SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Promotion of Commerce On-Line in the 
Digital Era (Pro-CODE) Act of 1996''.

SEC. 2. FINDINGS; PURPOSE.

    (a) Findings.--The Congress finds the following:
            (1) The ability to digitize information makes carrying out 
        tremendous amounts of commerce and personal communication 
        electronically possible.
            (2) Miniaturization, distributed computing, and reduced 
        transmission costs make communication via electronic networks a 
        reality.
            (3) The explosive growth in the Internet and other computer 
        networks reflects the potential growth of electronic commerce 
        and personal communication.
            (4) The Internet and the global information infrastructure 
        have the potential to revolutionize the way individuals and 
        businesses conduct business.
            (5) The full potential of the Internet for the conduct of 
        business cannot be realized as long as it is an insecure medium 
        in which confidential business information and sensitive 
        personal information remain at risk of unauthorized viewing, 
        alteration, and use.
            (6) Encryption of information enables businesses and 
        individuals to protect themselves against the unauthorized 
        viewing, alteration, and use of information by employing widely 
        understood and readily available science and technology to 
        ensure the confidentiality, authenticity, and integrity of 
        information.
            (7) In order to promote economic growth and meet the needs 
        of businesses and individuals in the United States, a variety 
        of encryption products and programs should be available to 
        promote strong, flexible, and commercially acceptable 
        encryption capabilities.
            (8) United States computer, computer software and hardware, 
        communications, and electronics businesses are leading the 
        world technology revolution, as those businesses have developed 
        and are prepared to offer immediately to computer users 
        worldwide a variety of communications and computer hardware and 
        computer software that provide strong, robust, and easy-to-use 
        encryption.
            (9) United States businesses seek to market the products 
        described in paragraph (8) in competition with scores of 
        foreign businesses in many countries that offer similar, and 
        frequently stronger, encryption products and programs.
            (10) United States businesses have been discouraged from 
        further developing and marketing products with encryption 
        capabilities because of regulatory efforts by the Secretary of 
        Commerce, acting through the National Institute of Standards 
        and Technology, and other entities to promulgate standards and 
        guidelines in support of government-designed solutions to 
        encryption problems that--
                    (A) were not developed in the private sector; and
                    (B) have not received widespread commercial 
                support.
            (11) Because of outdated Federal controls, United States 
        businesses have been prohibited from exporting strong 
        encryption products and programs.
            (12) The Secretary of Commerce, acting through the National 
        Institute of Standards and Technology, has attempted to 
        leverage the desire of United States businesses to sell 
        commercial products to the United States Government, and sell a 
        single product worldwide, to force the businesses to include 
        features in products sold by the businesses in the United 
        States and in foreign countries that will allow the Federal 
        Government easy access to the plain text of all electronic 
        information and communications.
            (13) Specifically, the Secretary of Commerce, acting 
        through the National Institute of Standards and Technology, has 
        proposed that United States businesses be allowed to sell 
        products and programs offering strong encryption to the United 
        States Government and in foreign countries only if the products 
        and programs include a feature guaranteeing the Federal 
        Government access to a key that decrypts information (hereafter 
        in this section referred to as ``key escrow encryption'').
            (14) The key escrow encryption approach to regulating 
        encryption is reflected in the approval in 1994 by the National 
        Institute of Standards and Technology of a Federal information 
        processing standard for a standard of escrowed encryption, 
        known as the ``clipper chip'', that was flawed and 
        controversial.
            (15) The Federal Government--
                    (A) has designed key escrow encryption to solve a 
                perceived problem; and
                    (B) has ignored the fact that--
                            (i) there is no demonstrated commercial 
                        demand for features which give governments easy 
                        access to information; and
                            (ii) numerous nonkey escrow encryption 
                        alternatives are available commercially from 
                        foreign suppliers and free of charge from the 
                        Internet.
            (16) In order to promote electronic commerce in the twenty-
        first century and to realize the full potential of the Internet 
        and other computer networks--
                    (A) United States businesses should be encouraged 
                to develop and market products and programs offering 
                encryption capabilities; and
                    (B) the Federal Government should be prohibited 
                from promulgating regulations and adopting policies 
                that discourage the use and sale of encryption.
    (b) Purpose.--The purpose of this Act is to promote electronic 
commerce through the use of strong encryption by--
            (1) recognizing that businesses in the United States that 
        offer computer hardware and computer software made in the 
        United States that incorporate encryption technology are ready 
        and immediately able, with respect to electronic information 
        that will be essential to conducting business in the twenty-
        first century to provide products that are designed to--
                    (A) protect the confidentiality of that 
                information; and
                    (B) ensure the authenticity and integrity of that 
                information;
            (2) restricting the Department of Commerce with respect to 
        the promulgation or enforcement of regulations, or the 
        application of policies, that impose government-designed 
        encryption standards; and
            (3) promoting the ability of United States businesses to 
        sell to computer users worldwide computer software and computer 
        hardware that provide the strong encryption demanded by such 
        users by--
                    (A) restricting Federal or State regulation of the 
                sale of such products and programs in interstate 
                commerce;
                    (B) prohibiting mandatory key escrow encryption 
                systems; and
                    (C) establishing conditions for the sale of 
                encryption products and programs in foreign commerce.

