[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
RFID TECHNOLOGY: WHAT THE FUTURE HOLDS FOR COMMERCE, SECURITY, AND THE
CONSUMER
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
COMMERCE, TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
JULY 14, 2004
__________
Serial No. 108-108
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U.S. GOVERNMENT PRINTING OFFICE
95-455 WASHINGTON : 2004
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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------------------------------
COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
RALPH M. HALL, Texas Ranking Member
MICHAEL BILIRAKIS, Florida HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
JAMES C. GREENWOOD, Pennsylvania FRANK PALLONE, Jr., New Jersey
CHRISTOPHER COX, California SHERROD BROWN, Ohio
NATHAN DEAL, Georgia BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi, Vice Chairman TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania TOM ALLEN, Maine
MARY BONO, California JIM DAVIS, Florida
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
JOHN SULLIVAN, Oklahoma
Bud Albright, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Commerce, Trade, and Consumer Protection
CLIFF STEARNS, Florida, Chairman
FRED UPTON, Michigan JANICE D. SCHAKOWSKY, Illinois
ED WHITFIELD, Kentucky Ranking Member
BARBARA CUBIN, Wyoming CHARLES A. GONZALEZ, Texas
JOHN SHIMKUS, Illinois EDOLPHUS TOWNS, New York
JOHN B. SHADEGG, Arizona SHERROD BROWN, Ohio
Vice Chairman PETER DEUTSCH, Florida
GEORGE RADANOVICH, California BOBBY L. RUSH, Illinois
CHARLES F. BASS, New Hampshire BART STUPAK, Michigan
JOSEPH R. PITTS, Pennsylvania GENE GREEN, Texas
MARY BONO, California KAREN McCARTHY, Missouri
LEE TERRY, Nebraska TED STRICKLAND, Ohio
MIKE FERGUSON, New Jersey DIANA DeGETTE, Colorado
DARRELL E. ISSA, California JIM DAVIS, Florida
C.L. ``BUTCH'' OTTER, Idaho JOHN D. DINGELL, Michigan,
JOHN SULLIVAN, Oklahoma (Ex Officio)
JOE BARTON, Texas,
(Ex Officio)
(ii)
?
C O N T E N T S
__________
Page
Testimony of:
Bruening, Paula J., Staff Counsel, Center for Democracy and
Technology................................................. 24
Dillman, Linda M., Executive Vice President and Chief
Information Officer, Wal-Mart Stores, Inc.................. 13
Galione, William, Vice President and General Manager,
Marketing and Sales Americas, Philips Semiconductors....... 30
Hughes, Sandra R., Global Privacy Executive, Procter & Gamble
Company.................................................... 20
Laurant, Cedric, Policy Counsel, the Electronic Privacy
Information Center......................................... 42
McLaughlin, Mark, Senior Vice President, Naming and Director
Services Division, VeriSign, Inc........................... 40
Molloy, John, Managing Director, ViaTrace, LLC............... 49
Sarma, Sanjay, Associate Professor, Mechanical Engineering,
Massachusetts Institute of Technology...................... 7
Steinhardt, Barry, Director of the Technology and Liberty
Program, the American Civil Liberties Union................ 34
Additional material submitted for the record:
Grocery Manufacturers of America, prepared statement of...... 66
Retail Industry Leaders Association, prepared statement of... 69
(iii)
RFID TECHNOLOGY: WHAT THE FUTURE HOLDS FOR COMMERCE, SECURITY, AND THE
CONSUMER
----------
WEDNESDAY, JULY 14, 2004
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Commerce, Trade,
and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 11:36 a.m., in
room 2123, Rayburn House Office Building, Hon. Cliff Stearns
(chairman) presiding.
Members present: Representatives Stearns, Shadegg, Issa,
Otter, Barton (ex officio), Schakowsky, McCarthy, and
Strickland.
Staff present: Chris Leahy, majority counsel and policy
coordinator; David Cavicke, majority senior counsel; Shannon
Jacquot, majority counsel; Brian McCullough, majority
professional staff member; Will Carty, majority legislative
clerk; William Harvard, majority staff assistant; Jonathan
Cordone, minority counsel; and Ashley Groesbeck, minority
research assistant.
Mr. Stearns. Good morning, everybody. Welcome to our
subcommittee hearing entitled ``Radio Frequency Identification
(RFID) Technology: What the Future Holds for Commerce,
Security, and the Consumer.''
My colleagues, technology is only constrained by the limits
of our imagination and our ingenuity. And whether it's an
incremental step or the next high-tech revolution, trying to
deal with the policy implications that technology brings is
something that challenges us all as policymakers and
legislators more frequently now than ever before. Do you have
the volume up enough on this? If you can, just a little bit.
Today, I'm pleased to say that this subcommittee will
attempt to get out in front and conduct the first congressional
hearing on a very exciting and a complex new technology
application.
As we will learn, Radio Frequency Identification, or RFID,
as it is commonly known, is frankly a World War II-era
technology that has begun to find new commercial and government
application in just the last few years. In basic terms, the
most common commercial application of RFID used radio waves to
transmit data from a transmitting device called a ``tag'' to a
scanning device called a ``reader'' which can be networked with
a computer data base. These RFID tags can be attached to
products and packaging individually.
Readers are able to activate tags via radio signals and
receive tag data without ``line-of-sight'' scanning, which is a
limitation for the common barcode. One of our expert witnesses,
Dr. Sarma of the Massachusetts Institute of Technology, will
provide us with a brief demonstration of RFID technology at the
beginning of his testimony. It's nice to have this room
modified for this, too.
In terms of the data embedded in the tags, work is being
done to develop common standards known as the Electronic
Products Code or ``EPC'' to create unique numerical identifiers
for individual items. This would allow RFID readers to receive
EPC data from tags on items and products that can be matched
through a data base for identification and for other purposes.
My colleagues, this is a global effort and, in theory,
could lead to a seamless supply chain and logistics management
in global trade. While still far off, such possibilities have
led some to comment that because EPC identifies a product much
like an IP address identifies a computer, RFID and EPC, in
effect, are creating an internet for physical items rather than
just for data. Think about that.
For manufacturing and retail applications, RFID technology
is gradually being rolled out for tracking large bulk
containers and pallets along the supply chain. And if technical
and cost feasibility issues can be addressed, RFID readers, for
example, could have the ability to read instantaneously not
only pallets but also each unique individual product they
contain. This could be done without having to unload any
product contents, with inventory being updated in real time.
Forecasting would become obsolete, shelves would always be
stocked with the most popular brands, and cost savings would be
passed on to the consumer. Now this is just one possibility,
future possibility. Currently, RFID technology is being used in
such diverse applications as automatic traffic tolls, like the
E-Z Pass system that I use when I come from my hometown to
Orlando to get to the airport, and in anti-theft immobilizers
on the latest automobiles.
There also are plans to use RFID technology for counterfeit
drug detection as well as tracking port cargo and hazardous
substances for homeland security purposes. One possible future
application that seems to generate excitement for anyone who
has ever stood endless in line at the grocery store, involves
using readers at checkout. In this application, readers placed
at checkouts would allow customers to pass straight through
with their RFID tagged items loaded in their shopping carts.
Customer accounts would be automatically updated leaving them
free to head straight for the parking lot--without even
stopping for so much as a candy bar at the checkout or buying
that little magazine.
However, it is just this type of point-of-sale application
that raises significant privacy issues and serious questions
for average consumers and their everyday lives. To take my
favorite example at the grocery story--will RFID tagged items
in my cart be clearly labeled? Will I be able to disable or
remove them at point of sale? What happens to the data
harvested from all these purchases of myself and my family? How
secure is that data, and what prevents third parties from
misusing it or acquiring readers for invasive purposes? These
are all important questions and I look forward to discussing
them. And it's also not just in the grocery industry. It could
be in the video, Blockbusters, it could be anywhere and
everywhere.
Like every new technology and application, RFID technology
has the power to benefit all of us. It also presents a number
of serious issues if it is misused, it could be harmful. So it
is our job to cut through this hype, get the facts about RFID,
learn more about its applications, and examine the public
policy issues generated by its use and widespread deployment.
And to help us learn more about the technology and its policy
implications, we are especially pleased to have such a
distinguished panel of witnesses from academia, business and
consumer privacy organizations as well.
We have nine of you, I think, so we appreciate your
patience here. I'd like to thank the witnesses and with that, I
recognize my distinguished colleague, Ms. Schakowsky.
Ms. Schakowsky. Thank you, Chairman Stearns for holding
this hearing today on Radio Frequency Identification, an old
technology with new applications being discovered every day.
Once again, our subcommittee is contending with issues that
arise at the intersection of technological innovation and
consumer privacy. How we choose to respond to the potential
uses and threats of RFID will be pivotal to consumers, civil
liberties and commerce.
Although around since World War II, we are hearing about
RFID, a micro chip that can transmit unique information easily,
more today than ever. Most often, RFID is being touted as the
technological solution to inventory and supply tracking. Using
RFID tags to inventory items will allow for real time supply
chain tracking and we will never have to see an out of stock
sign again.
What we are also hearing about, however, are the
potentially serious Orwellian possibilities of RFID technology.
Because of the flexibility of RFID, suppliers and retailers are
exploring the possibility of using RFID chips not only on
shipping crates and pallets, but on individual items as well.
It's possible to have RFID tags in everything from individual
pieces of clothing as Bennetton proposed to tanks as the
Defense Department is already doing.
It is also being quietly suggested as Mr. Steinhardt from
the ACLU will detail in his testimony that RFID tags could be
used in travel documents like passports. Soon we could have Big
Brother and Big Business tuning to the same frequency for not
only will they know where you are, but they'll know what you're
wearing.
RFID tags can be small as a grain of sand. They can be
hidden in products and documents without one's knowledge. This
raises serious privacy concerns. Trials have already taken
place, some without adequate consumer consent. Two companies
represented here, Wal-Mart and Procter and Gamble conducted
such a trial with lipstick that had RFID tags. As the Chicago
Sun Times reported last year, every time a consumer would pick
up a lipstick off the shelf in Broken Arrow, Oklahoma Wal-Mart,
a video monitor would be triggered and images of the consumer
would be sent to Procter and Gamble researchers in Cincinnati.
Despite this, many attempt to downplay the threats to privacy
and civil liberties. We are told that the technology to do the
kind of tracking that privacy and civil liberty advocates
discuss does not exist. We are told that suppliers and
retailers aren't interested in doing the kind of surveillance
about which I am concerned, yet the example at Wal-Mart leads
me to believe there may be an interest. We cannot dismiss these
concerns.
As with so many of the technologies that we have discussed
in our subcommittee, there are amazing positive uses for RFID.
I do believe that RFID could be quite useful to follow products
from manufacture to point of sale. I also believe that it could
help ensure that pharmaceuticals are not counterfeit, have been
handled properly en route from production to the point where
they are dispensed.
I appreciate the E-Z passe and SmartCards for public
transportation. As one who has been fighting waste and abuse in
the Department of Defense, I am pleased to hear that DOD is
using RFID to keep better track of its purchases.
However, I believe that we must not turn a blind eye to the
potential for the abuse of this technology. I am not willing to
sacrifice personal privacy and civil liberties. I believe that
we can look into ways to regulate the use of RFID so we can
help the industries that could benefit from this technology
while protecting rights and liberties that are fundamental to
our democracy.
Again, thank you, Chairman Stearns for convening today's
hearing with witnesses covering a broad range of the different
stakeholders and I look forward to hearing from all of them.
Mr. Stearns. I thank the gentlelady and the Full Chairman,
the Distinguished Chairman, Mr. Barton.
Chairman Barton. Thank you, Mr. Chairman. Thank you for
this important hearing today. I want to thank our panel. I
encouraged my subcommittee chairman to have one panel or two
and we have extended this one panel about as far as it can go.
I don't think we could get another person at the witness table.
Especially, Mr. Molloy, we appreciate your patience. You're
going to get to talk in about an hour and 15 minutes, probably.
We appreciate you all being here.
We know how well and how fast technology has been moving,
so it's very good to have a hearing on a technology that's been
around for a long time since World War II, but it's now having
new ways to use it. This new old technology is RFID or Radio
Frequency Identification. It works by providing a frequency-
emitting tag to a product that can be detected within its range
by receivers. The private sector is embracing this technology
for uses in supply chain management. This may not sound
exciting, but the possibilities are for countless efficiencies
for the benefit of consumers, better supply management, can
avoid product shortages so that our favorite items are
available when we go shopping. Grocery stores will know what
it's stocking and also know that they're stocking only the
freshest foods that are available.
Lower costs to the manufacturer and retailer mean lower
costs to the consumer. Means more competitive American products
overseas. The Defense Department recognizes potential benefits.
They'll be implementing the technology for its contract with
its suppliers. The benefits for Homeland Security could prove
to be the most important aspect of this technology to
Americans, capability to track the imports and containers will
enhance our ability to monitor what's coming into our country
from overseas. Similar applications related to controlled
substances and hazardous materials that are shipped within our
borders will provide an additional layer of security that we
should all welcome.
The applications are only limited to the effectiveness of
the technology and the ability to implement them in a cost-
effective fashion.
However, the same benefits that improve our standard of
living also trigger concerns regarding privacy. And I know that
a number of witnesses today are going to testify about their
privacy concerns.
Similar to the application of other technologies that have
the potential to be misused, RFID technology will present
policy considerations as it develops and becomes more
prevailing in our lives. Before we jump to any Orwellian
conclusions about the applications of this technology, this
committee will continue to examine the facts and how it's going
to be used and distributed. We may hold additional hearings to
explore these avenues regarding the benefits and concerns in
terms of privacy.
Before I yield back, Mr. Chairman, I want to say something
that's not part of the written opening statement. We had a
hearing yesterday in another subcommittee about security lapses
at Los Alamos National Weapons Laboratory. We went through a
scandal several years ago where several classified disks
disappeared. There was a Select Committee established,
Department of Energy and the Department of Defense agreed to
change their security procedures. Everything was supposedly
going to be much safer and more secure. Well last week, two
more zip files just disappeared, just walked out of the
building and the testimony, some of which was in closed
session, we found out that the inventory practices of the
Weapons Laboratory, because they have so many classified
documents and equipment, is once a year. Once a year. And this
material could have been missing for a year and we wouldn't
have known it. They just happened to have an inventory April 28
so we know that it was in its vault on April 28.
So I'm very interested in how the technology that we're
going to discuss today might could be used to help us do a more
current monitoring and inventory status of our classified
materials because I think some of those probably need to be
inventoried, if possible, on a daily basis and this technology,
at least appears to hold out the promise that it might could do
that. So I'm very happy the Chairman is holding this hearing.
Mr. Stearns. I thank the Chairman for the excellent
example. As I pointed out earlier, there will be a
demonstration by Dr. Sarma how this technology is being used.
Mr. Strickland.
Mr. Strickland. No opening statement. I look forward to the
testimony. Thank you.
Mr. Stearns. Thank you. Mr. Otter.
Mr. Otter. Thank you, Mr. Chairman. I have an opening
statement which I'll submit for the record and I want to offer
my apologies to the panel. I'm going to have to leave in a
little bit. I hope to return later, but I will have your
written testimony and I welcome the input that you're giving us
here today. Thanks very much for being here.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress
from the State of Wyoming
Thank you, Mr. Chairman, for calling today's hearing. Today this
subcommittee has the opportunity to examine an emerging consumer
concern which has yet to be addressed by Congress.
I would also like to thank the many distinguished panelists who are
present today. As the initial effort of Congress to address Radio
Frequency Identification (RFID), I expect the testimony offered today
to play a critical role in framing public sentiment regarding this
important matter. I am confident the panelists who have agreed to join
us today will provide a diverse scope of insight and expertise.
Although the technology associated with RFID is not a new
phenomena, recent developments in the application of RFID have caught
the attention of manufacturers, distributors, retailers and consumers.
Wal-Mart's recently announced requirement of its top 100 vendors to
attach tags to pallets is a certain harbinger that this technology may
soon be a common element in the life of the average American consumer.
This subcommittee has recently delved quite deeply into the matter of
consumer notification of the monitoring of their internet habits, and
RFID technology could eventually pose conflicts similar to those
associated with Spyware. If retailers plan to develop RFID technology
for use in common transactions, Congress will need to assure customers
are properly notified their spending habits may be monitored. I look
forward to learning today what efforts vendors and retailers are
currently making to protect consumer privacy.
Of particular interest to me today is the potential use of RFID
tags in food labeling. Leading homeland security experts have stated
terrorist attack via our nation's food and water supplies is a feasible
possibility, and RFID tags could help prevent such terrorist acts.
Recent outbreaks of mad cow disease have made consumers highly
cognizant of the origins of their meat supplies, and this issue has
profoundly impacted many residents of the state I serve. Ranching has
become a high tech industry, and I am anxious to learn today how RFID
tags may be utilized in heard management. The ability to trace and
monitor America's food supply will not only stabilize our nation's
economy, but also bolster our homeland security.
Again, I thank the Chairman for calling today's hearing and I yield
back the balance of my time.
______
Prepared Statement of Hon. Gene Green, a Representative in Congress
from the State of Texas
I'd like to thank Chairman Stearns and Ranking Member Schakowsky
for holding this important hearing. I know I've made this comment
before in this committee, but I feel it is an important statement to
keep in mind:
Technology itself is not a problem when it comes to invasions of
privacy and inconveniencing consumers. My concern lies with those who
may use this technology for unethical purposes.
I was a co-author of the Anti-Spam bill. I supported legislation in
this committee that is designed to deter people from using spyware in
ways that invade our privacy and protect consumers.
Radio Frequency Identification Technology, as many of our witnesses
will attest, is a technology that has been in use since World War II.
This technology has been improved over the years to a point where
retailers, ports, airlines, and consumers can benefit from this
technology.
I represent both Houston Intercontinental Airport and the Port of
Houston. The port of Houston is the largest port in the United States
by tonnage and Intercontinental Airport is the eighth busiest airport
in the country. I believe RFID technology can be used to help keep our
airport and port more secure, and more productive.
However, I have the same concerns with this technology as I do with
SPAM and Spyware. This committee must embrace this technology for what
it can do for security and commerce, yet ensure consumers are protected
from those who will seek to use this technology in ways that intrude
our privacy and inconvenience us.
While I commend those entities that are creating an industry
standard for using this technology, I would also encourage industry to
develop standards addressing the privacy issue at the onset.
This is a rare opportunity for this committee. With SPAM and with
Spyware, there were already millions of Americans adversely affected by
those abusing this technology. With RFID, we have an opportunity to
work with those stakeholders pioneering this technology for consumer
use to ensure this technology benefits consumers, improves the
productivity of our ports and protects consumer privacy.
I know this is no small task. However, if we are to enhance
productivity and convenience, we need to do so responsibly.
Thank you Mr. Chairman, I yield back the balance of my time.
Mr. Stearns. With that, we'll move to our panel here and
we'll go from my left to the right. Dr. Sarma, we'll let you
start. The opening statements are 5 minutes. We put a clock
which you should be able to see right there on the desk. It
goes from green to amber to red and amber tells you you're
getting near the end and red, of course, is that over time if
you see that. And with so many people here and we have nine, we
hope all of you will try and stay within your 5 minutes.
Dr. Sarma. And Dr. Sarma, we're not going to include your
demonstration as part of your 5 minutes, so you're welcome to
take a little extra time.
STATEMENTS OF SANJAY SARMA, ASSOCIATE PROFESSOR, MECHANICAL
ENGINEERING, MASSACHUSETTS INSTITUTE OF TECHNOLOGY; LINDA M.
DILLMAN, EXECUTIVE VICE PRESIDENT AND CHIEF INFORMATION
OFFICER, WAL-MART STORES, INC.; SANDRA R. HUGHES, GLOBAL
PRIVACY EXECUTIVE, PROCTER & GAMBLE COMPANY; PAULA J. BRUENING,
STAFF COUNSEL, CENTER FOR DEMOCRACY AND TECHNOLOGY; WILLIAM
GALIONE, VICE PRESIDENT AND GENERAL MANAGER, MARKETING AND
SALES AMERICAS, PHILIPS SEMICONDUCTORS; BARRY STEINHARDT,
DIRECTOR OF THE TECHNOLOGY AND LIBERTY PROGRAM, THE AMERICAN
CIVIL LIBERTIES UNION; MARK McLAUGHLIN, SENIOR VICE PRESIDENT,
NAMING AND DIRECTOR SERVICES DIVISION, VERISIGN, INC.; CEDRIC
LAURANT, POLICY COUNSEL, THE ELECTRONIC PRIVACY INFORMATION
CENTER; AND JOHN MOLLOY, MANAGING DIRECTOR, VIATRACE, LLC
Mr. Sarma. Thank you, Mr. Chairman and thank you to the
Congressmen.
Mr. Stearns. You can just move it over. They're all
portable.
Mr. Sarma. What I'd like to do is very quickly give you a
description of RFID and tell you what the ECP is. Let me start
by saying thank you for excellent introductions. I really
wanted to show you the technology itself. Let me start by
asking a very simple question which is what is RFID? And in
order to explain that, I need to put up a picture. This is an
RFID tag that I'm holding up. That is another type of RFID tag.
An RFID tag is a chip and an antenna. It has no battery. It is
simply a chip and an antenna. And the way an RFID tag works is
that a reader puts out electromagnetic waves, RF waves, which
then illuminate the antenna which powers the chip and the chip
responds. The chip can be very small. It can be the size of a
grain of sand. The tag which is both in the chip and the
antenna are about the size of a credit card. So the tag is
actually much larger.
In order to explain how this works, it's probably best for
me to invite Mr. Tom Sharpa who is a researcher at MIT who is
an expert in RFID who set up the standards in Japan to show you
how a reader and a tag work together. This is an antenna
attached to a reader. This is the reader. What Mr. Sharpa is
holding is an RFID tag. And what I'm going to show you now on
the screen is the RFID tag being read. Now the first number
shows you that one tag is being read. The second number shows
you how often it's being read. It's being read about 50 times.
The third number which I'll describe more is something called
the Electronic Product Code. It is the number in the tag. And
finally, we have some technical numbers on the screen.
Now if Mr. Sharpa can walk backwards, you will see that as
he walks away, the range of the tag starts hitting the limit.
There's a limited range to which you can read these tags. It's
about 10 feet. It varies from tag to tag. This is an evolving
technology. It will get better, but it's only about 10 feet.
Now Tom, if you can come back closer. Why don't you rotate
the tag, Tom? It turns out that as you rotate the tag, it
becomes more challenging, depending on the style of tag. Now
Tom, if you could come closer and put the tag behind your hand.
It turns out that when he hides it with his hand, the range
diminishes because propagation of electromagnetic waves through
many materials, especially water, is somewhat limited and
certainly if he put it inside his pocket or if he turned around
and put it behind him, he certainly couldn't read it.
Now it doesn't mean that you can't read tags without line
of sight. It is a science that is evolving. You need to tailor
it and you can get it to work and you can read pallets, you can
read cases, you can read cases on conveyors, but this is an
evolving technology.
Thank you very much, Tom.
So with that now, let me go back to the EPC tag and this
EPC term that you've heard and describe to you what it's all
about. Inside the tag, inside the chip of the tag we saw a
number. That is called the Electronic Product Code. And
EPCglobal is an entity that is taking this number, the
Electronic Product Code and taking all the standards associated
with RFID tags, everything from the numbering scheme to the
language the reader speaks to the tag, to the network
infrastructure required to use RFID tags in the supply chain.
It's taking all these elements and standardizing them so that
the supply chain can be brought into the world, into the
digital world, so that the supply chain which is very opaque
today, can be endowed with the visibility that the internet is
endowed in information.
And where is this all leading? Well, if you take the supply
chain today, it's very opaque and you have problems that plague
it. Like if you walk into a grocery store and Linda Dillman may
be able to comment about the small--if you walk into a grocery
store, 8 percent of the time for the top selling items you'll
find it out of stock, 4 percent lost sales. Across the supply
chain, retailers and manufacturers carry 20 weeks of inventory.
Counterfeit is a $500 billion problem today worldwide.
Shrinkage theft is a $50 billion product. And what RFID lets
you do is take the supply chain and let the partners in the
supply chain, the manufacturers, the shippers, the retailers,
see what's going on so they don't have to guess and second
guess. Does guessing and second guessing--(a) it makes the
supply chain very inefficient, and (b) it opens up loopholes
for things like counterfeits and shrinkage.
And the way I think about it is just as you store money in
a bank and you can go on the internet today and see how much
money you have in the bank, the supply chain is actually a
series of banks. A warehouse is a bank for material. And what
RFID lets you do and what the internet infrastructure with RFID
and EPC lets you do is log into this bank and see how much
inventory you have there. What's my account balance? Do I need
to transfer money from another account?
This is what RFID and EPC lets you do and by doing this,
you reduce guesswork. You make the supply chain more efficient.
You lubricate the supply chain and finally, you have profound
impact on things like safety, health and security.
So I'll end my comments with that. Thank you very much for
this opportunity to present.
And Mr. Chairman, if there are any questions, I'm happy to
take them.
[The prepared statement of Sanjay Sarma follows:]
Prepared Statement of Sanjay Sarma, Associate Professor, Mechanical
Engineering, Massachusetts Institute of Technology
INTRODUCTION
Chairman Stearns and other members of the subcommittee, thank you
for inviting me to testify today. The subject you have chosen is one of
great importance to the conduct of business around the world. I am
delighted to share my views.
When I say that the topic of RFID Technology--and the EPCglobal
Network it makes possible--is one of great importance for business
around the world, I understand the need to be as clear as possible in
explaining what I mean by that. I hope that my testimony today will
serve that purpose.
The new communications network--a real-time mechanism for providing
visibility in the global supply chain--we are discussing will have a
vast impact. It will save billions of dollars and has the potential to
save many lives. It has dozens of exciting applications that are
already in development--from identifying counterfeit drugs to
facilitating product recalls.
What I'm talking about is a communications network that will
essentially be an ``Internet of products.'' In this network, inanimate
objects--chiefly pallets or cases of manufactured goods--will have the
ability to be identified wherever they are. Much as a dark room becomes
luminous when lights are switched on, the historically opaque supply
chains on which so much of the world's economic activity is built will
become ``visible.'' At any moment, we will be able to tell where a
given shipment is, the history of its movements through the chain, the
number of items in the chain, and much more.
This system represents an enormous advance over bar code
technology, in part because it is not based on lasers and therefore
does not require that objects be within the line of sight of the device
needed to detect them. Instead, the system relies on radio waves that
can be instantly interpreted by a nearby ``reader'' device with its own
antenna. Thus, for example, a truckload of inventory delivered to a
retail warehouse could be read at once instead of having to
individually identify each pallet and case of product.
