```

[Senate Report 111-290]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 563 
111th Congress                                                   Report 
  2d Session                  SENATE                            111-290 
======================================================================= 
 
                         DATA BREACH NOTIFICATION ACT 

                                _______
                                

               September 15, 2010.--Ordered to be printed

                                _______
                                

Mr. Leahy, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                         [To accompany S. 139]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to which was referred the 
bill (S. 139) to require Federal agencies, and persons engaged 
in interstate commerce, in possession of data containing 
sensitive personally identifiable information, to disclose any 
breach of such information, having considered the same, reports 
favorably thereon, without amendment, and recommends that the 
bill do pass.

                                CONTENTS

                                                                   Page
  I. Background and Purpose of the Data Breach Notification Act.......2
 II. History of the Bill and Committee Consideration..................7
III. Section-by-Section Summary of the Bill...........................9
 IV. Congressional Budget Office Cost Estimate.......................11
  V. Regulatory Impact Evaluation....................................15
 VI. Conclusion......................................................15
VII. Additional Views................................................16
VIII.Changes to Existing Law Made by the Bill, as Reported...........20

     I. Background and Purpose of the Data Breach Notification Act

                               A. SUMMARY

    In the first decade of the 21st century, American consumers 
have borne witness to an explosion in the commerce of digital 
information. From Government agencies to financial 
institutions, from doctors' offices to retail stores, entities 
are collecting and storing sensitive personal information by 
the gigabyte. Such widespread use of electronic data to 
identify individuals expedites everyday transactions, with 
great benefit to consumers: Systems access information faster; 
businesses conduct individually-tailored transactions more 
effectively; and Government agencies can now transfer data at 
lightning speed. Convenience, however, comes hand-in-hand with 
risks. Cyberspace has become a primary platform for domestic 
and international crime; data privacy, in turn, is now 
essential to our individual and collective security.
    In February of 2009, Director of National Intelligence, 
Dennis C. Blair provided the following details on the threats, 
``spam--unsolicited email that can contain malicious software--
now accounts for 81 percent of all email according to Message 
Labs (Symantec); the Georgia Tech Information Security Center 
projects a ten-fold increase in malicious software targeting 
data in the coming year; and botnets--networks of hijacked 
computers used to deliver spam or launch distributed denial of 
service attacks--are expected to compose 15 percent of all 
online computers in 2009.''\1\ The technology necessary to 
employ cyber attacks, in other words, is increasingly 
accessible. It can also be devastatingly dangerous.
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    \1\Director of National Intelligence Dennis C. Blair, Annual Threat 
Assessment of the Intelligence Community for the Senate Select 
Committee on Intelligence (Unclassified Version), at 39 (February 12, 
2009), available at http://intelligence.senate.gov/090212/blair.pdf.
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    Despite the acknowledged threats, however, United States 
privacy law has failed to keep pace with technological 
developments. The Data Breach Notification Act aims to enhance 
data security by ensuring that individuals and law enforcement 
are notified when sensitive personal information is put at risk 
and by creating incentives for entities to take steps to secure 
their data systems. Multiple Federal entities, including the 
Secret Service, the Federal Trade Commission,\2\ and President 
George W. Bush's Identity Theft Task Force,\3\ have urged 
Congress to pass such legislation. It is long past time for 
Congress to enact a single, national standard for notification 
in the event of a data breach.
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    \2\See Protecting the Privacy of the Social Security Number from 
Identity Theft: Hearing Before the Subcomm. on Social Security of the 
H. Comm. on Ways & Means, 110th Cong. 14 (2007) (statement of the 
Federal Trade Commission), available at http://www.ftc.gov/os/
testimony/P065409socsectest.pdf; Data Breaches and Identity Theft: 
Hearing Before the S. Comm. on Commerce, Science, and Transportation, 
109th Cong. 7 (2005) (statement of the Federal Trade Commission), 
available at http://www.ftc.gov/os/2005/06/050616databreaches.pdf.
    \3\President's Identity Theft Task Force, Combating Identity Theft: 
A Strategic Plan, 34-37 (2007), available at http://www.idtheft.gov/
reports/StrategicPlan.pdf.
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                 B. INCREASING RISKS FROM DATA BREACHES

1. Identity theft

    When asked about their daily concerns, consumers in the 
United States place identity theft at the top of the list. At 
the Federal Trade Commission, where consumer concerns flood in 
every day, complaints about identity theft rank above concerns 
about deceptive advertisements, harassing telemarketing, or 
unfair credit practices.\4\ In April of 2007, Zogby Interactive 
Survey found that 91 percent of adult users of the Internet 
were concerned that their identities might be stolen;\5\ and a 
September 2009 Unisys Security Index survey found that 65 
percent of American respondents were ``seriously concerned'' 
about misuse of their personal information--more respondents 
than expressed worry over the H1N1 virus in the headlines at 
the time.\6\
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    \4\Director of National Intelligence Dennis C. Blair, Annual Threat 
Assessment of the Intelligence Community for the Senate Select 
Committee on Intelligence (Unclassified Version), at 39 (February 12, 
2009), available at http://intelligence.senate.gov/090212/blair.pdf.
    \5\Zogby International, Zogby Poll: Most Americans Worried About 
Identity Theft, Apr. 3, 2007, www.zogby.com/search/ReadNews.dbm?ID=1275 
(last visited Jan. 11, 2010).
    \6\Unisys Corporation, Unisys Security Index: United States (2009), 
available at http://www.unisyssecurityindex.com/resources/reports/
US%20Security%20Index%20Oct%2009.pdf.
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    Such widespread concerns are not surprising. Security 
breaches are rampant, and identity theft places a heavy toll on 
its victims. The Privacy Rights Clearinghouse reports that 
between 2005 and 2009 security breaches allowed unauthorized 
access to more than 340 million records containing individuals' 
sensitive personal information.\7\
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    \7\Privacy Rights Clearinghouse, Chronology of Data Breaches, 
http://www.privacyrights.org/ar/ChronDataBreaches.htm#CP (last visited 
Jan. 11, 2010).
