Cybersecurity: An Issue for Both Tech Service Providers and Clients, especially for Cloud, Mobil and Social Computing and the Internet of Things

Posted November 12, 2012 by   · Print This Post Print This Post

The security of the Internet and privacy are key to all Cloud Computing, Mobile Computing, Social Computing and the Internet of Things (with sensors and computers in cars and anything else electrical).  Cybersecurity has profound implications for corporations, “critical infrastructure” and individuals that depend more on cybersecurity in the commercial, economic, social and personal.

According to cybersecurity experts, the vast majority of intrusions are not disclosed to authorities for “security reasons” or to avoid embarrassment and loss of brand value. Given the growing risks and dependencies, private companies will need to define their policies and potential goals and roles in participating, or not, in government cybersecurity programs.  This defining moment continues despite the rejection of the U.S. Senate of a bill on “voluntary” sharing of private sector cybersecurity information with the U.S. Department of Homeland Security.

On August 2, 2012, the U.S. Senate rejected a bill that would have allowed professionals in the private sector – whether internal or outsourced – to share cybersecurity information with the authorities. Referred to as Cyber Intellegence Sharing Protecting Act  (“CISPA”), the proposal would have allowed (without requiring) the private sector to share in “good faith” information on cybersecurity and cyber threats with the Department of Homeland Security.  Following the rejection, rumors circulated that President Obama would establish an  executive order  to allow a public-private partnership for such cooperation (“opt-in”), but this has not happened yet.

Notwithstanding the rejection of this bill in the U.S., the topic remains a matter of global news. This article explores some legal issues for projects of “public-private partnership” to cybersecurity risks: voluntary disclosures of “good faith,” the “limitation of liability” for such disclosure, the scope of the rights of government use any information disclosed (including incidental extraneous private data) and legal disputes with foreign legal systems.  Such issues continue worldwide, especially in Cloud Computing¹, inviting the private sector’s constant vigilance to prevent an Orwellian “cybervoracity” of government (or at least an accommodation) and to maintain confidence in the fundamental commitments of private security.

I. Possible American Approach: A Public-Private Partnership

Conflict of Interest between Governmental and Private Sector. Basically, the government has several fundamental interests in confronting cyberrisks from the private sector. Under CISPA, the  government’s role is to protect the national defense and the “defense industrial base” as well as private “critical infrastructure” (transportation, banking, electricity, water and other utilities). Effective cybersecurity by government supports the continuity of government, economic prosperity and quality of life in general.

In the European Community (“EC”), the same principle applies.   Within the EC, the Member States retain sovereign power to adopt legislative measures to restrict certain private rights to the extent that such restrictions are “necessary, appropriate and proportionate” in a democratic society to safeguard national security (i.e., the state security), defense, public security and the prevention, investigation, detection and prosecution of crime or use without prior permission required electronic systems of communication.

Whatever the place of its business, the private sector has interests that conflict with governmental roles.  This is especially relevant in the protection of privacy. In general, as a matter of B2B and B2C business, each company collects and stores confidential information to third parties who rely on the company for not distributing it without permission. Any “voluntary” transfer “B2G” of this private information to the government bears the risk of government abuses (whether through negligence or intentional).

Guided by its multinational territorial footprint and the context of its activity, every private company defines its own policies for data protection, security and disclosure in accordance with the classification of data. The data can be subject to different legal regimes. Thus data can be broadly categorized as (i) internal trade secrets, (ii) external trade secrets (third party information that is confidential, received under contractual non-disclosure), (iii) information on employees, which in turn can be divided into a file and use a file regulatory labor law and private data, (iv) information on ordinary activities as transactions with customers (including personally identifiable information [PII], the information of the credit card and Demography, and (v) information relating to corporate compliance with the law (e.g., documents, accounting, tax and regulatory).

These classes have additional overlays for legal purposes.  First, any information class may also be classified as “privileged” and therefore not disclosable in litigation.  Second, foreign laws may apply (such as in the EU) to PII and agreements between data controllers and processors.

