The Intersection of Commercial Litigation and Cybersecurity: Protecting Your Business

February 15, 2024

Data breach lawsuits filed against businesses have steadily increased in tandem with the heightened ubiquity of the web. From network intrusions to business email compromises and unintended information disclosure, cybersecurity…

Data breach lawsuits filed against businesses have steadily increased in tandem with the heightened ubiquity of the web. From network intrusions to business email compromises and unintended information disclosure, cybersecurity incidents are becoming more prevalent with each passing day.

Whether you are the head of a business that has been in operation for decades, launching a startup, or considering financing a new venture, it is in your interest to be aware of the intersection between cybersecurity and commercial litigation. This is your guide to the challenges posed by the private sphere’s increasing reliance on the web and tech, including strategies for protection.

Privacy Violations and the Legal Obligation to Safeguard Sensitive Information

Rewind to the 1980s, when information was stored mainly in paper files. The digital transition has shifted customer and client information from filing cabinets to hard drives and servers. Bad actors inside and outside businesses have illegally accessed, divulged, and sold sensitive customer/client information for profit.

Though some privacy violations are inevitable due to highly complex cyber attacks and internal bad actors with a vendetta against employers, the divulgence of personal information is illegal. Customers and clients made aware of the exposure of personal and confidential information have solid legal footing for a lawsuit.

Businesses aware of such data breaches are encouraged to proactively reveal the exposure to affected customers. The failure to reveal knowledge of data breaches to those affected is against the law. However, there is the potential for a lawsuit from affected customers regardless of whether the business makes them aware of the security incident or fails to disclose it.

Cyber litigation is problematic for reasons beyond potential economic damages. Legal battles in the aftermath of a data breach require an investment of time, money, and effort. Such an event disrupts the course of business, including client relations, ultimately compromising the company’s reputation in the public eye. Damaged trust combined with monetary damages has the potential to lead to client attrition and even business closure.

Vulnerability to Commercial Litigation is on the Rise

Commercial enterprises are encouraged to be hyper-vigilant in the battle against potential data breaches and other cyber security incidents. Malicious actors have their sights set on commercial businesses. Factor in the addition of third-party providers along with the expansion of potentially vulnerable cloud storage, then add shifts to your client’s demands. Now, the risk is exacerbated all the more.

Businesses that fail to pivot in unison with the dynamics of technology and the ever-changing legal/regulatory landscape ultimately put internal information, including highly sensitive client information, at great risk. Such vulnerabilities also extend to:

The last thing a business needs is protracted litigation that hurts its reputation and bottom line. Business owners and managers who are aware of a cybersecurity incident are encouraged to be proactive and address those lapses before they result in a significant court award, including a punitive regulatory fine combined with heightened scrutiny.

Mitigating potential civil awards to allegedly wronged parties in the aftermath of a cybersecurity incident is made easier with an acknowledgment of tech’s rapid evolution. The rise in cybersecurity incidents is partially the result of the shift away from offline work to online work. However, the dynamics of the regulatory landscape and the increasing complexity of technology have also played a part.

Factor in the elevated employee turnover rate across nearly every industry, leading to inevitable gripes. Along with the potential for retribution, there is now much more potential for sensitive data to end up in the wrong hands. It merely takes one disgruntled employee to anonymously dump sensitive client data on a web forum using an internet proxy that conceals their IP address. Some seemingly satisfied employees will be tempted to sell internal data to outside parties for financial gain.

Embrace the Challenge of the new Cybersecurity Landscape

Though it is tempting to bury one’s head in the sand and ignore the perils of the ongoing digital transition, doing so constitutes self-sabotage. Recognize that the technological and regulatory landscapes are changing, implement the necessary safeguards, and the chances of commercial litigation will significantly diminish.

Be mindful of data protection regulations in the United States and abroad. For example, companies that do business outside of the United States should understand the language of the GDPR, short for the General Data Protection Regulations in the European Union.

The United States is gradually adding to its patchwork of information protection rules and laws that heighten regulatory and litigation risk for businesses in all industries. Take note of the increasing number of federal and state laws that mandate implementing detailed procedures, policies, and safeguards to protect sensitive information, then act accordingly.

Thoroughly vet prospective hires, limiting internal employee data access based on authority level. Implement safeguards such as two-factor authentication and biometric verification procedures. Maintain awareness of the changing cybersecurity safeguards and regulations with the assistance of a digital security advisor and tap into the expertise of an experienced cybersecurity attorney.

Above all, every business should go to great lengths to keep its internal systems and software up-to-date, complete with regular audits and endpoint protection. Create, implement, and adjust standards and policies accordingly.

Internal standards and policies should encompass all components of digital security, including:

  • Data retention
  • Overarching information security
  • Incident response

Though monitoring employees might seem intrusive, doing so heightens regulatory and legal compliance. Employees who work from home or elsewhere should be subjected to employee authentication, including authorization requirements, to prevent unwarranted access to internal information.

Lean on an attorney to create comprehensive contracts and agreements for parties ranging from employees to suppliers and third parties that detail provisions regarding:

  • Data access
  • Security standards
  • Control
  • Governance
  • Liability

Complement employee monitoring with ongoing digital security employee training programs for a formidable line of defense that prevents burdensome commercial litigation and protects the bottom line.

Last but not least, it is in the interest of every business owner and manager to pay the negligible amount necessary for cybersecurity insurance that covers the brunt or even the entirety of financial losses stemming from a data security incident.