[Senate Hearing 106-1070]
[From the U.S. Government Publishing Office]
S. Hrg. 106-1070
UTAH'S DIGITAL ECONOMY AND THE FUTURE: PEER-TO-PEER AND OTHER EMERGING
TECHNOLOGIES
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
OCTOBER 9, 2000
__________
PROVO, UT
__________
Serial No. J-106-113
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
75-313 WASHINGTON : 2001
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone (202) 512�091800 Fax: (202) 512�092250
Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
Manus Cooney, Chief Counsel and Staff Director
Bruce A. Cohen, Minority Chief Counsel
C O N T E N T S
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STATEMENT OF COMMITTEE MEMBER
Page
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 1
WITNESSES
Breinholt, Peter, Recording Artist and Performer, prepared
statement...................................................... 25
Fanning, Shawn, Founder, Napster, Inc., prepared statement....... 29
Israelsen, D. Brent, Founder, President and Chief Executive
Officer, iLumin, prepared statement............................ 7
Miller, Craig, Vice President and General Manager, Net Management
Group, Novell, Inc., prepared statement........................ 14
Nelson, Richard, President and Chairman, Utah Information
Technologies Association; and attachments...................... 21
Pelo, Brad, Chief Executive Officer, Nextpage, prepared statement 4
Simmons, Robert, Chief Financial Officer, Campus Pipeline, Inc.,
prepared statement............................................. 18
APPENDIX
Additional Submission for the Record
High-Tech and Intellectual Property Accomplishments of Hon. Orrin
G. Hatch, a U.S. Senator from the State of Utah................ 47
UTAH'S DIGITAL ECONOMY AND THE FUTURE: PEER-TO-PEER AND OTHER EMERGING
TECHNOLOGIES
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MONDAY, OCTOBER 9, 2000
U.S. Senate,
Committee on the Judiciary,
Provo, UT.
The committee met, pursuant to notice, at 9 a.m., in the
Terrace Room, Ernest L. Wilkinson Center, Brigham Young
University, Provo, UT, Hon. Orrin G. Hatch (chairman of the
committee) presiding.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
THE STATE OF UTAH
Chairman Hatch. This hearing is convened here this morning
to explore the vistas of rapid technological progress that is
opening to us. I think it is appropriate to have a hearing at
one of the most wired campuses in one of the most wired States
in the Nation, where those who will help form the future can
view and participate in the discussion. Now I welcome all of
you and invite those here to find the papers available in the
aisles to write questions we can consider asking our panelists
as they make their presentations.
We will have to go through the questions and sit through
them but we won't have time for them all, but it's a good
opportunity for some of you to ask the questions that are
bothering you about these areas.
Let me just mention how fitting a place Utah is to have a
hearing on trends in technology. According to the Utah
Information Technologies Association, Utah's information
technology industry, which generated over 7.7 billion dollars
in revenues, ranks in the top 10 centers of I.T. activity in
the United States, and ranks in the top five centers of
software in the United States.
Inc. Magazine ranked Salt Lake as the second best city in
the Nation in which to start and grow a business, citing our
wealth of brainpower and entrepreneurship. Newsweek magazine
included Utah in the top 10 information technology centers in
the world. Utah has been riding high on the wave of recent
technological development, and we're very pleased and proud of
that.
Over the past few years, the growth of the Internet,
wireless and other forms of digital communication have been
rapidly modifying the way we shop, talk, work, play, create,
and interact with each other. We are riding a revolution that
continues to advance at an increasing rate. According to such
visionaries as Intel chairman Andy Grove, we may be on the cusp
of another major change with the development of technology
called peer-to-peer or distributed networking.
The most famous example of peer-to-peer networking is
Napster, whose creator is here with us today. He told me he's
quite nervous. I said, ``Do you get nervous anymore?'' Of
course at 19 years of age he says, ``I get nervous,'' but we're
real proud of him and proud of the efforts he's made and proud
of the things he's been able to accomplish.
To quote Mr. Grove, who is a friend, ``The whole Internet
could be re-architected by Napster-like technology.'' Fortune
magazine has called the technology embodied in Napster, ``The
Next Big Thing,'' for the Internet.
Peer-to-peer means that everyone's home computer becomes
like a server, so that rather than many customers browsing
through the content stored on large servers, individuals search
for information or entertainment on each other's computers.
This technology could reduce costs for individuals who want to
be their own publisher. It allows for more up-to-date
information to be more quickly searchable, and could make more
efficient use of computing power. It could further connect us
to each other.
It could make artists like Mr. Breinholt able to publish
his own music less expensively, or connect with his fans more
directly. It could help researchers or students and teachers
trade information more directly, ensuring that all have access
to the most up-to-date information.
It also rates as a number of policy issues. Napster itself
has been one of a number of Internet music companies embroiled
in controversy surrounding the contours of copyright law,
something I take a great interest in, among other matters.
When individuals are searching each other's home computer
files, serious questions of privacy and security are raised.
Many of our witnesses have their own ideas about this new
technology, and each brings a unique vision of where we are
heading. We have some of Utah's high technology leaders with us
today, including representatives of Novell, iLumin, Campus
Pipeline, and, through the Utah Information Technology
Association, many others.
Additionally, we have the creator of Napster, Shawn
Fanning; and Peter Breinholt, an artist who represents all the
creators whose works are being transmitted across the wired and
wireless world.
These various perspectives and varied perspectives should
enlighten us on where the technology being created by Utahns
and others is taking us, and how Washington might be able to
help, or how we might be able to keep Washington's hands off of
ruining the various industries as well.
I see the role of policymakers as facilitators of positive
change in this area. We need policies that foster innovation
and creativity, and that the users of the technology can enjoy.
In the field of entertainment, for example, artists can
potentially connect more directly with their audience, using
new digital delivery systems like the Internet. Music fans can
more easily enjoy music on wireless devices, taking all of
their music with them wherever they go, without having to lug
huge cases of CD's with them. That's terrifying to some in the
music industry, by the way.
I view the stakeholders as the people on the two ends of
the wires, as well as those stringing the wires. With creative
thinking, there is substantial synergy to brighten the lives of
all of us in the more interconnected future.
And as we discuss connecting the globe, I am proud to have
this discussion. I'm glad to be here in a community that is
home to me, in Utah and at BYU, where I was challenged and
inspired to think about the future.
With that, let me welcome our witnesses to the dais.
Our first witness--we're going to do this in reverse order.
Let me just introduce them from the left to the right; from my
left to right.
One of our witnesses today will be Shawn Fanning. Shawn
Fanning is the inventor of the Napster software application and
founder of the Napster Internet music community. A native of
Massachusetts, Mr. Fanning developed the original Napster
application and service in January 1999, while a freshman at
Northeastern University.
Napster is the fastest growing application in the history
of the Internet. In early October 2000 the Napster community
numbered over 32 million worldwide.
Shawn continues to be active in the development and growth
of the Napster technology and business. And of course as you
all know, he's probably been on more front pages of magazines
than almost anybody in history except perhaps John F. Kennedy.
Now Shawn, we don't think you should run for office. We
think you should keep doing what you're doing, although knowing
a little bit about you, I'm not sure you shouldn't run for
office too.
Our next witness, or one of the next witnesses, will be Mr.
Peter Breinholt. Mr. Breinholt is a singer/songwriter who uses
the Internet to distribute his music, as well as connect with
his fans. In addition to selling CD's on his website, he also
sells MP3 downloads and offers streaming samples of his music.
Since forming the group ``Big Parade'' in 1993, Mr. Breinholt
has enjoyed growing success in Utah and the Intermountain
region, playing regularly to sold-out venues throughout the
west.
We will hear from Richard Nelson, who is the president and
chairman of the Utah Information Technologies Association. Mr.
Nelson will speak about the growing Utah I.T. economy, and what
he sees as the paramount public policy issues for Congress.
We will also hear from Robert Simmons, chief financial
officer for Campus Pipeline, Inc. Before helping to found
Campus Pipeline, Mr. Simmons helped produce the phenomenal
growth of Iomega, another leading Utah technology company; and
Oracle, one of the worlds leading high-tech companies.
We will hear from Craig H. Miller, vice president and
general manager of Net Management Group; Novell, Inc. Mr.
Miller will offer the perspective of one of Utah's leading
software companies on the topic of how we and our computers
will interact with each other in the coming years.
We will hear from D. Brent Israelsen, founder, president,
and chief executive officer of iLumin. Prior to his current
role as president of iLumin, Israelsen served as president of
JurisSoft, a division of Lexis/Nexis. Mr. Israelsen will offer
his views on an issue of increasing interest to Utahns; that
is, Internet security and privacy, and that's of great interest
to us, because we have to make some determinations, probably in
the next Congress, where we're going to go in that area, and
it's a very complex, very hard fought-over area.
Finally, we'll probably hear first from Brad Pelo, chief
executive officer of NextPage. Mr. Pelo previously served as
chairman of Book Craft, a leading Utah publisher of books and
e-texts, and founded the Folio Corporation. Mr. Pelo's business
takes the peer-to-peer technology and uses it in a business-to-
business environment.
Now, our time is short and I want to leave some time for
questions, so I would like each of you to try to keep your
testimony under 10 minutes, and if we can do that I'd be very
appreciative. I'll notify you at 10 minutes, and I hope you'll
wind up if you're still going on.
On the other hand, if we're going to get some really new
innovations here today, I might let you go a minute or two
longer.
But let's start with Mr. Pelo. We'll go from my right to
left, and we'll start with you, Brad, and I'm looking forward
to this area as much as anybody.
PANEL CONSISTING OF BRAD PELO, CHIEF EXECUTIVE OFFICER,
NEXTPAGE; D. BRENT ISRAELSEN, FOUNDER, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, iLUMIN; CRAIG MILLER, VICE PRESIDENT AND
GENERAL MANAGER, NET MANAGEMENT GROUP, NOVELL, INC.; ROBERT
SIMMONS, CHIEF FINANCIAL OFFICER, CAMPUS PIPELINE, INC.;
RICHARD NELSON, PRESIDENT AND CHAIRMAN, UTAH INFORMATION
TECHNOLOGIES ASSOCIATION; PETER BREINHOLT, RECORDING ARTIST AND
PERFORMER; AND SHAWN FANNING, FOUNDER, NAPSTER, INC.
STATEMENT OF BRAD PELO
Mr. Pelo. Thank you. And thank you, Mr. Chairman, for the
invitation to address the Judiciary Committee, and in such a
fine venue as my alma mater, BYU.
Today peer-to-peer technology offers tremendous
revolutionary impact to all of us. We've seen that impact
through Shawn's work at Napster, and we think that rather than
being threatened by the emergence of peer-to-peer technologies,
we need to view it as an opportunity.
At the very time Shawn's company was being sued by a legion
of attorneys, another legion of attorneys at the world's
largest law firm, Baker & McKenzie, was implementing NextPage's
peer-to-peer technology, allowing lawyers, rather than sharing
MP3 files, to share peer-to-peer access to their legal content
among their 61 offices worldwide.
NextPage is a Utah-based company headquartered at
Thanksgiving Point's new corporate center. Just 15 months old,
we have 160 employees, and today we'll introduce to you the
idea that peer-to-peer technologies offer tremendous potential
to revolutionize the way businesses conduct information.
We believe that rather than being threatening to markets,
peer-to-peer technology provides an opportunity for
intellectual property holders to in fact share and leverage
information among their suppliers, partners, customers, and
employees.
In fact, recently in a conversation with the leading
analyst at the Gartner Group, John Pescatore said that he
believes peer-to-peer technology has the potential to be the
single most influential technology of our age, significantly
changing business models and changing management methods.
Our customers at NextPage share that same vision. With
peer-to-peer technologies they can unlock not just websites and
e-commerce opportunities, but the tremendous intellectual
assets of their businesses.
Think, for example, of the ideas locked in documents, the
information in digital assets like databases. Sharing that
information now with their customers, with their suppliers, and
partners, allows us to leverage peer-to-peer technologies in a
way far beyond what we've perhaps envisioned to this point.
NextPage's technology provides secure access in that
peering environment so that copyrights are protected, that
access to intellectual property is monitored and tracked, so
that in any business environment we have the potential of
protecting the assets that are most important to us.
Let me, if I can, just refer you to the screen, Mr.
Chairman, I don't know if you can see this, but I'll describe
for you the models that we've seen evolving over the last
decade as the Internet has been introduced to us.
First is the model of what I call content linking. The
Internet itself is a form of a distributed network, or peer-to-
peer network, except that the only information that is being
peered is the addresses of the computers themselves. So to
access content on these systems, URL's or links are
established, linking the content from one server to another by
following the link. You might consider the likes of Yahoo who
allow us to navigate content on the Internet by following such
a link.
If you then go to another model of Content Networking, that
would be the model of content aggregating, where content is
actually syndicated or downloaded into a central repository,
where it is then made available. This is the model typically
used by enterprises, large companies around the world, to allow
access to distributed information.
In the new models of peer-to-peer Content Networking, the
content itself will remain on the systems that created it, and
the linkages will in fact be in the form of peer-to-peer
protocols, so the content itself is able to be accessed without
physically going to any one location, but the systems
themselves speak to each other and allow access to that
content.
If we then extend this model out to the participants in an
e-business relationship, the center hub here is my fictitious
company where they have peer-to-peer Content Networks
established, but now those links allow them to have peer-to-
peer connectivity with their manufacturing partners, suppliers,
customers, and professional services firms.
Up at the right of the screen, Squire & Company represents
a tax advisor to my company, and in this content network, if we
extend the connections now that Squire & Company has made in
their peer-to-peer network, it includes the SEC, the American
Institute of CPA's, the Financial Accounting Standards Board,
and others.
And then finally there may be content exchanges which in
fact is the model that Napster has employed, where content can
also be peer-to-peer connected from independent publishers or
established publishers.
NextPage, over the past 15 months, has helped professional
publishers and digital rights owners around the world transact
business approaching 1 billion dollars in this first 15-month
period using this technology. So today we believe the frontier
for peer-to-peer technologies is not about lawsuits and
unfounded fears and threats; it's about the promise of
unlocking the value of dynamically built and leveraged
intellectual assets among market participants.
The real question is: How do we protect those assets in a
world where they become freely available? Peer-to-peer
technologies are nothing to be feared, and as NextPage has
demonstrated in our short history, there are companies around
the world trying to solve the very problem that Shawn solved by
creating Napster.
It is in fact the problem of accessing content easily
without having to physically surf the Net to find it. In e-
business relationships where time is literally money, peer-to-
peer Content Networking allows this information sharing to
seamlessly take place between market suppliers and market
makers, their customers, employees, and participants.
We strongly encourage this committee and the Senate to
consider legislation that will further protect rightsholders
but will acknowledge the anticipated market shifts that will
occur as new technologies like peer-to-peer technologies are
introduced to the market.
Thank you for the opportunity to testify today.
Chairman Hatch. Thank you, Mr. Pelo. We appreciate your
testimony. It's extremely interesting.
