On April 30, 2020, ZDNet reported that there have been more than 1,000 SEC filings over the past 12 months listing ransomware as a risk factor – with more than 700 in 2020 alone. These filings include annual reports (10K and 20F), quarterly reports (10Q), and registration forms (S1).
Even the most sophisticated technology companies now insert the word “ransomware” into their Risk Factors section. SeeAlphabet, Inc., Form 10-Q, dated April 28, 2020, at 50 (“The availability of our products and services and fulfillment of our customer contracts depend on the continuing operation of our information technology and communications systems. Our systems are vulnerable to damage, interference, or interruption from terrorist attacks, natural disasters or pandemics (including COVID-19), the effects of climate change (such as sea level rise, drought, flooding, wildfires, and increased storm severity), power loss, telecommunications failures, computer viruses, ransomware attacks, computer denial of service attacks, phishing schemes, or other attempts to harm or access our systems.”).
As reported by ZDNet, companies as varied as American Airlines, McDonald’s, Tupperware, and Pluralsight also list ransomware as a potential risk to their business.
By inserting the word “ransomware” into a Risk Factors section, reporting companies may have elevated the relevant standard for companies who do not reference ransomware. By way of background, in October 2011, the SEC began planting cyber risk disclosure seeds when it issued non-binding disclosure guidance regarding cybersecurity risks and incidents. Back in 2011, the SEC wrote: “Although no existing disclosure requirement explicitly refers to cybersecurity risks and cyber incidents, a number of disclosure requirements may impose an obligation on registrants to disclose such risks and incidents.” Seven years later, this non-binding guidance became binding.
On February 26, 2018, the SEC issued binding guidance that recognizes: “Companies face an evolving landscape of cybersecurity threats in which hackers use a complex array of means to perpetrate cyber-attacks, including the use of stolen access credentials, malware, ransomware, phishing, structured query language injection attacks, and distributed denial-of-service attacks, among other means.” By expressly listing ransomware two years ago in its Statement, the SEC was making it quite clear that the current threat landscape includes the risk of ransomware and that directors and officers have to address this likely risk.
More to the point, the Statement and Guidance on Public Company Cybersecurity Disclosures instructs “that the development of effective disclosure controls and procedures is best achieved when a company’s directors, officers, and other persons responsible for developing and overseeing such controls and procedures are informed about the cybersecurity risks and incidents that the company has faced or is likely to face.”
Not surprisingly, the failure to disclose a prior ransomware attack would also be actionable. SeeSEC Statement at 14 (“In meeting their disclosure obligations, companies may need to disclose previous or ongoing cybersecurity incidents or other past events in order to place discussions of these risks in the appropriate context. For example, if a company previously experienced a material cybersecurity incident involving denial-of-service, it likely would not be sufficient for the company to disclose that there is a risk that a denial-of-service incident may occur.”).
If ransomware incidents were avoided altogether, however, there would be no liability attached to associated filings no matter what was communicated to the market. Moreover, even when attacks were not avoided, little disclosure risk would exist if the company applied best practices to avoid such an incident and provided an accurate accounting of what took place when an incident did take place. To that end, deploying proactive approaches considered state-of-the-art when dealing with ransomware risk will naturally mitigate against any potential SEC disclosure risk.
For example, there is at least one novel solution that can reduce ransomware attacks by anticipating when a compromised system’s ransomware package will be released and then neutralizing the ransomware threat before any ransomware release actually takes place. By evaluating and deploying such cutting-edge solutions, companies will be well positioned to neutralize any potential shareholder claims – as well as satisfying the much more important task of protecting corporate data and other digital assets. Thankfully, “it is never too late to begin importing a more robust security and privacy profile into an organization – which is the only real way to diminish the risk of a ransomware attack.” As with most successful corporate endeavors, management buy-in will typically be the necessary first step.
On April 17, 2020, it was reported that researchers at Finland’s Arctic Security found “the number of networks experiencing malicious activity was more than double in March in the United States and many European countries compared with January, soon after the virus was first reported in China. ”
Lari Huttunen at Arctic Security astutely pointed out why previously safe networks were now exposed: “In many cases, corporate firewalls and security policies had protected machines that had been infected by viruses or targeted malware . . . . Outside of the office, that protection can fall off sharply, allowing the infected machines to communicate again with the original hackers. “
Tom Kellerman – a cybersecurity thought leader, distills it this way: “There is a digitally historic event occurring in the background of this pandemic, and that is there is a cybercrime pandemic that is occurring.”
While there are certain internal ways of addressing cybersecurity threats arising from a viral pandemic, the exposures now faced by corporations become doubly damaging when the outside resources absolutely necessary to combat active threats are considered off-budget or not a critical enough priority. Smart companies generally survive stressful times by prioritizing with some foresight. Network security during a Cyber Pandemic should be a top priority no matter what size business.