This system offers huge benefits to manufacturers, retailers,
distributors, and--importantly--consumers. Manufacturers will be able
to track high-value items, reducing shrinkage, and increasing their
speed-to-market; they'll also be able to accelerate and better target
their product recalls. Distributors will see their shipping and
receiving processes grow in accuracy as they fall in price. Retailers
will be able to monitor inventories in real time, enabling them to keep
stocks fresh and cut transportation costs.
All these improvements will result in substantial benefits for the
consumer. Consumers will benefit from increased product availability
and faster removal of recalled products. There's potential for
increased cost savings as efficiencies gained throughout the supply
chain are passed along to the consumer.
The technology also has the potential to save lives. The system can
help solve the growing challenge of counterfeit drugs, for example, by
offering a drug tracking and tracing capability. Improved food safety
is another positive consequence, allowing manufacturers and retailers
to implement product recalls swiftly and precisely, avoiding potential
health consequences and improving the integrity of the world's food
chain.
There will be benefits in the public sector as well, as evidenced
by the key sponsorship of RFID by the Department of Defense. DOD
understands the potential for more efficient purchasing and supply
tracking. Other organizations are running RFID pilots in critical
applications like port security.
HOW RFID AND EPC TECHNOLOGY WORK
Radio Frequency Identification (RFID) has been around since World
War II, when it was used to identify friendly aircraft. Today it is
used in a variety of applications from office security passes to pay-
at-the-pump convenience services.
But the use of RFID on the scale now envisioned in the EPCglobal
Network had to await other advances, such as the computer revolution
and the Internet.
Because of these advances, it is now possible to store on a
microchip a series of zeroes and ones--digital bits--that can uniquely
identify trillions of different objects--the way bar codes identify
many of today's products, but with potentially much more information
about a particular shipment of products. This unique series of digital
bits is called the Electronic Product Code, or EPC.
Attach a tiny radio antenna to this microchip and you have an EPC
``tag,'' a cheaper version of a toll pass which, when asked, can signal
its assigned number. The tag is not transmitting information actively.
Secure devices called readers that comply with global standards
developed through EPCglobal send out radio frequency waves that ``wake
up'' the tag for a short period of time, enabling it to transmit
information stored on the tag--namely the Electronic Product Code. The
EPC can then be matched to the specific product information contained
in a corresponding database, which is accessed through a secure
network: the EPCglobal Network.
With that link complete, manufacturers and their trading partners
have the ability to interpret not only what the tag is directly telling
them--the EPC--but all kinds of additional background information, such
as when it was made and shipped, what lot it came from, and other
important information related to the movement of global commerce. The
inventory is completely ``visible,'' assuming you have permission to
access the data. And, this information can be made as secure as any
Internet banking application.
Security of the EPCglobal Network is of primary concern. Even in
this early stage of development, significant consideration and effort
has been given to developing the specifications and standards for
implementing security for all aspects of the network. There are already
inherent security measures built in to the network. For example, when
EPC tags pass through EPC readers throughout the supply chain, the only
information collected is the EPC and the time, date and location of the
read. Thus, the EPC tag, in and of itself, does not communicate
meaningful information. All information associated with an EPC is found
in the network and is only accessible to authorized users behind
firewalls, encoding and other security measures.
The process for capturing information is very similar to that used
by today's bar code technology. What is different is that the
technology can capture and distribute information more efficiently. For
example, in a warehouse or distribution center environment, multiple
tag numbers can be collected at one time through one pass and without
manually locating and scanning the tag like bar codes.
The EPC tag also allows for greater depth of serialization
providing the capacity to uniquely identify one product from another.
And finally, the information captured can be shared in a secure manner
across existing networks and information systems, enabling companies to
identify where products are in the supply chain at any given point in
time.
The speed at which this information can be captured, shared, and
distributed has positive implications for consumers and industry alike.
Consider this: the bar code, which was standardized by EAN
International and the Uniform Code Council, Inc. (UCC), is scanned more
than 10 billion times daily.
In the same way the bar code revolutionized the global supply
chain, the EPCglobal Network promises to significantly improve the
consumer shopping experience and the way organizations move goods from
one place to the other. It puts the power of RFID to work to provide
better shopping experiences for consumers and to improve efficiency all
across the global supply chain.
THE AUTO-ID CENTER AND EPCGLOBAL
In 1999, the Uniform Code Council, Inc. (UCC), a not-for-profit
standards making body based in Lawrenceville, N.J., which had
spearheaded the adoption of bar code technology, joined with Procter &
Gamble and The Gillette Co. in helping establish the Auto-ID (Automatic
Identification) Center at the Massachusetts Institute of Technology
(MIT). Sponsorship of the center soon grew to more than 100 global
companies, and research spread beyond MIT to five other great research
universities around the world: at the University of Cambridge in the
United Kingdom; the University of Adelaide in Australia; Keio
University in Tokyo, Japan; Fudan University in Shanghai, China; and
the University of St. Gallen in Switzerland. The center's mission was
to develop RFID for use across the global supply chain.
The vision was simple: harness the capability of RFID to create a
world in which we can effectively track products throughout the supply
chain using a single, global network as products move from one company
to another, one country to another. The idea behind this vision was to
make it as easy for one company to read another company's ``tags'' as
it is for IBM computers to communicate with Apple machines over the
Internet.
One focus of the center's work was the development of the
identification system for objects in the system--the EPC. Another was
the development of the entire system in which EPC tags could be used--
the EPCglobal Network.
To develop a universal, open network that can be applied across all
industries and across all countries--so that individual objects could
be tracked through the entire global supply chain--requires common
standards and a common infrastructure, much as commonality is demanded
by the Internet.
By November, 2003, enough progress had been made in these efforts
to create a new organization, called EPCglobal Inc., with the mission
of developing the technical standards pertaining to the EPCglobal
Network and driving their adoption across industries and across the
world. The Auto-ID Center at MIT evolved into the research-focused
Auto-ID Lab, while EPCglobal took on what had been the center's
administrative responsibilities. The formation of EPCglobal signaled
the beginning of the road to the commercialization of EPC technologies.
EPCglobal is a joint venture of the UCC and EAN International, a
global, Brussels-based not-for-profit organization similar in purpose
to the UCC, and which played a key role in the adoption of the bar code
in Europe. Such parentage provides EPCglobal with a background in user-
driven standards development that is unmatched.
EPCglobal is supervised by a board of governors drawn from its
parent organizations, as well as the faculty of MIT and some of its end
users representing multiple industries, from healthcare to high tech to
consumer packaged goods.
The organization is working collaboratively with end-users
(companies implementing the technology) and solution providers
(companies building the technology) to build the infrastructure for the
EPCglobal Network. It is also providing comprehensive implementation
support, including standards development and maintenance, education and
training, and certification and compliance programs.
THE IMPORTANCE OF GLOBAL STANDARDS
The key to commercializing EPC is the development of global
standards. The significance of common standards cannot be overstated.
The absence of such standards today is the most prominent barrier to
explosive development of the network. In the absence of common
standards, organizations could incur high costs to give their products
multiple-standards compatibility, leading to higher prices.
Creating an open, global network for RFID based on a set of common
global technical standards means that companies investing in systems
can have confidence that the EPC tags they put on their products can be
read by trading partners across the country or around the world. It
also means the manufacturers of EPC solutions can make equipment in
vast quantities, since that equipment will work with anyone's system.
These economies of scale will reduce equipment prices, giving companies
an equal opportunity to reap the enormous benefits EPC can bring. All
companies benefit from an open system.
A recent Capgemini report estimated that global standards can help
boost productivity improvements--with 1 percent to 3 percent of supply
chain costs gained. When you consider that we have a $10 trillion
supply chain, you can begin to see the magnitude of what's at stake.
The improvement potential is comparable for both retailers and
manufacturers, and applies to companies of all sizes.
Subscribers to the EPCglobal Network have the opportunity to
participate in the development of network standards. EPCglobal, like
its parent organizations, UCC and EAN International, is open and
neutral, as well as highly user driven. The standards development
process works through a submissions track, which is designed to ensure
that business requirements are captured, and a standards track,
designed to create them, test and eventually ratify them.
Much of the work is done through Working Groups and Action Groups
who comprise international users from a variety of industries who are
charged with defining business and technical requirements for the
EPCglobal Network. Action groups, for example, help develop the
foundational building blocks of the EPCglobal Network, working toward
the creation of industry standards and commercial adoption.
Current action groups that have been established include:
The Business Action Group, which is comprised of representatives from
companies that currently use or plan to use EPCglobal Network
technology. The group's aim is to establish business
requirements and use cases across multiple industries to
facilitate supply chain efficiency.
The Hardware Action Group, which develops specifications for key
hardware interface components of the EPCglobal Network,
including the air, interface protocols between readers and
tags.
The Software Action Group, which creates the system software
architecture and system specifications for reader management,
middleware, and EPC Information Services, which connect trading
partners for secure data queries.
This thorough and collaborative standards development process is
open and inclusive. The organization leads a neutral, consensus-based
process where every company has the opportunity to contribute.
PUBLIC POLICY CONSIDERATIONS
For the EPCglobal Network to reach its full potential, certain
protections must be built into the system. It is EPCglobal's position
that addressing concerns, such as consumer privacy, is as important as
anything the organization is doing. Reflecting that understanding, the
sponsors of the network adopted guidelines for use by all companies
engaged in the large-scale deployment of EPC. These guidelines are
intended to complement the national international laws and regulations
dealing with consumer protection, consumer privacy, and related issues.
The guidelines state:
Consumers will be given clear notice of the presence of EPC on
products on their packaging.
Consumers will be informed of the choices they have to discard,
disable, or remove EPC tags from the products they acquire. (It
is anticipated that for most products, the EPC tags would be
part of disposable packaging or would be otherwise easy to
discard.)
Consumers will have the opportunity to easily obtain information
about EPC and its applications, as well as information about
advances in the technology. Companies using EPC tags at the
consumer level will cooperate in appropriate ways to
familiarize consumers with the EPC logo and to help consumers
understand the technology and its benefits.
Companies will use, maintain, and protect records generated through
EPC in compliance with all applicable laws.
These guidelines demonstrate that EPC participants are committed to
addressing the issue of consumer privacy and engaging in a constructive
and on-going dialogue with interested parties. The overriding goal of
the guidelines is to provide a responsible basis for the use of EPC
tags on consumer items. Under the auspices of EPCglobal, these
guidelines will continue to evolve as advances in EPC and its
applications are made and consumer research is conducted.
To foster continued dialogue with key audiences about public policy
and other important areas, EPCglobal and some of the industry sectors
with which it's working have also formed the EPC Public Policy Steering
Committee (PPSC). The committee and its working groups will include
representatives of industries and trade associations worldwide, from
healthcare, technology, food, consumer products, retail and others. The
PPSC owns responsibility for the Consumer Policy Guidelines and will be
working closely with industry, consumers, and government leaders to
communicate the benefits of the technology, as well as understanding
the complex issues surrounding consumer privacy.
CONCLUSION
The EPCglobal Network will be focused on the supply chain--and, in
the first few years, almost entirely at the case and pallet level, in
factories, back-rooms, distribution centers, and warehouses. As the
price of implementation falls, EPC applications will spread to the
consumer unit level, where it can be used to manage shelf inventory and
identify counterfeit products.
The savings to the economy will be significant. Accenture, a
consulting firm, estimated that RFID could eliminate 15 to 30 percent
of missing inventory. Estimates are that the retail industry alone
loses more than $50 billion a year to theft, paperwork errors, and
vendor fraud. Product counterfeiting costs another $500 billion a year
worldwide. At the same time, it's estimated the technology can increase
revenues by 1 to 2 percent, by reducing out-of-stock items.
Consumers should benefit from these reduced costs. And, in the case
of product recalls, the merchandise can be tracked quickly. Their
medicines will more likely be genuine; today, according to the World
Health Organization, 7 percent of global pharmaceuticals are
counterfeit.
As with any technology, however, it is impossible to anticipate the
full spectrum of uses to which RFID Technology and the EPCglobal
Network will be placed. This testimony has been focused entirely on the
supply chain, because that is where the interest primarily now lies and
what the current technology is capable of providing.
Thank you for the opportunity to present EPCglobal's position on
the many benefits associated with this exciting technology and the
organization's commitment to protecting consumer privacy.
Mr. Stearns. And I thank you.
Ms. Dillman.
STATEMENT OF LINDA M. DILLMAN
Ms. Dillman. Good morning, Mr. Chairman, members of the
committee. I have submitted written testimony to go in the
record. If I may, I'd like to read a summary of that testimony.
Mr. Stearns. Sure, sure. All of your statements are part of
the record by unanimous consent and they're all in there and if
you want to read them, you can, or you don't have to.
Ms. Dillman. I'm the Executive Vice President and Chief
Information Officer for Wal-Mart. Wal-Mart is the Nation and
world's largest retailer, with facilities in all 50 states and
10 countries. Wal-Mart was the first retailer to join MIT's
AUTO-ID lab in 1999 because we recognized that RFID had the
potential to reduce out of stock conditions through the
introduction of what has now become known as an Electronic
Product Code or EPC.
In July 2003, we asked our top 100 suppliers to begin using
RFID tags on cases and pallets of products destined for our
North Texas Distribution Centers by January 2005. It's
important to note that we chose to focus on case and pallet
level tagging. We did not and are not requesting item level
tagging.
On April 30, 2004, Wal-Mart moved EPCs from our laboratory
environment to an actual field pilot program. Currently, we
have cases and pallets of 21 products from 8 suppliers destined
for 1 distribution center and 7 super centers in North Texas
being tagged.
While the pilot is less than 2 months old, we have found
that EPCs help us gain visibility into the supply chain process
and improve our merchandise availability. We are so confident
in the application of this technology that we have asked our
next top 200 suppliers to begin tagging cases and pallets of
product by January 2006.
We further expect to have all of our more than 20,000
domestic suppliers participating in the program within the next
30 months.
Retailers such as Wal-Mart focus significant effort on
ensuring items are in stock and ready for sale. During peak
shopping times, such as a Saturday afternoon, it is a challenge
to keep items that sell quickly like health and beauty aids in
stock and actually on the shelf. With RFID tags attached to the
cases and readers placed strategically throughout the stores
back room, we can tell the last reader that a case went by and
to help us determine whether the case went out to the floor to
be stocked or it's still in the back room.
Concerns have been raised about potential privacy abuses
with RFID technology. Wal-Mart is committed to protecting the
privacy of our customers. There is no additional information
about individuals, available or collected, via RFID because
Electronic Product Codes identify products and not people.
During 2004 to 2006, Wal-Mart will continue to focus on
case and pallet level tagging. However, because some cases also
serve as consumer packaging, there will be instances where a
consumer could purchase a product which bears an RFID tag. We
have currently three products in our pilot program that are
exactly that, two HP printers and one HP scanner. Because of
that, we have ensured that the tags are on the outermost
packaging, so not on the product itself and adhering to the EPC
global privacy guidelines are marked with an EPC global symbol.
Additionally, we place signage near the front doors of our
stores participating in the pilot, more signage on the shelves
where the products are sold, and we placed tearaway leaflets
that provide additional consumer education on EPCs on the same
shelf. The leaflets explain the project and inform consumers
that they have the option to keep the tag or discard it at any
point post-purchase.
Currently, EPCs will help us address the merchandise
availability issue. In the future, EPCs have the potential to
help us minimize wait time at checkouts, expedite returns and
warranty processing and more effectively handle recalls. They
also have the very real potential to make substantial progress
in the fight against counterfeit pharmaceuticals. To realize
all of these benefits to the fullest extent possible, however,
EPCs will ultimately need to move to the individual item level.
We believe that's at least 10 years away.
As the Chief Information Officer for Wal-Mart, I spend a
great deal of time working to ensure the privacy of our
customers. There is definitely an inherent responsibility for
companies using RFID to address privacy issues. We believe
that's best done through adherence to the EPC global guidelines
which champion consumer notice and consumer choice.
As you review the potential of RFID technology, the most
effective action that Congress could take is to underscore to
any organization employing the technology that the substantial
privacy protections already in place are not to be ignored in
written or as in spirit. It's also important for Congress to
support EPC global efforts to ensure a single global standard
for RFID technology so that American companies can effectively
compete around the world and American consumers can receive all
the potential benefits.
Thank you.
[The prepared statement of Linda Dillman follows:]
Prepared Statement of Linda Dillman, Executive Vice President and Chief
Information Officer, Wal-Mart Stores, Inc.
On behalf of Wal-Mart Stores, Inc., I appreciate the opportunity to
provide written comments to the House Committee on Energy and Commerce
Subcommittee on Commerce, Trade and Consumer Protection concerning the
expansion of radio frequency identification (RFID) technology into new
industries and the potential impact on consumers.
Based in Bentonville, Arkansas, Wal-Mart is the nation and world's
largest retailer, with facilities in all 50 States and 10 countries.
The Company operates more than 3,030 discount stores, Supercenters,
Neighborhood Markets and more than 530 SAM'S CLUBS in the United
States. Internationally, the Company operates in Argentina, Brazil,
Canada, China, Germany, Mexico, Puerto Rico, South Korea, and the
United Kingdom. Wal-Mart also owns a 37.8 percent interest in Seiyu,
Ltd, a leading retailer in Japan with options to purchase up to 66.7
percent of that company. Wal-Mart employs more than 1.2 million
associates in the United States and more than 300,000 internationally.
INTRODUCTION AND OVERVIEW
As a leader in the use of technology to enhance the consumer
experience, Wal-Mart was the first retailer to become involved with
RFID technology. Our interest is focused around developing a method by
which to improve the efficiency of our supply chain.
It should be noted that RFID technology is not new. In fact, it was
first employed during World War II when it was used to help identify
allied planes from opposition aircraft. Over the past half century,
many consumers have come to use RFID technology--most recently in
cashless toll booths and keys that significantly reduce automobile
theft.
Many industries, including retail, have been keeping abreast of
these developments to learn if RFID technology can help solve existing
challenges that continuously frustrate customers, including lost
baggage during air travel and out-of-stocks when shopping at a retail
outlet. Today, through the hard work of the Massachusetts Institute of
Technology's (MIT) AUTO-ID Center and its successor, EPCglobal, along
with the support of companies like Wal-Mart that have encouraged their
research, it is clear that RFID technology can help companies solve
these problems.
Wal-Mart's efforts are focused on trying to enhance the customer
experience inside the store. It is important to understand that Wal-
Mart does not adopt a technology and then create uses for it. Instead,
we seek technology to help us tackle existing and potential challenges
that prevent us from delivering complete customer satisfaction.
HOW WAL-MART BECAME INVOLVED
Wal-Mart was the first retailer to join MIT's AUTO-ID Center in
1999. We, along with others, funded research on the potential of using
RFID in the retail and consumer packaged goods sector. We began testing
in 2000 and after reviewing the state of this technology in 2001, we
created our own RFID lab in Rogers, Arkansas. We did our own research
in addition to supporting the AUTO-ID Center. We consulted with
experts. We reviewed RFID uses already in place. We did all of this to
determine whether this technology could help us solve themerchandise
availability issue. We recognized after reviewing RFID that it had the
potential to significantly help reduce out-of-stock conditions through
the introduction of what has now become known as an Electronic Product
Code or EPC. In June 2003, convinced that it could, we challenged our
top 100 suppliers--representing some of the most innovative companies
in America--to begin using RFID tags on cases and pallets of products
destined for our three North Texas distribution centers by January
2005. These distribution centers ship products to 150 of approximately
3500 Wal-Mart stores. It is important to note that we chose to focus on
case- and pallet-level tagging. We did not, and are not, requesting
item-level tagging.
We believe this challenge not only set direction for a new era in
merchandise availability but also spawned a new market for technology
companies, both those long established and others in their infancy, to
be at the forefront of this revolutionary effort. Since Wal-Mart
announced its EPC goals, other retailers, such as Albertsons and
Target, have announced similar projects as well. The U. S. Department
of Defense has also announced a similar RFID initiative.
On April 30, 2004, Wal-Mart moved EPCs from the laboratory
environment to an actual field pilot program. Currently, cases and
pallets of 21 products 1 from eight suppliers 2
destined for one distribution center and seven Supercenters
3 in North Texas are being tagged. At our Sanger, Texas,
distribution center, we have placed readers at our receiving doors,
above our conveyor belt systems, and at our shipping doors. At the
seven Supercenters, we have placed readers at the receiving doors, at
strategic points throughout the stores' backrooms, at the door to the
sales floor, and at the trash compactor. There are no readers on the
sales floor, at the check stands, or at customer entryways or exits.
The readers assist Wal-Mart in knowing when a product is received,
where it is stored, when it goes out to the sales floor, if it returns
for any reason, and when the case is submitted for recycling. This
information is shared with our suppliers to assist them with their
inventory planning.
---------------------------------------------------------------------------
\1\ The products include various brands of computer printers,
scanners, paper towels, lotion, cat food, shampoo, feminine hygiene
products, laundry detergent, deodorant, shaving cream, soap,
toothpaste, and peanuts.
\2\ The eight suppliers are The Gillette Company, HP, Johnson &
Johnson, Kimberly-Clark, Kraft Foods, Nestle Purina PetCare Company,
The Procter & Gamble Company, and Unilever.
\3\ Specifically in the communities of The Colony, Decatur, Denton,
Hickory Creek, Lewisville, and Plano.
---------------------------------------------------------------------------
While the pilot is less than two months old, it has demonstrated
that EPCs can help us gain additional visibility into the supply chain
process and improve merchandise availability. We are so confident in
the application of this technology, that we have challenged our next
top 200 suppliers to begin tagging cases and pallets of products by
January 2006. We further expect to have all of our more than 20,000
domestic suppliers participating in the program within the next 30
months.
THE NEED FOR MULTI-INDUSTRY STANDARDS
With the introduction of any new technology there are factors that
can accelerate its adoption rate. At the heart of this is the need for
multi-industry standards. While you will hear more about the technology
itself from others here today, let me share that, in the simplest
terms, an EPC can be thought of as a better barcode, a staple of retail
that just celebrated its 30th anniversary last month. An EPC contains
the same Universal Product Code (UPC) number as a barcode plus a
specific identifier--a license plate, if you will--that allows us to
tell one box of product from another, something that could prove
especially useful during product recalls. Another potential future use
of this tag will be in tracking food safety and ensuring that fresh and
frozen items have been maintained at safe temperatures from the time
the package is prepared, through the distribution process, to the time
that is sold to the consumer.
Electronic product code information is stored on a microchip that
is then attached to a tag that also includes antennae. The RFID tags
carrying the EPC at Wal-Mart are passive tags, meaning they contain no
internal power source. A ``reader'' sends radio waves to the tag,
activates the chip, and allows it to then transmit its data back to the
reader and onto the appropriate internal computer system. The reader is
an FCC Part 15 compliant device that transmits with only 1 watt per
channel. Wal-Mart is using the 900 MHz radio frequency range for our
case and pallet deployment. This radio frequency is similar to those
used by some cordless telephones. The Federal Communications Commission
regulates both the wattage and the frequency spectrum assigned to the
readers and tags.
We can look to the implementation of the bar code in the retail and
consumer package goods sectors and learn an important lesson. The
creation of an international body to develop multi-industry standards
is critical for the adoption rate. You will hear more today about
EPCglobal, the organization that was formed in 2003 for these purposes.
It is a not-for-profit organization entrusted by industry to establish
and support the Electronic Product Code (EPC) Network as the global
standard for immediate, automatic, and accurate identification of any
item in the supply chain of any company, in any industry, anywhere in
the world. The retail industry needs low-cost tags for the limited
amount of data that is recorded and transmitted during the supply chain
process. The creation of an international standards body is the
foundation.
MERCHANDISE AVAILABILITY
Retailers must insure that any item is in-stock and on the shelf
when the consumer is ready to purchase it. Today, we know how many
items are in the store, but we do not know where they are located.
Fully one-third of our inventory in a store is not on the shelf. It may
be at the receiving dock and in the process of being unloaded.
Thousands of items may be stored in the mini-warehouse in the back of
the store. Some of them may have been temporarily relocated to another
area for space reasons. Today we do not have an adequate ability to
know whether those cases were taken out to the sales floor or placed on
a storage shelf.
During peak shopping times, such as Saturday afternoon, it is a
challenge to keep items that sell very quickly, such as health and
beauty aids, in stock and on the shelf. Wouldn't the consumer have a
better shopping experience if the stock clerk was notified in time to
avoid an out-of-stock condition and where to find the replacement
merchandise? With RFID tags attached to the cases and readers placed
strategically throughout the store's backroom, we can tell the last
reader those cases passed by, helping us determine whether the cases
went out to be stocked or are just 15 feet away from the dock door
through which they arrived.
The lack of merchandise availability at the point of sale, referred
to as ``out-of-stock'' in the retail industry, is a tremendous
opportunity. According to a study of this issue done by Emory
University in 2002, the average retailer loses 4 percent of its sales
due to out-of-stock conditions. An empty shelf represents
disappointment and frustration to the consumer, a lack of a sale for
both retailer and the supplier, and the potential loss of future
business for that particular store and product brand. Retailers, such
as Wal-Mart, focus significant effort on ensuring items are in-stock
and ready for sale. We recognize that the entire supply chain process
needs to be optimized. There is room for improved efficiencies in
distribution centers as well as in the store's receiving process. The
ability to track items through-out the supply chain will provide
benefits to the suppliers and their upstream manufacturers. The fact
that the issue remains a challenge for the industry demonstrates that
more needs to be done and that it must be a collaborative effort
involving retailers, suppliers, and technology providers.
CONSUMER PROTECTION AND PRIVACY
Concerns have been raised about potential privacy abuses with RFID
technology. It has been said that retailers, for example, will be able
to track customers and know when they open a can of soda inside their
homes. Opponents of this technology are wrong for two reasons. First,
the technology does not exist for a retailer to drive through a
neighborhood, 40 feet from a home, and read passive RFID tags--the kind
being used by the retail industry--through walls. The power required to
generate such a read could end up destroying the tag if it were even
able to reach it. Second, and more importantly, there is no desire on
the part of retailers to be able to do that. Our efforts are focused on
trying to enhance the customer experience inside the store. Wal-Mart is
committed to protecting the privacy of our customers. There is no
additional information about individuals available or collected via
RFID because electronic product codes identify products, not people.
During 2004 to 2006, Wal-Mart will continue to focus on case-and
pallet-level tagging. However, because some cases also serve as
consumer packaging 4, there will be instances where a
consumer could purchase a product which bears an RFID tag. We currently
have three products in our pilot program--two HP printers and one HP
scanner--where this is the case. These tags are on the outermost
packaging of the product and, adhering to EPCglobal privacy guidelines,
are marked with an EPCglobal symbol. Additionally, we have placed
signage at the front doors of our stores participating in the pilot,
more signage on the shelves where these products are sold, and we have
placed tear-away leaflets that provide additional consumer education on
EPCs on those same shelves. The leaflets explain the project and inform
consumers that they have the option to keep the tag or discard it at
any point post-purchase.
