Thursday, March 30, 2006

Kirk's Presentation: Liability for Negligent Software Design

The FBI conducted a survey in which they determined that approximately 87% of respondents had experienced a computer security incident, such as viruses or denial of service attacks. From the results of the survey, the FBI calculated that business lose approximately $67 billion dollars each year due to computer security incidents. Not only does this problem cause significant economic damage, but it also leads to loss of consumer confidence in the Internet (which itself leads to economic damages).

One way to stop cybercriminals is to punish them. In 1986, Congress enacted the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030. This act provides both criminal and civil penalties against the cybercriminal. In addition to this act, there are state laws. However, these laws have not been effective. The rate of cybercrime continues to increase. In addition, although businesses can recover from the cybercriminal under CFAA, 18 U.S.C. § 1030(g), this right isn’t very valuable unless the cybercriminal is able to pay for the damage.

Another way to stop cybercriminals is to limit their ability to attack by creating better software. To encourage better software development, software developers should be held liable for poor software development that cybercriminals are able to exploit to carry out an attack on a business.

Under current law, software developers are easily able to avoid liability. To start with, CFAA specifically states that “no action may be brought under [this act] for the negligent design or manufacture of computer hardware, software, or firmware.” Tort law is inapplicable due to the superseding intentional act of the cybercriminal. In addition, the economic loss rule would limit recovery to physical and property damages, pure economic damage is generally not recoverable (based on the theory that pure economic liability should is covered by contract law). Related to tort law is product liability. Product liability is also limited by the economic loss rule. Another aspect of product liability law is the definition of a product. Some courts have held that software is not a product. Wilson v. Midway Games, Inc., 198 F.Supp.2d 167 (2002) (Plaintiff claimed the design and marketing of a game, Mortal Combat, caused Plaintiff’s son’s death. The court held the game was not a product.)

The definition of product is construed similarly to the definition of goods in UCC Article 2. Courts are split as to whether software is a good and therefore whether UCC Article 2 is applicable. Assuming software is a good, most software developers, particularly mass-market software, disclaim the implied warranty of merchantability and the implied warranty of a particular purpose. The express warranty cannot be disclaimed, but it can be easily limited to the terms of the license agreement through the parol evidence rule. The warranties in UCITA (which does apply to computer software) are similar to the UCC warranties.

My proposition is to create liability for negligently designed software. I know that it is impossible to create perfect software (in computation theory terms determining whether software meets specifications is undecidable), therefore strict liability would not be appropriate. Two possible methods of determining liability include: (1) foreseeable risks of harm posed by the software could have been reduced or avoided by the adoption of a reasonable alternative design by the software developer (this is similar to the Restatement (Third) of Products Liability § 2 approach); or (2) something along the lines of the Hand formula, balancing cost of damage times risk against the cost of developing software a better way.

Recovery would be allowed for purely economic damage (as well as physical and property damage). The liability would be limited by comparative or contributory negligence (software developers should not be held liable for the company that has lax network security or the user who opens the e-mail with the virus). Since the liability could be so great, the liability would simply be several liability; each negligent actor responsible for his or her own part.

There are two possible ways to implement this liability. The first is through federal legislation, enacted under the commerce clause. The benefit of federal legislation is uniformity. However, a federal right would pre-empt state tort law.

The biggest problem with this solution is that it might be difficult for a plaintiff to prove that the software was negligently designed. In addition, I am not sure what type of chilling effect it would have on the software industry.


Blogger duffee said...

Good job. Here is the question I asked in class:

Isn't there a market incentive for software developers to make products that are not easily exploited by cyber-criminals? If so, it's possible that most of the problem comes from hackers who are developing new ways around what are currently thought to be "reasonable" defenses.

1:23 PM  
Blogger ed said...

I really like your topic,

Basically my questions in class have to do with the chilling effects, possibility that it puts US at a disadvantage and question of the effects on small business, open source software and freeware.

1:34 PM  
Anonymous Scott Walker said...

Is there any concern for the sole proprietors who design software programs? As opposed to Corporations who, in the worst case would go bankrupt under the proposed liability from a third party's exploitation of a whole in the design, sole proprietors would be personally liable for a third party atttacking their software.

1:48 PM  
Blogger seongyoune said...

Wouldn't adopting your proposal inevitably result in higher prices for softwares? Although you did suggest insurance as an alternative, wouldn't there be some degree of cost-shifting to the consumers? How would you respond to those that question whether the mass should share the cost of preventing the security problems by software developers? Secondly, this was kind of brought up in class but I would like to know how your proposal would differentiate the developers of more foundational softwares (such as OS) who are more likely to face such liability suits than developers of softwares with specific purposes.

1:51 PM  
Blogger Christine said...

I really liked your topic - I thought it was an interesting proposal -

My two questions:
Standard of care would be difficult - user can always say that the system would not have been hacked into if it was more secure; the 19 deadly sins helps - you would probably need a method to update this list and keep companies informed

Corporations should be responsible for mitigating damages - i.e. backups/contingency plans

1:51 PM  
Blogger Dave said...

I think that my major concern here is how this will effect small time software developers. Here's a hypo:

1) I write a small program and give it to my friend, who loves it and passes it around to a bunch of his friends. Am I liable to him personally if he is hacked? Furthermore, am I liable to his friends? Does it matter if this all occurred during a public beta test of the software that I performed because I didn't have the funds or manpower to do a private test?

I feel that liability in any of these cases would have a HUGE chilling effect on development, but more importantly, liability could have huge impacts upon individuals, not just corporations.

1:53 PM  
Blogger Brian Bulson said...

This was metioned in class, but I would probably exempt any programmers that contribute to open-source software projects, such as Linux. Often they do this as a hobby, and may expect other programmers to help cure their flaws. Also, this software is built by adding pieces upon pieces and vulnerabilities may appear due to lack of coordination, and no programmer would be at fault. Additionally, anyone using open-source software should accept all the reasonable risks that accompanies it.

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