Black Hat is always a fun time to find out what new security vulnerabilities there might be to keep you up at night — particularly if you attend and get your system infected while you’re there — and this year is no exception. The conference will be held in Las Vegas next week and the online world is already atwitter, so to speak, about one of the presentations.
This is all according to the German security organization SR Labs, which is offering a presentation called “Bad USB — On Accessories That Turn Evil.” The organization released a preview of its presentation on its website.
According to the presentation, it’s possible to insert malware into the microcode in USB devices — that is, any USB device, including keyboards, cameras, and mice — to reprogram them and essentially turn them into another USB device. This would allow people to:
- Emulate a keyboard and issue commands on behalf of the logged-in user to steal files or install malware; such malware, in turn, can infect the controller chips of other USB devices connected to the computer
- Spoof a network card and change the computer’s DNS setting to redirect traffic
- Boot a small virus on startup, which infects the computer’s operating system prior to boot
- Replace the computer’s BIOS
- Though the researchers don’t mention this one, presumably it could turn on the camera and spy on you or anything else in the room
Naturally, none of this is detectable. Virus scanners don’t work because they don’t look at microcode. Beyond that, once a computer is infected, you can basically never trust it again, SR Lab researchers say, because any USB thing that might be plugged into it could still be infected, even if you reinstall the operating system.
The organization says it will be releasing unspecified “tools” on August 7, but whether these are tools to prevent this sort of attack or enable it, they don’t say. The session description, however, does seem to indicate that the researchers will be speaking about how to protect against such attacks, at least theoretically.
A Reuters article on the presentation attributes the vulnerability to a “bug,” but the SR Labs presentation doesn’t make it sound like a bug is involved — simply that the microcode isn’t protected from such malware.
Karsten Nohl, chief scientist at SR Labs, who is one of the co-presenters, also told Reuters that he wouldn’t be surprised if organizations such as the NSA weren’t already using this technique, but the NSA wouldn’t comment to Reuters.
Reuters said Nohl had done this with Google’s Android as well as with microcode on chips from Phison; Phison representatives didn’t think it was possible. Nohl also said that he believed it would work with any vendor’s chips, not just Phison’s.
We’ve said before that it’s really not a good idea to pick up strange USB sticks and use them; it sounds like that’s particularly true now.
Particularly at Black Hat.
More than one person thought it was from the Onion: Police have trained dogs to smell out child pornography. But the truth is no laughing matter.
First of all, the dogs can’t smell pornography, child or otherwise. For heaven’s sake, writers. Have some credibility.
What the dogs (publicized in Connecticut and Rhode Island, thus far) have reportedly been trained to do is smell out storage devices, such as hard drives, memory cards, and USB sticks. Similarly, dogs have also been trained to find cell phones in prisons. And in response to media pirating, dogs were trained in 2006 to find DVDs and other recorded media, which the police would then seize and search and determine whether they were legal.
So the “pornography-sniffing dog” works like this: Police think a perp has child pornography on storage devices, bring in the dog, the dog finds storage devices “hidden” in a suspicious way, and that gives the police probable cause to seize the storage and search it. Because after all, if there was nothing creepy on it, why’d you hide it, punk?
(Slashdot commenters had fun with this story, suggesting ways to defeat the dog. “Get a lot of old flash drives, sd cards, and the like, the old super cheap ones of course, and stick them everywhere,” writes one. “Under the carpet, taped to the bottom of the drawers, in the hem of the curtain, etc. After 30 or 40 of them, somebody is going to get sick of playing that game, and it might be the dog.”)
Stipulated: child pornography is bad, and we don’t want people to do it. Stipulated also, most police officers and prosecutors genuinely want to just catch bad guys and be on the right side of the law. That said, we’ve already written about how child pornography seems to be a Get Out of the Fourth Amendment Free card for some people. And this is a particularly egregious example.