During our Cyber Pandemic, companies recognizing and properly addressing the potential damage caused by threat actors will not only survive minor short-term hits to their bottom line caused by paying outside resources, they will likely be the ones coming on top after both Pandemics subside. There is definitely a light at the end of the tunnel for those willing to take the ride – just continue using trusted vehicles to get you there.
When implementing COVID-19 business continuity plans, companies should take into consideration security threats from cybercriminals looking to exploit fear, uncertainty and doubt – better known as FUD. Fear can drive a thirst for the latest information and may lead employees to seek online information in a careless fashion – leaving best practices by the wayside.
According to Reinsurance News, there has already been “a surge of coronavirus-related cyber attacks”. Many phishing attacks “have either claimed to have an attached list of people with the virus or have even asked the victim to make a bitcoin payment for it.” Not all employees are accustomed to the risks from a corporate-wide work from home (WFH) policy given the previous lack of intersection between work and personal computers.
One cyber security firm released information outlining these WFH risks. And, another security provider offers a common-sense refresher: “If you get an email that looks like it is from the WHO (World Health Organization) and you don’t normally get emails from the WHO, you should be cautious.” In addition to recommendations made by security consultants, there are privacy-forward recommendations that will necessarily mitigate against phishing exploits. For example, WFH employees should be steered towards privacy browsers such as Brave and Firefox to avoid fingerprinting and search engines such as Duckduckgo for private searches. A comprehensive listing of privacy-forward online tools is found at PrivacyTools.IO.
Criminals have already exploited the current FUD by creating very convincing COVID-19-related links. As reported by Brian Krebs, several Russian language cybercrime forums now sell a “digital Coronavirus infection kit” that uses the Hopkins interactive map of real-time infections as part of a Java-based malware deployment scheme. The kit only costs $200 if the buyer has a Java code signing certificate and $700 if the buyer uses the seller’s certificate.
At a very basic level, WFH employees should be reminded not to click on sources of information other than clean URLs such as CDC.Gov or open unsolicited attachments even if they appear coming from a known associate. Now that banks, hotels, and health providers are sending emails alerting their clients of newly-implemented COVID-19 procedures, it is especially easy to succumb to spear phishing exploits – which is the hallmark of state-sponsored groups. As recently reported, government-backed hacking groups from China, North Korea, and Russia have begun using COVID-19-based phishing lures to infect victims with malware and gain infrastructure access. These recent attacks primarily targeted users in countries outside the US but there should be little doubt more groups will focus on the US in the coming weeks. Until ramped up testing demonstrates that the COVID-19 risk has passed, companies are well advised to focus some of their security diligence on these targeted attacks.
Even though we are now on the whole facing a much lesser evil than the Swine Flu we remain exponentially more alarmed and have been withdrawing en mass from social interactions. This is obviously not a good thing but our current pandemic panic should pass by mid-April. Until then, we can continue downing the hottest drink in town just to be on the safe side.
UPDATE: April 23, 2020
The CDC reports in its latest published statistics there were 802,583 reported cases of COVID-19 and 44,575 associated deaths. Without a doubt, this pandemic is certainly much worse that the Swine Flu pandemic as previously reported by the CDC. Moreover, the current “panic pandemic” certainly shows no indications of subsiding.
On April 30, 2020, it was reported Tonya Ugoretz, deputy Assistant Director of the FBI Cyber Division, stated the FBI’s Internet Crime Complaint Center (IC3) is currently receiving between 3,000 and 4,000 cybersecurity complaints daily – IC3 normally averages 1,000 daily complaints.
UPDATE: May 6, 2020
On May 5, 2020, a joint alert from the United States Department of Homeland Security Cybersecurity and Infrastructure Security Agency and the United Kingdom’s National Cyber Security Centre warned of APTs targeting healthcare and essential services.
The alert warned of “ongoing activity by APT groups against organizations involved in both national and international COVID-19 responses.” This May 5, 2020 alert follows an April 8, 2020 Alert that warned in broader terms of malicious cyber actors exploiting COVID-19.
APTs are conducted by nation-state actors given the level of resources and money needed to launch such an attack. Moreover, they generally take between eight and nine months to plan and coordinate before launching. It is particularly disheartening that these recent attacks include those launched by state-backed Chinese hackers known as APT 41. As one cybersecurity firm points out in a recently-released white paper: “APT41’s involvement is impossible to deny.”
Distilled to its essence, the uncovered APT41 attacks mean that before COVID-19 was even on US shores, Chinese state-actors were planning attacks targeting the healthcare and pharmaceutical sectors. One can only hope the cyberattacks were not coordinated alongside the spread of the virus – a virus that only became public months after a coordinated attack would have been first planned.
