through this decision that majority justices have again made it harder comport corporations accountable under the historic civil rights laws. earlier this month, the first derivative traders come the same five justices gave corporations and other very they sharing them from accountability come even when they knowingly by to their

investors. some say the decision provides wall street coverage with a license to lie. others say it's a roadmap for fraud. if you commit lies, follow the guidelines of this court janice decision, you can get away with it it it allows wall street companies to design new ways to evade accountability and hard-working americans who have seen their life savings ravage over the last two years by a project investment scheme of corporate misconduct. two months ago on at&t the conceptual common supreme court opinion can take care of the telephone bills and other

contracts with customers bring in and class-action lawsuits. binding arbitration and mandatory application makes to jury trial in the due process our constitution guarantees to americans because the arbitration they had there had no transparent tea, nurtures and of course no appellate review. so these cases are just examples of how the court's recent decision will hurt individual americans. if they benefit those who engage in misconduct. the people of god regardless of their conduct are considered to be to fail. the the sprinklers resent decision may make some wonder whether the court not decided some corporations are too big to be held accountable. we have a situation where they

are too big to fail, too big to be held accountable and we have a real concern in this country. americans spent together to hold corporations accountable and undermine the supreme court. this is an show up increase on wall street with hard-working americans at main street. i think the witnesses for being here today and before we start with the witness of coolers ideal to my friend commented saying this ranking member, senator grassley of iowa. >> teaming agreements. everyone should visit do to americans, whether individual or business entity must have confidence when they appeared before a judge they will receive a fair and unbiased adjudication of their claims and defenses. ever notice how strongly i believe in congress this

constitutional duty to conduct oversight of the other branches of the government, even including reviewing the federal judiciary, but that review must be fair and object it. so i am concerned given a less than objective title of this hearing and i know the area and as makeup to testimony. some might ask whether certain conclusions had been reached before this hearing has even started. just like a lead against mr. fram to judiciary and from congress a fair hearing, protect in their race and a measure of predictability of the law. the united states is founded on the principle that all purrs and should receive equal justice under the. americans believe that the most fundamental requirement for a legitimate legal system is that it is staffed by judges and

justices were fully committed to impartially adjudicate in the cases that come before them, regardless of the identity or status of the decamps. they should be of no surprise to anyone. the solemn pledges impartiality is mandated by federal judges and justices. unless we forget the phrase equal justice under the is engraved about the united states supreme court building. those are more than just pleasant sounding words. the fundamental principle the fundamental principle the fundamental principle has origins in the foundation of western civilization and the birth of representative government. today, the concept of equal justice under the law in a truly impartial judiciary are at the heart of our legal system and our democratic system. contrary to this fundamental principle, you seem those who accuse the supreme court is

being justice went justices and judges appointed or decide cases on the empathy for litigants are searching cases were supreme court justice because he or she possesses sympathy or sympathy for certain categories for litigants over others is misguided, unwise and is very contrary to the fundamental principles upon which our governmental and judicial systems are based. under the ethical rules governing federal judges, judges are required to give you your controversies before them impartially and must disqualify themselves of their impartiality can be reasonably questioned. the judge whose rulings are influenced by your feet violate his or her ethical canons governing the conduct of judges. when it comes to judging from

the empathy is only good if you're the person or the group that the judge has empathy for. in those cases come if the judge not the law that determines the outcome and that's a dangerous road to go down if you truly believe in the rule of law. individuals with legitimate claim should have a chance to make them, but not all individuals have legitimate claims. those who attacked the supreme court for biased in favor of business want to change your system. under their view, it would seem that legal dispute are nothing more than political popularity contest where they cite the loudest voice for the loudest advocacy groups when, notwithstanding what the law actually provided. our founders predicted this. they need to judges and justices with the subject did to these kinds of attacks. that's why our founders created

the system date data provided for federal judges and justices in article iii of the constitution. under our constitution statute, judges and justices must apply the law impartially and call cases as they see them without regard to this database or political views of the litigants. that's our system. it works and it's the best that mankind has ever known. >> thank you. our first witness this morning is betty dukes, delete plainness by statute or discrimination pay promotions coming dux the one or geared toward the open the store in pittsburgh, pennsylvania have anticipated opportunities and was hired by wal-mart and 94 and is happy about working for the come to me. she learned about the walton

family and the vast business empire in the community college class where they in the mid-80s. the community college she was placed on the dean's list. ms. dukes and her family quite proud parable moamer tired or shared nearly 25 years of retail experience, including work at the head cashier and then a department in a chair. may 25 marks her 17th year at the pittsburg wal-mart stores. industry advocates, she wants to get a trial another voice heard. i was struck by -- somebody told me it was her favorite quote, which i think you may hear me using later on. don't let bearded under your feet. it will carry you where you don't want to go. it's a great quote.

so ms. dukes, which are full steam in the record of course, but please go ahead. >> good morning. i am betty dukes. i am honored to have been invited to speak to you this morning. the supreme court's ruling in the wal-mart v. dukes has brought me before this committee today. i would like to share my history as a wal-mart employee. i grew up in the city of pittsburg, california and over at the wal-mart store their for 17 years. i worked in the retail industry for nearly 25 years before coming to wal-mart. most of my working career has been in the retail businesses. from the start of my career with wal-mart, i sat opportunities for advancement, but during my 17 years of wal-mart, i have received only one promotion. while working at wal-mart, i

received numerous awards for outstanding customer service and other duties performed well. prior to filing this lawsuit in 2001, there was never any posting for management positions in my story. for the first nine years that i worked at wal-mart, i never signed nor heard of any system for applying to get into management. after the lawsuit, i learned that my experience was typical of what other women had experienced at other wal-mart stores. once the lawsuit began, i also learned that wal-mart workforce database that women were paid less than men for doing the same work in wal-mart stores. rather than bring a claim on my behalf, i brought this lawsuit on behalf of the women who worked at a wal-mart store in this country. we have evidence that countless

numbers of us have been subject to the same work in division and the same crack this, which favored me in. i hope this suit would permit us to get an order from the court wal-mart from treating women unfairly. i was disappointed last week when the supreme court brought these claims together in one single case. we have collected a lot of evidence that women consistently received unequal pay and unequal promotion supporting our answers to try things together. unfortunately, this dream court in a decided decision did not allow this case to go forward. women will now have to pursue smaller class cases for individual actions. we will continue to proceed on behalf of as many women as

possible who are part of the class. many women will give that because it is too hard to march on their own. it is not easy to take on your employer. it is even more difficult when the employer is the biggest company in the world. in this country, there are many betty dukes who want their voices to be heard when they want equal pay and equal commotion. for many of these women, i am afraid that the court's ruling will leave them without having their due dates enforced. thank you. >> thank you very much. i'm sure a number of those women have you and your testimony. the next is andrew pincus, a partner at the firm mayer and

brown. he frequently are those you for the supreme court and is well-known to the court. he previously served as the assistant attorney general. mr. pinkas, glad to have year. >> thank you very much, mr. chairman, ranking member grassley. it's an honor to appear before the committee today. to assess the impact and corporate behavior under recent decisions come i looked at the outcome in the court court cases involving private plaintiff seeking damages from businesses. and this year, there is a tie. is this party/just as many times as they won in such cases this year, nine wins for business parties, nine wins for plainness suing businesses. and deep in the cases involving sensitive interpretation, business parties and every

court. i know some of the business when the most important cases, but i wonder if their perception of the importance is that colored by their outcome. according the case had said claims under the federal antidiscrimination laws complaints must always be in writing, i think the reaction is quite justifiably an average of process requirement that would show retaliation claim and opened the door for companies to intimidate workers. whereas the court in this sad case has said as one is the actual decision-maker but discrimination. be great concern about that. it's important to look at the whole range.

turning to subjects for discussion, it's also important to distinguish between policy decisions. other cases talk about statutory interpretation of laws passed by congress or federal rules and court procedures for the supreme court has announced the policy outcome is best. rather, israel is to ascertain the intent of congress using the principles that they may very well somewhat in how the emphasis get to some of those principles. the best way for the policy debate is accurate from a legal question and that separation is important. the conception and janice, in my view the legal departed substantially from existing the

nhl and its surprising the court refused to embark on a quite radical courses urged by the plaintiff and instead adhere to principles that have been recognized in the course prayer cases in those three areas. and wal-mart, for example, the court confronted an unprecedented class-action with what the majority found to be a failure proof that there is a common legal question in the case and the decision very much rested on the particular facts that have been adduced in support of commonality issue. and janice, of course they had previously twice rejected 80 minute bended under 10 b. of the securities exchange act and in this case seem to be a pretty clear attempt to avoid those rulings by seeking to impose aiding and abetting liability with a different label. again, someone who was alleged to have helped matters submit a security violation should be liable in the courts that make do with that issue twice before

ever going to reach the same decision again today. finally an at&t against conception jan, california in what was the state were a lot different than that of 22 other states to validate the arbitration clause in this case. the court said the state can condition the enforcement of an arbitration clause in compliance with conditions that would effectively turn arbitration and litigation. so just as the state can say were happy to enforce arbitration clauses as long as the arbitrators is full of people picked up the seat just like a jury because that would turn arbitration to a court proceeding. the court sentences and i'm class-action procedures to do the same thing. the courts -- the corporate cisco's earnings will be debated and dozens if not hundreds of cases and impossible to predict how they'll come out. but i think one thing is certain. addictions being made now that

they reach is likely to be incorrect. two years ago the ruling in ashcroft against it while commotion about the standard for whether a complaint is sufficient to let to go forward in federal court was claimed to dramatically restrict access to the courts and congressional action was needed to overturn the decision within analysis are meant to go, impact of those two years i had been increase in the rates of motion and generally especially employment discrimination cases which are a particular focus has a concern. this is just cautionary word you regard to what these decisions are going to need until we see a lower courts will interpret them. thank you. >> thank you very much. the next witness is professor

melissa hart, teaches at the university of colorado school of law. she specializes in employment discrimination comes supreme court decision making. after from harvard law school, she played for justice jon paul stevens on the united states supreme court. professor hart, good to be here. >> chairman leahy, members of the committee can appreciate the opportunity to speak today. i've been asked to focus on two cases, wal-mart against duke in at&t against concepts via and the impacts on justice and consequently on corporate accountability and corporate behavior. these cases a very different in the context in which they arise. concepcion is so agreements, one against duke says systemwide

obligation of pay discrimination in the work place. while the sensitive underlines his two cases is very different, they have important similarities that are relevant to the conversation here today. first and most significantly, both of the cases reflect tremendous to sit down. i think it's fair to call it hostility to class-action resolution of disputes by the current supreme court. the erosion of the effectiveness of the class-action device has moved us very far from the intent of the drafters of rule 23 in 1966, current version of the rule. because the class-action is the only way to reach many kinds of systemic misconduct, the erosion of the tool and toy companies have many serious risk of litigation were many kinds of potentially illegal behavior. so this change, this reinterpretation of rule 23 that

occurred in particular and wal-mart has very serious consequences potentially for cases outside of the employment area as well as within the employment area. a second similarity between these two cases is that they both involve what is really part of a trend of supreme court cases over the past three years said of her procedural rules in ways that limit the likelihood that the substantive merits of the underlying case will never be heard by decision-maker. one of the things i think is important to keep in mind is these are not rulings on the merits of the plaintiff's claims. nobody said that he duke and while that was not discriminated against. nobody said yes they were. the question was, can they put these claims before a decision-maker. and so, procedural devices are put ahead of the substantive and interpreted in ways that make it

hard to get to the substantive questions. again, looking up all night it's easy to see how rule 23 i come under the cover is class-action federal courts by private against pastor 1966 lilienthal last week and understood by lower courts by the supreme court, certainly by the rules drafters of a threshold inquiry that was not supposed to be a high barrier to pursuing a class-action. it was supposed to consider not merits of claims again, but whether the group of people could put the merits of the claim before the court. and the wal-mart decision from the five justices interpreted rule 23 i in a way that set the standards for rule is more difficult to meet the standards the court had r.d. established in earlier cases for the subsidy of up in earlier cases for the subsidy of up a class can't be certified, but at the recertified it would meet a class can't be certified, but at the recertified it would meet the standards that in teamsters for winning on the merit. and that's a very troubling

turning him in front of the relationship between procedural rules and substantive roles. i think that is a policy judgment. these judgments about how procedural rules should be used to affect how much of the kinds of litigation before decision-maker's misconstruing the arbitration context of the others much better made in state legislatures around the body than by course khmer reinterpreting those that have not themselves been rewritten. a final similarity that i think is important to note in thinking about these cases is all they are very different from each other, they are similar in being very typical of the modern world. every single person sitting in the string assigned dozens of contracts at the contract that concepcion sign. we all agree every day to arbitration agreement that we don't know where green tune while going to be bound by this agreement and how the courts interpret those parties is sent

in although wal-mart like to collect unprecedented and focus on the size of the company, wal-mart as a type of workplaces in fact a type of workplace that more and more workers are working in. it's a multi-facility, multinational corporation with decisions made in subjective ways that involve assessment by one supervisor of the workers working for him or buy one manager of the workers about a lot of objective standards that evaluation. i think that in light of the way that these decisions might affect people all over the country, it may well be time for the congress to start thinking about changing the law, responding to these judicial interpretations of new standards that return the original intent of rule 23 ended the federal arbitration act. thank you very much. >> thank you very much, professor hart.

