Information security: How liable should vendors be?

Computerworld - Information insecurity is costing us billions. We pay for it in theft: information theft, financial theft. We pay for it in productivity loss, both when networks stop working and in the dozens of minor security inconveniences we all have to endure. We pay for it when we have to buy security products and services to reduce those other two losses. We pay for security, year after year.
The problem is that all the money we spend isn't fixing the problem. We're paying, but we still end up with insecurities.
The problem is insecure software. It's bad design, poorly implemented features, inadequate testing and security vulnerabilities from software bugs. The money we spend on security is to deal with the effects of insecure software.
And that's the problem. We're not paying to improve the security of the underlying software. We're paying to deal with the problem rather than to fix it.
The only way to fix this problem is for vendors to fix their software, and they won't do it until it's in their financial best interests to do so.
Today, the costs of insecure software aren't borne by the vendors that produce the software. In economics, this is known as an externality, the cost of a decision that's borne by people other than those making the decision.
There are no real consequences to the vendors for having bad security or low-quality software. Even worse, the marketplace often rewards low quality. More precisely, it rewards additional features and timely release dates, even if they come at the expense of quality.
If we expect software vendors to reduce features, lengthen development cycles and invest in secure software development processes, it needs to be in their financial best interests to do so. If we expect corporations to spend significant resources on their own network security -- especially the security of their customers -- it also needs to be in their financial best interests.
Liability law is a way to make it in those organizations' best interests. Raising the risk of liability raises the costs of doing it wrong and therefore increases the amount of money a CEO is willing to spend to do it right. Security is risk management; liability fiddles with the risk equation.
Basically, we have to tweak the risk equation so the CEO cares about actually fixing the problem, and putting pressure on his balance sheet is the best way to do that.

Clearly, this isn't all or nothing. There are many parties involved in a typical software attack. There's