---------------------------------------------------------------------------
\4\ This is especially true for electronic items such as
televisions and computer equipment. It also is true for large products
such as lawnmowers and bicycles.
---------------------------------------------------------------------------
The local Dallas/Fort Worth news media has spoken independently
with customers visiting these stores about Wal-Mart's EPC effort. Those
interviews 5, which can be culled from the papers and TV
broadcasts, reveal that consumers are open to the new technology and
the benefits it can bring them.
---------------------------------------------------------------------------
\5\ Specifically the May 6th KXAS-TV NBC Channel 5 broadcast.
---------------------------------------------------------------------------
Currently, EPCs will help us address the merchandise availability
issue. In the future, EPCs have the potential to help us minimize wait
times in checkout lines, expedite returns and warranty processing, and
more effectively handle recalls. They also have the very real potential
to make substantial progress in the fight against counterfeit
pharmaceuticals. In fact, Wal-Mart is currently working on a small
trial to track Class II pharmaceuticals with several prominent
pharmaceutical suppliers and in cooperation with the Federal Drug
Administration.
To realize all of these benefits to the fullest extent possible,
EPCs will ultimately need to move to the individual item level.
However, that is at least 10 years away. First, technology prices must
come down such that it is economically feasible to place a tag on a 20-
cent package of chewing gum. Second, mass adoption of the technology
will be required to achieve a benefit at the check stand. And third,
consumers will have to embrace the technology.
The concerns mounted to RFID by privacy groups are reminiscent
those associated with the birth of the barcode 30 years ago. If you
remember back then, there were concerns about the barcode being able to
track data and how prices would no longer be marked on shelves but
rather made available to consumers only upon checkout. Those fears
proved unfounded.
As Chief Information Officer for Wal-Mart, I spend a lot of time
working to ensure the privacy of our customers 6 (see
attached). We do not seek to gather huge amounts of personal data about
our customers. Instead, our focus is on trying to do correctly the most
basic of things: Have the right merchandise on the shelves when
customers want to buy it at a price they can afford in places
convenient for them to shop. EPCs and RFID will help us do that.
---------------------------------------------------------------------------
\6\ Wal-Mart's complete Privacy Policy can be found at
www.walmartstores.com under the link Privacy and Security.
---------------------------------------------------------------------------
There is definitely an inherent responsibility for companies using
RFID to address privacy issues. We believe that is best done through
adherence to existing EPCglobal guidelines, which champion consumer
notice and consumer choice. EPCglobal has established a Public Policy
Advisory Committee. This committee maintains, reviews and updates EPC
Guidelines, develops an effective oversight role in conjunction with
the proper use of EPC Guidelines and dialog with consumer advocacy
groups. Committee membership is made up of senior level executives from
companies deploying EPC and an independent privacy expert. The
committee reports directly to the CEO of EPCglobal who is invited to
all meetings. The committee involves both retailers and manufacturers
and is geographically dispersed.
CONCLUSION
As you review the potential of RFID technology, the most effective
action that Congress could take is to underscore to any organization
employing RFID technology that the substantial privacy protections
already in place are not to be ignored as written or in spirit. It is
also important for Congress to support EPCglobal efforts to ensure a
single global standard for RFID technology so that American companies
can effectively compete around the world and so that American consumers
can receive all of the potential benefits this technology has to offer.
Wal-Mart appreciates the opportunity to present our views. We are
prepared to assist members of the Subcommittee in any manner as it
continues to consider the important impact RFID technology will have on
American consumers.
______
Wal-Mart Stores, Inc. Privacy Policy for Customers and Members
One of Wal-Mart's Three Core Basic Beliefs is ``Respect for the
Individual.'' Accordingly, we (Wal-Mart Stores, Inc. and our
Affiliates--SAM's Club, Walmart.com, Samsclub.com, and any other
companies in which we have a majority ownership interest) will collect
and use personal information of customers and members only as follows:
Our purpose in collecting personal information.
Personal information means information about you which is, or can
be, tied to you as an individual.
We collect personal information to:
deliver the products and services you want;
administer our businesses;
develop and communicate special offers;
provide customer service; and
respond to legal process (such as subpoenas and warrants).
What information we collect and how we collect it.
The information we collect may include:
contact information, identification numbers, account numbers, product
preferences, and other information you provide when you do
business with us, either online, in our stores, or at our
membership warehouse clubs, or sign up for certain services,
such as a gift registry or personalized website account;
technical information (such as your Internet Protocol address, your
computer's operating system and browser type, and the address
of a referring website, if any, and the path you take through
our web pages) when you visit our websites; and
financial and health care information provided by you and third
parties (such as credit bureaus, health care providers,
insurers, etc.) in connection with your transactions.
When you visit our websites, we may place a ``cookie,'' a small
computer file, on your computer to help us recognize and serve you
better when you return. You may delete this cookie from your computer.
You may also set your Internet browser to reject cookies, however,
doing so may limit the functionality of our websites.
At some stores and clubs we may record your presence on security
monitors for safety and security purposes.
How we use personal information.
We do not sell or rent personal information to others.
We do not use cookies to track movements on websites other than our
own.
We do not disclose personal information to non-Affiliates except in
the following situations:
when you request or give us permission to do so;
when we use service providers and contractors (such as credit card
issuers, check cashing bureaus, or data processors, mailing and
fulfillment houses, customer service or research companies,
etc.) for limited purposes to assist us in completing our
transactions with you, maintaining or conducting our business,
or doing customer research;
when appropriate to prevent harm or injury (such as for product
recalls, preventing fraud, or handling claims or other
liabilities), or to comply with valid legal process and
applicable laws.
We may share information with Affiliates for these same reasons and
also to let you know about special offers, new products and services,
Rollbacks, and other great values, unless such sharing is prohibited by
law. We may share with Affiliates and non-Affiliates statistical
information that does not identify you individually.
We take reasonable steps to protect your personal information.
We maintain reasonable physical, technical, and procedural measures
to limit access to personal information to authorized individuals with
appropriate purposes.
Financial, health care, and international data.
Financial Information: If you are a check cashing customer, you will
receive a separate policy concerning personal information we
receive in that relationship.
Health care information: In addition to the policies discussed above,
we have more detailed information about how we handle your
health care information in our Notices of Health Care
Information Privacy Practices. Wal-Mart has a separate Health
Insurance Portability and Accountability Act (HIPAA) Privacy
Policy that is available by contacting the addresses listed
below.
International customers and members: If you provided information to
us from a country other than the United States, your
information may be transmitted to, and processed by us or our
service providers in the United States or other countries other
than your own. If you provided information from a country that
grants specific additional privacy rights, contact us at the
addresses listed below to exercise your rights.
Modifications to our privacy policies.
We reserve the right to change our privacy policies at any time,
except as may be prohibited by law. We will post revisions online and
in locations in our stores and clubs that we consider appropriate. Use
of our websites or services or the purchase of products after posted
changes means that you consent to the privacy policies as changed.
Contact us for more information about our privacy policies.
If you have questions about our privacy policies, contact us at
[email protected] or Wal-Mart Stores, Inc., Attention: Privacy
Office, 702 S.W. 8th Street, Bentonville, AR 72716-0860.
Mr. Stearns. Thank you.
Ms. Hughes, welcome.
STATEMENT OF SANDRA R. HUGHES
Ms. Hughes. Thank you, Chairman Stearns and members of the
subcommittee for the opportunity to testimony today on this
important issue. My name is Sandy Hughes and I am the Global
Privacy Executive for the Procter & Gamble Company. I oversee
P&G's global privacy program and am a member of P&G's
Electronic Product Code team or EPC team.
As background, Procter & Gamble manufacturers and markets
over 300 consumer product brands to people in 140 countries.
These brands include Tide, Crest, Pantene, Pampers, Vicks, Olay
and Prilosec. Hopefully, you recognize a couple of those. We
have over 90,000 employees worldwide and are headquartered in
Cincinnati, Ohio.
Procter & Gamble is pursuing the use of Electronic Product
Code or EPC to create efficiencies in the supply chain.
Today's supply chain systems are outdated and not meeting
the needs of our consumers. It is frustrating when you go to
your local supermarket to buy your favorite flavor of Pringles
and the shelf if bare. It can result in a lost sale for P&G and
for the retailer. Theft and counterfeiting are growing problems
as well. Worldwide theft costs retailers $50 billion a year and
counterfeiting is a $500 billion problem.
Since the inception of EPC in 1999, we have moved from the
laboratory to testing the technology in real world supply chain
situations. We are conducting pilot tests with pallets and
cases with partners Wal-Mart and Target in the U.S. and Metro
in Europe. In this test phase, we are still working to resolve
technical issues with EPC. For example, the speed at which
tagged cases and pallets pass by readers as well as the type of
products, such as liquids and metallic packaging, affect the
readability and reliability of the technology to read
information about the product.
P&G is also a member of a pharmaceutical industry group
supported by the FDA, to test how EPC can help prevent drug
shortages and counterfeiting and make product recalls easier
and more efficient. EPC is a powerful tool to deal with
expiration date management, diversion, reduction in medication
errors, product security and consumer safety, all important
issues for the pharmaceutical industry.
Down the road as P&G learns more about the technology,
there may be opportunities to eliminate costs and generate
additional benefits for the supply chain and consumers through
item level tagging. We believe it will be several years before
the technology is affordable enough and the benefits great
enough to be used on individual consumer product items. Like
any new technology, as has been the case with the internet,
responsible use requires considerable forethought by those
developing and using the technology. That is why we have worked
at these early stages to address privacy concerns associated
with item level tags.
P&G recognizes that in order for consumers to accept EPC,
they must understand the benefits for them and be confident
that their privacy will be protected. P&G has a long history of
responsible treatment of personal information and commitment to
good privacy practices. As a consumer products manufacturer, we
rely on information about our consumers to better understand
their needs in order to produce superior products, information
and services to meet them. P&G has an enormous stake in
fostering an environment of trust in which consumers
confidently share their information with us. Creating this
climate of trust includes making sure that our practices meet
or exceed consumer expectations and contributing to industry
and policy initiatives that enable other companies to do the
same.
I must emphasize that EPC tags do not contain or collect
personal information, nor are they intended to. But there is a
perception that the technology could be used in this way. That
is why we are working so hard to educate consumers about the
facts versus the myths surrounding EPC.
We worked with our EPC global partners to craft usage
guidelines for item level EPC in the fall of 2003. To
complement these guidelines, P&G's internal position based on
the pillars of fair information practices are as follows: Clear
and accurate notice should be provided where EPC is being used
and consumers should be informed as to whether products they
are buying contain EPC tags. Consumers should have a choice to
permanently disable or discard the EPC tag on products that
they buy and this should be done without incurring cost or
penalty. They should also have a choice as to whether
personally identifiable information about themselves is
electronically linked to the EPC number on products they buy
beyond what is done with barcodes today.
We will not pursue item level tagging with partners who are
not able to ensure privacy protection for consumers. We serve
consumers. To do otherwise would not meet our core mission or
business objectives.
P&G is informing our consumers about the pilot tests we are
conducting. Up-to-date information about current tests,
locations, brands and type of test, whether it's a pallet/case
or case/item, can be found on our company website at
www.pg.com. And I would be happy to address the Congresswoman's
issues about the lipstick test during Q and A.
In any pilot where a consumer could come in contact with an
EPC tag, P&G affixes a label to the case that notifies the
consumer of the presence of the tag. P&G, along with other end
users and EPCglobal have participated in a Federal Trade
Commission workshop on RFID. The FTC has played an important
role in educating consumers on issues such as safe internet
surfing, on-line shopping tips and protecting consumers against
ID theft. We are enthusiastic about the potential for FTC to
contribute to consumer education and outreach on RFID as well.
In summary, I want to emphasize that EPC is in the early
stages of development. The success of EPC depends on
collaboration, global standards and affordable technology. We
need the on-going support and involvement of retailers,
manufacturers and other industry bodies to adopt the EPC
system. EPC must become the single global standard in order for
the full efficiencies of the technology to be realized and we
believe the U.S. Government can help with this.
Procter & Gamble is working hard to ensure that EPC will be
a win-win for all.
Thank you.
[The prepared statement of Sandra R. Hughes follows:]
Prepared Statement of Sandy Hughes, Global Privacy Executive, The
Procter & Gamble Company
Thank you, Chairman Stearns and members of the Subcommittee, for
the opportunity to testify today on this important issue. My name is
Sandy Hughes and I am Global Privacy Executive for The Procter & Gamble
Company. I oversee P&G's global privacy program and am a member of
P&G's Electronic Product Code (EPC) team.
As background, Procter & Gamble manufactures and markets over 300
consumer product brands to people in 140 countries. Two billion times a
day, P&G brands touch the lives of people around the world. These
brands include Tide, Crest, Pantene, Pampers, Vicks, Olay and Prilosec.
We have over 90,000 employees worldwide and are headquartered in
Cincinnati, Ohio.
I will briefly explain why P&G is investing in Electronic Product
Code technology and how we are using EPC. We are currently in the early
phases of testing and learning about the costs and benefits of the
technology and we are working to gain consumers' confidence and trust
in EPC and ensure that their privacy is protected.
WHY P&G IS INVESTING IN EPC
Procter & Gamble is pursuing the use of Electronic Product Code
(EPC) to create efficiencies in the supply chain. As you have heard
from Dr. Sarma, EPC is a way to uniquely identify a pallet, case or
individual product using radio frequency identification (RFID)
technology. It's similar to today's bar code, but with many more
potential uses and benefits. P&G is a founding sponsor of MIT's Auto-ID
Center because we realized the enormous potential to improve processes
in the entire supply chain--from our plants to retail distribution
centers to store shelves. The real time, automated, accurate
information that EPC generates will benefit manufacturers, retailers,
suppliers and most importantly, consumers.
Today's supply chain systems are outdated and not meeting the needs
of our consumers. EPC offers potential solutions for problems like out-
of-stocks, theft and counterfeiting, as well as reducing inventory
levels. We know that out of stock levels are higher than we, our retail
partners and our consumers want. It is frustrating when you go to your
local supermarket to buy your favorite flavor of Pringles and the shelf
is bare. It can result in a lost sale for P&G and for the retailer. To
guard against out of stocks, we keep an average of 65 days worth of
product inventory, which costs us $3 billion a year. Theft and
counterfeiting are growing problems as well. Worldwide theft costs
retailers $50 billion a year and counterfeiting is a $500 billion
problem.
TESTING AND LEARNING ABOUT EPC
Since the inception of EPC in 1999, we have moved from the
laboratory to testing the technology in real world supply chain
situations where we are conducting pilot tests with pallets and cases
with partners Wal-Mart and Target in the US and Metro in Europe. The
technology is still evolving and we are continuing to learn about EPC.
In this test phase, we are still working to resolve technical issues
with EPC. For example, the speed at which tagged cases and pallets pass
by the readers as well as the type of products, such as liquids and
metallic packaging, affect the reliability of the technology to read
information about the product.
P&G is also a member of a pharmaceutical industry group, supported
by the FDA, to test how EPC can help prevent drug shortages and
counterfeiting and make product recalls easier and more efficient. EPC
is a powerful tool to deal with expiration date management, diversion,
reduction in medication errors, product security and consumer safety,
all important issues for the pharmaceutical industry.
Down the road as P&G learns more about the technology, there may be
opportunities to eliminate costs and generate additional benefits for
the supply chain and consumers through item level tagging. We believe
it will be several years before the technology is affordable enough and
the benefits great enough to be used on individual consumer product
items. Like any new technology, as has been the case with the Internet,
responsible use requires considerable forethought by those developing
and using the technology. That is why we have worked at these early
stages to address privacy concerns associated with item level tags.
PRIVACY ISSUES
P&G recognizes that in order for consumers to accept EPC, they must
understand the benefits for them and be confident that their privacy
will be protected. P&G has a long history of responsible treatment of
personal information and commitment to good privacy practices. Why? As
a consumer products manufacturer, we rely on information about our
consumers to better understand their needs in order to produce superior
products, information and services to meet them. As a result, P&G has
an enormous stake in fostering an environment of trust in which
consumers confidently share their information with us. Creating this
climate includes making sure that our practices meet or exceed consumer
expectations and contributing to industry and policy initiatives that
enable other companies to do the same.
P&G's approach to privacy is guided by two fundamental principles:
(1) We strive to treat information provided by individuals as their
own, which has been entrusted to us; and
(2) We strive for transparency with consumers about how their
information is used. We inform people about how we handle
information they provide us and give them choices about further
communication with us and further use of the data.
Our privacy policy is global and we extend the same high level of
protection to information from all individuals who provide personal
information to us (consumers, shareholders, employees, job applicants,
etc), to all locations where we do business and to all channels of
contact, such as the Internet, direct mail, telephone, and wireless.
EPC does not contain or collect personal information, nor is it
intended to. But there is a perception that the technology could be
used in this way. That is why we are working so hard to educate
consumers about the facts versus the myths surrounding EPC.
Based on extensive consumer research undertaken on EPC and our own
core mission that ``the consumer is boss,'' we worked with our
EPCglobal partners to craft usage guidelines for item level EPC in the
fall of 2003. To complement these guidelines, P&G's internal position,
based on the pillars of fair information practices, are as follows:
(1) Clear and accurate notice should be provided where EPC is being
used and consumers should be informed as to whether products
they are buying contain EPC tags;
(2) Consumers should have a choice as to whether EPC tags in the
products that they buy can be permanently disabled or
discarded, and this should be done without incurring cost or
penalty;
(3) Consumers should have a choice as to whether personally
identifiable information about themselves is electronically
linked to the EPC number on products they buy beyond what is
done with barcodes today.
Consumers will make choices based on benefits they perceive from
the technology. We are working aggressively to identify and communicate
these benefits as well as to identify options to implement these
principles together with our partners in the supply chain. We will not
pursue item-level tagging with partners who are not able to ensure
privacy protection for consumers. We serve consumers. To do otherwise
would not meet our core mission or business objectives.
In this phase of testing and learning about EPC in 2004, P&G is
informing our consumers about the pilot tests we are conducting. Up-to-
date information about current tests, locations, brands and type of
test (whether pallet/case or case/item) can be found on the company
website, www.pg.com. In any pilot where a consumer could come in
contact with an EPC tag, P&G affixes a label to the case that notifies
the consumer of the presence of a tag. In addition, some retail outlets
are providing further information on EPC to consumers in the form of a
tear-off card on the store shelf that explains EPC, the symbol, and how
the tag can be removed from the carton, and directs consumers to
www.EPCglobalinc.org for more information.
NEED FOR CONSUMER EDUCATION
Consumer research shows a very low awareness and understanding
level of EPC at this time. P&G along with other end users in EPCglobal
recognize the importance of education in gaining consumers' trust in
the technology and their understanding of the benefits. Last month we
participated in the Federal Trade Commission's workshop on RFID. FTC
has played an important role in educating consumers on issues such as
safe Internet surfing, online shopping tips, and protecting consumers
against ID theft. We are enthusiastic about the potential for FTC to
contribute to consumer education and outreach on RFID.
EPC IS IN THE EARLY STAGES OF DEVELOPMENT
In summary, I want to emphasize that EPC is in the early stages of
development. The success of EPC depends on collaboration, global
standards and affordable technology. We need the ongoing support and
involvement of retailers, manufacturers and other industry bodies to
adopt the EPC system. EPC must become the single global standard in
order for the full efficiencies of the technology to be realized.
Standards enable cost effective, interoperable technology. And finally
EPC technology needs to be affordable. The cost of tags and readers
must continue to decline in order to deliver a value proposition at the
case and pallet level. Item level tagging for consumer products
requires tags to cost one cent or less, a threshold that is some years
away.
EPC is designed to benefit the consumer. It will help ensure that
the right product is in the right place, at the right time and at the
right price. In order for EPC to be successful, it must be accepted by
consumers, be perceived as offering consumers benefit and be used in
ways that provide privacy protection for consumers. Procter & Gamble is
working hard to ensure that EPC will be a ``win/win'' for all.
Thank you for the opportunity to appear before the Subcommittee. I
will be happy to answer the Subcommittee's questions.
STATEMENT OF PAULA J. BRUENING
Ms. Bruening. Mr. Chairman, members of the subcommittee,
thank you for the opportunity to speak with you today about the
privacy implications of Radio Frequency Identification
technology. My name is Paula Bruening and I am Staff Counsel
for the Center for Democracy and Technology, a nonprofit,
public interest organization that advocates for civil liberties
in the digital age.
RFID promises to offer consumers benefits ranging from
enhanced drug safety to better security to lower costs through
streamlined inventory and delivery systems. We join others here
today in looking forward to the realization of that promise. At
the same time, the power of RFID and the infrastructure
necessary to make the technology work also poses privacy issues
that must be resolved if it is to be accepted by consumers.
First, RFID introduces a new method of information
collection and sharing in an environment that is already rich
with the collection, retention and sharing of personal
information. But unlike the information collection technologies
with which we've become familiar, the internet, the customer
loyalty cards or barcodes, RFID tags are invisible. Inserted
into the sleeve of a blouse or the hem of a pair of trousers,
consumers may not know at all that these items are being used.
RFID also enables the collection of information without the
active engagement of the consumer. When I used a credit card, I
am actively deciding to turn over certain information that will
make it possible to complete a transaction. I receive a bill at
the end of the month reminding me of the details of that
transaction. RFID data collection is passive with respect to
the consumer. It does not actively engage the consumer at all
and provides the consumer with no record that the data
collection ever happened. The kind of information potentially
collected using RFID is also unique. While we've become
somewhat accustomed to the concept of personal profiles that
are based on our buying habits, travel activities and
demographics, RFID potentially allows much more fine grained
data collection than previously possible.
RFID tags can contain globally unique identifiers that
distinguish, for example, this particular bottle of Crystal
Geyser water from all the other bottles of here at the table or
for that matter throughout the world.
When that globally unique ID is linked to the information
that uniquely identifies me as a consumer, a company will be
able to know, with specificity, not only that I bought a copy
of the novel, the Rule of Four, but will know which specific
copy of the novel belongs to me. As RFID sensors proliferate,
the abundance of data collection points also increases, making
it possible to track my movements with the book.
Second, in spite of the unique character of RFID technology
and data collection, the emergence of RFID and the privacy
concern it raises presents yet another example of the need for
baseline technology-neutral privacy legislation, based on well-
established principles of fair information practices that would
clearly delineate the responsibilities of businesses that
deploy technologies to collect personal information. Despite
on-going public concern about privacy and despite the fact that
privacy issues arise with each new technology that collects
personally identifiable information, the United States still
lacks baseline privacy legislation that would address privacy
concerns raised by the collection of this information.
Enactment of this kind of law would not only be an
important step in addressing privacy in RFID, but it would also
provide the basis for implementation in a privacy respectful
way of the next emerging technology.
CDT joins other consumer and privacy advocates also in
calling for a full scale technology assessment of RFID. Such an
assessment would provide accurate and timely information as
well as in-depth neutral analysis that would establish a sound
foundation for making policy decisions about the technology.
Finally, the Federal Government has taken a leadership role
in adopting and deploying RFID technology to cut down on fraud
and waste. While these efforts are laudable and needed, little
or no emphasis has been placed on the privacy concerns
attendant to the implementation of this technology. The
concerns are particularly acute in government implementation of
RFID as the technology will likely be tied to services that
individuals have no option to receive elsewhere.
CDT calls upon government agencies seeking to deploy RFID
to develop privacy guidance for agency use of the technology as
they have in the case of electronic authentication. Congress
should also explore whether current privacy laws that apply to
government collection of information adequately cover the use
of RFID by government agencies.
I thank the subcommittee for allowing me to be here today
and of course, I'll be happy to answer any questions.
[The prepared statement of Paula J. Bruening follows:]
Prepared Statement of Paula J. Bruening, Staff Counsel, The Center for
Democracy & Technology
Mr. Chairman and members of the Subcommittee, the Center for
Democracy & Technology (CDT) is pleased to have this opportunity to
speak to you about both the promise and the possible privacy risks of
radio frequency identification (RFID) technology.
CDT is a non-profit, public interest organization dedicated to
preserving and promoting democratic values in the digital age. A core
CDT goal is to enhance privacy protections for individuals in the
development and use of new technologies. We have long advocated the
view that privacy considerations are best addressed early in the
technology development process, and we applaud the Subcommittee for
holding early hearings on this nascent, but potentially revolutionary,
technology.
Creative applications of radio frequency identification (RFID)
devices hold possibilities for consumers, businesses and government.
They can reduce costs in inventory management, improve drug safety,
help to reduce error rates and save lives in hospitals, and better
track luggage and cargo at airports to increase homeland security.
There are many possible applications of RFID that do not pose major
privacy concerns. But to the extent that RFID devices can be linked to
personally identifiable information, RFID raises important privacy
questions. In an era of widespread collection of data about
individuals, RFID heightens concerns about the ability of businesses
and government using these technologies to create deep, rich profiles
about people and their travels, lifestyles, interests and activities.
In our testimony today, we wish to emphasize six principle points:
RFID technology poses significant and novel privacy concerns.
At the same time, well-established principles of fair information
practice provide a ready framework to address many of these
issues.
The privacy concerns raised by RFID can be addressed, but they must
be handled early. This will require the engagement and
commitment of the companies involved. Good work is already
being done, but privacy guidelines for RFID must be specific
and clear.
The privacy concerns with the federal government's use of RFID need
considerably more attention.
Technology-neutral baseline privacy legislation could answer many of
the basic concerns posed by RFID without creating technology
mandates. Legislation aimed specifically at RFID technology is
probably undesirable. Companies should not be deploying RFID
devices in situations that involve correlation of personally
identifiable information until the rules are clear.
A comprehensive technology assessment is needed at this time. Such an
assessment would provide critical information that would help
lawmakers, privacy and consumer advocates, technology
developers and businesses to avoid serious potential pitfalls.
1. NOVEL PRIVACY ISSUES RAISED BY RFID
Discount cards, other ``customer loyalty cards'' and credit cards
already collect information about individuals, providing a rich store
of information about our likes and dislikes in cars, clothing, travel
and many other preferences. The extent to which RFID tags possess the
ability to further enhance those profiles by tracking an individual's
movements--whether through a store or through the world--will raise new
and deeper concerns. The freedom to move freely and without being
monitored is basic to the American concept of individual autonomy.
These concerns are further heightened as the wall between
government and business collection of information becomes increasingly
porous, and as government looks increasingly to commercial databases as
a resource for homeland security and law enforcement.