deputy director of the senate are legal and judicial studies at the heritage foundation. we specialize in constitutional law. mr. alt received his law degree at the university of chicago. we're glad to have you here. please guide. as with all witnesses, it will be placed in the record. these go ahead. >> thank you, chairman leahy for inviting me to testify before your committee once again. i share with senator grassley the concern that the title of this hearing is just something a predetermined conclusion that that decision the supreme court will somehow create barriers to justice and accountability must somehow create adverse event is for corporate behavior. i do not believe facts support the conclusion. or doing business cases for recent terms of the court based to some important conclusions. one, the court court frequently speaks and business cases, not

in the fractured was characterized by critics, but a unanimous or super majoritarian voice too far from creating new barriers to justice or accountability, course dishes and in today's hearing project new novel infrequently unsupported theories advanced by trial lawyers to circumvent reasonable existing requirements, requirements which is designed to prevent frivolous litigation and ensure due process to all parties. the designer of many of these requirements was none other than congress. with this in mind as we required a couple cases. for us, wal-mart the dukes largely ignored is the determination the action could not he brought under rule 23 b. two and was more appropriate under e3, which permit broader

claims for monetary damages. it is obvious why it is the claim is brought under b2. said time is harder and more costly than under the object of relief b2 and attempted to shoehorn what were predominately claims for monetary relief into the b2 setting. the use of b2 for what was at best the b3 claim, as tedious as the b2 come b3 may decrease very real due process can you or members of the plaintiffs class that required under rule 719 adequate notice or have the option to opt-out the litigation. it also creates serious due process concerns for wal-mart, which would've been forced to litigate with the supreme court correctly recognized to be trailed by formula. although this might have been convenient for plaintiffs, it

creates unfairness for the defendant is entitled to a statutory defenses to individual claims. but perhaps most importantly in the wake of this decision that there are ample opportunities for justice and incentives for good corporate behavior. smaller better defined class actions can be filed. perhaps once in which the absurdity of members of the plaintiffs class i'm also being members accused of discrimination keep in mind the number of the supervisors in the case were also women, but would've been played to assess the class to defined all women who were employees of wal-mart would be a good place to start. additionally, individual action supported by title vii attorney fees for parties but also be available. those who believe they've been injured by wal-mart will have their day in court. the only party who may claim substantial injury as the trial bar. then we moved to the chest k street this case is yet another attempt to expand the applied private right of action under

rule 10 b. five in central bank in 1894 and in stoneridge into destiny, finding it was not appropriate to expand the implied right of action. equally important, the court does not operate on a blank slate, but a statutory regime underfed or the private securities litigation reform act. the job you decided prior to congress this consideration of the psl aire and congress is urged at the time to expand the right of action to peterson abettors. if you refuse to do so. instead under section 104, you directed prosecutions of agers on abettors to the sec and what this section 78 te. there are ample incentives within the context and mechanisms to ensure justice. secondary actors are subject to criminal penalties, civil

enforcement had to do some state security last permit authorities to seek restitution from a dearth on abettors. mechanisms are hardly toothless. the sec's tools to enforce adjunctive relief come issue administrative orders, posing much civil penalties including discouragement remedies on any companies aiding and abetting fraud. contrary to the chairman statement earlier on, the conclusion after janice is not if you commit fraud as a corporation you get away with it. as evidence that two sec enforcement actions between 2002 and 2008 at which it collected in excess of $10 billion discouragement and penalties, much distributed to investors. >> these are the actions prior? >> s., 2002 to to designate. there is already existing -- >> or to the roadmap of janice?

the authority of the fcc trespass after janice. >> i appreciate mr. alt because your time is expired, i appreciate your sarcasm in your continuing sarcasm in your testimony -- >> congress determination as to who should be enforcing the sanctions. >> there are those who differ. her whole testimony will be placed in the record in a thank you for being here. i mean that's the daily. the sarcasm notwithstanding in your testimony. professor cox joined the faculty at duke law school in 1979 camorra specializes in areas of corporate securities law, advised the new york stock exchange and national association of securities two years. he received his law degree from university of pasting from harvard university. the go ahead, sir.

and then also like each of you with your full statement placed in the record. i should note, we may start a series of roll calls were bulwark around this time set each have a chance to answer questions and to expand on the testimony of the way they want. that would also offer he should view the records will be kept up in so that there are things that, afterwards issue agreed or disagreed. you have a chance to respond in the record. the next thank you very much. [inaudible] >> is your -- >> no principle and western civilization is more established than the principle that individuals who cause harm to another approximate should bear

responsibility for that. a quick resolve the case law of securities laws to show this is not the print both that applies in the securities areas. let me review quickly a few cases here. the stoneridge supreme court decision held the following: corporations whose executives knowingly prepare false documents from their customers auditors had $17 million in the customer's revenues were fraudulent and trip transactions and did so to retain the customer has a client are not responsible to investors who purchased the customer shares at inflated prices due to the renter transactions for the seventh circuit decision which applies stoneridge and the central bank decision. the president of the newspaper subsidiary flagellates revenues of its subsidiary he was the ceo of is not liable for the soup purchase to company shares at

prices inflated as a consequence of the presidents resorting to cannery having been into the consolidated financial statements issued by the parent. mayhew is a district court case by the federal court utah in which the ceo falsely represented a letter to the auditor to prevent the auditor from pursuing confirmations that would've uncovered a chain of dislocations carried out at the ceo and the auditor and reliance issued an unqualified statement only to find out a few months later the massive front of the firm collapsed investors lost money. the ceo is not responsible because the central bank and because of stoneridge. not the above cases are heard the operations if we have to look at what happened at janus capital. the issue at janus capital was whether an investment adviser prepared a perspective issued by janus investment funds was

responsible for the statements contained in a divided five before court held that the adviser did not make any statements in the janus investment fund and therefore got a pass. the court's reasoning for the majority with the following comment that even when a speechwriter drafts of speech, the content is entirely within the control of the person who delivers it and it is the speaker takes credit or blame for what is ultimately said. however, the analogy fails. with speeches delivered by human beings, that is one thing to identify who the speaker is. but a corporation is not such a beating. a corporation can only act to individuals and act only to be assisted entity structure and structures in which the corporation operates. that's financial pass them on individuals, each provides a voice to the inanimate entity. the reasoning at janus capital is that none of these factors makes the statement because in

the eyes of the court's majority, the statement can only be made by the entity. of course, entities to speed. individuals do. that may point out something else not part of my prepared statement. i'm not pebbly 10 papers of security class-action fries. one thing we do there is take a look at how many time is that cite any evidence that in sec prosecution into the next phase. only in 17% of our cases which are now 900 settlements do we find any evidence of an sec involvement, not enforcement action for just a report they were carrying an investigation. 70% of the cases we also took a look at while i recover this $10 billion. and that is how you, that's at the private plaintiffs and even the fcc admits they are seriously constrained in what they can recover by way of a refined recovery verses that

have been. so this is not a fair comparison amitai is something else here. the janus capital case was not to aiding and abetting case. if you go back to the central bank, that would've been a classic primary artistic case and give you chapter and verse on that. what is happening with the court is there perversely interpreting what is aiding and abetting us to exclude individuals from responsibility. we can have an interesting argument about whether they have to pay money to supplement, but we can have no argument over the fact that a person who's to chicanery as investors should bear some of them the result of what we see as central bank as they give the front straight past. i testimony points out that this leads to a kind of perverse results with the result that were never holding individuals responsible like to be held responsible and i believe everybody regardless would agree

to the fact that those who engineer and carry the fraud should be responsible and to lead to that result. >> thank you very much. the previous careers as a prosecutor i only saw people who get the wrongdoing should be held responsible. ms. dukes, we can speak about the legal theory of these things, but for the person who's actually involved. can you tell us what united you and other women employees at wal-mart? how did she come together? what was said to have been? i think about what justice ginsburg referred to what justice scalia's decision.

she said it is detention -- its focus its attention rather than what unites them. what is the thing that united you? >> an opportunity to have a complete address. i see now, wal-mart is a vast corporation. we are virtually spread apart. we can come together socially. we work in an environment that is very unfair in the treatment of its employees. we have many complaints that i've come for us. we are trying to unite without having to be under the intimidation of losing your job just to speak out. we are in a very intimidating environment. so this avenue is one that would've allowed us without the

fear of richard buechel to come forward and have our complete address. >> are you going to give up now? >> absolutely not. the best is yet to come. >> thank you. professor hart, will the wal-mart decision we just discussed with ms. dukes is going to make it more difficult to prove cases that they involve disparate impact to pose the words those one-of-a-kind case? >> assertion that a one-of-a-kind case. one of the interesting things happen both in court and in the majority opinion and also in the press filing the case is that people have emphasized the way supplement is different from

other companies in particular that it's so bad. it's been suggested this case is somehow unique. in fact, these kinds of cases, cases challenging the excessively subjective decision-making, unguided discussion to miniatures has been in the lower courts for decades the idea of a claim of excessively subjective decision-making and leading to discrimination and coerced by the supreme court in 1888 in the watson case. these kinds of cases have been around for a long time. it is true they are by their nature class-action cases. what you're looking that is the way because you've got a systemwide policy challenge, not an individual decision and what you're looking at is their range of decisions, consequences of decisions coming at the class-action device to be able to pursue these claims for a couple reasons. not to get too much into it, but the way that these cases can -- the important thing these cases

is it open to to have a better understanding about how the company is structuring these conditions and what awareness it has as wal-mart has a great tier of awareness of consequences of the kinds of discrimination. it would be available to an individual plaintiff and individual litigation also doesn't pay to self-monitoring. one of the most important things about this on our cases after the suit was filed in 2001, wal-mart started changing its policy. they recognized it was making choices that in fact women and policies itself. that's one of the great consequences of litigation that you lose when you make it impossible to bring suits to this procedural technique is a class-action. >> we also hear and some would say that there's not a trend here in this court, but was held

