Senate Hearing on Spamming

Wednesday, June 17, 1998

U.S. Senate Subcommittee on Communications Committee on Commerce, Science, and Transportation

Washington, D.C.

The committee met, pursuant to notice, at 9:29 a.m., in Room SR-253, Russell Senate Office Building, Hon. Conrad Burns presiding.


Senator Burns: We would like to call the hearing to order. It is a little before 9:30, about a minute. You know, it is terrible in Washington to be a minute ahead.

We have two Senators and a Congressman that wishes to drop by this morning and offer their testimony on spamming. They come up with all of this stuff and I never know where they come up with it. But, nonetheless, we have a conference that starts at 10:30 this morning, and it involves all the Senators, on our side of the aisle anyway, and so we are going to try to make that conference, and limit the opening statements as much as we can.

I would like to welcome our witnesses that are here now, and our guests this morning, as we take a look at the explosion of junk E-mail, or spamming, on the Internet. Prom all that I can gather, this seems to be a growing problem on the Internet. And there has been some actions taken with regard to spamming. And we thought maybe we better have some folks up and visit with us about how big the problem is and all the ins and outs of it and how much it is hurting the Internet or it is helping the Internet.

I am going to submit my written statement this morning for the record and -- being that I am the unanimous consent myself. You know, it is kind of like playing golf by yourself you get a lot more give-meís this way.


Senator Burns: I would like to welcome this morning --and we will start off with Sheila Anthony, who is Commissioner of the Federal Trade Commission. And if she would come forward and offer her testimony this morning. And as the Senators would show up, we will make room for them. In the meantime, the witnesses might get their statements together. And if you want to paraphrase, if you want to make them smaller, your full statement will be made a part of the record.

[The prepared statement of Senator Burns follows:]

Senator Burns: I appreciate this, this morning. And, Commissioner Anthony, welcome, and we look forward to hearing from you at this time.


Ms. Anthony: Thank you, Senator. It is nice to be back here.

I am here today to tell you about spam and junk E-mail, as you call it, also called unsolicited E-mail, or UCE. The Federal Trade Commission is the Nationís primary national consumer protection agency. Its principal consumer protection mandate is to take action, under Section 5 of the Federal Trade Commission Act, against unfair or deceptive acts or practices in or affecting commerce.

Section 5 gives the Commission broad law enforcement authority over virtually every sector of the economy. Commerce on the Internet, including unsolicited commercial E-mail, falls within the scope of this statutory mandate.

The problem with unsolicited commercial E-mail, or spam in Internet lingo, is that it is often sent in bulk to a consumer without the consumerís prior request or consent. Although spam might be irritating to consumers, not all of it is fraudulent. The Internetís capacity to reach literally millions of customers quickly and at a low cost through UCE has been seized on, however, by fraud operators, who are often among the first and most effective at exploiting any technological innovation.

In fact, spam has become the fraud artistsí calling card

on the Internet. The staff of the Commission has reviewed a collection of over 100,000 pieces of spam. Much of it contains fictitious information about the sender, misleading subject lines, and extravagant earnings or performance claims about goods and services. These types of claims are the fraud operatorsí stock in trade.

Bulk UCE also burdens Internet service providers and frustrates their customers. But our concern as a Commission is its widespread use to disseminate false and misleading claims about products and services offered for sale on the Internet. The Commission believes the proliferation of deceptive bulk UCE on the Internet poses a threat to consumer confidence on online commerce. And we view this problem as significant.

Today, Congress, law enforcement, and regulatory authorities, industry leaders, and consumers are faced with important decisions about roles of self-regulation, consumer education, law enforcement, and government regulation in dealing with unsolicited commercial E-mail, and its impact on the development of the Internet. Deceptive spam is a small part of a larger problem of deceptive sales and marketing practices on the Internet. The Commission has taken the lead in pursuing Internet fraud and deception under Section 5 since commerce on the Internet began.

We have brought 36 law enforcement actions to halt online deception and consumer fraud. These cases targeted Internet scams ranging from pyramid schemes to credit repair schemes to fraudulent business opportunities. Last summer, we set up a special mailbox at the Commission to provide assistance to Internet service providers, privacy advocates and other law enforcers, and we invited consumers to forward their UCE to it.

This mailbox has received more than 100,000 forwarded messages, including about 1,500 new pieces of spam a day. Staff enters the message into a searchable database and analyzes it and identifies trends. And then we use these findings to target law enforcement and education efforts.

The largest category of spam in the FTCís database is chain letters and pyramid schemes. Both schemes make money for only a few participants. Our experience with pyramid marketing schemes supports the conclusion that 90 percent or more of investors are mathematically certain to lose money. Fees paid by new recruits, not profits from the sale of goods, generate most of their revenues. Both pyramid schemes and chain letters are illegal.

The Commission has responded to a large amount of chain letter and pyramid UCE with comprehensive consumer and business education programs and tough law enforcement. For example, in October 1997, the Commission sued Nia Cano, doing business as Credit Development International and Driverís Seat Network. In that suit, the Commission alleged that the defendants falsely promised that investors would receive an unsecured Visa and MasterCard, and they could earn $18,000 a month by recruiting others into the scheme.

The complaint alleged that the defendants urged participants to use bulk E-mail to solicit recruits. An estimated 27,000 participants flooded the Internet with UCE, repeating the defendantsí offer. The Commission obtained a temporary restraining order and preliminary injunction against these defendants, freezing more than $2 million for restitution to victims. The case is still in litigation.

The staff has taken aggressive steps to deter others who use spam to promote chain letter and pyramid schemes. Last February, with the assistance of the United States Postal Inspection Service, the Commission put more than 1,000 junk B-mailers sending UCE on notice that law enforcement agencies monitoring UCE for deception and fraud are keeping track of them.