Let’s start with the fact that drug-sniffing dogs, from which this is the logical extension, and their handlers have been implicated in some pretty interesting Fourth Amendment cases. In February, 2013, the Supreme Court ruled that searches based on using drug-sniffing dogs was legal even if what was found wasn’t related to what the dog detected. (Though in more recent cases, the Supreme Court has ruled that home searches, specifically, based on a drug-sniffing dog are illegal.)
“The U.S. Supreme Court has given police ‘probable cause’ to search your vehicle if a police dog detects drugs, typically by sitting, digging or barking,” explains the Las Vegas Review-Journal in an extensive article about drug-sniffing dog flaws. “That is an extraordinary power — officers working without dogs need ‘a reasonable belief that a person has committed a crime’ for such searches. Mere suspicion is not enough, and criminal cases resulting from searches that don’t meet the ‘probable cause’ standard can be, and are, tossed out in court.”
Drug-sniffing dog reactions consequently practically gives police carte blanche to search whatever they want. And note that it’s been reported that some 90 percent of U.S. currency has traces of cocaine on it. For example, in numerous cases people traveling with large amounts of cash have had it seized by virtue of it being “contaminated” with drugs.
Some people have also criticized the fact that the storage-sniffing dogs are being trained and rewarded with food. “This is how he eats every day,” according to the dog’s trainer. But other dog experts say that training a dog with food is a bad idea. “Offering a sniffer dog food in exchange for a ‘find’ opens the way for an abuse of the system — if it’s hungry enough it will take food from anybody, not just its handler and therefore defeats the object of the search,” Maggie Gwynne, of Sniffer Dogs UK & International, told the BBC.
(On the other hand, one wonders what one of these storage-sniffing dogs would do in a room full of dog biscuits.)
There have also been cases where dogs’ “detection” of drugs appears to be based primarily on the reactions of their handlers, a sort of drug-sniffing Clever Hans. The police want to find drugs in your car? Son of a gun, the dog detects something — simply because the handler believes that it’s there. That gives police probable cause to search. And chances are, something, somewhere in your car, has been touched by an illegal drug, sometime.
Now, for how many of us is that going to be true of having some sort of data storage device?
So, now the cops have “found” your data storage, which they declare was “hidden,” and thus suspicious, which gives them the right to search it, and who knows what they might find during that fishing expedition?
Well, you say, not a problem, I’ll encrypt it. Except that, as we’ve seen — typically also under the aegis of “protecting the children” — people are being forced to reveal their encryption keys. The Massachusetts Supreme Court just ruled on another one of these cases last month, saying that because the suspect agreed that it was his computer and that he had encrypted it and had the key, he had given up his Fifth Amendment rights about self-incrimination.
What could be worse is if — after the storage-sniffing dog finds the microSD card under the dresser that the cat knocked off last month and the police decide that means you were hiding it — it isn’t encrypted but the police decide that it is and you’re lying. In some countries, particularly the U.K., people have gone to jail for refusing to reveal an encryption key. And as we’ve suggested before, it’s going to be an interesting legal case when someone goes to jail for refusing to reveal a key they don’t have.
On the eve of the annual VMWorld conference in San Francisco, scheduled for next month, people are talking a lot about VMWare, but not for the usual reason. It’s because one of EMC’s largest investors is calling on the company to break itself up — specifically, by taking VMWare public.
According to the Wall Street Journal, Elliott Management Corp. (the initials of which are also EMC; what are the odds?) has taken a stake of more than $1 billion in EMC Corp., which would amount to about 2% of its value, and also making it EMC’s fifth-largest shareholder. Elliott is reportedly flexing its muscle and suggesting that EMC should spin off VMWare, which could then mean that EMC itself might be purchased by someone else as well.
This sort of thing isn’t terribly surprising. To paraphrase Rhett Butler in Gone With the Wind, there’s two ways to make money: when a company is building itself up, or when a company is breaking itself into pieces. EMC has been obliging its shareholders that way for some time now, with a series of acquiring a whole bunch of companies, rearranging the pieces, and then spinning them off, as it did with Pivotal. (Similarly, there’s another group of people suggesting it would be a good idea for everyone concerned if EMC were to divest itself of Documentum.)