Information gathering using RFID differs from other kinds of data
collection in at least three significant ways:
First, it is invisible to consumers: unless the consumer is made
aware of the technology, he or she will likely not know that
the devices are in use. Data collection occurring with a
loyalty card or a bar code involves a visible device that the
user can see and touch when the collection takes place. RFID
raises the specter of data collection via a device of which the
consumer may not even be aware in the sleeve of a blouse or the
hem of a pair of trousers.
Second, the information collection is passive with respect to the
consumer. A consumer using a credit card actively relinquishes
either the card or the account number to a business to make
payment for goods or services. In the act of giving the credit
card or number, the consumer actively decides to engage in a
system that collects certain information about the transaction,
not only about the account, but also about the nature of the
goods purchased, and when and where the transaction occurred.
The consumer is reminded of the event when he receives a
statement at the end of the month that specifies when the card
was used and what charges were incurred. In contrast,
information can be collected by RFID absent any active step on
the part of the consumer to turn over the information, and no
record of the collection is provided to the consumer.
The kind of information potentially collected using RFID is unique.
While we have become somewhat accustomed to the concept of
personal profiles that are built on our buying habits, travel
activities and demographics, RFID potentially allows much more
fine-grained data collection than previously possible. RFID
tags can contain globally unique IDs that distinguish a
particular book from all other copies of that book. As RFID
sensors proliferate, the abundance of collection points--and
the detail of location data that can be gathered--also
increases.
Together, these changes enable data collection and sharing
scenarios that are currently impossible. For example, today, the use of
``frequent buyer'' cards (also known as ``customer loyalty cards'')
allow stores to keep records of consumer purchases over time, even when
payments are made with cash. With RFID, however, it is possible to
track not just what items consumers leave the store with, but also
where they go with such items and for how long they keep them. If RFID
were built into consumer ``loyalty cards'' it would also be possible to
tell not only what you bought but also what you looked at. RFID
transfers to the brick and mortar world the type of very specific
tracking of interests that is possible online. Without notice,
consumers would not necessarily be aware that this kind of tracking was
going on.
Similarly, the proliferation of RFID technology raises heightened
concerns about data sharing and centralization. There is a strong
analogy in this case with our experience with ``cookies.'' While
cookies were originally designed to allow consumers to have a
consistent experience within a single website, the spread of the
technology eventually gave rise to information from across websites
being linked through third-party cookie systems. Similar problems could
arise with RFID, because an RIFD reader can typically read any tag. As
readers proliferate in stores, libraries, hospitals, and public places,
there will be strong incentives for companies to share and link
information about the tags they distribute and the tags they read.
The comments of technologists at recent events sponsored by the
National Academy of Sciences and Department of Commerce indicate that
while the power of this technology is currently limited, developers are
working to increase the amount of information the tags can hold,
enhance the effectiveness of the readers, lower the cost of the
technology, and make the infrastructure far more ubiquitous.
2. FAIR INFORMATION PRACTICES
RFID implementation must be guided by principles of fair
information practice that give consumers control over the collection
and use of their personal information.
In 1973, at the beginning of the computer revolution, principles of
fair information practices were articulated as guidelines for
protecting privacy. These principles form the basis of the Privacy Act
of 1974 and similar laws enacted at the state level. They also serve as
the foundation of laws enacted at the federal level to address privacy
in specific sectors, notably in credit, medical, and financial records.
They have been incorporated into industry codes of best practices and
form the underpinnings of international agreements on data protection.
The principles are intended to give individuals control over their
personal information, limit data collection, and place responsibilities
on data collectors.
While exact formulations of fair information practices differ, the
common elements are relatively standard. They include:
Notice: Information collection and use should be open and
transparent.
Purpose specification: Personal data should be relevant to the
purposes for which it is collected.
Use limitation: Data should be used only for the purpose for which it
was collected.
Accuracy: Personal data should be accurate, complete, and timely.
Security: Personal data should be protected by reasonable security
safeguards against risk of loss, unauthorized access,
destruction, use, modification or disclosure.
Access: Individuals should have a right to view all information that
is collected about them to correct data that is not timely,
accurate, relevant or complete.
Accountability: Record keepers should be accountable for complying
with fair information practices.
In November of last year, CDT joined with a broad coalition of
privacy and civil liberties organizations in calling for the
application of fair information practices to RFID.1 These
principles should apply to the gathering of information using RFID and
to the handling of that information. They provide a starting point for
all ongoing and future efforts to understand and address the RFID
privacy issue.
---------------------------------------------------------------------------
\1\ The``Position Statement on the Use of RFID on Consumer
Products'' November 14, 2003 was issued by: Consumers Against
Supermarket Privacy Invasion and Numbering (CASPIAN), Privacy Rights
Clearinghouse, American Civil Liberties Union (ACLU), Electronic
Frontier Foundation (EFF), Electronic Privacy Information Center
(EPIC), Junkbusters, Meyda Online, PrivacyActivism and endorsed by many
others including CDT. It is available at http://www.privacyrights.org/
ar/RFIDposition.htm.
---------------------------------------------------------------------------
Determining how fair information practices can be applied in a
practical, useful and meaningful way will require work on the part of
stakeholders.
3. ADDRESSING PRIVACY AT THE OUTSET: INDUSTRY ENGAGEMENT AND BEST
PRACTICES
If companies and government are to successfully and responsibly
deploy RFID technology, they need to address upfront the significant
trust issues the technology raises. Using RFID in pallets to assist
distribution processes and inventory control does not raise major
privacy concerns. But as soon as RFID tags are related directly to
individual product items, it will be extremely important that consumers
clearly understand that the technology is in use, what information is
being collected, how it is collected, and how it is used. If consumers
are to accept the use of this technology, it is critical that they have
assurances that information collected through RFID is managed and used
in a responsible fashion.
Experience has shown that when new information collection
technologies are deployed, consumers want to know specifics about what
and how data about them is being gathered. They want to know upfront
from the organization collecting the information, and not through the
popular media. It is critical with RFID, as in other emerging
technology, that privacy protections are built in at the beginning.
Technology developers and businesses often raise the issue of the
cost of building privacy into new technology. CDT would caution that it
is more effective and efficient to begin at the outset of the
development process to create a culture of privacy that incorporates
sound technical protections for privacy and that establishes the key
business and public policy decisions for respecting privacy in RFID use
before RFID is deployed, rather than building in privacy after a
scandal or controversy erupts publicly.
Work toward developing principles that would address privacy
concerns raised by RFID is ongoing. For example, CDT applauds EPC
Global for their work on public policy guidelines that address privacy
issues.2 However, for these principles to be successful in
protecting privacy, it is critically important to concretely determine
how these principles are applied in practice.
---------------------------------------------------------------------------
\2\ ``Guideline on EPC for Consumer Products'' is available at
http://www.epcglobalinc.org/public_policy/
public_policy_guidelines.html.
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For example, notice and public education are often pointed to as
key to sound privacy protection for RFID data collection. This is
undoubtedly true. But while we may easily agree on this point, it will
be extremely important to understand how notice can be effectively
provided in the RFID environment, in a manner that is consistent and
balanced, where information collection is arguably invisible and
passive. How to provide notice effectively, and in a manner that is
consistent for consumers and presented in a balanced, neutral way, will
be a critical challenge.
Similar issues are raised as steps are taken to provide consumers
with choice about collection of information through RFID. How do we
provide meaningful choice for consumers? How do we make it easily
accessible and exercisable in this kind of technology environment? How
can we assure that consumer choice has been respected?
4. GOVERNMENT USE OF RFID RAISES SPECIAL CONCERNS AND REQUIRES SPECIAL
CONSIDERATION
Federal, state and local governments have taken a leadership role
in the deployment and use of RFID technology. Some governments have
used the launch of RFID applications as an opportunity to balance
privacy concerns with the use of the technology. For example, the
Office of the Information and Privacy Commission of Ontario has
released ``Guidelines for Using RFID Tags in Ontario Public
Libraries.'' 3 U.S. governments have undertaken little of
this important work.
---------------------------------------------------------------------------
\3\ http://www.ipc.on.ca/docs/rfid-lib.pdf
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The Department of Defense has been a leader in the RFID field and
is engaging in innovative uses of the technology for tracking items
within its warehouses.4 Other federal agencies are following
suit with projects outside of the warehouse, such as the Department of
Homeland Security's enormous US-VISIT contract.5 While the
government should be encouraged to develop uses of RFID technologies to
increase efficiency and cut down on fraud and waste, little or no
emphasis has been placed on the privacy concerns attendant to the
deployment of the technology. The concerns are particularly acute in
government implementation of RFID, as the technology will likely be
tied to services that individuals have no option to receive elsewhere.
---------------------------------------------------------------------------
\4\ Andrew T. Gilles, ``Pentagon: Rough RFID Ride Ahead,''
Forbes.com, July, 7, 2004, http://www.forbes.com/technology/
enterprisetech/2004/07/07/cz_ag_0707beltway.html
\5\ Jonathan Krim, ``U.S. May Use New ID Cards At Borders,''
Washington Post, June 5. 2004, page E1.
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CDT calls upon the Office of Management and Budget (OMB), General
Services Administration (GSA) and National Institute of Standards and
Technology (NIST) to develop privacy guidance for agency use of RFID,
as they have for electronic authentication technologies. Congress
should also explore whether current privacy laws, such as the Privacy
Act, Computer Matching and Privacy Protection Act and Section 208 of
the E-Government Act, whether these laws adequately cover use of RFID
by government agencies.
5. BASELINE PRIVACY LEGISLATION WOULD ADDRESS MANY OF THE ISSUES POSED
BY RFID
Despite ongoing public concern about privacy, and despite the fact
that privacy issues arise with each new technology that collects
personally identifiable information (e.g., cookies, spyware), the
United States still lacks baseline privacy legislation that would
address privacy concerns raised by the collection of personally
identifiable information in new digital media.6
---------------------------------------------------------------------------
\6\ See the testimony of CDT President Jerry Berman before the full
Senate Commerce Committee on October 3, 200 at http://www.cdt.org/
testimony/001003berman.shtml. His testimony addressed S. 2606, a bill
that passed the Committee that year and would have created a baseline
standard for privacy on the Internet and allowed the FTC to create
regulations for offline privacy in the retail and marketing space.
---------------------------------------------------------------------------
In our view, in the absence of such legislation and in the absence
of clear, specific industry guidelines, it is unwise for companies to
deploy RFID technologies in consumer applications that involve
personally identifiable information. Implementing RFID without this
guidance raises the risk that it will be necessary to impose rules
after the technology has been deployed, when rules may be more
cumbersome and less effective, and when it is less likely that
technical protections for privacy can be optimally integrated into the
technology. It is for this reason that CDT and others have said that
RFID should not be deployed at the consumer level in ways that can be
linked to personally identifiable information until privacy guidelines
are put in place, either by industry, the Congress or state
legislators.
CDT believes that it would not be appropriate to enact legislation
specially regulating RFID. To enact legislation specifically for RFID
would risk technology mandates that are ill-suited to the future
evolution of the technology. On the other hand, technology-neutral
baseline privacy legislation would ensure that retail and marketing
uses of the technology in conjunction with personal information were
bounded by fair information practices. Location information, whether
generated by cell phones, by mobile computing, or by RFID, also merits
stronger privacy protections.7 These two crucial privacy
issues should be addressed in technology-neutral ways.
---------------------------------------------------------------------------
\7\ See the testimony of CDT Executive Director James Dempsey
before the Subcommittee on the Constitution of the House Judiciary
Committee on September 6, 2000 at http://www.cdt.org/testimony/
000906dempsey2.shtml. His testimony addresses H.R. 5018, a bill that
passed the Committee that year and would have increased location
standards for the use of information by law enforcement.
---------------------------------------------------------------------------
6. THE NEED FOR TECHNOLOGY ASSESSMENT
While specific regulation of RFID technology may be inappropriate,
a technology assessment conducted by an expert panel is sorely needed.
Such an assessment could be conducted under the auspices of the
National Academy of Science, the Federal Trade Commission (FTC), or the
National Institute of Standards and Technology (NIST).
Already legislatures are beginning to look at RFID and the privacy
concerns the technology raises. Both industry and consumer groups are
developing privacy guidelines for use of the technology. But
stakeholders on all sides of the debate share a concern about
institutionalizing solutions that stifle innovation and have unintended
and unwanted consequences for privacy and for RFID technology. Any
decision about privacy must be based on sound analysis, the input of
all stakeholders, reliable information, and a clear understanding of
the technology--both its potential benefits and the risks it raises.
CDT believes that a technology assessment could provide critical
information that would help legislators, policy experts, technology
developers and businesses to avoid these pitfalls. Technology
assessment--an analysis of RFID that explores the technology, how it
works, its potential to serve individuals, the vision for the future of
the technology, how its use may proliferate and develop and the risks
it raises for privacy--could provide the analytical underpinnings to
make possible the best possible resolution of privacy concerns.
Technology assessment could also surface concerns that are not
immediate but that are raised through the establishment of an
infrastructure for RFID.
Such an assessment would bring to bear the expertise of
technologists, academics, privacy advocates, consumer advocates,
manufactures, retailers, security experts and other potential users of
RFID technologies. Many of these efforts are already ongoing in public
interest organizations and in business research, so that many of the
individual pieces of a technology assessment are already in progress. A
formal technology assessment would capitalize on these efforts, draw
this work together and provide neutral, balanced analysis.
It is important to note that when done well, technology assessment
does not arrive at facile solutions. When done fairly, it does not
yield simple answers to satisfy a single interest group. Rather, it
provides policy options based on the richest, most accurate store of
information about the issue possible and the most balanced analysis
available. Timeliness is, of course, always a concern when developing
technologies are at issue. The online tools at our disposal should make
it possible to engage in the assessment exercise in a timely manner
that serves both the needs of business for prompt input and the needs
of all stakeholders for a chance to bring their concerns to the
discussion.I89Conclusion
CDT urges Congress to continue to closely monitor the privacy
concerns raised by RFID. Business, technologists and consumer advocates
must continue to address this issue as the technology and its
applications are developed. Additional Congressional hearings would
reinforce the need for ongoing work in the private sector to develop
and institute best practices for privacy in RFID use. Baseline privacy
legislation would help address significant privacy concerns raised by
RFID, as well as by other developing technologies. While it is possibly
unwise to create RFID specific regulation at this time, we urge
Congress to request that the National Academy of Sciences or another
neutral, expert body conduct a technology assessment that would provide
the technical and policy underpinnings for the best possible
legislative solution, when it is timely and appropriate. We look
forward to working with the Committee on this critical issue.
Mr. Stearns. I thank the gentlelady.
Mr. Galione.
STATEMENT OF WILLIAM GALIONE
Mr. Galione. Mr. Chairman, members of the committee, I
thank you for the opportunity to testify on behalf of Philips
Semiconductors on the very important subject of Radio Frequency
Identification technology. In my brief comments this morning,
I'd like to focus on from the perspective of the leading
semiconductor designer and manufacturer of RFID products,
basically what it is and where it's used.
Just for some context, Philips Semiconductors is a division
of Royal Philips, so we're a $5 billion division of the $35
billion that is Royal Philips. Philips is a large consumer
electronics, lifestyle, healthcare and technology company.
We're the semiconductor arm with more than 100 sales offices.
We operate in 50 countries, many, many manufacturing locations
around the world. But to amplify the point that this is not a
new technology, Philip Semiconductors has shipped more than one
billion contactless ICs in the history of that product
portfolio, so it's been around for a while, commercialized over
the past 15 to 20 years, but it's been around as was stated
previously for many, many years.
Basically, there are two types of identification products.
The first one is contactless smart cards, things like this,
credit card size things. The key to these and I'll pass these
around later to members of the committee, if you'd like it, the
key is that this securely identifies people, to grant people
access to services so therefore very short range, three to four
inches away from the reader. But the key is that it is secure
information about people. RFID tag, on the other hand, these
tags and labels, again, I'll pass these around if you'd like
them, are for to track and trace goods, much longer range
vicinity, 10 to 20 feet as was stated previously.
So again, in terms of the contact with smart card
technology, it's a card form factor, a combination of security
and convenience, short operating distance, but very, very
secure and it can be for moderate to strong security, but the
strongest security involves some very advanced encryption
technologies and algorithms, password protection and mutual
authentication between the card and the reader. The cost of
these things, because they are fairly sophisticated,
semiconductor designs, would be between $1 and $20. The kinds
of applications that they find their way into are public
transportation, more than 200 cities around the world are
currently using these. Five hundred million cards are deployed
around the world. Payment, companies like Visa, Mastercard,
American Express and of course loyalty programs, access
controls, so you can get into a building, car and mobilization
is an emerging application for these, event ticketing and
identification of individuals and evolving into, in fact,
passports in the future.
The RFID technology, again, the tags and labels here,
it's--that's the form factor of it. Carries a unique
identification number as previously said, plus optional read/
write memory, can communicate to the tag, not just have
information from the tag, low to moderate security features
because it is goods, not people, but does have a unique destroy
feature, so as we evolve into the item world at the option of
the consumer, it can be destroyed, rendered totally disabled
once you would leave the store and then the operating distance,
as I said previously, is about 20 feet. Very low cost, going
from just a few cents, in fact, to a couple of dollars,
depending on application and the key applications are
identifying and tracking goods and logistics, kinds of
applications, supply chain management, manufacturing and
warehouse automation, parcel services. We'll see that evolving
into baggage tagging and tracking and tracing. Asset
management, we're seeing applications in library automation,
livestock management and in fact, things like in the future
even laundry automation so your red socks don't get combined
with your white shirt when you have a smart washing machine.
So overall, those are the applications. That's the
perspective from the way we see it as a semiconductor maker.
We're aware of the privacy concerns raised by consumers over
the use of this technology and are working very closely with
privacy organizations and government officials around the world
to ensure a responsible roll out of RFID and we look forward to
assisting the committee in any way that you see appropriate in
the future.
[The prepared statement of William Galione follows:]
Prepared Statement of William Galione, Vice President and General
Manager, Marketing and Sales Americas, Philips Semiconductors
Mr. Chairman, thank you for this opportunity to testify on behalf
of Philips Semiconductors on Radio Frequency Identification (RFID)
technology. Philips Semiconductors is a product division of Philips
Electronics, well-known throughout the world for its innovate consumer
electronics, lifestyle and healthcare products. Philips is the world's
leader in the design and manufacturing of contactless identification
chips, with nearly one billion chips sold to date. Philips' contactless
identification technology is used across a diverse set of
applications--such as supply chain management and logistics functions,
including pharmaceutical and livestock tracking, as well as in various
transport, banking and security applications--to provide consumers with
greater convenience and safety.
Philips offers its contactless identification technology as an open
platform and is an active promoter of global standards to build the
foundation for widespread adoption. With new applications in the
consumer retail market on the horizon, Philips has built a complete
catalog of contactless chip technology that spans the application range
of tags, contactless smart cards, car immobilizers, and the
corresponding reader components.
I'd like to provide a brief overview of the two most common
applications of contactless identification technology: identifying
goods and granting people access to services. The term ``RFID'' is
broadly used to describe a ``smart tag'' or ``smart label'' or simply
``RFID tag'' used to identify goods or products. You may also have
heard the term ``smart card,'' which is essentially a personal RFID
device used by people to identify themselves, for example, when
entering a building or using the Washington, D.C. Metro system. Simply
put, a smart card carries a secure chip with advanced encryption,
computing power and a contactless RF--interface that provides consumers
with a high degree of functionality with enhanced personal privacy and
security.
CONTACTLESS IDENTIFICATION TECHNOLOGY AND GOODS
Almost every item sold through retailers and supermarkets around
the world today has a barcode printed on it. These codes are used
extensively throughout distribution chains and are unique to the
general type of item being sold. However, in recent years barcodes have
begun to show their limitations, and a replacement approach based on
RFID technology is gaining momentum.
RFID technology relies on small computer chips and antennas
integrated into a paper or plastic label--called a tag--that can be
scanned by an electronic reading device. The scan allows automatic
collection of data on the chip, which can include information on
warranty, where the product was manufactured, or product details such
as quantity, size, color, etc. First developed in the 1940's, RFID
technology has proven itself reliable over time, with falling cost
structures and further technology refinement allowing it to be used in
more common applications today.
Unlike barcodes, RFID tags are insensitive to dirt or scratches and
can be scanned from a distance--from a few inches to upwards of 20-25
feet--all without requiring direct line of sight. RFID technology also
allows multiple tags to be scanned simultaneously, even through
external packaging. This presents a significant advantage over barcodes
in distribution and retail environments, which is where the new
generation of RFID technology is making major inroads.
Adoption of RFID technologies is spearheading revolutionary gains
in supply chain management, allowing businesses to improve supply chain
logistics and customer service. Major retailers--including co-panelist
Wal-Mart and other organizations such as the Department of Defense--
that manage huge inventories are leading the supply chain transition to
RFID technology.
The Wireless Data Research Group predicts that the RFID market for
hardware, software, and services is expected to increase by a 23
percent compound annual growth rate worldwide from more than $1 billion
in 2003 to about $3 billion in 2007. According to analyst firm IDC,
RFID spending for the U.S. retail supply chain will grow from $91.5
million in 2003 to nearly $1.3 billion in 2008. This increase is due in
large part to the mandates by leading retailers and the U.S. government
to incorporate the technology, and also to increasing RFID adoption in
many other application areas.
A recent report by AMR Research on the supply chain results
achieved by early adopters of RFID technology in the retail and
consumer packaged goods arena showed cost savings of 5 percent of
sales. This included savings of 1 percent of sales due to reductions in
product loss. The retailers also reduced their expenses by 65 percent
in the receipt of goods arena and 25 percent in stocking.
RFID tracking of pallets and shipping cases--from the manufacturer,
to the warehouse, to the distribution center, to the final
destination--is expected to deliver increased efficiency, more timely
and accurate management of inventory, greater responsiveness to product
recalls, and reductions in theft and counterfeit goods entering the
retail arena. Pharmaceutical companies are also planning to use RFID
systems to ensure the quality of their goods. Recent headlines about
the need for livestock tracking reports related to disease prevention
underscore the need for accurate real time information, which RFID can
provide.
In addition to the consumer applications cited earlier, RFID tags
are also being considered for item-level identification of goods
purchased by consumers once the cost structure is low enough. Many
item-level identification benefits can be found in the retail
environment following successful implementation within a supply chain.
Retailers will be able to pass on the savings to their customers and
also provide consumers with greater convenience, value, choice, and
protection. Co-panelists Wal-Mart and Procter and Gamble can provide
more information on plans for item-level identification.
CONTACTLESS IDENTIFICATION TECHNOLOGY AND PEOPLE
Contactless identification technology is also used for personal
identification, including in so-called ``smart cards.'' Smart cards
typically come in a credit card form factor and carry sensitive,
personally identifiable data. American consumers are likely to
encounter smart cards and similar RF-enabled personal identification
devices in their daily lives through applications such as secure access
cards for building entry, speedy gasoline purchasing such as the Exxon
Speedpass, vehicle anti-theft systems, and in transportation systems
all over the world, including in the Minneapolis, San Francisco,
Seattle, San Diego (in Subcommittee member Congressman Issa's
district), Houston, and other systems.
Smart cards are essentially RFID systems with advanced computing
power, storage, and strong encryption accelerators, offering advanced
services with enhanced security and privacy protection.
In fact, smart cards are so powerful that the Department of Defense
(DoD) and other government agencies are adopting the technology to
secure access to their facilities and computer networks, even storing a
picture and fingerprint of the cardholder on the card for enhanced
security control. The DoD makes worst case scenario assumptions about
the cards falling into the wrong hands and having large resources at
their disposal to crack the card--standards that advanced smart cards
have met through the use of encryption, secure design, and other
measures.
The United States and leading countries all over the world are
presently working on the specification and deployment of contactless
smart card technology for the use in passports. Like the DoD's Common
Access Card, these passports will carry biometric credentials such as
fingerprints, pictures and/ or iris-scans to securely identify and
authenticate the passport holder.
PRIVACY
Philips is aware of some of the privacy concerns raised by
consumers over the use of RFID technology. For consumers, for whom
item-level identification benefits are perhaps several years away,
there has already been concern expressed regarding the ways in which
the information on the tag will be used. Manufacturers have responded
with a feature that can destroy the tag at checkout, and have
increasingly recognized the need for education on the technical
capabilities of the technology and privacy implications. This includes
communicating the safeguards built in to the chips to protect against
unauthorized scanning and tampering, as well as explaining how the
limits of the technology prevent such impossible scenarios as satellite
tracking of an RFID-tagged item.
Philips is working with privacy organizations and government
officials to ensure a responsible rollout of RFID in the retail
environment. Philips Semiconductors co-hosted with the National Retail
Federation a well-attended RFID privacy roundtable in Washington, D.C.
on April 27, featuring industry, privacy advocates, and state
legislative officials discussing privacy issues and RFID technology.
Last year, Philips presented its views on privacy issues of RFID
technology to the 25th International Conference of Data Protection and
Privacy Commissioners in Sydney, Australia and fully supports the
Conference's resolution on RFID and privacy. When the MIT hosted an
RFID Privacy Workshop in November 2003, Philips presented the 101 of
RFID Technology and its Applications. Philips also participated in the
recent Smart Tags Workshop of the European Commission in Brussels,
where it renewed its offer to help (privacy) authorities understand
RFID-technology. Most recently, Philips served as a panelist in a RFID
workshop hosted by the Federal Trade Commission, offering an overview
of the technology.
CONCLUSION
Mr. Chairman, thank you again for this opportunity to provide an
overview of contactless identification technologies to the Committee.
As the world's leader in the design and manufacturing of chips used in
contactless smart cards and RFID tags, Philips is committed to the
responsible rollout of RFID technology across a wide spectrum of retail
and personal identification applications, and stands ready to provide
you with any assistance you may need as the US Congress further studies
this revolutionary technology.
Mr. Stearns. I think the gentleman, Mr. Galione.
Mr. Steinhardt.
STATEMENT OF BARRY STEINHARDT
Mr. Steinhardt. Thank you, Mr. Stearns and members of the
committee, for the invitation to testify today.
My testimony this morning is going to focus on the
government use of RFID. In my written testimony I also address
the use by the private sector.
RFID chips can be used for good or ill, as you've heard so
far. But their attributes are worth focusing on for a moment.
First, as already indicated, the chips----
Mr. Stearns. I'm going to have you pull the mic, bring it
down and just closer to you.
Mr. Steinhardt. Is that better?
Mr. Stearns. Yes, that's better.
Mr. Steinhardt. The chips can track not just goods, but
people. Chips emit a signal which enables a remote, even
surreptitious identification. You had a demonstration of that
this morning.
Many deployments of RFID will require the creation and use
of data bases containing personal, sometimes sensitive personal
information. RFID use is easily integrated into those data
bases and with other technologies.
The government use of RFID is virtually--I apologize, it's
cutting of here.
Mr. Stearns. That's okay.