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    These breaches make clear that vulnerabilities exist across 
industries, and in entities both public and private. For 
example, in February 2009, the Federal Aviation Administration 
announced a breach pursuant to which 45,000 records containing 
current and former employees' personal information were 
exposed;\8\ in January 2009, Heartland Payment Systems provided 
public notice that hackers had installed malicious software on 
the company's payment processing network and accessed more than 
130 million credit card accounts;\9\ in December 2008, Royal 
Bank of Scotland Group PLC's processing unit, RBS Worldpay, 
disclosed that a breach of its payment systems had put more 
than 1.5 million consumers' financial records and more than 1.1 
million social security numbers at risk;\10\ earlier that year, 
State Department officials informed three leading Presidential 
candidates that contractors had accessed their passport files 
without authorization;\11\ and in January 2007, TJX Companies, 
the parent company of retailers Marshalls and TJ Maxx, 
announced that hackers had accessed information from more than 
45 million credit and debit cards.\12\ These breaches present a 
grave and real threat for consumers, Government, and business 
entities.
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    \8\Joe Davidson, FAA's Latest Security Challenge Is in Cyberspace, 
Not the Skies, Washington Post, D3 (February 11, 2009).
    \9\Brian Krebs, Payment Processor Breach May Be Largest Ever, 
Washington Post Security Fix (January 20, 2009), http://
voices.washingtonpost.com/securityfix/2009/01/
payment_processor_breach_may_b.html.
    \10\Press Release, RBS WorldPay, RBS WorldPay Announces Compromise 
of Data Security and Outlines Steps to Mitigate Risks (Dec. 23, 2008), 
available at http://www.rbsworldpay.us/
RBS_WorldPay_Press_Release_Dec_23.pdf.
    \11\Amy Schatz, Congress Raises Call for Data Safeguards, Wall 
Street Journal, A4 (March 30, 2008).
    \12\TJX Says Theft of Credit Data Involved 45.7 Million Cards, New 
York Times, C2 (March 30, 2007).
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    Once information is obtained, the potential for harm is 
great. Financial account numbers are sold cheaply on the 
Internet black market, with a Russian website advertising 
stolen credit card numbers with limits above $10,000 at the 
price of $50 for a batch of ten as early as 2004.\13\ Debit 
card numbers may be used to siphon money globally from 
automatic teller machines. And sensitive personally 
identifiable information may be used for acts as various as 
opening fraudulent credit accounts, leasing property under 
false names, evading sanctions by providing false identities to 
law enforcement, and stalking.
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    \13\Brian Krebs, Phishing Feeds Internet Black Markets, 
WashingtonPost.com (November 10, 2004), http://www.washingtonpost.com/
wp-dyn/articles/A59347-2004Nov18.html.
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    These immediate harms are not the only concerns. Victims of 
identity theft who suffer no direct financial loss may find 
their credit ruined and their lives disrupted as they spend 
upwards of 80 hours to restore their records.\14\
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    \14\Jon Swartz, Survey: ID Theft Takes Time to Wipe Clean, USA 
Today, B1 (July 28, 2005).
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    Data breaches cost U.S. businesses as well. In 2008, the 
average cost to private companies was $6.65 million per data 
breach.\15\ Adding to such direct costs is the revenue lost 
when consumers decrease purchases based on fear of identity 
theft. In 2006, 30 percent of consumers polled by the Wall 
Street Journal said that they limited their online purchases 
because of such fears, and 24 percent said they had cut back on 
online banking.\16\
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    \15\Ponemon Institute, Fourth Annual U.S. Cost of Data Breach 
Survey (2009), available at http://www.ponemon.org/local/upload/
fckjail/generalcontent/18/file/2008-
2009%20US%20Cost%20of%20Data%20Breach%20Report%20Final.pdf.
    \16\Jennifer Cummings, Substantial Numbers of U.S. Adults Taking 
Steps to Prevent Identity Theft, Harris Interactive & Wall Street 
Journal Online, May 18, 2006, http://www.harrisinteractive.com/news/
allnewsbydate.asp?NewsID=1058.
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2. Organized crime and cybersecurity

    Today's larger, more carefully targeted, and more 
sophisticated data breaches are increasingly perpetrated by 
organized crime rings working across national boundaries. In 
the past year alone, Federal prosecutors indicted an American 
and two Russian co-conspirators for installing malicious 
software in grocers' payment systems to fraudulently obtain 
more than 4.2 million credit and debit card accounts,\17\ and 
individuals from Russia, Estonia, and Moldova for using 
sophisticated hacking techniques to compromise RBS Worldpay's 
data encryption protection and gain access to over 1.5 million 
financial accounts and 1.1 million social security numbers.\18\
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    \17\Jerry Harkavy, Illicit Software Placed on Hannaford Servers 
Blamed for Breach of 4.2 Million Cards, Brattleboro Reformer (March 28, 
2008).
    \18\Press Release, Federal Bureau of Investigation, International 
Effort Defeats Major Hacking Ring (November 10, 2009), available at 
http://atlanta.fbi.gov/dojpressrel/pressrel09/atl111009.htm.
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    Intrusions by cybercriminals and foreign states have also 
placed sensitive military information, valuable intellectual 
property, and essential infrastructure at risk. As documented 
by the Office of the Director of National Intelligence, 
nations, including Russia and China, have the technological 
capability to collect intelligence information from U.S.-based 
networks and to use such networks to interfere with our 
national infrastructure, and ``terrorist groups, including al-
Qa'ida, HAMAS, and Hizballah, have expressed the desire to use 
cyber means to target the United States.''\19\ In 2009 alone, 
we have seen computer technology utilized to penetrate civilian 
air traffic control networks,\20\ the U.S. electrical grid,\21\ 
defense projects such as the Pentagon's Joint Strike Fighter 
project,\22\ and live video feeds from operational U.S. 
Predator drones.\23\ The United States as a Nation, like each 
individual American consumer, can no longer afford to take data 
security for granted.
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    \19\Director of National Intelligence Dennis C. Blair, Annual 
Threat Assessment of the Intelligence Community for the Senate Select 
Committee on Intelligence (Unclassified Version), at 39 (Feb. 12, 
2009), available at http://intelligence.senate.gov/090212/blair.pdf.
