Cybersecurity Stuff Happens: A Corporate Counsel's Primer for Security

1. Cybersecurity Stuff Happens: A Corporate Counsel's Primer for Security Albert Gidari Jill Chasson February 19, 2008

2. INTRODUCTION • Security - a corporate counsel’s full time job • It should keep you up at night – a security breach is your worst nightmare • Total number of records lost in security breaches in U.S. since 2005 = 218,202,156 • http://www.privacyrights.org/ar/ChronDataBreaches.htm#2008 • Total cost per record = $197 • 2007 Ponemon Institute Study www.ponemon.org

3. INCIDENT RESPONSE PLANNING • Cradle-to-Grave Security Plan • Combine SOX, PCI, and other regulatory drivers for holistic plan • Organize IRP team with key stakeholders and conduct periodic meetings • Training • Audit/Assessment/Corrective Action Plan

4. ANATOMY OF INCIDENT RESPONSE • Fix the Breach • Preserve Evidence • Document Response Costs • Law Enforcement Referral • Initiate Customer/Employee/State Notice • Call center • Credit monitoring • Notice letter • Defensive/Remedial Action Plan

5. LITIGATION • Most common claim in security breach class action is for negligence • Classic negligence formula applies: duty, breach, causation and damages • Almost universally, companies have won (but, agency enforcement actions are another story)

6. Stollenwerk v. Tri-West Health Care • Beneficiaries of government health insurance program brought action against local manager of the program for negligently failing to secure their personal information following burglary of computer servers containing hard drives with beneficiaries' personal information. • District Court granted SJ, finding cost of credit monitoring service not cognizable damage under AZ law. (2005 WL 2465906, Sept. 6, 2005) • Ninth Circuit affirms and adds that cost of premium monitoring was not a necessary cost, but reverses and remands on causation grounds as to one party who experienced post-burglary incidents of identity theft. (2007 WL 4116068, 9th Cir. Nov. 20, 2007)

7. Guin v. Brazos Higher Ed. Svc. Corp. • Claim: Employer negligently allowed employee to keep unencrypted nonpublic customer data on laptop that was stolen from employee's home during burglary; argued that GLBA applied to financial information. • GLBA does not prohibit someone from working with sensitive data on a laptop computer in a home office. • GLBA does not require PII to be encrypted on laptop. • Reasonable care standard met – employee had permission to work at home, lived in a safe neighborhood. • No evidence that plaintiff’s identity “transferred, possessed, or used” by a third party “with the intent to commit, aid, or abet any unlawful activity.” • No other evidence of damages. • Intervening criminal act of another negates causation. • 2006 WL 288483 (D. Minn. Feb. 7, 2006)

8. Pisciotta v. Old National Bancorp • Putative class asserted negligence and breach of implied contract claims against bank and its website hosting facility for allowing PII collected through bank's marketing web site to be accessed via database security breach; sought recovery of costs associated with credit monitoring services. • No claim for credit monitoring available under Indiana common law because damages were speculative (no existing injury); "compensable damage requires more than an exposure to a future potential harm." • Indiana Code provision defined database owner's disclosure duties narrowly and provided state-enforced penalties as the exclusive remedy for violations of such duties. • 499 F.3d 629 (7th Cir. 2007)

9. FTC ACTIONS • Section 5 of the FTC Act provides that "unfair or deceptive acts or practices in or affecting commerce are declared unlawful." • FTC actions based on “deception” prong – material representation or omission that is likely to mislead consumers acting reasonably under the circumstances

10. FTC CONSENT DECREE ELEMENTS • Establish, implement & maintain comprehensive information security program reasonably designed to protect security, confidentiality & integrity of PII collected from or about consumers • Security Policy in writing • Designate Responsible Employee for Security Program • Third Party Audit every 2 years • Make all audits available to FTC for 5 years • 20 years of FTC oversight • See e.g., Cardsystems Solution Settlement (2006) at:http://www.ftc.gov/os/caselist/0523148/0523148consent.pdf

11. EMPLOYEE ISSUES • Leading cause of security breaches is employee negligence or dishonesty • Confidentiality Agreement/Policy • Network Access and Use Policy • Disciplinary process for failure to follow policy (e.g., leaving laptop unsecured in hotel room)

12. PCI DATA SECURITY STANDARDS • Consists of 12 basic requirements (the "Digital Dozen") in 6 key areas • Build and Maintain a Secure Network • Protect Cardholder Data • Maintain a Vulnerability Management Program • Implement Strong Access Control Measures • Regularly Monitor and Test Networks • Maintain an Information Security Policy • Compliance may include third party audit or self-assessment, submission of ROC to Visa, quarterly scans • Merchants liable for failures of their service providers

13. FINANCIAL PRIVACYPCI DATA SECURITY STANDARDS • Compliance Penalties – If a merchant or service provider does not comply with the security requirements or fails to rectify a security issue, Visa may: • Fine the acquiring member • Impose restrictions on the merchant or its agent, or • Permanently prohibit the merchant or its agent from participating in Visa programs • Members receive protection from fines for merchants or service providers that have been compromised but found to be CISP-compliant at the time of the security breach • Members are subject to fines, up to $500,000 per incident, for any merchant or service provider that is compromised and not CISP-compliant at the time of the incident • Horror Stories – BJ's, CardServices, and more

14. CONTRACTING FOR SECURITY • Contracting:  • Vendors • Require vendors who hold data to represent adequate security, indemnify for breaches, and be obligated to give immediate notice of breach and cooperate in investigation • Reserve your rights to audit and to control any litigation • Lessons from HIPAA Business Associate Agreements and GLB Security Safeguard Rule – flowing down security • Customer Terms of Use • Include limits on liability and arbitration clause with waiver of class action right, specify that the service is provided “as is”, disclaim warranty of security • Privacy Policy • Be certain not to over-promise and under-deliver • Be certain to keep current on security and known security risks

15. LAWS AND REGULATIONS • Section 501(b) of the Gramm-Leach-Bliley Act, 15 U.S.C. § 6801(b) • Implementing regulations: FTC Safeguards Rule, 16 C.F.R. Part 314 • HIPAA • Implementing regulations: HHS Security Rule, 45 C.F.R. Parts 160, 162, and 164 • Section 404 of the Sarbanes-Oxley Act of 2002, 15 U.S.C. § 7262 • FTC Data Destruction Rule, 16 C.F.R. § 682 • State security breach laws • http://www.perkinscoie.com/files/upload/securitybreach.pdf