AI/IoT Update:  Congress Considers Measures to Support AI and IoT Technologies

As policymakers weigh the implications of artificial intelligence (“AI”) and the Internet of Things (“IoT”), members of Congress have introduced a handful of measures focusing on Government support for and adoption of these emerging technologies.

In May, Senators Deb Fischer (R-NE), Brian Schatz (D-HI), Cory Gardner (R-CO), and Cory Booker (D-NJ) reintroduced the Developing and Growing the Internet of Things (“DIGIT”) Act.  An earlier version of the legislation passed the Senate last year, but stalled in the House.

As reintroduced, the DIGIT Act would convene a working group of federal entities that would consult with private sector stakeholders to provide Congress with recommendations to encourage the growth of Internet of Things (“IoT”) technologies.  Specifically, and among other measures, the bill would require the working group to:

  • identify governmental activities that inhibit or could inhibit the growth of IoT
  • consider policies or programs that encourage and improve coordination among federal agencies relevant to IoT
  • examine how federal agencies can benefit from IoT, the IoT technologies currently used by agencies, and how prepared agencies are to adopt new IoT technologies
  • consider any additional security measures federal agencies may need to take to safely and securely use IoT and enhance the resiliency of federal systems against cyber threats to IoT

The working group would include governmental entities, who would be directed to consult with non-governmental stakeholders, including industry representatives from non-technology companies, in the transportation, energy, agriculture, or health care sectors.  The DIGIT Act would also create a steering group of private entities to advise the working group.  The working group would be required to submit a report to Congress within 18 months of the Act’s enactment.

The DIGIT Act would also require the Federal Communications Commission (“FCC”) to study and provide a report to Congress on the spectrum needs to support an IoT ecosystem.

Two other new federal bills would also support new uses of AI technologies.  The AI in Government Act of 2019 (H.R. 2575), sponsored by Rep. Jerry McNerney (D-CA-9), would create an AI Center of Excellence to advise and promote efforts to develop innovative uses of  AI by the federal Government. In the Senate, the Artificial Intelligence Initiative Act (S. 1558), sponsored by Sen. Martin Heinrich (D-NM), would establish a coordinated federal initiative to accelerate research and development of AI.

China Seeks Public Comments on Draft Measures related to the Cross-border Transfer of Personal Information

On June 13, 2019, the Cyberspace Administration of China (“CAC”) issued the draft Measures on Security Assessment of the Cross-border Transfer of Personal Information (“Draft Measures”) for public comment. (The official Chinese version of the Draft Measures is available here, and an unofficial English translation is available here.) The comment period ends on July 13, 2019.

The issuance of the Draft Measures marks another major development in the implementation of China’s Cybersecurity Law (“CSL”) over the past month, aiming to create a cross-border data transfer mechanism that would govern all of the transfers of personal information conducted by network operators (defined as “owners and managers of networks, as well as network service providers”).

CAC has previously released two earlier versions of its draft Measures on Security Assessment of Cross-border Transfer of Personal Information and Important Data back in 2017, which imposed security assessment obligations on network operators when they transfer both personal information and important data outside of China (See Covington’s previous alert here). The latest and long-anticipated Draft Measures only focus on the cross-border transfer of personal information (the cross-border transfer of important data will be subject to a separate approval mechanism introduced by the draft Measures for Data Security Management released by CAC on May 28, 2019) and also set out new requirements that bear resemblance to the Standard Contractual Clauses under the EU’s General Data Protection Regulation (“GDPR”).

We discuss the key requirements of the Draft Measures in a greater detail below.

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Nevada’s New Consumer Privacy Law Departs Significantly From The California CCPA

On May 29, 2019, the Governor of Nevada signed into law Senate Bill 220 (“SB 220”), an act relating to Internet privacy and amending Nevada’s existing law requiring websites and online services to post a privacy notice.  In short, Nevada’s law will require operators of Internet websites and online services to follow a consumer’s direction not to sell his or her personal data.  The Nevada law differs from the California Consumer Privacy Act (“CCPA”) enacted last year in notable ways, and could signal the coming of a patchwork of fifty-plus different data privacy standards across the country, much like the state data breach notification laws.