The Commission sent letters, warning senders that their E-mail may violate Federal law, advising them of relevant laws, and inviting them to visit the FTCís Web site for further guidance. We continue to monitor the UCE database to make sure that those who have been warned do not resume sending deceptive UCE.

If the Commission finds that senders of deceptive UCE who have been warned continue to send these messages, however, we will take appropriate action.

In addition to online pyramid schemes and chain letters, the Commissionís UCE database contains other categories of possibly deceptive UCE. These categories mirror schemes which have proliferated in other media: business opportunity offers, work at home schemes, guaranteed credit cards and loans, credit repair schemes, and diet and health products making false or unsubstantiated claims.

Analysis database shows that well-known manufacturers and sellers of consumer goods and services do not send unsolicited E-mail. Rather, these merchants use solicited E-mail to give their consumers information they have requested about available products, services and sales.

For example, consumers may agree in advance to receive information about newly published books, online catalogs or weekly E-mails about discounted air fares. These examples demonstrate the value of consumer sovereignty to the growth of Internet commerce. When consumers are able to choose the information they receive over the Internet, they seem more likely to have confidence in its content and in the sender.

Conversely, when unsolicited information arrives in consumersí electronic mailboxes, the consumers who have contacted the Commission say they are far less likely to engage in commerce with the sender.

As government, industry and consumer interests examine legislative, self-regulatory and law enforcement options at this important turning point, it is useful to be mindful of lessons learned in the past. Earlier in this decade, the advent of the first and still most universal interactive technology, the 900 number, telephone-based, pay-per-call technology held great promise. Unfortunately, unscrupulous marketers quickly became the technologyís most notorious users.

Although the FTC and State attorneys general brought dozens of enforcement actions to halt these schemes, and warned legitimate 900 number vendors that industry practices needed to improve, the industry did too little too late to halt the widespread deception. And Congress enacted the Telephone Disclosure and Dispute Resolution Act of 1992, directing the FTC and the FCC to regulate 900 numbers by issuing rules under the Administrative Procedures Act.

The regulations have forced all 900 number vendors into a standard practice of full disclosure of cost and other material terms, and have virtually eliminated the problem of deceptive 900 numbers advertising. The Commission has steadfastly called for self-regulation as the most desirable approach to Internet governance. We still believe that economic issues related to the development and growth of economic commerce should be left to industry, consumers and the marketplace to resolve. But for problems involving deception and fraud, the Commission is committed to law enforcement as a necessary response.

Should the Congress enact legislation granting the Commission new authority to combat deceptive UCE, we will act carefully but swiftly.

Thank you, Mr. Chairman.

[The prepared statement of Ms. Anthony follows:]

Senator Burns: Commissioner, thank you very much. And thank you for coming this morning.

We have been joined by two of our colleagues that have a very big interest in this issue. And they may have a question or two of you. And I would call upon my good friend from Alaska, who chairs the Energy and Natural Resources Committee. And, gentlemen, let me say thank you for your patience this morning. We got started right on time. We have a conference this morning at 10:30, and we only have an hour. And I want to get to as many of my witnesses as I possibly can.

So, I would call on Senator Murkowski. Thank you for coming this morning.


Senator Murkowski: I have a brief statement. Mr. Chairman, I want to compliment you for holding this hearing -- I think it is very timely -- and also for your expertise in the area of communications, which you have led as subcommittee chairman of the Commerce Committee.

I do not know if you recall the first time you ran into Spain. I do. I was a youngster during the Second World War. It seemed to me the cartoons at that time showed in the soldiersí rations a can of Spam and a package of cigarettes. And they threw the Spain away and kept the cigarettes. But I do not know whether there is any timely message there or not.


Senator Murkowski: But, in any event, as you have said time and time again, it is inappropriate to go down to many rabbit trails when we are in a hurry. But what we have today of course is junk mail known as spam. It is an issue of growing concern to many members, including Senator Torricelli and myself. It is a big business. Internet service providers and government agencies responsible for controlling fraud all have an interest in this. Junk E-mail is a particular burden, however, on many rural people in my State and in your State of Idaho, who must pay a significant long distance charge to access the Internet, just simply to get their E-mail.

For instance, rural users with less than high quality, but average, telephone connections may spend more than 10 minutes a day just downloading junk E-mail, just to get the mail that they want. This costs an average Montanan or Alaskan constituent, who must pay about $6 an hour for a long distance surcharge to access America Online via a 1-800 number -- and that is as much as 50 minutes a week -- could mean $24 of additional charges a month. And the individual would have no choice. That is just the reality of what it takes to pull down your own E-mail.

So, I am pleased to see the panel testifying before you today. Joe Keeley of my staff and a number of others have worked diligently on this. I think it is fair to say that each of the witnesses today has participated, along with many other members and their staffs, in a workshop which was created at the request of the Federal Trade Commission.

The leader of the workshop, as I understand it, was Ms. Mulligan, who is with us today. And with the Center for Democracy and Technology, is to be commended for her efforts in hosting the forum, with a variety of views which were expressed at those forums and thoroughly debated. So, we look forward to the release of the final report on the workshop within the next few weeks.

We have been working to address the issue of junk mail for well over a year. Recognizing that junk E-mail has been a problem that deserved legislative attention, I introduced Senate bill 771 last May. Based upon comments that I have received from many interested parties and the work of CDT, I along with my colleague who is here today, Senator Torricelli, added a provision to the Telephone Slamming bill. And that is when you are basically taken off one carrier and put on another without your knowledge. That would represent a first step in controlling some of the problems of junk E-mail. And our measure would weed out the bad actors on the Internet by requiring identification of online marketers as well as requiring that Remove requests are honored.

