[House Hearing, 106 Congress]
[From the U.S. Government Printing Office]



 
     THE ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT

=======================================================================

                                HEARING

                               before the

                  SUBCOMMITTEE ON TELECOMMUNICATIONS,
                     TRADE, AND CONSUMER PROTECTION

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                                   on

                               H.R. 1714

                               __________

                              JUNE 9, 1999

                               __________

                           Serial No. 106-32

                               __________

            Printed for the use of the Committee on Commerce



                                


                      U.S. GOVERNMENT PRINTING OFFICE
 57-447 CC                   WASHINGTON : 1999
------------------------------------------------------------------------------
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                    ------------------------------  

                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland

                   James E. Derderian, Chief of Staff
                   James D. Barnette, General Counsel
      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

   Subcommittee on Telecommunications, Trade, and Consumer Protection

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL G. OXLEY, Ohio,              EDWARD J. MARKEY, Massachusetts
  Vice Chairman                      RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio                BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California          ANNA G. ESHOO, California
NATHAN DEAL, Georgia                 ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma              ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming               BILL LUTHER, Minnesota
JAMES E. ROGAN, California           RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois               THOMAS C. SAWYER, Ohio
HEATHER WILSON, New Mexico           GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
Mississippi                          JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York                (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Curtis, Christopher T., Associate General Counsel, Capital 
      One Financial Corporation..................................    37
    Engelberg, Ari, President and Founder of Stamps.Com, 
      Incorporated...............................................    32
    Greenwood, Daniel, Deputy General Counsel, Information 
      Technology Division, Commonwealth of Massachusetts.........    26
    Pincus, Andrew J., General Counsel, Department of Commerce...    10
    Siedlarz, John E., President and Chief Executive Officer, 
      Iriscan, Incorporated, on behalf of the International 
      Biometric Industry Association.............................    35
    Skogen, Jeffrey, Internet Market Manager, Ford Motor Credit 
      Company....................................................    23
    Upson, Donald W., Secretary of Technology, Commonwealth of 
      Virginia...................................................    19
Material submitted for the record by:
    Business Software Alliance, prepared statement of............    59

                                 (iii)



     THE ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT

                              ----------                              


                        WEDNESDAY, JUNE 9, 1999

              House of Representatives,    
                         Committee on Commerce,    
                    Subcommittee on Telecommunications,    
                             Trade and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2123, Rayburn House Office Building, Hon. W.J. ``Billy'' 
Tauzin, (chairman) presiding.
    Members present: Tauzin, Stearns, Gillmor, Deal, Largent, 
Cubin, Shimkus, Ehrlich, Bliley (ex officio), Gordon, Rush, 
Eshoo, Sawyer, Green, McCarthy, and Dingell (ex officio).
    Staff present: Paul Scolese, professional staff member; 
Mike O'Reilly, professional staff member; Ed Hearst, majority 
counsel; Donn Salvosa, legislative clerk, and Andy Levin, 
minority counsel.
    Mr. Tauzin. The committee will please come to order.
    A number of years ago, the ``New Yorker Magazine'' ran a 
cartoon showing two dogs seated at a computer. One dog says to 
the other, ``On the Internet, nobody knows you are a dog.'' 
That is also true, by the way, in some voter registration 
systems in some of our States. I think there was a newspaper in 
Lake Charles, Louisiana, that managed to register two dogs in 
the Louisiana elections.
    For the first few years of the Internet, that was true. You 
really didn't know who was on the other end. However, with the 
explosion in electronic commerce activities, a clear need has 
developed for knowing who you are and who you are dealing with 
online; especially now that online transactions are becoming 
more and more complex. Many companies are currently at work 
developing products and services that seek to electronically 
authenticate parties to online transactions.
    One hurdle the companies that are seeking to use the 
electronic authentication face is the uncertain legality of 
electronic signatures. States have begun to update laws to 
address this problem. To date, 44 States have enacted some type 
of electronic signature law. However, no two States have 
adopted the same law. Therefore, the result is a patchwork of 
State laws on the recognition of electronic signatures.
    In my opinion, 40 of 50 different State standards will make 
interstate commerce very difficult; if not in some cases 
impossible. The subcommittee is aware that there is an effort 
underway to create a uniform State electronic signature law. 
Even under optimistic assumptions, adoption by all 50 States 
will take 3 to 5 years. Now that may not seem like a long time. 
But in the fast-changing world of electronic commerce, that is 
nearly an eternity.
    Today this subcommittee will be examining H.R. 1714, the 
Electronic Signatures In Global and National Commerce Act, ``E-
SIGN.'' The goal of this act is to further promote the 
development and growth of electronic commerce by clarifying the 
legal status of electronic signatures and records. Contracts or 
agreements cannot be invalidated solely because the agreement 
or contract is in an electronic form, or has been signed 
electronically. The legislation does recognize the efforts by 
States, and allows States to enact their own legislation to 
recognize electronic signatures and electronic records.
    The efforts to create a uniform State electronic signatures 
law, and the goal of H.R. 1714 are, therefore, in no way 
incompatible. Rather, they are complementary in that they are 
working toward a single, uniform standard.
    Another important element of this legislation is that it 
provides this sector of Commerce with guidance in promoting 
American principles on electronic signature laws overseas. It 
would clearly harm American interests to have foreign nations 
enact laws that would, or could, discriminate against American 
products and companies; or create closed systems that do not 
recognize the technologies and systems used by American 
companies. I think we only have to look at the controversy 
surrounding the third-generation wireless standards to see how 
important the international marketplace is.
    We will be hearing from a panel of witnesses today that 
will give us many perspectives on the issues of electronic 
authentication, and on H.R. 1714 in particular. The panel 
includes developers and users of these technologies, as well as 
representatives from State governments and the administration.
    H.R. 1714 is clearly the beginning of a process. I fully 
anticipate that this committee will be working with Chairman 
Bliley and all interested parties to work out a final bill that 
will meet our goal of furthering the use of electronic 
signatures and promoting electronic commerce. Additionally, we 
look forward to hearing comments from our colleague from 
Tennessee, Mr. Gordon, on the work that he has done on H.R. 
1572, his Digital Signature Act of 1999, which I understand has 
been referred to a different committee.
    I thank you and look forward to hearing the testimony from 
our distinguished panel.
    The Chair is pleased to recognize the author of the 
legislation, the Chairman of the full Commerce Committee, the 
honorable gentleman from Richmond, Virginia, Mr. Tom Bliley.
    Chairman Bliley. Thank you, Mr. Chairman. You know, I 
represent a district in the Commonwealth of Virginia, better 
known as the ``Internet Capital of the World.'' It is home to 
Internet companies, both large and small. As a result, I have 
the chance to talk with leading Internet business executives 
and visit cutting-edge technology companies. Everywhere I go 
and everyone I speak to tells me how important it is for 
Congress to pass legislation that provides legal recognition to 
electronic signature and electronic records.
    While I am speaking of Virginia, I also want to welcome Don 
Upson, the Secretary of Technology for Virginia. Virginia was 
the first State in the Nation to create a cabinet-level 
position for technology secretary. I think this clearly shows 
the commitment by Governor Gilmore and others in the State to 
promote the growth of electronic commerce and information 
technology.
    We saw the explosion of electronic commerce during last 
year's Christmas shopping season--far in excess of all the 
predictions. The pace has not let up. When many people think of 
electronic commerce, they think of buying books or airplane 
tickets. But recently, we have seen people starting to buy 
automobiles; getting approved for mortgages; or investing their 
retirement funds online--something we could not have imagined 
just a few years ago.
    As the value and complexity of online transactions grows, 
the need for knowing that the transaction is legally binding 
becomes even more important. That is where H.R. 1714, the 
Electronic Signatures in Global and National Commerce Act, 
comes in. By clearing away the legal uncertainties surrounding 
electronic signatures and records, more businesses will use 
electronic signatures and consumers will feel more comfortable 
doing business online. The technologies used to create and 
transmit electronic signatures also provides much greater 
safety and security to online transactions.
    As I have stated many times during last year's series of 
hearings on electronic commerce, I want to see that the safety, 
security, and privacy of online consumers is protected. 
Encouraging businesses and consumers to use electronic 
authentication will help to do just that. I believe that H.R. 
1714 is the correct approach to creating a legal framework for 
accepting electronic signatures and records.
    The legislation lays out a single nationwide standards for 
the acceptance of electronic signatures and electronic records. 
We do not pick or choose a specific type of electronic 
authentication; nor do we choose what types of businesses 
should be allowed to offer electronic signature services. The 
legislation also provides guidance to the Department of 
Commerce in the their international negotiations on electronic 
authentication. I believe that the principles laid out in this 
bill, such as technological and business neutrality and market 
leadership, should be promoted overseas. I do not want to see 
foreign nations instituting electronic authentication regimes 
that would discriminate against American manufacturers or 
providers of electronic authentication technology.
    H.R. 1714 also amends Federal securities law to provide for 
the legal acceptance of electronic signatures and records. This 
provision will be the subject of an upcoming legislative 
hearing in Mike Oxley's subcommittee. I do want to recognize 
the efforts that States have been making in this area. Today 
more than 40 States, as the chairman has said, have enacted 
legislation that provides recognition of electronic signatures. 
My concern is that every law is different. Many only allow 
State agencies to accept electronic signatures; and some 
provide legal recognition only to signatures generated by a 
specific technology.
    It is clear that for unfettered interstate commerce to take 
place, we must establish a single, nationwide standard. I 
understand that a uniform State law on electronic signatures is 
being developed. I believe H.R. 1714 recognizes this effort by 
allowing States to enact their own electronic signature bills 
that follow the principles laid out in H.R. 1714.
    I look forward to hearing the comments and issues raised in 
this hearing and the future hearings on H.R. 1714. I am hopeful 
that we will move H.R. 1714 through the committee and to the 
House floor before the end of the year. These hearings move far 
down the road to having this bill signed into law.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Tauzin. I thank the chairman for his statement and for 
his extraordinary attention to the issues of electronic 
commerce at this committee and other subcommittee levels. By 
the way, I want to commend you, Mr. Chairman, for not seeking 
to claim the invention of the Internet.
    Chairman Bliley. We already have a claimant to that.
    Mr. Tauzin. The Chair is now pleased to recognize the 
gentlelady who has a been a leader for a long time in the 
digital signature area, the gentlelady from California, Ms. 
Eshoo.
    Ms. Eshoo. Thank you very much, Mr. Chairman, for your kind 
words, as well. This is an important hearing today. I am 
delighted to not only be a part of it, but to welcome everyone 
that is here to testify. We are discussing legislation in which 
we and Congress are trying to prevent a revolutionary way of 
business from being really strangled by outdated laws. 
Specifically, this legislation updates the law by declaring 
that electronic signatures will be deemed valid.
    This legislation extends the principle of electronic 
authentication we established last Congress, with the passage 
of my legislation which was entitled, ``The Government 
Paperwork Elimination Act.'' That law required the Federal 
Government to accept electronic signatures. We are now seeking 
to extend that advancement to the commercial world. This is 
more than an appropriate step for the Congress to be taking.
    The Internet has really introduced many new buzzwords into 
our lexicon, our vocabulary, words like: ``browser,'' ``web 
page,'' and ``e-mail.'' The newest term, of course, is ``e-
commerce.'' The projections for the growth of electronic 
commerce and its effect on the global economy are indeed 
staggering. Last year, shoppers spent an estimated $9 billion 
buying products online. That is quite an eye-opener--$9 
billion. Business-to-business electronic commerce was nearly 
five times greater than in the consumer market, reaching $43 
billion just last year. By the year 2003, Forester Research 
predicts business-to-business electronic commerce will climb to 
$1.3 trillion. At the Federal level, we understand these sums. 
That would constitute nearly 10 percent of all U.S. business 
trade.
    Not only are the Fortune 500 companies taking advantage of 
this new way of doing and transacting business; but it offers 
an extraordinary opportunity to over 5 million small businesses 
in our country. Not long ago, small businesses, like the 
jewelry store that my father owned in Connecticut, were limited 
to doing business in the community that they were located in. 
Now with the web page and some creative marketing, a store in 
Connecticut may be repairing watches sent all the way from my 
district, Palo Alto, California. Or jewelry stores in 
Connecticut may be selling their products to department stores 
in California.
    The electronic commerce bill I introduced and the bill 
before us today are attempts to make sure our laws permit that 
businesses in Connecticut and stores in California do business 
by utilizing the latest form of electronic signatures. Both 
bills aim to ensure that those conducting business online and 
who chose to sign electronic contracts with electronic 
signatures will be able to do so with legal certainty.
    Many States have already passed legislation. The chairman 
of our committee just iterated that in his comments before us. 
They have passed legislation allowing for the acceptance. 
Unfortunately, this has resulted in a confusing maze of State 
laws that hamper interstate commerce. States have been working 
on developing a uniform model law to create one standard for 
acceptance of electronic signatures and contracts similar to 
what the Uniform Commercial Code accomplished for contract law. 
It is expected to be completed soon and offered to the 50 State 
legislatures for adoption.
    The bill I introduced and the one we are discussing today 
bridge the gap from now until the fiftieth State has passed a 
version of this model law by preempting the existing confusion 
of multiple State laws. In fact, identical bipartisan 
legislation of mine, introduced in the Senate, has already been 
endorsed by State governments and industry, alike.
    I am concerned in this particular area that the bill we are 
discussing today has somewhat of a heavy hand in implementing a 
2-year deadline on States, and would inappropriately give the 
Secretary of Commerce the ability to enjoin State laws. So I 
look forward to discussing with the panelists today their 
impression of the section in question: section 102 of H.R. 
1714.
    I want to salute the chairman of our committee for his 
broad and important interest in this area of electronic 
commerce. I look forward to working with him and Chairman 
Tauzin on improving this legislation so that it can, indeed, be 
adopted in the 106th Congress, at a time when it really is 
going to count the most. Thank you, Mr. Chairman. I yield back.
    Mr. Tauzin. I thank the gentlelady. Indeed, the committee 
is grateful to her for her pioneering work in this area and her 
commitment to continue this process. The Chair is now pleased 
to welcome and recognize the gentlelady, Ms. Cubin, for an 
opening statement.
    Mrs. Cubin. Thank you, Mr. Chairman. Thank you also for 
holding this important legislative hearing on H.R. 1714, the 
Electronic Signatures in Global and National Commerce Act, or 
E-SIGN.
    The commercial activity that takes place over the Internet 
is staggering. It is growing rapidly. We are witnessing an 
incredible expansion of business transactions over the network. 
I am personally amazed at how much commercial activity was 
conducted over this past Christmas season. You know, since I 
like to shop, it was even better.
    E-commerce moves us from making traditional face-to-face 
purchases, of which we have all grown accustomed, to blindly 
trusting a stranger at the other end of a computer screen to 
responsibly and honestly carry out the transactions that we 
want. H.R. 1714 will allow some semblance of trust when making 
these blind transactions over the Internet. It will not only 
bring some peace of mind to those of use who engage in e-
commerce; it will also promote growth and development of the 
electronic commerce industry.
    It is important the consumers be assured that there is 
legal validity of contract or transaction that is made over the 
Internet. I am a strong advocate for States' rights and 
developing an environment where States can establish policy 
that works best for each particular State. In the case of 
electronic signatures, there are currently over 40 States that 
have enacted some sort of legislation to recognize the validity 
of electronic signatures. The problem, however, is that no two 
States have an identical law. This makes it difficult to do 
business transactions across State lines; and at the same time 
ensure the legal validity of a contract where one State 
recognizes it as being binding because is it was signed 
electronically, rather than with a physical signature.
    H.R. 1714 would establish a uniform, national framework for 
the acceptance of electronic signatures and records. I support 
the intent of Chairman Bliley's legislation, and I commend his 
hard work in bringing this bill forward for discussion. I do 
look forward to hearing from today's witnesses. I yield back 
the balance of my time. Thank you, Mr. Chairman.
    Mr. Tauzin. The Chair thanks the gentlelady from Wyoming. 
The Chair would now recognize the gentleman from Tennessee, but 
the gentleman from Michigan, the ranking minority member has 
arrived. I wonder if the gentleman from Tennessee would allow 
me to recognize him out of turn.
    Mr. Gordon. Be happy to.
    Mr. Tauzin. The gentleman from Michigan, the ranking member 
of our full committee, Mr. Dingell, is recognized.
    Mr. Dingell. Mr. Chairman, I thank you. I thank the 
gentleman from Tennessee.
    Mr. Chairman, I commend you for your holding this hearing. 
This is an important matter. For centuries a legal contract was 
not considered valid unless it was impressed with the seal of 
the signer to prove its authenticity. More recently, China is 
just beginning to move away from the idea that everything has 
to be processed with a chop added to the document to establish 
the authenticity of the document.
    Just a few years ago, most of us would never have predicted 
that a written signature on a sales contract would be obsolete, 
but that situation appears to be coming upon us. As today's 
business is conducted increasingly over the Internet and 
through vast computer networks, the electronic signature is 
becoming just as crucial for the smooth operation of commercial 
law. In order for this new world of electronic commerce to take 
shape, grow, and prosper, we must make sure that electronic 
signatures are recognized as legal, secure, and binding. 
Emerging technologies demand that our policies keep pace.
    I congratulate Chairman Bliley for his efforts in this 
area. His legislation, H.R. 1714, would make great strides in 
furthering the use of electronic signatures in commerce. In 
these goals he has my strong support. There is, however, one 
area of this bill that causes me concern. While I agree that it 
is useful at times to have a uniform national policy, we must 
be careful not to impose our judgments on the States, 
particularly at time when they, too, are actively studying 
these same issues. In fact, I understand that a model State 
code is currently under development. Many State legislatures 
are likely to enact it in one form or another.
    I believe that we should not interfere with their ability 
to do so. We should enable the States and utilize the States 
for the purposes of achieving a uniform national policy; but 
allow the States to serve as a nursery for the development of 
good, useful and new ideas. The States should have enough time 
to fully evaluate this model code; then to write, debate, and 
pass their own legislation. Unfortunately H.R. 1714, as 
drafted, would limit to 2 years the period in which the States 
would not be threatened by Federal preemption. I am afraid this 
limitation may deny many States the opportunity to act on their 
on behalf.
    Again, I want to commend Chairman Bliley for his hard work. 
But I want to recognize and commend, as well, my good friend 
from California, Ms. Eshoo, for her strong commitment and 
leadership in this issue.
    I look forward to hearing from today's witnesses about how 
we can develop a strong policy on electronic commerce, while at 
the same time respecting the important role of the States. Mr. 
Chairman, I thank you for your kindness to me this morning.
    Mr. Tauzin. I thank the gentleman from Michigan. The Chair 
is pleased now to recognize the gentleman from Tennessee, Mr. 
Gordon, the author of the Digital Signature Act of 1999. Mr. 
Gordon.
    Mr. Gordon. Thank you, Mr. Chairman. My compliments for 
having this hearing. My compliments to Chairman Bliley for 
introducing this important bill. I want to be on record as 
being supportive today.
    I am going to poach a little time, if it is okay, to bring 
up another collateral bill that I think is complementary. I 
hope that we will have a chance to discuss it.
    I first became interested in electronic signatures 2 years 
ago, when the issue came up as part of the Computer Security 
Enhancement Act of 1997. At that time, I was concerned about 
how to encourage the widespread use of electronic signature 
technologies essential to ensure consumer trust in electronic 
commerce. In H.R. 1907, the computer enhancement bill that 
passed the House, I inserted the provision that established a 
national policy panel to address developing consensus on a 
national electronic signature infrastructure.
    Since then, with the leadership of my colleague and good 
friend, Ms. Eshoo, Congress passed the Government Paperwork 
Reduction Act, which requires Federal agencies to accommodate 
electronic transactions by the year 2002. There have also been 
a number of bills to deal with the legal status of electronic 
signatures and electronic records. My concern for the last 2 
years is how do we promote the widespread use of electronic 
signatures by electronic commerce beyond the legal structure?
    I introduced H.R. 1572, the Digital Signature Act of 1999, 
with Science Committee Chairman Sensenbrenner, and Ranking 
Member, George Brown. The bill directs NIST to develop 
technology-neutral standards on interoperability to encourage 
the effective use of electronic signature technology by the 
Federal agencies, and encourages agencies to use off-the-shelf 
commercial products and services. In addition, the bill 
establishes a national working group under the Department of 
Commerce to start working on other elements necessary to 
encourage the widespread, everyday use of electronic signature 
technology.
    If electronic authentication systems are deployed by 
agencies with little thought to interoperability, it will make 
it harder--not easier--to conduct business electronically with 
the Federal Government. We should ensure this is done in a 
coordinated, technologically neutral way that promotes 
interoperability and encourages agencies to commercial, off-
the=shelf products and services.
    In a recent ``Federal Technology Week'' article, Tony 
Trinkle, the Director of Electronic Services at the Social 
Security Administration, said the following, ``The bill moves 
the debate about standards in the right direction, especially 
at a time when agencies are trying to comply with the GPEA 
passed last year. The OMB guidelines do not provide much 
additional help for agencies trying to choose an electronic 
infrastructure in a growing market.''
    These same concerns are what prompted me to introduce the 
bill. Many of our international trading partners recognize the 
importance of electronic authentication for electronic 
commerce, and are already working on national electronic 
signature infrastructures to facilitate the widespread use of 
electronic signatures. My bill would address this critical 
challenge by establishing a national working group with 
industry, States, and other stakeholders to start to develop 
consensus for this country. This would not only encourage 
electronic commerce, but will also enhance our position in the 
world market.
    Again, Mr. Chairman, thank you for allowing me to bring in 
some collateral issues. I am supportive of this bill you have 
before us today.
    Mr. Tauzin. The Chair thanks the gentleman. Does any other 
member desire to make an opening statement? Mr. Sawyer? Mr. 
Deal?
    The Chair is pleased, now, to ask unanimous consent that 
all members be permitted time to introduce into the record 
written opening statements. Without objection, so ordered.
    [Additional statements submitted for the record folow:]
   Prepared Statement of Hon. Michael G. Oxley, a Representative in 
                    Congress from the State of Ohio
    The E-SIGN legislation we consider today represents an important 
advance of law in the electronic age. Since $32 billion changed hands 
in electronic commerce last year, it's time we act.
    We need a federal law to overlay the patchwork quilt of 40 state 
laws that now govern. E-commerce businesses need that legal certainty, 
and their customers do, as well.
    This legislation has a number of features that should commend it to 
this committee.
    It maintains the important concept of technology neutrality. It 
applies to all businesses, regardless of their product lines or sizes. 
It allows the parties to choose what kind of technology they want to 
use in making their electronic agreements.
    And, it has an international section so that we can promote our 
principles overseas as the global standard.
    All state contract law remains intact, with the only change being 
the federal overlay of the digital signature law. All anti-forgery and 
anti-fraud law would remain in place without change.
    This change will begin to save unnecessary costs and time wasted 
while paper signatures cross the country through the mail.
    E-commerce is booming, and this legislation will support that 
healthy growth by offering efficiency to businesses and convenience to 
customers.
    Thanks to Chairman Bliley for crafting this legislation. I look 
forward to conducting another hearing on this bill in the Finance and 
Hazardous Materials Subcommittee later this month.
                                 ______
                                 
   Prepared Statement of Hon. Thomas C. Sawyer, a Representative in 
                    Congress from the State of Ohio
    Thank you Mr. Chairman for holding this legislative hearing this 
morning on H.R. 1714, the Electronic Signatures in Global and National 
Commerce Act. I also want to thank our witnesses for coming to share 
their views on this legislation.
    A few years ago, a lot of attention was focused on the use of the 
Internet as a means for expression and communication. We have seen the 
effects it has on the way students, teachers and everyday citizens 
share and use information. Similarly, in a relatively short period of 
time, the Internet has grown in importance as a major tool for 
conducting commerce. It has profoundly reshaped the traditional ways in 
which business is conducted both domestically and internationally. 
Therefore, it should come as no surprise that there would be increasing 
demands for more innovative and efficient ways for completing 
electronic commerce transactions using digital signatures or some other 
personal authentication devices, that are legally binding, without ever 
leaving the confines of your computer room. We have become a society 
that looks for and that wants convenience.
    Today, our witnesses will testify on the merits of H.R. 1714. The 
intent of the legislation is to provide uniform national standards with 
respect to electronic signatures and their authentication because, for 
the most part, each state has their own set of guidelines in place. I 
would also like to thank Congresswoman Eshoo and Congressman Boucher 
for introducing legislation in this area as well. Although their bills 
differ from H.R. 1714, the underlying intent is the same. That is to 
prevent personal transactions that are completed by electronic 
signature mechanisms from being discriminated against because they were 
not done in a traditional way.
    H.R. 1714 contains two provisions that I hope to hear more about. 
The first is that states will have two years in which to develop 
alternative electronic signatures policies and procedures in order for 
state statutes to supersede provisions within H.R. 1714. My concern is 
that some state legislatures don't meet as often for legislative 
business, in some cases once a year. The second issue is that the 
legislation gives the Secretary of Commerce the ability to enjoin legal 
proceedings if the Secretary believes state statutes violate the spirit 
of this bill. I hope Mr. Pincus will be able to share his views on this 
particular topic.
    For the most part Mr. Chairman, I think this bill is a good piece 
of legislation. Clearly, this new era of telecommunications has 
affected the way we function as a society. We must be able to adapt to 
the new technologies being deployed to continue addressing the needs of 
our constituencies and to help further promote business.
    Again, thank you Mr. Chairman for holding this hearing. I look 
forward to our witnesses' testimony.

