Russia-linked ransomware gang Clop has claimed that it has attacked over 130 organizations since late January, using a zero-day vulnerability in the GoAnywhere MFT secure file transfer tool, and was successful in stealing data from those organizations. The vulnerability is CVE-2023-0669, which allows attackers to execute remote code execution.

The manufacturer of GoAnywhere MFT notified customers of the vulnerability on February 1, 2023, and issued a patch for the vulnerability on February 7, 2023.

HC3 issued an alert on February 22, 2023, warning the health care sector about Clop targeting healthcare organizations and recommended:

• Educate and train staff to reduce the risk of social engineering attacks via email and network access.
• Assess enterprise risk against all potential vulnerabilities and prioritize implementing the security plan with the necessary budget, staff, and tools.
• Develop a cybersecurity roadmap that everyone in the healthcare organization understands.

Security professionals are recommending that information technology professionals update machines to the latest GoAnywhere version and “stop exposing port 8000 (the internet location of the GoAnywhere MFT admin panel).”

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Cyberinsurance spurs many complaints from US business. The cost is skyrocketing, retentions (deductibles) are rising quickly, and the insurance companies push their own panel lawyers on customers despite other relationships. Ransomware or email fraud can be excluded from some policies.

But news of significant hacks drives more companies into the cyberinsurance market despite the costs. According to Bloomberg, cyberinsurance prices rose nearly 100% in 2021 and keep climbing. Travelers Insurance, working to justify the leaping costs of its products, lists the following reasons for higher cybersecurity prices: a wave of ransomware, rising breach response costs (from forensic and legal experts to ransom payments and regulatory fines), increasing tech complexity and budgets, inadequate cybersecurity hygiene (which is why better controls can now lead to lower insurance prices), lack of advance response plans, and business interruption expenses. Shutting down business operations may be a way for criminals to force ransom payments, but it also creates an expensive risk reduction system, and all companies are suffering from it.

However, for the price of protection, you would expect your insurance company to pay to remediate a properly-reported cyberattack.  Property insurers have long excluded “acts of war” from insurable damage that would receive payments. Most cyberinsurance policies have similar exclusions. This leads insurance customers to wonder, in a world where hackers and ransomware gangs from Russia and Ukraine initiate a significant percentage of cyberattacks, when would those attacks be considered “acts of war” during a real shooting war? If your company is smacked with ransomware from a Russian crew associated with the Kremlin, will your insurance company exclude the costs from your cyberinsurance policy as an act of war?

Lloyds of London just released a set of new exclusion clauses for addressing cyber war. These clauses are for underwriters to consider placing in Lloyds insurance contracts, and “have been drafted to provide Lloyd’s syndicates and their (re)insureds (and brokers) with options in respect of the level of cover provided for cyber operations between states which are not excluded by the definition of war, cyber war or cyber operations which have a major detrimental impact on a state.” Lloyds specifies that the “act of war” exemption language applies to China, France, Japan, Russia, the U.K and the U.S.  The new clauses supply underwriters with extensive leeway to refuse to pay claims.Importantly, Lloyds can decide that the attack was an act of war even if the attackers do not declare themselves. Pending any government attribution of an attacker, Lloyds can decide through reasonable inference to attribute any attack to state activities, and therefor falling within the “act of war” exclusion.

Property insurers have long excluded “acts of war” from insurable damage that would receive payments. Most cyberinsurance policies have similar exclusions. This leads insurance customers to wonder, in a world where hackers and ransomware gangs from Russia and Ukraine initiate a significant percentage of cyberattacks, when would those attacks be considered “acts of war” during a real shooting war? If your company is smacked with ransomware from a Russian crew associated with the Kremlin, will your insurance company exclude the costs from your cyberinsurance policy as an act of war?

TED CLAYPOOLE

All hope is not lost for businesses relying on cyberinsurance. Courts tend to hold insurers to high standards when trying to avoid paying out claims due to broadly-defined exclusions. For example, earlier this year the Superior Court of New Jersey rules that insurers can’t use a nation-state “act of war” cyber-exclusion to avoid covering more than a billion dollars in damages that Merck claimed it suffered from the NotPetya cyberattack in 2017. According to Insurance Journal, “ The insurers had tried to use the exclusions to avoid paying out, citing the fact the NotPetya malware was attributed to Russia and was meant to be deployed to disrupt and destabilize Ukraine. The malware wound up affecting thousands of companies worldwide. . . The cyber attack also attracted the attention of regulatory scrutiny of so-called “silent cyber” exposure in all policies.” The court “unhesitatingly” ruled that war exclusions did not apply in this instance.