For some in the Internet community, our solution, of course, does not go far enough. They propose an outright ban on unsolicited E-mail. I think such a ban would establish a dangerous precedent. It would erode the protection of the first amendment. The government should simply not dictate, in my opinion, what a consumer sees in his or her E-mail box. We have been down that road before with the Communications Decency Act, which the chairman was involved in.

The Supreme Court, by unanimous vote, has made it very, very clear what it thinks of such sweeping bans on Internet material. Consumers, I think, should have the final word in deciding what comes into their mailboxes, and not the U.S. Government.

So, finally, Mr. Chairman, I would finish my statement this morning by pointing out that there are numerous views. And from your witness list, they are certainly going to be well represented before you today. So, thanks for the opportunity to spend a few minutes. And let me 2ongratulate Ms. Anthony for her statement, as well.

And if you would excuse me, I will take my leave.

[The prepared statement of Senator Murkowski follows:]

Senator Burns: Senator Murkowski, thank you very much. And we appreciate your concern and we appreciate the work that you have done on this.

We have been joined now by Senator Torricelli, who has similar concerns. Your full statement, Senator, will be made part of the record.

I never asked Commissioner Anthony if she would take questions from the Senators, but I suppose she would. But if you would like to ask her -- she had a very forthright statement on this, and it sounds like the problem is much larger than I think most of us realize at this point.

Thank you for joining us this morning.


Senator Torricelli: Thank you, Mr. Chairman. I have read the Commissionerís statement. I did not want to address questions to her but, like Senator Murkowski, wanted to thank you for holding this hearing and giving me this opportunity, and briefly just to share a couple of comments with you.

First, I am grateful to have joined with Senator Murkowski in offering our junk E-mail amendment, and to Senator McCain, who has also offered his assistance throughout the course of the year. It is also important to acknowledge that there is no one approach to dealing with the proliferation of junk E-mail. Congressman Chris Smith, of New Jersey, has a different approach, in an outright ban, an approach that I would support, but have some constitutional reservations about.

Last year, we came together, many of us who share this concern, recognizing that there is a growing threat to Internet commerce and communication because of what Senator Murkowski has rightfully identified as the spam problem. It may be a problem in rural Alaska, but I can assure you it is also a problem in suburban New Jersey. And it is even a problem in this institution.

My official Senate E-mail address is inundated with E-mail every day. Even doing business in the United States Senate is being complicated. And this is not something that affects American life in the margins any longer. Sixty-two million Americans use the Internet every day, and traffic is doubling every 100 days.

Every American, in their business, in communication with their family, in access to general information, is going to be impacted by this problem of junk E-mail. Indeed, it is estimated today that 30 percent of all E-mail traffic could be junk mail, unwanted, unsolicited, interfering with commerce and everyday American life.

The problem is that not only is the problem large and growing, but the incentive is for even larger abuse. E-mailing millions of people can cost a few hundred dollars. There is no other form of communication in the country on any kind of economic basis that begins to compare. So, it is an invitation for even further abuse.

The question of course is how to deal with this on a constitutional basis, and without having the government inappropriately involved in regulating the Internet. I would like to see government interference at a minimum, while offering some basic protection. The need for protection is also not just one of convenience, which is important in making this case of why we need to do anything at all.

If it were simply an inconvenience, it might be all right to be left alone. Last March, spammers crashed the Pacific Bellís network, leaving customers without service for 24 hours. So, it is not simply that this is an annoyance; it can break down the entire system.

I think, in the Murkowski-Torricelli approach, we have got he right balance. It does not go quite as far as Congressman Smith has gone, with a complete ban. Instead, it empowers E-mail users, the customers, by doing several things. First, it gives citizens the power to stop future junk E-mail by replying to the sender. Federal law will give the E-mail addressee the right to stop E-mail to their address. Just as a citizen can go the post office and stop the delivery of mail to their home, or have an unlisted phone number for their telephone, it gives them some basic level of protection.

Second, the amendment would require junk E-mailers to identify themselves. If people from corporations knew that the receiver could identify who they were, they would not be as abusive, they would be much more careful about interfering with peopleís E-mail. This is simply a question of taking the cloak of secrecy off those who are originating all of this junk E-mail.

Mr. Chairman, I think that we have a fair and a balanced approach that addresses the ability of families and businesses to protect themselves. It prevents the breakdown of this vital new area of commerce, while being responsible to constitutional concerns of the right of people to use the Internet, and minimizing government involvement.

The Internet is one area of American life, communication

and commerce where we have a chance to start all over again, keep the governmentís role at a minimum, keep it free, fair and open. But that does not mean open to abuse and doing nothing.

Senator Murkowski and I have given you a suggestion that strikes that fair balance. And I appreciate very much the chance to present it to you today.

Senator Burns: Thank you very much, Senator.

Just sitting here, trying to figure out how we craft legislation, but also I would like to ask you a question. It appears to me that this is going to be one of those issues that it is going to take a massive amount of educating the consuming public.

Senator Torricelli: I think it does, Mr. Chairman. Though I have been surprised, in discussing this around the country, how sophisticated the public is with the problem. In many respects, this is one where the American people are significantly ahead of their Congress. Because many Americans who run their businesses on the Internet and communicate with family and friends on the Internet, beyond what most of us are doing in the Senate, they are living this problem more than we are. They are aware of it more than we are. You may be surprised how far ahead of us they are.

Senator Burns: Well, they usually are.


Senator Burns: That is the great elasticity and the imagination of the American people. They are always ahead of us a little bit, even whenever we thought we were ahead of the curve. You know, we started to restructure the communications industry, as you well know. And, again, we were behind the curve there.

Commissioner Anthony, I would just like to ask you, do we have to approach this problem with the same mind set as we did with the 900 numbers?

