California enacted the nation’s most extensive consumer privacy law on Thursday after only a week of legislative debate. The California Consumer Privacy Act of 2018 (“CCPA”) was passed quickly to prevent a privacy ballot initiative and creates extensive notice, opt-out/opt-in, access, and erasure rights for consumers vis-à-vis businesses that collect their personal information, as well as a private right of action in the case of a data breach. Though dubbed by many as “California’s GDPR,” the CCPA is fundamentally different and will require businesses to invest billions of dollars into restructuring their operations, while providing little additional or meaningful privacy protections to consumers, if any.

While we will be providing additional analyses in the days and weeks to come, the following is a description of the key provisions of the CCPA.

Q:  What is covered?
A:  All “Personal Information,” whether collected Online or Offline.

The CCPA has been described in news reports as a regulation of “online privacy.” In reality, it applies to all instances of collection of consumer personal information (“PI”), regardless of means, and across businesses regardless of industry. The definition of PI contained in the CCPA is broad—whereas most US laws only consider information “personal” if it is a sensitive identifier or provides access to a financial account. By contrast, the CCPA extends to all information that “identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household,” including name, email address, biometric information, and IP address. This is the first instance of non-individualized data belonging to a group of people being legally treated as PI, and to make it worse, the term “household” is not defined in the law. This will likely be an area where clarifications and amendments are sought.

Q: Who is subject to the new law?
A: Nearly all commercial entities are covered.

The CCPA applies to for-profit entities that do business in the State of California (including any same-branded controlled or controlling company) that meet any one of the following three criteria:

(1) gross revenue of more than $25 million;
(2) receives or shares PI for more than 50,000 “consumers, households, or devices”; or
(3) receives more than 50 percent of its annual revenue from the sale of PI.

Since visitors to a website contribute to the number of consumers, households, or devices for which data is collected, the 50,000 threshold is likely to be met easily, even for small businesses—particularly given that one consumer may have multiple devices. It is also likely that the CCPA will be interpreted to cover employee data, as the definition of consumer is not limited to individuals with whom a business engages in an arms-length transaction.

The CCPA tries to sidestep pre-emption by the Health Insurance Portability and Availability Act (HIPAA) and Gramm-Leach-Bliley Act (GLBA), but the exceptions granted relate to the information covered pursuant to those statutes, not the entities themselves. The Act also provides other exceptions, such as to comply with law, respond to valid legal requests, exercise or defend legal claims, and the like.

Q:  Is this an Opt-Out or Opt-In Law?
A:  Both.

By and large, the CCPA is an opt-out law. Consumers can opt-out of the “sale” of their PI to a third party, and when they do, a business is prohibited from asking them to opt-back in for at least 12 months. “Sale” is defined broadly as the “selling, renting, releasing, disclosing, disseminating, making available, transferring, or otherwise communicating orally, in writing, or by electronic or other means, a consumer’s personal information by the business to another business or a third party for monetary or other valuable consideration. No opt-out right applies to disclosures of personal information to service providers who process information for a covered business and who are prohibited by contract from using it for their own purposes. 

Businesses will need to find a way to track compliance with the opt-out and time-out mandates across business departments and product or service lines—which may be technically impossible where  the sale relates to information collected automatically via websites and consumers access a website from a different device.

For consumers under age 16, opt-in consent is required prior to any sale of information to a third party. Consumers between ages 13-16 can opt-in for themselves, and business must obtain a parent or guardian’s affirmative authorization for consumers under 13. While the collection of information from children under the age of 13 is already covered under the Children’s Online Privacy Protection Act, the CCPA applies to personal information collected both online and offline.

Businesses that currently offer free services in exchange for collecting information will face challenges parsing out the exact directive of the CCPA. The juxtaposition of the prohibition on denigrating the quality of service or charging consumer’s higher prices simply because they opt-out of the sale of their PI and the permission to offer incentives to those consumers who affirmatively opt-in to the collection or sale of their PI, like the CCPA in general, is not the model of clarity and will be the subject of our future analysis and writings, and will likely be a target for clarification through the amendment process.

Q: Will I have to change my privacy policy and or provide other consumer notices?
A: Yes.

Businesses must disclose—either on their websites if they have one or through other means—certain information regarding its practices regarding collection of consumer PI, and update the information at least once a year. Despite criticisms that privacy policies are too long and rarely read, the CCPA requires these notices to include even more detail. Under the new law, the privacy policy must contain:

• A description of the consumer’s rights under the CCPA
• How a consumer can submit access requests to the business
• The categories of PI the business collected about consumers in the preceding 12 months.
• Lists detailing the categories of PI about consumers that the business has sold or disclosed for business purposes in the preceeding 12 months (or the fact that the business has not sold or disclosed PI)

If they engage in the “sale” of PI, a business must explicitly inform consumers that their information may be sold to third parties and that they have the right to opt-out of the sale of PI through  a website link on the business‘ homepage titled “Do Not Sell My Personal Information” which offers an opt-out function. The CCPA does allow businesses to create separate California-only home pages that contain these links, so long as business takes reasonable steps to ensure that California consumers are directed to the homepage for California consumers and not the homepage made available to the public generally.

