Crypto rules slammed in Congress

WASHINGTON--Top software executives gathered on Capitol Hill today to charge that federal restrictions on encryption will cost Net users and the government billions of dollars over the next five years.

Although the majority of the Clinton administration appears to be backing away from the policy, companies still can't get licenses to export strong encryption unless they promise to eventually support key-recovery or key-escrow systems, which help law enforcement access information scrambled by encryption.

"What has happened is that the ability to keep information private has increased," Microsoft chief executive Bill Gates said today. "Law enforcement has to accept that. Can the genie be put back in the bottle? The answer is no."

Gates made his statements along with other executives during the Business Software Alliance's annual Washington "CEO Forum," where they discuss their policy strategies on industry issues that range from copyright to securities lawsuits.

But after yesterday's closed-door meeting between computer executives, Attorney General Janet Reno, and FBI director Louis Freeh, the encryption issue inspired the most passionate feelings among the executives attending today's press briefing.

The BSA released a study claiming that the five-year start-up cost of a key-escrow system, in which the government can gain a "spare key" to read encrypted messages, would be at least $38.5 billion. The report estimated that the direct cost to users would be $6 billion per year.

"But in another study [by the Economic Strategy Institute], the projected cost is even higher," said Eric Schmidt, chief executive of Novell. "It's infinite, because a key-escrow system just won't work. This is madness."

The study estimated that the U.S. economy could miss out on at least $35 billion over the next five years.

"The real issue is the competitiveness of the U.S. economy in the 21st century," Schmidt said. By blocking the export of strong encryption technology, the U.S. government "appears to be running a jobs export program."

Law enforcement has lobbied for increased access to the private keys that lock up communications of tech-savvy crime suspects. But privacy advocates and software makers say that encryption products giving police a back door aren't marketable and are too weak to secure email or data files.

Despite the high-powered participants in yesterday's meeting and legislation that has been favored as the best, a settlement has not been met.

Earlier in the day, the same group of computer executives and privacy advocates met with a group of congressional supporters of encryption rights led by Sen. John Ashcroft (R-Missouri). Afterward, Ashcroft expressed frustration over the issue.

"We need to break the years-long logjam regarding encryption," he said.

"Some parties in this debate are uninterested in moving forward or even talking about how to proceed," Ashcroft added. "Without the use of robust encryption, electronic commerce will never truly flourish."

Even with the limits on encryption exports, which is said to be a factor stifling e-commerce, the Business Software Association's outlook for the online marketplace's growth is still bullish, however.

"Advertising spending on the Internet reached $1 billion in 1997, triple the amount spent in 1996," the BSA report states. "By the year 2000, at least 46 million Americans will purchase products or services online, spending an average of $350 per person per year."

Though they are cutthroat rivals on other fronts, software industry members have become united to overturn the encryption export limits. Joining Gates today were the heads of seven major high-tech companies including John Warnock of Adobe Systems, Greg Bentley of Bentley Systems, Dominique Goupil of FileMaker, Jeff Papows of Lotus Development Corporation, Schmidt of Novell, Mitchell Kertzman of Sybase, and Gordon Eubanks of Symantec Corporation.

"The law enforcement view, that 'If you only knew what I know you would be in favor of restrictions on encryption,' doesn't hold water any more," Papows said. "I have never before seen an issue that has so united this group. All we want to do is to be able to export what is widely available offshore."

But encryption wasn't the only issue for the executives.

Adobe's Warnock emphasized the importance of intellectual property laws.

"As software companies, we don't sell physical things; we sell these ideas because of the copyright laws," he said. "The problem is that you can take millions of dollars' worth of development and put it on a CD, and you can reproduce that CD for about 25 or 50 cents. Unless we have strong international agreements on piracy, we will not be able to continue to invest in the technology that is driving our economy."

Gates also tied online copyright issue to U.S. economic health, and pushed for passage of legislation to strengthen current laws.

"More than four out of every ten business software applications in the world is illegally installed, and software theft means fewer jobs, less growth to the U.S. economy, and less tax revenue to government at all levels," he said. "Governments around the world are looking to the U.S. for leadership on this issue."

During the press briefing, the BSA distributed a paper setting forth the organization's policy principles on critical issues facing the future of e-commerce. The principles include:

Effective copyright protection and enforcement are critical to facilitating e-commerce.

Security and privacy are critical for e-commerce.

No new Internet taxes must be applied.

Parents and consumers should have effective tools to protect their families and their privacy.

Governments should promote competition and deregulation in all telecommunications markets.

Market forces, not government, should drive the evolution of electronic authentication.

Trade barriers should not be allowed to affect e-commerce.

Business needs clear, fair, and simple laws dealing with online contracts.