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LabMD Briefing Book

LabMD Briefing Book

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Published by Cause of Action

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Published by: Cause of Action on Mar 31, 2014
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03/31/2014

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Power-Hungry FC Bureaucrats: Defending Small Business against Administrative Overreach
In the Matter of LabMD, Inc.
, FC Docket No. 9357
 On August 28, 2013, the Federal rade Commission (FC) issued a complaint against LabMD, a small cancer-detection lab, accusing them o engaging in unspecified “unreasonable” data security that allegedly violate Section 5 o the FC Act’s prohibition o “unair” trade practices. FC’s investigation orced LabMD to divert time and energy away rom running its business, and the company is now fighting or its lie. On March 20, 2014, Cause o Action and LabMD filed suit in Georgia to stop FC’s overreach. Te FC is attacking LabMD even though data-security practices or health inormation are regulated by the Department o Health and Human Services under the Health Insurance Portability and Accountability Act (HIPAA) and the Health Inormation echnology or Economic and Clinical Health Act (HI-ECH). Neither the FC nor HHS has accused LabMD o violating these laws. No court has ever ruled that FC has this authority and FC has issued no regulations on data-security practices that apply to LabMD. However, the agency is claiming the “administrative common law” o consent orders and Internet postings allows it to go afer anyone, anytime with no prior notice.
Te FC Retaliated Against LabMD when its Owner Exercised his First Amendment Rights and Spoke Out About Teir ainted Investigation.
 Almost immediately afer LabMDs CEO, Michael Daugherty, publicly criticized the FC and posted the trailer to his book, Te Devil Inside the Beltway, on his website, the FC accused LabMD o committing an “unair” trade practice by engaging in “unreasonable” data-security and issued an administrative complaint. Te FC’s administrative complaint relies heavily on allegations concerning an accounts-receivable file that a third party, iversa, obtained rom LabMD without the company’s knowledge or permission under highly irregular circumstances, even though an FC Commissioner had previously warned FC staff that reliance on that file could create “the appearance o bias or impropriety.” FC Commissioners and other personnel have repeatedly criticized LabMD in speeches, media interviews, blog posts and press releases. FC staff have asked Mr. Daugherty invasive, irrelevant questions during depositions, including asking about the doors in his home and layout o his basement. Commissioner Julie Brill was orced to recuse hersel afer she made wholly inappropriate comments about LabMD, showing she had already prejudged the outcome o the case.
BRIEFING BOOK
 
Te FC Violates Due Process Fair-Notice Requirements when it Punishes Companies without Defining “Unreasonable” and “Unfair” Data-Security Practices.
Even though Section 5 never mentions data security, the FC claims the statute’s text alone provides air notice. FC reuses to establish rules or regulations explaining what data-security practices it thinks Section 5 orbids or requires and reuses to issue advisory opinions or endorse industry standards. Instead, the FC apparently thinks it can regulate through afer-the-act enorcement actions, “uncodified standards o care,” and “unwritten rules.” Even during an enorcement proceeding, the FC claims “standards used to enorce Section 5 are outside the scope o discovery.”
Te FC’s Administrative Process—Where FC Commissioners Act as Prosecutors, Legislators, and Judges at the Same ime—Is Rigged and Violates Due Process.
 FC Commissioner Joshua Wright’s empirical research demonstrates that LabMD’s ate is already sealed. FC enorcement staff have won literally 100% o FC administrative cases or a period o nearly twenty years. Commissioner Wright told Congress that, in light o “the agency’s admin-istrative process advantages and the vague nature o the Section 5 authority[,] . . . firms typically preer to settle Section 5 claims rather than go through the lengthy and costly administrative litigation in which they are both shooting at a moving target and may have the chips stacked against them.”
Tis has grown  from a classic David-vs-Goliath battle into a dispute that could shape the  future of federal health privacy regulation.
 
LabMD CEO Michael Daugherty 
Case Files and Attachments
FC Administrative Complaint against LabMD..................................................3FC Order Denying Motion to Dismiss..............................................................15FC Motion: “Standards Used to Enorce Section 5 Are Outside the Scope o Discovery”........................................................................22FC Subpoena or Michael Daugherty Book Drafs.........................................24Initial Pretrial Conerence: FC admits it has no Complaining Witnesses or Regulations....................................................................................27Excerpt rom Michael Daugherty Deposition: Te Doors in Your Basement......................................................................................................34FC Commissioner Tomas Rosch Dissent.......................................................37FC Commissioner Joshua Wright Critiques FC Process.............................39FC Commissioner Joshua Wright estifies beore House Energy and Commerce Committee................................................................................42Going on Offense: LabMD Sues FC in Federal Court....................................47Washington Legal Foundation: Te FC at a Crossroads: Can it be Both Prosecutor and Judge?..............................................................................65National Law Journal: FC Commissioner Julie Brill Forced to recuse hersel afer improper statements..........................................................69
 
In re LabMD
, Briefing Book Page 3
 

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