Published by LawTechie - October 21, 2011 - LawTechie

intellectual property

Yesterday the First Circuit Court of Appeals underscored the importance of carrying online privacy insurance if you are an internet business, or otherwise, that processes credit card info for customers.

Grocery shoppers launched a class-action against the store for alleged breach of implied contract, negligence, and violation of the unfair practices portion of the Maine Unfair Trade Practices Act arising out of the hacking of the store’s credit card processing database, the resultant theft of the plaintiffs’ financial info, and the store’s failure to notify customers. In Re: Hannaford Bros Co. Cust.

While the lower court found the injuries arising out of the fiduciary breach and unfair practices portions of the case too speculative, the Appeals Court did allow plaintiffs to proceed for mitigation damages under the implied contract and negligence claims. What this means is that plaintiffs can proceed to recover the costs of replacing their credit cards, insurance bills, etc… arising from the loss of their financial intellectual property.

Certainly no plaintiff will make more than a few bucks off this case (how much does it cost to replace a credit card, a dollar in lost time maybe?), the defendant will be left hurting because those “few dollars” in mitigation damages per plaintiff, where there are a lot of plaintiffs, will definitely add up. Moreover, given that a negligence case arising out of the above facts will stand, it is fairly likely that the defendant will hear from the plaintiffs’ credit card companies in the near future if purchases were made on the hacked cards which the credit card companies would have to shoulder.

While defendant here was a “brick and mortar” shop, we see more and more internet business owners processing or storing financial information. Where an internet business does store certain customer info or other “private intellectual property”, it should be well aware of the online privacy issues associated with that level of trust and, in this case, the potential liabilities of negligently handling its online privacy policy.

These days we see more and more insurance companies catering to internet business and offering policies on online privacy breach. Certain types of ecommerce businesses, internet service providers, and other intellectual property related sites should probably look into these.

LawTechie is a blog focusing on trends in tech and digital media. Areas covered include intellectual property, cyberlaw, venture capital, transactions and litigation as they relate to the emerging sectors. The blog is edited by the firm's partner Tim Bukher with contributions from the firm's experts in their respective areas of law.

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