and the web site if you want to learn more about the internet education foundation is neted.org. the topic of today's program could not be more important or more timely, and we will conclude the program by about 1:00. the discussion will be led by mary ellen callahan, a partner with the law firm of jenner and block and a former chief privacy office of the department of homeland security. thank you all again for joining us, and we all look forward to an interesting program. mary ellen, thank you. >> thank you very much, roger, and welcome everybody. i want to briefly introduce my colleagues here on the panel, and i'm going to give a brief overview. since this is a primer, we're going to go very quickly and cover a lot of topics, but we're going to try to keep on our time. alphabetically to my left i have alan davidson, formerly the director of public policy at google for the americas.

next to him is michelle richardson, legislative counsel at the american civil liberties union. julian sanchez, research fellow at the cato institute is further to the left, and an the end anchoring the table is my fellow outside counsel, mike vatis who formerly worked in the department of justice. so as i said, we're going to do a little stage setting to be able to talk about these issues and try to be facile with the information. and i'm going to give a brief overview based on public accounts and recent testimony. so this is an overview of the facts as we currently know them related to two programs that recently became public related to the national security agency's access to private sector information. this will help us inform and define the rest of the discussion and the panel. first, what is the national security agency, and why was it getting the records? the nsa is an agency within the department of defense tasked with collecting signals intelligence and advancing the cybersecurity of military

systems. its technical and legal authorities have expanded over the decades to advance its defense, foreign intelligence and counterintelligence missions and in the past operated primarily outside the united states. the discussions we are -- the programs we are discussing today, however, direct the content and metadata directly to the nsa after the department of justice or the fbi obtained fisa court orders to compel corporate cooperation and production of documents. in this capacity, nsa is operating as a technical service provider of so sorts, receivinge information directly but on behalf of the fbi and analyzing the information under the fbi's own jurisdictional activities. the foreign information surveillance act or fisa act is a 1978 law that's been modified several times. it was designed for procedures for electronic surveillance and collection of foreign intelligence information between foreign powers, agents of foreign powers as well as information related to terrorism

activities since september 11th. the original act was created to provide judicial and congressional oversight on covert intelligence activities. the fisa court is made up of 11 federal judges who have been appointed by the chief justice to serve seven-year terms. only one party appears with the department of justice presenting the evidence for the need of the materials requested. so let's briefly talk about the two programs. first, the question about business records, also known as section 215 of the usa patriot act. the usa patriot act has a division for the production of business records from companies. to the fbi for terrorism or counterintelligence purposes. business records are defined as any tangible thing. since approximately 2007, the fisa court has allegedly been issuing quarterly orders to telecommunication companies to have them produce to the nsa on behalf of the fbi, quote: all

call records or telephony data created by, in this case verizon according to the leaked order, for communications between the united states and abroad or wholly within the united states including local telephone calls. the quarterly orders appear to commence on the date of the the issuance of the fisa order and run approximately 90 days. if citizen the leaked order is indicative of the overall process. according to doj's testimony earlier this week, the leaked order is just one of two orders to be read together. the second order details what the fb with i can and cannot do with the underlying information including restrictions on accessing the information without some articulable suspicion. nsa and doj have also testified about limiting use and access of this data, and some of those internal plead yours were disclosed by the guardian yesterday. telephony data in this instance is the number that was dialed from, the number that was dialed to, the date and the length of the time of the call.

in 2009 the fbi received 21 business record fisa court orders and 96 in 2010 according to doj testimony. now, prism and the section 702 of the fisa amendments act, section 702 of 2008 is designed to facilitate the acquisition of foreign intelligence information concerning non-u.s. persons located outside the united states. it cannot be used to intentionally target any u.s. citizen, any other u.s. person, anyone located within the united states. but communications with u.s. persons may be accessed as a result of targeting a non-u.s. person. the fisa court issues section 702 orders to communications companies and online companies such as google, facebook and yahoo!. the initial news story called the program prism and indicated there was direct access to the private company's user profiles. as i understand it, that has been corrected. it appears the online company

received fisa court orders for communications, although how the data is accessed by the nsa is not clearly define canned. it can include requests for content and communications. for every formal request the government makes, intelligence officers are able to add the names and additional search queries to that request for up to one year later. for all fisa court 0erds, companies are prohibits from disclosing the fact that they received a fisa court order or the scope of the production. this week google went to seek permission to explicitly seek how many fisa orders to which it has responded every year. nsa general alexander testified that the use of these programs stopped 50 terrorist events. 40 terrorist events using section 702 and ten due to business records information. and follow-up questioning, general alexander said in approximately 20 overseas cases the 702 information was, quote, essential. he did not have in number on the

percentage of central intelligence coming out of the metadata information. sorry, that was very long, but i thought i'd get some stage setting so everyone would be operating on the same acronyms and terms as we go through this rapid pace be questioning. so i'm going to start and open it up to the panel and is ask them a broad, overarching question. what are your overall observations about these programs that have been recently disclosed, and do you distinguish the two 3r578s from a legal or policy perspective? and we'll start with alan. >> great, thank you. to, mary ellen, and thank you for having me here today. it's important to have a quick word of context to start off. american companies have been, have for years received many, many requests, legitimate requests from government to produce data. internet and telecommunications companies specifically operate under very strict rules set forth by congress that explain

how they comply with those requests, and they get thousands of them every year. the large companies get thousands of these requests every year. so google has had a transparency report for a while. last year in 2012 received 42,000 law enforcement requests, actually not including the kinds of requests that we are talking about today. microsoft recently put out a report in march, they got over 75,000 requests in 2012 for 137,000 different user accounts. i say all this because this is something that's been going on for a while in terms of producing information for government, and it's something that companies take extremely seriously. you know, i can say from experience that companies actually, larger companies have whole teams of people who are dedicated doing nothing but producing information from government requests. and they work 24/7, they work on weekends and holidays to be able to comply quickly when there's an important investigation going on. and so the question here for us

is not whether government is going to get access or should get is's to data -- access to data, to e-mails, to the contents of conversations to telephone calls when it needs to. i think that has been asked and answered. the question, and this is an important question for congressional staff and for congress, is what are the rules going to be, okay? what standards apply? when should companies be required to turn this information over? and that's the question that has been raised squarely by these two programs. just to highlight, i think, two particular things about the programs that mary ellen introduced, i think the first -- well, i should say, actually, you know, the standards actually make a very big difference because there are big differences, i think, between -- in the ways that these standards operate. most americans tend to think about like producing a warrant, like they see -- producing information like searching a home like you see on television, right? somebody goes through a judge, gets a warrant, shows probable cause, knock on the door, tells

you that they're going to search your home. we're talking about something very different here where the rules might actually be based on not probable cause but mere relevance to an ongoing national security investigation. the discussion with the judge happens ex parte, it happens in secret. the production might never be revealed. those differences are, ultimately, very important. and i think that's what is sprepsing about these two different kind of revelations that we've had over the last two weeks. the first thing is that i think in the context of the verizon order, the disclosure about what telecommunications companies are providing, i think really what was amazing to a lot of people was the breadth of that order and the fact that it's happening without a lot of particularity to particular phone calls or particular phone numbers but, actually, the collection of this breadth of information. the second ting that i think that is worth highlighting is in the context of the prism program as mary ellen talked about. what appears to be the apparent ease of access to content.

