[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


          FCC OVERREACH: EXAMINING THE PROPOSED PRIVACY RULES

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

                                HEARING

                               BEFORE THE

             SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 14, 2016

                               __________

                           Serial No. 114-154
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                           



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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
  Chairman Emeritus                    Ranking Member
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
JOSEPH R. PITTS, Pennsylvania        ELIOT L. ENGEL, New York
GREG WALDEN, Oregon                  GENE GREEN, Texas
TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
  Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
CATHY McMORRIS RODGERS, Washington   KATHY CASTOR, Florida
GREGG HARPER, Mississippi            JOHN P. SARBANES, Maryland
LEONARD LANCE, New Jersey            JERRY McNERNEY, California
BRETT GUTHRIE, Kentucky              PETER WELCH, Vermont
PETE OLSON, Texas                    BEN RAY LUJAN, New Mexico
DAVID B. McKINLEY, West Virginia     PAUL TONKO, New York
MIKE POMPEO, Kansas                  JOHN A. YARMUTH, Kentucky
ADAM KINZINGER, Illinois             YVETTE D. CLARKE, New York
H. MORGAN GRIFFITH, Virginia         DAVID LOEBSACK, Iowa
GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
BILL JOHNSON, Ohio                   JOSEPH P. KENNEDY, III, 
BILLY LONG, Missouri                 Massachusetts
RENEE L. ELLMERS, North Carolina     TONY CARDENAS, California
LARRY BUCSHON, Indiana
BILL FLORES, Texas
SUSAN W. BROOKS, Indiana
MARKWAYNE MULLIN, Oklahoma
RICHARD HUDSON, North Carolina
CHRIS COLLINS, New York
KEVIN CRAMER, North Dakota

             Subcommittee on Communications and Technology

                          GREG WALDEN, Oregon
                          
                                 Chairman
ROBERT E. LATTA, Ohio                ANNA G. ESHOO, California
  Vice Chairman                        Ranking Member
JOHN SHIMKUS, Illinois               MICHAEL F. DOYLE, Pennsylvania
MARSHA BLACKBURN, Tennessee          PETER WELCH, Vermont
STEVE SCALISE, Louisiana             JOHN A. YARMUTH, Kentucky
LEONARD LANCE, New Jersey            YVETTE D. CLARKE, New York
BRETT GUTHRIE, Kentucky              DAVID LOEBSACK, Iowa
PETE OLSON, Texas                    BOBBY L. RUSH, Illinois
MIKE POMPEO, Kansas                  DIANA DeGETTE, Colorado
ADAM KINZINGER, Illinois             G.K. BUTTERFIELD, North Carolina
GUS M. BILIRAKIS, Florida            DORIS O. MATSUI, California
BILL JOHNSON, Missouri               JERRY McNERNEY, California
BILLY LONG, Missouri                 BEN RAY LUJAN, New Mexico
RENEE L. ELLMERS, North Carolina     FRANK PALLONE, Jr., New Jersey (ex 
CHRIS COLLINS, New York                  officio)
KEVIN CRAMER, North Dakota
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)

                                  (ii)
                                  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     1
    Prepared statement...........................................     3
Hon. Anna G. Eshoo, a Representative in Congress from the State 
  of California, opening statement...............................     5
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, opening statement..........................     6
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     7
    Prepared statement...........................................     8
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................    69

                               Witnesses

Jon Leibowitz, Co-Chair, 21st Century Privacy Coalition..........    10
    Prepared statement...........................................    12
    Answers to submitted questions...............................    86
Paul Ohm, Professor, Georgetown University Law Center, and 
  Faculty Director, Georgetown Center on Privacy and Technology..    22
    Prepared statement...........................................    25
    Answers to submitted questions...............................    91
Doug Brake, Telecommunications Policy Analyst, Information 
  Technology and Innovation Foundation...........................    34
    Prepared statement...........................................    36
    Answers to submitted questions...............................    96

                           Submitted Material

Letter of June 1, 2016, from Mr. Upton, et al., to the Honorable 
  Tom Wheeler, Chairman, Federal Communications Commission, 
  submitted by Mr. Walden........................................    71
Letter of June 13, 2016, from Matthew M. Polka, President & CEO, 
  American Cable Association, et al., to Mr. Walden and Ms. 
  Eshoo, submitted by Mr. Walden.................................    75
Letter of June 13, 2016, from the American Advertising 
  Federation, et al., to Mr. Walden and Ms. Eshoo, submitted by 
  Mr. Walden.....................................................    78
Letter of June 14, 2016, from Steven K. Berry, President & CEO, 
  Competitive Carriers Association, to Mr. Walden and Ms. Eshoo, 
  submitted by Mr. Walden........................................    81
Letter of May 25, 2016, from Mr. Rush, Mr. Olson, et al., to the 
  Honorable Tom Wheeler, Chairman, Federal Communications 
  Commission, et al., submitted by Mr. Walden....................    84

 
          FCC OVERREACH: EXAMINING THE PROPOSED PRIVACY RULES

                              ----------                              


                         TUESDAY, JUNE 14, 2016

                  House of Representatives,
     Subcommittee on Communications and Technology,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:18 a.m., in 
room 2123 Rayburn House Office Building, Hon. Greg Walden 
(chairman of the subcommittee) presiding.
    Members praesent: Representatives Walden, Latta, Shimkus, 
Blackburn, Lance, Guthrie, Olson, Pompeo, Kinzinger, Bilirakis, 
Johnson, Long, Collins, Cramer, Eshoo, Welch, Yarmuth, Clarke, 
Loebsack, Rush, Matsui, McNerney, and Pallone (ex officio).
    Also present: Representative Schakowsky.
    Staff present: Rebecca Card, Assistant Press Secretary; 
Melissa Froelich, Counsel, Commerce, Manufacturing, and Trade; 
Kelsey Guyselman, Counsel, Communications and Technology; Grace 
Koh, Counsel, Communications and Technology; Paul Nagle, Chief 
Counsel, Commerce, Manufacturing, and Trade; David Redl, Chief 
Counsel, Communications and Technology; Charlotte Savercool, 
Professional Staff Member, Communications and Technology; Dan 
Schneider, Press Secretary; Dylan Vorbach, Deputy Press 
Secretary; Greg Watson, Legislative Clerk; Michelle Ash, 
Democratic Chief Counsel, Commerce, Manufacturing, and Trade; 
Jeff Carroll, Democratic Staff Director; David Goldman, 
Democratic Chief Counsel, Communications and Technology; 
Tiffany Guarascio, Democratic Deputy Staff Director and Chief 
Health Advisor; Jerry Leverich, Democratic Counsel; Lori 
Maarbjerg, Democratic FCC Detailee; Matt Schumacher, Democratic 
Press Assistant; Ryan Skukowski, Democratic Senior Policy 
Analyst; and Andrew Souvall, Democratic Director of 
Communications, Outreach, and Member Services.

  OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Walden. Good morning, everyone. I would like to thank 
our witnesses for joining us today to offer their expert 
counsel as we convene the Subcommittee on Communications and 
Technology hearing on FCC Overreach: Examining the Proposed 
Privacy Rules.
    Today's hearing is a direct result of the FCC's 
premeditated efforts to supersede the Federal Trade 
Commission's successful, enforcement-based approach to consumer 
privacy with its own predetermined vision of what consumers 
want and how the Internet should function. The hearing title 
aptly sums up this approach up as an ``overreach,'' but fails 
to convey the scope of the damage the Commission's actions 
could have on consumers. The Commission shortsightedly looks at 
one just piece of the Internet and despite evidence to the 
contrary assumes that regulating it will improve privacy. The 
Commission shortsightedly overlooks the history of this 
industry and the value of innovation in ISP service offerings. 
And, the Commission overlooks the value of competition, both 
among ISPs and between ISPs and other online industries.
    In short, the FCC seems unable to see ISPs as ISPs. It 
still sees them as siloed cable, wireline, and wireless 
companies and regulates them as though the Internet has not 
changed everything.
    The Internet has long been known for being disruptive. And 
that is a good thing. Rare is an industry that the Internet has 
not changed and for the better. This has long been enabled by 
the Federal Trade Commission's approach to consumer privacy on 
the Internet. Grounded in informed consent and backed by 
enforcement of broken promises, the FTC's approach to privacy, 
I believe, has allowed companies to innovate and experiment, 
sometimes successfully, and sometimes to their own detriment, 
with business models and services without the Federal 
Government deciding before the fact what consumers want.
    Despite the Internet's track record as arguably the 
greatest economic value and job creation engine the world has 
ever known, the FCC wants to tinker where there isn't a 
demonstrated problem. Perhaps more insidiously, the FCC has 
gone so far as to manufacture a problem so that it could 
``solve'' it, remaking ISPs in their desired image.
    ISPs are not unique among Internet companies when it comes 
to access to customer data. This isn't conjecture, it is the 
conclusion of the report written by privacy expert Peter Swire, 
who served in both the Obama and Clinton administrations. The 
regulations would give consumers a false sense of security 
about their privacy by only applying to just one part of the 
Internet that has access to their data. Consumers expect and 
should have a uniform experience on the Internet. The FCC's 
approach would protect your data only as far as your ISP is 
involved. This could be particularly confusing for consumers 
when their ISP is also a provider of ``edge services'' on the 
Internet. Consumers shouldn't have to be experts on IP 
interconnection or routing to understand what level of privacy 
their data will enjoy.
    The impacts of these rigid regulations have the potential 
to disrupt an ecosystem that has flourished for years, and 
unfortunately, it is consumers who will pay the price. The FCC 
has proposed a set of regulations that would not only single 
out ISPs based on, I believe, faulty assumptions, it would 
affirmatively prevent ISPs from competing. A robust record of 
comments warns of higher costs, stifled innovation, and fewer 
service offerings. None of these are risks we should be willing 
to take or consequences we are willing to put on American 
consumers. We should be encouraging competition, not slowing it 
down with burdensome and inconsistent regulations.
    I and other leaders on the committee called for the FCC to 
reconsider its current approach. As commenters in the record 
suggest, the FCC should engage in thoughtful discussions with 
industry to develop flexible and consistent rules, mirroring 
the FTC framework that has proven successful in today's digital 
marketplace. This needs to occur before any more taxpayer 
dollars are wasted on developing and defending complex 
regulations that will harm consumer welfare.
    I am grateful for the expertise we have on today's panel. 
We will hear from experts in the privacy field, including the 
former Chairman of the Federal Trade Commission. It is my hope 
that we can generate a productive dialogue that incorporates 
what has been successful in the past, the lessons we can learn 
from the flawed proposed rules, my opinion, and most 
importantly, what best serves American consumers. The Internet 
has helped to shape our economy in ways we could have never 
imagined, so we must work together to preserve the competition 
and innovation the Internet embodies. Thanks to our witnesses 
for being here, and I look forward to hearing your testimony.
    [The prepared statement of Mr. Walden follows:]

                 Prepared statement of Hon. Greg Walden

    Good morning. I'd like to thank our witnesses for joining 
us today to offer their expert counsel.
    Today's hearing is a direct result of the FCC's 
premeditated efforts to supersede the Federal Trade 
Commission's successful, enforcement-based approach to consumer 
privacy with its own predetermined vision of what consumers 
want and how the Internet should function. The hearing title 
aptly sums up this approach up as an ``overreach,'' but fails 
to convey the scope of the damage the Commission's actions 
could have on the Internet and on consumers. The Commission 
shortsightedly looks at one piece of the Internet and despite 
evidence to the contrary assumes that regulating it will 
improve privacy; the Commission shortsightedly overlooks the 
history of this industry and the value of innovation in ISP 
service offerings; and, the Commission shortsightedly overlooks 
the value of competition, both among ISPs and between ISPs and 
other online industries.
    In short: The FCC seems unable to see ISPs as ISPs. It 
still sees them as siloed cable, wireline, and wireless 
companies and regulates them as though the Internet hasn't 
changed everything.
    The Internet has long been known for being disruptive. Rare 
is an industry that the Internet hasn't changed. This has long 
been enabled by the Federal Trade Commission's approach to 
consumer privacy on the Internet. Grounded in informed consent 
and backed by enforcement of broken promises, the FTC's 
approach to privacy has allowed companies to innovate and 
experiment--sometimes successfully and sometimes to their 
detriment--with business models and services without the 
Federal Government deciding before-the-fact what consumers 
want.
    Despite the Internet's track record as arguably the 
greatest economic value and job creation engine the world has 
ever known, the FCC wants to tinker where there isn't a 
demonstrated problem. Perhaps more insidiously, the FCC has 
gone so far as to manufacture a problem so that it could 
``solve'' it, remaking ISPs in their desired image.
    ISPs are not unique among Internet companies when it comes 
to access to customer data. This isn't conjecture, it's the 
conclusion of the report written by privacy expert, Peter 
Swire, who served in both the Obama and Clinton 
administrations. The regulations would give consumers a false 
sense of security about their privacy by only applying to just 
one part of the Internet that has access to their data. 
Consumers expect and should have a uniform experience on the 
Internet. The FCC's approach would protect your data only as 
far as your ISP is involved. This could be particularly 
confusing for consumers when their ISP is also a provider of 
``edge services'' on the Internet. Consumers shouldn't have to 
be experts on IP interconnection or routing to understand what 
level of privacy their data will enjoy.
    The impacts of these rigid regulations have the potential 
to disrupt an ecosystem that has flourished for years, and 
unfortunately, it's consumers who will pay the price. The FCC 
has proposed a set of regulations that would not only single 
out ISPs based on faulty assumptions, it would affirmatively 
prevent ISPs from competing. A robust record of comments warns 
of higher costs, stifled innovation, and fewer service 
offerings. None of these are risks we should be willing to take 
or consequences we are willing to put on American consumers. We 
should be encouraging competition, not slowing it down with 
burdensome and inconsistent regulations.
    I and other leaders on this committee called for the FCC to 
reconsider its current approach. As commenters in the record 
suggest, the FCC should engage in thoughtful discussions with 
industry to develop flexible and consistent rules, mirroring 
the FTC framework that has proven successful in today's digital 
marketplace. This needs to occur before any more taxpayer 
dollars are wasted on developing and defending complex 
regulations that will harm consumer welfare.
    I am grateful for the expertise we have on today's panel. 
We will hear from experts in the privacy field, including the 
former Chairman of the Federal Trade Commission. It is my hope 
that we can generate a productive dialogue that incorporates 
what has been successful in the past, the lessons we can learn 
from the flawed proposed rules, and most importantly, what best 
serves American consumers. The Internet has helped to shape our 
economy in ways we could have never imagined, we must work 
together to preserve the competition and innovation the 
Internet embodies. Thank you to our witnesses for being here 
and I look forward to hearing your testimony.

