[Senate Hearing 114-237]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 114-237

                         THE CONNECTED WORLD: 
                    EXAMINING THE INTERNET OF THINGS

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

                                HEARING

                               BEFORE THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 11, 2015

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation
                             
                             
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]



                          U.S. GOVERNMENT PUBLISHING OFFICE
99-818 PDF                        WASHINGTON : 2016                          

________________________________________________________________________________________ 
For sale by the Superintendent of Documents, U.S. Government Publishing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, 
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). 
E-mail, [email protected].  
      
       
       
       
       
       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                   JOHN THUNE, South Dakota, Chairman
ROGER F. WICKER, Mississippi         BILL NELSON, Florida, Ranking
ROY BLUNT, Missouri                  MARIA CANTWELL, Washington
MARCO RUBIO, Florida                 CLAIRE McCASKILL, Missouri
KELLY AYOTTE, New Hampshire          AMY KLOBUCHAR, Minnesota
TED CRUZ, Texas                      RICHARD BLUMENTHAL, Connecticut
DEB FISCHER, Nebraska                BRIAN SCHATZ, Hawaii
JERRY MORAN, Kansas                  EDWARD MARKEY, Massachusetts
DAN SULLIVAN, Alaska                 CORY BOOKER, New Jersey
RON JOHNSON, Wisconsin               TOM UDALL, New Mexico
DEAN HELLER, Nevada                  JOE MANCHIN III, West Virginia
CORY GARDNER, Colorado               GARY PETERS, Michigan
STEVE DAINES, Montana
                    David Schwietert, Staff Director
                   Nick Rossi, Deputy Staff Director
                    Rebecca Seidel, General Counsel
                 Jason Van Beek, Deputy General Counsel
                 Kim Lipsky, Democratic Staff Director
              Chris Day, Democratic Deputy Staff Director
       Clint Odom, Democratic General Counsel and Policy Director
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 11, 2015................................     1
Statement of Senator Thune.......................................     1
Statement of Senator Nelson......................................     2
    Prepared statement...........................................     3
Statement of Senator Ayotte......................................   128
Statement of Senator Peters......................................   130
    Report dated November 12, 2014 entitled ``Consumer Privacy 
      Protection Principles--Privacy Principles for Vehicle 
      Technologies and Services'' by the Alliance of Automobile 
      Manufacturers, Inc. and the Association of Global 
      Automakers, Inc............................................   131
Statement of Senator Schatz......................................   138
Statement of Senator Daines......................................   140
Statement of Senator Heller......................................   142
Statement of Senator Booker......................................   144
Statement of Senator Fischer.....................................   146
Statement of Senator Gardner.....................................   149
Statement of Senator Moran.......................................   151
Statement of Senator Klobuchar...................................   152
Statement of Senator Manchin.....................................   154
Statement of Senator Markey......................................   156
    Report dated February 2015 entitled ``Tracking & Hacking: 
      Security & Privacy Gaps Put American Drivers at Risk'' by 
      the staff of Senator Edward J. Markey......................   157
Statement of Senator Cantwell....................................   171
Statement of Senator Blumenthal..................................   173
    Letter dated February 10, 2015 to Chairman John Thune and 
      Ranking Member Bill Nelson from Gary Shaprio, President and 
      CEO, Consumer Electronics Association......................   175
    Letter dated February 11, 2015 to Hon. John Thune and Hon. 
      Bill Nelson from Scott Belcher, President, 
      Telecommunications Industry Association....................   176

                               Witnesses

Michael Abbott, General Partner, Kleiner Perkins Caufield & Byers     5
    Prepared statement...........................................     7
Douglas Davis, Vice President and General Manager, Internet of 
  Things Group, Intel............................................     9
    Prepared statement...........................................    11
Lance Donny, Founder and Chief Executive Officer, OnFarm.........    21
    Prepared statement...........................................    22
    Article dated January 2, 2015 entitled ``Towards Smart 
      Farming--Agriculture Embracing the IoT Vision'' by the 
      Beecham Research Ltd.......................................    25
    Article entitled ``Agricultural Water Conservation in the 
      Lower Flint River Basin of Georgia'' by the Flint River 
      Basin Partnership..........................................    31
    Report dated January 26, 2015 ``NEAA Technical Advisory Group 
      Report--NW Agriculture Irrigation Energy Efficiency 
      Initiative'' by the Northwest Energy Efficiency Alliance...    32
    Article dated December 4, 2014 entitled ``10 Policy 
      Principles for Unlocking the Potential of the Internet of 
      Things'' by Daniel Castro and Joshua New, Center for Data 
      Innovation.................................................    50
    Report dated April 2014 entitled ``AgTech: Challenges and 
      Opportunities for Sustainable Growth'' by Suren G. Dutia, 
      Ewing Marion Kauffman Foundation...........................    57
    Report dated May 2014 entitled ``Agriculture Gets Smart: The 
      Rise of Data and Robotics by Amanda Faulkner, Research 
      Manager, Cleantech Group and Kerry Cebul, Principal, 
      Cleantech Group............................................    83
Adam D. Thierer, Senior Research Fellow, Mercatus Center at 
  George Mason University........................................    89
    Prepared statement...........................................    91
Justin Brookman, Director, Consumer Privacy Project, Center for 
  Democracy & Technology.........................................   116
    Prepared statement...........................................   117

                                Appendix

Letter dated February 9, 2015 to Hon. Fred Upton, Hon. Frank 
  Pallone, Hon. John Thune and Hon. Bill Nelson from Thomas E. 
  Kern, Interim President and CEO, Intelligent Transportation 
  Society of America (ITS America); Mitch Bainwol, President and 
  CEO, Alliance of Automobile Manufacturers; Michael P. 
  Melaniphy, President and Chief Executive Officer, American 
  Public Transportation Association; Frederick ``Bud'' Wright, 
  Executive Director, American Association of State Hihgway and 
  Transportation Officials (AASHTO); John Bozzella, President and 
  CEO, Association of Global Automakers, Inc.; Greg Cohen, 
  President & CEO, American Highway Users Alliance; Jill 
  Ingrassia, Managing Director, Government Relations and Traffic 
  Safety Advocacy, AAA; Roger A. Wentz, CAE, President and CEO, 
  American Traffic Safety Service Association; Brian Pallasch, 
  Managing Director of Government Relations and Infrastructure 
  Initiatives, American Society of Civil Engineers...............   191
Response to written questions submitted by Hon. John Thune to:
    Michael Abbott...............................................   192
    Douglas Davis................................................   193
Response to written questions submitted to Lance Donny by:
    Hon. John Thune..............................................   194
    Hon. Roy Blunt...............................................   195
Response to written questions submitted by Hon. John Thune to:
    Adam D. Thierer..............................................   196

 
                         THE CONNECTED WORLD: 
                    EXAMINING THE INTERNET OF THINGS

                              ----------                              


                      WEDNESDAY, FEBRUARY 11, 2015

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:47 a.m. in room 
SR-253, Russell Senate Office Building, Hon. John Thune, 
Chairman of the Committee, presiding.
    Present: Senators Thune [presiding], Blunt, Ayotte, Heller, 
Fischer, Moran, Gardner, Daines, Nelson, Cantwell, Klobuchar, 
Blumenthal, Schatz, Markey, Booker, Manchin, and Peters.

             OPENING STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    The Chairman. Good morning. This hearing of the Commerce, 
Science, and Transportation hearing will come to order.
    This morning we convene to examine what may be the most 
important trend in technology today: the Internet of Things.
    I want to thank Senators Fischer, Ayotte, Booker, and 
Schatz for their leadership on this issue and for encouraging 
this committee to examine the IoT.
    By now, all of us are very used to having at least one or 
two electronic items near us that are connected to the 
Internet, such as computers, phones, and TVs. Increasingly, 
however, we are seeing common everyday objects being connected 
online, a literal Internet of Things that will soon be 
ubiquitous.
    These things unobtrusively gather data and communicate with 
users and with other devices to solve a variety of consumer and 
business needs.
    Some have argued the Internet of Things is the third wave 
of the Internet following the fixed Internet of the 1990s and 
the mobile Internet of the 2000s.
    The economic impact of IoT promises to be significant and 
will drive growth in every sector of our economy.
    According to McKinsey & Company, the Internet of Things has 
the potential to create a global economic impact of up to $6.2 
trillion annually by 2025, with 50 billion Internet-connected 
devices by 2020.
    There are some truly fascinating examples of the Internet 
of Things: a bed with smart fabric and sensors that tracks your 
sleep habits and uses the data to make sure your sleeping 
environment stays comfortable throughout the night; mobile apps 
that use roadside sensors to inform drivers of empty parking 
spots; an automated sprinkler system that saves money by using 
real-time weather data to make automatic, water-saving 
adjustments; a Web-enabled toothbrush that tracks the user's 
brushing habits to improve oral hygiene. One of my staffers, 
interestingly enough, actually uses one of these and swears by 
it.
    As exciting as those applications sound, we are only at the 
beginning of this technology trend, and there is no telling how 
far it will go. The number of connected things will continue to 
explode and they will increasingly interact with each other 
dynamically, seamlessly, and automatically without human 
intervention.
    With significant economic and societal impacts, the 
Internet of Things also brings complex policy questions. By 
their nature, IoT devices require Internet connectivity and we 
will need to be bold in thinking of clever ways to unleash 
licensed and unlicensed spectrum for the private sector.
    IoT devices can collect sensitive consumer and business 
data. Therefore, privacy considerations should be at the 
forefront as we consider this great technological wave.
    Security will also be a critical concern of the Internet of 
Things due to the scope and sensitivity of the data collected 
due to the interconnection of devices and networks.
    These issues are real, but I encourage policymakers to 
resist the urge to jump head first into regulating this dynamic 
marketplace. Let us tread carefully and thoughtfully before we 
consider stepping in with a ``government knows best'' mentality 
that could halt innovation and growth. Let us treat the 
Internet of Things with the same light touch that has caused 
the Internet to be such a great American success story.
    We should let consumers and entrepreneurs decide where IoT 
goes rather than setting it on a Washington, D.C.-directed 
path. If evidence shows that there are discrete problems, we 
should examine ways to solve those problems. But let us have 
the humility to recognize that the best solutions are often not 
government solutions, and let us not stifle the Internet of 
Things before we and consumers have a chance to understand its 
real promise and its implications.
    We have a fantastic panel with us today with diverse 
experience in the IoT marketplace, and I am looking forward to 
hearing from each of you in a moment.
    Right now, I would like to turn to my distinguished Ranking 
Member, the Senator from Florida, Senator Nelson, for his 
opening statement.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Thank you to the distinguished Chairman.
    And we are going to have a bed that will help us improve 
our sleep.
    The Chairman. Sounds good.
    Senator Nelson. That does sound good.
    But as we get into this subject of the Internet of Things, 
no one is talking about over-regulating. The promise of the 
Internet of Things must be balanced with real concerns over 
privacy. If you saw ``60 Minutes'' last Sunday, the Internet of 
Everything could allow everything to be the portals of the 
Internet and consequently the threat of cybersecurity. Hackers, 
as shown on ``60 Minutes,'' can access your car and take over 
the basic functions of driving your car. It was demonstrated 
there with Lesley Stahl trying to drive the car under 
controlled conditions, and suddenly the car braked or suddenly 
the car turned or suddenly the car accelerated.
    The Internet of Things can hack into insulin pumps and 
cause an overdose to occur or take over a pacemaker and cause a 
heart attack. And it is not the stuff of TV drama. It is the 
real threats to our Nation's cybersecurity, but also to our 
physical safety.
    Now, I am looking at this through the lens of being the 
Ranking Member of the Cybersecurity Subcommittee on the Armed 
Services Committee, where we are getting into this in detail.
    We opened over the weekend a cybersecurity center at the 
University of South Florida in Tampa. And I was shown a device 
that is called a ``Pineapple,'' which costs about 100 bucks. 
You can buy it in commercial stores. And what happens is if I 
walk into a place where I suddenly tap into the WiFi such as a 
Starbucks, someone with this device can suddenly have me on 
their wireless instead of the wireless in the particular store 
or in my apartment. And all of a sudden, I am in their system.
    And so interconnected devices collect, amass, transmit 
personal information. Consumers' personal privacy is obviously 
at risk; and it is an aspect of the extraordinary things where 
we can improve our sleep, but we are going to have to watch out 
for whether or not we have any privacy.
    Now, the FTC just settled a case with a company that 
manufactured household security cameras that, because of their 
faulty software, allowed anyone online to peep into hundreds of 
households.
    And some companies may transmit the information they 
collect to third parties without consumer consent. It is one 
thing for my refrigerator to inform me that I need more milk. 
It is another for my refrigerator to tell the local grocery 
store the same thing for marketing purposes.
    And more recently we learned that Samsung's privacy policy 
for its voice-activated Smart TV informed consumers that their 
indoor conversations can be recorded by the television and sent 
to third parties.
    Did you ever read ``Animal Farm'' and learn about Big 
Brother?
    Mr. Chairman, I will insert the rest of my opening 
statement for the record so that we can get on to the 
witnesses.
    But we are at a time of extraordinary challenge. It is a 
time of great opportunity with what we have, but at the same 
time, where is our privacy?
    Thank you.
    [The prepared statement of Senator Nelson follows:]

   Prepared Statement of Hon. Bill Nelson, U.S. Senator from Florida
    Thank you, Chairman Thune, for holding this hearing today.
    In just the past couple of weeks, we have been hearing a lot about 
the proliferation of Internet connected devices.
    And the news is not all good.
    We have smartphones with web trackers that you can't delete called 
supercookies.
    We have connected devices in cars out there that are potentially 
collecting all sorts of information about us--without express consent.
    And now, we have news reports about televisions that send household 
recordings in our homes to third parties.
    Make no mistake, the advent of the Internet of Things could result 
in a sea change in the way we interact with our world, how we go about 
our lives in our homes, and economic growth and jobs.
    Home automation and integration could mean limitless conveniences 
and save consumers thousands of dollars each year.
    Wearables and connected healthcare devices could drive down costs 
and pave the way for a better life for all of us.
    Smart electric grids, traffic monitoring systems, and new 
industrial processes could revolutionize our country and the economy.
    No one is debating the promise of the Internet of Things, and no 
one is talking about ``overregulating.'' This is a red herring. But the 
promise of the Internet of Things must be balanced with real concerns 
over privacy and the security of our networks.
    As we saw on Sunday night's episode of 60 Minutes, the Internet of 
Everything could allow ``everything'' to be portals to the Internet 
and, consequently, threats to our cybersecurity.
    Hackers can access your car and take over basic functions, such as 
acceleration and braking control.
    They can also hack into insulin pumps and cause an overdose or take 
over a pacemaker and cause a heart attack.
    This is not the stuff of TV drama--these are real threats not only 
to our Nation's cybersecurity but also to our physical safety.
    In fact, this technology is nothing new. For years, the so-called 
``Pineapple Mark IV'' has been able to hack into Wi-Fi networks and 
wreak havoc on your laptops and smartphones.
    Furthermore, as these interconnected devices collect, amass, and 
transmit personal information, consumers' personal privacy is 
increasingly at risk.
    The FTC just recently settled a case with a company that 
manufactured household security cameras that, because of faulty 
software, allowed anyone online to peep into hundreds of households.
    Furthermore, some companies may transmit the information they 
collect to third parties without consumer consent.
    It's one thing for my refrigerator to inform me that I need more 
milk; it's another for my refrigerator to tell that to the local 
grocery store for marketing purposes.
    And, more recently, we learned that Samsung's privacy policy for 
its voice-activated ``Smart TV'' informed consumers that their indoor 
conversations can be recorded by the television and sent to a third 
party.
    So, Big Brother may really be listening to us.
    The FTC just released a report on this very topic, making some wise 
recommendations--for best practices--for companies as they design, 
sell, and service their connected devices.
    I hope it's the start of real conversation and cooperation between 
the FTC and industry to make sure the promises of the Internet of 
Things don't fall victim to a lack of foresight and protections for 
consumers.
    Finally, another important aspect in looking toward the future of 
the Internet of Things is the platform on which the majority of these 
new devices connect--wireless spectrum.
    Spectrum is the lifeblood of these devices, as well as for so much 
other innovation in the U.S. economy. We must engage in a careful 
consideration to balance competing needs for this finite, yet critical 
public resource.
    I want to thank the witnesses for appearing before the Committee, 
and I look forward to hearing your testimony.

    The Chairman. Thank you, Senator Nelson.
    And we are going to turn to our distinguished panel to 
answer all the questions that you have just raised. Hopefully, 
they will help us figure out how we get all the up-side 
benefit, opportunity and potential that comes with this great 
technology but also the risks which very clearly exist and to 
which you alluded.
    We will start with Mr. Michael Abbott. Mr. Abbott is a 
General Partner at Kleiner Perkins Caufield & Byers.
    Mr. Douglas Davis. Mr. Davis is the Vice President and 
General Manager for the Internet of Things Group for the Intel 
Corporation.
    Mr. Lance Donny. Mr. Donny is the Chief Executive Officer 
for OnFarm Systems.
    Mr. Adam Thierer. Mr. Thierer is the Senior Research Fellow 
for the Mercatus Institute at George Mason University.
    And Mr. Justin Brookman. Mr. Brookman is the Director for 
the Consumer Privacy Project at the Center for Democracy & 
Technology.
    So we are delighted that you have all made time to be with 
us today and look forward to hearing from you.
    We will start at my left and your right Mr. Abbott, and if 
you could confine your remarks as close to 5 minutes as 
possible, we would certainly appreciate that. Mr. Abbott?

 STATEMENT OF MICHAEL ABBOTT, GENERAL PARTNER, KLEINER PERKINS 
                        CAUFIELD & BYERS

    Mr. Abbott. Chairman Thune, Ranking Member Nelson, and 
distinguished members of the Senate Commerce Committee, I 
appreciate the opportunity to testify before you today on the 
exciting and important topic of our connected world and the 
dynamic role of the Internet of Things.
    I would also like to thank Senators Fischer, Booker, 
Ayotte, and Schatz for your interest in this topic and for 
requesting this hearing.
    I am here today in my capacity as a General Partner at the 
Silicon Valley-based venture capital firm, Kleiner Perkins 
Caufield & Byers. Our firm, Kleiner Perkins, has more than 40 
years of experience helping entrepreneurs deliver world-
changing ideas to market. Through our consumer digital and 
enterprise digital initiatives alone, we have invested in and 
are mentoring more than 30 entrepreneurial companies with over 
$300 million in investments in the IoT space today. I am by 
background an engineer, an entrepreneur, an investor, and a 
serial optimist about the power of technology and innovation to 
help improve our lives.
    Today I will focus my testimony on three key areas.
    One, the Internet of Things is a robust and vibrant 
ecosystem in both the consumer and enterprise space, with new 
platforms and applications coming online every day and strong 
venture capital investments to help grow it.
    Two, the rapid growth in both data and devices leads to a 
next wave of innovation focused on efficiencies and smart 
systems using the cornerstones of successful IoT smart 
hardware, software, and cloud integration.
    Third, IoT, or the Third Wave of the Internet as analysts 
like to call it, is nascent but very competitive. Consumer 
confidence is paramount, but we must not over-regulate and 
stifle innovation.
    As we look back on investments in the verticals we called 
``bits,'' ``bytes,'' ``bugs,'' and ``drugs,'' we now see the 
rise of the Internet of Things, a connected world that allows 
us to jump from old platforms of the last decade into a new 
world in which we can manage every aspect of our lives, from 
our health to our finances, to our home, all with the swipe of 
a finger on a smart phone. And the market is responding. 
Overall venture investments, $48 billion, in 2014 reached their 
highest levels since 2000, and the 2014 IPO market was strong 
both domestically and globally. Overall, IoT investment is 
harder to immediately qualify since it crosses over so many 
sectors.
    So what do we mean by the IoT?
    IoT enables the collection of an unprecedented quantity and 
quality of data through sensors and devices. According to an 
often-cited Cisco report, there will be more than 50 billion 
connected devices by 2020, approximately 2x growth every 5 
years. And as the recent EMC Digital Universe and market 
research company IDC report noted, data is doubling in size 
every 2 years and expected to reach 44 zettabytes by 2020. That 
is 44 trillion gigabytes. To put that in perspective, we were 
at 4.4 zettabytes, just over a tenth of that, in 2013.
    So how will we deal with our data obesity problem? What are 
the smart solutions for managing all of this data in a way that 
improves, rather than complicates our lives? With many 
platforms to spur technological advances from the home, to the 
body, to the car, to the factory, to the farm, we must innovate 
our way into a smarter connected future. At Kleiner Perkins, we 
are looking across platforms and enterprises at disrupters and 
at incumbents, and at the entire IoT ecosystem to use 
connectivity to transform how we work, play, and care for our 
families and ourselves.
    If great hardware and software are the cornerstones of a 
robust IoT ecosystem, it is the third element, hardware, 
software, and cloud services, that will show major advances and 
create smarter systems. With all these new devices, the stream 
of data will continue to accelerate. Successful systems must 
provide data-driven intelligence at both the endpoint devices 
and through machine learning in the cloud. In order for IoT to 
grow in meaningful ways to keep both the consumer and the 
enterprise users engaged, we must have a more intelligent way 
to manage and rank-order data with real-time usage feedback on 
what needs a fix or an upgrade. Recent advances in deep 
learning, the use of algorithms in machine learning for 
modeling abstractions in data, combined with these streams of 
real-time sensor data, will present enormous opportunities for 
innovation on which we are focused.
    My testimony today is based primarily on my experience as 
an engineer and investor. I am not an expert in public policy. 
There is so much promise in this space, but we are in the early 
days. Consumer confidence is paramount to growth and innovation 
in the IoT space and reasonable security and best practices 
should help bolster that confidence.
    The FTC has thoughtfully presented ideas, benefits, and 
risks in its Internet of Things Privacy & Security in a 
Connected World report. Congress, as evidenced by today's 
hearing, is also looking at the intersection of technology and 
public policy.
    However, I would ask that regulators and legislators 
proceed with caution when considering over-regulation in this 
space to prevent stifling innovation. As is common in nascent 
markets, interoperability in IoT is now a challenge, and over 
time, standards will emerge from the winners in the market. We 
are at a critical comment in this industry in which innovators 
and entrepreneurs are competing with some of the biggest and 
most historically successful enterprises in the country. And 
that is healthy. This competition is creating consumer choice 
in the marketplace, delivering to consumers much better 
products and services at a lower cost.
    An insightful colleague of mine once said that we will all 
know we have succeeded when we no longer use the term 
``Internet of Things,'' just as we no longer say that we 
downloaded MP3's. As we have found with our music and phones, 
innovators are turning the scientific and technical 
breakthroughs of our time into products that benefit everyone, 
changing the way we live and giving us new opportunities to 
connect with and relate to one another and achieve our goals. 
Soon, my bet is that these technologies will likewise become 
unobtrusive, another chapter in how entrepreneurs and their 
innovations can help improve the quality of life for new 
generations in this country and around the world.
    I would like to thank the Committee for the opportunity to 
testify today, and I look forward to answering any questions.
    [The prepared statement of Mr. Abbott follows:]

        Prepared Statement of Michael Abbott, General Partner, 
                    Kleiner Perkins Caufield & Byers
    Chairman Thune, Ranking Member Nelson, and distinguished members of 
the Senate Commerce Committee, I appreciate the opportunity to testify 
before you today on the exciting and important topic of our connected 
world and the dynamic role of the Internet of Things (``IoT''). I would 
also like to thank Senators Fischer, Booker, Ayotte and Schatz for your 
interest in this topic and for requesting this hearing.
    I am here today in my capacity as a general partner at the Silicon 
Valley-based venture capital firm, Kleiner Perkins Caufield & Byers. 
Our firm, Kleiner Perkins has more than 40 years of experience helping 
entrepreneurs deliver world-changing ideas to market. Through our 
Consumer Digital and Enterprise Digital initiatives alone, we have 
invested in and are mentoring more than 30 entrepreneurial companies 
with over $300 million in investments in the IoT space. I am by 
background an engineer, an entrepreneur, an investor, and a serial 
optimist about the power of technology and innovation to help improve 
our lives.
    Today I will focus my testimony on 3 key areas:

  1.  The Internet of Things is a robust and vibrant ecosystem--in both 
        the consumer and enterprise space--with new platforms and 
        applications coming on-line every day and strong venture 
        capital investments to help grow it.

  2.  The rapid growth in both data and devices leads to a next wave of 
        innovation focused on efficiencies and smart systems using the 
        cornerstones of successful IoT: smart hardware, software and 
        cloud integration.

  3.  IoT--or ``the Third Wave of the Internet'' as analysts like to 
        call it, is nascent but very competitive. Consumer confidence 
        is paramount, but we must not over-regulate and stifle 
        innovation.

    As we look back on investments in the verticals we called ``Bits, 
Bytes, Bugs, and Drugs,'' we now see the rise of the Internet of 
Things: a connected world that allows us to jump from old platforms of 
the last decade into a new world in which we can manage every aspect of 
our lives, from our health to our finances to our home, all with the 
swipe of a finger on a smartphone. And the market is responding. 
Overall venture investments ($48 billion) in 2014 reached their highest 
levels since 2000 \1\ and the 2014 IPO market was strong, both 
domestically and globally. Overall IoT investment is harder to 
immediately qualify since it crosses over so many sectors. So what do 
we mean by the IoT?
---------------------------------------------------------------------------
    \1\ NVCA, ``MoneyTreeTM Report by PricewaterhouseCoopers 
LLP (PwC) and the National Venture Capital Association (NVCA), based on 
data from Thomson Reuters,'' January 16th, 2015. http://nvca.org/
pressreleases/annual-venture-capital-investment-tops-48-billion-2014-
reaching-highest-level-decade-according-moneytree-report/
---------------------------------------------------------------------------
    It is my understanding that the primary focus of this hearing is 
the consumer side of the IoT. But it's worth mentioning that there are 
many other applications for IoT including business-to-business and 
machine-to-machine--applications that will only expand. As such, I tend 
to categorize IoT in two ways:

   First is the consumer market, what I call ``The Internet of 
        Me,'' because it enables people to use connectivity to enrich 
        their lives and the lives of their family and friends.

   Second is ``The Internet of IT,'' consisting of large data 
        generation for enterprises to make smarter systems for 
        everything from precision agriculture to efficiencies in large-
        scale manufacturing.

    IoT enables the collection of an unprecedented quantity and quality 
of data through sensors and devices. According to an often-cited Cisco 
report, there will be more than 50 billion connected devices by 2020 
\2\--approximately 2x growth every 5 years. And as the recent EMC 
Digital Universe and market research company IDC report noted, data is 
doubling in size every two years and expected to reach 44 zettabytes by 
2020 \3\--that's 44 trillion gigabytes. To put that in perspective, we 
were at 4.4 zettabytes, just over a tenth of that, in 2013.
---------------------------------------------------------------------------
    \2\ Dave Evans, ``The Internet of Things: How the Next Evolution of 
the Internet Is Changing Everything,'' Cisco Internet Business 
Solutions Group (IBSG), April 2011. http://www
.cisco.com/web/about/ac79/docs/innov/IoT_IBSG_0411FINAL.pdf
    \3\ EMC Digital Universe & IDC, ``The Digital Universe of 
Opportunities: Rich Data and the Increasing Value of the Internet of 
Things,'' April 2014. http://www.emc.com/leadership/digital-universe/
2014iview/executive-summary.htm
---------------------------------------------------------------------------
    So how will we deal with our data obesity problem? What are the 
smart solutions for managing all of this data in a way that improves, 
rather than complicates, our lives? With many platforms to spur 
technological advances from the home to the body to the car to the 
factory to the farm, we must innovate our way into a smarter, connected 
future. At Kleiner Perkins, we are looking across platforms and 
enterprises, at disrupters and at incumbents, and at the entire IoT 
ecosystem to use connectivity to transform how we work, play, and care 
for our families and ourselves.
    We have two critical issues on this front. The first is power 
management of the devices themselves, and the second is data 
management, including machine learning. With a growing number of power 
hungry devices, our firm is looking at innovators working in the Low 
Power Everywhere space--devices getting lighter, smaller and more 
efficient. We're also looking at low power processors and energy 
scavengers that search for energy sources without batteries. There are 
promising advancements in this space such as the work being done by 
Ambiq Micro in sub-threshold circuits to improve efficiency in sensors 
and devices.
    As investors, we do extensive analysis before investing in a 
company. But when you are at the disruptive edge of a new technological 
revolution, it's hard to fully predict how consumers will react. In 
order for a technological revolution to take root, you must invest 
early and work with the company to produce some wins.
    A great example of this is our investment in Nest. When we started, 
we couldn't know for sure that Nest would be an attractive device to 
consumers. But now, with great technology and smart marketing, it's 
influencing the development of the smart home. This is because the Nest 
team got two of the most critical IoT elements right: intuitively 
designed and aesthetically pleasing hardware, and smart software. 
Together, these produce a seamless and enjoyable user experience, 
enabling the customer to easily, and remotely as needed, adjust the 
temperature in one's home and save on heating and cooling costs.
    It's the possibility of more stories like Nest that led Kleiner 
Perkins to partner with Google Ventures to start the Thoughtful Things 
Fund. The Thoughtful Things Fund is an initiative to back the ideas and 
companies that can expand what the conscious homeTM can do. 
Consumers see immediate benefits from a connected home, whereas the 
cycle for enterprise systems may take a longer period of time. But the 
seeds of change for both consumers and enterprises are there, and we've 
already had thousands of submissions from all over the world.
    If great hardware and software are the cornerstones of a robust IoT 
ecosystem, it is the third element--hardware + software + cloud 
services that will show major advances and create smarter systems. With 
all of these new devices, the stream of data will continue to 
accelerate. Successful systems must provide data-driven intelligence at 
both the endpoint devices and through machine learning in the cloud. In 
order for IoT to grow in meaningful ways to keep both consumer and 
enterprise users engaged, we must have a more intelligent way to manage 
and rank order data, with real-time usage feedback on what needs a fix 
or an upgrade. Recent advances in ``deep learning''--the use of 
algorithms in machine learning for modeling abstractions in data--
combined with these streams of real-time sensor data, will present 
enormous opportunities for innovation on which we are focused.
    My testimony today is based primarily on my experience as an 
engineer and investor. I am not an expert in public policy. There is so 
much promise in this space, but we are in the early days. Consumer 
confidence is paramount to growth and innovation in the IoT space and 
reasonable security and best practices should help bolster that 
confidence.
    The FTC has thoughtfully presented ideas, benefits and risks in its 
Internet of Things: Privacy & Security in a Connected World report. 
Congress, as evidenced by today's hearing, is also looking at the 
intersection of technology and public policy. However, I would ask that 
regulators and legislators proceed with caution when considering over-
regulation in this space to prevent stifling innovation. As is common 
in nascent markets, interoperability in IoT is now a challenge and, 
over time, standards will emerge from the winners in the market. We are 
at a critical moment in this industry, in which innovators and 
entrepreneurs are competing with some of the biggest and most 
historically successful enterprises in the country--and that is 
healthy. This competition is creating consumer choice in the 
marketplace, delivering to consumers much better products and services 
at a lower cost.
    An insightful colleague of mine once said that we'll know that 
we've succeeded when we no longer use the term the ``Internet of 
Things''--just as we no longer say that we ``download MP3s.'' As we've 
found with our music and phones, innovators are turning the scientific 
and technical breakthroughs of our time into products that benefit 
everyone, changing the way we live and giving us new opportunities to 
connect with and relate to one another and achieve our goals. Soon, my 
bet is that these technologies will likewise become unobtrusive, 
another chapter in how entrepreneurs and their innovations can help 
improve the quality of life for new generations, in this country and 
around the world.
    I would like to thank the Committee for the opportunity to testify 
today. I look forward to answering any questions.

    The Chairman. Thank you, Mr. Abbott.
    Mr. Davis?

STATEMENT OF DOUGLAS DAVIS, VICE PRESIDENT AND GENERAL MANAGER, 
                INTERNET OF THINGS GROUP, INTEL

    Mr. Davis. Good morning, Chairman Thune, Ranking Member 
Nelson, and members of the Committee. Thank you for the 
opportunity to provide testimony on the importance of the 
United States establishing a global leadership role in the 
Internet of Things.
    As head of Intel's IoT Group, I own the company's overall 
strategy in this space. Intel's 30 years of investment, 
innovation, and standards leadership in the evolution of 
computing provide the foundational elements of that strategy. 
Intel believes the Internet of Things represents a 
transformational opportunity for the U.S. and the world. It 
will enable innovation, increase productivity, and deliver 
efficiencies across both public and private sectors.
    Now, while some think the Internet of Things is smart 
thermostats and wearables, these consumer devices are just a 
few of the many applications. The primary economic driver will 
be non-consumer areas such as industrial and commercial 
applications.
    I will address three topics that are important to consider 
as you chart your policy.
    One, why is the IoT important?
    Two, what are the potential barriers to successful IoT 
ecosystems?
    And how can policymakers accelerate deployments to ensure 
U.S. leadership?
    So first, why is the Internet of Things important? It will 
drive unprecedented benefits for the Government, businesses, 
consumers, and communities. As Mr. Abbott pointed out, the 
growth in the number of devices and the amount of data that 
they are generating will increase at dramatic levels by the end 
of the decade. The IoT presents the opportunity to connect 
these devices, efficiently analyze the data, and use the 
information to improve decisionmaking. And in doing so, the IoT 
is expected to have a multi-trillion dollar global impact, as 
we have noted.
    What should most excite U.S. policymakers is that America 
and other developed economies are expected to capture 70 
percent of this impact if we lead.
    Let us consider one IoT application. SAIA Trucking, located 
in Georgia, has a nationwide fleet of about 3,000 trucks. They 
recently deployed an Intel-based IoT solution which alters 
routes and guides driver performance real-time. SAIA increased 
fuel efficiency by 6 percent, translating into $15 million in 
annual savings.
    The U.S. trucking industry consumes 54 billion gallons of 
fuel per year. Extrapolating SAIA's success, our Nation could 
save over 3 billion gallons of fuel yearly while reducing 
CO2 emissions.
    Second, what are the potential barriers to a successful IoT 
ecosystem? One barrier could be security if not implemented at 
the outset. For this reason, Intel prioritizes security as the 
foundation of our IoT solutions. We will integrate security at 
the outset, building cryptography into our chips to enable 
strong identity and data protection. In addition to the compute 
device itself, our solutions will employ advanced software 
security to prevent harmful applications from being activated 
on the device or taking down the network. Integrating multiple 
layers of security at the outset enables trusted data 
transmission necessary for successful IoT implementations.
    Other potential barriers include connecting to legacy 
infrastructure, interoperability amongst devices, and 
developing global standards. To address these barriers, Intel 
collaborated with industry leaders to define five tenets for 
successful IoT solutions. They are security, ease of 
connectivity, interoperability, data analytics, and ease of 
deploying new applications and services. Based on these tenets, 
we recently launched the Intel IoT Platform.
    Finally, how can policymakers accelerate IoT deployments to 
ensure U.S. leadership? Well, candidly, the U.S. is behind. 
Other countries are aggressively investing in and deploying IoT 
implementations to transform their economies, address societal 
problems, and spur innovation. China, Brazil, the United Arab 
Emirates have all adopted national IoT plans with time-bound 
goals and are investing heavily in IoT R&D and infrastructure. 
The U.S. must leverage our vast resources and capabilities. 
Promoting industry alignment around these large-scale IoT 
deployments based on secure, open, and interoperable solutions 
will showcase U.S. leadership.
    Congress can advance our Nation's IoT momentum by 
collaborating with industry to establish a national IoT 
strategy, encouraging public-private partnerships, and 
investing in IoT research.
    Intel is confident that the U.S. can lead the IoT 
transformation with a continued open dialogue, as you are doing 
here today, and by implementing these recommendations.
    Thank you for your time, and I look forward to your 
questions.
    [The prepared statement of Mr. Davis follows:]

                Prepared Statement of Intel Corporation
    Intel Corporation (``Intel'') respectfully submits this statement 
for the record in conjunction with the Senate Commerce, Science & 
Transportation Committee's hearing on ``The Connected World: Examining 
the Internet of Things.'' Our statement focuses on the opportunity to 
unleash the vast potential of the Internet of Things (IoT) through 
public-private partnerships and to create a leadership opportunity for 
the U.S. in this multi-industry transformation.
    Witness: Doug Davis is the vice president and general manager of 
Intel's worldwide IoT Group (IOTG). Doug has been an Intel employee for 
31 years, and began his career as a product engineer in the company's 
Military and Special Products Division. Over the last decade, Doug has 
run Intel's worldwide Embedded and Communications Group, managed wafer 
factory operations, and now leads the IoT Group. This organization is 
responsible for the company's IoT strategy and solutions--consisting of 
hardware, software, security and services across a wide range of market 
segments, including transportation, manufacturing, healthcare, retail, 
smart home, smart buildings and smart cities. For the past 30 years, 
Intel has made significant investments, driven exciting innovations, 
led standards activities, and supported what has evolved to become the 
Internet of Things. At Intel, we like to say IoT is an overnight 
transformation thirty years in the making.
Intel and the Internet of Things
Intel's Role
    The evolution of IoT goes back more than 30 years with Intel as a 
leader from the start. In 1972, Intel introduced the Intel 4004, the 
world's first commercially available microprocessor--an invention 
foundational to the ``computer revolution.'' In the late 1970s, came 
the Intel 8048, the world's first commercially available 
microcontroller, which integrated memory, peripherals and the 
microcontroller on a single chip. These microcontrollers fueled new 
business opportunities in a variety of markets. In 1981, IBM launched 
the IBM 5150, igniting the rapid-paced growth of the ``personal'' 
computer (PC) market segment. This first IBM PC ran on an Intel 8088 
microprocessor and used Microsoft's MS-DOS operating system.
    Initially, microprocessors were used for personal computing, 
leaving microcontrollers for `use specific or `embedded' applications 
like factory controls. A critical shift occurred in the mid-1990s as 
customers began using Intel microprocessors in embedded market 
segments, bringing the power of computing to what had traditionally 
been based on microcontrollers. Intel began a concerted effort to 
support the unique attributes of embedded market segments including 
manufacturing life-cycle support for 7-10 years, extended operating 
temperatures, and utilization of real-time operating systems.
    The early 2000s saw an unprecedented uptake in Internet usage, as 
the PC and mobile markets exploded. This ``connectivity'' trend wasn't 
limited to connecting people; embedded systems were simultaneously 
taking advantage of this powerful capability. Over the course of just a 
few years, industries worldwide were profiting from the scaling 
benefits of computing and networking and consumers were enjoying the 
benefits of connected PCs.
    In the late 2000s, ``Machine to Machine'' (M2M) emerged. M2M refers 
to technologies that allow both wireless and wired systems to 
communicate with other devices of the same type. Before M2M, people had 
to be physically located at the machine to analyze the data to make 
decisions for managing each machine. With the introduction of M2M, 
machines could now be managed remotely. All of these innovations within 
the datacenter, cloud computing, wireless communications and M2M formed 
the basis of what is now widely known as the IoT.
    Moore's Law, the business model that drives the semiconductor 
industry, states that the number of transistors in an integrated 
circuit doubles approximately every two years. In essence, the 
marketplace experiences a doubling of the computing capability at 
approximately the same price every other year. The observation is named 
after Intel co-founder Gordon E. Moore. This explosion of networked 
devices also began to represent another ``law'' of scaling called 
Metcalfe's Law. Metcalfe's Law states that the value of a 
telecommunications network is proportional to the square of the number 
of connected users of the system (n\2\). This enables the Network 
Effect, whereby the value of a product or service is dependent on the 
number of others using it. Together, Moore's Law and Metcalfe's Law 
demonstrate how the power of intelligent, connected devices like 
connected digital signs, cars and homes can unleash innovation, leading 
to the creation of platforms for new applications and services.
IoT Definition
    IoT is defined as endpoint devices such as cars, machinery or 
household appliances that connect to the Internet and generate data 
that can be analyzed to extract valuable information. There are three 
sub-definitions emerging out of the IoT space, however, all three 
definitions overlap. The ``Mobile IoT'' comprises devices like cars, 
wearables, sensors and mobile phones which all connect directly through 
broadband wireless networks. The ``Industrial IoT'' connects devices in 
industrial environments like factory equipment, security cameras, 
medical devices, and digital signs. These devices are able to connect 
to the Internet and into the datacenter (cloud) through an industrial 
``gateway.'' \1\ Finally, the ``Home IoT'' connects devices like game 
consoles, smart TVs, home security systems, household appliances and 
thermostats through at gateway to the internet.
---------------------------------------------------------------------------
    \1\ A gateway is a node on a network that serves as an entrance to 
another network.


The Five Critical Tenets of IoT
    In September 2014, Intel and key global partners collaboratively 
identified five critical IoT tenets which describe how endpoint devices 
should connect to the cloud. Here are the five key tenets, as 
illustrated in the graphic below:
    First, Security as the Foundation: With billions of internet-
connected devices by 2020, it is important that IoT is secure from the 
sensor to the cloud, including all hardware and software. Second, 
Connectivity, Device Discovery, and Provisioning: Billions of devices 
cannot be managed manually. Rather, devices need to be able to 
communicate their ``status'' to the rest of the system independently. 
Third, Data Normalization: With so many different data types, there 
must be some level of interoperability between devices such that they 
are speaking the same language. Fourth, Actionable Analytics: The data 
must be turned into meaningful information through analytics. Fifth, 
Monetize Hardware, Software, and Data Management: The IoT 
infrastructure must be built to allow developers to manage and monetize 
innovative applications and services.


    With these tenets in mind, in December of 2014, Intel launched the 
Intel IoT Platform,\2\ which unifies security and connectivity to 
enable scalable IoT deployments. The Platform provides a secure device-
to-cloud (end-to-end) open reference model for connecting devices to 
deliver trusted data to the cloud and value through analytics. The 
Platform enables tenets 1-3--security, connectivity, and 
interoperability--by creating a foundation on which to build IoT 
solutions. This enables tenets 4 and 5--data analytics and monetization 
of new products and services, many of which we never could have 
imagined a decade ago and may not even conceive of today.
---------------------------------------------------------------------------
    \2\ Intel Unifies and Simplifies Connectivity, Security for IoT, 
Intel Corp. (Dec. 2014), http://
newsroom.intel.com/community/intel_newsroom/blog/2014/12/09/intel-
unifies-and-simplifies
-connectivity-security-for-IoT.
---------------------------------------------------------------------------
IoT: A Transformational Opportunity Built on a Foundation of Security
    With respect to the critical element of security, Intel values this 
first and foremost. We believe that security is the foundation of IOT 
and it is fundamental to Intel's roadmap planning. We have dedicated 
security products and security features embedded into both our hardware 
and software products. Our hardware and software are being designed 
from the beginning to be secure. This is important for trusted data 
exchange in the IoT, as data generated by devices and existing 
infrastructure must be able to be shared among the cloud, the network, 
and intelligent devices for analysis. This enables users to aggregate, 
filter and share data from the edge of the network all the way to the 
cloud with robust protection. Moreover, data must be accurate to be 
beneficial. Intel prioritizes the security, accuracy, privacy and 
integrity of data in all market sectors, and especially in the 
industrial domain where the safeguarding of critical infrastructure can 
be vital to economic and social stability. Intel understands that we 
must deliver and evoke consumer and industry trust through these 
hardened security solutions in order to motivate adoption and 
participation in the IoT marketplace.
    Intel believes it is critical to integrate security into the 
hardware and the software, from the smallest microcontroller (MCU) at 
the edge of the network to the most advanced server CPU in the data 
center (cloud) and all gateways and devices in between. These hardware-
and software-level security capabilities will create redundancies which 
prevent intrusions and enable a robust, secure, trusted IoT end-to-end 
solution.
    Hardware. Intel's hardware will provide transistor-level security 
on the actual compute device itself. By integrating security into the 
device itself from the outset (rather than layering it on top at a 
latter point in the design cycle with other, less secure external 
features), Intel's IoT solutions will enable our customers to know the 
exact unique identity of every device on their network. This technology 
also has the capability for encrypting that unique identity to provide 
anonymity properties in addition to hardware enforced integrity. 
Because each compute device can have an immutable identification to 
enable secure provisioning, a non-approved device will not be allowed 
to access the network. The MCU or CPU itself will provide the ``baked 
in'' (irremovable, non-changeable) identity of the device, making the 
level of security significantly more robust.
    On top of this immutable device identification, Intel's IoT 
solutions will employ advanced hardware level security capabilities 
such as ``whitelisting,'' which prevents harmful applications like 
viruses, control agents, and malware from ever being activated on the 
device. What this means is that, if the CPU ever ``sees'' an 
application that is not on its known good list (``whitelist'') try to 
run on the device, it will automatically lock out that device and not 
allow it turn on. At other layers in IoT solutions, Intel also uses 
another advanced hardware security capability called ``blacklisting,'' 
which blocks a defined list of known malware from entering the device 
and the network.
    Software. In addition to the advanced hardware security 
capabilities in Intel's IoT solutions, Intel Security (formerly McAfee) 
integrates advanced security capabilities that provide robust software-
level protection. This means that the software is continually 
monitoring the activity of its networked devices-and looking for any 
abnormalities or possible threats. If the monitoring software 
identifies a threat, it proactively notifies users and/or automatically 
quarantines any devices on the network that could be at risk.
    By employing this combination of transistor-level security, along 
with advanced hardware and software level security, from devices on the 
edge of the network all the way to the data centers in the cloud, Intel 
will protect IoT assets and information in ways few others can. Intel 
knows that security is critical to protect the integrity of IoT 
solutions, so we will design it in from the outset.
IoT Priorities--Enablers of Scale
Security
    As discussed above, security is foundational to the IoT ecosystem 
and a top Intel priority. With billions of connected devices producing 
enormous amounts of data -EMC/IDC forecasts that devices will generate 
more than 44 zeta bytes of data by 2020 \3\--security of this data will 
be critical to enable scale of IoT deployments. That is why we 
emphasize again the importance of having security designed into the IoT 
systems from the outset. Secure data delivery systems are critical to 
enabling trusted data exchange and scale, thereby unlocking the full 
potential of IoT.
---------------------------------------------------------------------------
    \3\ The Digital Universe of Opportunities: Rich Data and the 
Increasing Value of the Internet of Things, EMC/IDC (April 2014), 
http://www.emc.com/leadership/digital-universe/2014iview/executive-
summary.htm .
---------------------------------------------------------------------------
Interoperability
    The IoT marketplace is currently aligning around industry sectors/
verticals that are starting to deploy IoT solutions to meet their 
specific business requirements: manufacturing, retail, transportation, 
healthcare, and others. As early adopters deploy technologies to enable 
IoT solutions, it is important that the various IoT technologies are 
``interoperable'' with each other as well as being able to adapt and 
grow to accommodate new and changing business requirements. Proprietary 
technologies that are inherently antithetical to the concept of the 
Internet of All Things will slow down IoT adoption, limit scalability 
and delay economic benefits.
    The Intel IoT Platform's building block components are secure, 
interoperable, and scalable, enabling ``horizontal'' end-to-end IoT 
deployments across industry sectors from transportation to energy to 
healthcare and beyond. By creating a secure, horizontal, interoperable 
platform, Intel will enable IoT to scale quickly by creating a 
repeatable (reusable) foundation that ultimately enables choice and 
interoperability in the marketplace. For example, Intel offers 
businesses that use the Intel IoT Platform the choice and flexibility 
to use some or all of the technology components from Intel, or 
interchange them with ecosystem partner components. In summary, if the 
U.S. wants to lead in IoT, we must prioritize interoperability from the 
start.
Open Standards
    How do we drive a secure solution that is interoperable and scales 
across a global IoT ecosystem? The solution is a voluntary, global, 
industry-led, open set of standards which enable scale to drive cost-
effective solutions. Over the last 10 months, Intel co-founded two 
industry consortia focused on interoperability and open standards: The 
Industrial Interconnect Consortium (IIC) \4\ and the Open Internet 
Consortium (OIC).\5\
---------------------------------------------------------------------------
    \4\ http://www.industrialinternetconsortium.org/
    \5\ http://openinterconnect.org/
---------------------------------------------------------------------------
    IIC founding members include major U.S. companies such as AT&T, 
Cisco, GE, IBM and Intel. The IIC has reached over 135 members since 
its inception in March 2014. IIC goals are to: (i) build confidence 
around new and innovative approaches to security; (ii) drive innovation 
through the creation of new industry use cases and test beds for real-
world applications; (iii) define and develop the reference architecture 
and frameworks necessary for interoperability; (iv) influence the 
global development standards process for Internet and industrial 
systems; and (v) facilitate open forums to share and exchange real-
world ideas, practices, lessons and insights.
    The OIC was founded by leading technology companies with the goal 
of defining the connectivity requirements for devices, and for ensuring 
interoperability between the millions of devices that will make up the 
emerging IoT. OIC founding members include Cisco, GE, Intel, MediaTek 
and Samsung, and membership has reached over 54 members. OIC goals are 
to: (i) define the specification, certification and branding to deliver 
reliable interoperability; (ii) ensure this standard will be an open 
specification that anyone can implement and is easy for developers to 
use; (iii) include IP protection and branding for certified devices and 
service-level interoperability; (iv) provide an open source 
implementation of the standard; and (v) ensure this open source 
implementation will be designed to enable application developers and 
device manufacturers to deliver interoperable products across Android, 
iOS, Windows, Linux, Tizen, and more.
    Both IIC and OIC recognize that a certain level of standardization 
and interoperability is necessary to achieve a successful IoT 
ecosystem. In the emerging IoT economy, voluntary global standards can 
accelerate adoption, drive competition, and enable cost-effective 
introduction of new technologies. Furthermore, open standards which 
facilitate interoperability across the IoT ecosystem will stimulate 
industry innovation and provide a clearer technology evolution path. 
Industry is in the best position to develop the technological standards 
and solutions to address global IoT ecosystem opportunities and 
challenges, and Intel is taking a leading role.
Market Trends Driving the Emergence of IoT
    If we've had broad use of the Internet for over two decades why is 
the IOT industry emerging now? Intel believes there are three emerging 
trends are driving the inflection:
    Ease of connectivity--Whether it is an unlicensed (WiFi, Bluetooth) 
or licensed (3G, LTE, 5G) spectrum, connectivity is becoming more 
pervasive and inexpensive. The opportunity to add value via increased 
connectivity is extremely large, as 85 percent of devices are not 
connected today.
    Compute economics--Moore's Law is impacting technologies that range 
from the cloud to the network to storage to sensors. This means that 
the economics for ``compute'' have become much more appealing. 
Specifically, there has been a huge drop in cost for ``compute'' 
technologies over the last 10 years; the cost of sensors has decreased 
2X, the cost of bandwidth has decreased 40X, and the cost of processing 
has decreased 60X.
    Big Data and Analytics--The emergence of data science (extracting 
knowledge from data) combined with the reduction in the cost of high 
performance computing has created an opportunity to turn data into 
actionable information, thereby enabling new services and new business 
model innovation.
    These three market trends are generating unprecedented 
opportunities for the U.S. public and private sectors to develop new 
services, enhance productivity and efficiency, improve real-time 
decision making, solve critical societal problems, and develop new and 
innovative user experiences. All of these opportunities are 
revolutionizing sectors like smart buildings, transportation, 
healthcare, and manufacturing. Here are just a few examples of 
quantitative results already enabled by IoT:
    Smart Buildings: The integration of Intel IoT technology with 
sensors and building automation systems, such as heating and air 
conditioning, allows for the identification of opportunities in real-
time to reduce energy costs. In conjunction with Intel and Cisco, Rudin 
Management, a large, commercial real estate company in New York City, 
deployed Intel's Smart Building IoT solution, which saved Rudin $1 
million in just one building in the first year of deployment. Consider 
the U.S. potential opportunity: There are over 5 million commercial 
buildings and industrial facilities in the U.S.,\6\ with a combined 
annual energy cost of more than $202 billion.\7\ It is estimated that 
the U.S. could save $20 billion if all commercial buildings and 
industrial buildings increased their energy efficiency by just 10 
percent.\8\
---------------------------------------------------------------------------
    \6\ Commercial Buildings Energy Consumption Survey (CBECS), US 
Energy Information Administration (5.6 million commercial buildings in 
U.S. in 2012), http://www.eia.gov/consump
tion/commercial/reports/2012/preliminary/
index.cfm?src=%E2%80%B9%20Consumption%20%
20%20Commercial%20Buildings%20Energy%20Consumption%20Survey%20(CBECS)-
b1.
    \7\ http://thesemco.com/about-us/why-energy-efficiency/
    \8\ Id.
---------------------------------------------------------------------------
    Smart Transportation: The integration of Intel IoT technology with 
New York-based Vnomics fleet management solutions enabled real-time 
monitoring and feedback to Georgia-based SAIA Trucking drivers and 
headquarters. The goal was to reduce maintenance costs and improve 
driver safety by monitoring braking in real-time. In the first year, 
SAIA increased fuel efficiency by 6 percent across a fleet of 3,000 
trucks, achieving a savings of $15 million. Consider the U.S. potential 
opportunity: The U.S. trucking industry accounts for about 13 percent 
of all fuel purchases in the U.S. and trucks consume about 54 billion 
gallons/year for business purpose.\9\ Extrapolating SAIA's success, a 6 
percent improvement in fuel efficiency across all trucks in the U.S. 
would save more than 3 billion gallons of fuel each year, as well as 
help reduce CO2 emissions.
---------------------------------------------------------------------------
    \9\ http://www.truckinfo.net/trucking/stats.htm
---------------------------------------------------------------------------
    Smart Healthcare: Intel has partnered with the Michael J. Fox 
Foundation to research the use of big data analytics to help improve 
the treatment of Parkinson's disease. Our IoT personal healthcare 
solution enables 300 observations per second per patient, thereby 
monitoring patients' symptoms and drug effectiveness in real-time. This 
real-time data collection and analysis allows for the identification of 
the first signs of disease progression and enables physicians to 
instantly address changes. Patients can receive better, personalized 
care, and physicians can make improved decisions for treatment in the 
event that the patient does not notice slight changes that could cause 
a decline in health before their next regularly-scheduled appointment. 
Consider the U.S. potential opportunity: Imagine what real-time 
monitoring of Parkinson's patients' vitals, as well as the ability to 
make drug and treatment adjustments in real-time, in addition to better 
tracking and predictability of disease progression could do to improve 
the quality of life of Parkinson's patients not only in the U.S., but 
the world.
    Smart Cities: Intel has partnered with the City of San Jose, 
California in a public-private partnership to further the city's `Green 
Vision' goals. This Smart Cities Project, announced as part of the 
Smart America Challenge in 2014,\10\ is expected to help drive San 
Jose's economic growth, foster 25,000 clean-tech jobs, create 
environmental sustainability and enhance the quality of life for 
residents. Together, Intel and San Jose City Management are deploying a 
network of sensors to create a ``sustainability lens'' that uses Intel 
IoT technology to measure characteristics such as particulates in the 
air, noise pollution and traffic flow. This real-time city data will 
produce meaningful insights that enable the City to make better 
management decisions, and lead to improvements in air quality, 
transportation efficiency, environmental sustainability, health, and 
energy efficiency. Consider the U.S. potential opportunity: The ten 
largest U.S. cities alone have an aggregated population of 25,292,500 
people.\11\ What if we initially focused on 10 cities, 10 counties, and 
10 rural towns from across the Nation and implemented IoT ``smart 
city'' solutions into those communities?
---------------------------------------------------------------------------
    \10\ Intel Helps San Jose Become America's First Smart City: http:/
/www.psfk.com/2014/06/san-jose-intel-smart-city.html
    \11\ United States Census Bureau: U.S. and World Population Clock 
http://www.census.gov/popclock/
---------------------------------------------------------------------------
IoT: Extraordinary Positive Impact on U.S. GDP
    The IoT presents staggering economic opportunities for the U.S. and 
the world. Market research firm IDC estimates that there will be 50 
billion connected devices in the marketplace by 2020,\12\ and Morgan 
Stanley forecasts 75 billion in that same time period.\13\ These 
estimates would equate to 6 to 10 connected devices for every person on 
earth. Whether the exact number of devices is 50 billion or 75 billion 
or something more, one thing is for certain: The number of connected 
devices will explode in the next five years. In just the automotive 
industry alone, it is projected that 250 million (or one in five) cars 
worldwide will be connected to the Internet by 2020--via technologies 
like WiFi, LTE, Bluetooth, satellite, and 5G communications 
networks.\14\ For perspective, 250 million is roughly the same number 
of total cars on U.S. roads in 2013.\15\
---------------------------------------------------------------------------
    \12\ Business Strategy: The Coming of Age of the ``Internet of 
Things'' in Government, IDC (April 2013), http://www.idc.com/
getdoc.jsp?containerId=GIGM01V.
    \13\ Morgan Stanley: 75 Billion Devices Will Be Connected To The 
Internet Of Things By 2020, Business Insider (Oct.2 2013) http://
www.businessinsider.com/75-billion-devices-will-be-connected-to-the-
internet-by-2020-2013-10.
    \14\ Gartner Says By 2020, a Quarter Billion Connected Vehicles 
Will Enable New In-Vehicle Services and Automated Driving Capabilities, 
Gartner Inc. (Jan. 26, 2015), http://www.gartner.com/newsroom/id/
2970017.
    \15\ Average Age of Vehicles on the Road Remains Steady at 11.4 
years, According to IHS Automotive, IHS (June 2014) (253M cars on U.S. 
roads in 2013), http://press.ihs.com/press-release/automotive/average-
age-vehicles-road-remains-steady-114-years-according-ihs-automotive.
---------------------------------------------------------------------------
    The reason that policymakers should be excited about this explosion 
of devices and this technological revolution is the staggering positive 
impact that the IoT is projected to have on the U.S. and global 
economy. McKinsey projects that IoT will have an incredible $2.7 
trillion to $6.2 trillion global economic impact by 2025.\16\ And what 
should most excite U.S. policymakers is that the U.S. and other 
developed economies are expected to capture a remarkable 70 percent of 
this economic impact, if we develop a leadership position.\17\ In fact, 
GE estimates that IoT could boost average incomes in the U.S. by an 
exceptional 25 to 40 percent over the next twenty years.\18\
---------------------------------------------------------------------------
    \16\ Disruptive Technologies: Advances that will transform life, 
business, and the global economy, McKinsey Global Institute (May 2013), 
http://www.mckinsey.com/insights/business_
technology/disruptive_technologies.
    \17\ Id.
    \18\ New ``Industrial Internet'' Report From GE Finds That 
Combination of Networks and Machines Could Add $10 to $15 Trillion to 
Global GDP, GE (Nov. 2012), http://www.gere
ports.com/post/76430585563/new-industrial-internet-report-from-ge-
finds-that.
---------------------------------------------------------------------------
    Moreover, a recent Accenture survey of CEOs reveals that 87 percent 
of CEOs expect long-term job growth from IoT.\19\ This will positively 
impact American lives from our Nation's farms and factories to markets 
and Main Street. Indeed, ``as the world struggles to emerge from a 
phase of weak productivity growth, fragile employment and pockets of 
inadequate demand, the [IoT] offers a chance to redefine many sectors 
and accelerate economic and employment growth.'' \20\ The U.S. must 
lead in this technological revolution.
---------------------------------------------------------------------------
    \19\ CEO Briefing 2015, From Productivity to Outcomes: Using the 
Internet of Things to drive future business strategies, Accenture, at 7 
(2015), http://www.accenture.com/SiteCollection
Documents/PDF/Accenture-Industrial-Internet-of-Things-CEO-Briefing-
Report-2015.PDF.
    \20\ Winning the Industrial Internet of Things, Accenture, at 2 
(Jan. 2015), http://www.accenture.com/SiteCollectionDocuments/PDF/
Accenture-Industrial-Internet-of-Things-Positioning-Paper-Report-
2015.PDF.
---------------------------------------------------------------------------
Recommendations for Policymakers
    Given the predicted enormous positive impact on the U.S. economy 
and society, how can policymakers help accelerate IoT and ensure the 
U.S. leads this next evolution of computing?

