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The Cybersecurity Race: Executive Branch Takes The Lead While Congress Watches From The Bleachers




by:
Alexander W. Major
Sheppard, Mullin, Richter & Hampton LLP - Washington Office

 
April 22, 2014

Previously published on April 18, 2014

The federal government sector has been abuzz lately with whispers and shouts about pending cybersecurity regulations, frameworks, and requirements. This attention is not particularly surprising, especially given the recent high-profile data breaches, the litigation threats surrounding those breaches, the recent identification of the encryption-disabling, consumer data threatening “Heartbleed SSL” OpenSSL vulnerability, and recent reports that the September 2013 cyber-incursion into the U.S. Navy’s Intranet network could have been prevented with the proper security contracting mechanism. Notably, however, while these stories - and the resultant damages that these stories’ topics leave in their wake - remain in the headlines, Congress has yet to act (and according to Senator Evan Bayh (D-IN), will likely not be acting anytime soon). By contrast, the Executive branch, and especially the FTC, is in a full-on sprint and tackling cybersecurity wherever it can be found.

Speaking in New York at the American Bar Association Section of International Law 2014 Spring Meeting, Senator Bayh indicated his belief that comprehensive cybersecurity legislation will not be coming out of the 113th Congress. Hovering between prophecy and promise, Senator Bayh stated that only upon a detrimental cyber-attack “that significantly harms the country,” would he suspect effective cyber-legislation to be passed. For a myriad of reasons let us hope that doesn’t happen because, aside from the harm an attack will cause, Senator Bayh also warned that legislation in the wake of an attack would likely result in “mandatory standards that will make what’s been proposed, at least right now, pale in comparison. Because we always way overreact once we’ve been attacked, and both sides need to get that in their minds, because that’s what is coming,”

Meanwhile, while Congress waits and opines, industry should be aware that the Executive branch is on the offensive. Here is a summary of some of the most current events:

  • On January 23, 2014, the General Services Administration (“GSA”) and the U.S. Department of Defense (“DOD”) published the Final Report of the Joint Working Group on Improving Cybersecurity and Resilience through Acquisition. The report proposed six overarching changes be made to the U.S. acquisition strategies to imbue cybersecurity concerns into all stages of federal purchasing. While still only recommendations, federal contractors should take note that many of these recommendations may find their way into new contracts, options, and renewals. Most notably:

    1. Instituting baseline cybersecurity requirements as a condition of contract award;
    2. Requiring government contractors to receive training about the acquisition cybersecurity requirements of the organization’s government contracts;
    3. Developing Common Cybersecurity Definitions for Federal Acquisitions that would be included in the Federal Acquisition Regulations;
    4. Creating a government-wide hierarchy of cyber-risk criticality for acquisitions;
    5. Assuring secure supply chains and authentic parts (which, unsurprisingly, overlaps with proposed DOD rules at DFARS 252.246-7007, addressing risks in supply chain management)
    6. Integrating security standards into acquisition planning and contract administration.
  • On February 12, 2014, the National Institute of Standards and Technology (“NIST”), in coordination with industry, issued its “Framework for Improving Critical Infrastructure, Version 1.0.” The framework is rudimentary and limited in scope to addresses, for now, physical or virtual “critical infrastructure” of the United States whose loss would pose a “debilitating impact on security, national economic security, national public health or safety, or any combination thereof.” As a basic framework for cybersecurity, Version 1.0 is flexible and provides standard questions that may be answered with flexible tools while not prescribing what to do or what tools to buy. Adoption of the framework is encouraged but remains voluntary. However, advocates of the framework suggest that future participation may be incentivized by federal programs and grants, that the framework itself may become the de facto standard for private sector cybersecurity in data breach litigation, and that it may form the outline or basis for future legislation.
  • The Securities and Exchange Commission (“SEC”) recently held a cybersecurity roundtable on March 26, 2014 to address cybersecurity issues and its existing cybersecurity guidance. While there are currently no detailed regulations enacted, the SEC did issue cybersecurity guidance in October 2011. Based on the premise that securities laws are designed to elicit disclosure of timely, comprehensive and accurate information about risks and events that a reasonable investor would consider important to an investment decision, the guidance proposes that significant cybersecurity issues should be disclosed as risk factors under Regulation S-K. During the March 26 event, SEC Commissioner Luis Aguilar stated his continuing commitment to address cybersecurity risks and hinted at expanding the SEC’s non-rule, non-regulation, non-statement guidance “to ensure the proper functioning of the capital markets and the protection of investors.” While it is unclear what measures the SEC may take to address cybersecurity and data breaches, it is clearly an area that publicly traded companies should monitor and be prepared for, particularly where increased risks continue to proliferate in the media.
  • Finally, the Federal Trade Commission (“FTC”) recently tackled cybersecurity on two fronts, first by allaying concerns companies may have when sharing cybersecurity information and, second, by addressing the competitive impact of failing to abide by cybersecurity standards in enforcement actions.
    1. On April 10, 2014, the FTC and the Department of Justice issued a joint policy statement clarifying that the sharing of properly designed cyber threat information will likely not raise antitrust concerns. The agencies recognized that the sharing of cyber threat information has the potential to improve the security of information systems and emphasized that the legitimate sharing of cyber threat information can be viewed different than the sharing of competitively sensitive information such as current or future prices and output or business plans that may trigger antitrust concerns. Differentiating the two types of data, the guidance noted that the non-antitrust triggering cyber threat information would likely be technical and limited in nature and unlikely to raise competitive concerns.
    2. In enforcement actions, the FTC addressed cybersecurity issues when it settled charges against two companies that reportedly misrepresented the security of their mobile applications and failed to protect the transmission of the sensitive personal information of consumers. In a March 28, 2014 statement, the FTC noted that its decision reflects concern that many companies, like those cited, “have failed to properly implement SSL encryption” on their mobile apps and that the decision should serve as a warning to “remind app developers of the need to make data security central to how they design their apps.” Notably, one primary issue behind the FTC’s decision was one of the company’s lack of “a clearly publicized and effective channel for receiving security vulnerability reports.” And, in case there is any question as to whether the FTC has the authority to act against companies with allegedly faulty cybersecurity practices, one need look no further than an April 8, 2014 opinion from the U.S. District Court in the District of New Jersey. While stopping short of granting the FTC expansive cybersecurity policing power, the decision (and all the recent FTC actions related to cybersecurity) may stoke investigations, and even private law suits, related to so-called “deceptive” trade practices.

The key takeaway here is that companies should be wary of cybersecurity issues from every possible angle. Policy and compliance monitoring should take place anywhere cybersecurity or computer security is an issue. In terms of data breaches, while many states -such as California - may have comprehensive breach notification laws, companies should take note that even in the absence of a federal statute, the hodgepodge of general policies in place at a number of agencies allow for federal enforcement. The bottom line is that it is not just the hackers for which you need to remain vigilant, it is also the regulators - and there are an awful lot of them looking to make cybersecurity more “secure.” Whether you are a federal contractor, a public company, or a small-time app developer, make sure your compliance plan properly accounts for cybersecurity. Do not be lulled into complacency by a less-than energized Congress. For once, Congressional gridlock may be a good thing, as noted by Senator Bayh. Cybersecurity is too fast, too complicated, and too dynamic for the legislature to effectively tackle the issue responsibly. However, cybersecurity issues remain a focus of the federal government and the Executive Branch will continue to take the lead as terms such as “OpenSSL” and “Stack Overflow” become a part of the news cycle and our daily conversation.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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