hearings here on lily let writers sex discrimination case jack ross says age discrimination case. and each of these is seen by justices made it more difficult for victims of discrimination within corporate employers accountable. is there a threat going through this grammy-winning two mission to? >> i fear you're not reading too much into it. it is true that if you click an employment discrimination cases in the past two years, although many are quick to to point out businesses have won some and lost some come into [chanting] some of my and lost them. the general trend has been to interpret the subs about to make it more difficult to bring the underlying claims. while i was a procedural case. no one has ever reach the merits of these claims, but i think

there's a fair cause for concern that because the very high procedural threshold records that he and saddam supersensitive legal standard. the court in the future interpreted subset of lost heatherly tightly and so this may very well be yet another case in which the intent of title vii and that enacted the civil rights act of 1991 is the unit award in this cramped interpretations of the substantive law. >> i yield to senator grassley. >> thank you, mr. chairman thinks her testimony. i'd like to have mr. pincus first amendments are trained to respond to this question about your reaction to professor

hart's testimony analogy to be very specific. >> seems to me senator grassley is where she says about the wal-mart case and i'm quoting comest articulate precisely what the contours of decision will turn out to be if it's interpreted in other cases. to me that is the key question in my statement with all these cases we just don't know how though the interpreted. i think wal-mart is perceived by many as an extreme case by the size of the class the nature of the evidence relevant -- relative to the large number of decision-makers overinvolved. i think there's just a question about how it's going to play out as the lower courts get a hold of it. >> i would build on mr. tran fixed statement and simply say part of the difficulty associated with determining what

impact it will have is recognizing that it does not foreclose class-action against wal-mart. it simply foreclosed the single on the base class action a few out. so you can continue to have class actions, perhaps better defined and which you can reuse these claims, bring in evidence than i think professor hart is talking about there might be necessary to establish claims that plaintiffs were seeking to me. but in these particular cases, if the perp yet under santan permits wal-mart the opportunity to raise a series of defenses you would expect in an employment discrimination case with regard to the particular damages. so in terms of that, i'm not sure i would endorse doom and gloom. claims will still be about to go forward. >> in the same order for the

panelists, i'd like your reaction to profess their cox's testimony and ask you to be specific as possible as well. >> again, it is important to separate legal analysis and public policy. as the legal analysis, professor cox and i have a disk image as does the majority on the court about the impact of the stone age and central bank decisions on particular issue before the court they are, but i do think what the court ruled in those cases was where going to be very focused on defining who can be liable under this implied cause of action and that was especially to after congress gave private aiding and abetting liability in 1894 and instead give the fcc authority and again in the.frank bill rejected arguments that should be expanded private liability and instead further expanded from what it had 10 in 1994, the fcc

power to both green enforcement actions against peter zenda batters and also to obtain money to deposit into a fair funds account for the benefit of people who could prove injury. as to policy, we also have a disagreement about whether the law says there's a private right of action for every wrong. it's quite clear that law doesn't say there's a private right of action and in the context of aiding and abetting committee had been married in the statutory context and in the common-law context to create those things because they recognize when to move away -- what's he say anyone you help someone do something wrong, even though the conduct is legal because they have a bad intent. they're opening a private liability that can only be as a policy question when the context

expanding liability that bradley is a sensible thing to do other than make sure you have cops on the beat >> just briefly, i think it goes in part to understanding the proper function of my disagreement to the court. i think the court was attempting to adhere to what it was the congress had told them to do. they believe that that congress can do to the question of expanding liability, expressly chose not to come up out the best enforcement agency with the sec and there's good reasons to think that. there's ample literature that suggests securities class-action litigation actually causes as much time as good, that is actually constitutes a large measure was transferred from one set of shareholders to another with the true beneficiary being those who create the transaction costs in the form of employers.

with regard to evidence that only 17% of settlements said he had any sort of sec about it, you go back on the way to judge family, who talked about the problem of black mouth that i might, but quite frankly in a lot of class-action litigation costs associated with simply complying with discovery are so high that it's more cost effect to for companies to settle. it doesn't necessarily mean that cases is even particular ron doing. i'll wrap it up there. >> thank you. senator feinstein and i will stay here and work our way around. >> i'm going to be very quick. professor hart can use be sorted in a layman's language which i like. i'm a nonlawyer. what exactly does wal-mart say?

what a maximum size of a class should be quite a number two, what does it do to individual super boreal choice with respect to promotion? >> so, the wal-mart decision doesn't speak clearly to the decision about the maximum size of a case would be, but there's much more in the wal-mart decision about why it the majority disapproves in this case than in future cases. in areas for concern and could that justice scalia refers to the idea that perhaps it should be limited to a single supervisor. that ignores the fact that many of the policies being charged in a case like wal-mart are systematic companywide policies. under the class-action role. >> staff, top, stop for a second. what you are saying this because this is where i am unclear. the company has a policy and a

supervisor exercises that policy with respect to promotion. how much freedom under this case does supervisor have? and what level of rights with respect to seniority in that kind of thing if there are any rate does an employee have? >> again, it will depend very much another company's policy is structured. in the context of the wal-mart case, and wal-mart -- in this way, wal-mart is unique. it may not be the only company like this, but certainly one of the evidence of discrimination upon that was significant. gender disparities are really startling intern said a very large number of hourly employees who are women and the absolutely flipped, very small number of wal-mart managers who are women in the way that the decision-making system is structured to both give individual managers discussion

to just pick their fans and at the same time creating serious of corporate standard and corporate culture that discourage the advancement of women through a variety of policy decisions that are highlighted in the complaint. in the complaint was filed, for example, one of the things ballmer needs to have is a policy is a requirement to be a store manager you have to be willing to relocate. it's obvious to a layperson like that in our society is significant as compared to men. like the refusal to want to get wal-mart has actually fixed in the wake of this litigation, but the absence of any posting of management opportunities meant that it was a tap on the shoulder system, which there's lots of evidence tends to favor the people who look like the people in charge. if you have many charged familial and the list then test

for promotions. again, lots of evidence of how that works. these choices about how to structure its employment policies retraces they were making even at the time they saw the results they were having. again, lots of evidence they had information about the gender disparity is happening all over the country in all 41 regions the wal-mart operated and this is not a random thing. and yet, didn't respond in any way until the education was filed. and so, that benefited the maple to challenge this unemployment crack is your class-action litigation. right now it's going to have to change its foreign. it lets you change just by being brought. it's important not to lose. >> thank you very much. that was really helpful. >> even those of us who aren't lawyers appreciate hearing the plane talk.

i'm going to leave for the vote, but senator whitehouse, as he has so many other times when it's going to take over the chair and i will be back. thank you all. >> thank you, mr. chairman. [inaudible conversations] >> sort of like a flying change and hockey -- change what the park is still a earth. i'm delighted to have followed you here and reading the recent series of supreme court

opinions, going back a few years now reminds me of my law school days when i was studying for ucc banned. as those of you had the misfortune of either going to law school was sitting in the universal code know it's not the most tedious and boring possibility of. and so i'm plowing my way through this book is somebody who is the ahead of me and be my knowledgeable that you don't need to worry too much about that. it's actually a lot simpler than it appears. indeed come the entire ucc can be summarized in two words. i want to know the two words. and that's a let down at me and said bank wins. [laughter] and it is starting to seem a little bag of the face similar to wordcraft see can be applied

to the united states supreme court decision and i would be a corporation wins. and i have to question that i'd like to ask across panel. one is coming in know, if complaint in human behavior when actions result in a certain thing time after time after time after time, it becomes reasonable to presume there's no longer a random effect happening that there is indeed an intentionality to what is going on. and so, my first question would be to each of you, do you think we have reached that point at this stage? let me start with ms. dukes. >> maybe a little clarity of the question. >> could you turn your

microphone? >> that make it clarity as to the question you asked, a little bit more clear from if you don't mind. >> i was trying to determine if you think if you were to plot the supreme court decisions on the corporation wins draft, are there enough of them to come down there that you think it has independent significance beyond just a random variation. they are going to be times and there'll be three or four decisions in a row to come down in corporate interest in the ordinary nature of things, the ordinary variation of license are different in nature thing. after a while it becomes increasingly statistically probable that what's happening is random as the events pileup and that's true whether you're talking about any area of human

encounters. true if you talk about on human events. you look for it cause once no longer fit a pattern. if you don't care to comment, i cannot click go to another witness. but we have a point where it's reasonable for people to include there's more going on than a random selection but in fact there is a purpose or intention in the supreme court's actions in these repeated decisions that favor interest of corporations? >> thank you for the clarity. the supreme court is quite conservative in its opinion the supreme court concerning those five to that we have that

dismantle the wal-mart versus dukes case that they are definitely winning on the side of the corporation. it's going to be obvious that if you can get your case before the city court, the chances that the more liberal aspect will not survive. >> mr. pincus, your view. >> i think if you look at this term's decision, it's really a draw. i think if you look at last turns decisions there are very significant cases. they think if you look specifically at cases where individuals are seeking damages from corporations, the individuals actually one more than they lost. justice breyer is interviewed at the beginning of this term in the fall and the fall in the recesses very question. he gone and looked at the cases from recent times and prior

terms and really didn't see a difference in the percentage of cases decided either way. >> i think it's a little more complicated than corporation wins all the time. obviously, lots of examples where corporations lose cases. i think if you look at the trend over the past two years, it is very clear the majority on the court inconsistently with the majority of teaching at or restrict a few about what it thinks -- what kinds of cases should be permitted to go into the coors and that is the most disturbing case that procedural barriers are set up to what by the rules, were set by statues created as a policy judgment -itis majority on the court that limited ability of people to bring claims into court and that really changes or the ecosystem in ways that whether the corporation wins or loses in any given case can the people and allowed to to bring cases forward and that's a troubling

trend. >> repressor alt. >> i don't think the facts support that particular trend. if you take a look on a number of key losses for businesses in the last several turns. the cortisol over the map in preemption cases, this term in preemption cases. and if you take a look as well, to make that sort of claim to smear the robert square, you have to ignore fat these corporation cases involve super majorities, decisions written by the most liberal justices on the court. >> when they jump to professor cox to give them a chance and very briefly if you could. i'm sorry. >> in a narrow world of security last to migrate statement. i'll tell you the short rhetoric that used to be limited to the greece of the chamber of commerce is now very well found in cases like bank of australia case and also the message is

aggregate litigation is destroying america and destroyed america's competitiveness. i think that dean is coming through. >> attendants expired. senator franken is here me out to the good number for minnesota >> thank you, mr. chairman. iran backed to vote and then ran back as fast as they could. sorry if i'm a little bit out of breath.

i don't think you are in the most credible position to make that kind of sarcastic critique. professor hart, i have introduced the arbitration of fairness act which would bar the use of arbitration clauses and contracts mr. pincus has testified the court decision was correct because it is in line with prior decisions for other justice is. while it is true that the case is in line with the decision dating back to the early '90s, the legislative history of the federal arbitration act enacted

in 1925 i think tells another story. as the dissent in the 2001 circuit city case points out, the decisions expanding the reach of the faa ignore clear legislative intent. in fact the arbitration and act would nearly restore the original legislative intent of the faa. these are all technical arguments about history and precedent and rulings and whatnot but let's put all that aside and let's set this up for anyone listening today to get a handle on what at&t really did in this case. verse they did something that was just wrong. they advertise something as free, a free phone. and it wasn't. california law says you can't advertise something as free and make people pay a sales tax on it unless you say so.

