United States: Cybersecurity 2017 – The Year In Preview: Trade Secret Theft Takes Center Stage

Last Updated: November 24 2016
Article by Stephen T. Bychowski

Editor's Note:  This is the first of an end-of-year series of posts examining coming trends in cybersecurity.  Posts will examine trends in state regulations, federal regulatory authority, the changing nature of the threat landscape, and HIPAA.  This post discusses a shift in concern from personal consumer information toward company trade secrets.

When it comes to the issue of data privacy and security, especially among lawyers, the discussion generally concerns personally identifiable information.  This includes names, addresses, social security numbers, emails addresses, passwords, etc. of individuals.  Beginning with California in 2002, states have been imposing privacy and security obligations on companies that store personally identifiable information.  Now, fourteen years later, almost every state has laws protecting the personally identifiable information of its residents.  Federal laws play an important role too.  For instance, when you add medical information to the mix, it becomes protected health information governed by the Health Insurance Portability and Accountability Act (HIPAA).  If the information is held by a financial institution, then Gramm-Leach-Bliley Act (GLBA) might apply.

These laws are generally designed to protect the sensitive information of individuals that companies maintain as part of their business. The laws can require companies to take reasonable steps to secure that data, stop it from being stolen or inadvertently disclosed, and in the event a breach occurs, to notify the effected individuals.  All of this is unquestionably important.  And part of the reason it is important is that an ever increasing number of nefarious individuals are attempting to steal the cache of personally identifiable information stored on the servers of businesses.  Part of the incentive for such hacks is that this information can be sold on the black market and used to commit identify fraud and other criminal activities.

This is the world in which we live, and these laws and their implications are the mainstay of data privacy and security discussions.  My prediction for 2017 is that the conversation will shift from the security of information about individual consumers to the security of sensitive business information.  This is important because when hackers break into Yahoo and LinkedIn and steal millions of usernames and passwords, as was announced this year, the laws discussed above apply, and the effect on the individual consumers is the primary concern.  But when hackers steal confidential financial information, secret formulas, ongoing research and development projects, confidential agreements with third parties, long-term business plans, etc., the state and federal data security and privacy laws discussed above generally do not apply.  Yet these breaches can be utterly disastrous for a company.  Once in possession of this data, hackers can make the information public, sell it to competitors, or use it for extortion.  Thus, companies are well advised to develop strategies and policies focused on protecting their business information from such attack.

These breaches are common and appear to be on the rise.  In fact, their prevalence could be much greater than it seems because, unlike data breaches affecting consumer information, data breach and security laws generally do not require public disclosure of breaches that only affect business information.  One example is ransomware, which is becoming a prevalent form of such breaches.  In a ransomware attack, malicious software takes control of the company's computers and encrypts all of the data, making the information inaccessible.  The hacker then demands a payment in exchange for the decryption key necessary to unlock the data.  Such an attack not only places sensitive business information into the hands of unknown hackers, but it also blocks the company from accessing its data.  If the company does not have adequate back-ups, the ransomware attack could mean that the data is gone unless the company pays the ransom.  But even when the victim pays, sometimes the hackers still do not provide the decryption key.  Moreover, paying the hackers only encourages similar attacks in the future, and the company could be unknowingly funding even worse criminal activities.  A recent study found that 47% of U.S. companies have experienced a ransomware attack in the past year.  The CEO of PhishMe, a cybersecurity company, recently reported: "Barely a year ago, ransomware was a concerning trend on the rise.  Now, ransomware is a fully established business model and a reliable profit engine for cybercriminals ...."

Cyberattacks by foreign governments and competitors are also on the rise.  And when foreign governments and competitors attack, trade secrets and other sensitive business information are the likely target.  For instance, back in April, U.S. Steel Corp. filed a trade complaint with the International Trade Commission alleging that the Chinese steel industry formed a cartel to set steel prices, and in collaboration with the Chinese government, stole U.S. Steel's trade secrets.  Similarly, Chinese hackers were recently accused of perpetrating attacks on U.S. technology and drug companies seeking intellectual property and trade secrets, including designs and research for unreleased products.  Finally, this time last year, Samsung announced that hackers attacked its network in an attempt to steal the technology behind its Samsung Pay service.

Because the data security laws discussed above are not designed to deal with theft of business information, victims need to pursue other avenues if they want to seek redress.  One option is the Computer Fraud and Abuse Act, which generally prohibits accessing a computer without authorization and obtaining information from that computer.  Critically, the act includes a civil cause of action.  Another option is the recently enacted Defend Trade Secrets Act.  This act creates the first federal civil cause of action for trade secret theft.  The act also includes a controversial civil seizure procedure that allows a court "in extraordinary circumstances" to order the seizure of property in order to prevent the dissemination of trade secrets.  State law can also provide viable causes of action.  For instance, in the event of a cyberattack by a competitor, claims for torturous interference and unfair competition might be appropriate.

In the end, 2017 will certainly be an interesting year for data privacy and security.  Massive hacks involving the theft of personally identifiable information will continue, if not increase.  But I think we will also see the rise of attacks targeted at sensitive business information.  Companies should ensure in the year to come that they have strategies and procedures in place to combat such attacks.

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