    Mr. Tauzin. The Chair also wants to advise our 
distinguished panel today that your written statements are 
automatically part of our record. As I introduce you today I 
would ask you to please summarize those statements in a 
conversational fashion with us, by hitting the high points of 
your testimony, so we can do it within the 5-minute rule; then 
have time to enter into a dialog with you on your comments.
    So we will begin by introducing this very distinguished 
panel, beginning with Mr. Andy Pincus, the General Counsel for 
the U.S. Department of Commerce. Mr. Pincus, you are now 
recognized to make your opening statement.

STATEMENTS OF ANDREW J. PINCUS, GENERAL COUNSEL, DEPARTMENT OF 
      COMMERCE; DONALD W. UPSON, SECRETARY OF TECHNOLOGY, 
   COMMONWEALTH OF VIRGINIA; JEFFREY SKOGEN, INTERNET MARKET 
 MANAGER, FORD MOTOR CREDIT COMPANY; DANIEL GREENWOOD, DEPUTY 
GENERAL COUNSEL, INFORMATION TECHNOLOGY DIVISION, COMMONWEALTH 
   OF MASSACHUSETTS; ARI ENGELBERG, PRESIDENT AND FOUNDER OF 
STAMPS.COM, INCORPORATED; JOHN E. SIEDLARZ, PRESIDENT AND CHIEF 
  EXECUTIVE OFFICER, IRISCAN, INCORPORATED, ON BEHALF OF THE 
 INTERNATIONAL BIOMETRIC INDUSTRY ASSOCIATION; AND CHRISTOPHER 
  T. CURTIS, ASSOCIATE GENERAL COUNSEL, CAPITAL ONE FINANCIAL 
                          CORPORATION

    Mr. Pincus. Thank you, Mr. Chairman. I am honored to appear 
before the subcommittee today.
    As you and the other members of the subcommittee have 
mentioned, the Internet is revolutionizing every aspect of 
business, not just in our country, but throughout the world. 
These developments require the attention of governments to 
ensure that we are doing everything that we can to enable the 
development of this important new medium of commerce.
    Chairman Bliley, Mr. Dingell, you, Mr. Chairman, and the 
other members of this committee clearly recognize this fact. 
You have taken a leadership role in ensuring that our country 
remains at the forefront in creating and exploiting the 
possibilities of electronic commerce. As other countries begin 
to recognize the potential of this new medium, we must continue 
to lead the way, not just in the private sector where we 
clearly are leading the way; but also in crafting the 
appropriate policy framework for these new developments. As we 
have in the past, the administration, and especially those of 
us at the Commerce Department, look forward to working with you 
on these important issues.
    H.R. 1714 addresses a subject that is at the very core of 
enabling electronic commerce. It is obvious that e-commerce 
will grow only if parties' transactions over the Internet are 
just as legally binding as their transactions in the physical 
world. Although everyone hopes they will not have to end up in 
court and hire a lawyer, they obviously want to be sure that 
there is a way to hold the other party to the contract to their 
obligations, in case something does go wrong.
    There are basically, as we see it, two issues in 
accomplishing this goal. First, eliminate statutory rules that 
require paper contracts. We obviously have to be sure that 
electronic agreements have the same legal status as paper 
contracts. The second question is when and how does an 
electronic contract become legally binding on the parties? In 
the physical world, the general rule is that the party has to 
manifest his or her intent to be bound. This can be done with a 
written signature; but it can also be done with an ``X,'' or by 
an exchange of telegrams or various other means by which a 
court will conclude that there was an intent by both parties to 
be bound by the contract.
    In the online environment, we advocate the same approach. 
There already are--and certainly, the way technology is 
evolving, there will be even more in the future--different ways 
to electronically sign a contract: everything from typing your 
name at the end of an e-mail and sending it, to using very 
sophisticated biometric or digital signature technology to 
evidence one's intent to be bound.
    The market is in a very, very early state of evolving. It 
is clear that companies and individuals are using different 
types of authentication technology for different kinds of 
transactions, as they do in the physical world. We think it is 
very, very important to let that evolution take place and let 
the market continue to examine and test various forms of 
signature technology. In fact, last week I was privileged to 
participate in a workshop held in California by the OECD and 
the private sector that spent 2 days hearing presentations from 
various sectors--the manufacturing sector, the financial 
sector--on the kinds of signature technologies and the 
different business models that are being used to provide a 
legal basis for agreement in those sectors.
    I think that we are in agreement on the basic principles 
that should govern the resolution of these two basic issues. 
First, as I said, eliminate barriers, paper contract 
requirements, and requirements of pen-and-ink signatures that 
are relics of an earlier age. Ensure technological neutrality, 
as several members of the subcommittee have said. It is very 
important that any legal rules that are adopted allow all these 
different technological approaches to have legal validity. 
Finally, be sure that parties are free to agree upon a means of 
authenticating their transactions; and if they do that, their 
subsequent agreements that are authenticated in that manner 
will be legally binding.
    What we are seeing right now in electronic commerce is 
those kinds of systems where parties--auto companies and their 
suppliers, for example--set up an electronic structure for 
engaging in electronic ordering and electronic contracting and 
agree to use a particular technology for authentication. In 
order to allow those kinds of--what has come now to be known 
as--``closed systems'' to develop, we have to be sure that they 
do create legally binding agreements.
    We also agree that, as H.R. 1714 provides, there must be 
considerable attention paid to promoting these principles 
internationally. One of the most promising aspects of the 
Internet is its ability to facilitate cross-border 
transactions. It used to be that to be an exporter you had to 
be a big company and have agents all around the world to hawk 
your products. Now, all you need is a website and you will have 
access to every market in the world. Of course, we need 
international rules that will ensure that cross-border 
contracts that are made as a result of that access actually are 
legally enforceable.
    As discussed in my written testimony, we have been working 
very hard on this issue. It is certainly useful to be sure that 
the entire U.S. Government, the administration, and the 
Congress, make clear to the rest of the world that these basic 
principles are important to us.
    Domestically, as several members of the subcommittee have 
mentioned, we also need rules that implement these principles. 
This area of contract law has long been the province of the 
States. Through the uniform law process, the National 
Conference of Commissioners on Uniform State Laws has developed 
the Uniform Electronic Transactions Act, as a number of the 
members of the subcommittee mentioned; and plan to submit that 
act for adoption to the States at the end of July.
    If we could wave a wand and have all 50 States enact that 
law, clearly the problem would be solved. We would have a very 
strong basis in domestic law for electronic commerce that meets 
all of our principles. There is concern, as you mentioned, Mr. 
Chairman, about the speed by which the States will adopt this. 
We don't think, right now, that there is evidence that the 
absence of uniform law is obstructing the growth of e-commerce. 
Although people have pointed to some differing laws, many of 
those laws only relate to government transactions. A lot of the 
States haven't spoken to the question of private commercial 
transactions. Certainly, at some point it may become true that 
the absence of a national standard is inhibiting domestic 
commerce. We need to create an environment that will encourage 
the States to move quickly to adopt the UETA. Our view is that 
the States should be given a chance to do that. If there is not 
quick action, it may then well be appropriate to establish some 
Federal rule to fill the gap until the States have adopted that 
measure.
    Thank you very much, Mr. Chairman, I look forward to 
answering the subcommittee's questions.
    [The prepared statement of Andrew J. Pincus follows:]
Prepared Statement of Andrew J. Pincus, General Counsel, Department of 
                                Commerce
    Mr. Chairman, members of the Subcommittee, thank you for inviting 
me to testify today about H.R. 1714, the ``Electronic Signatures in 
Global and National Commerce Act.'' As suggested in your letter 
inviting me to testify at this hearing, Mr. Chairman, my statement 
addresses the Administration's views concerning only titles I and II of 
the bill. Also, other agencies, including the Department of Justice, 
are reviewing this legislation and may have additional comments or 
concerns.
    It is now an undeniable fact that the Internet is revolutionizing 
every aspect of business, not just in our country, but throughout the 
entire world. Although the amount of commerce conducted over the 
Internet is small as a percentage of our total economy, it is growing 
at a very rapid rate. In early 1998, experts estimated that Internet 
retailing might reach $7 billion by the year 2000. In all likelihood, 
this level was exceeded last year, and forecasters now project on-line 
retail sales greater than $40 billion by 2002. Similarly, in last 
year's Emerging Digital Economy Report, we noted that forecasters were 
suggesting that electronic commerce might rise to $300 billion by 2002. 
More forecasters now consider the estimate to be low, with Forrester 
Research estimating that all electronic commerce (including business-
to-business activity) will rise to $1.3 trillion by 2003.
    The Framework for Global Electronic Commerce issued by President 
Clinton and Vice President Gore in July 1997 pointed out that ``[m]any 
businesses and consumers are still wary of conducting extensive 
business over the Internet because of the lack of a predictable legal 
environment governing transactions.'' President Clinton directed 
Secretary Daley to ``work with the private sector, State and local 
governments, and foreign governments to support the development, both 
domestically and internationally, of a uniform commercial legal 
framework that recognizes, facilitates, and enforces electronic 
transactions worldwide.'' The Framework identified several key 
principles to guide the drafting of these legal rules:

 parties should be free to order the contractual relationship 
        between themselves as they see fit;
 rules should be technology-neutral (i.e., the rules should 
        neither require nor assume a particular technology) and forward 
        looking (i.e., the rules should not hinder the use or 
        development of technology in the future);
 existing rules should be modified and new rules should be 
        adopted only as necessary or substantially desirable to support 
        the use of electronic technologies; and
 the process should involve the high-tech commercial sector as 
        well as businesses that have not yet moved online.
    The basic legal framework needed to enable electronic transactions 
in a commercial context consists of two essential elements. First is 
the elimination of statutory rules requiring paper contracts. There is 
a broad consensus that--with the exception of a few specialized 
agreements (wills and property deeds, for example)--parties' electronic 
agreements should have the same legal status as paper agreements.
    The second element involves when and how an electronic commercial 
contract becomes legally binding on, and therefore enforceable in court 
against, a person or entity that is a party to the contract. In the 
off-line world, the key question is whether a party has manifested its 
intent to be bound by the contract, which generally occurs through a 
written record, and often, affixing a written signature to that written 
record. A signature, however, often is not a legal requirement (for 
example, a binding contract may be formed through an exchange of 
telegrams). The issue is, how can we apply and use long-standing 
commercial principles in connection with transactions in cyberspace?
    As in the off-line world, there are a large variety of means by 
which a party may electronically evidence his agreement to the terms of 
a contract--what has come to be termed ``electronic authentication.'' 
He could type his name at the end of an e-mail message containing the 
terms of the agreement. He could end the message with a previously 
agreed-upon code-word. He could end the message with an electronic 
facsimile of his written signature created by using an electronic 
stylus. He could ``sign'' the message using some form of digital 
signature technology. He could also ``sign'' the message using some 
form of biometric technology. Moreover, the technology models are 
evolving rapidly, and we will see further new technologies in the 
future. The private sector today is using a variety of forms of 
electronic authentication.
    One other variable is important in understanding the legal 
standards governing electronic authentication. When electronic commerce 
was first beginning, some observers imagined a world in which everyone 
would have a single, universal digital identifier that would be used to 
authenticate each individual's electronic transactions. That would 
enable each individual to surf the Internet and enter into transactions 
with anyone he encountered, confident that the other party's digital 
identifier provided a legally valid means of identifying that party in 
the event the transaction ended up in court.
     Although the future may see creation of both a market and the 
infrastructure needed for such as system to authenticate transactions, 
it does not exist now and is not likely to exist in the near term (and 
probably not even in the medium term). Most of today's electronic 
transactions occur in what are termed ``closed systems''--systems in 
which parties that already are related in some manner conduct 
electronic transactions with each other pursuant to a system that the 
parties have agreed by contract or practice to utilize for that 
purpose. This model is reflected in sectors as diverse as manufacturing 
and banking and financial services where commercial parties establish 
the technological approach they will rely on, as well as the rules by 
which they will operate, assign risk and settle disputes. One example 
is the effort by the three major U.S. auto makers to develop on a 
unified basis a global system to tie product development together with 
more than 15,000 suppliers operating around the world. This Automotive 
Exchange Network will begin operating this fall. In a more traditional 
vein, the international network by which credit transactions are 
managed is predicated in large part on a series of agreements between 
banks and retailers, and by users. And, as a further example, the 
consortia of financial institutions that established Identrus enabled 
companies to conduct worldwide trusted business-to-business electronic 
commerce with any member of their network.
    With this background, I would like to describe briefly what we in 
the Commerce Department have been doing over the last two years to 
carry out the President's directive to support creation of an 
appropriate legal framework for electronic commerce.
    State law has long supplied the basic standards governing private 
commercial transactions within the United States. The National 
Conference of Commissioners of Uniform State Law (NCCUSL) has been 
working since early 1997 to adapt these legal standards to cyberspace 
by drafting a new model ``Uniform Electronic Transactions Act'' (UETA) 
to establish a predictable, minimalist framework to provide legal 
recognition to both electronic records and electronic signatures. The 
NCCUSL process involves broad consultation with legal experts and other 
interested parties, and permits observers to attend and participate in 
meetings of the drafting committees. As this Committee knows, NCCUSL's 
primary task is to determine which areas of the law would benefit from 
uniformity, and to write and recommend uniform laws to State 
legislatures for enactment. NCCUSL has written more than 200 uniform 
laws, including the Uniform Partnership Act, the Uniform Trade Secrets 
Act, the Uniform Probate Code, the Uniform Limited Partnership Act, and 
the well-known Uniform Commercial Code, a joint project with the 
American Law Institute. I understand that the UETA will receive final 
consideration at the NCCUSL Annual Meeting to be held at the end of 
July. If, as expected, the UETA is finally approved, it will be 
submitted to the States for adoption.
    In our view, taking into account the principles that guide the 
Administration's policy in this area, the current UETA draft will 
provide an excellent domestic legal framework for electronic 
transactions, as well as a strong model for the rest of the world. It 
is enabling, not prescriptive, and also technologically neutral. We 
hope that this measure will be adopted quickly by the States.
    The Government Paperwork Elimination Act passed by Congress last 
year addresses the appropriate balance to be struck by the Federal 
Government in selecting technologies for use in its communications with 
non-government entities and persons.
    Let me turn to the international arena, where the situation is more 
complicated, and where our efforts focus on ensuring that our 
principles form the basis for enabling electronic commerce worldwide.
    On the one hand, there is a broad consensus, reflected in the 
UNCITRAL Model Law on Electronic Commerce adopted in 1996, that 
communication of legally significant information in electronic form may 
be hindered by legal obstacles to the use of such data, or by 
uncertainty as to their legal effect or validity. The Model Law offers 
a set of internationally acceptable rules as to how such legal 
obstacles may be removed and a more secure legal environment may be 
created to facilitate electronic commerce across national borders. We 
are pleased that the U.S. efforts in the UETA are built on this 
international consensus.
    On the other hand, with respect to electronic authentication, at 
least two different legal models are developing internationally. The 
first is the model represented by the UETA and the UNCITRAL Model Law, 
which eliminates barriers to electronic agreements and electronic 
signatures but does not grant special legal status to any particular 
type of authentication.
    The second model provides for a greater degree of government 
regulation of authentication services. It allows a government to create 
a preference for one or more forms of electronic authentication by 
establishing specific technical requirements for electronic signatures 
and often providing a presumption that electronic contracts signed 
using that methodology are legally binding. The European Union's 
Electronic Signatures Directive, scheduled to be considered by the 
Parliament this fall, follows this approach.
    Since July 1997, we have been consulting with countries to 
encourage their adoption of an approach to electronic authentication 
that will assure parties that their transactions will be recognized and 
enforced worldwide. Under this approach, countries would: (1) eliminate 
paper-based legal barriers to electronic transactions by implementing 
the relevant provisions of the 1996 UNCITRAL Model Law on Electronic 
Commerce; (2) reaffirm the rights of parties to determine for 
themselves the appropriate technological means of authenticating their 
transactions; (3) ensure any party the opportunity to prove in court 
that a particular authentication technique is sufficient to create a 
legally binding agreement; and (4) state that governments should treat 
technologies and providers of authentication services from other 
countries in a non-discriminatory manner.
    We have been successful in encouraging the adoption of this 
approach in a variety of multilateral and bilateral contexts. In 
October 1998, the OECD Ministers approved a Declaration on 
Authentication for Electronic Commerce affirming these principles. In 
addition, we negotiated joint statements affirming these principles 
with several important trading partners, including France, Japan, 
Korea, Ireland, Australia and the United Kingdom. Further, we have 
asked UNCITRAL to consider a binding international convention on 
electronic transactions that would embody these principles. (A copy of 
this proposal is attached.)
    Let me now turn to the provisions of H.R. 1714. Subsection (a) of 
Title II requires the Secretary of Commerce, acting through the 
Assistant Secretary for Communications and Information, within 90 days 
of enactment, to complete a comprehensive inquiry to identify, among 
other things, any domestic or foreign impediments to commerce in 
electronic signature products and sources. This study would be updated 
annually. Although such a study would provide useful information, we of 
course do not have sufficient resources to examine for ourselves the 
legal rules of every State and every country. If a study were 
authorized, therefore, we would base our report upon information 
obtained as a result of outreach to the private sector.
    Title II also requires the Secretary of Commerce to promote 
internationally the acceptance and use of electronic signatures in 
accordance with principles spelled out in section 201(b)(2). As I have 
discussed, we believe that the global nature of electronic commerce 
mandates close consultation with other countries to ensure that the 
legal standards for the formation of electronic contracts foster, 
rather than obstruct, cross-border electronic transactions. We plan to 
continue those efforts.
    In general, the principles set forth in section 201(b)(2) are 
consistent with those that we have espoused with respect to these 
issues. We do have a few suggestions regarding the particular language 
of this section.
    First, we are concerned that section 201(b)(2)(C), dealing with the 
autonomy of parties to electronic transactions, might be read to allow 
government regulation of such transactions, because the modifier 
``reasonable'' could be read to permit government second-guessing of 
the parties' choice of authentication method. In addition, the 
paragraph does not clearly state that agreed-upon authentication 
measures must be given legal effect.
    Second, because the fourth principle (section 201(b)(2)(D)) applies 
only where there is an agreement among the parties, it does not 
encompass the general principle that, even in the absence of an 
agreement, electronic records and electronic signatures should as a 
general matter have the same legal status as their paper equivalents.
    Third, these principles apply with respect to the legal framework 
established by governments for private commercial transactions. But 
governments will also be making decisions concerning authentication 
technology as market participants--for example in selecting the 
particular technology to use in entering into government contracts 
electronically or in providing various types of government benefits to 
citizens. In that situation, governments will not be able to observe 
the neutrality principle set forth in section 201(b)(2)(B), because 
they will have to choose among competing authentication providers.
    We would be happy to work with the Subcommittee on these and other 
drafting issues. Also, because the Commerce Department's current 
efforts with respect to these issues are led by the General Counsel's 
office, with support from several bureaus within the Department in 
addition to the National Telecommunications and Information 
Administration (NTIA), we request that any responsibilities conferred 
by the bill upon this agency be vested in the Secretary alone so that 
he may organize the Department's implementation of the law in the most 
effective and efficient manner possible.
    Title I of the bill focuses on the domestic legal standards 
governing electronic contracts. It appears to extend to both government 
transactions (both Federal and State) and agreements between private 
entities. For such agreements, section 101 requires that agreements and 
signatures in electronic form be given the same legal effect as written 
agreements and written signatures. It would also enable the parties to 
establish ``reasonable requirements'' regarding the types of electronic 
records and electronic signatures acceptable to them.
    With respect to private commercial agreements, as I have discussed, 
State law has long supplied the governing legal standards. Through the 
NCCUSL process, our commercial law has been made consistent nationwide 
and is the envy of the world. We believe that strong evidence of a 
problem should be required before casting aside this tried and true 
method for establishing the legal standards for commercial 
transactions.
    We do not believe that the case has been made for overriding this 
State law process. Some have expressed concern about the current lack 
of uniformity among the States on these issues, but they have not been 
able to point to any real-world problems in this specific area that are 
currently obstructing the development of electronic commerce. Rather, 
the concern appears to be that at some point in the future, the absence 
of uniform legal standards for electronic authentication will create a 
problem.
    The issuance of the UETA at the end of July responds directly to 
this concern. The States will then have the basis to adopt uniform 
rules. It is true that the State adoption process has in the past taken 
a number of years, but there is considerable eagerness among the States 
to foster the development of electronic commerce. Accordingly, there is 
reason to believe that adoption of this measure may proceed at a 
quicker-than-usual pace.
    Of course, if the States do not act in a timely manner, problems 
could well develop and then it would become necessary to use Federal 
law to fill the gap created by less than unanimous enactment of the 
UETA. But I believe it is appropriate to work with the NCCUSL process 
to urge the States to act promptly and responsibly in this area, and to 
give the States time to act--before creating a new regime of Federal 
law.
    Caution is also appropriate because enacting specific Federal rules 
may be a cure that is worse than the disease. As the UETA is adopted by 
the States, there may be disputes about the extent to which it 
satisfies the Federal standard and the extent to which State law rules 
left undisturbed by the UETA are nonetheless invalid under section 101 
or saved by section 102(a). Although H.R. 1714 does not create a 
private right of action, it presumably would permit any party in an 
action to enforce (or invalidate) an electronic contract to argue that 
section 101 overrides (or saves) the State law rules invoked by the 
other party. Rather than creating uniformity and certainty, therefore, 
Federal standards might compound the uncertainty over the governing 
legal rules.
    We also have concerns about section 102(c), which would empower and 
require the Secretary of Commerce to bring actions to enjoin the 
enforcement of State statutes, regulations or rules prohibited by this 
Act. As a practical matter, the simple availability of this injunctive 
authority could undermine confidence in the validity of States' laws 
and regulations affecting electronic commerce, and significant use of 
this authority would cause additional uncertainty and delay in 
clarifying both State and federal laws in this area.
    Let me also mention some specific concerns about the language of 
Title I.
    First, section 101(b), which is designed to enable contractual 
systems, is limited to ``reasonable'' requirements established by the 
parties and therefore could lead to judicial second-guessing of the 
validity of an authentication method chosen by the parties. The 
provision also does not make clear that the type of electronic 
signature chosen by the parties should be accorded legal effect (as 
evidencing the intent of the parties to bind themselves to the terms of 
the contract).
    Second, although section 102(a) allows the States to supersede the 
Federal rules, paragraph (a)(3) places a two-year time limit on their 
authority to do so. Given the rapidly evolving nature of the Internet, 
and of technology in general, we do not believe it would be appropriate 
to limit the States' power in this manner.
    Third, section 102(b)(4) bars the States from superseding section 
101 in a manner that ``is otherwise inconsistent with the provisions of 
section 101.'' Because any State measure that is preempted by section 
101 would be inconsistent with that provision, this paragraph of 
section 102(b) could be read to eliminate all State authority to 
supersede section 101.
    Fourth, H.R. 1714's definition of ``electronic signature'' (section 
104(2)) combines two separate concepts--the identity of a party to the 
transaction and that party's intention to be bound to the agreement, on 
one hand, and the integrity of the document on the other hand. The UETA 
separates these concepts (see the separate definitions of ``electronic 
signature'' and ``security procedure''). This separation is important 
because, for example, some methods of ``signing'' do not, by 
themselves, ensure the integrity of the document (but may rely on other 
approaches for this function), and those technological methods would 
appear not to receive protection under the bill's definition, 
regardless of the intent of the parties.
    Fifth, we are concerned about the effect of Title I on the ability 
of the Federal Government, and of State governments, to choose 
particular authentication methods for use in government contracting or 
in distributing government benefits. In making those decisions, there 
obviously will be rules, and perhaps statutes as well, that require the 
use of certain types of electronic authentication in order for the 
agreement to be binding. This problem could be solved by focusing Title 
I on government steps to enable private transactions and excluding 
government transactions from its scope.
    Thank you Mr. Chairman. I would now be happy to answer any 
questions you may have.
       DRAFT INTERNATIONAL CONVENTION ON ELECTRONIC TRANSACTIONS
CHAPTER I:
    Proposed Goal of Chapter I: To set forth any necessary definitions. 
To be developed after Chapter II and III.
CHAPTER II:
    Proposed Goal of Chapter II: In order to implement the legal rules 
articulated in the second section, as set forth below, it may be 
necessary for states to review their existing and proposed legislation 
to assure that it is appropriately tailored to electronic transactions. 
In order to facilitate such review and adoption on a harmonized basis, 
the following general obligations are proposed as the framework states 
should use to support electronic transactions on a global basis.
POSSIBLE LANGUAGE:
II. General Obligations
    To encourage the free flow of electronic transactions and to avoid 
the creation of barriers to these transactions, subject to overriding 
public policy, the Contracting States hereby agree as follows:

 Modification of Existing Rules and Minimal Adoption of New 
        Rules--States shall make only those changes to their laws that 
        are necessary to support the use of electronic transactions. 
        Existing rules should be modified and new rules adopted only in 
        cooperation with the private sector and where necessary.
    Contracting States recognize that parties to a transaction may 
determine the method of authentication for that transaction. 
Recognizing that parties may make this determination and recognizing 
that this determination should have the legal effect intended by the 
parties, the Contracting States agree as follows:

 Party Autonomy--Parties to a transaction should be permitted, 
        to the maximum extent possible, to determine by contract the 
        appropriate technological and business methods of 
        authentication with the assurance that those means will be 
        recognized as legally binding, whether or not those 
        technological and business means are specifically addressed by 
        legislation or regulation. The terms of any agreement 
        (including closed systems) between parties governing their 
        transaction should be enforced without regard to any statutory 
        framework governing electronic authentication.
    Further, Contracting States recognize that cryptography is not the 
sole means of proving the source or existence of a message. Recognizing 
that parties may establish the source or existence of a message in 
different ways, Contracting States agree as follows:

 All Authentication Technologies and Business Methods May Be 
        Evidence of Authenticity--Where the law requires evidence of 
        the authenticity or integrity of a message, a party shall be 
        permitted to use any authentication technology or business 
        method, whether or not such authentication technology or 
        business method has been specifically addressed by legislation 
        or regulation.
    Electronic Authentication methods should not be ``locked in'' 
through legislative fiat but rather should allow for changing 
applications for existing and future technologies. Therefore, the 
Contracting States agree that:

 Technology Neutrality--Any rules should neither require nor 
        hinder the use or development of authentication technologies. 
        States should anticipate that authentication methods will 
        change over time and avoid legislation that might preclude 
        innovation or new applications. States should avoid laws that 
        intentionally or unintentionally drive the private sector to 
        adopt only one particular technology for electronic 
        authentication to the exclusion of other viable authentication 
        methods.
    Authentication technologies may be implemented and used by 
businesses in ways that were not originally envisaged when legislation 
was passed. Recognizing that technology may be used for purposes such 
as establishing age or authority, which may go beyond verifying 
identity and achieving non-repudiation, and recognizing that business 
models for authentication may not use third parties, the Contracting 
States agree that:

 Implementation Neutrality--Any rules should neither require 
        nor hinder the use or development of new or innovative business 
        applications or implementation models.
    To remove barriers to the free flow of electronic transactions and 
to avoid the creation of new barriers, subject to overriding public 
policy, the Contracting States agree that:

 Non-Discrimination--States shall accord to providers and users 
        of authentication technologies and business methods of another 
        state treatment no less favorable than it accords in like 
        circumstances to its own providers and users of authentication 
        technologies and business methods.
 Avoid Unnecessary Barriers to Trade--States should enhance the 
        flow of cross-border electronic transactions and not create 
        unnecessary barriers to trade.
CHAPTER III:
    Proposed Goal of Chapter III: To recognize the acceptability of 
electronic signatures for legal and commercial purposes, define the 
characteristics of a valid electronic writing and an original document, 
support the admission of electronic evidence and the electronic 
retention of records. These provisions would be drawn from the enabling 
provisions of the UNCITRAL Model Law on Electronic Commerce.
POSSIBLE LANGUAGE:
III. Specific Obligations
    Contracting States recognize the work of the United Nations 
Commission on International Trade Law and the importance of 
establishing its governing provisions on a uniform, international 
basis. Contracting States also recognize information is increasingly 
generated, stored, sent, received or otherwise processed 
electronically, rather than in a paper based form. Recognizing these 
important business practices, the Contracting States hereby agree on 
the following:

 Legal Recognition of Data Messages
  Information shall not be denied legal effect, validity or 
    enforceability solely on the grounds that it is in the form of a 
    data message. [Source Model Law on Electronic Commerce Article 5]
 Formation and Validity of Contracts
  (1) In the context of contract formation, unless otherwise agreed by 
        the parties, an offer and the acceptance of an offer may be 
        expressed by means of data messages. Where a data message is 
        used in the formation of a contract, that contract shall not be 
        denied validity or enforceability on the sole ground that a 
        data message was used for that purpose.
  (2) The provisions of this article do not apply to the following . . 
        . [limited exception]. [Source Model Law on Electronic Commerce 
        Article 11]
    Contracting States recognize that the formal requirements that 
currently exist under many legal regimes may constitute insurmountable 
barriers to the conduct of electronic transactions on an international 
basis. As a result, there is a paramount need for assuring that 
electronically transmitted messages are allowed to satisfy these formal 
requirements subject to overriding public policy. Therefore, the 
Contracting States agree as follows:

 Writing
  (1) Where the law requires information to be in writing, that 
        requirement is met by a data message if the information 
        contained therein is accessible so as to be usable for 
        subsequent reference.
  (2) Paragraph (1) applies whether the requirement therein is in the 
        form of an obligation or whether the law simply provides 
        consequences for the information not being in writing.
  (3) The provisions of this article do not apply to the following . . 
        . [limited exception]. [Source: Model Law on Electronic 
        Commerce Article 6]
 Signature
  (1) Where the law requires a signature of a person, that requirement 
        is met in relation to a data message if:
    (a) a method is used to identify that person and to indicate that 
            person's approval of the information contained in the data 
            message; and
    (b) that method is as reliable as was appropriate for the purpose 
            for which the data message was generated or communicated, 
            in the light of all the circumstances, including any 
            relevant agreement.
  (2) Paragraph (1) applies whether the requirement therein is in the 
        form of an obligation or whether the law simply provides 
        consequences for the absence of a signature.
  (3) The provisions of this article do not apply to the following . . 
        . [limited exception]. [Source: Model Law on Electronic 
        Commerce Article 7]
 Original
  (1) Where the law requires information to be presented or retained in 
        its original form, that requirement is met by a data message 
        if:
    (a) there exists a reliable assurance as to the integrity of the 
            information from the time when it was first generated in 
            its final form, as a data message or otherwise; and
    (b) where it is required that information be presented, that 
            information is capable of being displayed to the person to 
            whom it is to be presented.
  (2) Paragraph (1) applies whether the requirement therein is in the 
        form of an obligation or whether the law simply provides 
        consequences for the information not being in writing.
  (3) For the purposes of subparagraph (a) of paragraph (1):
    (a) the criteria for assessing integrity shall be whether the 
            information has remained complete and unaltered, apart from 
            the addition of any endorsement and any change which arises 
            in the normal course of communication, storage and display; 
            and
    (b) the standard of reliability required shall be assessed in the 
            light of the purpose for which the information was 
            generated and in the light of all the relevant 
            circumstances.
  (4) The provisions of this article do not apply to the following . . 
        . [limited exception]. [Source: Model Law on Electronic 
        Commerce Article 8]
    The Contracting States recognize that the inability of parties to 
prove the existence of electronic transactions in the event of dispute 
and formal judicial proceedings may itself be an inhibition to the 
conduct of electronic transactions. To assure the legal equivalence of 
electronic documents with paper based ones, the Contracting States 
agree that:
 Admissibility and Evidential Weight of Data Messages
  (1) In any legal proceedings, nothing in the application of the rules 
        of evidence shall apply so as to deny the admissibility of a 
        data message in evidence:
    (a) on the sole ground that it is a data message; or,
    (b) if it is the best evidence that the person adducing it could 
            reasonably be expected to obtain, on the grounds that it is 
            not in its original form.
  (2) Information in the form of a data message shall be given due 
        evidential weight. In assessing the evidential weight of a data 
        message, regard shall be had to the reliability of the manner 
        in which the data message was generated, stored or 
        communicated, to the reliability of the manner in which the 
        integrity of the information was maintained, to the manner in 
        which its originator was identified, and to any other relevant 
        factor. [Source: Model Law on Electronic Commerce Article 9]
    Contracting States further recognize that requirements for record 
retention, which exist both as a matter of law and business practice, 
may prove to be obstacles for electronic transactions. The Contracting 
States agree, therefore, that:

 Retention of Data Messages
  (1) Where the law requires that certain documents, records or 
        information be retained, that requirement is met by retaining 
        data messages, provided that the following conditions are 
        satisfied:
    (a) the information contained therein is accessible so as to be 
            usable for subsequent reference; and
    (b) the data message is retained in the format in which it was 
            generated, sent or received, or in a format which can be 
            demonstrated to represent accurately the information 
            generated, sent or received; and
    (c) such information, if any, is retained as enables the 
            identification of the origin and destination of a data 
            message and the date and time when it was sent or received.
  (2) An obligation to retain documents, records or information in 
        accordance with paragraph (1) does not extend to any 
        information the sole purpose of which is to enable the message 
        to be sent or received.
  (3) A person may satisfy these requirement referred to in paragraph 
        (1) by using the services of any other person, provided that 
        the conditions in subparagraphs (a), (b) and (c) of paragraph 1 
        are met. [Source: Model Law on Electronic Commerce Article 10]

    Mr. Tauzin. Thank you very much, Mr. Pincus. I was just 
thinking about how a handshake counts in some States, as well. 
You go to Texas; that is as good as a signature.
    The Chair is now pleased to welcome the Hon. Donald Upson, 
the Secretary of Technology for the Commonwealth of Virginia, 
who has already been welcomed by the chairman of the full 
committee.
    Secretary Upson, I might note that it would be good if you 
had a conversation with the Secretary of Transportation. I 
understand you had a little difficulty getting over here today. 
Many of us do every morning, trying to get to work. We 
appreciate and welcome your testimony.

                  STATEMENT OF DONALD W. UPSON

    Mr. Upson. Thank you, Mr. Chairman. I apologize for being 
late. I was stuck on 66. I am glad I am not the Secretary of 
Transportation.
    Mr. Chairman, Chairman Bliley, and members of the 
committee, it is a special privilege to be here on behalf of 
Governor Gilmore and the Commonwealth of Virginia, and for me 
personally, to talk about this important legislation for two 
reasons.
    First, you may not know I spent 13 years up here, most of 
which as Congressman Horton's staff director on government 
operations. Second, I have often wondered what it would be like 
to sit on this side of the table. Recalling some of your 
investigations, I have often preferred not to. It is a special 
privilege to be before this committee because I believe--and I 
know Governor Gilmore believes--that in terms of the technology 
environment for the United States, this committee has done far 
more than the general population appreciates in terms of 
setting that environment: the Telecommunications Act, the 
Internet Tax Freedom Act, and now digital signatures.
    I would like to suggest that from Virginia's point of view, 
the action that you are taking in considering this legislation 
focuses on digital signature. But is more important than that; 
it is about commerce. It is about the United States and the 
competitive advantage we have in an electronic world. The 
legislation, in our point of view, reflects the U.S. global 
framework on Internet policy, which we endorse and include as 
part of our comprehensive Internet proposal. We focused upon 
the framework established at the Federal level, which generally 
suggested that the private sector should continue to lead. We 
should be very careful about imposing standards and 
restrictions on a medium that has just grown incredibly fast on 
its own and developed its own uniformity through market forces.
    I am here to speak in support of H.R. 1714. First, it keeps 
the United States moving forward in terms of our competitive 
advantage by stating that where signatures are required in 
legally binding instruments, electronic signatures will satisfy 
that requirement. On the other hand, you give the contracting 
parties and the States the flexibility to enact standards 
amongst themselves that satisfy that basic fundamental 
requirement. This is important, we believe, for a significant 
reason; and that is if we impose technology standards, all of 
us know how quickly that technology changes. There are 
different levels of authentication required for different kinds 
of transactions. So I applaud the flexibility provided.
    In Virginia, I would like to say these same principles 
guided the formulation of our current law on electronic 
signatures. Our law, simply stated, establishes the following; 
first, where any Virginia law requires a signature, or provides 
for certain consequences in the absence of a signature, that 
law is satisfied by an electronic signature. Second, electronic 
signatures must meet certain functional requirements. They must 
be unique to the signer; capable of verification; under the 
signer's sole control; linked to the record in such a manner 
that it can be determined that any data contained in the record 
was changed subsequent to the electronic signature being 
affixed; and created by a method appropriately reliable for the 
purposes for which the electronic signature was used.
    We in the Commonwealth believe that our approach to 
electronic signature legislation allows the private sector to 
lead; avoids undue restrictions on electronic commerce; and 
establishes a simple, yet enforceable set of functional 
requirements. That is what I think the legislation that you are 
considering before this committee does. I think it complements 
what is the beauty of this medium and the electronic 
environment. It is doing fine on its own; but the government, 
being an enabler--and not an imposer or an impeder--is 
important. I think it is reflective of the work in this 
legislation.
    [The prepared statement of Donald W. Upson follows:]
 Prepared Statement of Hon. Donald W. Upson, Secretary of Technology, 
                        Commonwealth of Virginia
    Mr. Chairman and members of the Subcommittee, good morning. On 
behalf of Governor Gilmore and the Commonwealth of Virginia, I extend 
my appreciation for the opportunity to address members of Congress 
regarding the important topic of electronic commerce and, more 
specifically, the issue of electronic signatures.
    Electronic commerce over the Internet is a centerpiece of the 
global information revolution. Virginia is the Internet capital of the 
world. In addition to being the birthplace of the Internet, almost half 
of the Internet backbone is in Virginia and nearly half of all online 
service subscribers are served by companies located in the 
Commonwealth. Accordingly, Virginia has taken the lead in establishing 
model policies that empower her citizens to reap the full benefit of 
technological opportunities like electronic commerce.
    Because citizens are going on-line at an ever-increasing rate, 
electronic commerce is at once global, national and local in both scope 
and impact. Sound policy, at both the national and local level is 
essential for both the Internet and on-line commerce to reach their 
full potential. It is our hope that intelligent local policy will flow 
smoothly into sound federal policy, which in turn will cascade into a 
sensible global policy. However, inappropriate policy can be 
detrimental. I think this point is best illustrated by a quote from 
Governor Gilmore, who said, ``Government can act in ways that will 
enhance this new technology, speed its development and growth, and 
encourage the fulfillment of its potential to improve our lives. Just 
as surely, it can erect roadblocks to progress that result in new ideas 
being left to atrophy and the stream of progress slowing to a stagnant 
pool.''
    We believe that the Commonwealth of Virginia is crafting the right 
local policy for Internet based commerce, a model of government 
facilitation of responsible industry and citizenry empowerment. Unlike 
other mediums, the Internet allows for an unprecedented amount of 
choice and control over use of the medium. Technology and market-based 
solutions can and should be used to address many of the concerns that 
have been brought on by technology and the market itself.
    These solutions should be encouraged because they have the 
potential to exceed the effectiveness of traditional legal approaches. 
They are fueled by competition for ``consumer satisfaction,'' which is 
at the heart of every business plan. As the profit motive drives 
companies to compete to provide better customer experience, it also 
sets off a race for better protections than traditional regulations 
would be likely to achieve. Whenever such traditional regulatory 
schemes are unavoidable, however, (i.e. where technology and market-
based programs have been ineffective) we in the Commonwealth believe 
they should focus only on the responsible empowerment of citizens and 
industry.
    Once again, our approach to electronic commerce in Virginia, to 
include electronic signatures, has not been the traditional ``top-
down'' model that provides solutions dictated by government to 
industry, but more of a partnership with all the individuals and groups 
that have an interest in the creation of technology policy. Governor 
Gilmore believes in a ``stakeholder'' driven process that includes 
industry representatives as equal partners with government to address 
the complex issues that surround the Internet and electronic commerce. 
Our approach is based upon the inventive principles detailed in the 
1997 U.S. ``Framework for Global Electronic Commerce.'' As you know, 
this framework has been widely supported by industry.
    It was with these five principles in mind that Virginia recently 
passed the most comprehensive Internet legislation in the country. In 
December 1998, Governor Gilmore's Commission on Information Technology 
issued a series of recommendations contained in a report entitled: 
``Toward A Comprehensive Internet Policy for the Commonwealth of 
Virginia.'' That report focussed on the expanding use of the Internet 
and electronic commerce in Virginia. The 1999 General Assembly adopted 
several pieces of legislation that, taken together, embody the 
Commission's recommendations for a Virginia Internet Policy Act.
    These principles, which reflect the need for global cooperation 
spurred by technological and market-driven solutions, are as follows:

 1. The private sector should lead. Though government played a 
        role in financing the initial development of the Internet, its 
        expansion has been driven primarily by the private sector.
 2. Governments should avoid undue restrictions on electronic 
        commerce. Parties should be able to enter into legitimate 
        agreements to buy and sell products and services across the 
        Internet with minimal government involvement or intervention.
 3. Where governmental involvement is needed, its aim should be 
        to support and enforce a predictable, minimalist, consistent 
        and simple legal environment for commerce. In some areas, 
        government agreements may prove necessary to facilitate 
        electronic commerce and protect consumers. In these cases, 
        governments should establish a predictable and simple legal 
        environment based on a decentralized, contractual model of law 
        rather than one based on top-down regulation.
 4. Governments should recognize the unique qualities of the 
        Internet (and commerce over the Internet). The genius and 
        explosive success of the Internet can be attributed in part to 
        its decentralized nature and to its tradition of bottom-up 
        governance. Existing laws and regulations that may hinder 
        electronic commerce should be reviewed and revised or 
        eliminated to reflect the needs of the new electronic age. 
        Finally, and maybe most importantly,
 5. Electronic Commerce over the Internet should be facilitated 
        on a global basis. The Internet is emerging as a global 
        marketplace. The legal framework supporting commercial 
        transactions on the Internet should be governed by consistent 
        principles across state, national, and international borders 
        that lead to predictable results regardless of the jurisdiction 
        in which a particular buyer or seller resides.
    Each one of these principles is reflected in the Virginia approach 
and the separate pieces of legislation and law that comprise our 
Internet Policy Act. For example, our encryption ``resolution'' law 
states that there should be no interference from government regarding 
the level of encryption businesses wish to employ to protect their 
property. Moreover, our laws regarding ``spam'' and ``content'' do not 
restrict any of our freedoms with undue government interference and 
regulation, but severely punish those individuals and groups for 
abusing the rights and privileges guaranteed by this medium and 
protects the growth of this form of commerce.
    These same principles also guided the formulation of the current 
Virginia law on electronic signatures. Simply stated, that law 
establishes the following:

1. Where any Virginia law requires a signature, or provides for certain 
        consequences in the absence of a signature, that law is 
        satisfied by an electronic signature.
2. Electronic signatures must meet certain functional requirements. 
        They must be: (a) unique to the signer; (b) capable of 
        verification; (c) under the signer's sole control; (d) linked 
        to the record in such a manner that it can be determined if any 
        data contained in the record was changed subsequent to the 
        electronic signature being affixed to the record; and, (e) 
        created by a method appropriately reliable for the purpose for 
        which the electronic signature was used.
    We in the Commonwealth believe that our approach to electronic 
signature legislation: allows the private sector to lead; avoids undue 
restrictions on electronic commerce; and, establishes a simple yet 
enforceable set of functional requirements. Our approach does not 
discriminate in favor of or against any particular technology or 
company.
    It is also clear that if electronic signatures are to become a 
convenient and widely used part of everyday business, for either the 
private sector or for government, we must simplify the means of 
authenticating digital certificates. If there are dozens of sources 
with which you must register your private key or must go to in order to 
authenticate a key provided to you, the process will be too cumbersome 
for many to participate in, and artificially expensive for the rest.
    Virginia is moving to simplify the process for state government 
purposes and is headed in the direction of a central authentication 
source. While we are doing this, we must also look at what the proper 
role of (state) government is in facilitating or even providing a 
central source for authentication of certificates used in commerce and 
legal proceedings in Virginia.
    Governor Gilmore plans to issue an executive order requiring my 
office, with the assistance of several other state agencies, to review 
available alternatives and recommend a plan to facilitate the use and 
authentication of electronic signatures by both the public and private 
sectors in the Commonwealth. We hope to achieve several results once 
our plan is fully implemented, including more efficient and expeditious 
transactions between government, individuals and those businesses that 
contract with government. We also hope to raise consumer confidence 
through the use of electronic signatures in government transactions, 
such as renewing your driver's license on-line. Once the citizens of 
the Commonwealth are comfortable with these types of transactions, they 
will then feel more comfortable purchasing goods and services on the 
Internet in the private sector. Again, emphasis is on ``facilitation.''
    With this important background in mind, I have reviewed the draft 
of H.R.1714 and offer these specific comments regarding the proposed 
legislation:

1. First, it is certainly prudent for members of Congress and the House 
        Committee on Commerce to examine critical issues surrounding 
        electronic commerce over the Internet. The Commerce Committee 
        has always been at the forefront of technology issues, and has 
        been especially effective under the leadership of its 
        relatively new Chairman, Tom Bliley, and the Telecommunications 
        Subcommittee Chairman, Billy Tauzin. One of the first, great 
        achievements of this Committee under Chairman Bliley was 
        enactment of telecommunications reform in 1996. Now, more 
        Americans are going on-line in ever increasing numbers. They 
        want to be able to conduct business over the Internet with 
        confidence and peace of mind. Legislation, like H.R. 1714, 
        which promotes that confidence, is most appropriate.
2. Second, national and international commerce has entered upon a sea 
        change. The private sector of our economy is no less concerned 
        than government with security issues surrounding the use of 
        electronic commerce. I firmly believe that we must allow the 
        market a chance to operate. We in the Commonwealth support the 
        overall approach you have taken in H.R. 1714. The bill 
        facilitates electronic commerce without placing undue 
        restrictions on those who choose to do business on-line. It 
        clearly supports the principles, contained in the 1997 U.S. 
        ``Framework for Global Electronic Commerce,'' that have guided 
        our legislative efforts in Virginia.
3. Finally, I strongly support the requirement for continued inquiry 
        and consultation regarding impediments to electronic commerce 
        contained in H.R.1714. It is our plan in Virginia to monitor 
        the implementation of Web-enabled government, including 
        electronic commerce, through the establishment of a Web-based 
        Commonwealth ``best practices'' center. The rapid evolution of 
        this technology demands our full attention, so that we may 
        continue to benefit from its use. At this time, I ask that I be 
        permitted to offer one recommendation to the Electronic 
        Signatures in Global and National Commerce Act, and that is the 
        following: amend this draft legislation to include a provision 
        establishing a national best practices center to further 
        promote on-line commerce initiatives. It is my hope that 
        Virginia will be able to work in consultation with the 
        Secretary of Commerce to establish a similar Web-based center 
        at the national level.
    In closing, I would like to again thank you for the opportunity to 
present the Virginia perspective on the issues of electronic commerce 
and electronic signatures. We support what you are doing and stand 
ready to provide appropriate assistance.

