How Internet of Things works

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Privacy & Security in a Connected World FTC Sta Report JANUARY 2015 FTC Staff Report January 2015 Table of Contents Executive Summary ......................................................................................................... i Background .......................................................................................................................1 What is the “Internet of Things”?................................................................................ 5 Benefits & Risks ............................................................................................................... 7 Benefits .......................................................................................................................................... 7 Risks ............................................................................................................................................. 10 Application of Traditional Privacy Principles .......................................................... 19 Summary of Workshop Discussions ..................................................................................... 19 Post-Workshop Developments ............................................................................................. 25 Commission Staff’s Views and Recommendations for Best Practices ...................... 27 Legislation ...................................................................................................................... 47 Summary of Workshop Discussions .................................................................................... 47 Recommendations ................................................................................................................... 48 Conclusion ..................................................................................................................... 55 Executive Summary The Internet of Things (“IoT”) refers to the ability of everyday objects to connect to the Internet and to send and receive data. It includes, for example, Internet-connected cameras that allow you to post pictures online with a single click; home automation systems that turn on your front porch light when you leave work; and bracelets that share with your friends how far you have biked or run during the day. Six years ago, for the first time, the number of “things” connected to the Internet surpassed the number of people. Yet we are still at the beginning of this technology trend. Experts estimate that, as of this year, there will be 25 billion connected devices, and by 2020, 50 billion. Given these developments, the FTC hosted a workshop on November 19, 2013 – titled The Internet of Things: Privacy and Security in a Connected World. This report summarizes the 1 workshop and provides staff’s recommendations in this area. Consistent with the FTC’s mission to protect consumers in the commercial sphere and the focus of the workshop, our discussion is limited to IoT devices that are sold to or used by consumers. Accordingly, the report does not discuss devices sold in a business-to-business context, nor does it address broader machine-to- machine communications that enable businesses to track inventory, functionality, or efficiency. Workshop participants discussed benefits and risks associated with the IoT. As to benefits, they provided numerous examples, many of which are already in use. In the health arena, connected medical devices can allow consumers with serious medical conditions to work 1 Commissioner Wright dissents from the issuance of this Staff Report. His concerns are explained in his separate dissenting statement. i with their physicians to manage their diseases. In the home, smart meters can enable energy providers to analyze consumer energy use, identify issues with home appliances, and enable consumers to be more energy-conscious. On the road, sensors on a car can notify drivers of dangerous road conditions, and software updates can occur wirelessly, obviating the need for consumers to visit the dealership. Participants generally agreed that the IoT will offer numerous other, and potentially revolutionary, benefits to consumers. As to risks, participants noted that the IoT presents a variety of potential security risks that could be exploited to harm consumers by: (1) enabling unauthorized access and misuse of personal information; (2) facilitating attacks on other systems; and (3) creating risks to personal safety. Participants also noted that privacy risks may flow from the collection of personal information, habits, locations, and physical conditions over time. In particular, some panelists noted that companies might use this data to make credit, insurance, and employment decisions. Others noted that perceived risks to privacy and security, even if not realized, could undermine the consumer confidence necessary for the technologies to meet their full potential, and may result in less widespread adoption. In addition, workshop participants debated how the long-standing Fair Information Practice Principles (“FIPPs”), which include such principles as notice, choice, access, accuracy, data minimization, security, and accountability, should apply to the IoT space. The main discussions at the workshop focused on four FIPPs in particular: security, data minimization, notice, and choice. Participants also discussed how use-based approaches could help protect consumer privacy. ii 1. Security There appeared to be widespread agreement that companies developing IoT products should implement reasonable security. Of course, what constitutes reasonable security for a given device will depend on a number of factors, including the amount and sensitivity of data collected and the costs of remedying the security vulnerabilities. Commission staff encourages companies to consider adopting the best practices highlighted by workshop participants, including those described below. First, companies should build security into their devices at the outset, rather than as an afterthought. As part of the security by design process, companies should consider: (1) conducting a privacy or security risk assessment; (2) minimizing the data they collect and retain; and (3) testing their security measures before launching their products. Second, with