    Mr. Walden. I yield the balance of my time to the ranking--
or the vice chair of the committee, Mr. Latta.
    Mr. Latta. I thought it was a promotion, maybe. Not now. 
But thank you very much, Mr. Chairman. Thanks to our witnesses 
for being with us today. I really appreciate you holding 
today's hearing. And once again, we have seen damaging 
implications arising from the FCC's decision to reclassify 
broadband Internet access service providers as common carriers.
    The Open Internet Order removed ISPs from the jurisdiction 
from the Federal Trade Commission and divided oversight from 
the privacy practices of the Internet ecosystem between the FTC 
and the FCC. As a result, the FCC proposed customer privacy 
regulations exclusively to the ISPs. It is evident that 
consumer private information should be protected. However, the 
FCC's approach is not the answer. The FCC's proposal would 
fragment the current and successful privacy framework 
established by the FTC, unfairly target ISPs, and confuse 
consumers with unnecessary notifications and disruptions.
    I believe today's hearing will bring attention to this 
matter and encourage the FCC to offer a privacy framework more 
consistent with the FTC approach. It is vital that consumers 
are granted strong protections and companies are treated 
equally in order to foster competition and innovation.
    And with that, Mr. Chairman, I yield back.
    Mr. Walden. I thank the gentleman, and I would ask 
unanimous consent to put some letters into the record, some 
documents: the Upton-Walden-Burgess letter to the FCC regarding 
privacy, the telecom industry letters to myself and to the 
ranking member; we have a letter from the advertising and 
retail associations to both myself and the ranking member; 
CCA's letter to myself and Ms. Eshoo; and I believe Mr. Olson 
plans to submit his bipartisan letter to the FCC. Without 
objection, we will put those in the record.
    [The information appears at the conclusion of the hearing.]
    And with that, I now turn to my friend from California, the 
ranking member of the subcommittee, Ms. Eshoo, for her opening 
comments. Good morning.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Thank you, Mr. Chairman. Good morning to you and 
to all of the Members and to the witnesses. Thank you for 
holding this hearing. It is an important one.
    One of the most important responsibilities the subcommittee 
has is to protect consumers and it is why we always examine the 
issues, or we should, through this lens because it is a core 
responsibility of the subcommittee.
    Today, we are examining the issue of privacy and a proposal 
by the FCC to give consumers more control over how the data 
collected on their online activities is used. Now this is an 
issue that matters enormously to the American people. A Pew 
research study from 2013 found that 68 percent of Internet 
users believing existing laws are not good enough or not strong 
enough in protecting online privacy. The same study found that 
69 percent of users think it is somewhat or very important to 
have control over who knows what Web sites they browse. Seventy 
percent think it is somewhat or very important to have control 
over who knows their location when they use the Internet.
    The FCC's proposal focuses on ISPs, the Internet service 
providers, and the data they are able to collect on their 
subscribers. ISPs know what Web sites their subscribers visit 
and where a user is located when they connect to the Internet. 
ISPs have access to this even when user data is encrypted. This 
information is personal to many consumers as the numbers as I 
just stated that were collected by Pew.
    The FCC is proposing to give them control over how it is 
used. The proposal emphasizes three main points: choice, 
transparency, and security. These are fundamental privacy 
principles. Consumers should have control over how their 
personal data is used when it is shared with others and 
knowledge about what data is being collected about them. They 
should also be confident that their data is being protected.
    Critics of the FCC's approach argue that it is unfair to 
apply rules only to ISPs. They argue that edge providers should 
also be subject to the same rules. Consumer privacy should be 
protected, I believe, across the Internet. But the FCC lacks 
the authority to regulate edge providers. Critics also say that 
consumers will be confused by rules that only apply to ISPs.
    Consider the Pew research that asks consumers how confident 
they were that they understood what is being done with their 
data. Only 50 percent answered that they were. Consumer 
confusion is essentially the status quo. The FCC is trying to 
change that, using the authority that it has and not going 
beyond that. There would be huge objections here if that were 
the case.
    Some will point to the Federal Trade Commission and argue 
that it is the position to protect consumer privacy. They have 
a different responsibility. In my view, theirs was really 
essentially after the fact, after something takes place. The 
reality is that the FTC really lacks to authority to take 
action against ISPs and while the FTC might agree that this 
isn't an ideal outcome, it does not argue that the FCC 
shouldn't act. Instead, it offers constructive comments and has 
repeatedly called on Congress to take steps to protect consumer 
privacy.
    The irony is that Republicans on the committee are actively 
trying to gut the FTC's authority under the guise of so-called 
process reform. I think we have seen the same thing in the 
subcommittee with the FCC. Instead, we really should be working 
on meaningful, bipartisan reforms that will enhance the ability 
of these agencies to protect consumers. Instead, I think some 
sand is being thrown in the gears of both the FCC and the FTC.
    On this side of the aisle, we are ready to work on 
legislation that would give both agencies the tools they need 
to protect the public. So I really look forward to today's 
discussion not only from both sides of the aisle, but obviously 
from the experts we have at the table.
    And Mr. Chairman, I don't know whether you have heard this 
or not, but the Court has come out with a decision today on net 
neutrality but because it is a very long, I am going to reserve 
my comments for later. But the Court has spoken, so with that, 
I will yield back the time I don't have.
    Mr. Walden. The gentlelady yields back the negative time, 
18 seconds.
    We will now go to the gentlelady from Tennessee, Ms. 
Blackburn, the vice chair of the full committee for opening 
comments.

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF TENNESSEE

    Ms. Blackburn. Thank you, Mr. Chairman. I want to thank you 
all for being here with us to continue to look at this issue on 
privacy and the proposed privacy rules. I think it is no secret 
that having the FCC look at privacy rules is something that has 
caused some problems and heartburn and concern for those of us 
on this side of the dais. We know the FTC has traditionally 
held this authority, and we respect the work that they have 
done there.
    I think it does warn of exactly what we have talked about 
through the entire net neutrality debate which is Government 
overreach and getting outside of their set wheelhouse, if you 
will, and their authority that they are given. They are so into 
mission creep. So as we look at what has come forth, yes, it 
does cause us some concern.
    Ms. Eshoo mentioned the edge providers and we need to know 
that service providers are the ones that are getting all of the 
attention right now, really a disproportionate share. When you 
contrast that with the edge providers and the edge providers 
are the ones who really collect and hold more data and that is 
largely unregulated and primarily it is being ignored.
    So we are concerned that what the FCC is seeking to do is 
going to end up doing less to protect consumer data, that it 
would be another of these false hopes that something is being 
done when indeed the opposite is happening, that it is going to 
lead to industry confusion within the Internet ecosystem and 
that it confirms the fears that Title II reclassification was 
more of a power grab than it was something that would be 
constructive to the health of the Internet and that ecosystem 
as referenced by our chairman in his opening remarks.
    And at this time, I am yielding time to, I think, Mr. 
Shimkus.
    Mr. Shimkus. No.
    Ms. Blackburn. Not to Mr. Shimkus. Who was seeking time? No 
one. I am yielding back, Mr. Chairman.
    Mr. Walden. The gentlelady yields back the balance of her 
time. Before I go to the ranking member of the committee, I am 
going to yield such time as he may consume to the gentleman 
from Ohio for a point of personal privilege.
    Mr. Johnson. Thank you, Mr. Chairman. I appreciate the 
committee's indulgence this morning. I would like to introduce 
some of my family members that are here with me this morning. I 
have my mother, my aunt, and my two first cousins, all of whom 
played a very substantial, influential role in my upbringing 
and my beliefs and my character where I am today. So I would 
just like to welcome them, and I yield back, Mr. Chairman.
    Mr. Walden. In fact, Mom, if you want to share a few 
comments about the character----
    Mr. Johnson. Reclaiming my time, Mr. Chairman.
    Mr. Walden. We are glad you are all here. Bill does a great 
job on the committee and in the Congress.
    Now I will recognize the ranking member from New Jersey, 
Mr. Pallone, for opening comments.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Mr. Chairman, and our Ranking 
Member Eshoo and our three witnesses for being here today.
    We are just learning, I was upstairs so you probably 
already mentioned it, we are just learning that the DC Circuit 
Court of Appeals has upheld the FCC's Open Internet Rules, and 
I have always been a strong supporter of net neutrality and the 
FCC's net neutrality rules. While I have not had time to review 
the court's decision yet, but it seems that it was a big win 
for consumers and it puts the FCC's privacy proposals on firm 
legal ground.
    For more than a decade, an overwhelming majority of 
Americans have agreed that privacy is fundamentally important 
on the Internet. And according to a recent study by the 
National Telecommunications and Information Administration, 84 
percent of Americans are worried about their privacy and 
security online. Half of the households surveyed are so worried 
about their privacy that they limit their economic and civic 
activities when they go online. Another survey, this one from 
the Pew Research Center earlier this year, found that nearly 
three quarters of Internet users say it is very important to 
them that they have control over who has access to their 
information.
    And it is important that we take these opinions and 
concerns into account as we move forward with this hearing 
today.
    It is also important that we listen to the American people 
about the best ways to ensure that they have more control over 
their information.
    The FCC has clearly been listening and proposed new privacy 
rules for broadband providers. While many questions about the 
FCC's proposals are still unanswered, I support the agency's 
desire to do more to protect consumers. Unfortunately, critics 
of the FCC came out quickly in opposition to the proposal 
before they even knew the details. They say that the FCC's 
proposed privacy rules are fatally flawed because they only 
reach broadband providers, not Web sites or social media.
    I agree that protecting consumers across the Internet 
ecosystem is important as well. But I cannot agree with those 
that claim that consumers should not get privacy protections 
anywhere because they cannot get them everywhere. In the face 
of uncertainty created by a company's privacy policies, nearly 
70 percent of Internet users would prefer the Government do 
more to protect their personal information. Consumers want more 
protection clearly, not less protection. And this is where 
Congress has work to do.
    In order to address the legitimate concerns consumers have 
about their privacy online, we should give the Federal Trade 
Commission authority to adopt its own rules over Web sites. 
That would allow the FTC to craft privacy rules for Web sites 
as well. This sounds like a common sense approach but just last 
week, the Commerce, Manufacturing, and Trade Subcommittee 
marked up a bill that would make the problem worse. The bill I 
am talking about would effectively gut the FTC.
    And I think it is kind of ironic that my colleagues would 
praise the FTC and its expertise in their privacy letter to 
Chairman Wheeler, while at the same time advancing bills 
through the committee that seek to cut the FTC's legs out from 
under it. And giving the FTC authority to adopt new rules would 
help ensure our privacy is safe, no matter where we go on the 
Internet or how we connect because I believe that when 
consumers are safe, we are all better off.
    [The prepared statement of Mr. Pallone follows:]

             Prepared statement of Hon. Frank Pallone, Jr.

    Thank you Mr. Chairman and Ranking Member Eshoo. And thank 
you to our three witnesses for being here today.
    Today, we're just learning that the DC Circuit Court of 
Appeals has upheld the FCC's Open Internet Rules. I have always 
been a strong supporter of net neutrality and the FCC's net 
neutrality rules. While I have not had time to review the 
court's decision yet, it seems this was a big win for 
consumers. This decision puts the FCC's privacy proposals on 
firm legal ground.
    For more than a decade, an overwhelming majority of 
Americans have agreed that privacy is fundamentally important 
on the internet. According to a recent study by the National 
Telecommunications and Information Administration, 84 percent 
of Americans are worried about their privacy and security 
online. Half of the households surveyed are so worried about 
their privacy that they limit their economic and civic 
activities when they go online. Another survey, this one from 
the Pew Research Center earlier this year, found that nearly 
three quarters of internet users say it's very important to 
them that they have control over who has access to their 
information.
    It's important that we take these opinions and concerns 
into account as we move forward with this hearing today.
    It's also important that we listen to the American people 
about the best ways to ensure that they have more control over 
their information.
    The FCC has clearly been listening and proposed new privacy 
rules for broadband providers. While many questions about the 
FCC's proposals are still unanswered, I support the agency's 
desire to do more to protect consumers.
    Unfortunately, critics of the FCC came out quickly in 
opposition to the proposal before they even knew the details. 
They say that the FCC's proposed privacy rules are fatally 
flawed because they only reach broadband providers-not Web 
sites or social media.
    I agree that protecting consumers across the internet 
ecosystem is important as well. But I cannot agree with those 
that claim that consumers should not get privacy protections 
anywhere because they cannot get them everywhere. In the face 
of uncertainty created by a company's privacy policies, nearly 
70 percent of internet users would prefer the Government do 
more to protect their personal information. Consumers want more 
protection--not less.
    And this is where Congress has work to do. In order to 
address the legitimate concerns consumers have about their 
privacy online, we should give the Federal Trade Commission 
authority to adopt its own rules over Web sites. That would 
allow the FTC to craft privacy rules for Web sites as well.
    This sounds like a common sense approach but just last 
week, the Commerce, Manufacturing, and Trade Subcommittee 
marked up a bill that would make the problem worse. The bill 
I'm talking about would effectively gut the FTC.
    It's kind of ironic that my colleagues would praise the FTC 
and its expertise in their privacy letter to Chairman Wheeler 
while at the same time advancing bills through the committee 
that seek to cut the FTC's legs out from under it. Giving the 
FTC authority to adopt new rules would help ensure our privacy 
is safe, no matter where we go on the internet or how we 
connect. When consumers are safe, we are all better off.
    I look forward to today's discussion.

    Mr. Pallone. I don't know if anybody else wanted my time. 
You do? I will yield the remaining time to Mr. McNerney.
    Mr. McNerney. I thank the ranking member. Data security is 
critical to consumers. Over the past few years, we have seen 
many examples of private information leaking into the open, 
whether it is the OPM leaks or the data breach at Target.
    In an age of information with consumers engaging commerce 
online, they trust those businesses to keep their information 
safe. That trust, in many ways, is the foundation of our 
economy. Consumers deserve to know that when they hand over 
critical information such as their Social Security Numbers or 
their billing addresses, that that data will be kept safe.
    The FCC has come up with some strong proposals that help 
address data security in at least one sector of the economy. In 
its Notice of Proposed Rule Making, the Commission also asks a 
number of key questions. The Commission seeks to comment on the 
important question of how to ensure that consumers' data 
continues to be protected as the technology advances. The 
Commission further asks under what circumstances should trigger 
the issuance of notifications to consumers or law enforcement 
agencies once data breaches occur.
    I would like to commend the FCC in taking these first steps 
toward better securing the data of consumers and I hope that 
the FCC will move forward in a thoughtful fashion. Consumers 
ought to be the central focus of this debate and we must do 
better in protecting their online information.
    I yield back to the ranking member.
    Mr. Walden. And he yields back the balance of his time. So 
we will now proceed to our excellent panel of witnesses. And we 
have the Honorable Jon Leibowitz, co-chair, 21st Century 
Privacy Coalition and former Chairman of the Federal Trade 
Commission; Paul, Ohm, professor at Georgetown University Law 
Center and faculty director, Georgetown Center on Privacy and 
Technology; and Doug Brake, telecommunications policy analyst 
for the Information, Technology, and Innovation Foundation. A 
terrific panel of witnesses, and I think the subcommittee will 
get great benefit from their counsel and their opinions.
    And we will start with the Honorable Jon Leibowitz. Good 
morning. Be sure to pull that mic close, push the button and 
you are on. Thank you for being here.