According to the World Economic Forum (“WEF”), “personal data represents an emerging asset class, potentially every bit as valuable as other assets such as traded goods, gold or oil.” Rethinking Personal Data: Strengthening Trust, at 7, World Economic Forum Report (May 2012). A subsequent paper from the WEF suggests “claims of personal data being ‘a new asset class’ are the strongest for . . . the inferred data [Institutions] possess about individuals on the basis that they invested the time, energy and resources in creating it.” Rethinking Personal Data: A New Lens for Strengthening Trust, at 17, World Economic Forum Report (May 2014).
Surveillance advertising prevents those privacy rights underlying these assets from being easily managed – it is not up to consumers whether they will be fed an ad based on previous website visits or purchases it will just happen. Indeed, according to a survey of 1,000 persons conducted by Ipsos Public Affairs and released by Microsoft in January 2013, forty-five percent of respondents felt they had little or no control over the personal information companies gather about them while they are browsing the Web or using online services. Indeed, even before the prevalence of online surveillance advertising, consumers faced privacy diminution from widespread tracking efforts. See Steve Bibas, A Contractual Approach to Data Privacy, 17 Harv. J. Law & Public Policy 591 (Spring 1994) (“Although the ready availability of information helps us to trust others and coordinate actions, it also lessens our privacy. George Orwell presciently expressed our fear of losing all privacy to an omniscient Big Brother. Computers today track our telephone calls, credit-card spending, plane flights, educational and employment records, medical histories, and more. Someone with free access to this information could piece together a coherent picture of our actions.”).
Current law, however, does not prevent someone from collecting publicly available information to create a comprehensive consumer profile – nor should there be any such law. Similarly, there should not be the right to opt out of having publicly recorded information sold or shared. The same rules, however, should not apply to personal information that is not collected solely from public sources.
This does not mean companies should have the unfettered right to use personal data. To address the market disparity between owners of personal data “assets” and those companies who monetize this data, Alastair Mactaggart launched in 2017 a California ballot initiative that led to the enactment of the California Consumer Privacy Act (CCPA). Now that CCPA has come online – albeit in a weakened form due to the amendments signed into the law, Mr. Mactaggart is pushing a new ballot initiative that presumably will strengthen CCPA.
While the EU by way of its General Data Protection Regulation (GDPR) ultimately looks to protect the EU and its residents from countries with weaker data processing safeguards, the path begun by CCPA – and continuing with Mactaggart’s latest ballot initiative – The California Privacy Rights and Enforcement Act of 2020 (Mactaggart 2020 Ballot Initiative), seeks to protect individuals on a more fundamental level by giving them novel statutory rights. For example, so long as companies are compliant with GDPR’s processing legal requirements and have a legal basis to conduct such processing, data subjects are left without any real financial recourse. Under GDPR, data subjects may be provided with specific rights, including the right to erasure, processing, portability, access and correction, etc., yet these rights are in no way transferable or of any value apart from GDPR’s regulatory scheme.
CCPA apparently has as its core mission the bringing of transparency to the use of consumer data. Before the enactment of CCPA, California was like all other states in that its residents could not readily learn what personal information a business had collected about them, how such information was used, and how to prevent such use from taking place in the future. Despite similar protections in GDPR, the fact that GDPR precludes processing of data unless certain requirements are met, represents a fundamental difference between the US and EU approaches. Under the EU approach, subject to certain exceptions a company can continue processing data as long as this GDPR data processing regime is followed. Under the CCPA approach, consumers have a say on whether processing takes place no matter what level of compliance as long as financial triggers exist for the use of the data.
State legislatures should study the Mactaggart 2020 Ballot Initiative given its correction of defects and weaknesses found in CCPA while still pushing forward CCPA’s consumer-first mandate. This does not mean, however, the Mactaggart 2020 Ballot Initiative is not without flaws. The suggestion that a browser-based solution can easily address the “Do Not Sell” requirement is flawed given the 12-month wait period before a company can again request consent after a “Do Not Sell” request. When taking into consideration VPN usage and the transient nature of a browser’s tracking tools, a future viable solution will require much more of a comprehensive technology framework – all the while without requiring users to create a new account. Cal. Civ. Code § 1798.135(a)(1)–(2) (precluding companies from requiring consumers to create a new account as a means of enforcing their right to bar sales of data).
Moreover, the CCPA’s Sisyphean task of creating a “Do Not Sell My Personal Information” link that is both “clear and conspicuous” and yet found on every page that collects personal information is not rectified in the Mactaggart 2020 Ballot Initiative. With most compliant sites, links have simply been added to every footer for those site visitors with a California IP address – even if generated by a VPN, or they are simply directed to a CCPA-specific page. A footer link is hardly “clear and conspicuous” yet that coupled with a linked page having a “Do Not Sell My Persona Information” button is now the regulatory-accepted compliance tool for this requirement.