respect to personnel practices, companies should train all employees about good security, and ensure that security issues are addressed at the appropriate level of responsibility within the organization. Third, companies should retain service providers that are capable of maintaining reasonable security and provide reasonable oversight for these service providers. Fourth, when companies identify significant risks within their systems, they should implement a defense-in- depth approach, in which they consider implementing security measures at several levels. Fifth, companies should consider implementing reasonable access control measures to limit the ability of an unauthorized person to access a consumer’s device, data, or even the consumer’s network. Finally, companies should continue to monitor products throughout the life cycle and, to the extent feasible, patch known vulnerabilities. iii 2. Data Minimization Data minimization refers to the concept that companies should limit the data they collect and retain, and dispose of it once they no longer need it. Although some participants expressed concern that requiring data minimization could curtail innovative uses of data, staff agrees with the participants who stated that companies should consider reasonably limiting their collection and retention of consumer data. Data minimization can help guard against two privacy-related risks. First, larger data stores present a more attractive target for data thieves, both outside and inside a company – and increases the potential harm to consumers from such an event. Second, if a company collects and retains large amounts of data, there is an increased risk that the data will be used in a way that departs from consumers’ reasonable expectations. To minimize these risks, companies should examine their data practices and business needs and develop policies and practices that impose reasonable limits on the collection and retention of consumer data. However, recognizing the need to balance future, beneficial uses of data with privacy protection, staff’s recommendation on data minimization is a flexible one that gives companies many options. They can decide not to collect data at all; collect only the fields of data necessary to the product or service being offered; collect data that is less sensitive; or de- identify the data they collect. If a company determines that none of these options will fulfill its business goals, it can seek consumers’ consent for collecting additional, unexpected categories of data, as explained below. iv 3. Notice and Choice The Commission staff believes that consumer choice continues to play an important role in the IoT. Some participants suggested that offering notice and choice is challenging in the IoT because of the ubiquity of data collection and the practical obstacles to providing information without a user interface. However, staff believes that providing notice and choice remains important. This does not mean that every data collection requires choice. The Commission has recognized that providing choices for every instance of data collection is not necessary to protect privacy. In its 2012 Privacy Report, which set forth recommended best practices, the Commission stated that companies should not be compelled to provide choice before collecting and using consumer data for practices that are consistent with the context of a transaction or the company’s relationship with the consumer. Indeed, because these data uses are generally consistent with consumers’ reasonable expectations, the cost to consumers and businesses of providing notice and choice likely outweighs the benefits. This principle applies equally to the Internet of Things. Staff acknowledges the practical difficulty of providing choice when there is no consumer interface and recognizes that there is no one-size-fits-all approach. Some options include developing video tutorials, affixing QR codes on devices, and providing choices at point of sale, within set-up wizards, or in a privacy dashboard. Whatever approach a company decides to take, the privacy choices it offers should be clear and prominent, and not buried within lengthy documents. In addition, companies may want to consider using a combination of approaches. Some participants expressed concern that even if companies provide consumers with choices only in those instances where the collection or use is inconsistent with context, such an v approach could restrict unexpected new uses of data with potential societal benefits. These participants urged that use limitations be considered as a supplement to, or in lieu of, notice and choice. With a use-based approach, legislators, regulators, self-regulatory bodies, or individual companies would set “permissible” and “impermissible” uses of certain consumer data. Recognizing concerns that a notice and choice approach could restrict beneficial new uses of data, staff has incorporated certain elements of the use-based model into its approach. For instance, the idea of choices being keyed to context takes into account how the data will be used: if a use is consistent with the context of the interaction – in other words, it is an expected use – then a company need not offer a choice to the consumer. For uses that would be inconsistent with the context of the interaction (i.e., unexpected), companies should offer clear and conspicuous choices. In addition, if a company collects a consumer’s data and de-identifies that data immediately and effectively, it need not offer choices to consumers about this collection. Furthermore, the Commission protects privacy through a use-based approach, in some instances. For example, it enforces the Fair Credit Reporting Act, which restricts the permissible uses of consumer credit report information under certain circumstances. The Commission also applies its unfairness authority to challenge certain harmful uses of consumer data. Staff has concerns, however, about adopting a pure use-based model for the Internet of Things. First, because use-based limitations are not comprehensively articulated in legislation, rules, or widely-adopted codes of conduct, it is unclear who would decide which additional uses are beneficial or harmful. Second, use limitations alone do not address the privacy and security vi risks created by expansive data collection and retention. Finally, a pure use-based model would 2 not take into account consumer concerns about the collection of sensitive information. The establishment of legislative or widely-accepted multistakeholder frameworks could potentially address some of these concerns. For example, a framework could set forth permitted or prohibited uses. In the absence of consensus on such frameworks, however, the approach set forth here – giving consumers information and choices about their data – continues to be the most viable one for the IoT in the foreseeable future. 