    Mr. Tauzin. Thank you very much, Mr. Secretary.
    The Chair would now interrupt the proceedings and ask you 
all to join with me in welcoming an honored guest who has 
arrived and will be honored at a luncheon later today. Mr. 
Yoshio Utsumi, the newly elected Secretary General of the 
International Telecommunications Union, is with us today. Mr. 
Utsumi, if you would be recognized. We all want to welcome you 
here today.
    The Chair is now pleased to introduce and welcome for his 
testimony, Mr. Jeffrey Skogen, Internet Market Manager for Ford 
Motor Credit Department in Dearborn, Michigan. Jeffrey, if you 
would please summarize your statement for us.

                   STATEMENT OF JEFFREY SKOGEN

    Mr. Skogen. Good morning, Mr. Chairman and members of the 
committee. I am Jeff Skogen, Internet Marketing Manager for 
Ford Motor Company in Dearborn, Michigan. I appreciate the 
opportunity to appear before the subcommittee.
    The Ford Motor Credit Company is the world's largest 
company dedicated to automotive finance, with more than 8 
million customers in 36 countries. Ford Credit is continuously 
looking for ways to improve the value of its service that it 
delivers to its customers. Consumer power to choose and 
business' ability to meet consumers' and marketplace demands 
will be enhanced by the establishment of a reliable, trusted, 
cost-efficient flow of electronic commerce. For that reason, we 
are committed to harnessing the efficiencies that electronic 
commerce represents.
    Electronic commerce is the exciting medium of business 
growth and consumer convenience. It is integral to the rapid 
development of a global, information-based economy that appears 
destined to coexist with the traditional industrial model. 
Electronic signatures are a fundamental building block for 
electronic commerce itself. They are the key to the widespread 
use and acceptance of electronic commerce. H.R. 1714 would 
facilitate transactions on the Internet and other electronic 
paperless transactions for dealer and consumer contracts by 
assuring that they are given the full legal validity of a 
written contract.
    Our research shows that 57 percent of consumers in the 
market for a new vehicle within the next year prefer to 
research their automotive purchases online. Forty-four percent 
of consumers who use the Internet online services have visited 
a financial website. About one-third of the customers want to 
at least start the financing process online, according the Ford 
Credit's research.
    Ford Credit has implemented a new credit-approval process 
called ``Auto Apply,'' which customers can use to complete a 
credit application and securely send it to Ford Credit via the 
Internet. Ford Credit provides a decision online for the 
customer and their preferred dealer, usually within minutes of 
receiving the application at the company's website. While Ford 
Credit offers online approval through the dealers, its 
customers must still physically go to the dealership to sign 
the credit application and the contract. With the electronic 
signatures, the entire transaction could be handled online, 
making the process easier and more efficient for everyone 
involved.
    In addition, we offer customer electronic funds transfer 
online, allowing them to enroll in the program; make a change, 
or cancel payments drawn directly from their checking account. 
Uniform standards for electronic signatures would enhance the 
public confidence in online applications of electronic commerce 
like electronic funds transfer.
    We believe the United States should be actively involved in 
the development of uniform global standards for electronic 
signatures and commerce. The lack of uniform, nationwide rules 
may inhibit our country's ability to influence development 
beyond its borders. Therefore, it is appropriate to consider 
the establishment of a Federal standard or uniform guidelines.
    I appreciate the opportunity to appear before you this 
morning. I will be happy to answer any of your questions.
    [The prepared statement of Jeffrey Skogen follows:]
Prepared Statement of Jeffrey Skogen, Internet Marketing Manager, Ford 
                          Motor Credit Company
    Good morning, Mr. Chairman and members of the Subcommittee. I am 
Jeffrey Skogen, Internet Marketing Manager for Ford Motor Credit 
Company in Dearborn, Michigan. I appreciate the opportunity to appear 
before the Subcommittee. Ford Motor Credit Company is the world's 
largest company dedicated to automotive finance with more the 8 million 
customers in 36 countries. Ford Credit is continuously seeking ways to 
improve the value of the services it delivers to customers. Consumers' 
power to choose and businesses' ability to meet consumer and 
marketplace demands will be enhanced by the establishment of a 
reliable, trusted, cost-efficient flow of electronic commerce. For that 
reason, we are committed to harnessing the efficiencies that electronic 
commerce represents.
    Electronic commerce is the exciting medium for business growth and 
consumer convenience. It is integral to the rapid development of a 
global information-based economy that appears destined to coexist with 
the traditional industrial model. Electronic signatures are a 
fundamental building block for electronic commerce itself and they are 
the key to the widespread use and acceptance of electronic commerce.
     H.R. 1714, the Electronic Signatures in Global and National 
Commerce Act, lays the foundation for nationwide acceptance of 
electronic signatures. H.R. 1714 begins the process of removing 
operational and legal obstacles to the broad-scale use of electronic 
commerce. In addition, the bill would promote the certainty necessary 
to conducting electronic commerce on a national and international 
basis.
    The ability to establish binding legal contracts between 
unaffiliated parties is clear when the transaction is documented on 
paper or, in the alternative, where the parties conduct their 
transactions face to face. In these physical world environments, 
identities of the parties are invariably firmly established and 
certain. In the electronic marketplace, acceptance of electronically 
authenticated signatures in lieu of paper signatures is necessary; 
without it the transaction which was advertised, negotiated and agreed 
upon electronically still has to be ``consummated'' with a paper 
document.
    This bill would facilitate transactions on the Internet and other 
electronic paperless transactions for dealer and consumer contracts by 
assuring that they are given the full legal validity of a written 
contract.
    Our research shows that 57 percent of consumers in the market for a 
new vehicle within the next year prefer to research their automotive 
purchase online and 44 percent of consumers who use the Internet or 
online services have visited financial sites.
    About one-third of customers want to at least start the financing 
process online, according to Ford Credit research. Ford Credit has 
implemented a new credit approval process--Auto Apply--which customers 
can use to complete a credit application and securely send it to Ford 
Credit via the Internet. Ford Credit provides a decision online for 
customers, and their preferred dealer, usually within minutes of 
receiving the application at the Company's web site.
    While Ford Credit offers online credit approval through its 
dealers, its customers must still physically go to the dealership to 
sign the credit application and contract. With electronic signatures 
the entire transaction could be handled online making the process 
easier and more efficient for everyone involved. In addition, we offer 
our customers electronic funds transfer (EFT) online allowing them to 
enroll in the program, make changes or cancel payments drawn directly 
from their checking account. Uniform standards for electronic 
signatures would enhance public confidence in online applications of 
electronic commerce like EFT.
    Technology neutrality is another necessary component of efficient 
electronic commerce. Recent advances in electronic and digital 
technology severely test the ability of government policymakers, 
regulators, and legislators to remain knowledgeable about the latest 
technology and its application. In addition, these rapid developments 
easily outdistance the traditional legislative and regulatory 
processes. Technology neutrality will serve to guard against 
regulations that quickly become outdated and impede the development of 
electronic commerce, both domestically and internationally.
    We believe the United States should be actively involved in the 
development of uniform global standards for electronic signatures and 
commerce. The lack of uniform nationwide rules may inhibit our 
country's ability to influence developments beyond its borders. 
Therefore, it is appropriate to consider the establishment of a federal 
standard or uniform guidelines.
    I appreciate the opportunity to have appeared before you this 
morning. I would be happy to answer any questions you may have. Thank 
you.

    Mr. Tauzin. Thank you very much, Mr. Skogen.
    The Chair is now pleased to recognize Mr. Daniel Greenwood, 
Deputy General Counsel, Information Technology Division, 
Commonwealth of Massachusetts. I am sure if Mr. Markey were 
here, he would want to issue a special welcome to you, Mr. 
Greenwood.

                 STATEMENT OF DANIEL GREENWOOD

    Mr. Greenwood. Thank you very much, Mr. Chairman and 
members of the subcommittee. On behalf of the Commonwealth of 
Massachusetts, I really do appreciate the opportunity to 
testify today on H.R. 1714, the Electronic Signatures in Global 
and National Commerce Act, ``E-SIGN.'' I should probably depart 
from my remarks to indicate that you have won the important 
battle in this town of the best, all-time acronym for bills in 
this area: E-SIGN.
    Mr. Tauzin. That is an important title around here. We 
appreciate it.
    Mr. Greenwood. It just rolls off the tongue--back to the 
merits for a moment.
    To the extent that H.R. 1714 does facilitate a national 
baseline and a consistent legal infrastructure that supports 
electronic commerce without unduly disrupting related areas of 
State law, we believe that it does deserve very serious 
consideration; and it does deserve support. While we think the 
current language in certain sections ought to be looked at 
further, and the legislation should be honed to avoid some 
disruptions in related areas of State law; it does seem clear 
to us that the objectives of your legislation are wholly 
consistent with the Commonwealth's policy to assure a sound 
foundation for electronic commerce.
    Last month, the Commonwealth went on record supporting the 
Abraham legislation in the Senate, S. 761, which by our lights 
supports very similar principles. It does set a minimum 
national framework.
    When we are looking at legislation from a State perspective 
in Massachusetts, and evaluating whether or not it really 
should succeed from a preemption perspective and from a 
perspective of supporting e-commerce and commercial law 
generally; we ask these types of questions: is the legislation 
narrowly tailored to address existing and well-understood 
market failures, or failures in law? In other words, is it 
minimalist? Is it doing only what is necessary to right a 
wrong, or to facilitate a place where the free market--or at 
least our existing market system--is not operating optimally?
    Does it promote a competitive marketplace for different 
technologies? This has been mentioned a couple of times today. 
Locking into a single technology for authentication or 
electronic records, in our view, is not generally a good idea. 
Federal legislation can have a negative effect by distorting 
the market.
    We also ask whether it includes any new or expanded 
regulation, or other government intervention; including a 
legislatively created accreditation, or some other government 
approval or control that is necessary for technology providers 
or users. It is our view that, especially in the e-commerce 
area, we are looking at an economic sector that is quite 
decentralized. It is almost self-organizing and distributed, 
the way that it is put together. Therefore, legislation that 
centralizes the market players for the purpose of controlling 
and regulating them is a bad idea.
    Finally, does the legislation disrupt other bodies of law? 
Does it unduly preempt State jurisdiction? This is what I would 
like to talk about in a little bit more detail. We think there 
are compelling arguments that favor generally keeping 
governance of commerce under State jurisdiction, where it 
primarily exists today under the Uniform Commercial Code and 
related law. The provided law is sufficiently harmonized so as 
not to present undue barriers to interstate commerce. We think 
generally States are more agile. We are somewhat smaller. We 
can react somewhat more quickly to changing market conditions 
and that is going to be particularly important in this e-
commerce space.
    However, there are certainly cases where the national 
interest requires that Federal action does preempt State law. 
This has long been accepted when States create undue 
impediments to interstate commerce. The fact that--as has been 
noted this morning, many times, so far--we have enacted so many 
different laws governing electronic signatures and records has 
clearly been a contributor to the current efforts for Federal 
action.
    If States were to quickly pass uniform law in this area, we 
believe that it is likely that the legitimate private-sector 
interests in a national baseline would be satisfied. It would 
be satisfied through the uniform law process. We think, in the 
end, this is the preferred method of creating a baseline. The 
draft Uniform Electronic Transactions Act, which Andy Pincus 
had mentioned, represents at this point the single best, most-
comprehensive, legislative effort to date. It causes no serious 
legal disruptions in other areas of law. It comprehensively 
deals with many issues about contract formation, contract 
interpretation, and notice requirements--all of the secondary 
and third-level issues that are implicated when one lists legal 
barriers to using electronic records.
    There are many interdependencies with many areas of law. 
These people have done a very good job through a multi-year, 
open process, with a lot of State law experts in the public 
sector and the private sector deliberately going through all of 
these interrelated areas of law and crafting a very good, 
comprehensive act.
    We have a problem in the timing, which has been pointed out 
very convincingly, I think, by advocates for the private 
sector. They need legal reform soon. I think the objectives of 
the legislation today, H.R. 1714, are evidently crafted to 
satisfy the legitimate interests of industry to come with some 
baseline quicker as we wait for uniform law to evolve. Looking 
at the criteria I mentioned, the bill really can directly 
satisfy the industry needs without disrupting these other 
policy concerns.
    I would request the privilege to add an addendum to my 
remarks within 30 days, under House rules, for the purpose of 
providing some more detailed comments on some the precise 
provisions of the current language as they relate to some of 
these other areas of State law and to the emerging Uniform 
Electronic Transactions Act.
    Mr. Shimkus [presiding]. There is no one here to object, so 
I will let you do it. How about that?
    Mr. Greenwood. Thank you, sir. The long and short of it is 
we support the principles that appear to underlie this 
legislation. We would look forward for an opportunity to 
continue to offer any service or assistance we can to this 
committee and the other committees that are working on the 
legislation as you try to work through the very complicated 
issues with State law.
    Thank you, again, for the opportunity to testify today.
    [The prepared statement of Daniel Greenwood follows:]
 Prepared Statement of Daniel Greenwood Deputy General Counsel for the 
     Information Technology Division, Commonwealth of Massachusetts
    Mr. Chairman, members of the Subcommittee, on behalf of the 
Commonwealth of Massachusetts, thank you for the opportunity to testify 
today on House Bill 1714, the Electronic Signature in Global and 
National Commerce Act (E-SIGN). The Commonwealth is home to many 
information age businesses and our state government is a robust user of 
electronic commerce technologies. As such, the Commonwealth of 
Massachusetts has had significant experience with the legal and policy 
implications of electronic authentication technologies. It has been the 
policy of the Commonwealth to promote the growth of our emerging 
electronic commerce industry in a non-regulatory, market-driven 
fashion.
    To the extent that H.R. 1714 facilitates creation of a national 
consistent legal infrastructure supporting electronic commerce without 
unduly disrupting related areas of state law, it deserves serious 
consideration and support. While the current language of the bill 
contains certain provisions that would benefit from further honing, it 
seems clear that the objectives of this legislation are wholly 
consistent with the Commonwealth's policy to assure a sound foundation 
for electronic commerce. Our desire is to indicate the ways in which 
this bill can be helpful and to constructively suggest some alternative 
formulations of certain sections for the purpose of achieving the 
bill's goals without causing harm to ongoing efforts at the state level 
to develop more uniform electronic commerce law as part of the overall 
uniform state commercial legal framework.
    Last month, the Commonwealth went on record before the Senate in 
support of S. 761, by Senator Abraham, which promotes a national legal 
base-line on certain issues related to electronic commerce transaction 
contracts and usage of electronic signatures and records. In an Issues 
Brief dated April 19, 1999, the National Governor's Association 
questioned the need for federal legislation, but characterized the 
Abraham bill as follows:
    ``Despite the preemption contained in the Millennium Digital 
Commerce Act, the legislation is fairly friendly to states' interests. 
The bill's scope is carefully restricted to interstate commercial 
transactions, over which Congress has jurisdiction through the Commerce 
Clause. The drafters of the bill have made a concerted effort to avoid 
interfering with areas of state law that involve records and signatures 
that are unrelated to interstate commerce.'' [http://www.nga.org/Pubs/
IssueBriefs/1999/990419FedDigitalSigs.asp]
    It seems clear that the Abraham bill and H.R. 1714 have very 
similar goals and are on corresponding tracks through each respective 
chamber. It is hoped that the final version of H.R. 1714 is refined so 
as to avoid the problems associated with undue interference with 
legitimate areas of state laws governing records, signatures and 
contracts. Assuming that such amendments occur, then this bill would 
clearly meet the stated interests of electronic commerce industry 
advocates who have voiced a desire for legal reforms to provide greater 
certainty in the short term.
                               background
    Conventional wisdom is evolving regarding the appropriate scope of 
legislative action effecting electronic commerce. Despite a brief fad 
in the mid-1990s favoring a regulatory, technology-specific approach to 
electronic commerce, the vast majority of state governments have 
recently opted for a minimalist, non-regulatory and technology-neutral 
stance. Unfortunately, certain foreign jurisdictions and international 
organizations seem to be several years behind the United States and are 
currently adopting regulatory, technology specific, and centralized 
policies regarding electronic commerce generally. Fortunately, both 
H.R. 1714 and the Abraham bill reflect the U.S. preference favoring 
free and competitive markets, rather than government intervention.
    In 1995, Utah was the first jurisdiction in the world to enact 
``digital signature'' legislation. Reflecting the trends of the time, 
this law is regulatory (it empowered a state agency to license 
providers); technology-specific (public key cryptography); promotes a 
certain business model and implementation (trusted third parties and 
digital certificates); increases e-commerce user liability (by limiting 
provider liability); and reverses age-old evidentiary rules regarding 
proof of signatures (by providing a presumption against the signature 
technology user).
    The passage of time indicates that this approach went too far and 
created unintended market distortions. In fact, it has not even been 
generally favored by the very industry it was enacted to promote 
(virtually every major certificate provider has chosen not to become 
licensed in the three states--Washington, Minnesota, and Utah--that 
attempted to regulate their fledgling product or service sector.
    Over the past few years, a broad convergence in activity and 
published policy has evidenced a solid and growing consensus that 
government actions effecting electronic commerce should generally be 
non-regulatory, technology neutral, support the rights of parties to 
structure their business models and technical implementations through 
contracts and agreements and should not tamper with rules of evidence 
and liability apportionment as an industrial policy setting mechanism.
    The last point, regarding tampering with rules of evidence, bears 
some additional explanation. There have been proponents of legislation 
at the state and the federal level which would create an evidentiary 
presumption against the user of an electronic signature. The rationale 
was that receivers of electronically signed messages deserve special 
government protection. This rationale fails to recognize that the 
proponent of such evidence should be the party with the burden to prove 
that the signature occurred. Likewise, the receiver of the signature is 
in the best position to judge the reliability of the authentication in 
the context of the value of the transaction, and they are the party 
most likely to have the relevant evidence that a signature was 
presented to them. Again, both H.R. 1714 and the Abraham language 
reflects these time-honored legal principles.
    The application of these general principles to electronic commerce 
is swiftly gained wide acceptance over the past few years. In the 1997 
Framework for Global Electronic Commerce, the Clinton Administration 
articulated principles supporting a technology-neutral approach to 
electronic commerce, and opposing regulation. Likewise, in 1997, the 
Internet Law and Policy Forum drafted a set of principles that promoted 
a thriving market and strongly resisted regulation (see: http://
www.ilpf.org/digsig/principles.htm). And in the Telecommunications Act 
of 1996, Congress expressly found that ``[t]he Internet and other 
interactive computer services have flourished, to the benefit of all 
Americans, with a minimum of government regulation'' and declared that 
``[i]t is the policy of the United States . . . to preserve the vibrant 
and competitive free market that presently exists for the Internet and 
other interactive computer services, unfettered by Federal or State 
regulation.'' The Commonwealth was pleased to work with Senator 
Abraham's office and the office of Congresswoman Eshoo on the 
Government Paperwork Elimination Act last session, which also largely 
embodied these principles. Over the past two years innumerable 
additional such positions, statements and policies among states and the 
federal government as well as from various private organizations.
                    general criteria for legislation
    The success or failure of legislation governing e-commerce this 
session should be based on the answers to five fundamental questions.
1. Is the legislation narrowly tailored to address existing and well 
        understood market failures?
    Another word for this is ``minimalist'' in other words, limited to 
address only what is currently necessary and appropriate. The chances 
of ``doing no harm'' are increased dramatically when government 
intervention in the private market is closely restricted to fixing 
specific and demonstrated problems that the market and existing laws 
have failed to address. This is especially true in the fast growing and 
dynamic area of electronic commerce. Relatively small changes in law 
can have the effect of chilling competition or otherwise distorting the 
free evolution of efficient solutions in the quickly moving and 
difficult to predict e-commerce field. Specifically, legislation that 
focuses on or includes provisions dealing with business or consumer 
rights or liabilities connected with the use of a public key 
infrastructure or other particular technologies that are not yet widely 
used may create harmful and unnecessary results. The actual problems 
may well turn out to be different than the projected issues.
2. Does it promote a competitive marketplace for different 
        technologies?
    Legislation should promote, rather than chill, competition. That 
means Congress should avoid legislating a market winner. Another way to 
look at this criteria would be: ``is it technology-neutral or does it 
give a special legislative 'leg up' to a given technology, business 
model or implementation available for general use in the market?'' It 
is unfortunately common that special interests that stand to benefit 
from market intervention often lobby for such government action. In the 
case of electronic commerce, however, it seems clear that the best 
government action with respect to promotion and facilitation of that 
market is usually no action at all. By enshrining a given technology in 
legislation, government action may have the counter-effect of reducing 
incentives for further improvements and innovations.
    Legislation can distort the technology markets by regulating the 
security or reliability criteria that must be applied to create an 
electronic signature even if it stops short of specifying the 
particular technology necessary. These types of criteria usually 
include a requirement that the signature technology is under the ``sole 
control'' of the signer and that it can detect or prevent any change to 
the signed record. These particular implementations may be appropriate 
in some, perhaps many, situations. However, the specific security 
features necessary and appropriate will differ dramatically depending 
upon the transaction and the parties' needs. For example, a ``signature 
machine'' (e.g. an institutional check signing mechanism) is clearly 
not under the ``sole control'' of the signer. In fact, it is doubtful 
that a treasurer, comptroller or CFO of an institution has any direct 
contact at all. The same is true of non-check organizational 
authentication of many types. It is accessible to several authorized 
individuals and there are internal controls and systemic security 
measures in place. Similarly, many popular and adequately safe 
authentication implementations do not, by themselves, detect or prevent 
alteration of underlying data. Most PIN and password systems in use 
today in banking, healthcare, commerce and elsewhere do not possess 
this specific feature. Nor do many biometric products.
    Current implementations live or die based on buyers and users 
making cost, benefit and risk judgements about the amount of 
reliability and types of security features needed. Well-intentioned 
attempts by legislators to come up with a ``one size fits all'' 
approach to signature technology features are doomed. The Uniform 
Electronic Transactions Act at one time had such criteria, but based 
upon months of discussion it now reflects and supports the common law 
definition of signature: any symbol executed with the intent to sign. 
In narrow cases where legislation is dealing with specific user 
communities (like a Securities context or a Consumer Protection issue) 
then it may be appropriate to specify more specific requirements, but 
general legislation covering every economic and social sector should 
never distort the competitive and open market for electronic signature 
and records technologies.
3. Does it include any new or expanded regulation or other government 
        intervention, including legislatively created ``accreditation'' 
        through government approval or control over technology 
        suppliers or users?
    It is increasingly obvious that the United States stands at the 
opening of a substantively different economic and societal phase: some 
call it the information society. The economic impacts are profound. 
Decentralized, self-organizing and distributed systems are gaining 
dominance. Old industries built on intermediating relationships are 
disappearing as the Internet and other technologies eliminate the 
barriers that created a need for such middle-men. Fast changing, 
dynamic, and rapidly growing markets are evolving before our eyes--in 
many cases, markets which are little understood.
    Unfortunately, some advocates continue to promote industrial-era 
policy designed for economic and social conditions of the last century. 
Industrial organizations were inherently centralized and regulations 
were correspondingly focused at the ``choke points.'' Internet-mediated 
communications and new forms of relationships between parties are 
often--and increasingly--organized differently. Centralization of 
market participants for the sole purpose of making them easier to 
regulate for government is wrong. And such a policy risks killing the 
goose to control its eggs. Requiring government licensure of market 
suppliers or setting up so-called ``self regulatory organizations'' 
(which in fact are under the thumb of federal or state regulators) is 
antithetical to the new economy. Absent serious market failures, 
government should resist erecting new oversight and control mechanisms 
over any part of electronic commerce. There are, of course, a large 
number of existing statutes, regulations and legal doctrines that 
create a floor of behavior to handle crime, fraud, and threats to 
national security. These laws currently appear to be quite adequate to 
prevent known harms.
    One useful policy approach is modeled in the draft report developed 
by the NACHA Certificate Authority Ratings and Trust Task Force, which 
seek to give parties helpful guidelines, including detailed policy and 
contractual terms, to assist in the creation of legally enforceable and 
reliable implementation of authentication technology (background 
information at: www.state.ma.us/itd/legal). This is an example of a 
``bottom up'' approach rather than an approach that favors central 
policy making or regulatory oversight. Legislation should simply lift 
legal barriers and thereby allow parties to use existing bodies of law, 
such as contract law, to tailor their transactions to their own needs. 
Ultimately, as national standards and practices emerge, they will be 
based upon actual proven market experience and they will be far better 
than any scheme anyone can dream up today through central planning. The 
current draft 1.0 of the NACHA CARAT Guidelines is available at: http:/
/internetcouncil.nacha.org/CARAT/CARAT921.DOC on the web. A ginchy 
example of contractually based Operating Rules that are consistent with 
the CARAT Guidelines can be found at http://www.emall.isa.us/ (a 
multistate electronic commerce procurement project to buy goods over 
the web from several private vendors).
4. Does the legislation disrupt other bodies of law or unduly preempt 
        state jurisdiction over commercial law?
    There are compelling arguments in favor of generally keeping 
governance of commerce under state jurisdiction, provided the law is 
sufficiently harmonized so as not to present an undue barrier to 
interstate commerce. States are far more agile than the federal 
government in responding quickly to changing market conditions. As 
such, states serve as important laboratories of innovation in the realm 
of public policy and law.
    The arguments are particularly strong for continuing state primacy 
in the context of electronic signatures, records and contracts, because 
a signature or a record requirement arises under innumerable other 
areas of state law. A single federal law that purported to grant legal 
equivalency for electronic signatures, for example, would almost 
certainly have the effect of creating significant disruptions in areas 
of state law that have nothing to do with commerce, such as wills, 
trusts, powers of attorney, consumer protections, real estate deeds, 
negotiable instruments, notice requirements, elections law, hospital 
regulation, and state criminal justice laws. Massachusetts, for 
example, has some 4,515 different sections of law that relate to a 
signing or writing. (See: http://www.state.ma.us/itd/legal/siglaw4.doc 
)
    However, in some cases, the needs of the nation require that 
federal action preempt state law. This has been long accepted where 
states create undue impediments to interstate commerce. The fact that 
states have adopted such a dizzying array of different laws dealing 
with electronic signatures and records has been a major contributor to 
the current efforts for federal action. If states quickly pass uniform 
law in this area, it is likely that legitimate private sector interests 
in a national baseline will be satisfied through uniform state law. 
This is the preferred method of creating the base-line because the 
draft Uniform Electronic Transactions Act (UETA) clearly represents the 
single best, most comprehensive, well principled legislative effort to 
date and, importantly, it causes few or no serious legal disruptions or 
other harm because it is finely integrated with other areas of law. No 
federal law yet proposed (or likely to emerge) can claim the same 
features--in part because the National Conference of Commissioners on 
Uniform State Law has sponsored a multi-year deliberative process in 
which interested parties from the public and private sectors have 
collaborated in open forums to work through these complex and subtle 
issues. However, to the extent that commercial interests make a 
convincing case that faster action is needed than can be accommodated 
via the uniform law process, then the Commonwealth has already gone on 
record as supporting narrow and temporary federal ``bridge'' 
legislation to produce the necessary legal national base-line.
    The key criteria for any such bridge legislation is that it must be 
narrowly tailored to address only those matters upon which immediate 
action is needed (as distinct from matters that can wait for uniform 
state law) and that it provide a statutory mechanism that reverts 
jurisdiction back to the states upon adoption of a consistent base-line 
legal framework. Since the UETA appears poised to shepherd in such a 
framework, any federal law in this arena should recognize and promote 
this uniform law effort.
5. Does the legislation give an undue competitive advantage in this new 
        market to a single industry or economic sector over 
        participants of other economic sectors?
    Legislation should not grant any particular sector a special leg up 
by government. If legislation lifts general legal barriers or solves 
general problems for only a specific sector of the economy, then an 
undue competitive advantage may result in unfortunate market 
distortions. Promoting competition among different sectors in this area 
is good because many of the problems are far from being solved, and 
each sector bring its own resources, expertise and approaches to the 
solutions. Legislation granting special presumptions or validity upon 
electronic authentication when it is supplied only by vendors in a 
single market (say, by telecom companies, or network service providers, 
or licensed attorneys, or even financial institutions alone) runs the 
risk of ultimately harming, rather than promoting, optimal technical 
and business-model solutions that would arise from highly competitive 
marketplace interactions.
                         summary and conclusion
    In summary, the apparent goals of H.R. 1714 are worthy of support. 
Private sector representatives have made a strong case before the House 
and Senate that some action is needed in the shorter term. The 
objectives of this legislation are evidently to satisfy these 
legitimate interests of industry without unduly harming related areas 
of state law. Review of the bill based upon the five question asked 
above indicates that this legislation, with some modifications, can 
directly satisfy key principles for electronic commerce legislation.
    I request the privilege to add an addendum to these written remarks 
within the next 30 days which will provide more detailed comments on 
the precise provisions of the current legislative language as they 
relate to state law and to suggest possible alternative formulations. 
We anticipate these comments will focus largely on limiting the scope 
of Title I to contracts effectuating interstate commerce transactions 
(as opposed to including all agreements that may affect interstate 
commerce); assuring that the operative provisions of the law merely 
accord legal status upon electronic transactions that is equivalent to 
what those transactions would receive if they were carried out via 
other media (as opposed to granting whole new categories of rights and 
responsibilities only for electronic transactions); assuring that the 
formula for states to retrieve jurisdiction under the overall framework 
of existing commercial law is clear and promotes enactment of the UETA 
or an equivalent uniform law; minimizing or eliminating federal 
administrative oversight over state government affairs; and conforming 
definitions of electronic signatures and other key terms to existing 
and emerging bodies of law governing electronic transactions.
    Please do not hesitate to call upon my office as a supportive 
resource as this legislation continues to evolve. It is my sincere hope 
that we can assist you as you seek to hone some of the provisions of 
this bill to conform more closely to the principles set out above. 
Again, thank you for the chance to share our views today.