[The prepared statement of Mr. Pelo follows:]
Prepared Statement of Brad Pelo
Today peer-to-peer technology stands to revolutionize the new
digital economy, impacting us all in ways that we have only recently
begun to appreciate. Like most emerging technologies, what is once seen
as a threat later emerges as an opportunity. While lawyers were busy
filing suit against Napster's peer-to-peer offering, the world's
largest law firm, Baker & McKenzie was implementing NextPage's peer-to-
peer technology. Instead of swapping MP3 files, lawyers will now be
able to locate relevant content from their 61 law offices spread
throughout the world.
E-businesses will spend billions of dollars over the next couple of
years on Internet initiatives targeted at enhancing all aspects of
relationships between partners, suppliers, customers and employees. To
date, e-businesses have started to streamline business transactions,
however, the greater business opportunity lies in the exchange of
expertise, ideas and information between companies. The majority of
this expertise is buried in documents, spreadsheets, e-mail, databases,
and legacy systems all over corporate intranets and the Internet.
Companies are looking for software solutions that can unlock that
expertise.
These companies are looking for a solution that solves these two
problems:
How to give users access to the content they need without
having to centralize and maintain that content, and
How to deliver critical content from outside the company--
from partners, suppliers, customers, and so on--in a format
that's current and accessible.
NextPage is a Utah-based company located at Thanksgiving Point's
new corporate center. The company was founded in July 1999 and employs
about 160 employees. NextPage is the first company to deliver a peer-
to-peer content network platform for e-businesses.
This technology significantly improves productivity of companies
and fundamentally changes the way corporations access information.
NextPage software creates a secure network, called a Content
Network TM where users can manage, access and exchange
content across distributed servers on intranets, extranets and the
Internet to enhance e-business relationships. The Content Network is
accessed through a Web browser and viewed as if the information existed
in a single location.
The NextPageTM Content Networking Platform eliminates
traditional barriers of intranets, extranets and the Internet by
providing users a single point of access to information from dispersed
sources and different data types, such as XML, HTML, Microsoft Office,
Adobe PDF files and database repositories. Once these sources are
linked together in a peer-to-peer Content Network, they become a
single, virtual repository.
With the Platform, content no longer needs to be pushed around the
Internet or centralized on an intranet or extranet server to be
accessed. Content can be created and maintained in its original
location by its original author. Users can search, navigate, categorize
and personalize information in their Content Networking real time.
This NextPage application can scale to tens of thousands of
concurrent users and handle multi-gigabytes of information, while still
providing secure, personalized information based on an individual
user's needs.
Peer-to-peer technologies can become market threatening or market
making. The press and intellectual property holders have been focused
on the perceived threats of peer-to-peer technologies while we at
NextPage have been busily focused on its opportunities.
The potential benefits of peer-to-peer technology are unprecedented
in our time. In fact, during a recent visit with John Pescatore, a
leading analyst with the Gartner Group, he said he believes that of all
emerging technologies peer-to-peer stands to change business models and
impact management approaches more than any other.
NextPage's customers have a vision of the Internet being a system
of individualized relationships where the secure connections create
tremendous value. While e-commerce and Web sites are important elements
of an e-business strategy, many of our customers are working to unlock
the expertise, ideas and shared knowledge among suppliers, customers,
partners and employees. Peer-to-peer technologies can unlock this
potential.
Baker & McKenzie, one of the largest law firms in the world, is
implementing NextPage technology. The NextPage Content Networking
Platform will enable the nearly 2,800 Baker & McKenzie attorneys and
key clients around the world to manage, access and exchange business-
critical information in an integrated, seamless manner. Through
NextPage technology, continuous electronic links connect separate
content servers, allowing attorneys to simultaneously access intranet
sites, Internet sites, and other document repositories in real time.
Linking Baker & McKenzie offices and clients throughout the world
is part of that firm's strategic technology plan. NextPage technology
enhances the firm's ability to interact and respond to clients in a
more integrated way.
Peer-to-peer networks, created in companies like Baker & McKenzie,
dramatically enhance the value customers and partners derive from their
relationships and increases employee productivity, fundamentally
improving a company's bottom line.
To realize the potential of peer-to-peer technology, this will
require government to establish legislation that reinforces ownership
in the digital domain, that penalizes intruders and that establishes
the rights of business owners to the intellectual property created by
its employees.
Chairman Hatch. Let's now turn to D. Brent Israelsen,
founder and president and chief executive officer of iLumin.
STATEMENT OF D. BRENT ISRAELSEN
Mr. Israelsen. Thank you, Mr. Chairman.
I would like to express gratitude for being able to
participate today. I am a graduate of the J. Ruben Clark law
school here at Brigham Young University, and I've spent most of
my career in Washington, DC, most recently returning here to
Utah.
And the reason I came here was really surrounding what
became iLumin Corporation. We founded iLumin Corporation in
1996. It's a privately-held, Utah-based company with offices
here and in the Washington, DC area. It delivers Internet
infrastructure and technology on a distributed or a peer-to-
peer basis that enables enforceable online transactions to take
place that really accelerate the closure of business, that last
speed bump on the e-commerce highway to be able to eliminate
this legal requirement of being able to close transactions that
are legally binding that people can count on, that they can
rely upon.
And we do this in an environment that now employs digital
signature technology, and it allows us to utilize now the new
e-sign legislation that went into effect on October 1 of this
year, to be able to execute legally-binding transactions over
the Internet.
Now if you'll look at e-commerce today, e-commerce is
generally the ability to buy books, flowers, and Furbys over
the Internet, sometimes credit cards, sometimes CD's and
sometimes airline tickets, but it's small-dollar transactions
that if you don't get your Furby you're not going to be too
upset. Now, your daughter may be, but you're not going to be
too upset by that fact.
The next level of e-commerce really is the level that will
really allow us to achieve the huge dollar projections the
analysts predict, and that's the ability to execute legally-
binding transactions over the Internet, that instead of just
buying books, flowers, and Furbys, allow us to now buy cars,
houses, and corporations.
With the enactment of the e-sign legislation and the
effective date, October 1, 2000, through iLumin's technology,
called digital handshake server technology, we actually
executed the first legally-binding transaction over the
Internet using that e-sign legislation, when ABS Ventures, Alex
Brown, invested--along with another partner, invested in a
company over the Internet, and it was done beginning at 12:01
a.m. eastern time, and finished at 12:10 a.m., and the parties
were in Florida, Maryland, and other locations, and all of them
accessed this in the comfort of their homes via the Internet,
legally executed the binding transaction and it was completed.
On October 2, the next day in San Francisco, iLumin
launched its digital handshake server technology, and with that
we actually closed five transactions. We actually acquired a
company on line; we actually purchased an automobile on line--
not just looked at it and spun it around and changed colors and
ordered it, but we actually signed the bill of sale associated
with that automobile and obtained financing for it.
In addition to that we signed a W-4 form on line. Imagine
if we could now move all the W-4 forms on line, and the cost
savings that that would bring about, not only to the government
but to every business in the country.
Hewlett-Packard estimated a couple years ago that they were
spending a million dollars a year for their 118,000 employees,
just managing those W-4 forms, because you have to have a
signed copy on file. Now you can do it completely
electronically.
In addition to that, we actually executed some additional
transactions involving home mortgages. Through iLumin's
technology here in Utah County, we did the first full home
mortgage transaction, a refinance transaction, over the
Internet in June of this year, relying on Utah's law which went
into effect in 1995.
With the effective date of the e-sign legislation on
October 1, we closed transactions here in Utah County, and in
Essex County, MA, and then Freddie Mac of the secondary market
stepped forward and acquired the promissory note out of Utah
County, completely electronically. They were in Virginia when
they executed the transaction, and the other parties were
around the country. So this capability now becomes a very, very
powerful opportunity, now, to move electronic commerce to the
next level.
The distributed or peer-to-peer technologies now enhance
that capability so we can do what we call distributed
transactions. Parties don't have to be in the same location or
in the same room, and frankly, we can actually start at one
location, move it to the next, and move it to the next, to
finalize the transaction.
I would like to introduce very briefly what our technology
is and what it does. And in introduction, what the digital
handshake server does is really gives you five characteristics
that we think are important in order to gain trust in
electronic transactions. And those are enforceability;
automation; auditability, so you have a full audit trail
associated with it; security, so that you can rest assured
you've got secure transactions; and privacy, where we can
actually protect the privacy better than we can in a paper
environment, through using digital signature technologies and
the digital handshake server.
To start with, if you'll look up on the screen, the problem
in the Internet today in e-commerce today has been generally
that we focused on the automation side of the equation. The
I.T. world operates in the data paradigm, and most of the sites
up on the Internet today are databases.
If you go to E-LOAN and try and originate a loan, you're
basically typing information into a database, and then when you
go to close, they send you a pile of documents via Federal
Express so that you can sign.
Well, if you look at the other equation in this world, and
that really becomes--and there are a series of technologies
that allow us to do that--the most exciting is XML because it
now allows us to automate complete transactions.
The legal world, however, operates in a paper paradigm.
Signed paper documents is king. That's what people are
comfortable with and what they're used to. Now, if you can use
digital signature technology combined with XML, we can now do a
completely automated transaction that we call the automated
enforceable on-line transaction market.
And with that, I'm going to go ahead and wrap up by doing
just a very brief demonstration of what a digital handshake
server does, and as we move forward, recommend that the Senate
and the Senate Judiciary Committee continue to move forward
with the electronic signature legislation, provide a structural
framework for privacy, but allow the rest of the privacy
capabilities to be dealt with contractual relationships and
other things that will enable this to move forward very quickly
while still protecting those who can't protect themselves.
So with that I'll launch into this quick download.
[Audio-visual computer presentation followed.]
Mr. Israelsen. Thank you, Mr. Chairman.
[The prepared statement of Mr. Israelsen follows:]
Prepared Statement of D. Brent Israelsen
speaker introduction
D. Brent Israelsen is a 1982 graduate of the J. Reuben Clark Law
School at Brigham Young University. Mr. Israelsen served as Special
Assistant to the Deputy Solicitor at the US Department of the Interior
from August 1982 until June 1983 before becoming a law clerk to the
Honorable Moody R. Tidwell, III at the United State Claims Court. From
October 1984 until August 1993, Mr. Israelsen practiced law in the
Washington, DC Office of the International law firm of Morgan Lewis &
Bockius where he focused on technology and federal government
procurement issues. In August of 1993 through May of 1995, Mr.
Israelsen served as President of Jurisoft, a division of Lexis-Nexis.
Mr. Israelsen co-founded the Utah Electronic Law and Commerce
Partnership (www.uelcp.org) and served as a member of the Utah
Electronic Commerce Council.
company overview
Founded in 1996 by Mr. Israelsen, iLumin Corporation
(www.ilumin.com) is a privately held, Utah-based company that delivers
Internet infrastructure technology and services that enable enforceable
online transactions that accelerate the closure of business, financial,
government and consumer transactions in the New Economy.
introductory remarks
On July 4, 1776, fifth-six men, risking their lives for their
vision of a better future, put pen to paper to sign the Declaration of
Independence, decisively publishing, declaring and binding themselves
to the principles of freedom enumerated therein. These were the
visionary leaders who laid the foundation for the future prosperity of
this great nation. More than two hundred years later, Governor Michael
Leavitt of Utah, another visionary leader, signed into law on March 9,
1995 the nation's first Digital Signature Act, setting the course
towards a digital future for the State of Utah. This Act, for the first
time anywhere in the world, established legal parity between digitally-
signed electronic documents and manually-signed paper documents.
On June 30, 2000, President Bill Clinton extended the digital
economy to the federal government and across all states by signing into
law the Electronic Signatures in Global and National Commerce Act (E-
SIGN) using a computer terminal and a digital signature (provided by a
Digital Signature Trust, a Utah company). At this historic signing,
President Clinton firmly published, declared and bound the nation to a
digital future with the use of his digital signature.
This event, combined with the passage in 1998 of the Government
Paperwork Elimination Act (which requires full digital access to the
federal government by 2003), marked a major endorsement by the federal
government in support of a revolutionary movement towards a digital
future.
With these actions, the federal government has laid the foundation
required to fully unleash the potential of E-Commerce in the New
Economy. While there are still some problems that must be addressed, we
need to keep moving forward in our quest for a more efficient digital
economy.
Today, we meet with you, Senator Hatch, to discuss what Utah
companies, generally, and what iLumin Corporation, specifically, are
doing to further the digital revolution, and what government can do to
help facilitate the process.
e-commerce overview
Today, e-commerce can best be described as buying books, flowers
and Furby's over the Internet. These are essentially credit card
transactions where the merchant is willing to bear the risk of loss if
the purchaser repudiates responsibility for the transaction. While this
level of e-commerce has gotten us out of the starting blocks, the real
growth (as projected by analysts) comes at the next level of e-
commerce. Instead of just buying books, flowers and Furby's (and
airline tickets and CDs), the next level of e-commerce relies upon the
execution of legally-binding documents over the Internet that will
allow the purchase of cars, houses, and companies. The federal E-SIGN
legislation opens the door for these types of transactions.
However, we must still address other problems in order to benefit
fully from the opportunities offered by the E-SIGN legislation. The
primary issue impeding rapid growth in e-commerce is the issue of
trust. In a 1998 survey of technology executives, Ernst & Young
concluded:
. Lack of trust has emerged as the overwhelming leading
barrier to the continued growth of electronic commerce. Ernst &
Young/ITAA Survey of Technology Executives, Feb. 1998.
How do we cloak e-commerce with a mantel of trust sufficient to
encourage broad participation in the digital economy? In order to be
trustworthy, iLumin believes that an e-commerce transaction must have
the following attributes: private and secure, enforceable and
auditable, and automated and efficient.
Private and secure
In reality, there are strong parallels between the paper world and
the electronic world with respect to privacy and security. The
differences are those of scope and speed. We are generally comfortable
transacting business in the paper world because we have grown
comfortable with the risks associated with paper-based transactions. We
are generally uncomfortable transacting business in the electronic
world because we don't fully understand the risks and we lack clear
guidelines and processes that will allow us to comfortably quantify
those risks.
Paper is old technology that provides little to no privacy or
security, yet, over time, we have grown to trust and rely on paper-
based transactions. Information transmitted on paper can easily be
intercepted through the mail, courier or even fax-based systems. Many
hands and eyes have access to information on paper throughout the
entire transaction process. After the transaction process is complete,
paper documents are stored and can be easily accessed. Finally, even
though a transaction may be paper-based, most of the data on that paper
is stored electronically already.
By applying new technologies to old problems, we can improve
privacy and security in the electronic world over what we currently
live with in the paper world. Not unlike its role in the current paper-
based transaction processes, government needs to play a similar role in
determining policy and alleviating unnecessary public fears. The
passage of digital legislation at both the state and federal levels is
a major step forward. However, government needs to continue to work
closely with business, government and private entities to establish a
legal framework and basic guidelines surrounding pertinent issues such
as privacy and security.
