```

[Senate Hearing 106-1070]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 106-1070

UTAH'S DIGITAL ECONOMY AND THE FUTURE: PEER-TO-PEER AND OTHER EMERGING 
                              TECHNOLOGIES

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

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                            OCTOBER 9, 2000

                               __________

                               PROVO, UT

                               __________

                          Serial No. J-106-113

                               __________

         Printed for the use of the Committee on the Judiciary

                    U.S. GOVERNMENT PRINTING OFFICE
75-313                      WASHINGTON : 2001

For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone (202) 512�091800  Fax: (202) 512�092250
              Mail: Stop SSOP, Washington, DC 20402�090001

                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
             Manus Cooney, Chief Counsel and Staff Director
                 Bruce A. Cohen, Minority Chief Counsel

                            C O N T E N T S

                              ----------                              

                     STATEMENT OF COMMITTEE MEMBER

                                                                   Page

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     1

                               WITNESSES

Breinholt, Peter, Recording Artist and Performer, prepared 
  statement......................................................    25
Fanning, Shawn, Founder, Napster, Inc., prepared statement.......    29
Israelsen, D. Brent, Founder, President and Chief Executive 
  Officer, iLumin, prepared statement............................     7
Miller, Craig, Vice President and General Manager, Net Management 
  Group, Novell, Inc., prepared statement........................    14
Nelson, Richard, President and Chairman, Utah Information 
  Technologies Association; and attachments......................    21
Pelo, Brad, Chief Executive Officer, Nextpage, prepared statement     4
Simmons, Robert, Chief Financial Officer, Campus Pipeline, Inc., 
  prepared statement.............................................    18

                                APPENDIX
                  Additional Submission for the Record

High-Tech and Intellectual Property Accomplishments of Hon. Orrin 
  G. Hatch, a U.S. Senator from the State of Utah................    47

 
UTAH'S DIGITAL ECONOMY AND THE FUTURE: PEER-TO-PEER AND OTHER EMERGING 
                              TECHNOLOGIES

                              ----------                               

                        MONDAY, OCTOBER 9, 2000

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                         Provo, UT.
    The committee met, pursuant to notice, at 9 a.m., in the 
Terrace Room, Ernest L. Wilkinson Center, Brigham Young 
University, Provo, UT, Hon. Orrin G. Hatch (chairman of the 
committee) presiding.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
                       THE STATE OF UTAH

    Chairman Hatch. This hearing is convened here this morning 
to explore the vistas of rapid technological progress that is 
opening to us. I think it is appropriate to have a hearing at 
one of the most wired campuses in one of the most wired States 
in the Nation, where those who will help form the future can 
view and participate in the discussion. Now I welcome all of 
you and invite those here to find the papers available in the 
aisles to write questions we can consider asking our panelists 
as they make their presentations.
    We will have to go through the questions and sit through 
them but we won't have time for them all, but it's a good 
opportunity for some of you to ask the questions that are 
bothering you about these areas.
    Let me just mention how fitting a place Utah is to have a 
hearing on trends in technology. According to the Utah 
Information Technologies Association, Utah's information 
technology industry, which generated over 7.7 billion dollars 
in revenues, ranks in the top 10 centers of I.T. activity in 
the United States, and ranks in the top five centers of 
software in the United States.
    Inc. Magazine ranked Salt Lake as the second best city in 
the Nation in which to start and grow a business, citing our 
wealth of brainpower and entrepreneurship. Newsweek magazine 
included Utah in the top 10 information technology centers in 
the world. Utah has been riding high on the wave of recent 
technological development, and we're very pleased and proud of 
that.
    Over the past few years, the growth of the Internet, 
wireless and other forms of digital communication have been 
rapidly modifying the way we shop, talk, work, play, create, 
and interact with each other. We are riding a revolution that 
continues to advance at an increasing rate. According to such 
visionaries as Intel chairman Andy Grove, we may be on the cusp 
of another major change with the development of technology 
called peer-to-peer or distributed networking.
    The most famous example of peer-to-peer networking is 
Napster, whose creator is here with us today. He told me he's 
quite nervous. I said, ``Do you get nervous anymore?'' Of 
course at 19 years of age he says, ``I get nervous,'' but we're 
real proud of him and proud of the efforts he's made and proud 
of the things he's been able to accomplish.
    To quote Mr. Grove, who is a friend, ``The whole Internet 
could be re-architected by Napster-like technology.'' Fortune 
magazine has called the technology embodied in Napster, ``The 
Next Big Thing,'' for the Internet.
    Peer-to-peer means that everyone's home computer becomes 
like a server, so that rather than many customers browsing 
through the content stored on large servers, individuals search 
for information or entertainment on each other's computers. 
This technology could reduce costs for individuals who want to 
be their own publisher. It allows for more up-to-date 
information to be more quickly searchable, and could make more 
efficient use of computing power. It could further connect us 
to each other.
    It could make artists like Mr. Breinholt able to publish 
his own music less expensively, or connect with his fans more 
directly. It could help researchers or students and teachers 
trade information more directly, ensuring that all have access 
to the most up-to-date information.
    It also rates as a number of policy issues. Napster itself 
has been one of a number of Internet music companies embroiled 
in controversy surrounding the contours of copyright law, 
something I take a great interest in, among other matters.
    When individuals are searching each other's home computer 
files, serious questions of privacy and security are raised. 
Many of our witnesses have their own ideas about this new 
technology, and each brings a unique vision of where we are 
heading. We have some of Utah's high technology leaders with us 
today, including representatives of Novell, iLumin, Campus 
Pipeline, and, through the Utah Information Technology 
Association, many others.
    Additionally, we have the creator of Napster, Shawn 
Fanning; and Peter Breinholt, an artist who represents all the 
creators whose works are being transmitted across the wired and 
wireless world.
    These various perspectives and varied perspectives should 
enlighten us on where the technology being created by Utahns 
and others is taking us, and how Washington might be able to 
help, or how we might be able to keep Washington's hands off of 
ruining the various industries as well.
    I see the role of policymakers as facilitators of positive 
change in this area. We need policies that foster innovation 
and creativity, and that the users of the technology can enjoy. 
In the field of entertainment, for example, artists can 
potentially connect more directly with their audience, using 
new digital delivery systems like the Internet. Music fans can 
more easily enjoy music on wireless devices, taking all of 
their music with them wherever they go, without having to lug 
huge cases of CD's with them. That's terrifying to some in the 
music industry, by the way.
    I view the stakeholders as the people on the two ends of 
the wires, as well as those stringing the wires. With creative 
thinking, there is substantial synergy to brighten the lives of 
all of us in the more interconnected future.
    And as we discuss connecting the globe, I am proud to have 
this discussion. I'm glad to be here in a community that is 
home to me, in Utah and at BYU, where I was challenged and 
inspired to think about the future.
    With that, let me welcome our witnesses to the dais.
    Our first witness--we're going to do this in reverse order. 
Let me just introduce them from the left to the right; from my 
left to right.
    One of our witnesses today will be Shawn Fanning. Shawn 
Fanning is the inventor of the Napster software application and 
founder of the Napster Internet music community. A native of 
Massachusetts, Mr. Fanning developed the original Napster 
application and service in January 1999, while a freshman at 
Northeastern University.
    Napster is the fastest growing application in the history 
of the Internet. In early October 2000 the Napster community 
numbered over 32 million worldwide.
    Shawn continues to be active in the development and growth 
of the Napster technology and business. And of course as you 
all know, he's probably been on more front pages of magazines 
than almost anybody in history except perhaps John F. Kennedy.
    Now Shawn, we don't think you should run for office. We 
think you should keep doing what you're doing, although knowing 
a little bit about you, I'm not sure you shouldn't run for 
office too.
    Our next witness, or one of the next witnesses, will be Mr. 
Peter Breinholt. Mr. Breinholt is a singer/songwriter who uses 
the Internet to distribute his music, as well as connect with 
his fans. In addition to selling CD's on his website, he also 
sells MP3 downloads and offers streaming samples of his music. 
Since forming the group ``Big Parade'' in 1993, Mr. Breinholt 
has enjoyed growing success in Utah and the Intermountain 
region, playing regularly to sold-out venues throughout the 
west.
    We will hear from Richard Nelson, who is the president and 
chairman of the Utah Information Technologies Association. Mr. 
Nelson will speak about the growing Utah I.T. economy, and what 
he sees as the paramount public policy issues for Congress.
    We will also hear from Robert Simmons, chief financial 
officer for Campus Pipeline, Inc. Before helping to found 
Campus Pipeline, Mr. Simmons helped produce the phenomenal 
growth of Iomega, another leading Utah technology company; and 
Oracle, one of the worlds leading high-tech companies.
    We will hear from Craig H. Miller, vice president and 
general manager of Net Management Group; Novell, Inc. Mr. 
Miller will offer the perspective of one of Utah's leading 
software companies on the topic of how we and our computers 
will interact with each other in the coming years.
    We will hear from D. Brent Israelsen, founder, president, 
and chief executive officer of iLumin. Prior to his current 
role as president of iLumin, Israelsen served as president of 
JurisSoft, a division of Lexis/Nexis. Mr. Israelsen will offer 
his views on an issue of increasing interest to Utahns; that 
is, Internet security and privacy, and that's of great interest 
to us, because we have to make some determinations, probably in 
the next Congress, where we're going to go in that area, and 
it's a very complex, very hard fought-over area.
    Finally, we'll probably hear first from Brad Pelo, chief 
executive officer of NextPage. Mr. Pelo previously served as 
chairman of Book Craft, a leading Utah publisher of books and 
e-texts, and founded the Folio Corporation. Mr. Pelo's business 
takes the peer-to-peer technology and uses it in a business-to-
business environment.
    Now, our time is short and I want to leave some time for 
questions, so I would like each of you to try to keep your 
testimony under 10 minutes, and if we can do that I'd be very 
appreciative. I'll notify you at 10 minutes, and I hope you'll 
wind up if you're still going on.
    On the other hand, if we're going to get some really new 
innovations here today, I might let you go a minute or two 
longer.
    But let's start with Mr. Pelo. We'll go from my right to 
left, and we'll start with you, Brad, and I'm looking forward 
to this area as much as anybody.

    PANEL CONSISTING OF BRAD PELO, CHIEF EXECUTIVE OFFICER, 
  NEXTPAGE; D. BRENT ISRAELSEN, FOUNDER, PRESIDENT AND CHIEF 
  EXECUTIVE OFFICER, iLUMIN; CRAIG MILLER, VICE PRESIDENT AND 
  GENERAL MANAGER, NET MANAGEMENT GROUP, NOVELL, INC.; ROBERT 
   SIMMONS, CHIEF FINANCIAL OFFICER, CAMPUS PIPELINE, INC.; 
   RICHARD NELSON, PRESIDENT AND CHAIRMAN, UTAH INFORMATION 
TECHNOLOGIES ASSOCIATION; PETER BREINHOLT, RECORDING ARTIST AND 
      PERFORMER; AND SHAWN FANNING, FOUNDER, NAPSTER, INC.

                     STATEMENT OF BRAD PELO

    Mr. Pelo. Thank you. And thank you, Mr. Chairman, for the 
invitation to address the Judiciary Committee, and in such a 
fine venue as my alma mater, BYU.
    Today peer-to-peer technology offers tremendous 
revolutionary impact to all of us. We've seen that impact 
through Shawn's work at Napster, and we think that rather than 
being threatened by the emergence of peer-to-peer technologies, 
we need to view it as an opportunity.
    At the very time Shawn's company was being sued by a legion 
of attorneys, another legion of attorneys at the world's 
largest law firm, Baker & McKenzie, was implementing NextPage's 
peer-to-peer technology, allowing lawyers, rather than sharing 
MP3 files, to share peer-to-peer access to their legal content 
among their 61 offices worldwide.
    NextPage is a Utah-based company headquartered at 
Thanksgiving Point's new corporate center. Just 15 months old, 
we have 160 employees, and today we'll introduce to you the 
idea that peer-to-peer technologies offer tremendous potential 
to revolutionize the way businesses conduct information.
    We believe that rather than being threatening to markets, 
peer-to-peer technology provides an opportunity for 
intellectual property holders to in fact share and leverage 
information among their suppliers, partners, customers, and 
employees.
    In fact, recently in a conversation with the leading 
analyst at the Gartner Group, John Pescatore said that he 
believes peer-to-peer technology has the potential to be the 
single most influential technology of our age, significantly 
changing business models and changing management methods.
    Our customers at NextPage share that same vision. With 
peer-to-peer technologies they can unlock not just websites and 
e-commerce opportunities, but the tremendous intellectual 
assets of their businesses.
    Think, for example, of the ideas locked in documents, the 
information in digital assets like databases. Sharing that 
information now with their customers, with their suppliers, and 
partners, allows us to leverage peer-to-peer technologies in a 
way far beyond what we've perhaps envisioned to this point.
    NextPage's technology provides secure access in that 
peering environment so that copyrights are protected, that 
access to intellectual property is monitored and tracked, so 
that in any business environment we have the potential of 
protecting the assets that are most important to us.
    Let me, if I can, just refer you to the screen, Mr. 
Chairman, I don't know if you can see this, but I'll describe 
for you the models that we've seen evolving over the last 
decade as the Internet has been introduced to us.
    First is the model of what I call content linking. The 
Internet itself is a form of a distributed network, or peer-to-
peer network, except that the only information that is being 
peered is the addresses of the computers themselves. So to 
access content on these systems, URL's or links are 
established, linking the content from one server to another by 
following the link. You might consider the likes of Yahoo who 
allow us to navigate content on the Internet by following such 
a link.
    If you then go to another model of Content Networking, that 
would be the model of content aggregating, where content is 
actually syndicated or downloaded into a central repository, 
where it is then made available. This is the model typically 
used by enterprises, large companies around the world, to allow 
access to distributed information.
    In the new models of peer-to-peer Content Networking, the 
content itself will remain on the systems that created it, and 
the linkages will in fact be in the form of peer-to-peer 
protocols, so the content itself is able to be accessed without 
physically going to any one location, but the systems 
themselves speak to each other and allow access to that 
content.
    If we then extend this model out to the participants in an 
e-business relationship, the center hub here is my fictitious 
company where they have peer-to-peer Content Networks 
established, but now those links allow them to have peer-to-
peer connectivity with their manufacturing partners, suppliers, 
customers, and professional services firms.
    Up at the right of the screen, Squire & Company represents 
a tax advisor to my company, and in this content network, if we 
extend the connections now that Squire & Company has made in 
their peer-to-peer network, it includes the SEC, the American 
Institute of CPA's, the Financial Accounting Standards Board, 
and others.
    And then finally there may be content exchanges which in 
fact is the model that Napster has employed, where content can 
also be peer-to-peer connected from independent publishers or 
established publishers.
    NextPage, over the past 15 months, has helped professional 
publishers and digital rights owners around the world transact 
business approaching 1 billion dollars in this first 15-month 
period using this technology. So today we believe the frontier 
for peer-to-peer technologies is not about lawsuits and 
unfounded fears and threats; it's about the promise of 
unlocking the value of dynamically built and leveraged 
intellectual assets among market participants.
    The real question is: How do we protect those assets in a 
world where they become freely available? Peer-to-peer 
technologies are nothing to be feared, and as NextPage has 
demonstrated in our short history, there are companies around 
the world trying to solve the very problem that Shawn solved by 
creating Napster.
    It is in fact the problem of accessing content easily 
without having to physically surf the Net to find it. In e-
business relationships where time is literally money, peer-to-
peer Content Networking allows this information sharing to 
seamlessly take place between market suppliers and market 
makers, their customers, employees, and participants.
    We strongly encourage this committee and the Senate to 
consider legislation that will further protect rightsholders 
but will acknowledge the anticipated market shifts that will 
occur as new technologies like peer-to-peer technologies are 
introduced to the market.