    Mr. Shimkus. Thank you.
    Our next witness is Mr. Ari Engelberg, Vice President of 
Strategic Web Development, Stamps.Com. Of course, your written 
statement is in the record. You may summarize for 5 minutes. 
Welcome.

                   STATEMENT OF ARI ENGELBERG

    Mr. Engelberg. Mr. Chairman and members of the 
subcommittee, my name is Ari Engelberg. I am a founder of an 
Internet company called Stamps.Com. Stamps.Com, working in 
conjunction with the Information Based Indicium program at the 
United States Postal Service, has developed an exciting 
mainstream application of digital signature technology. I 
thought I would use my few minutes here this morning to tell 
you about a little bit about how our technology works and how 
it relates to this bill.
    What we are is one of the first companies to develop an e-
commerce system that enables individuals and businesses to 
purchase and print U.S. postage over the Internet using nothing 
more than an ordinary laser or ink-jet printer. Our service is 
a simple one. Users download a small piece of software from our 
website, or from the website of one our partners. After a short 
registration process, which includes U.S. Postal Service meter 
licensing, users may purchase postage through a variety of 
payment methods including wire transfers and credit or debit 
cards. The postage payment is then transferred directly to the 
Postal Service.
    To print postage, users log onto their accounts on our 
postage servers over an encrypted link and designate a delivery 
address. The postage servers then perform a variety of 
functions. The user's postage balance is debited by the 
appropriate amount. Spelling and zip-code mistakes in the 
address are corrected by a national address data base to ensure 
higher address quality and more efficient mail piece routing 
through pre-barcoding. Most importantly, a digital signature is 
generated for each stamp, using a cryptographic key unique to 
each user. The digital signature is then sent back across the 
link to the user's P.C., where it is encoded in a two-
dimensional barcode. This barcode is the security-critical 
portion of the Postal Service's new Information Based Indicium.
    Each of you has in front of you an envelope which is 
adorned with Internet postage. That is live postage and you may 
take that back and mail it back to your district office. The 
barcode on the envelope can be scanned using a hand-held or a 
stationary device. Through a system that connects the 
cryptographic keys generated by our postage service to a 
certificate authority maintained by the Postal Service, the 
authenticity of a given stamp can be ascertained.
    This system provides tremendous advantage to users. Postage 
is available 24 hours a day, 7 days a week from the desktop. 
Addresses are corrected by our data base to increase delivery 
reliability. Postage can be printed from within the word 
processors and personal information managers upon which so many 
small business professionals already rely. By transforming what 
was once a product--postage meters, into a service--Internet 
postage; Stamps.Com has fundamentally altered cost structures 
in this industry, making postage convenience more affordable to 
a broader share of the business and consumer population than 
traditional postage meters.
    The enterprise comprises one of the most complex, highly 
secure electronic commerce systems ever developed. It has been 
2\1/2\ years in the making. Our system involves sophisticated 
cryptography, advanced data center operations, and secure 
financial transactions. The advantages of this advanced system 
are enabled by the security of the Information Based Indicium, 
and the security of a strong digital signature as a means of 
authentication of postage value.
    H.R. 1714 provides a welcome legislative foundation for 
furthering e-commerce by explicitly legitimizing electronic 
signatures as proof of contract acceptance. For the purposes of 
this discussion, each or indicium, or stamp, is a micro-
contract authenticated by the electronic signature between 
Stamps.Com, the Post Office, and the customer. That is; if the 
customer uses Stamps.Com to pay for and print U.S. postage, the 
Post Office will deliver the mail. This contract, and the 
opportunity to offer this service, is made possible by the 
integrity, authenticity, and non-reputability of a strong 
digital signature.
    Thus, Stamps.Com strongly supports H.R. 1714. Thank you for 
the opportunity to testify.
    [The prepared statement of Ari Engelberg follows:]
     Prepared Statement of Ari Engelberg, Founder, Stamps.com, Inc.

    Mr. Chairman, Members of the Subcommittee: My name is Ari 
Engelberg. I am a founder of an Internet company called Stamps.com. 
Stamps.com is one of the first companies to develop an e-commerce 
system that enables individuals and businesses to purchase and print US 
postage over the Internet using nothing more than an ordinary laser or 
inkjet printer. Two and a half years ago, Stamps.com was founded upon 
the promise--and reality--of electronic commerce. Indeed, we have 
developed one of the few e-commerce applications to make possible the 
purchase and delivery of a product--in our case US postage--entirely 
online: the payment and service are bits; the inventory and shipment, 
ones and zeroes.
    Our service is a simple one. Users download a small piece of 
software from our web site, or the web site of one of our partners. 
After a short registration process, which includes US Postal Service 
licensing, users may purchase postage through a variety of payment 
methods including wire transfers and credit or debit cards. The postage 
payment is transferred directly to the Postal Service
    To print postage, users login to their accounts on our Postage 
Servers over an encrypted link and designate a delivery address. The 
Postage Servers then perform a variety of functions:
    The user's postage balance is debited by the appropriate amount. 
Spelling and ZIP Code mistakes in the address are corrected by a 
national address database to ensure higher address quality and more 
efficient mailpiece routing through pre-barcoding. And, most 
importantly, a digital signature is generated for each stamp using a 
cryptographic key unique to each user. The digital signature is then 
sent back across the link to the user's PC, where it is encoded in a 
two-dimensional barcode. This barcode is the security-critical portion 
of the Postal Service's new Information Based Indicium. It can be 
scanned using hand-held or stationary devices, and through a system 
that connects the cryptographic keys generated by our Postage Servers 
to a Certificate Authority maintained by the Postal Service, the 
authenticity of a given stamp can be ascertained.
    The system provides tremendous advantage to users. Postage is 
available 24 hours a day, 7 days a week from the desktop. Addresses are 
corrected by our database to increase delivery reliability. Postage can 
be printed from within the word processors and personal information 
managers upon which so many small business professionals already rely. 
And, by transforming what was once a product (postage meters) into a 
service (Internet Postage), Stamps.com has fundamentally altered cost 
structures in this industry, making postage convenience more affordable 
to a broader share of the business and consumer population than 
traditional postage meters.
    The enterprise comprises one of the most complex, highly secure 
electronic commerce systems ever developed and has been two and a half 
years in the making. Our system involves sophisticated cryptography, 
advanced data center operations, and secure financial transactions. The 
advantages of this advanced system are enabled by the security of the 
Information Based Indicium, by the security of a strong digital 
signature as a means of authentication of postage value.
    However, while digital signature technology affords Stamps.com and 
companies like ours the opportunity to take advantage of the 
efficiencies and immediacy of ecommerce, it also imparts upon us a 
responsibility towards our customers and partners, a responsibility to 
secure each and every transaction against mistake or misuse.
    H.R. 1714 provides a welcome legislative foundation for furthering 
ecommerce by explicitly legitimizing electronic signatures as proof of 
contract acceptance. In its current form, however, H.R. 1714 leaves 
open a prospect for abuse. While H.R. 1714 aims to achieve vendor-
neutrality, in the world of ecommerce not all algorithms are created 
equal.
    In Stamps.com's business, electronic signature technology ensures 
that each indicium is unique and cannot be created fraudulently. 
Moreover, it ensures that each indicium cannot be hacked or spoofed or 
electronically replayed--all favorite tools of electronic criminals. 
For purposes of this discussion, each indicium is a micro-contract, 
authenticated by the electronic signature, between Stamps.com, the Post 
Office, and the customer. That is, if the customer uses Stamps.com to 
pay for and print US Postage, the Post Office will deliver the mail.
    The Stamps.com application was developed using published and 
government-approved encryption standards. Sound encryption requires 
years of open testing to expose and remedy flaws. For that reason, the 
government has issued standards for a variety of encryption and digital 
signature algorithms, the Federal Information Processing Standards. 
These standards provide a base-level of protection that the private 
sector often uses or exceeds. H.R. 1714 provides for no base-level of 
protection and potentially leaves open the exploitation of contracting 
parties with little or no experience with relatively complex technical 
issues. If companies are allowed to choose any ``reasonable'' method, 
they may choose one that is weak enough to be attacked and exploited to 
falsify contract acceptance. Furthermore, any algorithm, no matter how 
tried-and-true, is susceptible to failure if implemented incorrectly. 
Thus, it is my company's belief that H.R. 1714 should contain some 
reference to the fact that not all electronic signature methods are 
``reasonable'' and that parties should be encouraged to investigate and 
choose electronic signature methods that meet their specific needs for 
security and ease of use.
    Thank you for the opportunity to speak before this Committee.

    Mr. Shimkus. Thank you.
    Our next panelist is Mr. John Siedlarz.
    Before I do that, I want ask unanimous consent that we give 
all witnesses 30 days to include any--obviously, I am not going 
to object. You will get questions, probably, that members may 
ask you to respond to in writing. Without objection, I request 
unanimous consent for 30 days for that response to be received 
for the official record.
    And, now, the next panelist, Mr. John Siedlarz, President 
and CEO of IriScan, Incorporated. Welcome. You have 5 minutes.

                  STATEMENT OF JOHN E. SIEDLARZ

    Mr. Siedlarz. Thank you, Mr. Chairman. Good morning, Mr. 
Chairman and members of the committee.
    Mr. Shimkus. Pull that mike closer to you. Thank you.
    Mr. Siedlarz. In addition to being president of IriScan, I 
am also the vice chairman of the International Biometric 
Industry Association. The Association very much appreciates the 
opportunity to speak to you today and comment on H.R. 1714.
    As one example of the technologies that are covered by the 
Association, IriScan--my company--develops a leading biometric 
product that identifies and authenticates individuals through 
the unique iris pattern of the eye, the visible colored ring 
surrounding the pupil.
    I wanted to pass this on to Chairman Tauzin on his comment 
about dogs. Not only can we make a sharp distinction between 
humans--an absolutely positive one; but we can tell the 
difference between a dog and human. We will shortly be able to 
be in the position of being able to tell the difference between 
the dogs that are on the Internet.
    I would appreciate it if you would convey that to him.
    The IBIA is a trade association that represents many 
technologies, and the interests of the biometric industry as a 
whole. It includes groups of proven technologies that identify 
or verify individuals based on physiological characteristics. 
In other words, what you are; not what you hold or what you 
do--a very important distinction that I would like to focus on 
later in comparing how you use biometrics with an encryption 
for a more secure transaction.
    Biometric identification and verification are accomplished 
by using computer technology in non-invasive ways to match 
patters of live individuals in real time against enrolled 
records. Examples include products that recognize faces, hands, 
fingers, signatures, irises, voices, and fingerprints. 
Biometrics are most commonly used to safeguard international 
borders; protect computer network security; control access to 
sensitive work sites; authenticate financial transactions; 
verify time and attendance; prevent benefits fraud, and provide 
secure transactions on the Internet. Biometrics, in sum, are 
excellent means to secure privacy and prevent identity theft.
    IBIA supports H.R. 1714 and the efforts of Chairman Bliley 
and the committee to move this legislation forward. We 
specifically endorse the attempt to make sure that the 
technology is essentially neutrally identified, as far as the 
legislation concerned. Our only argument with the bill--and it 
is a very small one--is in the language in section 104, which 
defines an electronic signature as, ``A signature in an 
electronic form.'' We think that it is appropriate to have that 
language broadened slightly, maintaining the focus on neutral 
technology approaches in the legislation; and be consistent 
with what the Senate dealt with in S. 2107, the Government 
Paperwork Elimination Act, last year. Based on testimony from 
expert witnesses, the Senate chose to strike language that 
would favor a digital signature; and instead substituted the 
technology-neutral phrase, ``electronic authentication.''
    The specific reason for this action was to avoid a 
constricted definition that would have the combined effects of 
unnecessarily restricting the market for biometric products; 
creating a competitive advantage for a small group of 
solutions; and freezing options for substituting newer 
technologies as they are perfected.
    Once again, we wanted to emphasize that in our view, the 
growing recognition among the community is that the combination 
of encrypted data and biometrics at either end of the 
transaction, in effect, provide the only means of a secure 
solution for transactions on the Net. Biometrics cannot do that 
by themselves. Encrypted data cannot do it by itself. It is the 
combination of those two technologies which, I think, is being 
recognized. I think this bill ultimately supports that in its 
technology-neutral language.
    The IBIA strongly encourages the committee to take a 
similar approach to the action in the Senate. This can be 
accomplished by rewording the first part of the definition 
contained in section 104[2] to read as follows, ``Electronic 
signature. The term ``electronic signature'' means a biometric 
or other sequence of data in electronic form.'' This change 
would ensure that the bill does not rule out the use of sound 
biometric authentication solutions that have been specifically 
designed to accomplish the purpose of the bill.
    The IBIA thanks both subcommittees for this opportunity to 
express its views in supporting H.R. 1714. I would welcome your 
questions about biometric technologies and their relevance to 
this important bill. Thank you, Mr. Chairman.
    [The prepared statement of John E. Siedlarz follows:]
 Prepared Statement of John E. Siedlarz, President and Chief Executive 
   Officer, IriScan, Inc., on Behalf of the International Biometric 
                          Industry Association
    My name is John Siedlarz. I am President and Chief Executive 
Officer of IriScan, headquartered in Marlton, New Jersey. I am also 
Vice Chairman and a member of the Board of Directors of the 
International Biometric Industry Association (IBIA). IBIA very much 
appreciates the opportunity to testify before you today.
    IriScan develops a leading biometric product that identifies and 
authenticates individuals through the unique iris pattern of the eye--
the visible colored ring surrounding the pupil.
    IBIA is a trade association that represents the interests of the 
biometric industry as a whole. Biometrics include a group of proven 
technologies that identify or verify individuals based on physiological 
characteristics. Biometric identification and verification are 
accomplished by using computer technology in noninvasive ways to match 
patterns of live individuals in real time against enrolled records. 
Examples include products that recognize faces, hands, fingers, 
signatures, irises or irides, voices, and fingerprints. Biometrics are 
most commonly used to safeguard international borders, protect computer 
network security, control access to sensitive work sites, authenticate 
financial transactions, verify time and attendance, and prevent 
benefits fraud. Biometrics, in sum, are excellent means to secure 
privacy and prevent identity theft.
    IBIA supports the intent of Chairman Bliley and his co-sponsors to 
recognize the economic potential of e-commerce, and to update our laws 
to specify how electronic documents can be properly authenticated in 
the digital age. We believe that Chairman Bliley's bill, H.R. 1714, 
``The Electronic Signatures in Global and National Commerce Act,'' 
would both encourage and protect the use of electronic records in 
national and international commerce. This is an essential step toward 
automating cumbersome processes that can otherwise hinder trade and 
stifle economic growth. If the bill became law, complex and highly 
confidential transactions in banking, real estate, securities, and 
retail sales, in particular, will be quicker, far more secure, and much 
more efficient.
    The biometric industry has one concern about the bill--the wording 
of Section 104, which defines an ``electronic signature'' as ``a 
signature in electronic form.'' This definition could be construed to 
mean that only a limited range of signature-based technologies are 
acceptable.
    Last year, the Senate dealt with this same issue while deliberating 
the provisions of S. 2107, ``The Government Paperwork Elimination 
Act.'' Based on testimony from expert witnesses, the Senate chose to 
strike language that would favor a ``digital signature,'' and instead 
substituted the technology-neutral phrase, ``electronic 
authentication.'' The specific reason for this action was to avoid a 
constricted definition that would have the combined effects of 
unnecessarily restricting the market for biometric products, creating a 
competitive advantage for a small group of solutions, and freezing 
options for substituting newer technologies as they are perfected.
    The IBIA strongly encourages you to take a similar approach. This 
can be accomplished by rewording the first part of the definition 
contained in Section 104 (2) to read as follows:
          ``ELECTRONIC SIGNATURE--The term `electronic signature' means 
        a biometric or other sequence of data in electronic form, 
        attached to or logically associated with an electronic record, 
        that . . .''
    This change would ensure that the bill does not rule out the use of 
sound biometric authentication solutions that have been specifically 
designed to accomplish the purpose of this bill.
    The International Biometric Industry Association thanks both 
subcommittees for this opportunity to express its views about H.R. 
1714. I would welcome your questions about biometric technologies and 
their relevance to this important bill.