particularly potentially around domestic companies producing this information and the question of when is it being produced with these lower standards in secret about u.s., potentially about u.s. nationals and about people around the world. and so i think that taken together what is difficult and the question that gets raised is are the rules that we have in place protective enough of privacy? and i would say it's not just a civil liberties issue, it's a business issue for american companies which is why you're hearing so much from company today about this. it's a business issue because if people don't trust these services, they're not actually going to use them. that will not be good for american wiz, but it -- american business, but it will also not be good for the government's ability in the future. so those are the big issues that get raised. >> thank you, alan. michelle? >> thanks, mary ellen.

as a general overview, of course, we're very disappointed to see that these tools are being used to collect information on everyday americans. over the last decade or so the government has asserted that it could be trusted to use the patriot act and the fisa amendments act judiciously, that it wasn't targeting americans, and this was about people overseas who don't have fourth amendment rights. and it wasn't about you and me. and with the leaks from the guardian, we now know that is not true. the phone collections program under patriot act section 215 we now know collects the phone records of everybody in america every day, and there have been statements from members of the senate intelligence community that confirm that this is going to more than verizon, and this is a regular collection program being done across the different phone companies. and we also know that the fisa amendments act is being used for bulk collection of internet data.

and while it is nominally targeted at people overseas, it is regularly collecting the communications and internet data of people inside the united states and that the government is allowed to keep and use that information for certain purposes. i think right now there are two things that congress needs to be thinking about, and one is further disclosure. this is really just the tip of the iceberg, and you need to get more information. for example, on the domestic collection programs under the patriot act is it just phone records, or is it more? because under the administration's legal theory, records are not protected by the constitution. that means e-mail records, financial data, internet information. and there were 212 of these orders last year. did some of them get that type of information? and you also need to understand the legal underpinnings better. there are secret fisa court opinions that are supposedly under review for

declassification that contain much more information about how the court came to the decision that all of our records are relevant and can be sent to the nsa every single day. and without that information it's very hard for congress to make an informed decision and have an informed debate. um, though in addition to the oversight, i think there is enough evidence now that you can go in and start amending the statutes, especially section 215 of the patriot act. that should not be used for bulk suspicionless collection of american information. that doesn't mean it can't be used to surveil terrorists and spies. that's actually the appropriate use of that tool. and we're not asking that the government stop those sorts of programs. but it should not be used to spy on everyday americans who aren't suspected of doing something wrong. >> thank you, michelle. julian? julian, can you put your mic on? >> so there are, obviously, different programs in terms of

their scope and what they do. one is indiscriminate collection of metadata. so there are different concerns raised by both of those. but i will -- it's also necessary, i think, to keep it distinct because when we talk about the you to tilt of them, it is certainly con sue bl that one might be useful and on balance, you know, justifiable with certain limitations and the other not. and so we should discuss them separately so that we can do that cost benefit analysis independently. i will say that they are similar in that they both appear to represent elements in a trend i think we've expected or suspected has been going on in the fisa court since 9/11 which has an increasing shift from restrictions on the front end on collection, that is to say up front restrictions on what can be acquired to back end restrictions where you have very broad access, and it's analysts

themselves who have the discretion to select which things are going to be queried for search, which particular selectors will be entered to pull up particular phone records or e-mail contents. and then various back end procedures sort of counted on to prevent that from being misused. i think that's, frankly, a dangerous shift in a way that is the fourth amendment was supposed to prevent. it was centrally about moving discretion in searches from executive agents to neutral magistrates. and so, you know, instead of letting the agent decide which homes to search and having some kind of back end review to make sure that they weren't indiscriminately searching too many homes, you would say, no, you actually need an up front warrant for each particular home you're going to search. and so the move away from that especially given the scale of

the surveillance which i think makes any kind of meaningful oversight really more sort of a chimera than a reality as evidenced by the fact that what they really are forced to do is kind of statistical sampling of queries to determine their validity, you know, it should not be with sufficiently reassuring to make us comfortable with this larger scale shift from front end to back end restrictions. you know, once you've got data, you've got the data. and the back end restrictions on what you do with it last only until you decide to change them, and the record so far suggests we won't necessarily know if they decide to change them. >> mike? >> well, as everybody has said so far, the two programs are very different. so i just want to make a couple of points about each and try not

to feel whiplashed when you hear me talk, because you'll hear me at some times sound like a civil libertarian and sometimes sound like a former law enforcement person, and i'm both, and i have both perspectives, and i think that's not inconsistent. so bear with me. with regard to prism which involves the collection of so-called foreign communications where the target of the acquisition is supposed to be a non-u.s. person located abroad. key point to remember there, one is what we've learned about the way that activity is being conducted. it's completely consistent with the terms of the statute. and i don't think anyone can seriously argue that it's not. if you read the statute, it's 50us1881a. everything that's been described you can see is, jibes with the statute. the one thing that's not, i think, so clear is the way it's

been described by government officials, because you hear nsa officials in particular describe the collection of u.s. person as incidental which at the u.s. is a -- at the nsa is a term of art. it means accidental, minor, you can intentional. nsa means incidental when a u.s. person is not the target. but they could very intentionally be collecting information about a u.s. person, and the examples that officials have given to justify the program pretty much prove that, you know? they cite the zazi case, for instance, in which they were targeting a person abroad and then learned of communications between that person and successor azi in -- zazi in colorado, right? so they're clearly looking for ties between foreign terrorists and terrorist cells in the united states. that's one of the main purposes. that's what we want them to be

doing. but the collection of information about zazi is hardly incidental in the way most people would use that term, so i think it's important when you hear terms like that being thrown around in hearings to be a little more skeptical and understand what incidental means. and if you look at the minimization and targeting procedures that were leaked this morning or last night in "the washington post" and the guardian, even though you're probably not supposed to read those things since they're classified and the executive branch will tell you you're still not supposed to read them, so just read the articles. [laughter] you know, it's clear they're meant to collect information about u.s. persons as long as the u.s. person is not toes tense bl target. and once they collect that information, they can retain it, they can disseminate it if it has foreign intelligence value, if it relates to a crime, if it can be added to a technical database whatever that means. so there are lots of thrsed ways -- authorized ways to retain and use the information about u.s. persons.