CCPA recognizes that the consumer data problem relates to the vast amounts of information in the hands of few data merchants. There are also Congressional efforts focused on combating large bad actors by instilling more transparency in the data collection process. Specifically, U.S. Sens. Mark R. Warner (D-VA), Josh Hawley (R-MO) and Richard Blumenthal (D-CT) have introduced “the Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act, bipartisan legislation that will encourage market-based competition to dominant social media platforms by requiring the largest companies to make user data portable – and their services interoperable – with other platforms, and to allow users to designate a trusted third-party service to manage their privacy and account settings, if they so choose.” The bill expressly focuses on only those technology platforms with over 100 million monthly active users. As stated in the press release, “Sens. Warner and Hawley have partnered on the DASHBOARD Act, legislation to require data harvesting companies such as social media platforms to disclose how they are monetizing consumer data, as well as the Do Not Track Act, which would allow users to opt out of non-essential data collection, modeled after the Federal Trade Commission’s (FTC) “Do Not Call” list.”
As with CCPA, the Mactaggart 2020 Ballot Initiative, and other state initiatives, federal initiatives generally focus on transparency – helping consumers understand what and how data is collected; control – allowing consumers reject usage of personal data; and accountability – providing adequate data security and compliance coupled with consumer consents. Ultimately, these are the three pillars of any privacy law worth enacting. There is one more pillar, however, that has not gotten much attention yet is equally important.
A Right of Compensation
Lacking in current federal and state privacy laws and bills is the statutory pronouncement that consumers have an actual property right derived from their personal data. Providing for a specific statutory property right that is fixed and delineated in a privacy law will make transparency, control and accountability much easier to enforce.
The privacy community has long toyed with ascribing property rights to personal data. See Julie E. Cohen, Examined Lives: Informational Privacy and the Subject as Object, 52 Stan. L. Rev. 1373, 1379 (2000) (“One answer to the question “Why ownership?” then, is that it seems we simply cannot help ourselves. Property talk is just how we talk about matters of great importance. In particular, it is how we talk about the allocation of rights in things, and personally-identified information seems “thingified” (or detached from self) in ways that other sorts of private matters—intimate privacy, for example—are not. On this view, the “propertization” of the informational privacy debate is a matter of course; it merely testifies to the enormous power of property thinking in shaping the rules and patterns by which we live.”).
Some have voiced preemptive opposition to any data ownership approach. Seegenerally Sarah Jeong, We don’t allow people to sell their kidneys. We shouldn’t let them sell the details of their lives, either, The New York Times (July 5, 2019) (“Legally vesting ownership in data isn’t a new idea. It’s often been kicked around as a way to strengthen privacy. But the entire analogy of owning data, like owning a house or a car, falls apart with a little scrutiny. A property right is alienable — once you sell your house, it’s gone. But the most fundamental human rights are inalienable, often because the rights become meaningless once they are alienable. What’s the point of life and liberty if you can sell them?”); Mark MacCarthy, Privacy Is Not A Property Right In Personal Information, Forbes (November 2, 2018) (“Some commentators new to the privacy debate are quick to offer what they think is a clever idea: assign property rights over personal information to the user and let the marketplace decide what happens next. Whether this idea is meritorious has big implications for how we think about things like data portability and consent. Turns out it’s wrong.”).
As referenced in Mark MacCarthy’s opinion piece, the notion of personal data as property conflicts with the reality, for example, that medical information can simultaneously potentially be owned by patients, medical schools, pharmacies, doctors, pharmaceutical companies, EMR software vendors, advertising companies and Internet service providers. Opponents of data property rights also wonder how property ownership rights will be allocated – for associated payments or veto power, to the constituent owners.
It can also be argued that personal data continually
percolates uncontrolled around the world and constitutes a “social good” that
can never be owned by individuals. For example,
it is the underpinning of a good deal of medical research that ends up curing
disease. Information concerning a
consumer’s interaction with others presumably also allows participants to these
interactions to also claim ownership of related inferred data to themselves. Moreover, it is easy to argue the First
Amendment should bar the creation of a data property regime given it might
potentially stifle speech between parties.
The “social good” argument is likely the one with the strongest appeal. For example, on November 11, 2019 The Wall Street Journal exposed Google’s “Project Nightingale” and its resulting company access to the health information maintained by Ascension – one of the nation’s leading health systems. In a November 11, 2019 blog post, Google explained that this arrangement was to support Ascension “with technology that helps them to deliver better care to patients across the United States.” What is noticeably absent from the blog post is whether Google will also obtain access to patient medical records in a deidentified or other manner. This is noteworthy given last year researchers at Google announced a way to predict a person’s blood pressure, age, and smoking status simply from an image of their retina. In order to do so, however, Google first had to analyze retinal images from 284,335 patients. Given health research is obviously a “social good” the use or sale of deidentified protected health information (PHI) has long been an accepted use of medical data. Oregon’s failed Senate Bill 703 would have been the first in the nation to require specific consent for the sale of deidentified PHI that is now currently sold each year for billions.
