The 2013 Cybersecurity Executive Order: Potential Impacts On The Private Sector

August 21st, 2013

Article by Rebecca Eisner, Howard W. Waltzman and Lei Shen

In February 2013, President Barack Obama issued an executive order (“Order”) outlining steps his administration will take to protect critical US infrastructure from cybersecurity threats.¹

The Order is a directive for a collaborative effort between the government and the private sector to reduce and mitigate cyber threats and risks to the nation’s critical infrastructure. It provides for the development of a process to rapidly share unclassified information with specified targets and a voluntary classified information-sharing program for eligible entities.

The Order also calls for the development of standards to identify “critical infrastructure” at greatest risk. Operators and owners of identified critical infrastructure will be confidentially notified and may request reconsideration of this status. In addition, the Order provides for the development of a voluntary Cybersecurity Framework (“Framework”) outlining standards, methodologies, procedures and processes to address cybersecurity risks while balancing policy, business and technological concerns. The Secretary of Homeland Security will develop incentives to encourage adoption of the Framework.

The success of these programs will be reevaluated following publication of the final Framework to ensure usefulness and actual risk mitigation. The Order stipulates that all actions taken as a result of the Order should include the necessary precautions to protect privacy and civil liberties.

The ramifications of the Order for the private sector are still unclear and will be for some time. This article contains an overview of some of the key aspects of the Order and discusses potential impacts and challenges for companies that have critical infrastructure. Although the Order focuses on its directives on risks to owners and operators of critical infrastructure, there may be implications for industries and sectors without critical infrastructure as well. This article also considers the implications for outsourcing customers and providers.

Cybersecurity Information Sharing

The Order directs the Secretary of Homeland Security and the Attorney General to develop a voluntary cybersecurity information sharing program (“Program”) that rapidly disseminates unclassified reports of domestic cyber threats to participating entities. Certain qualified and eligible participants in this Program may also receive classified cyber threat and technology information. The purpose of this Program is to improve the efficiency and expediency of important cyber threat information sharing with private entities so they can better protect and defend themselves. One key issue for companies receiving the cybersecurity information is whether this notice will trigger any responsibilities or notification requirements under state data breach notification and security laws, particularly when the information indicates that a breach may have occurred. The extent to which a company receiving cyber threat information will be required or advised to take action on that information is unclear.

Cybersecurity Framework and Voluntary Critical Infrastructure Cybersecurity Program

The Order also directs the Secretary of Commerce to oversee the development of the Cybersecurity Framework, which will include “a set of standards, methodologies, procedures, and processes that align policy, business, and technological approaches to address cyber risks.”² Its purpose is to reduce risks to critical infrastructure and establish processes to help owners and operators of critical infrastructure identify, assess and manage risk. To facilitate the adoption of the Framework, the Order directs the Secretary of Homeland Security to establish a program of incentives to promote participation. The scope of the Framework, however, is not due until October 10, 2013.

The Order gives guidance that the Framework should be technology-neutral and should enable the development of a competitive market for products and services that satisfy its standards. If the Framework’s standards are drafted broadly, it may leave significant room for variations in processes, procedures and standards, and companies may be more inclined to adopt it. On the other hand, if the Framework is more prescriptive in its approach, it could serve as a set of minimum standards that establish a degree of “reasonable care” in certain sectors of industry. In that case, companies that choose not to adopt the Framework or otherwise ignore it might face liability claims for failure to meet a minimum standard of reasonable care.

Although the Order does not articulate any performance requirements for entities designated as critical infrastructure, such entities may nonetheless feel substantial pressure to participate in the Framework. Based on the Order’s language, a designated entity does not need to implement additional processes to continue business operations. However, if a cyber disaster strikes an identified entity that did not implement the Framework, and it becomes known that the entity had been identified as a critical infrastructure entity, the fact that the government gave that entity a prior warning may increase its liability.³ Reputational harm and lawsuits may ensue. Companies that are identified as critical infrastructure entities will have to perform careful risk analyses to determine whether or not to implement the Framework and what the implications are for choosing not to do so.

Identification of Critical Infrastructure at Greatest Risk

The Order also requires the Secretary of Homeland Security to identify critical infrastructure where a cybersecurity incident could “reasonably result in catastrophic regional or national effects on public health or safety, economic security, or national security.” Commercial information technology products and consumer information technology services are excepted. It is unclear which companies fall under this exception, but examples might include Google, Facebook, Microsoft and Twitter.⁴ Owners and operators of identified critical infrastructure will be confidentially notified of their status; upon notification, they can request reconsideration of this designation.

At this time, we can only speculate as to which sectors of industry could be targeted by the Order. Although the President released the Presidential Policy Directive on Critical Infrastructure Security and Resilience (“Directive”), which identifies 16 critical infrastructure sectors, it remains unclear how closely the Order’s critical infrastructure list will track this one. Nevertheless, this list provides an idea of which industries and sectors the government has identified as important to national security.⁵ Certain industries seem like natural candidates, such as telecommunications, media, financial services, energy and utilities.