  1.  Continue an open dialogue with industry, experts and stakeholders 
        as you are doing today. This IoT hearing is a promising start 
        and the right first step. Intel believes that an open, multi-
        stakeholder process can best enable a secure and vibrant IoT 
        ecosystem. Also, legislators may want to consider encouraging 
        the Department of Commerce to create a non-partisan National 
        IoT Advisory Board of policymakers, agency representatives, 
        industry leaders, think tanks, academia, and leaders of IoT-
        focused consortia like IIC and OIC.

  2.  Encourage focus on security and interoperability as critical 
        foundational elements of IoT. While industry is in the best 
        position to develop and determine security and interoperability 
        solutions, government can encourage industry alignment around 
        large-scale IoT deployments based on secure, open and 
        interoperable IoT solutions. This will enable deployments to 
        scale quickly and provide both short-term and long-term 
        economic and social benefits to consumers, government, and 
        businesses.

  3.  Encourage open standards and open architectures to maintain the 
        long term viability of IoT, based on an approach that is 
        scalable, interoperable and reusable across a variety of use 
        case deployments, vendors and sectors. While industry is in the 
        best position to develop the technological standards and 
        solutions to address global IoT ecosystem opportunities and 
        challenges, government should encourage industry to collaborate 
        in open participation global standardization efforts to develop 
        technological best practices and standards. Specifically, 
        government should encourage the use of commercially available 
        solutions to accelerate innovation and adoption of IoT 
        deployments. The emphasis on commercially available solutions 
        and market-adopted voluntary standards will allow for faster 
        adoption and increase innovation, bringing the IoT and its 
        benefits to reality sooner.

  4.  Collaborate with the industry to develop a U.S. National IoT 
        Strategy with time-bound goals for sector-specific IoT 
        deployments over the next 3 to 5 years. These deployments will 
        not only address critical societal issues and save tax payer 
        dollars, but also will demonstrate U.S. leadership. A National 
        IoT Strategy will help align IoT stakeholders and incentivize 
        innovation, ultimately creating value for society by increasing 
        efficiencies and productivity, creating jobs, sustaining our 
        environment, and improving quality of life in our cities and 
        towns.

  5.  As part of our National IoT Strategy, encourage Public-Private 
        Partnerships (PPPs) to address societal problems and accelerate 
        more rapid deployment of IoT solutions. Government and industry 
        collaboration can be one of our Nation's best assets to 
        accelerate the adoption of a world-class IoT ecosystem. Viable 
        PPPs will make IoT deployments an appealing investment for both 
        government and industry, while ensuring scalability and 
        sustainability of infrastructure and technological innovation 
        over the long term. Notably, countries like China,\21\ the 
        UAE,\22\ Malaysia,\23\ Germany \24\, Brazil \25\ and others are 
        moving aggressively ahead on IoT deployments--establishing 
        national IoT plans and blueprints establishing time-bound 
        measurable goals, investing substantial funding in IoT research 
        and deployments, and launching PPPs to jumpstart these 
        opportunities and quickly enable IoT scale. As these other 
        countries have recognized, a vibrant and state-of-the-art IoT 
        ecosystem is critical to a nation's global competitiveness and 
        economic stability in the 21st century. By adopting and 
        implementing a National IoT Strategy, the U.S. can seize the 
        leadership position in this next evolution of computing.
---------------------------------------------------------------------------
    \21\ China's Ministry of Industry and Information Technology is 
implementing a three-year (2013-15) action plan to establish a National 
innovation demonstration area of sensor networks in Wuxi, actively 
promoting pioneer projects of applications such as intelligent 
manufacturing, agriculture, transportation, medical systems, and 
environmental protection: http://www.usito.org/news/miit-emphasize-iot-
rd-sensors-and-chips-2014.
    \22\ The Telecommunications Regulatory Authority, in collaboration 
with the Prime Minister's Office, is working to announce The National 
Plan for UAE Smart Government Goals: http://www.tra.gov.ae/
news_The_TRA_to_announce_The_National_Plan_for_UAE_Smart_
Government_Goals-636-1.php.
    \23\ Eyeing a role in global IoT, Malaysia opens CREST centre in 
Penang (Feb. 2, 2015), http://www.mis-asia.com/tech/applications/
eyeing-a-role-in-global-iot-malaysia-opens-crest-centre-in-penang/
#sthash.enmSihPu.dpuf.
    \24\ ``As part of its High-Tech Strategy (``Ideas. Innovation. 
Prosperity.'') to consolidate German innovation leadership, Germany is 
making significant R&D investment in the Internet of Things and new 
services for the diverse application areas within this new connected 
world.'' http://www.gtai.de/GTAI/Navigation/EN/Invest/Industries/
Smarter-business/smart-products-indus
trie-4.0.html
    \25\ Smart-city to be deployed by Telefonica/VIVO, ISPM in Brazil 
http://www.smartgrid
today.com/public/Smartcity-to-be-deployed-by-TelefonicaVIVO-ISPM-in-
Brazil.cfm
---------------------------------------------------------------------------
Public-Private Partnerships--Market Segment Focus
    Specifically, over the next 3 to 5 years, the U.S. should focus on 
industry vertical segments with the potential to have the most impact: 
transportation, cities (generally communities, urban and rural), and 
buildings. Here are proposed PPPs for these market segments:

    Smart Transportation PPP: The transportation segment is predicted 
to be valued at more than $351 billion by 2025, with a CAGR of 19.6 
percent (2012-25).\26\ In FY 2012, the Federal Agency fleet consisted 
of more than 650,000 vehicles, which collectively drove over 5 billion 
miles, consumed nearly 400 million gallons of fuel, and had operating 
costs of approximately $4 billion.\27\ The U.S. Postal Service fleet 
alone is over 190,000 vehicles.\28\ Intel recommends encouraging an IoT 
Smart Transportation PPP around the USPS fleet or another considerably 
sized government fleet to implement IoT solutions and benchmark 
increases in fuel economy, logistics and driver efficiency, and 
improvements in customer service. Focus areas could include, but are 
not limited to, fleet and freight management, passenger optimization, 
automatic train protection and control systems and advanced driver 
assistance and safety.
---------------------------------------------------------------------------
    \26\ Strategic Opportunity Analysis of the Global Smart City 
Market: Smart City Market to be Worth a Cumulative $3.3 Trillion by 
2025, Frost & Sullivan (Sept. 2013) (``Frost & Sullivan''), http://
www.frost.com/prod/servlet/report-brochure.pag?id=M920-01-00-00-00.
    \27\ Federal Motor Vehicle Fleet Report FY 2012, http://
www.gsa.gov/portal/mediaId/181179/
fileName/FY_2012_Federal_Fleet_Report.action.
    \28\ Delivery Vehicle Fleet Replacement (June 10 2014) Office of 
the Inspector General United States Postal Service [https://
www.uspsoig.gov/sites/default/files/document-library-files/2014
/dr-ma-14-005.pdf]
---------------------------------------------------------------------------
    Impact--Logistics and Transportation was a $1.3 trillion industry 
in the U.S. in 2012, and represented 8.5 percent of GDP. With almost 9 
percent of the U.S. labor force employed in the transportation sector 
and the U.S. spending roughly $160 billion annually on highway 
infrastructure (about \1/4\ funded by the Federal Government), a more 
efficient and effective trucking industry has the potential to yield 
significant savings to the U.S. economy. For example, the commercial 
trucking industry in the U.S. uses about 50 billion gallons of fuel 
each year. A 7 percent increase in fuel efficiency results in more than 
3.5 billion gallons of fuel saved. Imagine if we set a national goal 
for 25 percent of the Federal Fleet in 3 years, and 50 percent in 5 
years, be retrofitted with IoT transportation solutions, not just for 
telematics but to increase fuel economy by a minimum of 5 percent, with 
incentives for higher efficiency.
    Approach--Consistent with existing national goals to improve the 
fuel efficiency of American trucks--thereby bolstering energy security, 
cutting carbon pollution, saving money, and spurring manufacturing 
innovation \29\--this proposed PPP would leverage private sector and 
academia IoT expertise in ``Intelligent Transportation'' solutions. The 
PPP would accelerate efforts by Congress, DOT, DOC, DOE, EPA, and U.S. 
commercial fleet managers to increase engine efficiency and fuel 
economy of large fleets traveling our Nation's roads and highways. It 
would realize direct economic savings including increased fuel 
efficiency, reduction in carbon dioxide emissions, labor savings, 
improved driver safety, accident savings, productivity and distribution 
proficiency, and logistics tracking effectiveness. The PPP also would 
provide insights into improvements and new business models for the U.S. 
transportation sector at large, leading to more satisfied employees and 
customers. Notably, this PPP would be an early step toward the ultimate 
goal of an autonomous trucking industry; the estimated savings to the 
U.S. freight transportation industry from autonomous vehicles is $168 
billion per year, with savings from labor ($70 billion), fuel 
efficiency ($35 billion), productivity ($27 billion), and accident 
savings ($36 billion).\30\ Funding for and benefits from the PPP would 
be shared across public and private sector partners, and could range 
from in-kind to matching funds to purely financial investments. One 
possibility could be for public and private partners to share in the 
transportation fuel savings. For example, if the PPP were to reduce a 
department', or commercial end user operator's fleet, fuel expenses by 
7 percent, the department (operator) could allot 2 percent of that 
savings to the (other) private partners over a specified period of time 
until the (other) private partners recoup their upfront investment plus 
some incremental percent of return. The department operator would 
retain the remaining percentage of the savings, after which time, the 
department and U.S. taxpayers (operator) would retain 100 percent of 
the fuel savings benefit in perpetuity.
---------------------------------------------------------------------------
    \29\ Improving the Fuel Efficiency of American Trucks--Bolstering 
Energy Security, Cutting Carbon Pollution, Saving Money and Supporting 
Manufacturing Innovation, White House (Feb 18, 2014), http://
www.whitehouse.gov/the-press-office/2014/02/18/fact-sheet-opportunity-
all-impro
ving-fuel-efficiency-american-trucks-bol.
    \30\ Autonomous Cars: Self-Driving the New Auto Industry Paradigm, 
Morgan Stanley Research (Nov. 6, 2013), available at http://
www.morganstanley.com/public/11152013.html. The authors indicate that 
$1.3 trillion is a base case estimate and indicate a bear case scenario 
of $0.7 trillion savings per year in the U.S. and a bull case scenario 
of $2.2 trillion per year.
---------------------------------------------------------------------------
    Smart Cities PPP: Today's cities consume two-thirds of the world's 
energy.\31\ By 2025, 37 cities worldwide will each have a population of 
greater than 10 million.\32\ To address the escalating demands of 
existing and future residents, cities are looking for ways to introduce 
more technology to become ``smarter'' about the use of limited 
resources and more flexible in responding to residents' needs. Examples 
of ``Smart Cities'' capabilities could include but are not limited to: 
City Sensing including monitoring and providing IoT data to improve air 
quality, noise pollution, ambient light, weather, and traffic flow; 
smart parking which is using IoT to ``smartly'' guide citizens to open 
parking spaces; smart roads that enable ``smart'' traffic navigation 
and roadside service; smart emergency response which facilitates 
``smart'' public and residential community alert and response for 
vulnerable areas; and smart energy/grid that facilitates ``smart'' 
renewable energy and distributed power.
---------------------------------------------------------------------------
    \31\ World Urbanization Prospects The 2011 Revision, United Nations 
Department of Economic and Social Affairs (March 2012), http://
esa.un.org/unpd/wpp/ppt/CSIS/WUP_2011_
CSIS_4.pdf.
    \32\ Nate Berg, The Uneven Future of Urbanization (April 9, 2012), 
http://www.citylab.com/housing/2012/04/uneven-future-urbanization/
1707/.
---------------------------------------------------------------------------
    Impact--IoT technologies could realize direct economic savings for 
cities and municipalities (and their local tax base) due to more 
efficient city planning and management. Results would include 
improvement in city residents' quality of life, health, and safety. 
Some examples of this benefit could include more efficient traffic 
flow, real-time public notifications of pollution ``hot spots,'' and 
early detection and correction of chemical and gas leaks in aging city 
infrastructure.
    Approach--Consistent with the goals of NIST's Smart America and 
Global Cities Team Challenges \33\--to use IoT solutions to improve 
services, promote economic growth, and enhance quality of life--this 
proposed PPP would leverage private sector IoT expertise in deploying 
``Smart Community'' solutions. These IoT solutions would accelerate 
local government and municipality efforts to improve urban management 
and planning in a variety of ways. For example, the PPP could provide a 
model to improve operational efficiencies and safety across existing 
and new city infrastructure by utilizing air quality and traffic flow 
data to enable sustainable traffic management and planning, and create 
an innovative tool for urban growth management and planning. The 
funding for and benefits from the PPP would be shared across public and 
private sector partners, and could range from in-kind to matching funds 
to purely financial investments. One opportunity may include public and 
private partners to share in new revenue streams by leveraging the IoT 
sensor network infrastructure to deliver new services to city 
residents. For example, if the PPP were to deliver new services to city 
residents (i) via the city sensor network or (ii) by sharing the real-
time data generated by the city sensor network, the city could share 
the new revenue stream with the private partners. The city (and its 
taxpayers) would enjoy the benefits of improved traffic flow, air 
quality, and safety, and avoiding the hefty cost to rebuild city 
infrastructure.
---------------------------------------------------------------------------
    \33\ http://www.nist.gov/cps/sagc.cfm
---------------------------------------------------------------------------
    Smart Buildings PPP: The smart building segment is predicted to be 
valued at almost $249 billion by 2025, with a CAGR of 4.1 percent 
(2012-25).\34\ The U.S. Government owns or manages more than 900,000 
buildings or other structures across the country making it the Nation's 
largest landlord. Smart building examples could include, but are not 
limited to, Smart Government Buildings enabling ``smart energy'' (HVAC) 
management, water flow and usage, predictive maintenance/mechanical 
operations and building security, and smart military bases facilitating 
the integration of systems and logistics for ``smart'' traffic flow, 
people flow, air quality, retail commerce operations, personnel safety 
and parking.
---------------------------------------------------------------------------
    \34\ Frost & Sullivan.
---------------------------------------------------------------------------
    Impact--The proposed PPP would help the U.S. save on energy 
expenses while reducing carbon pollution. The U.S. Government--and thus 
U.S. taxpayers--would realize direct (and possibly significant) 
economic savings due to improved efficiency in consumption, 
distribution, and management of energy and utilities across Federal 
Government buildings and installations. The PPP also would provide 
insight into savings opportunities and consumption planning for other 
Federal properties, as well as state and local government properties. 
In addition, the PPP would introduce new business models that could 
increase efficiencies and offer new revenue streams for building owners 
in the public and commercial sectors, while improving services for 
building tenants and residents.
    Approach--Consistent with the goals of the Better Buildings 
Challenge, to realize building energy savings of 20 percent or more 
over 10 years \35\ and other current initiatives, this proposed PPP 
would leverage private sector IoT expertise in ``Smart Building'' IoT 
solutions to accelerate the U.S. Government efforts to improve 
operational efficiencies across Federal buildings and/or military 
installations. Imagine if we set a national goal for 25 percent of 
Federal Government buildings to be retrofitted with IoT solutions in 
three years, and 50 percent to be retrofitted with IoT solutions in 
five years, to increase energy efficiency by a minimum of 20 percent. 
Upfront funding for the PPP would be shared across public and private 
sector partners, and could range from in-kind to matching funds to 
purely financial investments. Benefits from the PPP also would be 
shared among public and private sector partners over the short-and 
long-term, ensuring PPP viability and creating a win-win scenario. One 
possibility in this case could be for public and private partners to 
share in the Federal building/installation's energy and utility 
savings. For example, if the PPP were to reduce a department's energy 
and utility expenses by 20 percent, the U.S. Government could allocate 
10 percent of that savings to the private partners over a specified 
period of time until the private partners recoup their upfront 
investment plus some incremental percent of return, and the U.S. 
Government (U.S. taxpayers) would retain the remaining 10 percent of 
the savings. After which time, the U.S. Government would retain 100 
percent of the energy and utility savings benefit.
---------------------------------------------------------------------------
    \35\ Administration Announces 14 Initial Partners in the Better 
Buildings Challenge, White House (June 30, 2011), http://
www.whitehouse.gov/the-press-office/2011/06/30/obama-administration-
announces-14-initial-partners-better-buildings-chal.
---------------------------------------------------------------------------
Conclusion
    Intel appreciates the opportunity to share our perspective on the 
enormous opportunity of the IoT and a proposed strategy for U.S. 
leadership in the next evolution of computing.

    The Chairman. Thank you, Mr. Davis.
    Mr. Donny?

STATEMENT OF LANCE DONNY, FOUNDER AND CHIEF EXECUTIVE OFFICER, 
                             OnFarm

    Mr. Donny. Chairman Thune, Ranking Member Nelson, and 
members of the Committee, my name is Lance Donny, and I want to 
thank you for the opportunity to appear before you today and 
share my thoughts on how connected devices and data will enable 
farmers to meet global agricultural challenges.
    I am the Founder and CEO of OnFarm, a company focused on 
solving the interoperability and use of devices and data in 
agriculture.
    I grew up on a farm, my family's farm, in California. And I 
have spent more than 20 years in technology and the last half 
dozen in leading companies in agriculture. In that time, I have 
overseen thousands of connected devices and have studied how 
technology has both succeeded and failed the farmer.
    It is clear--and the time is now--agriculture is on the 
march to adopt and use technology. All of it will be connected. 
And this trend will enable farmers to make better decisions 
about how they grow. It will allow them to be globally 
competitive, and it will be the driving force to meet a global 
food demand.
    My testimony aims to highlight challenges and opportunities 
as we move to adopt devices and data in ag. One is a means to 
increase agriculture production and profitability. Two, to help 
farmers adopt and easily use technology, and third, to advocate 
for smart, modern policies that spur adoption, avoid 
unnecessary regulation, and enable U.S. farmers to be globally 
competitive.
    Since the 1950s, farming has doubled production through the 
use of supplemental nitrogen, irrigation systems, and 
mechanization of harvesting and planting. But those advances, 
while momentous, will not suffice to meet the global food 
demand. By 2050, 9.5 billion people on the planet will require 
70 percent more food than we produce today. We will not succeed 
at meeting this challenge by adding new acres, using more 
nitrogen or more water.
    Connected devices and data fundamentally change how the 
industry works, and agriculture is no different. It will not 
escape that trend. Agriculture has moved into the information 
age.
    Data is everywhere. It drives decisions and enables farmers 
to adopt and be globally competitive. In the day of $3 and $4 
corn, farm prosperity will occur using technology and data as a 
competitive advantage against farmers that do not.
    There are two core and interconnected concepts for the 
Internet of Things in agriculture. First is the connected 
device itself. Today we see sensors on nearly every part of the 
farm: the soil, plants, equipment, people, drones, and 
satellites. Sensors are the first step to better farm 
management and provide important field data, but sensors on 
their own will not allow the farmer to change how they farm.
    If you ask a farmer today how much data they have, you will 
almost always hear too much or it is overwhelming. This flood 
of data has already surpassed most farmers' capability of 
managing it. Analytics or big data systems create order and 
provide insights to keys to delivering the promise of 
technology in agriculture.
    Together, connected devices and analytics give farmers the 
ability to monitor and use information to manage resources, and 
as the demand for food increases, these solutions will be the 
tool that farmers use to help global demand.
    In good years, farmers can grow more and more efficiently. 
In difficult years, like the last several in California due to 
the drought, connected devices and analytics enable farmers to 
monitor their fields, to apply the right amount of water at the 
right time as the crop needs it.
    Technology studies have shown the possibilities of 
increasing yields by a third while reducing water consumption 
by 20 percent.
    Unfortunately, technology can often be cost-prohibitive to 
farmers. In order to ensure we are globally competitive, we 
must help growers adopt technology. I support innovation and 
grants that can dramatically reduce the cost of technology and 
increase the adoption for the farmer. With modest efforts, we 
can solve fundamental problems. Today technology is still too 
costly for farmers. We can and should support them in how they 
adopt it.
    Two, we must help farmers access broadband. In many rural 
areas, broadband is not available to them, and wireless or 
cellular coverage is not available on many farms. We can and 
should accelerate the availability of low-cost, long-range 
communication to ensure that we move data out of the farm to 
the cloud as easy as from your Fitbit to the WiFi.
    I support a common sense approach to data rights, such as 
the American Farm Bureau's Privacy and Security Principles that 
enable the marketplace, the farmer, and the market, to solve 
conflicts of data and data ownership quickly and easily.
    Technology has shown the ability to increase yields, reduce 
inputs, and enable more productive and sustainable farms. If we 
achieve technology adoption on a wide scale in the U.S., we can 
meet global food needs. We can help U.S. farmers maintain their 
superior position globally, and we can ensure the next 
generation of farmer is as successful as their parents' 
generation.
    Thank you again for your time today. I look forward to your 
questions.
    [The prepared statement of Mr. Donny follows:]

Prepared Statement of Lance Donny, Founder and Chief Executive Officer, 
                                 OnFarm
    Chairman Thune, Ranking Member Nelson, and Members of the Committee 
my name is Lance Donny. I want to thank you for the opportunity to 
appear before you today and share my thoughts on how connecting devices 
and data will enable farmers to meet global agriculture challenges.
    I am the Founder and Chief Executive Officer of OnFarm, a company 
focused on solving the interoperability and use of devices and data in 
agriculture.
    I grew up on my family's farm in California. I've spent more then 
20 years in technology and the last half dozen leading companies in 
agriculture. In that time I've overseen thousands of connected devices 
and have studied how technology succeeds and often fails farmers.
    It is clear, and the time is now, Agriculture is on the march to 
adopt and use technology, all of it connected, and this trend will 
enable farmers to make better decisions about how they grow, it will 
allow them to be globally competitive, it will be the driving force to 
meeting global food demand.
    My testimony aims to highlight challenges and opportunities as we 
move to adopt connected devices and data:

  1.  as a means to increase agriculture production and profitability;

  2.  to help farmers afford and easily adopt technology; and

  3.  to advocate for smart, modern policies that spur adoption, avoid 
        unnecessary regulation, and enable U.S. agriculture to be 
        competitive globally.

    Since the 1950s farming has doubled production through the use of 
supplemental nitrogen, irrigation systems, and mechanization of 
planting and harvesting.
    But those advances, while momentous will not be sufficient to meet 
the growing global demand for food. By 2050 over 9.5 Billion people on 
the plant will require 70 percent more food then we produce today. We 
will not succeed at meeting this challenge by adding new acres, using 
more nitrogen or more water.\1\
    Connected devices and data fundamentally change how people and 
industries work and agriculture has not escaped that change.
    Agriculture has moved into the information age.
    Data is everywhere. It drives decisions and enables farmers that 
adopt it to be globally competitive. In the day of $4 corn, farm 
prosperity will occur using technology and data as a competitive 
advantage against those farmers who don't.
    There are two core and interconnected concepts for the Internet of 
Things in Agriculture. First, is the connected device itself. Today we 
see sensors on nearly every part of the farm: from soil moisture, to 
plants, equipment, and people. Sensors are the first step to better 
management and provide important field data, but sensors on their own 
will not allow the farmer to change the way they farm.
    If you ask a farmer today how much data they have, you will almost 
always hear ``too much'' or ``it's everywhere''. This flood of data has 
already overwhelmed farmers. Analytics or ``Big Data'' software that 
create order and provide insights is the key to delivering the promise 
of the Internet of Things.
    Together, connected devices and analytics give farmers the ability 
to monitor and use information to manage resources. And as the demand 
for food increases these solutions will be the tool that farmers use to 
help meet global demands.
    In good years farmers can grow more and more efficiently. In 
difficult years, like the last several in California due to the 
drought, connected devices and analytics enable farmers to monitor 
their fields and to apply the precise amount of water when and where 
the crop needs it.
    Technology studies have shown the possibilities for increasing 
yields by 33 percent while we reduce water consumption by 20 
percent.\3\ Unfortunately that technology can often be cost 
prohibitive. In order to ensure U.S. farmers are globally competitive 
we must help farm adoption.
    I support both innovation and grants that can dramatically reduce 
cost and increase adoption. With modest efforts we can solve these 
fundamental challenges. Today;

  1.  technology is still too costly for many farmers; we can and 
        should support innovations and incentives that can improve 
        adoption;

  2.  many farms have no broadband access and cellular coverage is 
        unreliable; we can and should accelerate the availability of 
        low-cost long range communication technology to ensure we can 
        move data from the field to the cloud on every farm; and

  3.  I support a common sense approach to data rights such as the 
        American Farm Bureau's Privacy and Security Principles\2\ that 
        will enable the marketplace to solve conflicts quickly and 
        efficiently.

    Technology has shown the ability to increase yield, reduce inputs, 
and enable more profitable and sustainable farms. If we achieve 
technology adoption on a wide scale, we can meet global food needs, we 
can help U.S. farmers maintain global competitiveness, and we can 
ensure the next generation of farmer is as successful as their parents' 
generation.
    Thank you again for inviting me today, I look forward to your 
questions.
References
  1.  ``Towards Smart Farming--Agriculture Embracing the IoT Vision''--
        Beecham Research Ltd., January 2, 2015, http://
        www.beechamresearch.com/download
        .aspx?id=40

  2.  ``Privacy and security Principals for Farm Data''--The American 
        Farm Bureau Federation, December 19, 2014 http://www.fb.org/
        tmp/uploads/Privacy
        AndSecurityPrinciplesForFarmData.pdf

  3.  ``NEEA Technical Advisory Group Report--NW Agriculture Irrigation 
        Energy Efficiency Initiative''--Northwest Energy Efficiency 
        Alliance, January 26, 2015

  4.  ``10 Policy Principles for Unlocking the Potential of the 
        Internet of Things''--Center for Data Innovation, December 4, 
        2014 http://www.datain
        novation.org/2014/12/10-policy-principles-for-unlocking-the-
        potential-of-the-internet-of-things/

  5.  ``The Internet of Things Will Drive Wireless Connected Devices to 
        40.9 Billion in 2020,'' ABI Research, August 20, 2014, https://
        www.abiresearch.com/press/the-internet-of-things-will-drive-
        wireless-connect.

  6.  ``Agriculture Water Conservation in the Lower Flint River Basin 
        of Georgia''--Flint River Basin Partnership

  7.  ``Ag-Tech Challenges and Opportunities for Sustainable Growth''--
        Kauffman Foundation, April 2014 http://www.kauffman.org//
        media/kauffman_org/
        research%20reports%20and%20covers/2014/04/
        agtechwhitepaper_42314_
        final2.pdf

  8.  ``Agriculture Gets Smart: The Rise of Data and Robotics''--The 
        Cleantech Group, May 2014 http://info.cleantech.com/Ag-Get-
        Smart-Report-Submit.html
      Towards Smart Farming--Agriculture Embracing the IoT Vision












   Agricultural Water Conservation in the Lower Flint River Basin of 
                                Georgia
By investing in ``smarter'' irrigation, farmers are conserving water 
        while enhancing productivity and yields.

    Improving the efficiency of agricultural water use is a shared goal 
of farmers, researchers and conservationists. Since 2000, these groups 
have leveraged significant resources to develop and deploy new 
conservation based technologies in the Lower Flint River Basin of 
southwest Georgia. The goal is to move innovative agricultural water 
conservation practices from the research laboratory to the working farm 
so as to determine economic feasibility, field functionality and 
conservation impact. Projects are funded through contributions from 
farmers and cost-share programs. Farmers in the Lower Flint River Basin 
of Georgia are employing (5) key water conservation measures:

  1.  Low pressure drop nozzle retrofits with end gun shut-off: Savings 
        are generated by applying irrigation water at a lower pressure 
        nearer the soil surface to reduce evaporation and wind drift 
        losses; installing end gun controls to keep irrigation inside 
        the field boundary; and, repairing leaks. Retrofits (LDR) 
        reduce water use by up to 22.5 percent.

  2.  Variable rate irrigation: Savings are generated by removing non-
        crop areas from irrigation; coordinating application amounts 
        with variations in soil type and field topography; and, 
        eliminating double application due to pivot overlap. Variable 
        rate irrigation (VRI) reduces water use by an average of 15 
        percent.

  3.  Advanced irrigation scheduling: Savings are generated by 
        identifying precise periods of time in which a farmer can 
        irrigate less by using objective field data such as soil 
        moisture, soil temperature, crop growth stage and localized ET. 
        Advanced irrigation scheduling (AIS) reduces water use by up to 
        15 percent.

  4.  Conservation tillage: Savings are generated by using a cover crop 
        and leaving plant residue in the field, which modifies plant 
        rooting structure and physiology to enable more efficient water 
        use by crops; improves water holding capacity in the soil; 
        increases water infiltration rates; and, reduces soil 
        temperature, evaporative loss and field run-off. Conservation 
        tillage (CT) reduces water use by up to 15 percent.

  5.  Sod based rotation: Savings are generated by incorporating a 
        rotation of a warm season perennial grass into a conservation 
        tillage based production system which yields improved soil 
        quality and water holding capacity, and increased water 
        infiltration and retention. Sod based rotation (SBR) reduces 
        water use by up to 30 percent.

     Note: These measures, while in many cases complementary, are not 
        necessarily additive as per the savings generated. Water 
        conservation estimates are based on an average application rate 
        of 13 acre inches per field in a dry year. Estimated reductions 
        in water use are based on field experience, ongoing research 
        and the Project Report 32: Irrigation Conservation Practices 
        Appropriate for the Southeastern United States. Average cost 
        per acre to deploy is $100-LDR, $175-VRI, $40-AIS, $40-CT and 
        $400-SBR. Many of these practices create economic and 
        environmental benefits beyond water conservation which help to 
        offset per acre cost.

    Who we are? This information is provided by David Reckford, Flint 
River Basin Partnership; Calvin Perry, UGA C.M. Stripling Irrigation 
Research Park; Rad Yager, UGA Cooperative Extension; Jim Marois and 
David Wright, UF/IFAS Extension; Wilson Faircloth, USDA-ARS; Richard 
Barrett, USDA-NRCS; and, Marty McLendon, Flint River SWCD.
    Why the Lower Flint? Incorporating 27 counties in southwest 
Georgia, the Lower Flint is one of the most diverse and ecologically 
rich river systems in Georgia. Together with the upper part of the 
Apalachicola, the area is home to the highest density of reptile and 
amphibian life in the United States, and four federally protected 
mussel species--the Fat threeridge, Gulf moccasinshell, Oval pigtoe and 
Shinyrayed pocketbook. The area is also one of the most agriculturally 
intensive regions in Georgia with more than 40 percent of the Basin's 
land mass producing $2 billion in farm based revenue annually. 
Irrigation is central to production with 6,250 center pivot systems in 
operation.

The Flint River Basin Partnership was formed by the Flint River Soil 
and Water Conservation District, Natural Resources Conservation Service 
and The Nature Conservancy to promote agricultural water conservation 
in the Lower Flint.
                                 ______
                                 
NEAA Technical Advisory Group Report--NW Agriculture Irrigation Energy 
                         Efficiency Initiative


                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
                                 
                                 
                                 ______
                                 
                                 
                                 
  10 Policy Principles for Unlocking the Potential of the Internet of 
                                 Things

                       Center for Data Innovation

            By Daniel Castro & Joshua New / December 4, 2014

The success of the Internet today can be credited in part to 
policymakers actively taking a role to ensure its growth, and this same 
approach should to be applied to build the Internet of Things.

Summary: ``The Internet of Things'' encapsulates the idea that ordinary 
objects will be embedded with sensors and connected to the Internet. To 
date, most discussion of the Internet of Things has highlighted the 
technology; to the extent it has addressed policy, the focus has been 
largely negative (i.e., how to limit the supposed risks from 
deployment). In contrast, this report highlights principles that 
policymakers in all nations need to apply in order to maximize the 
considerable promise of the Internet of Things for economic growth and 
social well-being. Of two conflicting approaches to the Internet of 
Things, neither: the ``impose precautionary regulations'' nor the 
counter ``leave it completely up to the market'' will allow societies 
to gain the full benefits from the Internet of Things revolution. This 
report presents ten principles to help policymakers establish policies 
and programs to support and accelerate the deployment and adoption of 
the Internet of Things.

    The Internet of Things encapsulates the idea that ordinary 
objects--from thermostats and shoes to cars and lamp posts--will be 
embedded with sensors and connected wirelessly to the Internet. These 
devices will then send and receive data which can be analyzed and acted 
upon. As the technology becomes cheaper and more robust, an increasing 
number of devices will join the Internet of Things. Though many of the 
changes to everyday devices may be subtle and go unnoticed by 
consumers, the long-term effect could ultimately have an enormously 
positive impact on individuals and society. A connected world is 
capable of anything from improving personal health to reducing 
pollution to making industry more productive. The Internet of Things 
offers solutions to major social problems, but this vision of a fully 
connected world will not be achieved without initiative and leadership 
from policymakers to promote its deployment and avoid pitfalls along 
the way.
    The potential size and scope of the Internet of Things is enormous, 
with over 16 billion devices estimated to be in use today, and many 
more to come.\1\ By 2020, the total worldwide count is expected to 
reach over 40 billion.\2\ This growth is visible across practically 
every industry. By 2020, the number of wearable devices will surpass 
100 million, the number of Internet-connected cars will exceed 150 
million, and the number of connected wireless lights will reach 100 
million--to name just a few.\3\
    The magnitude of the benefits brought by the Internet of Things is 
also impressive, and this technology may improve nearly every aspect of 
life. Consider the benefits of smart homes. Connected devices that 
automatically regulate electricity usage based on whether anyone is 
home can cut energy usage and bills.\4\ Smart meters can send dynamic 
price signals to smart appliances to reduce peak energy consumption.\5\ 
Connected sensors can improve home safety by detecting fires and other 
emergencies more quickly and reliably than traditional methods, 
alerting authorities sooner.\6\ Blinds that automatically detect and 
filter out sunlight, smart heating and cooling systems that can 
maintain different rooms at different temperatures, and lighting that 
automatically adapts to time of day and can be controlled from a 
smartphone will make home life more comfortable than ever before.\7\
    Connected devices can also provide consumers important new insights 
about their health and fitness. Companies are designing wearables for 
every stage of life from smart ``onesies'' with embedded sensors that 
help parents monitor their infants' health to activity sensors that 
allow elderly adults to live safely and independently. Wearable 
biometric monitors can help individuals track their health, monitor 
chronic medical conditions, and improve health care outcomes.\8\ In 
addition, fitness trackers such as FitBit and Nike FuelBand can help 
consumers be more active and engage in healthy behaviors.\9\
    Local leaders can help build smart cities by integrating the 
Internet of Things into public buildings and infrastructure, including 
roadways, transit systems, and utilities. These technologies can help 
make cities safer, more sustainable, and more resilient while also 
providing new economic opportunities for their residents. For example, 
networked sensors can monitor the structural integrity of bridges and 
highways in real time to prevent catastrophes from happening and 
encourage cost-savings through timely preventative maintenance.\10\ 
And, intelligent transportation systems can make roads safer, 
facilitate traffic flow, and make public transportation more 
efficient.\11\
    Industries that restructure their practices around the Internet of 
Things can improve productivity and sustainability. With everything 
from networked assembly lines that track every screw turn to ensure 
quality control and safety to connected supply chains that reduce 
downtime and ensure transparency in material sourcing, the Internet of 
Things will increase industry competitiveness.\12\ The increased 
capacity for data collection from the Internet of Things brings 
benefits as well. Insurers can use actuarial models that factor in data 
from connected devices to better understand risk and reduce costs for 
their customers. Companies can monitor and enhance the safety of their 
workers in real time and prevent accidents.
    Overall, global spending on the Internet of Things is predicted to 
grow to approximately $3 trillion by 2020.\13\ Of course, any capital 
equipment represents a cost, not a benefit. In that businesses and 
consumers purchase technology only if benefits exceed costs and because 
many benefits extend beyond the immediate purchasers to the entire 
network, the overall economic benefits from the Internet of Things will 
be even more significant.\14\
    As technological barriers decrease and adoption of the Internet of 
Things takes off, its potential benefits depend in part on how 
policymakers respond to this technology. There are four main approaches 
policymakers could employ regarding the Internet of Things:

  1.  Precautionary regulations: Some policymakers focus on the 
        potential risks associated with the Internet of Things and want 
        to regulate it accordingly. These policymakers believe that 
        preemptive regulations will increase consumer trust and 
        therefore increase adoption, but the reality is that heavy-
        handed rules would likely imposes costs, limit innovation, and 
        slow adoption.

  2.  No intervention: Some policymakers resist laws and regulations 
        for the Internet of Things because they believe the free market 
        operating independently of government interventions achieves 
        the maximum possible consumer benefit. However, by avoiding all 
        interventions, policymakers miss the opportunity to proactively 
        support the deployment of the Internet of Things.

  3.  Indigenous innovation: Some policymakers view the Internet of 
        Things as an opportunity to create export opportunities for 
        domestic firms. These policymakers may endorse policies that 
        hinder foreign companies from competing in the domestic market, 
        such as adopting national technical standards rather than 
        adopting international ones.\15\ Such policies are anti-
        competitive and create fragmented markets for the Internet of 
        Things.

  3.  Technology champions: Some policymakers have taken a proactive 
        role in accelerating the development and deployment of the 
        Internet of Things, such as by funding research on sensor 
        networks, creating pilot projects for smart cities, preventing 
        over-regulation of wearable health technologies, and providing 
        incentives for smart grid deployment. These policymakers see 
        government as a critical partner in promoting the benefits that 
        come from using these technologies.

    Recognizing the inherent shortcomings and limitations of some of 
these approaches is crucial to developing sound policy for the Internet 
of Things. The status of the Internet of Things as an emerging 
technology necessitates a policy framework that is fully cognizant of 
its benefits, allows for future innovation, and responsibly protects 
against misuse without restricting its capacity to deliver social, 
civic, and economic benefits.
10 Policy Principles for the Internet of Things
1. Chart the Course for Adoption
    Every nation should develop a strategic roadmap to guide the 
deployment and adoption of the Internet of Things. In addition to a 
comprehensive roadmap, national agencies involved in specific sectors 
can develop targeted action plans for particular industries. In the 
United States, for example, the Department of Housing and Urban 
Development should develop an action plan to promote smart homes, and 
the Department of Energy should develop a plan to improve energy 
efficiency with connected devices. The private sector will be more 
likely to embrace the Internet of Things if government leaders are 
paving the way for deployment.
    Policymakers should actively work to overcome barriers to adoption, 
such as security risks or a lack of interoperability. For example, 
electronic health records should be able to integrate data from 
wearable medical devices and the government can promote industry 
adoption of voluntary cybersecurity principles to protect consumer 
data. Since many of the benefits from the Internet of Things will occur 
with widespread adoption, policymakers should promote efforts to 
develop global, industry-led standards and oppose efforts to develop 
nation-specific standards. To maximize the potential benefits of data 
analytics, developers should also be able to easily share and integrate 
data across organizational, political, and geographic boundaries.
2. Lead by Example
    The government should be an early adopter of the Internet of Things 
to demonstrate the benefits of the technology. From sewers to 
streetlights, government agencies should make ``smart'' the default for 
all new investments and allocate funding for smart city demonstration 
projects. For example, all government infrastructure projects should 
incorporate the Internet of Things into their design. Investing in 
smart technology for public infrastructure projects will increase 
safety, reduce maintenance costs, and improve operations. In addition, 
these projects will generate valuable data that should be made 
available to the public.
    To maximize the benefits of the Internet of Things, government 
agencies should restructure their practices around the new capabilities 
offered by the technology. Public services that incorporate connected 
sensors can provide important benefits to the public. For example, the 
City of Buffalo, New York uses sensor-equipped snow plows to respond to 
citizens' snow-clearing requests more quickly and to target problem 
areas more efficiently.\16\ And, government agencies that perform 
inspections of equipment and facilities can use the Internet of Things 
to perform their duties more quickly and effectively. For example, the 
U.S. Department of Agriculture (USDA) approved new regulations to allow 
advanced imaging sensors to evaluate food safety and quality. As a 
result, a single poultry food safety inspector can now process 175 
birds per minute, up from a previous speed of 35 birds per minute, a 
substantial gain in efficiency.\17\
3. Look to Partnerships to Overcome Obstacles
    Many Internet of Things projects will benefit from government 
agencies establishing partnerships with both the private sector and 
others in government. In particular, funding these types of projects 
can be challenging for cities with limited budgets. For example, a city 
may not have the budget to install smart streetlamps, even if they 
would end up paying for themselves in energy savings. Innovative 
partnerships whereby the private sector pays for, builds, and manages 
certain technology projects while receiving a portion of the savings 
can allow local leaders to deliver the Internet of Things and its 
benefits in situations where budget constraints would have otherwise 
impeded progress. For example, the City of Mumbai, India partnered with 
a smart metering company to help with its failing water infrastructure 
that was leaking 50 percent of its water a day. For the same amount of 
money the government would have spent patching new leaks without ever 
improving the overall integrity of the system, the partnership with the 
metering company cut the water loss in half.\18\
4. Reduce Regulatory Barriers and Delays for Getting Smart Devices to 
        Market
    A lengthy and cumbersome regulatory review process that increases 
the time to market for smart devices can discourage entrepreneurs from 
developing new and potentially lifesaving products. Wearable 
technologies can allow individuals to spend less time in the hospital, 
receive better treatments, and more easily monitor their personal 
health. Since subjecting these technologies to lengthy regulatory 
review processes can delay these benefits from reaching consumers, 
policymakers should work to ensure that these processes are as 
efficient as possible. Moreover, most of these technologies will 
undergo continuous innovation and improvement and the regulatory review 
process should allow for, and encourage, upgrades. In a clear example 
of a review process with room for improvement, it takes on average over 
two and a half years for the U.S. Food and Drug Administration to 
approve a low-risk medical device, compared to an average of seven 
months in Europe.\19\ These delays can cost a company an average of 
$500,000 per month and discourage entrepreneurs from bringing products 
to market.\20\ While consumer safety should remain a top priority, the 
human cost of delaying lifesaving technology should not be ignored.
5. Minimize the Regulatory Cost of Data Collection
    Policymakers should create laws and regulations that allow 
businesses and governments to build products and services efficiently, 
using the highest quality, most complete data possible. For example, 
obtaining explicit consent for data collection would be an unnecessary 
cost for the vast majority of applications of the Internet of Things 
that pose no real threat to consumer welfare. Regulations requiring 
individuals manually to give consent to data collection would impose 
costs on companies that ultimately would be passed on to consumers. 
Instead, the standard method of data collection for the Internet of 
Things should be ``opt out''; this would ensure that the data is 
accurate, complete, and useful, yet still provide those who wish not to 
share their data that option.
    Similarly, policymakers should recognize that consumers do not 
benefit from being inundated with notices, especially since most data 
collection would be routine and insignificant. Rather than require that 
all devices directly notify consumers of their policies and terms of 
service, companies should simply make this information available to 
those who wish to read it. This type of shift is especially important 
since many devices that will make up the Internet of Things will have 
only a small display or no display at all.
6. Make It Easy to Share and Reuse Data
    The Internet of Things will generate an unprecedented quantity of 
data, and policymakers should be careful not to equate simple data 
sharing with harmful misuse. Data collected from connected devices 
offer a myriad of potential benefits to consumers, clinicians, 
researchers, government agencies, and commercial entities, and if these 
datasets are shared, these benefits are multiplied. There may be one 
primary reason to collect data, but one hundred good applications of 
this data beyond its initial purpose. In order to maximize the social 
and economic benefits of information, data users of all kinds acting in 
good faith must be able to share and reuse data with ease.
    As governments at the municipal, state, and Federal levels 
integrate connected devices into public infrastructure and government 
services, the de-identified data they collect should be treated as a 
public resource and shared with the public accordingly. Making this 
data easy to access, such as through portals and application 
programming interfaces (APIs), and free to reuse without restrictions 
creates tremendous opportunity for private-sector innovation, academic 
research, and improvements in government transparency.\21\ The City of 
Chicago, which has been integrating the Internet of Things into city 
infrastructure and services as part of its Array of Things project, has 
made over 600 machine-and human-readable datasets freely available 
online.\22\ With this new resource, citizens have been able to more 
easily navigate public transit, the city's pest-control agency has 
reduced the rat population, and the police have created predictive 
models to fight crime more effectively.\23\
    Since the full potential benefits of the Internet of Things will 
not be realized until data from interconnected technology are widely 
used, policymakers should incentivize both individuals and the private 
sector to share data. For example, governments can support the 
development of new tools and techniques to properly de-identify 
different types of data so that they are still useful for analysis.\24\ 
Where possible, companies should be encouraged to provide consumers 
access to their data to stimulate the development of new applications. 
For example, the U.S. Department of Energy's green button initiative 
gives consumers access to their energy usage data and allows them to 
share their data with third-party developers who provide services such 
as virtual energy audits.\25\ Policymakers should also work to ensure 
data can flow across borders and eliminate digital barriers to trade, 
such as data residency requirements and other localization policies.
7. Relentlessly Pursue Better Data
    With ever-higher-quality sensors and an increasing number of them, 
the Internet of Things allows for the capture of an unprecedented 
quantity and quality of data. Policymakers should continue to invest in 
opportunities to collect more granular, timely, and complete data. 
Government agencies should use better data to better monitor internal 
processes and improve productivity and outcomes. For example, police 
departments can use sensors to better monitor the safety of their 
officers in real time and to hold officers responsible for their 
actions. Port authorities can use sensors to better protect the border 
by tracking containers and shipments coming into the country. Better 
data enables not only a more effective government, but a more 
transparent one as well.
8. Reduce the ``Data Divide''
    Policymakers should encourage widespread adoption of connected 
devices, from wearable fitness trackers to sensors on street corners, 
to close the ``data divide''--the social and economic inequalities that 
may result from a lack of collection and use of data about an 
individual or community.\26\ The goal of policymakers should be to 
ensure that no groups are systematically excluded from data collection 
activities so that all individuals have the opportunity to obtain the 
social and economic benefits of data.
    Policymakers should work to develop programs to ensure that all 
communities can benefit from the Internet of Things. For example, 
funding for smart city infrastructure should be made available to a 
diverse set of neighborhoods, including low-income ones.
9. Use Data to Tackle Hard Problems
    While the Internet of Things offers many economic benefits, 
policymakers need to ensure that opportunities to use these devices to 
address important social issues, such as health care and public safety, 
are also a top priority. For example, aggregate data from personal 
fitness devices can provide health officials with unprecedented 
insights into public health. Tracking changes in biometric readings 
across a city could even help identify the spread of deadly outbreaks, 
helping public officials better contain diseases and start treating 
sick individuals earlier. As Google's CEO and co-founder Larry Page has 
noted, public squeamishness over mining of health data likely costs 
around 100,000 lives a year.\27\ Policymakers should support efforts to 
collect and aggregate data on a large scale to solve collective 
problems.
    Networked sensors can detect flooding and trigger emergency 
responses more quickly.\28\ Wearable technologies and sensors on street 
corners can give new insights onto air quality on a block-by block-
basis and help develop strategies to curb pollution.\29\ The list of 
ways public welfare could be enhanced by the Internet of Things is 
long, but if it is to be fully effective in addressing these problems, 
policymakers should shift their focus to the problem-solving 
capabilities of smart devices.
10. Where Rules Are Needed to Protect Consumers, Keep Them Narrow and 
        Targeted
    Many technologies are often met with fear, uncertainty, and doubt, 
especially by those who are unfamiliar with them or opposed to change. 
Policymakers cannot afford to succumb to these forces if they expect to 
enable society to take full advantage of the Internet of Things. In 
particular, policymakers should be extremely cautious about regulating 
on the basis of purely speculative concerns that might not even come to 
pass, especially when doing so might curtail substantial economic and 
social benefits, many of which are already being realized today.\30\ 
Most hypothetical concerns are likely to never become realities if 
factors such as market forces, cultural norms, and new technologies, 
intervene. In addition, existing laws, such as anti-discrimination 
statutes, often protect individuals from certain types of abuses and 
harms.
    However, policymakers should intervene promptly if specific 
problems arise. In doing so, they should be careful to ensure that 
their rulemaking targets specific, demonstrated harms. Attempting to 
erect precautionary regulatory barriers for purely speculative concerns 
is not only unproductive, but it can discourage future beneficial 
applications of the Internet of Things. For example, privacy activists 
raised objections when several cities made plans to install gunshot 
detection equipment in public spaces. However, the effectiveness of 
these technologies in reducing gun crime has proven to be incredibly 
valuable to law enforcement.\31\
Conclusion
    These ten policy principles serve as a blueprint for Internet of 
Things policies that promote adoption, increase the value of data 
collected from connected devices, and maximize the benefits of the 
Internet of Things for consumers, government, and industry. While many 
of the future challenges of the Internet of Things may still be 
unknown, a policy framework built around these principles should 
maximize the benefits from the Internet of Things. The success of the 
Internet today can be credited in part to policymakers actively taking 
a role to ensure its growth, and this same approach should to be 
applied to build the Internet of Things.
References
    1. ``The Internet of Things Will Drive Wireless Connected Devices 
to 40.9 Billion in 2020,'' ABI Research, August 20, 2014, https://
www.abiresearch.com/press/the-internet-of-things-will-drive-wireless-
connect.

    2. Ibid.

    3. Jolyon Barker, Paul Lee, and Duncan Steward, ``Technology, Media 
& Telecommunications Predictions 2014,'' Deloitte, 2014, http://
www2.deloitte.com/content/dam/Deloitte/global/Documents/Tech nology-
Media-Telecommunications/gx-tmt-predictions-2014.pdf and Keith 
Bloomberg, ``The Race to Market the Connected Car,'' Automotive News, 
January 10, 2014, http://www.autonews.com/article/20140110/OEM06/
301109910/the-race-to-market-the-connected-car, ``100 Million Internet 
Connected Wireless Lights by 2020,'' ON World, November 20, 2013, 
http://onworld.com/news/100-Million-Internet-Connected-LED-Lights-by-
2020.html.

    4. Ilana Greene, ``Smart Houses Help Reduce Energy Use and Save 
Money,'' Huffington Post, December 19, 2013, http://
www.huffingtonpost.com/ilana-greene/smart-houses-help-reduce-
_b_4472919.html.

    5. Austin Harney, ``Smart Metering Technology Promotes Energy 
Efficiency for a Greener World'' Analog Dialogue, Volume 43-01, January 
2009, http://www.analog.com/library/analogdialogue/archives/43-01/
smart_metering.pdf.

    6. Juhwan Oh, Zhongwei Jiang, and Henry Panganiban, ``Development 
of a Smart Residential Fire Protection System, Advances in Mechanical 
Engineering, Volume 2013, 2013, http://www.hindawi.com/journals/ame/
2013/825872/.

    7. Jason Chen, ``Home Automation! What You Need to Know to Not Be 
Dumb,'' Gizmodo, September 27, 2010, http://gizmodo.com/5647352/home-
automation-what-you-need-to-know-to-not-be-dumb.

    8. Joshua New, ``Healthcare Insurance Regs Must Keep Up With Tech 
Advances,'' Center for Data Innovation, October 13, 2014, http://
www.datainnovation.org/2014/10/healthcare-insurance-regs-must-keep-up-
with-tech-advances/, Neil Versel, ``Lively, a new eldercare monitoring 
system focused on social connections, heads to Kickstarter,'' Mobi 
Health News, April 16, 2013, http://mobihealthnews.com/21650/lively-a-
new-eldercare-monitoring-system-focused-on-social-connections-heads-to-
kickstarter/and Dana Wollman, ``The Internet of Toddlers: Inter Shows 
Off a Smart Baby Onesie,'' Engadget, January 7, 2014, http://
www.engadget.com/2014/01/07/intel-smart-baby-onesie/.

    9. Kira Newman, ``The `Quantified Self' Is Only the First Step to 
Better Health,'' Tech Cocktail, May 28, 2013, http://tech.co/
quantified-self-better-health-2013-05.

    10. ``Wireless Structural Monitoring System Deployed in Korea,'' 
University of Illinois, November 30, 2009, http://cee.illinois.edu/
node/1022.

    11. ``Smart Cities are Built on the Internet of Things,'' Lopez 
Research, 2014, https://www.cisco.com/web/solutions/trends/iot/docs/
smart_cities_are_built_on_iot_lopez_research.pdf.

    12. Daniel Castro and Mark Doms, ``Data is the Key to the Factory 
of the Future,'' Center for Data Innovation, October 2, 2014, http://
www.datainnovation.org/2014/10/data-is-the-key-to-the-factory-of-the-
future/and Udaya Shankar, ``How the Internet of Things Impacts Supply 
Chains,'' Inbound Logistics, 2014, http://www.inboundlogistics.com/cms/
article/how-the-internet-of-things-impacts-supply-chains/.

    13. ``Finding Success in the New IoT Ecosystem: Market to Reach 
$3.04 Trillion and 30 Billion Connected `Things' in 2020, IDC Says,'' 
International Data Corporation, November 7, 2014, http://www.idc.com/
getdoc.jsp?containerId=prUS25237214.

    14. Peter C. Evans and Marco Annunziata, ``Industrial Internet: 
Pushing the Boundaries of Minds and Machines,'' General Electric, 
November 26, 2012, http://files.gereports.com/wp-content/uploads/2012/
11/ge-industrial-internet-vision-paper.pdf.

    15. Robert Atkinson, ``ICT Innovation Policy In China: A Review,'' 
Information Technology and innovation Foundation, July 2014, http://
www2.itif.org/2014-china-ict.pdf.

    16. Brian Heaton, ``Internet of Things Helps Buffalo, Other Cities 
with Snow Removal,'' Government Technology, November 19, 2014, http://
www.govtech.com/data/Internet-of-Things-Helps-Buffalo-Other-Cities-
with-Snow-Removal.html.

    17. Jenni Spinner, ``Headwall inks deal with USAFA on poultry 
inspection,'' FoodProductionDaily.com, May 2, 2014, http://
www.foodproductiondaily.com/Safety-Regulation/Headwall-inks-deal-with-
USDA-on-poultry-inspection.

    18. Jim Polson, ``Water Losses in India Cut in Half by Smart 
Meters: Itron,'' Bloomberg, March 15, 2013, http://www.bloomberg.com/
news/2013-03-15/water-losses-in-india-cut-in-half-by-smart-meters-
itron.html.

    19. Alan McQuinn, ``Commercial Done Companies Fly Away from FAA 
Regulations, Go Abroad,'' Inside Sources, September 30, 2014, http://
www.insidesources.com/commercial-drone-companies-fly-away-from-faa-
regulations-go-abroad/.

    20. Sandeep Rao, ``Medical device approval plagued by unhealthy 
delays,'' Baltimore Sun, February 24, 2011, http://
articles.baltimoresun.com/2011-02-24/news/bs-ed-fda-regulations-
20110224_1_diseased-heart-valves-cardiology-fda.

    21. Joshua New, ``Will Obama be the Last Open Data President?,'' 
Center for Data Innovation, November 11, 2014, http://
www.datainnovation.org/2014/11/will-obama-be-the-last-open-data-
president/.

    22. Brenna Berman, ``2013 Open Data Annual Report,'' City of 
Chicago, 2013, http://report.cityofchicago.org/open-data-2013/.

    23. Josh Taylor, ``Chicago's smart city: From open data to rat 
control,'' ZD Net, October 15, 2014, http://www.zdnet.com/chicagos-
smart-city-from-open-data-to-rat-control-7000034726/.

    24. Daniel Castro, Ann Cavoukian, ``Big Data and Innovation, 
Setting the Record Strati: De-identification Does Work,'' Information 
Technology and Innovation Foundation, June 16, 2014, http://
www2.itif.org/2014-big-data-deidentification.pdf.

    25. Nick Sinai and Matt Theall, ``Expanded `Green Button' Will 
Reach Federal Agencies and More American Energy Consumers,'' White 
House Office of Science and Technology Policy, December 5, 2014, http:/
/www.whitehouse.gov/blog/2013/12/05/expanded-green-button-will-reach-
federal-agencies-and-more-american-energy-consumers.

    26. Daniel Castro, ``The Rise of Data Poverty in America,'' Center 
for Data Innovation, September 10, 2014, http://
www2.datainnovation.org/2014-data-poverty.pdf.

    27. Alex Hern, ``Google: 100,000 lives a year lost through fear of 
data-mining,'' June 26, 2014, http://www.theguardian.com/technology/
2014/jun/26/google-healthcare-data-mining-larry-page.

    28. ``Smart Water: wireless sensor networks to detect floods and 
respond,'' Libelium, September 5, 2011, http://www.libelium.com/
smart_water_wsn_flood_detection/.

    29. Davey Alba, ``This Wearable Detects Pollution to Build Air 
Quality Maps in Real Time,'' Wired, November 19, 2014, http://
www.wired.com/2014/11/clarity-wearable and Martin LaMonica, ``Greenbiz 
10: What you need to know about the Internet of Things,'' GreenBiz, May 
14, 2014, http://www.greenbiz.com/blog/2014/05/12/greenbiz-101-what-do-
you-need-know-about-internet-things.

    30. Daniel Castro and Travis Korte, ``A Catalog of Every `Harm' in 
the White House Big Data Report,'' Center for Data Innovation, July 15, 
2014, http://www.datainnovation.org/2014/07/a-catalog-of-every-harm-in-
the-white-house-big-data-report/.

    31. Dan Keating, David Fallis, and Andras Petho, ``ShotSpotter 
detection system documents 39,000 shooting incidents in the District,'' 
Washington Post, November 2, 2013, http://www.washingtonpost.com/
investigations/shotspotter-detection-system-documents-39000-shooting-
incidents-in-the-district/2013/11/02/055f8e9c-2ab1-11e3-8ade-
a1f23cda135e_story.html.
About the Authors
    Daniel Castro is the director of the Center for Data Innovation 
where he leads the Center's research efforts. Mr. Castro is also a 
senior analyst at the Information Technology and Innovation Foundation. 
Previously, he worked as an IT analyst at the Government Accountability 
Office. He has a B.S. in Foreign Service from Georgetown University and 
an M.S. in Information Security Technology and Management from Carnegie 
Mellon University.