    Thank you for the opportunity to testify today.
    Chairman Hatch. Thank you, Mr. Pelo. We appreciate your 
testimony. It's extremely interesting.
    [The prepared statement of Mr. Pelo follows:]

                    Prepared Statement of Brad Pelo

    Today peer-to-peer technology stands to revolutionize the new 
digital economy, impacting us all in ways that we have only recently 
begun to appreciate. Like most emerging technologies, what is once seen 
as a threat later emerges as an opportunity. While lawyers were busy 
filing suit against Napster's peer-to-peer offering, the world's 
largest law firm, Baker & McKenzie was implementing NextPage's peer-to-
peer technology. Instead of swapping MP3 files, lawyers will now be 
able to locate relevant content from their 61 law offices spread 
throughout the world.
    E-businesses will spend billions of dollars over the next couple of 
years on Internet initiatives targeted at enhancing all aspects of 
relationships between partners, suppliers, customers and employees. To 
date, e-businesses have started to streamline business transactions, 
however, the greater business opportunity lies in the exchange of 
expertise, ideas and information between companies. The majority of 
this expertise is buried in documents, spreadsheets, e-mail, databases, 
and legacy systems all over corporate intranets and the Internet. 
Companies are looking for software solutions that can unlock that 
expertise.
    These companies are looking for a solution that solves these two 
problems:
          How to give users access to the content they need without 
        having to centralize and maintain that content, and
          How to deliver critical content from outside the company--
        from partners, suppliers, customers, and so on--in a format 
        that's current and accessible.
    NextPage is a Utah-based company located at Thanksgiving Point's 
new corporate center. The company was founded in July 1999 and employs 
about 160 employees. NextPage is the first company to deliver a peer-
to-peer content network platform for e-businesses.
    This technology significantly improves productivity of companies 
and fundamentally changes the way corporations access information.
    NextPage software creates a secure network, called a Content 
Network TM where users can manage, access and exchange 
content across distributed servers on intranets, extranets and the 
Internet to enhance e-business relationships. The Content Network is 
accessed through a Web browser and viewed as if the information existed 
in a single location.
    The NextPageTM Content Networking Platform eliminates 
traditional barriers of intranets, extranets and the Internet by 
providing users a single point of access to information from dispersed 
sources and different data types, such as XML, HTML, Microsoft Office, 
Adobe PDF files and database repositories. Once these sources are 
linked together in a peer-to-peer Content Network, they become a 
single, virtual repository.
    With the Platform, content no longer needs to be pushed around the 
Internet or centralized on an intranet or extranet server to be 
accessed. Content can be created and maintained in its original 
location by its original author. Users can search, navigate, categorize 
and personalize information in their Content Networking real time.
    This NextPage application can scale to tens of thousands of 
concurrent users and handle multi-gigabytes of information, while still 
providing secure, personalized information based on an individual 
user's needs.
    Peer-to-peer technologies can become market threatening or market 
making. The press and intellectual property holders have been focused 
on the perceived threats of peer-to-peer technologies while we at 
NextPage have been busily focused on its opportunities.
    The potential benefits of peer-to-peer technology are unprecedented 
in our time. In fact, during a recent visit with John Pescatore, a 
leading analyst with the Gartner Group, he said he believes that of all 
emerging technologies peer-to-peer stands to change business models and 
impact management approaches more than any other.
    NextPage's customers have a vision of the Internet being a system 
of individualized relationships where the secure connections create 
tremendous value. While e-commerce and Web sites are important elements 
of an e-business strategy, many of our customers are working to unlock 
the expertise, ideas and shared knowledge among suppliers, customers, 
partners and employees. Peer-to-peer technologies can unlock this 
potential.
    Baker & McKenzie, one of the largest law firms in the world, is 
implementing NextPage technology. The NextPage Content Networking 
Platform will enable the nearly 2,800 Baker & McKenzie attorneys and 
key clients around the world to manage, access and exchange business-
critical information in an integrated, seamless manner. Through 
NextPage technology, continuous electronic links connect separate 
content servers, allowing attorneys to simultaneously access intranet 
sites, Internet sites, and other document repositories in real time.
    Linking Baker & McKenzie offices and clients throughout the world 
is part of that firm's strategic technology plan. NextPage technology 
enhances the firm's ability to interact and respond to clients in a 
more integrated way.
    Peer-to-peer networks, created in companies like Baker & McKenzie, 
dramatically enhance the value customers and partners derive from their 
relationships and increases employee productivity, fundamentally 
improving a company's bottom line.
    To realize the potential of peer-to-peer technology, this will 
require government to establish legislation that reinforces ownership 
in the digital domain, that penalizes intruders and that establishes 
the rights of business owners to the intellectual property created by 
its employees.

    Chairman Hatch. Let's now turn to D. Brent Israelsen, 
founder and president and chief executive officer of iLumin.

                STATEMENT OF D. BRENT ISRAELSEN

    Mr. Israelsen. Thank you, Mr. Chairman.
    I would like to express gratitude for being able to 
participate today. I am a graduate of the J. Ruben Clark law 
school here at Brigham Young University, and I've spent most of 
my career in Washington, DC, most recently returning here to 
Utah.
    And the reason I came here was really surrounding what 
became iLumin Corporation. We founded iLumin Corporation in 
1996. It's a privately-held, Utah-based company with offices 
here and in the Washington, DC area. It delivers Internet 
infrastructure and technology on a distributed or a peer-to-
peer basis that enables enforceable online transactions to take 
place that really accelerate the closure of business, that last 
speed bump on the e-commerce highway to be able to eliminate 
this legal requirement of being able to close transactions that 
are legally binding that people can count on, that they can 
rely upon.
    And we do this in an environment that now employs digital 
signature technology, and it allows us to utilize now the new 
e-sign legislation that went into effect on October 1 of this 
year, to be able to execute legally-binding transactions over 
the Internet.
    Now if you'll look at e-commerce today, e-commerce is 
generally the ability to buy books, flowers, and Furbys over 
the Internet, sometimes credit cards, sometimes CD's and 
sometimes airline tickets, but it's small-dollar transactions 
that if you don't get your Furby you're not going to be too 
upset. Now, your daughter may be, but you're not going to be 
too upset by that fact.
    The next level of e-commerce really is the level that will 
really allow us to achieve the huge dollar projections the 
analysts predict, and that's the ability to execute legally-
binding transactions over the Internet, that instead of just 
buying books, flowers, and Furbys, allow us to now buy cars, 
houses, and corporations.
    With the enactment of the e-sign legislation and the 
effective date, October 1, 2000, through iLumin's technology, 
called digital handshake server technology, we actually 
executed the first legally-binding transaction over the 
Internet using that e-sign legislation, when ABS Ventures, Alex 
Brown, invested--along with another partner, invested in a 
company over the Internet, and it was done beginning at 12:01 
a.m. eastern time, and finished at 12:10 a.m., and the parties 
were in Florida, Maryland, and other locations, and all of them 
accessed this in the comfort of their homes via the Internet, 
legally executed the binding transaction and it was completed.
    On October 2, the next day in San Francisco, iLumin 
launched its digital handshake server technology, and with that 
we actually closed five transactions. We actually acquired a 
company on line; we actually purchased an automobile on line--
not just looked at it and spun it around and changed colors and 
ordered it, but we actually signed the bill of sale associated 
with that automobile and obtained financing for it.
    In addition to that we signed a W-4 form on line. Imagine 
if we could now move all the W-4 forms on line, and the cost 
savings that that would bring about, not only to the government 
but to every business in the country.
    Hewlett-Packard estimated a couple years ago that they were 
spending a million dollars a year for their 118,000 employees, 
just managing those W-4 forms, because you have to have a 
signed copy on file. Now you can do it completely 
electronically.
    In addition to that, we actually executed some additional 
transactions involving home mortgages. Through iLumin's 
technology here in Utah County, we did the first full home 
mortgage transaction, a refinance transaction, over the 
Internet in June of this year, relying on Utah's law which went 
into effect in 1995.
    With the effective date of the e-sign legislation on 
October 1, we closed transactions here in Utah County, and in 
Essex County, MA, and then Freddie Mac of the secondary market 
stepped forward and acquired the promissory note out of Utah 
County, completely electronically. They were in Virginia when 
they executed the transaction, and the other parties were 
around the country. So this capability now becomes a very, very 
powerful opportunity, now, to move electronic commerce to the 
next level.
    The distributed or peer-to-peer technologies now enhance 
that capability so we can do what we call distributed 
transactions. Parties don't have to be in the same location or 
in the same room, and frankly, we can actually start at one 
location, move it to the next, and move it to the next, to 
finalize the transaction.
    I would like to introduce very briefly what our technology 
is and what it does. And in introduction, what the digital 
handshake server does is really gives you five characteristics 
that we think are important in order to gain trust in 
electronic transactions. And those are enforceability; 
automation; auditability, so you have a full audit trail 
associated with it; security, so that you can rest assured 
you've got secure transactions; and privacy, where we can 
actually protect the privacy better than we can in a paper 
environment, through using digital signature technologies and 
the digital handshake server.
    To start with, if you'll look up on the screen, the problem 
in the Internet today in e-commerce today has been generally 
that we focused on the automation side of the equation. The 
I.T. world operates in the data paradigm, and most of the sites 
up on the Internet today are databases.
    If you go to E-LOAN and try and originate a loan, you're 
basically typing information into a database, and then when you 
go to close, they send you a pile of documents via Federal 
Express so that you can sign.
    Well, if you look at the other equation in this world, and 
that really becomes--and there are a series of technologies 
that allow us to do that--the most exciting is XML because it 
now allows us to automate complete transactions.
    The legal world, however, operates in a paper paradigm. 
Signed paper documents is king. That's what people are 
comfortable with and what they're used to. Now, if you can use 
digital signature technology combined with XML, we can now do a 
completely automated transaction that we call the automated 
enforceable on-line transaction market.
    And with that, I'm going to go ahead and wrap up by doing 
just a very brief demonstration of what a digital handshake 
server does, and as we move forward, recommend that the Senate 
and the Senate Judiciary Committee continue to move forward 
with the electronic signature legislation, provide a structural 
framework for privacy, but allow the rest of the privacy 
capabilities to be dealt with contractual relationships and 
other things that will enable this to move forward very quickly 
while still protecting those who can't protect themselves.
    So with that I'll launch into this quick download.
    [Audio-visual computer presentation followed.]
    Mr. Israelsen. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Israelsen follows:]

                Prepared Statement of D. Brent Israelsen

                          speaker introduction
    D. Brent Israelsen is a 1982 graduate of the J. Reuben Clark Law 
School at Brigham Young University. Mr. Israelsen served as Special 
Assistant to the Deputy Solicitor at the US Department of the Interior 
from August 1982 until June 1983 before becoming a law clerk to the 
Honorable Moody R. Tidwell, III at the United State Claims Court. From 
October 1984 until August 1993, Mr. Israelsen practiced law in the 
Washington, DC Office of the International law firm of Morgan Lewis & 
Bockius where he focused on technology and federal government 
procurement issues. In August of 1993 through May of 1995, Mr. 
Israelsen served as President of Jurisoft, a division of Lexis-Nexis. 
Mr. Israelsen co-founded the Utah Electronic Law and Commerce 
Partnership (www.uelcp.org) and served as a member of the Utah 
Electronic Commerce Council.
                            company overview
    Founded in 1996 by Mr. Israelsen, iLumin Corporation 
(www.ilumin.com) is a privately held, Utah-based company that delivers 
Internet infrastructure technology and services that enable enforceable 
online transactions that accelerate the closure of business, financial, 
government and consumer transactions in the New Economy.
                          introductory remarks
    On July 4, 1776, fifth-six men, risking their lives for their 
vision of a better future, put pen to paper to sign the Declaration of 
Independence, decisively publishing, declaring and binding themselves 
to the principles of freedom enumerated therein. These were the 
visionary leaders who laid the foundation for the future prosperity of 
this great nation. More than two hundred years later, Governor Michael 
Leavitt of Utah, another visionary leader, signed into law on March 9, 
1995 the nation's first Digital Signature Act, setting the course 
towards a digital future for the State of Utah. This Act, for the first 
time anywhere in the world, established legal parity between digitally-
signed electronic documents and manually-signed paper documents.
    On June 30, 2000, President Bill Clinton extended the digital 
economy to the federal government and across all states by signing into 
law the Electronic Signatures in Global and National Commerce Act (E-
SIGN) using a computer terminal and a digital signature (provided by a 
Digital Signature Trust, a Utah company). At this historic signing, 
President Clinton firmly published, declared and bound the nation to a 
digital future with the use of his digital signature.
    This event, combined with the passage in 1998 of the Government 
Paperwork Elimination Act (which requires full digital access to the 
federal government by 2003), marked a major endorsement by the federal 
government in support of a revolutionary movement towards a digital 
future.
    With these actions, the federal government has laid the foundation 
required to fully unleash the potential of E-Commerce in the New 
Economy. While there are still some problems that must be addressed, we 
need to keep moving forward in our quest for a more efficient digital 
economy.
    Today, we meet with you, Senator Hatch, to discuss what Utah 
companies, generally, and what iLumin Corporation, specifically, are 
doing to further the digital revolution, and what government can do to 
help facilitate the process.
                          e-commerce overview
    Today, e-commerce can best be described as buying books, flowers 
and Furby's over the Internet. These are essentially credit card 
transactions where the merchant is willing to bear the risk of loss if 
the purchaser repudiates responsibility for the transaction. While this 
level of e-commerce has gotten us out of the starting blocks, the real 
growth (as projected by analysts) comes at the next level of e-
commerce. Instead of just buying books, flowers and Furby's (and 
airline tickets and CDs), the next level of e-commerce relies upon the 
execution of legally-binding documents over the Internet that will 
allow the purchase of cars, houses, and companies. The federal E-SIGN 
legislation opens the door for these types of transactions.
    However, we must still address other problems in order to benefit 
fully from the opportunities offered by the E-SIGN legislation. The 
primary issue impeding rapid growth in e-commerce is the issue of 
trust. In a 1998 survey of technology executives, Ernst & Young 
concluded:

        .  Lack of trust has emerged as the overwhelming leading 
        barrier to the continued growth of electronic commerce. Ernst & 
        Young/ITAA Survey of Technology Executives, Feb. 1998.

    How do we cloak e-commerce with a mantel of trust sufficient to 
encourage broad participation in the digital economy? In order to be 
trustworthy, iLumin believes that an e-commerce transaction must have 
the following attributes: private and secure, enforceable and 
auditable, and automated and efficient.
Private and secure
    In reality, there are strong parallels between the paper world and 
the electronic world with respect to privacy and security. The 
differences are those of scope and speed. We are generally comfortable 
transacting business in the paper world because we have grown 
comfortable with the risks associated with paper-based transactions. We 
are generally uncomfortable transacting business in the electronic 
world because we don't fully understand the risks and we lack clear 
guidelines and processes that will allow us to comfortably quantify 
those risks.
    Paper is old technology that provides little to no privacy or 
security, yet, over time, we have grown to trust and rely on paper-
based transactions. Information transmitted on paper can easily be 
intercepted through the mail, courier or even fax-based systems. Many 
hands and eyes have access to information on paper throughout the 
entire transaction process. After the transaction process is complete, 
paper documents are stored and can be easily accessed. Finally, even 
though a transaction may be paper-based, most of the data on that paper 
is stored electronically already.
    By applying new technologies to old problems, we can improve 
privacy and security in the electronic world over what we currently 
live with in the paper world. Not unlike its role in the current paper-
based transaction processes, government needs to play a similar role in 
determining policy and alleviating unnecessary public fears. The 
passage of digital legislation at both the state and federal levels is 
a major step forward. However, government needs to continue to work 
closely with business, government and private entities to establish a 
legal framework and basic guidelines surrounding pertinent issues such 
as privacy and security.