so those are my two points about prism. section 215, you know, it's been described as a dragnet that's collecting all of the information about every phone call in the united states. that's, that's apparently accurate. i don't think it's necessarily accurate to say that it involves spying on all americans, because what's being collected is simply phone numbers and some other technical information. not your name, not the content of the communications, but all of the phone numbers so that nsa can analyze connections, so they can see what phone numbers are known terrorriveses calling or being called by whether inside the u.s. or outside the u.s. once they determine that a phone number needs to be looked at more carefully, then they'll go get a regular fisa order which involves going to a judge and getting authorization to do that. so to me, that program is a lot less worrisome than it is to

other people, because it is confined to, essentially, phone numbers and other technical data. and there are procedures in place. and on a final note for both programs, and i think this jibes with what alan was saying earlier, really the important thing here is are, the important things are the minimization procedures and the targeting procedures because that is where, what it all boils down to. exactly what are the rules regarding how the government gets this information and how it may use it. if you're satisfied that those things are sufficiently protective, then i think you'll be more comforted with these programs. if you don't think that those are sufficiently rigorous, then you'll be discomforted. and so, you know, we'll talk about oversight in a little bit. but to me, a key key is can you have meaningful oversight when so few people have access to them so they're left wondering

what are the procedures. now that they've been leaked, that's a bit of a moot point. >> thank you, mike, and thanks to the panelists. i mean, that's a great segway because one of the themes that came up with michelle and julian and you ended on was the question of oversight. so during the public hearing of the house intelligence committee, both doj and nsa discussed the oversight elements for both the business records 215 as well as prism section 702, collection and use of information. we have had them leaked, but i thought maybe, mike, we'd start with you. kind of talk about those oversight elements and do you think they're adequate as currently constructed, and then i'll turn that question to the rest of the panel. thanks. >> again, i'll start with prism. no, actually, this time let me start with 215. 215 has two essential oversight mechanisms. the first is it has to be, a 215 order has to be approved by a federal judge. and so the department of justice

will present an application to the court explaining what the basis for the order is, and the court has to grant the order. and so that should give you, you know, some comfort there. and as julian was saying, you know, that's sort of the ark typical vision of the fourth amendment, that you have a neutral magistrate making a pass at what the executive branch wants to do. the problem with that model when it comes to 215 orders is that the government has a very broad definition of investigation. and, remember, the basis for a 215 order is that the information has to be relevant to an authorized investigation. when most people read that in the statute, they'll say, okay, you know, the government's investigating joe blow, and so they want to collect data relevant to joe blow somehow. that's clearly not the way this is working if the government's

collecting all phone records of everybody in the united states. so they're using an expansive definition of investigation. if you say, you know, we're investigating terrorism and that's the definition of investigation, that's the scope of the investigation, then the role of the judges is really pretty minor. he or she is signing signature, and that's about it. there's not much more that the judge is doing. the second oversight mechanism is congressional oversight. and i think there are serious questions about whether congressional oversight is adequate. it's really just the house and senate intelligence committees that typically engage in oversight of intelligence activities. everything's highly classified, and, you know, there's not a lot of history of pushback that leads to the executive branch changing anything. and so, you know, again, unless there's broader involvement by congress, there's a serious question about whether oversight

is adequate. 215's a very different animal because there you don't have a federal judge authorizing a particular surveillance order. instead, the attorney general and the direct every of national intelligence -- director of national intelligence can make these directions, give orders to service providers directly. the only role of the fisa court is in advance to review the general procedures, the minimization and targeting procedures, give the okay and then for a year the ag and the dni can issue orders directly to companies. and so there, too, the role of the judge is greatly reduced from what it is in the traditional model in either criminal surveillance or traditional fisa surveillance. and the second oversight mechanism there, too, is congressional oversight, and the same points i made earlier apply. >> mike, that's really helpful. first we're going to go to michelle, and then julian and

alan. we'll all try to be brief by brilliant. >> yes, very brief. just two points. one about the court oversight here. it's important to remember that this is not an adversarial process. no one is representing the enters of the people whose records are collected. thes just the government before a secret court, and no one is representing the other side. it's also important to note that these are prommatic orders. they don't have names or accounts on them. the court isn't making individualized decisions about who is going to be spied upon. that is left to the administration to decide later. both under section 215, the domestic phone record collection program, and the fisa amendments act. and this is an area of law that has not been litigated. it has not been decided by public courts. and we really do not know what they're doing. we have statements for members of congress confirming there are court opinions that interpret our rights under the fourth

amendment about what the government is allowed to collect and how they're allowed to use it. and that is untenable. these decisions have to be brought out into the light, and that's where i'll just end on the second point of congress' role. so far congress has allowed the intelligence committees to do secret oversight of secret programs allowed under secret court orders, and it has led to the collection of every american's phone calls. this cannot continue. we need to pull this information out into the public sphere so the rank and file members can understand what they've authorized, so the public can understand how the government spies on them, and people can make an informed decision about whether these programs should continue. but secret oversight is not working, and from the information that's been leaked oaf the last couple of weeks -- over the last couple of weeks, it's pretty clear some of the information has unnecessarily been kept secret and that their bosses with your advice need to make some very strong decisions here about what's appropriation.

>> thanks, michelle. julian? >> so on congressional oversight i'll just say there's an enter e excellent book called identity eyes on spies," it's worth a look. it's short, you can read it in an amp and sums up, i think, the conclusion of most of the academic lightture looking at intelligence -- literature looking at intelligence which is it's pretty feeble. i know there are members of the intelligence committee that continually assure us that congressional oversight of intelligence is rigorous and very effective, but that is not really the conclusion of any other observer who's seriously studied it. with respect to court oversight, one point to make is the way these statutes are framed, very often the court has fairly limited discretion to reject orders that are formally correct, that is, you know, if the application has certain formal elements and certifications, the court has pretty limited discretion in denying that order. and also more generally there's a concept t in public choice

herely called regulatory capture. the idea here is that a regulatory agency that works very closely with a particular regulated industry will often get captured by that industry, in effect the regulation will become not a way of checking the industry, but a form of serving its interest because that's who the regulators are spending most of their time talking to. i think there's a lot of evidence the suggest that something similar may have happened with the fisa court which, again, is meeting in secret with one side kind of, you know, continuously. one tidbit of evidence here, right, is that we know initially the kind of bulk metadata surveillance that we have seen disclosed in these orders was done just according to presidential directive without court order. and so you ask, well, why if the court can do this and this is all legal under the patriot act would you not just have gone that route from the beginning? and i think the answer seems to be pretty clearly no one, in fact, thought initially that the