Mr. Steinhardt. The government use of RFID is burgeoning.
The Pentagon, for example, plans to use RFID to track physical
objects, the use that raises relatively modest privacy
concerns. Other proposed used raise more serious concerns. The
San Francisco Library would like to put RFID chips in its
books, raising the specter of third parties being able to track
our reading choices.
More troubling are proposals to put RFID chips into
government-issued identity documents. The example which has
perhaps the most profound implications and has largely gone
unnoticed by the press and many public policymakers that's been
alluded to here this morning is that at the urging of the
United States government, indeed, the instruction of the
Congress as part of the Border Security Bill. The International
Civil Aviation Organization, ICAO, which is U.N.-affiliated
agency has been developing the global standards for passports
and other travel documents. ICAO's current proposal which
developed a process in which the public was excluded, and
indeed in my written testimony I detail our futile attempts to
even engage ICAO in a discussion, but their current proposal is
a passport that is ladened, not only with biometrics like a
finger scan or a digital photograph, but with RFID chip or what
ICAO calls a ``remotely readable contact-less integrated
circuit'', but in fact, they mean RFID chip.
ICAO proposes to create a whole new class of identity
document that could be used to identify us anywhere, any time.
Like most processes with limited input, the standards developed
by ICAO are equally flawed. The RFID chips under consideration
can be read from up to a meter away, roughly three feet and
have enough memory to hold full biometric information such as
fingerprints and photographs.
The potential uses and abuses of such a chip raise profound
questions. Imagine, for example, the uses that could be put to
by a dictator like Fidel Castro. Every Cuban citizen, indeed,
every American traveling to Cuba, perhaps to visit a relative
would be under a new and powerful surveillance regime.
And the misuse is not likely to be limited to dictatorial
regimes. RFIDs would allow for convenient at a distance
identification. RFID tag IDs could be secretly read through a
wallet, pocket, backpack or purse by anyone, an inappropriate
reader, including marketers, identity thieves and pickpockets.
Pocket ID readers could be used by government agencies to
sweep up the identities of everyone at a political meeting,
protest march or religious service. A network of automated RFID
listening posts on the sidewalks and the roads could even
reveal the location of people using those sidewalks and roads.
Now indeed, there are two possible paths by which RFID
powered-passports could become tools for tracking the every day
lives of Americans. First is in passports that are being
developed by ICAO, could be seen as the gold standard of
identity verification around the world. More and more, as they
are demanding proof of identity, not only abroad, but within
the United States, they could displace driver's licenses,
primarily form of identification in every day life. Or those
ICAO passports could become a template for standardized
versions of the driver's license, turning them into a de facto
national ID card, but in effect, a super charged national ID
card.
Congress needs to focus attention on its development and
have a serious debate about how and when Americans will be
identified and tracked both here and around the world. At the
outset, Congress will need to decide whether we're wiling to go
down this path incorporating RFID into our identity documents
or choose a less invasive technology, like the two-dimensional
bar code. We, of course, prefer to choose the latter.
Over the longer term, Congress needs to consider how the
fair information principles, some of my fellow panelists have
discussed be applied to RFID. This debate needs to be held now
before the technology and its uses become a runaway train. If
RFID is to be employed, it must be carefully controlled, yet
none of these controls currently exist.
Since we regard this debate as so important, we'll be
sending copies of my testimony this morning to the other
committees of Congress that may have jurisdiction over some of
these matters.
The ACLU urges you to be vigilant in monitoring these
developments and creating legal controls to protect American
privacy, both domestically and internationally.
Thank you.
[The prepared statement of Barry Steinhardt follows:]
Prepared Statement of Barry Steinhardt, Director, Technology and
Liberty Project, American Civil Liberties Union
My name is Barry Steinhardt and I am the director of the Technology
and Liberty Program at the American Civil Liberties Union (ACLU). The
ACLU is a nationwide, non-partisan organization with nearly 400,000
members dedicated to protecting the individual liberties and freedoms
guaranteed in the Constitution and laws of the United States. I
appreciate the opportunity to testify about Radio Frequency
Identification (RFID) tags on behalf of the ACLU before the Commerce,
Trade and Consumer Protection Subcommittee of the House of
Representatives Committee on Energy and Commerce. Today, I will explore
with you the risks to privacy of governmental uses of RFID tags in
identification documents, and the risks to consumer privacy of use of
RFID tags by the private sector. I will close by suggesting that
Congress play an active role in deciding whether to authorize
governmental use of RFID tags in U.S. passports.
RFID tags are tiny computer chips connected to miniature antennae
that can be placed on or in physical objects. The chips contain enough
memory to hold unique identification codes for all manufactured items
produced worldwide. When an RFID reader emits a radio signal, nearby
tags respond by transmitting their stored data to the reader. With
passive RFID tags, which do not contain batteries, read-range can vary
from less than an inch to 20-30 feet, while active (self-powered) tags
can have a much longer read range.
DRIFT TOWARD A SURVEILLANCE SOCIETY
The privacy issues raised by RFID tags are vitally important
because they are representative of a larger trend in the United States:
the seemingly inexorable drift toward a surveillance society. As
Congress considers the privacy issues posed by RFID chips, I urge you
to view them in the larger context--a world that is increasingly
becoming a sea of data and databases, where the government and private
corporations alike are gathering more and more details about our
everyday existence.
The explosion of computers, cameras, sensors, wireless
communication, GPS, biometrics, and other technologies in just the last
10 years is feeding what can be described as a surveillance monster
that is growing silently in our midst. Scarcely a month goes by in
which we don't read about some new high-tech method for invading
privacy, from face recognition to implantable microchips, data-mining
to DNA chips, and now RFID identity tags. The fact is, there are no
longer any technical barriers to the creation of the surveillance
society.
While the technological bars are falling away, we should be
strengthening the laws and institutions that protect against abuse.
Unfortunately, in all too many cases, even as this surveillance monster
grows in power, we are weakening the legal chains that keep it from
trampling our privacy. We should be responding to intrusive new
technologies by building stronger restraints to protect our privacy;
instead, all too often we are doing the opposite. (The ACLU has written
a report on this subject, entitled Bigger Monster, Weaker Chains: The
Growth of an American Surveillance Society, which is available on our
Web site at www.aclu.org/privacy.)
We hope that this will not happen with RFID chips, which promise
great new efficiencies and conveniences, but also hold the potential to
enable the most Orwellian kinds of surveillance. RFID tags enable
remote, even surreptitious identification; their use generally requires
the creation of databases containing identity information; and RFID use
is easily integrated into database systems and other technologies.
Congress must act to lay to rest the privacy fears surrounding this
technology so that it will be smooth sailing for us all to enjoy its
benefits.
There are two primary areas where RFIDs raise privacy issues: their
use in retail and elsewhere in the commercial sector, and their direct
adoption by government.
THE MOST FRIGHTENING USE OF RFID CHIPS: GOVERNMENT TRACKING
Government use of RFID is burgeoning. The Pentagon plans to use
RFID to track physical objects--a use that raises relatively modest
privacy concerns. Other proposed uses raise more serious concerns. The
San Francisco Library, for example, is proposing to put RFID chips in
its books, which raises the specter of third parties being able to
track our reading habits without our knowledge.
Most troubling of all are proposals to incorporate RFID tags into
government identity documents.
RFIDs would allow for convenient, at-a-distance verification of ID.
RFID-tagged IDs could be secretly read right through a wallet, pocket,
backpack, or purse by anyone with the appropriate reader device,
including marketers, identity thieves, pickpockets, oppressive
governments, and others. Retailers might add RFID readers to find out
exactly who is browsing their aisles, gawking at their window displays
from the sidewalk--or passing by without looking. Pocket ID readers
could be used by government agents to sweep up the identities of
everyone at a political meeting, protest march, or Islamic prayer
service. A network of automated RFID listening posts on the sidewalks
and roads could even reveal the location of all people in the U.S. at
all times.
This may sound far-fetched, and I hope that it stays that way. But
if we at the ACLU have learned anything over the past decade, it is
that seemingly distant privacy invasions that sound right out of
science fiction often become real far faster than anyone has
anticipated. I give you this scenario as something that I think most
Americans would agree is something that should be avoided, and yet is
now entirely possible as far as the technology that is available to us.
That means that our future is now going to be decided by policy.
RFID-POWERED DOCUMENTS: ALL-TOO REAL
We need not end up in the frightening situation that I have just
described to suffer privacy invasions from RFID technology. In fact,
worries about RFID-enabled identity documents are far from an abstract
concern. Already, deliberations are underway to encourage governments
to include RFID chips in the passport carried by citizens of every
nation including the United States.
Largely unnoticed by the press and many public policy makers, an
obscure UN-affiliated group called the International Civil Aviation
Organization (ICAO) has been developing global standards for passports
and other travel documents. This effort grows out of the Enhanced
Border Security and Visa Entry Reform Act (EBSA), which mandated that
the passport of every visa waiver country ``issue to its nationals
machine-readable passports that are tamper-resistant and incorporate
biometric and document authentication identifiers;'' any nation that
fails to comply with this requirement will lose its status as a ``visa-
waiver'' country.1 The Act mandates that the standards for
these passports be created by ICAO.
---------------------------------------------------------------------------
\1\ 8 U.S.C. 1732.
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Under ICAO's current proposal, passports around the world would not
only incorporate biometrics like fingerprints or face recognition,
but--as we only recently learned--also remotely readable ``contact-less
integrated circuits,'' or RFID tags. Nothing in EBSA requires the
inclusion of an RFID chip on passports.
While we'll be making this testimony available to other committees
that would have a strong interest in whether RFID tags go on passports,
we believe that a wholistic approach to the use of RFID tags by
Congress may be called for.
ICAO has been developing these passport standards over a period of
months in meetings held around the world. Because of the serious
implications of creating an RFID-enabled identity document, the ACLU
and the London-based group Privacy International tried to arrange
attendance of a representative at a March 2004 meeting held in Cairo.
This effort was unsuccessful. An open letter to the ICAO on privacy
concerns over the biometric standards likewise met with no
response.2 The ACLU again wrote to ICAO asking to attend a
May 2004 meeting in Montreal, and once again received no response.
---------------------------------------------------------------------------
\2\ See ACLU et. al., ``An Open Letter to the ICAO,'' March 30,
2004; online at http://www.aclu.org/Privacy/Privacy.cfm?ID=15341&c=130.
---------------------------------------------------------------------------
In short, despite the importance of technical and interoperability
standards--which can mean the difference between a use of biometrics
that poses enormous problems for privacy, or one that poses little--
ICAO has ignored attempts by privacy and civil liberties groups to join
in their process. To a degree that would not be possible with a
domestic government decision-making body, it has rebuffed NGO attempts
to provide input on the privacy implications of the particular
standards being considered, or even simply to observe the meetings.
Like the results of most processes with limited input, the
standards developed by the ICAO are deeply flawed. The RFID chips under
consideration can be read from up to a meter away and have enough
memory to hold full biometric information such as fingerprints or
photographs. The potential uses and abuses of such a chip could be
revolutionary. A retail store or restaurant, for example, might gain
the ability to capture the identities of those who walk through a
portal; a government official could instantly sweep the room to
discover who is attending a political meeting. Imagine the uses to
which a dictator like Fidel Castro could put such technology. Every
person in Cuba--including Cuban-Americans carrying U.S. passports while
visiting family members in Cuba--could be put under surveillance and no
one would be safe.''
If the United States mandates the creation of an international
standard for passports, it will face enormous pressure to conform its
own passports to that standard. For instance, when the US instituted
the US Visit Program one nation, Brazil, reacted swiftly by putting
similar measures into effect for just their American
visitors.3 In fact, far from being concerned that such
systems would lead to the retaliatory creation of systems for tracking
Americans elsewhere in the world, Bush Administration officials have
embraced such reciprocation. ``We welcome other countries moving to
this kind of system,'' Department of Homeland Security undersecretary
Asa Hutchinson declared. ``We fully expect that other countries will
adopt similar procedures.'' 4
---------------------------------------------------------------------------
\3\ See e.g. Kevin G. Hall, ``Brazil ratifies fingerprinting,
photographing of U.S. visitors,'' Knight Ridder, Feb. 12, 2004;
available online at http://www.miami.com/mld/miamiherald/news/world/
americas/7934565.htm.
\4\ Rachel L. Swarns, ``Millions More Travelers to U.S. to Face
Fingerprints and Photos,'' New York Times, April 3, 2004.
---------------------------------------------------------------------------
By instituting RFID chips in passports, the US government could
skip right over the politically untenable proposals for a National ID
card, and set a course toward the creation of a global identity
document--or, at least, toward a set of global standards for identity
that can be incorporated into a wide variety of national identity
documents. There are two possible paths by which RFID-powered passports
could become tools for tracking the everyday lives of Americans:
These passports come to be seen as the gold standard of identity
verification around the world. More and more, they are demanded
as proof of identity not only abroad but within the United
States as well, displacing driver's licenses as the primary
form of identification in everyday life.
They become the template for standardized versions of the driver's
license, turning them into a de facto National ID card.
Features such as the inclusion of a remotely readable RFID chip
would greatly enhance the private sector's tendency to piggyback on the
perceived ``trust value'' of these documents. Although theoretically
optional, like driver's licenses and credit cards before them, they may
quickly become what are for all practical purposes requirements for
navigating through the modern world. The result would be a situation
where the government gains a tremendous new power to track and control
the movement of citizens.
Or innocent citizens, at any rate. We must always keep in mind that
as the perceived ``trust value'' of such documents rises, and as their
adoption becomes more widespread, the payoff for counterfeiting them
also rises--perhaps even more steeply--with the result that counterfeit
or fraudulently acquired real documents will continue to remain
available to determined and well-financed wrongdoers. 5
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\5\ See James Moyer, ``Security Document Theory White Paper,''
online at http://www.
cfp2004.org/spapers/moyer-sdt.pdf.
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While we understand the desire of the ICAO to increase confidence
in travel documents, reduce fraud, combat terrorism, and protect
aviation security, the inclusion of RFID tags will have
disproportionate and unnecessary effects on privacy and civil
liberties. Developed without outside input, the ICAO passport has
morphed from a simple identity document to become a de facto monitoring
device. Worse, this monitoring device threatens to be foisted on the
American public with little or no debate. Because of the power and
potential of RFID chips, the actions of the ICAO threaten the rights of
Americans and people around the world.
CONSUMER ISSUES
The second major area where privacy concerns are raised by RFID
tags in addition to government uses is the commercial side. Major
retailers are engaged in a major push to advance adoption of RFID
technology, and many envision RFIDs eventually replacing UPC bar codes
on products.
Such a pervasive adoption of RFID technology raises profound
privacy questions. The most detailed and often intimate picture of
Americans' lives can be constructed through their consumer purchases.
The issues were well explained in a position statement issued by a
coalition of 30 consumer and privacy organizations.6 They
include:
---------------------------------------------------------------------------
\6\ ``RFID Position Statement of Consumer Privacy and Civil
Liberties Organizations,'' November 2003, available online at http://
www.aclu.org/SafeandFree/SafeandFree.cfm?ID=1555
9&c=207.
Hidden placement of tags. RFID tags can be embedded into/onto objects
and documents without the knowledge of the individual who
obtains those items. As radio waves travel easily and silently
through fabric, plastic, and other materials, it is possible to
read RFID tags sewn into clothing or affixed to objects
contained in purses, shopping bags, suitcases, and more.
Unique identifiers for all objects worldwide. The Electronic Product
Code potentially enables every object on earth to have its own
unique ID. The use of unique ID numbers could lead to the
creation of a global item registration system in which every
physical object is identified and linked to its purchaser or
owner at the point of sale or transfer.
Massive data aggregation. RFID deployment requires the creation of
massive databases containing unique tag data. These records
could be linked with personal identifying data, especially as
computer memory and processing capacities expand.
Hidden readers. Tags can be read from a distance, not restricted to
line of sight, by readers that can be incorporated invisibly
into nearly any environment where human beings or items
congregate. RFID readers have already been experimentally
embedded into floor tiles, woven into carpeting and floor mats,
hidden in doorways, and seamlessly incorporated into retail
shelving and counters, making it virtually impossible for a
consumer to know when or if he or she was being ``scanned.''
Individual tracking and profiling. If personal identity were linked
with unique RFID tag numbers, individuals could be profiled and
tracked without their knowledge or consent. For example, a tag
embedded in a shoe could serve as a de facto identifier for the
person wearing it. Even if item-level information remains
generic, identifying items people wear or carry could associate
them with, for example, particular events like political
rallies.
Given the potential for widespread commercial use of RFID chips, we
believe that Congress ought to step in and require privacy protections
surrounding the use of this technology--in particular, the
incorporation into law of the fair information principles that are
recognized around the world.
government privacy and consumer privacy: not so separate
Although I have distinguished the privacy issues raised by the
government's adoption of RFID tags and the private sector's, the
difference between the two is quickly eroding from the perspective of
individual privacy. Government security agencies are increasingly
making an effort to make use of private sector information in anti-
terrorism efforts that are oriented around vast sweeps through
Americans' data in the hunt for terrorists. And the government's power
to access private data is rapidly expanding through the Patriot Act and
other measures.
In general, privacy concerns are more serious when they involve the
government. But increasingly, the information that is collected about
people by a retailer or other private-sector corporation can and is
ending up in the hands of the government.
CONCLUSION
I believe that all the testimony you hear today will make clear
that RFID chip technology is growing rapidly and has incredible
potential for both use and abuse. I hope that my testimony has
amplified two further points: this growth is taking place largely
outside of the control of the US government and it will have
significant impact on every American. What that impact will be has yet
to be decided.
Congress must be vigilant and involved in how RFID technology is
deployed. What is at stake is no less than how and when Americans will
be identified and tracked here and around the world. We are at a
pivotal juncture, where technology has presented us with the ability to
implant monitoring devices on everything. And their use is being
contemplated on perhaps the most fundamental travel document in the
world. All without any guidance or direction from Congress or the
American people.
The decisions Congress makes on RFID chips will affect the
direction of this technology around the world. You must decide whether
we want to go down the path of incorporating RFID into our identity
documents or to choose a less invasive technology like the two-
dimensional bar code. Over the longer term, the Congress needs to
consider how the fair information principles that my fellow panelists
have discussed can be applied to RFID and the many other new
technologies that have placed us on the edge of becoming a surveillance
society.
The debate must begin right now. If RFID technology is to be
employed it must be carefully controlled, yet none of those controls
currently exist. A fait accompli, presented by an unelected
international body, is a real possibility. We urge you to be vigilant
in monitoring these developments and creating legal controls to protect
American privacy both domestically and internationally. Thank you.
Mr. Stearns. I thank the gentleman.
Mr. McLaughlin.
STATEMENT OF MARK McLAUGHLIN
Mr. McLaughlin. Thank you, Mr. Chairman. Good afternoon,
Mr. Chairman, and members of the subcommittee. My name is Mark
McLaughlin. I serve as the Senior Vice President for VeriSign's
Naming and Directory Services Division. I'm very appreciative
to have the opportunity to be here this afternoon. By way of
background, VeriSign is the leading provider of critical
infrastructure services for the internet and telecommunications
networks.
Every day, VeriSign processes 10 billion domain name
lookups and e-mails, provides internet security for thousands
of corporations, processes 25 percent of all North American
electronic commerce and facilitates billions of daily phone
calls and millions of daily SMS messages.
I am here today to talk about VeriSign's role in the EPC
network which is our selection as the root operator for the
Electronic Product Code network. As mentioned, an Electronic
Product Code embedded on an RFID tag provides a unique number
that could be assigned to cases and pallets within the supply
chain for identification. With the EPC network, computers that
use RFID technology to identify objects can acquire associated
information about that object, enabling manufacturers to track
items and materials throughout the supply chain.
VeriSign was selected to operate this network by EPCglobal,
a nonprofit joint venture of the Uniform Code Council which
manages the allocation of bar codes and EAN International,
which provides similar services internationally. They are
responsible for driving the global adoption and implementation
of the EPCglobal Network across various industry segments.
VeriSign's role in making the network work is building and
operating the Object Name Service, ONS. Building and operating
the EPC network is a very comfortable fit for VeriSign. We have
over a decade of experience operating a proven, secure, global
platform for the .com and .net domain name naming system.
VeriSign also brings a strong record of securing internet
commerce and communications. These will be critical to the
success of the EPC network.
The EPC system works very much like the internet's Domain
Name System. VeriSign, as I mentioned, operates the system
worldwide for .com and .net. Like the Domain Name System which
appoints web browsers to a server where they can download the
websites for any particular web address, ONS will point
computers looking up EPC numbers to detailed product
information stored on the distributed network. The system
leverages the power of today's internet, through a distributed
architecture that will enable individual companies to share
information about products in more than one secure data base on
the web.
VeriSign's experience will help the EPC network deliver
integrated services that allow each company in the supply chain
to authenticate themselves on to the network, allowing
producers, wholesalers and retailers to share secured product
data in real-time.
Through the use of the EPC network, businesses can become
more efficient and productive in logistics, inventory
management and product placement. To support this new model for
supply chain management, thousands of enterprises need to be
able to securely access, in real-time, potentially billions of
unique EPCs from a highly available global ONS directory. As
other people have mentioned, the cost savings and efficiencies
throughout this system are vast. VeriSign's involvement with
EPC network will help ensure that the system is run with real-
time accuracy and security.
Around the issue of consumer privacy, an important thing to
do note is about the tag itself, as other people have
mentioned. Much has been said and written about concerns that
somehow reading a tag on a product will give away sensitive
information about a consumer. That's not the case. The tag
simply does not supply any information about a consumer. As a
matter of fact, the tag doesn't contain any information about
the product itself. That information is stored on data bases.
Having said that, VeriSign is committed to working with all
groups, especially privacy groups, to ensure secure and
reliable network. That is our legacy on the internet that we
are excited to bring to the EPCglobal network as well. More
specifically, we will provide our leading digital certificate
technology to help ensure that only authorized parties will be
allowed access to information on the network. These are exactly
the same kind of certificates that we use to protect billions
of online transactions every day. Additionally, our encryption
technologies are employed to encrypt transmission of any
information that is deemed to be sensitive. This technology
will also be used to help prevent snooping and hijacking and
other forms of intrusive behavior.
VeriSign takes our role in RFID technology as seriously as
have taken our role in supporting the internet's continued
growth. I appreciate the opportunity to testify before the
subcommittee this morning and I'd be happy to answer questions
later.
[The prepared statement of Mark McLaughlin follows:]
Prepared Statement of Mark McLaughlin, Senior Vice President, Naming
and Directory Services, VeriSign, Inc.
Good morning Mr. Chairman and Members of the sub-committee. My name
is Mark McLaughlin and I serve as Senior Vice President for VeriSign's
Naming and Directory Service division. VeriSign is the leading provider
of critical infrastructure services for the Internet and
telecommunications networks.
Every day VeriSign supports 10 billion domain name lookups and
emails, provides Internet security for thousands of corporations,
processes 25 percent of all North American e-commerce and facilitates
billions of daily phone calls and millions of daily SMS messages.
I am here today to talk about VeriSign's selection as the root
operator for the Electronic Product Code network. An Electronic Product
Code (EPC) embedded on an RFID tag provides a unique number that can be
assigned to individual items in cases and pallets within the supply
chain for identification and tracking. With the EPC network, computers
that use RFID technology to identify objects can acquire associated
information about that object, enabling manufacturers to track items
and materials throughout the supply chain. This technology will
revolutionize the way products are manufactured, sold and bought.
VeriSign was selected to operate this network by EPCglobal, a non-
profit joint venture of the Uniform Code Council (which manages the
allocation of bar codes) and the EAN International (which provides
similar services internationally) responsible for driving the global
adoption and implementation of the EPCglobal Network across industry
sectors.
VeriSign's role in making the network work is building and
operating the Object Name Service, or ONS. Building and operating the
EPC network is a comfortable fit for VeriSign. VeriSign has over a
decade of experience operating a proven, global platform for the .com
and .net domain name system. VeriSign also brings a strong record of
securing Internet commerce and communications that will be critical to
the success of the EPCglobal Network.
The EPC system works much like the Internet's Domain Name System
VeriSign operates as the authoritative directory for all .com and .net
internet addresses.
Like the Domain Name Addressing system (DNS), which points Web
browsers to the server where they can download the Web site for any
particular Web address, ONS will point computers looking up EPC numbers
to detailed product information stored on the network . The system
leverage the power of today's Internet, through a distributed
architecture that will enable individual companies to share information
about products in more than one secure database on the Web.
VeriSign's experience will help the EPC Network deliver integrated
services that allow each company in the supply chain to authenticate
themselves onto the network; allowing producers, wholesalers and
retailers to share secured product data in real-time.
Through the use of the EPC Network, businesses can become more
efficient and productive in logistics, inventory management and product
placement. To support this new model for supply chain management
thousands of enterprises need to be able to securely access, in real-
time, potentially billions of unique EPCs from a highly available
global ONS directory. The possible cost savings and efficiencies
through out the system are vast with this technology. VeriSign's
involvement with EPCglobal will help ensure the system is run with
real-time accuracy on a secure platform.
Around the issue of consumer privacy, the most important thing I
can tell you is about the tag itself. Much has been said and written
about concerns that somehow reading a tag on a product will give away
sensitive information about a consumer. That is not the case. The tag
does not supply any information about a consumer. Having said that,
VeriSign is committed to working with all groups, especially the
privacy groups, to ensure a secure and reliable network. That is our
legacy on the Internet that we are excited to bring to the EPCglobal
network.
More specifically, we will provide our leading digital certificate
technology to ensure that only authorized parties will be allowed
access to information on the network. These types of certificates are
also used to protect billions of online transactions. Additionally,
encryption technologies can be employed to encrypt transmission of any
information that is deemed to be sensitive. This will prevent snooping
and hijacking.
VeriSign takes our role in RFID technology as seriously as we have
taken our role is supporting the Internet's continued growth. Thank you
for the opportunity to testify before the sub-committee this morning.
I am happy to answer any questions you may have today or in the
future as we move forward with this important technological innovation.
Mr. Stearns. I thank the gentleman.
Mr. Laurant.
STATEMENT OF CEDRIC LAURANT
Mr. Laurant. Good afternoon, Mr. Chairman, and members of
the subcommittee. My name is Cedric Laurant. I'm Policy Counsel
with The Electronic Privacy Information Center or EPIC which is
based in Washington and is a public interest research and
advocacy organization that focuses on emerging civil liberties
issues.
I appreciate the opportunity to testify before the
subcommittee today on RFID technology. I will talk about the
impact that the RFID technology has on people's privacy, new
risks that are created by this technology, what opinion polls
show on consumers' perception of RFID, legislative developments
in the United States and the world, the need for legal
framework based on fair information practices and finally, our
recommendation to the subcommittee.
