Court grants stay in FTC data security complaint against LabMD

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The U.S. Court of Appeals for the Eleventh Circuit has granted a stay in the Federal Trade Commission’s data breach allegations against now-defunct medical testing laboratory LabMD.

The federal court’s stay—halting implementation of a July 29, 2016, FTC opinion and final order—is the latest salvo in an ongoing legal battle that continues unabated.

In late July, the FTC reversed a decision by its chief administrative law judge that dismissed the agency’s data security complaint against LabMD for the FTC’s failure to prove that the company’s data security practices caused or were likely to cause substantial consumer injury.

According to the FTC, LabMD “failed to implement reasonable security measures to protect sensitive consumer information on its computer network” and “its data security practices were unfair” under the Federal Trade Commission Act—charges that Michael J. Daugherty, founder and CEO of LabMD, refutes.

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When it issued its opinion/final order in July, the FTC gave LabMD the opportunity to file a petition for review with a U.S. Court of Appeals. According to Daugherty, he filed an appeal on December 27 and expects the FTC will file their response to the court by end of this month. “Then, we reply again within 10 days. And, then, oral argument in the spring” will follow, he adds.

An FTC spokesman declined to comment on the court’s stay. However, Daugherty says he is “heartened that leaders from business, healthcare and technology are so supportive” of his cause, referring to half a dozen amicus curiae briefs filed with the court on behalf of his company.

Among the briefs filed with the court was one from the U.S. Chamber of Commerce and another from the Cause of Action Institute, a public interest law firm committed to limiting corruption and abuse in the federal government, that was filed on behalf of nine practicing and retired physicians.

“They understand how this case will impact their own compliance efforts,” explains Daugherty. “Given how the FTC has tried everything to vilify LabMD, having our own physician clients eager to sign on and file their own brief was the cherry on top.”

LabMD’s business previously involved conducting diagnostic testing for cancer by using medical specimen samples, along with relevant patient information, to provide diagnoses to its physician customers. However, according to Daugherty, the company went out of business in January 2014 because of the “debilitating effects” of the FTC’s investigative practices and litigation.

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