With the company’s lack of management drama, finding different ways to arrange the pieces is about the only excitement EMC shareholders get. And Elliott has done similar things with other technology companies, the Journal, as well as Barb Darrow of GigaOm, point out, to the extent that some articles referred to the investment firm as an “activist investor,” with others using terms that are less nice (“vulture” being one example).
VMWare itself is a bit of an odd duck in that regard; technically it’s a separate company, but EMC owns a big chunk of it (79% in 2012) and VMWare itself is a big chunk of EMC’s value (75% now, up from 60% in 2012). And the companies have been shuffling executives back and forth for a while now, though it’s never quite clear which one is the farm team and which one is the majors.
Both EMC and VMWare are facing “innovators’ dilemma” challenges, with EMC fighting to maintain its big iron relevance in a world of flash storage, cloud, and commodity storage pods, and VMWare watching other companies extend its virtualization model to other components.
For what it’s worth, most industry watchers don’t think it’s going to happen, because EMC and its CEO and chairman Joe Tucci are too invested in the current structure and in retaining VMWare. On the other hand, all the interest and speculation has pushed EMC’s stock price to a two-year high, reports Reuters. Speculation is that EMC might sell off part of its share of VMWare to appease Elliott, with the result that VMware’s stock is going down. In related news, EMC is scheduled to release its earnings report on Wednesday.
We’ve written before that if you’re going to depurpose a laptop, or a hard drive, or a printer, that you really need to blow that sucker up, using at least two methods, to ensure that the data is really, truly, gone.
Turns out the same is true of your smartphone.
Mobile security vendor Avast reportedly bought smartphones on eBay (much like researchers have done with hard disk drives and printers) and discovered that, even though they’d been wiped and returned to factory settings, personal data on them was still visible.
Some very personal data.
“We purchased 20 used Android phones off eBay and used simple and easily available recovery software to restore deleted files,” the company writes in its blog. “The amount of data we were able to retrieve was astonishing and proves that simply deleting is not enough.” It consisted of more than 40,000 photos, including more than 1,500 children, more than 1,000 Google searches, more than 750 email and text messages, more than 250 contact names and email addresses, four previous owners’ identities, and one entire completed loan application.
This was true across a wide variety of smartphones and operating systems, and even when Avast did the factory reset itself, noted the Houston Chronicle.
What’s grabbed people’s attention the most about this isn’t the passwords, banking information, or phone numbers, but some of the photos — “more than 750 photos of women in various stages of undress” and “more than 250 selfies of what appear to be the previous owner’s manhood.”
(And just so “naked selfies” doesn’t set off the NSFW filter at work, we’ll call them “data” from here on out, ‘k?)
By the way, according to Avast, there’s 80,000 used smartphones on eBay every day. (And then there’s handing it down to your kid. Can you imagine what would happen if they found your “data”? Think of the tears. Think of the trauma. Think of the emotional scars. Not to mention the effect on the kid.)
Consumer Reports also performed a study recently noting that 34% of smartphone owners did nothing to protect their phones, while 8% installed remote wipe software and 7% installed other protection such as encryption.
Admittedly, Avast has its own ax to grind here — turns out they have software that just so happens to take care of the problem, though to give them credit it’s free — but we will assume for the moment that they legitimately bought used smartphones on eBay and still found “data” on them without a whole lot of effort (though they did say they needed to root most of the phones to do so).
That stipulated, just what is it we’re supposed to do with the old smartphone when we buy a new one, to ensure that any “data” you have can’t be seen by a new purchaser? Or do you really have to destroy your old smartphone rather than getting a few bucks out of it, as though you were going for a OnePlus One?
- You can encrypt the phone and then reset it, which will make the data unreadable. Google noted that encryption has been available for at least three years, though it is optional.