The debate over RFID technology touches upon many
controversial policy issues. At it's most fundamental,
widespread use of RFID tags could enable corporations to track
every move consumers make. Corporations which compile data
which is submitted by the tags could determine which product a
consumer purchases, how often products are used and even where
the product, by extension of the consumer travels. By
aggregating data to form consumer profiles, corporations could
make inferential assumptions about a consumer's income, health,
lifestyle, traveling habits, buying habits, etcetera. This
information could then be sold to governments to create a
dossier of individual citizens or simply sold to other
corporations for marketing purposes.
With the ability of RFID readers to collect data from tags,
once a consumer has left the store moves beyond the reader's
range is currently limited. RFID technology is quickly
advancing, while measures to protect individual privacy by
limiting the amount and type of information corporations can
collect about consumers is lacking.
There have been several cases in the past year where the
technology of RFID has been used without informing consumers.
In the retail industry, for example, some retailers have
collected information from customers without providing them
with the most basic notice. But an even more significant
problem then, the notification of the presence of tags to
customers in stores, what may happen is the possibility of
consumers being covertly tracked, profiled and in other ways
monitoring the tags they purchased outside the store premises.
It's also important to note that RFID systems of all kinds
are capable of generating a volume of consumer data several
orders of magnitude greater than has been possible before.
Numerous retail industry white papers refer to the coming
bonanza of high resolution information and the ease with which
this information could be shared with third parties and
aggregated for further data-mining. The indiscriminate use of
personal identifiable information is already a significant
issue to consumers as numerous surveys have shown. As the RFID
application moves into widespread use, this problem will only
become serious.
Public opinion polls consistently find strong support among
Americans for privacy rights and law to protect their personal
information from government and commercial entities. Opinion
polls have also demonstrated that there is clear support for
the meaningful protection that clear privacy principles like
the fair information practices provide. Several recent polls
show that Americans are highly concerned about their privacy
and that legislation is preferred over self-regulated programs.
In the case of RFID, despite growing media coverage,
consumers are generally not aware of RFID. A recent study
conducted by Cap Demme Group and the National Retail Federation
found that 77 percent of the more than 1,000 consumers surveyed
were not familiar with RFID. Of those that were familiar, less
than half had a favorable perception of the technology.
The on-going support for the right of privacy is not
surprising. Privacy protection has a long history in the United
States. The United States has a strong tradition of extending
privacy rights to new forms of technology. Congress has
repeatedly sought to protect people against new privacy risks
that new technologies brought.
It was never the intent to prohibit the technology when
Congress legislated or to prevent the growth of affected
business models. Instead, the purpose was to establish public
trust and confidence in the use of new technologies that had
the ability to gather a great amount of personal information
and if used improperly to undermine the right of privacy.
I will skip the part about recent legislative development
in the U.S. and the world, but I suggest you take a look at the
full version that is in the record.
Legislation is needed because consumers have shown in polls
that they view self-regulation is insufficient to effectively
protect their privacy and the RFID industry needs simple,
predictable and uniform rules to regulate the collection and
use of information through the user of RFID technology. This
legal framework could be based on the fair information
practices.
I won't detail what those fair information practices are
since a witness, Paula Bruening, has already talked about them.
The public debate about whether to regulate RFID technology
raises the same questions that previous new technologies
collecting personal information had raised in the past.
Congress, by regulating RFID technology and by adapting the
fair information practices to this new technology would follow
the tradition of providing people with basic rights to protect
their privacy and the use of their personal information.
We recommend basically that Congress should first rule on
legislation specifically targeting the use of RFID in the
retail sector and require clear labeling and easy removal at
item level, rather than tagging on individual consumer product.
Then Congress should legislate in a way that protects consumers
from improper use and sharing of data in both the public and
private sector by establishing a legal framework based on clear
information practices.
Thank you very much for your attention.
[The prepared statement of Cedric Laurant follows:]
Prepared Statement of Cedric Laurant, Policy Counsel, Electronic
Privacy Information Center
My name is Cedric Laurant. I am Policy Counsel with the Electronic
Privacy Information Center (EPIC) in Washington. EPIC is a public
interest research and advocacy organization that focuses on emerging
civil liberties issues.1 I also am the editor of the 2003,
and upcoming 2004, Privacy and Human Rights report 2, an
annual survey of privacy laws and privacy-related developments in over
65 countries in the world.
---------------------------------------------------------------------------
\1\ More information about EPIC is available at the EPIC web site
http://www.epic.org.
\2\ http://www.privacyinternational.org/survey/phr2003/.
---------------------------------------------------------------------------
I appreciate the opportunity to testify before the Subcommittee
today on RFID technology.
1. Impact of RFID technology on people's privacy
Radio Frequency Identification (RFID) is a type of automatic
identification system that enables data to be wirelessly transmitted by
portable tags to readers that process the data according to the needs
of a particular application. Tags in use today are small enough to be
invisibly embedded in products and product packaging. The data
transmitted by the tag may provide identification or location
information, or specifics about the product tagged, such as price,
color, or date of purchase. RFID readers are often connected to
computer networks, facilitating the transfer of data from the physical
object to databases and software applications thousands of miles away
and allowing objects to be continually located and tracked through
space. RFID may also be used to identify documents and currency. RFID
may even be deployed to identify individuals. Today, major uses of RFID
include supply chain management, animal tracking, and electronic
roadway toll collection.
1.1. New risks for privacy
The debate over RFID technology touches upon many controversial
policy issues. At its most fundamental, widespread use of RFID tags
could enable corporations to track every move consumers make.
Corporations which compile the data transmitted by the tags could
determine which products a consumer purchases, how often products are
used, and even where the product--and by extension the consumer--
travels. By aggregating data to form consumer profiles, corporations
could make inferential assumptions about a consumer's income, health,
lifestyle, buying habits, and travels. This information could be sold
to governments to create dossiers of individual citizens, or simply
sold to other corporations for marketing purposes. While the ability of
RFID readers to collect data from tags once a consumer has left a store
or moved beyond the readers' range is currently limited, many consumer
groups and privacy advocates note that RFID technology is quickly
advancing, while measures to protect individual privacy by limiting the
amount and type of information corporations can collect about consumers
is lacking.
There have been several cases in the past year where the technology
of RFID has been used without informing consumers. In the retail
industry, for example, some retailers have collected information on
their customers unbeknownst to them without providing them with the
most basic notice.
Between March and July of 2003, shelves in a Wal-Mart store in
Broken Arrow, OK, were equipped with hidden electronics to track
lipstick products. Consumers at the store were unaware of the RFID tags
contained in the lipstick and that they were being viewed 750 miles
away by Procter & Gamble researchers in Cincinnati who could tell when
the lipsticks were removed from the shelves and could even watch
consumers in action thanks to a system of video surveillance installed
in the store. Researchers had concealed the RFID readers in contact
paper placed under the shelves and had embedded RFID antenna chips in
the lipstick packaging.3
---------------------------------------------------------------------------
\3\ ``Chipping away at your Privacy,'' Chicago Sun Times, November
9, 2003, available at http://www.suntimes.com/output/lifestyles/cst-
nws-spy09.html.
---------------------------------------------------------------------------
Gillette, the razor manufacturer, has tested smart-shelf technology
in conjunction with major retailers such as Tesco in which a hidden
camera took pictures of shoppers whenever they picked up razor blades
from the shelf, and again when they pay for the item at the check-out
counter. The smart shelves were tested at a Tesco store in Cambridge,
England.4 Planned testing in Brockton, MA, was publicly
canceled by Wal-Mart after consumer protest.5
---------------------------------------------------------------------------
\4\ Alok Jha, ``Tesco Tests Spy Chip Technology,'' Guardian, July
9, 2003, http://www.guard
ian.co.uk/uk--news/story/0%2c3604%2c1001211%2c00.html.
\5\ Alorie Gilbert and Richard Shim, ``Wal-Mart Cancels 'Smart
Shelf' Trial,'' ZDNet.com, July 9, 2003, http://zdnet.com.com/2100-
1103--2-1023934.html.
---------------------------------------------------------------------------
But an even more significant problem than what may happen in stores
is the possibility of consumers being covertly tracked, profiled and
otherwise monitored via live RFID tags in products they own. There are
already a number of RFID applications in use worldwide which offer
tracking and monitoring of individuals as part of their explicit
feature set. Many of these applications make use of passive RFID tags
similar to what might be used in consumer products. A significant
portion of data generated over a product's lifetime will be stored in a
centrally-managed, Internet-accessible database known as the Object
Name Service (ONS). If information in this database is associated with
personally identifiable information, the potential for abuses of
consumer data and individual privacy will dwarf any technology
previously in use.
Moreover, it is important to note that RFID systems of all kinds
are capable of generating a volume of consumer data several orders of
magnitude greater than has been possible before. With in-store
deployment, it is predicted that Wal-Mart will generate more than seven
terabytes of RFID data a day.6 Numerous retail industry
white papers refer to the coming bonanza of high-resolution consumer
information and the ease with which this information could be shared
with third parties and aggregated for further data mining.7
The indiscriminate use of personally identifiable information is
already a significant issue for consumers in the US, as numerous
surveys have shown. As RFID applications move into widespread use, this
problem will only become more serious.
---------------------------------------------------------------------------
\6\ Mark Palmer, ``Overcoming the challenges of RFID,'' ZDNET.com,
February 27, 2004 .
\7\ See, for example, ``Sponsored Feature: A Vision for RFID In-
Store Consumer Observational Research,'' RFIDNews.com, October 20,
2003, available at http://www.rfidnews.org/weblog/2003/10/20/sponsored-
feature-a-vision-for-rfid-instore-consumer-observational-research/.
---------------------------------------------------------------------------
1.2. Consumer surveys
Public opinion polls consistently find strong support among
Americans for privacy rights in law to protect their personal
information from government and commercial entities.8
---------------------------------------------------------------------------
\8\ See EPIC's Public Opinion on Privacy web page reviewing those
opinion polls on a regular basis at http://www.epic.org/privacy/survey.
---------------------------------------------------------------------------
Opinion polls have also demonstrated that there is clear support
for the meaningful protections that clear privacy principles, like the
Fair Information Practices (FIPs) provide. A number of recent polls
show that Americans are ``highly concerned'' about their privacy and
that legislation is preferred over self-regulatory ``trust'' programs.
When polled Americans indicate that:
Individuals should be in control of both initial collection of data
and data sharing. The public considers opt-in--the principle
that a company should obtain an individual's affirmative
consent before collecting or sharing data--as one of the most
important privacy rights.
Individuals want accountability and security. Individuals report that
they want the ability to obtain redress for privacy violations
and think that it is important that access to data within an
entity be limited.
Individuals want comprehensive legislation, not self-regulation.
Americans report that the current self-regulatory framework is
insufficient to protect privacy and favor new federal
legislation to protect privacy online.
Individuals value anonymity.
Individuals do not trust companies to administer personal data and
fear both private-sector and government abuses of privacy.
Users want notice of how their personal information is collected,
used, and with whom it is shared.
In the case of RFID, despite the growing media coverage, consumers
are generally not aware of RFID.
A recent study conducted by Capgemini Group and the National Retail
Federation found that 77% of the more than 1,000 consumers surveyed
were not familiar with RFID.9 Of those that were familiar
with RFID, less than half (42%) had a favorable perception of the
technology, while 31% had no opinion.
---------------------------------------------------------------------------
\9\ Beth Bacheldor, ``Study: RFID Not Well-Known By Consumers,''
InformationWeek, June 24, 2004, available at http://
www.informationweek.com/story/showArticle.jhtml?articleID=22101950.
---------------------------------------------------------------------------
An internal Proctor & Gamble survey, not intended for public
dissemination, found strong negative reaction to RFID use.10
A document describing the November 2001 survey was located on an
unsecured Auto-ID center server and publicized by CASPIAN. 317
consumers participated in Internet-based survey sponsored by Auto-ID
center and Proctor & Gamble. 78 percent of respondents reacted
negatively. The major findings were as follows:
---------------------------------------------------------------------------
\10\ Auto-ID Center/Proctor & Gamble Survey, available at http://
cryptome.org/rfid/pk-fh.pdf.
More than half claimed to be extremely or very concerned;
``Big Brother'' is used in 15 separate cases to describe the
technology;
Consumers did not want ``smart tags'' in their homes;
The reassurance that the ``tags'' could be turned off and privacy
guaranteed was not compelling.
This ongoing support for the right of privacy is not surprising as
privacy protection has a long history in the United States. The US has
a strong tradition of extending privacy rights to new forms of
technology. Congress has repeatedly sought to protect people against
the new privacy risks that new technologies brought. Congress enacted
privacy laws for the telephone network, computer databases, cable
television, videotape rentals, automated health records, electronic
mail, and polygraphs. In each case, it was never the intent to prohibit
the technology or to prevent the growth of effective business models.
Instead, the purpose was to establish public trust and confidence in
the use of new technologies that had the ability to gather a great
amount of personal information and, if used improperly, to undermine
the right of privacy.
The new technology of RFID raises important privacy risks for
people. Those risks point to the urgent need to establish protections
for personal information collected by RFID to safeguard consumers'
privacy interests.
2. Recent legislative developments
2.1. In the United States
There is currently no federal law applicable to the collection and
further processing of personally identifiable data gathered through
RFID technology. Legislative developments in various States indicate
that state legislatures are aware of their constituents' concerns for
the privacy risks that RFID technology raises.
Some state legislation has been proposed, but not yet passed, in
several state legislatures over the past year. Most of this legislation
includes provisions for clear labeling of consumer products bearing
RFID tags, a requirement originally proposed for federal legislation
drafted by consumer advocacy group CASPIAN (Consumers Against
Supermarket Privacy Invasion and Numbering), the ``RFID Right to Know
Act of 2003.'' 11 RFID bills drafted in the US, (except for
a Virginia bill which merely calls for a general review of RFID
practices and privacy 12) all share a ``notice'' clause
first articulated in RFID expert Simpson Garfinkel's RFID Bill of
Rights and CASPIAN's RFID Right to Know Act of 2003.13 This
clause requires any consumer products bearing RFID tags to be
conspicuously labeled. A bill introduced, and still being debated, in
the California senate requires that tags be destroyed or removed at
checkout.14 A bill in the Utah legislature, which failed,
and bills in Missouri and Maryland require tags be labeled
only.15 There is no legislation currently being considered
at the federal level, although the FTC recently conducted a workshop to
debate the current and potential impact of RFID on consumers and
individual privacy. Privacy advocates cautioned that without a
framework of protection for personal information RFID use could have
significant, negative impact on individual privacy.16
---------------------------------------------------------------------------
\11\ CASPIAN, ``RFID Right to Know Act of 2003'', available at
http://www.nocards.org/rfid/rfidbill.shtml.
\12\ Virginia House Bill 1304, available at http://
leg1.state.va.us/cgi-bin/legp504.exe?
041+ful+HB1304.
\13\ See Simson Garfinkel, ``An RFID Bill of Rights,'' Technology
Review, October, 2002, at page 35, available at http://www.simson.net/
clips/2002.TR.10.RFID_Bill_Of_Rights.pdf and the ``RFID Right to Know
Act of 2003,'' available at http://www.nocards.org/rfid/rfidbill.shtml.
\14\ California Senate Bill 1834, available at http://
info.sen.ca.gov/pub/bill/sen/sb_1801-1850/
sb_1834_bill_20040401_amended_sen.pdf.
\15\ Utah House Bill HB 251, available at http://
www.le.state.ut.us/2004/htmdoc/hbillhtm/hb0251.htm; Missouri Senate
Bill 867, available at http://www.senate.state.mo.us/04INFO/bills/
SB867.htm; Maryland House Bill 32, available at http://
mlis.state.md.us/2004rs/-billfile/HB0032.htm#Exbill.
\16\ Radio Frequency Identification: Applications and Implications
for Consumers, Federal Trade Commission Workshop, June 21, 2004,
available at http://www.ftc.gov/bcp/workshops/rfid/.
---------------------------------------------------------------------------
2.2. International landscape
Other nations already have regulations or guidelines that can help
protect consumers against major privacy risks raised by RFID
technology. Europeans have regulated privacy with an omnibus law that
comprehensively protects the use and processing of personal
information. Rules protecting personal information processed through
the use of RFID technology are therefore already in place with two data
protection directives (enacted in 1995 and 2002) that apply to both the
issue of individual tracking and the association of data with personal
identification. As a result, any use of RFID tags that involves the
processing of personal data is likely to be subject to a number of data
protection obligations.17 Further, the more recent Directive
on Privacy and Electronic Communications states that ``location data
may only be processed when it is made anonymous or with the consent of
the individual.'' 18
---------------------------------------------------------------------------
\17\ Eduardo Ustaran, ``Data Protection and RFID Systems,'' Privacy
& Data Protection Volume 3, Issue 6, at page 6, available at http://
www.berwinleighton.com/download/PDP-RFIDtag
simplications.pdf. Article 8 of the EU Data Protection Directive of
1995, for example, prohibits the processing ``personal data revealing
racial or ethnic origin, political opinions, religious or philosophical
beliefs, trade-union membership, and the processing of data concerning
health or sex life.'' EU Data Protection Directive 95/46/EC, Official
Journal of the European Communities of 23 November 1995 No L. 281 p.
31, available at http://europa.eu.int/smartapi/cgi/sga_doc?
smartapi!celexapi!prod!CELEXnumdoc&lg=EN&numdoc=31995L0046&model=guichet
t>.
\18\ EU Directive on Privacy and Electronic Communications 2002/58/
EC, Official Journal, OJ L 201, 31.07.2002, p. 37, available at 19 Joint guidelines released by Japan's Ministry of
Public Management, Home Affairs, Posts and Telecommunications (MPHPT)
and the Ministry of Economy, Trade and Industry (METI) on June 8, 2004,
call for consumers to be given options on how they might interfere with
the reading of tags but appear to say nothing about rights to have the
tag removed or destroyed.20
---------------------------------------------------------------------------
\19\ See International Conference of Data Protection & Privacy
Commissioners ``Resolution on Radio-frequency Identification,'' Final
Version, 20 November 2003, available at http://
www.privacyconference2003.org/resolutions/res5.DOC.
\20\ ``Japanese RFID Privacy Guideline Released,'' June 8, 2004,
RFIDBuzz.com, available at http://www.rfidbuzz.com/news/2004/
japanese_rfid_privacy_guideline_released.html; see also Nikkei BP news
article, June 8, 2004, available at http://nikkeibp.jp/wcs/leaf/CID/
onair/jp/flash/312386 (in Japanese).
---------------------------------------------------------------------------
3. Need for a legal framework based on Fair Information Practices
Legislation is required because consumers have shown in polls that
they view self-regulation as insufficient to effectively protect their
privacy, and the RFID industry needs simple, predictable and uniform
rules to regulate the collection and use of information through the use
of RFID technology. This approach is consistent with US privacy
legislation.
This legal framework could be based on the Fair Information
Practices. The Fair Information Practices are a set of rights and
responsibilities developed in the early seventies. They help ensure
personal information is not used in ways that are inconsistent with the
purpose for which they were collected. Fair Information Practices
typically include the right to limit the collection and use of personal
data, the right to inspect and correct information, a means of
enforcement, and some redress for individuals whose information is
subject to misuse. Fair Information Practices are in operation in laws
that regulate many sectors of the US economy, from companies that grant
credit to those that provide cable television services. Your video
rental store is subject to Fair Information Practices as are public
libraries in most states in the country. The government itself is
subject to the most sweeping set of Fair Information Practices: the
Privacy Act of 1974, that gives citizens basic rights in the collection
and use of information held by federal agencies and imposes on these
same agencies certain obligations not to misuse or improperly disclose
personal data.
The current debate about whether to regulate RFID technology raises
the same questions that previous new technologies collecting personal
information had raised in the past. Congress by regulating RFID
technology and by adapting the Fair Information Practices to this new
technology would follow the tradition of providing people with basic
rights to protect their privacy and the use of their personal
information.
The Fair Information Practices would provide clarity and promote
trust for consumers and businesses. They would also encourage the RFID
industry and retailers using RFID technology to develop better
techniques to protect privacy. If all stakeholders can rely on a set of
clear and stable rules to guide their use of RFID, it is likely, in the
long term, to reduce the need for government intervention.
3.1. Recommendations
Legislation should protect consumers from improper use and sharing
of data in both the public and the private sector. The legislation
would address all forms of RFID-based services, from travel security to
employee monitoring, child tracking and amusement park patron
management. Congress should rule on legislation specifically targeting
the use of RFID in the retail sector and require clear labeling and
easy removal of item-level RFID tagging on individual consumer
products. Clear labeling and easy removal of tags will ensure that
consumers receive proper notice of RFID systems and are able to
confidently exercise their choice whether or not to go home with live
RFID tags in the products they own. Notice and choice are in fact two
key components of the Fair Information Practices and elements that
consumers value, as shown in many opinion polls. Consumers without high
levels of technical capability have no way of knowing if a ``killed''
tag is merely disabled, physically destroyed, or in fact still fully
functional. Tag removal, on the other hand, is transparent and 100
percent effective.
In our comments to the Federal Trade Commission (attached as an
appendix to this testimony), we limit our recommendations to the
private sector and to the use of RFID technology in the retail
industry. We recommend a comprehensive assessment of RFID technology
and global practice and recommend the FTC to publish and disseminate
documents that educate the general public about RFID technology and
with the purpose of educating businesses about RFID technology and the
importance of protecting individuals' privacy.
3.2. EPIC's RFID Guidelines
EPIC has drafted a set of industry guidelines which adapt the Fair
Information Practices to RFID technology. The guidelines allow
businesses in the manufacturing and retail sectors to adopt the
technology in a wide range of applications while protecting consumer's
basic privacy interests. The guidelines require users of RFID systems
to refrain from linking personally identifiable information to RFID tag
data whenever possible and only with the individual's written consent.
The guidelines also prohibit the tracking or profiling of individuals
via RFID in the retail environment; require tags and tag readers to be
clearly labeled; and stipulate that tag reading events be perceptible
to the consumers through their association with a light or audible
tone. We suggest that these guidelines serve as a basis for new federal
legislation governing the use of RFID in the retail sector.
Failure to establish strong safeguards in law has generally
resulted in economic harm to commerce and growing public concern on
privacy. The key to protecting people from the new challenges the RFID
technology raises for their privacy is to ensure the effective
enforcement of Fair Enforcement Practices or similar privacy
principles. We suggest you to consult the RFID guidelines provided in
the appendix to this statement when considering privacy legislation for
RFID.
Thanks you for your attention to the privacy implications of RFID.
We look forward to working with the Committee on this and other issues.
Mr. Stearns. I thank the gentleman.
Mr. Molloy.
STATEMENT OF JOHN MOLLOY
Mr. Molloy. Good afternoon, Mr. Chairman and subcommittee.
Thank you very much indeed.
I am John Molloy. I'm the Managing Director of a company
called ViaTrace. We provide global traceability solutions to
government and industry throughout the world.
What I would like to share this morning is real life of
RFID can do, what I believe RFID can do and why it is good.
At the moment, within agriculture in the U.S., there's an
issue, the identification and tracking of animals. And first
let me say, U.S. is leading the way by its early adoption of
RFID in this area. Eight years ago in Parliament in EU, the EU
addressed a similar issue as to how do we do this, how do we
trace it? Luckily, I was in the Parliament that day and we
started a consortium and we researched the issue for 55 man
years. The largest research project ever. How do we do this?
How do we move control? Even then RFID was suggested as being
the way forward.
Subsequent to that, we've actually commercialized and made
a product, ViaHerd which is available which will address some
of the issues that USDA have.
RFID and why it's good. We have an issue and I'm going to
quote some numbers. They're not exact numbers, but we have a
real business issue. The business issue is we have 96 million
head of cattle, okay? And we need to know who they are. Very
simple thing. So we have the following, simple traceability.
We're going to identify the animal. His name is John, he's born
today. That animal is going to be fed for 3 months. He's going
to be sold to another farmer who is going to feed him for 3
months and he's going to be sold to another farmer and so it
goes on and eventually he ends up in slaughter. It's very
simple. Okay?
But we've got 96 million. And that 96 million is going to
move over 2 years, so we've actually got 288 million
transactions per year. Okay? We've got to do it because there's
a problem. So we're going to do what we do in Europe and in a
lot of cases this is what we do in Europe. We employ a lot of
people. We go out into the field. We say hello, cow, here's a
tag, here's a number, it's unique. We fill in a piece of paper,
we bring it back in and we bring that piece of paper to a
bureau and they type it, like that. Ninety-six million.
And then another 30 million, and then another 30 million
because you have to record the movement, otherwise you can't
trace. We can't report. And that's actually what happens.
I'm going to give you another idea. You go out and
electronically--put a chip in his ear, we're doing it. Put a
chip in his ear. The animal moves, a reader reads it, the
record is sent. The animal moves, the reader reads it, the
animal is sent. Why do we do it? God forbid, there is disease
within the animal kingdom. We know this. This is an issue. We
want to protect health. We want to protect business, but there
is disease.
In a paper-based system and this is proven, 2 weeks ago in
the U.K., the U.K. Commons Committee slammed their own internal
system. Bad data. Inaccurate data. They lost 1.2 million
animals in 2 years. That's a lot of animals to lose in 2 years.
Three weeks ago in France we all of a sudden discovered
30,000 BSE cases in the last 10 years. Never recorded, because
it's paper. Everything points to its paper.
Mr. Stearns. BSE is Mad Cow?
Mr. Molloy. Yes, BSE is Mad Cow Disease. In the scenario
that I want to build you, you can only build traceability based
on when you need it, okay? It's 9 o'clock in the morning in
Nebraska and a veterinarian has just discovered that an animal
has foot and mouth disease. It's another disease. We don't want
to eat it. It's bad, okay? At 10 o'clock in the morning in
Chicago an animal walks into the abattoir. This guy has already
been notified and this guy is all together. This animal will be
turned away in an RFID situation because the data is flowing.
If I'm waiting for paper, I'm waiting 3 weeks.
Three weeks, 4 weeks, this is fact. Fifty two million
pounds foot and mouth cost to the U.K. Because they had paper.
I urge you, America, this is the opportunity to lead the world
in traceability and animal identification. RFID is good. We
would not run a business on inaccurate data. We wouldn't run a
healthcare system on inaccurate data. Data collection, RFID is
the greatest enabling technology for the collection of data,
for the betterment of business and the betterment of people.
Thank you.
[The prepared statement of John Molloy follows:]
Prepared Statement of John Molloy, Managing Director, ViaTrace
Good Morning. I am John Molloy, Managing Director of ViaTrace--a
provider of traceability solutions to government and industry
worldwide.
As a father and businessman who is personally involved with, and
affected by, the privacy and technology issues being addressed by the
Committee today, I applaud the Committee's leadership in examining
them.