    \20\Siobhan Gorman, FAA's Air-Traffic Networks Breached by Hackers, 
Wall Street Journal, A4 (May 7, 2009).
    \21\Siobhan Gorman, Electricity Grid in U.S. Penetrated by Spies, 
Wall Street Journal, A1 (April 8, 2009).
    \22\Siobhan Gorman, August Cole, & Yochi Dreazen, Computer Spies 
Breach Fighter-Jet Project, Wall Street Journal, A1 (April 11, 2009).
    \23\Siobhan Gorman, August Cole, & Yochi Dreazen, Insurgents Hack 
U.S. Drones, Wall Street Journal, A4 (December 17, 2009).
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    To track the use of new technologies for disrupting 
computer networks, to trace profits obtained via technological 
theft, and to apprehend those responsible for breaches, Federal 
law enforcement needs information about cyber crimes to 
effectively safeguard individuals and the national security.

                  C. THE DATA BREACH NOTIFICATION ACT

    Federal data breach notification legislation is an 
essential step toward protecting data security in the United 
States. The Data Breach Notification Act would serve the dual 
purpose of informing consumers when their personal information 
is at risk and informing Federal law enforcement when a breach 
has occurred.
    The bill provides a single Federal standard--ensuring that 
U.S. consumers receive notice of a breach wherever they live, 
that businesses have clear notification standards to follow 
across State lines, and that Federal law enforcement receives 
the information it needs to protect public safety and national 
security. Supporters of the legislation include Consumers Union 
and the Business Software Alliance.

1. Providing notice to consumers

    First, S. 139 requires that a business or Government entity 
that experiences a data breach promptly notify any consumer 
whose sensitive personally identifiable information has been 
exposed. In 2002, California led the nation by enacting S.B. 
1386, the first State law to require that businesses notify 
consumers in the event of a breach.\24\ Today, there is 
national consensus that such notice is necessary to allow 
consumers to take steps to prevent identity theft. Forty-five 
States, the District of Columbia, Puerto Rico, and the Virgin 
Islands currently have laws requiring that consumers receive 
notice of data breaches.
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    \24\Cal. Civ. Code Sec. Sec. 1798.29, .82, .84.
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    The bill strikes a careful balance between over-
notification and underreporting of data breaches. Section 3(b) 
provides a safe harbor releasing an entity from the obligation 
to notify consumers if there is ``no significant risk that a 
security breach has resulted in, or will result in, harm to the 
individual.'' This notification trigger recognizes that there 
are harms other than identity theft that can result from a data 
breach--harms such as financial crimes and stalking--while 
simultaneously acknowledging that consumers may not respond to 
notices if they arrive frequently when there is no risk of 
harm.
    The bill provides additional exemptions to the notice 
requirement when a law enforcement or national security reason 
counsels against immediate notice and allows reasonable delay 
for an entity to conduct a risk assessment to determine the 
threat posed by a breach.
    The requirements for notice are specific. Individuals must 
be notified in writing, by telephone, or by email if they have 
consented to such notice. When a breach places the sensitive 
personally identifiable information of more than 5,000 
residents of a State at risk, notice must also be provided 
according to Section 4(2) through major media outlets in the 
State.

2. Increasing law enforcement capabilities to protect and enhance 
        cybersecurity

    Second, to enhance Federal law enforcement's capabilities 
in fighting cybercrime, S. 139 mandates that notice immediately 
be provided to the Secret Service in the event that a breach 
involves unauthorized access to more than 10,000 individuals' 
sensitive personally identifiable information or to a database 
containing the sensitive personally identifiable information of 
more than 1,000,000 individuals nationwide. The bill also 
empowers the Secret Service to obtain additional information 
about the data breach from business entities and requires that 
it provide further notice to Federal agencies such as the 
Federal Bureau of Investigation, the U.S. Postal Inspection 
Service, and State Attorneys General, who may be involved in 
preventing further harm from the breach or the perpetration of 
additional breaches.
    In Congressional testimony, the Department of Justice has 
specifically urged Congress to require security breach 
reporting to Federal law enforcement, including both the U.S. 
Secret Service and the Federal Bureau of Investigation. This 
law is intended to ensure that law enforcement receives such 
notice of data breaches.\25\ Additionally, as highlighted in 
the President's 2009 Cyberspace Policy Review, partnerships 
among Government agencies, law enforcement, and private 
industry are essential to addressing cybersecurity-related 
risks.\26\ The bill is intended to facilitate interagency and 
public-private cooperation to solve and prevent data breaches.
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    \25\Identify Theft: A Victims Bill of Rights: Hearing Before the 
Subcomm. on Information Policy, Census and National Archives of the H. 
Comm. on Oversight and Government Reform, 111th Cong. 9 (2009) 
(statement of Deputy Assistant Attorney General Jason M. Weinstein), 
available at http://oversight.house.gov/images/stories/documents/
20090617111143.pdf.
    \26\Cyberspace Policy Review: Assuring a Trusted and Resilient 
Information and Communications Infrastructure, at iv (May 29, 2009), 
available at http://www.whitehouse.gov/assets/documents/
Cyberspace_Policy_Review_final.pdf.
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3. Enforcement

    Third, S. 139 contains strong civil enforcement provisions. 
The bill authorizes State Attorneys General, or the U.S. 
Attorney General, to bring a civil enforcement action against 
violators of the bill's notification requirements and to 
recover a civil penalty of not more than $1,000 per affected 
individual, per day, and a maximum penalty of $1,000,000 per 
violation, unless the violation is willful or intentional. It 
is not uncommon for Congress to authorize both Federal and 
State entities to enforce Federal consumer protection laws. In 
fact, Federal antitrust laws, the CAN-SPAM Act (Controlling the 
Assault of Non-Solicited Pornography and Marketing Act of 
2003), and the Communications Act of 1934 also authorize State 
Attorneys General to seek damages or to enjoin further Federal 
law violations. The State enforcement provisions in S. 139 are 
modeled after those laws and require cooperation and 
communication between Federal and State entities to prevent 
duplication of efforts.