So an attack from Russian hackers in 2021 may be covered under most cyberinsurance policies, but what about an attack in March of 2022? Does the state of hostility between the U.S. and Russian – in which Putin has claimed that sanctions against Russia and providing arms to Ukraine is an act of war – mean that ransomware attacks from the same Russian hackers may be considered acts of war? For example, the Conti ransomware gang has officially announced its full support of the Russian government after the invasion of Ukraine and threatened to use all possible researches to attack both Ukraine and Western countries that might support Ukraine. It would be easy for US critical infrastructure businesses to be direct victims of attacks from Russians supporting the Kremlin, or to be indirect victims of attacks aimed at Ukraine that spread through open networks like NotPetya or other malicious viruses. Where would that leave an affected company if its insurance provider refuses to pay, claiming an “act of war” exclusion?

We simply don’t know many insurance companies will use these policy exclusions and will be allowed to do so by U.S. courts. But each of us should check our cyber insurance policies for exclusions that could be triggered by current international conflicts.

Beyond insurance, international cyberattacks have straddled the line between standard crime and acts of international state hostility. Since the internet connected our world electronically, our societies have not set rules about how public and private actors are allowed to behave toward each other. Brad Smith, the President of Microsoft, has called for a Digital Geneva Convention, so that the nations of the world can agree what acts of electronic aggression are acceptable in war and even which acts should be considered to be acts of war. Maybe the current crisis, where a long-existing state is invaded without provocation, may be the catalyst to discuss digital hostility and set some rules around what kinds of interactions will be tolerated by the international community.

For now, check your cyberinsurance policies.  For posterity, push our politicians to create baseline rules for the digital world.  We have promulgated the law of the sea and the law of space. We should create a law of cyberspace as well.

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The California attorney general (AG) celebrated data privacy day by doing an “investigative sweep” of the loyalty programs of retailers, supermarkets, home improvement stores, travel companies, and food service companies, and sending out notices of non-compliance to businesses that the AG’s office believes might not be fully compliant with the CCPA. As the AG focuses its attention on loyalty programs, the following provides a reminder of the requirements under the CCPA.

What is a loyalty program?

Loyalty programs are structured in a variety of different ways. Some programs track dollars spent by consumers; others track products purchased. Some programs are free to participate in; others require consumers to purchase membership. Some programs offer consumers additional products; other programs offer prizes, money, or products from third parties. Although neither the CCPA nor the regulations implementing the CCPA define a “loyalty program,” as a practical matter most, if not all, loyalty programs have two things in common: (1) they collect information about consumers, and (2) they provide some form of reward in recognition of (or in exchange for) repeat purchasing patterns.[1]

What are the general obligations under the CCPA?

Because loyalty programs collect personal information about their members, if a business that sponsors a loyalty program is itself subject to the CCPA, then its loyalty program will also be subject to the CCPA. In situations in which the CCPA applies to a loyalty program, the following table generally describes the rights conferred upon a consumer in relation to the program:

Are loyalty programs always financial incentive programs?

Whether a loyalty program constitutes a “financial incentive” program as that term is defined by the regulations implementing the CCPA depends on the extent to which the loyalty program’s benefits “relate to” the collection, retention, or sale of personal information.”[6] While the California Attorney General has implied that all loyalty programs “however defined, should receive the same treatment as other financial incentives,” a strong argument may exist that for many loyalty programs the benefits provided are directly related to consumer purchasing patterns (i.e., repeat or volume purchases) and are not “related” to the collection of personal information.[7] If a particular loyalty program qualifies as a financial incentive program, a business should consider the following steps (in addition to the compliance obligations identified above):

• Notify the consumer of the financial incentive.[8] The regulations implementing the CCPA specify that the financial incentive notice should contain the following information:

• • A summary of the financial incentive offered.[11] In the context of a loyalty program a description of the benefits that the consumer will receive as part of the program would likely provide a sufficient summary of the financial incentive.

• • A description of the material terms of the financial incentive. [12] The regulation specifies that the description should include the categories of personal information that are implicated by the financial incentive program and the “value of the consumer’s data.”[13]

• • How the consumer can opt-in to the financial incentive.[14] Information about how a consumer can opt-in (or join) a financial incentive program is typically conveyed when a consumer reviews an application to join or sign-up with the program.