    Mr. Tauzin. Thank you very much, Mr. Siedlarz. I understand 
you made the case for identifying dogs?
    Mr. Siedlarz. I have, indeed.
    Mr. Tauzin. My wife would contest that, by the way. She 
thinks our dogs are humans, so that would be a problem.
    We are pleased now to welcome Mr. Christopher Curtis, 
Associate General Counsel of Capital One, here in Falls Church, 
Virginia. Welcome, Mr. Curtis.

               STATEMENT OF CHRISTOPHER T. CURTIS

    Mr. Curtis. Good morning. I am Christopher Curtis, 
Associate General Counsel of Capital One Financial Corporation. 
I appreciate the opportunity to testify today in support of 
H.R. 1714.
    Capital One is one of the world's largest issuer of credit 
cards, and a direct marketer of consumer and small business 
lending products. We are also a pioneer in the direct marketing 
of wireless telephone service through our subsidiary, America 
One Communications.
    On behalf of Capital One, I would like to thank the 
subcommittee for considering this legislation. I hope you will 
report favorably on it. The world of online commerce is 
exploding all around us, offering more efficient commerce, and 
hence, greater wealth for all Americans. However, further 
development of electronic commerce may be impeded by the issue 
of online authentication: the means by which one party, such as 
a merchant or financial institution knows who it is dealing 
with; as well as the issue of online signature: a means by 
which a party legally binds itself to a transaction. Without 
resolution of those issues, we fear that parties will be 
reluctant to enter into larger transactions with numerous and 
remote counter-parties.
    I will refrain from any technical discussion of the 
electronic signature technologies currently available. Instead, 
I want to endorse what I see as the two basic principles of 
this legislation. First, the bill establishes a national 
principle of recognition of electronic signatures. Second, the 
bill rejects any prescribed technical standard and instead 
allows the marketplace to decide what technologies are best.
    By establishing a uniform rule of recognition, the bill 
provides what we see as the keystone in a sound legal 
architecture for electronic commerce. In the current chaotic 
legal environment, the validity of electronic transactions is 
governed by the law of each State. A number of States have 
moved to recognize electronic documents and signatures, but not 
in a consistent manner. Electronic signatures that are valid in 
one State may not be valid in another State. Moreover, some 
States still don't recognize electronic signatures at all. 
While there is the uniform State process which is underway, as 
has been discussed this morning, we know that may take a long 
time, and may not in the end, in fact, result in a uniform 
product. Sometimes the uniform process does not.
    As a result of the current situation, individuals and 
companies doing business on the Internet face considerable 
uncertainty as to the enforceability of their transactions. 
There is a significant concern that a party to an agreement can 
simply deny making the agreement. The ability to do so opens 
the door to fraud in electronic commerce and hinders growth in 
this medium. We will never achieve the full potential of 
electronic commerce until agreements entered into on the 
Internet are valid and enforceable.
    We also support the bill's principle of free development of 
electronic signature technology. This will allow the market, 
not the government, to determine the desirability of a specific 
technology. We at Capital One would not presume to tell you 
what electronic signature technology is best. Even if we could, 
what is best today may not be best 5 years now, 10 years from 
now, or even 1 year from now. The proposed legislation takes 
the right approach by insisting that those issues be left to 
human ingenuity as tempered in the marketplace.
    In conclusion, Capital One strongly supports the enactment 
of H.R. 1714. We believe it provides the best legal basis for 
unleashing the Internet's potential to transform commerce. We 
are grateful for the leadership of Chairman Bliley in 
introducing this legislation; and to the subcommittee for 
considering it. Thank you for the opportunity to testify before 
you today.
    [The prepared statement of Christopher T. Curtis follows:]
  Prepared Statement of Christopher T. Curtis, Capital One Financial 
                              Corporation
    Mr. Chairman and Members of this Subcommittee, my name is 
Christopher Curtis. I am Associate General Counsel of Capital One 
Financial Corporation, headquartered in Falls Church, Virginia. I 
appreciate the opportunity to testify today on H.R. 1714, the 
Electronic Signatures in Global and National Commerce Act. The subject 
of electronic signatures is an important one to Capital One, to the 
national economy, and, we think, to the world.
    First, a word about Capital One. Through our subsidiary credit card 
bank and thrift, we are one of the world's largest issuers of credit 
cards and a direct marketer of consumer and small business lending 
products. We are also a pioneer in the direct marketing of wireless 
telephone service through our subsidiary, America One Communications, 
Inc.
    As of March 31, 1999, Capital One had $17.4 billion in managed 
loans outstanding and over 18 million customers in the United States, 
Canada and the United Kingdom. We have over 12,000 employees based in 
Virginia, Texas, Florida, Washington State, Massachusetts, and the 
United Kingdom.
    In each of the last four years, Capital One surpassed its goals of 
achieving annual earnings growth and annual return on equity of at 
least 20% and is on track to surpass that goal this year as well. In 
1998 alone, we added nearly 5 million net new customers and are 
currently adding new customers at the rate of 15,000 net new accounts a 
day. To support that account growth, our Company hired 4,500 new 
employees during 1998 and expects to hire at least 3,500 additional 
employees in 1999 across all of our sites.
    On behalf of Capital One, I want to thank the Subcommittee for 
considering the legislation that is before you today, and I hope that 
you report favorably upon it. The world of on-line commerce is 
exploding all around us. Its capacity for enabling more efficient 
commerce and hence greater wealth for all Americans, as well as 
residents of other nations, is so large that it cannot be quantified 
and can scarcely even be envisioned. Significant burdens to further 
development of electronic commerce, however, are the issues of on-line 
authentication--the means by which one party, such as a merchant or a 
financial institution, knows who it is dealing with--and on-line 
signature, a shorthand expression for a party's legally and formally 
binding itself to a transaction. Without resolution of those issues, 
parties will be reluctant to enter into larger transactions with more 
numerous and remote counterparties. Their reluctance will be grounded 
in practical concerns about fraud, and also about the risk that a 
counterparty could disavow a transaction under a state's statute of 
fraud or related legislation or doctrines.
    I will refrain from any technical discussion of the electronic 
signature technologies currently available--indeed, one of the virtues 
of the proposed legislation, as I will describe in a moment, is that it 
rejects any prescribed technical standard or approach to the problems 
of on-line authentication and signature--but instead discuss what I see 
as the two basic principles of the legislation, both of which Capital 
One strongly supports.
    They are, first, the establishment of a national principle of 
recognition of electronic signatures; and second, the adoption of what 
we at Capital One call an ``open platform'' approach to technology, 
allowing the marketplace to decide what technologies are best. I will 
discuss those two principles in order.
National Recognition
    The proposed legislation takes the essential step of establishing a 
uniform rule of recognition, which we see as the keystone in a sound 
legal infrastructure for electronic commerce. The current legal 
environment, in which the validity of electronic transactions is 
governed by state law, can fairly be described as chaotic. While a 
number of states have moved to recognize electronic documents and 
signatures, states have not done so in a consistent manner. Valid 
electronic signatures in one state may not be valid in another state. 
Moreover, some states still do not recognize electronic signatures at 
all. As a result, individuals and companies doing business on the 
Internet face considerable uncertainty as to the enforceability of 
electronic transactions.
    In fact, the single biggest problem that parties face in conducting 
business on the Internet is that of repudiation. Under the current 
environment, there is a significant concern that a party to an 
agreement can simply deny making the agreement. The potential ability 
to repudiate an electronic agreement opens the door to fraud in 
electronic commerce and hinders growth in this medium. Ultimately, we 
will be unable to achieve the full potential of electronic commerce 
until agreements entered into on the Internet are valid and 
enforceable. While those issues are also present in that older medium 
of paperless remote commerce--the telephone--Internet commerce, because 
of its greater speed, power, and flexibility, offers immensely greater 
opportunities for abuse and fraud.
    This problem cannot be adequately addressed at the state level 
because of the inconsistencies in state law. Currently, state law 
determines whether or not there was an enforceable contract and whether 
that contract was valid. This creates significant uncertainty for 
Internet transactions. For example, imagine a scenario in which Capital 
One, a Virginia company, maintains a web site on a server in our 
facilities in Texas and enters into an electronic contract with an 
individual residing in California. In determining whether the contract 
is valid, it is not clear which state's law applies. Thus, in order to 
ensure that an individual or a company is entering into an enforceable 
transaction, a company or a consumer doing business across the country 
may need to comply with the different, and possibly conflicting, laws 
of a number of different states depending on where the other parties to 
the transaction are legally located. As a practical matter, this 
uncertainty and duplication will increase the cost of doing business 
electronically as individuals and businesses seek to comply with the 
laws of all fifty states and other relevant jurisdictions or simply 
forego electronic commerce at levels that they would otherwise find 
desirable.
Open Platform
    We also support the bill's open-platform approach to electronic 
signature technology. By permitting a number of different technologies 
that meet minimum standards to qualify as electronic signatures, the 
bill will foster technological innovation. A number of different 
signature technologies, including promising new technologies, may 
easily be incorporated into the legal framework established by this 
bill. This will allow the market, and not government, to determine the 
viability and desirability of a specific technology. An open 
environment will also keep the cost of electronic signature technology 
in check by allowing a number of competing technologies to emerge in 
the market without bestowing a monopoly on a single company or 
technology. We at Capital One would not presume to tell you what 
electronic signature technology is best; and even if we could, what is 
best today may not be best five years from now or ten years from now--
or even one year from now. The proposed legislation takes the right 
approach by insisting that those issues be left to human ingenuity, as 
tempered in the marketplace.
Conclusion
    In conclusion, Mr. Chairman and members of the Subcommittee, we at 
Capital One strongly support the enactment of H.R. 1714. We believe 
that it provides the best legal basis for fostering electronic commerce 
and unleashing the Internet's potential to transform our economy and 
the world's. We are grateful for the leadership of Chairman Bliley, the 
original motive force behind this legislation, and we commend the 
Subcommittee for its consideration of it. Thank you for the opportunity 
to testify.