    The bill authorizes the Secret Service to investigate data 
security breaches and to provide guidance to companies that 
have been the victim of a data security breach on their notice 
obligations under the bill. Since 1984, Congress has provided 
statutory authority for the Secret Service to investigate a 
wide range of financial crimes, including offenses under 18 
U.S.C. Sec. 1028 (false identification fraud), Sec. 1029 
(access device fraud), Sec. 1030 (computer fraud). In the last 
two decades, the Secret Service has conducted more than 733,000 
financial fraud and identity theft investigations involving 
these statutes, leading to the prosecution of more than 116,000 
individuals.\27\
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    \27\United States Secret Service, White Paper: Data Broker 
Legislation--S.1490 (2007).
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    Section 316(b) of the bill expressly requires that the FBI 
must be notified of any data security breach that involves 
espionage, foreign counterintelligence, or national security 
matters. Under title 18, section 1030(d)(1), the Secret Service 
and FBI have concurrent jurisdiction to investigate violations 
of section 1030 relating to false identification fraud, access 
device fraud, and computer fraud. Section 1030 designates the 
FBI as the primary investigative agency for such offenses if 
they involve espionage, foreign counterintelligence, or other 
national security matters. Accordingly, the bill incorporates 
this requirement in the context of breach notice, so that the 
FBI is promptly notified of any data breach matters that 
involve espionage, foreign counterintelligence, or national 
security.

4. Preemption

    Fourth, the legislation balances the important role of 
States as leaders on privacy issues with the recognized need 
for Federal uniformity in breach notification law. As discussed 
in the President's Identity Theft Task Force Report of 
September 2008, ``at present, there is no single data security 
or breach notification standard that applies in the United 
States. Rather, there is a patchwork of state laws and sector-
specific Federal laws and regulations that are varied and have 
uneven application.''\28\ The bill preempts State laws on 
breach notification in order to provide a clear, national 
standard. The bill also, however, carves out an exception for 
State laws requiring that consumers be provided with additional 
information about victim protection assistance available in 
certain States. Finally, the bill's requirements do not apply 
to State or local government entities, and the Committee does 
not intend for the bill to preempt or displace State laws that 
address obligations of State and local government entities to 
provide notice of a security breach.
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    \28\President's Identity Theft Task Force Report, Combating 
Identity Theft: A Strategic Plan, 13 (2008), available at http://
www.idtheft.gov/reports/IDTReport2008.pdf.
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          II. History of the Bill and Committee Consideration

                      A. INTRODUCTION OF THE BILL

    Senator Dianne Feinstein introduced the Data Breach 
Notification Act on January 6, 2009. This legislation is very 
similar to the Notification of Risk to Personal Data Act of 
2007, S. 239, which Senator Feinstein introduced on January 10, 
2007, and to the Notification of Risk to Personal Data Act of 
2005, S. 751, which Senator Feinstein introduced on April 11, 
2005. The Judiciary Committee favorably reported S. 239 on May 
3, 2007, by voice vote with an amendment in the nature of a 
substitute. The legislation is also very similar to Subtitle B 
of the Personal Data Privacy and Security Act of 2009, S. 1490. 
The Committee favorably reported S. 1490 on November 5, 2009 
with amendments.
    The Committee has held two hearings directly related to S. 
139. On March 21, 2007, the Judiciary Committee's Subcommittee 
on Terrorism, Technology and Homeland Security held a hearing 
titled, ``Identity Theft: Innovative Solutions for an Evolving 
Problem.'' This hearing examined the problem of identity theft 
and legislative solutions to this problem, and discussed the 
need for Federal legislation on data breach notification. The 
following witnesses testified at this hearing: Ronald Tenpas, 
Associate Deputy Attorney General, United States Department of 
Justice; Lydia Parnes, Director Bureau of Consumer Protection, 
Federal Trade Commission; James Davis, Chief Information 
Officer and Vice Chancellor for Information Technology, 
University of California, Los Angeles; Joanne McNabb, Chief 
California Office of Privacy Protection; and Chris Jay 
Hoofnagle, Senior Staff Attorney, Samuelson Law, Technology & 
Public Policy Clinic, School of Law (Boalt Hall), University of 
California, Berkeley.
    On April 13, 2005, the Judiciary Committee held a hearing 
titled, ``Securing Electronic Personal Data: Striking a Balance 
between Privacy and Commercial and Governmental Use.'' This 
hearing examined the growing problem of breaches of data 
security and the practices and weaknesses of the rapidly 
growing data broker industry. The hearing also explored 
legislative options for ensuring that consumers who were at 
risk of identity theft could protect their personal data and 
take steps to prevent the misuse of their private information. 
The following witnesses testified at this hearing: Deborah 
Platt Majoras, Chairman of the Federal Trade Commission; Chris 
Swecker, Assistant Director for the Criminal Investigative 
Division at the Federal Bureau of Investigation; Larry D. 
Johnson, Special Agent in Charge of the Criminal Investigative 
Division of the U.S. Secret Service; William H. Sorrell, 
President of the National Association of Attorneys General; 
Douglas C. Curling, President, Chief Operating Office, and 
Director of ChoicePoint, Inc.; Kurt P. Sanford, President & CEO 
of the U.S. Corporate & Federal Markets LexisNexis Group; 
Jennifer T. Barrett, Chief Privacy Officer of Acxiom Corp.; 
James X. Dempsey, Executive Director of the Center for 
Democracy & Technology; and Robert Douglas, CEO of 
PrivacyToday.com.

                       B. COMMITTEE CONSIDERATION

    On October 23, 2009, S. 139 was placed on the Judiciary 
Committee's agenda. The Committee considered this legislation 
on November 5, 2009. No amendments were offered to the bill. 
The Committee voted to report the Data Breach Notification Act 
of 2009, without amendment, favorably to the Senate by roll 
call vote as follows:
Tally: 14 Yeas, 3 Nays, Pass 2
Yeas (14): Leahy (D-VT), Kohl (D-WI), Feinstein (D-CA), 
Feingold (D-WI), Schumer (D-NY), Durbin (D-IL), Cardin (D-MD), 
Whitehouse (D-RI), Klobuchar (D-MN), Kaufman (D-DE), Specter 
(D-PA), Franken (D-MN), Hatch (R-UT), Grassley (R-IA).
Nays (3): Sessions (R-AL), Graham (R-SC), Coburn (R-OK).