I would also like to thank the Committee for the opportunity to
offer my thoughts this morning, and will begin by briefly sharing my
first-hand experiences in developing and implementing a multi-national,
RFID-enabled traceability system across Europe's Agriculture sector.
In response to several widespread disease outbreaks that put the
lives and wellbeing of tens of thousands of families and farmers at
risk--not to mention a crucial, multi-billion dollar agriculture
sector--the European Union embarked on the most extensive research and
development initiative ever undertaken into livestock movement and
disease control. This European Commission funded project leveraged the
resources of six nations, and took the equivalent of 55 person-years to
complete.
Our company, ViaTrace, was selected to utilize the research from
this project to design and implement a pan-European animal traceability
system known today as ViaHerd.
The singular purpose of ViaHerd is to protect the public health and
the agriculture sector that every citizen depends on.
Designed as a multi-national, ``farm-to-fork'' traceability system,
ViaHerd's success ultimately rests on the successful collection and
cataloging of terabytes of information.
The information that ViaHerd collects is available to a variety of
users based on their credentials, roles, and responsibilities. For
example, a farmer can quickly access and analyze information about his
herd, but he cannot access information about his neighbors herd.
Whereas, veterinary officials would have access to a much more
limited data set and only for specific reasons, like during the time of
an emergency, or crisis situation (when the need to quickly and
accurately reconstitute a herd can mean the difference between life and
death).
An emergency situation would be declared based on two scenarios: an
airborne disease outbreak, (like FMD) or the identification of a
genetic disease (like BSE).
In order to effectively locate all of the animals a single cow came
in contact with requires that a host of information is recorded in a
standardized format each time the animal is moved, or medicated.
For example, in the US there are roughly 96 million cattle, of
which about one third are brought to slaughter each year.
An effective system would capture information about where the
animal was born, where it was raised, which medications it received,
when and by which veterinarian. 1Considering the providers of this
information--generally farmers and veterinary officers--are often ``in
the field,'' the business challenge for us was to make the collection
of this information as timely, accurate, and efficient as possible.
ViaTrace often relies on RFID technology to achieve this objective.
Once the data is accurately captured, it must be formatted into a
standardized structure, like the product classification a bar code
provides. The structure has to be both rigid and dynamic. Rigid in the
sense that, like the debit and credit structure of the banking world,
there must be full accountability and compliance. For example, if an
animal were sold from one producer to another, the system must show
that it was both sold and purchased. Dynamic in the sense that it must
show who transported it and by what route (this can vary based on any
number of conditions).
Therefore, considering the billions of animals bought and sold each
year for human consumption, coupled with the increased risk of bio-
terror, airborne and genetic diseases, efficient, comprehensive data
capture tools--like RFID tags--are practically a global trade
requirement.
The EU plans to implement a pan-European electronic animal
identifier system by 2006.
At that point, the system will not only gather information from
electronic readers of individual animal tags, but will also include an
electronic identifier management module. Say for example the electronic
identifier is in the form of an ear tag. In addition to registering the
tags themselves, ear tag suppliers and distributors could be
registered, along with the individuals authorized to apply ear tags to
animals (farmers, veterinarians, control assistants, etc).
The system would then monitor the distribution and use of ear tags
prior to their application to animals, assisting in the audit, control
and the re-ordering process to help prevent fraud and loss of revenues
to government agencies.
This layering of information is important because the sheer volume
of transactions in a 40 nation trade zone invites the possibility for
both inaccurate data and increased fraud--both issues are in direct
conflict with ViaHerd's intended objective of protecting the public
health and welfare.
ViaHerd 's sophisticated data capture and authentication
technologies balance business needs with privacy concerns and
legislative requirements.
Today, any nation, producer, or veterinarian that uses our system,
is automatically fully compliant with all EU agriculture, trade, and
privacy laws. This is good for business--but it is even more important
for the protection of public health.
Therefore, it is our belief that RFID is a critical component of
any system that relies on timely and accurate data.
I would like to offer a few lessons we have learned through the
development and implementation of ViaHerd, which I believe may be
relevant to your inquiry:
Protecting the public's health while safeguarding global trade--is a
delicate balance that can be and has been realized
Cooperative action involving government and industry is the ideal
model for action, since it is critical to protect the public
health in a way that strengthens rather than burdens the
agriculture sector
Preparatory action--taken before the specter of mad cow disease
infects our supermarkets, school lunchrooms, and homes--is
possible and vital.
A fully evolved RFID-enabled animal registration system is one of
the keys to providing stable and sustained international commerce. The
United States has an opportunity to embrace this technology to the
benefit of all stakeholders.
In light of its intentional design to meet public health, business,
legislative and privacy priorities, I hope the ViaTrace technology will
serve as a useful model for your consideration.
In closing, I thank the Committee again for its leadership and hope
the Committee finds the experiences of ViaTrace to be of value. All of
us at ViaTrace stand ready to be a resource as you work through this
challenging issue.
I appreciate your time and attention, and would be happy to answer
any questions you may have at this time.
Mr. Stearns. I'll start the questions here.
Mr. Laurant, you know, I think the hearing is to find out,
we all agree that the future is enormous for this technology,
but the question would be is the pervasiveness of the privacy
of the individual and how to be protected.
Mr. Laurant, on your webpage, privacy webpage, it says
``RFID systems enable tagged objects to speak to electronic
readers over the course of a product's lifetime from production
to disposal, providing retailers with an unblinking,
voyeuristic view of consumers' attitude and behavior, purchase
behavior.''
My question is to Dr. Sarma, is that true, do you think
that's true what they have on their website? Is that possibly--
--
Mr. Sarma. The range of RFID tags is extremely limited as
you saw today.
Mr. Stearns. And in fact, without the intent of the piece
of sand, the grain of sand, it's not going to work, is that
true?
Mr. Sarma. So without the antenna, the tag doesn't work.
The range is very limited.
Mr. Stearns. And the antenna, you take off?
Mr. Sarma. If you want to reactivate the tag when you
purchase it, in any case you couldn't read it and more
fundamentally, we are--this is an evolving technology. And
companies that are using RFID in the U.S. today are just on the
threshold of starting to make it work. It's got to be
engineered. You've got to engineer your truck and then you can
get it to work.
Pervasiveness assumes a certain technology performance that
we're really years and years away from.
Mr. Stearns. That statement is probably not accurate today,
from a technological standpoint.
Mr. Sarma. I would consider it an exaggeration.
Mr. Stearns. Do you want to answer? We're saying the MIT
scientist says exaggeration.
Mr. Laurant. It's an exaggeration if you apply it to
current technology, but as Mr. Sarma said, the technology is
evolving every day. So it wouldn't be----
Mr. Stearns. Then Dr. Sarma, how far are we away from this
statement being possibly accurate?
Mr. Sarma. The range of RFID tags is always going to be
limited because very fundamentally, tags we're talking about
EPC tags and I can only speak for EPC, in the supply chain are
passive tags. In other words, they have no battery.
Mr. Stearns. Right.
Mr. Sarma. And they're limited to physics on how much power
you can--there are also legal limits from the FCC on how much
power a reader can put out. In a passive tag, it can only
respond physically from a certain distance. So unless you
carpeted a city, a State with readers, your visibility into
these things is going to be very limited. And even if you
carpeted a city or a State with readers, your ability to read
through water, through metal, as you saw in the demonstration
through fabric also makes it such an unreliable way of
tracking. There are other means you would prefer if you wanted
to do that.
Mr. Stearns. Can it--like in bad weather, like you have
snow or ice, does it read through that?
Mr. Sarma. It is very difficult to do it reliably.
Mr. Stearns. Okay. Now someone has mentioned to me that
China is at the threshold starting an EPC global network, that
China would set the standard. So any of you would like to
comment on the idea that we in the United States probably
should work to set the standard immediately or we'll be left
with China setting the standard for the world and what does
that mean?
Mr. Sarma. I have not seen anything official from China,
but I've heard about speculation that China may do something
and it is very important, I think, on two fronts. First of all,
it's very important that there be a single global standard
because if Procter & Gamble makes a product and it wants to
sell it in Egypt or in the United Kingdom, it will be good and
very efficient for Procter & Gamble if the standards are the
same, first of all.
The second thing is that RFID is a technology that
fundamentally endows an enterprise with efficiency. And it's
very important for the United States and its economy to be
efficient and to take the lead in efficiency. So from both
points of view, it will be better if (a) the U.S. took a lead;
and (b) if all countries around the world use the same
standard.
Mr. Stearns. Mr. Steinhardt, can you give me what current
government uses of RFID technology raise privacy concerns in
your opinion? Are they actually being implemented and just, in
general, if there's not any on the present horizon, what do you
fear in the government uses?
Mr. Steinhardt. The current, as I said in the testimony,
the current uses are--by the government are fairly limited.
They are, for example, the use in libraries or proposed use in
libraries of book----
Mr. Stearns. Let's say we go ahead and have it in the
libraries. Then everybody would have a record of everything--or
if we had it at Blockbusters or a video store that everybody
had, that would be in the private sector. But in the
government, if you go to the Library of Congress and they have
it, then everybody has an idea of what you're----
Mr. Steinhardt. It means, for example, that if we don't
take the proper precautions, that anyone can determine what it
is that you are carrying out of the library and can track you,
for example, at a political rally. It could track what you have
in your pocketbook or have in your backpack. But the thing that
I tried to focus on this morning was really, I think, the
question, the issue that the Congress would look at very
carefully is the proposed use of RFID chips in identity
documents and specifically at the proposed use in the passport.
The ICAO process, International Civic Aviation Organization, is
a process that the United States government set forward. This
is not hypothetical. It's not--it's a little obscure, but it's
not exotic. This is a process we set forward. Our government is
actively engaged in it. That issue is going to come back to the
Congress at some point. It will have to come back to the
Congress at some point, but it may come back as a fait
accompli. You may be hearing well that's the global standard.
The global standard is now we have passports and passports
contain RFID chips. It's too late for the United States
government to do anything about it. What we're urging is that
the Congress get out ahead of the curve and look carefully at
the use of RFID in identity documents.
Mr. Stearns. Okay, my time has expired.
The gentlelady.
Ms. McCarthy. Thank you, Mr. Chairman. I'm honored to fill
in for Ms. Schakowsky and follow up on some of the issues that
we both share. I want to thank everyone for being here today.
This has been very illuminating for all of us.
I'd like to follow up with Ms. Hughes and Ms. Bruening on
where we go from here.
In your testimony, Ms. Hughes, you talk about the pilot
testing on pallets and shipping, but you don't mention the
testing with lipstick. And I am aware of the article from the
Chicago Sun Times last year about the lipstick issue at the
Wal-Mart. And it is of concern to me that we explore that just
a little bit more.
Ms. Bruening, you call for consumer privacy concerns being
addressed in a baseline privacy legislation which I agree. The
government has been wise to stand back and let all of you
experts grapple with this, but I think we need, Mr. Chairman,
further conversation about what a baseline privacy bill might
do to address some of the good things that are going on, as
well as some of the things that are not in the best interest of
consumers or the privacy laws that we all cherish.
So let me start with you, Ms. Bruening. Would you expand a
little bit on what you'd like to see in a baseline privacy
legislation.
And then back to Ms. Hughes on how do we do the testing
that industry needs that will help the consumer without
infringing on privacy issues that I know you respect as well?
Ms. Bruening. Thank you. In calling for baseline privacy
legislation, CDT is acknowledging that we have been involved in
this conversation, all of us, repeatedly over the last few
years. Every time there's a new emerging technology that
involves data collection, we find ourselves back in these
hearing rooms talking about how to specifically address privacy
and that specific technology.
Our belief is that if we have legislation that addresses
collection of information no matter what the technology, we
will be way ahead of the curve when it comes to the next
technology that emerges. Businesses will have a better sense of
what the responsibilities are in terms of putting privacy--
implementing policies that are privacy respectful and consumers
will have a better sense of what they can expect in terms of
their rights and responsibilities and their own information.
What we're calling for is baseline legislation that
incorporates elements of fair information practices. These
well-established principles that have formed the basis of our
U.S. Privacy Act of 1974, that have been the basis of industry
guidelines, international agreements on data flows and data
protection, these are well established, well trusted now and we
think that they should form the basis of any privacy
legislation going forward.
And I think what we would do is reduce the need to keep
having to come back and have this discussion repeatedly every
time there's a new technology that comes out.
Ms. McCarthy. Thank you very much, Ms. Bruening.
Ms. Hughes?
Ms. Hughes. Yes, thank you, Congresswoman, I appreciate the
opportunity to really set the record straight on this lipstick
test. You were referring to a test that P&G and Wal-Mart
conducted in a store in Oklahoma in the spring of 2003. The
purpose of this test was to really test the technology for
supply chain management on the shelf. If you think about
lipstick packages, they're in a little tray by color and to be
able to find them in the right place when the consumer wants
them is really important. So we were testing the accuracy of
the technology.
The tag was actually on the lid of the carton that the
lipstick goes into, so it would be thrown away as the lipstick
was removed. There was full notice at the shelf about
electronic surveillance and that tags would be used on the
shelf in the Wal-Mart store.
We also had webcams that were looking at the shelf so that
we, in Cincinnati, could actually see the accuracy of the
technology. It was focused at the shelf, at the trays of
lipstick and frankly, when a consumer got their head or their
hand in the way it really interrupted our test. So there was no
other readers in the store. It was just for that particular
test. There was no way to know if a consumer was there, who
they were or anything else about it. So for us, it was really
an opportunity to test that technology.
And the point is that the camera was in full view and with
that notice, we feel that there would be any opportunity if a
consumer had a question, they could go to the customer service
center, there's a customer service desk at Wal-Mart, but over
that 4-month period, not a single consumer raised a question.
Ms. McCarthy. Let me ask since I didn't do opening remarks,
I'm still not clear, what is the purpose of knowing what color
of lipstick that particular consumer is buying? Is this a
marketing tool now?
Ms. Hughes. It's really a supply to demand. So it's like
what are the--to make sure that the products are in the right
place when the consumer wants them and at the right price. So
if you're looking for a particular color that you were used to
having, but you couldn't find it because it wasn't in the slot
where it's supposed to be, you might go elsewhere or you would
purchase another lipstick that was from another manufacturer.
So in this case it was to test the technology to see if we
could actually see whether those lipsticks were where they were
supposed to be on the shelf the way that the consumer wanted
them. You know, if you've bought lipstick sometimes people will
look at them and they'll put them in different places, so it's
not where that color is supposed to be. It gets a little
frustrating.
Ms. McCarthy. I understand now better the intent. In the
good old days we had real human beings that checked the shelves
from time to time and made sure they would answer questions
that consumers had on the spot and make sure the products were
available.
I hope you realize that what we're trying to look at is the
fine line between good intentions and not so good intentions
that really do trample upon those things that we view as
important such as privacy.
Ms. Hughes. And I think if I may just agree with Ms.
Bruening that for us what's really important is to give that
notice to consumers when there is an EPC tag in place and part
of the EPC global usage guidelines that we've put in place do
have that as one of the mainstays following the information
practices. In addition, that there would be choice for
consumers where they can discard it and in this case with the
lipsticks it was very easy because it was on the carton.
Ms. McCarthy. Well, I think what we're about here is to
make sure that in the good old days when you sought out someone
with a question so you could get an answer and better choose
your product, that was willful. A camera which they may or may
not take the time to read the print that says it's watching you
is not the same effect on an individual. That fine line is what
we're trying to grapple with in the legislative process of how
to do the best for the people that we all want to serve.
I thank you for your explanation. Thank you.
Mr. Stearns. I thank the gentlelady.
Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman. I probably have a little
different perspective than some of the members and my questions
may be a little toward that history of my company has used
barcodes for decades. We've used RFID. And I'll just run
through something and then pose it as a single question.
Since RFID has been used by the CIA, the FBI, all of our
intelligence organizations for decades, obviously, not a small
piece, but generally a transceiver or some other product, we've
tracked fish and other wildlife using RFID. My own company and
UPS and others have used various both RF and non-RF schemes for
pallet and individual shipping information. Containers at sea
right now are being mandated by the Federal Government to be
tracked so that we can determine that they have not been opened
and where they are at all times.
Since RFID is in all the new Toyotas and Lexuses that are
out there and since package information as anti-theft product
from many companies has been around for a long time and as we
all know, having walked in and out of places, isn't always
disabled when you leave because the next time you go in
somewhere you go whoops!
And since our very own spyware legislation that's being
worked on this committee speaks to a similar situation of
identity and private information being gathered and trying to
prohibit it, are we legitimately dealing with your problem
relative to all the other collection data, all the other
storage information and now my question, if so, isn't this
really more a matter of us legislating what you do with the
information, how long you can keep it and what is appropriate,
rather than the question of whether or not you can initially
collect it?
I'd like to hear from pro and con because that's obviously
my view is that this is part of a bigger picture. There is
nothing unique about what you're doing and there's nothing new
about what you're doing. We're simply talking about it being
easier and greater in more numbers and thus data bases--we have
to ask how long can data bases be kept linked to individuals?
Ms. Hughes, I'd like to include you in this.
Ms. Hughes. Well, for us, we have as part of our privacy
policy that we keep data only as long as it's needed. So to
create the transaction, to fulfill it or whatever. This is for
consumer information that we would collect to better understand
consumers' needs and desires for products and services. For
example, if they have signed up to be a matter of one of our
newsletter subscriptions or some other type of service that we
provide on one of our brands, then we would keep it as long as
they decide that they want to be part of that. So it's a pure
opt-in and when they want out, then we take them out and we do
not keep that longer.
Mr. Issa. And you would consider that if we codified that
in the law, that would be fine?
Ms. Hughes. Yes, although as far as legislation, I think as
far as RFID it's premature for that, but if that would be the
case, yes.
Ms. Dillman. Just the only thing I would add is I'd
absolutely support what you had to say. Our greatest concern,
we absolutely support protection of private information,
personal information, but we don't believe that data collected
by RFID should be different. We believe there needs to be a
single standard for all personal information, no matter how
it's collected. And if we created an environment where every
new technology or every medium has a different requirement, it
will be a nightmare to actually support and maintain.
Mr. Issa. Anyone else want to weigh in, particularly on the
question of whether this is unique and different and requires
specific legislation or more broadly should be addressed as
harvested information, personal identity?
Mr. Steinhardt. If I can, Congressman, I think there are
two questions there. First is whether or not this is unique. I
think that as Paula Bruening said earlier, every time a new
technology come down the pike we have this conversation. I
don't think that RFID--it has some unique properties to it, but
I do think it's part of the larger mosaic of technologies that
enable the surveillance of individuals, a collection of data
about individuals, not simply about cows or shipping pallets;
and that over-arching legislation is necessary here. We can no
longer take the approach that we've taken in the United States
which is the sectoral approach where a particular issue comes
before the Congress and you do or don't legislate, so we have,
for example, very good legislation that deals with our video
rental records which was the result of the disclosure of Judge
Bork's records during his confirmation hearing. We don't have
particularly good legislation in this area and many other
areas.
I do think we need over-arching legislation. I agree with
industry that they need one set of standards that may apply
differently in different circumstances and may reach different
results in different circumstances, but I do agree with the one
set of standards, but they need to be in laws. It's too late
for us to simply say that we're going to wait until every
technology comes down the pike is mature because every day we
face a new technology and we need to set the standards now.
Mr. Issa. Mr. Chairman, I know my time has expired.
Mr. Stearns. Does anyone else wish to answer his question?
Ms. Bruening. I'd just like to comment that I think that
from the perspective of the development of technology, you end
up with a better result if you have that kind of baseline
privacy legislation that focuses on the information itself.
I've been peripherally involved in the discussions about
spyware and I think it's a really clear demonstration of how
difficult it is to do the kind of line drawing you need to do
in writing legislation whereas if we had that kind of baseline
law we could avoid a lot of this sort of tortured conversations
that go on to try and figure out what falls in and what falls
outside of the line of what's covered by the law.
I think that in the instance of RFID, we would be very
concerned about implementing legislation specific to RFID too
early because it would impact the development of the
legislation and skew the way it progressed. But if we had that
kind of privacy law in place, we could feel a lot more
confident as the new technology goes forward, that it was being
developed in a privacy respectful fashion. Thank you.
Mr. Stearns. Anyone else like to answer the question?
Mr. Laurant. Yes, I would like to point to the European
rules on privacy. The European regulator did not need to redraw
a new law to address the specific privacy issues raised by
RFID. They have a directive that they enacted in 1995 that can
take care of the problem and can answer most privacy issues
that consumers may have regarding RFID.
Mr. Stearns. The gentleman's time has expired.
Mr. Issa. Thank you, Mr. Chairman.
Mr. Stearns. Mr. Strickland.
Mr. Strickland. Thank you, Mr. Chairman. I want to thank
the committee. This has been very interesting and a thoughtful
discussion. I think the reference to the spyware legislation is
appropriate because I have been concerned that as we consider
spyware legislation we focus on legislation that limits
technology rather than limits bad or inappropriate behavior.
And it seems to me that we're facing perhaps the same kind of
choice when it comes to this discussion this morning.
I'm also sitting here wanting to give a commercial to a
bill that my colleague, Dr. Norwood, and I have introduced in
an attempt to stop the diversion of drugs, prescription drugs.
We've introduced what we are calling the Prescription Drug
Abuse Elimination Act which would mandate the use of RFID track
or trace or some other technology for Schedule I and Schedule
II controlled substances by the year 2008. And it seems to me
that this could be a very helpful and appropriate application
of this technology, because of the horrendous problem we have
in this country of Oxycontin and other controlled substances
being diverted from their intended prescribed appropriate
usage.
So I would just like to ask you, Ms. Hughes, I know that
Procter & Gamble is involved in this pilot project and I talked
with Cardinal Health earlier this morning about their concerns,
another great Ohio company, as well as Procter & Gamble and
could you just say a little more about the pilot project and
what you hope you can learn from it?
Ms. Hughes. Yes, for us, as you, we feel like it's very
important to be able to manage the inventories and prevent drug
shortages, as well as the counterfeit drug program that's going
on. So in this test along with a number of other drug
manufacturers and retailers, we're supported by the FDA, as you
know, for this test. And we feel like it's a powerful tool to
deal with expiration date management, for example, diversion,
reduction in medication errors, product security, etcetera. So
we feel like there's a real opportunity for this and that's why
we're testing the technology.
We appreciate your enthusiasm for introducing legislation.
Mr. Strickland. and I would encourage my colleagues here.
It's a very bipartisan bill. Dr. Norwood, as you know, has a
medical background. He's a dentist by training and this is a
huge problem and I think this could be a partial solution
certainly.
If I can just ask Mr. Steinhardt a question. Your testimony
was very interesting and taken to I guess what I would use the
word extreme, alarming. You talked about eventually being able
to track where every American citizen was and so on. I'll ask
something that may be not terribly germane to this
circumstance, but I've been concerned that we've had so many of
our soldiers taken hostage and I've wondered why we can't
develop some technology, maybe related to this technology or
some use of this technology that would enable us at last to
soldiers who are in combat areas or places of extreme danger
for abduction to somehow be tracked so that we can know where
they are if they are taken hostage and would you just comment
on that or anyone else that knows this technology well enough
to indicate to me or to us if such an approach would be
feasible or possible.
Mr. Steinhardt. Let me reassure you, Congressman, that I
don't think anybody on this panel, including the representative
of the ACLU, none of us is suggesting that this is technology
that should be smashed in its infancy. There are legitimate
uses of RFID. One legitimate use may be to use it with our
military so that they can, in fact, be tracked.
I saw a news article just this morning that raised some
interesting questions that the Attorney General of Mexico has
chosen to have an RFID chip implanted under this skin, along
with members of his staff, apparently, because there are
kidnappings of high government officials in Mexico. That may be
an appropriate use of the technology and there are other
technologies that might make sense.
The question that I raise by my testimony is whether we
want to put it in an identity document that is carried by
millions of Americans or potentially if it were going to
driver's licenses by the vast majority of adult Americans.
Mr. Strickland. And I appreciate your answer and then if I
can just ask the good doctor, as the academic expert here, do
you think such a technology could, in fact, be helpful in the
situation such as I described with our soldiers?
Mr. Sarma. I think that's a very good question, Congressman
Strickland. I think the challenge, however, is that the
particular tags we're talking about, the EPC tags that I
described, unfortunately have a very limited range.
Mr. Strickland. Sure.
Mr. Sarma. Only about ten feet as we demonstrated. So it
wouldn't be applicable in that scenario. However, other
technology like Lowjack, car theft device, active technology
which have tags which have batteries and can actually transmit,
could be adapted. But I think that's a different technology
than the one we're talking about here.
Mr. Strickland. I was assuming that was probably the case.
And if I can just ask one more quick question----
Mr. Stearns. The gentleman is entitled to 3. You waived
your opening statement, so you are entitled to 2 more minutes.
Mr. Strickland. I appreciate you being so gracious. There
have been references made here to a global or an international
standard on how EPC could or should be utilized and I'm just
wondering if any of you would like to offer a suggestion as to
where you think those standards should be developed and how
they would be developed and enforced?
Mr. Sarma. I'd be happy to address that, Congressman. I
think that like the internet which is a way of transmitting
data, RFID is a way of lubricating the supply chain and keeping
track of material in the supply chain. Today, an item might
spend months, 30 weeks in the supply chain, and if you're going
to keep track of things in the supply chain, for example, if
Procter & Gamble manufactures something in the U.S. and it's
being sold offshore in some country, and Procter & Gamble wants
to make sure that there is no counterfeit, there is no theft,
wants to make sure that it keeps its inventories low, but at
the same time it can meet the demand in this foreign country,
it would be ideal if all the standards were exactly the same so
that, in fact, global commerce could operate in a very similar
way to the internet or the worldwide web. And this is something
that EPC Global has spent a great deal of time internationally
through its member organizations around the world promoting and
we're very close to clinching the deal, if you will, of a
single global standard.
Now the U.S. has always been an innovator in the barcode
community and in RFID and it has played a very important role
in this and much of the initial sponsorship came from the U.S.
but some of it came from around the world, but it is a global
standard we're shooting for.
Mr. Strickland. You've been very gracious, Mr. Chairman, I
yield back.
Mr. Stearns. All right, the gentleman from Arizona, Mr.
Shadegg.
Mr. Shadegg. Thank you, Mr. Chairman, and I would like to
echo the comments of Mr. Strickland. This has been a
fascinating discussion. Actually, the entire concept of having
this type of technology in the consumer product line and
throughout our economy is fascinating and to some of us who
aren't as technologically as advanced as we might be comes as
king of a whole new shock.
I want to talk a little bit about some things that I think
are similar and some things that I think are different between
that and which the technology that's out there right now. For
years now, many of us have gone to the grocery store and been
offered the choice of taking advantage of this little discount
if we're willing to surrender a degree of privacy by saying
yes, you can keep track of what groceries John Shadegg and his
wife and his family buy. That's a choice we make.
