House Holds First in Series of Hearings on Electronic Commerce 

(May 1, 1998)  The House Commerce Committee held the first in a series of hearings on electronic commerce on Thursday, April 30.  The three and one half hour hearing touched on most policy questions affecting the Internet, including regulating Microsoft, IP telephony, encryption, taxation of the Internet, privacy, consumer confidence, domain names, Year 2000 problems, copyright, bandwidth, and backbone competition.  The committee heard from representatives of AOL, Sabre, MasterCard, CDNow, and other witnesses.

Committee members and witnesses alike touted the future of commerce on the Internet.   However, Sabre's Richard Durham stated that "almost all of us in electronic commerce are losing money, because we believe there is a future."

No one uttered a kind word for encryption export restraints or key escrow.  Nor did any oppose the Internet Tax Freedom Act.  On other issues, opinions varied.

Differences emerged on when and how the government ought to regulated the Internet.   Rep. Billy Tauzin and Rep. Rick White, who are both cosponsors of the Internet Protection Act, advocated little regulation in any policy area.  Other representatives and witnesses frequently asserted that there is a regulatory role in assuring competition.  Some referenced Microsoft by name.

The Committee also announced three more electronic commerce hearings to take place in May.

Statements of Representatives

Commerce Committee Chairman Thomas Bliley (R-VA) stated that, "I do not intend to view 21st century technology though the prism of 20th century regulation. The regulatory models that were applied to past industries just do not apply to electronic commerce.  Electronic commerce is dynamic, competitive and market driven.  There is little hope that the federal government could ever keep up with the staggering pace of change brought about by electronic commerce.  This is not to say that there is no role for Congress. I think it is not only the duty, but the responsibility of Congress to provide legal certainty, legitimacy, and where appropriate oversight to this new marketplace."

Rep Tauzin opposed regulation of the Internet, and promoted the Internet Protection Act.  Rep. White, spoke in favor of the IPA, unregulated IP telephony, strong encryption, and copyright protection.

Silicon Valley Rep. Anna Eshoo (D-CA) argued that "We need to make sure that the marketplace remains free of monopolies so small businesses and startups can compete on an equal footing with everyone else."

Rep. Edward Markey (D-MA), who is the ranking member of the Telecommunications Subcommittee, stated that advances in Internet technology tend to increase efforts to control it.  He cited Moore's Law, he announced his own corollary, "Markey's Law."

Moore's Law:  "At any given price the performance of semiconductor technology doubles every eighteen months." Markey's Law:  "Every time there is a doubling of chip power, a doubling of bandwidth, and a doubling of Internet traffic, certain entities in the digital domain will redouble efforts to counteract these democratizing and empowering forces to create new bottlenecks and sources of control."

He cited several examples of conduct consistent with his theory: the government's efforts to "bottle up encryption power", the tax community's asserting "taxing nexus everywhere," corporate efforts to control the settop box, corporate efforts to control the operating system, and corporate efforts to "control other leverage points for asserting dominion on the network."

Rep. Bart Gordon (D-TN) spoke about the need to develop consumer confidence in conducting business over the Internet.


The first panel of witnesses represented four companies involved in electronic commerce.

The second panel consisted of the following.

Copies of the prepared statements of all eight witnesses are
available in PDF through the Commerce Committee website.

Vradenburg testified that AOL advocated several policies for promoting electronic commerce.  First, the Internet should be kept free from discriminatory taxes.  "AOL strongly supports the Internet Tax Freedom Act."  He did not say which version of the bill, however.   Second, consumer privacy must be protected; AOL believes that "industry must take the lead in adopting good privacy policies."   Third, AOL supports strong encryption.  "Key escrow requirements inhibit the ability of U.S. firms to compete overseas and America's ability to protect its critical infrastructure, but does little to prevent potential criminals and terrorists from gaining access to strong encryption products available from suppliers overseas."