Pass (2): Kyl (R-AZ), Cornyn (R-TX).

              III. Section-by-Section Summary of the Bill

Section 1. Short title

    This section provides that the legislation may be cited as 
the ``Data Breach Notification Act.''

Section 2. Notice to individuals

    Section 2 requires that a business entity or Federal agency 
give notice to an individual whose sensitive personally 
identifiable information has been, or is reasonably believed to 
have been, compromised, following the discovery of a data 
security breach. The notice required under section 2 must be 
made without unreasonable delay. Section 2 requires that a 
business entity or Federal agency that does not own or license 
the information compromised as a result of a data security 
breach notify the owner or licensee of the data. The owner or 
licensee of the data would then provide the notice to 
individuals as required under this section. However, agreements 
between owners, licensees and third parties regarding the 
obligation to provide notice under section 2 are preserved.

Section 3. Exemptions

    Section 3 allows a business entity or Federal agency to 
delay notification by providing a written certification to the 
U.S. Secret Service that providing such notice would impede a 
criminal investigation, or damage national security. This 
provision further requires that the Secret Service must review 
all certifications from business entities (and may review 
certifications from agencies) seeking an exemption from the 
notice requirements based upon national security or law 
enforcement, to determine if the exemption sought has merit. 
The Secret Service has 10 business days to conduct this review, 
which can be extended by the Secret Service if additional 
information is needed. Upon completion of the review, the 
Secret Service must provide written notice of its determination 
to the agency or business entity that provided the 
certification. If the Secret Service determines that the 
exemption is without merit, the exemption will not apply. 
Section 312 also prohibits Federal agencies from providing a 
written certification to delay notice, to conceal violations of 
law, prevent embarrassment or restrain competition.
    Section 3(b) exempts a business entity or agency that 
conducts a risk assessment after a data breach occurs, and 
finds no significant risk of harm to the individuals whose 
sensitive personally identifiable information has been 
compromised, from the notice requirements of section 2, 
provided that: (1) the business entity or Federal agency 
notifies the Secret Service of the results of the risk 
assessment within 45 days of the security breach; and (2) the 
Secret Service does not determine within 10 business days of 
receipt the notification that a significant risk of harm does 
in fact exist and that notice of the breach should be given. 
Under section 3(b) a rebuttable presumption exists that the use 
of encryption technology, or other technologies that render the 
sensitive personally identifiable information indecipherable, 
and thus, that there is no significant risk of harm.
    Section 3(c) also provides a financial fraud prevention 
exemption from the notice requirement, if a business entity has 
a program to block the fraudulent use of information--such as 
credit card numbers--to avoid fraudulent transactions. Debit 
cards and other financial instruments are not covered by this 
exemption.

Section 4. Methods of notice

    Section 4 provides that notice to individuals may be given 
in writing to the individuals last known address, by telephone 
or via email notice, if the individual has consented to email 
notice. Media notice is also required if the number of 
residents in a particular State whose information was, or is 
reasonably believed to have been, compromised exceeds 5,000 
individuals.

Section 5. Content of notification

    Section 5 requires that the notice detail the nature of the 
personally identifiable information that has been compromised 
by the data security beach, a toll free number to contact the 
business entity or Federal agency that suffered the breach, and 
the toll free numbers and addresses of major credit reporting 
agencies. Section 5 also preserves the right of States to 
require that additional information about victim protection 
assistance be included in the notice.

Section 6. Coordination of notification with credit reporting agencies

    Section 6 requires that, for situations where notice of a 
data security breach is required for 5,000 or more individuals, 
a business entity or Federal agency must also provide advance 
notice of the breach to consumer reporting agencies.

Section 7. Notice to law enforcement

    Section 7 requires that business entities and Federal 
agencies notify the Secret Service of the fact that a security 
breach occurred within 14 days of the breach, if the data 
security breach involves: (1) more than 10,000 individuals; (2) 
a database that contains information about more than one 
million individuals; (3) a Federal Government database; or (4) 
individuals known to be Government employees or contractors 
involved in national security or law enforcement. The Secret 
Service is responsible for notifying other Federal law 
enforcement agencies, including the FBI and the relevant State 
Attorneys General, within 14 days of receiving notice of a data 
security breach.

Section 8. Enforcement

    Section 8 allows the Attorney General to bring a civil 
action to recover penalties for violations of the notification 
requirements in subtitle B. Violators are subject to a civil 
penalty of up to $1,000 per day, per individual and a maximum 
penalty of $1 million per violation, unless the violation is 
willful or intentional.

Section 9. Enforcement by State attorneys general

    Section 9 allows State attorneys general to bring a civil 
action in U.S. district court to enforce subtitle B. The 
attorney general may stay, or intervene in, any State action 
brought under this subtitle.

Section 10. Effect on Federal and State law

    Section 10 preempts State laws on breach notification, with 
the exception of State laws regarding providing consumers with 
information about victim protection assistance that is 
available to consumers in a particular State. Because the 
breach notification requirements in the bill do not apply to 
State and local government entities, this provision does not 
preempt State or local laws regarding the obligations of State 
and local government entities to provide notice of a data 
security breach.

Section 11. Authorization of appropriations

    Section 11 authorizes funds for the Secret Service as may 
be necessary to carry out investigations and risk assessments 
of security breaches under the requirements of subtitle B.

Section 12. Reporting on risk assessment exemptions

    Section 12 requires that the Secret Service report to 
Congress on the number and nature of data security breach 
notices invoking the risk assessment exemption and the number 
and nature of data security breaches subject to the national 
security and law enforcement exemptions.

Section 13. Definitions

    Section 13 defines ``sensitive personally identifiable 
information'' in a limited manner. Information will qualify if 
it combines a person's last name and first name or first 
initial with one of these four categories of personal 
information: (1) a non-truncated social security number, 
driver's license number, passport number, or alien registration 
number; (2) two of: the individual's home address and telephone 
number, mother's maiden name, or complete birth date; (3) 
unique biometric data; or (4) a unique account number or 
electronic identification number in combination with an 
associated security code. Additionally, a financial account 
number will qualify as ``sensitive personally identifiable 
information'' if it is accessed or acquired without the account 
holder's name but in combination with an associated security 
code or password.