Prerequisites to the Limitation of Liability for Voluntary Information Disclosures of Cybersecurity. The CISPA bill would have granted a general exemption against any claim by any person for the disclosure of confidential information in connection with a voluntary exchange of information with government cybersecurity. Private companies would have unlimited immunity against all civil and criminal court proceedings against any entity in the U.S. or its officers, employees or agents acting in “good faith” who disclose information on their use of computer systems and cyber threats. This limitation of liability had been designed as an incentive for private sector entities to do what the law seeks to encourage them to do: a robust control of their own systems and networks and those of their corporate clients and sharing information on cyber threats and vulnerabilities to better protect their systems.

The “Good Faith. To avoid potential abuse, the bill would have limited this exemption to cases of” good faith.  The proof of this “good faith” was an essential element to any legal exemption.

Any criterion of “good faith” would expose the private sector to uncertainty of costs and distractions. It would invite litigation in virtually all cases. This criterion was too vague, too vague and unpredictable subtleties charged in each case of “voluntary disclosure.”  The courts would have to decide on the legitimacy and scope of liability in special cases, such as cases of “mixed intent” covering both “good faith” and “impermissible” purposes.

Continued intentions of cybersecurity. To identify the limitation of liability, the bill would require that private enterprise have a specific intent to support cybersecurity, particularly to monitor its systems or networks to identify and obtain information on cyber threats. Any other end would not justify immunity from prosecution by third parties. As the “good faith”, this limitation also suffers from ambiguity. As in the proof of a crime, tort intentions of the actor would be called into question.

New Risks of Businesses, Individuals and Government.  The particular provisions of CISPA would have exposed all providers of information technology and information to costs, risk and confusion.

The Lack of Confidence Client. Such a law could undermine the trust between the corporation (or providers or managers of information systems (ISP’s, for example) and the client. In the absence of contractual waivers, a “voluntary” disclosure of confidential information to government would put suppliers, providers and managers in breach of their non-disclosure agreements. If the draft CISPA had been adopted as law, each provider and each licensee would have had to choose whether to obtain prior third party consents or rely upon governmental immunity for such disclosures. And outsourcers and other tech service providers would naturally want to be indemnified and compensated for any claim for such sharing with the government.

An Avalanche of Litigation. The legislative exemption from liability would have opened the floodgates to litigation against any company sharing of cybersecurity information with the government.  Impugning the volunteer’s “good faith,” a plaintiff’s lawyer might impose significant legal costs, and get significant settlements, to protect classes of victims of the same violation of rights.  Prior to dismissal, the volunteer would bear the costs of defense, preliminary hearings and pre-trial discovery.  In the case of CISPA bill, such legal costs of the defense would be the responsibility of the accused until dismissal.   In short, the private sector was always in danger of its first legal costs and distraction of management to defend against such lawsuits.

Class Action “Settlements.”   In a class action lawsuit against a volunteer, the plaintiff’s bar might seek to impose, or threaten, substantial legal fees and risks.   The defendant company’s “directors and officers’ liability” (and “errors and omissions”) insurance carrier might force the insured company to settle the claim.

Financial Claims against the Government. What would be the financial responsibility of the government to compensate for mistakes or abuse by the government according to a law allowing voluntary sharing and the government’s commitment not to misuse trade secrets or other confidential data? According to CISPA bill, if the government were abusing confidential  information received in the name of cybersecurity, the government would have been liable for actual damages plus attorney fees. The bill would open the doors to litigation against the government voluntarily waiving its sovereignty for limited purposes by amending the Federal Tort Claims Act. What a gift for litigators to defend the interests of individuals and companies whose confidential information is compromised by faulty or abusive governmental disclosures! What a burden for the taxpayer and the National Treasury!