• • How the consumer can opt-out, or withdraw, from the program. [15] This is an explanation as to how the consumer can invoke their right to withdraw from the program.[16]

• • An explanation of how the financial incentive is “reasonably related” to the value of the consumer’s data.[17] While the regulations state that a notice of financial incentive should provide an explanation as to how the financial incentive “reasonably relates” to the value of the consumer’s data, the CCPA requires only that a reasonable relationship exists if a business intends to discriminate against a consumer “because the consumer exercised any of the consumer’s rights” under the Act.[18] Where a business does not intend to use its loyalty program to discriminate against consumers that exercise CCPA-conferred privacy rights, it’s not clear whether this requirement applies. In the event that a reasonable relationship must be shown, however, the regulations require that a company provide a “good-faith estimate of the value of the consumer’s data that forms the basis” for the financial incentive and that the business provide a “description of the method” used to calculate that value.[19]

• Obtain the consumer’s “opt in consent” to the “material terms” of the financial incentive,[9] and
• Permit the consumer to revoke their consent “at any time.”[10]

FOOTNOTES

[1] FSOR Appendix A at 273 (Response 814) (including recognition from the AG that “loyalty programs” are not defined under the CCPA, and declining invitations to provide a definition through regulation).

[2] Cal. Civ. Code § 1798.100(a) (West 2021); Cal. Code Regs. tit. 11, 999.304(b), 305(a)(1) (2021).

[3] Cal. Code Regs. tit. 11, 999.304(a) (2021).

[5] Cal. Civ. Code § 1798.100(a).

[4] CAL. CODE REGS. tit. 11, 999.301(n); 304(d); 307(a), (b).

[6] CAL. CODE REGS. tit. 11, 999.301(j) (2021).

[7] FSOR Appendix A at 75 (Response 254).

[8] Cal. Civ. Code § 1798.125(b)(2) (West 2021).

[11] CAL. CODE REGS. tit. 11, 999.307(b)(1) (2021).

[12] CAL. CODE REGS. tit. 11, 999.307(b)(2) (2021).

[13] CAL. CODE REGS. tit. 11, 999.307(b)(2) (2021).

[14] CAL. CODE REGS. tit. 11, 999.307(b)(3) (2021).

[15] CAL. CODE REGS. tit. 11, 999.307(b)(4) (2021).

[16] Cal. Civ. Code § 1798.125(b)(3) (West 2021).

[17] CAL. CODE REGS. tit. 11, 999.307(b)(5) (2021).

[18] Cal. Civ. Code § 1798.125(a)(1), (2) (West 2021).

[19] CAL. CODE REGS. tit. 11, 999.307(b)(5)(a), (b) (2021).

[9] Cal. Civ. Code § 1798.125(b)(3) (West 2021).

[10] Cal. Civ. Code § 1798.125(b)(3) (West 2021).

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The concept of the “metaverse” has garnered much press coverage of late, addressing such topics as the new appetite for metaverse investment opportunities, a recent virtual land boom, or just the promise of it all, where “crypto, gaming and capitalism collide.”  The term “metaverse,” which comes from Neal Stephenson’s 1992 science fiction novel “Snow Crash,” is generally used to refer to the development of virtual reality (VR) and augmented reality (AR) technologies, featuring a mashup of massive multiplayer gaming, virtual worlds, virtual workspaces, and remote education to create a decentralized wonderland and collaborative space. The grand concept is that the metaverse will be the next iteration of the mobile internet and a major part of both digital and real life.

Don’t feel like going out tonight in the real world? Why not stay “in” and catch a show or meet people/avatars/smart bots in the metaverse?

As currently conceived, the metaverse, “Web 3.0,” would feature a synchronous environment giving users a seamless experience across different realms, even if such discrete areas of the virtual world are operated by different developers. It would boast its own economy where users and their avatars interact socially and use digital assets based in both virtual and actual reality, a place where commerce would presumably be heavily based in decentralized finance, DeFi. No single company or platform would operate the metaverse, but rather, it would be administered by many entities in a decentralized manner (presumably on some open source metaverse OS) and work across multiple computing platforms. At the outset, the metaverse would look like a virtual world featuring enhanced experiences interfaced via VR headsets, mobile devices, gaming consoles and haptic gear that makes you “feel” virtual things. Later, the contours of the metaverse would be shaped by user preferences, monetary opportunities and incremental innovations by developers building on what came before.