Section 14. Effective date

    This Act takes effect 90 days after the date of enactment 
of this Act.

             IV. Congressional Budget Office Cost Estimate

    The Committee sets forth, with respect to the bill, S. 139, 
the following estimate and comparison prepared by the Director 
of the Congressional Budget Office under section 402 of the 
Congressional Budget Act of 1974:

                                                 December 11, 2009.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 139, the Data Breach 
Notification Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark 
Grabowicz and Matthew Pickford (for federal costs) and Marin 
Randall (for the impact on the private sector).
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 139--Data Breach Notification Act

    Summary: S. 139 would require most government and business 
entities that collect, transmit, store, or use sensitive 
personal information to notify any individuals whose 
information has been unlawfully accessed through a breach in 
the security systems designed to protect such information from 
unauthorized access. The legislation defines sensitive personal 
information as combinations of an individual's name, address or 
phone number, and Social Security number, driver's license 
number, financial account information, or biometric data (that 
is, finger print, voice print, or retina scan). Under certain 
circumstances, entities could apply to the Secret Service for 
exemptions from the notification requirements. In addition, S. 
139 would create civil penalties for entities that fail to 
provide notice to affected individuals.
    CBO expects that agencies would incur negligible costs to 
implement the legislation because they already comply with the 
notification requirements in the bill. Implementing S. 139 
could increase collections of civil penalties that would affect 
revenues, but CBO estimates that any such effect would not be 
significant in any year. In addition, enacting S. 139 could 
affect direct spending for notification requirements by 
agencies not funded through annual appropriations. CBO 
estimates, however, that any changes in net spending by those 
agencies would be negligible. Complying with the bill's 
provisions could increase the expenses of the Secret Service, 
but CBO estimates that such costs would be less than $500,000 
annually and subject to the availability of appropriated funds.
    S. 139 contains intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA), but CBO estimates that 
the cost of complying with the requirements would be small and 
would not exceed the threshold established in UMRA ($69 million 
in 2009, adjusted annually for inflation).
    The notification requirements in S. 139 would impose 
private-sector mandates as defined in UMRA. Because most 
businesses already comply with similar state requirements, CBO 
estimates that the incremental cost to comply with the mandates 
would fall below the annual threshold established in UMRA for 
private-sector mandate ($139 million in 2009, adjusted annually 
for inflation).
    Estimated cost to the Federal Government: Enacting S. 139 
could affect both direct spending and revenues, but CBO 
estimates that any such effects would be negligible.
    In the event of a security breach, S. 139 would require 
most government agencies to notify individuals whose personal 
information has been unlawfully accessed. Notification would be 
in the form of an individual notice (a written notice to a home 
mailing address, a telephone call, or an e-mail) as well as 
through the mass media for breaches involving the sensitive 
information of 5,000 or more individuals. The legislation also 
would require the agency to provide affected individuals with a 
description of the accessed information, a toll-free number to 
contact the agency, the names and toll-free telephone numbers 
of the major credit-reporting agencies, and in some instances, 
information on an individual state's victim protection 
assistance.
    This provision would codify the current practice of the 
federal government regarding notifications of security 
breaches. While existing laws generally do not require agencies 
to notify affected individuals of data breaches, this has been 
the practice of agencies that have experienced such breaches. 
Therefore, CBO expects that implementing those notification 
provisions would probably not lead to a significant increase in 
spending. Nonetheless, the federal government is also one of 
the largest providers, collectors, consumers, and disseminators 
of personal information in the United States. Although CBO 
cannot anticipate the number of security breaches, a 
significant breach of security involving a major collector of 
personal information, such as the Internal Revenue Service or 
the Social Security Administration, could involve millions of 
individuals, and there would be significant costs to notify 
individuals of such a security breach.
    The legislation also would require a business entity or 
federal agency (under certain circumstances) to notify the 
Secret Service that a security breach has occurred, but would 
permit entities or agencies to apply to the Secret Service for 
exemption from notice under certain circumstances. Based on 
information from the Secret Service, CBO estimates any 
additional investigative or administrative costs to that agency 
would likely total less than $500,000 annually and would be 
subject to the availability of appropriated funds.
    Impact on state, local, and tribal governments: S. 139 
contains intergovernmental mandates as defined in UMRA. The 
bill would explicitly preempt laws in at least 45 states 
regarding the treatment of personal information and would 
impose notification requirements and limitations on State 
Attorneys General and state insurance authorities. Because the 
limits on state authority would impose no duties with costs and 
because the notification requirements would result in minimal 
additional spending, CBO estimates the costs of the mandates 
would be small and would not exceed the threshold established 
in UMRA ($69 million in 2009, adjusted annually for inflation).
    Estimated impact on private sector: S. 139 would impose 
private-sector mandates as defined in UMRA. The bill would 
require business entities engaged in interstate commerce that 
use, access, transmit, store, dispose of, or collect sensitive 
personally identifiable information to notify individuals if a 
security breach occurs that affects the individuals' sensitive, 
personally identifiable information. Entities would be able to 
notify individuals using written letter, the telephone, or 
email under certain circumstances. The bill also would require 
those entities to notify the owner or licensee of any such 
information that the entity does not own or license and would 
require notice in major media outlets serving a state or 
jurisdiction for any breach of more than 5,000 residents' 
records within a particular state. In addition, business 
entities would be required to notify other entities and 
agencies in the event of a large security breach. Entities that 
experience the breach of such data would have to notify the 
affected victims and consumer reporting agencies if the breach 
involves more than 5,000 individuals, and the U.S. Secret 
Service if the breach involves more than 10,000 individuals. 
The bill, however, would exempt business entities from the 
notification requirements under certain circumstances.
    According to industry sources, millions of individuals' 
sensitive personally identifiable information is breached every 
year. However, according to those sources, 45 states already 
have laws requiring notification in the event of a security 
breach. In addition, it is the standard practice of most 
businesses to notify individuals if a security breach occurs. 
CBO therefore estimates that the incremental costs incurred by 
businesses to comply with the requirements in the bill would 
fall below the annual threshold established in UMRA for 
private-sector mandate ($139 million in 2009, adjusted annually 
for inflation).