Ms. Anthony: Senator, I think it would be a very good model to utilize, particularly in the way that you might go about -- if, for example, you gave us the authority to enforce this area of the law, to make a rulemaking under the Administrative Procedures Act, which can be done very quickly. And then we would be happy to work with you to refine legislation and to share with you the benefit of our experience in what we know about E-mail.

Senator Burns: Now, we get junk mail. The postman brings us junk mail and puts it in our mailbox. But that does not cost us anything. And we can sort of see it in front of us and then just throw it away. There is a huge difference between electronic junk mail and the junk mail that you receive through the Postal Service.

Ms. Anthony: You are right about that. Because the recipient bears much of the cost and the service providers bear much more of the cost than the sender does. And the sender, for example, in the area that we look at, in deception and fraud, the sender, for very little amounts of money, does not need a big return when he sends out 100,000 pieces of E-mail. If he just gets a little back, it is very profitable for him.

So, we would like to see this stopped. And we would be happy to work with you in any way that we possibly can. I think the Senateís bill, Senators Murkowski and Torricelliís bill, strikes a fair balance, because it identifies deception as an extremely important problem, but it also gives the consumer the right to opt out of receiving E-mail, just as you have given consumers the right under telemarketing and junk mail.

Senator Burns: Obviously you have looked into this with some depth. And I would ask both of you if this legislation provides an opt out for the consumer. That still does not prevent that person from receiving the first piece.

Ms. Anthony: That is true, it does not. But if the routing information is correct and there is something in your bill that can identify the sender, my best guess is that that will stop a great deal of the fraud.

Senator Burns: Do senders identify themselves?

Ms. Anthony: No. In the fraudulent area, they usually give fictitious information and false messages. But there are fictitious names that they give. They can also route through a third party. So, it is very difficult for a recipient to determine in fact who is sending them this E-mail.

Senator Burns: Senator Torricelli, take a State like New Jersey. I would imagine that you are in a State -- and this is a problem, where the person that wants to defraud and the people they are wanting to defraud, it does not make any difference where you are in this country electronically.

Senator Torricelli: Unfortunately technology has provided the one perfect new vehicle for fraud and abuse of our citizens. For all the wonders of the Internet, this is an opportunity for someone anywhere in the country, hiding in the complete cloak of secrecy, to issue these E-mail messages and perpetuate a fraud upon the American people. And that is exactly what is happening.

It is something that I think has a relatively easy solution. As Commissioner Anthony suggested, if these people are required to give, under penalty of Federal law, to properly identify themselves, where they are and who they are, you may get their message once, but if you do not like it and you do not want it and you do not want anything to do with them, you stop them.

So, yes, they get one shot free. And I think, constitutionally, we probably have to give them that. But that is all they get.

Senator Burns: I am just looking down the questions here before -- both of you I know have got other things to do today; this is not the only thing you have got going. And the next panel has to do with those folks who are involved in the Internet and its operation, which we have some more questions for. But that is all the questions I have at this time.

I want to thank both of you for your statements. And I appreciate your coming down this morning.

Ms. Anthony: Thank you, Senator.

Senator Burns: And we want to work with you, too. And as this legislation moves along, we will be seeking, probably, advice on what you can do and what you cannot do as this moves through the Congress.

Ms. Anthony: We would be happy to provide it.

Senator Burns: And we would hope that with the problem as you have described, the legislation is timely and needs to be moved.

Senator Torricelli: Thank you.

Senator Burns: Thank you.

Now, we will call the next panel, Mr. Randall Boe, who is the Associate General Counsel for America Online; Jerry Cerasale, who is Vice President, Direct Marketing Association; Ray Everett-Church, who is Co-Founder of the Coalition Against Unsolicited Commercial E-mail; and Dierdre Mulligan, Staff Counsel for the Center for Democracy and Technology.

We appreciate you coming this morning. We may have set an all-time record of a hearing scheduled to start at 9:30 in the morning, and you are already at the table at 10:00. That is unusual in this 17 square miles of logic-free environment.


Senator Burns: I got a message the other day from a good friend of mine who was in the chair, and his replacement was 15 minutes late getting there, and he sent me a message down on the floor that says, rescue me from the cave of the winds.

We look forward to your testimony this morning.

Mr. Randall Boe, Associate Counsel for America Online. Thank you for coming this morning. And if you want to consolidate your statement, you may. If you have a longer statement, it shall be and will be made part of the record of this hearing.


Mr. Boe: Thank you, Senator Burns. And thank you for the opportunity to testify here. I do have a written statement that we will supply you, but I would like to give you a few comments first, if that is all right.

I am the Associate General Counsel at America Online, and helped develop AOLís unsolicited bulk E-mail policies, and I also head up our litigation efforts against spammers. And what I would like to do very briefly is give you a dispatch from the front lines of our war against spam. And that is how we view it at America Online. It has quickly become the largest single complaint of our members, and it is threatening to engulf the entire Internet.

We handle right now on a daily basis almost 30 million E-mail messages. And to give you an idea about the growth, 18 months ago we handled about 5 million E-mail messages every day. Our estimate is that as much as 30 percent of those 30 million E-mail messages may be junk E-mail.

You correctly identified an important distinction between junk mail in the offline world and junk mail in the online world. Last night, when I arrived home from work, I did what millions of Americans do, I picked up the mail and browsed through it. And there were four or five pieces of junk mail. But there are a couple of important differences between the junk mail I get in my mailbox on the front door of my house and the junk mail that floods Internet usersí E-mailboxes.

First I do not pay a dime to receive junk mail delivered by the Postal Service. I do pay, through higher service fees and through hourly plans if I am an hourly subscriber to an online service, to receive junk E-mail. Second, the person delivering or the company delivering the junk mail in the online world pays nothing to have that delivered. Whereas in the offline world, the junk mailers are required to at least pay the cost of delivering their mail.