  STATEMENTS OF JON LEIBOWITZ, CO-CHAIR, 21ST CENTURY PRIVACY 
   COALITION; PAUL OHM, PROFESSOR, GEORGETOWN UNIVERSITY LAW 
CENTER, AND FACULTY DIRECTOR, GEORGETOWN CENTER ON PRIVACY AND 
TECHNOLOGY; AND DOUG BRAKE, TELECOMMUNICATIONS POLICY ANALYST, 
        INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION

                   STATEMENT OF JON LEIBOWITZ

    Mr. Leibowitz. Thank you, Chairman Walden, Ranking Member 
Eshoo, Ms. Blackburn, and Mr. Welch of the Privacy Working 
Group of this committee, other distinguished members of the 
subcommittee. I appreciate your inviting me here to testify 
today. And I am here on behalf of the 21st Century Privacy 
Coalition which I chair with former Representative Mary Bono. 
And I am delighted to be here with Professor Ohm, who was a 
critical part of our FTC team when we drafted the update of the 
Children's Online Privacy Protection Act, as well as to be here 
with Mr. Brake.
    Our coalition is comprised of the Nation's leading 
communications companies, which have a strong interest in 
bolstering consumers' trust in online services. We believe the 
best way to ensure protection of consumer privacy is through a 
comprehensive and technology-neutral framework based on the 
type of data being collected and how it is used, rather than on 
the type of entity collecting the data. And that is exactly the 
approach that the FTC has taken in its decades of robust 
privacy enforcement. Decades.
    The FTC has held hundreds of companies, large and small, 
accountable for breaking their privacy commitments to consumers 
in a way that causes consumers harm. And by taking an 
enforcement-based approach, rather than setting out 
prescriptive rules, the FTC has powerfully protected consumer 
privacy while permitting the type of high-tech innovation that 
has yielded huge benefits to all Americans.
    Indeed, the FTC approach has been so successful that in 
2012, the White House called for the FTC to be solely 
responsible for protecting the privacy of every American across 
every industry and that includes ISPs. Last year, as we know, 
the FTC's sister agency, the FCC, reclassified Internet service 
providers as common carriers as part of the Open Internet 
Order. And that decision removed ISPs from the FTC's 
jurisdiction, thus ending the strong safeguards consistent 
across industries that the FTC provided to consumers of 
broadband services.
    Having assumed sole jurisdiction to protect privacy among 
ISPs, the FCC is currently engaged in a rulemaking. Now our 
coalition was initially encouraged by Chairman Wheeler's stated 
aim to craft the proposed privacy rules in a manner, and I 
quote, ``consistent with the FTC's thoughtful, rational 
approach,'' and with the core principles of the FTC's 2012 
Privacy Report in mind. But the FCC's proposed rules, as 
currently drafted, fail to achieve its own goals or to protect 
consumer privacy.
    Instead, the proposed rules impose a restrictive set of 
requirements on broadband providers that don't apply to other 
services that collect as much or more consumer online data. 
These ISP-specific rules do not provide clear benefits to 
consumers. They would disrupt broadband providers' ability to 
compete with other online entities. And at the FTC at least, we 
very much support--or they very much support that type of 
competition. They could create consumer confusion. So the goals 
may be laudable. I have no doubt they are. But the draft rule 
betrays a fundamental lack of understanding regarding how the 
Internet ecosystem works.
    Most troubling, the FCC's proposed rules may well 
discourage the very broadband investment that the FCC is 
statutorily obligated to promote, thereby harming the very 
consumers it is supposed to benefit.
    Let me highlight four salient flaws in the FCC's proposal. 
First, it is not technology neutral. It would impose 
prescriptive rules on only a subset of the Internet ecosystem, 
and that could lull consumers into a false sense of believing 
that they are making a choice that would apply across the 
Internet ecosystem.
    Second, the FCC's proposal would impose opt-in consent 
requirements for non-sensitive data and basic everyday business 
practices like marketing to a company's own customers, first 
party marketing. That makes no sense at all.
    Third, the NPRM as drafted would exempt only aggravated 
data from its requirements and would miss the opportunity to 
create consumer benefits from de-identified data, not 
identified data, de-identified data.
    And fourth, the proposal would impose an unrealistic time 
line for breach notification and mandate massive over-
notification for data that is not sensitive. And that would 
cause consumers to ignore even important messages from their 
ISPs.
    And don't take my word for it. Ask my former agency, the 
FTC. Though it is unanimous comment, and the unanimous comment 
is important to the FCC because it is framed diplomatically, 
there are more than 25 separate instances where it raises 
concerns about the FCC's approach. Twenty-five. More than 25. 
There is no need for the FCC to embark on this dangerous path.
    And by the way, after today's DC Circuit decision on the 
Open Internet Order, getting privacy right is even more 
important. I also want to point out that the FCC rules threaten 
to undermine the United States' position in international 
negotiations on cross border data flows, including the U.S.-
E.U. Privacy Shield.
    But with that said, I do want to make one point. Final 
rules are often more balanced than proposed ones and we can see 
a lot of improvement when it goes from an NPRM to a final rule. 
But the FCC's current proposal is a solution in search of a 
problem. It would create inconsistent standards across the 
Internet and add to consumer confusion. It could undermine 
innovation as well. For all these reasons, the 21st Century 
Privacy Coalition's view is that the FCC should adopt the FTC's 
time-tested and proven approach and it can do that by rule. 
Thank you. Happy to answer questions.
    [The prepared statement of Mr. Leibowitz follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Walden. I thank the gentleman for his testimony. We 
will now move to Mr. Ohm from the Georgetown University Law 
Center and Faculty Director, Georgetown Center on Privacy and 
Technology. Mr. Ohm, we look forward to your testimony. Thanks 
for being here today.

                     STATEMENT OF PAUL OHM

    Mr. Ohm. My pleasure. Thank you very much, Chairman Walden, 
Ranking Member Eshoo, and other members of the subcommittee. My 
name is Paul Ohm and I am a professor at the Georgetown 
University Law Center and thank you very much for inviting me 
to discuss this very, very important issue about the Federal 
Communications--I guess now DC Circuit blessed--moved to 
protect the privacy of consumers of broadband Internet access 
service. I hope you don't mind if I refer to this BIAS entity 
as ISPs or Internet service providers instead of using the 
Washingtonese that has been thrown around.
    My bottom line is fairly simple to state. The FCC's rule 
is, number one, unambiguously authorized by law. And, number 
two, it is a wise rule. Let me take those in turn.
    Nobody in this debate disputes that Section 222 of the 
Telecommunications Act of 1996 instructs the FCC to promulgate 
rules to protect the privacy of information gathered by 
telecommunications providers. The underlying circumstances have 
changed a bit. And when I say a bit, I urge you to remember 
that this was 1996. This wasn't the Dark Ages when this statute 
was enacted.
    These changes to the ecosystem of the Internet actually 
raise, not lower, the importance of having a statute like 
Section 222. But at any rate, due to the clarity of a statutory 
text, it is my belief that the burden should be on those who 
would rewrite the statute, much more on those who would ask the 
FCC to ignore the plain terms of the statute, rather than on 
the agency attempting to apply the statute.
    Number two, then, let me tell you why I think the law is a 
wise one. Congress' act reflects the well-reasoned conclusion 
that telecommunications providers owe a heightened level of 
privacy to their customers. I give four reasons why this is so 
in my written statement: history, choice, visibility, and 
sensitivity. But let me focus on the latter two and I will 
refer you to my written statement for the arguments about 
history and choice.
    Number one, visibility. Your Internet service provider sits 
at a privileged place in the network. They are the bottleneck 
between you and the Internet. This gives them the ability to 
see part of every single communication that leaves your 
computer and returns to your computer. For unencrypted Web 
sites, this gives them complete and comprehensive visibility. 
They can see everything including the content of their 
communications. It is a regrettable fact in 2016 that so many 
Web sites are still unencrypted including many, many, many of 
the most popular ones. But even for encrypted Web sites, 
although the view of an ISP is partially obscured, there is 
plenty that they can see. They can basically compile a list of 
the domain name of every Web site that you visit, when you 
visit it, how often you return to it, and how much data you 
transfer with it. And they can even track how often you linger 
on an open page in some cases.
    This all leads to the second factor that leads me to 
conclude that Congress was well justified in 1996 in enacting 
Section 222, sensitivity. I will be honest. Law professors have 
kind of embarrassed themselves in a battle for metaphor to try 
to help people to understand what we are talking about when we 
are talking about something that has never happened in human 
history before, that there are entities that are sitting over 
your shoulder watching you read compiling a complete list over 
time of every single thing that you do on the Web. Some have 
called this a digital dossier, others have said that this 
invades an individual's right to intellectual privacy, not 
intellectual property. And I have called this the database of 
ruin. Very subtle, I know.
    But all of these speak to the problem of allowing people to 
develop a complete accounting of what we read, who we speak to, 
what we say, who we associate with and with the rise of the 
mobile broadband, where we go on a minute-by-minute basis.
    OK, in my last minute, I would like to say that these four 
factors--history, choice, visibility, and sensitivity--led 
Congress to do in 1996 what it has done several times before, 
enact a sectoral privacy law just like they did with doctors 
and HIPAA, just like they did with schools and FERPA, just like 
they did with credit agencies in the Fair Credit Reporting Act. 
Congress, you, did this as well, for telecommunications 
providers.
    Two closing thoughts. Number one, when Congress enacts a 
sectoral privacy law as they have in here to face a heightened 
risk of privacy, it makes great sense for Congress to draw 
bright lines. Many of the people, including Mr. Leibowitz, have 
said that the FCC should instead ask Internet service providers 
to look at every piece of content and decide whether it is 
sensitive or non-sensitive and then decide there whether or not 
it is subjected to heightened privacy rules or not.
    So let us imagine that this were the base for HIPAA, that 
your doctor would have a conversation with you, you would talk 
about your diagnoses, and the doctor would constantly be 
calculating whether what you just told him was sensitive or 
non-sensitive. And if they concluded that it was non-sensitive, 
they would be able to sell that information to a pharmaceutical 
company. That is not the way we have written HIPAA. That is not 
the way we have written the Wiretap Act. Nor is it the way that 
we have written Section 222.
    Last, if there is one thing that really, really gives me a 
lot of joy about the vigorous debate that is having around 
here, it is that there is so much commentary lavishing praise 
on the Federal Trade Commission for the amazing work it does 
protecting consumers' privacy and Chairman Leibowitz deserves a 
lot of credit for that. I am so grateful to him that he hired 
me to be a senior policy advisor to advise the Commission on 
privacy issues. I think it would be folly, though, to use the 
FTC's successes as an excuse to dismantle one of the only 
meaningful privacy laws we have for online privacy.
    Just like we shouldn't use the FTC successes to take 
jurisdiction away from health and human services of our doctors 
and healthcare or the Department of Education over education 
records, nor should we do it with the FCC and 
telecommunications. It is either a marvel of institutional 
design or maybe dumb luck that the FCC and the FTC have a lot 
of complementary skills, abilities, staff, expertise. There is 
no contradiction here. The FTC cannot go it alone. I think it 
is wonderful that we have two privacy cops on the beat online. 
Thank you. I look forward to your questions.
    [The prepared statement of Mr. Ohm follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Walden. Thank you, Mr. Ohm. We appreciate your 
comments. We will now go to Doug Brake who is a 
telecommunications policy analyst for the Information, 
Technology, and Innovation Foundation. Mr. Brake, it is up to 
you now. Thank you for being here.