so they bought their cell phone and advertised as free. then they get a 30-dollar charge on it in their bill. they weren't asked to pay the sales tax when they got the phone for free that they thought they were getting for free. so, now they have devised a scheme to prevent people from suing. no one is going to spend time getting 30 bucks back. the only way to do this is to do it through a class-action suit. and what this does, what this decision does is incentivize corporations like at&t to rip people off $30 at a time, hundreds of thousands of people so they get their 100,000 people

at $3 million maybe for people will try to get their money back, 120 bucks. aren't they just incentivized to rip off customers? isn't that what is going on here? >> is that a question to me? >> that is a the question to you. >> i think that decisions like at&t definitely, they make it easier for businesses to set up deals like this and know that they really want. as you said only four out of how many customers will actually try to get their money back. they will not be responsible for their conduct and i think it is particularly disturbing in this case. i just want to comment on something in his cage which is the intent of the congress, the decision and at&t the court focused on the idea that this very interpretation was necessary because of what congress meant in 1925. in 1925 these kinds of contracts

in which millions of people are buying a free phone didn't exist. this is a different world and similarly the kinds of employment discrimination claims that were in issue and circuit city didn't exist in 1925. the world has changed in the idea that the 1925 legislature meant to be binding and consumers is nonsense so i think this is one of the areas where we are releasing a misuse of this idea of congressional intent in order to insulate from liability companies that engage in wrongdoing, which is why the response really is needed to address this problem. >> thank you. i have that legislative response. i have run out of time. mr. chairman. >> we will have one of the round well i guess just the two of us if you would like because i do have another question which i would like to ask which has to do with the fact that in a number of these cases, the

interest or the institution that is on the other side from the corporate interest is the jury and the access of americans to the jury to redress their grievances and over and over again as professor hart has pointed out our procedural obstacles. a little bit here and a little bit there but always making it more difficult for americans to get in front of a jury, where particularly clear i should say a big corporation is the defendant. and, i worry about that because my view is that the founders put the jury and the constitution and in the bill of rights in three separate places for a reason. it was part of the structure of government that they were

erecting. i believe they understood that as william blackstone had explained, the most powerful individual in the state will be cautious of committing any flagrant invasion of another's rights when he knows that the factor must be examined and decided by 12 indifferent men. now the term in different has achieved a different meaning since then but the point is clear that the jury and the fact that the powerful may have to face a jury is an important part of our constitutional structure. it is a particularly important part where money has such sway in the executive branch of government, where money has such sway in the legislative branch of government but try bribing a juror. tampering with the jury is a crime. it is protected in the american system of government as our last chance for a reason. de tocqueville observed the jury before everything apolitical

institution. one-eyed to consider it as a mode of the sovereignty of the people and in that context i think there is an additional constitutional and structural worry in a country that writes itself on operation of government when it is the jury that is being drawn further and further away from the ordinary american. in favor more of the most powerful individuals in the state and i wonder if any of you have thoughts on the role of the jury. do you believe that the jury was part of the plan of the founders that they set up our institutions of government, that it wasn't just judicial executive and legislative branches but actually having a jury and there was part of the plan as blackstone and de tocqueville have suggested?

>> i think there is a lot of history that one of the benefits of a jury can be quite the opposite of what many here think and that is a temporizing effect on overreaching by both aggressive play and sets but also by the government so there is a rich history of that in the literature about the temporizing effect of a jury. another thing is the idea of community standards, which are implicit and so much of the law whether it be civil or criminal all. what is a reasonable person? again, and in my own narrow part of the world, we find that the roles of juries historically have been taken over by the trial judge and we don't have the jury being involved in a lot of crucial factual determinations, not just questions about whether something is material but whether it is sufficiently cautionary statements, whether the complaint alleged a strong inference. it goes on ad litem.

these are now no longer viewed while there are questions of fact, they are totally inappropriate for a question for the judge and that gets into something in the opening statement by the chairman and that is the question about, are we a country ruled by law or are we ruled by individual biases and the jury system is designed to make it more toward the law cited less the individual standard site. >> echoing what you have said if i remember my de tocqueville correctly, the chapter in which the quote about the jury being apolitical institution and a mode of of the people occurs and the chapter headed something like on tempering the majority so i think it really is built into that. my time has expired, so i will yield back to senator franken. >> thank you and mr. pincus' testimony he states that

businesses that engage in wrongdoing will remain fully accountable for their actions because government enforcement not private litigation deters corporate wrongdoing. professor cox, i want to ask you about this. the example you mention about the walmart litigants are now filing with the eeoc. the last time i checked, the eeoc had a backlog of 86,000 private sector charges, and the eeoc has stated that quote the private right of access to the judicial forum to adjudicate claims is an essential part of the statutory enforcement scheme. relevance of the at&t case the gal report found that the fcc doesn't regulate carriers contract. it has few rules that address

services consumers receive from wireless phone carriers and conduct little monitoring of consumer complaints and does not enforce its billing rules for wireless carriers. professor cox, what is your understanding of the role american citizens play in our civil justice system? are they redundant because there are already government and enforcement mechanisms? >> they are hardly redundant. they are necessary. this has been something that has been recognized repeatedly by the courts particularly the supreme court that we have found that congress has tightened up the ability of private litigants and so whatever judge friendly may have said five decades ago no longer applies for the psl are it. the idea of the strikes dude i think died more than a decade

ago. so we do need private litigation. we don't fund our government regulators. at the level that they need to be. and there was a lot of institutional creep and again, our own studies and the studies of others have shown the importance of private litigation because you find that if i may go into this for just a moment. we have studied the parallel. what is the case brought by the fcc and these are all published studies. we find the fcc systematically goes after smaller capital with smaller losses experiencing financial distress then we find with private litigants. though studies are published and they are out there. they pick on the weaklings, not on the strong so you need a private litigants particularly in the securities area and i've no reason to believe it would be any different in employment areas, consumer areas etc.. private litigation is a hallmark for providing access to justice in america and that is a wonderful expression and we should all get behind it.

>> thank you. i don't have much time so mr. pink is just a quick question. i know that you said this is at&t is very consumer friendly and fair arbitration system that has been said. how long would it have taken the cat -- concepcion's to go through the process and get their 30 bucks back? >> it would take a matter of time. >> a matter of months. >> much quicker than the judicial system. >> so, okay this would be a couple that way for $30 go through a couple of months. >> all it takes senator is there is a form on the web site. you can make a complaint. the record, because the economic distance and if for at&t because it has to pay a very large bonus is the case is litigated and

loses $10,000 minimum attorneys fees. >> no, no, no. if they say we will give you 30 bucks back they don't have to pay 10,000. >> no but if they refuse to do it. >> i know but they have to do it and pay $10,000 they are going to get the $30 back. >> exactly senator and that is why this is a perfect system as the lower courts found in this very case. this is a perfect -- for compensating anyone who complains. 10,000 people would get their 30 bucks back. >> so you would get your 30 bucks back, so what you are saying? after a month or two or three? >> i think it would file a form and it could take as quickly as a week. you would get your $30 back in the record shows he would also get reasonable fees from a lawyer. >> the concepcion's would have gotten their 30 bucks back in a number of weeks?

i don't understand that because you said in your letter that they were within their rights to charge 40 bucks. why would they get their 30 bucks back? >> they just testify to the senate that they would get their 30 bucks back. whether they get their 30 bucks back if he wrote "the new york times" that at&t has a right to charge them 30 bucks? i don't understand that. seems to contradict what he said in your letter, what you testified here in the senate contradicts exactly what you wrote in "the new york times." let me say what you wrote. he wrote it is my understanding that if this charge was indeed a sales-tax california law allows merchants to pass the sales tax on to consumers only -- okay. what i am saying is that you are contradicting yourself. you are saying that this is a sales-tax. they have the right to do this, but you are saying that they would have paid the $30 back? why?

>> well, can i answer, senator? >> yeah. >> i apologize for using the example as a way the arbitration system works. it. >> you said that they would get their 30 bucks back. >> yes and the reason for that is at&t settles most claims that are brought in the arbitration. most complaints that consumers bring at&t tries to work out a settlement because its goal is to have happy customers. >> i am sorry but i have to go vote. i apologize. >> i have to go vote as well so i will give you 30 seconds. >> at&t settles a lot of cases that it believes if litigated would not have merit because a at once good customer relations and b it wants to save its own cost of litigating settlements. so most cases are settled. i don't know exactly what would have happened but they

concepcion's would have definitely got their money back but the way the system works is that it gives at&t a huge incentive to settle claims in order to avoid the risk they will have to pay a lot of money later and that is why the lower court in this case found both the district court and the court of appeals, that injured parties were much more likely to get compensated under at&t's arbitration system than they would and in a class-action. >> if you would like to supplement that answer the record of the hearing will stay open so you may add more. i'm sorry to cut you off but we are up against a relatively hard deadline here. i want to close by saying that i think it is regrettable that there appears to be the steady addition of troubles, toils and snares by the supreme court on americans road to a jury, which is too made a baseline constitutional american institution of government. it is clearly something that is

consistent with the interest of big corporations who wield disproportionate influence in other branches of government to stay away from juries which is the one institution of government with which they may not hamper. so there is clearly a strong institutional incentive there. you also see very strong institutional behavior from the big multinational corporations and others trying to make americans believe that the jury system is not part of their constitutional legacy and but instead a drag on the economy and a nuisance that nuisance in a place where runaway juries entertain frivolous lawsuits. indeed, every american who hears the word jury and has the phrase runaway jury jump into their mind, every american who hears the words lawsuit and has the phrase frivolous lawsuit jump into their mind, has been the

successful subject of a long campaign of indoctrination about this and of public communication so it is happening out there and i think when the supreme court is making decisions that are consistent with that long-standing practice and pattern, it is worth our attention and i applaud chairman leahy for holding this hearing. as i said anybody who wishes to add any further information to the hearing has a week before we close it, and without anything further we will be adjourned. thank you all very much. i appreciate it. [inaudible conversations]

[inaudible conversations] the federal trade commission said this week it will push for stricter privacy and security protections were internet users and cell phone software

applications.

now the senate congress committee looks at consumer privacy and data security on the internet. the committee is working on measures that would require companies to notify consumers quickly after any security breach. we will hear from the head of the federal trade commission, julie brill and officials from the commerce department and federal communications commission. west virginia democrat jay rockefeller chairs the committee and will gavel the hearing to order in just a moment. this is an hour and 20 minutes. >> we have got to begin.

this hearing will come to order. this is the third hearing on consumer privacy that we have had in this committee in a 112 congress. as i have repeatedly emphasized americans are often unaware of the vast amounts of information that are being collected on them and then used often to -- usually to their detriment. i focused on the need for companies to provide everyday consumers with a clear understanding of what information they are collecting, where the information is going and how it is being used. i have also asked companies to give consumers an easy way for them to stop those collection processes. i don't think this is too much to ask of companies that are making a lot of money, and a flood of money that comes off consumers personal information. that should not be happening in america. this is the new cost of doing business in america and people left understand that.

government doesn't subsidize what companies need to be doing to protect privacy. poll after poll shows americans are increasingly concerned about their loss of privacy and the same polls show americans don't know what to do about it. endless meetings in my state as i'm sure senator kerry and senator tim may have also that my intent is chairman of this committee of jurisdiction and i say that very clearly for many to hear. ..