SEC. 3. DEFINITIONS.

    For purposes of this Act, the following definitions shall apply:
            (1) As is.--The term ``as is'' means, in the case of 
        computer software (including computer software with encryption 
        capabilities), a computer software program that is not 
        designed, developed, or tailored by a producer of computer 
        software for specific users or purchasers, except that such 
        term may include computer software that--
                    (A) is produced for users or purchasers that supply 
                certain installation parameters needed by the computer 
                software program to function properly with the computer 
                system of the user or purchaser; or
                    (B) is customized by the user or purchaser by 
                selecting from among options contained in the computer 
                software program.
            (2) Computing device.--The term ``computing device'' means 
        a device that incorporates one or more microprocessor-based 
        central processing units that are capable of accepting, 
        storing, processing, or providing output of data.
            (3) Computer hardware.--The term ``computer hardware'' 
        includes computer systems, equipment, application-specific 
        assemblies, modules, and integrated circuits.
            (4) Decryption.--The term ``decryption'' means the 
        unscrambling of wire or electronic communications or 
        information using mathematical formulas, codes, or algorithms.
            (5) Decryption key.--The term ``decryption key'' means the 
        variable information used in a mathematical formula, code, or 
        algorithm, or any component thereof, used to decrypt wire or 
        electronic communications or information that has been 
        encrypted.
            (6) Designed for installation by the user or purchaser.--
        The term ``designed for installation by the user or purchaser'' 
        means, in the case of computer software (including computer 
        software with encryption capabilities) computer software--
                    (A) with respect to which the producer of that 
                computer software--
                            (i) intends for the user or purchaser 
                        (including any licensee or transferee), to 
                        install the computer software program on a 
                        computing device; and
                            (ii) has supplied the necessary 
                        instructions to do so, except that the producer 
                        or distributor of the computer software program 
                        (or any agent of such producer or distributor) 
                        may also provide telephone help-line or onsite 
                        services for computer software installation, 
                        electronic transmission, or basic operations; 
                        and
                    (B) that is designed for installation by the user 
                or purchaser without further substantial support by the 
                supplier.
            (7) Encryption.--The term ``encryption'' means the 
        scrambling of wire or electronic communications or information 
        using mathematical formulas, codes, or algorithms in order to 
        preserve the confidentiality, integrity, or authenticity of 
        such communications or information and prevent unauthorized 
        recipients from accessing or altering such communications or 
        information.
            (8) General license.--The term ``general license'' means a 
        general authorization that is applicable to a type of export 
        that does not require an exporter of that type of export to, as 
        a condition to exporting--
                    (A) submit a written application to the Secretary; 
                or
                    (B) receive prior written authorization by the 
                Secretary.
            (9) Generally available.--The term ``generally available'' 
        means, in the case of computer software (including software 
        with encryption capabilities), computer software that--
                    (A) is distributed via the Internet or that is 
                widely offered for sale, license, or transfer (without 
                regard to whether it is offered for consideration), 
                including over-the-counter retail sales, mail order 
                transactions, telephone order transactions, electronic 
                distribution, or sale on approval; or
                    (B) preloaded on computer hardware that is widely 
                available.
            (10) Internet.--The term ``Internet'' means the 
        international computer network of both Federal and non-Federal 
        interconnected packet-switched data networks.
            (11) Secretary.--The term ``Secretary'' means the Secretary 
        of Commerce.
            (12) State.--The term ``State'' means each of the several 
        States of the United States, the District of Columbia, the 
        Commonwealth of Puerto Rico, and any territory or possession of 
        the United States.

SEC. 4. RESTRICTION OF DEPARTMENT OF COMMERCE ENCRYPTION ACTIVITIES 
              IMPOSING GOVERNMENT ENCRYPTION SYSTEMS.

    (a) Limitation on Regulatory Authority Concerning Encryption 
Standards.--The Secretary may not (acting through the National 
Institute of Standards and Technology or otherwise) promulgate, or 
enforce regulations, or otherwise adopt standards or carry out policies 
that result in encryption standards intended for use by businesses or 
entities other than Federal computer systems.
    (b) Limitation on Authority Concerning Exports of Computer Hardware 
and Computer Software With Encryption Capabilities.--The Secretary may 
not promulgate or enforce regulations, or adopt or carry out policies 
in a manner inconsistent with this Act, or that have the effect of 
imposing government-designed encryption standards on the private sector 
by restricting the export of computer hardware and computer software 
with encryption capabilities.

SEC. 5. PROMOTION OF COMMERCIAL ENCRYPTION PRODUCTS.