patriot act had authorized this kind of bulk collection, broad as it was. but once that was underway and had been going on for a while, the court was able to be sort of brought around into signing off on that even though no one had initially imagined it was, um, something that was within their power to authorize. >> alan? >> just quickly, i'd say that transparency is going to be a key to oversight both on the part of congress and on the public. two quick things. the first is that, you know, the role of secrecy here. a peculiar feature of the statutory provisions we're talking about is that the recipients of orders are not permitted to even disclose that they've received the orders. that is an unusual provision in our framework, and it's made it very hard for people to talk about even just the number in ago regate of order -- aggregate of orders that are being

received. so a lot can be done in addition to the problems of just how the court operates, just understanding the sheer number of these and how these statutes are being used. a second is that there really is a lot of ambiguity about how you interpret this. mike talked about, you know, these issues about what's relevant, what's an investigation. you know, it's sort of understood that often the companies receiving these orders will enter into a negotiation of sorts with law enforcement about the breadth of the order that they've received. and there have been a few relative public, somewhat public cases of this. google did this in 2006 and ultimately appealed an order to produce two months' worth of search data which would have been billions and billions of records. a judge ultimately narrowed it significantly. but it just goes to show that there's a lot of ambiguity about how these statutes are supposed to operate. and it shouldn't rely on negotiation by private actors with the government. there should be a hot more clarity, and so that's why the

low-hanging fruit for congress is more transparency about how the court is working and even just the number of orders. that would help a lot. >> thanks, alan. in my role as foreman, i'm going to take my own objective to raise a few other elements. i completely concur on the role of the house and senate intelligence committees and the concept of a church -- of a capture. i don't think this is what frank church envisioned when he works on intelligence reform. and i would point out the judiciary committees actually have the authority to oversee the civil liberties issues of these acts, so i want to highlight that because that's something that's not addressed. i now want to go to the deputy attorney general's comments in front of the house intelligence committee earlier this week where he said there's lots of internal judicial -- justice oversight, internal oversight within the department of justice. well, the oversight body in the department of justice for these programs is the national security division. and the national security division have many very strong,

skilled, capable lawyers. but the concept of having an objective review of whether or not this is necessary, i find to be a weak link, and i don't know that there could be the objective oversight. i also would like to note that the department of justice has a role about privacy and civil liberties officer, and that role has been vacant since august, and it was noteworthy that the deputy attorney general did not note that the privacy and civil liberties officer was part of the review because then the obvious question is, well, who is the privacy and civil liberties officer? so i would just have those observations on oversight. and now we're going to turn to our next question which is this is about the business record orders or 215. so the president defended the business record orders approach by stating, quote: nobody is listening to your calls and that the information collected is only metadata. about the calls placed, the duration of calls and so on. does this comfort you, fellow

panelists, or does it matter in your legal analysis of the program? and we'll start with michelle. >> um, records are incredibly sensitive, and the idea that because it's not the content of the communication is of no comfort. the government, in fact, wouldn't want them so bad, right? if they didn't have incredibly rich, telling data in them. and you could just think about it, right? if you look at a phone record, you actually learn quite a lot about who you associate with, where you go, perhaps you're calling a cancer doctor or a lawyer who specializes in divorce. you can learn a lot, whether a congressman is calling his scheduler at three in the afternoon or three in the morning, right? there's a lot you can draw from this information even though it's not the content of a communication, and it needs to be protected. of course, the administration

points back to old case law developed in the '70s, saying that because there are records, there is no forty amendment protection. -- fourth amendment protection. i think a lot of us think when this is eventually revisited, that decision will come down differently. these records now whether thai phone or internet or e-mail are much more revealing than they used to be, and the way we live our lives are very different. and if you participate in modern society, doing just everyday things, these records really reflect a lot about your life, and they need to receive heightened protection. we can't dismiss this as a very minor intrusion. >> fellow panelists? julian? >> i'll just note that someone on twitter made the observation that given the power of big data and analytic tools, the only time it ever makes sense to say just metadata is a star trek convention. [laughter] >> mike. >> i would say while i don't disagree with any of the points that michelle and julian made, i am comforted by the fact that collection doesn't involve

content, was i -- because i think there is a difference between the government knowing what numbers i've called and the government knowing the content of those communications. i think there is a real difference. even though you can make determinations about a person based on whom he or she is calling. but the greater comfort, i think, comes from what the rules are regarding how the government uses the information. and, again, that comes back to the internal procedures. so if there are, in fact, rigorous procedures in place that say the government will not look at a u.s. person, you know, me or you unless there is reason to believe that you are somehow, you know, engaged in clandestine intelligence activities -- ie, spying or terrorism d you know, and if they do have have suspicion, then they need to get a court order, then i don't have a problem with that. and i think when you think long term about how much destructive

power an individual can have now and is going to have even more of as technology advances, there's got to be a way to keep track of individuals better than we do now. and it's a scary thought, and it's a thought no one really wants to confront. but this is an issue that's going to keep coming up and keep coming up. and when, you know, in the worst case scenario when an individual brings a suitcase nuke, you know, onto wall street and detonates it, the questions are going to be, well, the government had this technical capability to keep track of people but didn't use it. why? and that will be the scandal. so the pendulum is always going to swing back and forth, and that's why i think it's a better idea to examine these issues and come up with a, you know, a democratically-agreed to set of procedures now rather than after an incident when the situation will be far worse from the civil liberties perspective. >> i would just add really

quickly, first, i think many people would agree that there is a difference appropriately between the contents of communications and other kind of data about communications. i think we just need to recognize, also, that there is a big trend here to create more and more of this metadata. there's a lot happening in the commercial sector in the field of big data, creation of more and more data about us. and i think there are these hard questions about what happens about the collection of metadata at scale particularly. and how that information is going to be used. and it comes back to this question of transparency, because there are a lot of protections one could imagine not just in terms of targeting, but also in terms of how long is this information kept? are there good audit logs about how it's going to be used? how do we protect against mission creep, you know? the fact it might be used for other purposes. there's a lot of good work in terms of the accountability of systems, a lot of good technical work. it's very hard to know without having more transparency about how these systems owner, and

that's what would help people be able to trust them. >> and just to end this portion of the conversation, my reaction to that is the collection first concept of collecting all this metadata is, i think, a troubling trend to go and say, well, it may be useful someday. well, i may buy size 2 suits some day. it may never happen, but at the same time i'm going to hold on to those suits for five years. i do also want to note that the orders, the fact that the orders appear to be prospective in nature, that they go quarterly from commenting on say, for example, june 1st and the phone call we had yesterday to coordinate this thing was not a tangible thing at the time the order was signed i find to be a stretch of a legal argument. so with that said, we're going to turn to a slightly, slightly different point which is let's talk about the justification and has it really solved those nuclear bombs could be on wall street -- down on wall street. and general alexander, as i said earlier, stated that 50

