---------- Forwarded message ---------- Date: Wed, 21 Feb 1996 10:25:39 -0800 (PST) From: Phil Agre <pagre@weber.ucsd.edu> To: rre@weber.ucsd.edu Subject: Digital Signature Legislation [This message includes some interesting information about significant consumer and privacy issues in state-level "digital signature" legislation that is being modeled on Utah's law -- http://www.state.ut.us/ccjj/digsig/ It is also an example of a trend I'd like to encourage: academics using the Internet to propagate ideas in concise, useful form while getting feedback from a broad public before their work gets frozen forever in journals.] =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= This message was forwarded through the Red Rock Eater News Service (RRE). Send any replies to the original author, listed in the From: field below. You are welcome to send the message along to others but please do not use the "redirect" command. For information on RRE, including instructions for (un)subscribing, send an empty message to rre-help@weber.ucsd.edu =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= Date: Tue, 20 Feb 1996 20:54:03 -0800 (PST) From: C. Bradford Biddle <biddle@pwa.acusd.edu> To: ca-digsig@commerce.net Subject: Digital Signature Legislation DIGITAL SIGNATURE LEGISLATION: SOME REASONS FOR CONCERN by Brad Biddle <biddle@acusd.edu> February 20, 1996 [Copyright 1996 by Brad Biddle; permission granted for non-commercial electronic redistribution] A recent flurry of state digital signature legislation should provoke some concern among consumer activists, privacy advocates, and others interested in the evolving legal landscape of cyberspace. At least ten states are developing or have already implemented digital signature legislation. Much of this legislation is based on the pioneering Utah Digital Signature Act, passed in 1995 (and currently in the process of being amended). States which have introduced legislation based on the Utah Act include Arizona, Georgia, Hawaii, Oregon, and Washington. California has passed a different form of digital signature legislation, and a bill is pending in Illinois which is similar to the California approach. Florida and Virginia have formal resolutions pending which call for legislative investigation into digital signature laws. The American Bar Association's Information Security Committee (a sub-committee of the Section of Science and Technology) released its Digital Signature Guidelines in October of 1995. These Guidelines are "general, abstract statements of principle" and are not intended as model legislation. The Information Security Committee intended to release model digital signature legislation in June of 1995, but this effort has been, as one report describes it, "stymied by bureaucratic maneuvering." (Information Law Alert, 10/13/95). In the absence of this model legislation, the Utah Act has become a de facto model act. The intent of this message (distributed to the "ca-digsig" mailing list and to some other folks via direct e-mail) is to raise some concerns about the Utah Digital Signature Act and its progeny. The author of this message is a second-year law student at the University of San Diego School of Law, and is writing an article on this topic for the San Diego Law Review. Feedback and criticism are very welcome, and will likely be incorporated into the developing article. THE UTAH DIGITAL SIGNATURE ACT [Sec. 46-3-101 et seq., Utah Code Annotated 1953] No attempt will be made here to explain or summarize the complex and detailed provisions of the Act. Generally, the Act envisions an infrastructure in which computer users utilize state-licensed certification authorities, online databases called repositories, and public-key encryption technology in order to "sign" electronic documents in a legally binding fashion. The Utah Act sets out an ambitious legal and regulatory framework intended to implement a public key infrastructure. It also carves out a place for digital signatures in the broader legal landscape. That is, it provides digital signatures with legal status as valid signatures and addresses a variety of issues relating to the place of electronic documents in contract and evidence law. Much of what the Utah Act accomplishes is laudable, and demonstrates how legislation can effectively solve unsettled issues in the novel arena of cyberspace. However, several aspects of the Act are troubling. The potential problem areas can be categorized generally as liability, privacy, and costs. A very brief discussion of each of these problem areas follows. LIABILITY The Utah Act makes two policy choices concerning liability allocation which are potentially troubling. First, consumers who participate in the infrastructure developed under the Utah Act subject themselves to a far greater risk of extensive liability than they face in other electronic transactions, such as credit card or debit card transactions. Most electronic transactions made by consumers are subject the Electronic Funds Transfer Act (EFTA) which limits consumer liability in the event of fraud to (in most cases) $50. Even if a consumer is negligent, liability is still capped at a rather low fixed amount. Critics of this scheme argue that it is paternalistic and ultimately drives up costs for other consumers who are careful to avoid exposing themselves to fraud. Supporters argue that if consumers were exposed to potential unlimited liability when engaging in electronic transactions they would not participate in these transactions at all, and the potential benefits of electronic transactions would not be achieved. Also, supporters say, consumers are often unable to prevent fraud, and forcing consumers to prove they were not negligent anytime fraud occurs would be an unreasonable burden. Under the Utah Act, consumers are held to a negligence standard in guarding their private encryption key. Thus, if a criminal obtains a consumer's private key and commits fraud, the consumer is financially responsible for that fraud unless the consumer can prove that the consumer used reasonable care in guarding the private key. If the consumer cannot prove this in court, or if the consumer was in fact negligent, then the consumer will bear all losses resulting from the fraud. The arguments in support of the EFTA may be applicable here. Will consumers participate in a system which subjects them to unlimited liability? Is it sensible to make consumers prove the absence of negligence? (Two related points are worth noting. First, drafters of the Utah Act initially advocated a strict liability standard, rather than negligence, for the security of private keys -- even "worse" for consumers -- and the drafters continue to advocate strict liability as an alternative for other state legislators considering digital signature laws. Second, a plausible argument can be made that the federal EFTA should preempt the state digital signature legislation on this issue -- this question is unsettled.) There is a second troubling policy choice relating to liability. The Utah Act limits the potential liability of one actor in the infrastructure -- the certification authority -- to a fixed amount (termed a "suitable guarantee" and determined by a complex formula or by administrative rule). This amount may be less than the actual damages a certification authority can cause. This policy decision, designed to