                    STATEMENT OF DOUG BRAKE

    Mr. Brake. Chairman Walden, Ranking Member Eshoo, members 
of the subcommittee, thank you for inviting me to share the 
views of the Information, Technology, and Innovation Foundation 
on the ongoing proceedings of the Federal Communications 
Commission to regulate broadband privacy.
    ITIF is a nonpartisan think tank whose mission is to 
formulate and promote public policies to advance technological 
innovation and productivity growth. The FCC's proposed privacy 
regime does a remarkably poor job of balancing those goals, 
innovation and productivity, with other policy interests. For 
this reason ITIF has opposed the FCC's privacy undertaking in 
its entirety. Congress should direct the FCC towards a model 
that better balances privacy, innovation, and overall consumer 
welfare. Here, the Federal Trade Commission should be the 
guiding path.
    A consistent application of the FTC's privacy guidelines 
across different platforms in concert with existing industry 
practices and commitments will see the continued dynamic 
competition and innovation that has driven the success of the 
Internet to date. A uniform approach is especially warranted as 
broadband providers' access to data is neither comprehensive 
nor unique. My primary concern is how the FCC's proposal would 
unnecessarily stifle innovation. Boiled down, the proposal is a 
three-tier consent scheme that require opt-in consent required 
for uses of data that are not communications related. The 
entire regulatory scheme is explicitly structured around what 
business practices broadband providers participate in and not 
consumers' expectation of privacy or risk of harm.
    The overly broad opt-in requirements sets the wrong default 
choice that will reduce consumer welfare, productivity, and 
innovation. Most people are happy to make tradeoffs around 
privacy and other values such as convenience, price, or 
functionality, but requiring the extra step of opting in would 
sharply reduce participation rates in data-dependent offerings.
    Privacy-sensitive consumers are well motivated to opt-out 
and can do so under existing practices, but the FCC proposal 
would effectively shut off new business models that would 
benefit the majority of broadband consumers. The FTC's 
approach, on the other hand, is a clear alternative that offers 
a better balance of policy objectives. The Federal Trade 
Commission enforces unfair and deceptive trade practices as 
informed by high level, technology neutral guidelines, industry 
best practices and company commitments.
    The FTC framework has successfully applied to an incredibly 
diverse set of actors in the Internet ecosystem by allowing 
flexibility for firms to develop the specifics of privacy and 
security practices and stepping in where problems develop. The 
FTC does not have to predict technological advancements or 
changes in business practices. Firms can then internalize or 
outsource different functions in fast-paced industries with a 
focus on efficiency, rather than compliance. And even 
application of privacy oversight will provide a better 
environment for dynamic competition across platforms, allowing 
carriers' continued entry into areas like targeted advertising 
and would avoid discouraging new entrants and exploring 
provision of broadband.
    So the FCC proposal is a bad approach to promote innovation 
with nothing to gain over the well-established FTC framework, 
but furthermore, provider access to data simply does not 
justify heightened sector-specific regulation. To justify 
sector-specific rules, one would expect an unusually high risk 
of harm from broadband providers. As a factual matter, that 
heightened risk does not exist. Broadband providers do not have 
anything near comprehensive nor unique access to customer data. 
The past 2 years have seen a dramatic and continuing trend 
towards pervasive encryption which prevents broadband providers 
from accessing the content or detailed web addresses of 
consumers browsing.
    The uptick in encryption is a profound structural 
limitation in the amount and kind of information that is 
available to broadband providers, an unpredicted shift that 
should chasten us from broad, prescriptive regulations. Other 
trends, such as a growing popularity of proxy services, 
availability of virtual private networks, and consumers relying 
on multiple networks throughout the day further weaken the 
claim for sector-specific regulation. Heightened rules would 
also set a bad precedent, giving advocates the fulcrum to 
ratchet up European style privacy regulations across the rest 
of the Internet ecosystem in a way that could do significant 
damage to what is a bright spot in the U.S. economy.
    To sum up, there certainly is a legitimate Government 
interest in ensuring customers have a transparent notice and 
choice over how their information is used. But the FTC 
framework offers a far better balance of competition, 
innovation, and consumer protection. Given the advent of tools 
to protect privacy and opt-out options already available, there 
is no actual harm the FCC needs to correct and no justification 
for special rules peculiar to the FCC's jurisdiction.
    Large changes in privacy policy like those proposed should 
be set through an open and democratic legislative process, not 
creative, statutory reinterpretation by an independent agency. 
Congress should direct the FCC to either leave privacy with the 
FTC or adopt regulations in line with the FTC framework.
    Thank you again for this opportunity to appear before you 
today and I look forward to your questions.
    [The prepared statement of Mr. Brake follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Walden. Thank you, Mr. Brake. We appreciate your 
testimony and that of your colleagues at the witness table. I 
will start off with questions.
    You know, we are hearing, obviously, a lot about privacy. 
It matters to consumers and as the Internet develops and you 
have got edge providers, you have got ISPs, there is a question 
about control of privacy and whether it translates all across 
the way we hear it. In fact is the debate over set-top box. If 
you change out everything, there are some entities that are 
covered by some statutes, and others that may not be covered by 
others. We hear it in some of the search engine debate and 
Facebook debate and the political side. Is somebody 
manipulating the algorithms and what you are looking at and 
what you get to see in the off ramps versus the sort of common 
carrier piece of this.
    I guess my question, I will start with Mr. Brake, how does 
the information collected by ISPs differ from information 
collected by some of these other platforms such as Facebook or 
Google or any of the large platforms that are used widely by 
consumers today? And would you argue that one of these collects 
more or less or better quality or more verifiable? Is there 
similar standards for consumers regardless of where they go or 
do they vary? Which is strongest?
    Mr. Brake. Thank you, Mr. Chairman, for the question. It is 
a good question. There has been a lot of discussion about this 
issue in the record at the FCC. I say in my statement that the 
ISP's collection of information is not unique, but in truth it 
is unique in the sense that every actor in this ecosystem has a 
unique view on customer data that, if everyone is unique, no 
one is unique. And so everyone has a different perspective, a 
different access to different kinds of valuable information. 
And I think that should lead us to have the goal of a single 
set of overarching principles instead of going case by case and 
trying to develop specific sector rules for each individual 
actor. I think that is--I mean that is essentially nightmare 
fuel for me.
    Mr. Walden. So your point is--your recommendation, I won't 
put words in your mouth but is pick an agency, pick a set of 
rules, apply to everybody?
    Mr. Brake. Right. Have a set of high-level, technology 
neutral principles that can apply both to just sort of ordinary 
data collection that we are all familiar with or to new--
potentially very invasive practices that haven't even been 
thought of yet.
    Mr. Walden. All right.
    Mr. Brake. So we want an overarching framework that can 
oversee all of this.
    Mr. Walden. Mr. Leibowitz, what is your thought on that? 
Turn on your mic, please. We can't collect data if your mic is 
not on.
    Mr. Leibowitz. You can't collect data that way. Others can, 
but you will not. I understand and the hearing record won't. 
Look, I would just point out, look at my phone. Right? I am 
sending a text or I am sending an email and who is collecting 
that data? Well, it might be the ISP. It might be the browser. 
It might be the operating system. It might be the manufacturer. 
There are a number of different entities that can collect that 
data. And so why would you view one differently than the other? 
Wouldn't you want to have similar privacy protections for 
consumers?
    And the FTC approach, which is an approach that recognizes 
that sensitive data should be protected, is one that you could 
incorporate into an FCC rulemaking if the agency, if the FCC 
wanted to.
    I will just make one more point which is, and Professor Ohm 
correctly noted, that is not enough encryption now. But there 
is no doubt that encryption is growing. And Peter Swire, who 
was the privacy czar in the Bill Clinton administration, issued 
a paper earlier this, actually, late 2015 in which he pointed 
out that by the end of this decade, 70 percent of all, 70 
percent of all information will be encrypted. And 42, I 
believe, of the top 50 Web sites already encrypt. So we are 
seeing a trend towards encryption. It is leveling off the kind 
of information that different entities can collect. And that is 
why you should have a similar----
    Mr. Walden. Now Mr. Ohm, Professor Ohm, made the case that 
it is good to have two cops on the beat. Again, I won't put 
words in your mouth, but what I heard was better to have two 
agencies doing this, one sort of before the fact, one after the 
fact, based on their current regimes. Is that accurate, Mr. 
Ohm?
    Mr. Ohm. Oh, absolutely. I think there is the kind of 
specter of lots of competition, turf warfare. When instead if 
you look at the Memorandum of Understanding that was put 
together by the staffs of these two agencies, when you look at 
the fact that one of them has ex ante rulemaking which we are 
watching unfold right now, while the other has ex post 
enforcement, when you look at the fact that the FCC, has 
decades, decades, and decades of building up staff and 
expertise on related questions about incentivizing broadband 
build out. All of these things, there is no conflict at all. 
There is no inherent conflict.
    Mr. Walden. But do you think that these other entities 
should also be covered? Should everybody from a Google Facebook 
to Comcast, whomever, should they all have the same privacy----
    Mr. Ohm. One way to read the Swire report is privacy is in 
shambles in lots of different places across our digital 
ecosystem. Right? I think that is a conclusion that flows quite 
directly from the later sections of that paper. So the question 
is what do you do with that conclusion if you think Professor 
Swire is right? One is we throw up our hands and say we are not 
going to have privacy anymore. The other is well, we have one 
statute that is aggressive and works really well, let us go 
ahead and enforce that one and consider other statutes, right?
    I mean I can be persuaded that there are entities that 
threaten privacy similarly to what ISPs do. I could absolutely 
be persuaded of that, but that would require an additional act.
    Mr. Walden. That is kind of what we do here.
    Mr. Ohm. That is right. That is right.
    Mr. Walden. Mr. Leibowitz, real quick.
    Mr. Leibowitz. If I can just slightly disagree with the 
professor, who is one of the most creative lawyers I have ever 
worked with. It is worth pointing out that there aren't two 
cops on the beat now with respect to ISPs because in fact the 
FCC in its Open Internet Order took jurisdiction away----
    Mr. Walden. From the FTC.
    Mr. Leibowitz. From the FTC.
    Mr. Walden. Right.
    Mr. Leibowitz. There used to be two cops on the beat, and 
it was the FTC that did almost all of the privacy enforcement.
    Mr. Walden. Right.
    Mr. Leibowitz. And the second thing is I am not quite so 
sure how clear it is that in 1996 Congress gave this broad 
grant of authority to the FCC because, if you look at Section 
222, it is about as clear as mud. And the other thing is if it 
was so obvious that Section 222 created a privacy protection 
regime for ISPs, you would think that at least one of the 
several Democratic Chairmen of the FCC--and there were some 
very good ones after the '96 Act, including Reed Hunt, Julius 
Genachowski, and Bill Kennard--would have discovered this 
earlier. No one discovered it until very, very recently. I 
question that discovery.
    Mr. Walden. Right. I have got to cut it off. I have gone 
way over. I thank the indulgence of the committee. We go to Ms. 
Eshoo for a round of questions.
    Ms. Eshoo. Will you grant me the same time that you took? 
How is that?
    Mr. Walden. I would be happy to do that.
    Ms. Eshoo. Thank you, Mr. Chairman. Thank you to the 
witnesses, all excellent. I really want to salute you, and Mr. 
Brake, happy anniversary.
    Mr. Brake. Thank you very much.
    Ms. Eshoo. Ten years of the founding of ITIF and excellent 
work. I think it is worth just very quickly stating the 
following. The FTC and the FCC have different sources of legal 
authority and they have different tools that they can use to 
protect consumers. The FTC generally lacks the same rulemaking 
authority under the Administrative Procedures Act that the FCC 
has. Instead, the FTC relies on Section 5 of the FTC Act which 
prohibits unfair deceptive acts and practices.
    Now under Section 5, the FTC is limited to bringing 
enforcement actions after the fact. It often sets guidelines. 
It encourages industry best practices. And then if they fail to 
follow, it can result in an enforcement action.
    On the other hand, the FCC has authority to set clear rules 
of the road that companies must follow. Now the FTC staff which 
is a little different than what you said, Mr. Leibowitz, in 
your description, at least the way I took it, the FTC staff 
follow comments in this proceeding that are generally 
supportive of what the FCC is trying to do. The FTC did 
describe the fact that ISPs could be subject to different 
rules, the rest of the Internet industry is not optimal, but 
nonetheless, they offered constructive comments and pointed to 
its repeated calls for Congress to take steps.
    Now the FCC, obviously, operates under Section 222 of the 
'96 Telecom Act. I was there. I helped write it, Mr. Leibowitz. 
We knew what we were doing and we are proud of it.
    Mr. Leibowitz. I was there as well.
    Ms. Eshoo. I don't think your description ``clear as mud'' 
is fair. I think that is meant to muddle the conversation, but 
that is my view.
    Now Professor Ohm, your testimony discussed the difference 
in data collection between edge providers like Google and ISPs. 
Can you elaborate, I don't have that much time left, more on 
the different relationships that consumers have with ISPs as 
compared with edge providers?
    Mr. Ohm. Certainly, absolutely, and I will try not to take 
too much of your time. It boils down to choice. So you choose 
your search engine. You choose your social network. You choose 
your email provider. And if you are unhappy with their privacy 
handling policies, then you can exit. You can choose another, 
right?
    And I guess on one level you do choose your ISP, although 
in wide swaths of America, that is not true. In rural areas, 
there is only 13 percent of people have more than one choice 
for broadband ISP. And so if you are unhappy with what your 
broadband provider is doing, you cannot exit. Not only that, 
but when you leave your email provider or you leave your social 
networking site and you go to another Web site, you escape the 
visibility of that prior edge provider.
    Now don't get me wrong, edge providers are trying like mad 
to increase the visibility they have on the web and in some 
instances they are being quite successful. They are nearing ISP 
levels of visibility which is why I said to the chairman a 
moment ago, we might want to talk about whether we need 
regulations in other areas as well. But choices define an 
answer to the question you have asked.
    Ms. Eshoo. Can you define or describe the kind of profile 
an ISP could create of a subscriber using only data that is 
encrypted?
    Mr. Ohm. Sure. So even with the prevalent form of 
encryption, which is HTTPS, they are still privy--your ISP is 
still privy--to the domain name, the domain name of the Web 
site you visited. I will fully concede that with this form of 
encryption, they don't know whether you are reading an article 
about Orlando or an article about the DC Circuit opinion, but 
they do know that you are at The New York Times Web site or 
they do know that you are at a blog that is a highly specific 
blog.
    And I think that it is important at this moment in time to 
compare what can be known through a domain name, versus the 
telephone numbers that we were focused more on in 1996. 
Sometimes a telephone number tells you a lot about what you 
likely said during that call. Quite often that is true for 
domain names.
    So picture, if you will now, these domain names which are 
quite revealing. Imagine it almost visibly trailing after you 
in an indelible trail that is now being stored at a corporation 
1,000 miles distant that you never met before. So this is what 
is being kept on a minute-by-minute, second-by-second basis. It 
is never being disposed of and up until now ISPs have been 