terrorist events were stopped due to these programs. does that factor into your assessment, and if so, want the smaller number of the essential nature of 20 foreign terrorist events but no specifics on the essential nature of the effect of the business records information in and, julian. >> as a very brief coda to that last decision, discussion, we have been talking about phone records, not really internet metadata. it's not clear to what extent that continues. the distinction between content and metadata is not nearly as sharp when you're talking about what web site, for example, a person is visiting. that is effectively, you know, a description of the content they're accessing. in terms of the specific, you know, discussion of terror events, whatever that means, that have been disrupted, i just want as background here one of the very first inspector general reports on section 215 notes that the first use of 215 after, basically, went unused for

several years was because a director had said, you know, congress is going to be reviewing our use of 215 soon, and why would they reauthorize it if we haven't used it? we'd better start using it so we've got something to show for it. i don't think that's, you know, nefarious exactly, but it does suggest that there's perhaps motivated reasoning in play because there's a desire not to use authorities that may be useful at some point in the future whether or not that's been the case so far. so disclosures from nsa and fbi should be, perhaps, seen in that light. as we look at the specific cases described in hearings earlier this week, i think what we see is that, um, what at first seems like some fairly dramatic claims, dozens of terror plots being foiled, looks a lot less dramatic under closer scrutiny. so first, if you separate out

prism and 702 from 215, you say, well, actually 40 of these terror events -- again, whatever that is -- were overseas, so those may have involved prism or at least half of them may have involved prism in some significant way, and then you've got 10 or 12 that are domestic. and then when you start looking at exactly what that means, you say how many of those was 215 actually used specifically just metadata program? and it says, well, the majority, we believe. so, okay, six or seven? and then what are those cases? well, the cases they describe one involved finding someone who had been donating money to she babb, the ethiopian terror group and, of course, you know, absolutely find and prosecute those people. but that's not exactly a terror plot foiled, and it's not clear in that case why the same thing could not have been achieved using traditional tools like subpoenas and targeted pen registers and records orders.

najibullah zazi who appears to have been identified through a link to a known terrorist e-mail address already being monitored, again, not clear why a more targeted use of that would not have been possible. there was this other case involving a supposed plot to bomb the new york stock exchange. was it a serious plot? deputy director sean joyce or the fbi says, well, they were all convicted. as it turns out, there was no jury trial, they were not convicted of plotting terrorism. these were people who are convicted again of material support for a terrorist organization meaning, again, assistance, money and the new york stock exchange plot part of it appears to have involved the fact that the u.s. person involved in this case sort of scoped out several tourist targets, didn't provide very useful information, and it appears to have been abandoned. the u.s. attorney who worked that case said there was no specific plot.

so i think we should treat with some skepticism if these are the show piece cases they're bringing up to justify the bulk collection of all americans' phone and possibly internet records, it's not clear that that is a justification that passes that cost benefit test. look, if you have general warrants to search any suspected place, any home then, yes, it turns out when you are investigating crimes the thing that you used that will be helpful in solving those crimes was the general warrant. if instead as we have you have a system where warrants are specific and based on probable cause, that is what will end up when you look back having been useful in solving crimes. the question is the but for question. what are the instances in which only this broad authority and not traditional and more targeted authorities will do the job? there are types of analysis where you do, in fact, need the entire, you know, the entire body of records to do

fingerprinting of various kinds or pattern analysis, but the cases we've heard about are not cases like that. they're not really justifications of this program. they're justifications of the idea that phone records should sometimes be obtained which nobody has ever contested. >> other colleagues want to talk about this? >> i fully agree with juliana the cases -- julian that the cases aren't what they're made out to be, and i think despite the way general alexander characterized the numbers, i think when you dig down into it and you also look at director mueller's testimony, there's really only one case that they talk about where 215 collection was instrumental, and that is the case of the fella who gave, i think it was $8,000 or $800 to al-shabaab. and the other uses, yes, they used 215. it was relevant to an investigation, but there's no suggestion that it was instrumental or that it thwarted a terrorist attack. so i think that's important to really probe. that's something congress and

the intelligence committees in particular should really probe, you know, what role did these programs really play? one other point i want to make about prism is that, you know, the sort of collection that prism engages in is the sort of collection that nsa could do outside of the united states with no court order whatsoever. i mean, that's its raison d'etre, to collect foreign intelligence outside the united states. the whole reason that prism was established and fisa was amended through section 702 was because today so many international communications pass through the united states because of the way the internet is designed. and so for nsa to collect that information, it's much easier for them to do it here in the u.s. by basically wiretapping the major providers that are in the united states and the backbone providers in the united states rather than going abroad and trying to monitor everything there. so in terms of, you know, when

you think about their authority, they're not really being thrsed to collect -- authorized to collect anything more than they used to collect, they're just being authorized now to do it within the united states, and that's sort of the whole point. so, to me, that makes 702 less problematic if you're thinking about this from the 20,000-foot level, and so i think it's just important to keep that in mind. >> that's a good point, mike, thanks. michelle? >> i'll just say very quickly that i agree with everything that julian said and just highlight that right now you're being presented with a false choice. the question has become do you want to spy on terrorists or don't you? and that's not the choice you have here, right? the question is are you going to spy on the rest of us in the meantime in the hopes that you dig up something on a terrorist? and that is not good police work. there's no evidence that it works, and that violates the fourth amendment. just remember, other the last 13 years you have the patriot act, hundreds of pages of law, right?

you have the creation of the department of homeland security -- >> hey. >> intelligence reform. [laughter] >> [inaudible] >> no. but in the grand scheme of things, complete intelligence reform and the creation of the dni, then the patriot reauthorization again, then the fisa amendments act. the rewrite of the fbi guidelines, the executive order for intelligence collection. we're talking about one little program here and one tiny little piece out of continual expansion of many programs through many agencies, and all those tools are still available even if you stop spying on americans' phone records. so don't think of this as spying or not spying, but whether you're going to include americans in these sorts of programs. >> thanks, michelle. um, we're going to end up with kind of an overview, you know, of course, as you know one of the goals as roger said of the congressional internet caucus is to address issues that may

address or affect the growth of the internet. so, panelists, how do you think the disclosure of these two programs will affect, first, the nine named companies and the internet economy overall? and again in my role as a foreman, i'm going to use a little discretion and just talk -- i have three points that i want to highlight. one, having gone to 20e.u. member states to talk about government information sharing in my role as the u.s. department of homeland security's chief privacy officer where i said, oh, don't worry, business record rules are only used 21 times in 2009 and 9 of times in 2010, i'm going the tell you the relationships with the european union and with the european commission are likel irreparably damaged. i used to say, believe me, don't worry. they say you lied to us about guantanamo and rendition. so now they've got a third one in there. so i think our relations with the european commission, particularly the non-national security portion of it is going

