[ISN] California disclosure law has national reach

From: InfoSec News (isnat_private)
Date: Wed Jan 08 2003 - 02:51:04 PST

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    Forwarded from: Elyn Wollensky <elynat_private>
    By Kevin Poulsen 
    January 6, 2003
    A new California law requiring companies to notify their customers of
    computer security breaches applies to any online business that counts
    Californians as customers, even if the company isn't based in the
    Golden State.
    So warned Scott Pink, deputy chair of the American Bar Association's
    Cybersecurity Task Force, in a conference call Monday organized by an
    industry trade group and attended by approximately 50 representatives
    of technology companies and law firms concerned about the scope of the
    new law, which will take effect on July 1st of this year.
    "If you are selling products or providing services to residents of
    California, it would probably be determined that you're conducting
    business in California under this law," said Pink. "This is something
    that has captured the attention of many corporate counsel and many IT
    managers around the United States, as they try to understand what the
    law requires and how it impacts them."
    The law, called "SB 1386," is intended to combat identity theft. It
    passed last September in the wake of a high-profile computer intrusion
    into a California state government system that housed payroll
    information on 200,000 state workers, in which the victim employees
    were not warned that their personal information was stolen until weeks
    after the incident. The law passed over strong objections from
    industry groups.
    To trigger the law, a breach must expose certain type of information:
    specifically, customers' names in association with their social
    security number, drivers license number, or a credit card or bank
    account number. After such an intrusion, the company must notify the
    effected customers in "the most expedient time possible and without
    unreasonable delay."
    Other types of information are not covered, and the disclosure only
    needs to be made to California residents. But as a practical matter,
    Pink said, online businesses may find it easier to notify everyone
    impacted by a breach, rather than trying to cherry-pick Californians
    for special treatment.
    "Many, many companies outside California are likely to be governed by
    this law," said Pink. "The question for them is to what extent do they
    find it convenient to only notify California residents, and do they
    find it easier to just notify everybody?"
    Companies that ignore the law face potential exposure to class action
    The law addresses a chronic problem in e-commerce - companies that are
    hacked are often reluctant to go public for fear of bad publicity or
    civil liability. But in forcing companies to come clean, the
    California law takes the opposite approach of the Bush
    administration's emerging cyber security policies, which encourage
    secret disclosure to government officials, rather than public
    In Monday's talk, organized by the Information Technology Association
    Of America, Pink called the law "revolutionary," and said he believes
    that other states will follow California's lead. But he also pointed
    out some ambiguities in the law's language that are still waiting to
    be resolved.:
    * The ROT13 loophole? An exception in the law says companies don't 
      have to disclose a breach if the stolen data was stored in an 
      encrypted form. But it doesn't say the encryption has to be strong. 
      "If someone were to hack into the system... obtain the encrypted 
      contents, and are able to unencrypt them, does that trigger the 
      disclosure requirements?," asks Pink. "As I read the legislation, 
      that' s not entirely clear."
    * Willful Ignorance. Disclosure isn't just triggered by drop-dead,
      caught-'em-red-handed intrusions, but by any incident in which 
      customer data is "reasonably believed" to have been compromised. 
      That's a vague term that leaves much room for legal wrangling, Pink 
      says. And what constitutes knowledge, anyway? "If a lower level IT 
      person notices some unauthorized activity... is that knowledge of 
      the company as a whole, and does that trigger disclosure?"
    * Law enforcement investigations. Companies are permitted to delay 
      disclosure to meet "the legitimate needs of law enforcement," a 
      provision intended to keep the law from acting as an early warning 
      system for cyber crooks who've fallen under police scrutiny. But who 
      decides what a legitimate need is?
    That last provision means that law enforcement officials effectively
    hold the power to grant a stay of execution on disclosure, giving a
    company time to examine its liability and plan a public relations
    strategy. That could mean a boost in the number of intrusions
    companies report to police, something the law enforcement community
    has been trying to achieve for years. As one participant in Monday's
    conference call -- an executive at a large Silicon Valley software
    company -- put it, reporting the crime would be a way of "buying
    time." ("I'm not trying to get around the law," the exec added).
    Pink suggested that any company relying on the law enforcement
    exception first get an explicit request from officials to delay
    disclosure. And resist the temptation to notify a local traffic cop
    and consider the matter closed. "The agency you're reporting it to
    should at least have jurisdiction," said Pink.
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