Third, I can identify from whom I receive U.S. mail. Fourth, and I think a very critical point, I do not have a concern about my 6-year-old daughter wading into the mail in the mailbox at home and receiving inappropriate or pornographic images. I do not have that same assurance right now using the Internet and Internet E-mail.

None of those distinctions apply for spammers. First of all, consumers have to pay for the cost, in many instances, of receiving spam. Secondly, service providers, like AOL, bear enormous costs in terms of additional servers, additional capacity on the computer network, as well as personnel and time to deliver this huge flood of unsolicited mail.

Third, the standard operating procedure for spammers is to falsify the transmission data, so that it is impossible to tell with any accuracy where the mail actually came from. Which is intended, first of all, to prevent angry consumers from actually being able to reply to the person sending the E-mail, and secondly, to defeat the technological efforts of companies like AOL to prevent the spam from getting into the network.

And, fourth, and I think most problematically, while we offer tools to help parents select the right content for their children online, spammers, by sending pornographic E-mail without regard to the age or the sensibilities of the recipients, almost make a mockery of that entire process. And that is a significant problem for us.

We are fighting spam on a number of fronts at AOL. First of all, we have deployed probably the most stringent anti-spam policies in cyberspace. We strictly prohibit the use of AOL accounts to send unsolicited junk mail. We prevent the use of AOL accounts to harvest screen names to compile mailing addressed, or to do anything else that facilitates the transmission of junk mail.

In addition, we do not sell or distribute lists of our membersí E-mail addresses. And we take extensive precautions to maintain our membersí privacy. Second, we have developed some of the most robust technological tools available to try and block spam before it even enters our network, and before it gets distributed to our customers.

Third, we have created an extensive set of tools for our members to give them control over the E-mail they receive. Our members have the ability to create a list of people from whom they would like to receive E-mail, as well as blocking E-mail that they do not want to receive.

And, finally, we have waged a long and costly battle against spammers. In the last 9 months, we have filed suit against more than 20 junk E-mailers, and will probably sue five to six more this week.

We are pleased to see other companies step into the fray, but we think that there is a role for the government, as well. We think that any legislative proposal should, one, outlaw the falsification of transmission data in E-mail, clarify that existing statutes, like the Computer Fraud and Abuse Act, do apply to E-mail, and add statutory civil penalties for spammers who are sending E-mail in an unauthorized fashion, and give ISPís the ability to recover the costs of bringing suit against these people to stop the sending of junk E-mail.

We think that junk E-mail is a problem that pervades the entire Internet, and poses a risk to the development of Internet commerce. And we think it requires a coordinated approach. We look forward to working with you, as well as the rest of our industry, to try and resolve this matter in a way that is beneficial for consumers and the Internet as a whole.

Thank you for the opportunity to testify.

[The prepared statement of Mr. Boe follows:]

Senator Burns: Thank you, Mr. Boe.

Now, Jerry Cerasale.


Mr. Cerasale: Thank you, Senator. I appreciate the opportunity to be here. And thank you very much, Senator. We appreciate the fact that you are holding this hearing and inviting us here to testify.

I am Jerry Cerasale, the Senior Vice President for Government Affairs for the Direct Marketing Association. I have a longer statement that I ask to be put in the record.

Senator Burns: Your full statement will be made a part of the record.

Mr. Cerasale: Thank you.

The DMA represents over 3,600 corporate members who are direct marketers, both domestic and international, their suppliers and support services. And DMA is very interested in regulation of electronic commerce. Over 85 percent of our members are involved in some form of B-commerce. We estimate that B-commerce last year totalled about $4 billion.

With rapid changes in communications technology, we believe that no method of communication for commerce should be eliminated, however. But the DMA agrees that many current uses of unsolicited E-mail are not appropriate for legitimate marketing and must be curtailed. And we think that Congress should examine approaches to eliminate these inappropriate uses without eliminating the medium altogether.

The unsolicited E-mail of today may not be the unsolicited E-mail of tomorrow. Our marketers have been very creative in providing products that American consumers want through the traditional media of mail, telephone and direct advertising, and the DMA believes that the new option of electronic communication should remain open and not be eliminated by government regulation.

We also think that there are a lot of market forces discouraging legitimate companies from engaging in mass, unsolicited E-mail. The field is very customer oriented. Legitimate companies must provide good customer service and not anger their customers. Therefore, we agree with Senator Torricelli and Senator Murkowski that marketers should identify themselves. And that is required, I think, in S. 1618 that was just recently passed.

Direct marketing is a growing business. It is $1.2 trillion every year, and creating jobs for over 12 million Americans. It is also growing rapidly internationally. And E-commerce helps that growth. American companies can export products without the need to build any infrastructure in foreign countries. All that is needed is the means to solicit orders -- electronic commerce offers that; to accept orders -- electronic commerce offers that; and delivery of the product.

Electronic commerce is really new. And it is not mature yet. And we are going through a great deal of growing pains. And the government, however good its intentions, should not strangle electronic commerce at its birth. We think that there are many means to combat fraud in existence. And there are in fact bills in Congress which now can provide American consumers with mechanisms to avoid unsolicited E-mail.

The Direct Marketing Association, along with the Interactive Services Association, has come up with some principles for marketing online, which will be included in the record, I ask. But let me tell you about electronic E-mail and the DMAís positions.

First, we think that any marketer should abide by the rules of the forum of the Internet service provider. We understand that unsolicited E-mail increases costs and uses server capacity of Internet service providers. We think that they should establish rules and that marketers should be required to follow them. This is an approach that was included by Senator Torricelli in S. 875.

We think that there should also be an opt out program, and a two-pronged opt out program. The first prong is that the recipient of unsolicited bulk E-mail should be able to request that the marketer not send any more B-mails to that address. This could be done by a reply key. It is the approach taken in S. 771, introduced by Senator Murkowski, and which was merged with S. 1618 and passed by the Senate.