Risks of Governmental Abuses. Two types of governmental abuse can be anticipated in any public-private cybersecurity. First, citizens could neither know nor prove any abuses or breaches by government, even if (as provided in CISPA)  the government were legally barred from using personal information for purposes other than cybersecurity.  Nobody could say whether the voluntary disclosure of self-incriminating could “accidentally” found its way to the enforcement. Given the inability to discover or rectify any such abuses, a “public-private partnership for cybersecurity” would devalue the trust and confidence of customers, individuals, employees, providers, assignors, licenses and other in an enterprise’s value chain.    An uncontrolled governmental surveillance would elicit fears of an omniscient “Big Brother.”   In general, government information would be sufficiently protected, but personally identifiable information (PII) would not.

Second, the bill would have allowed governmental abuses of personal data (private or otherwise) inadvertently captured in the net of “voluntary” disclosures on cybersecurity.  Under CISPA, the federal government could have used private information for other governmntal purposes, so long as, in receiving information, “at least one important goal” of the government’s use would have been cybersecurity or national security of the United States.  This exception was a factor in the defeat of this bill because it would open the door to a Pandora’s box of unintended consequences for private enterprise.

Risk of Private Abuse. The CISPA bill would have allowed the private sector to share unlimited information with the government. There would have been no restriction as to the nature, volume or order of the data, so long as the “good faith” test were met.  In the absence of such restrictions, any entity could freely disclose to the government a lot more information than needed, without “pruning” or segregation, without taking efforts to limit disclosures of “ancillary” information unnecessary to improve cybersecurity.

One can imagine scenarios of private companies “dumping” excess data onto governmental servers. For example, a hospital could transfer to the government certain sensitive data of the patient.  The archive might include personal health information (“PHI”), without any effort to clean or delete PHI data.  The government might use, or abuse, such PHI having an impact medical treatment, reimbursement of claims, hiring decisions, enforcement decisions unrelated to cybersecurity.   This data would be at risk of piracy and other unauthorized uses.

Such an approach is beyond the scope of the measures necessary for the protection of privacy by law of the European Community and Canada, for example. So, a strictly American legislative “solution” would clearly impede international trade in data processing services to European and Canadian customers, among others.

Limitations of Sovereignty: Conflicts of Law. In an integrated world, the legal implications of any “voluntary disclosure” of cybersecurity information transcend national boundaries.  The grant by one government (e.g., the U.S.) of immunity from liability does not grant the same immunity in all other jurisdictions. An American company would risk prosecution by foreign governments, its customers, suppliers and others in the supply chain.  Such limitation of liability would raise legal issues of reciprocity, recognition and retaliation by any other government.

II. The European Sustainable Approach: A Public

Alternatives less intrusive. The American debate on the voluntary sharing of private information on cybersecurity and its impact on privacy rights invites a search for alternative, less intrusive and more balanced.

Inter-governmental advice. In the European Community, an approach to counseling “independently-owned” intergovernmental exists to address these questions, but gives primary governmental emphasis on the protection of privacy, not on cybersecurity. The Working Committee # 29 on the protection of privacy, protection of personal data and cloud computing is based on a consultative approach.  It is an “independent body” whose secretariat is provided by the European Council.   Reviews and papers issued by the “Article 29 Working Party (Art. 29 WP) is independent of the European Commission. The Art. 29 WP was established under Article 30 of Directive 95/46/EC of the European Parliament and the European Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and the free movement of such data. Members of the Art. 29 WP are the authorities for the protection of private information of each member state and European institutions and the Commission of the EC.  The Art. 29 WP has its own rules of internal procedure. Art. 29 WP has given its opinion to the Commission in February 2012 on Cloud Computing.

Trade Associations. In the United States, trade associations are empowered to organize a concerted action to advocate their common interests in the legislature. The “lobby” can therefore promote approaches fostering providers (the “processors”) or companies (the “data controllers”).  In India, Nasscom advocates for service providers, but in the U.S. there appear to be no trade association for the outsourcing industry.

Adoption of Standards. National and international standards are already looking for transparency, the free exchange of data and the security of exchanges, processing and data carrier.

Alternatives more stringent.

