contracting for better cybersecurity

Shawn E. Tuma

Cybersecurity & Data Privacy Attorney

Scheef & Stone, LLP

[email protected]

Contracting for Better Cybersecurity

A smart man learns from his mistakes.

A wise man learns from the mistakes of others.

A fool never learns.

Cybersecurity is no longer just an IT issue—

it is an overall business risk issue.

Security and IT protect companies’ data;

Legal protects companies from their data.

Laws and regulations

Types Security Privacy Unauthorized Access

International Laws Privacy Shield GDPR

Federal Laws & Regs. HIPAA, GLBA, FERPA FTC, SEC, FCC, HHS

State Laws 48 states (AL & SD) NYDFS & Colorado FinServ

Industry Groups PCI, FINRA

Contracts 3rd Party Bus. Assoc. Data Security Addendum

1. Risk assessment.

2. Policies and procedures focused on cybersecurity.

• Social engineering, password, security questions

3. Training of all workforce on P&P, then security.

4. Phish all workforce (esp. leadership).

5. Multi-factor authentication.

6. Signature based antivirus and malware detection.

7. Internal controls / access controls.

8. No outdated or unsupported software.

9. Security patch updates management policy.

10. Backups segmented offline, cloud, redundant.

11. Incident response plan.

12. Encrypt sensitive and air-gap hypersensitive data.

13. Adequate logging and retention.

14. Third-party security risk management program.

15. Firewall, intrusion detection and prevention systems.

16. Managed services provider (MSP) or managed security services provider (MSSP).

17. Cyber risk insurance.

Common Cybersecurity Best Practices

Ancient Cybersecurity Wisdom

“Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing.”

“In all fighting the direct method may be used for joining battle, but indirect methods will be needed to secure victory.”

Lesson: Evaluate and audit third-parties’ security

• In re GMR Transcription Svcs., Inc., Consent Order (Aug. 14, 2014).

• FTC’s Order requires business to follow 3 steps when working with third-party service providers:

1. Investigate before hiring data service providers

2. Obligate data service providers to adhere to the appropriate level of data security protections

3. Verify that the data service providers are complying with obligations (contracts)

Lesson: Evaluate and audit third-parties’ security

In January 2014, SEC indicates that the new standard of care for companies may require policies in place for:

1. Prevention, detection, and response to cyber attacks and data breaches,

2. IT training focused on security, and

3. Vendor access to company systems and vendor due diligence.

NIST Cybersecurity Framework (prop. ver. 1.1)

• Adds “Supply Chain Risk Management (SCRM)” as a “Framework Core” function

• Coordinate cybersecurity efforts with suppliers of IT and OT (operational technology) partners

• Enact cybersecurity requirements through contracts;

• Communicate how cybersecurity standards will be verified and validated; and

• Verify cybersecurity standards are met.

Lesson: Know your contractual obligations

• Addendum to business contracts

• Common names: Data Security & Privacy Agreement; Data Privacy; Cybersecurity; Privacy; Information Security

• Common features:

• Defines subject “Data” / “Network” protected in categories

• Establishes acceptable and prohibited uses for Data / Network

• Establishes standards for protecting Data / Network (3rd / Nth)

• Allocates obligations and responsibility for incident• Notice, roles, expenses

• Requires binding third-parties to similar provisions

New York Department of Financial Services Cybersecurity (NYDFS) Requirements for Financial Services Companies + [fill in]• All NY “financial institutions” + third party service providers.

• Third party service providers – examine, obligate, audit.

• Establish Cybersecurity Program (w/ specifics):• Logging, Data Classification, IDS, IPS;• Pen Testing, Vulnerability Assessments, Risk Assessment; and

• Encryption, Access Controls.

• Adopt Cybersecurity Policies.

• Designate qualified CISO to be responsible.

• Adequate cybersecurity personnel and intelligence.

• Personnel Policies & Procedures, Training, Written IRP.

• Chairman or Senior Officer Certify Compliance.

Third Party Service Provider Security PolicySection 500.11

“Each Covered Entity shall implement written policies and procedures designed to ensure the security of Information Systems and Nonpublic Information that are accessible to, or held by, Third Party Service Providers.”

• P&P should be based on CE’s Risk Assessment and address the following, as applicable:

• The identification and risk assessment of TPSPs;

• Minimum CP required by TPSP to do business with CE;

• Due diligence process used to evaluate the adequacy of CP by such TPSP;

• Periodic assessment of such TPSP based on risk they present and continued adequacy of their CP.

• P&P shall include relevant guidelines for due diligence and/or contractual protections relating to TPSP and applicable guidelines addressing:

• TPSP’s P&P for access controls and MFA to IS / NPI

• TPSP’s P&P for use of encryption in transit and at rest;

• Notice to be provided to CE for Cybersecurity Event; and

• Reps and warranties addressing TPSP’s cybersecurity P&P

NEW YORK DEPARTMENT OF FINANCIAL SERVICES

CYBERSECURITY REGULATIONS

EU – General Data Protection Regulation (GDPR)• Goal: Protect all EU citizens from privacy and data breaches.

• When: May 25, 2018.

• Reach: Applies to all companies (controllers and processors): • Processing data of EU residents (regardless of where processing), • In the EU (regardless of where processing), or• Offering goods or services to EU citizens or monitoring behavior in EU.

• Penalties: up to 4% global turnover or €20 Million (whichever is greater).

• Remedies: data subjects have judicial remedies, right to damages.

• Data subject rights:• Breach notification – 72 hrs to DPA; “without undue delay” to data subjects.• Right to access – provide confirmation of processing and electronic copy (free).• Data erasure – right to be forgotten, erase, cease dissemination or processing.• Data portability – receive previously provided data in common elect. format.• Privacy by design – include data protection from the onset of designing systems.