Unlike the CCPA (which applies to both online and offline business operations), SB 220 applies only to operators of Internet websites and online services, and defines “operators” as people who (1) own or operate an Internet website or online service for commercial purposes; (2) collect and maintain covered information from consumers who reside in Nevada and use or visit the Internet website or online service; and (3) engage in any activity that constitutes a sufficient nexus with Nevada to satisfy the requirements of the United States Constitution.  Such activity includes purposefully directing activities toward Nevada, consummating a transaction with Nevada or a Nevada resident, or purposefully taking advantage of the privilege of conducting activity in Nevada.  SB 220 does not apply to the following entities: an entity that is regulated by the Gramm-Leach-Bliley Act or the Health Insurance Portability and Accountability Act; a service provider to an operator; or a manufacturer of a motor vehicle or a person who services a motor vehicle who processes covered information that is either (1) retrieved from a motor vehicle in connection with a technology or service related to the motor vehicle, or (2) provided by a consumer in connection with a subscription or registration for a technology or service related to the motor vehicle. Continue Reading

ICO’s Interim Report on Explaining AI

On June 3, 2019, the UK Information Commissioner’s Office (“ICO”), released an Interim Report on a collaboration project with The Alan Turing Institute (“Institute”) called “Project ExplAIn.” The purpose of this project, according to the ICO, is to develop “practical guidance” for organizations on complying with UK data protection law when using artificial intelligence (“AI”) decision-making systems; in particular, to explain the impact AI decisions may have on individuals. This Interim Report may be of particular relevance to organizations considering how to meet transparency obligations when deploying AI systems that make automated decisions that fall within the scope of Article 22 of the GDPR.

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CAC Releases Draft Regulation on the Protection of Children’s Personal Information Online

On May 31, 2019, the Cyberspace Administration of China (“CAC”) released the draft Regulation on the Protection of Children’s Personal Information Online (“Draft Regulation”) for public comment. (An official Chinese version is available here and an unofficial English translation of the Draft Regulation is available here.) The comment period ends on June 30, 2019.

As mentioned in our last blog post (available here), CAC issued the draft Measures for Data Security Management (“Draft Measures”) just last week, which set out the general regulatory framework that will govern the collection and use of personal information by network operators (broadly defined as “owners and managers of networks, as well as network service providers”). The release of this new Draft Regulation demonstrates CAC’s intention to set out more stringent requirements for network operators if they collect, store, use, transfer or disclose the personal information of minors under 14 years old. We discuss the key requirements of the Draft Regulation in a greater detail below.

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China Releases Draft Measures for Data Security Management

On May 28, 2019, the Cyberspace Administration of China (“CAC”) released the draft Measures for Data Security Management (“Draft Measures”) for public comment. (An official Chinese version of the Draft Measures is available here and an unofficial English translation is available here.) The comment period ends on June 28, 2019.

The release of these Draft Measures demonstrates China’s continuing efforts to implement the data protection requirements imposed by China’s Cybersecurity Law (“CSL”). For example, under Article 41 of the CSL, network operators must notify individuals of the purposes, methods and scope of the information collection and use, and obtain their consent before collecting or using individuals’ persona information. Furthermore, under Article 42 and 43 of the CSL, network operators must not disclose, tamper with, or damage citizens’ personal information that they have collected and they are obligated to delete unlawfully collected information and amend incorrect information.

To implement the CSL, the CAC and the Standardization Administration of China issued a national standard for personal information protection (“Standard”) on January 2, 2018, which took effect on May 1, 2018 (see our previous blog post about that Standard here). A draft amendment to the Standard (“Draft Amendment”) was released for public comment on February 1, 2019 (see our previous blog post about the Draft Amendment here). The new Draft Measures incorporate some of personal information protection requirements specified in the Standard and the Draft Amendment, and also introduce a number of new requirements for the protection of “important data,” which was initially mentioned in Article 21 and 37 of the CSL, but was not defined.

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China Seeks Public Comments on Draft Regulation on Cybersecurity Review of Network Products and Services

On May 24, 2019, the Cyberspace Administration of China (“CAC”) released the draft Measures on Cybersecurity Review (“Draft Measures”) for public comment. (An official Chinese version of the Draft Measures is available here and an unofficial English translation is available here). The comment period ends on June 24, 2019.

The publication of these Draft Measures marks a critical step forward in implementing the cybersecurity review, which is designated by Article 35 of China’s Cybersecurity Law (“CSL”) to safeguard the procurement of network products and services by Critical Information Infrastructure (“CII”) operators that may impact the national security of China. To implement Article 35 of the CSL, the CAC previously released the Measures on the Security Review of Network Products and Services (Trial) (“Trial Measures”) on May 2, 2017, which established a process for CAC to conduct a cybersecurity review in a range of key sectors. (For more information, please see Covington’s alert on the Trial Measures here). These Draft Measures update the review process and, once finalized, will replace the previous Trial Measures.

