The security vendor later reported the incident to the FTC, Daugherty said. After the FTC investigated LabMD for more than three years, the agency filed a data security complaint against the company in August. The company failed to take reasonable steps to protect consumer information, the agency alleged.
The incident happened in 2008, "when no one understood the vulnerability of P-to-P," Daugherty said.
Still, the FTC issued no guidance on the dangers of P-to-P software until 2010, after the LabMD incident, and the agency worked with Limewire for years on inadvertent file sharing before filing a complaint against P-to-P vendor Frostwire in 2011, noted Tom Sydnor, a senior fellow for intellectual property at the Association for Competitive Technology.
Instead of filing a complaint against LabMD, the agency should have long ago targeted P-to-P vendors for "tricking" users into sharing files they wanted to keep private, Sydnor said.
Most of the speakers at Thursday's event questioned the FTC's authority in data security, but Justin Brookman, director of the consumer privacy project at the Center for Democracy and Technology, defended the agency.
Congress wrote the FTC Act broadly to give the agency authority to act when new types of unfair or deceptive business practices pop up, he said. The agency shouldn't have to seek new congressional authority for every type of unfair business practice, he said.
Responding to criticisms that the FTC doesn't have specific data security standards, Brookman said he doesn't want to see a federal agency make security rules that every company has to follow. It would be "insane" for the FTC to require companies to spend a certain percentage of their revenue on security, he said.
Instead, the agency is picking cases to highlight bad security practices and give guidance to other companies on what practices to avoid going forward, he added. "They're bringing the cases they think are important to change behavior going forward," Brookman said.
Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is email@example.com.