According to a March 2000 Harris poll conducted for Business Week,
a company's privacy policy would encourage consumers to use the
internet more, to purchase from that company, register on that
company's web site, and participate in online transactions with that
company.
TRUSTe.org provides additional insight into web-users perceptions
regarding the disclosure of information and privacy policies. Drawing
from a Harris/Westin survey, TRUSTe.org indicated that sixty-three
percent of users that are now reluctant to provide personal information
online say they would divulge information if Web sites disclose clearly
how the information will be used. Referring to a BCG Survey, TRUSTe.org
indicated that users are two to three times more willing to provide
sensitive information to companies that disclose their information
gathering and dissemination practices.
A public-private partnership, working to help establish clearer
policies and guidelines regarding use of information and disclosure of
privacy and security policies on web sites, would help alleviate
current fears and help grow trust in e-commerce.
Enforceability and auditability
In the paper world, enforceability comes in the form of a signature
on a paper document. With current technology and the recently enacted
federal legislation, an electronic equivalent is now available.
However, not everyone is ready to step forward and use the electronic
equivalent.
The biggest issue is cultural--paper is a 4,000 year-old
technology. We are comfortable holding paper in our hands and filing it
in our filing cabinets. We are quickly making the cultural transition
from a paper world to a digital world. Government can help speed up
this transition by proactively participating in electronic transactions
and accepting electronic filings or submissions of information.
Another issue impacting the move to a digital future is one of
authenticating the participants in digital transaction. Under a paper
paradigm, personal interaction or notaries authenticate the
participants in a transaction. Under a Public Key Infrastructure (PKI)
approach, Certificate Authorities (CA) act as the digital equivalent of
the notaries of the paper world. In fact, the E-Sign legislation
permits digital notaries to fulfill the notary function.
Current digital signature technology, combined with the
authentication function, provides greater ability to identify and
authenticate individuals signing an electronic document while providing
a more detailed, unalterable ability to create and keep a complete
audit history of an electronic transaction.
However, to take full advantage of current technology and
legislation, government needs to help clarify the scope and
applicability of current legislation to avoid confusion. Government
must also work with businesses, government and private entities to
establish a framework and guidelines to enable cross-certification of
Certificate Authorities and to define uniform Transaction Policy
Statements for digital signatures applicable to government
transactions.
Efficiency and automation
To achieve the full benefits of the digital economy, government
must facilitate enforceable online transactions and provide digital
access to government services. The passage of the Government Paperwork
Elimination Act of 1998 lays the foundation for digital access to
federal government services. In discussing the need for the Government
Paperwork Elimination Act, Senator Abraham of Michigan noted that
Americans spend over $600B a year filling out, documenting and handling
government paperwork--a huge loss of time and money and a drain on the
economy--that must be brought under control. In describing the Act,
Senator Abraham stated:
[It] would require Federal agencies to make versions of their
forms available online and allow people to submit these forms
with digital signatures instead of handwritten ones. It also
sets up a process by which commercially developed digital
signatures can be used in submitting forms to the government
and permits the digital storage of federal documents. Senator
Abraham--S. 2107, Hearing Report, Digital Signatures, July 15,
1998, 2:00 p.m.
The federal E-SIGN legislation provides the legal infrastructure
required to implement the Government Paperwork Elimination Act. Now
federal agencies are required, by 2003, to make their forms available
electronically so they can be filled out, signed and filed with
agencies electronically. While this is a good start, more is needed to
spur government forward in adopting a digital future. While we are not
advocating mandatory usage of digital transactions, we are advocating
mandatory availability of digital transactions across all segments of
the economy for those who would like to use them.
ilumin's automated enforceable online transactions
iLumin defines an automated enforceable online transaction as one
that fully incorporates the requirements of privacy and security,
enforceability and auditability, and efficiency and automation.
Automated enforceable online transactions bridge the opposing paradigms
of data automation in the information technology world and document
enforceability in the legal world. iLumin's Digital
HandshakeTM Server enables the execution of automated
enforceable online transactions and helps infuse trust in the rapidly-
expanding digital economy. (www.iLumin.com).
Building on Utah's leadership in the digital economy, iLumin used
its Digital Handshake Server to complete the world's first online home
refinance in Utah County on June 29, 2000.
Additional iLumin industry firsts include:
February 1999.--Utah's Third District Court, enabled by technology
jointly developed by iLumin and the Administrative Office of the Utah
Courts, becomes the first court in the United States to accept
digitally-signed legal filings via the Internet.
March 1999.--Governor Leavitt of Utah signs the Digital State Act
into law using iLumin's Online Signing Room and a digital certificate
issued by UserTrust, another Utah company, becoming one of the first
Governors to sign legislation electronically.
September 1999.--The Utah County Recorder, using iLumin technology,
becomes the first in the United States to electronically record a
legally-binding, digitally-signed deed affecting the transfer of real
property.
And on October 1 and 2, 2000, using iLumin's Digital Handshake
Server, the first transactions executed under the federal E-SIGN
Legislation, including:
The first venture capital equity investment (completed 10
minutes after the E-SIGN legislation went into effect)
Closing of two real estate transactions (Utah and
Massachusetts) and the first purchase of a promissory note
under the E-SIGN legislation by Freddie Mac in the secondary
mortgage market
The first automobile purchase and automobile financing was
executed under the E-SIGN legislation
The first corporate acquisition conducted under the E-SIGN
legislation
The execution of the first W-4 form conducted under the E-
SIGN legislation
iLumin's leadership in Utah, in the nation, and in the world
continues to expand the reaches of e-commerce and to push forward the
boundaries of our digital future.
how ilumin's digital handshake server makes our future easier
E-commerce technologies like iLumin's Digital Handshake Server,
combined with digital signatures, will change the way we do business in
the future. Imagine purchasing your next car completely online, from
selection to purchase to registration, from an Internet terminal at
your office. Imagine closing on your new home from the comfort of your
apartment on a Friday evening and moving in on Saturday morning.
Imagine applying for and closing on a business loan, obtaining a
business license, and leasing your new office space, all with the click
of a button, from the comfort of your new home. This can all be
possible because of the Internet, the E-SIGN legislation and digital
signatures, and applications such as iLumin's Digital Handshake Server.
The benefits of living in the New Economy are many. However, the
primary benefits can be summarized as huge savings of time and money
for all participants in the digital economy. Other benefits flowing
directly from iLumin's technology include the following:
iLumin's Digital Handshake Server enables a much higher level of
privacy and security for businesses, governments and consumers,
provides full enforceability and auditability of online transactions,
and facilitates efficiency through full automation of a digital
transaction from start to finish.
iLumin's Digital Handshake Server delivers the technology necessary
to accelerate the closure of business, financial, government and
personal transactions and removes the hassle of doing business by
humanizing technology.
iLumin's Digital Handshake Server is the first fully automated
technology solution that enables people to securely and privately
complete a legally-binding online transaction from start to finish
while integrating with existing information technology and e-business
infrastructures, thus eliminating the costly re-keying of data.
Finally, iLumin's Digital Handshake Server technology dramatically
reduces the time, costs, inefficiencies and errors associated with
today's labor-intensive, paper-based, transaction processes.
policy recommendations
What policies should the government be pursuing to further
electronic commerce? The role of the government in the digital economy
is to encourage trust in the e-commerce marketplace. This should not be
done through burdensome and restrictive government regulations that can
stifle the growth of e-commerce, but through a combination of limited
legislative frameworks to protect those who can't protect themselves,
combined with prudent business practices implemental through complete
and accurate disclosure statements and negotiated contractual
relationships.
So far the government has done a good job in balancing the need for
limited legislation with the need to allow e-commerce to develop within
the confines of the private sector. Examples of key legislative
enactments that provide needed guidance and protection without
overreaching and unnecessarily interfering with a rapidly-changing and
vibrant digital economy include the federal E-SIGN legislation, the
Cyber-Squatting legislation, updates to copyright and patennt
legislation, and legislation protecting children on the Internet.
Additional government focus is required with respect to the
following:
Expand the federal E-SIGN legislation to encompass all
transactions, including all government actions and transactions,
providing participation on a voluntary basis by anyone who chooses to
participate in the digital econmy.
Consider additional digital signature legislation that provides
governments, businesses and consumers with the flexibility to implement
different levels of authentication security for different types of
transactions. For example, greater authentication of the parties is
required for a completing a mortgage transaction online than for
purchasing a fishing license online.
Establish a minimal legislative framework governing protection of
privacy and security in digital transactions that sets forth basic
processes and guidelines for government, businesses and consumers
implementing privacy policies describing the use of personal and
business information in the digital economy.
conclusion
In summary, the government should continue to provide limited
legislative structure and guidelines while working with the private
sector to encourage, monitor, and, where necessary, to enforce the
basic laws and guidelines already set forth.
The government can further faclitate our transition to a digital
future by helping build trust surrounding the privacy and security of
information by:
encouraging companies to comply with existing privacy and security
laws and regulations;
encouraging companies to develop privacy and security policies for
the data they collect;
monitoring whether companies comply with their privacy and security
policies; and
enforcing existing laws and regulations regarding fradulent
business practices against those companies that fail to comply with
their privacy and security policies.
Thank you for the opportunity to testify this morning.
Chairman Hatch. Thank you.
As a lawyer you're going to put a lot of lawyers out of
business if you keep this up.
I think that's just great.
We'll now turn to Craig Miller, who is the vice president
and general manager of Net Management Group of Novell, and
we're happy to have you here, Craig.
STATEMENT OF CRAIG MILLER
Mr. Miller. Thank you, Senator. I'm Craig Miller, vice
president and general manager for the Net Management Group at
Novell.
My remarks this morning, I'd like to do two things: First
of all, I'd like to give a quick overview of the Novell's
vision of the evolution of the net; and second, I will offer
some thoughts about the implications for U.S. public policy.
Before I present my thoughts about the future directions of
digital markets in the Internet, however, I'd like to pause and
thank Senator Hatch for the opportunity to meet here, and for
his extraordinary leadership on the digital policy front. I'm
not sure that many people here today understand just exactly
what Senator Hatch has done for us. More than anyone else in
Washington he has played a leadership role in shaping our
healthy public policy environment. He's been our champion on
the R&D Tax Credit, the Net Act, the Digital Millenium
Copyright Act, the competition policy, the Y2K Act and H-1B
visas.
He's literally laid the building blocks for our digital
economy at the time when most of the other politicians have
been simply content to sit back and speculate and watch the
thing happen. We would not be here today without him, so I
thank you, Senator.
It's important to remember that we are still at the
beginning of the Internet's evolution. The big challenge we
face today, and for several years to come, is how to scale the
Net to create a web that knows who you are, is always on, and
can handle mission critical applications.
The distinction between corporate LAN's and WAN's and
Internets and Intranets is disappearing. In the future we will
not have the tangle of NetWare--networks separated by firewalls
that we do today, but we'll have one integrated Net.
At Novell we call this vision OneNet, which means a
seamless network that links the people, the applications
devices together with ease, and is instantly available no
matter where you are. We believe that the key to this
integrated network is an Internet directory, or an eDirectory,
that spans different operating systems and platforms.
Here we've talked a little bit about--today about two
separate technologies to help people do peer-to-peer and do
business over the Net. The things that make it possible for you
to be able to store your document securely, to be able to know
where you are, and be able to have your identity, is stored in
what's called a directory, or an eDirectory.
The eDirectory will link me with my personal applications
and knows who I am, even if I have different accounts,
different access rights, different profiles and so on.
Today when I visit a web I go from one corporate account
webserver to another. An application server that backs up the
website delivers dynamic content to me, but in order to give me
the content that is right for me, the site needs to know who I
am.
That's where the eDirectory comes in. The eDirectory can
authenticate users, handle massive amounts of information,
reads faster than a database, and provides a single data
repository to store those things that are important, that gives
you your personal identity, like your encryption, what we saw
here with the digital handshake.
All that information has got to be stored somewhere
securely and safely, and that's what a directory is for. A
technology called DirXML allows different directories to share
information with each other across different enterprise
systems.
The goal of all this is to create a new kind of web
interface for the average person. This interface will consist
of a simple portal that automatically connects you to your
accounts and applications, and the beauty of it--of all that,
is, all of a sudden I have one place to go for all my computing
needs.
The screen I see will be identical to me, no matter where I
am, no matter where I go, at the office, in a hotel room, or at
home. I spend a lot of time on the road, as I'm sure you do,
and I like to be able to have my desktop be the same desktop
whether I'm at work or whether I'm in the Marriott hotel. And I
wanted to have that environment up in about 3 or 4 seconds, and
no matter where I am, and I want it to know who I am and be my
desktop so that I can get the information I need to do my job
and to connect with my family and with the people that are
important to me, and also the applications that I need to
access the Internet.
We're developing that software right now and making these
portals available. It actually unlocks the power of the
Internet for you and turns all that data into knowledge.
The portals should be available to us over wired or
wireless devices. I should be able to have it, whether I'm
hooked up with a laptop or whether I have my phone with me or
some other PDA. I should be able to have online access all the
time. The thing that will define the Internet is not the device
that we're on, but it's who you are.
Finally we're going to take this new architecture and make
it incredibly fast by means of accelerated caching networks. In
the end, these accelerated content distribution nets will make
what is a complex and a powerful and sometimes unpredictably
slow world almost seamless and magically fast.
If this is where we're headed, what does it mean for public
policy? I don't pretend to have all the answers but the two big
questions seem to me to be how we manage digital content, and
how we manage our digital relationships.
The first question deals with how we protect and share
intellectual property on the Net, and the second question is
how we protect and empower people on the Net. These policy
debates have already been launched and we will have a long way
to go before they're resolved.
As a high-tech company that makes Net services software,
Novell embraces the technology advances that drive the rapid
evolution of the Net, as well as digital copyright laws that
protect our intellectual property. The Digital Millennium
Copyright Act that Senator Hatch authored is a tremendous base
from which to build. During the course of the coming year it
will be tested to see how well it comports with the questions
about digital content, the Napsters and the others arise.
This is a very healthy debate, and we will not shy away
from it. While we do need to find ways to let innovations like
Napster flourish, we could not afford to do so at a price of
undermining copyright and digital content.
We are actually developing some kind of a licensing
technology that makes it so you can wrap any kind of a file,
whether that be MP3 or a Word file. It makes it so that with
your own personal digital key you can unlock that and give it
to anybody else, so you can have secure sharing of your content
across the Internet if you so desire.
We are now facing big questions about how to protect online
policy and security, and fortunately Novell has strong
positions in both. We are one of a handful of companies that
has audited all of its U.S. websites to make sure that we
adequately protect our customers' privacy, and we always have
offered great security to our customers.
Congress is almost sure to take up legislation in these
areas in the next year, and we would not expect one piece of
legislation to solve the problem. The issue is sure to be with
us for several years and will evolve along with our e-commerce,
and our technology and our consumer preferences. Our goal
should be to encourage best practices and establish uniform
goals across all the 50 States, and avoid a one-size-fits-all
approach that demands opt-in.