    Previous CBO estimates: On December 2, 2009, CBO 
transmitted a cost estimate for S. 1490, the Personal Data 
Privacy and Security Act of 2009, as ordered reported by the 
Senate Committee on the Judiciary on November 5, 2009. On 
December 7, 2009, CBO transmitted a cost estimate for H.R. 
2221, the Data Accountability and Trust Act, as ordered 
reported by the House Committee on Energy and Commerce on 
September 30, 2009. Those bills address security breaches of 
sensitive personal information and notification requirements 
for the federal government and private industry. S. 1490 would 
require agencies to prepare additional reports for the Congress 
on the security of sensitive personal information held by the 
federal government. CBO estimates that preparing those reports 
and other security assessments would cost $25 million over the 
2010-2014 period. H.R. 2221 would require the Federal Trade 
Commission to develop regulations to enforce new notification 
requirements. CBO estimates that it would cost that agency $5 
million over the 2010-2014 period to carry out those 
activities.
    CBO determined that S. 1490 and H.R. 2221 also contained 
intergovernmental mandates, but any costs would be small and 
would not exceed the threshold established in UMRA ($69 million 
in 2009, adjusted for inflation). In addition, CBO determined 
that S. 1490 and H.R. 2221 would impose private-sector mandates 
that would exceed the annual threshold established in UMRA 
($139 million in 2009, adjusted annually for inflation) in at 
least one of the first five years the mandate are in effect.
    Estimate prepared by: Federal costs: Mark Grabowicz and 
Matthew Pickford; Impact on state, local, and tribal 
governments: Elizabeth Cove Delisle; Impact on the private 
sector: Marin Randall.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                    V. Regulatory Impact Evaluation

    In compliance with rule XXVI of the Standing Rules of the 
Senate, the Committee finds that no significant regulatory 
impact will result from the enactment of S. 139.

                             VI. Conclusion

    By providing a Federal standard for notification in the 
event of a data breach, the Data Breach Notification Act, S. 
139, will create a powerful incentive for government and 
private industry to improve the security of their data systems, 
will ensure that consumers are notified when their sensitive 
personally identifiable information is at risk, and will 
provide Federal law enforcement with critical information in 
the fight against cyber crime.

                         VII. Additional Views

                              ----------                              

        ADDITIONAL VIEWS FROM SENATORS SESSIONS, KYL AND GRAHAM

    There is bipartisan agreement on the need for congressional 
action to confront the growing threat posed by criminals who 
steal Americans' personal information. There is also a 
bipartisan consensus on a need for a national standard for 
notifying consumers and law enforcement in the event of a data 
breach that compromises individuals' sensitive personal 
information. Such notice provides law enforcement with valuable 
leads on how to fight cybercrime, including data and identity 
theft crimes, which has exploded in recent years, and which is 
increasingly committed by sophisticated criminal enterprises 
with global reach. Timely notice of genuine threats to 
individuals' identity information also gives consumers the 
opportunity to protect themselves. In order for such consumer 
protections to be effective, however, it is important that 
notices be sent after a conscientious assessment of the risk 
that a breach poses to consumers. If notices are sent for 
trivial security breaches, consumers may be overwhelmed by 
inconsequential notices and become more likely to ignore 
warnings that matter--when their identity information is 
genuinely at risk. If we are to succeed in our shared goal of 
protecting consumers, it is critical that Congress strike a 
careful balance. We are concerned that this bill could lead to 
excessive (and thus counterproductive) notice to consumers, and 
so we hope that the right balance can be achieved when this 
bill comes before the full Senate.
    To date, 45 states, the District of Columbia, Puerto Rico, 
and the U.S. Virgin Islands have adopted laws governing notice 
to individuals whose personal identity information has been 
compromised. Such protection is important, but the 
proliferation of state laws has produced a patchwork in which 
the protections for consumers--and the rules for business--are 
uneven and at times confusing. We firmly believe that Congress 
should provide a uniform national standard in this area, and we 
commend Senator Feinstein's efforts to do so in this bill. We 
remain committed to the goals underlying this legislation, and 
we hope to work with our colleagues to craft a bill that best 
serves our shared interests in assisting law enforcement and 
protecting consumers.

                               BACKGROUND

    Identity theft is a major concern for consumers and for 
businesses, and the threat posed by the increasingly 
sophisticated criminal enterprises that perpetrate these acts 
is both serious and growing. Both business and government have 
spent a great deal of time and effort to understand and combat 
this crime. Law enforcement agencies at the federal, state and 
local levels have increased their cooperation, and businesses 
and governments at all levels have adopted more rigorous 
internal controls to protect individuals' information. 
Nevertheless, periodic breaches that compromise sensitive 
personal information continue to occur, because of inadequate 
defenses against criminals, or because of negligence in 
securing sensitive information. Reports this week that the 
National Archives may have compromised sensitive information, 
including Social Security numbers, for 250,000 individuals 
because of a single lost computer hard drive are a sober 
reminder of the need for better security.
    Our first priority must be to ensure that consumers have 
the tools to protect themselves in the event of a data breach. 
Americans need to be notified when information pertaining to 
them is compromised in a way that may jeopardize their 
identities. For such notices to be effective, however, they 
must be issued only when there are reasonable grounds to do so. 
We know from the experience of the Gramm-Leach-Bliley Act 
(GLBA) that over-notification leads to consumer apathy, with 
the result that consumers are exposed to greater risks.

     SPECIFIC CONCERNS WITH S.139, THE DATA BREACH NOTIFICATION ACT

    Although we support the goals of this legislation, we have 
some specific concerns with S.139 as reported by the Committee, 
and believe that the bill could be improved in several areas.
1. The scope of protected personal information includes widely 
        publicly-available information
    The bill defines the protected class of information--
``sensitive personally identifiable information''--to include 
widely-available information such as home address, phone 
number, and date of birth. Such information is frequently 
available in public records, and release or compromise of such 
information alone is not sufficient to pose a risk of identity 
theft. Nor is the release of such information alone 
sufficiently grave to justify notice to the FBI and the Secret 
Service.