    Joshua New is a policy analyst at the Center for Data Innovation. 
He has a background in government affairs, policy, and communication. 
Prior to joining the Center for Data Innovation, Joshua graduated from 
American University with degrees in C.L.E.G. (Communication, Legal 
Institutions, Economics, and Government) and Public Communication.
About the Center for Data Innovation
    The Center for Data Innovation is the leading think tank studying 
the intersection of data, technology, and public policy. Based in 
Washington, D.C., the Center formulates and promotes pragmatic public 
policies designed to maximize the benefits of data-driven innovation in 
the public and private sectors. It educates policymakers and the public 
about the opportunities and challenges associated with data, as well as 
technology trends such as predictive analytics, open data, cloud 
computing, and the Internet of Things. The Center is a non-profit, non-
partisan research institute proudly affiliated with the Information 
Technology and Innovation Foundation.
                                 ______
                                 

      AgTech: Challenges and Opportunities for Sustainable Growth

              Ewing Marion Kauffman Foundation--April 2014

                             Suren G. Dutia

Table of Contents

Foreword

I. Introduction

II. Global Challenges

III. Overview of the AgTech Sector

IV. The Investment Case for AgTech

V. Opportunity for AgTech in the U.S. Heartland

VI. Recommendations

VII. Conclusions

VIII. Acknowledgements
                                 ______
                                 
Foreword
    The information technology revolution has prompted flights of fancy 
among some observers who seem to think we have transcended the physical 
bounds of economic activity. Terms such as the ``weightless economy,'' 
the ``intangible economy,'' and others suggest that we are moving 
toward an economy with little connection to the more humdrum things 
that characterized the economy of yesteryear.
    Yet even the intangible economy has an inescapable physical 
foundation: agriculture. We are still human, after all, and the extent 
to which we can exploit digital technologies is determined by whether 
or not we can produce enough food--efficiently and sustainably--to 
support ourselves. On this single factor, perhaps more than any other, 
hangs the fate of our economies and societies.
    Because of this, our two organizations have supported the 
production of this white paper, which explores the potential for higher 
levels of innovation, entrepreneurship, and productivity in 
agricultural technology (AgTech). The challenges facing agricultural 
production in the next generation are formidable, and we believe that 
AgTech requires higher levels of policy attention, public research, and 
private investment to set agriculture on a path toward greater 
efficiency and sustainability. Suren Dutia and his colleagues have 
provided here a good overview of the AgTech landscape, and where 
untapped opportunities may exist.
    The Donald Danforth Plant Science Center's mission is to improve 
the human condition through plant science. Specifically, the Center's 
research aims to feed the hungry and improve human health, preserve and 
renew the environment, and position the St. Louis region as a world 
center for plant science. Access to its state-of-the-art core 
facilities gives AgTech businesses a crucial advantage toward achieving 
success, and its annual Ag Innovation Showcase brings together 
investors, entrepreneurs, and business leaders to establish new 
collaborative ventures in agriculture and related industries.
    At the Ewing Marion Kauffman Foundation, one of our principal areas 
of interest is entrepreneurship. We are particularly interested in 
identifying opportunities for greater entrepreneurial entry and growth 
in specific sectors of the American economy.
    Entrepreneurs are problem solvers, and twenty-first century 
agriculture has no shortage of problems that, looked at another way, 
are opportunities for innovation. We look forward to the next steps 
that follow from this paper, and to recruiting other organizations to 
join us in promoting entrepreneurship and innovation in AgTech.

Sam Fiorello
Chief Operating Officer 
and Senior Vice President for Administration 
Donald Danforth Plant Science Center

Dane Stangler
Vice President of Research and Policy
Ewing Marion Kauffman Foundation
  
      
                                 ______
                                 
I. Introduction
    In this white paper, we provide an overview of a new emerging 
economic sector: sustainable agricultural technology or, more simply, 
``AgTech.'' This sector has the potential to completely reshape global 
agriculture, dramatically increasing the productivity of the 
agriculture system while reducing the environmental and social costs of 
current ag production practices. Given that we must produce more food 
in the next forty years than during the entire course of human history 
to date, and must do so on a planet showing signs of severe 
environmental stress, AgTech innovations will be absolutely essential. 
We believe humanity can rise to the occasion and overcome these 
monumental global challenges, but to do so will require sustained 
attention, significant investment, and AgTech-specific entrepreneur 
support systems to help spur innovation in the field.
    Our purpose in writing this paper is threefold. First, we seek to 
increase awareness of the productivity and sustainability challenges of 
the food system and inspire entrepreneurs to enter the field. Total 
demand is expected to rise 70 percent by 2050, and current growth rates 
in agriculture are not sufficient to meet this goal. However, the ag 
sector faces an even greater challenge because of the uncertainty posed 
by climate change on future production and constraints posed by the 
limited availability of land, water, and other key resources. These 
twin challenges of productivity and sustainability translate to 
countless opportunities for innovation across the complete value chain, 
from inputs and agricultural production to transport, processing, 
distribution, storage, and waste disposal. Visionary entrepreneurs will 
have the ability to solve pressing societal challenges while capturing 
the economic value of their new AgTech products and processes.
    Our second purpose is to help increase the flow of capital to 
investments in AgTech. The agriculture sector as a whole is one of the 
world's largest economic sectors, with net farm income of around $120 
billion and farm assets at around $2 trillion with little leverage. Yet 
there has been relatively little investment in AgTech compared with 
other industries like clean energy. Venture capital firms compiling 
portfolios of new AgTech companies are seeing more startups seeking 
funding than available capital, and other investor groups thus far have 
not entered the field in significant numbers. Given the size of the 
potential market and the vital societal need for agricultural 
innovation, we expect that investors soon will realize the opportunity 
of AgTech and invest substantially in this emerging field.
    Our third purpose is to highlight the need for regional AgTech 
entrepreneur support systems to accelerate innovation. We believe that 
the American heartland provides an ideal example of a region poised to 
make great strides forward in developing an entrepreneurial sector for 
AgTech. The heartland has some of the world's best growing conditions 
and natural resources, and currently produces 27.2 percent of the 
world's corn, 29.75 percent of its soybeans, 6.7 percent of its beef, 
and 6.9 percent of its pork, making this region an epicenter of global 
agricultural activity. The heartland houses some of largest and most 
progressive agricultural companies in the world, looked upon as leaders 
in their field. The heartland is blessed with highly developed 
transportation networks along its waterways and railroads, allowing for 
efficient logistics and transport of ag products. In addition, the 
heartland has world-class AgTech research capabilities with its land-
grant universities and city-level clusters of expertise, such as plant 
sciences in St. Louis and animal sciences in Kansas City. Given the 
overall AgTech entrepreneurial activity in the region and the large 
number of significant multinational players, the American heartland can 
be a powerful influence in driving the objectives of the AgTech 
revolution. Taken together, these resources indicate a regional 
competitive advantage in AgTech, similar to what the Silicon Valley 
cluster has provided for the IT industry. For these reasons, we believe 
a concerted effort to develop a regional AgTech entrepreneurial support 
system will result in immense benefits for the region itself and set an 
example for other agricultural communities across the world.
    We hope this paper launches a larger dialogue on the monumental 
challenge of sustainable food production for the next forty years and 
opportunities for the AgTech sector to help solve this challenge. We 
look forward to hearing your thoughts and ideas on these important 
topics.
II. Global Challenges for Agriculture: Producing More With Less Impact

        Over the next 40 years, land, energy, water, and weather 
        constraints will place unprecedented pressure on mankind's 
        ability to access its most basic goods--food, fuel, and fiber. 
        Humanity must now produce more food in the next four decades 
        than we have in the last 8,000 years of agriculture combined. 
        And we must do so sustainably. (``The 2050 Criteria,'' World 
        Wildlife Fund)

    The global agricultural system faces tremendous challenges. The 
United Nations Food and Agriculture Organization (UN FAO) projects that 
food production must increase by 70 percent over the next forty years 
to satisfy increasing demand due to population growth and rising 
economic prosperity (Conforti, 2011). The main challenge of global 
agriculture often is framed in terms of feeding a growing population, 
which is expected to increase from seven billion people today to 
approximately nine billion in 2050.
    At the same time, there is limited opportunity to expand the land 
used in agricultural production, and agriculture also must deal with 
environmental risks such as climate change. To succeed in sustainably 
increasing food production, major innovations in AgTech are required 
that increase agricultural productivity and improve the efficiency and 
resiliency of the entire food system.


    Figure 1. Projections for rising global demand for crops and 
declining arable land per capita.

    While many variables will determine the food demanded in 2050 and 
the ease with which that food can be produced, the general trends 
suggest that we will need significantly more food while facing an 
increasingly hostile environment due to climate change and diminishing 
resources. Projections from IHS Global Insights show large increases in 
the global demand for corn and soybeans, while the amount of arable 
land per capita continues to decline due to population growth and urban 
development. The UN FAO projects that both per capita and total demand 
for cereals, meat, and oil crops will rise by 2050, with little 
increase in the amount of arable land. Climate change will pose a large 
challenge to these projections: the International Food Policy Research 
Institute (IFPRI) projects that climate change impacts will nearly 
double the price of corn, rice, and wheat. Figures 1-3 showcase these 
projections.
Key Variables Influencing Agricultural Production from UN FAO's ``World 

        Agriculture Towards 2030/2050: The 2012 Revision''
        
        
    Source: HIS Global Insights, Agriculture Division.
    Figure 2. Projections for key agricultural variables in 2050.
    
    
    Source: IFPRI, ``Food Security, Farming, and Climate Change to 
2050,'' policy seminar, December 1, 2010.
    Figure 3. Projected impact of climate change on crop prices.

    Recently, Oxfam commissioned modeling to make estimates about what 
food prices would look like twenty years from now, and determined that 
under normal circumstances, food commodity prices are likely to 
increase about 50 percent between now and 2030. And if estimates of 
climate change are factored in, food prices could be up to 100 percent 
higher than they are at present. This would put enormous pressure on 
the world's population and especially its poor.


    Source: Alexandratos & Bruinsma, "World Agriculture Towards 2030/
2050: The 2012 Revision," UNFAO, 2012.
    Figure 4. UN projections for urban and rural changes in population 
Projected changes in global mean consumption
The Key Demand Drivers: Population Growth, Rising Incomes, and Demand 
        for 
        Renewable Energy
    However, the food shortfall challenge will be made even more 
difficult by the demographic shift in incomes occurring as the 
population rises; not only will there be more people overall, but more 
wealthy people who demand more food with greater resource requirements.
    Figure 4 shows that the fastest growing segment of world population 
is urban in the developing world. Billions of people already have moved 
from the rural country side into rapidly growing megacities, and 
billions more are expected to make this transition over the next forty 
years.
    As they gain affluence through rising incomes, the emerging middle 
classes of the developing world are consuming more meat, fish, dairy, 
and processed foods, all of which require higher levels of input 
resources and much higher levels of overall agricultural production.
    As a case study of rising affluence driving changes in dietary 
preferences, consider Taiwan. Between 1975 and 1990, Taiwan's GNI per 
capita rose from $3,368 to $8,325. In this same period, per capita 
annual meat consumption rose from 30 kg to 70 kg (see Figure 5). A 
similar trend emerged in China over the past thirty years, with annual 
per capita meat consumption growing from 9 kg to 58.2 kg.


    Sources: Taiwan Council of Agriculture, China Statistical 
Yearbookand Nomura Global Economics.
    Figure 5. Changing dietary preferences in Taiwan.

    A consequence of this rapid growth in meat intake is that China now 
consumes twice as much meat as the United States. Figure 6 shows the 
total consumption of meat in China relative to the United States. While 
Chinese per capita meat consumption currently sits at 58.2 kg per year, 
U.S. per capita meat consumption is double that at 120.2 kg per year. 
With increasing populations, even small shifts in meat consumption in 
the developing world can have large aggregate impacts on total demand.


    Source: Basch et al., ``Harvesting Opportunities for a Sustainable 
Food Supply.''
    Figure 6: Total meat consumption in the United States and China.
    Increased demand for meat poses a host of challenges to the global 
agricultural system, as livestock requires up to 8 kilograms of feed 
for every kilogram of meat produced (see Figure 7 for requirements 
based on type of meat). Significantly more water is required to produce 
a kilogram of meat than a kilogram of plant crops.


    Source: Basch et al., ``Harvesting Opportunities,'' SAM Robeco 
2012.
    Figure 7. Animal feed requirements per kg of protein.

    Meat production's high energy, water, and other resource costs thus 
lead to direct competition between crops grown for direct human 
consumption and crops grown as inputs for raising livestock or fish in 
aquaculture.
    Biofuels also will be a huge source of competition for diminishing 
resources available for food production. According to the International 
Energy Agency, biofuel production will see an 800 percent increase 
between now and 2050. While much of that biofuel will come from nonfood 
crops and second-generation production techniques such as cellulosic 
ethanol, most of the current supply of biofuels and production in the 
near term will provide direct competition with resources used to grow 
crops for human consumption and feed for livestock. Projected growth in 
biofuel demand also is expected to require more than triple the land 
currently used for production, as shown in the bottom graph of Figure 
8, further intensifying competition between food crops and biofuel 
crops.


    Source: International Energy Agency, ``Technology Roadmap: Biofuels 
for Transport,'' 2011.
    Figure 8. Demand for biofuels (top) and resulting demand for land 
(bottom).
Planetary Boundaries and the Risk Posed to Agriculture
    In order to continue sustainably, agriculture must exist within a 
stable environment. Like other biological systems, agriculture is 
dependent upon earth's biosphere for resources, such as water and soil. 
Much of current agriculture also is dependent on manmade inputs like 
synthetic fertilizer. However, global environmental challenges threaten 
the sustainability of these inputs.
    Recent advances in earth systems science have yielded a new 
understanding of processes that threaten the stability of the earth's 
current biosphere conditions. A landmark 2009 study in the journal 
Nature first proposed the concept of ``planetary boundaries,'' 
geophysical thresholds that, if crossed, could be dangerous for 
humanity (Rockstrom et al., 2009). Some of these planetary boundaries, 
such as climate change and biodiversity loss, are fairly well known. 
Other boundaries, such as the nitrogen cycle and global land use 
change, have received relatively little attention as issues of global 
concern. The full list of planetary boundaries and their proposed 
constraints is included in Figure 9 below.


    Source: Rockstrom et al., ``A Safe Operating Space for Humanity,'' 
Nature 461 (2009).
    Figure 9. Planetary boundaries relevant to the global agriculture 
system.
    * Proposed Planetary Boundaries (starred are relevant to 
ag, red have been crossed)

    Six of the proposed planetary boundaries are especially relevant to 
global agriculture:

   Climate change: modern agriculture produces several 
        greenhouse gases, including carbon dioxide, methane, and 
        nitrous oxide. Agriculture contributes 13.5 percent of global 
        GHG emissions (IPCC, 2007).

   Biodiversity loss: agriculture depends on a unique ecosystem 
        of bacteria, fungi, and other microorganisms present in the 
        soil, and this ecosystem often is disrupted by modern 
        agriculture activities.

   Nitrogen cycle: the production of nitrogen-based fertilizer 
        through the Haber-Bosch process removes roughly four times the 
        atmospheric N2 recommended in the proposed boundary.

   Phosphorus cycle: the mining of finite sources of P and its 
        concomitant application as fertilizer with subsequent erosion 
        into rivers, estuaries and oceans. Nitrogen and phosphorus 
        contribute to eutrophication.

   Global freshwater use: freshwater usage can grow only by 
        1,400 km-3 per year, and agricultural production accounts for 
        roughly 92 percent of total human water usage (Hoekstra & 
        Mekonnen, 2012).

   Global land use: agricultural cropland is 11.7 percent of 
        total global land cover and must not exceed 15 percent, leaving 
        limited land available for agricultural expansion.

    Demand for food, fiber, and energy will continue to rise throughout 
the coming decades, and agriculture's impact on planetary boundaries 
also likely will rise. However, crossing the planetary boundaries is 
not sustainable in the long term, as it will trigger geophysical shifts 
that will decrease agricultural production and lead to other 
devastating impacts. Ultimately, humanity must operate within the 
planetary boundaries to allow for a stable global environment and a 
sustainable civilization.
    AgTech innovations can help to reduce or even eliminate the 
negative global environmental impacts of agriculture by reducing the 
fossil fuel, fertilizer, water, and land requirements for food 
production. Increasing resource efficiency can help to ensure a more 
sustainable and more productive food system.
The Dream of the ``Evergreen Revolution''
    The goal of increasing agricultural production by 70 percent while 
not pushing the global environment beyond the nine planetary boundaries 
presents an unprecedented challenge for humanity. We believe innovation 
in AgTech has the potential to meet both of these challenges, but we 
will need a new revolution in sustainable agricultural production for 
this to happen.
    The Green Revolution of the mid-twentieth century provides a recent 
example of what can happen through technological innovation. In the 
1960s, scientists grew increasingly concerned about the growing world 
population and warned that mass famines were imminent. Yet since 1960, 
the world population has doubled while the food supply has tripled (UN 
Food and Agriculture Organization, 2012). Even more astounding, land 
under cultivation only grew by 12 percent from 1960 until today; most 
of the growth in yields came from increases in productivity. The Green 
Revolution saved many ecosystems from destruction, for without this 
dramatic increase in productivity, hungry nations likely would have 
converted more rainforests and wetlands to cropland.
    However, the Green Revolution had large environmental consequences. 
Improvements in yields from the Green Revolution required heavy usage 
of fertilizer, disrupting the nitrogen cycle and leading to 
eutrophication and ``dead zones'' of oxygen-deprived, largely lifeless 
areas in the ocean. Green Revolution increases in yields also relied on 
chemical herbicides and pesticides, contributing to local air and water 
pollution. In addition, Green Revolution crops demanded large amounts 
of irrigated water, which in some areas has dramatically lowered water 
tables and depleted aquifers. Finally, the various technologies used in 
the Green Revolution, from fertilizer to herbicides to irrigation, all 
require large amounts of fossil fuel energy, leading to further 
greenhouse gas emissions and climate change.
    Our new agricultural revolution must be an ``evergreen 
revolution,'' one that increases food production while ensuring 
environmental sustainability. It must go further than reducing 
agriculture's negative impacts; ultimately, agriculture must positively 
contribute to the global environment.
    Johan Rockstrom, lead author of the group of scientists who created 
the planetary boundaries concept, proposes the following global goals 
for an ``evergreen revolution'' (Rockstrom & Karlberg, 2010) in Figure 
10 below:


    Source: Rockstrom & Karlberg, ``The Quadruple Squeeze: Defining the 
safe operating space for freshwater use to achieve a triply green 
revolution in the Anthropocene,'' Ambio 39 vol. 3 (2010), 257-65.
    Figure 10. Global goals for an ``evergreen revolution'' in 
agriculture.

    Meeting these goals requires AgTech innovations that can produce 
food with significant improvements in resource efficiency. To put it 
another way, we will need to produce more units of output with fewer 
units of input. Through innovations along the entire agriculture value 
chain, we can increase the productivity of our farming systems while 
simultaneously transforming agriculture into a source of environmental 
health. But achieving the dream of the evergreen revolution will not be 
easy; it will require sustained investment, increasing collaboration 
and enlightened public policy. We also must know the current progress 
of innovations in AgTech, the subject of the next section of this 
paper.
III. An Overview of the AgTech Sector
    The global imperatives presented by the soaring demand for food and 
the danger of crossing planetary boundaries underscore the need for an 
``evergreen revolution'' in agriculture. This revolution largely will 
be driven by innovations in sustainable agriculture technologies. In 
this paper, we refer to this sector as ``AgTech,'' with a clear 
implication of environmental, social, and economic value. AgTech 
describes innovative technologies in the agricultural sector that 
demonstrably enhance the sustainability of the practice by increasing 
productivity, improving the efficiency of resource use, and reducing 
ecological impacts. They also yield sustained or enhanced profitability 
to investors by increasing the long-term value of ag production.
    Global agricultural production is far from monolithic, and involves 
many different production methods ranging from the advanced technology 
and high-yield mainstream U.S. model to low-yield subsistence farming, 
with many variations in between. In this paper, we will focus solely on 
advanced technology agricultural production, as we believe that this is 
the best method to produce 70 percent more food while also respecting 
the planetary boundaries for climate change, biodiversity, nitrogen, 
water, and land. With this focus, our view of AgTech will center on 
North America, where adoption of advanced technology for agriculture is 
most prevalent.
    Recent trends in U.S. agriculture illustrate the potential for 
improvements in AgTech to move us toward meeting the global imperatives 
of the ``evergreen revolution.'' Figure 11 indicates changes in 
environmental impact of three U.S. crops (corn, soy, and wheat) over 
the last twenty-five years. While productivity has risen for these 
three crops, the environmental impact of growing them has decreased. 
Corn and soybeans show greater improvement than wheat because of the 
adoption of biotechnology products and techniques made possible by 
these products, such as no-till agriculture.
    However, these diagrams also represent the environmental impact per 
unit of production, meaning that as production has increased, the total 
aggregate environmental impact still has continued to rise. As the 
planetary boundaries framework shows, rising aggregate environmental 
impacts are not sustainable. Further innovations in AgTech will be 
necessary if the U.S. agriculture sector is to achieve full 
environmental sustainability at the production levels needed to meet 
the world's growing demand.


    Source: Field to Market, 2012 Environmental and Socioeconomic 
Indicators Report.
    Figure 11. Resource efficiency and environmental sustainability 
improvements for three U.S. crops.
The AgTech Value Chain
    In order to better understand the potential for AgTech innovations, 
we crafted an AgTech value chain diagram that traces inputs to their 
final products. This value chain contains seven intermediary steps: 
physical inputs, information inputs, plant farming, animal farming, 
bio-based processing, food processing, and logistics (see Figure 12). 
The value chain can produce three final products: fossil-fuel 
substitutes (such as biofuel), plant-based food, and animal-based food. 
Each of the steps in the supply chain has inefficiencies and 
environmental impacts that must be improved if global agriculture is to 
reach the goals of an ``evergreen revolution.'' Thus, each step in the 
value chain has the potential for innovation.


    Figure 12. The AgTech value chain.
One Vision for AgTech: Integrating Genetics, Physical Inputs, IT, and 
        Smart 
        Machinery
    Innovations in AgTech do not need to be constrained to only one 
step in the value chain; rather, the most disruptive breakthroughs in 
AgTech may come from combining innovations in multiple areas. One 
particular exciting illustration of this combination is an idea known 
as ``integrated farming systems'' that will integrate genetics, 
physical inputs, IT sensing, and smart machinery. Through advances in 
software and environmental testing, farmers will be able to create 
custom field prescriptions for seeds, fertilizer, pest controls. Smart 
machinery then will carry out the prescribed treatment, all the while 
collecting further data that will provide feedback to the farmer. This 
data also will allow seed and farm input companies to develop custom 
products for farmers. Figure 13 demonstrates this AgTech vision.
    The idea of ``integrated farming systems,'' which currently is 
being advanced by several established companies and by entrepreneurs, 
still is in early development. This idea of combining advances in 
genetic engineering, information technology, and smart machinery likely 
will be pursued by many established companies and startups due to the 
vast potential for investment and innovative new products in these 
three areas.


    Source: ``Precision Planting/Monsanto Field Scripts program,'' 
Precision Planting 2012.
    Figure 13: An illustration of ``Integrated Farming Systems,'' a 
vision of potential AgTech innovations.
Examples of AgTech Startup Activity
    To provide an overall state of the innovation ecosystem for AgTech, 
we analyzed a dataset from the agriculture venture capital group 
Cultivian of over 900 AgTech startup companies from around the world. 
This dataset consists of companies that Cultivian considered investing 
in for their funds, and was obtained through direct contact, 
conferences, referrals and other methods. We have removed any 
identifying information from the data and present only aggregate 
information.
    We categorized each of the startup companies by its position in the 
AgTech value chain. After sorting the data, we were left with 738 
companies that fit within the value chain framework. The database also 
contains the year that Cultivian first became aware of the venture or 
when the venture was seeking investment. We used this as a proxy to 
signify the year when the venture perceived itself as mature enough to 
seek funding. From this data, we created Figure 14, which summarizes 
Cultivian's deal flow from 2006 until 2012.
    From this dataset, it is evident there is robust stream of new 
business startup activity occurring across the agricultural value chain 
in technology inputs, crop production, animal production, processing, 
and manufacture and distribution. This innovation activity has occurred 
over a sustained period of six years, averaging 132 startups per year 
for a single venture firm.


    Figure 14. Summary of Cultivian AgTech dataset.
    To showcase some of the many innovation opportunities in the AgTech 
sector, we chose four examples of startup companies from different 
steps in the AgTech value chain. The quoted description for each 
company comes directly from Cultivian's portfolio website.




    While we believe that these four companies are a good 
representation of the diversity of activity in the AgTech sector, the 
inclusion of these companies should not be taken as an endorsement.
AgTech and the Controversy Surrounding Genetically Modified Foods
    We would be remiss if we did not acknowledge an ongoing debate 
around genetically modified (GM) foods. GM foods have been sold 
commercially for about two decades in the United States and there is 
broad scientific consensus that GM foods do not pose greater risk than 
conventional foods. However, a simmering debate remains about the 
potential adverse impacts these products could have on the environment 
and human health, with public opinion deeply divided over safety 
concerns.
    While we recognize the importance of reviewing a wide range of 
scientific studies and opinions on the use of GM foods, it is beyond 
the scope of this white Paper. However, we should note that no major 
scientific body ever has found that GM foods pose a risk to public 
health. The U.S. National Academy of Science noted that after billions 
of meals served with GM ingredients, ``no adverse health effects 
attributed to genetic engineering have been documented in the human 
population.'' European scientific agencies agree with this conclusion, 
and the scientific advisor to the European Commission has stated that 
``there is no more risk in eating GMO food than eating conventionally 
farmed food.''
    Further, scientific analysis of the environmental impact of GM 
crops has, to date, not found evidence of environmental harm caused by 
the products. Instead, a U.S. National Academy of Science 2010 report, 
``Impact of Genetically Engineered Crops on Farm Sustainability in the 
United States,'' found that GM crops reduced agriculture's 
environmental impact, reducing insecticide and toxic herbicide use; 
increasing the use of conservation tillage and no-till farming; 
reducing carbon emissions and soil runoff; and improving soil quality. 
Given the monumental challenge of sustainably producing 70 percent more 
food over the next forty years, we believe that no potential tools 
should be excluded. Without the use of GM foods or other biotech 
products, meeting the global agriculture challenge will become 
significantly more difficult.
    As outlined in this paper, it is our strong belief that during the 
twenty-first century, humankind will be confronted with an 
extraordinary set of challenges. It is essential that we improve food, 
feed, fiber, and energy production while reducing environmental impact 
and enhancing societal development. Meeting these challenges will 
require new knowledge generated by continued scientific advances, the 
development of appropriate new technologies, and a broad dissemination 
of this knowledge and technology, along with the capacity to use it, 
throughout the world. It also will require that wise policies be 
implemented through informed decision making on the part of national, 
state, and local governments in each nation. Regulatory oversight of 
technology development should continue to be science-based, while 
recognizing the responsibility of government, industry, and the 
scientific and medical communities to educate the public and improve 
availability of unbiased information.
    Genetically modified foods have the potential to solve many of the 
world's hunger and malnutrition problems, and to help protect and 
preserve the environment by increasing yield and reducing reliance upon 
chemical pesticides and herbicides. Yet there are many challenges ahead 
for governments, especially in the areas of safety testing, regulation, 
international policy, and food labeling. Many people feel that genetic 
engineering is the inevitable wave of the future and that we cannot 
afford to ignore a technology with such enormous potential benefits. 
However, we must proceed with caution to avoid causing unintended harm 
to human health and the environment as a result of our enthusiasm for 
this powerful technology.
    The AgTech space has the unique opportunity to gain ground by 
counteracting the fearmongering about genetically engineered crops and 
bringing about more openness, education, and transparency while working 
with farmers and innovators. While biotech advances in medicine and 
pharmaceuticals have been well received by the public, individuals view 
innovations in plants and food more skeptically. We must bring about a 
broad-based understanding of the enormous challenges that lie ahead to 
create meaningful change. It is essential to bring a congruence of 
pragmatic innovators, humanitarians, and environmental organizations 
together with entrepreneurs and ag companies to achieve the common 
objective of producing adequate food for the next century.
IV. The Investment Case For AgTech
    The AgTech sector has tremendous opportunities for investment. The 
demand for sustainable food, fiber, and energy production has been 
growing throughout the twenty-first century, making agriculture a 
stable and reliable investment. Below are five reasons why we believe 
AgTech innovation is a smart investment:

  1.  Grain consumption is increasing worldwide.

  2.  Demand for sustainable energy is growing.

  3.  Access to quality arable land and soil is constrained.

  4.  Access to adequate water quality and quantity is decreasing.

  5.  Current cultural practices are not sustainable in the face of 
        increasing environmental challenges.

    Figure 15 provides a glimpse of the various demand drivers and 
supply constraints for the entire agriculture system. Because of the 
factors shown on the figure's right side, demand for agricultural 
products will continue to rise, while the supply constraints will make 
meeting the demand extremely difficult. AgTech innovations that help 
meet these challenges will offer investors and entrepreneurs a fertile 
opportunity for investment and invention.


    Figure 15. Demand drivers and supply constraints in the 
agricultural system.

    Logistics, which coordinates the movement of ag products and 
support availability and the timely balance of supply and demand, is 
another area essential to the success of AgTech innovations. Because of 
its critical role, we have given logistics special prominence in the 
above graphic.
Some Areas of Opportunity for Ag Tech Investment
    The AgTech sector holds many opportunities for investment, with 
innovation needed throughout the entire value chain. Specific areas 
available for investment in this sector include:

 Animal Nutrition & Health
 Aquaculture
 Bioenergy
 Biological Pest Control
 Biomaterials
 Bionutrition
 Biotechnology
 Crop Nutrition
 Crop Protection
 Decision Support Technologies
 Feed Efficiency
 Fertilizer Efficiency
 Food Traceability and Safety
 Food Storage and Preservation
 Information Systems
 Integrated Pest Management
 Irrigation Efficiency
 Land Management
 Machinery
 Precision Agriculture
 Robotics
 Seeds and Genetics
 Soil Amendments
 Soil Health
 Sustainable Production Systems
 Technology Transfer
 Urban Agriculture
 Water Quality and Preservation
 Waste Mitigation and Manure Management
      
Changes in U.S. Public and Private AgTech R&D Spending
    Throughout most of the twentieth century, much research and 
innovation in agriculture was funded with public money. Since the early 
1980s, however, public expenditures on agriculture R&D have stagnated, 
even as demand for ag products continues to rise. As public funding has 
ebbed, new flows of capital from the private sector have increased. 
This is particularly evident in developed countries like the United 
States, where private spending on agriculture R&D has been consistently 
higher than public spending for the past three decades. The decline in 
public R&D is a trend affecting primary research in the United States 
for all types of science and is not just an issue for AgTech. However, 
the needs and opportunities present in the AgTech sector deserve 
special attention from policymakers (see Figure 16).


    Sources: (above left) USDA, ``Background: Agriculture Depends on 
Research and Technology Development,'' 2012; (above right) Fuglie et 
al., ``The Contribution of Private Industry to Agricultural 
Innovation,'' Science 338, no. 6110 (2012).
    Figure 16. Trends in public and private AgTech R&D spending in the 
United States.

    The growth of private R&D spending on AgTech illustrates a simple 
and, on its face, obvious point: investing in AgTech offers solid 
opportunities for innovation and value creation. Corporations and 
private investors largely are rational in their decision making, 
generally only investing capital when they have a high degree of 
confidence of a good return. When entrepreneurs and private industry 
develop business models that capture the value of needed AgTech 
innovations, they have a tremendous opportunity to achieve high 
returns. Indeed, this has happened with the development of 
biotechnology. The right-hand graphic in Figure 16 shows the dramatic 
increase in private R&D spending in crop seed and biotechnology between 
1979 (shortly before the U.S. Supreme Court allowed for patenting of 
biotechnology traits) and 2006; this research spending occurred because 
of the opportunity to capture value from novel applications of genetic 
engineering.
The Important Contribution of Private R&D Spending to Global 
        Agricultural Growth
    Global gains in agricultural productivity realized during the Green 
Revolution of the 1960s, 1970s, and 1980s were driven by input 
intensification and crop-area expansion. In comparison, the 
productivity gains achieved in the 1990s and 2000s largely were driven 
by innovations (total factor productivity) and less from input 
intensification or new land being brought into cultivation. Figure 17 
highlights the shift away from heavy spending on increasing fertilizer 
and pesticide inputs to investments in genetic engineering and other 
high-tech improvements that increased yields with fewer units of input. 
This trend towards greater resource efficiency is encouraging, but much 
more needs to be done.


    Source: Fuglie et al., ``Productivity Growth and Technology Capital 
in the Global Agricultural Economy,'' Productivity Growth in 
Agriculture 2012.
    Figure 17. Relative contributions to growth in global agricultural 
production.

    With public R&D spending in advanced developed countries stagnating 
or declining, private investment may be the best way to spur further 
innovations in AgTech and achieve the growth in production needed to 
sustainably meet the rising demand for ag products. Figure 18 
demonstrates that private sector investment in food and agriculture has 
increased steadily in the past decade, reaching $8 billion annually for 
crop inputs and $2 billion annually for animal inputs by 2010. However, 
private investment must increase even further if advances in innovation 
are to continue.


    Source: Fuglie et al.
    Figure 18: Global private investment in food and agriculture 
research.
Overall Comments on the Future of AgTech Investment
    As can be seen from the top-level investment data in Figure 18 and 
the micro-level Cultivian data, AgTech investments are being made 
across the supply chain. There also are interrelationships between 
supply chain categories. For example, the value of new seed traits may 
not be fully realized without other equipment and information 
innovations needed to advance precision agriculture. Additionally, 
advances in logistics will be needed to segregate outputs as crops 
become optimized for specific uses such as animal production, human 
nutrition, or bio-based substitutes. Further, as climate change 
negatively affects current production methods, still more innovations 
will be needed.
    Crucially, demand necessitates innovations. Over the past five 
years, innovations in agriculture technology (precision ag innovations, 
data analytics and processing, platforms for the collection and 
distribution of complex data streams, and IT-driven extensions) are on 
the rise in the heartland, and in California and North Carolina. 
Pressing needs and challenges often fuel research and innovative 
outcomes in various global farming hubs. New Zealand is one of the 
world's largest producers of dairy as well as lamb and sheep, while 
Australia is a leading producer of wheat and animal feed. Investment 
authorities and private wealth funds from Singapore, Dubai, and Qatar 
are beginning to take notice of geographic centers with farming 
capabilities, including those in China, Brazil, and Chile.
    Government policies, regulations, incentives, and penalties will 
play an important role in determining the AgTech sector's future. It 
either could result in growth spurts or constrain innovation and 
entrepreneurial activity in the sector, and investors will need to stay 
abreast of how these are impacting returns.
    We also want to highlight a potential trend where investors may 
have a more diverse set of return motivations. Economic returns still 
dominate, but goals relating to social consciousness and environmental 
returns also are on the rise. These types of returns always have 
existed and historically have received philanthropic and government 
support. However, new sources of capital are emerging that seek 
environmental and social returns or, at least, having these returns 
blended with economic returns, including: social entrepreneurship 
innovations funded by socially conscious investors; declared socially 
conscious corporations; socially conscious innovator and corporation 
partnerships; consumers making purchasing choices based upon 
environmental and social factors; crowd funding; and others. As these 
trends gain momentum, there may be opportunities in the AgTech sector 
to translate shared social returns to individual economic returns.
    Overall, we see the AgTech sector evolving through an increasing 
number of agriculture technology entrepreneurs connecting with angel, 
venture capital, corporate, philanthropic, government, and other 
investors to create an even more vibrant sector within the global 
economy. We foresee many ``green'' opportunities across the supply 
chain categories to suit the size and characteristics of different 
entrepreneurs and investor classes. The attributes of a potential 
investment opportunity and associated return on investment also will be 
key. As always, the most disruptive and quickly scalable breakthroughs 
will deliver the most handsome economic, social, or environmental 
returns. Investors and entrepreneurs will have many opportunities to 
collaborate given the magnitude of the need and the return 
opportunities.
V. The Opportunity for AgTech in the U.S. Heartland: An Example of 
        Regional Assets and Expertise to Drive Innovation
    While the Ever-Green Revolution is a global challenge and AgTech is 
broadly applicable across North America, the AgTech innovation required 
to achieve sustainable increases in productivity will happen through 
research and entrepreneurial networks at a regional scale. We believe 
that the American heartland is one of the regions especially well-
suited for the challenge of developing a robust innovation ecosystem in 
AgTech. The American heartland already has the research and innovation 
hubs needed to develop the new AgTech products and processes, and is 
beginning to develop the entrepreneurial hubs needed to grow these 
innovations to scale. But it will need to do more if it hopes to be the 
center of the emerging AgTech revolution and capture the value of the 
resulting products and processes.
Defining the U.S. Heartland
    For our purposes, we define the U.S. heartland as the collection of 
midwestern states that generate the highest concentration of 
agriculture-related economic value in the United States. Commonly 
referred to as America's heartland, or the Midwest, this region 
consists of twelve states in the north-central United States: Illinois, 
Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North 
Dakota, Ohio, South Dakota, and Wisconsin. The area has some of the 
richest farming land in the world, and has come to be known as the 
Nation's ``breadbasket.''


    Figure 19: U.S. and heartland region net farm income by state.

    As a group, the twelve states listed in Figure 19 generated $60.3 
billion in net farm income in 2011, or 51.2 percent of all U.S. net 
farm income. The heartland produces 85 percent of U.S. corn, 85 percent 
of U.S. soybeans, 70 percent of U.S. pork, 45 percent of U.S. eggs, 33 
percent of U.S. milk, and 30 percent of U.S. beef. This high quantity 
of production makes the heartland important in global commodity 
markets, as heartland corn and soy comprise 27.2 percent and 29.75 
percent of global production, respectively.
Heartland Assets for AgTech
    The heartland is one of the world's most fertile crop production 
areas, with abundant soil and a climate that currently is amenable to 
producing large amounts of food. In 2006, a study by the Potsdam 
Institute for Climate Impact Research simulated what optimal global 
agricultural production would look based solely on climate, soil, and 
water constraints, without any regard to existing ag infrastructure. 
The results of this simulation, displayed in Figure 20 below, show that 
the U.S. heartland and central Europe are the two most fertile areas in 
the world. Thus, the heartland's unique geography explains its high 
concentration of farms of the United States, as shown in Figure 21.
    The heartland also has unique advantages in its transportation and 
processing infrastructure. Goods can be moved by rail, truck, or barge, 
and transportation networks are concentrated within the region (see 
Figure 22). Farm products can be shipped from any coast, reaching the 
Pacific Ocean by rail, the Gulf of Mexico via the Mississippi River, 
and the Atlantic Ocean via the Gulf of Mexico. Value-added products, 
such as ethanol or biofuels, can be processed directly in the heartland 
due to its concentration of processing facilities, as shown in Figure 
23.


    Source: Kahn & Zaks, ``Investing in Agriculture: Far-Reaching 
Challenge, Significant Opportunity,'' Deutsche Bank Group, 2009.
    Figure 20: Simulation of globally optimized agricultural 
production.


    Figure 21. Concentration of cropland in the United States.
    
    
    Source: ``Freight Analysis National Freight Statistics,'' U.S. 
Department of Transportation 2007, USDA 2012.
    Figure 22. U.S. transportation networks for shipping freight.
    
    
    Source: ``Production by County and Location of Ethanol Plants,'' 
USDA, 2012
    Figure 23. Location of ethanol processing plants in the United 
States.

    In addition, the heartland has a strong concentration of human 
capital and research infrastructure focused on AgTech, including land 
grant public universities and prestigious research institutions. The 
land grant universities provide a unique network of cutting-edge basic 
science platforms, which are catalyst of innovation, knowledge 
transfer, entrepreneur development and a well-trained workforce.
An Opportunity for the Heartland: Building AgTech Entrepreneur Support 
        Systems
    It seems only natural that the heartland would serve as the 
epicenter for development of a comprehensive innovation ecosystem and 
entrepreneurial economy around the emerging AgTech sector. However, 
several factors are holding back such a collaborative effort. First, 
the heartland does not have a strong regional identity, with various 
states claiming sole ownership of the ``midwestern'' identity. This 
leads to competition between states and a narrowness of vision, only 
looking within the state's borders for beneficial economic 
opportunities and preventing larger interstate projects. The heartland 
also has resisted letting go of its current economic practices, having 
experienced a very prosperous twentieth century after the rise of 
organized labor and American superiority in global agriculture. While 
globalization has upended this established economic model, Americans in 
the heartland often are hesitant to let go of the recipe that led to 
success in the past. Finally, the open culture of investment of 
innovation that exists in places like San Francisco or Boston does not 
exist in much of the Midwest, which maintains a more stable and 
sometimes hierarchical social order.


    Figure 24: Heartland land-grant universities and research centers.

    These cultural dynamics can be a huge obstacle to building 
successful innovation ecosystems and entrepreneurial economies, but 
Midwestern cities already are starting to have some success. Two of the 
most hopeful places for entrepreneurial activity in the AgTech sector 
are the St. Louis and Kansas City, Missouri, metropolitan areas. St. 
Louis has invested in institutions like the Danforth Center and BRDG 
Park, and the combination of its universities and the large AgTech 
research company, Monsanto, have helped it develop a fairly robust 
economy around innovations in the plant sciences. Kansas City has 
focused on animal health, and traditionally has had expertise in the 
areas of livestock and animal sciences. While Kansas City itself does 
not have any animal health research centers, the larger region 
incorporates top-tier veterinary schools at the University of Missouri, 
the University of Kansas, and Kansas State University. Both cities now 
are in the early stages of developing more comprehensive 
entrepreneurial support systems for their respective focus areas.
    Some of the world's leading agribusiness, chemical, and farming 
companies are located in the heartland: Dow Chemicals, an American 
multinational chemical corporation headquartered in Midland, Michigan; 
Monsanto, the world's largest seed comp agricultural biotechnology 
corporation headquartered in Creve Coeur, Missouri; Deere & Company, 
commonly known by its brand name John Deere, one of the world's largest 
manufacturers of agricultural machinery, based in Moline, Illinois; the 
Archer Daniels Midland Company, an American global food-processing and 
commodities-trading corporation, headquartered in Decatur, Illinois; 
Cargill, an international producer and marketer of food, agricultural 
and industrial products and services, based in Minneapolis; And Procter 
& Gamble, a multinational consumer goods company headquartered in 
Cincinnati. These are just a few of the leaders in the agricultural and 
food spaces, and with their combined forces, they can make a real 
difference in the amalgamation of clean energy, sustainable 
agricultural practices and productivity, and advances in new 
technology. These large players have the potential to create the right 
ecosystem and inspire new startups in their communities.
    Many of the developing nations look up to the U.S. heartland in 
terms of advances in farming technologies and mechanization of their 
agriculture sectors. AgTech entrepreneurs and innovators can get a head 
start by incubating in close proximity to these advanced companies. 
Similar to the technology prowess of Silicon Valley, the financial 
leadership of New York, or the entertainment hub of Los Angeles, 
American's heartland has the right ingredients to be a powerhouse in 
the agriculture technology space.
VI. Recommendations
    We conclude this paper with five major recommendations:

  1.  Educate and promote the opportunities provided by AgTech.

  2.  Build and support regional AgTech innovation support systems with 
        ``agripreneur'' champions.

  3.  Enable the transition to new technology around the theme of 
        ``Green and Lean Efficiency.''

  4.  Engage nonpartisan groups.

  5.  Develop human capital to meet the needs of tomorrow.

1) Educate and promote the need and opportunity for AgTech and 
sustainable agriculture.

    For entrepreneurs to build AgTech companies, for investors to 
direct capital to AgTech ventures, and for public officials to promote 
AgTech development through public policy, they first must know that 
AgTech exists. They must learn about the major challenges of meeting 
rising global demand for ag products while staying within the planetary 
boundaries. And they must realize how the United States, and in 
particular the heartland, can play a hugely constructive role in moving 
AgTech forward.

2) Build and support regional AgTech entrepreneur support systems with 
``agripreneur'' champions.

    Two sets of factors will be needed to create an AgTech 
entrepreneur-friendly culture. The first factors needed are social 
relationships and a collaborative culture, which we believe to be the 
most essential elements in building an effective entrepreneur support 
system. The support system should be led by an AgTech entrepreneur 
champion. This person must serve selflessly for the benefit of the 
whole, contributing countless hours toward building a system that will 
help others succeed. The champion must have deep expertise in the area 
of entrepreneurial activity, but must be willing to set aside his or 
her ego and let others take credit. Such a champion will create a 
collaborative, grassroots entrepreneurial culture. As this culture 
matures, deal quality and volume will grow naturally, creating a 
scalable culture with many investment opportunities. For AgTech, such a 
champion must be an ``agripreneur,'' someone completely immersed in the 
agriculture system across the complete value chain and with deep 
entrepreneurial experience in agricultural innovation.
    Regional agripreneur champions should be consciously and regularly 
(at least quarterly) connected across regions. The purpose should be to 
enhance the overall network, and the goal to share ideas about how 
individual regions are developing and supporting entrepreneurs. As the 
collective support systems gain momentum, entrepreneurial activity and 
needed innovations will blossom. Thus, agripreneurs will attract and 
develop more agripreneurs.
    The second set of factors that needs to be created relates to 
economic development items. These include infrastructure and capital 
formation. Some of these assets already exist in the some regions and 
more will be needed as the AgTech entrepreneur culture grows and 
scales. Economic development investments usually are made regionally 
and should be guided by direct feedback from agripreneurs.
    ``Agripreneur'' champions particularly are needed in the heartland, 
where the culture of entrepreneurship and collaboration is not as 
strong as on the coasts. There already are many AgTech startups in the 
heartland: in the Cultivian dataset, 305 companies out of the 800 full 
companies represented in the database were headquartered in the 
heartland, and 200 were located in the ``corn belt'' subregion (Iowa, 
Illinois, Indiana, Missouri, and Ohio).


    Figure 25. Map showing the number of AgTech startups per state in 
the Cultivian dataset.

    Figure 25 displays the number of AgTech startups in each state, 
which shows that, overall, AgTech entrepreneurial activity is higher in 
the heartland than in any other U.S. geographic region. The challenge 
is that most of this activity appears to be separate or confined by 
state boundaries. Agripreneur champions will unite the independent 
startup efforts of AgTech ventures into a movement, and hopefully 
someday will develop a ``Silicon Valley of AgTech'' in the American 
heartland.

3) Enable the transition to new technology around the theme of ``Green 
and Lean Efficiency.''

    The term Green Revolution was coined in 1968 to indicate 
revolutionary improvements in crop yield in several Asian countries. 
Many of these improvements came at the cost of adverse environmental 
effects in areas subjected to intensive farming. However, where 
population pressure is high, there is no option except to produce more 
food. Productivity must increase, but in ways which are environmentally 
safe, economically viable, and socially sustainable. This has been 
christened an ``evergreen revolution.''
    We are shifting from scale-driven efficiency to ``green and lean'' 
efficiency. After sixty years of chemical control, farming now is 
entering an era of responsible, transparent, and ecological control, 
driven in part by consumer demand. AgTech is at the cusp of a new 
revolution in which innovations in seeds, nutrition, protection, and 
agronomics are merging. Experts have pointed to similarities with the 
IT field, in which leading players have embraced convergence and 
interdependence in Internet search, cloud storage, smartphones, 
tablets, and PCs, and still carve out their own space to effectively 
compete. AgTech must go through a similar revolution wherein players 
will unite to implement state-of-the-art developments in crop 
nutrition, crop protection, biotechnology, and agronomics, leading to 
integrated agricultural productivity.

4) Engage nonpartisan groups.

    Independent, nonpartisan organizations have the unique ability to 
bring like-minded people and those with divergent views to the table. 
Having these organizations take up the cause will help further the 
common goal of providing nutritious food to a growing population in an 
environmentally sustainable way. They can be instrumental in providing 
connectivity to implement agri-tech best practices to farming 
communities worldwide by fostering networks in which knowledge is 
shared across communities.

5) Develop human capital to meet the needs of tomorrow.

    The solutions that may be available to address the expected food 
and water shortages likely will require expertise in the development 
and application of information technology. This expertise currently is 
not broadly available within the agricultural community and needs to be 
developed through the whole continuum of our existing learning 
institutions, including high school, trade schools, community colleges, 
and higher education institutions.
VII. Conclusion
    The task of sustainably increasing global food production is one of 
the monumental challenges of our time. The framework of an ``evergreen 
revolution'' is helpful in reminding us that, while technology has 
worked to produce more food in the past, we now must produce more food 
while also eliminating agriculture's negative environmental. A 
successful evergreen revolution will require many actors, but in 
particular, it will require entrepreneurs who are passionate about 
promoting innovation and investment in AgTech.
    In short, our overall objectives should be to:

   Increase awareness so that more entrepreneurs and investors 
        can seize this opportunity while helping meet this most basic 
        societal need

   Foster vital communities of AgTech activity across the world 
        focused on ``Lean and Green'' theme based on unique assets and 
        core competency of each region

   Enable strong networks across communities so that ideas and 
        solutions can flow seamlessly for the benefit of all

   Develop strong educational pillars so that talent and skills 
        are up to par to the challenge at hand.
VIII. Acknowledgements
    This white paper would not have been possible without the help of 
many persons in so many ways. It is the product of tireless dedication, 
systematic research, constant guidance, and invaluable support rendered 
by the following people.
    At the outset, Sam Fiorello, chief operating officer of the 
Danforth Center for Plant Science, convincingly identified an 
opportunity in regard to the research paper, persuaded me to get 
engaged, agreed to co-sponsor it, and provided thoughtful and 
invaluable guidance on a regular basis. The germination of this idea 
for a white paper came from Spencer Maughan, vice president of Venrock 
Associates in Palo Alto, California. If not for their vision and 
conviction, the paper would not have been brought to fruition in the 
first place.
    We owe profound gratitude to Adam Hasz, our talented research 
fellow, who has worked tirelessly and made tremendous research 
contributions in shaping the foundation of this paper. Without his 
ingenuity, intellect, passion, commitment, and diligent efforts, we 
would not have been able to successfully produce this thought-provoking 
document.
    I must express my deepest appreciation and thanks to Ken 
Harrington, managing director of the Skandalaris Center at Washington 
University in St. Louis, for his able guidance, many constructive 
suggestions, and unwavering support since the inception of this 
research project and through its completion.
    In addition, I would like to thank Joseph Cornelius, PhD, for his 
technical guidance and expertise in global agricultural production 
systems and sustainability that contributed greatly to this paper.
    Special thanks are extended to Andy Ziolkowski and Ron Meeusen from 
Cultivian Ventures for advice on the research paper approach and for 
providing access to valuable data that critically facilitated this 
paper. We also wish to express our sincere thanks to Nandini Taneja, 
program associate of LARTA, for her contribution in compiling the LARTA 
data set.
    I would like to acknowledge Jason Hall, former director of the 
Missouri Department of Economic Development, who provided valuable 
information on the current AgTech activities in Missouri. Also, I would 
like to thank Kim Young, vice president of the Kansas City Area 
Development Council, who provided insights on animal health investment 
activities in greater Kansas City. On the same note, I would like to 
express my thanks to Tom Overbay, partner at Expedite Animal Health, 
who patiently provided a detailed overview of the animal health 
industry and R&D practices observed.
    Finally, I would like to express my special thanks to the Ewing 
Marion Kauffman Foundation for support and encouragement.
                                            Suren G. Dutia,
                                                     Senior Fellow,
                                      Ewing Marion Kauffman Foundation.
Additional Sources
    Bernick, Jeanne. ``Ag Goes Natural with Biologics,'' Farm Journal 
AgWeb, June 21, 2012, http://www.agweb.com/article/
ag_goes_natural_with_biologics/.

    Blumfeld, Jenna. ``New GMO-Education Site Funded by Monsanto, 
Dupont.'' New Hope 360 Blog, July 31, 2013. http://newhope360.com/blog/
new-gmo-education-site-funded-monsanto-dupont.

    Budzynski, Jim. Ag Innovation Showcase. St. Louis, Missouri, 
September 11, 2013.

    LeClerc, Rob. ``Is Agriculture the New Cleantech?'' note from CEO 
of Agfunder.

    National Public Radio. ``Feeding A Hotter, More Crowded Planet.'' 
August 12, 2011.
    http://www.npr.org/2011/08/12/139579616/feeding-a-hotter-more-
crowded-planet.

    http://evergreen-revolution.tripod.com/evergreenrevoldefined.html
                                 ______
                                 
         Agriculture Gets Smart: The Rise of Data and Robotics













    The Chairman. Thank you, Mr. Donny.
    Mr. Thierer?

                 STATEMENT OF ADAM D. THIERER,

            SENIOR RESEARCH FELLOW, MERCATUS CENTER,

                    GEORGE MASON UNIVERSITY

    Mr. Thierer. Mr. Chairman and members of the Committee, 
thank you for inviting me here today to comment on the policy 
implications of the Internet of Things. My name is Adam 
Thierer, and I am a Senior Research Fellow at the Mercatus 
Center at George Mason University where I study technology 
policy.
    My message here today is condensed from a recent book, as 
well as a forthcoming law review article on the Internet of 
Things. My research focuses primarily on the privacy and 
security implications associated with the Internet of Things 
and wearable technology in particular.
    The three general conclusions of my work are as follows.
    First, the Internet of Things offers compelling benefits to 
consumers, companies, and our country's national 
competitiveness that will only be achieved by adopting a 
flexible policy regime for this fast-moving space.
    Second, while there are formidable privacy and security 
challenges associated with the Internet of Things, top-down or 
one-size-fits-all regulation will limit innovative 
opportunities.
    Third, with those two points in mind, we should seek out 
alternative and less costly approaches to protecting privacy 
and security that rely on education, empowerment, and targeted 
enforcement of existing legal mechanisms. Long-term privacy 
security and protection requires a multifaceted approach 
incorporating many flexible solutions.
    I will briefly discuss each point.
    First, the Internet of Things will benefit the ``3 Cs'' of 
consumers, companies, and our country. Consumers will benefit 
from more of their devices being networked, sensing, and 
communicating. It offers us more choices and convenience, 
especially for personal health and productivity. Companies will 
benefit from increased efficiencies and the ability to offer a 
staggering array of new product and service options to their 
customers. And our country will benefit by maintaining our 
global competitive advantage in the digital economy.
    The magnitude of the opportunity here is breathtaking. 
Technology analysts and economic consultancies have predicted 
economic benefits in the trillions of dollars.
    The positive effects of the Internet of Things will 
reverberate throughout every sector of the economy, and as 
Progressive Policy Institute economist Michael Mandel notes, it 
has the ``potential to help revive the high-growth economy.'' 
It will revolutionize manufacturing, health care, energy, 
transportation, retailing, and various government services.
    But if America hopes to be a global leader in the Internet 
of Things, as it has been for the Internet more generally over 
the past 2 decades, then we will have to get public policy 
right first.
    America took a commanding lead in the digital economy 
because in the mid-1990s, Congress and the Clinton 
administration crafted a nonpartisan vision for the Internet 
that protected permissionless innovation, or the idea that 
experimentation with new technologies and business models 
should generally be permitted without prior approval.
    Congress embraced permissionless innovation by passing the 
Telecom Act of 1996 and rejecting archaic analog era command-
and-control regulations for this exciting new medium.
    And the Clinton administration embraced permissionless 
innovation with its 1997 Framework for Global Electronic 
Commerce, which outlined a clear vision for Internet governance 
that relied upon civil society, voluntary agreements, and 
ongoing marketplace negotiations.
    This nonpartisan blueprint, sketched out almost 2 decades 
ago for the Internet, is every bit as sensible today as we 
begin crafting a policy paradigm for the Internet of Things.
    Again, the first order of business is for policymakers to 
send a clear green light to entrepreneurs letting them know 
that our Nation's default policy position remains ``innovation 
allowed.'' Second, we should avoid basing our policy 
interventions on hypothetical worst-case scenarios or else 
best-case scenarios will never come about. Our policy regime, 
therefore, should be responsive, not anticipatory.
    Of course, privacy- and security-related challenges remain 
that deserve our attention. Data is going to be moving fluidly 
across so many platforms and devices that it will be difficult 
to apply traditional Fair Information Practice Principles in a 
rigid regulatory fashion for every conceivable use of these 
technologies.
    Specifically, it will be challenging to achieve perfect 
notice and choice in a world where so many devices are 
capturing volumes of data in real time. Moreover, while data 
minimization remains a worthy goal, if it is mandated in a one-
size-fits-all way, it could limit many life-enriching 
innovations.
    Law must still play a role, but we are going to need new 
approaches.
    Policymakers can encourage privacy and security by design 
for the Internet of Things and its developers, but these best 
practices should not be mandated as top-down controls. 
Flexibility is essential.
    More privacy-enhancing tools, especially robust encryption 
technologies, will also help, and Government officials would be 
wise to promote those tools instead of restricting them.
    Increased education is also essential, and Government 
should help get out the word about inappropriate uses of these 
technologies.
    Existing privacy torts and existing targeted rules, like 
Peeping Tom laws, will also likely evolve to address serious 
harms as they develop.
    Finally, the Federal Trade Commission will continue to play 
an important backstop role using its Section 5 authority to 
police unfair and deceptive practices. The FTC has already been 
remarkably active in encouraging companies to live up to the 
privacy and security promises they make to their consumers, and 
that will continue.
    In closing, we should never forget that no matter how 
disruptive these new technologies may be in the short term, we 
humans have the extraordinary ability to adapt to technological 
change and bounce back from adversity. That same resilience 
will be true for the Internet of Things.
    We should remain patient and continue to embrace 
permissionless innovation to ensure that the Internet of Things 
thrives and American consumers and companies continue to be 
global leaders in the digital economy.
    Thank you.
    [The prepared statement of Mr. Thierer follows:]

    Prepared Statement of Adam D. Thierer, Senior Research Fellow, 
                Mercatus Center, George Mason University
    Mr. Chairman and members of the Committee, thank you for inviting 
me here today to comment on the policy implications of the Internet of 
Things. My name is Adam Thierer, and I am a senior research fellow at 
the Mercatus Center at George Mason University, where I study 
technology policy.
    My message today is condensed from a recent book \1\ and a 
forthcoming law review article \2\ on the Internet of Things, which 
refers to a world full of ``smart'' devices equipped with sensing and 
networking capabilities.
---------------------------------------------------------------------------
    \1\ Adam Thierer, Permissionless Innovation: The Continuing Case 
for Comprehensive Technological Freedom (Arlington, VA: Mercatus Center 
at George Mason University, 2014).
    \2\ Adam Thierer, ``The Internet of Things and Wearable Technology: 
Addressing Privacy and Security Concerns without Derailing Innovation'' 
(Mercatus Working Paper, Mercatus Center at George Mason University, 
Arlington, VA, November 2015), which will be published in the Richmond 
Journal of Law and Technology 21, no. 6 (2015), http://mercatus.org/
publication/internet-things-and-wearable-technology-addressing-privacy-
and-security-concerns-without.
---------------------------------------------------------------------------
    My research focuses primarily on the privacy and security 
implications of the Internet of Things and wearable technology. The 
three general conclusions of my work are as follows:

  1.  First, the Internet of Things offers compelling benefits to 
        consumers, companies, and our country's national 
        competitiveness that will only be achieved by adopting a 
        flexible policy regime for this fast-moving space.

  2.  Second, while there are formidable privacy and security 
        challenges associated with the Internet of Things, top-down or 
        one-size-fits-all regulation will limit innovative 
        opportunities.

  3.  Third, with those first two points in mind, we should seek 
        alternative and less costly approaches to protecting privacy 
        and security that rely on education, empowerment, and targeted 
        enforcement of existing legal mechanisms. Long-term privacy and 
        security protection requires a multifaceted approach 
        incorporating many flexible solutions.

    I will discuss each point briefly.
Benefits of IoT
    First, the Internet of Things will benefit the ``3-Cs'' of 
consumers, companies, and our country:

   Consumers will benefit from more of their devices being 
        networked, sensing, and communicating. The Internet of Things 
        offers us more choices and convenience, especially for personal 
        health and productivity.

   Companies will benefit from increased efficiencies and the 
        ability to offer a staggering array of new product and service 
        options to their customers.\3\
---------------------------------------------------------------------------
    \3\ Michael E. Porter and James E. Heppelmann, ``How Smart, 
Connected Products Are Transforming Competition,'' Harvard Business 
Review, November 2014, https://hbr.org/2014/11/how-smart-connected-
products-are-transforming-competition.

   And our country will benefit by maintaining our global 
---------------------------------------------------------------------------
        competitive advantage in the digital economy.

