January 2012

Deluged by cyberattacks they've mostly hidden from the public, companies in Silicon Valley and elsewhere are being prodded by federal regulators to finally fess up to this fast-growing threat to their businesses and their customers.

Corporate hacking costs companies and consumers billions of dollars a year, experts say, and has ensnared corporations ranging from online shoe retailer Zappos.com to valley tech giant Google. But before these new rules from the Securities and Exchange Commission, the full extent of the problem has been unknown, since big businesses are loath to provide many if any details, fearing embarrassment and concerned about adding to the harm. But there are indications corporate hacking is widespread. One study found that nearly 40 percent of Fortune 500 companies fail to disclose cyberattacks and privacy breaches in their public filings. Donald Vieira, a former Justice Department security expert who advises corporations about cyberthreats, called the directive "a wake-up call for a lot of companies to sit back and look at what they are doing." But some security experts say publicly traded corporations are being placed in a Catch-22 by the SEC. Under the SEC guidelines, these experts say, companies could be sued by shareholders for not revealing enough about their susceptibility to cyberthreats if the businesses later suffer losses. Yet disclosing too much, they add, might give hackers a detailed blueprint to steal their technology or other secrets.

If Apple needed an illustration of its popularity in the world’s biggest smartphone market by volume, it was given one this month in Beijing. The US group suspended sales of all iPhone models through its retail stores in China after the launch of its latest model – the 4S – at its flagship Sanlitun store in Beijing triggered a riot among black marketeers.

Such hysteria is an extreme example of the attraction of a device that drove Apple to its best quarter in its 35-year history, far outstripping analysts’ expectations. It further surprised investors with its optimism for 2012, suggesting its phenomenal growth was set to continue. It cast aside its usual caution and forecast revenues and profits for the current quarter – $32.5bn and $8.50 per share – that for once bettered Wall Street’s predictions. Some of that optimism comes from the success it has had tapping new markets, including China.

For years, the Motion picture Association of America used a combination of "sophisticated effort and a lot of money" to win battles over issues like copyright protection. It used to be that the industry's bill "passed with huge margins and the opposition just got crushed." For a time, it looked like that would happen with the anti-piracy legislation, too.

And the studios went for the gold, not so much in the Senate but in the House with the broader Stop Online Piracy Act (SOPA). "They teed up what many people thought were needlessly draconian measures, going for the best possible version of what they wanted," says Andrew Schwartzman of the Media Access Project. Michael O'Leary, the MPAA's senior executive vp global policy and external affairs, acknowledges that some of the House bill's "sharp edges finally could have been softened" but adds, "That assumes the opposition wanted to make some kind of accommodation." And the MPAA says the enemy (aka Google) wasn't interested in that. Instead, the studios believe Google's real agenda was protecting revenue from advertising on illegal sites. But there was little effort to make it appear, at least, that the studios and their supporters tried to negotiate with Google. When the House Judiciary Committee held a Nov. 16 hearing on SOPA, there was only one witness on the list testifying in opposition: Google's policy counsel, Katherine Oyama. "It was a stacked hearing," says Sherwin Siy of the Washington nonprofit Public Knowledge. By the time the committee met Dec. 15-16 to mark up the bill, the battle was no longer so one-sided. Various opponents tried to amend the bill and were voted down. The markup turned into something of a circus, with some members conceding that they didn't fully understand provisions of the bill, says Siy, who adds, "I was incredulously tweeting a lot of it." The mark-up "really drove home a lot of the problem to the broader grassroots," he says.

Ofcom, the United Kingdom’s broadcasting regulator, should not be given responsibility for policing the newspaper industry but could help produce a common set of principles to govern the behavior of journalists across the media spectrum, its chief executive said.

Ed Richards said the differences in television and newspaper journalism were a strength and should be maintained. But he added that with the Leveson inquiry looking into how to regulate the press in the wake of scandals over phone hacking and other abuses of privacy, and concerns growing over the untamed journalism of the “blogosphere”, now might be the right moment for a broad approach.