A data breach is a security incident in which unauthorized parties access sensitive or confidential information, including personal data and corporate data. Data breaches can have severe legal consequences for companies, resulting in complicated litigation, monetary damage, and damage to reputation. The legal consequences of a breach include:
Compromised Evidence: Case Strategy Breach incidents can compromise, expose, or change sensitive legal documents, impacting the integrity of the evidence in lawsuits. Companies need to consider how the data breach impacts active litigation and any change in their legal strategy.
Regulatory & Legal Penalties: Despite varying definitions of data breaches, agencies, such as the Federal Trade Commission (FTC) and state regulators, can impose significant fines, including customer-based data breaches for failing to maintain customer data protection.
Data breaches can prompt multiple lawsuits including potential class action lawsuits from affected customers, employees, or even business partners.
Changes to the Litigation Schedule: Litigation schedules can change upon the court considering data breaches and modifying timelines, discovery requests, and confidentiality orders to protect sensitive data
Firms may be forced to disclose a breach incident, which may change legal defenses to lawsuits and impact corporate exposure and reputation.
Impact on settlement affected parties often use data breach as a negotiating tool to settle matters. In certain significant breach cases, the firm responsible may move to affect a fast settlement to minimize further exposure to litigation and/or reputational impact.
Financial & Reputational Damage: In addition to legal fees, companies suffer loss of customers, loss of revenue, and loss of trust in the business/company.
One exceptional example is the Equifax incident (2017), which disclosed the information of 147 million consumers. The company had the burden of federal investigations, class-action lawsuits, and regulatory fines, ultimately resulting in a $575 million settlement. Similarly, the T-Mobile breach (2021) affected 76 million customers and led to a $350 million settlement and an additional $150 million investment in cybersecurity to avoid the same mistakes in the future. Another example is Capital One (2019), where a hacker was able to take advantage of vulnerabilities in their cloud environment, exposing 100 million customer accounts. They paid out $190 million in settlements and had to adjust their cloud security to be stricter. The Home Depot breach (2014) involved the theft of 50 million credit card numbers, leading to settlements of $200 million paid out, of which $25 million went to financial institutions.