    According to a March 2000 Harris poll conducted for Business Week, 
a company's privacy policy would encourage consumers to use the 
internet more, to purchase from that company, register on that 
company's web site, and participate in online transactions with that 
company.
    TRUSTe.org provides additional insight into web-users perceptions 
regarding the disclosure of information and privacy policies. Drawing 
from a Harris/Westin survey, TRUSTe.org indicated that sixty-three 
percent of users that are now reluctant to provide personal information 
online say they would divulge information if Web sites disclose clearly 
how the information will be used. Referring to a BCG Survey, TRUSTe.org 
indicated that users are two to three times more willing to provide 
sensitive information to companies that disclose their information 
gathering and dissemination practices.
    A public-private partnership, working to help establish clearer 
policies and guidelines regarding use of information and disclosure of 
privacy and security policies on web sites, would help alleviate 
current fears and help grow trust in e-commerce.
Enforceability and auditability
    In the paper world, enforceability comes in the form of a signature 
on a paper document. With current technology and the recently enacted 
federal legislation, an electronic equivalent is now available. 
However, not everyone is ready to step forward and use the electronic 
equivalent.
    The biggest issue is cultural--paper is a 4,000 year-old 
technology. We are comfortable holding paper in our hands and filing it 
in our filing cabinets. We are quickly making the cultural transition 
from a paper world to a digital world. Government can help speed up 
this transition by proactively participating in electronic transactions 
and accepting electronic filings or submissions of information.
    Another issue impacting the move to a digital future is one of 
authenticating the participants in digital transaction. Under a paper 
paradigm, personal interaction or notaries authenticate the 
participants in a transaction. Under a Public Key Infrastructure (PKI) 
approach, Certificate Authorities (CA) act as the digital equivalent of 
the notaries of the paper world. In fact, the E-Sign legislation 
permits digital notaries to fulfill the notary function.
    Current digital signature technology, combined with the 
authentication function, provides greater ability to identify and 
authenticate individuals signing an electronic document while providing 
a more detailed, unalterable ability to create and keep a complete 
audit history of an electronic transaction.
    However, to take full advantage of current technology and 
legislation, government needs to help clarify the scope and 
applicability of current legislation to avoid confusion. Government 
must also work with businesses, government and private entities to 
establish a framework and guidelines to enable cross-certification of 
Certificate Authorities and to define uniform Transaction Policy 
Statements for digital signatures applicable to government 
transactions.
Efficiency and automation
    To achieve the full benefits of the digital economy, government 
must facilitate enforceable online transactions and provide digital 
access to government services. The passage of the Government Paperwork 
Elimination Act of 1998 lays the foundation for digital access to 
federal government services. In discussing the need for the Government 
Paperwork Elimination Act, Senator Abraham of Michigan noted that 
Americans spend over $600B a year filling out, documenting and handling 
government paperwork--a huge loss of time and money and a drain on the 
economy--that must be brought under control. In describing the Act, 
Senator Abraham stated:

          [It] would require Federal agencies to make versions of their 
        forms available online and allow people to submit these forms 
        with digital signatures instead of handwritten ones. It also 
        sets up a process by which commercially developed digital 
        signatures can be used in submitting forms to the government 
        and permits the digital storage of federal documents. Senator 
        Abraham--S. 2107, Hearing Report, Digital Signatures, July 15, 
        1998, 2:00 p.m.

    The federal E-SIGN legislation provides the legal infrastructure 
required to implement the Government Paperwork Elimination Act. Now 
federal agencies are required, by 2003, to make their forms available 
electronically so they can be filled out, signed and filed with 
agencies electronically. While this is a good start, more is needed to 
spur government forward in adopting a digital future. While we are not 
advocating mandatory usage of digital transactions, we are advocating 
mandatory availability of digital transactions across all segments of 
the economy for those who would like to use them.
           ilumin's automated enforceable online transactions
    iLumin defines an automated enforceable online transaction as one 
that fully incorporates the requirements of privacy and security, 
enforceability and auditability, and efficiency and automation. 
Automated enforceable online transactions bridge the opposing paradigms 
of data automation in the information technology world and document 
enforceability in the legal world. iLumin's Digital 
HandshakeTM Server enables the execution of automated 
enforceable online transactions and helps infuse trust in the rapidly-
expanding digital economy. (www.iLumin.com).
    Building on Utah's leadership in the digital economy, iLumin used 
its Digital Handshake Server to complete the world's first online home 
refinance in Utah County on June 29, 2000.
    Additional iLumin industry firsts include:
    February 1999.--Utah's Third District Court, enabled by technology 
jointly developed by iLumin and the Administrative Office of the Utah 
Courts, becomes the first court in the United States to accept 
digitally-signed legal filings via the Internet.
    March 1999.--Governor Leavitt of Utah signs the Digital State Act 
into law using iLumin's Online Signing Room and a digital certificate 
issued by UserTrust, another Utah company, becoming one of the first 
Governors to sign legislation electronically.
    September 1999.--The Utah County Recorder, using iLumin technology, 
becomes the first in the United States to electronically record a 
legally-binding, digitally-signed deed affecting the transfer of real 
property.
    And on October 1 and 2, 2000, using iLumin's Digital Handshake 
Server, the first transactions executed under the federal E-SIGN 
Legislation, including:
          The first venture capital equity investment (completed 10 
        minutes after the E-SIGN legislation went into effect)
          Closing of two real estate transactions (Utah and 
        Massachusetts) and the first purchase of a promissory note 
        under the E-SIGN legislation by Freddie Mac in the secondary 
        mortgage market
          The first automobile purchase and automobile financing was 
        executed under the E-SIGN legislation
          The first corporate acquisition conducted under the E-SIGN 
        legislation
          The execution of the first W-4 form conducted under the E-
        SIGN legislation
    iLumin's leadership in Utah, in the nation, and in the world 
continues to expand the reaches of e-commerce and to push forward the 
boundaries of our digital future.
     how ilumin's digital handshake server makes our future easier
    E-commerce technologies like iLumin's Digital Handshake Server, 
combined with digital signatures, will change the way we do business in 
the future. Imagine purchasing your next car completely online, from 
selection to purchase to registration, from an Internet terminal at 
your office. Imagine closing on your new home from the comfort of your 
apartment on a Friday evening and moving in on Saturday morning. 
Imagine applying for and closing on a business loan, obtaining a 
business license, and leasing your new office space, all with the click 
of a button, from the comfort of your new home. This can all be 
possible because of the Internet, the E-SIGN legislation and digital 
signatures, and applications such as iLumin's Digital Handshake Server.
    The benefits of living in the New Economy are many. However, the 
primary benefits can be summarized as huge savings of time and money 
for all participants in the digital economy. Other benefits flowing 
directly from iLumin's technology include the following:
    iLumin's Digital Handshake Server enables a much higher level of 
privacy and security for businesses, governments and consumers, 
provides full enforceability and auditability of online transactions, 
and facilitates efficiency through full automation of a digital 
transaction from start to finish.
    iLumin's Digital Handshake Server delivers the technology necessary 
to accelerate the closure of business, financial, government and 
personal transactions and removes the hassle of doing business by 
humanizing technology.
    iLumin's Digital Handshake Server is the first fully automated 
technology solution that enables people to securely and privately 
complete a legally-binding online transaction from start to finish 
while integrating with existing information technology and e-business 
infrastructures, thus eliminating the costly re-keying of data.
    Finally, iLumin's Digital Handshake Server technology dramatically 
reduces the time, costs, inefficiencies and errors associated with 
today's labor-intensive, paper-based, transaction processes.
                         policy recommendations
    What policies should the government be pursuing to further 
electronic commerce? The role of the government in the digital economy 
is to encourage trust in the e-commerce marketplace. This should not be 
done through burdensome and restrictive government regulations that can 
stifle the growth of e-commerce, but through a combination of limited 
legislative frameworks to protect those who can't protect themselves, 
combined with prudent business practices implemental through complete 
and accurate disclosure statements and negotiated contractual 
relationships.
    So far the government has done a good job in balancing the need for 
limited legislation with the need to allow e-commerce to develop within 
the confines of the private sector. Examples of key legislative 
enactments that provide needed guidance and protection without 
overreaching and unnecessarily interfering with a rapidly-changing and 
vibrant digital economy include the federal E-SIGN legislation, the 
Cyber-Squatting legislation, updates to copyright and patennt 
legislation, and legislation protecting children on the Internet.
    Additional government focus is required with respect to the 
following:
    Expand the federal E-SIGN legislation to encompass all 
transactions, including all government actions and transactions, 
providing participation on a voluntary basis by anyone who chooses to 
participate in the digital econmy.
    Consider additional digital signature legislation that provides 
governments, businesses and consumers with the flexibility to implement 
different levels of authentication security for different types of 
transactions. For example, greater authentication of the parties is 
required for a completing a mortgage transaction online than for 
purchasing a fishing license online.
    Establish a minimal legislative framework governing protection of 
privacy and security in digital transactions that sets forth basic 
processes and guidelines for government, businesses and consumers 
implementing privacy policies describing the use of personal and 
business information in the digital economy.
                               conclusion
    In summary, the government should continue to provide limited 
legislative structure and guidelines while working with the private 
sector to encourage, monitor, and, where necessary, to enforce the 
basic laws and guidelines already set forth.
    The government can further faclitate our transition to a digital 
future by helping build trust surrounding the privacy and security of 
information by:
    encouraging companies to comply with existing privacy and security 
laws and regulations;
    encouraging companies to develop privacy and security policies for 
the data they collect;
    monitoring whether companies comply with their privacy and security 
policies; and
    enforcing existing laws and regulations regarding fradulent 
business practices against those companies that fail to comply with 
their privacy and security policies.
    Thank you for the opportunity to testify this morning.

    Chairman Hatch. Thank you.
    As a lawyer you're going to put a lot of lawyers out of 
business if you keep this up.
    I think that's just great.
    We'll now turn to Craig Miller, who is the vice president 
and general manager of Net Management Group of Novell, and 
we're happy to have you here, Craig.

                   STATEMENT OF CRAIG MILLER

    Mr. Miller. Thank you, Senator. I'm Craig Miller, vice 
president and general manager for the Net Management Group at 
Novell.
    My remarks this morning, I'd like to do two things: First 
of all, I'd like to give a quick overview of the Novell's 
vision of the evolution of the net; and second, I will offer 
some thoughts about the implications for U.S. public policy.
    Before I present my thoughts about the future directions of 
digital markets in the Internet, however, I'd like to pause and 
thank Senator Hatch for the opportunity to meet here, and for 
his extraordinary leadership on the digital policy front. I'm 
not sure that many people here today understand just exactly 
what Senator Hatch has done for us. More than anyone else in 
Washington he has played a leadership role in shaping our 
healthy public policy environment. He's been our champion on 
the R&D Tax Credit, the Net Act, the Digital Millenium 
Copyright Act, the competition policy, the Y2K Act and H-1B 
visas.
    He's literally laid the building blocks for our digital 
economy at the time when most of the other politicians have 
been simply content to sit back and speculate and watch the 
thing happen. We would not be here today without him, so I 
thank you, Senator.
    It's important to remember that we are still at the 
beginning of the Internet's evolution. The big challenge we 
face today, and for several years to come, is how to scale the 
Net to create a web that knows who you are, is always on, and 
can handle mission critical applications.
    The distinction between corporate LAN's and WAN's and 
Internets and Intranets is disappearing. In the future we will 
not have the tangle of NetWare--networks separated by firewalls 
that we do today, but we'll have one integrated Net.
    At Novell we call this vision OneNet, which means a 
seamless network that links the people, the applications 
devices together with ease, and is instantly available no 
matter where you are. We believe that the key to this 
integrated network is an Internet directory, or an eDirectory, 
that spans different operating systems and platforms.
    Here we've talked a little bit about--today about two 
separate technologies to help people do peer-to-peer and do 
business over the Net. The things that make it possible for you 
to be able to store your document securely, to be able to know 
where you are, and be able to have your identity, is stored in 
what's called a directory, or an eDirectory.
    The eDirectory will link me with my personal applications 
and knows who I am, even if I have different accounts, 
different access rights, different profiles and so on.
    Today when I visit a web I go from one corporate account 
webserver to another. An application server that backs up the 
website delivers dynamic content to me, but in order to give me 
the content that is right for me, the site needs to know who I 
am.
    That's where the eDirectory comes in. The eDirectory can 
authenticate users, handle massive amounts of information, 
reads faster than a database, and provides a single data 
repository to store those things that are important, that gives 
you your personal identity, like your encryption, what we saw 
here with the digital handshake.
    All that information has got to be stored somewhere 
securely and safely, and that's what a directory is for. A 
technology called DirXML allows different directories to share 
information with each other across different enterprise 
systems.
    The goal of all this is to create a new kind of web 
interface for the average person. This interface will consist 
of a simple portal that automatically connects you to your 
accounts and applications, and the beauty of it--of all that, 
is, all of a sudden I have one place to go for all my computing 
needs.
    The screen I see will be identical to me, no matter where I 
am, no matter where I go, at the office, in a hotel room, or at 
home. I spend a lot of time on the road, as I'm sure you do, 
and I like to be able to have my desktop be the same desktop 
whether I'm at work or whether I'm in the Marriott hotel. And I 
wanted to have that environment up in about 3 or 4 seconds, and 
no matter where I am, and I want it to know who I am and be my 
desktop so that I can get the information I need to do my job 
and to connect with my family and with the people that are 
important to me, and also the applications that I need to 
access the Internet.
    We're developing that software right now and making these 
portals available. It actually unlocks the power of the 
Internet for you and turns all that data into knowledge.
    The portals should be available to us over wired or 
wireless devices. I should be able to have it, whether I'm 
hooked up with a laptop or whether I have my phone with me or 
some other PDA. I should be able to have online access all the 
time. The thing that will define the Internet is not the device 
that we're on, but it's who you are.
    Finally we're going to take this new architecture and make 
it incredibly fast by means of accelerated caching networks. In 
the end, these accelerated content distribution nets will make 
what is a complex and a powerful and sometimes unpredictably 
slow world almost seamless and magically fast.
    If this is where we're headed, what does it mean for public 
policy? I don't pretend to have all the answers but the two big 
questions seem to me to be how we manage digital content, and 
how we manage our digital relationships.
    The first question deals with how we protect and share 
intellectual property on the Net, and the second question is 
how we protect and empower people on the Net. These policy 
debates have already been launched and we will have a long way 
to go before they're resolved.
    As a high-tech company that makes Net services software, 
Novell embraces the technology advances that drive the rapid 
evolution of the Net, as well as digital copyright laws that 
protect our intellectual property. The Digital Millennium 
Copyright Act that Senator Hatch authored is a tremendous base 
from which to build. During the course of the coming year it 
will be tested to see how well it comports with the questions 
about digital content, the Napsters and the others arise.
    This is a very healthy debate, and we will not shy away 
from it. While we do need to find ways to let innovations like 
Napster flourish, we could not afford to do so at a price of 
undermining copyright and digital content.
    We are actually developing some kind of a licensing 
technology that makes it so you can wrap any kind of a file, 
whether that be MP3 or a Word file. It makes it so that with 
your own personal digital key you can unlock that and give it 
to anybody else, so you can have secure sharing of your content 
across the Internet if you so desire.
    We are now facing big questions about how to protect online 
policy and security, and fortunately Novell has strong 
positions in both. We are one of a handful of companies that 
has audited all of its U.S. websites to make sure that we 
adequately protect our customers' privacy, and we always have 
offered great security to our customers.