In short, the vision is that multiple companies, developers and creators will come together to create one metaverse (as opposed to proprietary, closed platforms) and have it evolve into an embodied mobile internet, one that is open and interoperable and would include many facets of life (i.e., work, social interactions, entertainment) in one hybrid space.

In order for the metaverse to become a reality, that is, successfully link current gaming and communications platforms with other new technologies into a massive new online destination – many obstacles will have to be overcome, even beyond the hardware, software and integration issues. The legal issues stand out, front and center. Indeed, the concept of the metaverse presents a law school final exam’s worth of legal questions to sort out.  Meanwhile, we are still trying to resolve the myriad of legal issues presented by “Web 2.0,” the Internet we know it today. Adding the metaverse to the picture will certainly make things even more complicated.

At the heart of it is the question of what legal underpinnings we need for the metaverse infrastructure – an infrastructure that will allow disparate developers and studios, e-commerce marketplaces, platforms and service providers to all coexist within one virtual world.  To make it even more interesting, it is envisioned to be an interoperable, seamless experience for shoppers, gamers, social media users or just curious internet-goers armed with wallets full of crypto to spend and virtual assets to flaunt.  Currently, we have some well-established web platforms that are closed digital communities and some emerging ones that are open, each with varying business models that will have to be adapted, in some way, to the metaverse. Simply put, the greater the immersive experience and features and interactions, the more complex the related legal issues will be.

Contemplating the metaverse, these are just a few of the legal issues that come to mind:

