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Congressional Investigation Delays FTC V. LabMD Lawsuit

The Federal Trade Commission is going after Michael Daugherty. They messed with the wrong man.

Daugherty’s company, LabMD, is the target of a multi-year FTC probe looking at data security practices. He believes the agency is overstepping its regulatory authority, which is why he’s locked in a legal battle with the agency.

“This government, this regulatory exertion and muscle flexing, is used to keep citizens in their place and keep government lawyers employed,” Daugherty said.

The FTC’s lawsuit against his company was put on hold after it was revealed that the House Oversight Committee is looking into the relationship between the FTC and a data security company called Tiversa.

ftc-clrAfter hearing the news, Daugherty told Watchdog Wire he felt “relief” and “hope.” Because of the FTC’s attacks on his business, Daugherty had to let go his entire staff in January. He has a blunt description for how the FTC operates.

“They run you out of business and call that justice,” he explained.

The subject of the House inquiry, Tiversa, is the company which reported LabMD to the FTC after it took a file from the company and demanded it pay for its services. When LabMD refused, Tiversa went to the FTC.

This “data breach” is why LabMD is locked in a battle with the FTC. But it’s Tiversa that took the file from LabMD in the first place, using sophisticated software to troll peer-to-peer networks. This relationship is what the House committee is reportedly investigating.

But that’s just one part of the story. The bigger picture is the abuse of power at the FTC. The information taken from LabMD involved patient data. That would, under traditional understandings of the law, involved HIPAA, the Health Insurance Portability and Accountability Act.

But the FTC isn’t claiming authority under HIPAA. Instead, it’s pursuing a case against LabMD because of a “deceptive and unfair trade practice.”

The FTC has been very vague in describing what it considers proper data security practices, and that’s probably in part because they haven’t historically been responsible for defining them.

That leads one to wonder why they are enforcing undefined standards in the first place. After all, how can a company follow rules that don’t exist?

“I fail to see how anyone has safer and better data security practices because of what the FTC is currently doing,” Daugherty said. “This isn’t a fluke, this isn’t a one-off occurrence.”

devil inside the beltwayLabMD isn’t the only company that refuses to put up with FTC bullying. Though most companies roll over for the FTC, hotel chain Wyndham Worldwide Corp is also litigating over the FTC’s unauthorized intrusion into data security regulation.

For his part, Daugherty hopes to bring attention to the federal government’s overreach. He told Watchdog Wire his goal “is to educate Americans about the insane process allowed by the Administrative Procedure Act.”

The Administrative Procedure Act is the federal statute that governs how regulatory agencies operate.

For more on Michael Daugherty’s story, you can read his book The Devil Inside the Beltway. Watchdog Wire previously gave the book a positive review and recommended it to citizens concerned about abusive government.

“It’s really a story of how the government operates when no one is looking. It’s about the underbelly of regulatory behavior,” Daugherty said.

The trial is set to resume June 12, according to the Atlanta Business Chronicle. Cause of Action, the group representing LabMD, has more information on its website.

Josh Kaib

Josh Kaib is the Assistant Editor of Watchdog Wire. Twitter: @joshkaib

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Categories: Courts & Law, Healthcare, Regulation, Waste, Fraud and Abuse
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