pretty restrained in not using that, for example, to sell 
advertising to you.
    Ms. Eshoo. You know, there is an irony here to me. And that 
is that the American people have always been I think 
justifiably suspicious of big Government, what it can do, what 
it holds, how it can be used against people. And yet, in this 
debate, we are saying or some are saying it is all right. It is 
OK. We can be tracked. We can be traced. We can be followed. It 
is sitting on each shoulder. Somehow, for some, that seems 
acceptable.
    So I don't think that. I just don't. I think that 
sensibility of the American people is on target. And at any 
rate, I am way over my time. Thank you to the three of you. I 
appreciate it.
    Mr. Leibowitz. May I just add a comment? And I agree with 
you----
    Ms. Eshoo. I think my time is up.
    Mr. Walden. I will give you an extra minute.
    Mr. Leibowitz. And I agree with you.
    Ms. Eshoo. But I don't want to hear----
    Mr. Leibowitz. Privacy protection is critically important.
    Ms. Eshoo. Yes, quickly.
    Mr. Leibowitz. But I do think that you have to keep in 
mind, and let us assume Section 222 is upheld, 
constitutionally. We will stipulate to that for purposes of 
this discussion, even though no less an authority than Larry 
Tribe has raised constitutional concerns about it.
    Ms. Eshoo. Oh, come on. Get to your point.
    Mr. Leibowitz. My point is this. If you go back to the----
    Ms. Eshoo. You don't like it. I get it.
    Mr. Leibowitz. If you go back to the constructive criticism 
in the FTC's comment and there are 28 points where it makes 
suggestions, the biggest suggestion it has is have an opt-in 
for sensitive data. Have an opt-in for maybe Deep Packet 
Inspection. Those are things that are in the 2012 privacy 
report that we worked on. But if you do that----
    Ms. Eshoo. I don't know. I have to tell you--do you know 
how I would respond to that? If you have children and their 
pals, ask them.
    Mr. Leibowitz. I do.
    Ms. Eshoo. How they like what you are suggesting.
    Mr. Leibowitz. And I think that my coalition would have far 
fewer rejections----
    Ms. Eshoo. I don't think it flies.
    Mr. Leibowitz [continuing]. If the FCC just took the FTC's 
advice in the comment.
    Ms. Eshoo. Thank you.
    Mr. Walden. Thank you.
    Ms. Eshoo. Thank you, Mr. Chairman.
    Mr. Walden. You are welcome. And now we go to the ranking 
member of the subcommittee--I keep doing that--vice chair of 
the subcommittee, Mr. Latta.
    Mr. Latta. Boy, OK. Thank you, Mr. Chairman. And thanks to 
our panel for being here today. I really appreciate your 
testimony today.
    And Mr. Brake, if I could start with you. In the NPRM, the 
FCC proposes to treat device identifiers such as IP addresses 
as personally identifiable information, which in turn could not 
be shared with third parties absent affirmative consent from 
the owner of the device. Since many Internet of Things devices 
utilize IP addresses, is there a risk that the rule, if 
adopted, would dampen innovation and the delivery of the 
innovation technology type devices that would substantially 
benefit consumers?
    Mr. Brake. Absolutely. I think this rulemaking has 
potential to dampen innovation across the board, both in the 
Internet of Things and obviously on the ISPs. I think the rules 
governing the treatment of personally identifiable information 
are incredibly overbroad and will have reverberating impacts 
throughout the ecosystem. Yes.
    Mr. Latta. You know, when you talk about--we are looking at 
how much that impact would be. How large would that be on that 
innovation? You know, because we have had so much testimony on 
this committee through the years as to what the--as the 
chairman started off with this morning, talking about how much 
innovation it had brought and the amount of money that has been 
spent. Do you have any kind of a clue what we could see happen 
if that innovation is dampened and how much that would be?
    Mr. Brake. There are all sorts of specific practices that 
we think are beneficial to overall economy. I think it is worth 
noting in a lot of the privacy conversations, it is taken as a 
given that all the uses of data are necessarily scary or a bad 
thing. But to my mind, targeted advertising, a potential 
business practice that ISPs have been exploring, can very much 
be a good thing, can enhance consumer welfare, giving them less 
intrusive, more helpful advertisements and overall enhance 
economic activity on the Internet.
    There are practices such as ISPs exploring, offering free 
WiFi services based on offering target advertisements that I 
don't see how those could possibly operate on an opt-in only 
basis and not conditional on the provision of the service as is 
proposed by the rules. It seems to me that the rules would 
outlaw that type of service.
    I think there are a number of ways in which the basic 
infrastructure of telecommunications is shifting towards 
software, away from hardware and more provision in software. 
And all of that is going to be largely dependent on 
availability of data. Much of that is, granted, providing the 
communication service, but I am worried that these rules could 
dampen ISPs' ability to either internalize those functions or 
outsource them to third-party companies without extensive 
compliance procedures. Those are just a few, a large impact.
    Mr. Latta. Thank you. Moving on, Mr. Leibowitz, I would 
like to ask in the FTC's 2012 privacy report, the agency 
asserted that the operating systems and browsers may be in a 
position to track all or virtually all of the consumers' online 
activity to create highly detailed profiles. Should consumers' 
privacy protection related to their online activity be 
different because operating systems and browsers subject to the 
FTC's jurisdiction, but because of the FCC's Open Internet 
Order Internet service providers are subject to the FCC's 
jurisdiction.
    Mr. Leibowitz. I am not sure I caught all of that question, 
Mr. Latta. Let me try to answer it and you can direct me. So 
this is our 2012 privacy report and it looked at large platform 
providers. There is a section in it. And large platform 
providers included ISPs and it included other big data 
collectors like Facebook and Google. And what we said was that 
with respect to large platform providers who collect data, 
perhaps there should be heightened scrutiny. But what we also 
said is that it should be consistent across the board.
    And the FTC held a workshop after we released this report 
on large platform providers and at that hearing a number of 
consumer groups also raised the point, and by the way, this 
report was criticized by many in business including I believe 
the ITIF actually for being too pro consumer. I don't mean to 
mischaracterize it, but I think that is accurate.
    And a number of consumer groups actually at the hearing, 
and I will put those quotes in the record, actually argued that 
you have to have similar rules across industries for all data 
collection. They called for technology-neutral standards.
    Mr. Latta. Thank you very much, Mr. Chairman. My time has 
expired, and I yield back.
    Mr. Walden. The gentleman yields back. The Chair recognizes 
the gentlelady from California, Ms. Matsui, for questions.
    Ms. Matsui. Thank you, Mr. Chairman. We just learned this 
morning that the FCC's legal authority over broadband was 
upheld in net neutrality case and it was clear that the FCC has 
oversight and consumer protection authority for broadband.
    My questions are about how to best exercise its authority 
on behalf of consumers. With this decision, it is more 
important than ever that the FCC get these privacy rules right.
    Now consumers need to have confidence in the safety and 
security of their information. Today, that means more than just 
logging on to a desktop computer connected to your home 
broadband provider. The devices that Americans are using for 
financial transactions or communicating healthcare information 
are often connected to a wireless network.
    Professor Ohm, can you elaborate on the information 
collection practices that Internet service providers are using 
today over wired and wireless networks and to what extent are 
consumers aware of the amount of personal information shared 
with their ISP?
    Mr. Ohm. Yes. I am happy to do so. I should say in the 
obnoxiously long, nine page CV that I submitted, we haven't 
mentioned yet that I have an undergraduate degree in computer 
science and I worked for 2 years as a systems network 
programmer and systems administrator. And so although that 
experience is a little dated, I still keep up with quite a bit 
of this information.
    Ms. Matsui. I am sure you do.
    Mr. Ohm. So there is a fundamental technology called 
NetFlow. NetFlow, you can think of it as the kind of permanent 
record that you were always warned about in high school, but 
this isn't a record of how many times you chewed gum in school. 
This is a permanent record of these individual transactions, 
right, what Web site you are visiting, the address you are 
visiting and that is stored. Now I will be the first to concede 
that the way that is stored right now, it would require some 
engineering to extract it and then to start advertising based 
on it. But I think it is exactly that engineering that the ISPs 
are hoping to achieve and are worried that the privacy world 
might prevent them from doing. But that record is there. That 
record is being created.
    Ms. Matsui. OK. OK. Now all witnesses, are there different 
risks that mobile broadband consumers face and how should 
privacy rules account for this?
    Mr. Leibowitz?
    Mr. Leibowitz. Look, I think you have asked two really good 
questions. I think with respect to mobile broadband, first of 
all, there is quite a bit of competition. All you have to do is 
turn on the TV and you will watch the advertisements of mobile 
broadband providers.
    What do we think? We think at the 21st Century Privacy 
Coalition that there should be--that if there is going to be an 
opt in, it shouldn't be for everything. It shouldn't be for 
commonplace sort of business, commonplace information. It 
should be for sensitive information. And that is what the FTC 
called for in its privacy report and that is what it called for 
in its comment. And if you look closely at that comment and if 
the FCC looks closely at that comment and I am sure it will, it 
could dramatically improve its rule because there is a lot of 
good advice in it.
    Ms. Matsui. OK. Professor Ohm, quickly, yes.
    Mr. Ohm. Yes, I so appreciate the question because it gives 
me the opportunity to talk about one aspect of mobile broadband 
that has been raised only obliquely which is you often hear 
this number thrown around in this debate that the average 
American has 6.1 devices, right? I think the average DC telecom 
lawyer may have 6.1 devices, but for many people in more modest 
circumstances for many minorities, they have one lifeline to 
the Internet and that is their mobile phone.
    Ms. Matsui. Right.
    Mr. Ohm. It is how they find jobs, how they communicate, 
how they find dates. And so that one thing, right, has become 
an essential part of this entire debate about the FCC and I 
don't want to lose sight of those people when we are talking 
about these privacy rules.
    Ms. Matsui. OK. Mr. Brake.
    Mr. Brake. Yes, I agree with Mr. Leibowitz. I think that 
the number of mobile providers dramatically increases the 
number of choices that consumers have and beyond that, offering 
a simple opt-out that is already available to consumers, I 
don't see that as being a particularly different situation as 
with fixed providers.
    Again, I return to you want to have an overarching 
framework that can apply to any actors in the ecosystem and you 
want this for reasons other than the particular information 
that is collected by any other--any particular actors.
    Ms. Matsui. You had a quick comment?
    Mr. Leibowitz. Yes. I just wanted to say one thing and it 
goes back to a point you made or Mr. Ohm made and Ms. Eshoo 
made about consumer choice. So there is one area where the FCC 
particularly gives consumers no choice. You mentioned one 
device. If I have one device, if I am a family of four and I 
make $40,000 a year, and I would like to allow an ISP to 
collect information, not necessarily disseminate it, but to 
collect aggregated information or de-identified information and 
they are offering me a $250 a year discount, as long as they 
explain that to me, I should be able to make that choice. That 
is the concept of notice and choice which is embedded in the 
FTC's approach, embedded in the FTC's recommendation. And the 
FCC would say you can't make that choice, an ISP isn't allowed 
to do that.
    Now, if the ISP were collecting identified data like a data 
broker and then selling it, that would be a real problem. And 
most of us in the room today probably might pay that extra $20 
a month. But if someone wants to make that choice themselves, 
they should be given the opportunity to make that choice.
    Ms. Matsui. I am sorry, I have run out of time.
    Mr. Shimkus [presiding]. The gentlelady's time has expired. 
The Chair now recognizes the vice chair of the full committee, 
Congresswoman Blackburn from Tennessee, for 5 minutes.
    Ms. Blackburn. Yes, thank you all. Mr. Leibowitz, I am 
going to stay with you. I appreciate your perspective always 
and your spending some time with us.
    The rules, the data security rules proposed by the FCC also 
seem much more stringent and prescriptive than the standard 
that is there at the FTC and I wanted to know if you could just 
briefly give what you think would be a justification for that.
    Mr. Leibowitz. For the FCC's rule?
    Ms. Blackburn. Yes.
    Mr. Leibowitz. Well, look, I think once it made the 
decision to do Title II net neutrality, then you needed to have 
a cop on the beat. And so it makes sense for the FCC to do a 
re-think. But the truth is that the FTC rules could actually 
incorporate the FCC's approach that is an enforcement-based 
approach plus the suggestions in the privacy report about where 
you should have an opt-in which is for sensitive data, 
vulnerable populations like kids. We worked on the Children's 
Online Privacy Protection Act. And they could do that and it 
would be much more balanced.
    Now, it still wouldn't be entirely technology neutral, but 
I think it would go a long way towards making the 21st Century 
Privacy Coalition members to bringing down sort of the decibel 
level of their concerns which are legitimate concerns and 
towards taking a better and more balanced approach that both 
protects privacy which is critically important, but also allows 
for innovation.
    Ms. Blackburn. Thank you. You know, one of the things is we 
have looked at what the Chairman, Chairman Wheeler, has had to 
say. I feel like he has almost done an about face, if you will, 
in the first couple of years when it comes to addressing 
network security and data security. Because a couple of years 
ago and here is a quote that he said and I am quoting him, 
``The Commission cannot hope to keep up if we adopt a 
prescriptive regulatory approach.'' And as you said, that is 
what they are doing as much for prescriptive. And that he also 
followed that with a statement that ``The FCC should rely on 
industry and market first to develop business-driven solutions 
to the security issues.'' I wish that is where we were. I wish 
that is what we saw coming up.
    Mr. Brake, coming to you for a minute, I want to go back to 
your testimony, page four, where you talk about the gatekeeper 
model when thinking about the broadband providers' relationship 
to the consumer data. Can you elaborate as to why you think 
that is the wrong way to think about the relationship and why 
you think it leads to confusion with the consumers?
    Mr. Brake. Absolutely. So Professor Ohm spoke about this 
earlier, the issue of choice, the fact that consumers only have 
so many choices when it comes to ISPs. So I think this issue of 
choice is often misrepresented. Just as a factual matter, 
consumers often have more than two fixed, and of course, we 
have four mobile countrywide carriers. And there is a general 
trend towards more, new entrants in this space. Switching costs 
are, of course, not unique to broadband and especially in 
mobile. Switching costs are going down dramatically. We have 
carriers offering to pay consumer switching costs.
    And also some of the statistics from Professor Ohm, I 
think, are misrepresented from the FCC's relatively arbitrary 
definition of broadband at 25 megabits per second. When you 
change that to 10 megabits per second, the numbers go 
dramatically up, over I think 78 percent have a choice of two 
fixed.
    And so beyond that, I think the visual metaphor of 
broadband providers as intermediaries in the middle is 
misleading and it is far better to think of them as one 
platform in concert with a number of other large platforms. 
This is exactly how the FTC recommended that we think about 
this issue in its 2012 privacy guidelines, mentioned that it 
was important that we recognize technology-neutral frameworks 
and that these are one type of platform among many.
    And again, I have to return to--even if this is a 
particularly large platform, when consumers have the ability to 
opt-out as is available now or even if the FCC wanted to go 
with the FTC's guidelines and offer opt-in only for sensitive 
information, that would be a tremendous improvement over the 
other rules as proposed.
    Ms. Blackburn. Well, I am one of those that appreciates 
some notice and choice and I prefer being able to opt-in as 
opposed to having to opt-out. I think the opt-in is less 
confusing and brings more clarity because people understand 
what they are getting into on the front end and appreciate 
that. Thank you, all and I yield back.