it is that simple. senator kerry has introduced a bill, s. 799, the commercial bill of rights act of 2011, which is a very comprehensive piece of legislation that governs many facets of all of this and of the economy. indeed, it is a very good piece of legislation. other members of the committee have similarly voiced strong interest in privacy matters. i believe these hearings form the basis for building a bipartisan consensus about doing something about this. today's hearing is also about data security. that directly implicates consumer privacy. we are reminded of this, i'm afraid, every day in the headlines. a recent security breaches show that companies are increasingly vulnerable to cyber attacks that compromise the safety and the

privacy of americans. that i'm not concerned about the breaches but what happens to american people as a result of that. i'm concerned about the bridges, too. when criminals break into a database and steal credit card numbers and the social security numbers and even e-mail addresses, they can use this information to commit identity theft which can have devastating consequences for the victims. that is why senator pryor and i have introduced, once again, this year as 1207, the data security and reach edification act, the same bill we introduced in the last congress which will impose an obligation on companies to adopt basic security protocols to protect sensitive consumer data and would be further required to notify affected customers in the wake of a security breach. again, a cost of doing business in the new world. the bill would also require

better transparency for something called data brokerage industry, not one of my favorite subjects to think about. these are companies that amassed vast amounts of data on consumers', sell the information to other companies, often for marketing purposes and make a lot of money for it. most people don't even know they exist. they have no idea their privacy is being invaded, used, sold, and marketed. so there is a broad consensus that federal data security legislation is necessary. the administration included a breach notification provision similar to s1207. cyber security proposal. in order for this bill to be ready for floor consideration as part of the larger cyber security effort i will work with senator pryor and all my colleagues to make sure that all of this works out. i now call on senator kerrey. i warn you, we have votes at 11:00. we will be. just a bit. >> indeed, mr. chairman, in that

spirit i will try to be quick because we do have five votes coming up. first of all, thank you for holding this hearing and the meeting that we had the other day to discuss not just our bill, but the whole approach of the committee, and i pledge to work with you as closely as possible as we try to find a broad based and hopefully consensus approach to the challenges of this issue. what we are discussing today is really the ability of people to sort of control or have some impact on the way profiles about them, the digital profile or multiple digital profiles are compiled on almost all this. then sliced and diced, traded in the marketplace where many people are not, as you have just remarked, appropriately in control of what happens. we are also here to discuss the need to establish uniform

standards for the security of the private networks that hold our information. when i talk about privacy, i am talking about the ability of people to exercise choice and control over how their information, i repeat, their information is collected, used, and distributed. data security is a subset of that issue. how companies can secure information that they collect on people and what they need to do in the case of a security lapse. both are serious matters. when a company is hacked and information, hundreds of thousands of their consumers is taken, the individuals information is revealed or obviously exposed to the risk of the hackers to stolid using that information in any number of ways, but particularly to harm them. the company is hurt by being exposed to reputation of damage and harm relations with

customers. establishing uniform procedures for how to react in the case of security lapse and increasing incentives for having strong security procedures is, i think, a necessary goal and well dressed in the data breach legislation that you, mr. chairman and senator pryor have introduced. data security requirements alone are not going to give people authority over how their information is collected or reduced and distributed. data security is just one piece of the overall privacy puzzle. after working with senator mccain and others for some months on this issue, you mentioned the legislation, mr. chairman, a moment ago that we introduced. we need to find a way to know the various approaches that are out there and to build obviously a consensus within this committee. i agree with you.

in order to be able to protect people. beyond accountability security i think that the legislation we have contemplated will give people meaningful and specific explanations and control on how their information is being collected, used, and distributed as well as importantly the power to opt out of those practices. i think senator rockefeller's approach is a good one, strong one, important one. it is one component of it. i do think that beyond that we still have to deal with this question of choice over how your information is managed, even if you do consent. so i think that what we have put forward is a comprehensive bipartisan proposal as a starting point. mr. chairman, i think it is critical to work with you, senator kay bailey hutchison and others on the committee in order

to bring more people to the table, and i certainly look forward to doing that. i do want to point out that at the moment sort of in the center of this debate there are a couple of polls. in the center you have major companies like intel, microsoft, ebay, hewlett-packard as well as consumer advocates presented by the consumers union, others who are helping us to try to focus this in the right direction. finally, you know, we have expert agencies represented here today, the federal trade commission, department of commerce, federal communications commission who have all been doing what they can to protect americans using the legal tools available to them and using their ability to convene the stakeholders in the experts and educate themselves and consumers on the changing practices in this rapidly moving and ever evolving world we live in.

but the fact is that they don't have all the tools necessary, and that is why this discussion is so important. i look forward to working with you, mr. chairman, making sure we have a complete picture of what is going on in the market today from which we can draw the best conclusions about how to proceed, have a smart to baseline commercial privacy protection put into law, and i think you for focusing intently on this important issue. >> thank you. >> thank you very much, mr. chairman, for holding another hearing on this very important topic. i appreciate that and agree with the characterization that data security is one subset of consumer privacy which is itself a very broad topic. on data security there seems to be broad support among industry stakeholders, consumer advocates, and many members of congress for our national

standard and it is certainly an issue that congress is likely to address was allegedly in that near future. in recent years there have been a number of high-profile data breaches' affecting consumers nationwide. establishing a single standard for notifying victims of data breeches and protecting sensitive information is something i think that we should consider seriously. i look forward to working with the chairman and other members of the committee in hopefully addressing this in a constructive and bipartisan manner. on the broader issue of privacy, however, i am not sure there is yet a consensus on how to best protect consumers or whether a legislative solution is, indeed, the best method for doing so. before congress considers comprehensive privacy legislation that would have a significant impact on businesses large and small and on consumers i think we need to adjust the raft -- thoroughly examined this issue and make sure we don't apply a solution in search of a problem. i am interested to hear from our witnesses on what specifically is most concern to consumers

when it comes to privacy, what consumers expectations are regarding privacy, and what, if any, real harm has occurred from on-line data collection and how to best address any such arms. in a world where millions of people voluntarily share a very personal information on web sites like facebook and twitter on a daily basis, i'm not sure exactly what consumer expectations are when it comes to privacy. i'm pretty sure different consumers have different expectations about privacy. i'm also not sure who is best suited or qualified to make the determination. congress, the federal trade commission or neither. perhaps industry and consumers should set the standard by mutual consent in their interactions. these are the issues i hope we will carefully examine, and i am hopeful we can make progress today. my colleagues to have introduced legislation in this field, certainly very well intentioned and thoughtful, but i am not sure that we fully considered

the unintended consequences that could attach to these proposals. the internet and the communications marketplace have flourished and fuel the tremendous economic growth, in part because of excessive government regulation has not yet occurred. american innovation in this field far outstrips the innovation that is occurring in other places, including europe, where much more extensive regulation currently exists. so the internet clearly has changed the way we communicate and do business, very much for the better, and we should be careful about imposing new rules and regulation that might unnecessarily harm future innovations. i'm sure no one wants to break the internet or limit popular services accessed by consumers in order to avoid fundamentally altering the current online experience and creating these unintended consequences. i urge we proceed with caution. one very brief example. overly restrictive regulations

for online advertising would likely result in consumers' having access to fewer free on-line services and applications. not sure that we are qualified at this point to make a judgment of what that trade off ought to be. i want to protect privacy online and i want consumers to feel comfortable when using the internet. until we have a clear picture of the harm we are trying to address and have looked at a cost benefit analysis of any new privacy legislation, i have reservations about moving forward with the legislative mandate. with that said, there are a number of ideas that i do find appealing. one example is the idea that maybe we ought to consider consolidating privacy enforcement and oversight into a single federal agency rather than multiple agencies. on this and this entire range of topics i look forward to working with you, mr. chairman and the other members of the committee. i thank you for holding this hearing.

i would like to ask consent to have a statement prepared by the national retail federation included in the record. >> so ordered. now turn to julie brill. and austin schlick and cameron kerry. three pretty good witnesses. ms. julie brill, if you wish to proceed. >> thank you, chairman and ranking member hutchinson and members of the committee. ivan julie brill, commissioner of the federal trade commission. i appreciate the opportunity to present the commission's testimony. vast amounts of personal information about consumers are collected and used by many different types of businesses. employe years, retailers, advertisers, data brokers, lenders, insurance companies, and many more.

imagine the cash strapped mother working as a substitute teacher and waiting for a permanent opening. she and her husband have mounting bills. to tide them over between paychecks she gets paid a loan. she then goes to the drug store and buys diapers and children's tylenol with her loyalty card. soon after in the mail she gets coupons for diapers and children's motrin. she receives an offer to refinance a mortgage on terms that seem too good to be true. in the evening the mom goes on line to spend time on a social network sight. while on-line she notices she is receiving ads for toys and children's cough medicine as well as more loan offers. could the drugstore and social networking site have sold information about our consumer purchases and interest? could that a lender have sold information about her need for money to other lenders and generators, both on and off line for offering her loans? could the fact that she is a new

mom be sold to potential employers? the answer to all of these questions is yes. some of the things i described can offer a real benefit. the mom probably wants coupons for diapers. the vast majority of consumers are completely unaware that they are purchasing history, a particular financial situation, and permission about health and other personal information is sold to data brokers, the generators, lenders, insurance companies, potential employers, and others. most consumers are simply unaware of the data they lose about them being collected, sold, and used both on and off line. i am concerned about how consumer privacy is impacted by these practices. at the federal trade commission we are focused on solutions that provide consumers with more information and more choices about these practices while allowing industry to continue to innovate and thrive.

that ftc enforces laws protecting consumer privacy and security, educates consumers and businesses and engages in policy initiatives. our written testimony highlights are many recent significant enforcement efforts related to privacy and data security, including our latest action announced just this week in against palin track, a company that sold less about financially distressed consumers to marketers. to saddle or allegations tell attract agreed to comply with the fair credit reporting act and pay a $18 million civil penalty. privacy and security continue to be front and center on the commission's policy agenda as well. the commission has not taken a position on whether general privacy or do-not-track legislation is needed, but a majority of commissioners support widespread implementation of do-not-track

mechanisms more generally the commission supports strong privacy protection. our preliminary staff privacy report recommended that industry built privacy protections into their products and services at the outset, simplify choices presented to consumers about privacy, and improve transparency relating to data collection and use. on data security the commission supports the enactment of federal data security and breach notification legislation. i am pleased that legislation proposed in this committee aims to accomplish all of these goals. thank you for your lead on consumer privacy and it is security. we look forward to continuing to work closely with you on these critical issues. >> thank you. welcome. >> thank you, chairman. members of the committee. i welcome the opportunity to be here today to discuss with you

the issue of how we can best protect consumer data privacy in a digital age. this is an issue affects everyone. at this committee's hearing on march 16, the obama administration urged legislation to establish basic commercial data privacy protection for all u.s. consumers. what we recommended then had three elements. the first is baseline privacy protection in the form of a consumer privacy bill of rights. adapted from widely accepted their information practice principles. the second is for government to convene a multistate call the process to encourage the private sector to develop a legally enforceable context specific

codes of conduct that implement the bill of rights in specific context. the third is to bolster the federal trade commission in this field by granting it explicit authority to enforce the privacy bill of rights and to grant safe harbors for evolving code and conduct. we are encouraged that members of this committee and others in congress have introduced several bills to address the significant data privacy issues. the administration looks forward to working closely with members of this committee and congress to pass what solution that will protect consumer interests and provide businesses and consumers with a clear and consistent set of rules of the road, both within the united states and

internationally. our conclusion that the time has come for comprehensive data privacy protection is a product of the work of the department of commerce, internet policy task force, and the national science and technology council subcommittee that i co-chair. it reflects to tenants. the first is very simply that to harness the full power of the internet we need clear rules that allow for innovation and economic growth while protecting the trust and respecting consumers legitimate privacy expectations. consumer groups, industry, leading privacies dollars agree a large percentage of americans do not know what information is being collected about them or how they can control collection. second, as we established guidelines, we need to avoid a regulatory environment that

restricts the innovation and the free flow of information that have been hallmarks of the internet and drivers of economic growth and an expansion of information that stretches the boundaries of human knowledge and creates social and political change. the legislation should not add duplicative or overly burdensome regulatory requirements to businesses that are already at a hearing to strong privacy principles or that are subject to existing sectoral regimes. legislation should be technology neutral so that consistent with baseline principles, firms have flexibility to adapt technology to comply and to adopt business models that use data in ways not contemplated today.