    Congress is almost sure to take up legislation in these 
areas in the next year, and we would not expect one piece of 
legislation to solve the problem. The issue is sure to be with 
us for several years and will evolve along with our e-commerce, 
and our technology and our consumer preferences. Our goal 
should be to encourage best practices and establish uniform 
goals across all the 50 States, and avoid a one-size-fits-all 
approach that demands opt-in.
    With Senator Hatch's leadership I feel confident that we 
will achieve these goals, and Novell looks forward to working 
with you during the coming years to make this vision a reality.
    [The prepared statement of Craig Miller follows:]

                   Prepared Statement of Craig Miller

    I am Craig Miller, Vice President and General Manager for the Net 
Management Group at Novell, which is the leading provider of Net 
services software. In my remarks this morning, I would like to do two 
things. First, I will give a quick overview of Novell's vision of the 
evolution of the Net. Second, I will offer some thoughts about the 
implications for US public policy.
    Before I present my thoughts about the future directions of digital 
markets and the Internet, however, I would like to pause and thank 
Senator Hatch for the opportunity to meet with you today and for his 
extraordinary leadership on the digital policy front. I'm not sure many 
people really know just how critical he has been to the evolution of 
the US software industry. More than anyone else in Washington, he has 
played a leadership role in shaping a healthy public policy 
environment. He has been our champion on the R&D Tax Credit, the Net 
Act, the Digital Millennium Copyright Act, competition policy, the Y2K 
Act and H-1B Visas. He has literally laid the building blocks for the 
digital economy, at a time when most other politicians were content 
simply to sit around and speculate. We would not be where we are today 
without him. Thank you Senator.
    It is important to remember that we are still at the beginning of 
the Internet's evolution. The big challenge we face today and for 
several years to come is how to scale the Net to create a web that 
knows who you are, is always on and can handle mission critical 
applications. The distinction between corporate LANs, WANs, Intranets 
and the Internet is disappearing. In the future, we will not have the 
tangle of networks separated by firewalls that we have today, but one 
integrated network. At Novell, we call this vision One Net, which means 
a seamless network that links people, applications and devices together 
with ease and is instantly available wherever you are.
    We believe that the key to this integrated network is an Internet 
directory--or eDirectory--that spans different operating systems and 
platforms. The eDirectory will link me with my personal applications 
and know who I am, even if I have different accounts, different access 
rights, different profiles and so on.
    Today when I visit the web, I go from my corporate account to a web 
server, which takes me to a web page. An application server that backs 
up the web site delivers dynamic content to me. But in order to give me 
the content that is right for me, the site needs to know who I am. 
That's where the eDirectory comes in. The eDirectory can authenticate 
users, handle massive amounts of information, read faster than a 
database and provide a single data repository. A technology called 
DirXML allows different directors to share information with each other 
across different enterprise systems.
    The goal of all this is to create a new kind of Web interface for 
the average person. This interface will consist of a simple portal that 
automatically connects you to all your accounts and applications. The 
beauty of it is that now, all of a sudden, I have one place that I can 
go to for all my computing needs. The screen I see will be identical to 
me no matter where I am--at the office, in a hotel room, or at home. it 
will automatically provide me with the applications that I need and 
give me access to the information and relationships that I want.
    Moreover, this portal will increasingly be unlocked from the 
desktop. Your portal will be available to you over wired and wireless 
devices, over computers, cell phones and personal digital assistants. 
The thing that will define the Internet is not the device you use, but 
the services you access.
    Finally, we are going to take this new architecture and make it 
incredibly fast by means of accelerated caching networks. In the end, 
these accelerated content distribution nets will make what is a complex 
and powerful, but sometimes unpredictably slow world, almost seamlessly 
and magically fast.
    If this is where we're headed, what does it mean for public policy? 
I don't pretend to have all the answers, but the two big questions seem 
to be how we manage digital content and how we manage digital 
relationships. The first question deals with how we protect and share 
intellectual property on the Net; the second question with how we 
protect and empower people on the Net. These policy debates have 
already been launched, but we have a long way to go before they are 
resolved.
    As a high tech company that makes Net services software, Novell 
embraces the technological advances that drive the rapid evolution of 
the Net, as well as the digital copyright laws that protect our 
intellectual property. The Digital Millennium Copyright Act that 
Senator Hatch authored is a tremendous base from which to build. During 
the course of the coming year, it will be tested to see how well it 
comports with the questions about digital content that Napster and 
others raise. This is a very healthy debate, and we should not shy away 
from it. While we need to find ways to let innovations like Napster 
flourish, we cannot afford to do so at the price of undermining 
copyrights and digital content.
    We are also facing big questions about how to protect online 
privacy and security. Fortunately, Novell has a strong position in both 
areas. We are one of the handful of companies that has audited all of 
its US websites to make sure that they adequately protect our 
customer's privacy, and we have always offered our customers good 
security. Congress is almost sure to take up legislation in these areas 
next year, but we should not expect one piece of legislation to solve 
the problem. This issue is sure to be with us for several years and 
will evolve along with e-commerce, technology and consumer preferences. 
Our goal should be to encourage best practice, establish uniform rules 
across all 50 US states and avoid one-size-fits-all approach that 
demands opt-in.
    With Senator Hatch's leadership, I feel confident that we will 
achieve these goals. Novell looks forward to working with you during 
the coming years to make this vision a reality.

    Chairman Hatch. Thank you, Craig. We're happy to have your 
testimony and we're proud of Novell and what you've been able 
to accomplish.
    We'll now turn to Robert Simmons, who is the chief 
financial officer of Campus Pipeline, Inc.; so Robert, we'll 
turn to you.

                  STATEMENT OF ROBERT SIMMONS

    Mr. Simmons. Good morning, Mr. Chairman. I'm Robert 
Simmons, executive vice president and chief financial officer 
of Campus Pipeline. I appreciate the opportunity to appear 
before you today, and hope that I can provide some insight into 
what campus Pipeline is doing to reshape how the Internet is 
used in higher education, and how we are impacting Utah's 
technology environment.
    Founded in 1998 Campus Pipeline has attracted an 
outstanding team of employees, bringing more than 180 
professional-level jobs to our downtown Salt Lake City 
headquartered company.
    We've also raised more than $87 million in venture 
financing, drawing welcomed attention from the investment 
community and the press. Our impact on Utah's technology scene 
has definitely been felt. And our impact on higher education is 
growing stronger.
    Today's college students grew up with the Internet. 
However, many, if not most of our country's approximately 3,800 
colleges and universities do not have a comprehensive web 
strategy. As a result, when students arrive on campus they are 
often met by a disparate collection of off-line and on-line 
resources and services.
    The Campus Pipeline web platform helps schools house all 
academic and administrative services under one online roof. We 
help pull students out of line by putting them on line. Our 
secure technology serves the entire campus, giving students, 
faculty, and staff 24 by 7 campus access from any Internet 
connection.
    By web enabling critical campus services such as course 
registration, grade posting, and tuition payment, and adding 
academic tools such as course message boards, online office 
hours, and distance learning, schools are helping their 
constituents save time and accomplish their goals.
    We've taken an innovative approach in making our software 
available to every school. In addition to a typical software 
license, we offer a grant model through which corporate 
sponsors such as Hewlett-Packard, ETS, and TIAA-CREF help 
underwrite the costs of the software. By enlisting the aid of 
corporate sponsors, we help bridge the digital divide between 
institutions of higher education.
    The most satisfying validation comes from our schools. 
Pepperdine University tells us that Campus Pipeline has 
enormously improved their business processes. The University of 
Idaho, ranked as one of the most wired universities, told us 
that it would have been difficult to maintain their technology 
leadership without us, and Illinois Eastern Community College 
believes Campus Pipeline is raising the technology expectations 
of their students.
    Since launching our sales effort in 1999, more than 600 
campuses have licensed our software, 65 of which are running on 
it as I speak. Our next step will be to extend platform access 
to the individuals and groups naturally associated with an 
institution, such as prospective students, friends, family, and 
alumni, enabling institutions to establish and reinforce school 
communications and affinity.
    Our ultimate vision is to connect the hundreds of schools, 
using the Campus Pipeline platform, into a network of 
institutions. This collaborative network will enable the 
formation of idea exchanges around specific research 
disciplines or interests, and facilitate the exchange of 
intellectual information.
    To quickly illustrate how the network will function as a 
knowledge exchange, imagine a university professor beginning a 
research project. Through the Campus Pipeline platform he 
accesses information and directs efforts of his research 
assistants. As the project progresses, the research team is 
able to use the network to collaborate with colleagues at other 
institutions, as well as access resources anywhere on the 
broader network.
    The network will also connect non-academic parties, such as 
government agencies, corporate sponsors, and affiliated 
professional associations.
    Finally the network will be a tool to aggregate demand 
among member institutions and leverage the purchasing power of 
the respective schools. As wireless and broadband technologies 
promulgate, we feel the network will be a catalyst for non-
boundary educational opportunities.
    As we progress toward our goal, we foresee government 
playing a role in three specific areas. First, we acknowledge 
the important position that government holds in protecting the 
privacy of the individual. However, users should have the 
ability to disclose the information they see fit, giving 
commercial entities the ability to customize their products to 
meet personal preference.
    Second, as the Internet increasingly becomes a form of 
exchange, government has a responsibility in defining 
intellectual property ownership issues.
    Finally, government must play a role in addressing the 
critical shortage of engineering talent, needed to further 
technology development.
    We applaud the chairman's efforts to increase the annual 
quota of H1-B visas as a short-term solution to the problem. We 
would encourage the legislature to ensure that the INS has 
adequate resources to process these additional visas in a 
timely manner. In the long term we believe the solution is to 
focus more resources within our State and local educational 
institutions to the training of students interested in 
electrical engineering and computer science.
    Thank you again for the opportunity to speak to you today. 
I am very encouraged by the progress that Utah has made in 
nurturing a technology culture. We are seeing success but we 
still have a long way to go.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Simmons follows:]

                Prepared Statement of Robert J. Simmons

                              introduction
    Good Morning. Mr. Chairman. I'm Robert Simmons, executive vice 
president and chief financial officer of Campus Pipeline. Headquartered 
in Salt Lake City, Campus Pipeline is the leading provider of Web 
platforms that create official campus intranets for higher education.
    I appreciate the opportunity to appear before you today. I hope 
that I can provide some insight into what Campus Pipeline is doing to 
reshape how the internet is used in higher education and the impact 
that we have had on Utah's technology environment.
                            campus pipeline
    Founded in 1998 Campus Pipeline has created almost 180 professional 
level jobs in downtown Salt Lake City. Our core product, which began 
shipping December of 1999, is setting the standards for integrated Web 
networks in higher education.
    Today's college students grew up with the Internet. However, many 
if not most colleges and universities do not have a comprehensive Web 
strategy. As a result, when students arrive on campus they are often 
met by a disparate collection of off-line resources and services which 
results in the long lines we all knew from our own college experience.
    The Campus Pipeline Web platform enables schools to integrate their 
systems and administrative services behind a single, secure Web based 
interface which gives students, faculty and staff 24/7 access from any 
Internet connection. By Web enabling critical service such as 
registering for class, checking grades, and career center along with 
academic enhancements such as course specific chat, message boards and 
distance learning, schools are able to more efficiently deploy scarce 
resources and enhance the learning environment.
    At Pepperdine University, Administrator Candace Jones stated, 
``Campus Pipeline has spurred enormous improvements in our business 
process.''
    To make our software available to every school that wants its, even 
those that cannot afford to buy it, we have developed an innovative 
grant model through which corporate sponsors help underwrite the cost 
of our product. By enlisting the aid of corporate sponsor, we are 
leveling the technological playing field in higher education.
    Jerry Wallace, vice president of finance and administration at the 
University of Idaho stated, ``Our technology leadership would have been 
costly to maintain without Campus Pipeline.''
    Terry Bruce, Chief Executive Officer at Illinois Eastern Community 
College added, ``Campus Pipeline offers community colleges a way to 
offer student services, information and technology that moves beyond 
what they expect. When our students move on to four-year colleges, they 
will have high standards for the online services and technology 
available.''
    Since launching our sales effort in 1999 over 600 campuses have 
licensed our software, 65 of which are currently live and using the 
product across their respective systems.
    Our next step will be to extend platform access to the individuals 
and groups associated with a specific institution such as prospective 
students, friends and family, and alumni. Thus enabling institutions to 
establish and reinforce school-centric communication and affinity.
    Our ultimate vision is to connect the hundreds of schools using the 
Campus Pipeline platform into the CP Network. This collaborative 
network will enable the formation of idea exchanges around specific 
research disciplines or interests, the exchange of intellectual 
information, and aggregate buying power among its members.
    To quickly illustrate how the network will function as a knowledge 
exchange imagine a professor at Campus Pipeline school beginning a 
research project.
    Through the local platform he accesses information and directs the 
efforts of his research assistants.
    As the project progresses, the research team is able to use the 
network to collaborate with colleagues at other institutions as well as 
access resources anywhere on the network.
    Interested parties will be able to track the resources and perhaps 
provide input.
    The network will also connect non-academic interested parties such 
as government agencies and corporate sponsors.
    Finally, the network will be a tool to aggregate demand among 
member institutions and leverage the purchasing power of the respective 
schools.
    Clearly there will be tremendous benefits to both institutions as 
well as individuals in having access to such a network.
                           role of government
    As we progress towards our goal we see government playing a role in 
three specific areas.
    First, we acknowledge the important role that government fills in 
protecting the privacy of the individual. However, the user should have 
the ability to disclose as much or as little information as they see 
fit which will enable commercial entities the ability to customize or 
enhance their products and services for each individual.
    Second, as the Internet increasingly becomes a forum of exchange, 
government has a role in defining and refining intellectual property 
ownership issues.
    Finally, government must play a role in addressing the critical 
shortage of engineering talent. We applaud the Chairman's efforts to 
increase the annual quota of H1-B visas as a short-term solution to the 
problem. We would encourage the legislature to ensure that the INS has 
adequate resources to process the additional visas in a timely manner.
    In the long term, we believe the solution is to allocate more 
resources within our state and local educational institutions to the 
training of students interested in electrical engineering and computer 
science.
                               conclusion
    Thank you again for the opportunity to speak to you today. I am 
exited about the progress the state of Utah has made in nurturing a 
technology culture. We are seeing success but we still have a long way 
to go.
    I will be glad to answer any questions.

    Chairman Hatch. Well, thank you, Mr. Simmons. That was very 
interesting.
    Let me turn now to Richard Nelson, who is president and 
chairman of Utah Information Technologies Association.
    We are happy to have you with us, Mr. Nelson.

                  STATEMENT OF RICHARD NELSON

    Mr. Nelson. Thank you very much.
    Mr. Chairman, it is a privilege to address you and provide 
testimony here today. With the subject today of Utah's digital 
economy, I'd like to title my remarks this morning ``Utah's 
Dynamic I.T. Industry.'' I've provided you a handout that I'd 
like to refer to. The press also has access to that.
    I would like to give you a profile of our dynamic industry. 
Utah has 2,500 information technology companies and an 
estimated 1,000 viable Internet enterprises. As the growth 
engine of the State, you've already mentioned we have last year 
$7.7 billion in revenues, 43,000 very high-paying jobs. I'd 
like you to refer to the back side of the material that was 
provided, you can see that the average salary at the bottom of 
an I.T. position, according to our extensive survey last year 
was $45,228.
    That compares with an average wage--non-agricultural wage 
in the state of Utah, $26,484, or 71 percent above the average. 
And you can see the prior year, that this has increased from 66 
percent above the average to now 71 percent above the average. 
You can see how significant it is for the State of Utah with 
these 3,500 I.T. and Internet enterprises.
    The I.T. leadership within the State is extremely 
optimistic. In our survey last year of the industry, the I.T. 
leaders projected over the next 3 years that they would 
increase their new employees by 53 percent above where they 
were at that time, or an additional 23,000 employees. That's 
obviously very, very significant, and again another reason why 
I say that the I.T. industry in the State of Utah with the 
concentration we have here, Senator Hatch, is truly the growth 
engine of this State.