With Senator Hatch's leadership I feel confident that we
will achieve these goals, and Novell looks forward to working
with you during the coming years to make this vision a reality.
[The prepared statement of Craig Miller follows:]
Prepared Statement of Craig Miller
I am Craig Miller, Vice President and General Manager for the Net
Management Group at Novell, which is the leading provider of Net
services software. In my remarks this morning, I would like to do two
things. First, I will give a quick overview of Novell's vision of the
evolution of the Net. Second, I will offer some thoughts about the
implications for US public policy.
Before I present my thoughts about the future directions of digital
markets and the Internet, however, I would like to pause and thank
Senator Hatch for the opportunity to meet with you today and for his
extraordinary leadership on the digital policy front. I'm not sure many
people really know just how critical he has been to the evolution of
the US software industry. More than anyone else in Washington, he has
played a leadership role in shaping a healthy public policy
environment. He has been our champion on the R&D Tax Credit, the Net
Act, the Digital Millennium Copyright Act, competition policy, the Y2K
Act and H-1B Visas. He has literally laid the building blocks for the
digital economy, at a time when most other politicians were content
simply to sit around and speculate. We would not be where we are today
without him. Thank you Senator.
It is important to remember that we are still at the beginning of
the Internet's evolution. The big challenge we face today and for
several years to come is how to scale the Net to create a web that
knows who you are, is always on and can handle mission critical
applications. The distinction between corporate LANs, WANs, Intranets
and the Internet is disappearing. In the future, we will not have the
tangle of networks separated by firewalls that we have today, but one
integrated network. At Novell, we call this vision One Net, which means
a seamless network that links people, applications and devices together
with ease and is instantly available wherever you are.
We believe that the key to this integrated network is an Internet
directory--or eDirectory--that spans different operating systems and
platforms. The eDirectory will link me with my personal applications
and know who I am, even if I have different accounts, different access
rights, different profiles and so on.
Today when I visit the web, I go from my corporate account to a web
server, which takes me to a web page. An application server that backs
up the web site delivers dynamic content to me. But in order to give me
the content that is right for me, the site needs to know who I am.
That's where the eDirectory comes in. The eDirectory can authenticate
users, handle massive amounts of information, read faster than a
database and provide a single data repository. A technology called
DirXML allows different directors to share information with each other
across different enterprise systems.
The goal of all this is to create a new kind of Web interface for
the average person. This interface will consist of a simple portal that
automatically connects you to all your accounts and applications. The
beauty of it is that now, all of a sudden, I have one place that I can
go to for all my computing needs. The screen I see will be identical to
me no matter where I am--at the office, in a hotel room, or at home. it
will automatically provide me with the applications that I need and
give me access to the information and relationships that I want.
Moreover, this portal will increasingly be unlocked from the
desktop. Your portal will be available to you over wired and wireless
devices, over computers, cell phones and personal digital assistants.
The thing that will define the Internet is not the device you use, but
the services you access.
Finally, we are going to take this new architecture and make it
incredibly fast by means of accelerated caching networks. In the end,
these accelerated content distribution nets will make what is a complex
and powerful, but sometimes unpredictably slow world, almost seamlessly
and magically fast.
If this is where we're headed, what does it mean for public policy?
I don't pretend to have all the answers, but the two big questions seem
to be how we manage digital content and how we manage digital
relationships. The first question deals with how we protect and share
intellectual property on the Net; the second question with how we
protect and empower people on the Net. These policy debates have
already been launched, but we have a long way to go before they are
resolved.
As a high tech company that makes Net services software, Novell
embraces the technological advances that drive the rapid evolution of
the Net, as well as the digital copyright laws that protect our
intellectual property. The Digital Millennium Copyright Act that
Senator Hatch authored is a tremendous base from which to build. During
the course of the coming year, it will be tested to see how well it
comports with the questions about digital content that Napster and
others raise. This is a very healthy debate, and we should not shy away
from it. While we need to find ways to let innovations like Napster
flourish, we cannot afford to do so at the price of undermining
copyrights and digital content.
We are also facing big questions about how to protect online
privacy and security. Fortunately, Novell has a strong position in both
areas. We are one of the handful of companies that has audited all of
its US websites to make sure that they adequately protect our
customer's privacy, and we have always offered our customers good
security. Congress is almost sure to take up legislation in these areas
next year, but we should not expect one piece of legislation to solve
the problem. This issue is sure to be with us for several years and
will evolve along with e-commerce, technology and consumer preferences.
Our goal should be to encourage best practice, establish uniform rules
across all 50 US states and avoid one-size-fits-all approach that
demands opt-in.
With Senator Hatch's leadership, I feel confident that we will
achieve these goals. Novell looks forward to working with you during
the coming years to make this vision a reality.
Chairman Hatch. Thank you, Craig. We're happy to have your
testimony and we're proud of Novell and what you've been able
to accomplish.
We'll now turn to Robert Simmons, who is the chief
financial officer of Campus Pipeline, Inc.; so Robert, we'll
turn to you.
STATEMENT OF ROBERT SIMMONS
Mr. Simmons. Good morning, Mr. Chairman. I'm Robert
Simmons, executive vice president and chief financial officer
of Campus Pipeline. I appreciate the opportunity to appear
before you today, and hope that I can provide some insight into
what campus Pipeline is doing to reshape how the Internet is
used in higher education, and how we are impacting Utah's
technology environment.
Founded in 1998 Campus Pipeline has attracted an
outstanding team of employees, bringing more than 180
professional-level jobs to our downtown Salt Lake City
headquartered company.
We've also raised more than $87 million in venture
financing, drawing welcomed attention from the investment
community and the press. Our impact on Utah's technology scene
has definitely been felt. And our impact on higher education is
growing stronger.
Today's college students grew up with the Internet.
However, many, if not most of our country's approximately 3,800
colleges and universities do not have a comprehensive web
strategy. As a result, when students arrive on campus they are
often met by a disparate collection of off-line and on-line
resources and services.
The Campus Pipeline web platform helps schools house all
academic and administrative services under one online roof. We
help pull students out of line by putting them on line. Our
secure technology serves the entire campus, giving students,
faculty, and staff 24 by 7 campus access from any Internet
connection.
By web enabling critical campus services such as course
registration, grade posting, and tuition payment, and adding
academic tools such as course message boards, online office
hours, and distance learning, schools are helping their
constituents save time and accomplish their goals.
We've taken an innovative approach in making our software
available to every school. In addition to a typical software
license, we offer a grant model through which corporate
sponsors such as Hewlett-Packard, ETS, and TIAA-CREF help
underwrite the costs of the software. By enlisting the aid of
corporate sponsors, we help bridge the digital divide between
institutions of higher education.
The most satisfying validation comes from our schools.
Pepperdine University tells us that Campus Pipeline has
enormously improved their business processes. The University of
Idaho, ranked as one of the most wired universities, told us
that it would have been difficult to maintain their technology
leadership without us, and Illinois Eastern Community College
believes Campus Pipeline is raising the technology expectations
of their students.
Since launching our sales effort in 1999, more than 600
campuses have licensed our software, 65 of which are running on
it as I speak. Our next step will be to extend platform access
to the individuals and groups naturally associated with an
institution, such as prospective students, friends, family, and
alumni, enabling institutions to establish and reinforce school
communications and affinity.
Our ultimate vision is to connect the hundreds of schools,
using the Campus Pipeline platform, into a network of
institutions. This collaborative network will enable the
formation of idea exchanges around specific research
disciplines or interests, and facilitate the exchange of
intellectual information.
To quickly illustrate how the network will function as a
knowledge exchange, imagine a university professor beginning a
research project. Through the Campus Pipeline platform he
accesses information and directs efforts of his research
assistants. As the project progresses, the research team is
able to use the network to collaborate with colleagues at other
institutions, as well as access resources anywhere on the
broader network.
The network will also connect non-academic parties, such as
government agencies, corporate sponsors, and affiliated
professional associations.
Finally the network will be a tool to aggregate demand
among member institutions and leverage the purchasing power of
the respective schools. As wireless and broadband technologies
promulgate, we feel the network will be a catalyst for non-
boundary educational opportunities.
As we progress toward our goal, we foresee government
playing a role in three specific areas. First, we acknowledge
the important position that government holds in protecting the
privacy of the individual. However, users should have the
ability to disclose the information they see fit, giving
commercial entities the ability to customize their products to
meet personal preference.
Second, as the Internet increasingly becomes a form of
exchange, government has a responsibility in defining
intellectual property ownership issues.
Finally, government must play a role in addressing the
critical shortage of engineering talent, needed to further
technology development.
We applaud the chairman's efforts to increase the annual
quota of H1-B visas as a short-term solution to the problem. We
would encourage the legislature to ensure that the INS has
adequate resources to process these additional visas in a
timely manner. In the long term we believe the solution is to
focus more resources within our State and local educational
institutions to the training of students interested in
electrical engineering and computer science.
Thank you again for the opportunity to speak to you today.
I am very encouraged by the progress that Utah has made in
nurturing a technology culture. We are seeing success but we
still have a long way to go.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Simmons follows:]
Prepared Statement of Robert J. Simmons
introduction
Good Morning. Mr. Chairman. I'm Robert Simmons, executive vice
president and chief financial officer of Campus Pipeline. Headquartered
in Salt Lake City, Campus Pipeline is the leading provider of Web
platforms that create official campus intranets for higher education.
I appreciate the opportunity to appear before you today. I hope
that I can provide some insight into what Campus Pipeline is doing to
reshape how the internet is used in higher education and the impact
that we have had on Utah's technology environment.
campus pipeline
Founded in 1998 Campus Pipeline has created almost 180 professional
level jobs in downtown Salt Lake City. Our core product, which began
shipping December of 1999, is setting the standards for integrated Web
networks in higher education.
Today's college students grew up with the Internet. However, many
if not most colleges and universities do not have a comprehensive Web
strategy. As a result, when students arrive on campus they are often
met by a disparate collection of off-line resources and services which
results in the long lines we all knew from our own college experience.
The Campus Pipeline Web platform enables schools to integrate their
systems and administrative services behind a single, secure Web based
interface which gives students, faculty and staff 24/7 access from any
Internet connection. By Web enabling critical service such as
registering for class, checking grades, and career center along with
academic enhancements such as course specific chat, message boards and
distance learning, schools are able to more efficiently deploy scarce
resources and enhance the learning environment.
At Pepperdine University, Administrator Candace Jones stated,
``Campus Pipeline has spurred enormous improvements in our business
process.''
To make our software available to every school that wants its, even
those that cannot afford to buy it, we have developed an innovative
grant model through which corporate sponsors help underwrite the cost
of our product. By enlisting the aid of corporate sponsor, we are
leveling the technological playing field in higher education.
Jerry Wallace, vice president of finance and administration at the
University of Idaho stated, ``Our technology leadership would have been
costly to maintain without Campus Pipeline.''
Terry Bruce, Chief Executive Officer at Illinois Eastern Community
College added, ``Campus Pipeline offers community colleges a way to
offer student services, information and technology that moves beyond
what they expect. When our students move on to four-year colleges, they
will have high standards for the online services and technology
available.''
Since launching our sales effort in 1999 over 600 campuses have
licensed our software, 65 of which are currently live and using the
product across their respective systems.
Our next step will be to extend platform access to the individuals
and groups associated with a specific institution such as prospective
students, friends and family, and alumni. Thus enabling institutions to
establish and reinforce school-centric communication and affinity.
Our ultimate vision is to connect the hundreds of schools using the
Campus Pipeline platform into the CP Network. This collaborative
network will enable the formation of idea exchanges around specific
research disciplines or interests, the exchange of intellectual
information, and aggregate buying power among its members.
To quickly illustrate how the network will function as a knowledge
exchange imagine a professor at Campus Pipeline school beginning a
research project.
Through the local platform he accesses information and directs the
efforts of his research assistants.
As the project progresses, the research team is able to use the
network to collaborate with colleagues at other institutions as well as
access resources anywhere on the network.
Interested parties will be able to track the resources and perhaps
provide input.
The network will also connect non-academic interested parties such
as government agencies and corporate sponsors.
Finally, the network will be a tool to aggregate demand among
member institutions and leverage the purchasing power of the respective
schools.
Clearly there will be tremendous benefits to both institutions as
well as individuals in having access to such a network.
role of government
As we progress towards our goal we see government playing a role in
three specific areas.
First, we acknowledge the important role that government fills in
protecting the privacy of the individual. However, the user should have
the ability to disclose as much or as little information as they see
fit which will enable commercial entities the ability to customize or
enhance their products and services for each individual.
Second, as the Internet increasingly becomes a forum of exchange,
government has a role in defining and refining intellectual property
ownership issues.
Finally, government must play a role in addressing the critical
shortage of engineering talent. We applaud the Chairman's efforts to
increase the annual quota of H1-B visas as a short-term solution to the
problem. We would encourage the legislature to ensure that the INS has
adequate resources to process the additional visas in a timely manner.
In the long term, we believe the solution is to allocate more
resources within our state and local educational institutions to the
training of students interested in electrical engineering and computer
science.
conclusion
Thank you again for the opportunity to speak to you today. I am
exited about the progress the state of Utah has made in nurturing a
technology culture. We are seeing success but we still have a long way
to go.
I will be glad to answer any questions.
Chairman Hatch. Well, thank you, Mr. Simmons. That was very
interesting.
Let me turn now to Richard Nelson, who is president and
chairman of Utah Information Technologies Association.
We are happy to have you with us, Mr. Nelson.
STATEMENT OF RICHARD NELSON
Mr. Nelson. Thank you very much.
Mr. Chairman, it is a privilege to address you and provide
testimony here today. With the subject today of Utah's digital
economy, I'd like to title my remarks this morning ``Utah's
Dynamic I.T. Industry.'' I've provided you a handout that I'd
like to refer to. The press also has access to that.
I would like to give you a profile of our dynamic industry.
Utah has 2,500 information technology companies and an
estimated 1,000 viable Internet enterprises. As the growth
engine of the State, you've already mentioned we have last year
$7.7 billion in revenues, 43,000 very high-paying jobs. I'd
like you to refer to the back side of the material that was
provided, you can see that the average salary at the bottom of
an I.T. position, according to our extensive survey last year
was $45,228.
That compares with an average wage--non-agricultural wage
in the state of Utah, $26,484, or 71 percent above the average.
And you can see the prior year, that this has increased from 66
percent above the average to now 71 percent above the average.
You can see how significant it is for the State of Utah with
these 3,500 I.T. and Internet enterprises.
The I.T. leadership within the State is extremely
optimistic. In our survey last year of the industry, the I.T.
leaders projected over the next 3 years that they would
increase their new employees by 53 percent above where they
were at that time, or an additional 23,000 employees. That's
obviously very, very significant, and again another reason why
I say that the I.T. industry in the State of Utah with the
concentration we have here, Senator Hatch, is truly the growth
engine of this State.