4. Legislation Participants also discussed whether legislation over the IoT is appropriate, with some participants supporting legislation, and others opposing it. Commission staff agrees with those commenters who stated that there is great potential for innovation in this area, and that IoT-specific legislation at this stage would be premature. Staff also agrees that development of self-regulatory programs designed for particular industries would be helpful as a means to encourage the adoption of privacy- and security-sensitive practices. However, in light of the ongoing threats to data security and the risk that emerging IoT technologies might amplify these threats, staff reiterates the Commission’s previous recommendation for Congress to enact strong, flexible, and technology-neutral federal legislation to strengthen its existing data security enforcement tools and to provide notification to consumers when there is a security breach. General data security legislation should protect against unauthorized access to both personal information and device functionality itself. For 2 In addition to collecting sensitive information outright, companies might create sensitive information about consumers by making inferences from other data that they or others have already collected. A use-based model might not address, or provide meaningful notice about, sensitive inferences. The extent to which a use-based model limits or prohibits sensitive inferences will depend on how the model defines harms and benefits and how it balances the two, among other factors. vii example, if a pacemaker is not properly secured, the concern is not merely that health information could be compromised, but also that a person wearing it could be seriously harmed. In addition, the pervasiveness of information collection and use that the IoT makes possible reinforces the need for baseline privacy standards, which the Commission previously recommended in its 2012 privacy report. Although the Commission currently has authority to take action against some IoT-related practices, it cannot mandate certain basic privacy protections – such as privacy disclosures or consumer choice – absent a specific showing of deception or unfairness. Commission staff thus again recommends that Congress enact broad- based (as opposed to IoT-specific) privacy legislation. Such legislation should be flexible and technology-neutral, while also providing clear rules of the road for companies about such issues 3 as how to provide choices to consumers about data collection and use practices. In the meantime, we will continue to use our existing tools to ensure that IoT companies continue to consider security and privacy issues as they develop new devices. Specifically, we will engage in the following initiatives: • Law enforcement: The Commission enforces the FTC Act, the FCRA, the health breach notification provisions of the HI-TECH Act, the Children’s Online Privacy Protection Act, and other laws that might apply to the IoT. Where appropriate, staff will recommend that the Commission use its authority to take action against any actors it has reason to believe are in violation of these laws. • Consumer and business education: The Commission staff will develop new consumer and business education materials in this area. 3 Commissioner Ohlhausen does not agree with the recommendation for baseline privacy legislation. See infra note 191. viii • Participation in multi-stakeholder groups: Currently, Commission staff is participating in multi-stakeholder groups that are considering guidelines related to the Internet of Things, including on facial recognition and smart meters. Even in the absence of legislation, these efforts can result in best practices for companies developing connected devices, which can significantly benefit consumers. • Advocacy: Finally, where appropriate, the Commission staff will look for advocacy opportunities with other agencies, state legislatures, and courts to promote protections in this area. ix Background Technology is quickly changing the way we interact with the world around us. Today, companies are developing products for the consumer market that would have been unimaginable a decade ago: Internet-connected cameras that allow you to post pictures online with a single click; home automation systems that turn on your front porch light when you leave work; and bracelets that share with your friends how far you have biked or run during the day. These are all examples of the Internet of Things (“IoT”), an interconnected environment where all manner of objects have a digital presence and the ability to communicate with other objects and people. The IoT explosion is already around us, in the form of wearable computers, smart health trackers, connected smoke detectors and light bulbs, and essentially any other Internet-connected device that isn’t a mobile phone, tablet, or traditional computer. Six years ago, for the first time, the number of “things” connected to the Internet 1 surpassed the number of people. Yet we are still at the beginning of this technology trend. Experts estimate that, as of this year, there will be 25 billion connected devices, and by 2020, 2 50 billion. Some estimate that by 2020, 90% of consumer cars will have an Internet connection, 3 up from less than 10 percent in 2013. Three and one-half billion sensors already are in the 1 DAVE EVANS, CISCO INTERNET BUS. SOLUTIONS GRP., THE INTERNET OF THINGS: HOW THE NEXT EVOLUTION OF THE INTERNET IS CHANGING EVERYTHING 3 (2011), available at http://www.cisco.com/web/about/ac79/docs/innov/IoT_IBSG_0411FINAL.pdf. These estimates include all types of connected devices, not just those aimed at the consumer market. 