    The magnitude of this opportunity is breathtaking.\4\ Technology 
analysts and economic consultancies have predicted economic benefits in 
the trillions of dollars.\5\
---------------------------------------------------------------------------
    \4\ Emily Adler, ``The `Internet of Things' Will Soon Be a Truly 
Huge Market, Dwarfing All Other Consumer Electronics Categories,'' 
Business Insider, July 10, 2014, http://www.businessinsider.com/
internet-of-things-will-soon-be-a-truly-huge-market-dwarfing-all-other-
consumer-electronics-categories-2014-7.
    \5\ Gil Press, ``Internet of Things by the Numbers: Market 
Estimates and Forecasts,'' Forbes, August 22, 2014, http://
www.forbes.com/sites/gilpress/2014/08/22/internet-of-things-by-the-
numbers-market-estimates-and-forecasts.
---------------------------------------------------------------------------
    The positive effects of the Internet of Things will reverberate 
throughout every sector of the economy, and as Progressive Policy 
Institute economist Michael Mandel notes, it ``has the potential to 
help revive the high-growth economy.'' \6\ It we let it, it could 
revolutionize manufacturing, health care, energy, transportation, 
retailing, and various government services.
---------------------------------------------------------------------------
    \6\ Michael Mandel, ``Can the Internet of Everything Bring Back the 
High-Growth Economy?'' (Policy Memo, Progressive Policy Institute, 
Washington, D.C., September 2013), 9, http://www.progressivepolicy.org/
2013/09/can-the-internet-of-everything-bring-back-the-high-growth-
economy. (``No one can predict the ultimate course of innovative 
technologies, but it appears that the Internet of Everything has the 
potential to help revive the high-growth economy.'')
---------------------------------------------------------------------------
Getting Policy Right
    If America hopes to be a global leader in the Internet of Things, 
as it has been for the Internet more generally over the past two 
decades, then we first have to get public policy right.
    America took a commanding lead in the digital economy because, in 
the mid-1990s, Congress and the Clinton administration crafted a 
nonpartisan vision for the Internet that protected ``permissionless 
innovation''--the idea that experimentation with new technologies and 
business models should generally be permitted without prior 
approval.\7\
---------------------------------------------------------------------------
    \7\ Adam Thierer, ``Embracing a Culture of Permissionless 
Innovation'' (Cato Online Forum, Cato Institute, Washington, D.C., 
November 2014), http://www.cato.org/publications/cato-online-forum/
embracing-culture-permissionless-innovation.
---------------------------------------------------------------------------
    Congress embraced permissionless innovation by passing the 
Telecommunications Act of 1996 and rejecting archaic Analog Era 
command-and-control regulations for this exciting new medium.\8\
---------------------------------------------------------------------------
    \8\ Adam Thierer, ``The Greatest of All Internet Laws Turns 15,'' 
Forbes, May 8, 2011, http://www.forbes.com/sites/adamthierer/2011/05/
08/the-greatest-of-all-internet-laws-turns-15.
---------------------------------------------------------------------------
    The Clinton administration embraced permissionless innovation with 
its 1997 ``Framework for Global Electronic Commerce,'' which outlined a 
clear vision for Internet governance that relied on civil society, 
voluntary agreements, and ongoing marketplace experimentation.\9\
---------------------------------------------------------------------------
    \9\ Specifically, the Clinton framework stated that ``the private 
sector should lead [and] the Internet should develop as a market driven 
arena not a regulated industry.'' It also argued that ``governments 
should encourage industry self-regulation and private sector leadership 
where possible'' and ``avoid undue restrictions on electronic 
commerce.'' White House, ``The Framework for Global Electronic 
Commerce'' (July 1997), http://clinton4.nara.gov/WH/New/Commerce.
---------------------------------------------------------------------------
    This nonpartisan blueprint sketched out almost two decades ago for 
the Internet is every bit as sensible today as we begin crafting a 
policy paradigm for the Internet of Things.\10\
---------------------------------------------------------------------------
    \10\ Adam Thierer, ``15 Years On, President Clinton's 5 Principles 
for Internet Policy Remain the Perfect Paradigm,'' Forbes, February 12, 
2012, http://www.forbes.com/sites/adamthierer/2012/02/12/15-years-on-
president-clintons-5-principles-for-internet-policy-remain-the-perfect-
paradigm.
---------------------------------------------------------------------------
    Again, the first order of business is for policymakers to send a 
clear green light to entrepreneurs letting them know that our Nation's 
default policy position remains ``innovation allowed.'' Second, we 
should avoid basing policy interventions on hypothetical worst-case 
scenarios, or else best-case scenarios will never come about.\11\ Our 
policy regime, therefore, should be responsive, not anticipatory.
---------------------------------------------------------------------------
    \11\ As analysts at the Center for Data Innovation correctly argue, 
policymakers should only intervene to address specific, demonstrated 
harms. ``Attempting to erect precautionary regulatory barriers for 
purely speculative concerns is not only unproductive, but it can 
discourage future beneficial applications of the Internet of Things,'' 
they say. See Daniel Castro and Joshua New, ``10 Policy Principles for 
Unlocking the Potential of the Internet of Things,'' Center for Data 
Innovation, December 4, 2014, http://www.datainnovation.org/2014/12/10-
policy-principles-for-unlocking-the-potential-of-the-internet-of-
things.
---------------------------------------------------------------------------
Flexible Solutions
    Of course, privacy-and security-related challenges exist that 
deserve attention. Data is going to be moving fluidly across so many 
platforms and devices that it will be difficult to apply traditional 
Fair Information Practice Principles \12\ in a rigid regulatory fashion 
for every conceivable use of these technologies.\13\
---------------------------------------------------------------------------
    \12\ The Fair Information Practice Principles (FIPPs) traditionally 
include (1) notice, (2) choice, (3) purpose specification, (4) use 
limitation, and (5) data minimization.
    \13\ Adam Thierer, ``Some Initial Thoughts on the FTC Internet of 
Things Report,'' Technology Liberation Front, January 28, 2015, http://
techliberation.com/2015/01/28/some-initial-thoughts-on-the-ftc-
internet-of-things-report.
---------------------------------------------------------------------------
    Specifically, it will be challenging to achieve perfect ``notice 
and choice'' in a world where so many devices are capturing volumes of 
data in real time. Moreover, while ``data minimization'' remains a 
worthy goal, if it is mandated in a one-size-fits-all fashion, it could 
limit many life-enriching innovations.
    Law will still play a role, but we're going to need new approaches.

   Policymakers can encourage privacy and security ``by 
        design'' for Internet of Things developers, but those best 
        practices should not be mandated as top-down controls. 
        Flexibility is essential.\14\
---------------------------------------------------------------------------
    \14\ Adam Thierer, ``Striking a Sensible Balance on the Internet of 
Things and Privacy,'' Technology Liberation Front, January 16, 2015, 
http://techliberation.com/2015/01/16/striking-a-sensible-balance-on-
the-internet-of-things-and-privacy. See also Adam Thierer, ``Muddling 
Through: How We Learn to Cope with Technological Change,'' Medium, June 
30, 2014, https://medium.com/tech-liberation/muddling-through-how-we-
learn-to-cope-with-technological-change-6282d0d342a6.

   More privacy-enhancing tools--especially robust encryption 
        technologies--will also help, and government officials would be 
---------------------------------------------------------------------------
        wise to promote these tools instead of restricting them.

   Increased education is also essential, and governments can 
        help get the word out about inappropriate uses of these 
        technologies.

   Existing privacy torts and existing targeted rules (such as 
        ``Peeping Tom'' laws) will also likely evolve to address 
        serious harms as they develop.

   Finally, the Federal Trade Commission will continue to play 
        an important backstop role, using its Section 5 authority to 
        police ``unfair and deceptive'' practices. The commission has 
        already been remarkably active in encouraging companies to live 
        up to the privacy and security promises they make to their 
        consumers, and that will continue.
Conclusion: We Can Adapt
    In closing, we should also never forget that, no matter how 
disruptive these new technologies may be in the short term, we humans 
have an extraordinary ability to adapt to technological change and 
bounce back from adversity.\15\ That same resilience will be true for 
the Internet of Things.
---------------------------------------------------------------------------
    \15\ Adam Thierer, ``Muddling Through: How We Learn to Cope with 
Technological Change,'' Medium, June 30, 2014, https://medium.com/tech-
liberation/muddling-through-how-we-learn-to-cope-with-technological-
change-6282d0d342a6.
---------------------------------------------------------------------------
    We should remain patient and continue to embrace permissionless 
innovation to ensure that the Internet of Things thrives and American 
consumers and companies continue to be global leaders in the digital 
economy.
Appendices to Testimony of Adam Thierer

  1.  Selected Readings from Adam Thierer on the Internet of Things

  2.  What Is the Internet of Things?

  3.  Projected Use and Economic Impact of the Internet of Things

  4.  A Nonpartisan Policy Vision for the Internet of Things

  5.  Some Initial Thoughts on the FTC Internet of Things Report

  6.  Why ``Permissionless Innovation'' Matters

  7.  How We Adapt to Technological Change
                                 ______
                                 
  Appendix 1: Selected Readings from Adam Thierer on the Internet of 
                                 Things
    law review article: ``The Internet of Things and Wearable 
Technology Addressing Privacy and Security Concerns without Derailing 
Innovation,'' forthcoming, Richmond Journal of Law & Technology, Vol. 
21, No. 6, (2015), http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=2494382.

    essay: ``A Nonpartisan Policy Vision for the Internet of Things,'' 
Technology Liberation Front, December 11, 2014, http://
techliberation.com/2014/12/11/a-nonpartisan-policy-vision-for-the-
internet-of-things.

    essay: ``Some Initial Thoughts on the FTC Internet of Things 
Report,'' Technology Liberation Front, January 28, 2015, http://
techliberation.com/2015/01/28/some-initial-thoughts-on-the-ftc-
internet-of-things-report.

    essay: ``Striking a Sensible Balance on the Internet of Things and 
Privacy,'' Technology Liberation Front, January 16, 2015, http://
techliberation.com/2015/01/16/striking-a-sensible-balance-on-the-
internet-of-things-and-privacy.

    slide presentation: ``Policy Issues Surrounding the Internet of 
Things & Wearable Technology,'' September 12, 2014, http://
techliberation.com/2014/09/12/slide-presentation-policy-issues-
surrounding-the-internet-of-things-wearable-technology.

    essay: ``CES 2014 Report: The Internet of Things Arrives, but Will 
Washington Welcome It?'' Technology Liberation Front, January 8, 2014, 
http://techli
beration.com/2014/01/08/ces-2014-report-the-internet-of-things-arrives-
but-will-washington-welcome-it.

    essay: ``The Growing Conflict of Visions over the Internet of 
Things & Privacy,'' Technology Liberation Front, January 14, 2014, 
http://techliberation.com/2014/01/14/the-growing-conflict-of-visions-
over-the-internet-of-things-privacy.

    op-ed: ``Can We Adapt to the Internet of Things?'' IAPP Privacy 
Perspectives, June 19, 2013, https://privacyassociation.org/news/a/can-
we-adapt-to-the-internet-of-things.

    agency filing: My Filing to the FTC in its `Internet of Things' 
Proceeding, May 31, 2013, http://techliberation.com/2013/05/31/my-
filing-to-the-ftc-in-its-internet-of-things-proceeding.

    book: Permissionless Innovation: The Continuing Case for 
Comprehensive Technological Freedom (Arlington, VA: Mercatus Center at 
George Mason University, 2014), http://mercatus.org/permissionless/
permissionlessinnovation.html.

    essay: ``What's at Stake with the FTC's Internet of Things 
Workshop,'' Technology Liberation Front, November 18, 2013, http://
techliberation.com/2013/11/18/whats-at-stake-with-the-ftcs-internet-of-
things-workshop.

    law review article: ``Removing Roadblocks to Intelligent Vehicles 
and Driverless Cars,'' forthcoming, Wake Forest Journal of Law & Policy 
(2015), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2496929.
                                 ______
                                 
            Appendix 2: What Is the Internet of Things? \16\
---------------------------------------------------------------------------
    \16\ This section adapted from Adam Thierer, ``The Internet of 
Things and Wearable Technology: Addressing Privacy and Security 
Concerns without Derailing Innovation'' (Mercatus Working Paper, 
Mercatus Center at George Mason University, Arlington, VA, November 
2015), which will be published in the Richmond Journal of Law and 
Technology 21, no. 6 (2015), http://mercatus.org/publication/internet-
things-and-wearable-technology-addressing-privacy-and-security-
concerns-without.
---------------------------------------------------------------------------
    Many of the underlying drivers of the Internet and Information Age 
revolution--massive increases in processing power, exploding storage 
capacity, steady miniaturization of computing and cameras, ubiquitous 
wireless communications and networking capabilities, digitization of 
all data, and massive datasets (or ``big data'')--are beginning to have 
a profound influence beyond the confines of cyberspace. It is cheaper 
than ever, for example, to integrate a microchip, a sensor, a camera, 
and even an accelerometer into devices today. ``Thanks to advances in 
circuits and software,'' observe Neil Gershenfeld and J. P. Vasseur, 
``it is now possible to make a Web server that fits on (or in) a 
fingertip for $1.'' As costs continue to fall and these technologies 
are increasingly embedded into almost all devices that consumers own 
and come into contact with, a truly ``seamless web'' of connectivity 
and ``pervasive computing'' will exist.
    As a result of these factors, mundane appliances and other machines 
and devices that consumers have long taken for granted--cars, 
refrigerators, cooking devices, lights, weight scales, watches, 
jewelry, eyeglasses, and even their clothing--will all soon be 
networked, sensing, automated, and communicating. In other words, 
consumers are transitioning to what Alex Hawkinson, CEO and founder of 
SmartThings, calls a ``programmable world'' where ``things will become 
intuitive [and] connectivity will extend even further, to the items we 
hold most dear, to those things that service the everyday needs of the 
members of the household, and beyond.'' \17\
---------------------------------------------------------------------------
    \17\ Alex Hawkinson, ``What Happens When the World Wakes Up,'' 
Medium (Sept. 23, 2014), https://medium.com/@ahawkinson/what-happens-
when-the-world-wakes-up-c73a5c931c17.
---------------------------------------------------------------------------
    This so-called Internet of Things--or ``machine-to-machine'' 
connectivity and communications--promises to usher in ``a third 
computing revolution'' \18\ and bring about profound changes that will 
rival the first wave of Internet innovation. The first use of the term 
Internet of Things is attributed to Kevin Ashton, who used it in the 
title of a 1999 presentation.\19\ A decade later, he reflected on the 
term and its meaning:
---------------------------------------------------------------------------
    \18\ Timothy B. Lee, ``Everything's Connected: How Tiny Computers 
Could Change the Way We Live,'' Vox (Aug. 13, 2014), http://
www.vox.com/2014/5/8/5590228/how-tiny-computers-could-change-the-way-
we-live.
    \19\ Kevin Ashton, ``That ``Internet of Things'' Thing,'' RFID 
Journal (June 22, 2009), http://www.rfidjournal.com/articles/view?4986.

        If we had computers that knew everything there was to know 
        about things--using data they gathered without any help from 
        us--we would be able to track and count everything, and greatly 
        reduce waste, loss, and cost. We would know when things needed 
        replacing, repairing, or recalling and whether they were fresh 
---------------------------------------------------------------------------
        or past their best.

        We need to empower computers with their own means of gathering 
        information, so they can see, hear, and smell the world for 
        themselves, in all its random glory. RFID [radio-frequency 
        identification] and sensor technology enable computers to 
        observe, identify, and understand the world--without the 
        limitations of human-entered data.\20\
---------------------------------------------------------------------------
    \20\ Ibid.

    More recently, analysts with Morrison & Foerster have defined IoT 
as ``the network of everyday physical objects which surround us and 
that are increasingly being embedded with technology to enable those 
objects to collect and transmit data about their use and 
surroundings.'' \21\ These low-power devices typically rely on sensor 
technologies as well as existing wireless networking systems and 
protocols (Wi-Fi, Bluetooth, near field communication, and GPS) to 
facilitate those objectives. In turn, this reliance will fuel the 
creation of even more ``big data.'' Many of these technologies and 
capabilities will eventually operate in the background of consumers' 
lives and be almost invisible to them.
---------------------------------------------------------------------------
    \21\ Amy Collins, Adam J. Fleisher, D. Reed Freeman Jr., and 
Alistair Maughan, ``The Internet of Things Part 1: Brave New World,'' 
Client Alert (Morrison Foerster), March 18, 2014, 1, http://
www.jdsupra.com/legalnews/the-internet-of-things-part-1-brave-new-
23154.
---------------------------------------------------------------------------
    IoT is sometimes understood as being synonymous with ``smart'' 
systems: smart homes, smart buildings, smart appliances, smart health, 
smart mobility, smart cities, and so on. Smart car technology is also 
expanding rapidly.\22\ The promise of IoT, as described by New York 
Times reporter Steve Lohr, is that ``billions of digital devices--from 
smartphones to sensors in homes, cars, and machines of all kinds--will 
communicate with each other to automate tasks and make life better.'' 
\23\ ``Consumers and public officials can use the connected world to 
improve energy conservation, efficiency, productivity, public safety, 
health, education, and more,'' predicts CEA.\24\ ``The connected 
devices and applications that consumers choose to adopt will make their 
lives easier, safer, healthier, less expensive, and more productive.'' 
\25\ In addition to giving consumers more control over their lives, 
these technologies can also help them free up time by automating 
routine tasks and chores.
---------------------------------------------------------------------------
    \22\ See Patrick Thibodeau, ``Explained: The ABCs of the Internet 
of Things,'' Computerworld, May 6, 2014, http://www.computerworld.com/
s/article/9248058/Explained_The_ABCs_of_
the_Internet_of_Things_.
    \23\ Steve Lohr, ``A Messenger for the Internet of Things,'' N.Y. 
Times Bits, April 25, 2013, http://bits.blogs.nytimes.com/2013/04/25/a-
messenger-for-the-internet-of-things.
    \24\ Consumer Electronics Association, Comment to the Federal Trade 
Commission on Internet of Things, Project No. P135405 (June 10, 2013), 
7.
    \25\ Ibid.
    
    
    
    
                                 ______
                                 
Appendix 3: Projected Use and Economic Impact of the Internet of Things 
                                  \26\
---------------------------------------------------------------------------
    \26\ This section compiled with the assistance of Andrea Castillo, 
Program Manager of the Technology Policy Program at the Mercatus 
Center.
---------------------------------------------------------------------------
    The Internet of Things is already growing at a breakneck pace and 
is expected to continue to accelerate rapidly. Below is a summary of 
recent forecasts regarding the growing device connectivity as well as 
potential economic benefits of the IoT.
A. Connectivity

   Cisco projects that 37 billion intelligent things will be 
        connected and communicating by 2020.\27\
---------------------------------------------------------------------------
    \27\ Dave Evans, ``Thanks to IoE, the Next Decade Looks Positively 
`Nutty,' '' Cisco Blog, February 12, 2013, http://blogs.cisco.com/ioe/
thanks-to-ioe-the-next-decade-looks-positively-nutty.

   ABI Research estimates that there are more than 10 billion 
        wirelessly connected devices in the market today and more than 
        30 billion devices expected by 2020.\28\
---------------------------------------------------------------------------
    \28\ ``More Than 30 Billion Devices Will Wirelessly Connect to the 
Internet of Everything in 2020'' (Press Release, ABI Research, May 9, 
2013), https://www.abiresearch.com/press/more-than-30-billion-devices-
will-wirelessly-conne.

   IDC (International Data Corporation) predicts far greater 
        penetration of 212 billion devices installed globally by the 
        end of 2020.\29\
---------------------------------------------------------------------------
    \29\ Antony Savvas, ``Internet of Things Market Will Be Worth 
Almost $9 Trillion,'' CNME, October 6, 2013, http://www.cnmeonline.com/
news/internet-of-things-market-will-be-worth-almost-9-trillion.

   Gartner anticipates that 25 billion Internet of Things 
        devices will be in operation by 2020.\30\
---------------------------------------------------------------------------
    \30\ ``Gartner Says 4.9 Billion Connected `Things' Will Be in Use 
in 2015'' (Press Release, Gartner, 2014), http://www.gartner.com/
newsroom/id/2905717.

   VisionMobile projects that the number of IoT developers will 
        grow from roughly 300,000 in 2014 to more than 4.5 million by 
        2020.\31\
---------------------------------------------------------------------------
    \31\ Matt Asay, ``The Internet of Things Will Need Millions of 
Developers by 2020,'' ReadWrite, June 27, 2014, http://readwrite.com/
2014/06/27/internet-of-things-developers-jobs-opportunity.

   Business Insider estimates that will be a total of 23.4 
        billion Internet of Things devices connected by 2019 and that 
        their adoption will be driven by the enterprise and 
        manufacturing sectors.\32\
---------------------------------------------------------------------------
    \32\ John Greenough, ``The Enterprise Internet of Things Report: 
Forecasts, Industry Trends, Advantages, and Barriers for the Top IoT 
Sector,'' Business Insider, 2014, https://
intelligence.businessinsider.com/the-enterprise-internet-of-things-
report-forecasts-industry-trends-advantages-and-barriers-for-the-top-
iot-sector-2014-11.

   Harbor projects that 21.7 billion Internet of Things devices 
        will be connected and in use by 2019.\33\
---------------------------------------------------------------------------
    \33\ Harbor Research, Smart Systems and the Internet of Things 
Forecast (2013), http://harborresearch.com/wp-content/uploads/2013/08/
Harbor-Research_2013-Forecast-Report_
Prospectus.pdf.

   Machina Research reports that roughly 7.2 billion ``machine-
        to-machine connected consumer electronic devices'' will be in 
        global use by 2023.\34\
---------------------------------------------------------------------------
    \34\ ``The Connected Life'' (Press Release, Machina Research, 
2014), https://machinaresearch
.com/static/media/uploads/machina_research_press_release_-_ce_report_-
_2014_07_
28.pdf.

   Navigant Research states that more than 1 billion smart 
        meters will be installed globally by 2022, up from 313 million 
        in 2013.\35\
---------------------------------------------------------------------------
    \35\ Smart Electric Meters, ``Advanced Metering Infrastructure, and 
Meter Communications: Global Market Analysis and Forecasts,'' Navigant 
Research, November 2013, http://www.navigantresearch.com/research/
smart-meters.

   IHS Automotive anticipates that the number of cars connected 
        to the Internet will grow more than six fold from 2013 to reach 
        152 million internationally by 2020.\36\
---------------------------------------------------------------------------
    \36\ ``Emerging Technologies: Big Data in the Connected Car'' 
(Press Release, IHS Automotive, November 2013), http://press.ihs.com/
press-release/country-industry-forecasting/big-data-drivers-seat-
connected-car-technological-advance.

   ON World projects that roughly 100 million Internet-
        connected wireless lights will be in operation by 2020.\37\
---------------------------------------------------------------------------
    \37\ Mareca Hatler, Darryl Gurganious, and Charlie Chi, ``Smart 
Wireless Lighting,'' ON World, 2013, http://onworld.com/smartlighting.


---------------------------------------------------------------------------
B. Economic Impact

   McKinsey Global Institute researchers estimate the potential 
        economic impact of IoT technologies to be from $2.7 to $6.2 
        trillion per year by 2025.\38\
---------------------------------------------------------------------------
    \38\ James Manyika, Michael Chui, Jacques Bughin, Richard Dobbs, 
Peter Bisson, and Alex Marrs, ``Disruptive Technologies: Advances That 
Will Transform Life, Business, and the Global Economy,'' McKinsey, May 
2013, http://www.mckinsey.com//media/McKinsey/dotcom/
Insights%20and%20pubs/MGI/Research/Technology%20and%20Innovation/
Disruptive%20tech
nologies/MGI_Disruptive_technologies_Full_report_May2013.ashx.

   IDC estimated in 2013 that this market would grow at a 
        compound annual growth rate of 7.9 percent to reach $8.9 
        trillion by 2020.\39\
---------------------------------------------------------------------------
    \39\ Antony Savvas, ``Internet of Things Market Will Be Worth 
Almost $9 Trillion,'' CNME, October 6, 2013, http://www.cnmeonline.com/
news/internet-of-things-market-will-be-worth-almost-9-trillion.

   Cisco analysts estimate that IoT will create $14.4 trillion 
        in value between 2013 and 2022.\40\
---------------------------------------------------------------------------
    \40\ Joseph Bradley, Joel Barbier, and Doug Handler, ``Embracing 
the Internet of Everything to Capture Your Share of $14.4 Trillion,'' 
CISCO, 2013, http://www.cisco.com/web/about/ac79/docs/innov/
IoE_Economy.pdf.

   Business Insider estimates that IoT will add approximately 
        $5.6 trillion in value to the global economy in between 2014 
        and 2019.\41\
---------------------------------------------------------------------------
    \41\ John Greenough, ``The Enterprise Internet of Things Report: 
Forecasts, Industry Trends, Advantages, and Barriers for the Top IoT 
Sector,'' Business Insider, 2014, https://
intelligence.businessinsider.com/the-enterprise-internet-of-things-
report-forecasts-industry-trends-advantages-and-barriers-for-the-top-
iot-sector-2014-11.

   Accenture estimates that the industrial IoT could add $14.2 
        trillion to the global economy by 2030, and that the U.S. 
        economy will gain at least $6.1 trillion in cumulative GDP by 
        that year.\42\
---------------------------------------------------------------------------
    \42\ ``Winning with the Industrial Internet of Things'' 
(Positioning Paper, Accenture, 2015), http://www.accenture.com/
SiteCollectionDocuments/PDF/Accenture-Industrial-Internet-of-Things-
Positioning-Paper-Report-2015.PDF.

   General Electric projects that industrial IoT technologies 
        will add about $15 trillion to global GDP by 2030 (in constant 
        2005 dollars).\43\
---------------------------------------------------------------------------
    \43\ Peter C. Evans and Marco Annunziata, ``Industrial Internet: 
Pushing the Boundaries of Minds and Machines,'' General Electric, 2012, 
http://www.ge.com/docs/chapters/Industrial_Internet.pdf.

   Morgan Stanley forecasts that driverless cars will save the 
        U.S. economy $1.3 trillion per year once autonomous cars fully 
        penetrate the market, while saving the world another $5.6 
        trillion a year.\44\
---------------------------------------------------------------------------
    \44\ Ravi Shanker et al., ``Driverless Cars: Self-Driving the New 
Auto Industry Paradigm'' (Blue Paper, Morgan Stanley, November 6, 
2013), http://www.wisburg.com/wp-content/uploads/2014/09/%ef%bc%88109-
pages-2014%ef%bc%89morgan-stanley-blue-paper-autonomous-cars%ef%
bc%9a-self-driving-the-new-auto-industry-paradigm.pdf.
---------------------------------------------------------------------------
                                 ______
                                 
Appendix 4: A Nonpartisan Policy Vision for the Internet of Things \45\
---------------------------------------------------------------------------
    \45\ This section is adapted from Adam Thierer, ``A Nonpartisan 
Policy Vision for the Internet of Things,'' Technology Liberation 
Front, December 11, 2014, http://techliberation.com/2014/12/11/a-
nonpartisan-policy-vision-for-the-internet-of-things.
---------------------------------------------------------------------------
    What sort of public policy vision should govern the Internet of 
Things? I recently heard three public policymakers articulate their 
recommended vision for the Internet of Things (IoT), and I found their 
approach so inspiring that I wanted to discuss it here in the hopes 
that it will become the foundation for future policy in this arena.
    On December 4, 2015, it was my pleasure to attend a Center for Data 
Innovation (CDI) event on ``How Can Policymakers Help Build the 
Internet of Things?'' As the title implied, the goal of the event was 
to discuss how to achieve the vision of a more fully connected world 
and, more specifically, how public policymakers can help facilitate 
that objective. It was a terrific event with many excellent panel 
discussions and keynote addresses.
    Two of those keynotes were delivered by Senators Deb Fischer (R-
Neb.) and Kelly Ayotte (R-N.H.). Below I offer some highlights from 
their remarks and then relate them to the vision set forth by Federal 
Trade Commission (FTC) Commissioner Maureen K. Ohlhausen in some of her 
recent speeches. I will conclude by discussing how the Ayotte-Fischer-
Ohlhausen vision can be seen as the logical extension of the Clinton 
administration's excellent 1997 ``Framework for Global Electronic 
Commerce,'' which proposed a similar policy paradigm for the Internet 
more generally. This shows how crafting policy for the IoT can and 
should be a nonpartisan affair.
A. Sen. Deb Fischer's Remarks
    In her opening remarks at the CDI event in December 2014, Sen. Deb 
Fischer explained how ``the Internet of Things can be a game changer 
for the U.S. economy and for the American consumer.'' ``It gives people 
more information and better tools to analyze data to make more informed 
choices,'' she noted.
    After outlining some of the potential benefits associated with the 
Internet of Things, Sen. Fischer continued on to explain why it is 
essential we get public policy incentives right first if we hope to 
unlock the full potential of these new technologies. Specifically, she 
argued that:

        In order for Americans to receive the maximum benefits from 
        increased connectivity, there are two things the government 
        must avoid. First, policymakers can't bury their heads in the 
        sand and pretend this technological revolution isn't happening, 
        only to wake up years down the road and try to micromanage a 
        fast-changing, dynamic industry.

        Second, the Federal Government must also avoid regulation just 
        for the sake of regulation. We need thoughtful, pragmatic 
        responses and narrow solutions to any policy issues that arise. 
        For too long, the only ``strategy'' in Washington policy-making 
        has been to react to crisis after crisis. We should dive into 
        what this means for U.S. global competitiveness, consumer 
        welfare, and economic opportunity before the public policy 
        challenges overwhelm us, before legislative and executive 
        branches of government--or foreign governments--react without 
        all the facts.

    Fischer concluded by noting, ``It's entirely appropriate for the 
U.S. government to think about how to modernize its regulatory 
frameworks, consolidate, renovate, and overhaul obsolete rules. We're 
destined to lose to the Chinese or others if the Internet of Things is 
governed in the United States by rules that pre-date the VCR.''
B. Sen. Kelly Ayotte's Remarks
    Like Sen. Fischer, Ayotte similarly stressed the many economic 
opportunities associated with IoT technologies for both consumers and 
producers alike. Ayotte also noted that IoT is going to be a major 
topic for the Senate Commerce Committee. She said that the role of the 
Committee will be to ensure that the various agencies looking into IoT 
issues are not issuing ``conflicting regulatory directives'' and ``that 
what is being done makes sense and allows for future innovation that we 
can't even anticipate right now.'' Among the agencies she cited that 
are currently looking into IoT issues: FTC (privacy and security), FDA 
(medical device applications), FCC (wireless issues), FAA (commercial 
drones), NHTSA (intelligent vehicle technology), and NTIA (multi-
stakeholder privacy reviews) as well as state lawmakers and regulatory 
agencies.
    Sen. Ayotte then explained what sort of policy framework America 
needed to adopt to ensure that the full potential of the Internet of 
Things could be realized. She framed the choice lawmakers are 
confronted with as follows:

        We as policymakers we can either create an environment that 
        allows that to continue to grow, or one that thwarts that. To 
        stay on the cutting edge, we need to make sure that our 
        regulatory environment is conducive to fostering innovation.'' 
        [. . .] We're living in the Dark Ages in the ways the some of 
        the regulations have been framed. Companies must be properly 
        incentivized to invest in the future, and government shouldn't 
        be a deterrent to innovation and job-creation.

    Ayotte also stressed that ``technology continues to evolve so 
rapidly there is no one-size-fits-all regulatory approach'' that can 
work for a dynamic environment like this. ``If legislation drives 
technology, the technology will be outdated almost instantly,'' and 
``that is why humility is so important,'' she concluded.
    The better approach, she argued was to let technology evolve freely 
in a ``permissionless'' fashion and then see what problems developed 
and then address them accordingly. ``[A] top-down, preemptive approach 
is never the best policy'' and will only serve to stifle innovation, 
she argued. ``If all regulators looked with some humility at how 
technology is used and whether we need to regulate or not to regulate, 
I think innovation would stand to benefit.''
C. FTC Commissioner Maureen K. Ohlhausen
    Fischer and Ayotte's remarks reflect a vision for the Internet of 
Things that FTC Commissioner Maureen K. Ohlhausen has articulated in 
recent months. In fact, Sen. Ayotte specifically cited Ohlhausen in her 
remarks.
    Ohlhausen has actually delivered several excellent speeches on 
these issues and has become one of the leading public policy thought 
leaders on the Internet of Things in the United States today. One of 
her first major speeches on these issues was her October 2013 address 
entitled, ``The Internet of Things and the FTC: Does Innovation Require 
Intervention?'' In that speech, Ohlhausen noted that, ``The success of 
the Internet has in large part been driven by the freedom to experiment 
with different business models, the best of which have survived and 
thrived, even in the face of initial unfamiliarity and unease about the 
impact on consumers and competitors.''
    She also issued a wise word of caution to her fellow regulators:

        It is . . . vital that government officials, like myself, 
        approach new technologies with a dose of regulatory humility, 
        by working hard to educate ourselves and others about the 
        innovation, understand its effects on consumers and the 
        marketplace, identify benefits and likely harms, and, if harms 
        do arise, consider whether existing laws and regulations are 
        sufficient to address them, before assuming that new rules are 
        required.

    In this and other speeches, Ohlhausen has highlighted the various 
other remedies that already exist when things do go wrong, including 
FTC enforcement of ``unfair and deceptive practices,'' common law 
solutions (torts and class actions), private self-regulation and best 
practices, social pressure, and so on.
D. The Clinton Administration Vision
    These three women have articulated what I regard as the ideal 
vision for fostering the growth of the Internet of Things. It should be 
noted, however, that their framework is really just an extension of the 
Clinton administration's outstanding vision for the Internet more 
generally.
    In the 1997 ``Framework for Global Electronic Commerce,'' the 
Clinton administration outlined its approach toward the Internet and 
the emerging digital economy. As I've noted many times before, the 
framework was a succinct and bold market-oriented vision for cyberspace 
governance that recommended reliance upon civil society, contractual 
negotiations, voluntary agreements, and ongoing marketplace experiments 
to solve information-age problems. Specifically, it stated that ``the 
private sector should lead [and] the Internet should develop as a 
market driven arena not a regulated industry.'' ``[G]overnments should 
encourage industry self-regulation and private sector leadership where 
possible'' and ``avoid undue restrictions on electronic commerce.''
    Sen. Ayotte specifically cited those Clinton principles in her 
speech and said, ``I think those words, given twenty years ago at the 
infancy of the Internet, are today even more relevant as we look at the 
challenges and the issues that we continue to face as regulators and 
policymakers.''
    I completely agree. This is exactly the sort of vision that we need 
to keep innovation moving forward to benefit consumers and the economy, 
and this illustrates how IoT policy can be a bipartisan effort.
    Why does this matter so much? As I noted in this essay from 
November 2014, thanks to the Clinton administration's bold vision for 
the Internet:

        This policy disposition resulted in an unambiguous green light 
        for a rising generation of creative minds who were eager to 
        explore this new frontier for commerce and communications. . . 
        . The result of this freedom to experiment was an outpouring of 
        innovation. America's info-tech sectors thrived thanks to 
        permissionless innovation, and they still do today. An annual 
        Booz & Company report on the world's most innovative companies 
        revealed that 9 of the top 10 most innovative companies are 
        based in the U.S. and that most of them are involved in 
        computing, software, and digital technology.\46\
---------------------------------------------------------------------------
    \46\ Adam Thierer, ``15 Years On, President Clinton's 5 Principles 
for Internet Policy Remain the Perfect Paradigm,'' Forbes, February 12, 
2012, http://www.forbes.com/sites/adamthierer/2012/02/12/15-years-on-
president-clintons-5-principles-for-internet-policy-remain-the-perfect-
paradigm.

    In other words, America had the policy right before and we can get 
the policy right again. Patience, flexibility, and forbearance are the 
key policy virtues that nurture an environment conducive to 
entrepreneurial creativity, economic progress, and greater consumer 
choice.
    Other policymakers should endorse the vision originally sketched 
out by the Clinton administration and now so eloquently embraced and 
extended by Sen. Fischer, Sen. Ayotte, and Commissioner Ohlhausen. This 
is the path forward if we hope to realize the full potential of the 
Internet of Things.
                                 ______
                                 
Appendix 5: Some Initial Thoughts on the FTC Internet of Things Report 
                                  \47\
---------------------------------------------------------------------------
    \47\ This section is adapted from Adam Thierer, ``Some Initial 
Thoughts on the FTC Internet of Things Report,'' Technology Liberation 
Front, January 28, 2015, http://techliberation.com/2015/01/28/some-
initial-thoughts-on-the-ftc-internet-of-things-report.
---------------------------------------------------------------------------
    On January 27, 2015, the Federal Trade Commission (FTC) released 
its long-awaited report on ``The Internet of Things: Privacy and 
Security in a Connected World.'' The 55-page report is the result of a 
lengthy staff exploration of the issue, which kicked off with an FTC 
workshop on the issue that was held on November 19, 2013.
    In this essay, I will offer a few general thoughts on the FTC's 
report and its overall approach to the Internet of Things and then 
discuss a few specific issues that I believe deserve further attention.
A. Big Picture, Part 1: Should Best Practices Be Voluntary or 
        Mandatory?
    Generally speaking, the FTC's report contains a variety of ``best 
practice'' recommendations to get Internet of Things innovators to take 
steps to ensure greater privacy and security ``by design'' in their 
products. Most of those recommended best practices are sensible as 
general guidelines for innovators, but the really sticky question here 
continued to be this: When, if ever, should ``best practices'' become 
binding regulatory requirements?
    The FTC does a bit of a dance when answering that question. 
Consider how, in the executive summary of the report, the Commission 
answers the question regarding the need for additional privacy and 
security regulation: ``Commission staff agrees with those commenters 
who stated that there is great potential for innovation in this area, 
and that IoT-specific legislation at this stage would be premature.'' 
But, just a few lines later, the agency (1) ``reiterates the 
Commission's previous recommendation for Congress to enact strong, 
flexible, and technology-neutral Federal legislation to strengthen its 
existing data security enforcement tools and to provide notification to 
consumers when there is a security breach,'' and (2) ``recommends that 
Congress enact broad-based (as opposed to IoT-specific) privacy 
legislation.''
    Here and elsewhere, the agency repeatedly stresses that it is not 
seeking IoT-specific regulation, merely ``broad-based'' digital privacy 
and security legislation.
    The problem is that once you understand what the IoT is all about 
you come to realize that this largely represents a distinction without 
a difference. The Internet of Things is simply the extension of the Net 
into everything we own or come into contact with. Thus, this idea that 
the agency is not seeking IoT-specific rule sounds terrific until you 
realize that it is actually seeking something far more sweeping--
greater regulation of all online and digital interactions. And because 
``the Internet'' and ``the Internet of Things'' will eventually (if 
they are not already) be consider synonymous, this notion that the 
agency is not proposing technology-specific regulation is really quite 
silly.
    Now, it remains unclear whether there exists any appetite on 
Capitol Hill for ``comprehensive'' legislation of any variety, although 
perhaps we'll learn more about that possibility when the Senate 
Commerce Committee hosts a hearing on these issues on February 11. But 
at least so far, ``comprehensive'' or ``baseline'' digital privacy and 
security bills have been non-starters.
    And that's for good reason in my opinion: Such regulatory proposals 
could take us down the path that Europe charted in the late 1990s with 
onerous ``data directives'' and suffocating regulatory mandates for the 
IT and computing sector. The results of this experiment have been 
unambiguous, as I documented in congressional testimony in 2013. I 
noted there how America's Internet sector came to be the envy of the 
world while it was hard to name any major Internet company from Europe. 
Whereas America embraced ``permissionless innovation'' and let creative 
minds develop one of the greatest success stories in modern history, 
the Europeans adopted a ``Mother, may I?'' regulatory approach for the 
digital economy. America's more flexible, light-touch regulatory regime 
leaves more room for competition and innovation compared to Europe's 
top-down regime. Digital innovation suffered over there while it 
blossomed here.
    That's why we need to be careful about adopting the sort of 
``broad-based'' regulatory regime that the FTC recommends in this and 
previous reports.
B. Big Picture, Part 2: Does the FTC Really Need More Authority?
    Something else is going on in this report that has also been 
happening in all the FTC's recent activity on digital privacy and 
security matters: The agency has been busy laying the groundwork for 
its own expansion.
    In this latest report, for example, the FTC argues that:

        Although the Commission currently has authority to take action 
        against some IoT-related practices, it cannot mandate certain 
        basic privacy protections. . .. The Commission has continued to 
        recommend that Congress enact strong, flexible, and technology-
        neutral legislation to strengthen the Commission's existing 
        data security enforcement tools and require companies to notify 
        consumers when there is a security breach.

    In other words, this agency wants more authority. And we are 
talking about sweeping authority here that would transcend its already 
sweeping authority to police ``unfair and deceptive practices'' under 
Section 5 of the FTC Act. Let's be clear: It would be hard to craft a 
law that grants an agency more comprehensive and open-ended consumer 
protection authority than Section 5. The meaning of those terms--
``unfairness'' and ``deception''--has always been a contentious matter, 
and at times the agency has abused its discretion by exploiting that 
ambiguity.
    Nonetheless, Section 5 remains a powerful enforcement tool for the 
agency and one that has been wielded aggressively in recently years to 
police digital economy giants and small operators alike. Generally 
speaking, I'm alright with most Section 5 enforcement, especially since 
that sort of retrospective policing of unfair and deceptive practices 
is far less likely to disrupt permissionless innovation in the digital 
economy. That's because it does not subject digital innovators to the 
sort of ``Mother, may I?'' regulatory system that European 
entrepreneurs face. But an expansion of the FTC's authority via more 
``comprehensive, baseline'' privacy and security regulatory policies 
threatens to convert America's more sensible bottom-up and responsive 
regulatory system into the sort of innovation-killing regime we see on 
the other side of the Atlantic.
    Here's the other thing we can't forget when it comes to the 
question of what additional authority to give the FTC over privacy and 
security matters: The FTC is not the end of the enforcement story in 
America. Other enforcement mechanisms exist, including privacy torts, 
class action litigation, property and contract law, state enforcement 
agencies, and other targeted privacy statutes. I've summarized all 
these additional enforcement mechanisms in my 2014 law review article 
referenced above.
C. FIPPS, Part 1: Notice and Choice vs. Use-Based Restrictions
    Let's drill down a bit and examine some of the specific privacy and 
security best practices that the agency discusses in its new IoT 
report.
    The FTC report highlights how the IoT creates serious tensions for 
many traditional Fair Information Practice Principles (FIPPs). The 
FIPPs generally include (1) notice, (2) choice, (3) purpose 
specification, (4) use limitation, and (5) data minimization. But the 
report is mostly focused on notice and choice as well as data 
minimization.
    When it comes to notice and choice, the agency wants to keep hope 
alive that it will still be applicable in an IoT world. I'm sympathetic 
to this effort because it is quite sensible for all digital innovators 
to do their best to provide consumers with adequate notice about data 
collection practices and then give them sensible choices about it. Yet, 
like the agency, I agree that ``offering notice and choice is 
challenging in the IoT because of the ubiquity of data collection and 
the practical obstacles to providing information without a user 
interface.''
    The agency has a nuanced discussion of how context matters in 
providing notice and choice for IoT, but one can't help but think that 
even they must realize that the game is over, to some extent. The 
increasing miniaturization of IoT devices and the ease with which they 
suck up data means that traditional approaches to notice and choice 
just aren't going to work all that well going forward. It is almost 
impossible to envision how a rigid application of traditional notice 
and choice procedures would work in practice for the IoT.
    Relatedly, as I wrote in January 2015, the Future of Privacy Forum 
(FPF) released a white paper entitled, ``A Practical Privacy Paradigm 
for Wearables,'' that notes how FIPPs ``are a valuable set of high-
level guidelines for promoting privacy, [but] given the nature of the 
technologies involved, traditional implementations of the FIPPs may not 
always be practical as the Internet of Things matures.'' That's 
particularly true of the notice and choice FIPPS.
    But the FTC isn't quite ready to throw in the towel and make the 
complete move toward ``use-based restrictions,'' as many academics 
have. Use-based restrictions would focus on specific uses of data that 
are particularly sensitive and for which there is widespread agreement 
they should be limited or disallowed altogether. But use-based 
restrictions are, ironically, controversial from both the perspective 
of industry and privacy advocates (albeit for different reasons, 
obviously).
    The FTC doesn't really know where to go next with use-based 
restrictions. The agency says that, on one hand, ``has incorporated 
certain elements of the use-based model into its approach'' to 
enforcement in the past. On the other hand, the agency says it has 
concerns ``about adopting a pure use-based model for the Internet of 
Things,'' since it may not go far enough in addressing the growth of 
more widespread data collection, especially of more sensitive 
information.
    In sum, the agency appears to be keeping the door open on this 
front and hoping that a best-of-all-worlds solution miraculously 
emerges that extends both notice and choice and use-based limitations 
as the IoT expands. But the agency's new report doesn't give us any 
sort of blueprint for how that might work, and that's likely for good 
reason: because it probably won't work at that well in practice, and 
there will be serious costs in terms of lost innovation if they try to 
force unworkable solutions on this rapidly evolving marketplace.
D. FIPPS, Part 2: Data Minimization
    The biggest policy fight that is likely to come out of this report 
involves the agency's push for data minimization. To minimize the risks 
associated with excessive data collection, the report recommends that:

        Companies should examine their data practices and business 
        needs and develop policies and practices that impose reasonable 
        limits on the collection and retention of consumer data. 
        However, recognizing the need to balance future, beneficial 
        uses of data with privacy protection, staff's recommendation on 
        data minimization is a flexible one that gives companies many 
        options. They can decide not to collect data at all; collect 
        only the fields of data necessary to the product or service 
        being offered; collect data that is less sensitive; or 
        deidentify the data they collect. If a company determines that 
        none of these options will fulfill its business goals, it can 
        seek consumers' consent for collecting additional, unexpected 
        categories of data.

    This is an unsurprising recommendation in light of the fact that, 
in previous major speeches on the issue, FTC Chairwoman Edith Ramirez 
argued that ``information that is not collected in the first place 
can't be misused'' and that:

        The indiscriminate collection of data violates the First 
        Commandment of data hygiene: Thou shall not collect and hold 
        onto personal information unnecessary to an identified purpose. 
        Keeping data on the off chance that it might prove useful is 
        not consistent with privacy best practices. And remember, not 
        all data is created equally. Just as there is low quality iron 
        ore and coal, there is low quality, unreliable data. And old 
        data is of little value.

    In my forthcoming law review article, I discussed the problem with 
such reasoning at length and note:

        If Chairwoman Ramirez's approach to a preemptive data use 
        ``commandment'' were enshrined into a law that said, ``Thou 
        shall not collect and hold onto personal information 
        unnecessary to an identified purpose.'' Such a precautionary 
        limitation would certainly satisfy her desire to avoid 
        hypothetical worst-case outcomes because, as she noted, 
        ``information that is not collected in the first place can't be 
        misused,'' but it is equally true that information that is 
        never collected may never lead to serendipitous data 
        discoveries or new products and services that could offer 
        consumers concrete benefits. ``The socially beneficial uses of 
        data made possible by data analytics are often not immediately 
        evident to data subjects at the time of data collection,'' 
        notes Ken Wasch, president of the Software and Information 
        Industry Association. If academics and lawmakers succeed in 
        imposing such precautionary rules on the development of IoT and 
        wearable technologies, many important innovations may never see 
        the light of day.

    FTC Commissioner Josh Wright issued a dissenting statement to the 
report that lambasted the staff for not conducting more robust cost-
benefit analysis of the new proposed restrictions and specifically 
cited how problematic the agency's approach to data minimization was. 
``[S]taff merely acknowledges it would potentially curtail innovative 
uses of data . . . [w]ithout providing any sense of the magnitude of 
the costs to consumers of foregoing this innovation or of the benefits 
to consumers of data minimization,'' he says. Similarly, in her 
separate statement, FTC Commissioner Maureen K. Ohlhausen worried about 
the report's overly precautionary approach on data minimization when 
noting that, ``without examining costs or benefits, [the staff report] 
encourages companies to delete valuable data--primarily to avoid 
hypothetical future harms. Even though the report recognizes the need 
for flexibility for companies weighing whether and what data to retain, 
the recommendation remains overly prescriptive,'' she concludes.
    Regardless, the battle lines have been drawn by the FTC staff 
report as the agency has made it clear that it will be stepping up its 
efforts to get IoT innovators to significantly slow or scale back their 
data collection efforts. It will be very interesting to see how the 
agency enforces that vision going forward and how it impacts innovation 
in this space. All I know is that the agency has not conducted a 
serious evaluation here of the trade-offs associated with such 
restrictions. I penned another law review article in 2014 offering ``A 
Framework for Benefit-Cost Analysis in Digital Privacy Debates'' that 
they could use to begin that process if they wanted to get serious 
about it.
E. The Problem with the ``Regulation Builds Trust'' Argument
    One of the interesting things about this and previous FTC reports 
on privacy and security matters is how often the agency premises the 
case for expanded regulation on ``building trust.'' The argument goes 
something like this (as found on page 51 of the new IoT report): 
``Staff believes such legislation will help build trust in new 
technologies that rely on consumer data, such as the IoT. Consumers are 
more likely to buy connected devices if they feel that their 
information is adequately protected.''
    This is one of those commonly-heard claims that sounds so straight-
forward and intuitive that few dare question it. But there are problems 
with the logic of the we-need-regulation-to-build-trust-and-boost-
adoption arguments we often hear in debates over digital privacy.
    First, the agency bases its argument mostly on polling data. 
``Surveys also show that consumers are more likely to trust companies 
that provide them with transparency and choices,'' the report says. 
Well, of course surveys say that! It's only logical that consumers will 
say this, just as they will always say they value privacy and security 
more generally when asked. You might as well ask people if they love 
their mothers!
    What consumers claim to care about and what they actually do in the 
real-world are often two very different things. In the real-world, 
people balance privacy and security alongside many other values, 
including choice, convenience, cost, and more. This leads to the so-
called ``privacy paradox,'' or the problem of many people saying one 
thing and doing quite another when it comes to privacy matters. Put 
simply, people take some risks, including some privacy and security 
risks, to reap other rewards or benefits. (See this essay for more on 
the problem with most privacy polls.)
    Second, online activity and the Internet of Things are both growing 
like gangbusters despite the privacy and security concerns that the FTC 
raises. Virtually every metric I've looked at that track IoT activity 
show astonishing growth and product adoption, and projections by all 
the major consultancies that have studied this consistently predict the 
continued rapid growth of IoT activity. Now, how can this be the case 
if, as the FTC claims, we'll only see the IoT really take off after we 
get more regulation aimed at bolstering consumer trust? Of course, the 
agency might argue that the IoT will grow at an even faster clip than 
it is right now, but there is no way to prove one way or the other. In 
any event, the agency cannot possible claim that the IoT isn't already 
growing at a very healthy clip. Indeed, a lot of the hand-wringing the 
staff engages in throughout the report is premised precisely on the 
fact that the IoT is exploding faster that our ability to keep up with 
it. In reality, it seems far more likely that cost and complexity are 
the bigger impediments to faster IoT adoption, just as cost and 
complexity have always been the factors weighing most heavily on the 
adoption of other digital technologies.
    Third, let's say that the FTC is correct--and it is--when it says 
that a certain amount of trust is needed in terms of IoT privacy and 
security before consumers are willing to use more of these devices and 
services in their everyday lives. Does the agency imagine that IoT 
innovators don't know that? Are markets and consumers completely 
irrational?
    The FTC says on page 44 of the report that, ``If a company decides 
that a particular data use is beneficial and consumers disagree with 
that decision, this may erode consumer trust.'' Well, if such a 
mismatch does exist, then the assumption should be that consumers can 
and will push back or seek out new and better options. And other 
companies should be able to sense the market opportunity here to offer 
a more privacy-centric offering for those consumers who demand it to 
win their trust and business.
    Finally, and perhaps most obviously, the problem with the argument 
that increased regulation will help IoT adoption is that it ignores how 
the regulations put in place to achieve greater ``trust'' might become 
so onerous or costly in practice that there won't be as many 
innovations for us to adopt to begin with! Again, regulation, even very 
well-intentioned regulation, has costs and trade-offs.
    In any event, if the agency is going to premise the case for 
expanded privacy regulation on this notion, they are going to have to 
do far more to make their case besides simply asserting it.
F. Once Again, No Appreciation of the Potential for Societal Adaptation
    Let's briefly shift to a subject that isn't discussed in the FTC's 
new IoT report at all.
    Major reports and statements by public policymakers about rapidly-
evolving emerging technologies are always initially prone to stress 
panic over patience. Rarely are public officials willing to step-back, 
take a deep breath, and consider how a resilient citizenry might adapt 
to new technologies as they gradually assimilate new tools into their 
lives.
    That is really sad, when you think about it, since humans have 
again and again proven capable of responding to technological change in 
creative ways by adopting new personal and social norms. I won't 
belabor the point because I've already written volumes on this issue 
elsewhere. I tried to condense all my work into a single essay 
entitled, ``Muddling Through: How We Learn to Cope with Technological 
Change.'' Here's the key takeaway:

        Humans have exhibited the uncanny ability to adapt to changes 
        in their environment, bounce back from adversity, and learn to 
        be resilient over time. A great deal of wisdom is born of 
        experience, including experiences that involve risk and the 
        possibility of occasional mistakes and failures while both 
        developing new technologies and learning how to live with them. 
        I believe it wise to continue to be open to new forms of 
        innovation and technological change, not only because it 
        provides breathing space for future entrepreneurialism and 
        invention, but also because it provides an opportunity to see 
        how societal attitudes toward new technologies evolve --
         and to learn from it. More often than not, I argue, 
        citizens have found ways to adapt to technological change by 
        employing a variety of coping mechanisms, new norms, or other 
        creative fixes.

    Again, you almost never hear regulators or lawmakers discuss this 
process of individual and social adaptation even though they must know 
there is something to it. One explanation is that every generation has 
their own techno-boogeymen and lose faith in the ability of humanity to 
adapt to it.
    To believe that we humans are resilient, adaptable creatures should 
not be read as being indifferent to the significant privacy and 
security challenges associated with any of the new technologies in our 
lives today, including IoT technologies. Overly exuberant techno-
optimists are often too quick to adopt a ``Just get over it!'' attitude 
in response to the privacy and security concerns raised by others. But 
it is equally unreasonable for those who are worried about those same 
concerns to utterly ignore the reality of human adaptation to new 
technologies realities.
G. Why are Educational Approaches Merely an Afterthought?
    One final thing that troubled me about the FTC report was the way 
consumer and business education is mostly an afterthought. This is one 
of the most important roles that the FTC can and should play in terms 
of explaining potential privacy and security vulnerabilities to the 
general public and product developers alike.
    Alas, the agency devotes so much ink to the more legalistic 
questions about how to address these issues, that all we end up with in 
the report is this one paragraph on consumer and business education:

        Consumers should understand how to get more information about 
        the privacy of their IoT devices, how to secure their home 
        networks that connect to IoT devices, and how to use any 
        available privacy settings. Businesses, and in particular small 
        businesses, would benefit from additional information about how 
        to reasonably secure IoT devices. The Commission staff will 
        develop new consumer and business education materials in this 
        area.

