"Who are you?" is a fundamental question for all online business activities. Whether a company wants to allow employees, contractors or business partners to remotely access its networks, or engage in online commercial transactions, the need to authenticate the identity of the remote party is a critical one (Learn more about identity management products from our Identity Management Buyer's Guide).

Moreover, in today's security-conscious environment, authentication is a legal issue. A company's legal obligation to provide information security clearly includes a duty to properly authenticate persons seeking access to the company's computer systems or services. For example, in a recent case brought by the victim of identity theft, the issuer of a credit card was held liable for failing to properly authenticate the identity of the applicant/imposter.

Enter federated identity management, a promising approach to dealing with the cost and complexity of addressing this often-difficult identity problem. Much work is being done by groups such as Liberty Alliance, WS-Federation and others to develop technical specifications that allow a business to verify the identity of a person seeking to access its systems by obtaining a digital credential issued by a third party. Yet the concept of federated identity management raises critical legal issues that often get overlooked in the struggle to develop appropriate specifications. And failure to recognize and address these legal issues will delay the widespread implementation of federated identity options.

At its essence, identity management has two components. First, individuals (or businesses or devices) must be properly identified (e.g., this is John Smith, an employee of ABC company who works in accounting). Second, a mechanism must be devised to verify that someone claiming to be a particular person and seeking remote access is, in fact, the same person as the one previously identified (e.g., the person claiming to be John Smith and seeking remote access to the accounting database is really John Smith because he has presented the shared secret we gave to the person we previously identified as John Smith).

Traditionally, each business has handled its own identity management. That is, a company identified its own employees and customers and then set up a mechanism, such as a system of shared secrets or passwords, by which those persons could be authenticated for remote network access. Today, however, businesses and government agencies are increasingly looking to third parties to handle the difficult--and often expensive--task of identification. And users, overloaded with passwords, are looking for a one-stop option.