exposing consumers’ sensitive information to unnecessary risk.

Plan how you will deliver security updates for your product’s software. Companies should assume that they will discover software vulnerabilities in the future.  As a result, companies should anticipate the future need to release security updates after the product has launched.  As an example of prudent security practices, the FTC provides the example of a company that manufactures a thermostat that connects to the internet.  The company configures the thermostat’s default settings to install security patches released by the company, thus offering consumers a more secure product by design.

Heed credible security warnings and move quickly to fix the problem.  Due to the ever-evolving nature of technology and cybersecurity threats, Companies should keep up-to-date on new threats, and modify their security requirements accordingly.  In addition, companies must ensure that there is a clear path to reporting potential security vulnerabilities to individuals who are best positioned to take action if necessary.  As an example of a good process for reporting potential security issues, the FTC describes an app developer that receives thousands of emails a day.  Because of the large volume of daily email, the app developer directs customers to a specific email address (separate from the developer’s general email) to report security concerns, and has a knowledgeable employee monitor the mailbox and immediately flag plausible concerns for the company’s security engineers.  The FTC notes that by implementing such a procedure for reporting security concerns, the app developer may be able to mitigate the risk of a security incident.

Secure paper, physical media, and devices

Securely store sensitive files.  In addition to safeguarding digital data, Companies must also implement adequate security protections for paper documents.  For example, a company that stores files with sensitive information in an unsecured storage room has created unnecessary risk that sensitive information could be misappropriated.  A more prudent practice would be for the company to keep such files in a location with restricted access that is kept locked at all times.

Protect devices that process personal information.  If stolen, devices that store and process confidential data may offer easy access to not only the data on the stolen device, but also access to additional information on a company network.  As an illustration of prudent security practices, the FTC describes a data processing firm’s security practices with respect to employee smartphone use.  The company encrypted all data on the phones and required employees to password protect their devices.  In addition, the company safeguarded against security breaches due to lost phones by using device-finding services and applications that would remotely wipe missing devices.  Employees were also trained on the importance of following the mobile device security requirements and the company also stressed the importance of promptly reporting lost phones.

Keep safety standards in place when data is en route.  Just as companies need to safeguard sensitive digital data through encryption, companies must also use reasonable security practices when physically transferring sensitive information.  For example, a company assigned an employee to collect purchase orders with sensitive consumer information from various company locations on a daily basis.  During a personal errand, the purchase orders were stolen from the back of the employee’s car after she left the orders unattended in her car. The FTC notes that the company contributed to the risk of unauthorized access of the information included in the purchase orders because the company failed to train its employees as to how they should safeguard documents while in transit.

Dispose of sensitive data securely. Prudent security practices include document and data destruction protocols.  Companies should remember that businesses subject to the Fair Credit Reporting Act are also subject to requirements regarding the disposal of sensitive data as a matter of law.

Although the FTC’s Stick with Security blog provides guidance regarding practices that contribute to reasonable data security, the FTC stresses that data security cannot be condensed into a one-and-done checklist.  Companies must consider what is reasonable considering the nature of a company’s business, the sensitivity and volume of information collected, the size and complexity of data operations, and the cost of available tools to improve security and reduce vulnerabilities. In addition, companies must remember that security measures that were adequate last year may no longer offer adequate protection from future threats.

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Recently, I wrote an article outlining the growing body of state legislation designed to address and mitigate emerging privacy concerns over facial recognition technologies.  It now appears that the issue will be examined at the federal level.  In September, Senator Al Franken of Minnesota, concerned that certain Apple technologies would be used to benefit other sectors of its business, as a “big data” profit center or to satisfy law enforcement agency requests, issued a series of pointed questions to Apple regarding its iPhone X’s FaceID.  That letter included the following questions:

  • Is it possible for Apple or a third party to extract faceprint data from iPhone X?
  • How was the FaceID algorithm developed and how did Apple gather data for the algorithm?
  • How does Apple protect against racial, gender or age bias in FaceID?
  • How does FaceID distinguish between an actual face of a person, as opposed to the photograph of that face?
  • Can Apple assure users that it will never share faceprint data?
  • Does FaceID cause the device to continually “look” for a facial profile and in doing so, does it record other faces as well?

The response from Apple, made public on October 17th, was quite illuminating:

  • FaceID works by using iPhone X’s TrueDepth camera to scan and analyze a user’s face based on depth perception maps and two-dimensional technology.  That scan is then authenticated with images stored in iPhone X’s Secure Enclave.
  • Data from the Secure Enclave is never backed up to the cloud, does not leave the device and isn’t even saved in device backups.  Scanned faces are deleted after being used to unlock iPhone X.
  • The neural network that helps to form the algorithm was created from over a billion images from individuals who provided specific consent to Apple.  Further, a broad cross-section of individuals spanning gender, race, ethnicity, and age, was leveraged to create the algorithm.
  • Passcodes will still be available to unlock devices if users choose not to use FaceID.
  • Any third party applications that leverage FaceID for authentication don’t actually access FaceID; rather, those apps are notified only as to whether authentication was approved.

As ranking member on the Judiciary Committee, Subcommitee on Privacy, Technology and the Law, Senator Franken’s foray into technology and privacy matters is not new.  In 2013, he presented a similar set of questions when Apple introduced the iPhone 5S Touch ID fingerprint scanner.   Shortly after that inquiry, Apple published a white paper outlining the steps it had taken with Touch ID to assure Senator Franken that privacy concerns were of the highest priority to Apple.  The collaboration between Senator Franken and Apple is vital in a time when a body of privacy laws to address facial recognition technologies is still emerging and protections are lacking in most jurisdictions.  It will be interesting to see if other technology providers embrace a similar level of transparency in their product rollouts.

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