    I applaud that language, and I very much hope that the agency is 
serious about plowing more effort and resources into developing new 
consumer and business education materials in this area. But I'm a bit 
surprised that the FTC report didn't even bother mentioning the 
excellent material already available on the ``On Guard Online'' website 
that it helped create with a dozen other Federal agencies. Worse yet, 
the agency failed to highlight the many other privacy education and 
``digital citizenship'' efforts that are underway today to help on this 
front.
    I hope that the agency spends a little more time working on the 
development of new consumer and business education materials in this 
area instead of trying to figure out how to craft a quasi-regulatory 
regime for the Internet of Things. As I noted in 2014 in this Maine Law 
Review article, that would be a far more productive use of the agency's 
expertise and resources. I argued there that ``policymakers can draw 
important lessons from the debate over how best to protect children 
from objectionable online content'' and apply them to debates about 
digital privacy. Specifically, after a decade of searching for 
legalistic solutions to online safety concerns--and convening a half-
dozen blue ribbon task forces to study the issue--we finally saw a 
rough consensus emerge that no single ``silver bullet'' technological 
solutions or legal quick-fixes would work and that, ultimately, 
education and empowerment represented the better use of our time and 
resources. What was true for child safety is equally true for privacy 
and security for the Internet of Things.
    It is a shame the FTC staff squandered the opportunity it had with 
this new report to highlight all the good that could be done by getting 
more serious about focusing first on those alternative, bottom-up, less 
costly, and less controversial solutions to these challenging problems. 
One day we'll all wake up and realize that we spent a lost decade 
debating legalistic solutions that were either technically unworkable 
or politically impossible. Just imagine if all the smart people who 
were spending all their time and energy on those approaches right now 
were instead busy devising and pushing educational and empowerment-
based solutions instead!
    One day we'll get there. Sadly, if the FTC report is any 
indication, that day is still a ways off.
                                 ______
                                 
       Appendix 6: Why ``Permissionless Innovation'' Matters \48\
---------------------------------------------------------------------------
    \48\ This section is adapted from Adam Thierer, ``Embracing a 
Culture of Permissionless Innovation'' (Cato Policy Forum, Cato 
Institute, Washington, D.C., November 2014), http://www.cato.org/
publications/cato-online-forum/embracing-culture-permissionless-
innovation.
---------------------------------------------------------------------------
A. Innovation Policy: Attitudes Matter
    ``Why does economic growth . . . occur in some societies and not in 
others?'' asked Joel Mokyr in his 1990 book, Lever of Riches: 
Technological Creativity and Economic Progress.\49\ Debate has raged 
among generations of economists, historians, and business theorists 
over that question and the specific forces and policies that prompt 
long-term growth.
---------------------------------------------------------------------------
    \49\ Joel Mokyr, Lever of Riches: Technological Creativity and 
Economic Progress (New York: Oxford University Press, 1990), 8-9.
---------------------------------------------------------------------------
    As varied as their answers have been, there was at least general 
agreement that institutional factors mattered most: it was really just 
a question of what mix of them would fuel the most growth. Those 
institutional factors include: government stability, the enforceability 
of contracts and property rights, tax and fiscal policies, trade 
policies, regulatory factors, labor costs, educational policies, 
research and development expenditures, infrastructure, demographics, 
and environmental factors.\50\
---------------------------------------------------------------------------
    \50\ For a listing and discussion of these and other factors, see 
Robert D. Atkinson, ``Understanding the U.S. National Innovation 
System,'' Information Technology and Innovation Foundation, June 2014, 
http://www.itif.org/publications/understanding-us-national-innovation-
system.
---------------------------------------------------------------------------
    This leads many scholars and policymakers to speak of innovation 
policy as if it is simply a Goldilocks-like formula that entails 
tweaking various policy dials to get innovation just right.\51\ Such 
thinking animates the Obama administration's ``Strategy for American 
Innovation,'' which catalogs ``policies to promote critical components 
of the American innovation ecosystem.'' \52\ The White House claims its 
strategy plays a ``critical role in guiding the development of new 
policy initiatives that can help unleash the transformative innovation 
that leads to long-term economic growth.'' \53\
---------------------------------------------------------------------------
    \51\ Michael Nelson, ``Six Myths of Innovation Policy,'' The 
European Institute, Washington, D.C., July 2013, http://
www.europeaninstitute.org/EA-July-2013/perspectives-six-myths-of-
innovation-policy.html. (``On Capitol Hill and in Brussels, there seems 
to be a belief that if only governments adopt the right tax policies, 
adequately fund R&D, enforce patents and copyrights, and support 
manufacturing, innovative, then start-ups will pop up everywhere and 
supercharge economic growth. Unfortunately, that misses an underlying 
problem: In many parts of the U.S. and Europe, innovation is not really 
welcome. It is misunderstood and even feared.'')
    \52\ White House, ``Notice of Request for Information: Strategy for 
American Innovation,'' Federal Register, July 29, 2014, https://
www.federalregister.gov/articles/2014/07/29/2014-17761/strategy-for-
american-innovation.
    \53\ Ibid.
---------------------------------------------------------------------------
    Unfortunately, far less attention has been paid to the role that 
values--cultural attitudes, social norms, and political 
pronouncements--play in influencing opportunities for 
entrepreneurialism, innovation, and long-term growth.\54\ Does a socio-
political system respect what Deirdre McCloskey refers to as the 
``bourgeois virtues'' that incentivize invention and propel an economy 
forward? \55\ ``A big change in the common opinion about markets and 
innovation,'' she has argued, ``caused the Industrial Revolution, and 
then the modern world. . . . The result was modern economic growth.'' 
\56\
---------------------------------------------------------------------------
    \54\ Donald J. Boudreaux, ``Deirdre McCloskey and Economists' Ideas 
about Ideas,' '' Online Library of Liberty, July 2014, http://
oll.libertyfund.org/pages/mccloskey.
    \55\ Deirdre N. McCloskey, The Bourgeois Virtues: Ethics for an Age 
of Commerce (Chicago: University of Chicago Press, 2006).
    \56\ Deirdre McCloskey, ``Bourgeois Dignity: A Revolution in 
Rhetoric'' (Cato Unbound, Cato Institute, Washington, D.C., October 4, 
2010), http://www.cato-unbound.org/2010/10/04/deirdre-mccloskey/
bourgeois-dignity-revolution-rhetoric.
---------------------------------------------------------------------------
    There are limits to how much policymakers can influence these 
attitudes and values, of course. Nonetheless, to the extent they hope 
to foster the positive factors that give rise to expanded 
entrepreneurial opportunities, policymakers should appreciate how 
growth-oriented innovation policy begins with the proper policy 
disposition.\57\ As Mokyr notes, ``technological progress requires 
above all tolerance toward the unfamiliar and the eccentric.'' \58\
---------------------------------------------------------------------------
    \57\ Randall Holcombe, ``Entrepreneurship and Economic Growth,'' 
The Quarterly Journal of Austrian Economics 1, no. 2 (Summer 1998): 58, 
http://mises.org/journals/qjae/pdf/qjae1_
2_3.pdf, (``When entrepreneurship is seen as the engine of growth, the 
emphasis shifts toward the creation of an environment within which 
opportunities for entrepreneurial activity are created, and successful 
entrepreneurship is rewarded.'')
    \58\ Mokyr, Lever of Riches, 182.
---------------------------------------------------------------------------
    For innovation and growth to blossom, entrepreneurs need a clear 
green light from policymakers that signals a general acceptance of 
risk-taking, especially risk-taking that challenges existing business 
models and traditional ways of doing things.\59\ We can think of this 
disposition as ``permissionless innovation.'' If there was one thing 
every policymaker could do to help advance long-term growth, it is to 
first commit themselves to advancing this ethic and making it the 
lodestar for all their future policy pronouncements and decisions.
---------------------------------------------------------------------------
    \59\ Mokyr, Lever of Riches, 12 (``Economic and social institutions 
have to encourage potential innovators by presenting them with the 
right incentive structure.''); Bret Swanson, ``More disruption, 
please,'' TechPolicyDaily, August 20, 2014, http://
www.techpolicydaily.com/technology/disruption-please/
#sthash.PVUNga9N.dpuf (``To reignite economic growth, we need a broad 
commitment to an open economy and robust entrepreneurship.'').
---------------------------------------------------------------------------
B. Permissionless Innovation vs. the Precautionary Principle
    While it would seem self-evident that pro-innovation attitudes 
matter and that a general embrace of risk-taking and commercial 
pursuits is crucial to unlocking entrepreneurial creativity and 
opportunities, scholars have typically failed to put a name on this 
disposition. ``Permissionless innovation'' is a phrase of recent (but 
uncertain) origin that nicely summarizes that vision. Permissionless 
innovation refers to the notion that experimentation with new 
technologies and business models should generally be permitted by 
default.\60\ Unless a compelling case can be made that a new invention 
or business model will bring serious harm to individuals, innovation 
should be allowed to continue unabated, and problems, if they develop 
at all, can be addressed later.
---------------------------------------------------------------------------
    \60\ Thierer, Permissionless Innovation.
---------------------------------------------------------------------------
    Permissionless innovation is not an absolutist position that 
rejects any role for government. Rather, it is an aspirational goal 
that stresses the benefit of ``innovation allowed'' as the default 
position to begin policy debates. It switches the burden of proof to 
those who favor preemptive regulation and asks them to explain why 
ongoing trial-and-error experimentation with new technologies or 
business models should be disallowed.
    This disposition stands in stark contrast to the sort of 
``precautionary principle'' thinking that often governs policy toward 
emerging technologies. The precautionary principle refers to the belief 
that new innovations should be curtailed or disallowed until their 
developers can prove that they will not cause any harms to individuals, 
groups, specific entities, cultural norms, or various existing laws, 
norms, or traditions.\61\
---------------------------------------------------------------------------
    \61\ Ibid., vii. See also Adam Thierer, ``Technopanics, Threat 
Inflation, and the Danger of an Information Technology Precautionary 
Principle,'' Minnesota Journal of Law, Science and Technology 14 
(2013): 309-86, http://conservancy.umn.edu/handle/144225.
---------------------------------------------------------------------------
    When the precautionary principle's ``better to be safe than sorry'' 
\62\ approach is applied through preemptive constraints, opportunities 
for experimentation and entrepreneurialism are stifled. While some 
steps to anticipate or to control for unforeseen circumstances are 
sensible, going overboard with precaution forecloses opportunities and 
experiences that offer valuable lessons for individuals and society. 
The result is less economic and social dynamism.
---------------------------------------------------------------------------
    \62\ Indur M. Goklany, The Precautionary Principle: A Critical 
Appraisal of Environmental Risk Assessment (Washington, D.C.: Cato 
Institute, 2001), 3.
---------------------------------------------------------------------------
    Innovation is more likely in systems that maximize breathing room 
for ongoing economic and social experimentation, evolution, and 
adaptation. Societies that appreciate those values--and allow them to 
influence both social norms and policy decisions--are likely to 
experience greater economic growth.\63\ By contrast, those that deride 
such values and adopt a more precautionary policy approach are more 
likely to discourage innovation and languish economically.
---------------------------------------------------------------------------
    \63\ Joshua C. Hall, John Pulito, and Benjamin J. VanMetre, 
``Freedom and Entrepreneurship: New Evidence from the 50 States'' 
(Mercatus Working Paper, Mercatus Center at George Mason University, 
Arlington, VA, April 17, 2012), http://mercatus.org/publication/
freedom-and-entrepreneurship-new-evidence-50-states (``There is a 
positive and statistically significant relationship between the level 
of economic freedom in a country and that country's total 
entrepreneurial activity.'')
---------------------------------------------------------------------------
    Unlocking long-term growth opportunities, therefore, depends upon a 
rejection of precautionary principle thinking and an embrace of 
permissionless innovation as the default policy disposition.
C. The Secret Ingredient that Powered the Information Revolution
    Consider how permissionless innovation powered the explosive growth 
of the Internet and America's information technology sectors 
(computing, software, Internet services, etc.) over the past two 
decades. Those sectors have ushered in a generation of innovations and 
innovators that are now the envy of the world.\64\ This happened 
because the default position for the digital economy was permissionless 
innovation. No one had to ask anyone for the right to develop these new 
technologies and platforms.\65\
---------------------------------------------------------------------------
    \64\ See Bret Swanson, ``The Exponential Internet,'' Business 
Horizon Quarterly (Spring 2014): 40-47, http://
www.uschamberfoundation.org/sites/default/files/article/foundation/BHQ-
Spring12-Issue3-SwansonTheExponentialInternet.pdf.
    \65\ Ibid., 46. (``The entrepreneurship and investment that has 
sustained such fast growth for so long is due, in substantial part, to 
light-touch government policies (at least compared to other industries. 
. . . There have been mistakes, but for the most part, scientists, 
entrepreneurs, and big investors have been allowed to build new things, 
try new products, challenge the status quo, cooperate, and compete. 
They have also been allowed to fail.'') See also Bret Swanson, ``Long 
Live the Risk Takers,'' Business Horizon Quarterly 8 (2013): 30, http:/
/www.uschamber
foundation.org/bhq/long-live-risk-takers (``Failure is a core 
competency of capitalism and a key component of resilience. Wealth is 
about creating new ideas. New ideas can only emerge through experiments 
of science, technology, and enterprise, all of which must be capable of 
failure in order to generate newness. Failure flushes away bad ideas 
and points us toward good ones. The failures may at times harm 
individuals and waste resources--people lose jobs and investments can 
be lost. The larger effect, however, is to lift the economy to a higher 
plane of knowledge, efficiency, and resilience.'')
---------------------------------------------------------------------------
    A series of decisions and statements in the mid-1990s paved the 
way, beginning with the Clinton administration's decision to allow 
commercialization of what was previously just the domain of government 
agencies and university researchers. Shortly thereafter, Congress 
passed, and President Clinton signed, the Telecommunications Act of 
1996, which notably avoided regulating the Internet like earlier 
communications and media technologies. Later, in 1998, the Internet Tax 
Freedom Act was passed, which blocked governments from imposing 
discriminatory taxes on the Internet.
    Perhaps most important, in 1997, the Clinton administration's 
released its ``Framework for Global Electronic Commerce,'' outlining 
its approach toward the Internet and the emerging digital economy.\66\ 
The framework was a succinct and bold market-oriented vision for 
cyberspace governance that recommended reliance upon civil society, 
contractual negotiations, voluntary agreements, and ongoing marketplace 
experiments to solve information age problems.\67\ Specifically, it 
stated that ``the private sector should lead [and] the Internet should 
develop as a market driven arena not a regulated industry.'' \68\ 
``[G]overnments should encourage industry self-regulation and private 
sector leadership where possible'' and ``avoid undue restrictions on 
electronic commerce.'' \69\
---------------------------------------------------------------------------
    \66\ White House, ``The Framework for Global Electronic Commerce,'' 
July 1997, http://clinton4.nara.gov/WH/New/Commerce.
    \67\ Adam Thierer, ``15 Years On, President Clinton's 5 Principles 
for Internet Policy Remain the Perfect Paradigm,'' Forbes, February 12, 
2012, http://www.forbes.com/sites/adamthierer/2012/02/12/15-years-on-
president-clintons-5-principles-for-internet-policy-remain-the-perfect-
paradigm.
    \68\ White House, ``Framework for Global Electronic Commerce.'' 
(The document added that, ``parties should be able to enter into 
legitimate agreements to buy and sell products and services across the 
Internet with minimal government involvement or intervention. . . . 
Where governmental involvement is needed, its aim should be to support 
and enforce a predictable, minimalist, consistent and simple legal 
environment for commerce.'')
    \69\ Ibid.
---------------------------------------------------------------------------
    This policy disposition resulted in an unambiguous green light for 
a rising generation of creative minds who were eager to explore this 
new frontier for commerce and communications. As Federal Trade 
Commission Commissioner Maureen K. Ohlhausen observes, ``the success of 
the Internet has in large part been driven by the freedom to experiment 
with different business models, the best of which have survived and 
thrived, even in the face of initial unfamiliarity and unease about the 
impact on consumers and competitors.'' \70\
---------------------------------------------------------------------------
    \70\ Maureen K. Ohlhausen, ``The Internet of Things and the FTC: 
Does Innovation Require Intervention?'' Remarks before the U.S. Chamber 
of Commerce, Washington, D.C., October 18, 2013, http://www.ftc.gov/
speeches/ohlhausen/131008internetthingsremarks.pdf.
---------------------------------------------------------------------------
    The result of this ``freedom to experiment'' was an outpouring of 
innovation. America's info-tech sectors thrived thanks to 
permissionless innovation, and they still do today. A 2013 Booz & 
Company report on the world's most innovative companies revealed that 9 
of the top 10 most innovative companies are based in the United States 
and that most of them are involved in computing, software, and digital 
technology.


D. And What's Good for the Goose . . .
    What's even more powerful about this story is how the information 
technology and ``data-driven innovation'' became the goose that laid 
the golden eggs for the broader U.S. economy.\71\ Brink Linsdey has 
noted that ``economists generally agree that information technology 
(IT) was behind the decade of high TFP [total factor productivity] 
growth that ran from the mid-1990s to the mid-2000s.'' \72\ It also 
boosted overall economic growth during that period.\73\
---------------------------------------------------------------------------
    \71\ A study commissioned by the Direct Marketing Association, John 
Deighton of Harvard Business School and Peter Johnson of Columbia 
University found that data-driven marketing added $156 billion in 
revenue to the U.S. economy and fueled more than 675,000 jobs in 2012. 
See also John Deighton and Peter A. Johnson, ``The Value of Data: 
Consequences for Insight, Innovation & Efficiency in the U.S. 
Economy,'' Data-Driven Marketing Institute, New York, NY, 2013, http://
ddminstitute.thedma.org/#valueofdata. Major reports from economic 
consultancies Gartner and McKinsey Global Institute have also 
documented significant consumer benefits from ``big data'' across 
multiple sectors. See Gartner, ``Gartner Says Big Data Will Drive $28 
Billion of IT Spending in 2012,'' October 17, 2012, http://
www.gartner.com/newsroom/id/2200815; James Manyika, Michael Chui, Brad 
Brown, Jacques Bughin, Richard Dobbs, Charles Roxburgh, and Angela Hung 
Byers, ``Big Data: The Next Frontier for Innovation, Competition, and 
Productivity,'' McKinsey, May 2011, 97-106, http://www.mckinsey.com/
insights/businessxtechnology/big_data_the_next_frontier_for_innovation.
    \72\ Lindsey, ``Why Growth Is Getting Harder,'' 14.
    \73\ Harold Furchtgott-Roth and Jeffrey Li, ``The Contribution of 
the Information, Communications, and Technology Sector to the Growth of 
U.S. Economy: 1997-2007'' (Research Paper, Center for the Economics of 
the Internet, Hudson Institute, Washington, D.C., August 2014), http://
hudson.org/content/researchattachments/attachment/1425/m0810_2.pdf 
(``For the years 1997-2002, we find the sector contributed 19 percent 
of measurable economic gross output growth, or more than 582 billion 
2013 dollars. For the period 2002-2007, we find the sector contributed 
9.3 percent of gross output growth, or more than 340 billion 2013 
dollars.'')
---------------------------------------------------------------------------
    If an embrace of permissionless innovation can unlock this sort of 
entrepreneurial energy within the information technology sectors, it 
can also provide a shot in the arm to other sectors. The rest of the 
economy could certainly use such a boost since ``the evidence of a real 
decline in business dynamism keeps stacking up.'' \74\
---------------------------------------------------------------------------
    \74\ Richard Florida, ``The Troubling Decline of American Business 
Dynamism,'' The Atlantic City Lab, July 31, 2014, http://
www.citylab.com/work/2014/07/the-troubling-decline-of-american-
business-dynamism/375353.


    Recent studies ``suggest that incentives for entrepreneurs to start 
new firms in the United States have diminished over time'' \75\ and 
that this is hurting job creation and productivity.\76\ Two recent 
Brookings Institution studies by Ian Hathaway and Robert E. Litan also 
documented a decline in business dynamism in the American economy 
across a broad range of sectors--including a ``precipitous drop since 
2006 [that] is both noteworthy and disturbing'' \77\--as well as the 
increased ``aging'' of businesses, with the share of older firms in the 
U.S. economy increasing by 50 percent over the past two decades.\78\
---------------------------------------------------------------------------
    \75\ Ryan Decker, John Haltiwanger, Ron Jarmin, and Javier Miranda, 
``The Role of Entrepreneurship in U.S. Job Creation and Economic 
Dynamism,'' Journal of Economic Perspectives 28, no. 3 (Summer 2014): 
4, http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.28.3.3.
    \76\ Robert J. Samuelson, ``Where have all the entrepreneurs 
gone?'' Washington Post, August 6, 2014, http://www.washingtonpost.com/
opinions/robert-samuelson-where-have-all-the-entrepre
neurs-gone/2014/08/06/e01e7246-1d7c-11e4-82f9-2cd6fa8da5c4_story.html.
    \77\ Ian Hathaway and Robert E. Litan, ``Declining Business 
Dynamism in the United States: A Look at States and Metros'' (Economic 
Studies at Brookings, Brookings Institution, Washington, D.C., May 
2014), http://www.brookings.edu/research/papers/2014/05/declining-
business-dynamism-litan.
    \78\ Ian Hathaway and Robert E. Litan, ``The Other Aging of 
America: The Increasing Dominance of Older Firms'' (Economic Studies at 
Brookings, Brookings Institution, Washington, D.C., July 2014), http://
www.brookings.edu/research/papers/2014/07/aging-america-increasing-
dominance-older-firms-litan.
---------------------------------------------------------------------------
    Many different institutional factors affect business dynamism, 
especially the regulatory environment that new startups face. ``If you 
look over time, the number of rules has just proliferated,'' says 
Litan. ``The cumulative weight of regulation--federal, state and 
local--is probably the most important impediment to starting a 
business.'' \79\ Unfortunately, many current public policies ``are rife 
with barriers to entrepreneurship, competition, innovation, and 
growth,'' notes Lindsey.\80\
---------------------------------------------------------------------------
    \79\ Quoted in Rick Newman, ``What Obama Gets Wrong about Corporate 
America,'' Yahoo Finance, August 4, 2014, http://finance.yahoo.com/
news/what-obama-gets-wrong-about-corporate-america-200338595.html.
    \80\ Lindsey, ``Why Growth Is Getting Harder,'' 18.
---------------------------------------------------------------------------
    As a result, ``the regulatory environment in the United States has 
become less favorable to private-sector activity in recent years 
compared to other countries,'' a Mercatus Center report concluded.\81\ 
This is especially true for new start-ups.\82\ Even if it is the case 
that ``established firms that have the experience and resources to deal 
with [regulatory burdens],'' Litan notes, the cumulative effect of 
regulations ends up hampering innovation by new, smaller firms.\83\
---------------------------------------------------------------------------
    \81\ See also Steven Globerman and George Georgopoulos, 
``Regulation and the International Competiveness of the U.S. Economy'' 
(Mercatus Working Paper, Mercatus Center at George Mason University, 
Arlington, VA, September 18, 2012), 4, http://mercatus.org/publication/
regulation-and-international-competitiveness-us-economy.
    \82\ Jason J. Fichtner and Jakina R. Debnam, ``Reducing Debt and 
Other Measures for Improving U.S. Competitiveness'' (Mercatus Working 
Paper, Mercatus Center at George Mason University, Arlington, VA, 
November 13, 2012), http://mercatus.org/publication/reducing-debt-and-
other-measures-improving-us-competitiveness (``Regulations have been 
historically biased toward existing technologies and increasing 
regulatory burdens on new entrants to a sector. This negatively impacts 
growth, and increases prices for consumers.'')
    \83\ Quoted in Robert J. Samuelson, ``Where Have All the 
Entrepreneurs Gone?'' Washington Post, August 6, 2014, http://
www.washingtonpost.com/opinions/robert-samuelson-where-have-all-the-
entrepreneurs-gone/2014/08/06/e01e7246-1d7c-11e4-82f9-
2cd6fa8da5c4_story.html.
---------------------------------------------------------------------------
    The reason this is important is not just because ``business 
dynamism is inherently disruptive,'' as Hathaway and Litan note, ``but 
[that] it is also critical to long-run economic growth'' since ``a 
dynamic economy constantly forces labor and capital to be put to better 
uses.'' \84\ Thus, because economists widely acknowledge that ``young 
firms are known to play a central role in job creation,'' \85\ it is 
especially important that policymakers get their signals right.
---------------------------------------------------------------------------
    \84\ Hathaway and Litan, ``Declining Business Dynamism,'' 1.
    \85\ Chiara Criscuolo, Peter N. Gal, and Carlo Menon, ``DynEmp: New 
Cross-Country Evidence on the Role of Young Firms in Job Creation, 
Growth, and Innovation,'' Vox, May 26, 2014, http://www.voxeu.org/
article/dynemp-new-evidence-young-firms-role-economy.
---------------------------------------------------------------------------
    Again, an embrace of permissionless innovation is the way out of 
this conundrum.
E. Operationalizing the Vision
    Patience, flexibility, and forbearance are the key policy virtues 
that nurture an environment conducive to entrepreneurial creativity. As 
the FTC's Ohlhausen argues, it is ``vital that government officials. . 
.approach new technologies with a dose of regulatory humility, by 
working hard to educate ourselves and others about the innovation, 
understand its effects on consumers and the marketplace, identify 
benefits and likely harms, and, if harms do arise, consider whether 
existing laws and regulations are sufficient to address them, before 
assuming that new rules are required.'' \86\
---------------------------------------------------------------------------
    \86\ Maureen K. Ohlhausen, ``The Internet of Things and the FTC: 
Does Innovation Require Intervention?,'' Remarks before the U.S. 
Chamber of Commerce, Washington, D.C., October 18, 2013, http://
www.ftc.gov/speeches/ohlhausen/131008internetthingsremarks.pdf.
---------------------------------------------------------------------------
    Beyond its importance as an aspirational vision, permissionless 
innovation can guide policy in concrete ways, especially regulatory 
policies. Possible reforms include regulatory streamlining \87\ and 
flexibility requirements,\88\ ``sunsetting'' provisions,\89\ better 
benefit-cost analysis,\90\ and a greater reliance on potential non-
regulatory remedies--education, empowerment, transparency, industry 
self-regulation, etc.--before resorting to preemptive controls on new 
forms of innovation. Relying on common law solutions is also preferable 
to top-down administrative controls.\91\
---------------------------------------------------------------------------
    \87\ Sherzod Abdukadirov, ``Evaluating Regulatory Reforms: Lessons 
for Future Reforms'' (Mercatus Working Paper, Mercatus Center at George 
Mason University, Arlington, VA, May 29, 2014), http://mercatus.org/
publication/evaluating-regulatory-reforms-lessons-future-reforms; 
Joshua C. Hall and Michael Williams, ``A Process for Cleaning Up 
Federal Regulations'' (Mercatus Working Paper, Mercatus Center at 
George Mason University, Arlington, VA, December 20, 2012), http://
mercatus.org/publication/process-cleaning-federal-regulations.
    \88\ Richard Epstein, ``Can Technological Innovation Survive 
Government Regulation?'' Harvard Journal of Law and Public Policy 36, 
no. 1 (Winter 2013), http://www.harvard-jlpp.com/wp-content/uploads/
2013/01/36_1_087_Epstein_Tech.pdf (``What is at stake in this area is 
nothing less than the question of how to preserve technical innovation 
in the face of wall-to-wall regulation. The prognosis is grim. Unless 
we reform agencies like the FDA and their procedures and operations, 
this country will suffer from a long-term drag on innovation that 
could, if the trend is not abated, lead to long-term mediocrity, as 
inventors and scientists flee our shores for friendlier environments. 
The pace of regulation is one of the central issues of our time.'')
    \89\ Adam Thierer, ``Sunsetting Technology Regulation: Applying 
Moore's Law to Washington,'' Forbes, March 25, 2012, http://
www.forbes.com/sites/adamthierer/2012/03/25/sunsetting-technology-
regulation-applying-moores-law-to-washington; Patrick McLaughlin, ``A 
Solution to the Old Rules vs. New Tech Problem,'' The Hill, July 8, 
2014, http://mercatus.org/expert
_commentary/solution-old-rules-vs-new-tech-problem.
    \90\ See Susan E. Dudley and Jerry Brito, Regulation: A Primer, 2nd 
ed. (Arlington, VA: Mercatus Center at George Mason University, 2012).
    \91\ See Thierer, Permissionless Innovation, 74-78.
---------------------------------------------------------------------------
F. Conclusion: Reasons for Optimism
    In sum, attitudes matter as much as institutional factors in 
understanding what drives innovation and long-term growth, and there 
are reasons for optimism if policymakers embrace permissionless 
innovation as their default policy disposition.
    Pessimists who predict permanent productivity and growth slowdown 
shouldn't forget that ``the rate of growth of productivity at the 
frontiers of knowledge is especially difficult to predict; and it is 
unwise to underestimate human ingenuity,'' as Federal Reserve Vice 
Chairman Stanley Fischer noted in a 2014 speech.\92\ While ``it is 
difficult to know exactly in which direction technological change will 
move and how significant it will be,'' Joel Mokyr reminds us that, 
``something can be learned from the past, and it tells us that such 
pessimism is mistaken. The future of technology is likely to be 
bright.'' \93\ Contrary to the belief that all the ``low-hanging 
fruit'' has already been picked, Mokyr notes that ``we can also plant 
new trees that will grow fruits that no one today can imagine.'' \94\
---------------------------------------------------------------------------
    \92\ Stanley Fischer, ``The Great Recession--Moving Ahead,'' a 
Conference Sponsored by the Swedish Ministry of Finance, Stockholm, 
Sweden, August 11, 2014, http://www.federal
reserve.gov/newsevents/speech/fischer20140811a.htm.
    \93\ Joel Mokyr, ``The Next Age of Invention,'' City Journal, 
Winter 2014, http://www.city-journal.org/2014/24_1_invention.html.
    \94\ Ibid.
---------------------------------------------------------------------------
    Getting the disposition right will be more important than ever with 
so many exciting--but potentially highly disruptive--technologies 
starting to emerge, including the ``sharing economy;'' \95\ 3D 
printing; the ``Internet of Things'' and wearable technology;\96\ 
digital medicine; virtual reality and augmented reality technologies; 
commercial drone services;\97\ autonomous vehicles;\98\ and various 
robotic technologies.\99\
---------------------------------------------------------------------------
    \95\ Adam Thierer, ``The Debate over the Sharing Economy: Talking 
Points & Recommended Reading,'' Technology Liberation Front, September 
26, 2014, http://techliberation.com/2014/09/26/the-debate-over-the-
sharing-economy-talking-points-recommended-reading.
    \96\ Adam Thierer, ``Slide Presentation: Policy Issues Surrounding 
the Internet of Things & Wearable Technology,'' Technology Liberation 
Front, September 12, 2014, http://techliber
ation.com/2014/09/12/slide-presentation-policy-issues-surrounding-the-
internet-of-things-wearable-technology.
    \97\ Jerry Brito, Eli Dourado, and Adam Thierer, ``Federal Aviation 
Administration: Unmanned Aircraft System Test Site Program Docket No: 
FAA-2013-0061'' (Public Interest Comment, Mercatus Center at George 
Mason University, Arlington, VA, April 23, 2013), http://mercatus.org/
publication/federal-aviation-administration-unmanned-aircraft-system-
test-site-program; Eli Dourado, ``The Next Internet-Like Platform for 
Innovation? Airspace. (Think Drones),'' Wired, April 23, 2013, http://
www.wired.com/opinion/2013/04/then-internet-now-airspace-dont-stifle-
innovation-on-the-next-great-platform; Adam Thierer, ``Filing to FAA on 
Drones & `Model Aircraft','' Technology Liberation Front, September 23, 
2014, http://techliber
ation.com/2014/09/23/filing-to-faa-on-drones-model-aircraft.
    \98\ Adam Thierer and Ryan Hagemann, ``Removing Roadblocks to 
Intelligent Vehicles and Driverless Cars'' (Mercatus Working Paper, 
Mercatus Center at George Mason University, Arlington, VA, September 
17, 2014), http://mercatus.org/publication/removing-roadblocks-
intelligent-vehicles-and-driverless-cars.
    \99\ Adam Thierer, ``Problems with Precautionary Principle-Minded 
Tech Regulation & a Federal Robotics Commission,'' Medium, September 
22, 2014, https://medium.com/@AdamThierer/problems-with-precautionary-
principle-minded-tech-regulation-a-federal-robotics-commission-c71
f6f20d8bd.
---------------------------------------------------------------------------
    Permissionless innovation can help spur the next great industrial 
revolution by unlocking amazing opportunities in these and other 
arenas, boosting long-term growth in the process.
                                 ______
                                 
         Appendix 7: How We Adapt to Technological Change \100\
---------------------------------------------------------------------------
    \100\ This section adapted from Adam Thierer, ``The Internet of 
Things and Wearable Technology: Addressing Privacy and Security 
Concerns without Derailing Innovation'' (Mercatus Working Paper, 
Mercatus Center at George Mason University, Arlington, VA, November 
2015), which will be published in the Richmond Journal of Law and 
Technology 21, no. 6 (2015), http://mercatus.org/publication/internet-
things-and-wearable-technology-addressing-privacy-and-security-
concerns-without.
---------------------------------------------------------------------------
A. From Resistance to Resiliency
    Citizen attitudes about these technologies will likely follow a 
cycle that has played out in countless other contexts. That cycle 
typically witnesses initial resistance, gradual adaptation, and then 
eventual assimilation of a new technology into society.\101\ Some 
citizens will begin their relationship with these new technologies in a 
defensive crouch. In the extreme, if there is enough of a backlash, the 
initial resistance to these technologies might take the form of a full-
blown ``technopanic.'' \102\
---------------------------------------------------------------------------
    \101\ See Adam Thierer, ``Technopanics, Threat Inflation, and the 
Danger of an Information Technology Precautionary Principle,'' Minn. J. 
L. Sci. & Tech. 14 (2013): 309.
    \102\ Ibid., 53-60.
---------------------------------------------------------------------------
    Over time, however, citizens tend to learn how to adapt to new 
technologies or at least become more resilient in the face of new 
challenges posed by modern technological advances. Andrew Zolli and Ann 
Marie Healy, authors of Resilience: Why Things Bounce Back, define 
resilience as ``the capacity of a system, enterprise, or a person to 
maintain its core purpose and integrity in the face of dramatically 
changed circumstances.'' \103\ They continue:
---------------------------------------------------------------------------
    \103\ Andrew Zolli and Ann Marie Healy, Resilience: Why Things 
Bounce Back (New York: Simon & Schuster, 2012).

        To improve your resilience is to enhance your ability to resist 
        being pushed from your preferred valley, while expanding the 
        range of alternatives that you can embrace if you need to. This 
        is what researchers call preserving adaptive capacity--the 
        ability to adapt to changed circumstances while fulfilling 
        one's core purpose--and it's an essential skill in an age of 
        unforeseeable disruption and volatility.\104\
---------------------------------------------------------------------------
    \104\ Ibid., 7-8.

    Consequently, they note, ``by encouraging adaptation, agility, 
cooperation, connectivity, and diversity, resilience-thinking can bring 
us to a different way of being in the world, and to a deeper engagement 
with it.'' \105\
---------------------------------------------------------------------------
    \105\ Ibid., 16.
---------------------------------------------------------------------------
    Those who propose more precautionary solutions to challenging 
social problems often ignore this uncanny ability of individuals and 
institutions to ``bounce back'' from technological disruptions and 
become more resilient in the process. Part of the reason precautionary 
thinking sometimes dominates discussions about emerging technologies is 
that many people hold a deep-seated pessimism about future developments 
and a belief that, with enough preemptive planning, they can anticipate 
and overcome any number of hypothetical worst-case scenarios. 
Consequently, their innate tendency not only to be pessimistic but also 
to want greater certainty about the future means that ``the gloom-
mongers have it easy,'' notes author Dan Gardner.\106\ ``Their 
predictions are supported by our intuitive pessimism, so they feel 
right to us. And that conclusion is bolstered by our attraction to 
certainty.'' \107\ Clive Thompson, a contributor to Wired and the New 
York Times Magazine, also notes that ``dystopian predictions are easy 
to generate'' and ``doomsaying is emotionally self-protective: if you 
complain that today's technology is wrecking the culture, you can tell 
yourself you're a gimlet-eyed critic who isn't hoodwinked by high-tech 
trends and silly, popular activities like social networking. You seem 
like someone who has a richer, deeper appreciation for the past and who 
stands above the triviality of today's life.'' \108\
---------------------------------------------------------------------------
    \106\ Dan Gardner, Future Babble: Why Pundits Are Hedgehogs and 
Foxes Know Best (New York: Plume, 2012), 140-1.
    \107\ John Seely Brown and Paul Duguid, ``Response to Bill Joy and 
the Doom-and-Gloom Technofuturists,'' in Albert H. Teich, Stephen D. 
Nelson, Celia McEnaney, and Stephen J. Lita, editors, AAAS Science and 
Technology Policy Yearbook (Washington, D.C.: American Association for 
the Advancement of Science, 2001), 79.
    \108\ Clive Thompson, Smarter Than You Think: How Technology Is 
Changing Our Minds for the Better (New York: Penguin, 2014), 283.
---------------------------------------------------------------------------
    Luckily, as science reporter Joel Garreau reminds readers, ``the 
good news is that end-of-the-world predictions have been around for a 
very long time, and none of them has yet borne fruit.'' \109\ 
Doomsayers have a bad track record because they typically ignore how 
``humans shape and adapt [technology] in entirely new directions.'' 
\110\ ``Just because the problems are increasing doesn't mean solutions 
might not also be increasing to match them,'' Garreau correctly 
notes.\111\
---------------------------------------------------------------------------
    \109\ Joel Garreau, Radical Evolution: The Promise and Peril of 
Enhancing Our Minds, Our Bodies--and What It Means to Be Human (New 
York: Broadway Books, 2006), 148.
    \110\ Ibid., 95.
    \111\ Ibid., 154.
---------------------------------------------------------------------------
    In their 2001 ``Response to Doom-and-Gloom Technofuturists,'' John 
Seely Brown and Paul Duguid note that ``technological and social 
systems shape each other. . . . [They] are constantly forming and 
reforming new dynamic equilibriums with far-reaching implications.'' 
``Social and technological systems do not develop independently,'' they 
continue. Rather, ``the two evolve together in complex feedback loops, 
wherein each drives, restrains, and accelerates change in the other.'' 
\112\
---------------------------------------------------------------------------
    \112\ Brown and Duguid, supra note 106, 79, 82, 83.
---------------------------------------------------------------------------
    This is how humans become more resilient and prosper, even in the 
face of sweeping technological change. Wisdom is born of experience, 
including experiences that involve risk and the possibility of 
occasional mistakes and failures while both developing new technologies 
and learning how to live with them.\113\ Citizens should remain open to 
new forms of technological change not only because doing so provides 
breathing space for future entrepreneurialism and invention, but also 
because it provides an opportunity to see how societal attitudes toward 
new technologies evolve--and to learn from that change. More often than 
not, citizens find creative ways to adapt to technological change by 
using a variety of coping mechanisms, new norms, or other creative 
fixes. Although some things are lost in the process, something more is 
typically gained, including lessons about how to deal with subsequent 
disruptions.
---------------------------------------------------------------------------
    \113\ Thierer, Permissionless Innovation, viii.
---------------------------------------------------------------------------
Case Study: The Rise of Public Photography
    Consider the jarring impact that the rise of the camera and public 
photography had on American society in the late 1800s.\114\ This case 
study has implications for the debate over wearable technologies. 
Plenty of critics existed, and many average citizens were probably 
outraged by the spread of cameras \115\ because ``for the first time 
photographs of people could be taken without their permission--perhaps 
even without their knowledge,'' notes Lawrence M. Friedman in his 2007 
book, Guarding Life's Dark Secrets: Legal and Social Controls over 
Reputation, Propriety, and Privacy.\116\
---------------------------------------------------------------------------
    \114\ This section was condensed from Thierer, ``Technopanics.''
    \115\ For a discussion of the anxieties caused by photography 
during this time, see Robert E. Mensel, Kodakers Lying in Wait: Amateur 
Photography and the Right of Privacy in New York, 1885-1915, Amer. 
Quar. 43 (March 1991): 24.
    \116\ Lawrence M. Friedman, Guarding Life's Dark Secrets: Legal and 
Social Controls over Reputation, Propriety, and Privacy (Palo Alto, CA: 
Stanford University Press, 2007), 214.
---------------------------------------------------------------------------
    In fact, the most important essay ever written on privacy law, 
Samuel D. Warren and Louis D. Brandeis's famous 1890 Harvard Law Review 
essay ``The Right to Privacy,'' decries the spread of public 
photography. The authors lament that ``instantaneous photographs and 
newspaper enterprise have invaded the sacred precincts of private and 
domestic life'' and claim that ``numerous mechanical devices threaten 
to make good the prediction that `what is whispered in the closet shall 
be proclaimed from the house-tops.' '' \117\
---------------------------------------------------------------------------
    \117\ Samuel D. Warren and Louis D. Brandeis, ``The Right to 
Privacy,'' Harv. L. Rev. 4 (1890): 193, 195.
---------------------------------------------------------------------------
    Despite the profound disruption caused by cameras and public 
photography, personal norms and cultural attitudes evolved quite 
rapidly as cameras became a central part of the human experience. In 
fact, instead of shunning cameras, most people quickly looked to buy 
one. At the same time, social norms and etiquette evolved to address 
those who would use cameras in inappropriate or privacy-invasive ways. 
In other words, citizens bounced back and became more resilient in the 
face of technological adversity.
    Although some limited legal responses were needed to address the 
most egregious misuses of cameras, for the most part the gradual 
evolution of social norms, public pressure, and other coping mechanisms 
combined to solve the ``problem'' of public photography. In much the 
same way IoT and wearable technology will likely see a similar 
combination of factors at work as individuals and society slowly adjust 
to the new technological realities of the time. The public will likely 
develop coping mechanisms to deal with the new realities of a world of 
wearable technologies and become more resilient in the process.
    That being said, resiliency should not be equated with complacency 
or a ``Just get over it!'' attitude toward privacy and security issues. 
With time, it may very well be the case that people ``get over'' some 
of the anxieties they might hold today concerning these new 
technologies, but in the short run, IoT and wearable technologies will 
create serious social tensions that deserve serious responses.\118\
---------------------------------------------------------------------------
    \118\ Adam Thierer, ``Can We Adapt to the Internet of Things?,'' 
Privacy Perspectives, June 19, 2013, https://
www.privacyassociation.org/privacy_perspectives/post/
can_we_adapt_to_the
_internet_of_things.

    The Chairman. Thank you, Mr. Thierer.
    Mr. Brookman?

            STATEMENT OF JUSTIN BROOKMAN, DIRECTOR,

                   CONSUMER PRIVACY PROJECT,

               CENTER FOR DEMOCRACY & TECHNOLOGY

    Mr. Brookman. Thank you, Chairman Thune, Ranking Member 
Nelson, members of the Committee. I very much appreciate the 
opportunity to testify here today.
    I am here today on behalf of the Center for Democracy & 
Technology. We are a digital rights advocacy group based here 
in D.C. where I head up our work on commercial data privacy.
    So let me start by saying as a consumer advocate I am 
extremely optimistic about the value of what that Internet of 
Things devices can deliver for everyday citizens. Smart cards 
and infrastructure have the capacity to save lives, reduce 
travel times, and reduce our dependence on oil. Connected 
medical devices have the potential to revolutionize health 
care, giving patients constant real-time data about their 
medical conditions without tethering them to a hospital bed or 
medical facility. And already today smart phones, computers, 
TVs mean the wealth of the world's information is always at our 
fingertips, and on a whim, we have the ability to watch any 
movie, listen to any song, or read any book we want.
    But some consumers are nervous about the sudden 
proliferation of Internet of Things devices and worry about too 
much exposure of their personal information. If the Internet of 
Things is going to be fully realized, there are a few policy 
challenges we are going to need to confront: first, poor data 
security practices; second, unexpected or unwanted data 
collection; third, a loss of control over our own devices; and 
fourth, potential government abuse of these technologies. I am 
going to go through each of these concerns.
    An overarching theme is that Internet of Things products 
need to be designed with privacy and security and user 
empowerment in mind. Otherwise, the actions of a few careless 
actors may fundamentally stunt innovation of these incredibly 
powerful technologies.
    So first let us talk about data security. Unfortunately, 
far too many Internet of Things devices built today are 
developed with security as an afterthought. Even at this early 
stage, we have seen all sorts of IoT devices be vulnerable to 
attack. Home alarm systems have been hacked. Baby monitors have 
been hacked. Smart refrigerators and toasters have been hacked. 
Medical devices, routers, thermostats--you mentioned, Senator 
Markey, in the 60 Minutes report that smart vehicles may be 
vulnerable to attack. The list goes on and on. We absolutely 
need to find a better way to incentivize rigorous security 
practices built into products from the beginning because the 
status quo is not cutting it.
    Smart devices also need to be designed to make sure that 
data collection is consistent with consumer expectations and 
desires. Again, you mentioned that Samsung has been in the news 
this week for language in its terms of service saying it had 
the right to record and send to an unnamed company any 
conversations you have around your Smart TV in order to improve 
its voice recognition capabilities. Now, I suspect that 
Samsung's actual data collection practices are much more 
limited, but it is very hard for an ordinary consumer to know. 
And it raises a really important question. Just because a 
device can collect some personal data that might be useful one 
day, should it? A consumer might be okay with constant voice or 
even constant video collection going on all the time to make 
their device better; they might not. Ultimately, consumers 
should be empowered to make that choice and to control what the 
devices collect about them.
    Connected devices also need to be configured to allow 
consumers to use them however they want and not to artificially 
constrain their choices. As one example, Keurig, the single-cup 
coffeemaker, configured their latest smart coffee machines to 
only work with Keurig-approved coffee pods, limiting consumers' 
ability to use their own machines to make whatever coffee they 
wanted. Here at least, the market seems to have noticed. Amazon 
reviews of these new machines are extremely critical of this 
feature and sales have fallen. I encourage Internet of Things 
designers to keep this case study in mind and make sure they 
are creating functionality that serves the consumers, the 
person who paid money for these products.
    And finally, we fundamentally need to reform our government 
access and intelligence laws to make sure that consumers trust 
the Internet of Things. Forrester Research recently released a 
report dealing with the Snowden revelations about the PRISM 
program could result in a net loss of $180 billion to the U.S. 
IT sector by 2016. And that is just one program. Internet of 
Things devices are especially vulnerable to these fears. These 
devices have the potential to collect vast amounts of 
incredibly sensitive information about us, information that 
might be available without a warrant under the PATRIOT Act. If 
the Government wants access to this data about us, there need 
to be robust, due process requirements in place to make sure 
that consumers are confident that these databases will not be 
abused. At the end of the day, consumers need to trust the 
Internet of Things is working for them.
    Thank you very much, and I look forward to discussing this 
further.
    [The prepared statement of Mr. Brookman follows:]

  Prepared Statement of Justin Brookman, Director, Consumer Privacy, 
                   Center for Democracy & Technology
    The Center for Democracy & Technology (CDT) is pleased to submit 
testimony to the Senate Committee on Commerce, Science, and 
Transportation for today's hearing on the privacy and security 
implications of the Internet of Things (IoT).
    CDT is a non-profit, public interest organization dedicated to 
preserving and promoting openness, innovation, and freedom on the 
Internet. I currently serve as the Director of CDT's Consumer Privacy 
Project. Our project focuses on issues surrounding consumer data, and I 
have previously testified before Congress on issues such as data breach 
notification legislation, commercial privacy, and cybersecurity.
    The Internet of Things presents amazing opportunities for enriching 
citizens' lives. As consumer advocates, CDT is extremely enthusiastic 
about the potential advances to public health, the environment, 
education, and quality of life that will be brought about by the coming 
wave of IoT devices. However, in order to achieve this enormous 
potential for improving the lives of Americans, these sensor-and 
internet-enabled devices must be purposefully designed with consumer 
privacy and empowerment in mind. My testimony today will address four 
key policy areas that must be addressed for the Internet of Things to 
be fully realized: weak data security practices, unexpected and 
unwanted secondary data collection and use, diminishing user control 
over their own devices, and the potential for law enforcement and 
intelligence abuse. Companies must respond to these challenges, or user 
adoption of these valuable and even life-saving technologies will be 
dramatically stunted.
I. The transformative potential of the Internet of Things
    We read about new smart technologies seemingly every day: keyless 
cars that you start with a cell phone, refrigerators that automatically 
order eggs when you've run out, dog collars equipped with GPS trackers, 
and even baby booties that monitor a child's heart rate and oxygen 
levels. This is a remarkable time for innovation and growth. According 
to recent reports, 26 to 30 billion devices will be connected to 
wireless Internet by 2020. This means in just five years, the number of 
connected gadgets could grow to over 30 times its size in 2009.\1\
---------------------------------------------------------------------------
    \1\ Press Release, Gartner, Gartner Says the Internet of Things 
Installed Base Will Grow to 26 Billion Units By 2020 (Dec. 12, 2013), 
http://www.gartner.com/newsroom/id/2636073.
---------------------------------------------------------------------------
    In addition to their cool factor, smart devices enhance healthcare, 
education, finance, agriculture, and a number of other fields. 
Connected cities are also starting to leverage these technologies 
regularly: Philadelphia has saved over $1 million by placing smart 
garbage cans around the city that alert sanitation workers when pick-up 
is necessary; New York City plans to convert outdated public pay phones 
into free open WiFi hotspots.\2\
---------------------------------------------------------------------------
    \2\ Sarah Ashley O'Brien, The Tech Behind Smart Cities, CNN MONEY 
(Nov. 11, 2014), http://money.cnn.com/gallery/technology/2014/11/11/
innovative-city-tech/index.html.
---------------------------------------------------------------------------
    In many ways, consumers have already embraced many smart Internet 
of Things devices. Over 70 percent of Americans now own a smartphone, 
giving each of us access to the wealth of the world's information at 
our fingertips as we go about everyday life.\3\ Many of us have smart 
TVs or smart DVD players, meaning we have access not just to what's on 
TV or in our video library, but we can connect to Netflix, Amazon, or 
YouTube to watch virtually anything, or use Skype or Hangouts to call a 
loved one. In the near future, smart car technologies have the 
potential to dramatically reduce accidents, improve traffic flows, and 
reduce greenhouse gas emissions.
---------------------------------------------------------------------------
    \3\ Asymco: Smartphone penetration reaches 70 percent in the U.S., 
GSMArena (Jul. 9, 2014), http://www.gsmarena.com/
asymco_pricing_doesnt_affect_smartphone_adoption_in_the_
us-news-8982.php.
---------------------------------------------------------------------------
    Without question, IoT has real revolutionary potential. However 
efforts to make all of our things smarter raise unique consumer 
protection concerns. Reports of major electronics companies planning to 
connect all of its consumer devices to the Internet in the next five 
years \4\ suggests the question: do consumers want everything to be 
smart? Is there a meaningful use case for a smart toaster? Even if 
there are incremental advantages to some connected devices, might the 
downsides in some cases outweigh the benefits? Unfortunately, some poor 
design decisions today are compromising the revolutionary potential of 
the Internet of Things, with the potential result that many if not most 
consumers will reject many of these innovations.
---------------------------------------------------------------------------
    \4\ Rachel Metz, CES 2015: The Internet of Just About Everything, 
MIT TECHNOLOGY REVIEW (Jan. 6, 2015), http://www.technologyreview.com/
news/533941/ces-2015-the-internet-of
-just-about-everything/.
---------------------------------------------------------------------------
    Smart technologies often involve the mass collection, storing and 
sharing individuals' data. While much of this is necessary and 
unobjectionable--the very nature of some devices (such as health 
wearables) is to track a user's data for that user's benefit--certain 
data practices seriously threaten individuals' security and right to 
privacy.
    Internet of Things devices collect extremely sensitive personal 
information about us. This is especially true about IoT devices in our 
homes. In his majority opinion for Florida v. Jardines,\5\ Justice 
Scalia articulated the high level of privacy an individual is entitled 
to in his or her home, writing ``when it comes to the Fourth Amendment 
the home is first among equals. . .At the Fourth Amendment's `very 
core' stands `the right of a man to retreat into his own home and there 
be free from unreason-able governmental intrusion' '' \6\
---------------------------------------------------------------------------
    \5\ Florida v. Jardines, 133 S. Ct. 1409 (2013).
    \6\ Id.
---------------------------------------------------------------------------
    The Supreme Court has repeatedly held that people have heightened 
privacy interests in what happens within their home--even over 
information \7\ that is technologically observable \8\ by others. We 
have ``peeping tom'' laws to protect against private observation in the 
home for the same reason--just because someone has the means to watch 
what you're doing in your home doesn't mean they should. Our homes are 
our most personal, private spaces and we maintain this expectation even 
if we bring smart devices into our home.
---------------------------------------------------------------------------
    \7\ Kyllo v. United States, 533 U.S. 27 (2001).
    \8\ Florida v. Jardines, 133 S. Ct. 1409 (2013).
---------------------------------------------------------------------------
    Internet of Things devices not tied to the home also have the 
potential to collect sensitive information. Certainly geolocation 
information--generated by several IoT devices--is extremely sensitive 
and revealing: unwanted disclosure can endanger one's personal safety 
by letting an attacker track your physical location. Otherwise, 
geolocation can reveal other deeply personal information, such as where 
you worship, where you protest, and where (and with whom) you sleep at 
night. Other IoT technologies often collect sensitive information on an 
individual that is not immediately apparent when that person is in a 
public space--such as his physical or mental health, emotions, and 
preferences.
    In many cases, consumers will gladly share this information with 
IoT service providers in order to receive a particular service. 
However, in other cases, consumers won't want this information 
collected at all. Internet of Things devices must be designed with this 
fact in mind, or consumers will reject these products as not worth the 
risks.
    II. There are currently insufficient security protections in place 
to 
regulate IoT data collection
    It is no exaggeration to say that academics have documented the 
security vulnerabilities of the Internet of Things for years. Central 
to some of these concerns is that IoT devices use embedded operation 
systems, where computing is implanted into the device itself. The 
computer chips that power these systems are often cheaply produced, 
rarely updated or patched, and highly susceptible to hacks. Users do 
not have the expertise to regularly patch the system or install system 
updates manually, nor are they typically alerted of security updates. 
As prominent technologist Bruce Schneier succinctly puts it, ``hundreds 
of millions of devices that have been sitting on the Internet, 
unpatched and insecure, for the last five to ten years. . . . We have 
an incipient disaster in front of us. It's just a matter of when.'' \9\
---------------------------------------------------------------------------
    \9\ Bruce Schneier, Security Risks of Embedded Systems, Schneier on 
Security Blog (Jan. 9, 2014), https://www.schneier.com/blog/archives/
2014/01/security_risks_9.html.
---------------------------------------------------------------------------
    While some large, complex, smart IoT systems may have WiFi 
connections, software updates, and multiple types of functionality and 
interfaces, many of the more widely deployed IoT systems will be more 
modest, without such capabilities. These devices will be cheap, even 
disposable, and the incentives for the manufacturer to provide regular 
security updates will be minimal. Such incentives have failed certain 
elements of the smart phone market, resulting in millions of vulnerable 
devices that will remain so for the remainder of their shelf life.\10\ 
Eventually, we expect to see entirely new types of market events, such 
as product recalls, based solely on vulnerabilities in the network and 
computational interface that provide IoT-like communication services. 
Otherwise, many of these devices and systems may never be updated in 
their after-market environment, and home networks and IoT-capable 
communication platforms will have to be designed to deal with errant 
and outright hostile (e.g., hacked through a flaw or vulnerability) 
participants on the local network. Compounding this problem is the fact 
that home routers--the devices that link all these devices together--
are also famously vulnerable to attack.\11\
---------------------------------------------------------------------------
    \10\ Dan Goodin, ACLU Asks Feds to Probe Wireless Carriers over 
Android Security Updates, ArsTechnica, (April 17, 2013), http://
arstechnica.com/security/2013/04/wireless-carriers-deceptive-and-
unfair/.
    \11\ Dan Goodin, 12 million home and business routers vulnerable to 
critical hijacking hack, ArsTechnica, (Dec. 18, 2014), http://
arstechnica.com/security/2014/12/12-million-home-and-
business-routers-vulnerable-to-critical-hijacking-hack/; Brian Krebs, 
Lizard Stresser Runs on Hacked Home Routers, KrebsOnSecurity, (Jan. 15, 
2015), http://krebsonsecurity.com/2015/01/lizard-stresser-runs-on-
hacked-home-routers/.
---------------------------------------------------------------------------
    Even at this early stage of IoT development, seemingly every type 
of connected device has already experienced these vulnerabilities: spy 
chips have been discovered in tea kettles and irons \12\; hackers have 
stolen Smart TV login credentials in order to listen in and spy on 
people in their homes \13\; live streams from baby monitors have been 
uploaded to public websites \14\; thieves can disable home alarm 
systems with a tool from 250 yards away \15\; and even smart toilets, 
refrigerators and printers have been compromised.\16\ And a report 
released this weekend by Senator Markey raises serious questions about 
whether connected cars are being designed to ensure that their systems 
are protected from malicious hackers seeking to take physical control 
over the vehicles.\17\
---------------------------------------------------------------------------
    \12\ Erik Sherman, Hacked from China: Is Your Kettle Spying on 
You?, CBS (Nov. 1, 2013), http://www.cbsnews.com/news/hacked-from-
china-is-your-kettle-spying-on-you/.
    \13\ Lorenzo Franceschi-Bicchierai, Your Smart TV Could be Hacked 
to Spy on You, MASHABLE (Aug. 2, 2013), http://mashable.com/2013/08/02/
samsung-smart-tv-hack/.
    \14\ Loulla-Mae Eleftheriou-Smith, Baby Monitors, CCTV Cameras and 
Webcams from UK Homes and Businesses Hacked and Uploaded onto Russian 
Website, THE INDEPENDENT (Nov. 20, 2014), http://www.independent.co.uk/
life-style/gadgets-and-tech/baby-monitors-cctv-
cameras-and-webcams-from-uk-homes-and-businesses-hacked-and-uploaded-
onto-russian-website
-9871830.html.
    \15\ Kim Zetter, How Thieves can Hack and Disable Your Home Alarm 
System, WIRED (Jul. 23, 2014), http://www.wired.com/2014/07/hacking-
home-alarms/.
    \16\ Lily Hay Newman, Pretty Much Every Smart Home Device You Can 
Think of Has Been Hacked, Slate Blog (Dec. 20, 2014), http://
www.slate.com/blogs/future_tense/2014/12/30/
the_internet_of_things_is_a_long_way_from_being_secure.html.
    \17\ Report, Tracking and Hacking: Security & Privacy Gaps Put 
American Drivers at Risk, Office of Senator Ed Markey, (Feb. 2015) 
http://www.markey.senate.gov/imo/media/
doc/2015-02-06_MarkeyReport-Tracking_Hacking_CarSecurity%202.pdf.
---------------------------------------------------------------------------
    Currently, the United States does not have a dedicated data 
security law requiring companies to use reasonable protections to 
safeguard personal information. Since 2005, the Federal Trade 
Commission has used its general consumer protection authority under 
Section 5 of the FTC Act to bring enforcement actions against companies 
that do not safeguard personal data.\18\ The Commission has argued that 
the FTC Act's prohibition on ``unfair'' business practices extends to 
companies using poor data security; two years ago, it brought its first 
enforcement action against the manufacturer of an Internet of Things 
device.\19\ However, ongoing legal challenges threaten to undermine the 
agency's efforts in this area: some defendants have argued that they 
are not, in fact, legally obligated to use reasonable data security 
practices.\20\
---------------------------------------------------------------------------
    \18\ Press Release, Federal Trade Commission, DSW Inc. Settles FTC 
Charges (Dec. 1, 2005), http://www.ftc.gov/news-events/press-releases/
2005/12/dsw-inc-settles-ftc-charges.
    \19\ Press Release, Federal Trade Commission, Marketer of Internet-
Connected Home Security Video Cameras Settles FTC Charges It Failed to 
Protect Consumers' Privacy (Sept. 4, 2013), http://www.ftc.gov/news-
events/press-releases/2013/09/marketer-internet-connected
-home-security-video-cameras-settles.
    \20\ See G.S. Hans, CDT Files Brief in Wyndham Supporting FTC 
Regulation of Data Security Center for Democracy & Technology Blog 
(Nov. 13, 2014), https://cdt.org/blog/cdt-files-brief-in-wyndham-
supporting-ftc-regulation-of-data-security/; See also Press Release, 
Federal Trade Commission, FTC Files Complaint Against LabMD for Failing 
to Protect Consumers' Privacy (Aug. 29, 2013), http://www.ftc.gov/news-
events/press-releases/2013/08/ftc-files-complaint-against-labmd-
failing-protect-consumers.
---------------------------------------------------------------------------
    Increased reports of massive data breaches (including the highly 
publicized Sony studios and Anthem healthcare hacks) have prompted new 
dialogue around the need for updated data breach notification laws to 
respond to such incidents. Unfortunately, many of the data breach 
notification legislative proposals would actually dial back legal 
incentives for companies to properly secure the data they collects from 
consumers. For example, only requiring agency or consumer notification 
when a specific ``harm'' has been identified would discourage companies 
from fully investigating a breach for fear of triggering the 
notification requirement. Further, data breach law that omits any 
affirmative requirement that companies design robust security 
procedures for their products will ultimately do little to expand upon 
existing state law protections and deter or prevent future breaches. In 
order to encourage better security than exists under the law today, a 
Federal breach notification bill would need to offer new protections 
not reflected in existing law, and still allow states to innovate on 
data sets not covered by a Federal standard.\21\ For more information 
on this topic, visit https://cdt.org/insight/cdt-issue-brief-on-
federal-data-breach-notification-legislation/.
---------------------------------------------------------------------------
    \21\ CDT Issue Brief on Federal Data Breach Notification 
Legislation, Center for Democracy & Technology Insights, (Jan. 27 
2015), https://cdt.org/insight/cdt-issue-brief-on-federal-data-breach-
notification-legislation/.
---------------------------------------------------------------------------
III. Sensitive personal data may be collected contrary to consumer 
        wishes and expectations
    As noted above, IoT devices have the potential to collect a 
tremendous amount of detailed personal information about consumers. 
Some of the data collected is of course expected; if I buy a fitness 
tracker, for example, I shouldn't be surprised that the device tracks 
my steps throughout the day--indeed, that's the reason I bought it. On 
the other hand, I might be surprised if that device were also recording 
all my conversations with my friends, or transmitting my geolocation to 
third party data brokers.
    As an example of surprising--and potentially unwanted--IoT data 
collection, last year, an independent researcher noticed that LG was 
monitoring what TV shows people watched on their smart TVs, and sending 
that information back to LG's corporate servers.\22\ The purpose 
appeared to be for a future undeveloped advertising product; LG was 
also collecting and reporting back information about the names of files 
consumers accessed on computers connected to the same home network, 
though it's not clear why. In response to user complaints, LG initially 
directed people to a long, legalistic terms of service that vaguely 
reserved broad rights to transmit user data. The company backtracked 
after a host of media attention around its practice, and LG enabled an 
opt-out feature for users who did not want their information collected 
in this manner. This was a start, however, it is not clear that opt-out 
is sufficient to meet reasonable consumer expectations in this case. 
Should home appliances be monitoring consumers and reporting everything 
they can detect back to manufacturers by default? Certainly, other 
interconnected devices don't do this today. Your computer doesn't 
report back to Lenovo or HP everything that you do. Your phone doesn't 
report everything back to Motorola or Apple. When a consumer buys a TV, 
they are not typically looking for or expecting a relationship with LG 
or Samsung: they may appreciate additional smart capabilities like 
connecting to Skype or the web, but their TV is a platform for them to 
access others' content--it is not a destination in itself. A users' 
smart phone could have its microphone and camera transmitting 24 hours 
a day, seven days a week (setting aside battery and bandwidth issues)--
it could collect significant amounts of interesting information in the 
name of ``Big Data'' but such data collection would go well beyond 
consumers' reasonable privacy expectations.
---------------------------------------------------------------------------
    \22\ Justin Brookman, Eroding Trust: How New Smart TV Lacks Privacy 
by Design and Transparency, IAPP Blog (Nov. 27, 2013), https://
privacyassociation.org/news/a/eroding-trust-how-new-smart-tv-lacks-
privacy-by-design-and-transparency/.
---------------------------------------------------------------------------
    This precise scenario arose last week in fact, when it was revealed 
that Samsung's privacy policy appeared to reserve the right to collect 
any voice communications in proximity to its Smart TVs and send that 
information to an unnamed voice recognition service provider.\23\ 
Samsung's actual practices are not easily discernable: perhaps Samsung 
is only collecting and transferring voice data for the limited times 
when a consumer is trying to use certain voice recognition commands. 
This might be consistent with reasonable consumer desires and 
expectations. Or perhaps Samsung wants to collect and process all 
dialogue in proximity to its televisions in order to refine its (or its 
partner's) voice recognition software. There certainly would be a 
benefit--to Samsung and the consumer--from that collection and 
processing, but query whether most consumers would find the benefit 
worth the persistent collection of all conversations in a living room 
or bedroom by an unknown third party. Ultimately, consumers must be 
empowered to make the determination about what data is collected and 
why.
---------------------------------------------------------------------------
    \23\ Shane Harris, Your Samsung SmartTV is Spying on You, 
Basically, THE DAILY BEAST (Feb. 5, 2015), http://
www.thedailybeast.com/articles/2015/02/05/your-samsung-smarttv-is-
spying-on-you-basically.html.
---------------------------------------------------------------------------
    We believe that the United States should enact a comprehensive 
privacy law regarding the collection and use of personal information. 
Companies should be required to offer consumers reasonable transparency 
and control over how their data is collected; today, the U.S. is one of 
the few developed nations not to have such consumer protections in 
place. The purpose of such a law wouldn't be to ban or prevent 
particular practices, but should require actionable information and an 
ability to express real preferences in order for a market to develop 
for personal information. Today, absent such requirements, too much 
data collection is opaque and unaccountable; consumers have a vague 
sense that their privacy is being violated, but don't have the 
information or tools available to make decisions about their personal 
information.
    With or without a law, companies should set reasonable defaults for 
data collection and use based on consumer expectations. Some data may 
require clear opt-in because it's sensitive or the collection or use 
would be surprising to a user; other information may be collected 
automatically but consumers should have the ability to opt out of 
secondary data use, retention, or transfer; and some data consumers 
shouldn't have control over because it is fundamentally necessary for 
operation of the device. However, consumers must generally be empowered 
to make decisions about how their devices work (and what data is 
collected and shared with other entities). IoT should work for the 
consumer--the person who bought the product; the Internet of Things 
shouldn't be something that happens to a begrudging populace.
IV. Device connectivity and intelligence could diminish user autonomy 
        over the devices they buy
    Adding sensors and connectivity to IoT devices has the potential to 
make them much more useful for consumers. On the other hand, these 
features could also be abused to deprive consumers of continuing 
services, expected interoperability, or control over their own devices.
    Objects included in the ``Internet of Things'' consist of two basic 
components: the physical object and the software that connects it to 
the network. Traditionally, when you buy something, it is yours and you 
are free to do with it whatever you'd like including altering, 
repairing, or re-selling it. However, objects within the Internet of 
Things do not fit into our traditional understanding of ownership. 
While you still take possession of the physical object, the software is 
typically licensed to you under an End-User License Agreement (EULA). 
The implications of this vary with how integral the software is to the 
functioning of the device--in some cases, like a washing machine that 
you can monitor/control from your phone, losing access to this feature 
wouldn't affect the core functionality and value of the machine very 
much. In other cases, the object itself is essentially useless without 
the software controlled by licensing agreements, or can quickly become 
obsolete without updates. For example, imagine a thermostat that only 
works if you can program the software. In this case, a lapse in 
software updates could render the physical object useless even if the 
physical mechanism were still in good repair.
    Last year, Keurig--the popular single cup coffee maker--put 
software controls on its coffee maker to prevent users from using non-
Keurig approved coffee pods in their machines. Though this 
functionality did not rely upon Internet connectivity, it did take 
advantage of increasingly cheap and sophisticated sensors to allow the 
Keurig machine to detect proprietary codes on approved coffee pods. As 
result of this technology, consumers were prevented from brewing their 
preferred brand of coffee in the devices they bought and paid for. In 
this case, Keurig's decision appears to have backfired: featured 
reviews for Keurig's new line of coffee makers on Amazon prominently 
criticize this design feature,\24\ and sales fell 12 percent last 
quarter.\25\
---------------------------------------------------------------------------
    \24\ Keurig 2.0 K350 Brewing System--Black, Amazon.com, http://
www.amazon.com/Keurig-2-0-K350-Brewing-System/dp/B00KYWL34Q/
ref=sr_1_1?ie=UTF8&qid
=1423266957&sr=8-1&keywords=keurig+2.0 (last visited Feb. 9, 2015).
    \25\ Josh Dzeiza, Keurig's attempt to ``DRM'' its coffee cups 
totally backfired, THE VERGE (Feb. 5, 2015), http://www.theverge.com/
2015/2/5/7986327/keurigs-attempt-to-drm-its-coffee-cups-totally-
backfired.
---------------------------------------------------------------------------
    In other cases, policymakers have intervened to mitigate potential 
monopolistic effects of proprietary software. One example is the repair 
codes used by automobile manufacturers. Cars include systems that 
provide a specific diagnostic code that explains, for example, the 
cause of a ``check engine'' light. Originally, the guide that explains 
these codes was withheld from consumers and the majority of auto repair 
shops, forcing drivers to use specific repair shops for their vehicles. 
However, some states now require that the explanations for the codes be 
widely available.\26\ In another example, the Librarian of Congress, in 
consultation with the Copyright Office, eliminated an exemption to laws 
prohibiting circumvention of digital rights management for users 
seeking to unlock their mobile phones and change wireless providers. 
Mobile phone unlocking had been an entirely legal and common practice 
for years before the Librarian eliminated the exemption. More than 
114,000 Americans petitioned the White House to overturn the ban and, 
after both the Federal Communications Commission and the White House 
recommended doing so, Congress ultimately enacted legislation restoring 
consumers' right to unlock their own phones. Unfortunately, the 
exemption applies only to mobile phones and is examined de novo every 
three years.
---------------------------------------------------------------------------
    \26\ Mass. lawmakers approve ``Right to Repair'' bill, FoxNews, 
(August 1, 2012), http://www.foxnews.com/leisure/2012/08/01/mass-
lawmakers-approve-right-to-repair-bill/.
---------------------------------------------------------------------------
    In the Internet of Things, digital rights management affects 
intellectual property accessed through networked devices as much as the 
devices themselves. For example, users do not own the content they 
purchase for their e-readers (Kindle, Nook, etc.). The physical tool 
allows readers to buy rights to access the content of their choice, but 
readers do not own the book. Additionally, this access is restricted in 
many users may not fully understand because the relationship is so 
different from the physical world. For example, there are typically 
restrictions on lending the book to a friend. In this case, if the 
licensing agreements for that content were revoked because of a 
perceived or alleged violation of the license, the object itself would 
be useless to the average consumer who would have no way to load 
content.
    Additionally, connectivity can allow other entities to access and 
control the device in ways not possible in an un-networked world. One 
prominent example is lenders who use technology in connected cars to 
punish those who are late in making payments by disabling the vehicle. 
In a case reported by the New York Times,\27\ subprime borrowers were 
allowed to lease vehicles provided they gave permission for the lender 
to remotely disable the ignition in the event of a late payment or 
default. Some argue this technology allows the lender to provide credit 
to a broader audience than would otherwise be possible; others argue 
that it is unethical and perilous to put people in a situation where 
they may have an emergency and cannot access their vehicle, as was the 
case for the woman in the article who needed to use her car to take an 
asthmatic child to the doctor. Moreover, vulnerable borrowers might be 
subject to egregious reconnection fees that had been disclosed only in 
inscrutable contracts. Regardless of what you believe, it is undeniable 
that this technology shifts the balance of power from the user to the 
company or institution that controls the software.
---------------------------------------------------------------------------
    \27\ Michael Corkery & Jessica Silver-Greenberg, Miss a Payment? 
Good Luck Moving That Car, THE NEW YORK TIMES (Sept. 24, 2014), http://
dealbook.nytimes.com/2014/09/24/miss-a-payment-good-luck-moving-that-
car/.
---------------------------------------------------------------------------
V. Our government access and intelligence laws must be reformed
    Finally, the default of IoT devices to phone home by reporting data 
to a company rather than storing it locally on the device raise 
concerns about government surveillance as well. Many of the same 
concerns that apply to in-the-home monitoring devices like smart grid 
technologies \28\ apply to objects in the Internet of Things. IoT 
systems will, in most cases, be sensing platforms augmenting devices 
and objects in the home or in businesses. Light sensors can tell how 
often certain rooms are occupied at night or how often the refrigerator 
is opened. Temperature sensors may be able to tell when one bathes, 
exercises, or leaves the home entirely. Microphones can easily pick up 
the content of conversations in the home and, with enough fidelity, can 
identify who is speaking. In essence, the privacy and security concerns 
highlighted by the revelation that law enforcement has access to data 
stored by private companies are elevated exponentially in a future with 
increased connectivity and automated collection.
---------------------------------------------------------------------------
    \28\ Ctr. for Democracy & Tech. & Elec. Frontier Found., ``Proposed 
Smart Grid Privacy Policies and Procedures,'' before The Public 
Utilities Commission of the State of California (December 18, 2008), 
available at https://cdt.org/files/pdfs/CDT_EFF_PoliciesandProcedures
_15Oct2010_OpeningComment_1.pdf.
---------------------------------------------------------------------------
    Government access without robust due process protection is already 
arguably the most significant threat posed by the collection of 
personal information. As the recent NSA revelations aptly demonstrate, 
much of the data that governments collect about us derives not from 
direct observation, but from access to commercial stores of data. Even 
in the United States and Europe, that data is often obtained without 
transparent process, and without a particularized showing of 
suspicion--let alone probable cause as determined by an independent 
judge. Unfortunately, there is almost nothing that consumers can do to 
guard against such access or in many cases even know when it occurs.
    The revelation that commercial data is tied to government 
surveillance has the potential to fundamentally change the conversation 
about IoT. For the vast majority of consumers, unwanted surveillance--
quite apart from practical effects of such surveillance--is the harm 
they're seeking to avoid. Therefore, considerations of risks associated 
with IoT must address harms from government surveillance as well as 
private sector risks.
    This loss of consumer confidence has a quantifiable impact on 
corporate bottom lines and hence the development of these useful new 
technologies. For example, according to Forrester Research the losses 
to U.S. technology companies from revelation of the PRISM program 
(detailing once facet of U.S. surveillance practices) could result in, 
``a net loss for the service provider space of about $180 billion by 
2016 which would be roughly a 25 percent decline in the overall IT 
services market by that final year.'' These costs demonstrate the 
market value of business practices and government policies that respect 
privacy.\29\
---------------------------------------------------------------------------
    \29\ James Staten, ``The Cost of PRISM Will Be Larger Than ITIF 
Projects,'' FORRESTER, August 14, 2013, http://blogs.forrester.com/
james_staten/13-08-14-the_cost_of_prism_will_
be_larger_than_itif_projects
---------------------------------------------------------------------------
    Nor is the point in sighting this figure to single out the NSA and 
U.S. surveillance. As CDT has noted repeatedly, all governments are 
interested in data collection and have extensive legal tools to access 
that information. In an Internet connected future it is not only the 
U.S. government but also the governments around the world that may be 
interested in IoT and the information it reveals. For more on legal 
tools that governments possess to access personal information please 
see: http://govaccess.cdt.info/.
    Government surveillance reform is a much broader topic than the IoT 
and this committee's hearing today. However, the continuing access by 
government to commercial information highlights the need to build 
systems that minimize the amount of information they share and also 
give consumers control over what information their devices collect.
    The potential benefits of the IoT are exciting and profound. It is 
incumbent upon manufactures of these devices and governments to make 
sure that those benefits are fully realized while protecting the 
privacy of consumers.
Conclusion
    Recognition of the threats to collected personal information is 
particularly important because in recent years, some have argued for a 
new definition of privacy where there are no limits on what information 
companies (and governments) can collect about us or how long they 
retain it. Privacy is in effect redefined to only prohibit certain 
harmful uses of personal information. For example, President Obama's 
Council of Advisors on Science and Technology last year released a 
report on Big Data making precisely this point: because of the 
potentially awesome power of personal information, we shouldn't put 
limitations on what information is collected; instead, we should just 
make sure that that data is not subsequently misused.\30\
---------------------------------------------------------------------------
    \30\ EXECUTIVE OFFICE OF THE PRESIDENT, REPORT TO THE PRESIDENT, 
BIG DATA AND PRIVACY: A TECHNOLOGICAL PERSPECTIVE (2014). http://
www.whitehouse.gov/
sites/default/files/microsites/ostp/PCAST/pcast_big_data_and_privacy_-
_may_2014.pdf
?utm_content=buffer06b57&utm_medium=social&utm_source=twitter.com&utm_ca
mpaign
=buffer.
---------------------------------------------------------------------------
    This view, however, presumes a perfect world of unbreakable 
security, where consumer and company expectations are fully aligned, 
and where due process protections fully assure there is no potential 
for government abuse.\31\ Obviously, these conditions are not met 
today, and likely will never fully be realized. As such, consumers have 
a rational interest in exercising control over how their data is 
collected and retained. Without affording consumers meaningful control 
over their own devices, IoT adoption is seriously threatened. Today, 
the highly sensitive data collected by IoT devices is exposed to a 
variety of threats, and designers must keep these threats in mind when 
developing their products for market. Consumers would benefit 
tremendously from a full-fledged, user-centric Internet of Things. 
Developers must keep personal privacy and empowerment in the front of 
their minds in creating these products.
---------------------------------------------------------------------------
    \31\ JUSTIN BROOKMAN & G.S. HANS, WHY COLLECTION MATTERS: 
SURVEILLANCE AS A DE FACTO PRIVACY HARM (2013), http://
www.futureofprivacy.org/wp-content/uploads
/Brookman-Why-Collection-Matters.pdf.