No matter how they are ultimately couched, all of the paternalistic arguments against individuals having property rights in their data still miss the mark. First, simply because a privacy right may be perceived as “inalienable” – as it is under the California Constitution, does not mean there cannot be transferable “compensation units” derived from such rights. Indeed, certain inalienable rights, e.g., right to freedom, right to property, etc., are routinely suspended during a trial and after conviction based on the voluntary commission of a crime. This unfortunately happens every day throughout the country. There is no reason a person should be precluded from voluntarily transforming certain ascribed rights into fungible ownership interests for a set duration and upon a specific set of circumstances. No one currently corrals persons living on the streets claiming they need to assert their right to privacy despite the fact outdoor sleeping is obviously a knowing waiver of a right to privacy. Similarly, persons every day voluntarily join affinity clubs to obtain rewards while trading away unknown personal data in an unknown surveillance arrangement. Such conduct certainly does not mean the inalienable “right to privacy” was shredded up and destroyed by such individuals.
The fact
that multiple parties may claim ownership rights in the same personal data also
does not negate the fact an ownership regime can viably exist – only that it
will require careful coordination and adequate technology to implement. Moreover, any argument based on the First
Amendment also misses the mark in the same way no one has a First Amendment
right to produce a copyright-protected play without proper consent from the writer.
Providing consumers with the ability and “statutory right to trade one’s personal data” – even if the fair market value of such data might be actually quite minimal, is the actual specific ownership right that should be statutorily created. Noted academics long ago suspected this might be the correct path to take. See Julie E. Cohen, Examined Lives: Informational Privacy and the Subject as Object, 52 Stan. L. Rev. 1373, 1391 (2000) (“A successful data privacy regime is precisely one that guarantees individuals the right to trade their personal information for perceived benefits, and that places the lowest transaction cost barriers in the way of consensual trades. If individuals choose to trade their personal data away without placing restrictions on secondary or tertiary uses, surely it is their business. On this view, choice rather than ownership is (or should be) the engine of privacy policy. What matters most is that personal data is owned at the end of the day in the manner the parties have agreed.”) (emphasis added); Id. at 1383 (“A relational approach to personally-identified data might, but need not, assign “ownership” or control of exchange based on possession.”); Richard A. Posner, The Right of Privacy, 12 Ga. L. Rev. 393, 394 (Spring 1977) (“People invariably possess information, including facts about themselves and contents of communications, that they will incur costs to conceal. Sometimes such information is of value to others: that is, others will incur costs to discover it. Thus we have two economic goods, “privacy” and “prying.” . . . An alternative [economic analysis of privacy] is to regard privacy and prying as intermediate rather than final goods, instrumental rather than ultimate values. Under this approach, people are assumed not to desire or value privacy or prying in themselves but to use these goods as inputs into the production of income or some other broad measure of utility or welfare.”) (emphasis added).
Current efforts at creating a statutory privacy regime can actually be considered precursors to a statutory “transactional property” approach. Under CCPA: “A business may offer financial incentives, including payments to consumers as compensation, for the collection of personal information, the sale of personal information, or the deletion of personal information.” Cal. Civ. Code § 1798.125(b)(1). Indeed, the healthcare privacy regime of HIPAA long understood the possibility PHI might be sold by a covered entity. See45 CFR § 164.508(a)(4)(i) (“Notwithstanding any provision of this subpart, other than the transition provisions in § 164.532, a covered entity must obtain an authorization for any disclosure of protected health information which is a sale of protected health information, as defined in § 164.501 of this subpart. (ii) Such authorization must state that the disclosure will result in remuneration to the covered entity.”). Moreover, HIPAA even anticipates state statutes having greater protections. See 45 CFR § 160.203 (There is an express exemption under HIPAA for State law when that “State law relates to the privacy of health information and is more stringent than a standard, requirement, or implementation specification adopted” under HIPAA).
A transactional property approach empowers consumers without placing unnecessary barriers on the “social good” use of data – it is even the trigger for certain of CCPA’s consumer rights. Consumers could either choose to accept certain new statutory protections, i.e., the right to delete, or lease their data based on an economic model that would allow for the transparency needed to determine whether the data is even able to be sold. If data is not actually salable, consumers should be limited in how they can prevent companies from using their data given the countervailing social good inherent in the free exchange of consumer data. If there is no existing viable market for the consumer data in question, there should not be any associated requirement that a company pay any set amount for such data or be precluded from using such data in a deidentified format. In other words, the burdens claimed by opponents of a property approach would be mitigated – consumers would only be given a piece of the pie and not the whole pie and any purported “veto power” would never really come into existence. Moreover, a regulatory framework that allows market dynamics dictate the applicability of protections afforded to consumers is likely the fairest approach to both consumers and data merchants alike.
