BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2828


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          ASSEMBLY THIRD READING


          AB  
          2828 (Chau)


          As Amended  May 27, 2016


          Majority vote


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Privacy         |10-0 |Chau, Wilk, Baker,    |                    |
          |                |     |Calderon, Cooper,     |                    |
          |                |     |Dababneh, Gatto,      |                    |
          |                |     |Gordon, Low, Olsen    |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |20-0 |Gonzalez, Bigelow,    |                    |
          |                |     |Bloom, Bonilla,       |                    |
          |                |     |Bonta, Calderon,      |                    |
          |                |     |Chang, Daly, Eggman,  |                    |
          |                |     |Gallagher, Eduardo    |                    |
          |                |     |Garcia, Roger         |                    |
          |                |     |Hernández, Holden,    |                    |
          |                |     |Jones, Obernolte,     |                    |
          |                |     |Quirk, Santiago,      |                    |
          |                |     |Wagner, Weber, Wood   |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
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                                                                    AB 2828


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          SUMMARY:  Expands data breach notification law, which currently  
          requires consumer notice for compromised unencrypted personal  
          information, to include encrypted information if the encryption  
          keys have also been compromised.  Specifically, this bill:  


          1)Requires a public agency, person, or business that owns or  
            licenses computerized data that includes personal information  
            to notify any California resident whose encrypted personal  
            information was, or is reasonably believed to have been,  
            acquired by an unauthorized person, and the encryption key or  
            security credential was, or is reasonably believed to have  
            been, acquired by an unauthorized person and the person,  
            business, or agency that owns or licenses the encrypted  
            information has a reasonable belief that the encryption key or  
            security credential could render that personal information  
            readable or useable.
          2)Defines "encryption key" and "security credential" to mean the  
            confidential key or process designed to render the data  
            useable, readable, and decipherable.


          FISCAL  
          EFFECT:  According to the Assembly Appropriations Committee,  
          "Requiring notification of encrypted personal information, when  
          an encryption key or security credential is obtained by an  
          unauthorized person, will likely increase to some extent the  
          number of notifications required of state agencies.  While the  
          cost of these notifications is unknown, it is possible these  
          costs could exceed $150,000 for one or more agencies in a fiscal  
          year.  The most recent amendments reduce the likelihood that a  
          state agency would experience such high costs, however."


          COMMENTS:  


          1)Purpose of this bill.  This bill is intended to better inform  








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            likely data breach victims by requiring businesses and  
            government agencies to provide a notice of breach in cases  
            where both encrypted Personally Identifiable Information (PII)  
            and the encryption keys or security credentials that can  
            unlock the encrypted PII are believed to have been  
            compromised.  Current law only requires notice if unencrypted  
            data is breached.  This measure is author-sponsored.   


          2)Recent data breaches in California.  According to a February  
            2016 report by Attorney General Kamala Harris, the number of  
            data breaches between 2012 and 2015 grew from 131 breach  
            incidents in 2012 to 178 incidents in 2015.  Even more  
            dramatic is the number of records breached during the same  
            time period, which rose from 2.6 million in 2012 to 24 million  
            records containing sensitive personal information in 2015  
            ("California Data Breach Report 2012-2015," California  
            Department of Justice, February 2016).  In February 2015,  
            criminals accessed personal information, including names,  
            addresses, birthdates, and Social Security numbers of more  
            than 80 million United States patients covered by Anthem, one  
            of the country's largest health insurance and health plan  
            providers.  The incident was the single biggest theft of  
            health care data in U.S. history.  Anthem's data was not  
            encrypted, which is what triggered a breach notice to the 80  
            million victims under current state and federal laws.  
            During 2012-2014, the following California public agencies  
            reported breaches:  California State University, Department of  
            Corrections and Rehabilitation, Department of Public Health,  
            Department of State Hospitals, Correctional Health Care  
            Services, Department of Social Services, Department of  
            Justice, Department of Child Support Services, Employment  
            Development Department, and the Department of Motor Vehicles.   
             


          3)Requiring notice of encrypted data.  State law currently  
            requires notice of a security breach only if the data is  
            unencrypted under the premise that:  1) the law provides an  








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            incentive to government and business to encrypt sensitive  
            data; and 2) the law triggers notice only when there is a  
            reasonable possibility of fraud or identity theft, so that  
            victims can take steps to protect themselves before criminals  
            use the data.  This bill requires notice of breach in cases  
            where the data is in fact encrypted, but notice is only  
            required if the key or security credential that can unlock the  
            data is also reasonably believed to have been compromised.
            Interestingly, the hacked data in the 2015 Anthem breach was  
            unencrypted, but even if Anthem had encrypted the data, it  
            still would have been easily accessible.  The Anthem hackers  
            also gained access to at least five sets of employee security  
            credentials, which could have unlocked the encryption -  
            meaning that the data would likely have been lost anyway.  


          4)California's Data Breach Notification Law.  California law  
            requires businesses as well as state and local agencies that  
            experience a breach of unencrypted personal information to  
            send a notice of the breach to the people affected by the  
            breach.  The breach notice must include basic information  
            about what happened, what information was breached, what the  
            business or agency is doing in response to the breach, and  
            what the person affected by the breach can do to protect  
            themselves from fraud and identity theft. 

            Under current law, a business or agency that experiences a  
            breach can avoid mailing the breach notice to each and every  
            affected customer if doing so would cost more than $250,000.  

            The Data Breach Notification Law has two distinct parts: one  
            part that applies to state and local agencies, which is  
            located in the Information Practices Act of 1977 (Civil Code  
            1798.29), and one part that applies to businesses (Civil Code  
            1798.82).  

            This bill would change both laws, so that both the public  
            sector and the private sector would have a duty to provide  
            notice of breach to affected customers if both the encrypted  








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            data and the encryption key that unlocks it are compromised.  



          Analysis Prepared by:                                             
                          Jennie Bretschneider / P. & C.P. / (916)  
                          319-2200                                         
          FN: 0003327