    The Chairman. Thank you, Mr. Brookman.
    We will go 5-minute rounds. I may have to duck out of here 
for a little while to do a Finance Committee markup, but I hope 
to give everybody a chance to ask questions, and we will see 
where it goes.
    I will start by asking you, Mr. Donny. You mentioned in 
your testimony the challenge of taking advantage of the 
Internet of Things on farms due to the lack of reliable 
broadband access and cellular coverage. I would like you to 
elaborate on the recommendation you made that we accelerate the 
availability of low-cost, long-range communication technology 
to ensure that we can move data from the field to the cloud on 
every farm. Would you please talk a little bit about that and 
then maybe elaborate on what you see as some of the policy 
impediments to that.
    Mr. Donny. Thank you, Senator Thune, for the question.
    So let me actually elaborate on the challenge as well. The 
challenge in agriculture specifically for connecting devices is 
that the farm--both the topography of the farm, the rolling 
hills, as well as the trees and plants and corn stalks 
themselves are a lousy place for our cellular and RF signals. 
The plants and so forth consume a lot of that energy that comes 
out of those devices. So it makes it difficult to move data 
from a device in the field, unless you have a really tall 
antenna, out to a collector device. And so the traditional 
technology today that has been used is satellite 2.4 gigahertz, 
900 megahertz RF signals, and cellular. And the challenge is, 
if you are in a rural area, you oftentimes do not have good 
cellular coverage. We have all experienced that.
    And so the opportunity that we see that in particular I am 
interested in is the white space in which we have unused now 
white space channels that were used by televisions that provide 
the opportunity to move data around the farm very long 
distances at almost no cost. So I know the FTC is looking into 
that and reviewing that.
    There are companies globally that are developing hardware 
in which to take advantage of that white space. So in the case 
of those channels, we can now move data from a sensor in the 
field that is no bigger than the size of your cell phone 
several miles, 5, 6, 7 miles in our experience--we have tested 
some of these earlier models--out to a device. And so for a 
farmer, instead of having to spend $7 or $8 or $10 a month on a 
cellular data communication charge per device, we can move data 
for free from the device to the backhaul system to get data at 
a central data point.
    So if you are looking at farm adoption and how do we enable 
communication methods to improve what farmers are doing, 
density of data is extremely important in that analysis. So the 
lower we can reduce the cost of the device in the field vis-a-
vis the communication channel, vis-a-vis the device, the more 
data we will have, the more enabled that farmer will be to make 
a better decision. So specifically we are interested in how do 
we use what we know today, the white space and other RF 
signals, to enable the industry to go out and innovate, go 
figure out how we are going to move data around 5, 6, 7 miles 
at no cost and enable those companies to go out and do that 
today.
    The Chairman. Mr. Thierer or Mr. Brookman, do you have any 
ideas, any thoughts on how to ensure that we have sufficient 
wireless capacity to power the Internet of Things?
    Mr. Thierer. Well, I will make a brief comment on that. It 
is not the primary focus of my own research, but generally 
speaking, we need to get a better process in place at the 
Federal Communications Commission. Freeing up a lot more 
spectrum is something I think everybody on this committee and 
many policy circles agrees on. It is a question of where do we 
get it. Creating more and better incentives to do that is going 
to be essential because these devices are going to be eating up 
a lot of it in a short time.
    Mr. Brookman. And I am not remotely a spectrum expert. So I 
am not going to weigh in on that.
    The Chairman. How about on the issue of interoperability? 
We have all these devices, Do we have to have standards for 
these devices, and if there are standards, who creates them? 
Does anybody want to take a stab at that?
    Mr. Thierer. I will just make a brief comment that we all 
have devices we are carrying with us here today that have 
numerous standards in them and have a lot of complex 
interoperability problems. But somehow we figured it out for 
this. I think we can figure it out for the Internet of Things 
space as well.
    The Chairman. Anybody else?
    Mr. Donny. The industry and agriculture are actually trying 
to tackle this interoperability challenge, and it is a mixed 
bag. So you can try to focus on a standard, but the problem 
with standards are there are 16 other standards you are trying 
to displace to begin with and another standard necessarily does 
not fix that.
    Modern data in general--you tend to publish how that data 
looks and is used, and then companies that need that data then 
build systems around consuming that. So lots of other devices 
have solved that problem without creating huge standards in the 
space.
    Mr. Abbott. I think along those lines that if we go back in 
time to just networking that the same challenges around 
interoperability existed then, and over time we saw certain 
winners emerge. And I think at that point in time, it would 
make sense to have some national or even actually ideally 
global kind of standard around that particular protocol. So in 
the case of the Internet, a standard Internet protocol emerged, 
and I think we would anticipate something along those lines.
    One interesting thing to note is that as we are in this 
early phase of IoT, which challenges interoperability, that as 
we become more homogenous from that heterogeneous world, it is 
likely that the security issues will actually increase because 
actually by having more heterogeneity is actually decreasing 
the security exposure today.
    The Chairman. Thank you all.
    Senator Nelson?
    Senator Nelson. The allocation of additional spectrum, Mr. 
Chairman, is a subject that we need to get into. It has been 
raised here, and it is a very important one.
    Before you and I have to go off and vote in the Finance 
Committee, I want to get back to this question of security, 
Samsung, and the Smart TV. According to its privacy policy, the 
television records your conversations when you activate the 
microphone and sends those recordings to a third party. Do you 
want to tell me yes or no? Should consumers be given adequate 
notice of such a practice? Let us start. Just go down. Yes or 
no.
    Mr. Abbott. I think that actually consumers should have the 
ability to opt out, and it should be very clearly communicated 
what data is being collected by that particular device or that 
service.
    Senator Nelson. We are going to run out of time. So opt out 
is your answer instead of opt in.
    Mr. Abbott. Correct.
    Senator Nelson. How about it, Mr. Davis?
    Mr. Davis. Well, I certainly think we need to be able to 
balance privacy and innovation. As the developers of these 
products, we need to be stewards of that privacy.
    Senator Nelson. Yes or no. Opt out or opt in?
    Mr. Davis. I think consumers ought to be able to opt in.
    Senator Nelson. Opt in?
    Mr. Davis. Yes.
    Senator Nelson. OK.
    Mr. Donny?
    Mr. Donny. Thank you, Senator.
    I think they need to affirmatively agree to that policy.
    Senator Nelson. So you are saying opt in.
    Mr. Donny. Correct.
    Mr. Thierer. They can opt out and they do not have to buy 
the TV in the first place.
    Senator Nelson. So when they buy the TV, and there is the 
privacy policy, should they opt out or opt in?
    Mr. Thierer. They should opt out.
    Senator Nelson. Opt out.
    Mr. Thierer. Yes.
    Mr. Brookman. If you are using voice recognition, it is 
kind of clear what is going on ephemerally. If it is collecting 
data all the time, there is an obligation to go out of their 
way to explain that to folks.
    Senator Nelson. What does that mean? Opt out or opt in?
    [Laughter.]
    Mr. Brookman. I will say opt in then.
    Senator Nelson. Opt in.
    OK. Three opt ins and two opt outs.
    Is there a role for the Congress to play here? How do we 
make companies accountable, or is this something the FTC should 
do?
    Mr. Thierer. Well, Senator, as I already stressed, the FTC 
is already very active on this front, and has already pursued 
security cases against many major Internet giants. There is 
something like over 50 data security consent decrees that have 
been out there. Major fines have been levied. Twenty-year 
privacy audits have been imposed. So there is a very aggressive 
enforcement regime already in place using the unfair and 
deceptive practices at the FTC. And I think that will and 
should continue.
    Mr. Brookman. Yes. I think that existing law arguably 
already requires reasonable security. I think it would be 
useful to have a statute saying that.
    On privacy, I would like to see flexible requirements. 
Requiring some level of transparency is better today. A lot of 
these practices today are very opaque. So I think just giving 
companies an obligation to actually say what they are doing I 
think would create a better market for these products.
    Senator Nelson. Take my refrigerator example, which is not 
an extreme example. A smart refrigerator tells me I need milk. 
What about the refrigerator telling the local grocery store 
that I need milk? Should that be done opt out or opt in?
    Mr. Abbott. That is absolutely enabling the consumer to go 
select that service provider to share that data.
    And just to expand, Senator, on my prior answer, opt out 
works when there is a very clear communication to the consumer, 
what data is being collected, why it is, and if you want to 
actually not have that data collected, how that consumer can 
actually select that.
    Senator Nelson. You know why I asked that question? Because 
we have got a real-life example. Verizon had implanted these 
super cookies, codes, and then that data was transmitted to 
third parties selling that information in order for the 
consumer on that Verizon smart phone to start getting all kinds 
of information that was recorded because of that super cookie.
    Now, AT&T tried it and pulled back because of the privacy 
implications, but Verizon today is still studying what they 
have done even though we have called this out.
    And if you have been the recipient of unwanted 
advertisements because you happen to go to a certain place or 
buy from a certain store, you can start to see how the privacy 
is beginning to be invaded.
    Thank you, Mr. Chairman.
    The Chairman. And I used to like super cookies.
    [Laughter.]
    The Chairman. Senator Ayotte?

                STATEMENT OF HON. KELLY AYOTTE, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Ayotte. I am just thinking about the milk the 
refrigerator could tell me to have with my super cookie.
    [Laughter.]
    Senator Ayotte. I wanted to follow up on a couple of 
different things. You know, as we look at something that has 
been a consistent challenge for us--and that is data breaches. 
As we see more homogeneity in the consolidation of data, I 
think this becomes a bigger issue. This is something that we 
have had numerous discussions on legislating on.
    I will give you an example. Recently the big Anthem breach. 
22 percent of my state got hit by that. 80 million people in 
the country got hit.
    So I wanted to hear--I think it is probably best to direct 
it to Mr. Davis and Mr. Thierer--about what your thoughts are 
and what we should be doing on data breach legislation. I 
certainly want to make sure we do not do things that hurt 
innovation and thwart new technologies, but this seems to be a 
repetitive issue that we need to address. Your thoughts.
    Mr. Davis. Thank you for the question.
    You know, certainly from an Intel perspective, we think you 
have to design security into these implementations from the 
beginning not only on the endpoint device but throughout that 
end-to-end implementation. There are multiple levels of 
security in terms of how the device powers up and behaves when 
it is first powered, the kinds of applications it is allowed to 
run when it begins to run applications, and the ability to 
limit the types of things that can be launched on that 
particular device at any point in time, and then be able to 
manage that data through the network such that the information 
they are receiving from that data is trusted information. You 
are getting what you would expect to be getting out of that 
device.
    At the same time, I think we have to be a bit careful in 
terms of how we create legislation or policy around that in 
terms of enabling the industry to innovate as well. So I think 
certainly as we talk to customers, as we talk to others in the 
industry, security is the number one concern, and we believe we 
can build that into the technologies that these products are 
being developed around.
    Mr. Thierer. Well, Senator, many states already pursue data 
breach notification requirements, and there is a case to be 
made for it. But I would just remind the Committee that you 
already have many other legal enforcement mechanisms to deal 
with these things. The Federal Trade Commission has gone after 
many companies who have had breaches like this. You have State 
attorneys general who have been very active on this front.
    Senator Ayotte. So I was a State AG, and I pursued some of 
these cases. Now, sitting with this hat on in the U.S. Senate, 
what are your thoughts on a national standard in terms of 
notification?
    Mr. Thierer. Eventually I think we are probably going to 
get there. I think there is probably a case to be made for some 
uniformity in this case because many states pursuing it or 
others do not have any at all.
    Senator Ayotte. I appreciate it.
    I also wanted to follow up with you. You talked about the 
ability under the FTC to determine unfair and deceptive 
practices in this realm. So the FTC is pursuing those cases.
    But if you look at it from the perspective of innovation 
and having a larger plan in terms of the Internet of Things, 
isn't one of the challenges we face that people do not really 
fully understand? There has not been a full definition under 
section 5 of what is an unfair and deceptive practice, and so 
therefore, that lack of certainty to businesses can create some 
ambiguity about what is acceptable and what is not. So I wanted 
to get everyone's thoughts on that.
    Mr. Thierer. I think that is a fair point, Senator, but I 
would also say that this is an issue we have had for many 
decades. Unfair and deceptive practices go back over a century, 
and so we are going to continue to see the evolution of that 
standard. But you are right. We have to be careful that it is 
not overzealously enforced.
    Senator Ayotte. Do you think that the FTC needs to provide 
further guidance on what they believe is unfair and deceptive 
under section 5?
    Mr. Thierer. I think that is evolving out of the body of 
decisions that they have been handing down on data security and 
privacy.
    Senator Ayotte. Mr. Davis, I was very curious. In your 
testimony, you talked about what other countries are doing to 
really look at making sure the infrastructure is there, 
national Internet of Things plans. So what is it you would like 
to see us do here in a way that would be a productive role for 
Congress and not one that thwarts innovation?
    Mr. Davis. Well, certainly one of the recommendations that 
we are making is that we support public-private partnerships so 
that we go out and identify areas in, say, transportation, in 
manufacturing, and some of these industrial areas where we can 
innovate. We can spur these industries to go implement new 
technologies and drive the productivity services and new 
product benefits. So certainly public-private partnerships are 
a key area that we are recommending.
    Senator Ayotte. And, Mr. Abbott, from the financing end, 
what are your thoughts? You are the ones allowing for 
investment. You are looking at new companies. What is your 
thought on that?
    Mr. Abbott. Well, I think there needs to be more 
coordination, I think, through the public and the private 
sector especially on these issues. We are, obviously, very, 
very focused on looking at how we can help these early stage 
companies, much smaller than Intel, not be stifled and so they 
can actually kind of grow and expand.
    Senator Ayotte. Thank you all.
    The Chairman. Thank you, Senator Ayotte.
    Senator Peters?

                STATEMENT OF HON. GARY PETERS, 
                   U.S. SENATOR FROM MICHIGAN

    Senator Peters. Thank you, Mr. Chairman.
    And, panelists, thank you for your testimony here today.
    As the Senator from Michigan, you can imagine the auto 
industry is very important to me. And the auto industry is 
certainly much more than just horsepower and torque, although 
those are the two things that I like best about the auto 
industry. But it is, as you know, very complex, sophisticated, 
and very tech heavy with some of the best minds working to 
develop some new safety technologies, as well as environmental 
technologies using the Internet of Things. Advanced technology 
in vehicles today have fewer crashes. They have significantly 
reduced injuries and fatalities, lowered emission levels, and 
have increased fuel economy dramatically.
    In recent years, automakers have delivered advanced safety 
features such as lane departure warning devices, adaptive 
cruise control, and crash-imminent braking, features that were 
made possible through the use of sensors, actuators, artificial 
intelligence systems, and increasingly wireless connectivity 
that will enable these vehicles to basically have their own 
situational awareness and the ability to perceive and react to 
the environment to avoid harm.
    So what comes next I think is very significant. It will 
save lives as the Government and industry will deploy the 
vehicle-to-vehicle communications system and infrastructure 
communication networks. The National Highway Traffic Safety 
Administration estimates that V2V technology has the potential 
to mitigate or eliminate 80 percent of the accidents that are 
involved in non-impaired drivers. That is significant. 80 
percent of accidents could be avoided.
    But in order to implement this V2V technology and in a 
sense then save lives, the 5 gigahertz band of spectrum will 
need to be preserved for its use. And I know that some of my 
colleagues on this committee have actually expressed an 
interest in opening up this band of spectrum for WiFi use, but 
I would caution that this should only be done after full 
interference testing has been completed and it is ensured that 
intelligent transportation technologies operating on this band, 
which have the potential to save lives, as I mentioned, are 
fully protected.
    I think it is also important that the benefits made 
possible by advanced technologies are delivered to consumers in 
a transparent way that respects consumer privacy. As auto 
companies continue to develop these technologies, automakers 
must address data privacy and cybersecurity issues head on. And 
that is why, in November of last year, the auto industry agreed 
to set a set of privacy principles and practices that is 
currently working to establish an auto ISAC, information 
sharing and analysis center, to enable these companies to share 
information in real time about cyber threats. And I certainly 
look forward to seeing the auto industry's continued leadership 
in this area.
    And I know the Chairman has gone, but on behalf of the 
Committee, I would like to ask for unanimous consent to enter 
into the record the consumer privacy protection principles put 
together by the industry.
    Senator Moran [presiding]. Without objection.
    [The information referred to follows:]

               Alliance of Automobile Manufacturers, Inc.
                 Association of Global Automakers, Inc.
Consumer Privacy Protection Principles
Privacy Principles for Vehicle Technologies and Services--November 12, 
        2014
I. Introduction
    The automotive industry is developing innovative technologies and 
services that promise to deliver substantial benefits and enhance the 
driving experience. These technologies and services may assist in 
enhancing safety, reducing the environmental impacts of vehicles, 
diagnosing vehicle malfunctions, calling for emergency assistance, 
detecting and preventing vehicle theft, reducing traffic congestion, 
improving vehicle efficiency and performance, delivering navigation 
services, providing valuable information services, and more. The 
Alliance of Automobile Manufacturers, the Association of Global 
Automakers, and their members are excited about the benefits offered by 
today's vehicle technologies and services and look forward to expanding 
the array of innovative technologies and services offered to consumers.
    Many of these technologies and services are based upon information 
obtained from a variety of vehicle systems and involve the collection 
of information about a vehicle's location or a driver's use of a 
vehicle. Consumer trust is essential to the success of vehicle 
technologies and services. The Alliance, Global Automakers, and their 
members understand that consumers want to know how these vehicle 
technologies and services can deliver benefits to them while respecting 
their privacy.
    Privacy is important to consumers, and it is important to us. That 
is why the Alliance and Global Automakers have issued these Privacy 
Principles (``Principles''). The Principles provide an approach to 
customer privacy that members can choose to adopt when offering 
innovative vehicle technologies and services. Each member has made an 
independent decision about whether to adopt the Principles, and other 
companies may choose to adopt them as well. We provide a list of those 
companies that have adopted the Principles in the Appendix, and they 
are referred to as ``Participating Members.''
    The Principles apply to the collection, use, and sharing of Covered 
Information in association with Vehicle Technologies and Services 
available on cars and light trucks sold or leased to individual 
consumers for personal use in the United States.
    The Principles are subject to change over time. When they do 
change, the Alliance and Global Automakers will post the updated 
Principles at www.automotive
privacy.com and ________. The Principles are not intended to replace 
inconsistent or conflicting applicable laws and regulations, where they 
exist. So, the Principles should be interpreted as subject to and 
superseded by applicable laws and regulations.
    Participating Members may implement the Principles in different 
ways, reflecting differences in technologies and other factors. And 
Participating Members may choose to incorporate into their privacy 
programs elements that are not addressed in the Principles and are free 
to take additional privacy steps. But regardless of how Participating 
Members design their privacy programs and implement the Principles, 
Participating Members affirm the following fundamentals, as detailed in 
the relevant sections that follow:

   Transparency: Participating Members commit to providing 
        Owners and Registered Users with ready access to clear, 
        meaningful notices about the Participating Member's collection, 
        use, and sharing of Covered Information.

   Choice: Participating Members commit to offering Owners and 
        Registered Users with certain choices regarding the collection, 
        use, and sharing of Covered Information.

   Respect for Context: Participating Members commit to using 
        and sharing Covered Information in ways that are consistent 
        with the context in which the Covered Information was 
        collected, taking account of the likely impact on Owners and 
        Registered Users.

   Data Minimization, De-Identification & Retention: 
        Participating Members commit to collecting Covered Information 
        only as needed for legitimate business purposes. Participating 
        Members commit to retaining Covered Information no longer than 
        they determine necessary for legitimate business purposes.

   Data Security: Participating Members commit to implementing 
        reasonable measures to protect Covered Information against loss 
        and unauthorized access or use.

   Integrity & Access: Participating Members commit to 
        implementing reasonable measures to maintain the accuracy of 
        Covered Information and commit to giving Owners and Registered 
        Users reasonable means to review and correct Personal 
        Subscription Information.

   Accountability: Participating Members commit to taking 
        reasonable steps to ensure that they and other entities that 
        receive Covered Information adhere to the Principles.

    The application of these fundamental principles is described in 
more detail in the sections that follow.
II. Applicability
    The Principles apply to the collection, use, and sharing of Covered 
Information in association with Vehicle Technologies and Services 
available on cars and light trucks sold or leased to individual 
consumers for personal use in the United States.
    Participating Members are listed in the Appendix.
    Each Participating Member commits to complying with the Principles 
for new vehicles manufactured no later than Model Year 2017 (which may 
begin as early as January 2, 2016) and for Vehicle Technologies and 
Services subscriptions that are initiated or renewed on or after 
January 2, 2016. To the extent practicable, each Participating Member 
commits to implementing the Principles for Covered Information 
collected from vehicles manufactured before January 2, 2016. If 
compliance with the Principles involves a vehicle engineering change, 
each Participating Member commits to complying with the Principles as 
soon as practicable, but by no later than vehicle Model Year 2018.
    Some Participating Members may work with Third-party Service 
Providers to provide some or all of their Vehicle Technologies and 
Services. When doing so, Participating Members commit to taking 
reasonable steps to ensure that Third-party Service Providers adhere to 
the Principles in providing Vehicle Technologies and Services that 
involve the collection, use, or sharing of Covered Information. 
Businesses other than Third-party Service Providers may provide Owners 
and Registered Users with apps or other offerings that involve the 
collection of information from vehicles. Participating Members will 
encourage those businesses to respect the privacy of Owners and 
Registered Users and will take reasonable steps to provide those 
businesses with an opportunity to provide Owners and Registered Users 
with information about the businesses' privacy practices.
    However, the Principles directly apply only to Participating 
Members. The Principles do not apply directly to vehicle dealerships 
that are not owned by Participating Members.
III. Scope of the Principles and Definitions
    The Principles provide a framework for Participating Members to 
embrace when collecting, using, and sharing Covered Information. The 
following defined terms are used in the Principles. Together, the 
definitions describe the scope of the Principles.
    Affirmative Consent: An Owner's or Registered User's clear action 
performed in response to a clear, meaningful, and prominent notice 
disclosing the collection, use, and sharing of Covered Information.
    Biometrics: Covered Information about an Owner's or Registered 
User's physical or biological characteristics that serves to identify 
the person.
    Covered Information: (1) Identifiable Information that vehicles 
collect, generate, record, or store in an electronic form that is 
retrieved from the vehicles by or on behalf of a Participating Member 
in connection with Vehicle Technologies and Services; or (2) Personal 
Subscription Information provided by individuals subscribing or 
registering for Vehicle Technologies and Services.

        Exclusion from Covered Information: If Participating Members 
        collect Covered Information and then alter or combine the 
        information so that the information can no longer reasonably be 
        linked to the vehicle from which the information was retrieved, 
        the Owner of that vehicle, or any other individual, the 
        information is no longer Covered Information. If Participating 
        Members attempt to link the information to specific, identified 
        individuals or vehicles or share the information without 
        prohibiting the recipients from attempting such linking, the 
        information becomes Covered Information.

    Driver Behavior Information: Covered Information about how a person 
drives a vehicle. Examples are vehicle speed, seat belt use, and 
information about braking habits. This does not include information 
that is used only for safety, diagnostics, warranty, maintenance, or 
compliance purposes.
    Geolocation Information: Covered Information about the precise 
geographic location of a vehicle.
    Identifiable Information: Information that is linked or reasonably 
linkable to (i) the vehicle from which the information was retrieved, 
(ii) the Owner of that vehicle, or (iii) the Registered User using 
Vehicle Technologies and Services associated with the vehicle from 
which the information was retrieved.
    Owners: Those individuals who have legal title to a vehicle that 
receives or is equipped with Vehicle Technologies and Services that use 
Covered Information; those entitled to possession of such a vehicle, 
like purchasers under an agreement (for example, a vehicle loan where 
the vehicle is collateral); and those entitled to possession of such a 
vehicle as lessees pursuant to a written lease agreement that, at its 
inception, is for a period of more than three months. The term 
``Owners'' does not include lienholders and lenders.
    Personal Subscription Information: Information that individuals 
provide during the subscription or registration process that on its own 
or in combination with other information can identify a person, such as 
a name, address, credit card number, telephone number, or e-mail 
address.
    Registered User: An individual other than an Owner who registers 
with, and provides Personal Subscription Information to, a 
Participating Member in order to receive Vehicle Technologies and 
Services that use Covered Information.
    Third-party Service Providers: Companies unaffiliated with 
Participating Members that receive Covered Information when conducting 
business on behalf of a Participating Member.
    Vehicle Technologies and Services: Technologies and services 
provided by, made available through, or offered on behalf of 
Participating Members that involve the collection, use, or sharing of 
information that is collected, generated, recorded, or stored by a 
vehicle.
IV. Specific Principles
1. Transparency

    Participating Members commit to providing Owners and Registered 
Users with ready access to clear, meaningful notices about the 
Participating Member's collection, use, and sharing of Covered 
Information.

    Participating Members commit to providing notices in a manner that 
enables Owners and Registered Users to make informed decisions.
    How Participating Members may provide notices: Participating 
Members may make notices available in a variety of ways. Depending on 
the nature of the Vehicle Technologies and Services and the 
circumstances in which they are offered, different mechanisms may be 
reasonable to provide Owners and Registered Users with ready access to 
clear, meaningful notices about the Covered Information that 
Participating Members collect, use, and share.
    There is no one-size-fits-all approach. Among the various ways 
Participating Members may choose to provide notices are in owners' 
manuals, on paper or electronic registration forms and user agreements, 
or on in-vehicle displays. At a minimum, Participating Members commit 
to making information regarding the collection, use, and sharing of 
Covered Information publicly available via online web portals.
    When Participating Members may provide notices: Participating 
Members commit to taking reasonable steps to provide Owners and 
Registered Users with ready access to clear, meaningful notices prior 
to initial collections of Covered Information. Notices need not be 
provided prior to every instance of collection where addressed by prior 
notices.
    Content of notices: Participating Members commit to designing the 
notices so that they provide Owners and Registered Users with clear, 
meaningful information about the following:

   the types of Covered Information that will be collected;

   the purposes for which that Covered Information is 
        collected;

   the types of entities with which the Covered Information may 
        be shared;

   the deletion or de-identification of Covered Information;

   the choices Owners and Registered Users may have regarding 
        Covered Information;

   whether and how Owners and Registered Users may access any 
        Covered Information; and

   where Owners and Registered Users may direct questions about 
        the collection, use, and sharing of Covered Information.

    Notices regarding the collection of Geolocation Information, 
Biometrics, and Driver Behavior Information: When Participating Members 
collect, use, or share Geolocation Information, Biometrics, or Driver 
Behavior Information, Participating Members commit to providing clear, 
meaningful, and prominent notices about the collection of such 
information, the purposes for which it is collected, and the types of 
entities with which the information may be shared. Please see the 
Choice section below for information about the Principles' Affirmative 
Consent conditions if Participating Members use Geolocation 
Information, Biometrics, or Driver Behavior Information as a basis for 
marketing or share such information with unaffiliated third parties for 
their own purposes.
    Changing notices: Participating Members commit to taking reasonable 
steps to alert Owners and Registered Users prior to changing the 
collection, use, or sharing practices associated with Covered 
Information in ways that have a material impact on Owners or Registered 
Users. If the new practices involve using Covered Information in a 
materially different manner than claimed when the Covered Information 
was collected, Participating Members commit to obtaining Affirmative 
Consent from Owners and Registered Users to the new practices.
2. Choice

    Participating Members commit to offering Owners and Registered 
Users with certain choices regarding the collection, use, and sharing 
of Covered Information.

    Certain safety, operations, compliance, and warranty information 
may be collected by necessity without choice.
    When Participating Members provide notices consistent with the 
Transparency principle, an Owner's or Registered User's acceptance and 
use of Vehicle Technologies and Services constitutes consent to the 
associated information practices, subject to the Affirmative Consent 
provisions below.
    Participating Members understand that the sharing and use of 
Geolocation Information, Biometrics, and Driver Behavior Information 
can raise concerns in some situations, therefore Participating Members 
also commit to obtaining Affirmative Consent expeditiously for the 
following practices:

   using Geolocation Information, Biometrics, or Driver 
        Behavior Information as a basis for marketing; and

   sharing Geolocation Information, Biometrics, or Driver 
        Behavior Information with unaffiliated third parties for their 
        own purposes, including marketing.

    Affirmative Consent is not required, however, when Geolocation 
Information, Biometrics, or Driver Behavior Information is used or 
shared

   as reasonably necessary to protect the safety, property, or 
        rights of Participating Members, Owners, Registered Users, 
        drivers, passengers, or others (this includes sharing 
        information with emergency service providers);

   only for safety, operations, compliance, or warranty 
        purposes;

   for internal research or product development;

   as reasonably necessary to facilitate a corporate merger, 
        acquisition, or sale involving a Participating Member's 
        business;

   as reasonably necessary to comply with a lawful government 
        request, regulatory requirement, legal order, or similar 
        obligation, which, in the case of requests or demands from 
        governmental entities for Geolocation Information, must be in 
        the form of a warrant or court order, absent exigent 
        circumstances or applicable statutory authority; and

   to assist in the location or recovery of a vehicle 
        reasonably identified as stolen.

    Participating Members also need not obtain Affirmative Consent when 
sharing Geolocation Information, Biometrics, or Driver Behavior 
Information with Third-party Service Providers that assist in providing 
Vehicle Technologies and Services if those parties are not permitted to 
use that information for their independent use and the sharing is 
consistent with the notices that Participating Members have provided.
    Participating Members may obtain Affirmative Consent at the time of 
vehicle purchase or lease, when registering for a service, or at 
another time.
3. Respect for Context

    Participating Members commit to using and sharing Covered 
Information in ways that are consistent with the context in which the 
Covered Information was collected, taking account of the likely impact 
on Owners and Registered Users.

    The context of collection: Various factors will determine the 
context of collection, including the notices offered to Owners and 
Registered Users, the permissions that they have provided, their 
reasonable expectations, and how the use or sharing will likely impact 
them.

   When Participating Members present clear, meaningful notices 
        about how Covered Information will be used and shared, that use 
        and sharing is consistent with the context of collection.

   Participating Members commit to making reasonable and 
        responsible use of Covered Information and may share that 
        information as reasonable for those uses. Reasonable and 
        responsible practices may vary over time as business practices 
        and consumer expectations evolve.
    The following examples illustrate some of the reasonable and 
responsible ways in which Participating Members may use or share 
Covered Information consistent with the context of collecting that 
information, taking into account the likely impact on Owners and 
Registered Users The list is not meant to be exhaustive.

   Using or sharing Covered Information as reasonably necessary 
        to provide requested or subscribed services;

   Using or sharing Covered Information to respond to a 
        possible emergency or other situation requiring urgent 
        attention;

   Using or sharing Covered Information to conduct research or 
        analysis for vehicles or Vehicle Technologies and Services;

   Using or sharing Covered Information to diagnose or 
        troubleshoot vehicle systems;

   Using or sharing Covered Information as reasonably necessary 
        to facilitate a corporate merger, acquisition, or sale 
        involving a Participating Member's business;

   Sharing Covered Information for operational purposes with 
        affiliated companies that are clearly associated with the 
        Participating Member or with the Vehicle Technologies and 
        Services from which the Covered Information was collected or 
        derived;

   Using or sharing Covered Information to prevent fraud and 
        criminal activity, or to safeguard Covered Information 
        associated with Owners or their vehicles;

   Using or sharing Covered Information to improve products and 
        services or develop new offerings associated with Vehicle 
        Technologies and Services, vehicles, vehicle safety, security, 
        or transportation infrastructure;

   Using Covered Information to provide Owners or Registered 
        Users with information about goods and services that may be of 
        interest to them;

   Sharing Covered Information as reasonably necessary to 
        comply with a lawful government request, regulatory 
        requirement, legal order, or similar obligation, which in the 
        case of requests or demands from governmental entities for 
        Geolocation Information, must be in the form of a warrant or 
        court order, absent exigent circumstances or applicable 
        statutory authority; and

   Using or sharing Covered Information to protect the safety, 
        property, or rights of Owners, Participating Members, or 
        others.
4. Data Minimization, De-Identification & Retention

    Participating Members commit to collecting Covered Information only 
as needed for legitimate business purposes. Participating Members 
commit to retaining Covered Information no longer than they determine 
necessary for legitimate business purposes.
5. Data Security

    Participating Members commit to implementing reasonable measures to 
protect Covered Information against loss and unauthorized access or 
use.

    Reasonable measures to protect Covered Information: Reasonable 
measures include standard industry practices. Those practices evolve 
over time and in reaction to evolving threats and identified 
vulnerabilities.
6. Integrity & Access

    Participating Members commit to implementing reasonable measures to 
maintain the accuracy of Covered Information and commit to offering 
Owners and Registered Users reasonable means to review and correct 
Personal Subscription Information.

    Participating Members may provide the means to review and correct 
Personal Subscription Information in a variety of ways, including but 
not limited to web portals, mobile applications, or in-vehicle tools.
    Participating Members commit to exploring additional means of 
providing Owners and Registered Users with reasonable access to Covered 
Information, taking into account potential security and privacy issues.
7. Accountability:

   Participating Members commit to taking reasonable steps to 
        ensure that they and other entities that receive Covered 
        Information adhere to the Principles.

    Accountability mechanisms that Participating Members may implement: 
Participating Members commit to implementing reasonable policies, 
procedures, and practices to help ensure adherence to the Principles. 
Participating Members may implement training programs for employees and 
other personnel that handle Covered Information. Participating Members 
may consider creating internal privacy review boards to evaluate and 
approve new technologies and services involving Covered Information. 
Participating Members should make available reporting mechanisms for 
consumers to report concerns to Participating Members. Participating 
Members also commit to taking reasonable steps to ensure that Third-
party Service Providers adhere to the Principles in providing Vehicle 
Technologies and Services that involve the collection, use, or sharing 
of Covered Information.
V. Contact Information
Alliance of Automobile Manufacturers
803 7th Street, N.W., Suite 300
Washington, DC 20001
Tel: (202) 326-5500
Global Automakers
1050 K St., NW Suite 650
Washington, DC 20001
Tel: (202) 650-5555
      
                                 ______
                                 
                     Appendix Participating Members
    BMW of North America, LLC
    Chrysler Group LLC
    Ford Motor Company
    General Motors LLC
    Mazda North American Operations
    Mercedes-Benz USA, LLC
    Mitsubishi Motors North America, Inc.
    Porsche Cars North America
    Toyota Motor Sales, USA
    Volkswagen Group Of America, Inc.
    Volvo Car Group

    Senator Peters. Thank you.
    Having said that, Mr. Brookman, the problems of privacy and 
security certainly are widespread in the context and not 
limited to the Internet of Things, as we have been hearing 
about today. But having said that, with the auto industry being 
very proactive with their set of principles that they just 
recently put together to protect consumer privacy and personal 
information from cyber threats, do you agree that this is a 
step in the right direction? What are some of your thoughts 
about the industry's efforts?
    Mr. Brookman. Yes, I think it is really great to see them 
being proactive on this issue, recognizing they take privacy 
very seriously especially with their cars. Cars are incredibly 
personal devices. So I think those principles are a very good 
first step.
    I would probably want to see a little more control over 
whether your car company always knows your location. In those 
principles, that is not an element. I know that the CEO of Ford 
was embarrassed last year at one point when he said, ``well, we 
always know where you are.'' There was kind of an uproar around 
that because I am out driving on the road. I want to be alone. 
I do not necessarily want Ford to know every place I go. And he 
had to kind of dial back those remarks. So I think we have 
smart car technologies that can be deployed in ways that are 
very privacy-preserving. Vehicle-to-vehicle, vehicle 
infrastructure communications do not need to have a lot of 
personal information in there. As a car company, I do not need 
to know that it is Adam's black SUV. I just need to know that 
it is a big, 6,000-pound vehicle. So they can be deployed in 
really privacy-preserving ways.
    I want to make sure that whatever principle is going to be 
adopted, the fundamental idea of user autonomy is really 
important, that I am in control of my car. I paid $30,000 for 
this thing. It should work for me. And, you know, maybe I am 
totally happy having Ford give me turn-by-turn instructions, 
but it should be a question of user choice.
    Senator Peters. Great. Thank you.
    And, Mr. Davis, in your testimony you mentioned the 
integration of Intel into the Internet of Things with sensors, 
and you talked about heating and air conditioning which allows 
the operator to identify opportunities in real time to reduce 
power usage.
    I am sure you are doing a number of things in the 
manufacturing sector, which of course has major ramifications. 
You mentioned it briefly in some of your answers. Could you 
tell us a little bit more about what Intel is doing in 
manufacturing and how that is going to transform that industry?
    Mr. Davis. Certainly from an Intel manufacturing 
perspective, I think we are one of the most sophisticated 
manufacturers in the world. We certainly create the most 
complex devices on the planet. And our factories today are 
really already kind of models of the Internet of Things. And 
what we are learning, as we go further along in the 
implementation of these kinds of technologies, we are learning 
even more as we can gain more access to data inside our 
factories. And it is allowing us to have better insights into 
how our products perform.
    We can improve the overall output of the factory. We can 
also make the operations much more efficient by using 
technologies like predictive analytics to be able to identify 
equipment that is nearing a point of failure and being able to 
take it offline in a proactive manner, in a scheduled kind of 
downtime, saves us a tremendous amount in terms of factory 
interruption and improves the overall productivity.
    And these are the kinds of technologies that we are putting 
into our own factories. We are learning as we do these and then 
offering those kinds of technologies and learnings to other 
industries as well. Things like motors and pumps and 
compressors, any kind of piece of equipment like that can 
benefit from the basic physics of understanding how that device 
operates, being able to apply data analytics and predict when 
it might fail, and avoid that failure in a manner that we can 
anticipate and even get to a point of machines being able to 
acknowledge with each other that something is going awry.
    Senator Peters. We have a question to go down the panel in 
the remaining minute here. We are seeing self-driving cars. We 
are seeing crockpots that are enabled by Internet technology as 
well, the full gamut of things. So some industries are 
embracing this. Others not so much.
    What would be your view of what industries are really on 
the cutting edge right now? Maybe we can just start with Mr. 
Abbott, if you were to pick one industry that is just really 
leading the way.
    Mr. Abbott. I think particularly in the enterprise phase, 
like manufacturing and logistics.
    Mr. Davis. We would say that retail is one of the 
industries really most poised to take advantage. Manufacturing 
would be close behind that.
    Mr. Donny. I agree. Industrial applications of sensors are 
probably the driver for most of the Internet of Things.
    Mr. Thierer. At the consumer level, I would just add that 
health and fitness for wearables is exploding, and there are 
probably many people in this committee room who are wearing a 
wearable fitness device on their wrists and used it like me to 
lose 30 pounds.
    Mr. Brookman. And I would say in the consumer space the 
area that I am most excited about is actually cars due to the 
incredible safety benefits and convenience benefits you are 
talking about.
    Senator Peters. Right. Thank you.
    I yield back.
    Senator Moran. Senator Schatz?

                STATEMENT OF HON. BRIAN SCHATZ, 
                    U.S. SENATOR FROM HAWAII

    Senator Schatz. Thank you.
    Mr. Davis, you mentioned that China and Brazil are ahead of 
the United States in developing a plan. And I guess my question 
is, are they only ahead in terms of having developed a plan on 
paper, or are they actually ahead of us in terms of developing 
and taking advantage of the Internet of Things?
    Mr. Davis. It is really both. It is having that plan that 
is a national plan and then aligning the implementation around 
it. So we are actually seeing both in the examples that we 
cited.
    Senator Schatz. And I assume in the examples that you 
cited, that these were government-driven plans more so than any 
of us would be comfortable with in the American democracy 
system?
    Mr. Davis. You know, the level of comfort, I guess--we will 
have to assess that.
    But certainly I think there are opportunities to encourage 
innovation, to drive public-private partnerships.
    Senator Schatz. So my question is, if we are going to 
develop a national Internet of Things plan that is in the 
context of a free market and the context of a democracy, how do 
we strike the right balance in terms of it being private 
sector-driven, which I think we all agree on, and having a 
light touch and not getting into regulating right away? So that 
is one question.
    The other concern I have is simply time. In order to 
develop a plan in an American-style democracy, it may be a 
couple of years before we are able to render one. And I feel 
like we do not have enough time for that.
    So I would like you to address both questions, the public 
and private balance and how do we do this efficiently enough to 
have a plan that is meaningful.
    Mr. Davis. I certainly agree. I think trying to regulate it 
or legislate it, given the pace of technology and the pace of 
innovation, it will be tough to keep up.
    I think there are things we can do that help lead the way, 
again working with different industries to understand barriers 
and freeing those barriers, encouraging them to innovate in 
very specific areas, and also driving research.
    A great example would be data analytics. As we look for 
data scientists who can extract the information from the 44 
zettabytes of data that is coming our way by the year 2020, 
certainly encouraging the education of the next wave of 
engineers and scientists to be able to support that I think is 
a good area.
    Then the last I would cite is there are some industry 
consortiums that are moving fast in the U.S. There is the 
Industrial Internet Consortium. You know, five U.S. companies 
founded that. It is over 100 companies I believe today 
globally. It is intended to define areas of innovation that the 
industries need to align around, creating workgroups to 
actually go implement these recommendations, and then also 
making recommendations to standards bodies to evolve the 
standards as necessary. So I think there are things that we can 
do to use those consortiums to lead the way.
    Senator Schatz. I have to move on to the next question. 
There was a mention of encryption but it was brief. And I am a 
little surprised that we have not kind of dug deeper into the 
question of encryption because it seems to me that a 
combination of empowering consumers, some light but not zero 
touch on the regulatory side, and increased and improved 
encryption technology is going to be what addresses a lot of 
the concerns expressed by my ranking member and others about 
the Internet of Things. And so if we could just go down the 
line and if you could just talk briefly, each of you, about the 
potential for encryption to resolve and solve some of these 
data security and personal privacy issues.
    Mr. Abbott. Thank you, Senator.
    So encryption will be helpful. It will not be the panacea. 
And I think one way to look at this is if you looked at how e-
commerce emerged on the Internet. Initially there were websites 
that did transact--that were not necessarily over an encrypted 
piece, and there were attacks. And I think in the same way that 
over time best practices were adopted by engineering teams, the 
same will actually occur with IoT and is occurring today.
    Mr. Davis. So we think the use of encryption is important 
in how data traverses networks. We need to make sure that the 
data that we are receiving from that device is data we can 
trust. So trust is essential, I think, to the evolution of the 
Internet of Things.
    But encryption alone I do not think solves the problem. 
Again, I think there are some best practices that we are 
learning and evolving and we can do so through these 
consortiums to implement those effectively.
    Senator Schatz. I am almost out of time, so I am going to 
call an audible and not go down the line because I have a 
feeling you are all going to be for encryption and find the 
potential there.
    But it does seem to me that one of the challenges is to 
empower consumers to know whether there can be some kind of 
Good Housekeeping Seal of Approval so that a consumer can know 
whether this is an IoT device that they ought to feel safe 
about, that they ought to feel comfortable with, and whether it 
is opt in or opt out, I think those are important policy and 
consumer choices to be made. But on a very basic level, 
consumers have to know whether someone is meeting some basic 
standards, and I think that is one of the challenges right now.
    Thank you.
    Senator Moran. Thank you, Senator.
    The Senator from Montana, Senator Daines?

                STATEMENT OF HON. STEVE DAINES, 
                   U.S. SENATOR FROM MONTANA

    Senator Daines. So I get to represent the great state of 
Montana, and one of the things I will hear is when a bureaucrat 
flies into Montana from D.C. and they say they are there to 
help, we get really scared about that.
    So I have a question regarding--and I say this in the 
context of someone who was part of a cloud computing startup we 
took public. We had an office just north of you there from 
Kleiner Perkins in Menlo Park. We were up in San Mateo, had 17 
offices around the world, 33 languages, and our product is a 
cloud computing CRM map called RightNow Technologies that 
Oracle acquired a couple of years ago.
    And I do have concerns as a consumer, as a parent about 
privacy and security, but I have also a great concern about the 
ability for technology innovation to move quickly. Somebody 
asked what made your company successful. Our CEO said we can 
run faster than anybody else, and that was our competitive 
differentiator.
    Unlike the glacial speed of D.C., you all are living in a 
very different world than the Beltway here in Washington. You 
move at the speed of electrons and we move at the speed of 
glaciers here.
    So a top-level question is, can the Federal Government be 
helpful in regulating something I do not think they even 
understand? Who would like to take that question?
    Mr. Thierer. Well, I think they are going to have a really 
hard time regulating the Internet of Things. I mean, the 
Internet of Things, as you suggested, Senator, moves the pace 
of Moore's Law and is doubling every 18 months just like 
processors do. So that sort of speed is going to be hard for us 
to set in stone any sort of rules that basically can govern 
that kind of innovation.
    What policymakers can do, beyond establishing a clear 
vision for how the Internet of Things can be fostered, is to 
suggest efforts to educate consumers and make them aware of 
potential security and privacy risks and vulnerabilities. Our 
government has a long track record of doing an excellent job of 
this in other contexts. I would just commend the Federal Trade 
Commission and many other Federal agencies who have OnGuard 
Online, which is a wonderful online portal for consumers to 
find great information about privacy and security best 
practices.
    Mr. Brookman. Yes. I mean, to some extent, the Federal 
Trade Commission is already active in this area. Mr. Thierer 
mentioned 50-some data security cases, which I think most 
people recognize is probably a good idea. You should be using 
reasonable data security requirements.
    On the privacy side, we are primarily just asking for 
better transparency. Right now I have a device. It is really 
hard to figure out what it does. At the very least, it should 
be written down somewhere what the company does. If you cannot 
explain it in a statement, maybe you do not really understand 
what it is doing, and that poses some privacy and security 
risks.
    Senator Daines. All right. Thank you.
    And I think that whole opt in/opt out was an interesting 
discussion. I look at that--because I am running around with my 
devices. As someone who is a father of four children, they will 
say, Dad, you are so January 2015 already. You know, I mean, it 
is already outdated 2 weeks into February.
    But I think information does become currency, and so when I 
opt in to one of my apps--perhaps it is my airline when it 
knows I arrive in a certain city--it performs at a high level. 
It becomes currency with that information as the consumer makes 
that choice ultimately.
    And I guess I also have great faith in the power of 
crowdsourcing and what happened--the example you had in the K 
cups there of the reviews on Amazon. The consumers are not--I 
think they control the world. The horse left the barn a long 
time ago in terms of the consumer having the ultimate voice 
oftentimes in these debates in the free markets.
    I do believe, though, that national infrastructure and fin 
services perhaps and maybe others should be held to a higher 
standard and more strict standards as we look at the risk 
management. As you think about any kind of regulatory touch, 
how would you differentiate perhaps the Internet of Things from 
fin services infrastructure and so forth? Mr. Davis?
    Mr. Davis. I am clearly not the expert on financial 
services. So I will say that up front.
    But as we look at this breadth of Internet of Things, given 
the breadth of it, yes, I believe there will be different 
expectations for different industries and different market 
sectors. What happens in the consumer space I think is 
certainly critical in terms of both security and privacy. In 
the industrial space, there are many opportunities where we can 
open up and look at data from different data types and 
different sources that will enable us to derive the value of 
the Internet of Things, new services, new products. So I think 
we are going to see different requirements, different needs 
across different industries, and to your point, financial 
services could certainly be that example.
    Senator Daines. I am running out of time. I wanted to make 
sure I asked this question, though, and this is as a father of 
four children. With digital natives now running everywhere in 
America as they are growing up here, believe me, everything 
opens up with a swipe of the finger. Are there appropriate 
security measures and parental disclosures we should be 
thinking about to protect our children from the dangers of 
online security and privacy?
    Mr. Thierer. Well, Senator, I have testified in front of 
this committee many times on online child safety issues and 
have written books on parental controls and online safety 
technologies. And I can tell you this is a never-ending battle 
with myself as a father of two young children who are digital 
natives as well, and they are sometimes ahead of us as parents 
in terms of their capabilities. That being said, it is a 
constant educational process, and there is never any end to it.
    What the government can do is get more serious about media 
literacy and technological literacy efforts in what is called 
digital citizenship programs to try to make children more aware 
of appropriate uses and inappropriate uses of their 
technologies.
    Senator Daines. Yes. I am out of time. But this is a case 
where our kids are faster and more quickly adopting this 
technology oftentimes than parents are. It is a profound issue 
we have to deal with here I think as a country as parents 
around how do we protect our children in this evolution.
    Senator Moran. The Senator from Nevada, Senator Heller.