our work continues as the administration finishes a white paper on commercial privacy. the department of commerce will engage with stakeholders on the developments of codes of conduct. we will work on data security and work with other agencies to ensure global and drop her ability. this is an area where congressional action can have significant impact. two weeks ago i was in budapest to speak with european data privacy commissioners, and i can report to you that comprehensive legislation will send a stern message of u.s. that could form a model for our partners, help prevent fragmentation of the world's privacy laws and undue restrictions on businesses that conduct international trade. so, mr. chairman, we look forward to working with you, the

committee, stakeholders, the ftc, and with other federal agencies toward enactment of legislation in the field. i ask that my written comments be included in the record and welcome any questions. thank you, again, for this opportunity. >> your statement will be included. thank you for your testimony. >> good morning, chairman rockefeller and members of the committee. thank you for this of which entity to discuss the program to protect consumer privacy and it is security. i am particularly pleased to be here with two strong partners, the department of commerce and the federal trade commission. the fcc has decades of experience implementing privacy protection statutes which include provisions of the communications act that require communication provided to safeguard customers' personally identifiable information as well as provisions that protect

consumers against unwanted telephone and fax solicitation. at the same time increased use of personal data in connection with new on-line applications is raising serious privacy and security concerns. as the sec recognized, successfully addressing these concerns is critical to increasing adoption and deployment of technology that benefits consumers, government, and the economy. the commission historic plea focused on three privacy related goals, ensuring personal information is protected from this use and mishandling, requiring providers to be transparent about practices and enabling consumers to make informed decisions. these remain our primary focus as we implement various sections of the communications act that directly impact privacy. for example, section 222 requires telecommunication carriers and interconnected voice over internet protocol providers to secure customer proprietary networking formation known as cpi which includes

consumer call records and call information. under section 22 to adopted rules addressing the handling, use, and sharing. we also adopted rules to prevent protecting, a practice under which unauthorized third parties attempt to gain access to telephone press driver's personal information. through rulemaking and enforcement we have resolved difficult issues, minimum notice standards, data sharing, reasonable security measures, and notification to law-enforcement and consumers in the event of breaches. in the last six months the commission issued 28 warnings and notices of apparent liability for various violations. because of active enforcement and education efforts they are well known and well understood, and the number of consumer complaints has declined steadily. section 338 and 631 also protect personal information. these provisions have

requirements for satellite and cable television providers treatment of their personal net effect of all information which require clear and conspicuous notice of personal data, limiting disclosure of personal data, and remedies for subscribers who suffer a violation. working in parallel with the ftc, the fcc adopted do not call regulations under section 227. since 2009 we have issued nearly 150 warning citations and other actions for do not call violations. the fcc in the ftc also collaborate on implementation with the sec adopted rules that prohibit sending unwanted commercial e-mail messages to wireless accounts without prior permission. the sec and department of justice before section 45 which prohibits unauthorized interception of radio communication and unauthorized disclosure of wire radio communication. the sec supports consumer education in the areas of

privacy in information security and is a partner in on guard online, an online initiative that helps consumers guard against internet fraud and into the theft. protect personal permission and avoid e-mail and fishing scams. also a member of the national initiative for server security led by that department of commerce. just yesterday we held a workshop on location based wireless services and privacy issues. at this event we gathered information from wireless carriers, application developers, and business and academic leaders about trends in the development and use of location based services. industry best practices and what consumers and parents should know about protecting themselves. we heard about the many potential benefits of location based technologies as well as challenges of educating consumers to protect privacy while using these new services. the sec brings accumulated privacy expertise as well as expertise about new communications technologies and

services. protecting privacy is a necessary part of providing services. it is part of the mandate to promote a healthy and competitive communications marketplace that meets consumer needs. thank you for this opportunity to testify, and i look forward to your questions. >> thank you. we are going to proceed to questions as for myself, they will be rather rapid because we do have to close at 11:00. that is very disconcerting to me. our leader failed to check with me about the convenience of the committee. i will do the best buy can. i'm going to ask these fairly quickly. as you know, senator pryor and i have introduced s1207, data security in breach notification act. your thoughts? quickly. [inaudible] >> so sorry. the commission supports strong federal legislation dealing with

data security and breach notification, just like this bill. this bill does satisfy the requirements of such a strong protective bill. >> thank you. our bill against the federal trade commission will making authority to require companies with large databases to adopt security protocols that protect consumer data. tea you think companies are doing enough to maximize protection of the databases? ..

>> it actually will complement our efforts very well. not only does it sets forth some basic security processes and procedures like having an opposite focus on privacy, having worked in companies that process -- officer focused on security and have them place processes to deal with security, but also gives us proud rulemaking authority which will be helpful. most importantly from my deve gives us double penalty authority, which i think will incentivize companies to improve security practices before they ever have to do with this. >> thank you. >> thank you. the department of commerce has called for a national data security legislation. you have any opinion on the bill

senator pryor never introduce? >> senator rockefeller, the bill certainly responds to the need for national legislation. one of the important drivers in the area of privacy has been the adoption of breach notification laws by state. there are now some 40 states that have them. but in order to make this consistent drive the issue nationally, there is a need for national data breach notification laws. it is part of the administration cybersecurity package. >> i thank you senator for your leadership in helping to drive at issue. >> thank you, mr. chairman. commission or train to come out of cftc with justice that is the case under current law? >> generally speaking --

>> to the good relationship that furthers the relationship to consumers at prosecuting criminals or do we need to create justice more authority than a dirty present? >> it is important to have all the tools they need to go after folks who are hacking into databases and to the extent they feel they need more tools, we obviously would support that. at the same time, it's critically important to recognize will never be able to catch criminals or hackers. what is critically important in the very built as well as it ensures that companies will shore up their data protection practices in the first instance is that they aren't affected by hacks to the extent we can have that. we appreciate your bill and incentivizing programs in place for civil penalties program.

>> i've got 40 seconds left. many companies are already offering consumers the ability to use web browsers that had to backtrack mechanism. however, when consumers use this feature, no one is honoring this request except for one company, which would have to be "the associated press." as of now, do you think the ftc can take action against consumers that do not honor a consumers do not track request? >> action against companies. if a company promises to honor a consumers request or ad network promises to honor he can do this request, then we can proceed fairly through a deception. if a company does not make a primacy, then our jurisdictional

test is a little bit more difficult to me. we fall under our fairness jurisdiction and its challenges in meeting that kind of a task in scenarios like you describe. it would depend on facts and circumstances. >> i thank you. senator kerry. >> i was struck at the opening, frank lee, comments that the set committee and its it's important if some of those questions were raised, it's important they be addressed here. and i wasn't planning to come up and i want to use the time because they pass legislation that there is not a baseline level of understanding or except it's about where dealing with. senator to me and fairness is that another hearing, but i want the record to reflect to record any notice doubtful make sure that he sees them. he stated very clearly and raise

the question of whether this is a solution in search of a problem. in addition, wondered what time is out there. i think it's important for the three of you to address that. is there or is there harm? is this for a national response? it is imperative to have a national race on? if so, can one be constructed without the unintended consequences in the open architecture. i have been on this committee for a long time now inside diligently to protect the architecture, net neutrality, but i do believe it's important to have standard by which people are asking. you're regulatory agencies agency is in the line of sight on the and the communications.

is there harm? is a real? what should we tell? is this indeed the solution looking for a problem. >> i don't believe the focus on privacy protection is a solution that in for a problem. right now consumers are very unaware as they try to communicate in my opening statement. with respect to privacy notices, one of people and thinking about mobile technology, there've been studies that have shown that apps with a lot of young people are using, teenagers, young adults don't have privacy policy whatsoever. to the extent they have a privacy policy, it requires consumers to put you over 100 screens in order to read the privacy policy. this just isn't reasonable to expect numerous field to do that

in this modern technological age. we need to come up with some solution that fits the new technology that give consumers information they need and then give them choices about it. >> senator kerry, directly with the problem. >> is there harm here? >> to give a concrete example, pretax keen to us a few years ago and identify the problem of data being taken out on false pretenses and commercially to the hiram. this is one instance where we conduct it rulemaking and were able to adopt rules to limit ipaq is. our national guard and plan looks beyond the harm to the economy.

the key is finding that this consumers and application developers don't understand and trust the rules for privacy protection built into the system. and the adoption by consumers, deployment and network operators of broadband pipe talent she will be harmed. we saw this in a location-based service yesterday, where consumer groups and industry agree there is a need for rules of the road so that there will be an ability alumnus to use the services for benefits can damage the wellness industry. >> senator, let me say that our support for legislation comes from an extensive exchange with members of the business community who broadly across the spectrum of the business community, retail industries as well as to knowledge industries

engaged in international trade said to last that there was a need for government action and privacy protection. it is unusual for a government agency to propose regulation and have a wife spectrum of the business community as well as consumers and others endorsed that proposal. but that is precisely what occurred where we put out the commerce cream paper in december. >> without stems from is the critical need for trust in the fact year. i'll take the story policy conference and i participated in a couple years ago. people from business, government, academia across the political spectrum, giving the

exercise to identify key risks and key drivers to the digital economy and development of product didn't. and work units were set recruit scenarios, every single one came up with the same risks and the same drivers in every single one independent in the same way it fully look at the way if the reaches of senator rockefeller alluded to, we are facing a higher risk scenario, which trust is eroding. there are a lot of companies that have good practices that understand the importance of trust their business model, survival. there are malicious actors and outliers who asked why that trust.

the mac senator wicker. >> mr. chairman, i'm going to yield my time until the seven series of those speaking. >> we won't, but we're coming back. we have no choice. >> i understand that in a yield my time. >> already. time senator inhofe. >> thank you, mr. shannon. mr. kerry, i understand the center, says latest in a policy, which you could also explain to us about the department of commerce with the? i mean, obviously pretty curious to what the ftc's rule is if you could help us with that. >> senator ayotte, we do not envision in first goal. the ftc is a critical policy

maker in the nation's enforcement authority over a broad area and specific regimes like communications like health records. and we believe that that role should be straight in. the role of the department of commerce is that the convener, as a policy leader for the executive branch. what part of the debate we have worked closely with the ftc in developing policy in this area we will continue to do so. >> thank you. >> commissioner brill come i wanted to follow up as they know

you share in vermont so welcome. and i want to ask about the enforcement pizza, for example, proposals for it to not track legislation and particularly when the kid on areas where we're focused on the kind of technology, given the changes we can see happen in the type knowledge to field, it ate, how would you anticipate that we would -- that the enforcement mechanism would work and secondly, do you have any kind to did he do not track policy could take away some of the tools that consumers had. there have been some studies that show this could harm online advertisers. to get your thoughts on those two issues. >> sure. just to be clear, senator ayotte, it would not be a registry. it is a technology driven system

generated through browser, any other ad networks themselves. in terms of enforcement, we do want to see a strong enforcement where it becomes a mechanism or sets up the legislation. the key component in an enforcement action is in is those he was the messages from consumers about the choices they are making will honor them. once we are assured, either through regulatory mechanism for legislation that the receipt of a hacker work cookie or whatever the technology is, when anyone receives the most edge they promise they will honor. then we have an enforcement tool. that is a critical piece here and certainly something we're looking to see happen in the industry driven efforts currently underway.

