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FTC dispute costs force cancer diagnostics company to close

FTC dispute costs force cancer diagnostics company to close

Michael J. Daugherty, the Atlanta-based president and CEO of cancer diagnostics company LabMD Inc., is an expert on regulatory risk.

He's been locked in a protracted dispute with the Federal Trade Commission since 2010 over the 2008 theft of a billing record from the company's computers.

In the FTC's 2013 complaint, the agency alleged that LabMD violated Section 5 of the FTC Act by failing to “take reasonable and appropriate measures” to prevent unauthorized access to 9,000 consumers' personal data after their bills appeared on the peer-to-peer filing sharing network LimeWire.

Mr. Daugherty said he turned down a settlement offer from the FTC even though the consent decree would have excluded any omissions of guilt. Even though fighting the FTC would be extremely expensive, Mr. Daugherty said he also knew that signing it would damage the company's competitiveness.

“Most corporations roll over, sign the decree and it never gets to court,” he said. “We weren't a big company like Sony or T.J. Maxx, so we couldn't weather this assassination of our reputation.”

Last March, LabMD turned to a federal judge in Georgia, seeking a preliminary injunction to suspend the FTC's enforcement action and alleging that the agency overstepped its authority by attempting to regulate protected health information.

“You can't go to the judicial system until the FTC is done with you, which is years and millions of dollars later,” Mr. Daugherty said of mounting legal costs that forced the company to close last year.

Although the 11th U.S. Circuit Court of Appeals last month rejected his effort to halt the FTC probe, Mr. Daugherty said he advises other companies facing an FTC inquiry into their data privacy practices to quickly grasp the severity of the situation.

“Don't waste time with the shock that you are being treated like this,” he said. “If they show up at your door, they already think you are guilty.”

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