It seems to me this is a challenge because this does not
involve my control of that circumstance. This now involves
somebody else's control of that circumstance. And even though
the technology, Dr. Sarma, suggests that this is only going to
be readable for 10 feet or so and once I'm out the door it's
not readable, one of my concerns is that if we do not educate
the public of that fact, they're going to resent this or fear
it, perhaps even irrationally fear it. And so it seems to me
that although the technology has great advances, we need to
carefully look at it so that we provide consumer assurance that
their privacy is not invaded to too great a degree.
So I guess I'm inclined to go along with Mr. Issa's
suggestion that perhaps a part of this is looking at control of
the data.
One of my concerns about your comment, Ms. Hughes, so long
as needed, I'm afraid that for those who have a distrust of
commerce, then they conclude as needed as too vague a
definition for each to make.
Let me ask both you, Ms. Hughes, and Dr. Sarma and also I
guess, Mr. Molloy, given the tremendous value of this type of
technology, what are the things that we should do to facilitate
it coming to the market and not see the technology squashed by
an over-reaction to the invasion of privacy issues?
Ms. Hughes. Well, let me just start first, Congressman. I
appreciate the question and just to clarify when I said before,
the collection that I mentioned of data and how long we keep it
is for our consumer marketing area when consumers have opted in
to give us their information and how long we keep it is based
on how long they want to stay in or if we're fulfilling a
transaction for them.
Mr. Shadegg. I only think that you have to have a clearer
definition of what ``as needed'' is because if you were allowed
to define ``as needed'' and I'm not precisely sure when that
means I'm out, I may--that may leave people more skeptical who
may say look, I'm not going to get in. I'm afraid you're not
going to reasonably define ``as needed.''
Ms. Hughes. We also have as backup for that, you know, a
period of time where we say we would keep it for 2 years, for
example. So if we haven't heard back from a consumer or we
haven't had any interaction, then we would delete that. So
we've got a period of time that's our backup then for
retention.
But in this particular area for RFID and EPC, in
particular, we wouldn't be collecting or having any information
on consumers anyway as a manufacturer or for Procter & Gamble
we have no need or no interest for that and----
Mr. Shadegg. So you would not keep the information by
consumer?
Ms. Hughes. No.
Mr. Shadegg. You'd keep gross data?
Ms. Hughes. Right. All we are interested in is the
aggregation of what products are being used, how often they're
being used, the turnover for that so that we can better improve
our supply chain and make sure that that product is where it
needs to be. So as far as consumers for RFID and EPC, we
haven't got any reason and no plans to have any consumer
information.
Mr. Shadegg. But I assume that you, or at least others on
the panel would say if we were to disallow the retention of any
personally identifiable information that would be overly
restricting the data or is that not the case?
Ms. Hughes. I'm sorry, could you rephrase?
Mr. Shadegg. In other words, if we said yes, you may
collect it, but only in the aggregate, not that John and
Shirley Shadegg bought whatever it is, this Procter & Gamble
product, but that this store sold these many units of that
product----
Ms. Hughes. Right.
Mr. Shadegg. If that were the restriction, I believe that
would be going too far in restricting the use of this type of
technology. Or would you not agree with that?
Ms. Hughes. Right, I mean as far as aggregation of data,
you know, keeping data for some purpose that we're doing that,
whether it's to do analysis or whatever, and we don't have any
consumer information there, so as far as retention of that
information it's for doing that analysis and we'll keep it
for----
Ms. Hughes. I think Safeway either keeps or uses it on my
family for marketing purposes so they can sell me other
products.
Dr. Sarma?
Mr. Sarma. Congressman, I think your comments are
absolutely spot on. I think the key thing here is education
because there are a lot of misunderstandings about what this
technology is and it isn't. And the reason is it fits into a
larger continuum of similar technologies that----
Mr. Shadegg. As Mr. Issa pointed out.
Mr. Sarma. Right.
Mr. Shadegg. When he started to say well, it's been around
forever, I thought well, that's crazy and then you think about
it for a moment he's absolutely right. It has been around for a
very long time.
Mr. Sarma. And EPC is actually a very small and actually a
very unsophisticated technology. Now for example, there are
some who might say this can spy on me. What does a spy do
listens to what I'm saying and then tells somebody else. EPC
tag, all it does is I'm a bottle of shampoo. It goes to someone
else. I'm a bottle of shampoo. It doesn't actually repeat
anything.
Another misunderstanding is it knows where I am. The tag
doesn't. The tag only knows it's a bottle of shampoo. It
doesn't know where I am. It doesn't know where I've been. Now I
think that education is very key. The second comment is the tag
by itself actually doesn't gather any personal data. That's an
independent thing.
Mr. Shadegg. Right.
Mr. Sarma. I think that that clarification and these
clarifications are very important because then people
understand, consumers understand why this is very important.
Now finally, I'll say that when information is kept about
individuals, it may be necessary for regulatory reasons, for
example, to recall a medicine or to recall a packet of meat
that's suspect and that's why I think that this sort of
legislation, the discussions come up. It's premature to talk
about it. It's really far away from figuring out how this
technology is going to impact the world. It's a much simpler
technology than people, I think, think it is.
Mr. Shadegg. Mr. Molloy, did you want to comment Mr.
Molloy. Yes, personally, technology is good and technology is
bad and I actually do see the conflict. But I physically and
personally believe that RFID is good because it allows you to
react to situations. One of the examples, the example I gave of
food, there was a report this morning that says America's beef
industry is open to bioterrorism. That's a very vague report,
but it may be true, but if we have something that can actually
react to that, that actually saves lives. My feeling is that's
good. Saving lives is good. Not eating meat that's going to
kill you is good.
I understand then that how much data do you actually want
to store. I'll give you a simple example. You want to store
enough data to actually react. That's my argument. How long do
you want to keep it for, that's entirely up to what's agreed.
Thank you.
Mr. Shadegg. I appreciate that. Mr. Chairman, I appreciate
your indulgence. I want to conclude by simply saying on spyware
one of the issues I was concerned about was the issue of stroke
recording which truly is just like eavesdropping, it's like
listening to your phone conversation because you can go into my
computer and see every stroke I make on my computer. You are,
in fact, eavesdropping on me and it's very much different than
this technology which just says this is a bottle of shampoo
that's going out the door at this moment.
Thank you, Mr. Chairman.
Mr. Stearns. We're probably going to do another quick
second round here. So my colleagues are welcome to stay. I'm
just going to do a couple of questions and then we'll be able
to go to you.
Ms. Dillman, the cost of implementing RFID, it's in the
collection of the data, I guess. These exceptionally large
amounts of data that's being collected, what happens to this
data and is not the true cost impediment, not the tags, but the
data tracking itself?
Ms. Dillman. That tends to be a common discussion, even in
the industry and among our suppliers. And what I can tell you
is how we have--what our implementation looks like and how
we've addressed that issue.
If you actually recorded every single read and tried to
store it somewhere locally, it would be a massive undertaking.
We don't need all of that data. We need an interpretation
of the data to actually add value. So we don't need to know
every point a case was read. We need to know where it ended up,
that it's out on the sales floor or it's in the back room. And
what we do is we filter the data and only pass through the
conclusions that we really need.
We've encouraged every one we deal with to take a
simplistic approach like that and that means it's a very doable
implementation. It makes it very reachable for anyone.
Mr. Stearns. Now Mr. McLaughlin, I just had a question. You
talked about counterfeiting. Will RFID technology, we know it's
useful in counterfeiting, but is it also that you can copy a
tag and thereby counterfeit a package?
Mr. McLaughlin. It would be possible to copy a tag, but
actually the network itself then would have a misread. There
would be one extra in the system that would shop up as an
aberration. It would actually be very helpful in drug diversion
if an extra item showed up where it wasn't supposed to be.
You'd see that.
Mr. Stearns. Mr. Molloy, is there any harm to the RFID in
terms of the signals or anything, I guess this is a question
for Dr. Sarma, too? I mean should consumers be concerned about
having all this----
Mr. Molloy. Radiation in the air?
Mr. Stearns. Radiation?
Mr. Molloy. I don't believe so. We've been using it for
many, many years. I'm definitely not an expert on the whole
technology.
Mr. Stearns. Dr. Sarma?
Mr. Sarma. Mr. Chairman, I'm not a metal expert, but I can
make a comment on the physics. RFID operates in three bands
designated by the government called industrial, scientific,
medical bands. The power and the frequency is regulated by the
FCC for use in industry and scientific endeavors and medical
endeavors. A lot of medical equipment actually operates on this
band.
Mr. Stearns. Mr. Galione, can you encrypt these chips? In
other words, a lot of people are concerned about the privacy
and they talked about protection of privacy, but can't all
these chips or these tags be encrypted?
Mr. Galione. As I mentioned in my testimony, the smart
cards are very much, there's some very sophisticated levels of
encryption that exists today in order to protect that
information about people. So now you're talking about, if
you're talking about some encryption at the item level or for
logistics, yeah, it can be done, but the economics probably
don't justify doing it.
Mr. Stearns. Could you kill the encryption too? Could you
send a signal to the tag and then kill the encryption too?
Mr. Galione. Theoretically, that's possible, sure.
Mr. Stearns. Mr. Molloy, does the government need to
subsidize as we move beyond cows and things--who is doing it in
Europe? Who is paying for all of this?
Mr. Molloy. In Europe, Europe and U.S. are obviously very
different states. In Europe, it's paid for by the state, it's
funded by the E.U. Having said that----
Mr. Stearns. So the E.U. pays for all this, the tags, the
collection of data and everything?
Mr. Molloy. Yes, that's a European funded project. Having
said that, in Europe, it's been very slow to adopt RFID.
There's legislation on the way that says we must have RFID and
there's pilots going on in the U.K. and various other countries
across Europe but in that way America is way ahead because you
said this is the way they do it.
Mr. Stearns. All right.
Mr. Molloy. Paid for by the government.
Mr. Stearns. Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman, and perhaps to answer
your question on the passive devices that most of these
products are going to use, they don't really put anything out.
It's going to be just like any time you walk pass an electric
motor or any number of other devices that put out radio
frequency, so that's the good news.
On the other hand, at 134 megahertz, you've got a
proliferation of power from things like the new Lexus and
Toyotas where they're trying to have a transponder type
environment. So that is a great question for our subcommittee
on that because we have a lot of bandwidth utilization. There
is a question of how much additional noise flow we are raising.
I think I would just like to make sure that I'm clear on
the benefit side of this. We've been talking completely about
the problem side of it with the exception of a few who show how
they could use them.
I look at this as obviously the example of tainted beef,
the fact that Safeway can contact me and say you have a pound
of meat that came from this State code where right now what
happens is if you happen to be watching your local cable break-
in from CNN every 15 minutes on the hour or whatever, you're
going to get an opportunity to hear that there's a bad batch of
meat and it's number such and such and if you write it down and
go look, you might find out that you're about to have e. coli
or something.
So I view that as a great asset. And it's an asset that's
only possible if we do collect and retain for a period of time
very specific information that includes that Mrs. Shadegg
bought that pound of beef and took it home or that can of tuna
and that's a tradeoff that I think the committee is going to
have to weigh.
As someone who is a consumer electronics manufacturer with
Philips on the board of the consumer electronics industry with
me over the years and so on, I would love nothing better as a
manufacturer than to know that Circuit City 4 days ago sold to
Mrs. Carstayrs an installed Viper car alarm and thus that now
becomes the registered user of that product and I don't have to
wait for a warranty card. There is a concern about what I do
with it. On the other hand, I view that as a plus.
Last, but not least, we mentioned software. The whole idea
that every single CD and DVD in the very foreseeable future
could, in fact, have a unique embedded serial number and thus
the registration would be automatic and there would only be at
any given time on the net one copy or whatever the Congress
decides is fair use, another issue that this committee is
dealing with.
So I for one am delighted to hear that across the panel
there are concerns, but there's also a recognition that these
and thousands of other uses make this a technology that we'd
like to see happen. We'd like to see that two cent item inside
a pair of socks, if we can get passed the other concerns.
And Mr. Chairman, it wasn't a question there, but I thank
you for giving me a second round.
Mr. Stearns. I thank my colleague for staying over and it's
nice to have someone who actually has real world experience on
the subcommittee and participating.
We're ready to close. Is there anything that all of you
would like, anyone would like to add, anything that members
have said? If not, we appreciate the patience in all the
witnesses and I think we've had a very good hearing.
We are adjourned.
[Whereupon, at 1:27 p.m., the hearing was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of the Grocery Manufacturers of America
The Grocery Manufacturers of America (GMA) appreciates the
opportunity to provide the food, beverage and consumer product
manufacturers' perspective on the use of Radio Frequency Identification
(RFID) technology. GMA and its member companies believe this technology
offers benefits for consumers and acknowledge and share concerns
regarding consumers' privacy as it relates to the use of this emerging
technology. We are committed to working with the technology providers,
consumers, the Administration and the Congress as RFID technology is
implemented and more widely adopted.
GMA is the world's largest association of food, beverage, and
consumer product companies. With U.S. sales of more than $500 billion,
GMA members employ more than 2.5 million workers in all 50 states. The
organization applies legal, scientific, and political expertise from
its member companies to vital food, nutrition, and public policy issues
affecting the industry. Led by a Board of 42 Chief Executive Officers,
GMA speaks for food, beverage and consumer product manufacturers at the
state, federal and international levels on legislative and regulatory
issues.
The Technology
For more than four years, the Auto-ID Center at Massachusetts
Institute of Technology (MIT) has been developing supply chain
applications for RFID technology that promise to deliver significant
benefits to the economy and consumers. RFID has been around since WWII
and is already used in many applications from the Speed Pass at the gas
station to EZ pass at toll booths. RFID is the name given to the
technology that involves tags that emit radio signals and devices
called readers that pick up the signal. The electronic product code or
EPC establishes a standards-based approach to using RFID technology to
uniquely identify an entity or object that has an EPC tag attached to
it. The EPC is essentially a radio enabled bar code, which can be read
wirelessly. Other pieces of the EPC network enable the information from
the tag to be analyzed and shared between supply chain partners.
The Auto-ID Center's work on the development of the EPC stands out
as one example of how public, private, and academic interests can unite
to support research and development, and help move technology forward
to benefit society. The Auto-ID Center (now known as the Auto-ID Labs)
is supported by many of the world's leading companies and organizations
including many in the food, beverage and consumer products industry.
EPCglobal, a joint venture between EAN International and the Uniform
Code Council, was chartered last September to develop open, global
standards for use of the EPC Network and currently has a subscriber
base of more than 200 companies representing a cross section of major
industries around the world. EPCglobal is responsible for the orderly
adoption and implementation of the EPC system worldwide.
Similar to the license plate on a car, an Electronic Product Code
(EPC) is a way to uniquely identify a pallet, case or individual
product. It is the next generation of today's Universal Product Code
(UPC), known commonly as the ``bar code.'' Instead of the familiar
printed strip, a tiny silicon chip holds a unique number that
identifies a product. The tag, like today's barcode, cannot be read and
understood without passing by a reader that is connected to a data
infrastructure. The major improvement of EPC over the barcode is that
it does not need ``line of sight'' to be read, but instead uses radio
waves which makes the reading of transactions much faster.
Connected to a network, EPC technology will allow companies for the
first time to manage their global supply chain in real time, at any
time--offering never before available benefits. Some of those benefits
include:
Streamlining inventory control on a global scale;
Deterring theft and counterfeiting;
Keeping shelves stocked with products desired by consumers;
Speeding the placement of new products; and
Easing removal of expired products.
Though much of the research is focused on business and supply chain
applications of the technology, the EPC ultimately promises consumer
benefits as well. Consumers may see improved checkout procedures and
customer service. Other benefits could include:
Better availability of products; and
Swifter and more effective food and product safety recalls.
It is also important to note that EPC technology can offer
solutions to government, such as:
Improved customs handling and border controls;
Enhanced Department of Defense (DoD) logistics management; and
Better security for moving luggage through airport terminals.
Within the food, beverage, and consumer products industry, RFID is
a part of a broad range of e-commerce activities designed to make the
supply chain more effective and efficient. From a manufacturer's
perspective, some of the benefits of EPC/RFID include the elimination
of manual counting and recounting of products in distribution.
Warehouses, trucks, backrooms, and shelves will contain readers that
will automatically and continually track products and maintain
perpetual and accurate inventory data. Out-of-stocks--a problem which
plagues the consumer packaged goods industry--could be virtually
eliminated through preset triggers which would automatically call for
replenishment. This would also allow for theft to be measured and
controlled in real time, and will increase the ability to identify
counterfeit products. Additionally, product recalls will be conducted
in a much more efficient and effective manner through continuous
monitoring of products throughout the supply chain.
Status of EPC/RFID Implementation
Currently, manufacturers are conducting pilot studies on the use of
EPC/RFID in select warehouses, backrooms, trucks and manufacturing
plants. While it is clear that broad implementation of EPC/RFID on
individual items tracked to the store level is still years away, many
retailers are eager to adopt case and pallet level tagging to enhance
supply chain efficiencies. In addition, several manufacturers have been
leading initiatives to use EPC/RFID to reduce theft in the supply
chain, especially for high value goods, and look forward to realizing
benefits from the day-to-day use of the technology.
As with any new technology, many hurdles stand between current
capabilities and ultimate implementation. These include:
Difficulty in reading radio frequencies through metals and liquids.
Upgrading chip quality and consistency to improve read rates.
Avoiding interference with other radio frequency technologies, such
as those used in warehouses, manufacturing plants, stores, etc.
Developing software to help sort vast amounts of data into meaningful
information.
Improving the ability to read all cases on a pallet.
Making RFID affordable for many consumer product manufacturers.
These issues must first be addressed in a reliable and cost-
efficient manner before we are likely to see widespread adoption of
EPC/RFID.
Public Policy Issues
While EPC/RFID can produce major benefits, the technology also
raises public policy issues that must be addressed in a proactive and
responsible way. Chief among those issues are concerns about consumer
privacy, which some legislators and advocacy groups are already trying
to address by proposing legislation that specifically regulates RFID.
GMA believes RFID-specific legislation is unnecessary because the
existing legal framework, industry self-regulation, and market forces
provide consumers ample protection against potential abuses of the
technology. In addition, premature legislation could also inadvertently
stifle many of the beneficial uses of this technology (food security,
bioterrorism) as well as technological solutions to public policy
concerns.
Under Section 5 of the Federal Trade Commission Act, the FTC has
authority to regulate unfair or deceptive practices in and affecting
commerce. In recent years, the Commission has used this authority to
develop a substantial body of law regulating the manner in which
businesses collect and use consumers' personal information,
particularly online. In addition, the Commission enforces specific
privacy laws such as the Children's Online Privacy Protection Act, the
Fair Credit Reporting Act, and the Gramm-Leach-Bliley Act. This body of
law is readily applicable to consumer privacy concerns about
potentially unfair or deceptive uses of RFID technology.
The protections of Section 5 of the FTC Act and other statutes
enforced by the Commission are not technology-specific. Section 5 was
not amended with the advent of radio or television, nor during the
emergence of concerns about online consumer privacy. While there have
been some laws enacted to deal with certain aspects of emerging
technologies, FTC consumer protection enforcement, including
enforcement of general consumer privacy protections, stems primarily
from existing prohibitions against deception and unfairness.
Specifically, the FTC has brought several consumer privacy cases on the
theory that a company's failure to abide by its stated privacy policies
constitutes a deceptive practice under the Act.
In conjunction with its enforcement activities, the FTC has long
encouraged companies to make privacy policies available to consumers.
Many of the retailers and manufacturers, who are at the forefront of
implementing EPC/RFID, already publish and abide by privacy policies
that provide consumers protection against misuse of their personal
information. Retailers and manufacturers know that consumers, as well
as the FTC, hold them to the promises made in their privacy policies.
They recognize that it will be necessary to update these policies to
notify consumers when EPC/RFID technology is in use, how they collect
and use information from EPC tags, and any choices consumers have.
Given that consumer trust is paramount in the branded consumer products
business, it is very much in the manufacturers' interest to ensure that
consumers are comfortable with this new technology and fully understand
the privacy policies by which they abide.
State law enforcers and the plaintiffs' bar have also been active
in the consumer privacy arena. Their cases, while arising from consumer
protection principles similar to those found in Section 5, have often
focused on violations of unstated policies, for example, the failure to
disclose that consumer personal information has been shared with
another company.
These precedents demonstrate that basic consumer protection
principles such as deception and failure to disclose were able to
evolve to protect privacy in the online context. With the framework
already in place, these principles are readily applicable in the
context of RFID. There is no reason to believe, even in the absence of
a law that specifically mentions ``radio frequency identification,''
that the Commission, state law enforcers, and the plaintiffs' bar will
stand by in the face of abuses of RFID technology. Like the internet,
RFID is simply another method by which consumers and businesses can
share information. Any privacy concerns it raises are virtually
identical to those raised by information collection on the internet,
and the same solution should apply; market forces and government
encourage businesses to provide privacy policies, and the promises
contained in those policies are enforced.
Self-regulation has an important role in encouraging responsible
use of EPC/RFID. In January 2004, the GMA Board of Directors formally
adopted privacy guidelines established by EPCglobal. They are available
at www.epcglobalinc.org. The guidelines will continue to evolve as
technological applications and consumer opinions develop, but they
already address important aspects of a sound privacy policy--consumer
notice, choice, and education, as well as records use, retention and
security. Specifically, the guidelines focus on the need for consumer
notification and choice when RFID tags are present in or on products
available for purchase. In addition, they affirm companies' commitment
to use, maintain, and protect records generated though EPC/RFID in
compliance with all applicable laws, including privacy laws.
Of course, even in the absence of legal and self-regulatory
incentives, retailers and manufacturers have ample incentives to deal
fairly with their customers. Retailers and manufacturers of brands rely
on repeat business. Repeat business depends on consumer confidence in
the seller. Thus, when a shopper goes into a supermarket for a favorite
brand of food, the whole supply chain recognizes that the shopper's
trust in the businesses that brought that brand to the market is
critical to his or her decision to return again and again. In addition,
manufacturers have invested hundreds of millions of dollars to create
consumer confidence, trust and loyalty to their brands. It is,
therefore, in the industry's interest to act responsibly when
implementing this new technology in order to maintain that trust.
Some believe that we need new laws to address RFID. Enacting laws
and promulgating regulations now would likely do more harm than good.
New laws specifically regulating RFID could stifle development of the
technology before its benefits are fully recognized. Since the
currently-known benefits of the technology arise in interstate
commerce, a patchwork of state regulations of RFID would be
particularly problematic. The appropriate approach is to monitor the
situation and assess whether there are privacy concerns that
legitimately arise as this technology develops and then ask whether
they are concerns that cannot be addressed through industry self-
regulation and the application of the unfairness and deception
principles of the FTC Act.
Thank you for the opportunity to provide our perspective on this
emerging technology. As the industry adopts EPC/RFID, we are committed
to doing so in a way that protects consumer privacy and offers consumer
benefits. We look forward to working with the Committee on this and
other important issues in the future.
______
Prepared Statement of the Retail Industry Leaders Association
The Retail Industry Leaders Association (RILA) appreciates the
opportunity to provide the committee with an overview on the state of
adoption of Radio Frequency Identification (RFID) in the retail sector.
By way of background, The Retail Industry Leaders Association
(RILA) is an alliance of the world's most successful and innovative
retailer and supplier companies--the leaders of the retail industry.
RILA members represent more than $1 trillion in sales annually and
operate more than 100,000 stores, manufacturing facilities and
distribution centers nationwide. Its member retailers and suppliers
have facilities in all 50 states, as well as internationally, and
employ millions of workers domestically and worldwide. Through RILA,
leaders in the critical disciplines of the retail industry work
together to improve their businesses and the industry as a whole. The
mission of RILA is to lead and serve the most successful and innovative
retailers and suppliers through the delivery of world-class education,
innovation and advocacy.
The promise of RFID is nothing less than revolutionary for the
retail and supplier community. While RF technology has been used for
decades, the retail and supplier communities are beginning to implement
RFID as a new tool in supply chain management and distribution. Global
supply chain total annual spending is a staggering $3 trillion. Total
estimated annual loss due to poor supply chain visibility is estimated
between six and 10 percent--an annual loss of $180--$300 billion.
RFID offers significant benefits to the retailer and supplier
community as well as their customers. Providing retailers with
continuous access to the location of merchandise in the supply chain,
RFID will allow them distribute merchandise more efficiently, reduce
costs associated with holding large inventories, or ``safety stock,''
increase sales through reduced out of stocks, and allow for more
accurate forecasts and stock replenishments. The application of RFID in
the supply chain could reduce transportation costs and shipping volumes
and increase stock visibility and availability at the point of
shipment. In addition, RFID can help curb theft and ``shrink'' in the
supply chain.
The supply chain applications for RFID also hold important customer
benefits including better in-store stock--the products customers want
on the shelf when they want them. More efficient inventory management
will lead to improved product selection, product freshness for dated
goods, and easier identification on recalls. In short, RFID will help
retailers get product to their stores in a more effective manner
ensuring that consumers have access to a wide range of merchandise when
and where they want it.
RFID deployment by the retail industry is still very much in its
infancy. As a whole, the industry is in a discovery and exploratory
mode focusing on supply chain applications. A number of retailers and
suppliers are engaged in RFID test pilot initiatives, and are focused
predominately on RFID tagging at the case and pallet level to increase
supply chain efficiencies. Implementation of RFID at any level is an
extremely high-cost proposition. While much of the RFID discussion has
focused on the item-level tagging of consumer products, most industry
experts and market analysts agree that wide spread item-level RFID
tagging is a decade or more in the future. In fact, the proposition is
so costly that a leading technology firm does not foresee widespread
tagging of individual items costing less than $10 until 2017 at the
earliest.
While widespread item-level tagging is years in the future, much of
the focus on RFID implementation at the retail has been related to
tagging individual consumer product. RILA members view RFID technology
is the next generation of the bar code and like the bar code RFID tags
contain product information, not customer information. It is new
product management devices that can more efficiently track inventory
and product throughout the retail supply chain.
RILA is working actively to maintain a public policy environment
that will foster innovation and adoption of RFID technology and ensure
that retail and supplier applications are allowed to mature. While some
have suggested that new laws, RILA members believe legislation in this
area would be premature and would unnecessarily stifle innovation and
deployment. Retailers are focused on enhancing the customer's in-store
experience. They spend millions of dollars each year to make their
stores more inviting to the consumer and to enhancing customer loyalty.
Retailers recognize that customers vote with their feet everyday and
are committed to implementing RFID technology in a way that respects
our customers, provides added value and enhances the shopping
experience.