Retailers must not ignore security alerts, court says

In what some security experts are calling a "game changer," a Minnesota federal court held Target liable earlier this month for data breach losses because the company had ignored its own security alerts.

Target is based in Minnesota, but the Minnesota Plastic Card Security Act, which specifically allows banks that issue payment cards to sue breaching merchants, also covers any company that does business in that state, according to Karl Belgum, an attorney with Nixon Peabody LLP.

The decision does not involve a financial penalty against Target, but it does allow the case to move forward to the next step.

Now, financial institutions that say they have spent billions of dollars issuing replacement cards can now proceed with a negligence class action lawsuit against Target.

"Although the third-party hackers' activities caused harm, Target played a key role in allowing the harm to occur," Judge Paul Magnuson said in his ruling. "Indeed, Plaintiffs' allegation that Target purposely disabled one of the security features that would have prevented the harm is itself sufficient to plead a direct negligence case."

The judge also agreed with the banks' argument that Target failed "to heed the warning signs as the hackers' attack began."

Too many alerts, too little time

The problem, according to Brian Foster, CTO at Atlanta-based security firm Damballa, Inc., is that companies can't possibly respond to every single security alert they get.

In Target's case, for example, the company failed to heed warnings from its FireEye prevntion system and for disabling the automatic blocking feature.

But how many companies would immediately disconnect devices from their network based on an alert? he asked.

"Most are false positives," Foster said.

For example, a piece of malware might cross a company's network on its way to an endpoint device but never get installed because the user rejects it, antivirus catches it, it's sandboxed, or its designed for a different operating system or environment.

According to a Ponemon survey to be released next month, enterprises that have between 10,000 and 15,000 employees see an average of 17,000 security alerts a week. Target has over 300,000 employes.

According to the Ponemon study, only 19 percent of the incoming alerts are reliable.

In another survey, Damballa found that the average number of actual, successful daily infections was 97.

Foster recommends that companies look at the security tools they are using and if they generate too many unactionable alerts, that they either staff up, or look for new tools.

"They're going to have to hire an army of humans to look at all the alerts, and not let any slip through," he said. "And that's not really sustainable. For one thing, the number of humans trained in this space is already in high demand."

Beyond alerts

Judge Magnuson dismissed Target's arguments that it should only be liable for Minnesota transactions, and that the company shouldn't be liable for data stolen from point of sale terminals instead of from its databases.

Target did store some data in violation of the state law, specifically the CVV codes for the payment cards, which made the breach more serious, Magnuson said.

The decision as a whole is an important one for the retail industry, said Amy Mushahwar, counsel and Chief Information Security Officer at Washington, D.C.-based ZwillGen PLLC.

"This is a ruling that we're all going to be living with for a very long time."

The case builds on the existing agreements between merchants and payment card processors, she added.

"When you get a merchant account, you agree to be responsible for any fraudulent charges that result from you not being PCI DSS compliant," she said, referring to the Payment Card Industry's Data Security Standard.

This ruling just solidifies the premise that's already been established, she said.

"Realistically, though, what is most concerning about the target breach, is that the breach happened via an HVAC vendor," she said. "This was not a segment of Target's network that it viewed as being a part of the payment card network."

Turning off alerts altogether isn't an option, she added, since companies must have the ability to respond to incidents. But as companies move to technology that prioritizes some alerts over others, they need to be careful about potentially giving up control.

"There are new systems where much of the tuning of the alerting functions and capability happens at the device level and program level, so that companies are getting less visibility in their alerting functionality," she said. "So this problem will become even more difficult."

Magnuson's ruling could have been even worse for retailers if he had sided with the banks on the definition of the word "retain." Although Target did not save credit card numbers, the hackers themselves temporarily stored the numbers on Target's servers so that Target was, technically, in possession of those numbers. The ruling sidestepped the question of whether Target was liable for this, leaving this issue still up in the air.

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