to be a problem. and candidly, our relationship with european citizens is going to be a problem. i also think that the concept of in government and the concept of transparency has been harmed and that particularly the nine named companies, but at the same time the other elements, the other companies who are operating in the space will have a cloud over their heads of saying, well, are you participating in this, how much are you giving, what is the access? it seems to be awfully clear. so i think the point on transparency that has been a theme among my panelists is going to have to be an element that we've got to develop because to affect the internet economy, you know, something in privacy i call it thetic factor. you can't define it, but people go ick. and i fear that may color the private sector economy as well as the government use of this data. alan? >> well, i think this is about more than just nine companies, but it does, i think there is a

real potential impact on the broader internet and communications economy. and i think we know that people don't want to use services if they don't trust them. and this has been, i think, the last two weeks have not been good for trust with the major u.s. internet and telecommunications companies which is partly why you're hearing so much from them about why they're actually trying to, in their eyes, really protect user privacy. you know, direct or muller -- director mueller actually talked about this from a different point of view, he was saying the disclosure of these tools out there is actually going the drive people away from the u.s. services, and that's a damaging thing. i would say that is a damaging thing, but it's the existence of the service and the be lack of oversight and the lack of transparency about them that's going to drive people away. and we know that people will -- we know that people have choices out there. this will embolden the competitors of these services

who are abroad. this will drive people, these kinds of revelations -- especially if we don't really address how limited in scope they are, what the rules are, they drive people to use other tools. they'll drive people to send their traffic other places besides the united states. they'll drive people to use encryption tools or other kinds of tools to protect the information so that it can't be surveilled. and that, actually, is damaging to industry of course. but ultimately, i would argue it's damaging to our ability to conduct the kinds of surveillance that's really important. so oversight and transparency are actually, they are good for our ability ultimately to do this kind of surveillance, to give law enforcement the kinds of tools that we want them to have. so i would just say it is a false choice. we want, we want our government to have the tools at its disposal, but we want them to be careful rules. and we can do that with good rules and with good tools. but you've got to be able to talk. you've got to be able to have a real conversation about how are

the, how are these capabilities being used, have we built the systems in such a way that they're going to protect privacy over time? and i think, ultimately, it's oversight and tran parent si is the -- transparency is the key to having that conversation. >> thank you, alan. michelle? >> um, i guess this is hopefully just the beginning of a disclosure process that will continue and will release more information about what information the government is collecting and how it's being used. there's still, actually, a lot of questions left that we hope that you and your bosses will pursue so you can make informed decisions about the value of these tools. this information will continue to be created by these companies. we will continue to use it. right now it does not seem we have any option of whether we share that information with the

government, and really the answer is going to lie with you as i can't congress. it's incredibly clear that the administration will continue these programs without any limitation, that the court will sign off on them and that if there's going to be more oversight or more judicious use of them, it is going to have to come from direction from you guys. >> thanks, michelle. julian. >> i think alan alluded to this, but the fact that such an enormous percentage of global telecommunications traffic flows through the united states is not a fact of nature. it is a contingent fact that will remain true until other countries decide that the cheapest path for a packet is too costly in other terms. and the fact that we're having this domestic debate in these terms where the assurances were given are, you know, don't worry, we have these rigorous checks and minimization procedures which, i mean, probably most of you can't look at them even on the guardian

site, but there are some loopholes in them. we're assured we have all these minimization procedures, it's only people outside the u.s. who can be indiscriminately spied on at analysts' discretion. that does not play overseas as well perhaps as it does in the united states. >> well, it's no fun in everybody agrees, so i'm going the disagree -- [laughter] >> thunk, mike. >> just for the sake of being devil's advocate. in terms of the harm from these programs to our foreign relations and things like that and trust, let me just go through a few categories and say i don't think the harm's going to be that great except for one category. with regard to the europeans, of course they're going to complain. they always complain. but note that the complaints are principally coming from e.u. officials in buzz else. they're not coming -- brussels. they're not coming from the presidents or prime ministers of member states. why? because they get intelligence from us about terror plots in their countries. if you read the articles about the president's meeting with

angela merkel, you know, she had to make a sour face about these things, but, of course, she acknowledged that they get tremendous assistance. so i don't think for all the strum and drum that there's going to be much lasting effect on our relations with the europeans just as there weren't with previous revelations of u.s. intelligence programs. with regard to the nine companies, i don't think there's really going to be lasting damage. even short-term damage to these companies. how many people do you think stopped using gmail or yahoo! or any of the other services that are, you know, that were let'sed as being she -- listed as being recipients of demands for information under 702? very few. and if you want to protect your privacy, you can still use those while using other software, encryption software and other things to protect your confidential communications if you want. there's really very little choice. and the other aspect is, you know, we entrust our most intimate details to google, yahoo!, facebook, and that information is minded so that we

can -- mined so that we can be served advertisements. it's shared with other companies that we have no idea about. and so, you know, we chose those companies to deal with that information, and so i don't see, you know, a huge diminution of trust because the government pursuant to statute is getting that information for counterterrorism and counterintelligence purposes. damage to our intelligence capabilities, which is what, you know, the government officials have been citing. yes, i think there's damage in the short term now that the details of these programs have been revealed. i don't think there's going to be great damage long term because, again, you know, our adversaries have to communicate. and, you know, they may spend 90% of their communications they may take efforts to avoid you are vail lance, but 10% of the time they're going to slip up for the sake of convenience, or they'll just forget. i mean, this is why wiretaps are still useful against organized crime. they know they're being watched, investigated, but they'll still make that phone call which becomes crucial to the government's case.

so there will be some damage but not a lot long term. the damage that i see is to, you know, our open society and democracy. if so few people in the legislative branch really understand that these programs exist and very few, fewer still know the details of these things, that's a problem because that means the executive branch isfectively -- is effectively running the show with very little real oversight. and that's exacerbated by the fact that the president determines what's classified, and congress has to obey or thinks it has to obey those rules about what's classified, what can be shared and things like that. and i think that's an area where congress can really push back. ultimately, congress has the power of the purse. if congress doesn't know what the executive branch is doing in these activities, it can cut off funding. and then it'll get a lot more information all of a sudden. and so, you know, i think if congress wants to push back, that's ultimately what makes

congress the most powerful branch. the question is whether out wants to exert that power or not. >> mike, thanks so much, and thanks for playing the devil's advocate role. i want to thank all of my panelists up here for a lively and brief and brilliant conversation. and i do want to leave you with the question just because the information's out there, does that mean that the government should or has a right to access it? so it's a question that i think we're all going to have to struggle with. with that, i'll turn it back to roger to close out our luncheon. ..