    As I try to describe the industry, and we'll do this this 
morning, I used five or six adjectives. It's dynamic, a lot of 
energy, speed, vibrant, and very, very young.
    Now to the issue that faces all of our industry here in the 
State and throughout the country that you have provided such 
incredible leadership on, and the recent passage of the H1-B 
visa bill in the Senate.
    A skilled work force is our number one issue. Recently we 
surveyed our membership, and I'd like to share some of those 
findings with you, as you can see at the top of this page, and 
you can see that this documented significant local shortages. 
The survey results show the following:
    Two hundred forty technology members were surveyed. We 
received a response rate of 23.3 percent, which is an 
outstanding response. First question: Are you having difficulty 
meeting your need for qualified engineers, computer science, 
and technical people? Ninety-four percent that were surveyed 
said yes.
    Question Number Two. If yes, what was the percentage of 
shortfall on hiring? An average of 42 percent of technical 
positions are not filled due to skilled work force shortage.
    Question Number Three. Given an adequate supply of 
qualified applicants, how many engineers, computer science, 
technical staff would you hire in the year 2000? Now this 
survey was taken in August, so it was a 5-month projection 
going forward. Surveyed companies responded that they would 
hire 1,264 people by year end, an average of 23 new employees 
per the 56 companies that responded to this survey.
    Company survey reported that they employ 8,168 people in 
the State of Utah, or an average of 146 employees. That gives 
you some perspective on how significant this increase is. New 
hires would increase by year end, total employees, by 15 
percent.
    You mention in your opening remarks that Utah's success and 
recognition as a high-tech community have been well documented. 
I'd like to refer to two or three of those cited statistics.
    In June of 2000, Salt Lake City was ranked the number one 
computer-savvy city in the Nation, with San Francisco being 
number two, according to Scarborough Research of New York City.
    Salt Lake City, according to Newsweek magazine, is one of 
the top 10 new tech centers in the world, according to 
Newsweek, as I mentioned; and number three, and last comment, 
the Salt Lake City/Provo area was named the number two largest 
metropolitan area for startups and growing of business, again 
according to the Wall Street Journal.
    Senator Hatch, I appreciate being here today and sharing 
this profile of our extremely dynamic industry, and I want to 
personally thank you on behalf of our industry, our 2,500 I.T. 
companies and Internet enterprises, for your extremely 
effective leadership role in the Senate for the significant 
legislation you've passed this year. Five of the six major 
pieces of legislation. We appreciate that a great deal. Thank 
you.
    [The handout referred to above follows:]
    [GRAPHIC] [TIFF OMITTED] T4415A.001
    
    [GRAPHIC] [TIFF OMITTED] T4415A.002
    
    Chairman Hatch. Well, thank you, Mr. Nelson.
    It's great for all of you BYU students to know, and our 
university students throughout the State to know that if we 
work hard here and in our various universities to prepare, 
there appear to be plenty of high-paying, high-tech jobs right 
here in Utah for you. We can assimilate all of you, and I'll 
tell you, I want to keep it that way, so your testimony is very 
important.
    It's also important to note that the H1-B bill that was 
just mentioned, we had a heck of a time getting through the 
Senate. We had to go through three cloture votes, motion to 
proceed on some of the amendments, and then finally on the 
bill. They had a substitute that became the H1-B bill, because 
there were those who didn't want it to pass, but yet in the end 
it passed 94 to 3 in the U.S. Senate, and then went through the 
House very fast.
    But I would like to note that we will be able to use the 
fees from the increased visas to fund more high-tech education 
for our own students and workers. Those fees are estimated to 
be about $450 million over 3 years. But if the visa cost goes 
to a thousand dollars from the current price per visa, which 
the high-tech industry is willing to bear in the interests of 
getting more people, you're talking about, you know, a billion 
dollars, and educational help and aid to our own students in 
this country. So it's a very important bill, and I appreciate 
you mentioning it, Mr. Nelson.
    Let's turn to Peter Breinholt, a man I deeply respect, as I 
do all these folks here today.
    Peter is a recording artist, and of course, performer. I 
think most of you know Peter, and I'd like to turn the time 
over to you at this time.
    Now I think, if it's not too noisy, I think we can go 
ahead. I was going to break for about 10 minutes, but I think 
why don't we go ahead. If it gets too noisy we'll break and 
then finish.

                  STATEMENT OF PETER BREINHOLT

    Mr. Breinholt. Well, I would like to first of all thank 
you, Mr. Chairman, for inviting me to come and talk about my 
perspectives. I'm getting asked a lot these days----
    Chairman Hatch. I want to learn how to sell my CD's, so I'm 
going to learn from you.
    Mr. Breinholt. Well, hopefully we can do that.
    Just sort of by way of introduction, I'm an independent 
performer and songwriter, and so I'm not with a label. I've had 
to figure out sort of my own way to do what the label does.
    Chairman Hatch. Did you all get that? He's not with a 
formal recording company. The only way he's going to have an 
opportunity, with his high skills and intellectual abilities 
and artistic and musical abilities, is to be able to figure out 
a way to get his music out there by himself. And this is a new 
wave that's coming, and Napster of course provides, and may 
very well provide one of the best ways of artists and creators 
to get their matters going who would never get a chance with 
some of the recording industry.
    Mr. Breinholt. We started locally. Let me start by doing 
the demo here, just sort of to introduce this.
    This is something we've jumped on. This is a website we 
designed----
    Chairman Hatch. I can't quite see that.
    Mr. Breinholt [continuing]. It helps sort of to welcome 
people that have heard our music for the first time who are 
trying to find out more; and it also, you know, invites people 
who already know who we are to come and find out more. And so 
what we've done: This is the main page where most of our hits 
are.
    [Website being shown on overhead projector.]
    Mr. Breinholt. And we have an announcements board, we have 
samples for people who don't know who the heck I am to hear my 
songs right here, we announce upcoming shows.
    But we also up here we've got an albums page, and if you go 
there you can actually go and sample every one of the songs. 
I've got three CD's and you can hear, this is the first one. 
You can sample it just like going into Blockbuster music and 
sitting at the listening station. You can decide if you like 
it, and then if you like it you can go over here and you can 
buy the MP3.
    We also have bios and photos, and I've got sheet music on 
here. We have live recordings so people can find out what we 
sound like live, and reviews, and also the store. So if you do 
want to buy something you can go down and you can--there's all 
the CD's, some T-shirts, some hats and so forth.
    So this has helped us, and so far I've had one for a long 
time but this--since we've done it in this format our sales 
have gone up, and it's definitely paying for itself, and it's 
helping us broaden my audience. And so for that reason alone, 
I'm excited by the high-tech, especially for an independent guy 
like me.
    I've got a number of friends that are allowing the labels 
to do that for them, and when it comes to radio play, when it 
comes to VH1, or, you know, a lot of the articles, it seems 
like the labels are sort of dominating in those areas, but this 
allows people like me to do all those things on the web.
    Now locally I have--because I haven't--I've been able to 
record the CD's and pay for them myself and write my own press 
releases and pretty much do everything a label would do, for 
myself--the one thing I haven't been able to do very well is 
get radio time or TV time, and I'm interested in making my 
music as available to as many people as possible.
    And locally what I've been able to rely on is word of 
mouth. We found if I do a lot of shows around town, people will 
go and buy the CD's, and then they'll listen to it in their 
car, and then their friends will hear it and then they'll go 
and buy it. So locally that's what's driven my career over the 
last 7 years, are students listening to my CD's in their car.
    Peer-to-peer to me seems like it might be a high-tech 
bigger version of that, to enable people to hear my music that 
wouldn't ordinarily. Now granted, there are all the copyright 
issues that I think we've all talked about, and that's a 
concern, of course, but I want to talk mostly about what I see 
as opportunities, and maybe I've wondered how do I get to the 
point where somebody logs on and they weed through the hundreds 
of thousands of artists that are on the web right now and find 
me?
    And I don't have the answer to that yet, except that maybe 
the time will come where we'll be able to say, you know, to our 
computer, ``I want--I like the Beatles and I like Nancy 
Griffith and I like folk music. Help me find more music like 
it,'' and with peer-to-peer and some of the search things, it 
could bring up new music and then play it for you. And that 
would be a benefit for someone like me.
    There's also been talk--I have been reading articles about 
going to sort of a cable format where you pay, you know, a 
monthly rate and then you get access to everything that's on 
Napster, for example, which would also be of interest to me.
    I'm optimistic and I don't see the Internet and I don't see 
peer-to-peer as a threat, even though there's some issues that 
I do worry about. I found that oftentimes when I give some of 
my music away or when I do a free concert, instead of it 
hurting the next concert or hurting my CD sales, it actually--
because more people are out there listening to it, it actually 
is a boost. So there's an opportunity, I think, for me to take 
advantage of, and hopefully be able to do it in a way that also 
helps me maintain control over what's intellectual property and 
copyright. So I'm optimistic about that, and we're just going 
to see where we go from now.
    I also want to thank you for the chance for letting me 
represent independent artists and not just musicians but anyone 
who has any sort of intellectual property, writers, film 
makers, and so forth. Thank you.
    [The prepared statement of Mr. Breinholt follows:]

                 Prepared Statement of Peter Breinholt

    So what do I think about Napster? I'm getting that question a lot 
these days. First, like most artists. I worry about the copyright 
issue. In five years is everybody going to be swapping my songs with 
each other instead of buying them? Am I going to have any reason to 
make another CD? Is anybody going to want to publish if they can't re-
coup their costs? Is it unreasonable for me to want to have some input 
as to how my songs are sent out to the world?
    But that's just half of my answer. And not the half I want to talk 
about here. The other half is about the opportunities that Peer to Peer 
technology might be able to offer a guy like me in the future.
    So far, my music has been a sort of cottage industry. I paid for 
the CDs to be made, found people to distribute them, designed the 
covers, booked the concert halls, took out ads in the paper. It's a lot 
of work, but I like doing it. Not only that, but I think I understand 
my audience, and I get to be protective of them. I like being able to 
decide ticket prices for shows, who is going to open for us, what the 
next CD will sound like, or how aggressively I'm willing to advertise.
    As a result of doing it on my own, I get about $7 for every CD that 
sells in a store. And about $10 per CD sold at concerts. In contrast, 
I've got a friend who is also a performer/songwriter who opted to sign 
with a local label. He recorded a CD that cost about $18,000 to make, 
which the label paid for. Now, when one of his CDs sells at a store or 
at a concert, he makes about $1. The rest of that $7-10 which I make on 
my CD sales goes to his label. On top of that, he has to pay back the 
$18,000 it cost to make the CD out of his $1-per-CD cut. In other 
words, he won't make a dime until he has sold 18,000 CDs. And then, he 
still won't own the CD, the label will. They maintain the copyright. 
It's kind of like paying off your mortgage, but then having the bank 
still own your house.
    Around the time of the release of his CD, this same friend asked me 
to open for him at a concert up at Kingsbury Hall in Salt Lake. My 
first CD had just come out and I was trying to build an audience, so I 
took him up on it. I ended up selling about 70 CDs at the show. He sold 
about 50. I saw him a week later Christmas shopping and I could tell he 
was depressed about the show. It wasn't that I had sold more CDs. It 
was that he knew I had made $700 in sales that night he had made about 
$50. And all of that $50 went to his label to pay off his recording 
costs. (My cut also went to pay off my own CD costs at that time, but 
because it was a much bigger cut, the CD paid for itself within a few 
months.) Hardly the kind of scenario I would describe as ``win/win'' 
for both the artist and the label.
    So I've stayed independent. That's not to say I'm anti-label. I'm 
not by any means. There's a lot a label could do to make my music 
available to more people. And if a fair deal came along, I might do it. 
I've just never seen a deal that would be fair to both parties.
    My trick then, in the meantime, is to make my music available to as 
many people as I can on my own. I can book the concert halls and do 
shows on my own, run the ads, write the press releases, but I can't 
seem to get radio play or TV time, which is where most people are 
introduced to new music. And no matter how well I'm distributed, if no 
one has heard my music, the CDs will gather dust on the store shelves. 
The labels have an unofficial monopoly on what gets on the air these 
days.
    Locally, however, I've found that if I do concerts, and 
occasionally free ones, people hear the music and buy the CDs. And 
that's where word of mouth here in Utah steps up. It's been students 
playing my CDs in their cars for their friends that have driven my 
sales since I started in 1993.
    But that translates slowly out of state. Inside Utah, I've outsold 
Paul Simon. But outside, only former BYU students and people with a 
Utah connection know who I am. And maybe that's where the Internet can 
play a role. Peer to Peer technology is sort of like a high-tech 
version of those students playing my CDs in their cars for their 
friends. Sort of. It has the potential to do what word of mouth did for 
me here in Utah, which is the same thing radio generally does for 
signed artists: It introduces new music to people. It's still unclear 
how a person looking for new music on the web is going to be able to 
weed through the hundreds of thousands of signed and unsigned artists 
to find me, and then take the time to listen. But perhaps the time will 
come where music listeners will be able to say to their computers, in 
essence. ``This is the kind of music I like. Here are the artists I 
like. Help me find more.'' And then their computers will narrow down 
the field and then play new music pulled from the Peer to Peer format 
for them as they work at their offices. Kind of like their own radio 
station. Who knows? It could be something entirely different, but my 
point is that the Internet might be able to play a new role in exposing 
new music.
    During the 80's, the record industry cracked down on bootleggers at 
concerts. The philosophy was: If you let people record your shows then 
they won't buy your albums or go to your shows anymore. The Grateful 
Dead did the opposite. They welcomed bootleggers at their shows. They 
went as far as to set aside ``bootleg sections'' for people to set up 
their gear in front of the main soundboard. They argued that that was 
what their music was for . . . to be heard. And as we know now, their 
sales didn't go down. They went up, including concert attendance. Why? 
It meant that more Grateful Dead tapes were floating around the world, 
and that more people were listening to them, and more people were 
discovering them. All of this without much radio play. I don't want to 
imply, however, that because it has helped some artists, that it's now 
okay for people to pirate music. That's got to be the artist's choice. 
They may not want that kind of help. But speaking from a business 
strategy standpoint, I think that having a lot of copies of your music 
floating around works. You give something to your audience, and it 
always seems to come back somehow. And that is how Peer to Peer, if 
done in a way that grants the artist a right to ``opt in'' or ``opt 
out,'' has tremendous potential for unsigned artists.
    Lastly, once people find new music these days they can be directed 
to a website. An artist's site might be able to turn a curious passer 
by into a fan. Once people find an artists' site, the artist can 
potentially provide the same kind of information that the radio, VH-1, 
music magazines, stores, books, movies, newspapers, mailing lists, and 
fan clubs all provide for signed artists. Personally, it's been nice 
lately to be able to say to the person who comes up after a show 
looking for more information to ``check out the site'' and not worry 
about them not being able to find what they need.

    Chairman Hatch. Thank you. I don't think it will be long 
before we have major paintings being sold by individuals as 
independent artists almost anywhere in the independent art 
field.
    I will never forget, I was asked to speak to a national 
convention of ASCAP, one of the major performing rights 
organization, along with BMI in this country, and I had just 
received my first royalty check of $60, so I mentioned to the 
audience, I was sitting by Marilyn Bergman, who is the Academy 
award winning songwriter. She and her husband Alan wrote ``The 
Way We Were,'' ``You Don't Bring Me Flowers Anymore,'' etc.--
about 40 of Barbra Streisand's songs--and I was sitting next to 
her, and when I said in my remarks that I had received my first 
check, royalty check, for $60, which is pretty thrilling to me, 
the whole audience stood and applauded. And Marilyn Bergman 
turned to me and she said, ``Orrin'', when I said that, she 
said, ``the reason they did that,'' she said, ``as great as 
most all of them are, hardly any of them will ever receive a 
royalty check.''