Risks and Challenges

As mentioned above, there are two key risks created by the Order. The first risk is the potential liability that could arise in the context of existing and new breach notification and security laws resulting from the government information-sharing program. The second risk is the uncertainty about the kinds of standards the Framework will establish for critical infrastructure entities and the potential implications of failure to adopt the Framework.

The Order also creates several other risks. Companies face a potential dilemma regarding voluntary participation in the information-sharing program. While information sharing—from the government and potentially with the government— is a goal of the Program, companies that participate will need to consider privacy laws and determine whether information sharing could violate privacy laws, privacy statements or other contractual requirements. Federal contractors and subcontractors may also face rising costs since the Order mandates a review of both federal procurement policies and the merits of incorporating security standards into “acquisition planning and contract administration.”⁶

Implications in the Context of Outsourcing

Entities that become subject to the Order will need to reexamine all significant service provider arrangements. This will be necessary to ensure that Framework requirements within the provider’s control are included in the contract with the service provider. The Secretary of Homeland Security could also designate certain service providers managing infrastructure or information as having critical infrastructure, thus implicating client information or infrastructure that they provide and/or manage.

Companies that are not critical infrastructure operators but that outsource services to service providers that are critical infrastructure providers will need to evaluate the implications of their service provider’s participation in the Program. Companies that outsource rely on their service providers not to distribute the company’s information without permission. Any transfer of information by the service provider to the government as part of the Program could be a violation of the company’s outsourcing contract terms. Such disclosure could also cause exposure under the company’s privacy policies and could possibly cause the company to be in violation of its own customer and third-party contracts. The company could face reputational harm and liability if it were to become known that its service provider shares information with the government.

Service providers, on the other hand, could face a dilemma because their interest in complying with the provisions of their contracts may conflict with the government’s goal of obtaining information to mitigate the risk of, and defend against, a cyber threat. Even if a service provider’s contracts allow for government-mandated disclosure, public knowledge of any disclosure (voluntary or mandated) could have a serious impact on the service provider’s reputation.

Although not the primary target of this Order, companies that do not own or operate critical infrastructure should still monitor developments under the Order, particularly with respect to service providers that may be critical infrastructure operators. Companies that do not own or operate critical infrastructure should also follow developments relating to the effect of the Framework on information security policies and practices in general. As noted above, the Framework may establish standards that will be applied across industries and sectors, even beyond critical infrastructure sectors.

Conclusion

As the directives of the Order are published, there will be more clarity about the degree of impact it has on the private sector. It is likely, however, that private entities and service providers may face new challenges in determining how best to benefit from the Program and how to use the Framework to protect against cybersecurity threats while remaining in compliance with existing laws, regulations and contractual commitments, and limiting potential liability claims.

Footnotes

1 Exec. Order No. 13636, Improving Critical Infrastructure Cybersecurity, 78 Fed. Reg. 11737-1144 (Feb. 19, 2013), available at https://federalregister.gov/a/2013-03915 .

2 Exec. Order Sec. 7(a).

3 Paul Rosenzweig and David Inserra, Obama’s Cybersecurity Executive Order Falls Short, The Heritage Foundation (Feb. 14, 2013), http://www.heritage.org/research/reports/2013/02/obama-s-cybersecurity-executive-order-falls-short .

4 See Zack Whittaker, Obama’s Cybersecurity Executive Order: What You Need to Know, ZDNet (Feb. 13, 2013, 9:51 PM), http://www.zdnet.com/obamas-cybersecurity-executive-order-what-you-need-to-know-7000011221 /; Andrew Webster, White House Softens Draft Cybersecurity Orders with Exemptions for Commercial Tech Products, The Verge (Dec. 1, 2012, 4:32 PM), http://www.theverge.com/2012/12/1/3715096/white-houses-cybersecurity-executive-order-commercial-product .

5 See Public Policy Directive No. 21, Critical Infrastructure Security and Resilience (Feb. 19, 2013), available at http://www.whitehouse.gov/the-press-office/2013/02/12/presidential-policy-directive-critical-infrastructure-security-and-resil (The critical infrastructure sectors identified by the Directive are as follows: Chemical; Commercial Facilities; Communications; Critical Manufacturing; Dams; Defense Industrial Base; Emergency Services; Energy; Financial Services; Food and Agriculture; Government Facilities; Healthcare and Public Health; Information Technology; Nuclear Reactors, Materials, and Waste; Transportation Systems; Water and Wastewater Systems).

6 Exec. Order Sec. 8(e).

Originally published Summer 2013.

Cyber Security: Executive Orders and Policies