There is a second prong, however. The DMA is actively working on a universal opt out. We are reviewing proposals to create an E-mail preference service, and hope to announce the award of that contract very soon. An E-mail preference service would allow consumers to add their E-mail address online to a list, at no charge. Marketers would then use this list to delete the addresses from their E-mail lists. It is very similar to the mail preference service and telephone preference service of the DMA that have been in existence since 1971 and 1985.

This is an approach that was also included by Senator Torricelli in S. 879. We think with these two prongs, plus a requirement that you honor the rules of the forum, that consumers can limit all E-mail through the EMPS, and company-specific E-mail through the opt out key. We think this approach is far superior to banning the use of E-mail to reach prospective customers.

Electronic commerce, and E-mail in particular, are going to be growing and changing. A ban on the use of commercial E-mail is premature at best, and may be counterproductive by chilling advancement of certain new technologies.

The DMA also believes that the government should enhance its efforts to combat fraud on the Internet, and specifically in E-mail. And we applaud the efforts of the FTC, Postal inspectors, and other law enforcement agencies to step up their anti-fraud campaigns. The DMA will continue its efforts to cooperate with them and their law enforcement efforts.

The DMA has consistently referred any ethics complaints it receives involving fraud or other violations of the law to the FTC, attorneys general, and the Postal inspectors.

Fraud should be severely punished, whether it is made on paper, over the airwaves, over phone lines, or on the Net. It is a cancer to all commerce regardless of the medium used, and it should be eradicated. And the DMA wishes to work with you and your subcommittee to work on legislation to try and help solve this problem.

And I thank you for the opportunity, and am willing to answer any questions.

[The prepared statement of Mr. Cerasale follows:]

Senator Burns: Thank you very much. I would call on Dierdre Mulligan, staff counsel for the Center for Democracy Technology.Thank you for coming this morning, and we look forward to your testimony.


Ms. Mulligan: Thank you very much. I want to first take the opportunity to thank the chairman. My organization, as you know, works on First Amendment, privacy, and other issues that are critical to the Internet, and we have really appreciated your leadership on issues such as encryption, and also to thank Senators Murkowski and Torricelli for their ongoing effort to look at the use issue in partnership with you and Senator McCain.

I am very pleased to have the opportunity to talk about use today as many of you have commended, the growth of the Internet, and particularly E-mail, is leading to a rapidly evolving, what the Supreme Court recently called world-wide conversation. E-mail particularly is giving us the opportunity to communicate, share information, and spread ideas in a way that no other medium has ever been able to mirror.

However, the same traits -- the low barriers to access, the ability to communicate both one-to-one and one-to-mass that are so powerful for freedom of speech are also very powerful for some of the marketing community and, as the Federal Trade Commission has found out, generally a fairly unscrupulous section of the marketing community to use this medium to send hundreds, thousands, and even millions of messages to consumers which they frequently are not interested in receiving.

Unlike postal mail, as Senator Torricelli pointed out, the cost of E-mail is not borne by the sender, it is borne by the intermediaries, the ISPís, the backbone provider. It is borne by the recipients and, unfortunately for the recipients in rural areas such as Montana and Alaska, those costs, when there are dial-up accounts, when there is storage on local ISPís, can be quite substantial and, at times, I think some of your constituents have found prohibitive.

Both the frustrations of the Internet community and the complexities of addressing the quandary of unsolicited commercial E-mail in a way that meshes with our constitutional protections for speech were aired at the Federal Trade Commissionís half-day work shop on use that was held last June.

At its conclusion, and at the request of then-Commissioner Varney, the participants at the workshop agreed to undertake an effort to look at these issues, to look at a broad array of possible solutions. I think too often we tend to seek Government solutions and regulatory solutions and what we have found, and I think particularly what the Communications Decency Act and the Supreme Court decision striking it down have told us is that in this medium those tools may need to be coupled with other tools that are more appropriate to this medium that deal with the decentralized and the global context.

So some of the solutions that we have looked at are not just legislative and regulatory but also include technical approaches, such as the filtering tools that are employed in different E-mail programs, the technical measures such as the companies such as AOL and Compuserve have put in place to deal with protecting their consumers, and many of the self-regulatory efforts that have ranged from opt-in E-mail to global opt-out lists, to free services that offer cleaning of lists so that when marketers want to send messages they ensure that they do not send them to people who have indicated they have no desire to receive them.

For the past year, CDT has coordinated this working group, and it has been a privilege to work with organizations and companies -- everyone who is represented at this table this morning has participated, or someone else from their organization, along with many others.

While the report is not yet available, it is our intention and it will be our pleasure to share that report with the committee, and I think that you will find that it both maps out the issues, helps identify both the role that Government can play and also the role that the private sector and that technical tools can play in dealing with this very complex issue.

Finally, I want to come to the recent bill, the amendments to S. 1618 by Senators Torricelli and Murkowski. believe that S. 1618 is a very important first step in addressing this issue and that if it was enacted, that it would lead to a reduction in unsolicited commercial E-mail, and I will get to why in a second.

However, I think it is unclear whether 5. 1618 on its own will be the silver bullet. I think the reason that it will reduce unwanted commercial E-mail on the Net is that if the history of E-mail has told us anything, and the history of the Internet, it is that Internet users are a very vocal bunch, and that when they are able to respond to practices that they do not like, they do so vociferously loudly, and in the case of unsolicited commercial E-mail with a fairly resounding no, and I think that there is one example I would point you to.

Canter & Siegel are real Internet lore, and they have often been called one of the most hated folks on the Net, and they sent out a massive blast to over 6,000 Use Net news groups, which are groups that are usually very issue-focused for discussions among like-minded individuals, but they put their return address.