- You can delete the files and then fill up the memory videoing the ceiling or something, and then delete the files or wipe the phone again.
- There are apps besides Avast’s that will do the job.
Incidentally, iPhone owners smugly noted that all the phones in question were Androids. “In contrast, iPhones use a hardware encryption, so when the encryption key is destroyed on a reset, the data is very hard to recover,” writes John Martellaro in MacObserver. “Not so for Android phones apparently.” Older devices, which don’t support encryption by default, overwrite the data, according to Apple.
Another year, another Gartner Magic Quadrant for e-discovery, and guess what? Nothing’s changed.
- All the vendors in the “leaders” quadrant are the same: AccessData, Exterro, FTI Technology, Guidance Software, HP Autonomy, kCura, Kroll Ontrack, Recommind and Symantec.
- No vendors have been added.
- Only one vendor (Driven) has been dropped.
- HP Autonomy is still the “most visionary,” though Symantec has dropped down considerably from last year in terms of “ability to execute.” Best execution this year? Kroll Ontrack.
The company also sort of dissed its own 2011 prediction that the e-discovery market would see a wave of consolidation, eliminating up to 25 percent of the vendors, by 2014. “The level of mergers and acquisitions (M&As) for software vendors has slowed, and only a couple of noticeable acquisitions took place in 2013,” Gartner writes. “The overall e-discovery market is in a state of ‘wait and see’ mode after being overhyped through 2012.” Gartner also listed all the e-discovery acquisitions that have occurred since 2001; it’s a considerably long list.
Where consolidation is going to occur, Gartner says, echoing what it said last year, is in legal service firms. “The remaining legal service firms will take one of two routes by becoming either large firms that are ‘one-stop shops’ but not technology developers, or large firms that are one-stop shops with proprietary technology for all aspects,” the compny writes. “Although there is room for regional and specialist players, they are part of the market that is consolidating and shrinking fastest. The larger players will need international presence in the form of data centers and local legal personnel to be competitive as the market opens up geographically.” This also ties in with Gartner’s prediction that growth will come more from outside the U.S. as other countries learn more about this thing called e-discovery.
This year’s report does include writeups on seven vendors that otherwise didn’t qualify to be included in the Magic Quadrant, so it will be interesting to see how they progress in the coming year.
Gartner also notes two events that drove interest in e-discovery this year: the U.S. National Security Agency’s surveillance program (PRISM) and the Target hack, which has led users to be more interested in incidence- or event-triggered processes.
And what happened with Symantec? Gartner cites three issues: lack of growth or new releases because of the acquisition of Clearwell (and that was in 2011! they haven’t swallowed that puppy yet?), performance and scalability issues, and the departure of Symantec’s CEO.
Otherwise, though, the report is pretty much of a snore. Predicted growth in the market? 15 percent, after 15 percent the year before and 14 percent the year before that. Gartner forecasts that revenue will grow from $1.8 billion in 2014 to $3.1 billion in 2018, after predicting last year that it would grow from $1.7 billion in 2013 to $2.9 billion in 2017.
(Also, the obligatory being-in-the-leaders-quadrant-doesn’t-necessarily-mean-you’re-better. The other three quadrants — Challenger, Visionary, and Niche — just means that the vendor or product was considered to be somewhat lacking in either vision or ability to execute, or both. But for many use cases, those vendors and products are perfectly adequate, and perhaps, being number two, they try harder.)
Gartner did, however, indicate that next year would be different, honest. “A new set of changes on Federal Rules of Civil Procedure (FRCP) were proposed in early 2013 and have caught much debate in the U.S.,” the report notes. “Among these proposed changes, the ones most relevant to e-discovery are proportionality and sanction on willful evidence spoliations. These changes, once approved, will trigger a wave of disruption in the e-discovery practice and, in turn, on the e-discovery technology market.”
