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517

associated with an information object. Electronic contracts may be used.

Providers

may

inform the user that a certain action the entering of a password, for instance, to gain access to the service or a particular work, or merely the use of the service will be considered acceptance of the specified terms and conditions of the electronic license.

The Library of Congress' Electronic Copyright Management System may be instrumental in rights management schemes. The proposed system, which is under development, has three distinct components: (1) a registration and recordation system, (2) a digital library system with affiliated repositories of

copyrighted works, and (3) a rights management system.518 The system will serve as a testbed to gain experience with the technology, identify issues, prototype appropriate standards, and serve as a working prototype if full deployment is pursued later.

An important element of doing business in the digital environment will be the ability to move money from users to the providers of the various information and entertainment products and services. 519 Presently,

517

See discussion of electronic contracting supra pp. 53-59.

518

See R.E. Kahn, Deposit, Registration and Recordation in an Electronic Copyright Management System, Proceedings of Technical Strategies for Protecting Intellectual Property in the Networked Multimedia Environment, Interactive Multimedia Assoc. (Jan. 1994). The registration and recordation system will be operated by the Library of Congress and will enable electronic filing of documents, automated registration and recordation of transfers of ownership and other copyright-related documents. The digital library system will be composed of a set of distributed repositories for copyrighted works, and will support search and retrieval based upon an electronic bibliographic record. The rights management system will be a distributed system which will permit use of selected copyrighted materials on the Internet, and will have some on-line rights-granting services. Electronic mail will be used to license nonexclusive rights, with or without recordation of the transactions.

519

The IITF Committee on Applications and Technology is addressing electronic commerce issues, including the electronic transfer of funds through the NII.

transactions follow models wherein the actual assets do not move in the system, but rather only representations of the assets. That is to say, if a consumer selects a pay-for-view motion picture from a cable service provider, the consumer gives the service provider a credit card number. The service provider sends the credit information to a clearinghouse where it is verified and sent on to a bank for payment. Such methods of payment are relatively expensive because of the number of players and transactions involved.

Some believe that a more efficient and cheaper method of payment is "digital cash." Using a digital cash system, actual assets are transferred through digital communications means in the form of individually identified representations of bills and coins

similar to serial numbers on hard currency. There are a number of systems being developed to accomplish such money movement, which should allow consumers to move actual assets through the NII or GII, rather than simply transferring a message to other existing systems to move the money for a transaction.

One payment system relies on the existing credit and debit card and banking systems. It avoids transaction costs by simply accumulating users' transactions and charging their debit card or billing the accumulated charges to their credit card once in a fixed time period, depending on volume and the cumulative amount of charges. However, the use of the third party bank for verification and collection adds cost to the transactions. In addition, the anonymity of cash purchases is lost, and there is an increased risk that transactions may be monitored by organizations that track spending habits of consumers.

A more complex system uses “smart cards” and public key encryption to move actual assets within the system. Such systems are common in Europe, for instance, for public transportation and telephone charges. Under such systems, a pre-paid card with a programmed amount of value or "cash" is issued to a consumer, and the card's

account is debited when it is used for a purchase. Such systems protect anonymity because debiting of the card does not require the consumer to reveal her identity; it is legal tender just like cash. Such systems for use in the NII and GII are under development by both European and U.S. firms.

F. ENCRYPTION EXPORT CONTROL

U.S. manufacturers are currently prevented from exporting software and hardware with certain types of encryption technology. 520 This is due to an export licensing system developed over the last 50 years in order to limit proliferation of encryption technology that could hinder efficient intelligence gathering and effective law enforcement. U.S. software manufacturers that produce "mass market" products indicate that there is a significant demand internationally for software products with strong encryption capabilities. They believe that their inability to deliver such products is leading to the development and sale of these needed products by foreign software developers. Relaxation of export controls would permit U.S. businesses to compete with foreign companies that presently incorporate strong encryption technology in their products, but would make it even more difficult for the United States and its allies to fight international terrorism, narcotic trafficking, corruption, smuggling of nuclear materials, and other criminal activities.

Export controls are administered through a bifurcated system in the United States. The nature of the technology, product or information to be exported dictates the Agency

520

There is an ongoing review of policies governing the export of computer and networking technologies that incorporate effective encryption technology, and there has been some relaxation of prior controls. For example, technologies used to identify and authenticate users and files are generally not restricted. This, however, does not address the concerns as articulated by U.S. manufacturers.

from which the party wishing to export must turn to obtain a license to export.

• Export licensing of arms, ammunition, and

implements of war is handled by the Office of
Defense Trade Controls (ODTC) of the
Department of State pursuant to the Arms Export
Control Act.521

• Export licensing of items not exclusively controlled

for export by another Department or agency of the Federal Government is handled by the Bureau of Export Administration (BXA) of the Department of Commerce.522

When a party wishes to export products containing an encryption technology, a Commodity Jurisdiction (CJ) Ruling is made that determines whether the item is on the Munitions List or the Commerce Control List (CCL). If the item is determined to be on the Munitions list, the State Department reviews the request for an export license. Conversely, if the item is found to be on the CCL, then it is assigned an Export Control Classification Number (ECCN) which is used to determine the requirements for its export licensing. 23 The Commerce Department has exclusive statutory jurisdiction over licensing of CCL items, and in practice presents a less stringent licensing scheme than for munitions items.

Development of an optimal NII and GII requires strong security as well as strong intellectual property rights.

521

ODTC maintains the U.S. Munitions List a list of specific technologies subject to their review for export licensing purposes. See 22 U.S.C. $ 2778 (1988).

522

BXA maintains the Commerce Control List (CCL), which governs export control of all items (commodities, software, and technical data) subject to BXA export controls. See 15 C.F.R. S 799.1(a) (1994).

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Copyright owners will not use the NII or GII unless they can be assured of strict security to protect against piracy. Therefore, encryption technology is vital because it gives copyright owners an additional degree of protection against misappropriation.

Encryption is equally important to other users of the NII and GII as well. Industries that transmit sensitive information -- either internally or to other businesses -- also require high levels of security. Banks, accounting firms, and securities houses are prime examples of businesses that routinely transmit sensitive transactional information. In addition, absent strong encryption, medical and legal professionals using the NII may have difficulty reassuring their clients that sensitive personal information will not be compromised.

The growth of the NII and GII is sparking increased international demand for encryption technology. However, for national security reasons, the United States strictly controls the export of many encryption products for sale abroad. This policy protects vital U.S. national security and law enforcement interests, but critics contend that it is slowing the spread of encryption technologies that could be used to protect intellectual property transmitted through the NII and GII and causing U.S. manufacturers to lose sales to foreign competitors who are not constrained by U.S. export controls. To evaluate these complaints, the Clinton Administration has directed the Commerce Department, through the newly created Office of Strategic Industries and Economic Security, to conduct studies on the export controls of encrypted software and their impact on U.S. manufacturers -- which were expected to be completed by July 1995.

Recognizing the important role that encryption technology plays in fostering a secure and useful NII, the Working Group supports efforts to work with industry on key-escrow encryption technologies and other encryption products which could be exported without compromising

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