your other point about could it take away benefits, there has been discussion about whether or not overwhelming number of consumers who participate and therefore drive away the free content still available on the web. my view is actually what will happen if consumers will have much more trust in what is name on the internet if they understand that the choices available to them to make granular choices about what will admit their information, who will be used, how it will be collected. i don't expect to see a whole lot of consumers opting into the system, choosing to participate. but what i will do is it will give just engender huge amount of trust, which will actually cause the industry to drive even more. that's the critical point we have met remember. >> just to be clear so i

understand in terms of issues, for example, he do not track issue, that you envision this will be something implemented by industry and something opposed to us in congress. one of the issues in terms of implementation for us to come up with a solution that will work in applications is a very difficult task and we are the best ones to come up with solutions. >> it can be done by industry and we have called a majority of commissioners have called to step up to the plate. i have been a particularly vocal proponent of industry perceiving manner. i think it has been slow. we started to make these cause to do something with respect to online behavioral advertising several years ago. as we started making a specific offer do not track, industry has moved and there have been significant progress on the part of industry.

i am worried though that we might not appeal to get out the way they are because we the industry is structured. advertisers and ad networks are rather disparate. and unless we get them to uniformly agree that they're going to participate in honor consumers request, i'm not sure the regulatory mechanism cannot work. am worried about the way structured right now. the industry structure to whether we can get all the way there. >> thank you very much. >> before i go to senator klobuchar, with a major problem to work out here. there are five those that are starting 11:05. i'm trying to get a mutual love and 10:00, which means you can another 15 minutes here. we have another panel. we have senator klobuchar, senator pryor has just what.

now, you can decide what she wanted to. my recommendation would be that senator klobuchar, you ask your question because you've been here a while. senator pryor who sent committee all over this extremely important, but somebody has to sacrifice. what we need to do is let senator klobuchar ask your question quickly and give their testimony and not scramble to that is that except to vote [inaudible] >> is that acceptable? >> yet, ready to go. thank you very much, mr. chairman. this can create device, that we all know there is some line in the sand here. for me when you order books on a

kindle and then i come up with recommendation of books similar to what you order, that's just signed. it's actually helpful and harmful. on the other hand, when you hear stories of companies that may be compelling what they call list about consumer centers to build two different fraud, that's a problem. and so i appreciate you helping us work through this today. one of the things i want to ask you about, commissioner brill with the children's online pricey protection act and the unfair and deceptive conduct clause. it's not fair what prohibits on mobile phones. for example, if there is an application geared towards those that have no easy agreement or privacy policy bashir's location in another information with the third party advertiser without seeking consent from the user, either an enforcement the ftc can use to misuse the presence data? >> are you focused on children?

>> no, this is on the mobile. >> so with a mobile phone rate now does not -- an application does not have a privacy he and his collecting geolocation information, that's your question, is there something we can do about it? we are as i mentioned a few moments ago in a web server note under dealing with perception but they haven't said anything not following through on an event of unfairness and depends on how to make an argument that particular user in which location would be unfair. there also might be an argument that sailing to have disclosures about the way in which geolocation was used as arms that can and would also be unfair. but it's a tougher task.

>> under the children's online privacy protection act, companies operating websites intended for children under 13 are prohibited from collecting information. i just wonder if there's a practical one. i believe that's a good provision. is there any practical way for the ftc to distinguish between website and online services intended for children that need to confide with the applications for dole's? >> sure come a history of the children's online privacy protection act applies when you have a website that is either directed at kids or where the website notes that his collecting information about kids. that is kids under 13. in order to determine whether website is directed at children, we look at the totality of circumstances. we look at things like for their cartoons? how is it being sold?

it's part of the apps are designed for kids or a different part and the kind of sat there is a look at to determine whether the website is focused on children. in terms of whether or not the general audience website application is collecting information, you know, as the website receives information from a teacher or parent, obviously they know, though we also do undercover work. will: nine and pretend the 13 or 12 or 11 and see the website will collect information. there's a number of ways to figure out if we can see what is happening. >> i've been working on this cloud computing bill as you know and one of the issues serious to be our trading partners internationally and i think we've talked about this before

judiciary, but they need to fulfill data standards along with working with our allies, do you believe they would be prudent to establish a global standard that all countries with very subscribed to? >> that's the direction we could answer in 30 seconds. >> senator klobuchar, one of the key tenets of overtrained to do do is to establish global interoperability so companies can trade transparency. to ring global privacy standards together is an important part of our support of comprehensive legislation. >> thank you. we're now on this rather quickened pace.

i think all three of you very much and i want to introduce senator begich. i'll explain this on the way to go. [laughter] how you've been abused. the second panel, mr. scott taylor, vice president and chief officer at hewlett-packard. mr. stuart pratt, data industry association. ms. ioana rusu, regulatory consumers union. mr. tim schaff, sony entertainment network international and mr. thomas leonard, president and senior fellow technology policy institute. once again, our purpose here will be in the time remaining to us, which is not yet determined. let's say it's 20 minutes at the maximum for all five of you to get the testimony. that is a challenge, which are

exceptionally bright, well-educated beings people come so you should be able to meet her. we'll start with you, mr. pratt. and into that question would be submitted from the committee members to all of you. >> chairman rockefeller, members of the committee can't thank you for the opportunity to appear before you today. for the record and store practice either the consumer data industry association. >> get ready to the point. [laughter] >> tdf numbers protect consumers and interests, whether counterterrorism expert, look at that child could not with access to children or the elderly or ensuring safety and soundness of winning decision on members databases, south were critical to how we manage risk in this country and ensure consumers are treated fairly and how we

protect members becoming the for both violent and white-collar crimes. let me just get some of the examples in the record i was shown to some of the key point. i think as we are trained is here. this committee has tremendous opportunity before here today. first of all, it can fill in porton gap in current law by ensuring all u.s. business is, which are not subject to data security for sensitive personal information in the future cd-i on record for securing personal information and are pleased to have this opportunity to affirm this position again today. thank you, congress can complete the good work for 48 states at the data breach notification law by creating a much-needed national center matter where they live. ctia and expos who possess personal information and such information has been stolen or less, consumers become of the mother to 95.

july regarding data security breach notification should be aligned with current odds, which are already robust in effect this. cdia's numbers are financing institutions under the graham leach bliley act and are subject to personal law not interfere with, alter it to requirements of the geo-safeguard rules and enforcement training is about over a decade of examinations and regulatory. same thing will plaster their sectors had had ever been such a duty to secure peace. the new luscious lookouts, thus thus ensuring all sent their personal information is protected. similarly sectors of the u.s. economy are subject to data breach notification statement to the regulation corporals. these factors are exempted from complying duties of the federal standard. it should fill a gap. does it try to many problems

have imposing duplicative duties and exemptions fall short using a compliance rather than subject and is right as new duties for data breach notification enacted and we urge the committee to avoid creating duplicate of law. congress must also avoid creating state law enacted strong and effective securities or personal information and did a great notification is a success if it creates a true national standard for businesses. this is especially true for small businesses. we would urge the committee to exclude kind of the issues which are not relevant to data security or data breach notification. privacy and data security are not coterminous comics. cdia's numbers of every class of regular today, including fair credit reporting, graham graham billy shillelagh do not cominco concepts to regulate entities to

find information brokers at the to secure information and provide notices to consumers for there's a breach data. as discussed in a written testimony, privacy issues can interfere with development of data used to prevent fraud, identity theft and manage risk like those who discuss. let's move on claim to be security and notification which will establish a national entertainment should u.s. businesses can comply, which is always their high school. >> two munich very much. ms. rusu. i'm going to skip and jump right into it. i think we can all agree to logical advances over the past decade has created incredible fantastic tools for consumers to use. however, privacy is so important in with it today. even in today's of extensive sharing, few people agree every piece of information about them should be available to everyone for any purpose. in fact, in a may 2011 consumer

report, 82% of respondents would you companies may be passing on personal information to third parties without their permission such trust is a significant or to adoption of new technology which in turn commerce and discourages innovation here at consumers union support privacy and data security bills as the focus of today's hearing. commercial privacy bill of rights puts in place and standards that gives numerous more control over personal information. this rhetoric is rooted in fair information is which is noticed that the collection, accuracy requirements and privacy by design. we support the bills focus on sensitive information, including information about health in reconciliation. companies must first get conservatives opt-in consent. this could protect you from bulimia from having to worry by joining a meeting this order

support, information will be passed along to advertisers who will be markedly less supplements at every step. we appreciate the bills enforcement power for the ftc to the attorneys general to increase the likelihood that actors are caught and punished. legislation is not important foundation for better privacy practice. we also look forward to strengthening measures to provide customers with even more transparent and control. for instance was for providing consumers with an opt-out not only for use of information, but also for its collection. would also like to see more credit to the ftc to modify and update definitions of the bill. in addition, we are concerned language of preemption provision could force to deceive to protect consumers beyond the scope of this bill. the plan supports jon rockefeller is to not track on the enacted in a necessary

component. public support for do not track action is particularly high this moment. according to the consumer reports point mentioned before, 81% of respondents agreed that they should be able to permanently opt-out of internet tracking. some industry actors severity developed and incorporated to not track toaster into browsers. marketers currently can and to ignore to not track choices. this is precisely why chairman rep others as a much-needed component. consumers union believes that do not track on enacting commercial privacy bill of rights that taken together would give consumers privacy protections in english was the way their information is collected and used. protecting consumer privacy also made safeguarding data against unauthorized breaches. the data security and the identification of protecting service by requiring data security fax as well as notification in cases of breach. the bill incentivize companies to practice data immunization on

the front-end before breach occurs and provide at least two years of free credit reports. we are particularly pleased with traditions that instruct information brokers to maximize accuracy and accessibility of records and provide consumers with a process to dispute information. consumers union prefer consumers be notified in any event to the breach similar to the strongest notice of loss is currently in place. however, we can expect getting an exception when a company demonstrates a reasonable risk of identity theft is ever. we urge this committee not to further weaken notification requirements. thank you for your time and i'd be happy to answer any questions you may have. >> thank you. mr. schaff and i want to apologize to everyone about this travesty of scheduling. it is not for e.u., not for u.s., not or to the people all the way down to the basement to get into this hearing and world being shortchanged because this does. we should make one voted day and a judge or some reason will have

five to is quite incomprehensible and totally unfair to redeem his term. please proceed, sir. thank you for this opportunity. mightiness 10 schaff, president of sony corp. based in california, where we employ approximately 702.5 ounces wednesday. i'm chiefly response will -- chiefly the hospital for business and technical aspects of sunday's waystation networking curiosity, on the services that allow tumors to access movies, television shows and video games. sony online entertainment to millions of customers very recently the victims of an increasingly common digital age crime, a cyberattack. regarding the attack on sony initially anonymous, the underground group associated with last year's wikileaks related cyberattacks openly called for and carried out massive denial of service attacks against numerous

internet sites in retaliation for sony ringing board to take property. during or shortly after attacks, one or more highly skilled hackers infiltrated servers of the playstation network and sony online entertainment. sony network entertainment and sony online entertainment have always made concerted and substantial efforts to maintain and improve data security systems that were utilized. we hired respected and experienced cybersecurity firms to enhance defenses against denial of service attacks threatened by anonymous. unfortunately, no entity can force every potential cybersecurity threat. we have detailed the committee in her written the timeline when we discovered the breach so i will not cover this details today. however throughout this time we felt a keen sense of responsibility to the rumors. we shut down networks to protect against further unauthorized activity. we notified customers promptly when we had pacific, accurate and useful information.