As I try to describe the industry, and we'll do this this
morning, I used five or six adjectives. It's dynamic, a lot of
energy, speed, vibrant, and very, very young.
Now to the issue that faces all of our industry here in the
State and throughout the country that you have provided such
incredible leadership on, and the recent passage of the H1-B
visa bill in the Senate.
A skilled work force is our number one issue. Recently we
surveyed our membership, and I'd like to share some of those
findings with you, as you can see at the top of this page, and
you can see that this documented significant local shortages.
The survey results show the following:
Two hundred forty technology members were surveyed. We
received a response rate of 23.3 percent, which is an
outstanding response. First question: Are you having difficulty
meeting your need for qualified engineers, computer science,
and technical people? Ninety-four percent that were surveyed
said yes.
Question Number Two. If yes, what was the percentage of
shortfall on hiring? An average of 42 percent of technical
positions are not filled due to skilled work force shortage.
Question Number Three. Given an adequate supply of
qualified applicants, how many engineers, computer science,
technical staff would you hire in the year 2000? Now this
survey was taken in August, so it was a 5-month projection
going forward. Surveyed companies responded that they would
hire 1,264 people by year end, an average of 23 new employees
per the 56 companies that responded to this survey.
Company survey reported that they employ 8,168 people in
the State of Utah, or an average of 146 employees. That gives
you some perspective on how significant this increase is. New
hires would increase by year end, total employees, by 15
percent.
You mention in your opening remarks that Utah's success and
recognition as a high-tech community have been well documented.
I'd like to refer to two or three of those cited statistics.
In June of 2000, Salt Lake City was ranked the number one
computer-savvy city in the Nation, with San Francisco being
number two, according to Scarborough Research of New York City.
Salt Lake City, according to Newsweek magazine, is one of
the top 10 new tech centers in the world, according to
Newsweek, as I mentioned; and number three, and last comment,
the Salt Lake City/Provo area was named the number two largest
metropolitan area for startups and growing of business, again
according to the Wall Street Journal.
Senator Hatch, I appreciate being here today and sharing
this profile of our extremely dynamic industry, and I want to
personally thank you on behalf of our industry, our 2,500 I.T.
companies and Internet enterprises, for your extremely
effective leadership role in the Senate for the significant
legislation you've passed this year. Five of the six major
pieces of legislation. We appreciate that a great deal. Thank
you.
[The handout referred to above follows:]
[GRAPHIC] [TIFF OMITTED] T4415A.001
[GRAPHIC] [TIFF OMITTED] T4415A.002
Chairman Hatch. Well, thank you, Mr. Nelson.
It's great for all of you BYU students to know, and our
university students throughout the State to know that if we
work hard here and in our various universities to prepare,
there appear to be plenty of high-paying, high-tech jobs right
here in Utah for you. We can assimilate all of you, and I'll
tell you, I want to keep it that way, so your testimony is very
important.
It's also important to note that the H1-B bill that was
just mentioned, we had a heck of a time getting through the
Senate. We had to go through three cloture votes, motion to
proceed on some of the amendments, and then finally on the
bill. They had a substitute that became the H1-B bill, because
there were those who didn't want it to pass, but yet in the end
it passed 94 to 3 in the U.S. Senate, and then went through the
House very fast.
But I would like to note that we will be able to use the
fees from the increased visas to fund more high-tech education
for our own students and workers. Those fees are estimated to
be about $450 million over 3 years. But if the visa cost goes
to a thousand dollars from the current price per visa, which
the high-tech industry is willing to bear in the interests of
getting more people, you're talking about, you know, a billion
dollars, and educational help and aid to our own students in
this country. So it's a very important bill, and I appreciate
you mentioning it, Mr. Nelson.
Let's turn to Peter Breinholt, a man I deeply respect, as I
do all these folks here today.
Peter is a recording artist, and of course, performer. I
think most of you know Peter, and I'd like to turn the time
over to you at this time.
Now I think, if it's not too noisy, I think we can go
ahead. I was going to break for about 10 minutes, but I think
why don't we go ahead. If it gets too noisy we'll break and
then finish.
STATEMENT OF PETER BREINHOLT
Mr. Breinholt. Well, I would like to first of all thank
you, Mr. Chairman, for inviting me to come and talk about my
perspectives. I'm getting asked a lot these days----
Chairman Hatch. I want to learn how to sell my CD's, so I'm
going to learn from you.
Mr. Breinholt. Well, hopefully we can do that.
Just sort of by way of introduction, I'm an independent
performer and songwriter, and so I'm not with a label. I've had
to figure out sort of my own way to do what the label does.
Chairman Hatch. Did you all get that? He's not with a
formal recording company. The only way he's going to have an
opportunity, with his high skills and intellectual abilities
and artistic and musical abilities, is to be able to figure out
a way to get his music out there by himself. And this is a new
wave that's coming, and Napster of course provides, and may
very well provide one of the best ways of artists and creators
to get their matters going who would never get a chance with
some of the recording industry.
Mr. Breinholt. We started locally. Let me start by doing
the demo here, just sort of to introduce this.
This is something we've jumped on. This is a website we
designed----
Chairman Hatch. I can't quite see that.
Mr. Breinholt [continuing]. It helps sort of to welcome
people that have heard our music for the first time who are
trying to find out more; and it also, you know, invites people
who already know who we are to come and find out more. And so
what we've done: This is the main page where most of our hits
are.
[Website being shown on overhead projector.]
Mr. Breinholt. And we have an announcements board, we have
samples for people who don't know who the heck I am to hear my
songs right here, we announce upcoming shows.
But we also up here we've got an albums page, and if you go
there you can actually go and sample every one of the songs.
I've got three CD's and you can hear, this is the first one.
You can sample it just like going into Blockbuster music and
sitting at the listening station. You can decide if you like
it, and then if you like it you can go over here and you can
buy the MP3.
We also have bios and photos, and I've got sheet music on
here. We have live recordings so people can find out what we
sound like live, and reviews, and also the store. So if you do
want to buy something you can go down and you can--there's all
the CD's, some T-shirts, some hats and so forth.
So this has helped us, and so far I've had one for a long
time but this--since we've done it in this format our sales
have gone up, and it's definitely paying for itself, and it's
helping us broaden my audience. And so for that reason alone,
I'm excited by the high-tech, especially for an independent guy
like me.
I've got a number of friends that are allowing the labels
to do that for them, and when it comes to radio play, when it
comes to VH1, or, you know, a lot of the articles, it seems
like the labels are sort of dominating in those areas, but this
allows people like me to do all those things on the web.
Now locally I have--because I haven't--I've been able to
record the CD's and pay for them myself and write my own press
releases and pretty much do everything a label would do, for
myself--the one thing I haven't been able to do very well is
get radio time or TV time, and I'm interested in making my
music as available to as many people as possible.
And locally what I've been able to rely on is word of
mouth. We found if I do a lot of shows around town, people will
go and buy the CD's, and then they'll listen to it in their
car, and then their friends will hear it and then they'll go
and buy it. So locally that's what's driven my career over the
last 7 years, are students listening to my CD's in their car.
Peer-to-peer to me seems like it might be a high-tech
bigger version of that, to enable people to hear my music that
wouldn't ordinarily. Now granted, there are all the copyright
issues that I think we've all talked about, and that's a
concern, of course, but I want to talk mostly about what I see
as opportunities, and maybe I've wondered how do I get to the
point where somebody logs on and they weed through the hundreds
of thousands of artists that are on the web right now and find
me?
And I don't have the answer to that yet, except that maybe
the time will come where we'll be able to say, you know, to our
computer, ``I want--I like the Beatles and I like Nancy
Griffith and I like folk music. Help me find more music like
it,'' and with peer-to-peer and some of the search things, it
could bring up new music and then play it for you. And that
would be a benefit for someone like me.
There's also been talk--I have been reading articles about
going to sort of a cable format where you pay, you know, a
monthly rate and then you get access to everything that's on
Napster, for example, which would also be of interest to me.
I'm optimistic and I don't see the Internet and I don't see
peer-to-peer as a threat, even though there's some issues that
I do worry about. I found that oftentimes when I give some of
my music away or when I do a free concert, instead of it
hurting the next concert or hurting my CD sales, it actually--
because more people are out there listening to it, it actually
is a boost. So there's an opportunity, I think, for me to take
advantage of, and hopefully be able to do it in a way that also
helps me maintain control over what's intellectual property and
copyright. So I'm optimistic about that, and we're just going
to see where we go from now.
I also want to thank you for the chance for letting me
represent independent artists and not just musicians but anyone
who has any sort of intellectual property, writers, film
makers, and so forth. Thank you.
[The prepared statement of Mr. Breinholt follows:]
Prepared Statement of Peter Breinholt
So what do I think about Napster? I'm getting that question a lot
these days. First, like most artists. I worry about the copyright
issue. In five years is everybody going to be swapping my songs with
each other instead of buying them? Am I going to have any reason to
make another CD? Is anybody going to want to publish if they can't re-
coup their costs? Is it unreasonable for me to want to have some input
as to how my songs are sent out to the world?
But that's just half of my answer. And not the half I want to talk
about here. The other half is about the opportunities that Peer to Peer
technology might be able to offer a guy like me in the future.
So far, my music has been a sort of cottage industry. I paid for
the CDs to be made, found people to distribute them, designed the
covers, booked the concert halls, took out ads in the paper. It's a lot
of work, but I like doing it. Not only that, but I think I understand
my audience, and I get to be protective of them. I like being able to
decide ticket prices for shows, who is going to open for us, what the
next CD will sound like, or how aggressively I'm willing to advertise.
As a result of doing it on my own, I get about $7 for every CD that
sells in a store. And about $10 per CD sold at concerts. In contrast,
I've got a friend who is also a performer/songwriter who opted to sign
with a local label. He recorded a CD that cost about $18,000 to make,
which the label paid for. Now, when one of his CDs sells at a store or
at a concert, he makes about $1. The rest of that $7-10 which I make on
my CD sales goes to his label. On top of that, he has to pay back the
$18,000 it cost to make the CD out of his $1-per-CD cut. In other
words, he won't make a dime until he has sold 18,000 CDs. And then, he
still won't own the CD, the label will. They maintain the copyright.
It's kind of like paying off your mortgage, but then having the bank
still own your house.
Around the time of the release of his CD, this same friend asked me
to open for him at a concert up at Kingsbury Hall in Salt Lake. My
first CD had just come out and I was trying to build an audience, so I
took him up on it. I ended up selling about 70 CDs at the show. He sold
about 50. I saw him a week later Christmas shopping and I could tell he
was depressed about the show. It wasn't that I had sold more CDs. It
was that he knew I had made $700 in sales that night he had made about
$50. And all of that $50 went to his label to pay off his recording
costs. (My cut also went to pay off my own CD costs at that time, but
because it was a much bigger cut, the CD paid for itself within a few
months.) Hardly the kind of scenario I would describe as ``win/win''
for both the artist and the label.
So I've stayed independent. That's not to say I'm anti-label. I'm
not by any means. There's a lot a label could do to make my music
available to more people. And if a fair deal came along, I might do it.
I've just never seen a deal that would be fair to both parties.
My trick then, in the meantime, is to make my music available to as
many people as I can on my own. I can book the concert halls and do
shows on my own, run the ads, write the press releases, but I can't
seem to get radio play or TV time, which is where most people are
introduced to new music. And no matter how well I'm distributed, if no
one has heard my music, the CDs will gather dust on the store shelves.
The labels have an unofficial monopoly on what gets on the air these
days.
Locally, however, I've found that if I do concerts, and
occasionally free ones, people hear the music and buy the CDs. And
that's where word of mouth here in Utah steps up. It's been students
playing my CDs in their cars for their friends that have driven my
sales since I started in 1993.
But that translates slowly out of state. Inside Utah, I've outsold
Paul Simon. But outside, only former BYU students and people with a
Utah connection know who I am. And maybe that's where the Internet can
play a role. Peer to Peer technology is sort of like a high-tech
version of those students playing my CDs in their cars for their
friends. Sort of. It has the potential to do what word of mouth did for
me here in Utah, which is the same thing radio generally does for
signed artists: It introduces new music to people. It's still unclear
how a person looking for new music on the web is going to be able to
weed through the hundreds of thousands of signed and unsigned artists
to find me, and then take the time to listen. But perhaps the time will
come where music listeners will be able to say to their computers, in
essence. ``This is the kind of music I like. Here are the artists I
like. Help me find more.'' And then their computers will narrow down
the field and then play new music pulled from the Peer to Peer format
for them as they work at their offices. Kind of like their own radio
station. Who knows? It could be something entirely different, but my
point is that the Internet might be able to play a new role in exposing
new music.
During the 80's, the record industry cracked down on bootleggers at
concerts. The philosophy was: If you let people record your shows then
they won't buy your albums or go to your shows anymore. The Grateful
Dead did the opposite. They welcomed bootleggers at their shows. They
went as far as to set aside ``bootleg sections'' for people to set up
their gear in front of the main soundboard. They argued that that was
what their music was for . . . to be heard. And as we know now, their
sales didn't go down. They went up, including concert attendance. Why?
It meant that more Grateful Dead tapes were floating around the world,
and that more people were listening to them, and more people were
discovering them. All of this without much radio play. I don't want to
imply, however, that because it has helped some artists, that it's now
okay for people to pirate music. That's got to be the artist's choice.
They may not want that kind of help. But speaking from a business
strategy standpoint, I think that having a lot of copies of your music
floating around works. You give something to your audience, and it
always seems to come back somehow. And that is how Peer to Peer, if
done in a way that grants the artist a right to ``opt in'' or ``opt
out,'' has tremendous potential for unsigned artists.
Lastly, once people find new music these days they can be directed
to a website. An artist's site might be able to turn a curious passer
by into a fan. Once people find an artists' site, the artist can
potentially provide the same kind of information that the radio, VH-1,
music magazines, stores, books, movies, newspapers, mailing lists, and
fan clubs all provide for signed artists. Personally, it's been nice
lately to be able to say to the person who comes up after a show
looking for more information to ``check out the site'' and not worry
about them not being able to find what they need.
Chairman Hatch. Thank you. I don't think it will be long
before we have major paintings being sold by individuals as
independent artists almost anywhere in the independent art
field.
I will never forget, I was asked to speak to a national
convention of ASCAP, one of the major performing rights
organization, along with BMI in this country, and I had just
received my first royalty check of $60, so I mentioned to the
audience, I was sitting by Marilyn Bergman, who is the Academy
award winning songwriter. She and her husband Alan wrote ``The
Way We Were,'' ``You Don't Bring Me Flowers Anymore,'' etc.--
about 40 of Barbra Streisand's songs--and I was sitting next to
her, and when I said in my remarks that I had received my first
check, royalty check, for $60, which is pretty thrilling to me,
the whole audience stood and applauded. And Marilyn Bergman
turned to me and she said, ``Orrin'', when I said that, she
said, ``the reason they did that,'' she said, ``as great as
most all of them are, hardly any of them will ever receive a
royalty check.''