    And that's how tough this business is. It's this peer-to-
peer technology approach that basically has formulated 
opportunities for people like never before.
    And we're moving more and more into peer-to-peer 
technology; and when you look at Gnutella, which doesn't even 
need a server, it's a slow system, but nevertheless someday 
somebody is going to break through on that.
    Napster was the reason I think we've been able to even move 
in that direction. So let's turn to Shawn Fanning, who at 18 
years of age developed this application and this process, and 
deserves an awful lot of credit. We're very proud of him, and 
he's been with us back in Washington and agreed to come to Utah 
especially today just to chat with us a little bit about what 
his perspectives are.
    And if some of you young students would like to come up and 
sit on the floor up here, for those of you who are standing, we 
would be glad to have you come up here and surround this place, 
and we'll turn the time over to Shawn Fanning at this point.

                   STATEMENT OF SHAWN FANNING

    Mr. Fanning. Good morning, Senator Hatch.
    Chairman Hatch. You can come up and fill in, up here.
    Mr. Fanning. What's up, BYU?
    [Applause.]
    Mr. Fanning. First I want to thank you for inviting me to 
visit Utah for the first time and to appear before the Senate 
Judiciary Committee, also for the first time.
    I would also like to introduce Hank Berry, our CEO, who you 
mentioned earlier, sitting behind me today.
    I am very happy to have this opportunity to discuss Napster 
and peer-to-peer file sharing. First I'd like to give a bit of 
the background behind Napster, how things were created.
    In the fall of 1998 I was a freshman at Northeastern 
University studying computer science. Looking for a challenge 
beyond entry-level courses, I decided to start writing a 
Windows application on my own. One of my college roommates 
loved listening to MP3's and used Internet sites such as 
MP3.lycos.com and scour.net to find them. He often complained 
about finding links to sites that were dead ends, and indexes 
that were out of date. I started thinking about ways to solve 
the reliability problems my roommate was experiencing.
    A traditional search engine sends out crawlers to roam the 
Internet, periodically updating itself every hour or more to 
remove sites that are down or unavailable. The index has become 
outdated as sites go up or down, a significant problem when 
looking for MP3's, because most of the files are housed on 
people's home computers.
    I began designing and programming a realtime system for 
locating MP3 files of other users on the Internet. My idea was 
a service that allowed users to choose the files they wanted to 
share with other users, and then list those files on a computer 
that all that users could access. The list would then be 
updated each time a person logged on or off the service.
    The Napster application I designed combined this realtime 
system for finding MP3's with chatrooms and instant messaging. 
The chatrooms and instant messaging are important to creating a 
community experience, providing a means for people to learn 
from each other and develop ongoing relationships. I also added 
a hot list function that enables people to see others' musical 
preferences by viewing the files that they have chosen to 
share.
    During the winter I made the decision to leave school and 
work on the project fulltime. Initially I focused purely on 
proving the concept. I thought that after I made it work, 
someone else would take it from there.
    There were many unknowns. I didn't know if users had access 
to sufficient bandwidth to support the network. Other people 
were skeptical about whether users would be willing to share 
their files at all.
    After developing the software prototype I started sending 
it to friends who sent it to other friends. The enthusiastic 
responses I received convinced me to try and build out the 
system.
    I released an early beta version of the Napster software 
during the summer, and it spread quickly by word of mouth. It 
hasn't stopped growing since. Today the Napster community 
numbers over 32 million people. There are consistently 800,000 
people using the system simultaneously.
    While I think it was initially adopted mostly by college 
students, a significant portion of our users are now over 30. 
Music people are sharing and discussing ranges from rock to 
classical, opera, country, gospel, jazz, you name it. People 
tell us that they use the Napster service to sample new music 
before deciding what to buy, and to find new artists. They say 
that they use it to access music they already own on CD, 
cassette, vinyl, sometimes eight track.
    We hear regularly from parents who said they use Napster to 
screen the music their children are listening to, and as a 
shared activity that helps them communicate with teenagers.
    I am a big music fan myself, and Napster's benefit to 
artists is important to me. Many community members have told us 
that using Napster has led them to buy more CD's. Napster's 
implemented a range of features; most notably are new artists 
and featured music programs, which help users find out about 
new and emerging artists and make it possible for artists, to 
reach a broad audience.
    When Napster is able to implement a business model, there 
will be other benefits for artists as well, including payments 
to rightsholders.
    I believe that peer-to-peer technology on which Napster is 
based has the potential to be adopted for many different uses. 
First, there is the ability to share other kinds of files in 
addition to music, and indeed, Napster has been contacted by 
entities such as the Human Genome Project, that are interested 
in sharing information among specific communities of interest.
    Peer-to-peer also has tremendous opportunity for sharing 
resources or computing power, lowering information and 
transaction costs. Peer-to-peer could be used to create an 
aggregate pool of resources to solve a range of complex storage 
processing and bandwidth problems.
    Think of how much faster and more efficient the Internet 
would be, if, instead of always connecting you to a central 
server every time you click onto a website, your computer could 
find the source that has the information nearest to you. If the 
kid down the hall had it on their machine, why travel halfway 
around the world to retrieve it?
    A number of companies from Intel on down to small startups 
are looking at ways to develop peer-to-peer technology, and I 
believe that many of them will succeed.
    This will result not only in a better use of computing 
resources, but also the development of a myriad of communities 
and supercommunities fulfilling the promise of the Internet 
that its founders envisioned.
    I'm going to give a quick demonstration of the software.
    [Computer presentation commenced.]
    Mr. Fanning. So this is the main screen, which we basically 
use as a way to communicate with our users about, you know, 
featured artists. We give them news updates, and we just 
recently set up a mailing list so that people can subscribe to 
the mailing list, and we'll tell them, you know, as new events 
come up, and tell them about new artists and things of that 
nature.
    This is the chat section, which the text here is actually 
an introduction, the message of the day, and you have the 
opportunity to join chatrooms with other users who are also 
participating in the community.
    This is the library section, which has one of Peter's songs 
in it right now.
    So this is where you access your personal music. It allows 
you to create play lists, to play the music that you 
transferred from other users.
    Probably the most popular section, the search section. This 
is basically the way in which you seek information on the 
network. What this does is it contacts our central server, 
searches the index, and allows you to do substring searching to 
locate files that other users are sharing on the network.
    We also have the hot list section, which is a way to browse 
other users' files directly, so if you meet someone on the 
network that you're interested in communicating with, maybe 
that have similar tastes or similar library, so you can keep 
track of when they're on line or off line, and view the files 
that they're sharing.
    This is the transfer section, which basically keeps track 
of the current transfers, both incoming and outgoing transfers.
    This is the discover section, which is basically our new 
artist program. We are always featuring artists here that are 
interested in getting promotion, much like Peter, and users can 
come here and learn about artists that are interested in 
promotion. We select, you know, featured artists, as I said, 
but we also have a new artists section which basically allows 
you to browse by genre different artists that have classified 
their music and placed it into the directory.
    And then there's the help section which is just help.
    So here's an example. We've done a search for some of 
Peter's stuff, and as you can see, it lists the user name of 
the person that's sharing it on the network, and so I'll pick a 
song and transfer it.
    So what this is doing is it's contacting the central server 
to----
    [Laughter.]
    Mr. Fanning. OK. I'll try a different site. There we go.
    So it has actually contacted the central server and 
received information about the location of the other user, and 
now it is connected to that user directly and it's transferring 
the file. And so once that file is finished it would end up in 
this library section, and I will just use this file as an 
example and you can just come play it.
    [Music playing.]
    Chairman Hatch. How come we didn't get to hear the rest of 
it? That's great.
    Mr. Fanning. OK. Thanks for the opportunity to speak to you 
today, Senator, and to BYU. I appreciate it.
    Chairman Hatch. Well, thank you, Shawn.
    [Applause.]
    [The prepared statement of Mr. Fanning follows:]

                  Prepared Statement of Shawn Fanning

    Good morning, Senator Hatch. Thank you for inviting me for my first 
visit to Utah and my first appearance before a Congressional committee. 
Napster has broadened my own horizons in many ways that I never 
expected, and these are two examples. I also want to introduce Hank 
Barry, Napster's CEO, who is here with me today.
    I am very happy to have this opportunity to tell you about 
Napster's origins, describe how the technology works and discuss the 
future potential of peer-to-peer file sharing and distributed 
computing.
            napster's beginnings in a northeastern dorm room
    You may have heard or read that I started working on Napster in my 
dorm room at Northeastern University; while that's true, the story is a 
little more complicated than that.
    I grew up in Massachusetts and during my high school years lived in 
Harwich. In 1996, between my sophomore and junior years in high school, 
my uncle, John Fanning, gave me a computer and access to the Internet. 
That was my first real experience with computers. I was a good student 
and focused a lot of attention on school, but my real love at that time 
was sports: I played baseball, basketball and tennis. The computer and 
the Internet fascinated me totally, and before long I gave up sports so 
I could spend more of my spare time at the computer learning about 
programming.
    I started my freshman year at Northeastern University in the fall 
of 1998 intending to major in computer science. Looking for a challenge 
beyond the entry-level courses. I decided to start writing a Windows-
based program on my own. I spent a lot of time in Internet Relay Chat 
(IRC) rooms getting advice and information from the experienced 
developers and programmers who hang out there. IRC is a network of 
people organized into communities, through real time channels, on 
various topics including programming and Internet security. ``Napster'' 
was my nickname, and I used it for my e-mail address and as my user 
name in IRC rooms.
    One of my college roommates loved listening to MP3s and used 
Internet sites such as MP3.lycos.com to find them. He often complained 
about the unreliability of those sites, finding links to sites that 
were often dead ends, and indexes that were out of date because they 
were updated infrequently. I started thinking about ways to solve the 
reliability problems my roommate was experiencing.
    I began designing and programming a real-time system for locating 
MP3 files of other users on the Internet. I designed the Napster 
software to find MP3s because they are the most compressed format (in 
consideration of bandwidth) and they were very popular at the time. The 
system I had in mind was unlike traditional search engines at that 
time.
    A traditional search engine sends out ``robots'' to roam the 
Internet periodically, updating itself every hour or more to remove 
sites that are down or unavailable. The database created is entirely 
driven by what the central computer finds by ``crawling'' the Internet. 
The indexes become outdated as sites go up or down, a significant 
problem when looking for MP3s because most of the files were housed on 
people's home computers.
    My idea was to have users list the files they were willing to share 
on a computer that they all could access. That list would then be 
updated each time a person logged on to and off of that computer. The 
index computer would at all times have an up-to-date list of the files 
people were willing to share, and the list would be voluntarily make by 
the users as they logged on and off the system. A user searching the 
index would see all the files shared by users on the network and 
available to others on the network at that moment.
    In contrast to traditional search engines, the system I envisioned 
would be affirmatively powered by the users, who would select what 
information they wanted to list on the index. Then, when the user 
exited the application, their portion of the list (their files) would 
automatically drop from the index. The index was only one part of 
participating in the community. I also wanted users to be able to chat 
with each other and share information about their favorite music, so I 
added these functions to the application.
    I very quickly became totally absorbed in this project. It was more 
compelling than my classes and more meaningful that socializing at 
school. I wrote a small design for this real-time search engine, and 
then began the implementation. I first wrote the server software. I 
next worked on writing the client application, i.e., the user 
interface. I ordered a Windows programming book over Amazon.com to 
learn what I needed and wrote the client software.
    The Napster application I designed combined a real time system for 
finding MP3s with chat rooms and instant messaging (functionality 
similar to IRC). The chat rooms and instant messaging are integral to 
creating the community experience; I imagined that they would be used 
similarly to how people use IRC--as a means for people to learn from 
each other and develop ongoing relationships. I also added a 
``hotlist'' function that enables people to see other's musical 
preferences by viewing the files they have chosen to share. This 
synergy of technologies created a platform for a community of users 
interested in music with different channels organized by genres of 
music (again, similar to IRC), and with genuine opportunity for 
participation, interaction and individual involvement by the members 
sharing files together.
    During the winter, I made the decision to leave school--I found I 
couldn't concentrate on developing the program and deal with my classes 
and life on campus. I was driven to figure out if I could make the 
program actually work. Initially, I didn't intend to even build it out; 
I was focused purely on establishing a ``proof of concept.'' I figured 
that if I could make it work, others could too, and someone else would 
take it from there. There were many unknowns. The design required a 
networking infrastructure of servers and bandwidth in order to maintain 
large numbers of user connections. I didn't know if enough users had 
access to sufficient bandwidth. Other people were skeptical about 
whether users would be willing to share their files.
    After developing the software prototype, I started sending it to 
friends, who sent it to other friends. A few early adopters provided 
feedback and helped track down bugs in the software. The consistently 
supportive and enthusiastic responses I got convinced me to try to 
build out the system. My uncle and I incorporated the company in May 
1999 and he raised some money from angel investors. I released an early 
beta version of the Napster software during the summer and it spread 
quickly by word of mouth. In September 1999, Napster, Inc. obtained 
office space and I moved to California. Download.com featured Napster 
in its Download Spotlight in early fall 1999, and the user community 
grew significantly.
    It hasn't stopped growing since. Today the Napster community 
numbers over thirty-two million; for the past four months, it has been 
growing at the rate of one million new users each week. There are 
consistently over 800,000 people using the system simultaneously, 
limited only by our network resources. Napster users are in all corners 
of the world, and while I think it was initially adopted mostly by 
college students, a significant portion of our users are now over 30 
(we received email just last Friday from one 91 year-old man).
    An underlying assumption of the technology and the service is that 
people determine entirely for themselves how they are going to use the 
system and participate in the community--Napster provides the tools, 
but has no ability to impose limitations or exercise control. The music 
people are sharing and discussing ranges from the rock music you might 
expect to classical, opera, country, gospel, jazz, you name it. I 
receive thousands of emails personally and the company receives 
hundreds of thousands. People tell us that they use Napster to sample 
new music before deciding what to buy, find new artists, and house 
music in their computers that they already own on CD, cassette, vinyl 
and sometimes 8-track. We hear regularly from mothers who say they use 
Napster to screen the music their children are listening to and parents 
who say that Napster is a shared activity that helps them communicate 
with their teenagers.
    I am an avid music fan myself and it is important to me that 
Napster benefit artists. Many users have told us that using Napster has 
led them to buy more CDs. Napster has implemented a range of features, 
most notably our New Artist and Featured Music programs, that help 
users find out about new and emerging artists and help artists promote 
their music throughout the Napster community, making it possible for 
them to reach a broad audience. When Napster is able to implement a 
business model, there will be other benefits for artists as well, 
including payments to rightsholders.
                           how napster works
    Napster is a throwback to the original structure of the Internet. 
Rather than build large servers that house information, Napster relies 
on communication between the personal computers of the members of the 
Napster community. The information is distributed all across the 
Internet, allowing for a depth and scale of information that is 
virtually limitless.
    Napster does not post, host, or serve MP3 files. The Napster 
software allows users to connect with each other, so that they may 
share MP3 files stored on their individual hard drives. The number of 
song files available at any given time depends on the number of song 
files that active users choose to share from their hard drives. Users 
need not share any or all of their files--they, and only they, can 
choose which ones to make available to others. MP3 files do not pass 
through a centralized server. The transfer is directly from computer to 
computer, known as ``peer-to-peer.''