create certainty for an entrepreneur contemplating a certification authority business and foster development of a certification authority industry, may have unintended consequences. It is easy to envision a scenario in which a certification authority's private key is compromised -- by brute force cryptanalysis, bribery, or incompetence, for example. A criminal with a certification authority's private key could cause an immense amount of financial damage, imposing huge losses on a number of innocent parties. These innocent parties would be unable to recover their full losses from the certification authority if the total of these losses was greater than the amount of the "suitable guarantee" -- even if the certification authority was totally at fault in creating the circumstances that led to the losses. Because the certification authority would not have to bear the full costs of any losses resulting from a compromised private key, they may not have the incentive to take expensive precautions to protect against that occurrence. PRIVACY The system contemplated by the Utah Act also raises several different types of privacy-related concerns. At a broad level, one commentator has pronounced the general type of system embodied in the Utah Act a "cultural misfit" because every merchant and consumer potentially must register with an outside authority in order to acquire the basic capacity to transact commerce. In light of the more limited scope of the Utah Act and the current state of electronic commerce, however, this argument is not particularly persuasive. More significantly, under the Utah Act's approach certain entities -- the online databases of public encryption keys termed "recognized repositories" -- will have unrestricted access to valuable transaction-generated information that could expose sensitive relationships among individuals or businesses. If Company A sends a digitally signed message to Company B, Company B must verify the digital signature by connecting to a state-recognized privately-managed database, verifying the digital signature and making sure that Company A's certificate is not on a certificate revocation list. This process, of course, will leave electronic footprints. Could the owner of the recognized repository disclose the fact that A and B were corresponding? What if A and B were discussing a possible merger, or other transaction with significant consequences in the securities markets? Similarly, could the owner of the repository disclose to Joe Whistleblower's defense-contractor employer that Whistleblower was verifying digital signatures of a reporter from the New York Times? The Utah Act is totally silent on this issue. Additionally, the public databases contemplated by the Act could expose financial data, information about affiliations, and other private information to public scrutiny -- and put this information into the direct marketing universe. Publicly-accessible certificates will contain the name of subscribers and a "recommended reliance limit," a dollar figure that may be a good indication of general financial standing. Certificates may also indicate an individual's affiliation with a company or other organization. There is no provision for anonymous or pseudonymous certificates. Proponents of the Utah Act point out that participation in the system established by the Act is voluntary, and that non-licensed certification authorities will be available for individuals who object to the requirements of the Act. However, in light of the advantages the Act gives to licensed certification authorities (liability limitations, presumptions concerning the legality of digital signatures, and the like) this may not in fact turn out to be true. Additionally, some individuals may be forced to use certificates in the course of their employment. Would an employee who did not want to be listed in an easily searchable database (perhaps because they were being harassed) be forced to quit his or her job? Finally, a very important privacy-related issue that is purposefully not addressed in the Utah Act concerns whether the infrastructure contemplated by the Act will support confidentiality of messages as well as legally binding digital signatures (a technically feasible proposition, but a politically sensitive one). The Utah Act empowers an administrative agency to determine which public key encryption algorithms are appropriate. A public key algorithm like RSA can be used both for encryption and digital signatures. A public key algorithm like DSA (implemented in DSS) can only be used for digital signatures -- it cannot be used to encrypt messages. Should such a fundamental policy decision be made in the obscurity of an administrative agency's rulemaking process? COSTS The Utah Digital Signature Act also raises several issues relating to costs. The institutional overhead associated with creating and maintaining the Act's infrastructure will be passed along to participants, and participants must have access to expensive computer hardware and software in order to participate in the system. One issue not addressed by the Utah Act is whether citizens who are unable to afford these costs should be provided with subsidized or reduced-cost access to th infrastructure. A prominent commentator has noted that, in the long term, the type of system embodied in the Utah Act is "anticipated to become indispensable for conducting government, business, and even private affairs." Another cost-related issue concerns the costs associated with legislative endorsement of one particular technology (public-key encryption technology, or more narrowly, specific implementations of this technology) and whether this endorsement will affect the development of alternative solutions to the problems posed by communications over open computer networks. An advocate of a particular biometric technology has argued that the type of infrastructure contemplated by the Utah Act is costly overkill, and is far more complex and expensive than is necessary. Even if one accepts the appropriateness of a public-key approach, note that costs could vary widely depending upon which particular proprietary encryption algorithms are licensed. As originally passed, the Utah Act limited the role of certification authority to Utah-licensed attorneys, financial institutions, title companies, and government agencies. This sort of oligopolistic arrangement is, of course, anathema to a vibrant, competitive market which would drive down costs for consumers. The pending amendments to the Utah Act eliminate this requirement. Some of the states which are following the Utah Act as a model have retained this limitation, however. CONCLUSION Legislative activity concerning digital signatures is generally appropriate and potentially helpful. The Utah Digital Signature Act, particularly its provisions establishing the legal status of digital signatures, is a step in the right direction. However, lawmakers contemplating digital signature legislation should reconsider some of the policy choices made by the Utah Act. ------------------------------------------------- Brad Biddle, Legal Intern <biddle@acusd.edu> Privacy Rights Clearinghouse, Ctr for Public Interest Law http://pwa.acusd.edu/~prc [The views expressed in this article are not necessarily those of the Privacy Rights Clearinghouse or the Center for Public Interest Law.]