    (a) Prohibition on Restrictions on Sale or Distribution in 
Interstate Commerce.--
            (1) In general.--Notwithstanding any other provision of 
        law, neither the Federal Government nor any State may restrict 
        or regulate the sale in interstate commerce, by any person of 
        any product or program with encryption capabilities. Nothing in 
        this paragraph may be construed to preempt any provision of 
        Federal or State law applicable to contraband or regulated 
        substances.
            (2) Applicability.--Paragraph (1) shall apply without 
        regard to the encryption algorithm selected, encryption key 
        length chosen, or implementation technique or medium used for a 
        product or program with encryption capabilities.
    (b) Prohibition on Mandatory Key Escrow.--Neither the Federal 
Government nor any State may require, as a condition of sale in 
interstate commerce, that a decryption key be given to any other person 
(including a Federal agency or an entity in the private sector that may 
be certified or approved by the Federal Government or a State).
    (c) Control of Exports by Secretary.--
            (1) General rule.--Notwithstanding any other provision of 
        law and subject to paragraphs (2), (3), and (4), the Secretary 
        shall have exclusive authority to control exports of all 
        computer hardware, computer software, and technology with 
        encryption capabilities, except computer hardware, computer 
        software, and technology that is specifically designed or 
        modified for military use, including command, control, and 
        intelligence applications.
            (2) Items that do not require validated licenses.--Only a 
        general license may be required, except as otherwise provided 
        under the Trading With The Enemy Act (50 U.S.C. App. 1 et seq.) 
        or the International Emergency Economic Powers Act (50 U.S.C. 
        1701 et seq.) (but only to the extent that the authority of the 
        International Emergency Economic Powers Act is not exercised to 
        extend controls imposed under the Export Administration Act of 
        1979), for the export or reexport of--
                    (A) any computer software, including computer 
                software with encryption capabilities, that is--
                            (i) generally available, as is, and 
                        designed for installation by the user or 
                        purchaser; or
                            (ii) in the public domain (including on the 
                        Internet) or publicly available because it is 
                        generally accessible to the interested public 
                        in any form; or
                    (B) any computing device or computer hardware 
                solely because it incorporates or employs in any form 
                computer software (including computer software with 
                encryption capabilities) that is described in 
                subparagraph (A).
            (3) Computer software and computer hardware with encryption 
        capabilities.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the Secretary shall authorize the export or 
                reexport of computer software and computer hardware 
                with encryption capabilities under a general license 
                for nonmilitary end-uses in any foreign country to 
                which those exports of computer software and computer 
                hardware of similar capability are permitted for use by 
                financial institutions that the Secretary determines 
                not to be controlled in fact by United States persons.
                    (B) Exception.--The Secretary shall prohibit the 
                export or reexport of computer software and computer 
                hardware described in subparagraph (A) to a foreign 
                country if the Secretary determines that there is 
                substantial evidence that such software and computer 
                hardware will be--
                            (i) diverted to a military end-use or an 
                        end-use supporting international terrorism;
                            (ii) modified for military or terrorist 
                        end-use; or
                            (iii) reexported without the authorization 
                        required under Federal law.
    (d) Statutory Construction.--Nothing in this Act may be construed 
to affect any law in effect on the day before the date of enactment of 
this Act designed to prevent the distribution of descramblers and any 
other equipment for illegal interceptions cable and satellite 
television signals.
Promotion of Commerce On-Line in the Digital Era (Pro-CODE) Act of 1996 - Prohibits the Secretary of Commerce (acting through the National Institute of Standards and Technology or otherwise) from promulgating or enforcing regulations, or otherwise adopting standards or carrying out policies:  (1) that result in encryption standards intended for use by businesses or entities other than Federal computer systems; or (2) in a manner inconsistent with this Act, or that have the effect of imposing Government-designed encryption standards on the private sector by restricting the export of computer hardware and computer software with encryption capabilities. 
(Sec. 5) Prohibits the Federal and State governments from:  (1) restricting or regulating the interstate sale by any person of any product with encryption capabilities; or (2) requiring, as a condition of such a sale, that a decryption key be given to any other person (including a Federal agency or a private entity certified or approved by the Federal or a State government). 
Grants the Secretary exclusive authority to control exports of all computer hardware, software, and technology with encryption capabilities, except that which is specifically designed or modified for military use, including command, control, and intelligence applications. 
Prohibits requiring any validated license (with limited exceptions) for the export or reexport of any:  (1) computer software, including that with encryption capabilities, that is generally available, as is, and designed for installation by the purchaser, or that is in the public domain (including on the Internet) or publicly available because it is generally accessible to the public in any form; or (2) computing device or computer hardware solely because it incorporates or employs in any form such computer software (including that with encryption capabilities). 
Directs the Secretary to authorize the export or reexport of computer software with encryption capabilities under a general license for nonmilitary end-uses in any country to which exports of software or hardware of similar capability are permitted for use by financial institutions not controlled in fact by U.S. persons, unless there is substantial evidence that such software and hardware will be diverted to a military end-use or an end-use supporting international terrorism, modified for military or terrorist end-use, or reexported without requisite Federal authorization. 
Declares that nothing in this Act may be construed to affect any law in effect before this Act's enactment designed to prevent the distribution of descramblers and any other equipment for illegal interceptions of cable and satellite television signals.
Promotion of Commerce On-Line in the Digital Era (Pro-C0DE) Act of 1996