Professional social networking service LinkedIn won the dismissal of a lawsuit seeking damages on behalf of premium users who had their log-in passwords exposed as a result of a security breach of the company's servers last year.

The data breach came to light at the beginning of June 2012, after hackers posted 6.5 million password hashes corresponding to LinkedIn accounts on an underground forum. More than 60% of those password hashes were later cracked by hackers.

The first complaint against LinkedIn was filed on Jun. 15, 2012, in the U.S. District Court for the Northern District of California by a Illinois resident and paid LinkedIn account owner named Katie Szpyrka.

The complaint alleged that LinkedIn violated its own User Agreement and Privacy Policy by failing to utilize industry standard protocols and technology to protect its customers' personally identifiable information, including email addresses, passwords and log-in credentials.

An amended complaint was filed on Nov. 26, 2012 on behalf of Szpyrka and another premium LinkedIn user from Virginia named Khalilah Wright, as class representatives for all LinkedIn users who were affected by the breach. The lawsuit sought "injunctive and other equitable relief," as well as restitution and damages for the plaintiffs and members of the class.

The complaint alleged that LinkedIn failed to adequately protect user data because it stored passwords using a weak cryptographic hash function without additional protection, despite its own Privacy Policy stating that "personal information you provide will be secured in accordance with industry standard protocols and technology."

"The problem with this practice is two-fold," the complaint said. "First, SHA-1 is an outdated hashing function, first published by the National Security Agency in 1995. Secondly, storing users' passwords in hashed format without first 'salting' the password runs afoul of conventional data protection methods, and poses significant risks to the integrity of users' sensitive data."

Password hashing is a form of one-way encryption. A password hash is an unique cryptographic representation of a plaintext password, but unlike ciphertext generated with a two-way encryption function, hashes are not meant to be decrypted. When users log in and input their password, the password is hashed on the fly and the resulting hash is matched against the one already stored in the database for that user.

Older hash functions like SHA-1 are fast and efficient, but are also vulnerable to brute force attacks. Because of this, it is common practice to append a unique and random string to each password before hashing it. This is known as 'salting' and makes password hash cracking much more difficult.

The complaint maintained that if Szpyrka and Wright had known that LinkedIn used substandard encryption they wouldn't have paid for premium LinkedIn accounts which cost between $19.95 and $99.95 per month depending on subscription type.

"When signing up for and purchasing a 'premium' account, Plaintiffs and the members of the Class relied on LinkedIn's representation that it uses 'industry standard protocols and technology' to preserve the integrity and security of their personal information in agreeing to create an account and provide their PII to the company," the complaint said

The complaint also argued that the monthly fees paid by the plaintiffs, or a portion of them, were used by LinkedIn to pay the administrative costs of data management and security and therefore comply with its promise of using industry standard security protocols and technology.

On Tuesday, the court granted LinkedIn's motion to dismiss the complaint on the basis that the company's User Agreement and Privacy Policy is the same for free accounts as it is for premium accounts.

"Any alleged promise LinkedIn made to paying premium account holders regarding security protocols was also made to non-paying members," the judge said in his order to dismiss the lawsuit. "Thus, when a member purchases a premium account upgrade, the bargain is not for a particular level of security, but actually for the advanced networking tools and capabilities to facilitate enhanced usage of LinkedIn's services. The FAC [First Amended Consolidated Complaint] does not sufficiently demonstrate that included in Plaintiffs' bargain for premium membership was the promise of a particular (or greater) level of security that was not part of the free membership."

Furthermore, the judge said, the plaintiffs don't even allege that they actually read the Privacy Policy, which would be required to support a claim of misrepresentation on behalf of LinkedIn.

In oral arguments, the plaintiffs' counsel asserted that the lawsuit is primarily based on an alleged breach of contract, but for such a claim to stand, the defendants needed to specify damages resulting from this alleged breach of contract. The injury claimed by the plaintiffs occurred before the alleged breach of contract, at the time when the parties first entered into the contract, the judge said. Therefore the economic loss they claim cannot be the "resulting damages" from an alleged breach of contract, he said.

In cases where the alleged wrong stemmed from allegations of insufficient performance of a product's functions, courts have ruled that plaintiffs need to allege "something more" than just overpaying for a defective product, the judge said. "Because Plaintiffs take issue with the way in which LinkedIn performed the security services, they must allege 'something more' than pure economic harm. This 'something more' could be a harm that occurred as a result of the deficient security services and security breach, such as, for example, theft of their personally identifiable information."