• Personal Data, Privacy and Cybersecurity – Privacy and data security lawyers are already challenged with addressing the global concerns presented by varying international approaches to privacy and growing threats to data security. If the metaverse fulfills the hype and develops into a 3D web-based hub for our day-to-day lives, the volume of data that will be collected will be exponentially greater than the reams of data already collected, and the threats to that data will expand as well. Questions to consider will include:
  • Data and privacy – What’s collected? How sensitive is it? Who owns or controls it? The sharing of data will be the cornerstone of a seamless, interoperable environment where users and their digital personas and assets will be usable and tradeable across the different arenas of the metaverse.  How will the collection, sharing and use of such data be regulated?  What laws will govern the collection of data across the metaverse? The laws of a particular state?  Applicable federal privacy laws? The GDPR or other international regulations? Will there be a single overarching “privacy policy” governing the metaverse under a user and merchant agreement, or will there be varying policies depending on which realm of the metaverse you are in? Could some developers create a more “privacy-focused” experience or would the personal data of avatars necessarily flow freely in every realm? How will children’s privacy be handled and will there be “roped off,” adults-only spaces that require further authentication to enter? Will the concepts that we talk about today – “personal information” or “personally identifiable information” – carry over to a world where the scope of available information expands exponentially as activities are tracked across the metaverse?
  • Cybersecurity: How will cybersecurity be managed in the metaverse? What requirements will apply with respect to keeping data secure? How will regulation or site policies evolve to address deep fakes, avatar impersonation, trolling, stolen biometric data, digital wallet hacks and all of the other cyberthreats that we already face today and are likely to be exacerbated in the metaverse? What laws will apply and how will the various players collaborate in addressing this issue?
• Technology Infrastructure: The metaverse will be a robust computing-intensive experience, highlighting the importance of strong contractual agreements concerning cloud computing, IoT, web hosting, and APIs, as well as software licenses and hardware agreements, and technology service agreements with developers, providers and platform operators involved in the metaverse stack. Performance commitments and service levels will take on heightened importance in light of the real-time interactions that users will expect. What is a meaningful remedy for a service level failure when the metaverse (or a part of the metaverse) freezes? A credit or other traditional remedy?  Lawyers and technologists will have to think creatively to find appropriate and practical approaches to this issue.  And while SaaS and other “as a service” arrangements will grow in importance, perhaps the entire process will spawn MaaS, or “Metaverse as a Service.”
• Open Source – Open source, already ubiquitous, promises to play a huge role in metaverse development by allowing developers to improve on what has come before. Whether or not the obligations of common open source licenses will be triggered will depend on the technical details of implementation. It is also possible that new open source licenses will be created to contemplate development for the metaverse.
• Quantum Computing – Quantum computing has dramatically increased the capabilities of computers and is likely to continue to do over the coming years. It will certainly be one of the technologies deployed to provide the computing speed to allow the metaverse to function. However, with the awesome power of quantum computing comes threats to certain legacy protections we use today. Passwords and traditional security protocols may be meaningless (requiring the development of post-quantum cryptography that is secure against both quantum and traditional computers). With raw, unchecked quantum computing power, the metaverse may be subject to manipulation and misuse. Regulation of quantum computing, as applied to the metaverse and elsewhere, may be needed.
• Antitrust: Collaboration is a key to the success of the metaverse, as it is, by definition, a multi-tenant environment. Of course collaboration amongst competitors may invoke antitrust concerns. Also, to the extent that larger technology companies may be perceived as leveraging their position to assert unfair control in any virtual world, there may be additional concerns.
• Intellectual Property Issues: A host of IP issues will certainly arise, including infringement, licensing (and breaches thereof), IP protection and anti-piracy efforts, patent issues, joint ownership concerns, safe harbors, potential formation of patent cross-licensing organizations (which also may invoke antitrust concerns), trademark and advertising issues, and entertaining new brand licensing opportunities. The scope of content and technology licenses will have to be delicately negotiated with forethought to the potential breadth of the metaverse (e.g., it’s easy to limit a licensee’s rights based on territory, for example, but what about for a virtual world with no borders or some borders that haven’t been drawn yet?). Rightsholders must also determine their particular tolerance level for unauthorized digital goods or creations. One can envision a need for a DMCA-like safe harbor and takedown process for the metaverse. Also, akin to the litigation that sprouted from the use of athletes’ or celebrities’ likenesses (and their tattoos) in videogames, it’s likely that IP issues and rights of publicity disputes will go way up as people’s virtual avatars take on commercial value in ways that their real human selves never did.
• Content Moderation. Section 230 of the Communications Decency Act (CDA) has been the target of bipartisan criticism for several years now, yet it remains in effect despite its application in some distasteful ways. How will the CDA be applied to the metaverse, where the exchange of third party content is likely to be even more robust than what we see today on social media?  How will “bad actors” be treated, and what does an account termination look like in the metaverse? Much like the legal issues surrounding offensive content present on today’s social media platforms, and barring a change in the law, the same kinds of issues surrounding user-generated content will persist and the same defenses under Section 230 of the Communications Decency Act will be raised.
• Blockchain, DAOs, Smart Contract and Digital Assets: Since the metaverse is planned as a single forum with disparate operators and users, the use of a blockchain (or blockchains) would seem to be one solution to act as a trusted, immutable ledger of virtual goods, in-world currencies and identity authentication, particularly when interactions may be somewhat anonymous or between individuals who may or may not trust each other and in the absence of a centralized clearinghouse or administrator for transactions. The use of smart contracts may be pervasive in the metaverse.  Investors or developers may also decide that DAOs (decentralized autonomous organizations) can be useful to crowdsource and fund opportunities within that environment as well.  Overall, a decentralized metaverse with its own discrete economy would feature the creation, sale and holding of sovereign digital assets (and their free use, display and exchange using blockchain-based payment networks within the metaverse). This would presumably give NFTs a role beyond mere digital collectibles and investment opportunities as well as a role for other forms of digital currency (e.g., cryptocurrency, utility tokens, stablecoins, e-money, virtual “in game” money as found in some videogames, or a system of micropayments for virtual goods, services or experiences).  How else will our avatars be able to build a new virtual wardrobe for what is to come?

With this shift to blockchain-based economic structures comes the potential regulatory issues behind digital currencies. How will securities laws view digital assets that retain and form value in the metaverse?  Also, as in life today, visitors to the metaverse must be wary of digital currency schemes and meme coin scams, with regulators not too far behind policing the fraudsters and unlawful actors that will seek opportunities in the metaverse. While regulators and lawmakers are struggling to keep up with the current crop of issues, and despite any progress they may make in that regard, many open issues will remain and new issues will be of concern as digital tokens and currency (and the contracts underlying them) take on new relevance in a virtual world.

Big ideas are always exciting. Watching the metaverse come together is no different, particularly as it all is happening alongside additional innovations surrounding the web, blockchain and cryptocurrency (and, more than likely, updated laws and regulations). However, it’s still early. And we’ll have to see if the current vision of the metaverse will translate into long-term, concrete commercial and civic-minded opportunities for businesses, service providers, developers and individual artists and creators.  Ultimately, these parties will need to sort through many legal issues, both novel and commonplace, before creating and participating in a new virtual world concept that goes beyond the massive multi-user videogame platforms and virtual worlds we have today.

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