2. The definition of Security Breach is too broad
    The bill defines a breach as including unauthorized 
``access'' or ``acquisition'' of sensitive personally 
identifiable information. While ``access'' to such information 
is a common term used in the criminal code, its use alongside 
``acquisition'' implies that ``access'' refers only to 
instances where the personal data is not ``acquired''--i.e. 
where the data is not in some way recorded, collected, or taken 
for future, potentially harmful, use. Thus, the current 
definition of a ``breach'' would appear to cover instances 
where information is viewed in passing, or possibly where a 
person obtains unauthorized access to a computer system that 
contains personal information, even if the invader never views 
or downloads the information. Such activity, however, does not 
threaten individuals whose data was ``accessed'' with any harm.
    Although the definition of a Security Breach excludes ``the 
release of a public record'' that is not otherwise protected by 
confidentiality or nondisclosure rules, the S.139 does not 
define a ``public record'' and thus the bill could be read to 
treat release of specific information available in a public 
record as a Breach while permitting release of a full public 
record.
3. The ``harm'' standard for notice to consumers is vague
    One of the most valuable aspects of S. 139 is the 
requirement that companies who suffer data breaches report 
those incidents to law enforcement. That reporting requirement 
will assist our law enforcement agencies to better analyze and 
defend against the methods of increasingly sophisticated and 
global criminal enterprises that commonly engage in data theft. 
In order to avoid desensitizing the public through over-
notification of such breaches, however, Congress should provide 
a clear risk-based standard for requiring companies to take the 
additional step of notifying individual consumers who might 
have been affected by the breach.
    The standard currently in S.139, requires consumer notice 
unless there is ``no significant risk'' of ``harm to the 
individual.'' ``Harm'' is undefined, and although the Majority 
suggests that the ``harm'' in question should cover not only 
identity theft but also financial crime or threats to a 
person's safety such as from stalking, judicial interpretations 
of similar state laws suggest that the current language could 
encompass not only such serious matters but also less concrete 
``harms,'' such as the time a person must spend to expunge 
negative credit information or even purely reputational 
``harms'' that might be suffered from some types of 
disclosures. A more disciplined approach would be to require 
notice when there is a risk of ``misuse of the individual's 
personal information for identity theft, fraud, or other 
illegal purposes, or financial harm to the individual.''
4. Consumer notice methods and timing
    S. 139 requires entities victimized by a Security Breach to 
send any notice to consumers ``without unreasonable delay.'' 
While ``reasonable delay'' is defined to include the time 
necessary to determine the scope of the breach and secure the 
database from further exploitation, the bill does not currently 
make clear that notice may be delayed to allow the holder of 
the data to assess the possible risks to consumers and evaluate 
the need for a breach notice.
    More significantly, S. 139 currently requires consumers 
receive both actual notice of a breach (through mail, 
telephone, or email) and constructive notice through 
announcements in major media outlets. Where actual notice is 
feasible, however, any constructive notice through mass media 
outlets is duplicative and unnecessary. Congress should follow 
the example of those states, including California, that call 
for notice through mass media only as a fall-back alternative 
when actual notice is impossible or impracticable. In addition, 
S.139 should allow consumers to be notified through whatever 
channels they customarily use to communicate with the business 
or entity whose systems were breached. As currently drafted, 
the bill would not permit notice via email unless a consumer 
has specifically consented to such email notice in advance.
5. Other Issues
    We agree with the sponsors of S. 139 on the need for 
Congress to set a uniform national standard for breach 
notification, and we hope that the preemption language in the 
bill will be reinforced when S. 139 is considered by the full 
Senate. We also believe that the civil penalty provisions in 
the bill should be clarified to ensure that the civil penalty 
cap applies to each incident or breach, so that the damages 
ceiling for mishandling a breach would not be multiplied by the 
number of consumers--possibly in the millions--that could be 
affected in a single incident. In addition, we would suggest 
that the bill's reference to encryption technology adopted by 
an ``established standards setting body'' might be strengthened 
by making clear that the standard-setting body must be widely-
accepted or certified by the FTC.

                               CONCLUSION

    For these reasons, although we share the general goals S. 
139 attempts to serve, we urge our colleagues to revisit these 
policy and drafting issues that remain in this bill.

                                   Jeff Sessions.
                                   Jon Kyl.
                                   Lindsey Graham.

      VIII. Changes to Existing Law Made by the Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 139, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                           UNITED STATES CODE

TITLE 15--COMMERCE AND TRADE

           *       *       *       *       *       *       *

CHAPTER 41--CONSUMER CREDIT PROTECTION

           *       *       *       *       *       *       *

Subchapter III--Credit Reporting Agencies

           *       *       *       *       *       *       *

Sec. 1681c-1. Identity theft prevention; fraud alerts and active duty 
                    alerts

           *       *       *       *       *       *       *

    (b) Extended Alerts.--
          (1) In general.--Upon the direct request of a 
        consumer, or an individual acting on behalf of or as a 
        personal representative of a consumer, who submits an 
        identity theft report, or evidence that the consumer 
        has received notice that the consumer's financial 
        information has or may have been compromised, to a 
        consumer reporting agency described in section 1681a(p) 
        of this title that maintains a file on the consumer, if 
        the agency has received appropriate proof of the 
        identity of the requester, the agency shall--
                  (A) include a fraud alert in the file of that 
                consumer, and also provide that alert along 
                with any credit score generated in using that 
                file, during the 7-year period beginning on the 
                date of such request, unless the consumer or 
                such representative requests that such fraud 
                alert be removed before the end of such period 
                and the agency has received appropriate proof 
                of the identity of the requester for such 
                purpose;
                  (B) during the 5-year period beginning on the 
                date of such request, exclude the consumer from 
                any list of consumers prepared by the consumer 
                reporting agency and provided to any third 
                party to offer credit or insurance to the 
                consumer as part of a transaction that was not 
                initiated by the consumer, unless the consumer 
                or such representative requests that such 
                exclusion be rescinded before the end of such 
                period; and
                  (C) refer the information regarding the 
                extended fraud alert under this paragraph to 
                each of the other consumer reporting agencies 
                described in section 1681a(p) of this title, in 
                accordance with procedures developed under 
                section 1681s(f) of this title.

                                  
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