                STATEMENT OF HON. DEAN HELLER, 
                    U.S. SENATOR FROM NEVADA

    Senator Heller. Chairman, thank you. Thanks for holding 
this hearing. It is an unusual topic, to say the least, but one 
I think just as important as it is odd.
    I want to thank all the witnesses for being here taking 
time out of your day to help us better understand where we are 
trying to go on this.
    I have a Microsoft Fit-band--now, whether it is mine or a 
member of my staff's sitting behind me, I am not going to tell 
you. But, you know there is tremendous amount of information 
you get out of this Fit-band. I am looking at downloading how 
many steps. I am downloading sleeping habits. I can tell how 
many hours slept, how many times you woke during the night, 
what the efficiency of the sleep was--and I do not even know 
what that means--how many calories burned while you are 
sleeping for those 8 hours. It is incredible the amount of 
information that you get out of one of these Fit-bands.
    But just as this information is available to me, I guess 
the question we are trying to ask here on this committee is who 
else has this information. Where does all this information go?
    There is another app on calories. It tells you what you 
ate, links the two programs together. It tells you how much you 
are exercising, how much you are eating at the end of the day. 
At the end of the day, you are, I guess, figuring out whether 
you are making progress or not.
    And I guess we are trying to decide whether you know that 
or does the rest of the world have access to that kind of 
information. Is that not in essence what we are dealing with? 
Is this not what we are trying to figure out?
    The amount of information that is out there--I read a 
number. Let us see if I can find it. The amount of information 
that is available to us. Here it is. We are producing multiple 
ziggabytes each year, a number that I do not quite understand. 
I do know it is 21 zeros behind a 1 or a trillion a million 
times. That is the kind of information that is out there.
    I may not be the only one that is wearing a Fit-band. There 
is probably multiple people here in this room that are also 
wearing these Fit-bands.
    I guess the question is, is there a way--and, Mr. Thierer, 
maybe I can ask you first. Can we identify ways in which this 
data can be protected without doing harm?
    Mr. Thierer. Yes, Senator, I think we can. I think, 
obviously, consumers are going to be concerned about certain 
types of personal information, specifically sensitive health 
information, being shared too broadly, and that is going to 
necessitate different types of approaches and policies for that 
sort of information. But a lot of the information that is being 
collected by these devices and the information, the data that 
we are shedding, sort of what is called our data exhaust, is 
going to be more easily shared and probably a lot of consumers 
want it to be more easily shared. The complaints that a lot of 
app developers get is that it is not easy enough to share some 
of this data with some friends and other people or maybe your 
doctor because of existing policies or laws.
    Senator Heller. Is that not where we are going? This 
information is going to be linked to your personal physician?
    Mr. Thierer. I think so, but of course we have to deal with 
things like HIPAA and other types of laws that make that 
potentially difficult. And I think there are going to remain 
some policies in place to deal with very sensitive forms of 
information like health, financial information, and so on. But 
I think for the most part there is a really delicate balance 
here because a lot of consumers are going to want to have more 
personalization and customization in their devices so they can 
learn and share even more about themselves with friends, 
colleagues, physicians, and others. So that is the balance we 
have to walk.
    Senator Heller. Mr. Brookman, how does this happen? How do 
we make this happen without harming innovation?
    Mr. Brookman. Yes. I think Fitbit is actually a really good 
example. You are creating a lot of really personal and 
interesting information, but you kind of want to have control 
over it. You do not necessarily want the world to know what 
your heart rate is. And people might be able to do really 
interesting research on it, but you do not want to necessarily 
be everyone's guinea pig.
    I think Fitbit actually understands that. They actually 
have a really good rule in their privacy policy. You are 
creating really a lot of information, but it is yours. You are 
in control over it. We are not going to sell it to data 
brokers. And I think that should probably be the default 
especially for really sensitive stuff like this.
    If you want to sell it to somebody or make it available to 
researchers, just get my permission for it. If you want to sell 
it to data brokers and, say, we will give you $5 off your 
Fitbit, that is fine. Make a value proposition for it. And so I 
think for things that would be surprising or confusing to a 
consumer, I think there should be a little more obligation to 
say, OK, here is what you are going to do. It is your device. 
You paid for it. You make the decision about what you want to 
do.
    Senator Heller. Yes. Thank you very much for your comments.
    Again, I want to thank the panel for being here.
    Chairman, I support where Chairman Thune is coming from on 
this particular issue, trying not to do harm without harming 
innovation as we wrestle with the very issues that the panel 
and I discussed today.
    Thank you.
    Senator Moran. Thank you, Senator Heller.
    The Senator from New Jersey, Senator Booker.

                STATEMENT OF HON. CORY BOOKER, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Booker. Thank you very much, Mr. Acting Chairman.
    You know, I just want to pick up on it. This is a 
phenomenal opportunity for a bipartisan, profoundly patriotic 
approach to an issue that can explode our economy. I think 
there are trillions of dollars, creating countless jobs, 
improving quality of life, democratizing our society in ways 
that gives advantages to people who are being marginalized on 
the edges, breaking down barriers of race and class. We cannot 
even imagine the future that this portends of, and we should be 
embracing that. America right now is the net exporter of 
technology innovation in the globe, and we cannot lose that 
advantage. It to me is something that we should continue to be: 
the global innovators on these areas.
    And so a lot of my concerns are really what my Republican 
colleagues also echoed, which is we should be doing everything 
possible to encourage this and do nothing to restrict it. And 
there are a lot of legitimate fears, but in the same way of 
every technological era, there must have been incredible fears 
starting with the airline industry, just human beings taking 
flight, had tremendous fears. But for us to do anything to 
inhibit that leap in humanity to me seems unfortunate.
    And so from copyright issues, security issues, privacy 
issues, all of these things are worthy of us wrestling and 
grappling with, but to me we cannot stop human innovation and 
we cannot give advantages in human innovation to other nations 
that we do not have. America should continue to lead.
    And I also believe that this has got to be a public-private 
partnership, that we all have a role. The very Internet itself 
is the result of a public-private partnership, investments made 
by the public space, by the civic space that innovators and 
entrepreneurs have made, again, beyond the imagination people 
had just 20-30 years ago.
    So I want to jump in on two things, and I imagine there 
might be another round, but the first issue is spectrum. I have 
a bias. I think government hoards too much spectrum, and I 
think that there is a need for more spectrum out there. 
Everything we are talking about--and I think the word was used, 
an ``obesity'' of usage and needs going out there--is going to 
necessitate more spectrum. And so for me, yesterday Senator 
Rubio and I, again in a bipartisan way, reintroduced the WiFi 
Innovation Act which aims to address this need by encouraging 
more spectrum sharing and freeing up more spectrum.
    And so I just want to highlight the importance of these 
sharing agreements and increased spectrum availability is going 
to be in this just for the record. And let us just do it really 
quick. Anybody who wants to jump in on that.
    Mr. Donny. I will lean in and weigh my support. In 
agriculture we have very unique challenges in moving data. You 
do not have a building, your home in which your Fitbit when you 
walk in the door, syncs up with the WiFi that you have got 
available. On the farm, you do not have broadband. You do not 
have WiFi available to you. So if we want to lead the world, 
continue to lead the world in agriculture--and it will be 
through technology--we have to solve--this is a fundamental 
problem that I think a public-private partnership is perfect 
for.
    Senator Booker. Right. And so do not get me started about 
states that are banning broadband innovation by municipalities. 
Do not get me started on that. But you agree that we have to 
solve these problems. We have to create more spectrum 
availability. And the fact that countries like South Korea and 
others have more broadband penetration than the United States 
of America is absurd, and we need to solve these problems.
    But I want to stick with you being that you are the 
courageous one. And another thing that is an issue for me, 
where this issue of fear and legitimate concerns undermine 
American leadership, is the issue of drones. It is one of those 
issues that strikes fear in Americans' concerns. But the 
potential and possibility for drone technology to alleviate 
burdens of our infrastructure, to empower commerce, innovation, 
jobs, to really open up unlimited opportunities in this country 
is pretty incredible to me. And in your area of agriculture, as 
I watch our government go slow in promulgating rules, holding 
back American innovation, what has happened as a result of that 
is innovation has spread in other countries that do not have 
these rules, have put in sensible regulations, but now we are 
seeing innovation and technology export from America and going 
other places.
    In the agricultural context, as my time runs out, could you 
just give us a picture? Because I see mine surveys, 
agricultural uses abroad that are not being done here. Could 
you just comment on that real quick?
    Mr. Donny. Thank you, Senator. It is a great topic. 
Agriculture is a wonderful use case for drones. There are wide 
open areas, lots of land to survey and crop scout. We can use 
drones to improve productivity. So instead of sending someone 
out to look at the field to go look for disease and pests, you 
can send a drone out that identifies those unique challenges, 
and then when you identify that space, you can be more 
effective with pesticide applications, with use of resources. 
And it is a wonderful use case. We should be leading this. And 
the industry is spending hundreds of millions of dollars in 
drones, and agriculture is waiting for this to happen.
    Mr. Abbott. I can comment, Senator, from the investment 
side. This is an area that in particular we have been focused 
in and have made investments and plan to continue additional 
investments in because we do see that we are at a very early 
stage of a massive disruption in a lot of these commercial 
opportunities.
    Senator Booker. My friends at Kleiner have told me 
basically a lot of the innovations now are not happening in the 
United States. A lot of the research and investments are 
happening overseas because of Government policy that is 
restricting that here. Is that correct?
    Mr. Abbott. It is correct that there are countries outside 
the U.S. that are further along on the regulatory side that we 
should try to learn from.
    Mr. Thierer. Senator, I would just add that we need to be 
thinking of the drone opportunity as creating airspaces of 
platform for innovation the same way the Internet created a 
platform for new innovation. And the way we counter the fear 
that you correctly identified that is out there is to counter 
it by talking about the life-enriching and lifesaving 
opportunities of these and other Internet of Things devices.
    Senator Booker. I am now really over on my time. We have 
people that get injured every year, and other countries like 
France are using drones to fix poles, not putting human beings 
in danger, doing it at a fraction of the cost and a fraction of 
the time. Forgive me.
    Mr. Davis. Senator Booker, if I could just add on to that. 
I think you made two really great points around efficient use 
of spectrum. As we think about 50 billion devices, I think that 
is a really key topic.
    The other is around the distinction between consumer 
applications. Drones are a great example. A lot of the 
attention is around consumer applications. But around the 
Internet of Things, we are going to see the economic benefit in 
the commercial and industrial applications. Drones are a great 
example. There are many others.
    Senator Booker. Thank you.
    Senator Moran. Senator, thank you.
    The Senator from Nebraska, Senator Fischer.

                STATEMENT OF HON. DEB FISCHER, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Fischer. Thank you, Senator Moran.
    I loved Senator Booker's enthusiasm on this, and we are 
working on the Internet of Things with Senator Ayotte and 
Senator Schatz and trying to move forward.
    I think I am past the basic question on what is the 
Internet of Things. That is always a good first start here.
    But there are, I believe, huge benefits out there. I would 
like to ask you, Mr. Abbott, what do you see as truly the 
benefits of the Internet of Things? And do you think, as we 
move forward, this space is going to be dominated by 
established companies or is there going to be room for those 
small startups? Where are we on that? And how can we continue 
to be a force for innovation instead of stomping down that 
entrepreneurial spirit?
    Mr. Abbott. Thank you for the question, Senator. And I will 
actually come back also to reiterate some of the comments I 
made to Senator Booker.
    Senator Fischer. Well, his time is done.
    [Laughter.]
    Mr. Abbott. We are particularly excited with the commercial 
applications in the drone space, whether it be mining, 
inspection, precision agriculture, or just pure safety. And 
there are a couple examples there with companies we are working 
with and we are really excited about.
    We tend to believe, certainly, that it is going to be these 
small companies that disrupt the large companies in this space. 
And I think we are seeing this at the early days for some of 
these contractors on the Government side realizing that drones 
can be built by these small companies for much lower costs in 
much more innovative ways, realizing at the same time that we 
do need some guidance on the policy side, which I know the FAA 
is working on.
    Senator Fischer. And, Mr. Thierer, when you were giving 
your opening statement, it reminded me that 9 out of the 10 top 
innovative companies in the world in 2013 are American. Is that 
going to continue? What kind of policies are we going to need 
as we address the Internet of Things? I guess I am really 
concerned about Government getting in the way and getting in 
the way of that innovation, whether it is a large company or a 
small startup. Sure, there are concerns out there, but I do not 
want to see all the excitement that is with the Internet of 
Things move overseas. So what can we do with that?
    Mr. Thierer. Well, absolutely, Senator. And I want to 
commend you on your recent speeches on this issue and your 
leadership on it because you have identified that we got policy 
right when it came to the Internet more broadly, and we now 
need to get it right for the Internet of Things.
    In essence, America found the sort of secret sauce of 
modern innovation. We figured out how to get the right policy 
prerequisites in place starting with essentially a light touch 
vision instead of a plan. Senator Schatz pointed out earlier, 
do we need a plan? I think we need a vision more than we need a 
plan. And the vision we had, led by Congress and the Clinton 
administration in a nonpartisan fashion, was that sort of light 
touch, market-driven approach that addressed harms as they 
developed instead of trying to preemptively anticipate every 
one of those problems like some of our competitors did overseas 
and say we need to preemptively figure out how to solve every 
problem before we allow technology and innovation to go 
forward. Well, there is a reason that the household names in 
Europe on technology are American companies. Meanwhile, it is 
hard to name any European innovators here in the states.
    Senator Fischer. Well, I know I am working with my 
colleagues, Senators Booker and Schatz and Ayotte. Hopefully, 
we are going to present a vision as we work on a resolution 
that we will get before Congress. I think that is very, very 
important that we have that vision and that light touch.
    I would like to just touch on something that, Mr. Brookman, 
you and also Mr. Davis said earlier about security is an 
afterthought and when new products are built, that is when the 
security needs to be designed and put in them.
    We had a hearing earlier about data security, and I have 
deep concerns about cybersecurity in this country. And at that 
hearing, we heard about businesses that may be getting 
pressured by foreign governments to give up their software in 
order to get a bigger market share in another country.
    What do you feel about that? And what do you think should 
be a response by our government by this Congress because of the 
interrelationship that we see with much of the software and 
what we have seen with nation states creating mischief with 
companies?
    Mr. Brookman. Yes. I certainly do not want to see any 
mandated vulnerabilities in encryption technologies, including 
backdoors. Unfortunately, it is something that the U.S. 
Government has asked for, which I think sets a really bad 
precedent for the rest of the world, saying that we need to 
have mandated vulnerabilities into data security. So I think 
the best thing we can do is not doing it ourselves. Therefore, 
we would have some high ground to stand on to say, no, other 
countries should not be doing it either.
    Senator Fischer. But other countries are doing it. So what 
steps do we need to take, or do we need to take anything? How 
would you prohibit this or would you?
    Mr. Brookman. It is a really good question. It is one I 
have not put a lot of thought into. My hope is that companies 
doing business overseas will resist those sorts of requests. It 
is a tough issue for companies that are spread out all over the 
globe. When do you censor speech? When do you take down 
information in response to the right to be forgotten? Companies 
have a really delicate balancing act. I have never heard the 
best answer as far as how do you take inconsistent legal 
obligations when you are spread out all over the globe.
    Mr. Thierer. And I would just add, Senator, that this is 
exactly where our Government needs to be standing side by side 
with companies when they have these problems internationally 
and defending them when they bake in better encryption and 
security by design instead of, as Mr. Brookman suggested, 
undermining them and saying, well, maybe you need to have some 
backdoors for us instead. That is not going to be a consistent 
principal message to take out globally.
    Senator Fischer. Mr. Davis?
    Mr. Davis. Senator Fischer, I think you made a great 
comment in terms of the legacy devices that exist today as 
opposed to security being an afterthought. Really, I think part 
of the challenge today is about 85 percent of the billions of 
devices that exist today that have integrated computing are not 
connected to each other or the Internet. That is an 
opportunity. We can connect to those devices. We can start 
finding data that we did not have before. I gave the 
manufacturing example earlier. The ability to extract data that 
we have had access to in the past is one of the promises of the 
Internet of Things to drive greater efficiency. But we can do 
so in a way that we can connect those securely. There are 
technologies that allow us to even connect those older legacy 
devices, be able to feed that data up into a data center or 
cloud to do the kinds of big data analytics that are going to 
be so valuable in addition to building it in from the beginning 
with a broad end-to-end security technology strategy in mind to 
begin with.
    Senator Fischer. Thank you so much.
    Thank you, Mr. Chairman.
    The Chairman [presiding]. Thank you, Senator Fischer.
    I understand Senator Moran has done a brilliant job of 
presiding. So thank you.
    Next up is Senator Gardner.

                STATEMENT OF HON. CORY GARDNER, 
                   U.S. SENATOR FROM COLORADO

    Senator Gardner. Thank you, Mr. Chairman.
    And thanks to the witnesses for being here today.
    Where else in Congress, I guess, do you discuss super 
cookies, milk, and drones in the same committee hearing?
    [Laughter.]
    Senator Gardner. This has been fascinating to hear, but it 
is exciting to talk about the future of technology and where we 
have been and where we are heading.
    So it was 1997, I believe, when our farm equipment 
dealership sold our first GPS satellite system, advanced 
farming system. And we sold it to a gentleman who was right 
around 65 or 70 years old and it had the PC MCA card, the pin 
card that you put in to download the data. And I think at that 
point there were three data points that we were measuring off 
of the combine. It was probably some kind of a protein count, 
moisture count, and of course your yield. And so those were the 
three things that we did.
    And over the past 20 years, of course, now we have seen 
layer after layer of data, whether it is moisture data, whether 
it is--you know, information that you can plug into your seed 
application, your seed rate, your flow rates on fertilizers and 
things like that. And of course, we have been using phones to 
turn on and off the sprinkler for decades in agriculture. And 
so all a part of prescription farming and how we can do a 
better job of providing food, fiber for the world.
    The same thing we can do in the supply chain with 
manufacturing in industry, whether it is the vehicles or 
furniture. We can do the same kind of approach with the new 
technology.
    But so much of this is tied together with how we are going 
to approach spectrum, getting back to Senator Booker's point, 
and how we are going to approach availability to innovate.
    So keeping in mind the farm model, you have a combine--say 
you have a tractor going through the field with a cultivator. 
You have a sprinkler in the field that has--maybe it has got 
valves on it that are each individually controlled through the 
Internet, WiFi, perhaps from the tractor itself or the farm or 
your phone, wherever you are to apply a different percentage of 
fertilizer as your chemigation system is working. You have a 
drone flying over the field that is taking a picture of it to 
see where you may need a little bit more or less nitrogen. All 
this, I am assuming, is going to be with unlicensed spectrum.
    There was a situation in Congress just over the past year 
where--many of us do not even know it--in our offices there was 
an unlicensed spectrum issue that came up in our offices here 
on Capitol Hill. And it was an unlicensed spectrum issue where 
the FCC had sort of said, yes, go ahead, and then a license 
came in to take this spectrum.
    How are we going to handle the Internet of Things? How are 
we going to handle and approach these issues when you have 
conflicts of more need for spectrum, issues of unlicensed 
spectrum, issues of people coming in and getting licenses for 
an area that may already have a campsite in it, so to speak?
    Mr. Abbott, I do not know. That is a very open-ended 
question. Do we have policies in place, I guess, to address the 
balance--growing the Internet of Things, growing device 
application, growing utilities that we can be more productive 
with without a better definition of how we are going to handle 
unlicensed spectrum issues?
    Mr. Abbott. Thanks for the question, Senator.
    I do think that we do need to provide more licensed 
spectrum for innovation. I think today, while it is not a 
constraint we are seeing in early stage companies, it soon will 
be as more and more of these services and applications get 
deployed in the enterprise and in the consumer space.
    Senator Gardner. Mr. Davis?
    Mr. Davis. Well, we certainly see there is an important 
need for licensed spectrum and unlicensed spectrum. And my 
comments to Senator Booker earlier--you know, what we are 
really looking at is how do we most efficiently use that 
spectrum that is available? Because as we think about 
connecting 50 billion devices, it is really how to most 
efficiently provide that to the different kinds of uses and 
applications.
    Senator Gardner. Mr. Donny, I do not know if you want to 
address that or not.
    Mr. Donny. I think I have addressed it several times. Both 
licensed and unlicensed, as you know, is used in agriculture 
and we need all we can eat really.
    Senator Gardner. Mr. Thierer?
    Mr. Thierer. Yes, we all agree on this one. And I think 
what you and Senator Booker raise is a valid point. I think the 
problem is a political problem of when you have incumbent 
constituencies who already hold or hoard a lot of this 
spectrum, shaking some of that loose, you are going to have to 
create better incentives for them. And we are going to have to 
counter the narrative that only they have sort of lifesaving or 
life-enriching applications. We do too on this side, and we 
need more spectrum for it.
    Senator Gardner. And as Mr. Donny said, though, at the same 
time in rural America, we do have a separate challenge of 
making sure that we have enough mobile broadband to supply cell 
phone signals and everything else. So you do have this kind of 
a challenge particularly in rural areas where you have a 
conflict even within itself that needs to be addressed.
    I guess I have a lot of questions. I would love to just 
have this conversation all day, but at this point, Mr. 
Chairman, I will yield back.
    The Chairman. Thank you, Senator Gardner.
    Senator Moran?

                STATEMENT OF HON. JERRY MORAN, 
                    U.S. SENATOR FROM KANSAS

    Senator Moran. Mr. Chairman, thank you very much.
    Last week, a subcommittee held a hearing on data breach 
security, data security. We talked about breach. We talked 
about the standard of what a breach is. We talked about whether 
there ought to be preemption. In the kind of, I think, data 
breaches that we have been considering, what we are worried 
about is a consumer's personal information is obtained by those 
who should not have it, financial information, Social Security 
number, and how that information can be used to the consumer's 
detriment.
    And certainly here there are security issues. Part of it is 
related, as we have heard, to privacy. But what is different 
about the Internet of Things? What kind of data breach should 
we be worried about? So somebody learns that your milk needs to 
be replaced in the refrigerator, are the data breach security 
consequences--let me say it differently. Is the data breach, 
the consequences of that breach, something different than what 
we normally think about when we talk about data security? And 
if so, what should we be thinking about as we try to solve the 
issue of the breach and the consequences?
    Mr. Abbott. So I do think that it is somewhat relative to 
the domain and the application in regards to the severity of a 
data breach, indeed.
    Senator Moran. What would be the spectrum within the 
Internet of Things?
    Mr. Abbott. So at one end of the spectrum, you have a 
sensor just emitting temperature. On the other end, a sensor in 
the medical world that is emitting some type of physiological 
response that has control. Because there are sensors that are 
just emitting data, and there are sensors that actually can 
control. So we have this spectrum of, we will say, criticality, 
if you will. And so I do not think there is a one-size-fits-all 
data breach definition. And it is the same way that I do not 
think it would be appropriate to have a single policy for 
security across that spectrum.
    And I think it also relates to data sharing. If you look at 
temperature, that might be actually a great sensor to share 
widely, whereas you go to the more personal data, maybe that 
should be shared locally, just that individual, and have a very 
clear ability to opt out if the user does not understand the 
benefit that he or she is getting by sharing that data.
    Senator Moran. Mr. Abbott, let me ask you. I will come 
back, Mr. Brookman. Mr. Abbott, let me ask you in particular. 
When you are looking for investors in companies or you, Mr. 
Donny, when you are finding somebody who wants to invest in a 
company involved in the Internet of Things, do they consider 
their investment risk based upon the potential of security/
privacy breaches? Is that built into the investment?
    Mr. Abbott. It typically is, and I think it is more a 
function of the team that is involved that is actually building 
the company and building that product. So if we look at a 
company like NEST that we are investors in, certainly that was 
a consideration.
    Senator Moran. Is there any private insurance that is 
developing to protect your companies and the investors in those 
companies from the consequences of a breach? Can you become 
insured in a private sector way?
    Mr. Abbott. There may be but I am not aware of them.
    Senator Moran. Mr. Brookman, you wanted to respond earlier.
    Mr. Brookman. Yes. So I know traditionally data breach 
notification has been about financial information, but I think 
we are increasingly recognizing that you can lose other 
personal information as well. Think about the iCloud celebrity 
hack. I mean, we have a personal interest in that. If my 
pictures were hacked, I would want to know about it. The Sony 
case, for example. If my e-mails get hacked, I would want to 
know about it. So we are actually seeing some states pass some 
broader breach notification laws, saying if your online 
accounts get hacked, well, of course, you should tell them 
about it. So I think any Federal standard should consider that 
as well or at the very least not preempt those states from 
passing breach notification laws that extend to new categories 
of data that are not addressed by a relatively narrow financial 
data bill.
    Senator Moran. Mr. Chairman, thank you.
    The Chairman. Thank you, Senator Moran.
    Senator Klobuchar?

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Mr. Chairman. I 
think I have a worse cold than you. So this will not be one of 
these filibustering-by-the-Senator moments. I will let you guys 
answer as long as you want.
    [Laughter.]
    Senator Klobuchar. This is a very important issue, of 
course, the future of connected technologies. This year at the 
consumer electronics show in Las Vegas, companies from around 
the world showed off their newest technologies, 900 of which 
were connected devices. So it is a pretty exciting time but 
also, as we know and have discussed, a time of making sure that 
consumers are protected as well.
    Senator Hoeven and I--maybe you are aware of this--last 
year introduced the Data Privacy Act, and we plan on 
reintroducing it again.
    An event data recorder, as I think many of you know, is a 
device that records about 5 seconds of technical safety data 
when a crash occurs. EDR's can be the only resource available 
to determine the cause of a crash by providing information 
about what a driver was doing in the seconds leading up to the 
crash.
    Starting in September 2014 all new vehicles will have an 
EDR, and NHTSA does not have the authority to determine who 
owns the EDR data, which is why we introduced this Data Privacy 
Act bill. Our bill makes clear that the owner of the vehicle is 
the rightful owner of the data collected by that vehicle's EDR 
and may only be accessed under rare circumstances.
    Mr. Brookman, do you agree that empowering consumers to 
have ownership of their data is important, similar to what we 
have outlined in the Data Privacy Act?
    Mr. Brookman. So I have not looked at that bill in some 
time. So forgive me for not supporting it right now.
    My recollection of it is I think I very much agree with the 
general principles of it. This is my car. I paid a lot of money 
for it. I should have control in most situations of when that 
data is accessed. Obviously, in an accident, there will be a 
process for accessing that information, but fundamentally you 
should not be sending it off in other circumstances without my 
control.
    So I want to look at the bill specifically, but I think 
that I very much agree with the general tenor of your 
statement.
    Senator Klobuchar. OK, very good. Thank you. I just want 
everyone to be aware of that bill.
    One of the concepts that the FTC recommends for business 
dealing with consumer data is to design privacy and security 
into each product. It is oftentimes more difficult to retrofit 
a device with new technology to combat threats or to patch 
privacy controls than it is to design or install it to begin 
with.
    Mr. Davis, if businesses and innovators keep consumer data 
privacy control in mind throughout the development process at 
the get-go, do you believe they will continue to have the 
flexibility needed to innovate while also protecting consumers?
    Mr. Davis. Certainly there is a balance. Thank you for the 
question. Certainly there is a balance between security and 
privacy. Security I think we often think of as the technical 
implementation of the product in such a way that we can provide 
the level of privacy that consumers would expect. And so 
certainly I think as we develop the kinds of products that we 
are developing, with both in mind. So we have a set of 
requirements around both that our developers need to meet. And 
we have part of our organization who is looking at those 
implementations and making sure that our engineers and 
developers are adhering to those requirements.
    And so I think from a higher level, being able to define 
what the end looks like in terms of where we need to get to as 
industries in the objectives that we are trying to accomplish 
is a way to implement these kinds of things into a national IoT 
plan that has long-reaching objectives without limiting the 
short-term innovations that are possible.
    Senator Klobuchar. OK, very good. Thank you.
    One of the issues I have been working on since I got here 
has been cell phone unlocking. You mentioned it, Mr. Bookman, I 
think in your testimony. In fact, it was one of the first bills 
I introduced, The Cell Phone Bill of Rights. As you know, there 
have been changes, and today is the anniversary of carriers' 
voluntary agreement with the FCC to increase transparency for 
their unlocking policies.
    Yesterday I sent a letter to the FCC and the CTIA for an 
update on that agreement.
    Mr. Brookman, you mentioned in your written testimony that 
cell phone unlocking was an example of why policies need to be 
in place in order to ensure there is competition for connected 
devices. Can you expand on that from your written testimony? 
You should also know I am the ranking on the antitrust 
committee in Judiciary, and so we also do a lot of work with 
telecom.
    Mr. Brookman. Yes. I think it is just normal consumer 
expectations where they have a device. They do not necessarily 
expect it to be locked down to certain carriers. If it has the 
technological ability to communicate with other Verizon or 
AT&T, of course, I should have the ability to do that. And 
unfortunately, it should not be incumbent upon the Library of 
Congress to have to pass an exception every 3 years.
    You know, Samsung makes a device. It has the ability to 
connect to whoever it wants to. We should have that right. I 
mentioned the example of coffeemakers trying to lock down what 
coffee you can use. These products really need to be designed, 
you know, as a service to the consumer who is paying money for 
them. I own it. I bought it. It should be trying to act in a 
way that is consistent with my reasonable desires.
    Senator Klobuchar. OK.
    Anyone else want to pitch in on that? OK, thank you very 
much.
    The Chairman. Thank you, Senator Klobuchar. And I know that 
you and I are both hoping that the Internet of Things will lead 
to a cure for the head virus right now.
    Senator Klobuchar. It is a Midwestern problem.
    [Laughter.]
    The Chairman. I have in this order, Senators Manchin, 
Markey, and Cantwell. And I have to step out for just a minute. 
So Senators Manchin, Markey, and Cantwell.

                STATEMENT OF HON. JOE MANCHIN, 
                U.S. SENATOR FROM WEST VIRGINIA

    Senator Manchin. Thank you, Mr. Chairman.
    I had to miss part of this meeting because I had another 
Armed Services meeting. So I am very sorry that I did not get 
the first of it.
    Senator Booker. We know that because we had an Internet of 
Things LoJack on you.
    [Laughter.]
    Senator Booker. We are tracking your movements.
    Senator Manchin. I do not think there is anybody who wants 
to stymie innovation and entrepreneurship. I do not know if 535 
Members of Congress would. And we know that we are all 
connected because you just look out and everybody's head is 
down. They are working on their phones. They are working on the 
iPads and they do not even know we are talking.
    [Laughter.]
    Senator Manchin. So with that being said, we are moving 
forward.
    I have a hard time believing that you are concerned that if 
we do a privacy bill, that you might not have access for the 
latest, greatest innovation in technology. If that would be the 
case, Facebook would have a serious problem because there are 
many millions and millions of people who want to share every 
little aspect of their life. So I do not think you are going to 
have a problem with people sharing with you.
    But I think some of us have a problem if we do not want our 
information shared. Is there a middle ground here?
    I know with the phones, when I was Governor, people would 
just--they wanted privacy. They said I am getting tired of all 
these telemarketers calling me all the time and get these 
unlisted phone numbers so they could block them. And they were 
able to block. It did not stop any innovation and creation. 
Nobody's business got hurt.
    And I will have to be the cynic. How much money do 
companies make off the sharing of information right now? You 
all have seen it. Now come on. It is over $600 billion. So 
being the cynic that we might be at times, I can understand why 
companies do not want any type of a privacy thing because it is 
a big moneymaker. Correct? Anybody want to speak to that?
    Mr. Abbott. Senator, I think one thing to keep in mind too 
is that by sharing that data, oftentimes it improves the 
consumer experience. There are many examples of products that--
--
    Senator Manchin. I am saying if it improves it, do you not 
make it from the product itself? You are making it from selling 
that.
    Mr. Abbott. And the user actually gets a reward for the 
sharing of that information. Let us say as an example if I am 
sharing data from my thermostat back to a cloud service and 
that collectively improves the product for the population of 
those users--they have already purchased the product--that is a 
great experience.
    Senator Manchin. Where does this $600 billion of the 
economy come from? Where does it go? You are selling it and you 
are getting something for that, not just you are giving me more 
efficient service. You are selling that information to somebody 
else. The IoT basically is $600-plus billion growing very 
rapidly. So for those of us who want a little bit of privacy, 
we think you are doing pretty darned good.
    Mr. Thierer. But, Senator, the question of where the value 
is going, a lot of it is going to the consumer in the form of 
cheap or zero prices. I mean, the fact that we do not have to 
spend $20 a month for Facebook or pay for every search we do on 
a search engine, that is value to consumers. That is an 
improvement in our quality of life. And if you ask most 
consumers how much would you pay for these services, the answer 
is usually very little or nothing. They like that cost. Free is 
a good number.
    The question is what would regulation do to alter that 
balance and if it raised prices, would consumers appreciate it 
and understand why it happened. I am not so sure.
    Senator Manchin. You are not opposed to the privacy and us 
being able to block. You all do it, Mr. Donny, do you not?
    Mr. Donny. We believe in the agriculture data that is owned 
by the farmer. That is very clear. Our objective is how do we 
work with the farmer to enable them to use data to make better 
decisions. Sometimes that is a relationship in which we are 
looking at data----
    Senator Manchin. It would be a volunteer relationship.
    Mr. Donny. That is right to help that relationship.
    Senator Manchin. So you believe in the privacy that we 
should have----
    Mr. Donny. I am very straightforward. I think that data 
privacy is important, but it is truly dependent on what data 
you are looking at. In ag, I think that is a very important set 
of information. It derives commodity prices. It could be used 
for regulatory purposes because there is a lot of tail end of 
that data use. And so we want to make sure that the grower owns 
their data.
    Senator Manchin. I can understand where you all are coming 
from because you are afraid we might go too far. I understand. 
And with that being said, we have a hard time understanding 
that you do not believe you have enough information now because 
I am sure there is an awful lot of information that you do have 
because the financials show that. And we are just trying to 
find that balance I believe, and if you could help us do that--
Mr. Davis, I think you want to comment on that.
    Mr. Davis. Senator, I think your point is really important 
in terms of the relevance of security in everything that we are 
talking about with the Internet of Things. As we talk to our 
customers, as we talk to analysts in the industry, the number 
one topic--and it is foundational, the five tenets that we 
described--is security. And so the ability to integrate 
security knowing that a device that is added to my network is a 
device that is supposed to be on the network and the 
information I am getting from it is what I would expect to be 
getting--it is valid information--those are foundational to the 
Internet of Things.
    In terms of privacy, you are absolutely right. We are 
stewards of that information in terms of balancing the value 
that I think has been described from having access to some of 
that data and the importance of protecting it and being 
stewards of that data in terms of the consumer. There is a 
balance and it is something that will continue to evolve 
industry by industry.
    Senator Manchin. Thank you.
    Senator Markey?

               STATEMENT OF HON. EDWARD MARKEY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Markey. I am Chairman again.
    [Laughter.]
    Senator Markey. By unanimous consent, I recognize myself.
    [Laughter.]
    Senator Markey. So cars are a major part of the Internet of 
Things, and every year new cars are more connected than ever 
before. One reason that cars are such an important example of 
connected devices is that they are so dangerous. A small 
vulnerability or error in coding can lead to a catastrophic 
consequence for drivers, passengers, and pedestrians.
    On Monday, I released a report on our connected 
automobiles, the Internet of Things, which describes how new 
cars are really no longer just internal combustion engines. 
They are computers on wheels.
    I ask unanimous consent to submit my report for the record.
    [The information referred to follows:]

  Tracking & Hacking: Security & Privacy Gaps Put American Drivers at 
                                  Risk
A report written by the staff of Senator Edward J. Markey



























    Senator Markey. I asked 20 automakers what they are doing 
to protect these computers on wheels, and what I found is that 
they are not doing enough. Cars today are highly connected. 
Every new car has some wireless technologies built into it. The 
problem is that there are massive holes in how car companies 
are securing these features against hackers. Only two of the 16 
car companies who responded have developed any capability to 
detect and respond to a hacking attack in real time. Thieves no 
longer need a crowbar to break into your car. They just need a 
smart phone. And they can do much worse than open the doors. It 
is possible for wireless hackers to honk the horn, control the 
steering, and even cut the brakes.
    Today's cars are also collecting tremendous amounts of 
personal driving information. Cars know where you are, where 
you have been, how fast or slow you drive, and even the mileage 
since your last oil change. This information can be used to 
help drivers find their destinations, get more miles per 
gallon, and drive more safely. But it can also jeopardize the 
security and privacy of drivers, of families across our country 
because there are currently no rules of the road to protect 
driver privacy and security. There are currently no rules for 
how to protect this data as it is being gathered, and most 
customers do not even know that their information is being 
gathered as they drive and that that information is being sent 
to third parties who the drivers do not even know about.
    And that is why in the coming weeks, I plan to introduce 
legislation that directs the National Highway Traffic Safety 
Administration and the Federal Trade Commission to establish 
Federal standards to secure our cars and protect our drivers' 
privacy. We need the electronic equivalent of seatbelts and 
airbags to keep drivers and their information safe. We have 
stickers on cars for safety. We have stickers on cars for fuel 
economy standards. Well, we need a new set of minimum standards 
to protect driver security and privacy in new vehicles that the 
customer will know that the company built into that car or did 
not build in. If they want a zero on the sticker, they can have 
a zero. They can say it is too expensive. They can use the same 
argument the auto industry used in this committee opposing 
seatbelts and airbags, saying it is too expensive for the auto 
industry. They can make that argument, but there will be a zero 
on the dashboard so that people can see it.
    These security performance standards should include a 
requirement that all wireless access points in the car are 
protected against hacking attacks, evaluated using penetration 
testing, requirements that all collected information is 
appropriately secured and encrypted to prevent unwanted access, 
and a requirement that the manufacturers or third party feature 
provider be able to detect, report, and respond to real-time 
hacking events.
    And the privacy standards should include transparency 
requirements so drivers are made explicitly aware of data 
collection, transmission, and use of driving information; 
consumer control over that data; and a prohibition on the use 
of the personal driving information for advertising or 
marketing purposes unless you get permission from the driver.
    New cars will also be evaluated by a rating system, a cyber 
dashboard that informs customers about how well the vehicle 
protects drivers beyond those minimum standards. This 
information will be displayed on the label of all new vehicles 
just as fuel economy is today.
    Mr. Brookman, do you believe that every car should be 
protected against hackers who can remotely access and take 
control of your car?
    Mr. Brookman. Yes.
    Senator Markey. If a car does get hacked, Mr. Brookman, do 
you think it would be good for there to be a system to detect 
and alert the automaker or authorities that something is 
happening?
    Mr. Brookman. I do.
    Senator Markey. Do you believe customers should be made 
aware of the personal information their car is collecting about 
them?
    Mr. Brookman. Absolutely.
    Senator Markey. Do you think that drivers should be given 
control over their personal information and be allowed to 
choose whether the data is collected about them or sold to 
third parties?
    Mr. Brookman. In most cases, yes.
    Senator Markey. Do you believe that car companies should be 
allowed to sell an owner-sensitive driving history to insurance 
companies, data brokers, or anyone else?
    Mr. Brookman. The consumers could obviously consent to 
that, as they do today, but absent user control, no.
    Senator Markey. Thank you.
    So that is the point. A software that can be built in that 
makes all these wonderful things possible by companies should 
have the same geniuses in those companies with the capability 
to build in a protection for security and privacy. All of a 
sudden, they cannot figure out how to do that? All of a sudden, 
they cannot figure out how to protect the consumer, their 
privacy, their security? No. If you can figure out an algorithm 
that sends information around the world in a blink of an eye, 
you should be able to figure out an algorithm that also 
provides consumers with the privacy and security which they 
need as they are driving their vehicles.
    I thank you, and I yield back the balance of my time.
    Senator Cantwell. I am not sure there is any balance left. 
But thank you.
    [Laughter.]
    Senator Markey. I am talking to the ether here.
    Senator Klobuchar. That was a very generous offer.
    [Laughter.]
    Senator Markey. Thank you.

               STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Cantwell. Thank you.
    Well, gentlemen, I want to maybe come with a little bit 
broader perspective. And I apologize too. We were in a Finance 
markup.
    One, I want to hear about some of the applications that you 
think might actually financially benefit consumers in the 
future. I mean, obviously, one of the issues here is, you know, 
you go to the grocery store, the soup deli, and you get a 
little punch. You buy so many soups or so many coffees. You get 
a reward. So what is the reward going to be here? What are the 
applications for loyalty or sharing non-personal data that 
might benefit consumers?
    Second, we are talking about applications for privacy today 
on these devices just as we did for banking and health care and 
other applications 15-20 years ago. So are we going to continue 
to go by device, by sector on privacy laws, or do you think we 
will get to a point where we need a brighter Larry Lessig kind 
of privacy right issue? Do you see that happening?
    And third, if you could comment on the importance of net 
neutrality and the open Internet for keeping the application 
and device economy going? Mr. Abbott?
    Mr. Abbott. Sure. I will begin. Thank you, Senator.
    So on your first topic, in terms of an example, I think one 
clear benefit in one scenario is around thermostats and energy 
conservation in the home, saving both cost to the consumer in 
terms of the money spent on heating his or her home. And 
oftentimes there are examples where the tuning of that 
algorithm for heating your home on and off when you are away is 
actually built from a population of users. So you are looking 
at personalization but driven off a population that is de-
identified. It is really, really important.
    Senator Cantwell. I think now because so many people look 
at what is happening now in the identifiers or, like you were 
talking about, precision agriculture and the data that has been 
mined by the big companies, what individual consumers want to 
know--I am a big hiker. I want to know, OK, I will tell 
everybody I am a big hiker, but then I want you, if you are 
going to be sending me these ads, whether it is REI or someone 
else--I want a discount because I told you that. Because what 
is happening now is everybody is figuring that out by somebody 
else's mechanism and making benefit off of that. But I am 
saying I am willing to share some of that, but I want to know 
what my discount is going to be as part of that process and if 
there are applications out there that are like that.
    So I get the energy thing, and it is very, very important. 
But I guess I am thinking a more up-front dialogue with the 
consumer about this data.
    Mr. Abbott. I think, Senator, we talked a couple times 
before around the transparency need in this environment, and I 
think that is particularly important because people immediately 
oftentimes, when they think of data sharing, they are thinking 
immediately of advertising. And in those cases, at least my 
view is that user should be able to opt out based on a very 
clear communication of how that data is being used.
    In the same case, that user may opt out of sharing that 
data around their thermostat in their home as well, but I would 
imagine a lot of consumers, if they understand the benefit of 
sharing, let us say, that data for their usage, we tend to 
believe that that actually will be collectively in the best 
interest of the consumer.
    On the second question you had, in terms of sectors, we 
certainly see that there is going to be likely policies around 
privacy that vary by the use case. So certainly very different 
in medical with, let us say, HIPAA compliance versus, let us 
say, the Internet of Things of watering a lawn and actually 
addressing, let us say, outdoor landscape issues.
    Mr. Davis. Thank you, Senator. I think a great set of 
questions.
    We have seen so many examples over the past 12 to 18 months 
of companies delivering either significant economic value or 
new products and services as a result of the Internet of 
Things. You know, you are asking for examples that are close to 
consumers. You see companies that are taking smart city 
information, so traffic information, air quality information, 
and combining it with the availability of open parking spaces. 
And those cities then are starting to look at ways in which 
they can alter traffic flows during certain times of the day, 
making that information available to us as consumers to say I 
am not going to circle the block three times to find a parking 
space. I am going to go where I know no one is currently 
available. So I think there are a number of instances we are 
already starting to see that will see benefit in addition to 
productivity and greater efficiency in how the infrastructure 
around this operates.
    I would agree with Mr. Abbott. I think from a privacy 
perspective, we are going to see differences by market sector. 
There may be some areas again around city infrastructure where 
we as consumers want to be able to have rich access to data, 
and as that innovation evolves, it will offer new products and 
services contrasted against health care or financial services 
kinds of industry.
    And then on your last point, I think we have seen the cost 
of connectivity come down about 40X in the past 10 years, and 
that is even without considering some of the new technologies 
that are moving into the network infrastructure today that I 
think will dramatically transform it over the next 10 years. 
That availability of connectivity cost effectively is an 
essential tenet to the Internet of Things.
    Senator Cantwell. Thank you.
    The Chairman. Thank you, Senator Cantwell.
    Senator Blumenthal?

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thank you, Mr. Chairman, and thank you 
for having this hearing on this profoundly important topic.
    I have been in and out, and I apologize. I have not heard 
all the testimony.
    But I am very interested in the security issues, some of 
them raised by Senator Markey so far as automobiles are 
concerned, and I feel those same potential security threats 
exist with regard to a wide variety of devices and appliances 
that Americans use every day. And we have heard a lot about the 
coming wave of connected devices. The FTC report estimates that 
there will be 25 billion connected devices by the end of the 
year and 50 billion by the end of 2020. And each of them 
presents a potential attack surface for hackers and thieves. 
Essentially as every one of us brings a new device into our 
home, we create a vulnerability to those hackers and thieves to 
use portals that cyber criminals can attempt to access for very 
sensitive and confidential information.
    So let me begin by asking Mr. Brookman, right now, the 
majority of devices have no encryption. 70 percent of these 
devices have no encryption on communications. The average is, I 
think, 60 percent have insecure Web interfaces and 60 percent 
have insecure software. What is the answer?
    Senator Markey very eloquently indicated that if we can do 
the algorithms that send messages around the world, we can have 
algorithms that protect us. And it is not just automobiles but 
every one of these devices. Is encryption the answer? What 
would you advise? And I will open the same question to the 
others.
    Mr. Brookman. It is a really important question. It is a 
hard question.
    I think what Congress can do is I think they can pass an 
affirmative data security requirement law. Already the Federal 
Trade Commission thinks they can enforce reasonable security 
requirements on companies under section 5. That authority is 
being attacked in court by a few companies. I know Wyndham 
Hotels is challenging the FTC. FTC says the unfairness law 
requires you to use reasonable security. Wyndham Hotels says 
no. It actually does not. So having that written down in law I 
think would be useful.
    I think having a process requirement for companies that 
collect this sort of information should have to think about in 
advance. I think institutions and people in general are really 
bad at considering the very small chance of a very bad thing 
happening. So having a process in place to think about that I 
think would be really good because right now security is often 
thought of as a cost. I am not going to get any profit from it. 
But when it goes bad, it goes really bad.
    I also think we probably need better breach notification 
laws. You know, 47 states have it covering financial 
information. I think we should expand those laws to include 
online accounts like things that were compromised in the iCloud 
incident, in the Sony incident. This is personal information 
that people care a lot about. Internet of Things devices reveal 
really sensitive stuff about us, and if my Smart TV there has a 
camera and the microphone and my Samsung account gets 
compromised, I want to know about it. Because there are 
websites you can go to now where you can find thousands and 
thousands, like 100,000 different webcams you can find online. 
Just watch the live feed. Right? And I think if a company knows 
they get compromised, they have an obligation to tell you about 
it.
    Senator Blumenthal. And notification is kind of a basic 
minimum common denominator of what all of us should favor. If 
somebody knows about a breach, there ought to be notification 
to the person who is threatened by it.
    Mr. Brookman. Absolutely, but I think that level of 
notification, like if your e-mail account gets breached, is 
only required--I think notification is only required in two 
states today, Florida and California.
    Senator Blumenthal. And imposing the costs of a breach on 
the one responsible, the one who can do something about it, 
also seems pretty basic.
    Mr. Brookman. Yes, absolutely. I think that has been an 
incredibly important thing for credit card fraud. It is not the 
consumers who bear the cost of that. It is actually split 
between the merchants and the banks. And I think because of 
that, they have really strong incentives to get security right.
    Senator Blumenthal. Any of the other members of the panel?
    Mr. Thierer. Senator, briefly on the concerns you have 
raised about security and those raised by Senator Markey as 
well. Let us keep in mind a couple of general things.
    First and foremost, no consumer is going to want to buy or 
use a device, especially a car, that is fundamentally insecure.
    Second of all, if firms do sell these sorts of devices that 
are fundamentally insecure to the public, class action lawsuits 
will fly and State AG's will be very active, as you know.
    Senator Blumenthal. We are going to have to have a law on 
which to sue.
    Mr. Thierer. There are consumer protection laws already on 
these things, and of course, there are other general torts----
    Senator Blumenthal. And that goes back to Mr. Brookman's 
point about establishing some legal standard that provides a 
cause of action.
    Mr. Thierer. But firms are already being sued under 
existing causes of action, and firms understand that they are 
never going to make any money if they sell devices that are 
fundamentally insecure and do not protect----
    Senator Blumenthal. If consumers know, number one, and 
number two, if they can make informed decisions among products 
that actually offer this kind of protection. The fact that 
protection is offered as one of the features of a device or 
automobile or appliance may not be decisive for a consumer who 
is looking at a bunch of other features and colors and 
attractions that may be part of the vehicle.
    Any other members of the panel?
    [No response.]
    Senator Blumenthal. Thank you.
    The Chairman. Thank you, Senator Blumenthal.
    I think we are ready to wrap it up. I have got a couple of 
letters I would like to put in the record, one from the 
Consumer Electronics Association, the other from the 
Telecommunications Industry Association and their report on 
this subject, the Internet of Things.
    [The information referred to follows:]

                           Consumer Electronics Association
                                   Arlington, VA, February 10, 2015

Chairman John Thune and Ranking Member Bill Nelson,
U.S. Senate Committee on Commerce, Science, and Transportation
Washington, DC.

Dear Chairman Thune and Ranking Member Nelson:

    On behalf of the Consumer Electronics Association (CEA) please 
accept our views on the role of government and industry in the next 
shift in innovation, the Internet of a Things (IoT).
    CEA is the trade association representing the $223 billion U.S. 
consumer technology industry. Every day, our more than 2,000 member 
companies are busy innovating; introducing extraordinary products and 
services and creating American jobs. At CEA, we work to advance 
government policies that encourage innovation and job and business 
creation.
    CEA members are driving the growth of the IoT. Over 900 exhibitors 
displayed IoT devices at the 2015 International CES. The convergence of 
connected devices, cloud computing services, and powerful data 
analytics will help drive near to mid-term economic growth.
    While businesses have been using connected devices, the IoT is new 
to the consumer market. Consumers are realizing its benefits, and our 
interactions with these devices will become so routine that they will 
go almost unnoticed. The IoT has profound potential to improve the 
lives of our citizens. Within a few years, Americans will be able to 
connect with their doctors remotely, share their health data and 
information and better manage their diseases. Home automation systems 
will enable consumers to manage their security systems, turn on 
appliances, and maximize their home's energy efficiency, all from a 
smart phone. Connected cars will eventually avoid collisions, but 
before then will notify first responders of an accident immediately, 
saving time and lives.
    As this transition takes place, manufacturers and service providers 
will be focused on making good decisions about the privacy and security 
of information that devices collect and share. It is not only important 
to their customers; it is vital for them as well, because consumer 
adoption hinges on building trust. Devices that do not meet consumer 
privacy and security expectations will fail.
    Along with the new capabilities that emerging technologies create 
also come questions about how to best protect users and promote 
consumer practices. CEA and others are exploring these issues and how 
best to ensure consumer privacy and security while enabling new 
technologies to develop. We believe that industry-driven solutions are 
the best way to promote innovation while protecting consumers.
    We are just beginning to understand the benefits and challenges of 
the IoT. In this dynamic and rapidly changing environment, governments 
should exercise regulatory restraint. Overly prescriptive mandates or 
technologically biased standards will stymie growth and become 
outdated. If governments must act, such actions should be narrowly 
tailored to address tangible harms without creating roadblocks for 
future innovation.
    Please recognize that the evolution of things comprise only part of 
the value of the entire IoT ecosystem. Analytics software extracts 
value and finds useful patterns in data collected by IoT devices. Data 
analytics are a vital tool in understanding consumers' needs and uses 
for products and allow companies to both improve current products and 
create new ones that meet consumers' needs and desires. The Internet 
runs on data. Restrictions on data collection may hurt new services 
which provide personal and societal benefits. We ask policymakers to 
tread carefully as they explore the potential and growth of the IoT.
    The connected world of tomorrow will improve people's lives. CEA is 
proud to represent the companies whose products and services largely 
comprise the Internet of Things, and we look forward to working with 
the Committee to ensure the government supports growth and innovation 
through thoughtful policies.
            Sincerely,
                                              Gary Shapiro,
                                                 President and CEO.

CC: Members of the U.S. Senate Committee on Commerce,
    Science, and Transportation
                                 ______
                                 
                    Telecommunications Industry Association
                                   Arlington, VA, February 11, 2015

Hon. John Thune,
Chairman,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.

Hon. Bill Nelson,
Ranking Member
Committee on Commerce, Science, and Transportation
United States Senate
Washington, DC.

Dear Chairman Thune and Ranking Member Nelson:

    The Telecommunications Industry Association (TIA), the leading 
trade association for global manufacturers, vendors, and suppliers of 
information and communications technology (ICT), writes to communicate 
our support for your holding of a hearing this week to examine how 
devices will be made smarter and more dynamic through Internet 
technologies, and related policy implications. TIA and its member 
companies believes that this increasingly connected world--commonly 
referred to as an ``Internet of Things'' (IoT)--holds immense promise 
for investment and innovation that will translate to wide societal 
benefit and improvements in countless aspects of American consumers' 
everyday lives.
    At its most basic, the IoT is a label for an increasingly connected 
future in which regular, everyday items--from household appliances to 
cars to medical devices--are outfitted with sensors and connected to 
the Internet to share their data. Viewed more broadly, the Internet of 
Things will give rise to an entire ecosystem for interconnected 
devices, objects, systems, and data all working together. In this new 
world, most communications will be machine-to-machine (M2M), and there 
will be a continuous exchange of information between devices, sensors, 
computers, and networks.
    While the potential for benefits in an IoT world are widely 
recognized, there are a number of horizontal policy issues that impact 
the IoT across markets and use cases, such as interoperability, 
privacy, security, and spectrum availability, among others. With these 
common threads running across IoT applications and use cases, a 
significant danger exists that vertical regulations imposed in one 
market will be inappropriate for another, which could lead to a 
balkanized regulatory approach, stifling innovation and delaying or 
degrading the economic and social potential of the IoT. To avoid this 
scenario, IoT policy discussions should begin with a common horizontal 
framework whenever possible, followed by tailoring for specific 
vertical applications only as necessary.
    TIA has developed Realizing the Potential of the Internet of 
Things: Recommendations to Policy Makers, a white paper offering a 
general framework for these IoT policy discussions, which is appended 
to this letter. The recommendations in this white paper are applicable 
across market sectors, and will help ensure that the full economic, 
societal, and technological potential of the Internet of Things is 
ultimately realized. In your February 11, 2015, hearing, we urge you 
and other members of the Senate Committee on Commerce, Science, and 
Transportation to consider the industry consensus recommendations in 
this white paper, which include:

   Ensure Competitive-and Technology-Neutrality: The IoT will 
        be driven by the convergence of exponentially-increasing 
        availability of connected devices in both the public and 
        private spheres, across markets. The ICT industry is continuing 
        to work towards realizing this continuum of connectivity, and 
        we urge policymakers to ensure a competitive-and technology-
        neutral approach is taken to any activity that may impact the 
        deployment of the IoT.

   The Role of Global, Open, Voluntary, and Consensus-Based 
        Standards: We urge for recognition of the importance of the use 
        of global voluntary, open, and consensus-based standards in the 
        IoT which will drive interoperability. These standards are 
        under development in a number of fora, including TIA, with 
        adoption being mainly driven through competition. Reliance on 
        these standardization efforts ensures that scientific expertise 
        from implementers in the private and public sectors is 
        reflected in approaches to the IoT. TIA further strongly 
        encourages recognition of the global consensus that ``open'' 
        standards are market-driven and allow for the inclusion of 
        patented technologies, which are addressed through the use of 
        fair, reasonable, and non-discriminatory patent policies.

   A Spectrum Policy that Enables the IoT: For the IoT to 
        succeed, the United States must employ a spectrum policy that 
        enables the wide range of products and services falling under 
        this concept. Such a spectrum policy prioritizes 
        predictability, flexibility, efficiency, and priority for 
        superior rights from harmful interference. Reallocation and 
        sharing efforts in the United States are crucial to the IoT's 
        success, and will also serve as a helpful use case for 
        regulators around the globe.

   Utilize a Voluntary, Flexible, and Collaborative Approach to 
        Data Security Based on International Standards: When addressing 
        data security and resilience, TIA urges for policymakers to 
        ensure respect for competitive differentiation as a primary 
        driver of enhanced security solutions, rely on international 
        standards and best practices, fully leverage the public-private 
        partnership model, and to prioritize end-user awareness and 
        education.

   Ensure Feasibility and Flexibility in Addressing Data 
        Privacy: The ICT industry prioritizes data privacy, and 
        policymakers should ensure that their activities are 
        technically feasible and do not impose barriers that would 
        discourage the use of existing and developing voluntary 
        solutions that typically emerge from standardization and best 
        practice development fora, as well as public-private 
        partnerships. Further, government should partner with the 
        industry on efforts to ensure informed uses of products and 
        services by consumers.

    Thank you for your work to realize the potential of the IoT, and 
TIA looks forward to working with you moving forward. For more 
information, please contact Danielle Coffey at (703)-907-7734 or by e-
mail at [email protected].
            Sincerely,
                                             Scott Belcher,
                                                         President,
                               Telecommunications Industry Association.