    Unlike traditional web-based search engines, the Napster system 
cannot index files based on their content and organize them in a 
meaningful way for the users. MP3 and Windows Media Audio (WMA) files 
are not currently designed for such content-based indexing. Instead, 
such files can only be located and organized based on the file names 
assigned by the users, specific information in the MPEG header, 
bandwidth or ping time of the source (such as T1, cable DSL, 35 
milliseconds) or by manually opening each file, listening to the file 
and then categorizing the file based on a personal judgment about what 
the file contains. Napster provides a directory through which users may 
find files, by file name, residing on the computers of other Napster 
users. The Napster service also provides location information allowing 
a computer to connect to the other user and transfer the file from its 
location.
    Other Napster functions include chat rooms, instant messaging, 
hotlists, and message boards. We are constantly working to refine the 
functionality of the client and improve the user experience.
           the unlimited potential of peer-to-peer technology
    I believe that the peer-to-peer technology on which Napster is 
based has the potential to be adopted for many different uses. People 
generally speak about the ability to share other kinds of files in 
addition to music, and indeed, Napster has been contacted by entities 
such as the Human Genome Project that are interested in sharing 
information among specific communities of interest. But peer-to-peer, 
or distributed computing, also has tremendous opportunity for sharing 
resources or computing power, lowering information and transaction 
costs. Peer-to-peer could be used to create a pool of resources in 
aggregate to solve a range of complex storage, processing and bandwidth 
problems.
    Peer-to-peer also has the potential to change today's understanding 
of the relationship between source and site. Think how much faster and 
more efficient the Internet could be if instead of always connecting 
you to a central server every time you click on to a website, your 
computer would find the source that housed that information nearest to 
you--if it's already on the computer of the kid down the hall, why 
travel halfway around the world to retrieve it? A number of companies, 
from Intel on down to small start-ups, are looking at ways to develop 
peer-to-peer technology, and I believe that many of them will succeed. 
The result will be not just a better use of computing resources, but 
also the development of a myriad of communities and super-communities 
fulfilling the promise of the Internet that its founders envisioned.

    Chairman Hatch. Well, Shawn, we're proud to have you here, 
and, you know, you're only 19, but I think we can use you as a 
professor here. I think we could----
    [Laughter.]
    Chairman Hatch. Let me just say this. Mr. Fanning, there 
are at least two inconsistent stories making the rounds about 
the origins of the name ``Napster.'' Could you set the record 
straight today about where the name Napster comes from. And by 
the way, I notice you like to wear baseball caps. Could I 
interest you in a BYU cap?
    [Applause.]
    Mr. Fanning. Mr. Hatch, could I interest you in a Napster 
shirt?
    [Applause.]
    Chairman Hatch. You look pretty good in that cap. You look 
like you might be able to make the BYU football team; you never 
know.
    Shawn, would you outline or could you outline what is meant 
by the term ``peer-to-peer'' as applied to the software that 
you're so famous for.
    Mr. Fanning. Well, the idea of peer-to-peer is, instead of 
contacting a central server when interested--when you're trying 
to obtain information, instead you look to work stations which, 
you know, nowadays have sufficient bandwidth and sufficient 
storage to act as servers--and leverage those resources so you 
create peer-to-peer networks, are networks in which work 
stations contribute to the network as servers, not just as 
clients.
    Chairman Hatch. That's great. Well, let me ask each of you: 
What do each of you believe that Fortune magazine has called 
``Peer-to-Peer, the Next Big Thing for the Internet,'' and why 
it's being talked about as revolutionizing the Internet as we 
know it today, and what this technology means for Utah's high-
technology industry.
    And why don't we start with you, Mr. Pelo, and just come 
across the table.
    Mr. Pelo. Well, clearly NextPage has demonstrated that 
peer-to-peer is a very significant new thing. We are doing 
millions of dollars in business already, as a company allowing 
people to set up peer-to-peer connections between these work 
stations and servers that Shawn referred to.
    In our case, we are addressing e-businesses in the same way 
that someone might be looking for an MP3 file. Imagine that 
you're looking for a spec sheet or hazardous materials data 
sheet or a guideline for an audit practice. That information is 
just as difficult to find today as MP3 files are for music 
lovers.
    And using peer-to-peer technologies, then, I can access 
that content from my lawyer's system or my accountant's system 
or my other partner's, or maybe it's a department down the hall 
in my company. And companies are willing to pay a lot of money 
for that technology.
    Just 2 weeks ago we signed our first license to a major 
national company for over a million dollars, so this is a 
technology that businesses are recognizing so long as it can 
also protect the content that they're providing access to. So 
we're absolutely a believer, and believe it will be as 
revolutionary as the Internet itself, and certainly 
applications even like e-mail have been to us.
    Chairman Hatch. Mr. Israelsen.
    Mr. Israelsen. We think that the peer-to-peer technology, 
or what we used to call distributed computing technology, 
really has a significant place in the future. Having been at 
Lexis/Nexis, Lexis/Nexis was the prototypical major server with 
70 major mainframe servers sitting in Dayton, OH, where 
everyone that wanted access to that data came into that server 
forum, pulled the data down, and used that effectively.
    In the legal world it became very, very useful, in fact, 
imperative, that you did a search across a database like Lexis/
Nexis, to identify court cases from anywhere around the 
country, or to gather information on a property recording.
    In the peer-to-peer world, and particularly if you use the 
digital handshake concept and others like it, you can now go 
ahead and electronically file a document into the court, Utah 
courts were the first ones to start this in 1999. And then if 
you want to do a search across, all filings across all courts, 
rather than having to go to a centralized database, now you can 
do a search across an index that now looks at all of the courts 
and identifies where that document is filed and where it's 
located, and takes you there to pick it up, instead of having 
to store that centrally.
    Same concept comes with land records, the ability to do a 
search across the entire country to find out what property 
records that I might own, and instead of having to go county by 
county and running that search, or to a central database, you 
can come, run a search, and it will point you to the 10 
different locations where that information is located.
    Instead of having to have the cost of storing all of that 
centrally, you can now go and pull out data and document 
instantaneously. And with the digital signature capability, you 
know it's authentic, you know that it is legally binding, and 
you know you can rely on it.
    Chairman Hatch. That is very interesting. As an attorney 
that's mind boggling.
    Mr. Simmons.
    Mr. Simmons. We're certainly interested in kind of the 
revolution that Shawn has potentially started here in looking 
at applications in higher education.
    Certainly there is an opportunity to revolutionize the way 
that research is done. For instance, you know, anyone working 
on cancer research in the world could potentially, you know, 
share information and collaborate in a way that's never before 
been possible, so certainly Campus Pipeline is interested in 
kind of the P-to-P revolution going on right now as well.
    Chairman Hatch. Well, thank you.
    Craig. Novell.
    Mr. Miller. You know, Novell's success started early in the 
late 1980's. Even now we have over 90 million people, almost 3 
times what Napster has, as far as clients, that run their 
companies and their businesses on NetWare, and that basic 
premise started back on just doing simple file sharing, same 
kind of thing that Shawn's reinvented using Napster.
    The biggest part of that is being able to know and locate 
who you are and what files are available, and that's some of 
the software that we helped provide to the network, is being 
able to discover who you are.
    And so whether you take it as far as finding MP3 files on 
the Net or finding other people, it's all about understanding, 
you know, the location of where things are.
    As you notice, he had to go to a server to be able to find 
that base--that first search, and being able to know and 
identify where those things are on the network is really 
important. That's some of the software that we provided, and we 
are taking a look obviously at exploiting that technology, and 
the need for everybody to want to be able to publish. So that's 
what we do and that's the software that we build.
    Chairman Hatch. Thank you.
    Mr. Nelson.
    Mr. Nelson. I appreciate the four technology companies from 
the State of Utah making those remarks. Each represent world-
class technology; in fact, three of the four are trustees of 
the Utah Information Technologies Association. I am very, very 
appreciative of their support of building the industry, and I 
think their testimony represents my comment.
    Chairman Hatch. Thank you.
    Mr. Breinholt.
    Mr. Breinholt. For me, peer-to-peer sort of helps me 
overcome two of the biggest obstacles, and that is 
distribution, and finding new audiences. And it just sort of 
enables people who opt out of going with labels to do those 
things, and I told Shawn I was going to mention this but I've 
got several friends who are with labels right now, and they've 
decided to go that way, and the labels step in and do a lot of 
things for them that I've chosen to do myself.
    As a result, when one of my CD's at Media Play, sell, for 
example, I make between 7 and 9 dollars, and if it is at a live 
show it's $10, and my friends--this one friend in particular 
who is with the label--when he sells at a store he makes a 
dollar, and that's at live shows as well; and then out of that 
he has to pay off the cost of recording the album, which his 
last album is about $18,000, so technically he has to sell 
18,000 albums before he even sees anything.
    And we did a show together where he asked me to open--this 
was right as I was getting started--and I sold about 70 CD's--
this is up at Kingsbury Hall--and he sold about 50, and when I 
talked to him after he was a little bit depressed about it. But 
it wasn't because his opener had outsold him; it was because he 
knew I was going to take home about $700, which would go to pay 
off this brand new CD I had released, and he was going to walk 
home with about $50, which was going to try and pay off his CD.
    So I've opted out. And this comes along, and this sort of 
helps me overcome those two obstacles of distributing, and also 
of getting it out there and having people hear it.
    Chairman Hatch. A lot of people don't realize it costs 
between $17,000 and $36,000 to do a CD. If you would do it 
yourself with your own arranger and you find a studio and so 
forth, it's a very, very expensive process. You have to find 
some way of getting that back.
    Shawn, I know you have chatted about this and you can 
answer that question too, but I know you did not come here 
today to speak about the litigation, so I'll avoid the 
temptation to ask your opinion on how the case is going and 
where you see the Napster will be 6 months from now.
    However, Utah is a State which prides itself on respecting 
the law, property rights, and free enterprise. Similarly, BYU 
and other Utah universities are known for their comparatively 
unsullied student bodies. So how do you explain Napster's 
popularity here in Utah and around the country, given the 
criticisms and the controversy that has arisen?
    More to the point: Do you envision a time where Utahns can 
log onto Napster, or Utah businesses can enter into ventures 
with your company, confident that creators will be compensated 
for the distribution of their commercial works, like Peter, 
here?
    Mr. Fanning. OK. Well, in terms of the compensation issue, 
absolutely. We've been in talks with the labels, and we've been 
working very hard to try and build out a system and 
collaborate, to create a system in which, you know, payments 
can be made to rightsholders.
    In terms of the technology itself and how it will evolve 
and where I see things going--why I believe the software itself 
is so popular, is because, you know, the system itself is 
basically built around people interacting with each other in a 
community.
    The ability to go onto the service and to locate something 
you haven't heard in a long time, or to have someone on the 
service that has similar tastes recommend something to you is 
incredibly powerful. It is more powerful than any 
recommendation engine you can build with, you know, complicated 
logic. It's, you know, the power of someone recommending 
something to you with similar tastes. So I think that's a big 
part of why people like to use the technology.
    Moving forward, I really believe that, you know, there is a 
commonality of interest between the artists, between Napster, 
and the record companies. So I really feel that once there is 
collaboration and not litigation, that we can come to a 
peaceful conclusion and everything will work out.
    Chairman Hatch. I tend to agree with you. I think 
collaboration without litigation might work, but we're not 
there yet.
    Let me move on to this.
    Congress recently passed a bill that I authored, or that I 
introduced, that sets aside the hundreds of millions of dollars 
in funds generated from the fees on high-tech worker visas to 
be used for high-tech training and education programs for 
Americans. How important is it that we continue to invest in 
our young people, assure them of the best high-tech educational 
opportunities available, and how important a growing population 
of well-trained, high-tech professionals is to your business 
and Utah's future, and how are we doing it, attracting?
    You've indicated, Mr. Nelson, some of the answers to this, 
but let me just pick one or two of you, and turn to you, Brad, 
and maybe you, Mr. Simmons, and have you just answer that 
question.
    I mean we had to fight like mad to get that bill through, 
but finally we passed it overwhelmingly. The President 
threatened to veto it and there's no way he's going to sustain 
a veto on that bill, I'll tell you that.
    Mr. Pelo. Well, that legislation is very important to us 
and to many other high-tech companies, because there is an 
extreme shortage of high-tech talent. And when we talk about 
qualified high-tech talent, unlike our industrial era, where 
maybe the dexterity of my fingers allowed me to produce 10 
percent more parts than the next person, in the high-tech world 
where intellectual property and our methodologies are our true 
value, the person in one cubicle can be actually outperforming 
the guy in the next cubicle by a thousandfold.
    And so when we hire, we are looking for the smartest and 
the very brightest. And finding people that are very well 
educated, that are very skilled at what they do in the 
technology sector is very, very difficult and highly 
competitive. Fortunately in Utah we have good educational 
institutions, a good lifestyle, and we attract a good employee 
base here.
    When I talk to my friends at Silicon Valley about how 
difficult it is to hire technology talent into their 
businesses, it's significantly more difficult than it is here. 
But we feel the pain here. I think over the last 6 months, 
we've had at least a dozen open engineering heads that we've 
not been able to fill, because we have not been able to find 
qualified individuals here locally.
    Chairman Hatch. OK. Mr. Simmons.
    Mr. Simmons. Yes. We've been working this issue on a local 
level, Mr. Chairman, and we very much applaud your efforts at 
the national level.
    We have been frustrated over the past year with the extreme 
shortage of qualified labor in this particular market, and find 
it amazing that that's so; where, you know, the University of 
Utah as one example, has hundreds of students that are turned 
away every year that want to go into computer science or 
electrical engineering fields, simply because there's not the 
resources made available to accommodate, you know, more 
students, more chairs, more graduates.
    So we very much have applauded the work that Governor 
Leavitt has done in announcing a new program, where over the 
next 5 years they intend to double, in the State system, the 
number of CS and EE grads in the Utah State system. And I think 
that's exactly the right direction at the local level, and are 
thrilled at what you're doing at the national level to 
encourage that as well.
    Chairman Hatch. Thank you. Now, I would like one of you to 
take a crack at this question.
    Congress recently enacted a bill that I authored that 
protected famous names and trademarks from those who try to use 
them in bad faith, either to fool online consumers or to extort 
money from the rightful owners.
    Would any of you like to comment on either experiences you 
have had dealing with cybersquatters or how you believe these 
protections will help Utah businesses or consumers in the 
online environment? Who would like to take a crack at that?
    Mr. Breinholt. The only experience that I had--and it 
wasn't a good one--was that someone didn't take our domain name 
is PeterBreinholt.com--they didn't take that and do anything 
with it, but they did guess what they call spamming, where they 
took my name and made it so that whoever put it in the search 
engine, it would come up first before even my website, and I 
think they did that because they knew there was an audience 
there. And it took it to a site that was--it didn't say much 
about me but then if you kept going it was a porno site.
    Chairman Hatch. Listen, he's not alone on that. Somebody 
did that to me.
    Mr. Breinholt. So I don't know. That's been my experience 
with it, and so I think it's terrific.
    Chairman Hatch. You think that's a pretty important bill. I 
appreciate you saying that.
    One issue that has concerned many Utahns and many Americans 
is the protection of their privacy as they work and play and 
shop on line.
    I have been part of the debate in Washington trying to give 
Internet users as much freedom and protection as possible 
without unduly burdening the workings of the Internet. Now, 
could any of you comment on ways that businesses and 
policymakers can work together to protect Internet users 
appropriately?
    Mr. Israelsen. Yes, you seem to be the logical one here.
    Mr. Israelsen. We look at privacy as the 800-pound gorilla 
in the e-commerce environment. Back in 1996 we set up the Utah 
Electronic Law and Commerce Partnership in Utah, to be able to 
start addressing these types of issues.
    And realizing that the e-commerce environment is coming, 
how do we pro-actively look at it so that we can be prepared, 
instead of having to react as we go forward?
    As you sit down and look at the issues that are percolating 
in the Internet from the Napster side, you really see legal 
issues associated with who is taking the property, who is using 
property. Are there proper protections involved in that? What 
about names of people who actually share information? How do we 
protect those effectively? How do we go ahead in a legal filing 
into a court which mandates that you put certain information 
in, such as Social Security number and financial information, 
particularly a divorce proceeding?
