HomeTipsThe Legal Consequences of a Data Breach: What You Need to Know

The Legal Consequences of a Data Breach: What You Need to Know


Companies affected by data breaches typically hire mobile forensics to capture and analyze images of affected systems, review backup or preserved data, and provide recommendations for remediation. These experts may also assist in communicating with consumers whose personal information was compromised. It’s crucial to be proactive, especially since many states and the federal government require notification of a data breach.

Damage to Your Reputation

When news of a data breach hits the headlines, it is not only bad for business; it can damage a company’s reputation. Consumers are apt to stop using your services or products, leading to financial losses. It can also be difficult for businesses to retain employees, leading to further losses.

Hidden costs can also include fines and penalties. For example, the ride-hailing app Uber was hit with a $148 million fine in 2018 for failing to disclose a 2016 hack that exposed data on its 600,000 drivers and 57 million users. In some industries, such as healthcare, this can be exceptionally costly. The impact of a data breach may result in destroying customer trust and fierce brand loyalty. For example, if a credit reporting agency such as Equifax suffers a data breach, consumers might lose faith in the brand, potentially turning to other credit-monitoring companies.

It is essential to have litigation counsel involved in formulating all post-breach public communications, including SEC filings, press releases, consumer statutory notices, and responses to governmental inquiries. Having an attorney help craft these communications will help ensure that the information you release is accurate and doesn’t damage your company’s reputation. Being transparent with your customers, clients, and the media is also essential. Letting another source break the news of a breach puts you on defense and could give hackers more time to exploit your system.

Loss of Confidential Information

Data breaches expose confidential and private information to hackers. This information can be used for identity theft, fraud, and other illegal activities. It can also result in a loss of customer trust and revenue. Often, this is the most significant cost of a breach. It can be even more expensive for companies subject to government regulations governing data privacy and security, such as financial institutions or healthcare providers.

A data breach can happen due to a malicious attack or an accident. An example would be a disgruntled employee who hacks into a system and accesses information without authorization. Another reason is a failure to install and update cybersecurity systems regularly. This can include the inability to install the latest software patches or a network with vulnerable servers.

When a company experiences a breach, it must notify its customers of the incident. This is required by various state laws that set forth specific periods for notification and provide individuals with a right to sue if the company fails to comply with these requirements. However, it’s difficult for a breached company to provide timely notification while ensuring that the disclosure does not make any misstatements or inaccuracies that could later prove harmful in litigation. 

Identity Theft

A data breach can expose personal information that makes a person a target for identity theft. The thief can use the information to sign up for new accounts, including financial ones. They can also file a tax refund in the victim’s name, leading to tax fraud. Some breaches expose names, addresses, and full or partial social security numbers. This can lead to various issues, from annoying spammy calls, texts, and emails to unauthorized account activity on the victim’s financial accounts.

Moreover, data breaches can expose proprietary business information, such as patents, product specs, etc. This can devastate a company and lead to a loss of customers. This can significantly hurt a small business that relies on its local clientele but can be equally detrimental to larger companies.

You can mitigate the damage by creating an action plan for a breach. Ensure that you notify everyone affected. Provide a toll-free number to call if they have any questions or concerns. Consider offering credit monitoring and other support for the victims. Consult with your law enforcement contact about what information to include in your notification so that you don’t impede the investigation. Additionally, you may want to publish your plans on a website so that consumers can refer to them anytime.


Many states and the federal government have privacy laws that require companies to notify consumers if their personal information is compromised. A company failing to follow these laws can face private consumer lawsuits. These lawsuits typically allege violations of consumer protection and data breach statutes.

Plaintiffs suing over a data breach can assert scores of different state and federal statutory and common-law claims. Defendants usually contest these claims at the pleadings stage by arguing that the plaintiffs do not have to stand because they cannot prove a concrete and particularized injury and that there is no causal connection between the breach and their alleged damages.

Some of the more prominent sources of monetary loss stemming from a data breach include expenses related to establishing more secure systems, conducting investigations, and paying fines. Those costs can be compounded by the loss of revenue caused by customers who stop buying from a business due to their concerns about security breaches.

For consumers, one of the most damaging consequences of a data breach is a ruined credit score, which can increase the cost of borrowing and insurance, make it difficult to rent an apartment or get a job, and prevent the ability to obtain financial services such as bank accounts and loans. Settlements of data breach class action lawsuits have awarded tens of millions of dollars in damages to affected consumers.

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