Very quickly, their ISP not only crashed once, but crashed 15 times, and Canter & Siegel business people who were trying to operate in this medium found out that they could not get an ISP to carry them. I think the recent incident with Sanford Wallace also tells us that when people are identified as using this medium in a way that the community thinks is inappropriate, that they find the community is not ready to open their door.

That said, I believe that the impact of legislation, whether it is S. 1618, if passed by the House and Senate, or others has to be monitored. Regulating activities on the Internet poses really unique issues. As I said earlier, this is a global decentralized medium. I do not think legislation in this medium will ever provide a full answer and that it is going to need to be coupled with technical tools, with self-regulation, to really create a robust infrastructure to provide individuals with the ability to control the information coming into their homes.

I very much look forward to working with you, and appreciate the opportunity to be here. Thanks for your time.

[The prepared statement of Ms. Mulligan follows:]

Senator Burns: Thank you. We appreciate your time and your efforts on this.

Mr. Ray Everett-Church, cofounder, Coalition Against Unsolicited Commercial E-mail.


Mr. Everett-Church: Thank you, Mr. Chairmen, and to the members of the committee, I appreciate the chance to address you. I hope your staff warned you that by the end of this year you will be such an expert in technology that your grandchildren will expect you to program the VCR.


Mr. Everett-Church: I come here today on behalf of the Coalition Against Unsolicited Commercial E-mail. I have also been authorized to say that my remarks today represent the views of our coalition partners, the Internet Service Providers Consortium and the Forum for Responsible and Ethical E-mail.

The coalition is an all-volunteer ad hoc group of technology professionals, consumer activists, Internet servers, provider owners and operators, and the operators of many Internet-based businesses. In just a year of existence we have become one of the Nationís largest Internet advocacy groups with over 10,000 registered members from nearly every State.

Our coalition was formed for just one purpose, to advocate for a legislative solution to the problem of junk B-mail. We took on this task because as technology experts we found that the technology and self-regulatory solutions have proven to be no solution at all in stopping the damage done by junk E-mail.

As you have heard from many people, and I will not recount all of it, the problem of junk E-mail imposes tremendous cost on many parts of the system, including Internet service providers and users, particularly customers in rural communities, but there is a larger issue at stake.

As a greater and greater percentage of our gross domestic product revolves around the explosion of computer-related and Internet-related commerce, 1 do not exaggerate when I say that junk E-mail has the potential to harm our economy in ways that terrorists could only dream about.

With alarming frequency, media report system crashes and network outages caused by junk E-mail attacks knock out systems by large providers such as AT&T, Pacific Bell, Netcom, GTE and others. Just to give you an idea of the volumes we are talking about on an individual level, during calendar year 1997, the E-mail account I use for my business received over 6,000 pieces of unsolicited commercial E-mail. That is an average of about 16 messages per day, for a total volume of 41 megabytes.

While the costs of becoming a junk B-mailer are tiny, as you have heard, the cost to those who have to transport, process, store, and retrieve that E-mail are quite tremendous. Particularly for users in rural communities and Internet service providers serving those users, the costs can be extraordinary.

For many of the victims of junk E-mail attacks, these unsolicited commercial messages are like a telemarketerís phone call to their cellular phone. They have paid to receive a message they did not ask for and invariably do not want.

For this reason, many people have called junk E-mail a form of postage-due marketing. I am not so charitable. I quite simply call it theft. It is the stealing of time and resources from others against their will.

Now, you have heard several different legislative approaches discussed today, and what I want to share with the committee is that the coalition feels that any legislation which would legalize the sending of any form of junk E-mail is nothing short of legalizing a type of theft. If this committee gets a chance to review junk E-mail legislation, I urge you to reject any solution which gives legal sanction to the practice.

Now, outlawing junk E-mail such as Congressman Smithís approach would not make it impossible to advertise on the Internet, not in the least. It will simply require that marketers show some more creativity in convincing consumers to opt in for their messages.

Now, you have already recognized the differences between postal mail and E-mail, and we believe that the postal opt-out approach is a misguided approach for the E-mail venue. We favor an opt-in approach.

Now, legislation mandating opt-in approaches for situations where costs are shifted to the recipients is not unheard of. In fact, the existing statute outlawing junk fax transmissions has been on the books for almost a decade now, more than a decade, and has been extremely successful.

The economics of junk faxes and junk E-mail are quite similar in that they both consume the resources of the recipient at much lower cost to the sender. However, there is an important difference. With junk faxes, it is much more difficult to press one button and send to 10 or 20,000 people very easily without some incremental cost, but in the world of junk E-mail, the 10-millionth E-mail message costs no more than the 11-millionth E-mail message.

Just as we find H.R. 1748 a clear solution we find Senators Murkowski and Torricelliís approach inadequate and, indeed, something of a threat. Although CAUCE certainly endorses the intent behind their approach, we are concerned that their proposal will increase the burden on businesses and consumers by setting a very low threshold for the legitimacy of junk E-mail.

Now, some have questioned the constitutionality of an outright ban on junk E-mail. Let me assure you that there is ample precedent for supporting Congressman Smithís legislation.

In the case of Rowan v. U.S. Post Office, the Supreme Court held that nothing in the Constitution compels citizens to view unwanted communications and specifically the Court held that "a mailerís right to communicate must stop at the mail box of an unreceptive addressee. To hold any less would be licensing a form of trespass.

Certainly, in the junk E-mail context a Federal district court held, "There is no constitutional requirement that the incremental cost of sending mass quantities of unsolicited advertisements must be borne by the recipients."

In conclusion, Mr. Chairman, like the fax machine before it, electronic mail is a marvelous tool of business and personal communication. It is simple and accessible, but unless Congress acts to stop the growing flood of advertisements, the viability of the media will be severely threatened.