    How do you protect that information from being broadly 
disseminated, yet at the same time provide the information 
that's necessary for society to move forward with?
    We think that there has to be three things involved. One, 
technology that allows us to be able to have an infrastructure 
to provide protection of privacy. If you look at inputting a 
document over the Internet--a Word or a PDF document--you 
display it, it displays all or nothing. You don't have a choice 
to filter out key pieces of information like you do in a 
database. So a court filing which is a document, how guidelines 
in which those can operate under, and then government can step 
forward and be a monitoring function to help enforce a breach 
of that.
    Those are the three areas that I think provide a middle 
ground, where government doesn't become too intrusive into the 
process, but yet everyone, as part of the process, has the 
ability to protect their own privacy, opt in or opt out of 
disclosure of that kind of information, and yet the technology 
protects information that's mandated to be submitted by the 
Federal Government, by State governments, by local governments, 
or even in business relations.
    And I think if we took that kind of a moderate approach, I 
think the industry could solve most of the other problems, 
either through the marketplace of people deciding I'm not going 
to do business with this particular group or this particular 
site because they don't protect my privacy, or by contractual 
relationships and alliances. For example, as Napster works out 
something with the music industry where they find a common 
ground in which they can work, the infrastructure for 
protecting that information and protecting those transactions 
now can be put in place and then governed by contractual 
relationships.
    Chairman Hatch. Well, thank you. Let me move to something 
that a lot of people are concerned about.
    The chief scientist of Sun Microsystems, Bill Joy, who has 
been in my office recently, wrote an article for Wired 
magazine, which caused me to start questioning where technology 
is taking us. Bill Joy, the creator of Java, is by no means a 
Luddite, so when he wrote this article for Wired, an article 
which echoed many of the concerns raised by Ray Kurzweil in his 
best seller, ``The Age of Spiritual Machines,'' I took notice 
and I asked to meet with him.
    Now Joy asserts that the rapid advancement of computational 
technologies, nanotechnology, and biotech were combined to 
unleash the dangerous powers which will require us to 
collectively question who we are as a species. Kurzweil writes 
that the technology revolution will overtake biological 
evolution, and human beings may cease to exist. An interesting 
idea.
    This sounds a little far fetched, but I take heed to their 
advice we should think through the consequences of our 
decisions in this area.
    Are any of you familiar with Joy's views, and do any of you 
think we as a society need to take collective responsibility 
for the technologies we develop?
    And let me just ask: What advice would you give to these 
students listening in today to prepare for careers in the 
digital future, and what do you project with respect to how 
education will change with emerging technologies?
    Those are a lot of questions but I just throw them out, and 
anybody can answer who would like.
    Shawn, if you feel like answering any of these, go ahead. 
Or any of the rest of you.
    Yes, Robert.
    Mr. Simmons. Mr. Chairman, one of the things that I think 
we should focus our collective energies around is again 
bridging the digital divide that we continue to find.
    I think the sort of intellectual property and technological 
evolution that's spoken of by Mr. Joy and Mr. Kurzweil and 
others can only be accomplished as we make this sort of 
technology more broadly available than it currently is today.
    One of the things that Campus Pipeline has attempted to do 
was, you know, kind of make our world-class technology 
available to all public and private universities, colleges 
across the board, regardless of their ability to acquire the 
technology. So we've had to come up with a creative model 
whereby that same technology that someone like Harvard would be 
able to afford to develop themselves, could be used by the 
least well endowed community college in the poorest State in 
the country.
    And I think that increasingly, we, as technology leaders, 
need to find a way to look at creative ways to approach our 
business models, and approach the way that we monetize our 
intellectual property assets that we have, in order to help 
make this technology available to all.
    Chairman Hatch. Anybody else care to make any comments 
about that?
    Go ahead, Mr. Nelson.
    Mr. Nelson. The advice to students about----
    Chairman Hatch. Sure.
    Mr. Nelson [continuing]. Digital economy. The statement I 
would have is the new economy is here now and it's a wide open 
field. And it's extremely important, if you haven't retooled or 
focused on this, to retool yourself or to focus on this, 
because this is really where the jobs of the future are. 
They're extremely high paying. It's really the opportunity of a 
lifetime, and they're very, very fortunate to be their age at 
this point.
    Chairman Hatch. Boy, I agree with that.
    Let me ask some of the students questions that we've 
accumulated here.
    The first one is: The advantage of P-to-P for distributed 
data storage is clear. Where do you see the future of P-to-P 
for distributed processing?
    Anybody care to take a crack at that? Brad Pelo.
    Mr. Pelo. I mentioned a recent conversation with an analyst 
at the Gartner Group, for those who are unfamiliar, is one of 
the largest institutions consulting and providing analysis of 
the technology field to Global 2000 companies.
    And this analyst specifically had just completed a paper on 
distributed computing or peer-to-peer computing versus peer-to-
peer information sharing, and his perspective is that peer-to-
peer computing, or sharing the processing power of distributed 
computers does not yet hold great promise; may in the future, 
but he believes that peer-to-peer information sharing, which is 
what most of us have addressed today, is in fact where peer-to-
peer technologies will be headed.
    And I think the reason for that analysis is that on the 
computing basis, I'm not sure we yet know yet how to use the 
distributed computing that could be available to us. What 
specific problems we might solve and how prevalent those 
applications might become, versus the exponentially growing 
need for information because the digital information itself is 
exponentially growing, so how do you manage that; and that's 
really where peer-to-peer technologies will apply.
    Chairman Hatch. Thank you.
    Yes, Craig. Mr. Miller of Novell.
    Mr. Miller. I disagree a little bit with what's been said. 
There are technologies being developed right now by a 
consortium of companies--Intel, Compaq, IBM, Hewlett-Packard, 
Novell, and others--regarding a technology called InfiniBand, 
and what it basically does is it cracks the bandwidth problem 
that we've had with computers.
    Right now you put really fast CPU's in a lot of people's 
machines, and the real problem is being able to get out to the 
Internet, your IO, as people call it, or your storage, and the 
InfiniBand technologies that are being developed right now are 
destined to crack that.
    And so I believe that over the next 3 to 5 years, as this 
technology comes on line, you're going to be able to see the 
increase of this distributed computing where it changes 
everyone's lives, as simple as that is, because the fat pipe 
technology being able to have a huge amount of bandwidth 
between computers is going to solve that problem, and people 
will take advantage of it, I guarantee you.
    Chairman Hatch. You are good to help us to understand these 
problems better.
    I have a direct question to you, Shawn.
    What impact do you think peer-to-peer technology will have 
on government organization, and how can government take 
advantage of this technology to improve services to citizens 
and businesses?
    That's kind of a tough question.
    Mr. Fanning. I think in terms of impact on government, 
there has been some discussion related to some of the fully-
distributed technologies such as Gnutella and FreeNet, which 
have no central server, which can't be shut down, and which, 
you know, allow you to transmit information on a peer-to-peer 
basis.
    So there are some issues related to, you know, controlling 
information, you know, confidential information being shipped 
across those types of networks. So I've heard of concerns in 
that the respect. But that's it. I mean that's all I've really 
heard related to government issues of peer-to-peer.
    Chairman Hatch. Great. Here's another question.
    Today we've heard numerous Utah business leaders present 
their different technologies as possible solutions in the 
Internet's future. Two major questions remain: Who will monitor 
the Internet and how? What place does the government have in 
controlling content and information, theft that will increase 
as peer-to-peer and other internal or Internet technologies 
integrate themselves with the business and services industry?
    Any of you care to take a crack at that? Brad. Mr. Pelo.
    Mr. Pelo. I think, first of all, the premise of a free 
society is that government's role is to protect the rights of 
its people, and one of those rights we want protected are 
property rights.
    In the days of the framers of the Constitution, that might 
have been a plot of land or cattle or horses that they owned. 
Today, particularly in American business--and I believe this is 
truer globally than we want to believe--that the assets or the 
properties of these businesses are becoming more and more 
digital in nature, to the point where perhaps the future might 
hold digital assets as the only real assets of business. And in 
such an environment, government has to play a significant role 
in protecting those property rights.
    As far as the role of overseeing the Internet and being 
sort of the watch dog, I think there were equal concerns among 
the framers about government's role in our own privacy as 
citizens, and that's why we walk a very fine line of protecting 
digital rights without getting encumbering on digital privacy.
    Chairman Hatch. Well, thank you.
    Shawn, again there are implications to disguise files as 
MP3 files which can be Trojan horses, etc. How will these be 
stopped, or any peer-to-peer dangers of this sort?
    Mr. Fanning. Well, with the Napster system, the software 
actually validates the files that users attempt to share, so it 
detects a valid MPEG header and determines that there's 
actually audio data.
    You know, there's been software written that has been 
designed to fool the system, to basically wrap other types of 
files within MPEG headers, allowing you to share stuff on 
Napster that's not actually a valid MP3, but fortunately those 
files being used in the normal use of an MPEG file, the system 
will attempt to decode them, not execute them, so over the 
Napster service there's very little risk of obtaining a virus 
from a file you transfer.
    In terms of other types of networks that allow you to share 
other, you know, binary data and other types of information, 
there's definitely that risk; but that risk exists in, you 
know, standard systems as well, in the sense that you're still 
going to a site and transferring a file that you're executing, 
not knowing, you know, the contents of that file. So the trust 
in that system is based more on the source of the information.
    So there's some trust loss in the sense that suddenly 
you're dealing with peers who aren't necessarily controlling 
the information they're sharing, haven't created it, but I 
think those can be dealt with--there are some approaches 
related to doing things like hashing of information to verify 
that the contents are consistent with the creator of the 
content. And so there are some approaches to deal with those 
issues.
    Chairman Hatch. I hope somebody videotaped that with your 
BYU hat on. I think that's pretty good.
    Well, we have some more questions but I'm going to have to 
wrap this up. Let me say the reason why the music issue, among 
others, intrigues me so much is because this is a nascent 
technology which holds such promise for Utah's entrepreneurs. 
The whole Napster situation, the whole creativity here in Utah.
    Insofar as Utah's consumers are concerned, they desire 
access to downloadable music, art, research, video, and other 
content in a manner which is not unnecessarily restrictive or 
unduly burdensome. Now, I want to ensure that the marketplace 
provides them with the opportunity to access the content of 
their own choosing over the Internet and to do so legally.
    Insofar as creators are concerned, I want to ensure that 
Utah's artists and creators are protected through an approach 
to copyright that empowers them to generate maximum revenue for 
their creative works.
    Peter is the perfect illustration, Peter Breinholt. This is 
a great way for him to be able to get his talent out there, and 
I'm concerned about him and others. And insofar as Utah's 
entrepreneurs are concerned, I want to be sure that this 
revolutionary technology is not killed in the cradle.
    Shawn, as an aside, I hope there is an effort undertaken to 
ensure that your site is eventually able to compensate artists. 
Unless that's so, I think you're going to have a lot of 
difficulty, but I know that you're working on it. I know that 
Hank Berry, who is sitting here in the front row, the head man 
at Napster, has that uppermost in his mind. But in order for 
that to happen, Napster has to be in business.
    I question, as a matter of public policy, whether it is in 
the public's interest and the creative community's interest to 
have this site shut down before a trial on the merits is 
concluded. If that happens, this technology will move 
underground, and the opportunity to embrace this technology in 
a form which ensures compensation to artists will have passed, 
so I'm concerned about it.
    I would note the Copyright Act already provides a paradigm 
for compensating creators in the digital environment. A few 
years ago, music and electronics industry experts believed that 
CD's would be replaced by a newer, more compact and convenient 
form of digital music service, the digital audio tape player. 
DAT, as it was called, would allow consumers to make digital 
copies of their favorite music onto small digital tapes. Now 
this is where the recording industry thought the market was 
going at the time. They just didn't foresee the power and 
consumer appeal of the Internet, MP3 compression, and peer-to-
peer technology. So DAT never became a hit with consumers. It 
was overtaken by the Internet.
    So why bring it up? Well, prior to the deployment of DAT 
machines, the creative community and the recording industry 
came to Congress and expressed concerns about piracy and how 
these machines could be used to facilitate large scale piracy 
of--how these machines could be utilized to facilitate large 
scale piracy of musical works.
    Does that sound familiar? I worked with the creative 
community and leaders in the consumer electronics field to 
develop a legal framework which is part of current law, that 
placed a royalty on the sale of all DAT machines, and the funds 
generated from that royalty were to be divided among 
songwriters, musicians, recording artists, publishers, and the 
labels.
    In fact we negotiated a fairly complex formula which spells 
out how much each artist would be compensated. It seems to me 
as though this formula contained in section 1006 of the 
Copyright Act, could serve as a basis for settling this current 
dispute.
    The record labels agreed to this formula in 1994. Maybe we 
ought to try to see if we can get everyone to rally around this 
concept so that we can resolve this matter.
    Napster could charge a royalty for the downloading of its 
software, or charge for premium services, and that, through the 
use of digital rights management software and application of a 
formula based on current law, we could keep this extremely 
popular service going for the benefit of consumers. And we 
could ensure that all of those involved in the creative process 
surrounding musical works--the studio musicians, the studio 
artists, the publishers and writers--not just the record 
labels, would share in the success.
    Look, if we don't solve this problem, there are going to be 
thousands of Napster-like companies out there, many of them 
offshore who will not abide by copyright laws in any way, 
shape, or form. So I challenge the industry to come up with the 
ways of doing this. The last thing on earth I want is to have 
government coming in and telling you what to do, but that's 
what's going to happen if we don't get these problems solved. 
And when you have 32 million people on a program, there's got 
to be some way for, in this case, the music industry, to 
exploit that process and to make it work, rather than just stop 
it.
    So I think this hearing has been very helpful to me today. 
I want to thank each of you for taking time out of your busy 
lives to come here and talk to all of us.
    I want to thank Brigham Young University for allowing us to 
have these wonderful facilities to hold this, and I want to 
thank all of you, the witnesses and the students, for appearing 
at this important hearing.
    Technology is a part of tomorrow's future in Utah, and it's 
a part of tomorrow's Utah. The young people who have attended 
today, and the Judiciary Committee, of course I think we can 
say we've learned quite a bit about what we can do, both here 
and in Washington, to ensure that Utah continues to play a 
leading role in the global economy of the 21st century.
    This has been a good hearing. I'm very grateful to all of 
you. Let me thank everyone who has participated today, and let 
me thank the BYU community, including the students, for being 
such good hosts for this interesting hearing.
    I hope you've all learned something here today. If you 
didn't, you weren't listening. And I think we've learned at 
least three significant things: First, we learned that the 
software industry embodied most famously in Napster can help 
lead revolutionary change in all relationships in the wired 
world, where we can all share knowledge with each other to work 
and play and communicate.
    Second, we learned that the information technology is the 
engine driving Utah's economy, and it's a source of very good, 
high-paying jobs for our young people, like BYU students and 
Utah's work force. Generally keeping Utah in the forefront of 
the technology revolution discussed today will be the key to 
our own State's continued success, because this is the future.
    I commend all of you to read Bill Joy's article in Wired. I 
think it's well worth your time; it's very provocative. In 
fact, I recommend Kurzweil's book, even though I don't agree 
with some of his conclusions. I've got to say I'm not sure he's 
wrong. And we're going to have to make sure that we are on the 
top of some of these things.
    Now third, we found today that next time we invite Shawn 
Fanning, Peter Breinholt, and our other witnesses, I think we 
better consider the Field House or the Marriott Center so we 
can do it right. How's that?
    I want to thank you all for being here. This has been a 
good hearing. We're grateful to all of you. Thank you very 
much.
    [Whereupon, at 10:55 a.m., the committee adjourned.]
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