BILL ANALYSIS                                                                                                                                                                                                    






                             SENATE JUDICIARY COMMITTEE
                           Senator Ellen M. Corbett, Chair
                              2009-2010 Regular Session


          SB 20                                                  S
          Senator Simitian                                       B
          As Introduced
          Hearing Date: February 24, 2009                        2
          Civil Code                                             0
          SIK:jd                                                 

                                        SUBJECT
                                           
                        Privacy: Security Breach Notification

                                      DESCRIPTION  

          This bill would amend California's security breach notification  
          law to provide that any agency, person, or business required to  
          issue a notification under existing law must meet additional  
          requirements regarding that notification.  This bill would  
          require that security breach notifications be written in plain  
          language and contain certain specified information, including  
          contact information regarding the breach, the types of  
          information breached, and the date, estimated date, or date  
          range of the breach.  This bill would provide that a security  
          breach notification may also include other specified  
          information, at the discretion of the entity issuing the  
          notification.  

          Under this bill, any agency, person, or business that must  
          provide a security breach notification under existing law to  
          more than 500 California residents as a result of a single  
          breach would be required to submit the notification  
          electronically to the Attorney General.  This bill would amend  
          the substitute notice provisions of California's security breach  
          notification law to require that an entity providing substitute  
          notice also provide notice to the Office of Information Security  
          and Privacy Protection. 

                                      BACKGROUND  

          In 2003, California's first-in-the nation security breach  
          notification law went into effect.  Since that time, 44 other  
          states and the District of Columbia, Puerto Rico, and the Virgin  
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          Islands have enacted breach notification laws, following  
          California's lead.  California's statute requires state agencies  
          and businesses to notify residents when the security of their  
          personal information is breached.  According to an ongoing  
          chronology by the Privacy Rights Clearinghouse, more than 252  
          million records containing sensitive personal information have  
          been involved in security breaches in the United States since  
          January 2005.   For the seventh year in a row, identity theft  
          topped the Federal Trade Commission's (FTC) list of top 10  
          consumer complaints in 2006.   Of the nearly 700,000 complaints  
          filed with the FTC that year, 36% related to identity theft.   
          And, among the 50 states, California ranked third in identity  
          theft victims, after Arizona and Nevada. 

          A December 2007 study from the Samuelson Law, Technology &  
          Public Policy Clinic of University of California, Berkeley,  
          Boalt Hall School of Law, found that security breach  
          notification laws provide strong incentives for public and  
          private organizations to engage in best practices with respect  
          to the security of personal information.  The study also made a  
          number of recommendations to improve upon security breach  
          notification laws, including that notifications should include  
          basic information about the breach.  This bill is intended to  
          augment California's security breach notification law by  
          implementing this recommendation.  

                                CHANGES TO EXISTING LAW
           
          1.    Existing law  requires any agency, person, or business that  
            owns or licenses computerized data that includes personal  
            information to disclose a breach of the security of the system  
            to any California resident whose unencrypted personal  
            information was, or is reasonably believed to have been,  
            acquired by an unauthorized person.  The disclosure must be  
            made in the most expedient time possible and without  
            unreasonable delay, consistent with the legitimate needs of  
            law enforcement, as specified.  (Civil Code Sections  
            1798.29(a) and (c) and 1798.82(a) and (c).)

             Existing law  requires any agency, person, or business that  
            maintains computerized data that includes personal information  
            that the agency, person, or business does not own to notify  
            the owner or licensee of the information of any breach of the  
            security of the data immediately following discovery if the  
            personal information was, or is reasonably believed to have  
            been, acquired by an unauthorized person.  (Civil Code  
                                                                      



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            Sections 1798.29(b) and 1798.82(b).)

             Existing law  defines "personal information," for purposes of  
            the breach notification statute, to include the individual's  
            first name or first initial and last name in combination with  
            any one or more of the following data elements, when either  
            the name or the data elements are not encrypted: social  
            security number; driver's license number or California  
            Identification Card number; or account number, credit or debit  
            card number, in combination with any required security code,  
            access code, or password that would permit access to an  
            individual's financial account; medical information; or health  
            insurance information.  "Personal information" does not  
            include publicly available information that is lawfully made  
            available to the general public from federal, state, or local  
            government records.  (Civil Code Sections 1798.29(e) and (f)  
            and 1798.82(e) and (f).)

             This bill  would provide that any agency, person, or business  
            required to issue a security breach notification under  
            existing law must also meet certain requirements regarding the  
            notification including that it be written in plain language.   
             This bill  would also require that the notification include, at  
            a minimum, the following information: 
                 The name and contact information of the reporting  
               agency; 
                 A list of the types of personal information that were or  
               are reasonably believed to have been the subject of the  
               breach;
                 The date, estimated date, or date range within which the  
               breach occurred, if that information is possible to  
               determine at the time the notice is provided; 
                 The date of the notice; 
                 Whether the notification was delayed because of an  
               investigation by law enforcement;
                 A general description of the breach incident;
                 The estimated number of persons affected by the breach;  
               and 
                 The toll-free telephone numbers and addresses of the  
               major credit reporting agencies if the breach exposed a  
               bank account or credit card number, a social security  
               number, or a driver's license or California identification  
               card number. 