[applause]

fcc commissioners ajit pai was one of the commissioners at a recent forum where he talked about cell phone unlocking, a process that allows consumers to use their phones with a different carrier. other speakers discussed the future of copyright law and why changing technologies. the event was cohosted by techfreedom and the competitive enterprise institute. it's about an hour, 25 minutes. [inaudible conversations] >> thank you all for coming. i am berin szoko the present of tech read them. this is the first event we have had in our new space and probably the first time many of

you have been in this building. past this building for years and had no idea what it was. an architectural treasure built in 1923 preserved in all its historic forms and methodist church is kind enough to lease the building out to non-profits like techfreedom. we are the first, this will surprise you, the first technology policy think-tank tastier at the methodist church and we are looking forward to talking about technology with other organizations who are trying to change the world in their own way. this is also the first time we have had c-span covered techfreedom a bend so i'm delighted to have them here. it's her first time with commissioner pai who i'm going to introduce in a moment in her first time at their new format which is a tech briefing so we handed these out over at the entrance. this is our attempt to adapt our motto which is richard epstein great philosopher of law, his slogan is simple rules for complex rule something you will hear from us a lot in the tech

racing is our attempt to do simple bullets for complex issues. so we are going to do those on a number of issues in in the future. this one attempts to cut to the heart of what unlocking -- and what you were here today. the hashtag today is unlocking so make sure to join our conversation on twitter and i will say with compliments to our methodist friends that this event space has the single best wi-fi of any event space i have ever been and in d.c.. if anybody tells you that the business broadband is inadequate i think the method is leading the way in this respect. so i will just mention another event coming up in july. it's either on july 8 or july 11. stay tuned on that past present and future of children's on line privacy protection act so stay tuned for more on that. without further ado i'm going to introduce commissioner pai and then turn it over to our distinguished panel.

commissioner pai is my favorite commissioner on the fcc now. and in general and in particular i like commissioner pai because he has realized the job of the fcc is not merely, the commissioners not merely to cover telecom policy that areas light this one on telecom policy. what you were will hear today is this is one example where government in some areas can actually reduce competition in markets that in other areas people complain about not being competitive enough so my hats off to commissioner pai for realizing that cell phone unlocking is one of those ways we can actually empower consumers to choose for themselves that might be better than some of the other regulatory proposals people have made for governing wireless. let me just ask you to turn off your cell phones and again join us on on the unlocking hashtag and on the unlocking hashtag and i will turn it over to commissioner pai and then we will introduce our panel.

>> thank you berin for that kind introduction. i really appreciate the invitation and look forward to participating in this conversation this afternoon as well as in the weeks and months to come. it's a little unusual in washington to discuss an issue where republicans, democrats and independents can find common ground. president obama and senators and representatives, fcc commissioners and the american public are reaching a consensus on a pretty simple proposition and that proposition is that consumers should be allowed to unlock their cell phones and switch wireless carriers without being labeled soft laws. should the proverbial man on the street observe we are discussing this issue how do we get to the point where a consumer can be criminally prosecuted for unlocking his cell phone? there are two aspects to that answer. one involves technology and the

other the law. first things first. most wireless carriers lock the phones that they sell so that they will only work on that carrier's network. so, if you purchase an iphone from one carrier and switch to another carrier at the end of your two year contract you can't do that unless you unlock your cell phone. unlocking requires you to access certain programming saved by punching a specific sequence of numbers on the keypad in order to allow the phone to function on another network. for those of you with refined tastes i should note that it's not like that seen in the movie wargames where matthew brodericbroderic k uses a pop top on the soda can to make a call from an unlocked payphone. it's something completely different. next enter the law specifically the digital millennium copyright act or dmca. the dmca was designed to prevent

digital piracy such as when someone distributes on the internet as song like carly rae jepsen's call made, maybe. [laughter] to do that dmca prohibits consumers from deactivating the drm software or other protections designed to prevent access to digital copyright in the work. it wasn't until about 10 years ago that anyone thought the dmca might apply when a consumer unlocked his phone but the dmca swept up cell phone unlocking through a technicality. locking of the cell phone prevents access to software in the phone such as the mobile operating system. when it is used on a new carrier's network. so if you unlock a cell phone technically you are circumventing a technological measure to use dmca's word even though no one think of unlocking

a phone is the equivalent to piracy. fortunately they contain an out for situations like this. the three year exemptions so consumers aren't subject to those dmca anticircumvention preventions and in fact in 2006 and again in 2009 that consumers could unlock their phones without fear of prosecution. but the third time wasn't the charm. last but over the library declined to extend for cell phone unlocking and as a result the consumer who unlocks his mobile device now can face a civil and criminal penalty under copyright law even if the contract in this carrier has been fulfilled. to me this is a classic case of the government solving a problem that simply doesn't exist. the free market was working just fine in this space before the decision.

for instance a bipartisan fcc report issued earlier this year found that prices in the wireless marketplace were down and that investments have gone up. similarly many manufacturers in developing innovative mobile devices consumers, all of us are reading the benefits of that. and wireless carriers certainly don't need the federal government's help. they are to have contract low rates such as early termination fees to ensure that customers live up to the terms of those contracts. and so having heavy-handed copyright penalties including hefty criminal fines marries the sledgehammer to the fly. my position is pretty simple. the relationship between wireless carriers and their customers should be governed by contract law. copyright law and certainly not criminal law. while there is broad support for overturning library's decision

and there's also an ongoing debate over the best way to accomplish this objective, i've been thinking about this issue for some months now and here is where i stand. first, i don't think that we should kick the can down the road. we should fix this problem permanently. we don't need to have this exact same debate three years from now, three years after that like an extended version of the movie groundhog day and i can assure you the case for criminalizing cell phone unlocking isn't going to get any stronger over time. second, we don't need to give the fcc any additional authority. i recognize that it's not the norm for an fcc commissioner to ask congress not to add to its power. but the fcc did not create this mess and we are not in a position to clean it up. the problem is one of copyright law and congress should fix that problem direct way. third, we shouldn't interfere with the freedom of contract.

