FTC Report on Internet of Things Urges Companies to Adopt Best Practices to Address Consumer Privacy and Security Risks

Report Recognizes Rapid Growth of Connected Devices Offers Societal Benefits, But Also Risks That Could Undermine Consumer Confidence
In a detailed report on the Internet of Things, released today, the staff of the Federal Trade Commission recommend a series of concrete steps that businesses can take to enhance and protect consumers’ privacy and security, as Americans start to reap the benefits from a growing world of Internet-connected devices.
The Internet of Things is already impacting the daily lives of millions of Americans through the adoption of health and fitness monitors, home security devices, connected cars and household appliances, among other applications. Such devices offer the potential for improved health-monitoring, safer highways, and more efficient home energy use, among other potential benefits. However, the FTC report also notes that connected devices raise numerous privacy and security concerns that could undermine consumer confidence.
“The only way for the Internet of Things to reach its full potential for innovation is with the trust of American consumers,” said FTC Chairwoman Edith Ramirez. “We believe that by adopting the best practices we’ve laid out, businesses will be better able to provide consumers the protections they want and allow the benefits of the Internet of Things to be fully realized.”
The Internet of Things universe is expanding quickly, and there are now over 25 billion connected devices in use worldwide, with that number set to rise significantly as consumer goods companies, auto manufacturers, healthcare providers, and other businesses continue to invest in connected devices, according to data cited in the report.
The report is partly based on input from leading technologists and academics, industry representatives, consumer advocates and others who participated in the FTC’s Internet of Things workshop held in Washington D.C. on Nov. 19, 2013, as well as those who submitted public comments to the Commission. Staff defined the Internet of Things as devices or sensors – other than computers, smartphones, or tablets – that connect, store or transmit information with or between each other via the Internet.  The scope of the report is limited to IoT devices that are sold to or used by consumers.
Security was one of the main topics addressed at the workshop and in the comments, particularly due to the highly networked nature of the devices. The report includes the following recommendations for companies developing Internet of Things devices:
• build security into devices at the outset, rather than as an afterthought in the design process;
• train employees about the importance of security, and ensure that security is managed at an appropriate level in the organization;
• ensure that when outside service providers are hired, that those providers are capable of maintaining reasonable security, and provide reasonable oversight of the providers;
• when a security risk is identified, consider a “defense-in-depth” strategy whereby multiple layers of security may be used to defend against a particular risk;
• consider measures to keep unauthorized users from accessing a consumer’s device, data, or personal information stored on the network;
• monitor connected devices throughout their expected life cycle, and where feasible, provide security patches to cover known risks.
Commission staff also recommend that companies consider data minimization – that is, limiting the collection of consumer data, and retaining that information only for a set period of time, and not indefinitely. The report notes that data minimization addresses two key privacy risks: first, the risk that a company with a large store of consumer data will become a more enticing target for data thieves or hackers, and second, that consumer data will be used in ways contrary to consumers’ expectations.
The report takes a flexible approach to data minimization.  Under the recommendations, companies can choose to collect no data, data limited to the categories required to provide the service offered by the device, less sensitive data; or choose to de-identify the data collected.
FTC staff also recommends that companies notify consumers and give them choices about how their information will be used, particularly when the data collection is beyond consumers’ reasonable expectations. It acknowledges that there is no one-size-fits-all approach to how that notice must be given to consumers, particularly since some Internet of Things devices may have no consumer interface. FTC staff identifies several innovative ways that companies could provide notice and choice to consumers.
Regarding legislation, staff concurs with many stakeholders that any Internet of Things-specific legislation would be premature at this point in time given the rapidly evolving nature of the technology. The report, however, reiterates the Commission’s repeated call for strong data security and breach notification legislation.  Staff also reiterates the Commission’s call from its 2012 Privacy Report for broad-based privacy legislation that is both flexible and technology-neutral, though Commissioner Ohlhausen did not concur in this portion of the report.
The FTC has a range of tools currently available to protect American consumers’ privacy related to the Internet of Things, including enforcement actions under laws such as the FTC Act, the Fair Credit Reporting Act, the Children’s Online Privacy Protection Act; developing consumer education and business guidance; participation in multi-stakeholder efforts; and advocacy to other agencies at the federal, state and local level.
In addition to the report, the FTC also released a new publication for businesses containing advice about how to build security into products connected to the Internet of Things. “Careful Connections: Building Security in the Internet of Things” encourages companies to implement a risk-based approach and take advantage of best practices developed by security experts, such as using strong encryption and proper authentication.
The Commission vote to issue the staff report was 4-1, with Commissioner Wright voting no. Commissioner Ohlhausen issued a concurring statement, and Commissioner Wright issued a dissenting statement.
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