    Mr. Shimkus. The gentlelady yields back her time. The Chair 
now recognizes the gentleman from California, Mr. McNerney, for 
5 minutes.
    Mr. McNerney. Well, I thank the chairman. I want to commend 
the panel. It is a very lively discussion. I appreciate it. It 
is very informative as well.
    Mr. Leibowitz, as Chairman of the FTC, you testified before 
the Senate Commerce Committee that the common carrier exemption 
to the FTC Act should be lifted. There is a quote here I can 
give you, but I will pass on that. At the hearing in this 
committee earlier, this Congress, Ranking Member Pallone asked 
if you supported lifting the exemption without preempting any 
other part of the Communications Act. You unequivocally said 
yes. Do you still hold this position today in your role as 
chairman of the 21st Century Privacy Coalition? Should the FTC 
lift----
    Mr. Leibowitz. I certainly hold that as my personal 
position is that the common carrier exemption should be 
eliminated, absolutely.
    Mr. McNerney. So is your personal position--what about your 
position as chairman of the----
    Mr. Leibowitz. Of the 21st Century Privacy Coalition, I 
think a number of the carriers, I haven't gone back and polled 
them, but I think a number of the carriers would support 
lifting the common carrier exemption. Now they would prefer and 
this was the White House position, that the FTC have sole 
jurisdiction for privacy enforcement.
    Mr. McNerney. Thank you. Mr. Brake, in your testimony, you 
argue the ISPs don't actually have much access to consumers' 
data because so much of the data is now encrypted, yet ITIF's 
unlocking encryption report released earlier this March notes 
that even when information is encrypted, law enforcement can 
have a lot of that information from analyzing users' metadata. 
If law enforcement can draw important insights from analyzing 
metadata, wouldn't an ISP also have the ability to benefit from 
analyzing users' metadata?
    Mr. Brake. That is absolutely true. I mean we are not 
denying that metadata is still available. The high-level URL, 
the web address is still available to ISPs.
    Mr. McNerney. And a lot of information can be gleaned about 
users from that metadata.
    Mr. Brake. That is correct. And to the extent that that can 
be used under an appropriate privacy framework such as that 
offered by the FTC, we think that is a good thing. We think 
that offering ISPs the opportunity to enter into target 
advertising allows for other innovations. And so we wouldn't 
deny that there is still available metadata. But I think it is 
important to look back at how unpredicted and unprecedented the 
rise of encryption is and how dramatically this changes both 
the scope and the type of information that is available to 
ISPs.
    It was not that long ago that very respected privacy 
scholars expected, predicted that ISPs would deploy DPI, Deep 
Packet Inspection, scale based on trends and Moore's Law, as 
process and power increases, that would become cheaper and more 
available. That turned out not----
    Mr. McNerney. But the metadata is still a big deal.
    Mr. Brake. But what happened was widespread rise of 
encryption and so I think that this sort of--the ways in which 
technology can shift the ground under our feet with regard to 
these sorts of practices should caution us towards flexible, ex 
post enforcement guidelines rather than ----
    Mr. McNerney. The same goes true with the amount of 
information that is available for metadata, the same argument.
    Professor Ohm, would you comment?
    Mr. Ohm. This is such an important point and I think it is 
something to really underscore, right. So in my misspent youth, 
along with being a systems administrator, I was also a computer 
crimes prosecutor at the Justice Department.
    Ms. Eshoo. Which job did you not have?
    Mr. Ohm. And I will say that there is a richness to 
metadata that is useful to the FBI. This has come up time and 
time again. And I commend the ITIF for acknowledging that in 
the report you reference.
    I will also say this is something to consider when you 
think about the spread of encryption. There is an intrinsic 
relationship between--is data useful for advertising? Is data 
useful for the FBI? Is data potentially privacy invasive? 
Right? We have not yet invented the magic wand that allows us 
to wave it over a database and remove only the privacy 
violation, but retain the law enforcement utility and the 
advertising utility. It is a really, really vexing relationship 
of data.
    So if the Swire report, right, and I don't think he goes 
this far, but if it is read to say that encryption is literally 
blinding ISPs, that it means that ISPs have very little revenue 
to make from the stream of data that they are being deprived. 
The benefit that is lost is very small. You can't have it both 
ways. Right? Either the data continues to be valuable for 
advertising which is exactly why it continues to be a potential 
privacy violation or the data is blinded through encryption 
which saves us from privacy violation, but it also makes it 
nearly worthless to the ISP.
    Again, I wish we have the magic wand that would allow us to 
have the optimal results of both of those things, but I am 
sorry to say it just doesn't exist.
    Mr. McNerney. Mr. Ohm, does this proposal also result in 
increased confusion to consumers?
    Mr. Ohm. No, I mean so the consumer confusion point has 
been made repeatedly in this debate. The entire essence of the 
FTC framework which has been lauded by everyone is that 
consumers somehow will read hundreds of privacy notices, become 
informed about the different choices and make intelligent 
choices all along. This is the premise of the FTC model.
    We are talking about adding a few more privacy notices. I 
don't understand why this is going to increase consumer 
confusion in the ways that it has been argued. That argument, I 
will be quite honest, I have thought a lot over the last 4 days 
about what that argument even means. And if we believe in the 
FTC model, it is hard to say that this is going to increase 
consumer confusion.
    Mr. McNerney. Mr. Chairman, I yield back.
    Mr. Shimkus. The gentleman yields back his time. The Chair 
now recognizes himself for 5 minutes for questions. This is 
actually a great hearing. I appreciate your time. It is very 
difficult. I wish the Johnson clan was still here because they 
are like most--you have got smart people, obviously, behind you 
that are watching this very closely, but they are average Joes, 
right? They are just trying to figure out. They are dealing 
with FTC, FCC, ISP, browsers, and all this world that you are 
digging deep into where everybody else's head is kind of 
spinning. That is why I am a former infantryman. We had the 
KISS principle, Keep It Simple.
    How many of you think it is time to rewrite the Telecom 
Act? Mr. Brake? Mr. Leibowitz? Mr. Ohm? Come on, join the 
movement here.
    Mr. Ohm. I think laws are meant to be reassessed.
    Mr. Shimkus. Very good, I do, too. And the '96 Telecom Act 
is great. It did things that hadn't been done before. It dealt 
with Internet issues. But it really was and tried to bring 
competition into the market and it also did voice and video 
delivery. It wasn't in this data world. I mean it is 20 years 
now. There was no Facebook, Instagram, Pinterest, Twitter, 
Snapchat, YouTube, BuzzFeed. None of those. We are in a 
different world, so that is why I am all in. It is time to do 
the hard work and really to keep it simple, so we don't have 
this fight. We have this fight, FTC, FCC. We need to simplify 
this process.
    And there is historical activities that have been done, 
that have been proven correct. But I don't know if people are 
going to just count the other aspects of this whole privacy 
security and the stuff my colleague, Mr. McNerney talked about. 
Right? Especially on security. I have been pretty vocal on 
Apple and encryption and shouldn't there be a way that they 
give it back to Apple, get the information so we can do our 
security issues?
    You have a staffer behind you that keeps shaking his head 
yes or no on everything that is being said. And I don't 
appreciate it. So I think we really need to open up the debates 
again.
    I also do some European issues, Eastern European, National 
Security, NATO, E.U., so I have been following this safe harbor 
stuff now turned into U.S.-E.U. Privacy Shield debate. And the 
European Commission, Commissioner Vera Jourova confirmed 
yesterday, which means today, that they should be close to an 
agreement. What is that agreement based upon, FTC or FCC?
    Mr. Leibowitz, why don't you give me a----
    Mr. Leibowitz. Well, I mean I think that the Executive 
Branch is holding up the FTC approach as the approach that 
protects privacy including the privacy of European consumers. 
That is the privacy shield. And my concern and I think the 
Executive Branch's concern, but I won't speak for them, is that 
if you are criticizing the FTC approach as too weak, and 
actually, I think in many ways the FTC is stronger than the FCC 
approach----
    Mr. Shimkus. Quickly, quickly.
    Mr. Leibowitz. It puts the American Government in a 
potentially complicated position as it is negotiating that 
privacy shield.
    Mr. Shimkus. Let me go to Mr. Brake. What signal are we 
sending to the European Union?
    Mr. Brake. I absolutely agree with Mr. Leibowitz. I think 
this undermines our stance that the FTC approach and in a true 
fact, the FTC approach has been successfully applied to a 
number of different Internet actors all across this ecosystem.
    If I may very quickly jump back to your earlier point about 
the history of legislation. I think it is important to point 
out Professor Ohm has stated that it is unambiguous that 222 
authorizes the FCC to regulate here. I think that that is 
questionable. This statute, this section of the statute was 
written, the '96 Act was written to introduce competition in 
telephone networks. So this was a different type of network, 
different actors, and is largely focused on competition, not 
pulling information from rival networks as competition was 
introduced to telephones, was not focused on privacy.
    Mr. Shimkus. Thank you. So let me continue to make this as 
confusing as possible.
    Mr. Ohm, does it seem contradictory to you that the FCC is 
seeking to impose stringent regulations or more stringent on 
the ISPs, while at the same time opening up consumer viewing 
habits for anyone to track in the FCC's current proceedings on 
set-top boxes?
    Mr. Ohm. Set-top box privacy is something that we should be 
concerned about as well. I completely concede that. I think the 
ability to track Web sites is richer data and more likely to 
cause privacy harms. I absolutely think that is true, too.
    The other thing I will say in response to your question is 
there has been the specter throughout this entire hearing that 
the FCC somehow is prohibiting conduct when in my reading of 
the NPRM they are actually just shifting to an opt-in consent 
model. And so they are still giving you the ability to be very, 
very innovative in your business models, as long as you tell 
the consumer what you want to do and get their permission to do 
it. I mean that seems a far cry from a blanket prohibition.
    Mr. Shimkus. Excellent, excellent. Thank you for your time 
and I will now yield back my time and turn to my colleague from 
Kentucky, Mr. Yarmuth, for 5 minutes.
    Mr. Yarmuth. Thank you, Mr. Chairman. I also want to 
commend the panel. It has been a very interesting discussion 
and everyone makes very good cases, I think. I will agree with 
Mr. Shimkus and in doing so disagree with Mr. Ohm. Nineteen 
Ninety-Six is the Dark Ages in terms of where we are. And one 
of the things that I constantly obsessed about is how we as a 
Congress, which moves at its optimum efficiency at 10 miles an 
hour--probably these days 2 or 3 miles an hour--and in a world 
that is moving at 100 miles an hour, and how do we possibly 
keep pace in making policy?
    I am one who is willing to sign on right now to Mr. 
Shimkus' idea of rewriting the Telecommunications Act. I think 
it is negligent that we don't consider doing that.
    I am concerned about a couple of things. One is I 
personally would prefer one agency to deal with one subject, 
philosophically, generally speaking. I also think it is 
important that we not only have an enforcement facility, but we 
also have a rulemaking facility. I think we can't just say go 
out and do whatever you want and then we will clamp down on 
you. I don't think that makes sense.
    I also don't think it is useful in a rule or in statute to 
distinguish between the participants in this world. I look at 
the cross media ownership rules and how silly they are in 
today's world when every broadcast facility is also doing 
print. They are doing it online, but they are doing print. And 
every newspaper is doing broadcasting. I mean there is no 
distinction any more between those functions. And certainly the 
public doesn't get them. So I am sure Google--in my district of 
Louisville, Kentucky, Google is coming in right now with 
putting up high speed capacity, competing with the existing 
Internet service providers. Those worlds are going to merge as 
well. And ISPs are not going--5 years from now are not going to 
be what ISPs are now.
    I also understand very clearly the need to maintain this 
advertising capability online. I was involved for many years 
and now my son is involved in a free media publication that 
only survives because advertising is in there. As a matter of 
fact, the entire history of commercial broadcasting in this 
country involves advertising that consumers accept. They accept 
the intrusion. Now they can record and fast forward them, but 
there wouldn't have been broadcast television, commercial 
television, nor would there be radio without advertising. So I 
accept the fact that we need to accommodate those.
    All that being said, I am not really sure where I come out 
on this. I suspect that again, I think we do need rules going--
the rules of the games, as well as an enforcement capability.
    But would you comment, Mr. Ohm, on this whole question 
about edge providers and that broadband providers sit in a 
privileged place and at the bottleneck? Can you explain what 
that means being in a privileged place?
    Mr. Ohm. Sure, absolutely. And if I may follow and connect 
that to some of the things that--the excellent points that you 
have just brought up. So you have compared the advertising 
ecosystem of our online world, and let me be clear: In 1996, 
there was a different Internet. I first signed on in 1991, and 
it was a very empty, lonely place at the time.
    But advertising, as it existed in the radio and television 
markets that you talked about, was not behavioral advertising, 
right? It was keyed to the television show you were watching or 
the radio show.
    There is a lot of advertising on the Internet that is 
contextual in the same way and it makes a lot of revenue for a 
lot of people and creates all sorts of innovation. So we are 
talking about the slim layer at the top which is how many extra 
pennies can we extract from a consumer if we know this digital 
dossier about them? Right? So it is not enough to say you are 
on a travel Web site, I am going to show you a travel ad. The 
move is yes, but we want to know when you are going to Cabo San 
Lucas and we want to know whether you would like an aisle seat 
or not. This is the extra stuff we are talking about.
    We are not talking about getting rid of advertising. We are 
certainly not talking about getting rid of contextual 
advertising. We are talking about the advertisers' ability to 
pry essentially into your habits, into your mind, into your 
experiences, into your preferences, and build a virtual version 
of you in their server that they can then use to serve you 
after.
    Mr. Yarmuth. Every third paragraph of a political story I 
read now has a golf-related ad.
    Mr. Ohm. Yes, right. It happens to all of us. You look at a 
pair of shoes and it haunts you for the next month. Maybe I 
should buy the shoes.
    So what we are really talking about here is that thin 
behavioral layer. And by the way, one of the things that has 
been criticized is that there is disparate treatment. The 
disparate treatment means there will be online behavioral 
advertising throughout the Internet ecosystem, in fact, also by 
ISPs, because the ISPs no doubt will convince some of their 
customers to opt-in based on whatever benefit they are going to 
give them and they will be able to take part in this ecosystem, 
too.
    Nothing in the proposed rules stops an ISP for competing 
directly with a search engine or with some other service, a 
social network, right?
    Mr. Leibowitz. Let me just add----
    Mr. Yarmuth. My time is up. I would love for you to answer, 
but----
    Mr. Leibowitz. If I could just add to your point and I 
agree with most of what Professor Ohm said and I agree with 
most of what you said. First of all, those golf ads that you 
are getting, those are invisible cyberazzi who are collecting 
information. They are not touched by this. The people who put 
cookies in your computer, they are not touched by this proposed 
rule.
    Second of all, 1996 was the Dark Ages when it came to the 
Internet, and that is why I think all of you, and you are the 
policy makers, believe that there should be--seems like there 
is bipartisan support for a rethink of the Telecommunications 
Act.
    When we did our rethink of privacy, protecting consumer 
privacy in an era of rapid change in 2012, I want to make a 
process point. We took 450 separate comments. We took 2 \1/2\ 
years. We did three workshops. We did a workshop after we put 
out a draft report. This is really important stuff and you 
can't do it in a quick, 6-month turnaround under the APA. You 
