The Impact of Computer Security Regulation on American Companies

Abstract

Since the mid 1990's, e-business and electronic communication have spread rapidly and widely throughout the United States. According to one study, the majority of the U.S. population, fifty-four percent, used the Internet in September 2001, up twenty-six percent from the year before. Companies are targeting their e-business efforts to reach this expanding customer base. By entering the world of e-business, companies can benefit from lower transaction costs, improvement in the time to take products to market, cost savings in inventory and supply chain reduction, improved communications, and the ability to outsource organizational tasks such as payroll and customer-relations management. Cost savings and easy access for both online businesses and consumers depend on the ability of such online businesses to collect, store, transfer, and analyze vast amounts of data. As more and more business is conducted online, electronic security has become more of a concern. In 2001 alone, $380 million was lost due to breaches in electronic security. While terrorist attacks and financial fraud should motivate companies to carefully consider their information security, recent developments in the law require some companies to safeguard certain types of consumer information. Additionally, Internet users appear concerned about disclosing personal identifying information. According to a recent study, eightynine percent of Internet users are worried that companies may sell their private information, and eighty-one percent of Internet users who seek health information want the right to sue an online web company for violations of their privacy policies. Companies that wish to collect and use such data need to consider what steps they can take to reassure customers and to overcome their fears. The implementation of adequate security measures may improve consumer confidence. According to one survey conducted by Cyber Dialogue, retailers lost $6.2 billion in sales in 2001 from consumers concerned about the privacy of their information. The focus of this Article is on legal requirements for the implementation of security safeguards to protect the privacy of information.