             This bill  would provide that an agency, person, or business  
            may also include the following information in a security  
                                                                      



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            breach notification, at its discretion: 
                 Information regarding what the entity has done to  
               protect individuals whose information has been breached;  
               and 
                 Advice on steps that the individual may take to protect  
               himself or herself. 

             This bill  would require any agency, person, or business that  
            must provide a security breach notification pursuant to  
            existing law to more than 500 California residents as a result  
            of a single breach of the security system to submit the  
            notification electronically to the Attorney General.

          2.    Existing law  requires an agency, person, or business to  
            provide breach notification using either written notice,  
            electronic notice, or substitute notice.  An entity may use  
            substitute notice when it demonstrates that the cost of  
            providing notice would exceed $250,000, or that the affected  
            class of persons to be notified exceeds 500,000, or if the  
            entity does not have sufficient contact information.   
            Substitute notice must consist of: (a) email notice when the  
            entity has an email address for the affected individuals; (b)  
            conspicuous posting of the notice on the entity's Web site;  
            and (c) notification to major statewide media. (Civil Code  
            Sections 1798.29(g) and 1798.82(g).)

             This bill  would additionally require notification to the  
            Office of Information Security and Privacy Protection when an  
            agency, person, or business uses substitute notice. 
          





                                        COMMENT
           
           1.Stated need for the bill  

            The author writes:

               Although California has a security breach notification law  
               (A.B. 700, Simitian/S.B. 1386, Peace - 2002), we do not  
               require public agencies, businesses, or persons subject to  
               that law to provide any standard set of information about  
               the breach to consumers.  As a result, security breach  
                                                                      



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               notification letters often lack important information -  
               such as the time of the breach or type of information that  
               was breached - or are confusing to consumers.  This leaves  
               consumers uncertain about how to respond to the breach or  
               protect themselves from identity theft, and leaves  
               businesses and government entities that have experienced a  
               breach unsure about what to put in the notices they send  
               consumers.

               This bill would make relatively modest but helpful changes  
               to the current security breach notification statutes to  
               enhance consumer knowledge about, and understanding of,  
               security breaches by requiring that the customer  
               notification required by current law contain specified  
               information.  

          2.    Recent research on need for augmenting security breach  
          notification law  

            In December 2007, the Samuelson Law, Technology & Public  
            Policy Clinic, University of California-Berkeley School of Law  
            released a study entitled "Security Breach Notification Laws:  
            Views from Chief Security Officers" (study).  The study  
            included a comprehensive review of the literature available on  
            the world of information security and in-depth interviews with  
            chief information security officers at a variety of business  
            organizations nationwide.
             
            The study made a number of findings, including that breach  
            notification laws: 1) provide organizations (public, private,  
            and non-profit) strong incentives to invest in best practices  
            with respect to information security; 2) contribute to  
            awareness of the importance of information security throughout  
            all levels of an organization; 3) increase cooperation among  
            different departments within an organization with respect to  
            information security; 4) have increased requirements that  
            third party vendors, data collectors, and organizations comply  
            with information security measures; 5) provide "lessons  
            learned" across organizations, allowing organizations to learn  
            from each others' breaches, and justifying investment in  
            security; and 6) inform and educate consumers about the  
            importance of being concerned and diligent about the security  
            of their personal information.  The study also identified a  
            number of areas for improvement in security breach  
            notification laws, including basic guidelines for the  
            information included in such notifications.  The author  
                                                                      



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            asserts that this bill would implement this recommendation and  
            thereby strengthen California's security breach law.

          3.    Standardized content of security breach notifications  
            intended to fill gap in current law  

            While existing law imposes requirements for notification of  
            security breaches, it does not contain requirements for the  
            content of those notifications.  The author provided the  
            committee with several examples of breach notification letters  
            that lack certain basic information such as the type of  
            information breached, when the breach occurred, or how to  
            protect against identity theft.  In some cases, the letters  
            contained confusing technical or legal jargon.  The study  
            discussed in Comment 2 provides:

               Notifications can only provide value to consumers if they  
               have useful information about the [breach] incident and  
               know what steps can be taken to mitigate the harm.   
               Notifications provide an opportunity for consumer education  
               that ? has been bypassed by notification letters that focus  
               more on obfuscated language and legal jargon than direct  
               communication. ?  Breach notification letters are difficult  
               to read and understand; ?  Notification laws ? should  
               incorporate some basic guidelines regarding clarity of  
               language, a description of the incident, and steps that  
               consumers can take to protect themselves ?.

            The author contends that this bill's requirements for  
            standardized content of breach notifications will help to fill  
            the information gap in current law.  The author also notes  
            that ten other states- including Michigan, New Hampshire, New  
            York, and North Carolina-have breach notification laws which  
            contain similar requirements pertaining to standardized notice  
            content.