It’s not often that the actions of the Supreme Court wander into our purview over here, but we were in luck this month, with not one but two cases having relevance to cloud storage. In one case, cloud storage users gained protections, while in the other, they lost them and perhaps will put themselves at risk.
First was Riley vs. California, in which the court ruled that law enforcement officials needed a warrant to search someone’s cell phone. The connection with cloud storage? “The data a user views on many modern cell phones may not in fact be stored on the device itself. Treating a cell phone as a container whose contents may be searched incident to an arrest is a bit strained as an initial matter, ” writes Chief Justice John Roberts in the majority decision. “Cell phone users often may not know whether particular information is stored on the device or in the cloud, and it generally makes little difference. Moreover, the same type of data may be stored locally on the device for one user and in the cloud for another.”
Allowing the search would be like finding a key in a suspect’s pocket and arguing that it gave law enforcement the right to search his house, Roberts writes.
So that’s the good news.
Next, the court ruled against Aereo, the Internet company that helps subscribers gain access to live broadcast television on Internet-enabled devices. While this is certainly a bummer for Aereo itself, it also has the potential to be a bummer for people who legitimately store content in the cloud, legal experts write.
“The Aereo case puts the cloud at risk because when broadcasters have complained about Aereo, their complaints also describe cloud computing,” wrote Matt Schruers, VP, Law & Policy at the Computer & Communications Industry Association, which submitted a brief in support of Aereo, earlier this year in his “Aereo primer. “It isn’t that broadcasters necessarily bear malice toward cloud computing; it is just that when broadcasters complain about how Aereo works, their complaints describe cloud-enabled access to content. The cloud is caught in the crossfire.”
Numerous industry organizations, besides his own, also submitted briefs in this case expressing concern about how the decision could affect cloud storage, Schruers added. “If multiple people store their own, unique, lawfully acquired copy of the latest hit single in the cloud, and then play it to themselves over the Internet, that too sounds like the broadcasters’ version of a public performance,” he explained. “The anti-Aereo rationale doesn’t distinguish between Aereo and the cloud.” Even DVRs — which broadcasters sell themselves and which served as the precedent for this case — could be at risk, Aereo CEO Chet Kanojia told Time.
Essentially, Schruers wrote in a separate piece, broadcasters were arguing that although Aereo was intended to be a private service, which was allowed, it was actually a public service, because it could have been set up that way, just because it was using the Internet. “The boundary between public performances and private performances determines what copyright does and does not regulate,” he explained. “It’s why you don’t need a license to sing in the shower, but you do to sing on stage. It’s why you don’t need a license to put your music collection in the cloud, but you do if you want to launch a commercial streaming service.”
Ironically, where experts had praised the court’s understanding of the technological nuances in Riley, they dissed it in Aereo, saying the court called it cable because it looked like it to them, regardless of the technological underpinnings.
Opinions vary on the ruling’s effect on cloud storage. Broadcasters argued that cloud-storage companies shouldn’t be affected because those businesses store content that the users upload themselves and that there is a “fundamental difference” when customers upload their own files, Bloomberg writes. The Supreme Court itself noted, written by Justice Stephen Breyer, “We agree that Congress, while intending the Transmit Clause to apply broadly to cable companies and their equivalents, did not intend to discourage or to control the emergence or use of different kinds of technologies. But we do not believe that our limited holding today will have that effect.”
“The majority says it won’t affect new technologies because they said so,” writes Ali Sternburg, Public Policy & Regulatory Counsel at the Computer & Communications Industry Association, in Disruptive Competition. “That is not a convincing argument.” And Scalia notes that in his dissent, she writes. “He specifically calls out the majority’s ‘because I said so’ argument about the cloud, saying: ‘The Court vows that its ruling will not affect cloud-storage providers and cable television systems, see ante, at 16-17, but it cannot deliver on that promise given the imprecision of its results-driven rule.’”