Michael Durham testified on behalf of Sabre Group, Inc., which provides online travel information and reservations through its Travelocity service.  It competes with Microsoft's Expedia.  Not surprisingly, he wants the government enforce antitrust laws.  He said:

"Microsoft Corporation, which has about 95% of the world market for P/C operating systems, has enormous power.  The question for policy makers today is not how Microsoft acquired its current monopoly position over computer operating systems ...   The issue is how any one company should be permitted to use a monopoly position to exert control over the interface between consumers and the Internet. ...  Microsoft's proprietary control over Windows and supporting licensing restrictions with PC makers enable it to bias the screen to favor its own Internet content offerings."

Durham concluded that, "We hope the Committee will support DOJ as it attempts to enforce existing antitrust laws protecting competition ..."

Glass testified for MasterCard that "one of the foremost threats to the success of electronic commerce (is) the specter of unnecessary or harmful regulation.   Electronic commerce has grown so swiftly and so successfully because of the free and innovative environment that gave birth to it."

The final member of the first panel of witnesses was Naomi Lefkovitz, of CDnow, an online music CD seller.  Their biggest issue concern is copyright legislation that would not prohibit online CD sellers from allowing shoppers to download short segments of songs.

While almost all representatives and witnesses spoke of the tremendous promise of electronic commerce, one witness was not so enthusiastic.  "Electronic commerce will not create major new businesses," only another marketing medium, said Richard Shaffer.  And contrary to predictions, people are not rushing online. is a "special case."  And finally, "Online shopping is not really shopping.  It is order placement."

The Microsoft Debate

Members were split in their stated opinions about the desirability of having the government reign in Microsoft.  Reps. White and Tauzin refrained from criticizing Microsoft, and suggested that the market works better than government regulation.

While Rep. Eshoo and others advocated enforcement of antitrust laws, Rep. Markey was the most direct in his criticism of Microsoft.  While questioning Michael Durham, Markey referred to "... the designs of a single company to set itself up as the center of cyberspace and to create new bottlenecks to competition... "  He continued that " ... those monopolies must not be permitted to stultify innovation, slow growth in electronic commerce, and undermine consumer choice, as Microsoft has time and time again to extend that monopoly to other areas."

Prof. Farber responded to Rep. Markey with the argument that it would be best to let the market regulate Microsoft.  "I think that it is fair to say that Microsoft really pushed the field ahead very very rapidly.  In fact, probably, along with Intel and a few others, made the U.S. the dominant force ... I don't see a lack of people out there trying to undercut Microsoft.  Now some don't make much sense, and so when they fail, you sort of look at them and say, 'well fine, if you insist on trying that, be my guest.'  But there are many many people trying to undercut Microsoft ... We are at an interesting time in history where the technologies, high speed communications, high speed computers, are creating the same kind of opportunity that Gates took advantage of back when he started Microsoft, that Gates took advantage of when he did Lotus,  ... We are in that same mode, and we have that same group of young whippersnappers coming up with good ideas.  And I think that it is very feasible to topple Microsoft.  Now, what you want to stop, though, is things that stop that kind of innovation."

Another witness, Richard Shaffer, retorted: "Venture capitalists are my clients, and no venture capitalist I know would consider funding a company whose business plan was to go into competition with Microsoft.  Not a single one.  Microsoft is not about innovation.  Microsoft is about maximizing shareholder return."

Y2K and Encryption Could Undermine the IRS

Rep Billy Tauzin (R-LA) joked at the outset that everyone should underpay their taxes in the year 2000 because the IRS will be rendered incapable of making refunds due to its Y2K problems.

However, in a more serious vein, Professor David Farber testified that while most companies and agencies will remedy their Y2K problems, and there will be no major meltdowns, he doubts that the IRS will be able to resolve its Y2K problems.

Rich Karlgaard, Editor of Forbes ASAP, had a different take on the IRS.  He testified that the federal government's opposition to encryption is not based solely on a desire to combat crime and terrorism.  With the development of the Internet and encryption, "I suspect that the real fear is that money is digital."  Karlgaard continued that "encrypted money could really undermine the federal income tax system -- which I am not sure would be such a bad thing."