we thank our customers for patience and loyalty and address there can terns arising from this breach was free identity that protection and insurance programs for u.s. another cut in the as well as a welcome back tax extended in free subscription and other services. and they were to restore our networks and stronger security to protect customers. let me address the specific issues you're considering today. notification of consumer data breaches occur. law and common sense provide investigate breaches of the gather facts and report data losses publicly. if you reverse the order, issuing speculative statements before you have specific and reliable information coming with their sons also answer so many lines that these warnings will be ignored. we therefore support balanced federal data legislation in the forward to working with the committee on particulars of the bill. by working together to enact meaningful cybersecurity

legislation we can limit the threat posed to the end simultaneously move forward on data breach policies and legislation we can ensure consumers are empowered with necessary information and tools to protect themselves from cybercriminals. thank you very much. schematic thank you, mr. schaff. mr. lenard. >> i appreciate the opportunity to testify today. i'd like to stress two points in my analysis. the privacy and security of different things and therefore should be covered epperly. the privacy debate has engendered strong provisions with relatively little data or analysis. in order to make informed decisions, policy makers and facts about practices in the market. to my knowledge, the most recent systematic data on privacy practices are from 2001. in addition to basic data, benefits across policy proposals

need to be evaluated to ensure they improve welfare. some proposals are likely to reduce the value of the internet as an advertising medium for firms and consumers in the process reduced revenues available to support content enjoyed by all internet users. the principal purpose of cost-benefit analysis is to make trade-offs explicit. some proposals also may not produce the intended results. for example, the idea for you to not track mechanism comes to the telemarketing do-not-call list, which has been very popular. the effects may be quite different. do-not-call reduces unwanted market solicitations and do not track them at the opposite effect with consumers receiving a greater number that are thus well targeted to interested. >> could you repeat that sentence quite >> did you not track mechanism could have the opposite effect with consumers receiving a greater number of bad that are

less well targeted to the interests. >> okay. >> security presents issues than privacy. people may be quite comfortable with the intended uses of information that worried about unintended uses in one information to be secure. identity theft is perhaps the primary security concern out that the most recent data shows identity fraud in 2010 was at its lowest level in eight years. regulating the collection and use of information by legitimate firms the flow or nothing to deter identity theft and attack excessive control of information increase the rest and make it more difficult for sellers to determine the potential buyers are fraudulent. they are too generous sponsors to data breaches in related crowd that prove security to reduce the likelihood it will happen and notification of the thick tens in the event they do happen. both were addressing current legislative proposals.

data breaches and identity sides are extremely cost way to the firms involved, which gives companies a strong incentive to spend money on data security. it is therefore unfair government action in this area. is for notification may be less regulatory notification to cram that would make people shut out is therefore an empirical question. one thing to be.if consumers received one of the may be unafraid to do business online. this would be an unfortunate response as online commerce day for the find commerce. the most significant benefit of federal data security breach notification legislation would be preempted a patchwork of state laws. for that reason enacting a bill that yield savings for first consumers. the privacy and security of data security debates are extremely important to future of the digital economy and innovation

in the united states, but unfortunately they are taking place largely inaction without substantially better data analysis, there's no way of knowing with any confidence whether proposals currently under consideration will approve consumer welfare or not. >> thank you very much. mr. taylor. >> chairman rockefeller, members of the committee, hp can the committee in its forward-looking approaches to balancing consumer privacy interest business realities of an enterprise economy. but to talk about technology, trust and privacy and how they converge to create new opportunities but also a set of challenges. we're living in the time were glancing to elegies ever-increasing. our business and first lasers turning to merge. consumers are more dependent upon mobile devices and have a growing expectation that companies are going to be accountable as to if they restart the information we

collect the reuse and maintain. it firmly believes ability to succeed in the marketplace and fun earning and keeping our customers trust. hp takes active steps to implement or can additional accountability for privacy for company. we believe companies need to do more in the master requested to be able to demonstrate capacities to uphold the obligations and commitments they made good to have them come with built-in internal program that includes privacy facer tool, which integrate all of our commitments into a tool that help state employees. this tool looks at privacy requirements, risks and other considerations that helps ensure reports what every employeraccountable. the concept is on his privacy by defined in this one of the fundamental limits and legislation senators kerry and mccain have looked for with hp supports. hp is a strong proponent of him

that this u.s. federal privacy legislation we firmly believe time for the u.s. to his dovish a comprehensive legal framework that works to protect consumer privacy. we believe consumers are expecting that, businesses needed in the economy will be better for it. while hp also believe in self-regulation for the possibility of a regulatory programs, the patchwork confuses customers about protection in any given context and also forces companies to contend with often conflicting regulations. this is why we strongly support initiatives like senator pryor's data security legislation, which was at a national preemptive standard. we believe the adoption of new innovation depends on companies acting in an accountable and was hopeful manner that anticipates consumer expectations. no one is hurt, not corporations, not governments and certainly not tumors by lack

of confidence and security and privacy of personal information. at hp weekly consumer trust comes from good transparent than providing meaningful choice. this is why we support the concepts of senator rockefeller's do not track legislation. we continue to urge policymakers to examine ways to establish legislation though clearly articulate our work in the stations. as murmur services that deliver your mobile devices such as application, it is going to become more important that we have a consistent baseline standard that will strengthen matching of accountability and unify the divergent regulations for an existing. simply stated, hp recognizes consumer trust in fate commodity that must be due to good stewardship and good programs. federal legislation can establish a unifying federal

baseline standard for organizational accountability as well as improved consumer protection. we believe this but the win for consumers as well as industry as a whole. thank you for your time. to make thank you very much. i was very clear and well presented. i want to apologize once again. this is not "the new yorker" of what is happening. you have a committee hearing on the subject as important as this come you come for distances, maybe if you and you give your testimony. let me give you some soulless. actually getting written questions from members and then you haven't a chance to answer them outlines or not uplinks, whatever your choice sometimes works better than us asking questions among the five minute are messing everything up. so take some hope and not another race just accept my

apologies. please. this hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> today come the federal reserve board predate 21% cap on transaction fees that banks charge merchants.

>> the federal reserve already approved a 21 cents cap on debit card transaction fees that banks charge retailers.

those businesses now pay an average of 44 cents per transaction. chairman ben bernanke date on your screen begins the hearing by talking about the train to financial regulation law and the good by congress and the president last year. >> good afternoon, everybody. we are meeting today to review the final rule and implement into debit card interchange provisions are the train to act. we're approaching the one-year anniversary of train to fear the federal reserve has been given substantial and important responsibilities under this act and we are working diligently to implement the statutory requirements. ac interchange rules and one of her ist challenging rule-makingingn underdog frank today have received well over our postsver will. me natureen the ti review comments carefully.

they been helpful to us in the d final rule affects a number of us a i anges by comments here. a good designer will be belowss discuss today gives careful and and opriate consideration to thl statutoryap language come acrose data available to us and data complexities of the debit interchange payment system. the board plans to monitor developments in the debit card e markets on an ongoing basis tonn include collecting andncl publishing deeudded avidity debt card cost in interchange fees. these data will help support asl well as issuers both urchinsarge small, merchants, networks, consumers and congress assess her thr the statute and theum ruler for the accomplishing the nuke goes. th i know that sasso spent thgnificant significant time in a run this ruling and i want toh commend them for their hard wor. education. let me now turn to vice chairir

janet the committee on payments, clearing and ttlementthemittee debit cards are critical component of the nation's retail payment system. they're an efficient form of payment and provide many benefits to both cardholders and merchants. over the past decade, consumers have substantially changed their methods of payment and are increasingly using debit cards where they once relied on checks or credit cards. debit cards are accepted at about 8 million merchant locations in the u.s., and have become by a wide margin the most prevalent form of non-cash payments in this country. board staff projects that u.s. debit card volume may exceed 50 billion transactions this year. and recent annual growth

continues to be at double-digit rates. the debit card success story has been marred by the level of discord between merchants and issuers on the interchange fee issue which is played out in the courts, in the congress, in more recently here at the board. the continued vitality of the debit card system requires balancing of the legitimate needs of depository institutions that issue debit cards, merchants that accept them, networks that process them, and very importantly, the consumers with customers of both the banks and the merchants. i hope that the banking industry, the retail industry and the card networks will work together in a collaborative manner to ensure that the debit card system and card systems more broadly are designed in a manner that best balances the needs of all parties. i want to thank the staff who

work so tirelessly on this rulemaking. i believe their recommendations reflect a careful consideration of the comments received and appropriate implementation of the statutory requirements. i will now turn to mark manusach who will walk us through the draft final bill. >> thank you. i will be discussing the recommended final rule for regulation i.i. which governs routing and implements 1075 of the dotd-frank act. the final rule is two main components. first, it establishes standards for assessing whether interchange fees of issuers are reasonable and proportional to the cost to issuers. second, it prohibits exclusivity and routing restrictions. since the release of its proposal last december, the board received input from more than 11,000 commenters including issuers, merchants, consumers,

payment card networks, acquirers, processers, trade groups, government agencies and members of congress. these commenters raise numerous and often complex issues related to all facets of the proposed legislation. we have carefully considered the issues raised by the commenters, the comments gave valuable input and led to revisions to the proposed regulation. will provide a brief summary in my presentation. let me now turn to the substance of our recommended final rule. i'm summarize each major statutory requirement, the approaches to implement each in the proposed rule and comments received on the proposal. for each statutory requirement, i will then describe our recommended final rule. in developing our recommended final rule we considered the comments received, the language and purpose of the statute, the available data and the practical results of various

interpretations of the statute. the first major aspect of the final rule is the interchange fee standards. the statute requires the board to establish standards for assessing whether the amount of any interchange fee that an issuer receives for a debit card transaction is reasonable and proportional to the issuers cost with respect to the transaction. based on exemptions contained in the statute the standards do not apply to certain government administered debit cards, certain other prepaid cards or debit card issuers together with affiliates have assets less than $10 billion. in the proposed rule the board invited comment on two alternative standards for debit card interchange fees. under the first alternative, an issuer would comply with the standard if it receives an interchange fee that does not exceed the lesser of the allowable costs and a cap. an issuer could also comply with the standard receiving an interchange fee that does not exceed the level of a safe harbor. the proposal recommended that the cap initially be set at 12

cents per transaction with the safe harbor set at 7 cents per transaction. under the second alternative an issuer bould comply with the standard as long as it does not receive an interchange fee above a cap, again, recommended to be 12 cents per transaction. for both alternatives the proposal defined the allowable costs to be the average value of authorizing clearing and settling transactions, varied with the number of transactions performed by the issuer over a calendar year. the average cost of clearance and settlement. the value of the caps in both alternatives and the safe harbor in the first alternative derived from information gathered through a survey of covered debit card issue herbs that the board conducted last fall. the board received numerous comments about all aspects of the proposed standards including the proposed definition of allowable costs and the two approaches. issuers and networks

overwhelmingly supported expanded allowable costs to include a wider range of debit card costs beyond the costs of authorization and clearance and settleme settlement. among the costs to be included is fixed possessing costs, network fees and fraud losses, as well as the costs of card production, customer inquiries, rewards and account set-up and maintenance. these commenters noted that debit cards provide a payment guarantee to protect merchants against insufficient funds and issuers are exposed to the risk of fraudulent transactions. in contrast, they supported the proposal to limit allowable costs to the average variable cost of authorization, clearance and settlement for each transaction. these commenters argued that other debit card-related costs would either be not recouped from a bank in a check transaction or not specific to a specific debit card transaction.

they further argued that the payment guarantee on the debit card transaction is not really a guarantee as merchants are frequently subject to chargebacks after the initial transaction and as a result bear fraud losses. after carefully considering the comments submitted staff recommends that a somewhat broader range of costs directly related to affecting debit transactions be included as a basis for establishing the interchange fee standard. the statute instructs the board not to consider cost that is are not specific to a particular transaction. we have interpreted this provision to exclude costs that a debit card issuer would not incur in the course of affecting any electronic debit transaction such as corporate overhead, general account costs and general debit card program costs, including marketing, research and development and card production and delivery costs. the remaining costs would include those that the statute in