Thr New York Times
June 12, 1998

Gates Outlines [Crypto] Case to Reno

by Jeri Clausing, jeri@nytimes.com

WASHINGTON -- Microsoft's founder, Bill Gates, said he and his high-tech rivals delivered a simple message to Attorney General Janet Reno this week: strong encryption software is everywhere and there is nothing the Administration can do about it.

"The key point discussed is that this encryption technology is widely available outside the United States and inside the United States, and that's just a fact of life", Gates said Wednesday of the closed two-hour meeting he and top information technology executives held Tuesday with Reno and Louis J. Freeh, director of the Federal Bureau of Investigation.

That message from the high-tech industry is not new. But the unprecedented meeting and two days of united lobbying by Gates and his biggest rivals signals a new level of pressure -- and desperation -- to break the yearslong deadlock with the Clinton Administration on encryption policy.

With the close of the current congressional session drawing near, the companies see yet another year slipping by without legislation to ease export controls on encryption software that even the Administration admits are giving foreign software makers a competitive edge in the international marketplace.

At the same time, they are assessing the risks of pushing for a congressional vote on the matter. A loss could mean more than just another year of export restrictions. It could also mean passage of domestic mandates for a "key recovery" system, which would guarantee law enforcement access to "spare keys" of the codes use to keep personal communications and data transmissions private.

"This encryption thing is turning out to be a real crisis", said Eric Schmidt, chief executive of Novell Inc. He and Gates were among eight chief executives at a forum sponsored by the Business Software Alliance on Wednesday.

"We have a situation now where national security is being hurt", Schmidt, said, "and we're creating jobs outside the United States. People are getting used to the fact that you can't buy software of this type from the United States."

The Business Software Alliance released a study estimating that a key recovery system like that being advocated by the government would cost $7.7 billion a year. That study comes two days after 11 of the world's top cryptographers released a separate report calling such a system unfeasible.

The ability to scramble computer messages is important as consumers begin to embrace electronic commerce, which includes sending personal information and credit card numbers over the Internet.

People in the United States can use practically unbreakable encryption without built-in safeguards for law enforcement officials, but there are limits on the export of such powerful software.

Law enforcement officials are worried that increased use of encryption by criminals will leave them unable to unscramble their possibly illegal communications. So the Clinton Administration has insisted that any easing of export controls be tied to development of key recovery systems.

Gates said that during Tuesday's meeting with Reno and Freeh, who is pushing the hardest within the administration for key recovery, there was a good exchange. "But there wasn't agreement to change any positions there."

"Many of the ideas had been presented privately one on one before", Schmidt said. "I don't think that you would be surprised at the things they said. I would not suggest there's a specific plan, a specific compromise."

Among the others attending Tuesday's meeting were Scott G. McNealy, chief executive of Sun Microsystems Inc., and James L. Barksdale, chief executive of Netscape Corp., whose browser battle with Microsoft has resulted in an antitrust action against Gates's company.

Also attending were Timothy F. Price, president of MCI Communications, and Stephen M. Case, chief executive of American Online.

On Wednesday, Gates, Schmidt, Case and some of the others from Tuesday's meeting spent the morning meeting with privacy advocates and lawmakers pushing legislation to eliminate export controls and prohibit domestic key recovery.

"The issue is how do you move this across the goal line", said Jerry Berman, director of the Center For Democracy and Technology, who attended.

"The Administration seems to be more amenable to looking at other solutions besides key recovery", he said. "But they are a long way from lifting export controls and demands for plain text access."

A White House official said after Tuesday night's meeting that the Administration was encouraged by the presence of the high-tech chief executives, and that it would "redouble" its efforts to reach a compromise by fall.

Bermann said the administration "seems to be more amenable to looking at other solutions besides key recovery. But they are a long way from lifting export controls and demands for plain text access."



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