By Alaap Shah, a partner with Epstein Becker & Green, P.C. where he Co-chairs the Privacy, Cybersecurity and Data Asset Management team, and Stuart M. Gerson, a partner with the firm and a member of WLF’s Legal Policy Advisory Board.
Summary: The federal government’s deployment of the False Claims Act to deter data breaches—an initiative for which contractors can prepare and must manage—will inspire costly and punitive private qui tam litigation and eventually prove to be counterproductive.
Cyberattacks and data breaches continue to make front-page news because of their disruptive impact on the operations, finances, and reputations of companies large and small. The COVID-19 pandemic, during which remote business activity and the use of technology to access and transmit sensitive information increased, has magnified this threat. Some industries, health care as a prime example, have been particularly hard hit.
The Biden administration responded to the growth of cybercrime by championing a national response strategy, particularly to thwart ransomware attacks. In furtherance of this effort the Department of Justice (“DOJ”) recently announced an enhanced Civil Cyber-Fraud Initiative (the “DOJ Initiative”). Under this initiative, DOJ plans to leverage its broad enforcement authority under the False Claims Act (“FCA”) to pursue cybersecurity-related fraud involving government contracts and federal grantees. This effort will affect every company—running the gamut from defense contractors to providers who participate in federally funded health care programs. And as any government contractor knows, the threat of treble-damages lawsuits isn’t limited to DOJ action. The FCA is a vehicle for private “relators” to sue in the name of the United States. Indeed, spurred by financial incentives and an industry tendency to settle cases, the vast majority of FCA cases are initiated by private relators. Thus, the DOJ Initiative poses significant risks and increased costs associated with company cybersecurity practices.
We first turn our attention to the nature and scope of the DOJ Initiative, the FCA theory that it purports to rely upon, and the avenues of prevention and response that this victim-as-potential-defendant policy suggests. Finally, we examine policy arguments that suggest that the DOJ Initiative might be misplaced.
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