Evan Schuman's StorefrontBacktalk

When two Boston-based federal judges sentence Albert Gonzalez Thursday (March 25) and Friday (March 26) for a rash of retail cyber-break-ins that he confessed to orchestrating, the exact sentence may be academic. The key legal argument is shaping up to be this question: “When a retailer is breached, what’s the most reasonable way to determine loss?” The answer is proving to be as baffling—or contradictory–to the federal jurists as it is for most retail CIOs.

For you incarceration enthusiasts out there, with prosecution and defense recommendations running between 17 and 25 years, it’s certainly likely the judges will stay within that range.

Related Story: Gonzalez Psych Report Tells Of 12-Year-Old Sex and Doing 5,000 Pushups

The question of what constitutes a loss in a data breach is complex. Is it limited to what is taken or to what the thief attempts to take? Should the loss include what was actually—and successfully—accessed, or should it assume that when a card with a $10,000 limit is taken, a $10,000 loss—regardless of what the thief did—should be recorded?

If class-action lawsuits are filed (and they will be filed), should the cost of lawyers and courthouse travel be included? What about payment for additional security? And perhaps a new POS system that includes that better security? (While we’re at it, the server room could sure use a new coat of paint. And some better furniture. Definitely some better furniture.) What about the forensics probe? Or the 5-year maintenance deal the forensic team sells you while on site?

Some stretches could even be plausible. For example, what if the breach requires extensive hours from all IT personnel? That’s legitimate. And what if that necessity pushes dozens of unrelated projects to the back burner? What if those delays slow down a product rollout, giving your rivals the time to get to market first and thereby stealing marketshare? Are those reduced sales—which are a direct result of a slower launch, which itself was caused by necessary breach cleanup—something that should be blamed on the thief? On the one hand, the answer may be “yes.” But that answer in turn raises the question of where blame should stop.

The legal foundation for getting into the “what’s really a loss?” issue involves federal sentencing guidelines. To up its sentence recommendation to the maximum—25 years, which the U.S. Attorney’s Office characterized as “imprisonment for life”—the government had to argue that it could prove more than $400 million in losses. That dollar amount forced the issue of defining what a loss is, in the context of a data breach.

Gonzalez’s attorney, for example, issued a subpoena to TJX demanding that the retailer prove it had really lost the $171.5 million it claimed. The March 12 subpoena demanded that TJX give the defense “any and all documents and records of any description, both hard-copy and electronic, including, but not limited to, invoices paid by it, on which TJX bases its claim.”

TJX, understandably, is fighting the subpoena. Gonzalez “argues that TJX has overstated the loss it suffered from the intrusion or, alternatively, that certain of TJX’s expenses that comprised part of its loss were discretionary or were the result of its own negligence,” a TJX filing said. “TJX should not have to expend further time and costs to validate the figures it has presented to the court.” TJX then made an interesting legal point.