Thank you very much.

[The prepared statement of Mr. Everett-Church follows:]

Senator Burns: Thank you. Thank you, Mr. Church.

I want to direct a question, and we are supposed to open up here in a little bit with a conference, but Mr. Boe, is there a way that a member of AOL, is there a way technically that you can block for that member what he or she receives?

Mr. Boe: We have tools that allow members, if I understand your question correctly, that allow members to decide what they will or will not receive, so I can establish a list, for example, of the E-mail, known E-mail addresses -- her grandparents -- and she will receive E-mail only from those people and all other mail will be blocked, and we allow the members to do that themselves.

Senator Burns: And that is done on the computer of the member himself?

Mr. Boe: Correct, and we believe that allows the members to choose what mail they will receive.

Senator Burns: Can you do that for the customer at a cost?

Mr. Boe: Well, we do have technical solutions that are designed to try and identify junk E-mail and block it from ever entering the AOL network, and we do that, and there is a substantial cost associated with that.

Senator Burns: How do you do that?

Mr. Boe: It gets very complicated.

Senator Burns: I know, but just give me the outer shell.

Mr. Boe: Well, we do a couple of things. We identify domains -- we call them spam havens, domains from where spam originates. We also look at the characteristics of the transmission. So, for example, if we see a batch of a million E-mails all coming at the same moment from the same place, we are likely to identify that as junk E-mail and take efforts to block part of it. That is a thumb-nail sketch of how that works.

Senator Burns: Okay.

Mr. Boe: But I should add, it is very difficult to do that, and the spammers are very adept at defeating the countermeasures, disguising the source of their transmissions, falsifying the transmission data to prevent us from doing that effectively.

Senator Burns: Ms. Mulligan, you mentioned encryption, and I have often said -- and correct me if I am wrong -- robust encryption is one of the keys that the individual American is going to have to understand and use in order to prevent some of this. Is that a correct assumption, and it also goes a long way in protecting the integrity of the service that Mr. Boe offers.

Ms. Mulligan: There are a number of folks that are experimenting with the role cryptography may play in addressing E-mail issues. There is some work going on in a number of very important technical labs looking at, for example, a way in which -- it is not quite a costing of Email, but it would allow me to indicate that I want to communicate with a specific person. You can certainly use public key cryptography to selectively identify people with whom you want to communicate and those with whom you do not.

However, whether or not cryptography will be a central tool in addressing, on the technical side, unsolicited Email, I am not so sure.

I think that some of the filtering tools that have been discussed such as the ones my colleague here was talking about are probably more likely to be effective, and one of the important things that he pointed out was what makes filtering difficult today is the falsification of information, the fact that people are falsifying domain names so that when AOL blocks a spam haven the spam haven will then try to disguise itself as somewhere else, and so some of the accuracy requirements we think would go a long way to help with that specific kind of filtering.

Senator Burns: Jerry, tell me about your organization. Has your organization developed a code of ethics and guidelines for direct marketing, and if there are violators, do they lose their membership, or how do you police that if you have set up an ethical means of doing business?

Mr. Cerasale: Yes. Yes, we have. We have set up -- we have an ethical -- an ethics program with ethics committees that have the authority to try and correct a problem that comes up and also the authority to bring to the board to throw someone out.

We have started a new program that there are certain requirements that will be mandatory that people, members participate in to remain members. That will begin in July of 1999. They have to give the ability to opt out, the notice and ability to opt out, and honor that opt out. They must use our mail preference service, our telephone preference service, and when we get it up, our E-mail preference service. That would be for all members.

And also our guidelines, our principles for electronic Email would be that they have to follow the rules of the forum, and so in essence trying to send unsolicited E-mail, a big batch to AOL, and AOL says they do not accept it, that is the rule of the forum of AOL. Our guidelines would say that you cannot send that batch to AOL, and we have a committee that works and looks at that.

The committee also, when it finds fraud, we immediately send that information to either the FTC, the State Attorneys General, or the Postal Inspection Service, or to all three if it is appropriate, and so we work in that way. That is our ethics program.

Senator Burns: Tell me about, do your members use the tool of unsolicited E-mail?

Mr. Cerasale: We do not think so. There maybe one -- we believe there is one. There ~s one member who uses unsolicited E-mail and offers an opt-out. As I said in my testimony, this is a new medium, and our marketers have not found it to be useful at the moment. They are looking at it. We do not want it closed up, but they are not using unsolicited E-mail, basically.

This is a very customer-oriented business, and if your customers are angry about it you do not want to use that, so we are looking at new ways -- as technology and creativity continues, there may be ways to use unsolicited E-mail, but right at the moment I would have to say basically the Direct Marketing Association members do not use it.

Senator Burns: Mr. Church, we are going to have to draw this down, but there will be questions from other members on this committee, because we are in this sort of a compact situation here today about moving some information of our own.

In your testimony -- and I have not read your testimony, I am sorry -- did you specifically lay out some of the concerns that you have with the pending legislation?

Mr. Everett-Church: Yes, we did. In fact, we attached a copy of the letter that we sent along to Senator Murkowskiís office prior to the introduction of that legislation outlining the major concerns that we had with that bill.

Senator Burns: Oh, I am sure you will be hearing, all four of you be hearing from us on the committee as that legislation moves and takes its shape.

I am just sorry we have to cut everything -- I thought we did pretty well, getting everything into an hour, and your recommendations, and we will certainly recommend to other members if they want to visit with you, I would certainly recommend that they do so on a personal basis. Any questions that you might return to individual Senators I wish you would also copy in the committee.

We appreciate that, and your coming down here this morning. Thank you.

[Whereupon, at 10:35 a.m., the subcommittee adjourned.]

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