And that's how tough this business is. It's this peer-to-
peer technology approach that basically has formulated
opportunities for people like never before.
And we're moving more and more into peer-to-peer
technology; and when you look at Gnutella, which doesn't even
need a server, it's a slow system, but nevertheless someday
somebody is going to break through on that.
Napster was the reason I think we've been able to even move
in that direction. So let's turn to Shawn Fanning, who at 18
years of age developed this application and this process, and
deserves an awful lot of credit. We're very proud of him, and
he's been with us back in Washington and agreed to come to Utah
especially today just to chat with us a little bit about what
his perspectives are.
And if some of you young students would like to come up and
sit on the floor up here, for those of you who are standing, we
would be glad to have you come up here and surround this place,
and we'll turn the time over to Shawn Fanning at this point.
STATEMENT OF SHAWN FANNING
Mr. Fanning. Good morning, Senator Hatch.
Chairman Hatch. You can come up and fill in, up here.
Mr. Fanning. What's up, BYU?
[Applause.]
Mr. Fanning. First I want to thank you for inviting me to
visit Utah for the first time and to appear before the Senate
Judiciary Committee, also for the first time.
I would also like to introduce Hank Berry, our CEO, who you
mentioned earlier, sitting behind me today.
I am very happy to have this opportunity to discuss Napster
and peer-to-peer file sharing. First I'd like to give a bit of
the background behind Napster, how things were created.
In the fall of 1998 I was a freshman at Northeastern
University studying computer science. Looking for a challenge
beyond entry-level courses, I decided to start writing a
Windows application on my own. One of my college roommates
loved listening to MP3's and used Internet sites such as
MP3.lycos.com and scour.net to find them. He often complained
about finding links to sites that were dead ends, and indexes
that were out of date. I started thinking about ways to solve
the reliability problems my roommate was experiencing.
A traditional search engine sends out crawlers to roam the
Internet, periodically updating itself every hour or more to
remove sites that are down or unavailable. The index has become
outdated as sites go up or down, a significant problem when
looking for MP3's, because most of the files are housed on
people's home computers.
I began designing and programming a realtime system for
locating MP3 files of other users on the Internet. My idea was
a service that allowed users to choose the files they wanted to
share with other users, and then list those files on a computer
that all that users could access. The list would then be
updated each time a person logged on or off the service.
The Napster application I designed combined this realtime
system for finding MP3's with chatrooms and instant messaging.
The chatrooms and instant messaging are important to creating a
community experience, providing a means for people to learn
from each other and develop ongoing relationships. I also added
a hot list function that enables people to see others' musical
preferences by viewing the files that they have chosen to
share.
During the winter I made the decision to leave school and
work on the project fulltime. Initially I focused purely on
proving the concept. I thought that after I made it work,
someone else would take it from there.
There were many unknowns. I didn't know if users had access
to sufficient bandwidth to support the network. Other people
were skeptical about whether users would be willing to share
their files at all.
After developing the software prototype I started sending
it to friends who sent it to other friends. The enthusiastic
responses I received convinced me to try and build out the
system.
I released an early beta version of the Napster software
during the summer, and it spread quickly by word of mouth. It
hasn't stopped growing since. Today the Napster community
numbers over 32 million people. There are consistently 800,000
people using the system simultaneously.
While I think it was initially adopted mostly by college
students, a significant portion of our users are now over 30.
Music people are sharing and discussing ranges from rock to
classical, opera, country, gospel, jazz, you name it. People
tell us that they use the Napster service to sample new music
before deciding what to buy, and to find new artists. They say
that they use it to access music they already own on CD,
cassette, vinyl, sometimes eight track.
We hear regularly from parents who said they use Napster to
screen the music their children are listening to, and as a
shared activity that helps them communicate with teenagers.
I am a big music fan myself, and Napster's benefit to
artists is important to me. Many community members have told us
that using Napster has led them to buy more CD's. Napster's
implemented a range of features; most notably are new artists
and featured music programs, which help users find out about
new and emerging artists and make it possible for artists, to
reach a broad audience.
When Napster is able to implement a business model, there
will be other benefits for artists as well, including payments
to rightsholders.
I believe that peer-to-peer technology on which Napster is
based has the potential to be adopted for many different uses.
First, there is the ability to share other kinds of files in
addition to music, and indeed, Napster has been contacted by
entities such as the Human Genome Project, that are interested
in sharing information among specific communities of interest.
Peer-to-peer also has tremendous opportunity for sharing
resources or computing power, lowering information and
transaction costs. Peer-to-peer could be used to create an
aggregate pool of resources to solve a range of complex storage
processing and bandwidth problems.
Think of how much faster and more efficient the Internet
would be, if, instead of always connecting you to a central
server every time you click onto a website, your computer could
find the source that has the information nearest to you. If the
kid down the hall had it on their machine, why travel halfway
around the world to retrieve it?
A number of companies from Intel on down to small startups
are looking at ways to develop peer-to-peer technology, and I
believe that many of them will succeed.
This will result not only in a better use of computing
resources, but also the development of a myriad of communities
and supercommunities fulfilling the promise of the Internet
that its founders envisioned.
I'm going to give a quick demonstration of the software.
[Computer presentation commenced.]
Mr. Fanning. So this is the main screen, which we basically
use as a way to communicate with our users about, you know,
featured artists. We give them news updates, and we just
recently set up a mailing list so that people can subscribe to
the mailing list, and we'll tell them, you know, as new events
come up, and tell them about new artists and things of that
nature.
This is the chat section, which the text here is actually
an introduction, the message of the day, and you have the
opportunity to join chatrooms with other users who are also
participating in the community.
This is the library section, which has one of Peter's songs
in it right now.
So this is where you access your personal music. It allows
you to create play lists, to play the music that you
transferred from other users.
Probably the most popular section, the search section. This
is basically the way in which you seek information on the
network. What this does is it contacts our central server,
searches the index, and allows you to do substring searching to
locate files that other users are sharing on the network.
We also have the hot list section, which is a way to browse
other users' files directly, so if you meet someone on the
network that you're interested in communicating with, maybe
that have similar tastes or similar library, so you can keep
track of when they're on line or off line, and view the files
that they're sharing.
This is the transfer section, which basically keeps track
of the current transfers, both incoming and outgoing transfers.
This is the discover section, which is basically our new
artist program. We are always featuring artists here that are
interested in getting promotion, much like Peter, and users can
come here and learn about artists that are interested in
promotion. We select, you know, featured artists, as I said,
but we also have a new artists section which basically allows
you to browse by genre different artists that have classified
their music and placed it into the directory.
And then there's the help section which is just help.
So here's an example. We've done a search for some of
Peter's stuff, and as you can see, it lists the user name of
the person that's sharing it on the network, and so I'll pick a
song and transfer it.
So what this is doing is it's contacting the central server
to----
[Laughter.]
Mr. Fanning. OK. I'll try a different site. There we go.
So it has actually contacted the central server and
received information about the location of the other user, and
now it is connected to that user directly and it's transferring
the file. And so once that file is finished it would end up in
this library section, and I will just use this file as an
example and you can just come play it.
[Music playing.]
Chairman Hatch. How come we didn't get to hear the rest of
it? That's great.
Mr. Fanning. OK. Thanks for the opportunity to speak to you
today, Senator, and to BYU. I appreciate it.
Chairman Hatch. Well, thank you, Shawn.
[Applause.]
[The prepared statement of Mr. Fanning follows:]
Prepared Statement of Shawn Fanning
Good morning, Senator Hatch. Thank you for inviting me for my first
visit to Utah and my first appearance before a Congressional committee.
Napster has broadened my own horizons in many ways that I never
expected, and these are two examples. I also want to introduce Hank
Barry, Napster's CEO, who is here with me today.
I am very happy to have this opportunity to tell you about
Napster's origins, describe how the technology works and discuss the
future potential of peer-to-peer file sharing and distributed
computing.
napster's beginnings in a northeastern dorm room
You may have heard or read that I started working on Napster in my
dorm room at Northeastern University; while that's true, the story is a
little more complicated than that.
I grew up in Massachusetts and during my high school years lived in
Harwich. In 1996, between my sophomore and junior years in high school,
my uncle, John Fanning, gave me a computer and access to the Internet.
That was my first real experience with computers. I was a good student
and focused a lot of attention on school, but my real love at that time
was sports: I played baseball, basketball and tennis. The computer and
the Internet fascinated me totally, and before long I gave up sports so
I could spend more of my spare time at the computer learning about
programming.
I started my freshman year at Northeastern University in the fall
of 1998 intending to major in computer science. Looking for a challenge
beyond the entry-level courses. I decided to start writing a Windows-
based program on my own. I spent a lot of time in Internet Relay Chat
(IRC) rooms getting advice and information from the experienced
developers and programmers who hang out there. IRC is a network of
people organized into communities, through real time channels, on
various topics including programming and Internet security. ``Napster''
was my nickname, and I used it for my e-mail address and as my user
name in IRC rooms.
One of my college roommates loved listening to MP3s and used
Internet sites such as MP3.lycos.com to find them. He often complained
about the unreliability of those sites, finding links to sites that
were often dead ends, and indexes that were out of date because they
were updated infrequently. I started thinking about ways to solve the
reliability problems my roommate was experiencing.
I began designing and programming a real-time system for locating
MP3 files of other users on the Internet. I designed the Napster
software to find MP3s because they are the most compressed format (in
consideration of bandwidth) and they were very popular at the time. The
system I had in mind was unlike traditional search engines at that
time.
A traditional search engine sends out ``robots'' to roam the
Internet periodically, updating itself every hour or more to remove
sites that are down or unavailable. The database created is entirely
driven by what the central computer finds by ``crawling'' the Internet.
The indexes become outdated as sites go up or down, a significant
problem when looking for MP3s because most of the files were housed on
people's home computers.
My idea was to have users list the files they were willing to share
on a computer that they all could access. That list would then be
updated each time a person logged on to and off of that computer. The
index computer would at all times have an up-to-date list of the files
people were willing to share, and the list would be voluntarily make by
the users as they logged on and off the system. A user searching the
index would see all the files shared by users on the network and
available to others on the network at that moment.
In contrast to traditional search engines, the system I envisioned
would be affirmatively powered by the users, who would select what
information they wanted to list on the index. Then, when the user
exited the application, their portion of the list (their files) would
automatically drop from the index. The index was only one part of
participating in the community. I also wanted users to be able to chat
with each other and share information about their favorite music, so I
added these functions to the application.
I very quickly became totally absorbed in this project. It was more
compelling than my classes and more meaningful that socializing at
school. I wrote a small design for this real-time search engine, and
then began the implementation. I first wrote the server software. I
next worked on writing the client application, i.e., the user
interface. I ordered a Windows programming book over Amazon.com to
learn what I needed and wrote the client software.
The Napster application I designed combined a real time system for
finding MP3s with chat rooms and instant messaging (functionality
similar to IRC). The chat rooms and instant messaging are integral to
creating the community experience; I imagined that they would be used
similarly to how people use IRC--as a means for people to learn from
each other and develop ongoing relationships. I also added a
``hotlist'' function that enables people to see other's musical
preferences by viewing the files they have chosen to share. This
synergy of technologies created a platform for a community of users
interested in music with different channels organized by genres of
music (again, similar to IRC), and with genuine opportunity for
participation, interaction and individual involvement by the members
sharing files together.
During the winter, I made the decision to leave school--I found I
couldn't concentrate on developing the program and deal with my classes
and life on campus. I was driven to figure out if I could make the
program actually work. Initially, I didn't intend to even build it out;
I was focused purely on establishing a ``proof of concept.'' I figured
that if I could make it work, others could too, and someone else would
take it from there. There were many unknowns. The design required a
networking infrastructure of servers and bandwidth in order to maintain
large numbers of user connections. I didn't know if enough users had
access to sufficient bandwidth. Other people were skeptical about
whether users would be willing to share their files.
After developing the software prototype, I started sending it to
friends, who sent it to other friends. A few early adopters provided
feedback and helped track down bugs in the software. The consistently
supportive and enthusiastic responses I got convinced me to try to
build out the system. My uncle and I incorporated the company in May
1999 and he raised some money from angel investors. I released an early
beta version of the Napster software during the summer and it spread
quickly by word of mouth. In September 1999, Napster, Inc. obtained
office space and I moved to California. Download.com featured Napster
in its Download Spotlight in early fall 1999, and the user community
grew significantly.
It hasn't stopped growing since. Today the Napster community
numbers over thirty-two million; for the past four months, it has been
growing at the rate of one million new users each week. There are
consistently over 800,000 people using the system simultaneously,
limited only by our network resources. Napster users are in all corners
of the world, and while I think it was initially adopted mostly by
college students, a significant portion of our users are now over 30
(we received email just last Friday from one 91 year-old man).
An underlying assumption of the technology and the service is that
people determine entirely for themselves how they are going to use the
system and participate in the community--Napster provides the tools,
but has no ability to impose limitations or exercise control. The music
people are sharing and discussing ranges from the rock music you might
expect to classical, opera, country, gospel, jazz, you name it. I
receive thousands of emails personally and the company receives
hundreds of thousands. People tell us that they use Napster to sample
new music before deciding what to buy, find new artists, and house
music in their computers that they already own on CD, cassette, vinyl
and sometimes 8-track. We hear regularly from mothers who say they use
Napster to screen the music their children are listening to and parents
who say that Napster is a shared activity that helps them communicate
with their teenagers.
I am an avid music fan myself and it is important to me that
Napster benefit artists. Many users have told us that using Napster has
led them to buy more CDs. Napster has implemented a range of features,
most notably our New Artist and Featured Music programs, that help
users find out about new and emerging artists and help artists promote
their music throughout the Napster community, making it possible for
them to reach a broad audience. When Napster is able to implement a
business model, there will be other benefits for artists as well,
including payments to rightsholders.
how napster works
Napster is a throwback to the original structure of the Internet.
Rather than build large servers that house information, Napster relies
on communication between the personal computers of the members of the
Napster community. The information is distributed all across the
Internet, allowing for a depth and scale of information that is
virtually limitless.
Napster does not post, host, or serve MP3 files. The Napster
software allows users to connect with each other, so that they may
share MP3 files stored on their individual hard drives. The number of
song files available at any given time depends on the number of song
files that active users choose to share from their hard drives. Users
need not share any or all of their files--they, and only they, can
choose which ones to make available to others. MP3 files do not pass
through a centralized server. The transfer is directly from computer to
computer, known as ``peer-to-peer.''
Unlike traditional web-based search engines, the Napster system
cannot index files based on their content and organize them in a
meaningful way for the users. MP3 and Windows Media Audio (WMA) files
are not currently designed for such content-based indexing. Instead,
such files can only be located and organized based on the file names
assigned by the users, specific information in the MPEG header,
bandwidth or ping time of the source (such as T1, cable DSL, 35
milliseconds) or by manually opening each file, listening to the file
and then categorizing the file based on a personal judgment about what
the file contains. Napster provides a directory through which users may
find files, by file name, residing on the computers of other Napster
users. The Napster service also provides location information allowing
a computer to connect to the other user and transfer the file from its
location.