Similar to the way the Mactaggart 2020 Ballot Initiative proposes the creation of a new California agency, namely the California Privacy Protection Agency (CPPA) which would cost $10 million to implement, it is suggested that a public benefit corporation ensure the necessary framework get implemented. In other words, unlike in California where CPPA currentlly only buttresses the enforcement and regulatory work done by the California Attorney General’s Office, a public Data Protection Corporation (DPC) would coordinate with the private sector to ensure the requirements of a privacy law are viable and can come to life. Simply put, the creation of the DPC will ensure the current compliance problems visited on those companies subject to CCPA never come to life. There is analogous precedent for the creation of the DPC found in the environmental arena.
No one can dispute one primary purpose of an environmental law is to either prevent potential toxins from infiltrating land, water and air or to remove and properly dispose of the pollutants if already released. Addressing improperly used consumer data similarly needs a massive cleanup effort and can take a page from how environmental concerns were previously addressed in New York. To that end, in 1970 the New York State Environmental Facilities Corporation (EFC) was created by the New York State Environmental Facilities Corporation Act.
As a public benefit corporation of the State, EFC is a corporate entity separate and apart from the State. State law empowers the EFC to provide financing for certain environmental projects as well as “render technical advice and assistance to private entities, state agencies and local government units on sewage treatment and collection, pollution control, recycling, hazardous waste abatement, solid waste disposal and other related subjects.” Indeed, as stated by the EFC on its website, its mission is to provide “expert technical assistance for environmental projects in New York State. . . . We promote innovative environmental technologies and practices in all of our programs.”
Similarly, the DPC would provide technical assistance in conformance with the enacting law’s mandate to protect consumer data. At a basic level, there is never the need to grant access to all data for all purposes to all companies interested in consumer data. Whether by evaluating current zero-knowledge proof solutions – where a verifier has “zero knowledge of” information unnecessary for an actual verification, or determining the feasibility of certain self-sovereign identity solutions, the DPC can ultimately provide the necessary “secret sauce” for a successful privacy law. Statutory efforts to legislate on privacy will forever be hamstrung if implementation technology remains an afterthought that will presumably simply sort itself out after a law is passed. The goal of the DPC would be to ensure there are adequate technical means available to execute on the legislation passed – not to pick technology sides or inadvertently delay private sector efforts at technology development.
To sum up, the four major components needed in a successful privacy law should begin with the creation of a statutory “Right of Compensation” and end with the means to effectuate such a right:
Creation of a “transactional property right” in consumer data giving rise to a new Right of Compensation;
Development of a compliance framework that would only apply to companies maintaining significant amounts of consumer data;
Insertion of rights and obligations that focus on the three established privacy pillars of transparency, control and accountability; and
Creation of a “Data Protection Corporation” – a public corporation largely tasked with ensuring that what is statutorily required is feasible from both a technological and market perspective.
Obviously, all companies benefit by moving towards a better data privacy regime. As recognized by Mastercard’s Chief Privacy Officer: “Privacy and accountability are central to our data-driven innovation, and have become key differentiators for our brand. This research reinforces the fact that privacy is a critical investment for forward-looking companies.”
In one of the first studies to estimate privacy returns for companies on a global scale, Cisco’s 2020 Data Privacy Benchmark Study assessed the benefits companies see in areas such as “operational efficiency, fewer and less costly data breaches, reduced sales delays, [and] improved customer loyalty and trust”. More than 70% of those surveyed indicated they saw “significant” or “very significant” benefits in each of these areas based on their investments in data privacy initiatives. As for the actual quantification of these benefits, for every $1 of investment, the average company purportedly received $2.70 of benefit. For Microsoft, this monetary lift does not appear to drive its privacy epiphany.
Seeking to erase years of insecure Windows development contributing to countless data incidents, Microsoft’s newfound focus on data privacy the past five years originates from the very top. It’s privacy head recently testified before Congress exactly because she is a longstanding privacy steward now seeking Congressional help for consumers. Microsoft CEO Satya Nadella went one step further at the 2020 World Economic Forum in Davos by suggesting that consumers obtain compensation for their data: “Data that you contribute to the world has utility for you, utility for the business that may be giving you a service in return — and the world at large. How do we account for that surplus being created around data? And who is in control around giving those rights?” He recognized: “What if the consumer benefited from their data as well as advertisers? More work needs to be done around data dignity – and new business models in the 2020s.”
This is not to say Microsoft is now rushing to compensate consumers for the use of private data. Recently, it was uncovered that Microsoft built cancer algorithms using patient data obtained from Providence Health & Services in Renton, Washington. No report exists of Microsoft compensating patients for this use of their data. Nevertheless, when it comes to building the brightest path for data privacy there remains no other BigTech company suggesting that consumers be compensated for their data or promotes the use of a decentralized identity for consumers – the likely precursor to any viable “right of compensation” statutory scheme. When it comes time to finally do the right thing, Microsoft will apparently be leading the way to ensure it gets correctly done.