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China Released Core National Standards, Updating Mandatory Cybersecurity Requirements under the Cybersecurity Multi-level Protection Scheme

On May 13, 2019, China’s State Administration for Market Regulation (“SAMR”) released three core national standards related to the country’s Cybersecurity Multi-level Protection Scheme (“MLPS”), describing technical and organizational controls that companies must follow when complying with MLPS-related obligations under the Cybersecurity Law (“CSL”).  These standards, which are commonly referred to as the “MLPS 2.0 standards,” include: GB/T 22239 – 2019 Information Security Technology – Baseline for Multi-level Protection Scheme, GB/T 25070 – 2019 Information Security Technology – Technical Requirements of Security Design for Multi-level Protection Scheme and GB/T 28448 – 2019 Information Security Technology – Evaluation Requirements for Multi-level Protection Scheme.  The MLPS 2.0 standards are set to take effect on December 1, 2019.

Background of MLPS

China’s CSL, which took effect on June 1, 2017, requires the government to implement the MLPS for cybersecurity (Article 21).  This framework is designated as a fundamental scheme to protect cybersecurity in China and requires all network operators, a term broadly defined to include all entities using a network (including the Internet) to operate or provide services, to meet certain cybersecurity requirements.

To implement provisions related to MLPS in the CSL, the government, in particular the Ministry of Public Security (“MPS”), has been working since 2017 on rules and national standards that specify the networks that must to be classified under the MLPS; the classification, certification and filing process for such networks; the technical controls that must be implemented by network operators; and the compliance obligations that network operators at different levels must follow.  Collectively these rules and national standards form a layered framework for cybersecurity requirements under CSL, commonly referred to as the “MLPS 2.0” framework.

The first layer of the MLPS 2.0 framework is the draft Regulations on Cybersecurity Multi-level Protection Scheme, issued by MPS on June 27, 2018 (the “Draft Regulation”, see our previous post here) for public consultation.  The Draft Regulation updated the existing MLPS regulation (commonly referred to as “MLPS 1.0”), a framework dating back to 2007 that classified information systems physically located in China according to their relative impact on national security, social order, and economic interests if the system is damaged or attacked.  Under both the MLPS 1.0 and the Draft Regulation, the classification levels range from one to five, one being the least critical and five being the most critical.  Further, under the Draft Regulation, information systems that are classified—initially self-assessed and proposed by network operators and then confirmed by the MPS—at level 3 or above are subject to enhanced security requirements.  MPS publically announced that it plans to finalize the Draft Regulation by the end of 2019.

The second layer of the MLPS 2.0 framework is the MLPS 2.0 standards, which establish the technical foundation of the framework by clarifying varying technical and organizational controls that network operators at each level should establish.  The release of this core set of MLPS 2.0 standards marks an important step for MPS, which plans to roll out the MLPS 2.0 framework at a full scale nation-wide in the coming months.  As the next step, MPS indicated that two more MLPS 2.0 standards, which set out the implementation process and the certification process, will be released together with the final version of the Draft Regulation.  At that point, the full MLPS 2.0 framework will be completed and impose mandatory requirements on all network operators in China.

At this moment, certain aspects of the MLPS 2.0 framework, especially those are to be covered by the Draft Regulation and the two forthcoming MLPS 2.0 standards remains unclear – for example, it is still not clear what systems need to be certified or the specific legal obligations companies operating networks classified at different levels, especially at Level 3 or above, will be subject to.

What are the Key Updates of MLPS 2.0 Standards?

As explained in more detail below, the MLPS 2.0 standards (1) significantly expand the applicability of the MPLS 1.0 by broadening the definition of “information systems”; (2) establishes common controls for all types of systems; and (3) establishes extended controls for certain types of systems.

  1. Expanded Applicability: As compared to MLPS 1.0, the MLPS 2.0 standards expand their coverage from “information systems” to a wider range of “systems,” which may include network infrastructure, cloud computing platform/system, mobile application platforms, connected devices (Internet of Things, “IoT”), and industrial control systems.
  2. Common Controls for all Systems: MLPS 2.0 standards establish a core set of technical and organizational controls for all systems, referred to as “common controls,” regardless of the classification level of the system.  Specifically, network operators are required to establish controls in the following areas:  security governance, including organization, management, and personnel; physical environment security; communication network security; network boundary protection; business continuity and disaster recovery; identity management; intrusion detection; third party risk management; and security operations.
  3. Extended Controls for Specific Types of Systems: The MLPS 2.0 standards also require network operators to implement additional extended controls at each classification level for the following specific types of systems: (i) cloud computing, (ii) industrial control systems, (iii) connected devices, and (iv) mobile network systems.