Other Napster functions include chat rooms, instant messaging,
hotlists, and message boards. We are constantly working to refine the
functionality of the client and improve the user experience.
the unlimited potential of peer-to-peer technology
I believe that the peer-to-peer technology on which Napster is
based has the potential to be adopted for many different uses. People
generally speak about the ability to share other kinds of files in
addition to music, and indeed, Napster has been contacted by entities
such as the Human Genome Project that are interested in sharing
information among specific communities of interest. But peer-to-peer,
or distributed computing, also has tremendous opportunity for sharing
resources or computing power, lowering information and transaction
costs. Peer-to-peer could be used to create a pool of resources in
aggregate to solve a range of complex storage, processing and bandwidth
problems.
Peer-to-peer also has the potential to change today's understanding
of the relationship between source and site. Think how much faster and
more efficient the Internet could be if instead of always connecting
you to a central server every time you click on to a website, your
computer would find the source that housed that information nearest to
you--if it's already on the computer of the kid down the hall, why
travel halfway around the world to retrieve it? A number of companies,
from Intel on down to small start-ups, are looking at ways to develop
peer-to-peer technology, and I believe that many of them will succeed.
The result will be not just a better use of computing resources, but
also the development of a myriad of communities and super-communities
fulfilling the promise of the Internet that its founders envisioned.
Chairman Hatch. Well, Shawn, we're proud to have you here,
and, you know, you're only 19, but I think we can use you as a
professor here. I think we could----
[Laughter.]
Chairman Hatch. Let me just say this. Mr. Fanning, there
are at least two inconsistent stories making the rounds about
the origins of the name ``Napster.'' Could you set the record
straight today about where the name Napster comes from. And by
the way, I notice you like to wear baseball caps. Could I
interest you in a BYU cap?
[Applause.]
Mr. Fanning. Mr. Hatch, could I interest you in a Napster
shirt?
[Applause.]
Chairman Hatch. You look pretty good in that cap. You look
like you might be able to make the BYU football team; you never
know.
Shawn, would you outline or could you outline what is meant
by the term ``peer-to-peer'' as applied to the software that
you're so famous for.
Mr. Fanning. Well, the idea of peer-to-peer is, instead of
contacting a central server when interested--when you're trying
to obtain information, instead you look to work stations which,
you know, nowadays have sufficient bandwidth and sufficient
storage to act as servers--and leverage those resources so you
create peer-to-peer networks, are networks in which work
stations contribute to the network as servers, not just as
clients.
Chairman Hatch. That's great. Well, let me ask each of you:
What do each of you believe that Fortune magazine has called
``Peer-to-Peer, the Next Big Thing for the Internet,'' and why
it's being talked about as revolutionizing the Internet as we
know it today, and what this technology means for Utah's high-
technology industry.
And why don't we start with you, Mr. Pelo, and just come
across the table.
Mr. Pelo. Well, clearly NextPage has demonstrated that
peer-to-peer is a very significant new thing. We are doing
millions of dollars in business already, as a company allowing
people to set up peer-to-peer connections between these work
stations and servers that Shawn referred to.
In our case, we are addressing e-businesses in the same way
that someone might be looking for an MP3 file. Imagine that
you're looking for a spec sheet or hazardous materials data
sheet or a guideline for an audit practice. That information is
just as difficult to find today as MP3 files are for music
lovers.
And using peer-to-peer technologies, then, I can access
that content from my lawyer's system or my accountant's system
or my other partner's, or maybe it's a department down the hall
in my company. And companies are willing to pay a lot of money
for that technology.
Just 2 weeks ago we signed our first license to a major
national company for over a million dollars, so this is a
technology that businesses are recognizing so long as it can
also protect the content that they're providing access to. So
we're absolutely a believer, and believe it will be as
revolutionary as the Internet itself, and certainly
applications even like e-mail have been to us.
Chairman Hatch. Mr. Israelsen.
Mr. Israelsen. We think that the peer-to-peer technology,
or what we used to call distributed computing technology,
really has a significant place in the future. Having been at
Lexis/Nexis, Lexis/Nexis was the prototypical major server with
70 major mainframe servers sitting in Dayton, OH, where
everyone that wanted access to that data came into that server
forum, pulled the data down, and used that effectively.
In the legal world it became very, very useful, in fact,
imperative, that you did a search across a database like Lexis/
Nexis, to identify court cases from anywhere around the
country, or to gather information on a property recording.
In the peer-to-peer world, and particularly if you use the
digital handshake concept and others like it, you can now go
ahead and electronically file a document into the court, Utah
courts were the first ones to start this in 1999. And then if
you want to do a search across, all filings across all courts,
rather than having to go to a centralized database, now you can
do a search across an index that now looks at all of the courts
and identifies where that document is filed and where it's
located, and takes you there to pick it up, instead of having
to store that centrally.
Same concept comes with land records, the ability to do a
search across the entire country to find out what property
records that I might own, and instead of having to go county by
county and running that search, or to a central database, you
can come, run a search, and it will point you to the 10
different locations where that information is located.
Instead of having to have the cost of storing all of that
centrally, you can now go and pull out data and document
instantaneously. And with the digital signature capability, you
know it's authentic, you know that it is legally binding, and
you know you can rely on it.
Chairman Hatch. That is very interesting. As an attorney
that's mind boggling.
Mr. Simmons.
Mr. Simmons. We're certainly interested in kind of the
revolution that Shawn has potentially started here in looking
at applications in higher education.
Certainly there is an opportunity to revolutionize the way
that research is done. For instance, you know, anyone working
on cancer research in the world could potentially, you know,
share information and collaborate in a way that's never before
been possible, so certainly Campus Pipeline is interested in
kind of the P-to-P revolution going on right now as well.
Chairman Hatch. Well, thank you.
Craig. Novell.
Mr. Miller. You know, Novell's success started early in the
late 1980's. Even now we have over 90 million people, almost 3
times what Napster has, as far as clients, that run their
companies and their businesses on NetWare, and that basic
premise started back on just doing simple file sharing, same
kind of thing that Shawn's reinvented using Napster.
The biggest part of that is being able to know and locate
who you are and what files are available, and that's some of
the software that we helped provide to the network, is being
able to discover who you are.
And so whether you take it as far as finding MP3 files on
the Net or finding other people, it's all about understanding,
you know, the location of where things are.
As you notice, he had to go to a server to be able to find
that base--that first search, and being able to know and
identify where those things are on the network is really
important. That's some of the software that we provided, and we
are taking a look obviously at exploiting that technology, and
the need for everybody to want to be able to publish. So that's
what we do and that's the software that we build.
Chairman Hatch. Thank you.
Mr. Nelson.
Mr. Nelson. I appreciate the four technology companies from
the State of Utah making those remarks. Each represent world-
class technology; in fact, three of the four are trustees of
the Utah Information Technologies Association. I am very, very
appreciative of their support of building the industry, and I
think their testimony represents my comment.
Chairman Hatch. Thank you.
Mr. Breinholt.
Mr. Breinholt. For me, peer-to-peer sort of helps me
overcome two of the biggest obstacles, and that is
distribution, and finding new audiences. And it just sort of
enables people who opt out of going with labels to do those
things, and I told Shawn I was going to mention this but I've
got several friends who are with labels right now, and they've
decided to go that way, and the labels step in and do a lot of
things for them that I've chosen to do myself.
As a result, when one of my CD's at Media Play, sell, for
example, I make between 7 and 9 dollars, and if it is at a live
show it's $10, and my friends--this one friend in particular
who is with the label--when he sells at a store he makes a
dollar, and that's at live shows as well; and then out of that
he has to pay off the cost of recording the album, which his
last album is about $18,000, so technically he has to sell
18,000 albums before he even sees anything.
And we did a show together where he asked me to open--this
was right as I was getting started--and I sold about 70 CD's--
this is up at Kingsbury Hall--and he sold about 50, and when I
talked to him after he was a little bit depressed about it. But
it wasn't because his opener had outsold him; it was because he
knew I was going to take home about $700, which would go to pay
off this brand new CD I had released, and he was going to walk
home with about $50, which was going to try and pay off his CD.
So I've opted out. And this comes along, and this sort of
helps me overcome those two obstacles of distributing, and also
of getting it out there and having people hear it.
Chairman Hatch. A lot of people don't realize it costs
between $17,000 and $36,000 to do a CD. If you would do it
yourself with your own arranger and you find a studio and so
forth, it's a very, very expensive process. You have to find
some way of getting that back.
Shawn, I know you have chatted about this and you can
answer that question too, but I know you did not come here
today to speak about the litigation, so I'll avoid the
temptation to ask your opinion on how the case is going and
where you see the Napster will be 6 months from now.
However, Utah is a State which prides itself on respecting
the law, property rights, and free enterprise. Similarly, BYU
and other Utah universities are known for their comparatively
unsullied student bodies. So how do you explain Napster's
popularity here in Utah and around the country, given the
criticisms and the controversy that has arisen?
More to the point: Do you envision a time where Utahns can
log onto Napster, or Utah businesses can enter into ventures
with your company, confident that creators will be compensated
for the distribution of their commercial works, like Peter,
here?
Mr. Fanning. OK. Well, in terms of the compensation issue,
absolutely. We've been in talks with the labels, and we've been
working very hard to try and build out a system and
collaborate, to create a system in which, you know, payments
can be made to rightsholders.
In terms of the technology itself and how it will evolve
and where I see things going--why I believe the software itself
is so popular, is because, you know, the system itself is
basically built around people interacting with each other in a
community.
The ability to go onto the service and to locate something
you haven't heard in a long time, or to have someone on the
service that has similar tastes recommend something to you is
incredibly powerful. It is more powerful than any
recommendation engine you can build with, you know, complicated
logic. It's, you know, the power of someone recommending
something to you with similar tastes. So I think that's a big
part of why people like to use the technology.
Moving forward, I really believe that, you know, there is a
commonality of interest between the artists, between Napster,
and the record companies. So I really feel that once there is
collaboration and not litigation, that we can come to a
peaceful conclusion and everything will work out.
Chairman Hatch. I tend to agree with you. I think
collaboration without litigation might work, but we're not
there yet.
Let me move on to this.
Congress recently passed a bill that I authored, or that I
introduced, that sets aside the hundreds of millions of dollars
in funds generated from the fees on high-tech worker visas to
be used for high-tech training and education programs for
Americans. How important is it that we continue to invest in
our young people, assure them of the best high-tech educational
opportunities available, and how important a growing population
of well-trained, high-tech professionals is to your business
and Utah's future, and how are we doing it, attracting?
You've indicated, Mr. Nelson, some of the answers to this,
but let me just pick one or two of you, and turn to you, Brad,
and maybe you, Mr. Simmons, and have you just answer that
question.
I mean we had to fight like mad to get that bill through,
but finally we passed it overwhelmingly. The President
threatened to veto it and there's no way he's going to sustain
a veto on that bill, I'll tell you that.
Mr. Pelo. Well, that legislation is very important to us
and to many other high-tech companies, because there is an
extreme shortage of high-tech talent. And when we talk about
qualified high-tech talent, unlike our industrial era, where
maybe the dexterity of my fingers allowed me to produce 10
percent more parts than the next person, in the high-tech world
where intellectual property and our methodologies are our true
value, the person in one cubicle can be actually outperforming
the guy in the next cubicle by a thousandfold.
And so when we hire, we are looking for the smartest and
the very brightest. And finding people that are very well
educated, that are very skilled at what they do in the
technology sector is very, very difficult and highly
competitive. Fortunately in Utah we have good educational
institutions, a good lifestyle, and we attract a good employee
base here.
When I talk to my friends at Silicon Valley about how
difficult it is to hire technology talent into their
businesses, it's significantly more difficult than it is here.
But we feel the pain here. I think over the last 6 months,
we've had at least a dozen open engineering heads that we've
not been able to fill, because we have not been able to find
qualified individuals here locally.
Chairman Hatch. OK. Mr. Simmons.
Mr. Simmons. Yes. We've been working this issue on a local
level, Mr. Chairman, and we very much applaud your efforts at
the national level.
We have been frustrated over the past year with the extreme
shortage of qualified labor in this particular market, and find
it amazing that that's so; where, you know, the University of
Utah as one example, has hundreds of students that are turned
away every year that want to go into computer science or
electrical engineering fields, simply because there's not the
resources made available to accommodate, you know, more
students, more chairs, more graduates.
So we very much have applauded the work that Governor
Leavitt has done in announcing a new program, where over the
next 5 years they intend to double, in the State system, the
number of CS and EE grads in the Utah State system. And I think
that's exactly the right direction at the local level, and are
thrilled at what you're doing at the national level to
encourage that as well.
Chairman Hatch. Thank you. Now, I would like one of you to
take a crack at this question.
Congress recently enacted a bill that I authored that
protected famous names and trademarks from those who try to use
them in bad faith, either to fool online consumers or to extort
money from the rightful owners.
Would any of you like to comment on either experiences you
have had dealing with cybersquatters or how you believe these
protections will help Utah businesses or consumers in the
online environment? Who would like to take a crack at that?
Mr. Breinholt. The only experience that I had--and it
wasn't a good one--was that someone didn't take our domain name
is PeterBreinholt.com--they didn't take that and do anything
with it, but they did guess what they call spamming, where they
took my name and made it so that whoever put it in the search
engine, it would come up first before even my website, and I
think they did that because they knew there was an audience
there. And it took it to a site that was--it didn't say much
about me but then if you kept going it was a porno site.
Chairman Hatch. Listen, he's not alone on that. Somebody
did that to me.
Mr. Breinholt. So I don't know. That's been my experience
with it, and so I think it's terrific.
Chairman Hatch. You think that's a pretty important bill. I
appreciate you saying that.
One issue that has concerned many Utahns and many Americans
is the protection of their privacy as they work and play and
shop on line.
I have been part of the debate in Washington trying to give
Internet users as much freedom and protection as possible
without unduly burdening the workings of the Internet. Now,
could any of you comment on ways that businesses and
policymakers can work together to protect Internet users
appropriately?
Mr. Israelsen. Yes, you seem to be the logical one here.
Mr. Israelsen. We look at privacy as the 800-pound gorilla
in the e-commerce environment. Back in 1996 we set up the Utah
Electronic Law and Commerce Partnership in Utah, to be able to
start addressing these types of issues.
And realizing that the e-commerce environment is coming,
how do we pro-actively look at it so that we can be prepared,
instead of having to react as we go forward?
As you sit down and look at the issues that are percolating
in the Internet from the Napster side, you really see legal
issues associated with who is taking the property, who is using
property. Are there proper protections involved in that? What
about names of people who actually share information? How do we
protect those effectively? How do we go ahead in a legal filing
into a court which mandates that you put certain information
in, such as Social Security number and financial information,
particularly a divorce proceeding?
