Testimony of Robert W. Holleyman, President, Business Software Alliance   On The Export of Software with Encryption Capabilities   September 6, 1995   National Insitute of Standards and Technology Gaithersburg, MD     Introduction and Summary   My name is Robert Holleyman and I am President of the Business Software Alliance ("BSA"). BSA promotes the interests of the American software industry through its programs in the United States and more than 60 countries worldwide. Our members produce what is commonly referred to as "mass market" or pre-packaged software and include such leading companies as: Autodesk Inc., Bentley Systems, Inc., Intergraph Corp., Lotus Development Corp., Microsoft Corp., Novell, Inc., The Santa Cruz Operation, and Sybase, Inc.   These companies are among America's most internationally competitive firms. Export sales for most of them account for more than one-half of revenues. Overall, the American software industry has a 75% worldwide market share for pre-packaged software. Software has been one of the fastest growing industries in the United States during the last 15 years and today is larger than all but five manufacturing industries. Moreover, the industry has highly skilled, highly paid jobs.   Unfortunately, the continued success and growth of our industry is directly threatened by the United States Government's continuing refusal to adopt realistic export control policies. America's software companies still are unable to sell worldwide software programs with encryption features that will provide the strong information security demanded by their customers.   *Specifically, the Administration's announcement last month failed to provide immediate relief to software companies because it did nothing to liberalize export controls on generally available software employing non-key escrow encryption. Moreover, the Administration's announcement and the preliminary criteria set forth by NIST regarding key escrow encryption continue to reflect a misunderstanding of the market place and, if implemented in anything like their current form, will prevent key escrow encryption from ever being commercially adopted.*   The government has come forth with government designed criteria focused entirely on fulfilling the government's desire to be able to access encrypted information. But what the government fails to recognize is that key escrow encryption approaches must be commercially desirable and voluntarily adopted. Computer users must want to buy programs with such features. America's software companies can't sell what users won t buy -- they have not become as successful as they are by trying to force their customers to purchase products with unwanted features. Therefore, unless there is market demand for key escrow encryption, software companies are not likely to produce programs with such features.   Perhaps government officials believe that they know more than American industry about what computer users worldwide are demanding by way of information security. If that is so, then we must strongly disagree. We also wonder about the Administration's apparent decision to try and rely on a few companies offering specialty hardware-based key escrow encryption systems to "demonstrate" that they work and that there is a market for such systems (even if a limited one). Is the Administration really going to pick winners and losers in the computing industries when it comes to providing information security?   An even more ominous interpretation of the Administration's recent announcements also suggests itself -- the government is pursuing a "Son of Clipper" strategy that could lead to the *mandatory* use of key escrow encryption. How so? Clearly the government is trying to force America's software companies to include government sought key escrow features in its software as the "price" for export approval. Because of the companies' strong desire to develop and sell a single version of their programs worldwide, the government thus hopes to be able to have users abroad and in the United States use software with such key escrow encryption features. Even if, initially, the domestic use of such government approved key escrow encryption is only an option, it is easy to see how the government could then pursue legislation making its use mandatory and criminalizing the use of any other encryption. After all, at that point the government could argue that it was simply asking for Americans to use a feature in their software they already have. Yet I can assure you that the American software industry is not interested in making the installed U.S. software base "Clipper ready." (We also note that the government has said it will propose revisions to the Escrow Encryption Standard in line with the suggested criteria that will then cover electronic computer communications, not just voice communications!)   In short, the Administration's "new" encryption policy appears to be little more than the old policy in new clothing. It still does not enable American software companies to export programs sought by their customers worldwide.   Accordingly, we strongly urge the Administration to:   + Immediately permit the export of generally available software programs with non-key escrow encryption capabilities employing the DES algorithm or other algorithms at comparable strengths (56-bit key lengths) to maintain the American software industry's international competitiveness; and   + Permit the export of software programs employing data encryption and commercial key recovery systems: (1) with algorithms using at least 64-bit key lengths; (2) in which users in the U.S. or abroad are able to specify a key holder: (3) the key recovery system will be bound to the encryption function pursuant to good commercial practices such that the time and effort involved in by-passing the key recovery component or "spoofing" will be greater than that necessary to simply employ very strong (e.g. triple DES) non-key escrow encryption; (4) the programs themselves will not provide for multiple encryption; and (5) the system will identify the key holder without notification to the party encrypting the information.     