    Mr. Tauzin. Thank you very much, sir.
    The Chair now recognizes himself for 5 minutes, and 
members, in order.
    First of all, Mr. Pincus, you are aware, of course, of the 
July 1997 German Digital Signature Law that seems to be very 
restrictive in terms of using only digital signature 
technology, and the government's August 1998 position paper on 
international recognition of digital signatures reinforcing 
their own law. Can you tell me how the U.S. is responding to 
this very alarming direction that the government of Germany is 
already taking in this area?
    Mr. Pincus. Certainly, Mr. Chairman. Let me mention one set 
of international developments that is relevant. Just as we are 
having this discussion here, the question of promoting 
uniformity has been very much an issue in Europe within the 
European Union. In fact, the European Commission has proposed 
an electronic signature directive that is now working its way 
through their process, and is expected to be finalized sometime 
toward the end of this year. It is much closer to--although not 
completely congruent with--the principles I discussed earlier 
and will require significant changes in the German law.
    We have made it clear to the Germans that we think their 
approach is not technology-neutral. It is technology-specific, 
which would create real problems in global commerce. The 
European Union approach is much closer to ours and more 
technologically neutral. It is different from the approach we 
advocate in that it provides for some government identification 
of preferred technologies, and giving them a legal presumption, 
which we think is not the way to go. But it is a lot closer to 
where we are and would require significant changes in the 
German law.
    Mr. Tauzin. Andy, you have mentioned that you are not sure 
yet; you don't know whether or not electronic commerce is 
impeded yet by the lack of a national standard that is 
technologically neutral, but nevertheless moves all the States 
in the same direction. How do you know what activity is not 
going on? How do you identify what is not happening in e-
commerce? We can identify what is happening. But how much is 
not happening? Maybe you can jump in and help me with this, 
some of you other witnesses.
    It seems to me that is a hard thing to quantify. It seems 
to me that if we are smart enough to pass a national standard 
that is amenable to all the States, a lot of things could 
happen that aren't happening today. Am I wrong in that?
    Mr. Pincus. I think you are right. It is hard to know. I 
think in talking to the private sector, which obviously has its 
finger much closer to the pulse than we in government do, most 
of the concerns that we hear expressed are in terms of what 
happens if we don't get to a uniform standard soon. We don't 
hear a lot of examples of people saying, ``We are thwarted from 
doing something right now.''
    Mr. Tauzin. Well, let's find out. Ford Motor Company 
indicates, Mr. Skogen, that you are doing a lot of online 
customer activities. But the customers still have to go to a 
dealership, right, and sign a contract at the end of it all; is 
that correct?
    Mr. Skogen. That is correct.
    Mr. Tauzin. Would it be helpful if, in fact, we had a 
national standard so that you could do all of that business 
online, including the contract? Could we end up 1 day where 
customers could design their cars; order them from you online; 
and the factory would build it and ship it?
    Mr. Skogen. Well, I guess anything is possible.
    But we do, in fact, receive requests from customers and e-
mails on trying to make the process a little smoother for them; 
allow them to do as much of it from home as possible. In fact, 
even some dealers today are delivering vehicles to the 
customers' homes that have ordered it over the Internet.
    Mr. Tauzin. Yes. So I mean that a lot more is possible if 
we are wise enough to have a nice set of standards.
    Let me ask you in terms of the current bill, Mr. Siedlarz, 
you have made the case for technological neutrality here. Is 
our bill sufficiently technologically neutral?
    Mr. Siedlarz. I think it is. I think, Mr. Chairman, it is 
very close. With our little sensitivity on the issue of 
biometrics; the way we link biometrics to encryption; and the 
growing understanding of those who have to work together, I 
think that is true.
    One added comment to your previous question, if I may: It 
has to do with the issue of how we judge what is happening on 
the Internet today. I don't think we know the true story. 
Because we measure everything in terms of financial losses, for 
example, and the misuse of a credit card, or having that 
information stolen; we don't know, in fact, whether or not 
privacy is being invaded at a significant level, and yet not 
realized today by the consumer. We simply don't know the levels 
of penetration.
    Mr. Tauzin. You don't know how many consumers refuse to use 
e-commerce until they know all this has been worked out.
    Mr. Siedlarz. That is correct. I suspect that it is a large 
number.
    Mr. Tauzin. Mr. Curtis, let me get you to help us, too. How 
deep is the concern about disavowal of transactions, right now, 
repudiation, and the losses that might be incurred by companies 
without a digital standard?
    Mr. Curtis. Our concern about that is fairly high. We are 
moving forward with a number of initiatives that will have us 
more active online. But concern about disavowal, and 
consequently, fraud, actually are a high-level concern with us. 
They are holding up some of those initiatives that I really 
don't want to talk about in detail. They are company-
confidential. We probably would be moving faster and providing 
more online, Internet service sooner, if there were greater 
certainty of transactions over the Internet and a more secure 
legal basis for them.
    Mr. Tauzin. So you have that same sense that we seem to 
have. Consumers, in many cases, are going to be much more 
willing to engage in e-commerce once we have some kind of 
national standard established.
    Mr. Curtis. Yes, I think that is true. Definitely.
    Mr. Tauzin. Secretary Upson, before I leave you and go to 
the members, would you give us a little clearer understanding 
of the Virginia concept of the best practices center? What is 
it? How does it work? What does it do?
    Mr. Upson. Yes, Mr. Chairman, I would be pleased to. In 
fact, I am sorry that I neglected that in my remarks.
    One of the things that we are trying to do is encourage the 
State agencies to--and Governor Gilmore is about sign an 
Executive Order that will require State agencies to--think 
about the electronic signature environment and putting up 
systems that facilitate it in their contractual arrangements. 
What we are establishing is a statewide, best practices 
website, where agencies--smaller agencies in particular--can go 
and get information on how the process works; what other 
agencies are doing; and what other States are doing. This is so 
we might have the ability to take advantage, without having to 
reinvent the wheel, and really build a best practices center 
across government that we can use for a number of information 
technologies and electronic commerce initiatives. Digital 
signatures is just one of them.
    In fact, one of the recommendations that you might consider 
is a best practice site at the Commerce Department, or an 
appropriate place, for States to be able to at one stop 
understand where they can go and see what the best practices 
are, and find out what other States are going.
    Mr. Tauzin. Interesting. Thank you very much, sir.
    Finally, Mr. Engelberg, we have a number of members now. I 
wanted to wait until we had a sufficient number, because I 
thought this would be interesting for everyone.
    Here is your digital signature on Stamps.Com, right? 
Explain to us how it works. How is it secure? How is it 
authenticated?
    Mr. Engelberg. Sure. Each barcode is unique. Each one 
contains a digital signature that is generated for that 
particular piece of mail. The barcode contains additional 
information like the delivery routing; zip code; where it came 
from; a date/time stamp, and the amount of the postage. A 
digital signature is generated by a private, cryptographic key, 
which is unique to a particular user.
    Before we create that key set, it is sent to the Postal 
Service's Certificate Authority, where a digital certificate is 
generated. That certificate's serial number is embedded in the 
barcode. In the event that the Postal Service wants to 
authenticate the postage, they can scan the barcode; get the 
certificate's serial number; and from the Certificate Authority 
get the public key to read the digital signature. If the two 
match, then you know it was generated by a valid key. So, that 
is the full process.
    Mr. Tauzin. So, it is an encrypted system with a private 
key, with the availability of the Postal Service to use a 
public key to authenticate it, if necessary?
    Mr. Engelberg. Correct.
    Mr. Tauzin. Thank you very much.
    The Chair will now yield to the gentlelady from California, 
Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman. My thanks to each one 
of the panelists for your excellent testimony to us.
    I would like to start out with Mr. Pincus. Thank you, 
again, for your testimony and your good work at the Commerce 
Department on the international front of this very important 
issue.
    My question to you concerns the section on preemption. I am 
sure you would have guessed that is what I would be asking you 
about: section 102 of the bill. As you point out in your 
testimony, this section would empower the Secretary of Commerce 
to file an action to enjoin the enforcement of State statutes 
prohibited by this act.
    I have two questions. First, did the Secretary of Commerce 
seek this authority? Second, what effect do you believe such a 
statute would have on State laws addressing electronic 
authentication? Then, as a follow-up, I would like Mr. 
Greenwood and Secretary Upson to also comment on the questions 
and Mr. Pincus' response.
    I am asking you to divvy up the time now. Those are my 
questions. Mr. Pincus?
    Mr. Pincus. Thank you, Congresswoman Eshoo. We certainly 
did not seek this authority. As I mentioned in response to the 
chairman, we are not aware that the case has been made yet that 
there is a need for preemption, although it is risky. When the 
chairman is making a case, you sort of always now that you are 
going to get on the bad side.
    Ms. Eshoo. But that is what hearings are for, so that we 
can flush out the different parts of the bill; develop 
consensus, and have the strongest one that is going to work 
well for the country.
    Mr. Pincus. No, I understand that. So we didn't see a case 
for preemption at this time. I think to the extent there is 
such a case, as I said in my oral statement, it seems to us 
that it is a case to create a gap-filler rule until the States 
enact the Uniform Electronic Transactions Act. I think that 
everyone agrees, as I said, that if we could wave a wand and be 
sure that every State would do that in a short period of time, 
then there would be no problem, because the UETA would be a 
very strong, uniform basis of national law.
    That, it seems to us, is what we should be doing. Some of 
the concerns that are expressed in my written testimony are 
that this bill really goes beyond that goal and could create 
some continuing questions about the preemptive effect of this 
measure vis-a-vis any uniform State law that is enacted. That 
could cause a lot of confusion about what the governing rules 
are.
    Ms. Eshoo. Thank you.
    Mr. Greenwood. I tend to agree with Mr. Pincus. I guess I 
would just emphasize one part of it. We really are, I think, at 
the cusp of uniform State law in this area. National Conference 
of Commissions on Uniform State Law has been almost at the end 
of a multi-year process of developing the Uniform Electronic 
Transactions Act. I feel like I have been privileged to be at 
almost all of their drafting meetings. It is quite an 
incredible process to see them go through so many interrelated 
areas of State law and common law; and get down to the 
fundamental interests that industry has in creating a better 
legal framework; and make sure they are meeting those 
interests, while also balancing other interests, as well.
    Ms. Eshoo. Do you think that the States, in developing the 
model legislation, would have that completed within the 2-year 
deadline that I think the bill establishes?
    Mr. Greenwood. That is going to be one of the areas that we 
will be proffering comments on within our 30 days. The 2-year 
time limit, in our view, is somewhat problematic. The 
preemption balance is going to be the most delicate one in a 
measure like this. A key criteria is that it allows 
jurisdiction to revert back to the States, as part of our 
comprehensive Uniform Commercial Code, commercial law, and 
Uniform Electronic Transactions Act process. We have some 
States that are not even going to be in session. They have 
legislative sessions every other year. Texas, and some others, 
for example.
    The other issue in this is that we are talking about an 
area of law which is going to be evolving over many, many 
years. The markets will evolve. The technologies will evolve. 
Things will come up. So long as you have States around; so long 
as we have these legislatures; and we have other interrelated 
areas of law, we are going to need the flexibility to maintain 
the jurisdiction--and in a sense, the sovereignty--to continue 
to discharge our duties to make sure those laws are appropriate 
and responding to those changing conditions in 2 years, in 20 
years, and hopefully, in 200 years.
    Ms. Eshoo. Secretary Upson?
    Mr. Upson. It is an interesting question. I would just 
comment that I think that what I understand the statute does--
or is attempted here--is that uniform standard of recognition 
across the country in recognizing an electronic signature is in 
the interest of the citizens of every State. Of course, it is a 
little moot for Virginia. We are in place, or will be within 
the 2 years.
    Part of me thinks--to speak as a consumer--I hope that the 
States would have that in place within 2 years for the ease and 
the ability to do the kinds of transactions that are multi-
State, in terms of insurance; buying a car; registering with a 
financial institution, or anything. I am not sure that in the 
Internet speed that our society is moving at that will be an 
issue in 2 years. Maybe I am an optimist. I hope that the 
national standard that this law establishes itself is in place. 
I would feel differently if there were a prescription for how 
we do it, as opposed to that there is a recognition that an 
electronic signature is binding. I think that is the 
significant part.
    Ms. Eshoo. I don't think the committee has ever, in any of 
its legislation, prescribed to a certain technology. I don't 
think that is for the Congress to do.
    Mr. Upson. No. I understand that.
    Ms. Eshoo. So we agree with you there. The area that I am 
pursuing, as you clearly understand, is how we marry the ``test 
kitchens,'' as it were, of the States; not dampen their 
creativity; develop something that is timely across the Nation; 
but not trample on one another. That is the area that I am 
asking you about. I am not so sure what your answer is.
    Mr. Upson. I guess I don't see the trampling in the 
legislation. I don't.
    Ms. Eshoo. So you think that the States are being 
respected? If they don't come up with something in 2 years, the 
bill would impose----
    Mr. Upson. I would hope that the States, in 2 years, would 
have it in place. I just think that in 2 years we will be so 
far along with electronic commerce, I think it is important 
that----
    Ms. Eshoo. This is electronic signatures that we are 
talking about, though.
    Mr. Upson. Well, electronic signatures I consider to be 
integral.
    Ms. Eshoo. You are doing your best to give me answer, and 
be very respectful of Chairman Bliley. I appreciate that.
    Mr. Pincus. Congresswoman, can I underline one thing that 
Mr. Greenwood said, because I think it is important.
    One of the problems of the 2-year period is if 10 years 
from now--and this frequently happens with uniform laws--there 
is an update that is done because of changes in technology, or 
things we cannot even anticipate. I think the way that this is 
currently drafted, it would prevent the States from coming back 
with another uniform law that updated the first one. I think 
that is what he was getting at. It has this continuing 
preemptive effect.
    Ms. Eshoo. I appreciate the comments that you have made, 
each one of you. I think, Mr. Chairman, it is a section of the 
bill that needs some dusting up. I yield back.
    Mr. Tauzin. I thank the gentlelady. The Chair now 
recognizes the gentleman, Mr. Shimkus, for a round of 
questions.
    Mr. Shimkus. Thank you, Mr. Chairman.
    I want to first direct my question to Mr. Engelberg. Based 
upon your response, you saw us all chuckling. Encryption is 
part of this issue, but we also have another big issue before 
us on encryption. I guess the question I want to ask, first, is 
in our issue addressing the ease of export controls for 
encryption products. What is role of that, in perspective? I 
will just ask for your comments.
    Mr. Engelberg. Well, as a company, Stamps.Com does not have 
a formal position on export controls of encryption. We are 
working with international postal authorities to try to achieve 
a international standard, along with the U.S. Postal Service, 
for the digital signature and two-dimensional barcode, so that 
this form of postage can be recognized worldwide. Right now, it 
is restricted for domestic use.
    Mr. Shimkus. Why is it restricted for domestic use?
    Mr. Engelberg. There are a bunch of reasons, mostly Postal 
Service decisions. International postal authorities do not yet 
have the ability to recognize that type of postage.
    Mr. Shimkus. Does it depend, in any amount, on our 
encryption policy?
    Mr. Engelberg. I don't believe so. I would want to 
investigate that further and provide a written response.
    Mr. Shimkus. Also, you talked about public access and 
private access of keys. Is the perception on your end as far as 
mail fraud and the ability to have access to keys, both public 
and private, a concern? Is it not a concern?
    Mr. Engelberg. In our system, the keys that are used to 
generate the postage are not actually in the hands of the user. 
They are always maintained on our server. When a user logs in 
and is authenticated through a proprietary authentication 
process, the keys that are used to generate postage for their 
unique account--their meter--are pulled from a data base and 
used, within the boundary of a highly secure, cryptographic 
device.
    One of the concerns that I highlighted in my written 
statement was that a private key in the hands of somebody who 
does not know how to use it can be dangerous in that someone 
could get hold of your private key and begin signing things. It 
is non-reputable. That is one of the reasons we hold onto the 
keys that are used to sign.
    Mr. Shimkus. What if there is an issue on mail fraud and 
the government? I guess the Department of Treasury would want 
to address that. How would they get access to a key to follow 
information--or, would they?
    Mr. Engelberg. Well, one of the motivations for the system, 
actually, was to combat mail fraud. Traditional postage meters 
are susceptible to fraud. You can crack into them and literally 
roll back the meters. So this was a way of stepping up the 
security of evidence of postage.
    With regard to which government agency would conduct an 
audit, right now that exists within the Postal Service. The way 
they would do it would be by scanning any individual mail piece 
and checking the validity of the digital signature using a 
Postal Service Certificate Authority, which the Postal Service 
runs.
    Mr. Shimkus. Okay. I think I still have some time, so I 
will go with Mr. Skogen, from Ford Motor Company. Would you 
please outline a few components of the transaction costs your 
company may incur if it is faced with 49 different State 
electronic signature laws? I don't know why it is 49. Probably 
50 different signature laws are possible.
    Mr. Skogen. Maybe I can respond to that from a little bit 
different side, and look at some of the things that we are 
looking at and doing today on the Internet that could be 
affected by it.
    For instance, I see several opportunities for several 
applications for the Internet that we have already launched. 
For instance, company-to-dealer communications through a dealer 
Internet website, which enables us to communicate faster, on a 
more timely basis, from one central location. Some of the 
things that we would like to do on that website are going to 
require some type of electronic signature.
    Ford Credit offers customer account access online, which 
provides 24 hours, 7 days a week secure account access for 
customers. Today we have roughly 170,000 Ford Credit customers 
that are using it on a monthly basis. Our purchasing 
organization is analyzing warranty repairs, via the Internet, 
along with our suppliers. They are pursuing a paperless 
purchasing process, which includes non-production purchases of 
several billion dollars a year. On the Ford supplier side, Ford 
has a Ford Supplier Network they can access through the web, 
which offers information and communications facilitating the 
engineering process, along with online training.
    Everything that I have mentioned provides additional 
efficiency and convenience; but it would be more efficient and 
secure with electronic signatures.
    Mr. Shimkus. And much more difficult if you had to comply 
with 49 or 50 different encryption possibilities.
    Mr. Skogen. Yes, that is true, I guess. Whatever advances--
is e-commerce the quickest? Whether we get it from the States, 
or whether we get it from the Federal Government, it has to be 
uniform and it has to be soon.
    Mr. Shimkus. Mr. Chairman, I yield back. Thank you.
    Mr. Tauzin. I thank the gentleman. The Chair now recognizes 
the gentleman from Tennessee, Mr. Gordon.
    Mr. Gordon. Thank you, Mr. Chairman. Let me thank you, once 
again, for your tolerance in allowing a little flexibility here 
today.
    As I had mentioned earlier, last year the House passed the 
Government Paperwork Reduction Act. I have introduced 
legislation to try to bring that to a head. That act required 
that, by the year 2002, the various Federal agencies would be 
able to communicate with electronic signatures with their 
constituents; but it has really set up no guidance. You could 
wind up getting into a situation where, because of 
interoperability within an agency, or between agencies, you 
could have even a more difficult time trying to communicate 
than before.
    So what our digital signature legislation does is sets up, 
or dictates, or directs NIST, which is the National Institute 
of Standards in Technology, to establish some minimum, 
technologically neutral standards so that the different 
agencies will be able to by off-the-shelf products and have 
interoperability. That was the objective. I have vetted it 
extensively with the private sector, all on a positive basis, 
if anything they say goes beyond this in having authentication 
beyond just electronic signatures. I have tried to make this 
available to all of you. I don't know whether it has worked its 
way up through the food chain or not.
    I am going to break the cardinal rule of a lawyer and ask a 
questions that I don't know the answer to. I will start with 
Mr. Pincus. The ones of you that have had an opportunity to 
review this, any kind of feedback that you might give, give 
please.
    Mr. Pincus. Certainly, Congressman Gordon. Let me say, 
first of all--maybe a little parochially--we are very proud of 
NIST at the Commerce the Department, and its expertise in the 
computer area, among many other areas. We think it does have a 
role to play.
    I think our question involves how this legislation would 
interact with last year's, because we think last year's 
legislation is working. Agencies are moving forward with the 
process of moving online, and adopting authentication methods 
that work for whatever their particular interaction with 
customers or constituents is. I think we would be interested in 
working with you to provide a way so that agencies, as Mr. 
Upson said, have access to the resources so they know what is 
out there in the marketplace.
    Where we get concerned is the idea that there can be a 
single solution or set of solutions for standards problems in 
the government. Just like in the private sector, there are 
different kinds of authentication and different levels of 
security that may be appropriate for different kinds of 
government/non-government interactions. So we are leery of an 
approach under which there can only be one digital signature 
that you can use for all your interactions with the government, 
because that is not how the agencies are going. As I said, 
their missions and their various interactions may require 
different levels of security. Obviously, it is very high for 
Treasury in its dealings with financial institutions; and it 
may be much lower if it involves just filing an informational 
form that does not carry the same consequences if things are 
mishandled.
    My overall reaction is that we would, obviously, be very 
happy to work with you in moving this forward.
    Mr. Gordon. Well, our objective is not to look for one 
standard. Our objective is to, again, allow a minimum standard.
    I know that at home we have 95 counties in Tennessee. We, 
some time back, tried to get them all to take their election 
commissions and get them computerized. Well, each election 
commission got the cheapest thing they could find. There was no 
interaction between them. We are having to start all over.
    So, there are number of, I am sure, good products there. 
What we want is for agencies to know which ones can be 
interoperable and where you go out on-the-shelf and purchase 
them. Anyone else?
    Mr. Pincus. I should say that on the off-the-shelf point we 
are very focused on the idea that we shouldn't be looking to 
create special products or technologies for government. What 
government agencies should be doing is looking at what is out 
there in the marketplace and picking something that works for 
them.
    Mr. Gordon. Trying to keep within our time. Anyone else?
    Mr. Upson. Just a quick observation. I am not real familiar 
with the legislation. As you describe it, there is also, under 
the Information Technology Management Reform Act that Congress 
created and the President signed, a chief information officer 
apparatus, where you have the agencies with the knowledgeable 
people. I forgot what the mechanism is in that bill, but they 
meet regularly as you know.
    Mr. Gordon. I think it is the OMB.
    Mr. Upson. Yes. And each agency has a representative. That 
might be very useful.
    Mr. Gordon. We are trying to work with them to, again, find 
that continuity.
    Anyone else?
    Mr. Siedlarz. Congressman, one other quick response. I 
wanted to make you aware of the fact that there is a 
significant movement within the industry to find application 
program interface standards that all companies and all 
technologies can meet, up to a certain line, for a kind of 
handshake that would make them interoperable.
    One of the most significant ones is an ad hoc organization 
called BIOAPI. Most of the major computer manufacturers, as 
well as significant participants in the biometric industry are 
involved in the development of those standards. Before the 
government steps in and attempts to adopt a standard, even a 
common denominator one--which I think is admirable--I think the 
product of those industry groups would be useful, first.
    Mr. Gordon. If you could provide me with the name of that 
organization and how to contact them, it would be helpful. 
Thank you.
    Mr. Siedlarz. I would be happy to do that.
    Mr. Greenwood. If I may take a stab? I had an opportunity 
to review the legislation. One of the sections of it that I 
thought held a lot promise to be assistive was the panel. I 
think it was the last section. A number of States have been 
struggling with the same questions. How do we organize? How do 
we standardize? How do we ensure interoperability among our 
usages of electronic authentication; and in particular, the 
usage of certificate authorities, certificates, and digital 
signatures?
    I would be happy to make available to the committee in part 
in response to your question a draft guidelines document which 
we came up with collaboratively with some Federal agencies, and 
mostly with some private-sector entities through the National 
Automated Clearinghouse Association. It is something called 
``The Certificate Authority Rating and Trust Guidelines.'' We 
opted in the end of the day for no central standards from any 
given organization, or even a consortium of organizations. But 
rather at this stage, since we are still in an early phase of 
development of the technology and the business model supporting 
the this technology; we opted to give some guidelines for 
bottom-up standards through watching best practices emerge: 
contracts, operating rules, and things of that nature.
    The only other observation I make on the bill, which maybe 
deserves some more review, is that it does seem to have an 
underlying assumption that the usage of certificates will be 
part of a trusted third-party certificate authority model. Our 
review of this document in the natural organization seemed to 
indicate that the business models are developing more in line 
with a so-called ``closed system,'' or a bounded system, where 
the organization issuing the certificates for use is actually 
one of the two parties themselves. So it may be that your bank 
is issuing you a certificate. It is not some third-party 
certificate authority. That is something that might bear some 
more analysis in your bill.
    Mr. Gordon. I think within the Federal Government you are 
going to be dealing with constituents more than business. There 
is some business-to-business; but there are also going to be 
individuals that will not have that ``in-house'' ability.
    Mr. Skogen. I would like to just make one quick comment 
here. We see H.R. 1714 as the first step in establishing 
acceptance of electronic signatures nationwide. We do support 
anything that advances uniform standards, such as H.R. 1572.
    I mean, if the Federal Government can be used as a model 
for widespread usage, I think that is great. But we think that 
the industry-based standards for certification authorities 
would be better for business.
    Mr. Gordon. Thank you, Mr. Chairman.
    Mr. Tauzin. I thank the gentleman. The Chair is now pleased 
to recognize the gentleman from Oklahoma--who, in e-commerce 
jargon, may not have been much of a sender, but is one hell of 
a receiver--Mr. Largent.
    Mr. Largent. Mr. Pincus, for many at the Commerce 
Committee, can you give us any idea what the number is in terms 
of dollars that is being conducted today in e-commerce in this 
country?
    Mr. Pincus. In my written testimony, I have some numbers. 
The projections are overtaken when we get to reality, so the 
projectors go up another notch.
    The forecast that we are hearing is that online retail 
sales will be about $40 billion by 2002. And all e-commerce 
activity, including business-to-business which is obviously a 
much larger amount, could be up to $1.3 trillion, in around 
2002-2003.
    Mr. Largent. What would you estimate that it is in 1999?
    Mr. Pincus. I think in 1999, the online--the Christmas 
retailing--was in the $7 to $9 billion range. I am not sure 
what the number is for online business-to-business. It is many 
multiples of that. The business-to-business transactions are 
moving ahead much quicker than retailing.
    Mr. Largent. So, $12 billion; $20 billion?
    Mr. Pincus. I think maybe in the upper range; around the 
$100 billion range.
    Mr. Largent. One hundred billion. That is all electronic 
commerce? I am trying to compare your numbers. In 2002 you said 
$40 billion.
    Mr. Pincus. No. The all-in number was $1.3 trillion.
    Mr. Largent. Right. Okay, that is right. So, $100 billion. 
We are anticipating that to grow by twelvefold in 2002.
    Mr. Pincus. I think the growth rates are very high.
    Mr. Largent. Okay. Do we have any idea what kind of abuse 
has taken place today, because of the lack of verifiable or 
uniform electronic signature laws in this country? How much are 
people stealing--Visa Card numbers, and so forth? What kind of 
abuse is taking place today?
    Mr. Pincus. I don't think we know. I actually think that, 
even if we had a signature law, even if the Uniform Electronic 
Transactions Act were enacted today, that still would not 
provide a means of paying for most consumers goods. I think in 
the foreseeable future for consumer transactions, there is 
electronic money and perhaps other innovations that are a bit 
further off in the future. I think people anticipate that 
credit cards are going to be the method of payment for consumer 
transactions in the near and medium term.
    Credit card companies, themselves, have been developing 
some kinds of security mechanisms to be sure that credit card 
numbers aren't misused. But as some people have pointed out, if 
you give someone your credit card in a restaurant, it passes 
through a lot of hands. The opportunity for people, if they 
have a fraudulent frame of mind, to get the number and misuse 
it is not that different from someone's catching the number 
electronically. A person with fraud in mind, if they get into 
the stream, can obviously catch a lot more numbers and may have 
a bigger opportunity for fraud. But I think the credit card 
companies are very focused on this problem, since they bear the 
burden of the fraud and are figuring out ways to prevent it.
    Mr. Largent. Do you hear from the States very often in 
terms of the dollars that are conducted through electronic 
commerce that escape State taxation, or even cities and 
municipalities?
    Mr. Pincus. I am privileged to be Secretary Daley's 
representative on the Internet Tax Commission. So in preparing 
for the first meeting of that Commission, which is going to 
take place in Williamsburg on the 21st and 22nd, I have been 
hearing a lot of information from States and localities about 
their concern that there may not be a tax collection mechanism; 
and what that might mean for their revenue base.
    Mr. Largent. Yes. So I am asking that question, because one 
of the issues is States' moving forward with their own 
legislation on electronic signature. Would the fact that they 
are losing taxes, because of electronic commerce, be a sort of 
cold blanket on them out of wanting to move forward 
expeditiously within a 2-year window, or whatever, on doing 
something themselves? Do you understand what I am saying?
    Mr. Pincus. I understand what you are saying. I guess I 
haven't heard that. Because of the economic growth potential of 
electronic commerce for our country and for each State, I think 
there is much more of a policy and political imperative for 
States to do things that facilitate the growth of electronic 
commerce, even if it may, as you say if this other issue isn't 
solved, have an adverse revenue effect on them.
    What we have heard is much more of an interest in doing 
things to help e-commerce grown, and then figuring out a way to 
deal with this tax issue.
    Mr. Largent. That is what I hear, too. It does flow both 
ways. In other words, you can open up your own electronic shop 
in your State, and have people buying products from your State, 
as well.
    Mr. Siedlarz, I just wanted to ask you a little bit about 
your company and how that works. What would I have to have to 
have on my laptop in order to do that iris deal? Everything 
that I would need, do I have it on my laptop right now?
    Mr. Siedlarz. Pretty much, except that the only other 
peripheral that you would need, Congressman, is a small 
imager--a camera--that sends either the iris code itself, or 
the image for processing on the laptop, and resident software 
on the laptop that would do the processing and comparison.
    Mr. Largent. Does that have to have that broad-band, high-
speed Internet capacity?
    Mr. Siedlarz. Well, it doesn't. There are two different 
version of it that we are working on now. One can send a very 
low bandwidth of 4 to 6 frames a second. Another version sends 
30 frames a second, but you are doing the processing in the 
imager. So, it depends on where you are doing the processing.
    Mr. Largent. Mr. Engelberg, my last question is to you. You 
were explaining, a little bit, about your electronic signature 
on your envelope. I have to tell you that I honestly did not 
understand one word you said. Can you kind of just tell me what 
business you are in? What the heck do you do with this, 
Stamps.Com? I don't have a clue.
    Who are your consumers? Do you just work with the general 
public? What would I buy from you? What is your business?
    Mr. Engelberg. Yes. Our service is designed to provide 
postal convenience. We basically replace the postage meter. We 
make it possible for you to print postage off your desktop 
printer, using your laptop with nothing added; 24 hours a day, 
7 days a week. We do it with a system of cryptographic keys on 
our servers that generate digital signatures to make each stamp 
unique. There is a digital signature in every barcode, in every 
stamp.
    Mr. Largent. And the Postal Service has to read that 