Moreover, the majority opinion doesn’t distinguish between primary and secondary infringement, meaning that cloud storage companies could find themselves blamed for copyright infringement their users are doing, notes the Wall Street Journal.
Ultimately, what may be needed to decide this is…another Supreme Court case. In fact, the majority opinion practically invites it, writes Bloomberg. “The ruling said that questions involving cloud computing — the business of storing content on remote servers and delivering it over the Internet — should ‘await a case in which they are squarely presented.’ That leaves technology companies with few clues to guess whether their services would pass legal muster if challenged.”
Stay tuned…as it were.
We’ve talked before about “Taking Out the Trash Day.” Well, the White House had a dilly of a trash day last Friday when it announced that the IRS had lost a lot of email associated with the investigation of whether the agency was targeting conservative groups for tax exemption audits.
Lois Lerner, director of exempt organizations for the IRS, has been the point person of the investigation because of its focus in tax-exempt organiztions. Consequently, the Congressional committee performing the investigation wanted to see her email. As it turned out, she had a hard drive crash in 2011 that took out much of the email for the period under investigation and which happened not long after the question of whether the IRS was targeting such organizations first came up.
Naturally, the right wing leapt on this as a deliberate attempt to obfuscate the truth, with a number of people equating it to Rosemary Woods and the Watergate 18-minute gap. But as more of the story came out, it appeared that this was more a case of never attributing to malice what can be explained by incompetence, especially as it developed on Tuesday that hard drive crashes that took out the email affected a number of employees, not just Lerner. (Not to mention other agencies, including the office of the President.)
So here’s an outline of the problem.
1. The IRS gave employees only 500 mb for their Microsoft Outlook mailboxes, which it says is enough to store about 6,000 messages. (Think this is bad? Before July 2011, it was 150 mb.) This works out to about 80,000 characters per message, which seems like a lot, but likely includes headers, copies of previous messages, and so on; perhaps the IRS should have invested in compression or dedupe technology? Incidentally, the IRS has 90,000 employees and a total of 170 terabytes of stored email. While employees could in theory ask for a larger mailbox, they were told that it was not the practice.
“Is this plausible? Unfortunately, yes. I have worked for organizations that used these sorts of restrictions on hard drive space,” writes Megan McArdle in Bloomberg View. “However, it’s also moronic IT policy.”
2. When employees archived their email to get the mailbox sizes below 500 mb, it was, first of all, saved only to their own computers and, second of all, no longer backed up. So the only copies of the archived email were on the employee computers.
3. While backups of mailboxes were performed, the IRS started recycling the tapes after six months. As of May 2013, however, the IRS stopped this.
The upshot is that when Lerner’s hard drive crashed in 2011 — for which the IRS provided contemperaneous documentation (which was really hysterical, by the way) — her archived email, which was the only copy, went with it. The IRS recovered some copies of messages that Lerner had sent to other IRS employees by using their mailboxes and their copies, but that didn’t help recover any messages she sent outside the IRS.
Observers are also pointing out that email messages considered to be official records were supposed to be printed out and placed in a file, and are asking why this wasn’t done in Lerner’s case.
The other interesting aspect of the IRS email system is that the IRS can’t search its entire email system for appropriate records — it has to examine each person’s mailbox and hard drive individually. Plus, even then, it can’t just search for the messages it needs; it has to collect all the email and then select relevant messages from it. This certainly made the whole process a lot more arduous and expensive.
“The only reason it has to waste thousands of man-hours manually searching the hard drives of other employees is that it first decided to waste thousands of man-hours manually deleting e-mails or storing them on local hard drives where they wouldn’t be backed up,” McArdle writes.
And that’s just the start. House Oversight Committee Chairman Darrell Issa has subpoenaed a huge list of storage devices and messages as well as, essentially, anyone in the government who has ever emailed Lerner about anything.