International Conventions. International conventions can adopt new standards on the law of the Internet. Given the limitations of any individual country’s sovereignty to exculpate the private sector civil liability for breaches of obligations to privacy, heads of state could think of a diplomatic strategy for an international convention.

The contours of such a solution exist between countries in terms of “adequate protection” for the data privacy of the European Community. According to an agreement between the U.S. and the EC, a U.S. company that breaches its obligations (voluntarily undertaken under the “safe harbor”) becomes subject to judicial and administrative procedures of the U.S. government for breach of contract. According to agreements under the “binding corporate rules” (or standard contracts between providers and controllers), commercial companies doing business in several countries may elect to commit to respecting international standards under the Directive on Data Protection.  Since the WTO has not tackled cybersecurity directly, it remains to be seen whether governments can mutually agree on substantive rights and obligations of citizens and commercial companies under such an international convention on cybersecurity. It might mean declaring a new Cold War between “blocks” of countries, targeting countries that lack basic standards or that support “rogue” operations or terrorist cells.

Internal Governmental Surveillance. Instead of an approach to public-private partnership, one can imagine an approach to internal espionage by each government, augmented by governmental “guidance” or “best practices.”  Such an approach exists in some countries, such as China and potentially in Canada (C-30), and would serve as an equivalent to generalized surveillance. As of early November 2012, the Canadian Parliament is currently considering a bill that would allow cyber espionage on Canadian internal communications, or sometimes requiring judicial authorization.   The Canadian government would be able to take action in cyber espionage without judicial authorization, subject to a prior assessment of several public policy considerations:

a) “the extent to which the exemption is likely to harm the national security or enforcement of laws;
b) the fact that telecommunications service providers have the ability or inability to perform the obligations;
c) the fact that the costs of compliance with the obligations in question or not have unreasonable adverse effect on the business of the telecommunications;
d) that the obligations involved do not seriously impede the provision of telecommunications services to Canadians or the competitiveness of the Canadian telecommunications industry.”

III. Strategy Management in IT and Telecommunications

Cybersecurity legal issues affect classic businesses: merchants,  SMEs and multinational service providers in the field of cybersecurity.  But they affect most the trustworthiness of outsourcing service providers who depend on the Internet for their livelihood.   The concept of “public-private” partnering for cybersecurity poses many challenging questions for the future of outsourcing and reliability of the global services supply chain, such as:

  • What are the liabilities of outsourcing service providers for policies imposed by enterprise client?
  • What terms would apply if the outsourcing service provider wished to engage in the voluntary sharing of confidential information with the government?
  • Would it be more prudent to wait for a legal compulsion?
  • Pending new legislation, how should data be configured and made accessible?

IV. An Inescapable Symbiosis.

In conclusion, the American legislative experience suggests that private-sector “voluntary” cooperation with police forces and national security would be a bad idea, either in the U.S. or elsewhere, for private companies and all private data providers.

In Europe, the mature age of the EU’s Directive on Data Protection (1995) and on Electronic Commerce (2002) demonstrates a balance that promotes freedom of privacy, which may yet protect government interests. Following this legislative experiment failure in the U.S., other countries will think long-term before embarking on a “partnership” with the private sector on cybersecurity.

Maybe the U.S. will rethink the structure of its multifarious and labyrinthine laws of privacy (with multiple enforcement agencies) to protect the consumer, the consumer finance, the sick, the employer or any other victim of unauthorized access to information systems, private individual European national defense or anyone. The rejection of this bill shows that they already travel a path for more privacy and the protection of trade secrets, but that balance is a dream of government services.

That said, the private sector would not exist in a case of full cyberwar.  Technically, both public and private sectors are symbiotic and interdependent. For example, the Stuxnet virus, according to the newspapers, had been developed by one or two governments as a tool of espionage against Iran, but also infected the computer network Chevron Corp. trading in 2010, and in response to other international companies are targeted by cyber attacks. This mutual interdependence evokes a need for more “best practices” and more non-statutory collaboration between public and private sectors to protect both sectors.  CISPA is dead, but not forever.

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