UPDATE: March 5, 2020
According to the Verge Tech Survey 2020: “Microsoft leads big tech companies in the number of Americans who say they trust it, at 75 percent of survey respondents. Amazon is close behind, at 73 percent. Pulling up the rear is Facebook: just 41 percent of Americans say they trust the company to safeguard their personal information.”
Class counsel alleged in the complaint that Facebook’s “Tag Suggestions” program – a now-terminated program that scanned for and identified people in uploaded photographs for purposes of photo tagging, improperly collected and stored biometric data without prior notice or consent in violation of the Illinois Biometric Information Privacy Act (BIPA), 740 Ill. Comp. Stat. 14/1 et seq. Specifically, Section 15(b) of BIBA provides that biometric data may not be obtained without (1) written notice that biometric data is at issue, (2) written notice of why and for how long the data is being collected and stored, and (3) written consent from the subject.
Facebook sought dismissal arguing the lack of Article III standing necessary for all federal lawsuits – in essence, arguing that the mere technical violation of BIBA’s statutory notice and consent provisions did not actually cause any real harm to the plaintiffs. In rejecting that argument, the District Court, found that actual and concrete harm sufficiently existed to create Article III standing. Patel, supra, 290 F. Supp. 3d at 953 – 954 (“BIPA vested in Illinois residents the right to control their biometric information by requiring notice before collection and giving residents the power to say no by withholding consent. As the Illinois legislature found, these procedural protections are particularly crucial in our digital world because technology now permits the wholesale collection and storage of an individual’s unique biometric identifiers — identifiers that cannot be changed if compromised or misused. When an online service simply disregards the Illinois procedures, as Facebook is alleged to have done, the right of the individual to maintain her biometric privacy vanishes into thin air. The precise harm the Illinois legislature sought to prevent is then realized.”).
Even though this suit may still be dismissed on other grounds given the only argument that actually percolated all the way up to the Supreme Court was the standing issue, this was definitely Facebook’s strongest defense so it now faces likely exposure in the billions. A class comprised of seven million potential members with statutory damages based only on a single uploaded picture per person could yield damages of between $7 billion for a negligence finding and $35 billion for an intentional or reckless finding. In addition, this remains only one of several BIPA class actions against Facebook currently litigated around the federal judiciary. Despite its $5 billion mea culpa with the FTC, Facebook’s privacy exposures are certainly nowhere near its rear view mirror.
The Supreme Court may eventually take on a new privacy standing case but it will likely be a specific Google case that gets the nod – a case where the Supreme Court previously ruled: “Because there remain substantial questions about whether any of the named plaintiffs has standing to sue in light of our decision in Spokeo, Inc. v. Robins, 578 U. S. ___ (2016), we vacate the judgment of the Ninth Circuit and remand for further proceedings.” And, if this Google “referrer headers” case does not get the nod, as states continue to push the boundaries of privacy rights, the Supreme Court will certainly revisit its Spokeo decision to determine whether the violation of some future privacy law merits federal standing – especially when only a “trifle of injury” is alleged. Ultimately, the question that may be answered by the Court is whether the mere alleged violation of a law addressing digital privacy rights sufficiently constitutes an Article III injury. See Patel, supra, 932 F. 3d at 1273.
In December 2017, it was recognized that in “the same way that the World Wide Web was never defined solely by Pets.com, the benefits of blockchain technology should never be defined solely by the latest price of Bitcoin.” Now that the mid-2018 crypto bloodbath is well in everyone’s rearview window, it is clear that blockchain and DLT technologies have firmly taken corporate root and may actually someday bear some real fruit.
No one can deny 2019 has seen great strides in the implementation and corporate adoption of enterprise DLT solutions as well as proactive growth in the regulatory oversight of blockchain technologies:
In July, the SEC and FINRA issued a joint statement providing their position on the application of federal securities laws and FINRA rules to the potential custody of digital asset securities.
As exemplified by current projects emanating from the likes of J.P. Morgan and Fidelity Digital Assets, financial institutions will continue in 2020 taking calculated risks deploying blockchain and DLT technologies.
Even though it may still may be another year or two before any consumer products hatched from these new technologies ever reach mass markets, 2020 may eventually be known as the year blockchain and DLT went mainstream in corporate America.
On December 4, 2019, testimony given by Julie Brill, Maureen Ohlhausen, Laura Moy, Nuala O’Connor and Michelle Richardson helped move the ball forward for a new bipartisan federal privacy law. Their testimony was right on the money – except for the natural corporate disdain for a private right of action, and the potential for a federal privacy law seems greater than ever. For a great overview, IAPP has released a comparison of the two most recent federal attempts to curb unbridled surveillance capitalism.