Businesses must also notify consumers of any financial incentives they offer to influence the consumer’s choice on this webpage.

Q: Am I obligated to respond to new consumer requests for information?
A: Yes, the CCPA establishes a “Right to Access.”

The CCPA gives California residents the right to, up to two times in any 12-month period, request and access the “specific pieces” of personal information a business has collected regarding that individual, as well as the categories of PI collected, where it was collected from, the business purpose for the collection, and the categories of entities to whom personal information is sold or disclosed for a business purpose. If the information is provided in an electronic format, it must be portable and, to the extent technically feasible, in a readily useable format that allows the consumer to transmit this information to another entity without hindrance.

The law notes in several places that a business will not be “required to reidentify or otherwise link information not maintained in a manner that would be considered PI;” however, the explicit listing of a number of data points that only indirectly point to a person (such as IP address and internet activity records) means that much information not obviously linked is stored in a manner that is considered PI. The law also does not speak to whether businesses must disclose each and every instance in which personal data appears, or provide a general listing of specific information that excludes duplicative sources.

Q: Will consumers be able to request that I delete information?
A:  Yes, in certain instances, the CCPA establishes a “Right to Erasure.”

The CCPA gives consumers the right to request that a business and its service providers delete PI collected from the consumer. The business (or service provider) does not have to honor this request if it is “necessary” to retain the information due to any of nine exemptions applying, including for internal uses “reasonably aligned with the expectations of the consumer” or that are in a “lawful manner compatible with the context in which they were provided the information.”

It is unclear, however, what constitutes a valid internal use, or whether a use is “internal” where data must be shared with service providers, consultants, or contractors to accomplish the use.

Q: Did the liability for breaches change?
A: Yes, the CCPA effectively supplements the Data Breach Notification Law with a private right of action.

The Act provides for statutory damages for consumers whose non-encrypted or non-redacted personal information—as such term is defined in California’s data breach notification law—is “subject to unauthorized access and exfiltration, theft, of disclosure as a result of the business’ violation of the duty to implement and maintain reasonable” security procedures. By providing statutory damages, the Act removes the standing requirement that has been a bar to most prior data breach litigations. The definition of personal information in the data breach law is more narrow than the definition in CCPA, and the change in the drafting process to create a private right only where there is “unauthorized access and exfiltration, theft, or disclosure” of personal information. The CCPA also creates liability for loss of paper data, which does not require notice under California’s data breach notification law.

While the standard of reasonable security is not defined under California law, the AG has previously cited the 20 controls in the Center for Internet Security’s Critical Security Controls as identifying a minimum level of information security that all organizations that collect or maintain personal information should meet. Credible third-party assessments of an entity’s compliance with these controls could become valuable in defense of a data breach lawsuit under the Law.

Q: What are the risks of non-compliance?
A: Enforcement by the Attorney General and individual consumers, with established statutory damages.

Consumers are afforded a limited private right of action and are able to recover “not less than” $100 and up to $750 per violation in private actions in the event of a breach of the more limited types of personal information covered by California’s existing breach notification statute. They can only exercise this right, however, after a 30-day period in which an allegedly noncompliant entity can attempt to cure any deficiencies and subsequent notification to the Attorney General (“AG”), who can decide to prosecute the action itself (although it is unclear how an entity would cure an already reportable data breach). Although not entirely true, it appears as if the CCPA also attempts to prohibit a business’ use of arbitration clauses in Section 1798.192. If this is the intent, the provision will likely be subject to legal challenges, given the Supreme Court’s recent decisions upholding arbitration clauses.

The AG is tasked with enforcing all other provisions of the law, but also must give a business a 30-day period to cure a violation before bringing an action. Civil penalties in an AG action can be up to $7,500 for each violation, and any assessed penalties are divided between the jurisdiction on whose behalf the action was brought and a new Consumer Privacy Fund, which is created by the Act to offset the costs of enforcement.

Q: When do I have to be in compliance?
A: Jan. 1, 2020.

BUT, given the rushed nature of the legislation and the identified drafting errors, it is likely that some amendments will occur before that date. It is also likely that there will be legal challenges to the Act, but we have not assessed the likelihood that such challenges will be successful. Even so, much of the legislation is likely to remain in effect and businesses should come back from the 4th of July break ready to create implementation plans.