One expects an RFP for a new email system for the IRS — not to mention a lot more storage — in the near future. “In 2014, every government agency should be storing every e-mail that goes in or out in an easily accessible format,” McArdle writes. “That they weren’t bothering suggests that the IRS does not expect to deliver the kind of accountability that it routinely demands of taxpayers. That’s potentially a much bigger problem than anything Lois Lerner stands accused of — and it should be rectified, government-wide, with all due speed.”
Ironically, the IRS noted that it would have cost $10 million to upgrade its computer systems to save all employee email messages forever. The cost of the investigation so far to track down the existing copies of Lerner’s email? $10 million. “At an agency with an annual IT budget of $1.8 billion,” McArdle writes.
I know I’ll never forget where I was when I first heard that the Standing Committee had unanimously approved amendments to the Federal Rules of Civil Procedure as modified by the Advisory Committee. Seriously, though, it offers the potential to make a big difference in electronic discovery.
You remember, no doubt, that the Federal Rules of Civil Procedure (FRCP) were changed in 2006 to more easily accommodate electronic records – setting up procedures for the two sides in a civil case to be able to communicate with each other about what sort of electronic records they could expect. At the same time, they were set up so that opposing sides couldn’t demand literally millions of records from each other in a fishing expedition, or that one side couldn’t respond to a demand for records with so many of them that it would be essentially impossible – not to mention expensive – to research them all. Also, they were intended to ensure that companies facing a civil lawsuit couldn’t delete incriminating records and then be able to claim they weren’t available.
That said, after several years of use, legal experts had suggested modifications to the FRCP so that it would better perform what it was originally intended to do. A number of amendments were developed to streamline the preliminary steps of the legal process by as much as half. Several other amendments reduced the number and length of depositions, requiring more specificity in objections, and required that participants consider proportionality — basically, be reasonable in their e-discovery demands.
The legal world has been talking about these potential amendments for a long time. The Standing Committee on Rules of Practice and Procedure released a report for publication on June 3, 2013, that included amendments to the FRCP. They were then released on August 15, 2013, for a six-month comment period – that is, until February 15, 2014.
Not surprisingly, lawyers being what they are, they commented. A lot. One single rule, on the failure to preserve electronically stored information, generated 2,345 comments, and ended up being rewritten itself by the Advisory Committee (the last step before Standing Committee approval) at its April meeting, to make it simpler and to determine how much to blame a company that “accidentally” deleted relevant documents.
So what happens now that the Standing Committee has approved the amendments? “The proposed amendments will be submitted to the Judicial Conference [in September 2014] with a recommendation for approval, who in turn submits the proposals to the Supreme Court,” Raymond Ripple and Rachel Caldwell wrote in October, 2013 in Inside Counsel. “If approved by the Supreme Court, Congress has seven months to approve or reject the new rules.” They could take effect by December 1 – of next year.
Don’t want to rush these things, you know.
We’ve written before about the notion of “data sovereignty,” or the issue of which country’s laws should govern data: Where it’s located? The nationality of the company that owns it? The nationality of the company that hosts it? These are questions that took on new significance in light of Edward Snowden and the revelations of NSA surveillance and which led companies in some countries to avoid having their data stored in the U.S.
A recent court decision has made the issue even more complicated and is putting U.S. companies in the position of trying to follow mutually exclusive laws from multiple countries.
In the case, Microsoft had received a U.S. government search warrant (we don’t know which agency; court records are all sealed) regarding data about one of its web-based email users. Microsoft ascertained that the data for that user was stored on a server in Dublin, Ireland, and said the U.S. didn’t have jurisdiction over that server. But Magistrate Judge James Francis, in the Southern District of New York, has ruled that Microsoft has to provide the data anyway.
“This was true for “traditional” warrants but not for those seeking online content, which are governed by federal law under the Stored Communications Act,” explains the BBC. “He said the warrant should be treated more like a subpoena for documents. Anyone issued with a subpoena by the US must provide the information sought, no matter where it was held, he said.” Francis also said, basically, that part of the reason for his ruling is that it would be too hard for the U.S. to negotiate with all those foreign countries.