need to get it right. And this rulemaking, this proposed 
rulemaking and it can improve, doesn't get it right.
    Mr. Walden [presiding]. All right, I need to go now to Mr. 
Johnson from Ohio for questions.
    Mr. Johnson. Thank you, Mr. Chairman. Mr. Leibowitz, do you 
think the FCC's proposed rules could interfere with the routine 
business operations?
    Mr. Leibowitz. Well, I think they encompass routine 
business operations so that, for example, the FTC approach, the 
FTC said in its comment to the FCC, you know, you should have 
an opt-in for sensitive data, perhaps for Deep Packet 
Inspection. That is not actually being reviewed right now. But 
not for routine information. That benefits consumers. There is 
no harm to----
    Mr. Johnson. OK, all right. Well, following on with you, 
Mr. Leibowitz, I am concerned about the huge scope of data 
covered by the FCC's rules. There seem to be many data 
elements, for example, IP addresses, device identifiers, domain 
information that cannot on their own identify a specific 
person, but are nonetheless defined as customer proprietary 
information under the proposal.
    I understand that a number of commenters that are not ISPs, 
IT companies, network engineers, security specialists, 
etcetera, have expressed concern about the unprecedented scope 
of the data being covered here, and its potential impact on how 
the Internet works and how consumers experience the Internet 
today. Are you concerned about that as well, the data that is 
covered?
    Mr. Leibowitz. I do share those concerns.
    Mr. Johnson. OK, well, I am particularly concerned with the 
number and complexity of the issues raised in this proceeding 
and the potential for unintended consequences. As I understand 
it, before the FTC adopted its framework, your agency spent 
over 15 months working through various practical applications 
and quote unquote use case scenarios to try to minimize the 
potential for unforeseen adverse facts, But the FCC seems 
determined to get an order out by September or October no 
matter what.
    Isn't rushing the process incompatible with the agency's 
imperative to think through all of the potential consequences 
of this kind of regimen?
    Mr. Leibowitz. Well, you know, I think the agency is 
operating, the FCC is operating under the APA, but to do this 
rule properly, you need to think about it carefully. And I will 
say, going back to Mr. Yarmuth's point, I was with--after we 
had that 15-month process, we did an event at the White House 
where the Obama administration rolled out its consumer bill of 
rights, privacy rights. And it called for the FTC to have sole 
jurisdiction, only jurisdiction over privacy issues, 
consistently across every industry.
    And so going back to Mr. Yarmuth's point, if you are going 
to have one--the FTC shouldn't be doing spectrum allocation. 
And I am not so sure the FCC should be doing privacy.
    Mr. Johnson. OK, all right. Thank you. Mr. Brake, one of 
the major flaws we have heard about today in the FCC's proposed 
rules is the lack of uniformity for the rules. What does this 
mean for consumers and their data as they use the Internet, and 
how does privacy protection change, depending on what services 
or products they may be using?
    Mr. Brake. Thank you for the question. I think one of the 
important reasons that we want to have uniform rules is to 
allow for industries to explore different parts of the Internet 
ecosystem unimpeded by particular regulatory restrictions. So I 
think that is my overwhelming goal is to allow companies to 
innovate across different sector lines.
    To my mind, I think that the distinction between edge and 
broadband provider is going to be increasingly blurred over 
time and so to be going back to this model of creating sector 
specific regulatory silos is just taking a step backwards in 
time.
    So I think over the long term it affects consumers in that 
we would see less innovation, less flexibility in different 
business models throughout the entire Internet ecosystem, the 
more that we build up these specific sector rules.
    I also agree with the point made by Mr. Leibowitz earlier 
that I think this will continue to confuse consumers to think 
that information, as it is treated by particular industry 
actors would be different depending on whether they want to 
opt-in or opt-out, could be different depending not on their 
expectation of privacy or what the actual data is, but on the 
specific actor that they are interacting with.
    Mr. Johnson. OK, well, great. Thank you, Mr. Chairman. I 
yield back.
    Mr. Walden. The gentleman yields back. The Chair now 
recognizes Ms. Clarke for her opportunity to ask questions. 
Please go ahead.
    Ms. Clarke. Thank you, Mr. Chairman. I thank our ranking 
member. I thank our panelists today for lending their expertise 
on this very complex issue of privacy and innovation.
    Mr. Ohm, the rise of mobile broadband, you alluded to this 
in one of your answers earlier, has ushered in a new era of 
convenience in the terms of access to the Internet. But it has 
also created highly detailed portraits of the user's life.
    The information gathered from a cell phone, particularly 
real time location data is far more sophisticated than 
information gathered from wired connection. Can we really 
expect an industry framework to protect this sensitive 
information when it represents such a significant marketing 
opportunity?
    Mr. Ohm. That is right. Some describe kind of the great 
untapped part of the advertising market to be local 
advertising. So the idea is if you are walking by--I was going 
to say Circuit City. I am not sure they exist in large numbers 
any more.
    Ms. Clarke. They don't.
    Mr. Ohm. But if you walk by a particular retailer, they 
will notice you are there and send you an advertisement. So 
there is a lot of competition to figure out where you are on a 
minute-by-minute basis to fix your location.
    I have written an article in the Southern California Law 
Review about sensitive information. And in that article, I have 
gone on the record saying Congress really ought to have a 
location privacy protection act in 2016 for exactly the reasons 
that you are suggesting. This is deeply sensitive information. 
There are many stories about women entering battered women 
shelters and the first they are told to do is take their 
battery outside of their telephone, right, because there are so 
many different ways that not only corporations, but maybe even 
other individuals can track your location using a tracking 
device that we all carry with us. It is something to be quite 
concerned about.
    Ms. Clarke. There is also the concern now with even 
automobiles and----
    Mr. Ohm. That is right. Smart Cars and autonomous cars and 
one other thing I will say on this because I could not agree 
more and I have not had the opportunity to say that the FTC 
report is a towering achievement for an agency. They 
recognize--and I didn't work on it. This actually predated my 
time there. They recognize in the report that location 
information does belong in the categories of sensitive 
information for exactly the same reasons.
    Ms. Clarke. A recent story regarding Cable One, an Internet 
service provider, illustrates the fears that I think many have 
about Internet ecosystem without sufficient privacy protection. 
According to their CEO, the company was able to determine which 
customers were high value and low value based on their credit 
scores. As a result, some customers received better service 
from Cable One than others simply because their personal 
information was available.
    Are you concerned that customers' data could potentially be 
used to discriminate against them as in the case of Cable One?
    Mr. Ohm. Yes, and not only am I concerned, this is where 
the pessimism really starts to come out, I am sorry to say. 
Study after study has shown that there is data that someone can 
use to guess your FICO score with great accuracy, even if they 
promise to never look at your FICO score, right?
    And so there is one story that is documented, although I 
didn't do the research, that a Canadian bank asked a single 
question which was is this person applying for a loan the type 
of person who buys the rug protectors on the bottom of their 
furniture? And if they doled out loans based only on that one 
piece of information, they basically make about the same in 
terms of defaults and returns.
    So the idea here that I am trying to get to is if we let 
ISPs have unrestricted access to the domain data that we have 
been talking about this entire day, this Cable One story may 
not be an outlier, right? It may be that what they are doing is 
using big data techniques to infer that you are not a good 
credit risk, even if they promise never to look at your FICO 
score. So this relates absolutely to the need for the FCC rule.
    Ms. Clarke. Mr. Leibowitz, did you want to respond?
    Mr. Leibowitz. I was going to say, it definitely should 
concern all lawmakers. It is an important policy issue and the 
FTC has done multiple workshops; one when I was there; some 
since I have left, about this very issue and what it does to 
expand the already troubling digital divide. So it is an issue.
    Now I also would say that there are some other areas within 
the FCC proposed rule that would potentially expand that 
digital divide and make it worse. So take, for example, a 23-
year-old who lives in Crown Heights, or a family of four that 
lives there and is on $40,000 a year. If it wanted discounted 
Internet service in exchange for collection of data, maybe not 
the dissemination of data, by name, it could be de-identified 
and it may not be disseminated at all, that person wouldn't 
have the right to make a choice because it would be banned by 
the FCC's proposed rule.
    It just seems to us, the people and consumers ought to have 
choice, particularly when the choice is maybe some modest 
collection of data against savings of hundreds of dollars a 
year. That could be important to people.
    Ms. Clarke. Mr. Brake, did you want to respond?
     Mr. Brake. On the Cable One point, I think there is 
general agreement that nobody wants to see anyone denied 
service or offer particularly bad service based on any sort of 
collection of information, but it seems to me that if companies 
want to address issues like churn or decide who to up sell 
based on particular data sets, that seems entirely consistent 
with other areas of the economy and can make the overall system 
more efficient.
    And moreover, I think it is important that data sets like 
that can be more accurate and better than other proxies that 
could have been used in the past.
    Ms. Clarke. My time has expired, but I thank you for your 
responses and I yield back, Mr. Chairman.
    Mr. Olson [presiding]. The gentlelady's time has expired. 
The Chair recognizes the gentleman from Kentucky, Mr. Guthrie, 
for 5 minutes.
    Mr. Guthrie. Thank you, Mr. Chairman, and thank you all for 
testifying today. Congress should pay close attention to how 
agencies use and perhaps misuse statutory authority.
    But Mr. Leibowitz, I have a question first for you. The FCC 
is intending to apply a statute written to cover information 
about telephone calls to information about consumers' online 
activities. In doing so, the FCC has broadly, perhaps too 
broadly, interpreted what information is included in the 
statutory requirement. And my question is do you think Congress 
intended information such as IP and Mac addresses to be subject 
to Section 222?
    Mr. Leibowitz. Well, I was a staffer in the Senate during 
the '96 Act. People on this committee were there in the '96 
Act. I will leave it for others to--I will leave it for members 
of this committee to make that determination and perhaps for 
the courts.
    I would say it is certainly not clear from Section 222 that 
the Telecom Act, at least in my reading, was supposed to be 
quite so expansive. I am sure there is going to be more 
discussion about that going forward.
    Mr. Guthrie. I have a second question and I will lead up to 
it, but I have concerns about--I do have concerns about FCC's 
treating ISPs' use of data differently than other businesses 
who use online data. For one, I believe that consumers are more 
likely to have questions about how other online companies out 
there are mining their online data for ads and targeted 
marketing and other uses as opposed to how service providers 
are using it.
    But as we have discussed at length today, the Commission 
has focused on treating two parts of the same industry very 
differently which also raises constitutional questions.
    So for Mr. Leibowitz, I guess three questions, and I will 
ask them all and I will let you answer. Can you elaborate on 
the constitutional concerns that have been raised about the 
FCC's proposal? And second, do you consider the FCC's proposal 
to be the least restrictive means of protecting consumer 
privacy as required under the test in the Central Hudson case?
    Mr. Leibowitz. Well, that is one of the prongs in the 
Central Hudson case and I think there is an argument to be made 
that by not using the least restrictive means, that to address 
a problem which may or may not be a problem under one other 
prong of the Central Hudson test, that the FCC may exceed its 
constitutional authority.
    Don't take my word for it. No one less than Larry Tribe has 
put a comment into the FCC that suggests that under the Central 
Hudson test, whether the asserted Governmental interest is 
substantial, whether the regulation directly advances the 
Government interest asserted, and whether it is more extensive 
than necessary, and I would certainly, based on my experience, 
not as a constitutional lawyer, but as an FTC official think 
that it is more extensive than necessary whether it fails the 
Central Hudson test.
    Mr. Guthrie. One more final question for Mr. Leibowitz. Can 
the FCC's approach really achieve its intended goal when it 
applies only to a subset of the online ecosystem?
    Mr. Leibowitz. Well, it sort of depends on what its goal is 
at the FCC. I think the FTC's approach, when we were doing a 
deep think about privacy in 2010, '11, and '12, was that it 
should be technology neutral and when we held a special 
workshop to look at the issues of what we call large platform 
providers, that is, collectors of big data which include ISPs, 
Google, Facebook, various others, there was a general consensus 
at the workshop from consumer advocates, from businesses, from 
the Commission, that any restrictions ought to be content--I am 
sorry, ought to be technology neutral and apply across the 
board. The FCC doesn't have the authority, it believes, to do 
that.
    Mr. Guthrie. Thank you, and that finishes my questions. I 
will yield back a minute and 11 seconds.
    Mr. Olson. The gentleman yields back. The Chair recognizes 
the gentleman from New Jersey, the ranking member of the full 
committee, Mr. Pallone, for 5 minutes.
    Mr. Pallone. Thank you. I wanted to start with Chairman 
Leibowitz. When you were Chairman of the Federal Trade 
Commission, you testified before this committee that the FTC 
ought to have APA rulemaking authority. And last year, you 
testified you still held that position. So just stepping away 
from the FCC's specific proposals for a minute, do you continue 
to believe that the FTC should have APA rulemaking authority? 
You just have to answer yes or no, if that is OK.
    Mr. Leibowitz. In my personal capacity, I do.
    Mr. Pallone. Thanks. And then I wanted to ask you, you have 
talked about the amount of good work the FTC has been able to 
do for consumers even without rulemaking authority. And I know 
that one of the tools the FTC uses are negotiated consent 
decrees that last for 20 years, another tool is its ability to 
find practices unfair even without a finding of economic 
injury.
    Can you just elaborate on what tools the FTC used during 
your time there a bit?
    Mr. Leibowitz. The FTC used a variety of tools when I was 
there including strong orders, including policy papers, like 
this one on privacy, including rulemaking which we have for 
children and Paul Ohm was a critical part of the update we did 
for the Children's Online Privacy Protection Act to make 
parents the gatekeepers for protecting their children's 
privacy, but also allow businesses some flexibility. So the FTC 
has all those tools and it continues to use all those tools.
    Mr. Pallone. All right. Thanks. So I wanted to ask 
Professor Ohm, some claim the FCC's proposal will make 
consumers worse off because having new rules will be too 
confusing. They argue that the FCC would be better off using 
only the after-the-fact enforcement that the FTC has 
traditionally used for Web sites.
    Now I have seen data that shows that two thirds of Internet 
users say that they would prefer more regulations than the ones 
that we are using today. Have you seen any independent research 
that shows whether consumers are confused if they are faced 
with these differing privacy regulations or policies?
    Mr. Ohm. Thank you for the question. Survey after survey 
has demonstrated that consumers desperately want more privacy. 
And to be quite honest, I am not sure if they care if they get 
it from companies being beneficent or from the Government 
imposing rules. They want more privacy, right?
    And I have never, except with one odd question that was 
reported out last week, I have never seen a survey that said, 
OK, which of the entities should owe you privacy and which 
shouldn't? This goes back to my earlier point about consumer 
confusion. A lot of our approach in privacy is that we give the 
consumer a lot of credit. We treat them like a sophisticated 
individual with autonomy and intelligence and an awareness and 
incentives to worry about things like their privacy. This is 
kind of a bedrock underpinning of notice and choice.