           4.Notification to Attorney General where more than 500  
            California residents affected by a single breach 
             
            This bill would require an agency, person, or business to  
            submit a security breach notification electronically to the  
            Attorney General when more than 500 California residents are  
            affected by a single breach of the security system.  The  
            author indicates that similar provisions are contained in  
            other state breach laws.  For example, several state laws  
            require notification to the Attorney General, credit reporting  
                                                                      



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            agencies, and-in the case of New York-the Office of Cyber  
            Security and Critical Infrastructure Coordination.  By  
            requiring notification to the Attorney General in cases where  
            more than 500 California residents are affected by a single  
            breach, this bill would allow the Attorney General to look at  
            trends and investigate a major breach, if it deemed it to be  
            necessary.  In addition, the author's office indicates that  
            the Attorney General currently receives some security breach  
            notifications so additional notices will be consistent with  
            current practice. 

          5.    Stakeholder concerns  

            While not opposed to this bill, the California Credit Union  
            League (CCUL) raises concerns about the bill's requirement  
            that security breach notifications include specified items of  
            information.  In particular, the CCUL points out that some  
            items of information may not be known to an entity at the time  
            the notification is provided.  For example, if a breach  
            occurred at the retailer level, the affected credit union  
            might not know whether a law enforcement investigation delayed  
            notification or the estimated number of persons affected.  As  
            a result, CCUL has requested that the author amend the bill to  
            provide that the specified items of information must be  
            included in the security breach notification "if available at  
            the time the notice is provided."  Committee staff notes that  
            this language has the potential to undermine the purpose of  
            the bill: providing uniform breach notifications.  The author  
            is considering this request and is currently in conversations  
            with the CCUL. 

            6.    Opposition arguments  

            The California Business Properties Association, California  
            Chamber of Commerce, California Financial Services  
            Association, California Mortgage Bankers Association,  
            Experian, Personal Insurance Federation of California, and  
            State Privacy and Security Coalition oppose this measure,  
            raising concerns about the specified items of information.   
            They assert that the requirement that the breach notification  
            contain the toll-free telephone numbers of major credit  
            reporting agencies leads consumers to believe that a breach  
            will result in identity theft, which is not necessarily the  
            case according to the groups.  The organizations also question  
            whether it is necessary that a consumer receive notification  
            about the estimated number of people affected by a breach.   
                                                                      



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            Finally, they argue that this bill's requirement that the  
            Office of Information Security and Privacy Protection be  
            notified when substitute notice is used is unnecessary and, if  
            notice to a government agency is necessary, then it should go  
            to the Attorney General. 

            State Farm argues that disclosing the date, estimated date, or  
            date range of the breach will provide a hacker with important  
            information about the security of a computer system and will  
            confirm to the hacker that his or her approach used at that  
            time was successful.  State Farm also asserts that reporting  
            the number of persons affected by a breach provides a hacker  
            with information about the size of the breached database  
            which, it argues, allows a hacker to focus his or her efforts  
            on larger databases. 
            
          7.  Suggested technical amendments  

            On Page 2, line 34, delete ", as defined in subdivision (g),"

            On page 6, line 1, delete ", as defined in subdivision (g),"

          Support:  Consumer Federation of California

          Opposition:   Association of California Insurance Companies;  
                    California Bankers Association; California Business  
                    Properties Association; California Chamber of  
                    Commerce; California Financial Services Association;  
                    California Mortgage Bankers Association; Experian;  
                    Personal Insurance Federation of California; State  
                    Farm; State Privacy and Security Coalition ; Tech  
                    America

                                        HISTORY
           
          Source: Author

          Related Pending Legislation: None Known

          Prior Legislation:    SB 364 (Simitian of 2008) would have  
                        required that breach notifications be written in  
                        plain language and contain specified information,  
                        such as the name of the entity that maintained the  
                        computerized data at the time of the breach and a  
                        description of the categories of personal  
                        information that was breached.  This bill was  
                                                                      



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                        vetoed.

                        AB 1656 (Jones of 2008) would have, among other  
                        things, required a person, business, or agency who  
                        maintains personal information to include  
                        specified items in a breach notification to the  
                        owner or licensee of the information.  The bill  
                        would also have required that the specified items  
                        be disclosed to affected California residents if  
                        the owner or licensee of the information is also  
                        the issuer of the credit or debit card.  This bill  
                        was vetoed. 

                        AB 779 (Jones of 2007) would have, among a number  
                        of other things, provided that the Office of  
                        Privacy Protection (OPP, now OISPP) be notified if  
                        substitute notice was used.  The bill would also  
                        have required any agency, person, or business that  
                        owns, licenses, or maintains personal information  
                        related to various payment devices to notify the  
                        owner, licensee, or California resident of a  
                        security data breach.  The notification would have  
                        been required to contain certain specified  
                        standard information, including, among other  
                        things, when the breach occurred and the  
                        categories of personal information breached.  This  
                        bill was vetoed.

                        AB 2505 (Nunez of 2006) would have provided that  
                        the OPP be notified if substitute notice was used.  
                         This bill died on the Senate Floor.

                        SB 852 (Bowen of 2006) would have required a  
                        security breach notification whether or not the  
                        data breached was computerized and would have  
                        required notice to the OPP.  This bill died in the  
                        Assembly Business and Professions Committee.

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