So what makes this bad?
It means any company, worldwide, that uses a company with a U.S. presence to store its data — Microsoft, Google, Amazon, and so on — could find its data subject to U.S. laws. In some cases, these laws conflict with privacy and data protection laws in other countries.
If nothing else, non-U.S. companies that are concerned about this may be much less likely to use U.S. companies to store their data, which isn’t good for those companies’ business. “If the U.S. cloud industry was worried before about lack of confidence of foreign customers, this judgment just upped the ante very considerably,” Caspar Bowden, an independent privacy researcher, told the U.K. paper The Guardian.
“This startling ruling could have a significant impact on not only the use of free email services like Hotmail and Gmail, but also all cloud-based services like Office 365, Google Apps, and even cloud providers like Amazon,” agree three attorneys from Drinker Biddle & Reath LLP in a response published in the National Law Review.
What could be interesting — if by interesting we actually mean “scary and really bad” — is if other countries decide that, given this as a precedent, their various laws about data — such as the recent “right to be forgotten” — should also apply to the U.S. Ultimately, it could mean a hodgepodge of data control Balkanization that could result, as the saying goes, in the end of the Internet as we know it.
Microsoft, in particular, is screwed, legal experts conceded. Well, they didn’t say “screwed.” Being legal experts, they said it more nicely. “Microsoft appears to face the unpalatable choice of either breaching European data transfer laws or failing to comply with a US court order,” writes Rob Corbet, a partner at Arthur Cox, in Data Protection Ireland.
Microsoft said it intends to appeal the case and, in fact, indicated that it had expected to all along, just to get this issue decided. “When we filed this challenge we knew the path would need to start with a magistrate judge, and that we’d eventually have the opportunity to bring the issue to a U.S. district court judge and probably to a federal court of appeals,” writes David Howard, Microsoft’s corporate vice president and deputy general counsel. “This is the first step toward getting this issue in front of courts that have the authority to correct the government’s longstanding views on the application of search warrants to content stored digitally outside the United States.”
For a while now, we’ve been reporting how cloud storage vendors such as Google and Microsoft have been dropping their prices, and wondering when Dropbox — which is rumored to be working on an IPO – was planning to follow suit. This week we learned: It ain’t.
“We’re not cutting prices right now,” Drew Houston, CEO of Dropbox told Re/code’s Liz Gannes and Walt Mossberg at the organization’s Code Conference, writes Re/code. Instead, the company is planning to compete not by cutting prices but by offering a better product with more features. What a concept.
Which features? “One is a photo sharing app called Carousel,” writes Re/code. “Another is a yet-to-launch collaboration tool built atop Microsoft Office called Project Harmony; Houston said it should be out by end of year.”
It will be interesting to see whether new applications will encourage more people to pony up money, or if cloud storage will stay a commodity and people will simply go for what’s cheapest. If the latter is the case, Dropbox is in for a problem. Companies like Microsoft and Google can afford to have their other revenue streams support cheap online storage, but for Dropbox, cloud storage is all it has.
On the other hand, this week Dropbox announced, sort of, that it was up to 300 million users, after having hit 200 million users in November 2013 and 100 million in November 2012, according to The Next Web. This wasn’t terribly surprising; the company had announced in April that it had 275 million users.
The question, though, is how many of Dropbox’ users actually pay for the service. Users get up to 2 gigabytes of storage for free, plus bonuses for referring friends and so on. Mark Rogowsky of Forbes did an interesting analysis last fall that, tl; dr, boiled down to this: “That leaves the company with at most 2 million paying customers, or barely over 1% of the total customer base. Given that it mentions having ’4 million businesses,’ the likelihood is that the actual conversion ratio of ordinary folks is worse than this.”
In other words, if Dropbox were to drop its prices, it may cost it most of the little revenue it has — not a good idea when one is contemplating an IPO in an uncertain market (as Box has already discovered).