With any luck, there may be a new federal law on the books in 2020. Not waiting to see what happens in Washington, states like New York and New Jersey will likely follow the lead of California and pass their own very comprehensive privacy laws in 2020 – perhaps well exceeding what is found in California. Having such laws succumb to express preemption may end up being the most compelling legislative driver for certain federal lawmakers now on the fence.
On November 5, 2019, the University of Rochester Medical Center (URMC) agreed to a corrective action plan and payment of $3 million due to the 2013 and 2017 loss of an unencrypted flash drive and theft of an unencrypted laptop, respectively.
The apparent reason for the large fine was the fact that “in 2010, [the Office for Civil Rights (OCR)] investigated URMC concerning a similar breach involving a lost unencrypted flash drive and provided technical assistance to URMC. Despite the previous OCR investigation, and URMC’s own identification of a lack of encryption as a high risk to ePHI, URMC permitted the continued use of unencrypted mobile devices.”
As with most OCR enforcement actions, there is typically an industry wide message with each large fine – in this case there are two, namely the failure to encrypt will simply no longer be tolerated and once given a pass by OCR be sure not to waste it.
UPDATE: December 3,
2019
In keeping with its apparent practice of announcing HIPAA violation resolutions in clusters, on November 7, 2019, OCR announced a $1.6 million penalty against the Texas Health and Human Services Commission for violations of the Privacy and Security Rules had between 2013 and 2017. The primary breach occurred when “an internal application was moved from a private, secure server to a public server and a flaw in the software code allowed access to ePHI without access credentials.” OCR also determined that in addition to the impermissible disclosure, there was a failure “to perform an accurate, thorough, and enterprise-wide risk analysis that meets the requirements of45 C.F.R. § 164.308(a)(l)(ii)(a) [Security Rule].” Interestingly, the OCR applied its new civil money penalty caps published in April.
And, on November 27, 2019, OCR revealed its enforcement settlement with a hospital network that sent bills to patients containing “the patient names, account numbers, and dates of service” of 577 other patients. Sentara Hospitals – based in Virginia and North Carolina, did not think such information was protected health information (PHI) and only notified the 8 patients where there was also a disclosure of treatment information. Given that Sentara “persisted in its refusal to properly report the breach even after being explicitly advised of their duty to do so by OCR”, it was stuck with a $2.175 million penalty. Given that PHI has been interpreted to include healthcare payment information linked to a specific individual, Sentara was obviously taking a chance when it ignored OCR’s advice. On the other hand, protected health information is expressly defined to mean “individually identifiable health information” so there was at least a colorable argument that payment information – even if related to the provision of healthcare, is not “health information” in any direct sense. 45 CFR § 160.401.
Providing some year-end advice that should also not be disregarded, on December 2, 2019, OCR released its Fall 2019 Cybersecurity Newsletter focusing on ransomware and how covered entities and business associates should apply the Security Rule as a mitigation tool against this threat.
These latest announcements were clustered to push one primary message, namely do not disregard explicit counsel from OCR given that when it comes to the OCR it most certainly holds a grudge when ignored. In addition, CE’s and BA’s are well advised to deploy an enterprise-wide risk analysis that determines whether there are out-facing vulnerabilities that should be patched. And finally, as shown by the significant amount assessed against the University of Rochester Medical Center, future disregard of encryption as a risk mitigation tool will likely lead to enhanced penalties going forward.
On October 24, 2019, Chinese President Xi Jinping was reported to lavish praise on the promise of blockchain technology arguing that it is imperative for China to accelerate its development. According to a local Chinese news agency, he said: “We must take the blockchain as an important breakthrough for independent innovation of core technologies, clarify the main direction, increase investment, focus on a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation.” He also emphasized “the role of blockchain in promoting data sharing.”
Despite the obvious self-serving nature of his China references and likely disdain for China given Facebook has been banned in China for over a decade, Zuckerberg is correct in recognizing a potential long-term threat from China. Tied to its clear lead in 5G – by way of Huawei, achievements in AI computing, and long-ago implemented digital payment ecosystem, China is developing a real-time tracking system for all of its citizens – with the potential of exporting such capabilities to other countries and even deploying them outside of China to non-citizens. Setting up its own national digital currency may actually be beside the point.
Indeed, blockchain technology may not even be needed by President Xi Jinping to create a permanent record of all citizen interactions. China may possibly use blockchain technology or distributed ledger technology for grandiose tracking plans, or it may ultimately not bother given possible security and scalability challenges with such nascent technologies.
Whatever the direction ultimately taken by China, the takeaway from President Xi Jinping’s recent comments is clear – China will invest nationally in new technologies such as blockchain whereas the United States will largely stay on the sidelines and rely on private companies to innovate and deploy new technologies – which is actually Zuckerberg’s argument for allowing Libra to proceed.