Background   It has been three years since the U.S. Government permitted the export of mass market software programs with moderate encryption (i.e. with 40-bit keys). At that time, the Government committed to permit stronger encryption over time (i.e. to increase the key lengths) to provide adequate information security against commercial attacks (given advances in computing power) and maintain American companies' international competitiveness (given the proliferation of foreign manufactured programs with strong encryption). But no further export control liberalization occurred.   More than a year ago, Vice President Gore agreed to study anew the short-run impact of existing export controls on the American software industry's international competitiveness and to reassess those controls based on the studies. He also called for the government to work the industry on exportable "key escrow encryption" systems that would "provide strong encryption, acceptable through users world wide. and address the national security needs as well. Key escrow encryption system can permit the use of very strong encryption (e.g. 128 bit keys) because the government will be able to obtain the keys from third party escrow agents in appropriate circumstances and thus be able to decrypt information.   Unfortunately, during the last year American companies were not permitted to increase the strength of the encryption in their exportable programs and there was only minimal consultation with the software industry with regards to making commercial key escrow encryption systems a reality.   On August 1 7, 1994 the Administration announced a renewed dialogue with industry to discuss key escrow encryption issues, including proposed liberalization of export controls for such software programs.     The Administration's Announcement Ignores The Immediate Need To Liberalize Export Controls on Non-Key Escrow Encryption Software Programs   The Administration's policy is silent with respect to permitting the use of stronger encryption in exportable generally available software programs. This means that American software companies must continue to limit the strength of their encryption to the 40-bit key length levels first proposed in 1991 and adopted in 1992.   The failure to increase the key lengths reneges on the commitment made by the government at that time to regularly review and revise the strength of the encryption. The insistence on the 40-bit key length also fails to acknowledge that longer key lengths are the worldwide standard. The refusal to change this standard denies the existence of hundreds of foreign programs on the market employing DES (with 56-bits keys) and other strong encryption. Finally, it means that information encrypted at the moderate level is subject to successful attack by those employing commercially available resources (e.g. office work stations at night). Further proof was widely reported in the press just the other week: a French student at the Ecole Polytechnique "cracked" the 40-bit RSA "export version" security scheme used by Netscape Communications Corp., a company which is working hard to make the GII a commercial reality.   We understand that the Department of Commerce has recently completed its latest study assessing the marketplace and the availability of foreign programs and products. We are confident that study confirms what our member companies' marketing forces have reported for some time -- growing availability of foreign programs and products offering strong security features which stand to supplant U.S. products if left unchecked. The White House has the study. The time has come to recognize reality and rectify the competitive disadvantage imposed on American industry.     The Administration's Proposed Criteria Will Prevent Key Escrow Encryption From Ever Being Commercially Adopted   1. The Administration Fundamentally Misunderstands the Marketplace.   The Administration's "new" policy as set forth in the proposed criteria relies upon a government-designed solution intended to satisfy the government's desire to be able to access information. But it fails to understand the two reasons why computer users in the office or at home may want to use (and thus would be willing to buy) a commercial key recovery encryption system.   First, users themselves may wish to be able to recover their keys easily and conveniently from someone they trust. A simple example will illustrate the point. When one of the secretaries at our counsel's law firm was let go, in a fit of pique she deleted six months worth of an attorney's files. Fortunately, the law firm was able to recover these files from its backup drives. But what if she had encrypted those files and no one else had the key? Thus, corporations have begun to express interest in the idea of an arrangement whereby the information systems manager or someone else in the company would hold the key. Similarly, among individual users, the ability to recover a key in the event it is lost or forgotten, coupled with possible ties to authentication or directory services or improved ease of use, could attract a number of users to a commercial key recovery encryption approach.   It is important to understand, however, that users are really only interested in the ability to recover the keys to encrypted stored data -- files and such. None of our customers has expressed any interest in a key recovery system for communications. That's just not important to them because the key is only useful for the duration of the communication. Moreover, given the tremendous number of communications the administrative burden could be overwhelming.   The second reason why users might be willing to use a key recovery system is the possibility of using much stronger encryption in programs used worldwide. Because the government ultimately would have access to encrypted information if a key recovery system was employed there really is no need to restrict the choice of algorithm or limit the key lengths. Yet the Administration's new policy would limit the strength of encryption keys to 64-bits when used with a key recovery encryption svstem..   