How do you protect that information from being broadly
disseminated, yet at the same time provide the information
that's necessary for society to move forward with?
We think that there has to be three things involved. One,
technology that allows us to be able to have an infrastructure
to provide protection of privacy. If you look at inputting a
document over the Internet--a Word or a PDF document--you
display it, it displays all or nothing. You don't have a choice
to filter out key pieces of information like you do in a
database. So a court filing which is a document, how guidelines
in which those can operate under, and then government can step
forward and be a monitoring function to help enforce a breach
of that.
Those are the three areas that I think provide a middle
ground, where government doesn't become too intrusive into the
process, but yet everyone, as part of the process, has the
ability to protect their own privacy, opt in or opt out of
disclosure of that kind of information, and yet the technology
protects information that's mandated to be submitted by the
Federal Government, by State governments, by local governments,
or even in business relations.
And I think if we took that kind of a moderate approach, I
think the industry could solve most of the other problems,
either through the marketplace of people deciding I'm not going
to do business with this particular group or this particular
site because they don't protect my privacy, or by contractual
relationships and alliances. For example, as Napster works out
something with the music industry where they find a common
ground in which they can work, the infrastructure for
protecting that information and protecting those transactions
now can be put in place and then governed by contractual
relationships.
Chairman Hatch. Well, thank you. Let me move to something
that a lot of people are concerned about.
The chief scientist of Sun Microsystems, Bill Joy, who has
been in my office recently, wrote an article for Wired
magazine, which caused me to start questioning where technology
is taking us. Bill Joy, the creator of Java, is by no means a
Luddite, so when he wrote this article for Wired, an article
which echoed many of the concerns raised by Ray Kurzweil in his
best seller, ``The Age of Spiritual Machines,'' I took notice
and I asked to meet with him.
Now Joy asserts that the rapid advancement of computational
technologies, nanotechnology, and biotech were combined to
unleash the dangerous powers which will require us to
collectively question who we are as a species. Kurzweil writes
that the technology revolution will overtake biological
evolution, and human beings may cease to exist. An interesting
idea.
This sounds a little far fetched, but I take heed to their
advice we should think through the consequences of our
decisions in this area.
Are any of you familiar with Joy's views, and do any of you
think we as a society need to take collective responsibility
for the technologies we develop?
And let me just ask: What advice would you give to these
students listening in today to prepare for careers in the
digital future, and what do you project with respect to how
education will change with emerging technologies?
Those are a lot of questions but I just throw them out, and
anybody can answer who would like.
Shawn, if you feel like answering any of these, go ahead.
Or any of the rest of you.
Yes, Robert.
Mr. Simmons. Mr. Chairman, one of the things that I think
we should focus our collective energies around is again
bridging the digital divide that we continue to find.
I think the sort of intellectual property and technological
evolution that's spoken of by Mr. Joy and Mr. Kurzweil and
others can only be accomplished as we make this sort of
technology more broadly available than it currently is today.
One of the things that Campus Pipeline has attempted to do
was, you know, kind of make our world-class technology
available to all public and private universities, colleges
across the board, regardless of their ability to acquire the
technology. So we've had to come up with a creative model
whereby that same technology that someone like Harvard would be
able to afford to develop themselves, could be used by the
least well endowed community college in the poorest State in
the country.
And I think that increasingly, we, as technology leaders,
need to find a way to look at creative ways to approach our
business models, and approach the way that we monetize our
intellectual property assets that we have, in order to help
make this technology available to all.
Chairman Hatch. Anybody else care to make any comments
about that?
Go ahead, Mr. Nelson.
Mr. Nelson. The advice to students about----
Chairman Hatch. Sure.
Mr. Nelson [continuing]. Digital economy. The statement I
would have is the new economy is here now and it's a wide open
field. And it's extremely important, if you haven't retooled or
focused on this, to retool yourself or to focus on this,
because this is really where the jobs of the future are.
They're extremely high paying. It's really the opportunity of a
lifetime, and they're very, very fortunate to be their age at
this point.
Chairman Hatch. Boy, I agree with that.
Let me ask some of the students questions that we've
accumulated here.
The first one is: The advantage of P-to-P for distributed
data storage is clear. Where do you see the future of P-to-P
for distributed processing?
Anybody care to take a crack at that? Brad Pelo.
Mr. Pelo. I mentioned a recent conversation with an analyst
at the Gartner Group, for those who are unfamiliar, is one of
the largest institutions consulting and providing analysis of
the technology field to Global 2000 companies.
And this analyst specifically had just completed a paper on
distributed computing or peer-to-peer computing versus peer-to-
peer information sharing, and his perspective is that peer-to-
peer computing, or sharing the processing power of distributed
computers does not yet hold great promise; may in the future,
but he believes that peer-to-peer information sharing, which is
what most of us have addressed today, is in fact where peer-to-
peer technologies will be headed.
And I think the reason for that analysis is that on the
computing basis, I'm not sure we yet know yet how to use the
distributed computing that could be available to us. What
specific problems we might solve and how prevalent those
applications might become, versus the exponentially growing
need for information because the digital information itself is
exponentially growing, so how do you manage that; and that's
really where peer-to-peer technologies will apply.
Chairman Hatch. Thank you.
Yes, Craig. Mr. Miller of Novell.
Mr. Miller. I disagree a little bit with what's been said.
There are technologies being developed right now by a
consortium of companies--Intel, Compaq, IBM, Hewlett-Packard,
Novell, and others--regarding a technology called InfiniBand,
and what it basically does is it cracks the bandwidth problem
that we've had with computers.
Right now you put really fast CPU's in a lot of people's
machines, and the real problem is being able to get out to the
Internet, your IO, as people call it, or your storage, and the
InfiniBand technologies that are being developed right now are
destined to crack that.
And so I believe that over the next 3 to 5 years, as this
technology comes on line, you're going to be able to see the
increase of this distributed computing where it changes
everyone's lives, as simple as that is, because the fat pipe
technology being able to have a huge amount of bandwidth
between computers is going to solve that problem, and people
will take advantage of it, I guarantee you.
Chairman Hatch. You are good to help us to understand these
problems better.
I have a direct question to you, Shawn.
What impact do you think peer-to-peer technology will have
on government organization, and how can government take
advantage of this technology to improve services to citizens
and businesses?
That's kind of a tough question.
Mr. Fanning. I think in terms of impact on government,
there has been some discussion related to some of the fully-
distributed technologies such as Gnutella and FreeNet, which
have no central server, which can't be shut down, and which,
you know, allow you to transmit information on a peer-to-peer
basis.
So there are some issues related to, you know, controlling
information, you know, confidential information being shipped
across those types of networks. So I've heard of concerns in
that the respect. But that's it. I mean that's all I've really
heard related to government issues of peer-to-peer.
Chairman Hatch. Great. Here's another question.
Today we've heard numerous Utah business leaders present
their different technologies as possible solutions in the
Internet's future. Two major questions remain: Who will monitor
the Internet and how? What place does the government have in
controlling content and information, theft that will increase
as peer-to-peer and other internal or Internet technologies
integrate themselves with the business and services industry?
Any of you care to take a crack at that? Brad. Mr. Pelo.
Mr. Pelo. I think, first of all, the premise of a free
society is that government's role is to protect the rights of
its people, and one of those rights we want protected are
property rights.
In the days of the framers of the Constitution, that might
have been a plot of land or cattle or horses that they owned.
Today, particularly in American business--and I believe this is
truer globally than we want to believe--that the assets or the
properties of these businesses are becoming more and more
digital in nature, to the point where perhaps the future might
hold digital assets as the only real assets of business. And in
such an environment, government has to play a significant role
in protecting those property rights.
As far as the role of overseeing the Internet and being
sort of the watch dog, I think there were equal concerns among
the framers about government's role in our own privacy as
citizens, and that's why we walk a very fine line of protecting
digital rights without getting encumbering on digital privacy.
Chairman Hatch. Well, thank you.
Shawn, again there are implications to disguise files as
MP3 files which can be Trojan horses, etc. How will these be
stopped, or any peer-to-peer dangers of this sort?
Mr. Fanning. Well, with the Napster system, the software
actually validates the files that users attempt to share, so it
detects a valid MPEG header and determines that there's
actually audio data.
You know, there's been software written that has been
designed to fool the system, to basically wrap other types of
files within MPEG headers, allowing you to share stuff on
Napster that's not actually a valid MP3, but fortunately those
files being used in the normal use of an MPEG file, the system
will attempt to decode them, not execute them, so over the
Napster service there's very little risk of obtaining a virus
from a file you transfer.
In terms of other types of networks that allow you to share
other, you know, binary data and other types of information,
there's definitely that risk; but that risk exists in, you
know, standard systems as well, in the sense that you're still
going to a site and transferring a file that you're executing,
not knowing, you know, the contents of that file. So the trust
in that system is based more on the source of the information.
So there's some trust loss in the sense that suddenly
you're dealing with peers who aren't necessarily controlling
the information they're sharing, haven't created it, but I
think those can be dealt with--there are some approaches
related to doing things like hashing of information to verify
that the contents are consistent with the creator of the
content. And so there are some approaches to deal with those
issues.
Chairman Hatch. I hope somebody videotaped that with your
BYU hat on. I think that's pretty good.
Well, we have some more questions but I'm going to have to
wrap this up. Let me say the reason why the music issue, among
others, intrigues me so much is because this is a nascent
technology which holds such promise for Utah's entrepreneurs.
The whole Napster situation, the whole creativity here in Utah.
Insofar as Utah's consumers are concerned, they desire
access to downloadable music, art, research, video, and other
content in a manner which is not unnecessarily restrictive or
unduly burdensome. Now, I want to ensure that the marketplace
provides them with the opportunity to access the content of
their own choosing over the Internet and to do so legally.
Insofar as creators are concerned, I want to ensure that
Utah's artists and creators are protected through an approach
to copyright that empowers them to generate maximum revenue for
their creative works.
Peter is the perfect illustration, Peter Breinholt. This is
a great way for him to be able to get his talent out there, and
I'm concerned about him and others. And insofar as Utah's
entrepreneurs are concerned, I want to be sure that this
revolutionary technology is not killed in the cradle.
Shawn, as an aside, I hope there is an effort undertaken to
ensure that your site is eventually able to compensate artists.
Unless that's so, I think you're going to have a lot of
difficulty, but I know that you're working on it. I know that
Hank Berry, who is sitting here in the front row, the head man
at Napster, has that uppermost in his mind. But in order for
that to happen, Napster has to be in business.
I question, as a matter of public policy, whether it is in
the public's interest and the creative community's interest to
have this site shut down before a trial on the merits is
concluded. If that happens, this technology will move
underground, and the opportunity to embrace this technology in
a form which ensures compensation to artists will have passed,
so I'm concerned about it.
I would note the Copyright Act already provides a paradigm
for compensating creators in the digital environment. A few
years ago, music and electronics industry experts believed that
CD's would be replaced by a newer, more compact and convenient
form of digital music service, the digital audio tape player.
DAT, as it was called, would allow consumers to make digital
copies of their favorite music onto small digital tapes. Now
this is where the recording industry thought the market was
going at the time. They just didn't foresee the power and
consumer appeal of the Internet, MP3 compression, and peer-to-
peer technology. So DAT never became a hit with consumers. It
was overtaken by the Internet.
So why bring it up? Well, prior to the deployment of DAT
machines, the creative community and the recording industry
came to Congress and expressed concerns about piracy and how
these machines could be used to facilitate large scale piracy
of--how these machines could be utilized to facilitate large
scale piracy of musical works.
Does that sound familiar? I worked with the creative
community and leaders in the consumer electronics field to
develop a legal framework which is part of current law, that
placed a royalty on the sale of all DAT machines, and the funds
generated from that royalty were to be divided among
songwriters, musicians, recording artists, publishers, and the
labels.
In fact we negotiated a fairly complex formula which spells
out how much each artist would be compensated. It seems to me
as though this formula contained in section 1006 of the
Copyright Act, could serve as a basis for settling this current
dispute.
The record labels agreed to this formula in 1994. Maybe we
ought to try to see if we can get everyone to rally around this
concept so that we can resolve this matter.
Napster could charge a royalty for the downloading of its
software, or charge for premium services, and that, through the
use of digital rights management software and application of a
formula based on current law, we could keep this extremely
popular service going for the benefit of consumers. And we
could ensure that all of those involved in the creative process
surrounding musical works--the studio musicians, the studio
artists, the publishers and writers--not just the record
labels, would share in the success.
Look, if we don't solve this problem, there are going to be
thousands of Napster-like companies out there, many of them
offshore who will not abide by copyright laws in any way,
shape, or form. So I challenge the industry to come up with the
ways of doing this. The last thing on earth I want is to have
government coming in and telling you what to do, but that's
what's going to happen if we don't get these problems solved.
And when you have 32 million people on a program, there's got
to be some way for, in this case, the music industry, to
exploit that process and to make it work, rather than just stop
it.
So I think this hearing has been very helpful to me today.
I want to thank each of you for taking time out of your busy
lives to come here and talk to all of us.
I want to thank Brigham Young University for allowing us to
have these wonderful facilities to hold this, and I want to
thank all of you, the witnesses and the students, for appearing
at this important hearing.
Technology is a part of tomorrow's future in Utah, and it's
a part of tomorrow's Utah. The young people who have attended
today, and the Judiciary Committee, of course I think we can
say we've learned quite a bit about what we can do, both here
and in Washington, to ensure that Utah continues to play a
leading role in the global economy of the 21st century.
This has been a good hearing. I'm very grateful to all of
you. Let me thank everyone who has participated today, and let
me thank the BYU community, including the students, for being
such good hosts for this interesting hearing.
I hope you've all learned something here today. If you
didn't, you weren't listening. And I think we've learned at
least three significant things: First, we learned that the
software industry embodied most famously in Napster can help
lead revolutionary change in all relationships in the wired
world, where we can all share knowledge with each other to work
and play and communicate.
Second, we learned that the information technology is the
engine driving Utah's economy, and it's a source of very good,
high-paying jobs for our young people, like BYU students and
Utah's work force. Generally keeping Utah in the forefront of
the technology revolution discussed today will be the key to
our own State's continued success, because this is the future.
I commend all of you to read Bill Joy's article in Wired. I
think it's well worth your time; it's very provocative. In
fact, I recommend Kurzweil's book, even though I don't agree
with some of his conclusions. I've got to say I'm not sure he's
wrong. And we're going to have to make sure that we are on the
top of some of these things.
Now third, we found today that next time we invite Shawn
Fanning, Peter Breinholt, and our other witnesses, I think we
better consider the Field House or the Marriott Center so we
can do it right. How's that?
I want to thank you all for being here. This has been a
good hearing. We're grateful to all of you. Thank you very
much.
[Whereupon, at 10:55 a.m., the committee adjourned.]
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