2 Id. 3 TELEFONICA, CONNECTED CAR INDUSTRY REPORT 2013 9 (2013), available at http://websrvc.net/2013/telefonica/Telefonica%20Digital_Connected_Car2013_Full_Report_English.pdf. 1 4 marketplace, and some experts expect that number to increase to trillions within the next 5 decade. All of these connected machines mean much more data will be generated: globally, by 6 2018, mobile data traffic will exceed fifteen exabytes – about 15 quintillion bytes – each month. By comparison, according to one estimate, an exabyte of storage could contain 50,000 years’ 7 worth of DVD-quality video. These new developments are expected to bring enormous benefits to consumers. Connected health devices will allow consumers with serious health conditions to work with their physicians to manage their diseases. Home automation systems will enable consumers to turn off the burglar alarm, play music, and warm up dinner right before they get home from work. Connected cars will notify first responders in the event of an accident. And the Internet of Things may bring benefits that we cannot predict. However, these connected devices also will collect, transmit, store, and potentially share vast amounts of consumer data, some of it highly personal. Given the rise in the number and types of connected devices already or soon to be on the market, the Federal Trade Commission (“FTC” or “Commission”) announced in April 2013 that it would host a workshop on the privacy and security issues associated with such devices and requested public input about the issues to 4 See Stanford Univ., TSensors Summit™ for Trillion Sensor Roadmap 1 (Oct. 23-25, 2013), available at http://tsensorssummit.org/Resources/Why%20TSensors%20Roadmap.pdf. 5 Id. 6 CISCO, CISCO VISUAL NETWORKING INDEX: GLOBAL MOBILE DATA TRAFFIC FORECAST UPDATE, 2013–2018 3 (2014), available at http://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index- vni/white_paper_c11-520862.pdf. 7 University of Bristol, Exabyte Informatics, available at http://www.bris.ac.uk/research/themes/exabyte- informatics.html. 2 8 9 consider. In response to the request for comment, staff received twenty-nine public comments from a variety of consumer advocacy groups, academics, and industry representatives. The workshop – titled The Internet of Things: Privacy and Security in a Connected World – took place on November 19, 2013, and featured panels of academics, researchers, consumer 10 advocates, and representatives from government and industry. 11 The workshop consisted of four panels, each of which focused on a different aspect of 12 13 the IoT. The first panel, “The Smart Home,” looked at an array of connected devices, such as home automation systems and smart appliances. The second panel, “Connected Health and 14 Fitness,” examined the growth of increasingly connected medical devices and health and fitness products, ranging from casual wearable fitness devices to connected insulin pumps. The 15 third panel, “Connected Cars,” discussed the different technologies involved with connected 8 Press Release, FTC, FTC Seeks Input on Privacy and Security Implications of the Internet of Things (Apr. 17, 2013), available at http://www.ftc.gov/news-events/press-releases/2013/04/ftc-seeks-input-privacy-and-security- implications-internet-things. 9 Pre-workshop comments (“484 cmt.”) are available at http://www.ftc.gov/policy/public-comments/initiative-484. 10 For a description of the workshop, see http://www.ftc.gov/news-events/events-calendar/2013/11/internet-things- privacy-security-connected-world. 11 In addition to the four panels, workshop speakers included Keith Marzullo of the National Science Foundation (“Marzullo”), who gave an overview of the IoT space (Transcript of Workshop at 15-34); Carolyn Nguyen (“Nguyen”) of Microsoft Corp., who discussed contextual privacy and its implications for the IoT (Transcript of Workshop at 35-51); and Vinton “Vint” Cerf (“Cerf”) of Google Inc., who gave the workshop’s Keynote Address (Transcript of Workshop at 118-153). 12 A complete transcript of the proceeding is available at http://www.ftc.gov/sites/default/files/documents/public_events/internet-things-privacy-security-connected- world/final_transcript.pdf. Videos of the workshop also are available at http://www.ftc.gov/news-events/audio- video/ftc-events. 13 Transcript of Workshop at 52-115. 14 Id. at 164-234. 15 Id. at 235-291. 3 16 cars, including Event Data Recorders (“EDRs”) and other vehicle “telematics,” a term that refers to data collection, transmission, and processing technologies for use in vehicles. Finally, 17 the fourth panel, “Privacy and Security in a Connected World,” discussed the broader privacy and security issues raised by the IoT. Following the workshop, the Commission invited comments on the issues raised by the 18 panels. In response, staff received seventeen public comments from private citizens, trade 19 organizations, and privacy advocates. This report summarizes the workshop and provides staff’s recommendations in this area. Section II of this report discusses how we define the “Internet of Things.” Section III describes some of the benefits and risks of the new technologies that are part of the IoT phenomenon. Section IV examines the application of existing privacy principles to these new technologies, and Section V addresses whether legislation would be appropriate in this area. Sections IV and V begin by discussing the views of written commenters and workshop speakers (collectively, “participants”), and then set forth staff recommendations. These recommendations focus on the types of products and services consumers are likely to encounter today and in the foreseeable future. We look forward to continuing to explore privacy issues as new IoT technologies come to market. 16 An EDR is “a device or function in a vehicle that records the vehicle’s dynamic time-series data during the time period just prior to a crash event (e.g., vehicle speed vs. time) or during a crash event . . . intended for retrieval after the crash event.” 49 C.F.R. § 563.5. 17 Transcript of Workshop at 292-364. 18 Press Release, FTC, FTC Seeks Comment on Issues Raised at Internet of Things Workshop (Dec. 11, 2013), available at http://www.ftc.gov/news-events/press-releases/2013/12/ftc-seeks-comment-issues-raised-internet- things-workshop. 19 Post-workshop comments (“510 cmt.”) are available at http://www.ftc.gov/policy/public-comments/initiative- 510. 4

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