For example, network operators are required to implement a series of extended controls for cloud computing systems, regardless of the classification level of a particular cloud computing system, in the following areas:  physical environment security (e.g. localized infrastructure in China, possibly referring to the use of local data centers); communication network security (e.g. localized storage of customer data and personal information in China; if cross-border data transfers are needed, such transfers must be in compliance with unspecified Chinese laws and regulations); network boundary protection (e.g. access control, non-invasive security and security audit); computing environment security (e.g. identity authentication, data recovery, data backup, etc.); and maintenance (e.g. localized maintenance in China, unless oversea maintenance can follow unspecified Chinese rules and regulations).

In addition, if a network operator will use a vendor to run a cloud computing system, the network operator is required to include a number of additional controls in its vendor management program, such as:  requiring the vendor to comply with applicable Chinese laws and regulations; confirming that the MLPS classification level of the vendor is not lower than the classification level of the network operator’s system that will be run on the cloud; and ensuring the service level agreement specifies the service scope, technical details, rights and obligations, access control, privacy protection and other key terms.

Further, network operators classified Level 2 or above are also required to request their cloud service providers return the complete set of customer data and delete such data after the termination of the cloud service agreement.  Network operators of systems classified Level 3 or above, are required to enter into a confidentiality agreement with the cloud service provider to prohibit unauthorized disclosure of customer data.

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In sum, the MLPS 2.0 standards introduce different technical and organizational controls for companies at different classification levels and provide important technical guidance for companies that are making efforts to comply with the MLPS requirements.  Some of the extended controls, such as localized infrastructure, storage, and maintenance for cloud computing systems, could raise compliance issues for both global cloud service providers and their customers, if they become mandatory requirements.  Additional guidance is expected to be provided by MPS in the coming months, and companies who are or may be subject to the MLPS requirements should closely monitor the developments.

The FTC Announces Consumer Review Fairness Act Enforcement Actions

On May 8, 2019, the Federal Trade Commission (FTC) announced its first three cases that exclusively enforce the Consumer Review Fairness Act (CRFA).  Enacted in December 2016 to protect consumers’ ability to share their honest reviews, the CRFA prohibits companies from using form contracts that bar consumers from writing negative reviews or threaten them with legal action if they do.

According to the FTC’s administrative complaints, each of the three companies—an HVAC and electrical contractor, a flooring seller, and a horseback trail riding operator—unlawfully used non-disparagement clauses in customer contracts.

The three proposed consent orders include provisions designed to ensure future CRFA compliance.  In addition to barring the companies from using non-disparagement clauses in form contracts for goods and services, the proposed orders require the companies to notify consumers who signed the unlawful contracts that the non-disparagement provisions are not enforceable and that those customers can publish their honest reviews, even if negative.

The FTC will publish a description of the consent agreements in the Federal Register and solicit public comments for thirty days.  After reviewing the public comments, the Commission will decide whether to make the proposed consent orders final.

These most recent actions build upon the FTC’s prior cases challenging non-disparagement clauses.  We are carefully monitoring the FTC’s approach to this important consumer protection area and will keep readers apprised on Inside Privacy.

Washington State Lawmakers Reach Deadline Without Passing Privacy Act, But Reach Agreement on Amendments to Breach Notification Law

The Washington Privacy Act stalled this April in the state’s House of Representatives, and will likely not reappear again for discussion until the 2020 legislative session.

The bill overwhelmingly passed the Senate, but failed to come to a floor vote in the House of Representatives before the April 17th deadline for state lawmakers to consider non-budget related matters. This delay appears to stem from a lack of consensus on key issues, such as the regulation of facial recognition technologies and potential enforcement mechanisms.

If the House had passed the bill, Washington would have become the second state in the United States to enact significant privacy legislation. Mirroring the GDPR in several respects, the bill provided access, correction, and deletion rights to consumers, and imposed disclosure and risk assessment obligations on covered businesses.

Although state lawmakers failed to pass the Washington Privacy Act, they reached a consensus on a separate bill that expands Washington’s breach notification law. The Senate and the House of Representatives passed the bill in their respective chambers in the latter half of April. The bill amends the state’s data breach notification requirements in three ways:

  • Definition of Personal Information: The law expands the definition of “personal information” that triggers notification to include: full date of birth; private key to authenticate or sign an electronic record; biometric data; student, military, or passport ID numbers; certain health insurance information; medical histories; and online account credentials.
  • Timeline for Notification: The law reduces the timeline for issuing notifications from 45 days to 30 days after discovery of a breach.
  • Content Required for Notification: The law requires additional information to be included in breach notification letters, such as the date of the breach and the discovery date. In addition, for breaches of usernames and passwords, the notice must inform consumers to change their passwords and security questions and answers, and to take appropriate steps to secure their account. Notifications to the Attorney General also must include the types of personal information subject to the breach, the timeframe of exposure, and steps taken to contain the breach.

The new requirements are scheduled to take effect on March 1, 2020.

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