Privacy Advisor

Accenture Case May Prove Value of Security Contract Clauses

September 1, 2008

by Justine Young Gottshall and Patrick R. Mueller

A first-of-its-kind case brought by the Connecticut Attorney General against technology consulting firm Accenture seeks damages stemming from the company's loss of the personal information of state taxpayers as well as information about state bank accounts and purchasing cards. The AG announced the lawsuit in September of last year, soon after Accenture notified the state of the incident in which a backup tape containing the information was stolen. Connecticut claims that Accenture's actions constitute conversion, negligence, a violation of the duty of care and—perhaps most interestingly—a breach of contract.

Although the case appears to have stalled for the moment, with the court granting Accenture many extensions, the case is unlikely to remain one of a kind. After years of extensive press coverage of data breaches, parties who contract for services involving personal information have become sensitized to the issues and recent contracts are now much more likely to contain security-related provisions. Therefore, as data breaches continue to unfold, harmed contractual parties will be in a position to file suits similar to Connecticut's.

As background, in 2002, Connecticut contracted with Accenture to implement a PeopleSoft financial and human resources system for the state. As part of the $98 million deal, Accenture transferred sensitive information to the system, including taxpayer Social Security numbers, state bank account numbers and state purchasing card account numbers. In 2005, Accenture began working on a similar project for the state of Ohio. In the development of the Ohio system, Accenture allegedly used programming code and information from the Connecticut system. Subsequently, a backup tape of the Ohio system was stolen from an Ohio state employee's car. The sensitive Connecticut information, stored in unencrypted Microsoft Word and Excel files, was included on the still missing backup tape.

But this is not the typical case of plaintiffs seeking redress for loss of personal information in a security breach incident. Connecticut had bargained for specific contractual provisions, including clauses requiring Accenture to: safeguard the information; to not disclose or transfer it to third parties; and to use reasonable care in protecting the information. The state has sued to recover its costs related to providing credit monitoring services and identity theft insurance to affected taxpayers; reimbursing affected taxpayers for the costs associated with placing credit freezes on their credit reports; investigating and determining the scope of the incident; reissuing state purchasing cards; and notifying state agencies and banks of the incident to permit appropriate monitoring of affected accounts. State of Conn. v. Accenture, LLP (Conn. Sup. Ct., complaint filed September 19, 2007).

Of course, such contract claims will face similar challenges to those faced by consumer class action cases in which proof of harm to the individuals exposed to increased risk of identity theft is difficult to establish. However, damages in contract claims may be easier to prove because the plaintiff often has expended significant resources investigating and addressing the incident, as described above.

How should the Accenture case incident impact companies who use vendors that have access to personal information? While waiting for the litigation to unfold, companies will want to ensure they negotiate with vendors to provide contractual provisions that address data privacy issues. For example, the following are some key topics to consider for typical contracts where a Vendor has access or use of a Company's personally identifiable information:

  • Company at all times retains ownership of the personal information;
  • Vendor agrees that personal information will be used only for purposes set forth in the contract;
  • Vendor agrees that it will safeguard the information using appropriate physical and information security controls;
  • Vendor agrees that it will not disclose or transfer the personal information to an unauthorized party either intentionally, negligently or accidentally;
  • Vendor agrees to indemnify Company for all costs associated with the Vendor's unauthorized disclosure of personal information including complying with breach notification statutes (which will be outside the scope of any limitation of damages);
  • Vendor agrees to notify Company if there is an access or breach—or attempted unauthorized access or breach—of Company's information;
  • Vendor agrees to permit Company to retain a third-party information security firm to perform periodic audits of relevant Vendor information systems;
  • Vendor agrees to bind its contractors and service providers with access to the personal information to equivalent obligations of confidentiality and security;
  • Vendor agrees to provide Company with immediate written notice of a valid court order seeking disclosure of the personal information.

Connecticut had the foresight to include similar provisions and it may now be in a position to recover for the liabilities to which Accenture exposed the state.

Justine Young Gottshall is a partner in the Chicago office of Wildman, Harrold, Allen & Dixon LLP where her practice concentrates on privacy, marketing compliance and e-commerce issues. Ms. Gottshall received her J.D. from Stanford Law School, where she was Symposium Editor for the Stanford Law and Policy Review. She received her B.A., with high distinction, from the University of Michigan. Ms. Gottshall writes and speaks regularly on privacy and related issues. She can be reached at gottshall@wildman.com.

Patrick Mueller is an associate in Wildman, Harrold, Allen & Dixon's Intellectual Property group. He has experience counseling clients on legal issues related to data privacy and information security. Prior to law school, Patrick worked for five years in the information security field as a consultant, researcher and writer with a focus on network intrusion detection systems. As a senior security analyst at Neohapsis Labs, he helped develop an industry first, standards-based testing program for network security products. Patrick also worked for the internal risk management group of a multinational consulting company, providing network security auditing and penetration testing services.

See Justine Young Gottshall's presentation on "Privacy Compliance in the New Media Age: Successfully and Legally Integrating New Technologies" at the IAPP Privacy Academy this month in Orlando. www.privacyacademy.org.