digital signature?
    Mr. Engelberg. The Postal Service can read it to audit the 
process to determine the authenticity of the stamp. When they 
read the barcode, they can pull out the digital signature and 
validate that with the public key they have on their 
Certificate Authority.
    Mr. Largent. Okay, I got you now.
    Mr. Engelberg. I will stop there.
    Mr. Largent. Yes. Don't give me too much information.
    Thank you, Mr. Chairman. I yield back.
    Mr. Tauzin. Otherwise you might go postal on us.
    Thank you, Mr. Largent. The Chair is pleased to recognize 
the gentleman, Mr. Sawyer, for a round of questions.
    Mr. Sawyer. Thank you, Mr. Chairman. Every time we talk 
about the electronic environment, one of the things that I try 
to do is to think back to the fundamental underpinnings of any 
process of law that might have preceded the environment that we 
are working in, and recognize that many of the protections that 
are offered in conventional environments really ought to apply 
in a more technological one.
    Today we have been talking about interoperability and 
verification of signatures. We have touched a little bit on 
sanctions. But I am struck by the Virginia precept that 
suggests that, ``Where any Virginia law requires a signature, 
or provides for certain consequences in the absence of a 
signature, that law is satisfied by an electronic signature.'' 
I would really like to ask you to talk a little bit about 
sanctions for falsification, or failure to perform as agreed 
over a legitimate signature at both ends of a transaction. I am 
particularly interested in the Federal law enforcement 
standards. We have talked about postal standards, but I am not 
sure about postal fraud: everything from bouncing checks and 
the IRS, and the way that has been used for enforcement.
    So what I would like to ask each of you is, thinking in 
terms of both a multi-State and trans-national settings, are 
there special places that we ought to look for pitfalls that 
are unique to this environment in terms of enforceability and 
comfort levels with sanctions, and guarantees of privacy and 
security? It seems to me that if trust is at the core of a 
signature, that becomes particularly important when we are not 
only talking about the electronic environment, but the playing 
field, both multi-State and trans-national. Mr. Pincus? Mr. 
Upson? Special pitfalls that we need to look out for.
    Mr. Pincus. Well, I think one you mentioned is, certainly, 
privacy. We have taken the position that we should look for the 
private sector to lead the way on privacy protection. 
Certainly, one thing that we believe is important is that 
authentication providers have good privacy practices that are 
up to the level of the good online privacy practices that we 
have talked about elsewhere. I think that most of them do. That 
is clearly important. Because it is possible that with some 
forms of authentication, the authentication provider would have 
a lot of information about an individual's transactions that 
the individual might not want to be sold, or might at least 
want to exercise a choice about whether it could be marketed, 
or mined by data miners. Certainly, we think that allowing such 
choice is a good practice. We have not advocated government 
solutions to this problem, because we think the private sector 
is moving to do that. I think that is the right approach.
    I think as a general matter, although electronic commerce 
technology is very different from that used in international 
commerce, it may be inappropriate to have special protections 
for electronic transactions differing from those we have in the 
physical world. We have general commercial contracting rules. 
We also have special consumer protection rules--
unconscionability, and things like that--that apply to consumer 
contracts. You would certainly want to be sure that those 
things applied in cyberspace, as well.
    There are some kinds of contracts in the physical world, 
with respect to which we require special formalities: wills, 
for example. One would certainly want to provide that is also 
true, to the extent that there will be electronic contacting, 
that there will be a form of authentication in that context 
that has special assurance, because we insist on that in the 
physical world.
    I think as of now, we don't see the need----
    Mr. Sawyer. I don't want to run out of time.
    Mr. Pincus. I am sorry. Other than translating current 
rules appropriately for the online world, we don't see the need 
for some special, overall new rules in electronic contracting, 
because we are concerned about how that might tilt the market.
    Mr. Sawyer. Mr. Upson, would you be comfortable enforcing 
Virginia's laws based on signature in a multi-State or trans-
national setting, based on the kinds of protections that you 
have available?
    Mr. Upson. Well, I guess I would look at from this 
perspective: I think that what we have tried to do in Virginia 
is not create any new laws, necessarily; except for unsolicited 
bulk e-mail, where we have a unique statute. Really, if it is 
fraud in the non-electronic world; it is fraud in the 
electronic world.
    We have tried to ensure that our statutes do exactly what 
Mr. Pincus said: to ensure that our statutes recognize that 
fraud is fraud. If you falsify information electronically; once 
that is recognized, it is a crime. We actually have a program 
to train law enforcement professionals in cyber-crime. I guess 
that is the way to look at it. Really, we try to say that our 
whole premise is--I think it is yours, too, in this 
legislation--that crimes are crimes, whether they occur 
electronically or not.
    Mr. Sawyer. I agree with that. I am looking for special 
circumstances that we ought to be particularly alert to.
    Mr. Upson. ``Spam,'' I think we have looked at. We have 
attacked it. We have created a cause of action. There are 
companies that engage in spam as a matter of business and pay 
fines that are set up. We have made it very expensive now, in 
Virginia. That is unique to the Internet.
    Mr. Sawyer. Mr. Skogen?
    Mr. Skogen. Yes. I am really not the right person to 
respond to that question, but would be happy to get back to 
you.
    Mr. Sawyer. Good.
    Mr. Greenwood. In Massachusetts, one of the first things 
the Weld administration did in the early 1990's was to create a 
computer crime commission, which analyzed our entire body of 
statutory and common law crimes to see whether they were 
adequate for even what we were seeing then as our emergence 
into an information age. I think the results at that time 
really still hold true today. Largely, our existing body of 
laws was adequate to handle the types of crimes, fraud and 
other misdeeds, that we saw developing. The exception is that 
we have to keep asking the question.
    So our approach is to remain on the lookout; to continue to 
have hearings like this; and continue to ask and make targeted 
reforms, as needed. I think we clarified a couple of things to 
just make it painfully obvious for our prosecutors as they made 
the case that larceny includes electronic property, and so 
forth. So we made a couple of small tweaks--arguably not even 
necessary.
    Mr. Sawyer. Others? Thank you, Mr. Chairman.
    Mr. Tauzin. Thank you, Mr. Sawyer. The Chair is now pleased 
to recognize the gentleman from Illinois, Mr. Rush, for a 
round.
    Mr. Rush. Thank you, Mr. Chairman. Mr. Chairman, I want to 
also commend you for patience, and commend the witnesses for 
their patience. I know this has been quite a long hearing. I 
just have a couple of questions for Mr. Siedlarz.
    This technology to verify someone's identity through their 
physical characteristics is pretty fascinating to me, and I am 
sure to others. You can accomplish this through the use of 
computers and other enrolled data?
    Mr. Siedlarz. There is a broad range of technologies, Mr. 
Congressman, that do that. In fact, maybe 115 different 
versions are available in the world today.
    Mr. Rush. Who would take advantage of this type of 
technology?
    Mr. Siedlarz. That question somewhat talks to the previous 
one from the Congressman about the issue of what we should be 
concerned about. The truth of the matter is that the new 
technology today has a capability of verifying an individual in 
a much more positive way that the previous signature--the human 
signature--ever did. To the degree that Federal law is not 
comprehensive enough to protect that from those who would 
attempt to steal and counterfeit even the electronic version of 
that today, we need to do something about that. As the business 
on the Internet increases and e-commerce increases, clearly, 
the threats against the electronic means of using technology to 
prove identity, or verification, or authentication are going to 
come under more serious attack. Anything made by man will 
ultimately be defeated by others.
    Mr. Rush. Is this technology aimed a particular, narrow 
group of people?
    Mr. Siedlarz. No. The best biometrics whole purpose is to 
be absolutely useful in the general population. To the degree 
that segments would not be available, then the technology would 
be inherently flawed for use in electronic commerce.
    Mr. Rush. When you indicated that you can verify someone's 
identification through the pupil of the eye----
    Mr. Siedlarz. The iris of the eye.
    Mr. Rush. Are you going to have that information? How would 
you gather and collect that information?
    Mr. Siedlarz. That is a good question. Well fundamentally, 
an image of the eye is taken and it is immediately converted 
into a digital code. Then that is translated through a 
relatively sophisticated process into what we call an iris code 
and stored into the computer as 512 bytes of information. There 
is no way that if you take that hexadecimal code of 512 bytes 
that you could recreate the iris, or recreate anything that 
looks like that original image. That information is 
essentially, absolutely useless to anyone other than the system 
of crossing a firewall and liking that image to an identity 
code.
    Even IBIA, as an organization, has taken a very strong 
stand in being proactive about privacy, the ethics of privacy, 
and the use of rules maintaining privacy within the biometrics 
industry.
    Mr. Rush. How would you collect it, though?
    Mr. Siedlarz. Enrollment. You would look in a camera. The 
code is created.
    Mr. Rush. So you have consumers just lined up.
    Mr. Siedlarz. It is a voluntary situation, exactly. There 
are tests going on now; pilots in banks both in Europe, the 
United States, and elsewhere, where people voluntarily submit 
to enrollment--to get a picture taken, essentially--using 
camcorder technology and to have that code created. It gives 
them a great convenience. It protects their accounts. It, 
frankly, protects their privacy in ways that it never did 
before.
    Mr. Rush. This is my last question. Are we approaching the 
day when there would be a national or international data base 
of pupils on file?
    Mr. Siedlarz. Some of us might wish so from a business 
standpoint. I don't think that, practically, that any one 
technology is going to capture the world market or the world 
use. We think some are better than others. But the issue of 
interoperability is really what is important here. Whatever one 
you use, there is a way for them to ultimately speak to each 
other, and serve the purpose that we need in society.
    Mr. Rush. Thank you. I yield back, Mr. Chairman.
    Mr. Tauzin. Thank you, Mr. Rush. I think it is fair to say 
that before you have a contract, you have to see eye-to-eye, 
anyhow.
    It will all work out, somehow. I apologize.
    The Chair is pleased to welcome the very patient lady from 
Missouri, Ms. McCarthy.
    Ms. McCarthy. I thank you, Mr. Chairman, for this hearing 
and your foresight. I would like to remark, in follow-up to Mr. 
Rush's comment on international, that last October I was 
sitting in the Dublin, Ireland, Silicon Valley area in the 
Gateway Facility there observing Prime Minister Ahearn and 
President Clinton sign a trade agreement from their laptops 
with their secure id's. So there are huge international uses 
already for this technology of the virtual signature.
    Mr. Chairman, the President noted that while he is somewhat 
new to the technology, this virtual signature could potentially 
lead to a ``virtual president;'' and thought we ought to 
probably debate larger, philosophical questions while we 
grapple with the practical issues today of State and Federal 
authority.
    It is almost like being at the top of a really snowy hill. 
The toboggan is heading down. You know it would be a great 
ride, but you are not on it. You are running after it.
    I feel a little be breathless about this whole 
conversation, because it is happening. We are today trying to 
grapple with how to do it well, so that it happens with the 
safety and security that we all seek.
    I must confess to the panelists I am a product of State 
government: 18 years in the Missouri legislature before joining 
this august body. So the question of preemption of any State 
law is real to me. My State, Missouri, in 1998 did pass the 
Missouri Digital Signatures Act, that our Secretary of State is 
implementing. It is modeled after Utah law. I know a lot of 
States are grappling with this.
    So in this issue of State preemption, H.R. 1714 would 
preempt any State law that is not consistent with the bill; 
even if the State law is passed within the 2 years that the 
National Conference of Commissioners is working in, as well as 
any laws that are already on the books, like in my State of 
Missouri. Do you believe there is any risk that the uniform law 
that you are contemplating could be construed as inconsistent 
with H.R. 1714, and thereby render this entire, intensive 
effort invalid? I know my State will have to reflect on its 
current law; look to the Commission's work; and adopt and make 
changes.
    If we pass this law, H.R. 1714, what if the Commission's 
work is invalid? Mr. Greenwood, could you reflect on that? I 
would love to weigh-in anyone else's thoughts.
    Mr. Greenwood. Thank you very much for the questions. It is 
very gratifying to see an alumna from the State legislature for 
so many years in this august body.
    I think your concerns are really right on. There is clearly 
a need on the one hand to get a national baseline soon. 
However, that cannot rule to the exclusion of an equally 
important need not to unduly disrupt these areas of State law 
and the emerging State laws.
    To zero in on your specific question, one of the areas that 
ought be looked at as this bill is honed through the process is 
section 102[b][1] and [b][2]. There are several areas, but let 
us talk about [b][1], for a moment. It would require that a 
State law that is enacted to basically revert the jurisdiction 
back to the State within this period of time must meet this 
requirement: that it not discriminate in favor of or against a 
specific technology, method, or technique of creating, storing, 
generating, receiving, communicating, or authenticating 
electronic records or electronic signatures.
    That sounds good in the sense that it is technology-
neutral, which is what we want. I do believe the Uniform 
Electronic Transactions Act, which we are primarily talking 
about now, is largely technology-neutral. However, in the 
particular implementation of many particular areas of law; you 
do have to start talking about specific technologies in a 
consumer protection stance, for example, as we start amending 
our lemon laws to allow people to buy their cars at home.
    Right now, Massachusetts has a requirement that there be a 
disclaimer of various warranties, and other notices placed on 
the windshield. That is a paper requirement. It is based on a 
known business model, where a consumer goes into the lot. They 
see the notice, and so forth. It is a media-specific 
requirement.
    As we start transforming our business models to allow these 
things to occur online, when you don't have a consumer walking 
onto a lot and looking at a windshield before they make a 
decision; at some point we are going to have to say something--
some sort of equivalent language like, ``Must appear on a 
screen,'' or something.
    Similarly, with securities regulation and many other areas 
of law--banking and on down the line--where there is consumer 
protection and other media-specific protection for notices and 
conspicuous terms in place; at some point the State 
legislatures and law makers at every level of government will 
have to come up with equivalent types of standards. That is by 
definition; discriminating in favor of, or against, a 
particular implementation. The trick here is going to be making 
sure that you allow us to responsibly apply the same kinds of 
jurisdiction that we have over commerce and other areas of law 
now, in the information age, without having an inconsistent or 
an undue impediment to interstate commerce. I think that will 
be the trick.
    Ms. McCarthy. Mr. Chairman, would you indulge me a follow-
up question?
    I thank you very much for those thoughts. I think they are 
right on point.
    Mr. Greenwood. Thank you.
    Ms. McCarthy. I would like to know from Mr. Skogen, Mr. 
Curtis, and Mr. Siedlarz, if your industry has been involved in 
the drafting of the Uniform Model Code?
    Mr. Curtis. No, we have not.
    Ms. McCarthy. Oh, yes, Mr. Siedlarz?
    Mr. Siedlarz. Same answer.
    Ms. McCarthy. You have not. Mr. Skogen?
    Mr. Skogen. Apparently, we do, in fact, have State 
representatives that have been involved in doing that.
    Ms. McCarthy. Okay. Well, Mr. Pincus, are you concerned 
that your efforts in this area could be for naught if the model 
is effectively preempted?
    Mr. Pincus. Well, we have concerns, as I said earlier and 
laid out in my written testimony, that we not do anything that 
would lead to controversy about whether the UETA, once it is 
enacted by the States, provides the governing law; and that 
there not be a lot of controversy about whether its provisions 
are preempted. Obviously, such controversy creates the very 
uncertainty that everyone is trying to remove.
    So that is why in our view, to the extent there is to be 
any intervening Federal law, the best approach is to design an 
interim gap-filler until the States adopt the UETA. Then the 
Federal law would fade away. It literally would exist only to 
fill that gap to the extent that the subcommittee decided there 
was a gap that needed to be filled; it would not be a 
continuing Federal overlay on the State law that is eventually 
adopted.
    Ms. McCarthy. Well, I think that makes a great deal of 
sense. In fact, there is language in H.R. 1320 that I think 
attempts to achieve what you just articulated with regard to 
this issue of preemption. I would hope that this subcommittee 
would take a look at this particular point. I know, Mr. 
Chairman, others before me have raised the concern that when we 
enter this arena, we do so with the most study and the most 
well-chosen words so that we don't find out at the end of the 
process that all was for naught, and we are back to square one. 
This technology is taking off without us, like that toboggan 
down that snowy hill.
    Mr. Pincus, you expressed concern, in your testimony that I 
have before me, about the bill's provisions requiring 
electronic signatures to meet reasonable requirements. I think 
that is appropriate. How might this provision lead to problems 
in the interpretation that covers the impact of the viability 
of the model code, or the model bill?
    Mr. Pincus. Well, as I mentioned, the real model of 
authentication that businesses are using now are these closed 
systems that are set up contractually, in which people pick 
whatever authentication regime works for the level of business 
and level of security they need.
    Our position, and it is also a position that has been 
adopted by the drafters of the model law, is that those 
agreements should be enforced. Therefore, if that 
authentication method is used subsequently, those contracts 
should be legally binding. Our concern is that the use of the 
word ``reasonable'' would provide a basis for a judge to say, 
``Well, I don't like the authentication method that these 
parties chose for their transactions; so none of them are 
legally enforceable.''
    Especially internationally, where there will be different 
domestic legal regimes, we think the contractual method is 
going to be the way cross-border transactions will be 
facilitated. We don't want to have a U.S. model that allows 
judicial second guessing or to have such a model adopted by 
other countries.
    Ms. McCarthy. I appreciate your involvement in this 
process. I understand the National Governors' Association is 
engaged in it, as well, with the National Conference. I would 
hope the National Conference of State Legislatures would be 
included, because an awful of lot these States have measures 
already enacted. It is imperative that those voices be at the 
table as well.
    Mr. Chairman, you have been so gracious and kind. I thank 
you for extending this time for me.
    Mr. Tauzin. Well, I beg to differ. I have never met anyone 
more gracious than you, Ms. McCarthy. I thank you for that.
    Let me thank you all, in fact, for your patience and your 
kindness in educating us. I have always called this one of the 
best universities in America that we attend. We have a chance 
to do what Mr. Largent did, which is to say, ``Do that again so 
I can understand it.'' We learn. You have taught us a lot 
today.
    Let me point out, Ms. McCarthy, that one of the problems we 
have in this debate we are going to have over preemption is the 
fact that there are a number of States who have adopted 
``digital signature only,'' and authentification technology 
``certified by the State only;'' which runs counter to the 
technology-neutral concept that is embodied in this bill. For 
example, the biometrics concepts of iris identification would 
not be allowed in a number of these State jurisdictions because 
of the fact that is not an authentication technology approved 
by the State. It is not a digital signature technology as 
required by the State.
    So we are going to have a little difficulty in working that 
out. I think the best admonition is that we do it in a way that 
sets a national standard, but doesn't preclude improvements 
that the Uniform Code authorities eventually might want to 
bring to States and to the national government in the future, 
as technology continues to teach us that there are different 
ways to do things than the way we did it yesterday.
    Let me finally say that it was a learning lesson for us 
that some of you asked that we e-mail our invitations to you to 
come to this hearing today. We had to--regrettably--inform you 
that we couldn't do so because we could not authenticate the 
source of that e-mail; and you might not, therefore, have been 
officially invited to attend here today. Next time, perhaps, 
when we invite you we will have a system in place where we can 
communicate with you; and in this e-commerce world, 
authenticate who we are. You can authenticate your identities 
to us. We can maybe establish a hearing in cyberspace where you 
will not even have to get through the traffic jams in Northern 
Virginia, as Mr. Upson did, to be with us.
    Thank you very much for teaching us today. The hearing 
stands adjourned.
    [Whereupon, at 12:10 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]
          Prepared Statement of the Business Software Alliance
Introduction
    The Business Software Alliance (BSA) appreciates the opportunity to 
provide our views on H.R. 1714, the ``Electronic Signatures in Global 
and National Commerce Act'' (E-SIGN). BSA's members represent the 
fastest growing industry in the world, and are leaders in the 
development of products and services that support electronic commerce 
and enhance consumer convenience. BSA's worldwide members include 
Adobe, Attachmate, Autodesk, Bentley Systems, Corel Corporation, Lotus 
Development, Microsoft, Network Associates, Novell, Symatec and Visio. 
Additional members of BSA's Policy Council include Apple Computer, 
Compaq, IBM, Intel, Intuit and Sybase.
Facilitating Electronic Commerce
    Electronic commerce is the American success story of the decade. 
The value of commercial transactions taking place on the Internet is 
expected to double, even triple, annually as consumers and businesses 
grow to understand the vast communications and commercial potential of 
the Internet as a medium of commerce. According to Forrester Research 
Inc., business-to-business e-commerce is expected to top $1.3 trillion 
by the year 2003. Consumers are also increasingly purchasing goods and 
services online. Forrester Research estimates that consumers spent $8 
billion in 1998 on the Internet, buying books, CDs, clothing and other 
items.
    The growing electronic marketplace provides unparalleled 
opportunities for economic growth worldwide. However, the willingness 
of both consumers and commercial firms to engage in electronic 
contracting and other critical aspects of commerce online will depend, 
in large measure, on reliable, well-developed legal structures 
governing the formation of electronic contracts and the rights of 
parties thereto. It is an unavoidable fact that parties will be 
deterred from contracting and fully utilizing the commercial potential 
of the Internet if the governing legal rules are uncertain and thus 
their risks unascertainable. This is especially true in the online 
world that knows no geographic boundaries. Such an environment places a 
premium on harmonious legal structures that do not depend on state or 
international borders, allowing parties to form electronic contracts 
without undue concern as to their validity and enforceability. The need 
for certainty in the governing legal rules of e-commerce goes well 
beyond the ability to ``contract'' electronically. For example, users 
of design and architectural software would gain tremendous efficiencies 
if professional engineers were able to electronically ``seal'' drawings 
by virtue of a digital signature. This would be the functional 
equivalent of placing a stamp on the physical drawing signifying that 
this person, with expertise, has signed off on the drawing. A 
consistent set of rules relating to electronic signatures is required 
for this to ever become a reality.
    This goal is threatened by a dizzying array of state legislation 
governing electronic signatures. These state laws and policies range 
from highly detailed, prescriptive statutory regimes to very general 
enabling statutes. If parties are left with no alternative other than 
to navigate a maze of potentially inconsistent and inadequate state 
laws, the growth of a seamless and frictionless electronic commerce 
marketplace will be thwarted. Although the Uniform Electronic 
Transactions Act (UETA)--a long-running effort that seeks to provide a 
common model electronic signature law for the states' consideration--
will receive final consideration at the July, 1999, meeting of the 
National Conference of Commissioners on Uniform State Laws (NCCUSL), 
the prospects for comprehensive, consistent and timely action by all 
fifty states with respect to UETA remains uncertain at best.
    Federal legislation is therefore necessary to bring certainty and 
reliability to electronic transactions, thereby encouraging greater 
confidence in electronic commerce. This is not simply an important 
consumer issue; it is an important business issue. Consumers may be 
willing to conduct small transactions in the online environment despite 
the uncertainty regarding their legal rights and the effectiveness of 
their actions precisely because their transactions are of small value. 
Businesses, however, will be more reluctant to undertake large 
transactions online unless the rules governing their transactions are 
reasonably well developed and understood. In the end, online commerce 
has to encourage business-to-business transactions if it is to achieve 
its full potential.
    The development of appropriate rules to foster online commerce in 
the United States has real import for the competitiveness of our 
economy. Europe, for example, is rapidly moving to put in place a 
detailed EU directive on electronic signatures, and the United States 
cannot afford to fall behind with respect to the development of a 
coherent, effective legal structure that supports and fosters online 
commerce. Electronic commerce will achieve its potential only if 
governments domestically and around the world create sound legal 
structures that bring certainty and predictability to electronic 
transactions so that electronic commerce can become a secure, 
ubiquitous and global marketplace.
Comments on the ``Electronic Signatures in Global and National Commerce 
        Act'' (H.R. 1714)
    BSA supports H.R. 1714, and views it as a very positive step 
forward in developing an effective legal structure for online commerce 
in the United States. H.R. 1714 is consistent with a number of basic 
principles, outlined below, that BSA considers essential to support 
electronic contracting. However, in two limited respects, BSA believes 
H.R. 1714 should be clarified to afford parties true flexibility in 
electronic contracting, and enable all forms of electronic signatures 
to thrive in business-to-business electronic commerce.
    (1) Technology Neutrality. BSA considers it essential that federal 
electronic signature legislation be technology neutral. No one knows 
precisely how electronic signature products will develop. However, all 
agree that the market will demand a variety of products and services 
offering varying levels of cost and security, and that users will 
select the appropriate mix of cost and security based on the value of 
the particular transaction. To ensure that industry can provide 
electronic signature products and services that meet the whole range of 
consumer needs, the regulatory framework must be sufficiently flexible 
to permit and recognize new signature technologies so as not to stifle 
innovation. H.R. 1714, which does not mandate or provide legal or other 
advantages to certain technologies, is consistent with this important 
principle.
    (2) Non-Discrimination. Federal electronic signature legislation 
should ensure that electronic signatures, and the contracts and records 
to which they are attached, generally are not subject to rules and 
requirements that are more onerous than those applicable to traditional 
signatures and contracts. Any exceptions to this basic principle of 
non-discrimination should be narrowly drawn and clearly defined. H.R. 
1714 appropriately advances this principle, drawing narrow exceptions 
only for rules relating to wills, codicils or testamentary trusts, and 
to adoption, divorce or other matters of family law, all of which BSA 
finds acceptable.
    (3) Market Driven Technical Standards. Federal electronic signature 
legislation should not impose mandatory technical standards regarding 
electronic signature products or extend legal benefits only to 
signatures generated by products meeting certain prescribed technical 
standard. Although some standardization may benefit consumers, the 
information technology sector has been very successful in developing 
necessary technical standards through consumer choice and industry 
consensus. Such market-driven standards fully respond to consumer 
demand and avoid the rigidity of government-imposed, mandatory 
standards that would inevitably impede technological development, 
distort markets in electronic signature products, and ultimately 
restrict consumer choice. H.R. 1714 is consistent with this principle 
in that it does not impose any technical standards for electronic 
signature products.
    (4) Closed System and Limited-Use Certificates. Federal electronic 
signature legislation should be drawn broadly enough to give legal 
effect to electronic signatures that are used in closed systems or that 
are accompanied by limited-use certificates. In both instances, a 
signatory is allowed to access information, utilize services or engage 
in particular transactions based on a preexisting relationship between 
the signatory and the recipient (e.g., employment of the signatory by 
the recipient; signatory's membership in a buying cooperative operated 
by recipient). As a result, the signatory and the recipient are fully 
aware of the limited permissible uses of the electronic signature and 
any accompanying certificate. It is anticipated that the use of 
electronic signatures within closed systems and with limited-use 
certificates will be major component of electronic commerce, and 
therefore it is vital that electronic signatures be given full legal 
effect and recognition in such contexts. H.R. 1714 is consistent with 
this principle in that its definition of electronic signature is broad 
enough to encompass electronic signatures used in closed systems or 
accompanied by limited-use certificates.
    (5) Federal Preemption. Federal electronic signature legislation 
should include a preemption provision that reasonably balances the 
interest of the states with the need to develop in a timely fashion, a 
coherent, harmonious set of rules to govern the use of electronic 
signatures and electronic records throughout the United States. Thus, 
in those instances where states have enacted rules that are not 
consistent with the basic principles established in federal legislation 
or where states simply have not acted to provide the necessary legal 
rules for the use of electronics signatures, uniform federally 
established rules would govern and facilitate the use of electronic 
signatures. H.R. 1714 is consistent with this principle in that it 
provides a set of federal rules regarding the non-discriminatory 
recognition of electronic signatures, but allows the states a 
reasonable opportunity to legislate their own rules governing the use 
of electronic signatures so long as such rules are consistent with the 
basic principles reflected in the bill.
    (6) International Harmonization. Federal electronic signature 
legislation should be carefully crafted so as not to impose any legal 
rules that discriminate against, or preclude the use of, electronic 
signatures from other countries. Electronic commerce is truly 
borderless. Accordingly, federal legislation should provide equivalent 
treatment for all electronic signatures, whether generated within the 
United States or abroad. This is important not only to facilitate the 
use of electronic signatures within our borders, but also to encourage 
other nations to afford comparable treatment to electronic signatures 
generated in the United States. H.R. 1714 is consistent with the 
principle in that it does not establish any federal rules that 
discriminate against electronic signatures generated outside the United 
States.
    (7) Party Autonomy. Federal electronic signatures legislation 
should expressly incorporate and support the principle of freedom of 
contract among private parties with respect to the terms and conditions 
on which they will accept and use electronic signatures and electronic 
records. Parties should be free, on an informed basis, to establish by 
agreement the terms and conditions (including choice of law rules and 
rules of liability) on which they will use and accept electronic 
signatures for purposes of contracting and otherwise. The ability to 
vary electronic signature rules by agreement will enable parties to be 
responsive to the needs and demands of the marketplace, and will 
thereby facilitate the growth of electronic commerce. H.R. 1714 
generally is consistent with this principle, although the language of 
the bill's party autonomy provision (Sec. 101(b)) warrants limited 
revision to clarify its applicability to all terms and conditions on 
which parties will use and accept electronic signatures. BSA has 
attached suggested language to clarify this provision.
    (8) Electonic Agents. Federal legislation governing electronic 
signatures should encompass signatures; generated by so-called 
electronic agents--that is, by computer programs that initiate or 
respond to messages without human intervention--in business-to-business 
transactions. Electronic agents already are in widespread use in 
systems where they effect transactions on behalf of principals, who 
have created such agents and authorized them to act on their behalf 
(e.g., in online supplier and data exchange systems). As electronic 
commerce grows, the use of electronic agents is expected to become even 
more prevalent, for electronic agents facilitate more efficient conduct 
of online commerce. Within this context, if electronic commerce is to 
reach its full potential, electronic signatures generated by electronic 
agents must be given the same legal effect as electronic signatures 
generated by principals themselves. It is unclear whether H.R. 1714 in 
its current form encompasses electronic signatures generated by 
electronic agents. BSA has attached suggested language to make clear 
that electronic agent-generated signatures are covered by the bill's 
provisions.
                               conclusion
    H.R. 1711 appropriately recognizes that, for electronic commerce to 
achieve its potential, transparent and predictable legal structures 
must be established that support global business and commerce. BSA 
supports H.R. 1714, and appreciates the opportunity to provide its 
comments on this important piece of legislation. BSA's member companies 
and its staff stand ready to serve as a resource for the Subcommittee 
and its staff with regard to BSA's suggested revisions and any other 
issues relating to this critically important topic.