The greater the number of individuals at home and in business who employ a key recovery encryption system, the greater will be the government's ultimate access to encrypted information. But a voluntary commercial key recovery encryption system will be widely accepted only if it is a market-driven process in which people want to have others hold their keys. Yet the Administration's proposed criteria outlines a system designed for the convenience of the government -- not the user.   The government contemplates "certifying" a limited number of key escrow encryption agents. It appears to envision stringent qualifications and requirements. It seems directed towards communications -- even though there is no commercial demand for key recovery systems in this area. It arbitrarily limits the key length size as well. Importantly, it fails to address the key issue of the ability of foreign parties to hold the keys for foreign users.   Instead, it appears that the government has in mind imposing a telephone-based model of surveillance on all electronic information communications worldwide. We have noted that the NIST statement did say that revisions were being contemplated to the Escrow Encryption Standard to cover electronic data transmitted over computer networks (not just telephone networks).   2. Criteria For A Workable Commercial Key Recovery Encryption System   Let's be clear from the start -- key escrow encryption or key recovery encryption is not some "Holy Grail." Much as there is not one religion for everyone, and within any one religion there will always be skeptics, there are likely to be some computer users worldwide who will not be interested in letting anyone else "hold" their encryption keys. But at the same time, as explained above, there are several market driven reasons why many computer users might be interested in such systems. And to the extent that such systems are voluntarily employed within the United States and worldwide then we believe the U.S. Government's interests would be served because such systems ensure ultimate access to encrypted information.   We believe commercial key recovery encryption systems that users would want or accept, and thus could be sold, would feature:   + A variety of encryption algorithms using at least 64-bit keys (and more likely much longer keys).   + User specification of a key holder. While users must have the choice of whom to give their keys, we believe many if not most will gravitate towards significant business entities as trusted third parties. Moreover, we believe the Administration should take steps to encourage -- but not require -- the formation of such key holders. It also is essential that foreign parties or entities be able to hold keys for foreign users. Yet the Administration' s guidelines are very vague on this point and seem to suggest that before this could occur new bilateral agreements would have to be negotiated. But unless and until American software companies know that this is possible -- and thus there is a reasonable prospect that foreign users will buy their programs -- they have no incentive or reason to proceed!   + Binding the key recovery system to the encryption function pursuant to good commercial practices such that by-passing the key recovery component or "spoofing" the system will require more time and effort than would be involved in simply using very strong non-key escrow encryption (e.g. triple DES; RC2 with 128 bit key) in the first place.   + The program will not itself provide for multiple encryption. Thuss the system would not be designed so that information could be encrypted by the program itself more than once. Of course, no one can protect against the problem of "super encryption" -- the problem of someone encrypting information with a different non- key recovery system program (e.g. DES) and then using the program with the key recovery component.   + Identify the key holder without notification to the party encrypting the information. This could be done through "headers" or other technological means.   It also should be remembered, however, that it is likely to take two years or so --a product cycle -- to develop and produce programs with commercial key recovery systems once the decision is made to do so. So we are really talking about a longer term approach -- which emphasizes yet again the need for immediate export control liberalization for non-key escrow encryption programs!     Conclusion   The continued delay in providing immediate relief to American software companies by liberalizing export controls on generally available software with non-key escrow encryption capabilities is harming the software industry. The Administration's inability to shake off the Clipper mind set is effectively precluding the adoption of realistic criteria for commercial key recovery encryption systems. Perhaps most importantly, the future of the Global Information Infrastructure and electronic commerce are being jeopardized. Instead of paving the roads, the Administration has left in place roadblocks on the Information Highway.   The time for study is over. The time for action is now. The American software industry deserves the right to be able to compete in the world marketplace.   Let me be clear: we are entering a new wave of computing. One in which consumers are demanding -- because they will need -- security features to be able to access and exchange data on a global basis. American software companies are presently. and arbitrarily, forced to stand on the sidelines as we enter this new era of computing, all because of outmoded restrictions which limit the ability of U.S. companies to sell programs abroad with greater than 40-bit key length encryption. Nothing in the Administration's proposal will change this imbalance because the proposal does not adequately recognize that a key recovery system must be market driven, not government imposed, for it to gain popular acceptance and widespread utilization. By setting the bar too high, the Administration risks failure in satisfying its security objectives and, in doing so, takes the heretofore competitive American software industry out of its most important emerging market.   It need not be this way. We urge the Administration to re-think its current proposal and work with the software industry to devise truly workable, market driven, criteria for exportable software programs with information security features.   Thank you.  

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