Third Party Processing and Risk Under the

GDPR

• Controller, individually or with other controllers (jointly and severally), is responsible to the data subjects. Art. 26

• Processor only process on controller’s instructions. Art. 29

• Using a risk assessment, the controller must implement appropriate technical and organizational safeguards (incl. P&P) to ensure personal data is processed lawfully. Reassessment and maturation is required. Art. 24(1)

• Controller shall use only processors providing sufficient guarantees to implement appropriate technical and organizational measures to satisfy GDPR. Art. 28

• Processor must have controller’s written authorization to engage another sub-processor;

• Processor must have binding contract with controllerspecifying particulars of processing;

• Processor must be bound to confidentiality;

• Processor must demonstrate compliance and agree to audits and inspections;

• Nth processors liable to upstream processor, which is liable to the controller, which is ultimately liable.

• Non-regulated controllers and processors can contractually agree to be bound. Art. 42

EUROPEAN UNION

GENERAL DATA PROTECTION REGS.

Example Scenarios

“It’s not our fault!”

• Private security firm’s job applicants’ personal data (including identification of those with Top Secret security clearances) is exposed on an unsecured Amazon server.

• Firm says it wasn’t its fault, it was fault of its third-party vendor that we hired to process new job applications that left the data exposed.• Former CIA, NSA, Secret Service• Names, home addresses, telephone numbers, email addresses• Applicant transported nuclear activation codes• Applicant was “warden advisor” at Abu Ghraib black site

• Who do you think is responsible?

• Do you think a better contract would have helped?

• What would have helped prevent this?

“We can’t afford it”

• MegaCorp is a global leader in biotechnology and one of the world’s wealthiest companies. MegaCorp developed new highly confidential and proprietary bio-authentication technology that could solve the world’s cybersecurity problem by setting access rights to data based on users’ unique DNA.

• MegaCorp recognizes the cyber threat and has state-of-the-art cybersecurity for its network, having a larger cybersecurity budget than the revenue of many biotech companies.

• For testing to prove the technology works, MegaCorp turns to the 4 best biotech research facilities, known for the quality and integrity of their research, not their profitability.

• MegaCorp’s contracts with the facilities requires they maintain security and confidentiality of its intellectual property (IP).

“We can’t afford it” (cont.)

• During testing for MegaCorp, Research1 discovers an intrusion in its network. Due to budget limitations, its “IT guy” calls his buddy to do “forensics” and discover Research1’s network was being used to mine Bitcoin. They block the hacker and conclude “no problem.”

• Two weeks later Research1 gets hit with ransomware and a demand for $100,000 paid in Bitcoin. IT guy was able to restore the network from backups so he sent a taunting email to the hacker, just for fun. He also ignored that lawyer who warns of possible persistent attack and said it may be a legal breach.

• One week later the hacker emails Research1’s Board of Directors saying they have MegaCorp’s data, demand $1million which it can’t afford to pay.

Lessons from “We can’t afford it!”

• Larger enterprises have a better appreciation of cyber risk and spend more resources on it. SMBs are not there … yet … still thinking, “we can’t afford it,” is justifiable.

• Does the harm to MegaCorp’s IP change depending on whether taken from it or Research1?

• MegaCorp would crush Research1 in a lawsuit … so what?

• MegaCorp would have gladly paid the $1million ransom to try and protect its IP, even with no guarantee.

• What contractual terms would have helped MegaCorp?

• What practical discussions would have helped MegaCorp?

• What risk transfer devices would have helped?

• What technology would have helped?

Key Takeaways

Focus on basic principles

• Two primary reasons for cybersecurity in contracting are to:

• Minimize risk, including third-party risk; and

• Determine the process and responsibility for incidents.

• Risk can be reduced to two basic things: protecting –wherever and however – and responding to incidents concerning:

• Networks

• Data

Checklist: Using contracts to manage third-party risk

Focus on objectives: protecting, responding, responsibility of data/networkStaff appropriatelyUnderstand facts of relationship/transactionUnderstand risks by thinking worst case scenario from outsetMinimalize risks: do not risk it if you do not have toDiscuss objectives, facts, risks, protection with those responsibleAssess third-party’s sophistication and commitmentAgree upon appropriate protectionsInvestigate ability to complyObligate compliance, notification (to you), responsibilityInclude in incident response planningCyber Insurance: transfer risk where possible

• Board of Directors & General Counsel, Cyber Future Foundation• Board of Advisors, North Texas Cyber Forensics Lab• Policy Council, National Technology Security Coalition• Cybersecurity Task Force, Intelligent Transportation Society of America• Cybersecurity & Data Privacy Law Trailblazers, National Law Journal (2016)• SuperLawyers Top 100 Lawyers in Dallas (2016)• SuperLawyers 2015-16 (IP Litigation)• Best Lawyers in Dallas 2014-16, D Magazine (Digital Information Law)• Council, Computer & Technology Section, State Bar of Texas• Privacy and Data Security Committee of the State Bar of Texas• College of the State Bar of Texas• Board of Directors, Collin County Bench Bar Conference• Past Chair, Civil Litigation & Appellate Section, Collin County Bar

Association• Information Security Committee of the Section on Science & Technology

Committee of the American Bar Association• North Texas Crime Commission, Cybercrime Committee & Infragard (FBI)• International Association of Privacy Professionals (IAPP)• Board of Advisors Office of CISO, Optiv Security

Shawn TumaCybersecurity PartnerScheef & Stone, [email protected]@shawnetumablog: www.shawnetuma.comweb: www.solidcounsel.com