Privacy breaches: There oughta be a law?

by on May 9, 2011 · 3 comments

“[There’s No Data Sheriff on the Wild Web](,” is an article by Nick Bilton in the *New York Times* this weekend, pointing out that no federal law punishes the massive breaches of personal information like the recent Epsilon and Sony cases.

>”There needs to be new legislation and new laws need to be adopted” to protect the public, said Senator Richard Blumenthal, Democrat of Connecticut, who has been pressing Sony to answer questions about its data breach and what the company did to avoid it. “Companies need to be held accountable and need to pay significantly when private and confidential information is imperiled.”

>But how? Privacy experts say that Congress should pass legislation regulating companies if they collect certain types of information. If such laws existed today, they say, Sony could be held responsible for failing to properly protect the data by employing up-to-date security on its systems.

>Or at the very least, companies would be forced to update their security systems. In underground online forums last week, hackers said Sony’s servers were severely outdated and infiltrating them was relatively easy.

While there may be no law requiring site operators to keep their networks updated and secure, it’s not as if they currently have no incentive to do so, and it’s not as if they are completely unaccountable. Witness the (at least) two lawsuits already filed against Sony. [One in Canada]( for $1 billion and [one in the U.S.]( looking for class action status. Not to mention that the PlayStation network is still down and losing money, as well as Sony’s reputation loss. Are you now more or less likely to buy a PlayStation as your next console?

To the extent we do need legislation, it’s not to tell firms to keep their Apache servers up to date. There are plenty of terrible things that happen to a firm if it doesn’t take the security of its customers’ data seriously. Sony is living proof of that. Adding a criminal fine to the pile likely won’t improve private incentives. What prescriptive legislation might to do, however, is put federal bureaucrats in charge of security standards, which is not a good thing in my book.

The missing incentive here might be the incentive to disclose that a breach has occurred. Rep. Mary Bono Mack [has suggested that she might introduce legislation]( to require such disclosures. Such legislation may well be responding to a real and harmful information asymmetry. If a firm could preserve such an asymmetry, then the usual incentives wouldn’t work.

Rather than trying to legislatively predict and preempt security breaches, when it comes to the security of personal information it might be better to seek a policy of transparency and resiliency. As I explain in my [latest TIME Techland piece](, we may now be in a world were it’s next to impossible to ensure that at lease some of our private personal information that is digitized and connected to the net won’t be compromised. To attempt to put that genie back in the bottle might be not only futile, but counterproductive. Instead, we may be better served by being informed when our data is compromised, seeking civil redress, and learning to cope with the new reality. As I write in the piece:

>On net, the fact that we now live in a hyper-connected world where information can’t be controlled is a good thing. The cultural, social, economic and political benefits of such a transparent system will likely outweigh the price we pay in privacy and security. And that’s especially the case if learn to live with that reality.

>Human beings are incredibly resilient, and faced with a new environment, we adapt. When major changes take place—-from natural disasters to the Industrial Revolution—-we learn to live in the new context, but only if we acknowledge the new reality. We need to get used to this new world in which information can’t be controlled.

>Maybe a new social norm will develop that accepts that everyone will have embarrassing facts about them online, and that it’s OK because we’re human. Maybe if we assumed that data breaches are inevitable, we wouldn’t give up on securing networks, but we might do more to cope. For example, the technology exists to make all credit card numbers single-use to a particular vendor, so they’re of little value to hackers.

>Welcome to the new world. Information wants to be free. The Net interprets information control as damage and routes around it. Get used to it.

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