    And so once again, it really does confuse me to hear so 
many people say that the FCC rules are going to be the last 
straw that are going to kind of befuddle our poor consumers. I 
have a lot more faith in the consumers, right? I think it is 
not just a legal fiction that notice and choice works. I think 
it actually has been proved in survey, and research report 
after research report, but also in kind of just our lived 
experience. We actually have recognized that people can make 
good choices for themselves when they are armed with the right 
information. And that is all the FCC report does. There is no 
prohibition. It is opt-in consent and opt-out consent and 
actually some implied consent where consent isn't even 
necessary. Three simple categories, very easy to understand.
    Mr. Pallone. All right. Thanks so much. Thank you, Mr. 
Chairman.
    Mr. Olson. The gentleman yields back. The Chair recognizes 
the gentleman from Missouri, Mr. Long, for 5 minutes.
    Mr. Long. Thank you, Mr. Chairman. And Mr. Leibowitz, it is 
my understanding that the FTC has conducted more than 35 
workshops, townhalls, and roundtables that have focused on 
emerging issues in consumer privacy and security. Have these 
sessions helped inform the FTC's protection of consumer 
privacy?
    Mr. Leibowitz. Absolutely. Absolutely.
    Mr. Long. Would the FCC perhaps benefit from a comparable 
process and series of events before adopting final rules?
    Mr. Leibowitz. Certainly taking a modest step in that 
direction might be useful in understanding where they might 
find consensus.
    Mr. Long. Can you pull your mic a little closer? When you 
turn your head, I lose you.
    Mr. Leibowitz. I am sorry. No one is asking them to take 
450 separate comments or to take 2 \1/2\ years to go through a 
workshop and put out a draft rule and take 2 \1/2\ years as we 
did to finish our report. But I think a little bit of 
additional thinking in that direction might be a very useful 
thing to moving towards a more balanced rule, at least from the 
21st Century Privacy Coalition perspective.
    Mr. Long. OK. Mr. Brake, will the FCC's proposed rules 
promote competition in the online ecosystem?
    Mr. Brake. No. I think that the FCC's rules insofar as they 
are explicitly structured around specific business models that 
broadband providers are currently engaged in and placing 
limitations on any experimentation outside of that, I think it 
would greatly limit the possibility of broadband providers 
engaging in particularly new business models around target 
advertising that is most obvious. I think it is explicitly 
designed--this is a common carriage of the 19th and the 20th 
century that is designed to lock in broadband providers into 
the historic business models that they have been engaged in.
    Mr. Long. So I am assuming that you think FCC's proposed 
rules ignore the economic and technological realities of 
Internet ecosystem?
    Mr. Brake. Yes. I think so. I think they do, yes.
    Mr. Long. Thank you. And Mr. Leibowitz, the Notice of 
Proposed Rulemaking proposes that a person's physical address 
and telephone number be included among protection information, 
even though that is not the case under the agency's consumer 
proprietary network information rules for voice providers. So a 
phone company can share name and address and what is called a 
phone book. A lot of people might not remember those, but they 
can share a name and address in a phone book, but if the 
broadband provider were to share the same information, it would 
be on the hook for even an inadvertent action such as a bill 
mailed to the wrong address. Why the change in policy?
    Mr. Leibowitz. Right, I mean look, there is a lot of 
additional thinking that might be done to smooth out some of 
those inconsistencies. And I just want to make a point because 
I have heard a lot today about either--it is like binary. 
Either there is nothing anyone can do or you have to take the 
FCC's NPRM as it is and just go forward with it. And that is 
just not the truth.
    The truth is that you can create some limits on ISPs and 
protect privacy at the same time without making everything opt-
in. I would just, if I have one suggestion for the FCC which is 
really the decider here, it would be take a look at the FTC's 
comment. I know they are going to do this. And be responsive to 
it. Because if that happens, and I hope it will and I believe 
it will, because I believe in agencies doing the right thing in 
rulemakings, they are going to make their rule much more 
balanced, still very privacy protected, but also flexible to 
allow the innovation, I think that all of us on the panel, all 
of us on the dais would like to see.
    Mr. Long. Thank you. I have a little bit less than a 
minute, but Mr. Ohm, when you talk about intellectual privacy 
rights, can you kind of define what you are talking about and 
how that works?
    Mr. Ohm. Sure. This comes from Professor Neil Richards at 
Washington University in St. Louis. The theory is that in many 
ways we are composed and we are kind of in a central core of us 
is what we read and say, and that there should and ought to be 
additional privacy protections.
    Professor Richards is a First Amendment scholar who by the 
way couldn't disagree with Professor Tribe's analysis of this 
more. We have been trading some emails. But Professor Richards 
says that when someone implicates your ability to read and 
chills your ability to read what you want to read, that should 
be a heightened privacy concern.
    If I may, since we are almost out of time and on a moment 
of agreement here, I think it is a wonderful thing about the 
American system that the FCC is doing this public notice and 
comment process. Nothing is final. They are going to reassess 
it as they go along. They have, the last time I checked, more 
than 50,000 comments filed in this proceeding, and they are 
going to have to talk about those comments. So we are going to 
know whether they took these concerns, and there are a lot of 
concerns, seriously. And if they don't, they will be held to 
account by this body and others.
    Mr. Long. Thank you. I am out of time, Mr. Chairman.
    Mr. Olson. The gentleman yields back. The Chair recognizes 
himself for 30 minutes--5 minutes. Just making sure you are 
paying attention.
    OK, the Chair yields to the gentlelady from Illinois, Ms. 
Schakowsky, for 5 minutes for questions.
    Ms. Schakowsky. First of all, I want to thank the chairman 
and ranking member so much for allowing me to be here today and 
to ask a question. I am not on this committee, but I have great 
interest. So let me start out.
    Mr. Leibowitz, you noted, not that I heard it, but I read 
it, that privacy is an important part of the Federal Trade 
Commission's consumer protection mission and you praised the 
FTC's proven track record of success on privacy enforcement 
actions.
    Last week, the Subcommittee on Commerce, Manufacturing, and 
Trade, where I am the ranking Democrat, held a markup on a bill 
to change the FTC's enforcement authorities. Given your 
experience as Chairman of the FTC, I would like to ask you some 
questions about how the FTC protects consumers.
    Let me ask this one. Currently, a company can use evidence 
of compliance with guidance as evidence of good faith, but a 
company cannot use evidence of compliance with guidance as 
evidence of compliance with law. Do you agree with Professor 
David Vladeck's testimony from a couple of weeks ago that 
allowing a company to use evidence of compliance with guidance 
to prove compliance with the law would create a significant 
loophole in the FTC enforcement actions and make it more 
difficult for the FTC to protect consumers?
    Mr. Leibowitz. Well, let me say two things. First of all, I 
am testifying for the 21st Century Privacy Coalition which does 
not have a position--I have not polled them on these 17 
proposed bills that are coursing through your committee. I 
would have, and I haven't read this bill particularly, but I 
would have concerns with that bill in my personal capacity, 
absolutely.
    Ms. Schakowsky. As you know, the FTC can only make 
allegations that a person has violated a law. Did the 
Commission ever bring cases against a company simply for its 
failure to comply with guidance?
    Mr. Leibowitz. Guidance is different, as you know. And we 
worked so closely together when I was at the FTC and you were 
ranking on the Consumer Protection Subcommittee.
    The FTC brings cases based on violations of the law, not 
violations of guidance. Now the guidance are there for 
businesses and consumers so that they understand what is and 
what is not permissible.
    Ms. Schakowsky. Just like the companies you represent, the 
FTC filed comments in response to the FCC privacy proposal. Is 
that something the FTC commonly does, provide comments to other 
agencies?
    Mr. Leibowitz. It does it from time to time. I am 
particularly pleased that my former agency did it here because 
my sense is that it reads--if the FCC closely reads, and I 
believe it will, the FTC's comment which is based on our 2012 
privacy report which you know about, it will dramatically 
improve its draft rule.
    Ms. Schakowsky. Would such comments include an economic 
analysis? Would the FTC be able to do a meaningful economic 
analysis within the time a comment period is typically open?
    Mr. Leibowitz. Would the FCC be able----
    Ms. Schakowsky. No, would the FTC be able to do a 
meaningful economic analysis?
    Mr. Leibowitz. The FTC always thinks about the cost 
benefits of privacy protections as it writes its report, but if 
you mean some sort of cost benefit as you do with a major rule, 
I don't think the FTC would have time to do that and submit it 
with respect to the FCC rule, unless the FCC takes some 
additional time to think through its rulemaking. And given the 
complexities of that, they might decide to do that and it might 
be an appropriate thing to do.
    Ms. Schakowsky. While you were at the FTC, I presume the 
FTC made at least one allegation using its unfairness 
authority, right?
    Mr. Leibowitz. Many allegations and in a bipartisan way, 
too.
    Ms. Schakowsky. The Commission used the unfairness 
statement issue in 1980, correct?
    Mr. Leibowitz. Yes, it did.
    Ms. Schakowsky. And should we be selectively codifying the 
statement so that unfairness claims can only be made if there 
is a substantial economic injury or should we be concerned 
about cases like the designer where in-home computer cyber-
peeping case or concerned about that kind of invasion of 
privacy?
    Mr. Leibowitz. I think you know what my position would be 
in my personal capacity and I would be concerned about any 
rules that hamstrung the FTC which is an agency that I think 
that clearly I hear today, really from both sides of the aisle 
is one that has done a great job of protecting consumers. I 
would have to look at the legislation some more, but it sounds 
to me like it is concerning.
    Ms. Schakowsky. Thank you. I really thank the committee for 
allowing me to speak. Thank you.
    Mr. Olson. The gentlelady leads back. The Chair would now 
recognize himself for 5 minutes for questions. First of all, 
thank you, Chairman Leibowitz, Mr. Ohm, and Mr. Brake for 
coming this afternoon.
    Having worked for Phil Gramm for his last 4 years as our 
Senator from Texas, I have learned some pearls of Texas wisdom. 
One is, and I quote, ``It is easier to kill a vampire than a 
bad law or an overreaching Federal rule.''
    In my humble opinion, FCC's NPRM contains tentative 
conclusions that may be harder to kill than Count Dracula. My 
first questions are for you, Mr. Brake, and you, Chairman 
Leibowitz. In your opinion, are there tentative conclusions in 
the NPRM and how hard would they be to overcome, those 
conclusions in the record?
    Mr. Brake, you first.
    Mr. Brake. Absolutely. The Notice of Proposed Rulemaking, 
obviously a long, complex document that makes a number of 
tentative conclusions, a number of tentative proposals that I 
think sets the framework in the wrong direction. So I think a 
course correction, something more into the FTC approach.
    And if I can narrow down on this issue because I think 
Professor Ohm hit on it that is really the heart of the 
question is the choice of architecture framework of the opt-in 
versus the opt-out. And so the FCC proposes to require an opt-
in for any non-communications related use of data. We think 
that the correct approach to promote innovation would be to 
require only an opt-out.
    Here, you are asking consumers, many of which are very 
happy to make tradeoffs around their privacy and do not have as 
deep a concern about privacy as Professor Ohm or some of the 
other privacy advocates in the proceeding, to take the extra 
step and opt-in. And so fundamentally, any consumer who really 
cares about their privacy can take the extra step and find that 
opt-out and that is also a problem. I think just correcting 
that choice of architecture could do an awful lot of good.
    Mr. Leibowitz. So just a followup.
    Mr. Olson. Yes, sir.
    Mr. Leibowitz. You know, I think the draft at least 
overshoots the mark. It creates, going back to your Phil Gramm 
analogy, it creates sort of a Boogie Man among ISPs. They are 
not collecting Deep Packet Inspection information of web 
browsing history now. And they are not collecting more 
information than others in the Internet ecosystem. You ought to 
treat them, if you want to do privacy, if you want to enhance 
privacy protections for consumers by rule, you ought to do it 
with respect to sensitive information.
    Mr. Olson. One more question to you, Chairman Leibowitz, 
and you, Mr. Brake, as well. Does the FCC proposal set the 
stage for double jeopardy? Is there potential for subjecting 
alleged violators to sanctions from two separate agencies or 
one agency, but not the other? Is that a real possibility?
    Mr. Leibowitz. You know, that is an interesting question. I 
think with respect to ISPs, no, because by using Title II for 
net neutrality, it is just taking jurisdiction away from the 
FTC. Now, if the FCC tries to reach beyond that jurisdiction, 
then you could have two agencies doing privacy protection for 
the same company. But I will also say this, in the 8 \1/2\ 
years years I have served on the FTC, both as a Commissioner 
and then as Chairman, there was never an instance where almost 
all of the privacy protection was ceded to the Federal Trade 
Commission, even as it came to ISPs. And ISPs were subjects of 
some privacy cases involving the FTC.
    Mr. Brake. Certainly, so I would say on the first point the 
question of the exact reach of the FTC's exemption, and the FTC 
experts can correct me if I am wrong, but my understanding is 
that is something of an open question as to whether or not the 
commentary exemption applies on a matter of status whether or 
not a common carrier is a common carrier or whether or not it 
is activities based, whether or not they are engaged in 
particular common carrier, classic common carrier activities. 
And frankly, to my mind, I think it is a question of whether or 
not privacy falls under the common carrier status or as an 
activity whether or not that is more a private carrier activity 
or common carrier activity.
    I know it is commonly accepted that the common carrier 
exemption has been triggered, but to my mind if the FTC and FCC 
wanted to agree that privacy is a matter of private carriage, 
to my mind it would be lawful for the FCC to leave this matter 
to the FTC entirely. And that is what we have advocated.
    On the second point, I think Mr. Leibowitz is correct that 
if the FCC wanted to expand its reach to look under 706 under 
regulating edge providers, that would certainly throw all this 
into great confusion.
    Mr. Olson. Well, thank you. My time has expired. And seeing 
no further Members here, the Chair announces to all the 
Members, you have 5 days to submit questions for the record.
    I want to thank all of the witnesses for coming and remind 
everybody that today is the Army's birthday. The United States 
Army is 240 years old, but the birthday present they will get 
from Navy is a victory at the football game. The committee 
stands adjourned.
    [Whereupon, at 12:21 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

                 Prepared statement of Hon. Fred Upton

    Today we focus on the latest regulatory overreach by the 
FCC to create a new privacy regime for broadband providers. As 
a result of last year's reclassification of Internet service 
providers, the industry was removed from the Federal Trade 
Commission's jurisdiction and placed in unclear territory. 
Attempting to fill the void it created, the FCC proposed a set 
of complex and burdensome new restrictions that will create 
uncertainty for consumers and cause harm to the marketplace.
    These rules simply miss the mark. By singling out broadband 
providers, the FCC is feeding unbalance into the Internet 
economy. Until recently, the entire Internet ecosystem 
successfully operated under the enforcement-based privacy 
protections of the FTC model and I fear this new approach will 
reduce competition in the flourishing Internet marketplace. The 
FCC should hear the widely shared concerns and collaborate with 
industry to balance consumer privacy and innovation policy.
    The focus of the Energy and Commerce Committee has always 
been consumers. We all share the goal of keeping personal data 
safe and secure, and while doing so encouraging innovation, 
growth, and better services. I joined with my colleagues 
earlier this month to encourage the FCC to reconsider their 
proposal. I hope our panel of experts today can help provide 
further insight into the proposed rules and an optimal path 
forward that will provide the greatest benefits for consumers.

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