Attached: TIA's Realizing the Potential of the Internet of Things: 
Recommendations to Policy Makers
                               Attachment

           Realizing the Potential of the Internet of Things

Recommendations to Policy Makers
    The Internet of Things (IoT)--the term that has come to represent 
an envisioned ecosystem of interconnected objects, people, systems, and 
information assets working in concert with intelligent services to 
allow them to process information of the physical and the virtual world 
and react--represents an enormous market segment for information and 
communications technology (ICT) manufacturers, vendors, and suppliers 
that promises great societal benefit. Across segments impacted by the 
IoT, policymakers are becoming increasingly interested in the impact of 
the IoT as laws and regulations attempt to keep pace with innovation. 
Below, the Telecommunications Industry Association (TIA) provides an 
overview of the IoT's potential benefits and key recommendations for 
policymakers that the ICT industry believes will ensure the realization 
of the full benefits of the IoT.
The Potential for the Internet of Things
    The ``Internet of Things'' is a broad label for the idea of an 
increasingly connected future where regular, everyday items will be 
fitted with sensors and the ability to connect to networks and transmit 
data. Machine-to-machine (M2M) communications is a networking term that 
describes the technology that enables devices to communicate with each 
other. M2M is the key to the IoT because it encompasses the 
technologies that are necessary to enable a successful IoT environment. 
In the new M2M-driven world, there will be a continuous exchange of 
information between sensors attached to connected, everyday items or 
infrastructure, computers, and the networks. For the future, to work as 
envisioned, the IoT must be designed to handle the transmission, 
receipt, and processing of exponential amounts of data.


    The penetration of Internet adoption, faster mobile connections, 
and the availability of advanced computing capability in the form of 
cheaper, smaller devices with significant processing power has 
facilitated the growth of the IoT. The key element driving this market 
is the ability to install inexpensive sensors in machines and devices 
due to advances in sensor technology that have dramatically reduced the 
cost, and may rely on geo-location technology, RFID, and many other 
technologies. The increased availability of low-cost sensors will 
expand the potential market for M2M, as cost issues in installing 
sensors in devices are not expected to be significant. These sensors 
collect real-time data and transmit it via the Internet or wireless 
networks to computers, other machines, or to people. At the receiving 
end, application software converts data to useful information. This 
ability to collect and analyze significant amounts of data is the 
aspect of the IoT that will be truly transformative. With low-cost 
sensors allowing virtually any device to become M2M-capable, this new 
data-centric information, consumers and businesses can make decisions 
that are more efficient, allowing them to maximize time and cost.
    In 2012, an estimated 8.7 billion things were connected worldwide 
and projections show that with the new technological capabilities this 
could grow to 50 billion by tehe year 2020,\1\ generating global 
revenues $8.9 trillion by 2020.\2\ TIA projects the IoT will provide 
significant impacts across service sectors, representing an emerging 
market that is both unique and enormous. IoT will have a transformative 
impact in a host of market sectors such as healthcare, transportation, 
and energy, manufacturing, defense, and emergency services, such as:
---------------------------------------------------------------------------
    \1\ http://share.cisco.com/internet-of-things.html.
    \2\ http://www.idc.com/getdoc.jsp?containerId=prUS24366813.
---------------------------------------------------------------------------
Recommendation: Policymakers' Approach to the Internet of Things Should 
        Adhere to Competitive-and Technology-Neutrality Principles
    As ICT manufacturers and vendors work to meet the needs of their 
customers, competition will ultimately determine which products and 
services succeed and fail in the market thereby fueling further 
innovation. As businesses increasingly make investments in the IoT, an 
utmost concern for policymakers should be to take a competitive-and 
technology-neutral approach that respects the need for specific sectors 
to utilize creative solutions, and for innovators to address the needs 
of market segments. Policy makers should be wary of taking any action 
that locks the market to a limited set of solutions when new 
innovations are constantly being rolled out, some of which cannot be 
predicted. No industry illustrates the need for flexibility and 
technology neutrality more than the dynamic ICT industry.
    Policymakers should also avoid any situation that would put a 
government actor in a position to determine the future design and 
development of technology. To do otherwise would set a precedent of 
interference with the core innovation engine of the ICT sector, 
negatively impacting the interoperability and standards that are needed 
for IoT proliferation. Should a well-developed public policy case based 
on the consensus of stakeholders find that regulatory action by is 
needed, we strongly encourage policymakers to promote the competitive 
dynamic by adopting regulations that are outcome-based, allowing 
innovation to thrive while still achieving the regulatory requirement.
Recommendation: Policymakers Should Encourage and Leverage Voluntary, 
        Open, and Consensus-Based Standards
    A major driver of the IoT will be the development of open, 
voluntary, and consensus-based standards. Ongoing and future 
standardization efforts that enable the success of the IoT will cut 
across market segments, and will range from overarching guidelines to 
specific technical criteria, ensuring increasing interoperability as 
well as backwards-compatibility. Importantly, these standards are able 
to dynamically adapt to needed changes based on the expertise across 
stakeholders. These standards also reduce costs because manufacturers 
and software developers can produce for multiple applications and 
multiple end uses allowing for the benefits of economies of scale. TIA 
expects the development of IoT to be driven by a global--not regional--
approach that is based on the development of open, voluntary, and 
consensus-driven standards.
    Numerous existing standardization efforts, as well as future 
efforts, to address industry-consensus needs, will define and 
contribute to the development of an interoperable IoT. TIA broadly 
supports the ``multiple paths'' approach to the development of 
international standards whereby healthy competition amongst the 
different efforts will result in market-driven solutions that provide 
customers with the best options. TIA houses such standardization 
efforts, such as its Engineering Committee TR-50 M2M (Smart Device 
Communications).\3\ Another example of such standardization activities 
include oneM2M, an international partnership that is working to develop 
technical specifications which address the need for a common M2M 
Service Layer that can be readily embedded within various hardware and 
software, among many others.
---------------------------------------------------------------------------
    \3\ Engineering Committee TR-50 M2M (Smart Device Communications) 
is responsible for the development and maintenance of access agnostic 
interface standards for the monitoring and bi-directional communication 
of events and information between machine-to-machine (M2M) systems and 
smart devices, applications or networks. These standards development 
efforts pertain to but are not limited to the functional areas as 
noted: Reference Architecture, Informational Models and Standard 
Objects, Protocol Aspects, Software Aspects, Conformance and Testing, 
and Security.
---------------------------------------------------------------------------
    Standardization is a form of economic self-regulation that can 
relieve the government of the responsibility for developing detailed 
technical specifications while ensuring that voluntary, consensus 
standards serve the public interest, saving resources that can be used 
to serve the public interest in other ways. TIA urges policymakers to 
defer to these standards as they are developed and come to define the 
IoT. By taking this approach, policymakers can use these standards as 
valuable sources of scientific and technical information developed with 
the assistance of private sector experts, allowing for agencies to use 
standards as a resource for advanced technical information without 
first-hand independent knowledge of research in the area.
    Policymakers should avoid any approaches that would redefine ``open 
standards'' in a way that equates patented technology with ``free'' (as 
in without payment) or ``free to use freely'' (as in without payment 
and without any restrictions). These kinds of redefinitions would 
undermine the rights of those who have invested in the development of 
standardized technologies that enable the functioning of countless 
sectors of the economy. Technological capabilities and innovations most 
often result from substantial investments in research and development 
thus, if patent holders in standards-setting activities are expected to 
give away or waive their patent rights there are likely to be 
significant adverse results, including that technology leaders will 
reduce or cease participation in voluntary standards-related 
activities; or that individuals and organizations will not invest in 
the development of next-generation technology in the technical areas 
subject to standardization, creating innovation ``dead zones'' in those 
areas.
Recommendation: Policymakers Should Employ Regulatory Approval 
        Approaches That Are Globally Harmonized, Transparent, and 
        Streamlined
    The ICT industry is one of the most far-reaching and competitive 
global ICT segments of the global economy. Across jurisdictions, the 
varying requirements that a ICT and presents unique challenges to 
ensuring governments, consumers, and other stakeholders in a diverse 
marketplace have the ability to readily determine whether a device has 
been properly certified, and to obtain additional information about a 
device as efficiently as possible. With the drastic increase in the 
amount of connected things in the IoT, it will be very important for 
policymakers to work to ensure that regulatory approval processes are 
transparent and efficient. We urge policymakers to methodically examine 
their regulatory device approval mechanisms to ensure that these 
systems are as globally-harmonized, predictable, transparent, and 
reliable as possible. This will promote the ``build once, sell 
anywhere'' principle which drastically reduces regulatory costs, time-
to-market, and cost to end users throughout the business and consumer 
markets.
    For example, policymakers are strongly urged to consider permitting 
the use of Supplier Declarations of Conformity (SDoCs) for trusted 
classes of products as an alternative means by which an ICT 
manufacturer may demonstrate compliance with regulatory rules to 
streamline the process ICT manufacturers must go through to get 
products to market. The benefits of such an allowance include 
flexibility and objective treatment for manufacturers in where to have 
their products tested, high compliance levels, and lower administrative 
costs. The appropriate allowance of SDoCs would also lend to the mutual 
recognition agreements (MRAs) among trading partners and widespread 
recognition of another country's conformity assessments, further 
reducing associated costs. Based on a long-standing record of 
compliance, many technologies have proven to hold very low risk exists 
for violating the technical rules primarily because they are built to 
meet consensus technical standards, allowing the policymakers to be 
assured that they can take this step to allow for more rapid 
availability of products into the marketplace at reduced cost to 
stakeholders, including consumers.
    As a further example, the use of physical markings or labels have 
played a key role in providing this important information, but the 
continuous evolution of industrial design and multiple regulatory 
environments has led to increased costs and difficulty in ensuring all 
relevant markings or labels are affixed in an efficient and convenient 
manner for the user of the device. An effective solution to this 
problem is the non-exclusive use of electronic labeling, which allows 
consumers and other users access to easily readable and prominently 
displayed information about each device. This information should 
include required regulatory markings and other important information 
including proper device care, electronic recycling programs, and 
warranties. Already, through close work with TIA, several key 
jurisdictions have allowed this approach.
Recommendation: Utilize a Spectrum Policy that Maximizes a Continuity 
        of Connectivity
    The IoT will rely significantly upon maximizing continuity of 
connectivity. With the world rapidly becoming wireless, establishing an 
appropriate spectrum policy is therefore essential to ensure that the 
IoT will be successful. In commercial communications networks, mobile 
data use is exploding as consumers embrace smartphones, tablets and 
other devices. Wireless connectivity is becoming the way in which 
consumers access the Internet from technologies such as LTE, Wi-Fi and 
satellite. Governments worldwide also have a significant dependency on 
spectrum for both communications and non-communications purposes.
    Meanwhile, radio technologies themselves are changing, placing new 
demands on spectrum allocations, and raising new operational and 
regulatory challenges. At the moment, there are several new or emerging 
technologies which are competing in the marketplace to serve the 
Internet of Things. These include Near Field Communication (``NFC''), a 
standards-based short-range wireless technology widely linked with 
mobile payments. More recently, Bluetooth Low Energy (``Bluetooth LE'' 
or ``BLE'') has been built specifically to consume small amounts of 
energy; it is also viewed as a good candidate for small data packets 
sent from wearable computing such as smart watches and fitness 
trackers. Traditional Wi-Fi is also expected to play a key role due to 
its low cost and ubiquity in the marketplace. Indeed, the future 
Internet of Things will likely be based on heterogeneous networks 
whereby devices can sequentially or simultaneously use different 
network technologies.
    As a result of these dynamic changes, spectrum allocations and uses 
that may have sufficed during the 20th century are increasingly under 
stress. Unfortunately, policymakers are no longer writing spectrum 
policy on a blank sheet of paper, and virtually all spectrum suitable 
for mobile service has been allocated. For that reason, TIA believes 
that any spectrum policy must reflect the following principles to allow 
the use of radio spectrum to evolve to meet changing demand and promote 
innovation:

   Predictability. Spectrum allocations need to be predictable. 
        Identifying demand and changes in demand, understanding the 
        pace of radio technology development by platform, and long term 
        planning are all essential parts of a spectrum policy that can 
        provide predictability for both commercial and government 
        users.

   Flexibility. For commercial allocations, flexible use 
        policies consistent with baseline technical rules that are 
        technology-neutral have proven to be the best approach. Any 
        government allocations of spectrum should be managed to ensure 
        better usage of scarce spectrum resources for all users.

   Efficiency. Policies should encourage more efficient use of 
        spectrum where technically and economically feasible. In 
        particular, policies should prioritize global harmonization and 
        coordination or spectrum allocations;\4\ protection from 
        harmful interference for licensed uses; adjacency to similar 
        services; and allocations of wide, contiguous blocks of 
        spectrum. Cleared, exclusively licensed spectrum allows for the 
        most efficient and dependable use of spectrum for commercial 
        mobile broadband deployment.
---------------------------------------------------------------------------
    \4\ Globally harmonized spectrum is essential to ensure the 
economies of scale that will facilitate the large-scale deployments 
necessary to fully utilize the promise of new technologies. Global 
harmonization also facilitates roaming, which is an important part of 
creating the ``continuity of connectivity'' required for the Internet 
of Things.

   Priority. In cases where spectrum sharing is technically and 
        economically possible, policies must advance good engineering 
        practice to best support an environment that protects those 
---------------------------------------------------------------------------
        with superior spectrum rights from harmful interference.

    Furthermore, spectrum sharing represents a means for increasing the 
efficient use of spectrum and to help alleviate challenges in spectrum 
scarcity, and could eventually prove critical towards enabling the 
continuity of connectivity that is so critical for the Internet of 
Things. In addition to ongoing efforts underway to realize successful 
sharing regimes, other promising efforts include the deployment of 
Authorized Shared Access (ASA)/Licensed Shared Access (LSA) approaches, 
a ``third way'' spectrum management system that combines elements of 
traditional ``command and control'' spectrum management with 
geolocation technology, e.g., by providing users with a ``token'' to 
use spectrum at certain times/places. ASA/LSA approaches show great 
promise as they provide a means to ensure ongoing viability of 
incumbent uses by creating a policy environment that enables compatible 
operations with new uses while also providing secondary users a means 
to gain access to spectrum that is already licensed to one or more 
primary users, but may be under-utilized or capable of supporting 
multiple uses.
    IEEE P2413--group recently formed, designed to aggregate technical 
standards from various other IEEE efforts.
    IEEE 802.3 working group (Ethernet)--two efforts to look at reduced 
twisted pair. High data rate, includes power for applications where 
batteries are difficult, lower cost vs. older 4-pair technologies 
(e.g., Cat 5 cabling). This would be useful for industrial 
applications, deploying lots of parking space sensors, etc.--a smarter 
replacement for low-voltage wiring. There are two efforts underway--one 
using 100MHz, one using 1GHz--over single twisted pair.
    Mesh networks--Zigbee isn't just used for home standards, but also 
industrial applications. There are also several other mesh network 
protocols that could/should be mentioned in the paper.
Recommendation: Utilize a Voluntary, Flexible, and Collaborative 
        Approach to Data Security based on International Standards
    With the IoT naturally involves an ever-increasing number of 
``things'' being connected throughout society, new and evolving 
security issues will emerge as challenges. Already, ICT members 
consider security issues throughout the design process, and this 
approach will continue to be employed to mitigate threats in the IoT. 
TIA urges policymakers to regard the IoT as an opportunity for greater 
security, since using a network approach that is paired with proper 
risk management techniques, IoT devices can be made to work together to 
produce comprehensive, actionable security intelligence in near real-
time. These approaches and risk management techniques are by and large 
driven by market demands, typically manifested through industry-driven 
best practices and standards developed in open, voluntary, and 
consensus-based fora.
    To support high levels of security and resilience in the IoT, TIA 
urges policymakers to be guided by the following principles:
    Respect competitive differentiation and business continuity. As ICT 
manufacturers and vendors work to meet the needs of their customers, 
less secure products that are more vulnerable to cyber attacks will 
naturally be less attractive in the market. Today, this drives ICT 
manufacturers and vendors to strive to make their products and services 
less susceptible to cyber attacks, and this is expected to increase 
dramatically.\5\ The degree to which an organization's performance 
goals are used to ensure their ability to provide essential services 
while managing cybersecurity risk will be dependent upon the specific 
needs of their sector and organization. However, in the ICT sector, 
manufacturers work with the range of organizations they supply to 
ensure that performance goals of those organizations are reflected in 
the ICT they purchase. The flexibility to innovate and the use of 
voluntary, consensus-based standards are both key enablers of this 
capability. There is no ``one size fits all'' solution to securing the 
IoT. The reach of the IoT across segments of the economy that will have 
varied levels of risk illustrates this.
---------------------------------------------------------------------------
    \5\ http://www.gartner.com/newsroom/id/2828722.
---------------------------------------------------------------------------
    Rely on international standards. Numerous standards, guidelines, 
best practices, and tools are used by ICT manufacturers and the owners 
& operators of telecommunications networks to understand, measure, and 
manage risk at the management, operational, and technical levels. TIA 
urges policymakers to ensure that their approaches to the IoT reflect 
the priority for the development of internationally-used standards and 
best practices. The global nature of the ICT industry necessarily 
requires a global approach to address cybersecurity concerns, and a 
global supply chain can only be secured through an industry-driven 
adoption of best practices and global standards. Country-specific 
standards should be avoided, as they would ignore the benefits of 
global harmonization, restricting trade in telecommunications equipment 
imported to, or exported from, other countries that are part of the 
global trading system.
    Utilize the successful public-private partnership model. Public-
private partnerships are an effective tool for collaboration on 
addressing current and emerging threats, and will serve as a key 
incentive to encourage businesses to make investments in cybersecurity 
that are appropriate for the risks that they face. The voluntary, 
public-private model is also able toevolve in response to changes in 
threats and the risk environment. As both the complexity and number of 
attacks grow, it will be critical that policymakers leverage and 
augment, or create where necessary, public-private partnerships.
    Increase end-user education. This is a crucial aspect to improving 
cybersecurity in the IoT, as many cyber vulnerabilities are already 
known and related attacks are relatively easily preventable. 
Policymakers should lend focus to efforts which inform end users across 
the business and consumer communities of proper steps to take to ensure 
that proper cyber ``hygiene'' is impressed.
Recommendation: Ensure Flexibility and Feasibility in Addressing Data 
        Privacy
    The ICT industry recognizes privacy as a priority in the success of 
the IoT, and understands the wide range of related concerns held by 
policymakers. Industry believes that IoT services must adopt principles 
similar to those that have worked successfully on the Internet to 
enable informed consumer choice: transparency about what data will be 
collected, how it will be used, and who will have access. We urge 
regulators not to adopt privacy regulations that would make it 
impossible for IoT systems to flourish, as full consumer benefits will 
require that data be retained and used in ways not currently 
contemplated, even by IoT innovators themselves. Instead, industry 
should be allowed to adopt best practices which can be responsive to 
fast-paced developments and that allow individual users to manage their 
level of data sharing. Policymakers are encouraged to ensure that their 
activities do not impose barriers that discourage the use of the use of 
existing and developing voluntary efforts to address privacy concerns 
that are developed through standardization, best practice activities, 
and public-private partnerships. Internationally, policymakers should 
work towards interoperable privacy systems to avoid unnecessary 
impediments to the cross-border flow of information, which will be 
critical to the growth and functionality of the IoT.
    Policymakers should avoid implementing privacy obligations which 
are ambiguous, overly burdensome, or technically infeasible. The effect 
of adopting such policies would be to decrease industry's incentive to 
invest in IoT opportunities due to resulting regulatory uncertainty and 
unnecessarily higher risk. Industry members exploring IoT opportunities 
should have certainty and the ability to determine the most appropriate 
method to meet any regulatory requirements. This approach would best 
promote the development of the IoT as it is a fluid and quickly 
evolving market opportunity.
    In addition, policymakers may serve an important role in ensuring 
IoT data privacy through public awareness efforts. Through ``cyber 
hygiene'' education efforts, many breaches that would result in a loss 
of data privacy can be avoided. In addition, a more informed end-user 
is less likely to make voluntary decisions with IoT devices and 
services that allow data usage beyond their individual comfort.
Conclusion
    The IoT represents an immense opportunity for the improvement of 
the lives of citizens around the globe, across use cases. By ensuring 
that the path taken forward is collaborative and pro-innovation 
consistent with the above, TIA believes that policymakers can help 
these benefits materialize rapidly.
                               About TIA
    The Telecommunications Industry Association (TIA) represents 
manufacturers and suppliers of global communications networks through 
standards development, policy and advocacy, business opportunities, 
market intelligence, and events and networking. TIA enhances the 
business environment for broadband, mobile wireless, information 
technology, networks, cable, satellite and unified communications. 
Members' products and services empower communications in every industry 
and market, including healthcare, education, security, public safety, 
transportation, government, the military, the environment, and 
entertainment. Visit tiaonline.org for more details.
    TIA is accredited by the American National Standards Institute 
(ANSI) and is a proud sponsor of ANSI's Standards Boost Business 
campaign. Visit www.standards
boostbusiness.org for details.
TIA Policy Committees & Divisions
    TIA conducts its policy and government affairs Innovation Agenda 
through membership committees. A TIA Board Member serves as TIA's 
Policy Chair and represents TIA's Government Affairs activities on the 
TIA Board of Directors.
    TIA's Communications Research Division, User Premises Equipment 
Division, and Wireless Communications Division are also represented on 
the TIA Board of Directors. The Chairs and TIA Staff for each 
committee, working group and division can be found at http://
www.tiaonline.org/policy/tia-policy-committees-divisions.
    For more information on TIA's Government Affairs activities, please 
contact James Reid, Senior VP of Government Affairs, at 
[email protected].

    The Chairman. We will keep the hearing record open for a 
couple of weeks.
    Senator Booker. Mr. Chairman?
    The Chairman. Yes, sir.
    Senator Booker. Along with Senator Rubio's staff, we would 
like to--and while you were out, I was talking about the 
spectrum availability and how that potentially could be 
constricting to American innovation if we do not find ways to 
meet the growing demands that innovation is going to bring 
about, not to mention the millions of people globally every 
month that are coming online.
    So I would like to submit for the record a series of 
statements in support of Senator Rubio and my WiFi Innovation 
Act, which aims to make more spectrum available. I would love 
to encourage you to potentially hold a hearing just on that 
issue that they brought up as something to be of concern.
    The Chairman. We will certainly make that a part of the 
record and look forward to having a hearing on the subject, 
which is an important one for all the reasons that have been 
mentioned today.
    [The information referred to follows:]

For Immediate Release
CEA Praises Bipartisan, Bicameral Congressional Effort to Expand Wi-Fi
    Arlington, Va., February 10, 2015--The following statement is 
attributed to Gary Shapiro, president and CEO of the Consumer 
Electronics Association (CEA), regarding today's introduction of the 
House and Senate Wi-Fi Innovation Act by Senators Marco Rubio (R-Fla.), 
Cory Booker (D-N.J.) and Representatives Bob Latta (R-Ohio), Anna Eshoo 
(D-Calif.), Darrell Issa (R-Calif.), Doris Matsui (D-Calif.) and Suzan 
DelBene (D-Wash.):

        ``We enthusiastically applaud congressional members for taking 
        a bipartisan and bicameral approach toward increasing speeds 
        and easing congestion for Wi-Fi by identifying new spectrum for 
        unlicensed uses.

        ``Unlicensed spectrum is a catalyst for innovation, how we get 
        online through Wi-Fi and how our wireless carriers manage the 
        ever-growing traffic on their networks. And unlicensed spectrum 
        is a boon to the U.S. economy, generating $62 billion a year.

        ``A look around the show floor at the 2015 International CES 
        confirmed: from smart homes and unmanned systems to streaming 
        content and wearables, many of today's consumer technology 
        innovations are mobile-first, connected to the Web and to one 
        another.

        ``The Federal Communications Commission has already committed 
        to freeing up underutilized high-frequency spectrum in the 
        lower 5 GHz band for Wi-Fi. And the study initiated by this 
        legislation should empower the FCC to explore putting even more 
        of this spectrum to use for faster Wi-Fi.''

    Need help imagining life without unlicensed spectrum? Click here 
for a look at A Day Without Unlicensed Spectrum, an animated video 
produced by CEA.
    About CEA: The Consumer Electronics Association (CEA) is the 
technology trade association representing the $223 billion U.S. 
consumer electronics industry. More than 2,000 companies enjoy the 
benefits of CEA membership, including legislative and regulatory 
advocacy, market research, technical training and education, industry 
promotion, standards development and the fostering of business and 
strategic relationships. CEA also owns and produces the International 
CES--The Global Stage for Innovation. All profits from CES are 
reinvested into CEA's industry services. Find CEA online at CE.org, 
DeclareInnovation.com and through social media.
                                 ______
                                 
CTIA-The Wireless Association Statement on the Reintroduction of the 
        Wi-Fi Innovation Act in the Senate

    WASHINGTON, February 10, 2015--The following statement should be 
attributed to CTIA-The Wireless Association Vice President of 
Government Affairs Jot Carpenter:

    ``CTIA appreciates Senator Rubio's and Senator Booker's leadership 
in pushing to make additional spectrum available for unlicensed use. 
Freeing additional spectrum in the 5 gigahertz band will help meet 
Americans' increasing demand for mobile Internet access and support the 
growth of the Internet of Things.''

    CTIA-The Wireless Association (www.ctia.org) is an international 
organization representing the wireless communications industry. 
Membership in the association includes wireless carriers and their 
suppliers, as well as providers and manufacturers of wireless data 
services and products. CTIA advocates on behalf of its members at all 
levels of government. The association also coordinates the industry's 
voluntary best practices and initiatives, and sponsors the industry's 
leading wireless tradeshow. CTIA was founded in 1984 and is based in 
Washington, D.C.

Twitter: @ctia--Blog: http://ctia.it/Na6erv--Facebook: http://ctia.it/
LCm4Nn
LinkedIn Group: http://ctia.it/Na6cA2--Google+: http://ctia.it/12PfCrO

    Press Contact: Amy Storey, [email protected],
                                 ______
                                 
                               High Tech Spectrum Coalition
FOR IMMEDIATE RELEASE
Contact: Jared Weaver
(202) 548-2308
[email protected]
www.hightechspectrumcoalition.org
High Tech Spectrum Coalition (HTSC) Commends Introduction of the 
        Wi-Fi Innovation Act

    Washington, D.C. February 10, 2015--The members of the High Tech 
Spectrum Coalition (HTSC) commend Senators Rubio and Booker and 
Representatives Latta, Eshoo, Issa and Matsui for reintroducing the Wi-
Fi Innovation Act. This important bill will continue the expansion of 
unlicensed spectrum use in the 5 GHz band. We are optimistic that 
sharing at 5.9 GHz will be successful and lead to greater and more 
efficient use of the band. As the need for more spectrum is ever more 
evident, it is imperative that we continue to explore new spectrum 
bands to help satisfy consumer demand for mobile broadband. We 
appreciate their recognition of the need to maximize this finite 
resource. Spectrum is the single most critical element for the 
continued growth of our Nation's Internet economy. We look forward to 
working with Congress to find additional bands of spectrum for wireless 
broadband use in order for consumers to continue to see the benefits of 
innovation and connectivity.
                                 ______
                                 

   Bipartisan Wi-Fi Innovation Act Introduced in the House and Senate

                        By Vince Jesaitis (ITI)

    Spectrum may not be a household word, but we rely on it every day 
for the connected devices like smartphones and portable devices that 
are a central part of our lives. Spectrum is a term used to describe 
the radio frequencies that all wireless communications use. And, as 
there are only so many radio frequencies, spectrum is a limited and 
valuable resource. As the Internet of Things (IoT) connects everyday 
devices from household appliances and our cars, to industrial systems 
and commercial transportation fleets, more spectrum will be required 
and spectrum will become an even more important issue for connectivity 
and future innovations. ITI has long held the view that we must make 
efficient use of all spectrum to meet our Nation's growing demand.
    The bipartisan Wi-Fi Innovation Act bills introduced today in the 
Senate by Sens. Cory Booker (D-NJ) and Marco Rubio (R-FL); and in the 
House of Representatives by Reps. Bob Latta (R-OH), Anna G. Eshoo (D-
CA), Darrell Issa (R-CA), Doris Matsui (D-CA), and Suzan DelBene (D-
CA); would help utilize and manage the upper 5GHz band of spectrum more 
efficiently to meet the growing demand for bandwidth from connected 
vehicles and next generation Wi-Fi.
    The Wi-Fi innovation Act would direct the Federal Communications 
Commission (FCC) to facilitate technical and engineering analysis to 
determine how unlicensed Wi-Fi use can coexist with connected vehicle 
technology without jeopardizing safety. Moreover, with this bill, we 
are optimistic that if the significant technical expertise and input 
from many of our member companies is included to advance the technical 
process, successful sharing of the upper 5 GHz band is feasible.
    The 5 GHz band offers tremendous opportunity to expand unlicensed 
Wi-Fi use and features, building on the benefits tens of millions of 
Americans already use to connect in their homes, at work, and in public 
spaces across the country. We commend these lawmakers for working 
together in a bipartisan fashion to introduce this proposal, and look 
forward to working with them to encourage their colleagues to support 
these bills to benefit the American public and our economy.
    About ITI. The Information Technology Industry Council (ITI) is the 
global voice of the tech sector. As the premier advocacy and policy 
organization for the world's leading innovation companies, ITI 
navigates the relationships between policymakers, companies, and non-
governmental organizations, providing creative solutions that advance 
the development and use of technology around the world. Visit 
www.itic.org to learn more. Follow us on Twitter for the latest ITI 
news @ITI_TechTweets.
                                            Duncan Neasham,
                                        Director of Communications,
                         Information Technology Industry Council (ITI).

www.itic.org
Follow ITI on TWITTER: @ITI_TechTweets
                                 ______
                                 
http://www.pcia.com/pcia-press-releases/700-pcia-commends-senators-
rubio-booker-for-introducing-wi-fi-innovation-act/

                          PCIA Press Releases
         PCIA Commends Senators Rubio, Booker for Introducing 
                          Wi-Fi Innovation Act
    February 10, 2015/Alexandria, Virginia, The head of PCIA--The 
Wireless Infrastructure Association today commended Senators Marco 
Rubio (R-FL) and Cory Booker (D-NJ) for introducing bipartisan 
legislation aimed at allocating greater spectrum use for wireless 
broadband and bringing leading-edge wireless service to low-income 
neighborhoods.
    ``Senators Rubio and Booker should be commended for recognizing 
that the U.S. faces both an unprecedented `wireless data crunch' and a 
`digital divide' that puts lower-income Americans at a disadvantage,'' 
said Jonathan Adelstein, PCIA's President and CEO. ``Their Wi-Fi 
Innovation Act would allocate more spectrum use for the rapidly growing 
wireless industry while also eliminating barriers to and creating 
incentives for Wi-Fi deployment in low-income neighborhoods. Senators 
Rubio and Booker are taking a crucial bipartisan step toward the 
adoption of policies that will ease the wireless data crunch and help 
bridge the digital divide,'' Adelstein said.
    The Rubio-Booker bill directs the FCC to conduct testing to gauge 
the feasibility of opening the 5850-5925 MHz band to unlicensed use. It 
also urges that the 5 GHz band be explored for Intelligent 
Transportation and other ``shared'' purposes. Finally, it establishes a 
study aimed at reducing the barriers to Wi-Fi deployment in low-income 
rural and urban areas and encourages the FCC to evaluate incentives and 
policies that could enhance wireless adoption.
    ``The demand for wireless mobile data is continuing to explode. 
Yes, we need to allocate more spectrum--but that only addresses a 
fraction of what we need to be doing to spur greater wireless 
infrastructure deployment. PCIA will continue to work hand-in-glove 
with Congress, the FCC, and other federal, state, and local 
policymakers to embrace policies that facilitate the construction and 
upkeep of a world-class wireless broadband network,'' Adelstein said.
    PCIA--The Wireless Infrastructure Association is the principal 
organization representing the companies that build, design, own and 
manage telecommunications facilities throughout the world. Its over 200 
members include carriers, infrastructure providers, and professional 
services firms.
                                 ______
                                 
For Immediate Release
February 10, 2015

Public Knowledge Applauds Congress for Introducing Wi-Fi Innovation Act

    Today, Members of Congress introduced bipartisan, bicameral 
spectrum legislation that seeks to expand the availability of 
unlicensed spectrum. Senators Marco Rubio (R-FL) and Cory Booker (D-NJ) 
reintroduced the Wi-Fi Innovation Act, while Representatives Robert 
Latta (R-OH), Anna Eshoo (D-CA), Darrell Issa (R-CA), and Doris Matsui 
(D-CA) introduced companion legislation in the House.
    The Wi-Fi Innovation Act directs the Federal Communications 
Commission to investigate ways to open the 5GHz band to unlicensed use 
and recognizes the need to balance the importance of developing 
Intelligent Transportation and incumbent licenses in the 5GHz band. The 
legislation also seeks to increase innovation and economic progress by 
establishing a study to examine Wi-Fi deployment in low-income 
communities.
    The following can be attributed to Martyn Griffen, Government 
Affairs Associate of Public Knowledge:

        ``The Wi-Fi Innovation Act legislation provides an excellent 
        example of how bipartisan legislation on spectrum issues can 
        work. Public Knowledge supported the Rubio-Booker language when 
        it was introduced in the 113 Congress and we are pleased to see 
        it reintroduced in the 114 Congress. This bill provides a road 
        map for agencies that respects both the need for wireless 
        capacity for safer smart cars and the need for more open 
        spectrum for the Internet of Things.

        ``Furthermore, we are pleased that this legislation addresses 
        broadband access in underserved areas by establishing an FCC 
        study to examine Wi-Fi deployment in low-income communities and 
        the barriers preventing deployment of wireless networks in low-
        income neighborhoods. As Americans become increasingly more 
        connected through mobile devices and the Internet of Things, 
        our wireless spectrum demands increase.

        ``We applaud Senator Booker, Senator Rubio, Congresswoman Eshoo 
        and other co-sponsors for taking steps toward addressing this 
        growing concern, while working to expand Internet access to 
        those in underserved areas.''

    You may view our full release here.

    Public Knowledge is a Washington D.C.-based public interest group 
working to defend consumer rights in the emerging digital culture. More 
information is available at http://www.publicknowledge.org
                                 ______
                                 
            National Cable & Telecommunications Association

FOR IMMEDIATE RELEASE
February 10, 2015
CONTACT: Brian Dietz/Joy Sims
202-222-2350
  Statement of NCTA Regarding Introduction of the Wi-Fi Innovation Act
    ``We congratulate Senators Rubio and Booker on the introduction of 
Wi-Fi Innovation Act which would secure more unlicensed spectrum in the 
5 Ghz band. With more and more Wi-Fi-enabled devices coming to market 
everyday, consumers will continue to need additional spectrum to use 
these tools. This bipartisan legislation provides a clear path forward 
for properly allocating a finite and increasingly necessary public 
resource and continues to establish the U.S. as a global leader in 
public Wi-Fi availability, speed, and scale.''
    NCTA is the principal trade association for the U.S. cable 
industry, representing cable operators serving more than 90 percent of 
the Nation's cable television households and more than 200 cable 
program networks. The cable industry is the Nation's largest broadband 
provider of high-speed Internet access, serving more than 54 million 
customers, after investing $230 billion since 1996 to build two-way 
interactive networks with fiber optic technology. Cable companies also 
provide state-of-the-art digital telephone service to more than 28 
million American consumers.
                                 ______
                                 
FOR IMMEDIATE RELEASE
CONTACT: Farrah Kim, [email protected]

      TIA Applauds the Re-Introduction of the Wi-Fi Innovation Act

    Arlington, Va. (February 10, 2015)--The Telecommunications Industry 
Association (TIA), the leading association representing the 
manufacturers and suppliers of high-tech communications networks, today 
applauded Sens. Rubio (R-FL) and Booker (D-NJ) for re-introducing the 
bipartisan Wi-Fi Innovation Act.
    The Wi-Fi Innovation Act would require the Federal Communications 
Commission (FCC) to move forward on testing for unlicensed operations 
in the 5.9 GHZ band. As the sponsors noted, the Wi-Fi Innovation Act 
aims to provide more unlicensed spectrum use in order to bolster 
innovation, spur economic development, and increase connectivity.
    TIA CEO Scott Belcher commented, ``The U.S. is in vital need of 
more spectrum in order to meet unprecedented and growing demand for 
video, data, Wi-Fi connectivity and more. The Innovation Act identifies 
meaningful steps to help alleviate the spectrum crunch that threatens 
the advancement of global communications. TIA supports efforts to work 
towards a workable spectrum sharing solution for the 5.9 GHz band, and 
agrees that sharing proposals need to be thoroughly tested, leading to 
the creation of a record that can be the basis for regulatory action. 
We thank Senators Rubio and Booker for their sponsorship of the Wi-Fi 
Innovation Act and look forward to working with them on this important 
legislation.''
    Follow TIA on Facebook, LinkedIn, Twitter, YouTube, TIA NOW and 
Google+ for the latest updates.
About TIA
    The Telecommunications Industry Association (TIA) represents 
manufacturers and suppliers of global communications networks through 
standards development, policy and advocacy, business opportunities, 
market intelligence, and events and networking. TIA enhances the 
business environment for broadband, mobile wireless, information 
technology, networks, cable, satellite and unified communications. 
Members' products and services empower communications in every industry 
and market, including healthcare, education, security, public safety, 
transportation, government, the military, the environment, and 
entertainment. Visit tiaonline.org for more details.
    TIA is accredited by the American National Standards Institute 
(ANSI), and is a proud sponsor of ANSI's Standards Boost Business 
campaign. Visit www.standardsboostbusiness.org for details.
                                                Farrah Kim,
                                                      Rational 360.
                                 ______
                                 
     Wi-Fi Alliance welcomes introduction of Wi-Fi Innovation Act
    Austin, Texas, February 10, 2015--Today in the United States 
Congress, Senators Rubio (R-FL) and Booker (D-NJ) introduced the Wi-Fi 
Innovation Act, with a House companion measure co-sponsored by 
Representatives Latta (R-OH) and Eshoo (D-CA). The bill directs the 
U.S. Federal Communications Commission (FCC) to work with the U.S. 
Department of Transportation (DoT) and National Telecommunications and 
Information Administration (NTIA) to closely study the impact of 
opening the 5.9 GHz spectrum band for use by a wide array of devices.
    Wi-Fi Alliance welcomes the proposed U.S. legislation and urges 
lawmakers to take action swiftly to advance innovation in unlicensed 
spectrum.
    ``We applaud this group of Senators and Representatives for their 
recognition of the value of unlicensed spectrum in enabling innovation 
and economic benefits today,'' said Edgar Figueroa, president and CEO 
of Wi-Fi Alliance. ``It's well understood that more unlicensed spectrum 
is critical to meet our society's ongoing requirements for 
connectivity.''
    Unlicensed spectrum has created significant economic opportunities 
in the U.S. and worldwide. Recent studies assess the worldwide economic 
value of Wi-Fi to have been well above $200 billion in 2013, and with 
growth in Wi-Fi offloading, sales of Wi-Fi equipment, and other drivers 
of economic activity related to unlicensed spectrum usage, the economic 
benefit is predicted to exceed $500 billion in 2017.
    The proposed legislation would require the FCC to develop spectrum-
sharing tests to examine how devices may use the 5.9 GHz spectrum band 
in the U.S. without negative impact to other users, and to open the 
spectrum to Wi-Fi devices, unless it identifies a compelling reason not 
to do so.
    ``Although this spectrum was allocated fifteen years ago for future 
use in vehicular communications, it remains underutilized today,'' 
continued Figueroa. ``Wi-Fi includes a number of proven mechanisms that 
make it capable of sharing spectrum with other technologies, and these 
mechanisms can be adapted to enable shared use of the 5.9GHz band. We 
are eager to work closely with the FCC, DoT and NTIA to provide 
technical expertise and industry feedback during their examination of 
the issue.''
    Please visit www.wi-fi.org for more information on the various Wi-
Fi Alliance technologies and certification programs available today and 
in development.

About Wi-Fi Alliance
www.wi-fi.org

    Wi-Fi Alliance is a global non-profit industry association--our 
members are the worldwide network of companies that brings you Wi-Fi. 
The members of our collaboration forum come from across the Wi-Fi 
ecosystem and share a common vision of connecting everyone and 
everything, everywhere. Since 2000, the Wi-Fi CERTIFIED TM 
seal of approval designates products with proven interoperability, 
industry-standard security protections, and the latest technology. Wi-
Fi Alliance has certified more than 23,000 products, delivering the 
best user experience and encouraging the expanded use of Wi-Fi products 
and services in new and established markets. Today, billions of Wi-Fi 
products carry a significant portion of the world's data traffic in an 
ever-expanding variety of applications.

    Senator Booker. Thank you, sir.
    The Chairman. And thank you and Senator Rubio for your work 
on it.
    All right. If there is nothing else, we will keep the 
record open, and witnesses are requested to submit written 
answers to the Committee as soon as possible to questions for 
the record.
    I want to thank the witnesses today. It has been a great 
panel, a lot of good discussion and back-and-forth on a subject 
of just enormous importance to our economy. We want to make 
sure that when we approach this issue, we get it right from a 
public policy standpoint. So thank you for your very thoughtful 
suggestions in that regard.
    This hearing is adjourned.
    [Whereupon, at 12 p.m., the hearing was adjourned.]

                            A P P E N D I X

                                                   February 9, 2015
Hon. Fred Upton,
Chair,
Committee on Energy and Commerce.

Hon. Frank Pallone,
Ranking Member,
Committee on Energy and Commerce.

Hon. John Thune,
Chair,
Committee on Commerce, Science, and Transportation,

Hon. Bill Nelson,
Ranking Member,
Committee on Commerce, Science, and Transportation.

    We the undersigned associations, representing automobile 
manufacturers, motorists, state highway and transportation officials 
and the intelligent transportation community, write to you today to 
respectfully request your opposition to the Wi-Fi Innovation Act. 
Introduced last Congress, this bill would open up previously dedicated 
auto safety spectrum to unlicensed Wi-Fi users and jeopardize the 
implementation of a safety critical crash avoidance system that has the 
potential to significantly reduce traffic crashes and assist in 
reducing greenhouse gas emissions. While this legislation currently 
does not have a bill number, we anticipate its re-introduction soon.
    Over the past two decades the auto industry, the U.S. Department of 
Transportation (USDOT), the American Association of State Highway and 
Transportation Officials (AASHTO), the Intelligent Transportation 
Society of America (ITS America) and its member companies and 
university research centers such as the University of Michigan 
Transportation Research Institute (UMTRI), have invested significant 
resources and over a billion dollars researching, developing and 
testing a vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I) 
communication system collectively referred to as V2X.
    The V2X communication system is comprised of seven safety channels 
utilizing 75 MHz of spectrum located in the upper 5.8 GHz and lower 5.9 
GHz band. This system enables vehicles to communicate with each other 
and with the world around them (traffic signals, bicycles, pedestrians, 
buses, trucks and even mobile phones) providing real-time 360 degree 
high-speed situational safety warnings allowing drivers to respond or 
in some cases the vehicle to respond for them. Happening ten times per 
second, these communications must be free of any signal interference. 
One miscommunication or blocked signal could cause a crash and, 
possibly, serious injuries or deaths.
    The Wi-Fi Innovation Act would require the Federal Communications 
Commission (FCC) to open up the reserved 75 MHz of spectrum to 
unlicensed Wi-Fi use and eliminate the proper safety mechanisms 
provided to the FCC to ensure the protection of the V2X communication 
system. The opening of this spectrum without proper interference 
testing would reverse decades of efforts. It would also negate the 
ongoing efforts of the various constituencies who are exploring whether 
a technical solution exists to allow sharing of the spectrum. These 
wide ranging constituencies include automakers, the Wi-Fi community, 
the FCC, the U.S. DOT and innovators from across the transportation, 
technology and research communities. This collaborative process should 
proceed without pre-emptive legislation that sets arbitrary deadlines 
and restrictive parameters.
    Connected vehicle technology may significantly impact the future of 
auto safety and must be protected. In fact, the National Highway 
Traffic Safety Administration (NHTSA) has initiated a rulemaking to 
establish standards for this technology to operate in unison in all 
vehicles. They estimate that at full penetration, V2X technology could 
prevent or mitigate up to 80 percent of the annual unimpaired vehicle 
crashes saving thousands of lives and reducing the $871 billion cost to 
our Nation's economy each year. `Talking cars' that avoid crashes and 
reduce traffic congestion and pollution are being deployed today as 
tests continue. That is why we ask for you to oppose any legislation, 
such as the Wi-Fi Innovation Act, that could set the program back and 
risk the implementation of this life saving technology and safety 
system.
    Thank you for your consideration of our views. Please do not 
hesitate to reach out to us for further information or to answer any 
questions.
            Sincerely,
Thomas E. Kern
Interim President and CEO
Intelligent Transportation Society of America
(ITS America)

Mitch Bainwol
President and CEO
Alliance of Automobile Manufacturers

Michael P. Melaniphy
President and Chief Executive Officer
American Public Transportation Association

Jill Ingrassia
Managing Director, Government Relations
and Traffic Safety Advocacy
AAA

Roger A. Wentz, CAE
President and CEO
American Traffic Safety Services Association

Frederick ``Bud'' Wright
Executive Director
American Association of State Highway
and Transportation Officials (AASHTO)
  

John Bozzella
President & CEO
Association of Global Automakers, Inc.

Greg Cohen
President & CEO
American Highway Users Alliance
  

Brian Pallasch
Managing Director of Government Relations
and Infrastructure Initiatives
American Society of Civil Engineers
  

  
  
  

cc: Members of the House and Senate
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                             Michael Abbott
    Question 1. Mr. Abbott, as an investor, you have finite resources 
and need to pick and choose between great ideas. What is it about the 
Internet of Things that has you and your firm excited? What concerns do 
you see on the horizon that may temper that enthusiasm?
    Answer. We are excited because of the incredible wave of innovation 
that we see coming in this space. Analysts today are projecting 
anywhere from 20 to 50 billion new sensors within the next five years. 
Those sensors will be deployed across consumer, industrial, and 
enterprise sectors. Some sensors will replace existing processes, 
enabling better products and services at a lower cost. Others will 
create entirely new capabilities, whether they are autonomous vehicles 
or sensor-equipped industrial machinery or delivery drones.
    Beyond the developments that get headlines, there are others that 
are just as important. When we deploy sensors at this scale, we have 
new tools for quality control, moving from a timed approach to 
maintenance--checking the crane or the elevator or the brakes every set 
number of months--to knowing immediately when a product is overheating. 
This needs-based approach improves quality, improves durability, 
improves productivity, and--perhaps most important--improves workplace 
safety. This is just another example of how the Internet of Things will 
change the way we live and work. And as the best engineers in Silicon 
Valley focus on this area, whether in manufacturing and logistics or in 
other functions that make a difference for the enterprise, the 
possibilities will continue to increase--and the costs, for consumers, 
will continue to fall.
    Some of the creation and deployment of these new technologies will 
come from existing companies. But others will come from resourceful 
entrepreneurs who draw on their own creativity and expertise to build 
meaningful standalone businesses. Our firm exists to find and back 
those entrepreneurs and help them build great companies.
    Our main concern is not with the state of technology but with the 
prospect of ill-designed regulation. We know that there are legitimate 
concerns about how the data collected by new sensors will be used, and 
we support clear transparency about what data is being collected and 
how it is being used. But we also know that the new sensors, if they 
are to unlock the power of this technology to improve the lives of 
consumers, require sufficient data. The technology is young--We are 
still learning what data is most useful and why, and we are still 
learning how to use data more efficiently. Our hope is that 
policymakers will recognize that the ability to use big data, so long 
as the consumer has not opted out, is essential to innovation in this 
space.

    Question 2. Mr. Abbott, in your testimony, you urged regulators and 
legislators to proceed with caution when considering regulation 
regarding the Internet of Things. As you note in your testimony, the 
FTC recently released a staff level report on the Internet of Things 
which makes ``best practice'' recommendations on privacy, security, and 
data minimization. I understand many IoT companies are concerned about 
whether today's best practices may tomorrow become ``reasonable'' 
practices subject to enforcement by the FTC. This could lead to a great 
deal of uncertainty in the marketplace for startups. How do questions 
about the FTC's reach affect investors like yourself?
    Answer. Starting a successful company, even in a space with as much 
opportunity as the Internet of Things, is never easy. If the FTC's 
reach began to factor more significantly into our calculations as we 
considered whether and how a startup would succeed, the decision to 
back an IoT entrepreneur would become more difficult.
    This is especially true because early-stage companies, unlike large 
tech firms, generally do not have existing data to draw on. Their 
ability to innovate depends on their ability to learn from the data 
generated by users. If they faced restrictions in doing this, they 
would have a harder time getting off the ground, as so many startups 
fail to do. As investors, we would be more skeptical of the prospects 
for success when the market is constrained, and we might instead turn 
our attention to other markets--and perhaps look for opportunities 
abroad if the regulatory environment there were more favorable for 
entrepreneurs.
    We fully support clear transparency around data collection 
practices and believe that the consumer should know what is being 
collected as a user of the product. We simply hope that the legitimate 
need for transparency will not turn into regulatory practices that 
stifle innovation in this space at such an important time.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                             Douglas Davis
    Question 1. Mr. Davis, Intel is opposed to FCC reclassification of 
broadband service under Title II of the Communications Act, a view that 
I share. Do you think that reclassification could harm growth of the 
Internet of Things? If so, how?
    Answer. As a world leader in computing and communications 
technologies, Intel wants net neutrality rules that foster an open, 
accessible Internet and affordable, high quality broadband. Therefore, 
we support FCC rules regarding disclosure, blocking and discrimination. 
We filed Reply Comments in the FCC's Open Access proceeding opposing 
reclassification of broadband providers as utilities under Title II, 
because we believe it is not necessary and could discourage expensive 
and risky ``last mile'' broadband investment. Specifically, as to IoT, 
Intel wants both open and high-quality connectivity for all. With a 
projected 50 billion connected devices by 2020, investment in 
ubiquitous, faster and more affordable Internet connectivity will be 
even more critical. In that regard, we generally believe that ``light 
touch'' regulation promotes more broadband investment while still 
protecting open access, and thus we encourage the FCC to implement its 
Title II authority in a light touch manner.

    Question 2. Mr. Davis, these days, hacking and security concerns 
are seemingly always on the front pages. Data breaches have affected 
many millions of consumers and some of the largest corporations in this 
country. Consumers are right to be excited about the benefits of the 
Internet of Things to their lives, but it is reasonable to be concerned 
about whether IoT opens consumers up to potential harm by cyber 
criminals. What steps is the technology industry generally, and Intel 
specifically, taking to secure IoT devices?
    Answer. Security must be a foundational building block for IoT in 
order to establish consumer trust--whether that consumer is a business, 
government, or an individual. Intel believes we can provide robust 
consumer protections, while enabling IoT investment and innovation that 
will improve the economy and GDP. (Of note, primary economic drivers of 
IoT will be commercial and industrial use cases, not consumer-facing 
applications.) For trusted data exchange in an IoT ecosystem, data 
generated by devices and existing infrastructure must be able to be 
shared between the cloud, the network, and intelligent devices for 
analysis--enabling users to aggregate, filter, and share data from the 
edge to the cloud with robust protection. For this reason, security is 
fundamental to Intel's IoT roadmap.
    As discussed in my Prepared Statement for the Record (pp. 4-6), 
Intel believes that it is critical to integrate security into hardware 
and software from the smallest devices at the edge of the network to 
the most advanced server in the cloud and all gateways and devices in 
between. These multi-level security capabilities create redundancies 
which prevent intrusions and enable a robust, secure, trusted end-to-
end IoT solution. Intel's hardware will provide transistor-level 
security on the actual compute device itself at the outset (rather than 
layering it on top at latter point in design cycle with other, less 
secure external features). This means each compute device can have an 
irremovable identification which prevents any non-approved device from 
accessing the network. Intel's IoT solutions also will employ advanced 
hardware level capabilities--``whitelisting'' (prevents harmful apps 
from being activated) and ``blacklisting'' (blocks list of known 
malware from entering device or network). Intel Security also 
integrates advanced software level security capabilities which enables 
the software to identify threats and proactively notify users and/or 
automatically quarantines devices that could be at risk. With this 
combination of transistor-level security, plus advanced hardware and 
software level security, Intel will protect IoT assets and data in ways 
few others can.
    With respect to the technology industry generally, Intel and other 
technology companies collaborate with government, non-governmental 
organizations, and other private industry stakeholders to improve 
cybersecurity in a way that promotes innovation, protects citizens' 
privacy and civil liberties, and preserves the promise of the Internet 
as a driver of global economic development and social interaction. A 
recent example of such collaboration is the Cybersecurity Framework led 
by the National Institute of Standards and Technology (NIST). Executive 
Order 13636 (issued in February 2013) directed NIST to work with 
stakeholders to develop a voluntary framework--based on existing 
standards, guidelines, and practices--for reducing cyber risks to 
critical infrastructure. Intel and other technology companies worked 
collaboratively with other private industries and U.S. government 
partners to develop the Framework. Intel then took it a step further by 
creating, implementing and publishing a case study that encourages use 
of the Framework as a process and risk management tool.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                              Lance Donny
    Question 1. Mr. Donny, you stated the Internet of Things technology 
can often be cost prohibitive for farmers. One reason we've seen IoT 
proliferate is huge cost reductions for bandwidth, processing, and 
sensors. Are these trends helping to drive IoT adoption on the farm? 
What is needed to bring the cost of technology down for farmers?
    Answer. Yes, generally these trends help farmers adopt technology 
in greater numbers and this is evidenced by the price of cellular data 
transmission falling slightly over the last several years. We expect to 
see this trend continue, and through better wireless technology, the 
ability to move greater amounts of data over fewer discrete cellular 
bands; further driving data transmission costs down.

    Question 2. Mr. Donny, in your testimony, you talked about the 
drought in California and how challenging that has been. Would you 
please elaborate on how the Internet of Things is helping farmers deal 
with a lack of water?
    Answer. Farmers in California have been devastated by what now is a 
four-year drought. Farmers have begun to deploy a greater number of 
soil moisture sensors to increase the understanding of the amount of 
available water they do have. Technology like moisture sensors provide 
accurate management tools that take the guess work out of irrigation. 
We see farmers save from 5-25 percent of their overall water though 
these methods.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Roy Blunt to 
                              Lance Donny
    Question 1. As the ``Internet of Things'' includes modems talking 
to each other, and machines talking to each other, how reliable is 
wireless connectivity in remote areas today?
    Answer. Wireless connectivity varies based on a number of factors 
but are most impacted by topography, crop canopy density, and antenna 
height. We've seen poor connectivity outcomes where both factors are 
challenging, in some cases a few hundred feet of range to ranges of 10-
miles where we have ideal conditions. While we don't need to see every 
installation achieve 10-mile range, we need reliably to cover a full 
section (640 acres) in most cases.

    Question 2. What broadband capacity is needed and how soon will it 
be available for the potential of the ``Internet of Things'' to be 
realized in agriculture--particularly for precision agriculture?
    Answer. The bandwidth demand in agriculture is not as significant 
as other demands such as online learning or telemedicine. We can 
reliably move most data (excluding large image files) over relatively 
low bandwidth speeds, less then 10mbps. More importantly is the 
coverage area. If large agriculture areas go uncovered, the industry 
will continue to rely on cellular and satellite for communication, 
which is costly and less then reliable.

    Question 3. A number of colleagues from this committee and myself 
recently wrote the Federal Communications Commission to emphasize that 
``rural households and businesses stand to benefit'' from the Mobility 
Fund for wireless broadband in rural areas, and the Connect America 
Fund for fiber broadband in rural areas.
    Today's hearing underscores that need, as the ``Internet of 
Things'' is dependent on broadband connectivity--both wireline and 
wireless.
    What is your opinion of the Federal Communications Commission's 
attempt so far to reform the Mobility Fund for rural wireless, and the 
Connect America Fund for fiber to unserved rural areas?
    Answer. In all fairness, I am not fully versed on the Mobility 
Fund. In my opinion the changes to increase 4G services with Phase II 
funding must not inadvertently allow whatever level of data service, 
which support IoT, in rural markets to deteriorate. In addition, in 
order to ensure IoT data services don't diminish over time the FCC 
should consider grouping areas that lack 2G coverage in an auction 
separate and apart from those areas in which carriers are seeking to 
upgrade from 2G, 2.5G and 3G services to 4G services. This, in my 
opinion, will enable lower cost carriers a means to support the vast 
amount of connected devices in rural markets.

    Question 4. In your testimony, you cite the American Farm Bureau's 
Privacy and Security Principles. These principles cover a wide range of 
issues including education about rights and responsibilities, ownership 
of data, the collection and use of data, notice, transparency, and 
choice for consumers.
    Did the American Farm Bureau need a government agency to instruct 
them in developing these principles, or were they able to come up with 
them on their own?
    If the American Farm Bureau can establish a set of principles 
regarding expectations of rights and responsibilities for the 
``Internet of Things,'' can other sectors of the economy do the same?
    Answer. The American Farm Bureau, given it's breath of farm 
knowledge, 6 million members, industry relations, and capacity to 
engage farmers in dialog regarding their concerns and needs was able to 
develop these principles without government agency support.
    While I'm not an expert on other sectors their make up or 
challenges, I firmly believe in the power of collaboration. The most 
efficient and realistic method of developing principles is for industry 
and it's customers to work together. In this way needs, fears, 
opportunities, and challenges can be discussed and solutions can be 
agreed upon that will achieve actual success once implemented.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                            Adam D. Thierer
    Question 1. Mr. Thierer, in comments to the FTC, you argued that 
policymakers should exercise regulatory humility in the face of 
uncertain technological change and address harms only after conducting 
a cost-benefit analysis of various remedies. FTC Commissioner Wright 
raised similar concerns about the FTC's recent staff report on the 
Internet of Things. What are the dangers of not doing a cost benefit 
analysis before moving forward with policymaking in this space?
    Answer. Although benefit-cost analysis is extremely challenging in 
the field of digital privacy policy, it is essential that analysts and 
policymakers attempt to conduct such reviews of any regulatory 
proposals aimed at curbing private sector data collection. While we 
will never be able to perfectly determine either the benefits or costs 
of data controls, the very act of conducting a regulatory impact 
analysis will help us to better understand the trade-offs associated 
with various regulatory proposals. In this case, benefit-cost analysis 
would help us determine the impact of new data regulation on 
technological innovation, consumer choice, entrepreneurialism, economic 
growth and the competitiveness of America's digital economy. And 
because data has powered the Information Revolution and brought 
consumers a cornucopia of new choices, it is essential that we 
carefully evaluate any new rules for their impact on the economy.

    Question 2. Mr. Thierer, in a submission to the FTC you wrote that, 
``It is likely that citizen attitudes about IoT technologies will 
follow a familiar cycle we have seen play out in other contexts: 
initial resistance, gradual adaptation, and then eventual assimilation 
of that new technology into society.'' Where are we today on the 
spectrum of Internet of Things adoption?
    Answer. We are still in the very early stages of Internet of Things 
adoption and, at least thus far, we've not seen as the same sort of 
initial resistance to IoT technologies that we witnessed with many 
previous technologies. While some privacy and security concerns have, 
perhaps, held back some consumer adoption at the margin, it appears 
that the public is quickly moving into the ``gradual adaption'' phase 
and embracing these technologies. It could be the case that the 
public's remarkably rapid assimilation of smartphone technology into 
their lives since 2007 has acclimated consumers to IoT technologies and 
made their adoption less jarring.

                                  [all]

                  This page intentionally left blank.