consumers today can choose from a wide variety of providers, plans and phones so we shouldn't restrict carriers ability to offer consumers better, faster and cheaper options. fourth, we also should protect those who help consumers unlock their phones. unlocking can be as simple as dialing a code on your phone but it's often more complicated than that. i know that i certainly could not pull my phone out of my pocket and unlock the phone right now and they think others are probably in the same boat. so helping consumers exercise their right to unlock their phones should not be as crime. fifth, this debate was inspired by cell phone unlocking and the dmca actually cuts a much wider swath. the anticircumvention preventions and that law netbooks tablets pda's in virtually any mobile device. consumers shouldn't be put in

the position of migrating some of their electronics but not others from one wireless carrier to the next. so let's make sure that all wireless communications devices are included. six then finally, let's keep our focus on the neuro-issue at hand. i know that many people, maybe some in this room, favor broader reform of the copyright laws. i know that many other people oppose broader reform but i think that's a debate left for another day. right now there is wide support for removing cell phone unlocking from the copyright law so let's push that proposal across the finish line. my fear is that if it becomes entangled in more controversial issues that proposal might get stuck in the starting blocks. unfortunately doing all six of these things is uncomplicated. in fact congress could accomplish them right now with a one-page bill simply by amending

the definition of circumvention in the dmca. but that amendment would simply clarify that the definition of anti-circumvention excludes circumvention initiated by or on behalf of the wireless committees and stood by solely to connect the device to a wireless communications network. this basic fix would restore the common sense market taste approached that ruled the day until last on dover. so these are my brief 2 cents and i look forward to hearing from our distinguished panelists berin ryan jerry and larry working together more generally i hope we can and more unnecessary government intervention in the wireless marketplace and ultimately scorn important victory for american consumers. thanks again for having me. [applause] >> thanks so much for coming.

our panel of. today includes my colleagues ryan radia. cei is a co-sponsor better than today as they have been for many events in the past and i'm sure will be for many of our events in the future. to his right is chris lewis director of public relations, government relations at public knowledge which we have worked with a number of times. we don't agree on everything but as ajit said this is a rare issue where people of all stripes can agree we should get government out of the way to encourage competition. sitting to his right is of four from the marquesas center. jerry is an expert in tech policy and slightly more academic than we are over here on capitol hill and finally larry the present of this center and has been covering tech and policy for many years and is here to push back in a healthy way against the consensus here. let me actually start with

larry. larry, you've been a bit of the naysayer here so what's the deal? [laughter] >> thank you by the way berin and ryan for us to me to participate. i have an dealing with cell phone unlocking since 2007 when it first raised its head with wireless carphone. i think as i was preparing for the debate today there are really three discrete questions here we need to discuss. i think they need to be sorted parsed out to have an honest discussion. the first discussion is, that's not my phone. it's jerry's phone. the first question is, is the generic concept of handset unlocking good or bad and i think a lot of people get that confused with everything else. let's assume we just have a contract. if i give you a phone that could unlock for 650 bucks and i get

it for $200 at a subsidized rate i don't think it's unreasonable for me not to be able to unlock that phone for two years so that i'd don't run off and sell it to the third market. i want to buy an unlocked phone i can do so at full price and if i want to get a phone at the end of my contract unlocked and the carrier will do it with a locked phone so it's not really a big deal. we have actually looked at the economics of this and it turns out that because of the complementarity area of the phone in the handset what's going to end up happening and we are starting to see this is if you eliminate the ability to subsidize the price of wireless services is not going to change but by definition the price will go up so that is issue number one and also one thing about interoperability. we hear talk about i want to take my phone -- this is a gsl phone. it will not work on verizon's network or sprints network so just because i can't unlock it doesn't mean it's interoperable.

.2, now that we have the copyright's decision if you read the decision, which was done in dispassionate rulemaking, what the registrars essentially found was that given all of the amazing choices available for consumers for headsets we don't need the noncircumvention. now that raises the third it chu which is do we want to have copyright as an added enforcement against -- are very worried about the men in the black helicopters sweeping down? that is a separate issue dealing with the mca but i think we need to put all three of those questions inseparable categories to discuss each accurately. >> thanks larry and i just want to call attention to that tech reefing you have here where we try to break down again in simple bullets the difference between blocking gel breaking and routing. you will hear those terms thrown around a lot today. they are confusing. they really are fundamentally

technologically similar. they have to do with different purposes. primarily today we are talking about unlocking your phone so you can work use it on another carrier's network and to clarify that is something your carrier can do by sending a code to the phone but also something you can do by replacing the boot loader for essentially the operating system on your phone. so brian how do you respond to larry? can you give us some background here on the issue? >> shura thank you berin and techfreedom for sponsoring this event for us. this goes back to the 2006 decision by the library of congress in consultation with copyright office to exempt the unlocking of cell phones to switch carriers which was renewed in 2010. however any phone purchased after january 26, 2013 can unlawfully be unlocked because unlock because of the late 2012 decision. that is by way of brief

background. the findings of the library were among other things that carriers generally lets users unlock their phones when they have met certain conditions and that is correct. if you are a customer of the carrier in good standing after period of time not even necessarily after you have completed the entire duration of your phone you may be able to unlock that. however that is not universally the case. there are some carriers that restrict who can unlock phones. for instance some carriers only let you unlock your device if if you are a subscriber of that carrier so even if you have purchased the phone from someone else who has completed their contract the carrier may not be willing to help you unlock that device even though you lawfully owned the phone. to larry's point about preventing people who promise not to unlike baird device from doing so i think we all of me that these agreements should be enforced. a contract show provision

between subscribers and their carriers to stay on a plan for a period of time should be enforceable but the question is what should the remedy if one of the parties and the subscriber breaks that agreement? we could on the one hand of the common law style approach where we allow for what is known in contract law as an efficient breach. all we have today is a regime where if you unlock your cell phone you have not only violated the contract, you have violated the copyright act and subjected yourself to civil penalties regardless whether the decision you made was desirable. like wise if you unlock your phone willfully for financial gain you may be subject to the criminal penalties and you can't get help unlocking your device. anyone that facilitates unlock them have cell phones as themselves by living copyright act. so ago i think we agree that a customer shouldn't be able to

unlock your device in the way that breaks the contract the remedy if they do so should be the early termination fee or whatever remedies specified in the agreement. if you move overseas there's no reason you shouldn't be able to unlock your phone and pay the etf. you should not violate federal law whether it's -- >> we are in a jargon free zone here so etf is early termination fee and another big word is the anticircumvention provisions. jerry do you want to take us back to the 90s just for a moment here? i was trying to think of a clever musical reference to go along with lundy and carly reith. 1996 failed me but tell me dmca and anticircumvention, what is that about? >> well, i think it's what the commissioner was getting at with his blondie referenced. i think you have a digital file or a digital contact which after all we we are talking about copyright here and it is content

that can be copyrighted whether it is music or words or video. it's copyrighted. now it's difficult sometimes to enforce copyright when it's so easy to infringe. when everyone tells you to copy files when you have easy dissemination replication of content files on the internet. it's very easy to breach so congress did with the dmca -- dmca was to say look you can put a digital lock around your content and if somebody unlocks that lock, that is a crime. that is a violation of the law itself. so that is what the dmca is about. when it comes to cell phones it's not clear to me what is the content that is being protected. so, if you ask what some will say is the software that runs on the cell phone that is being

protected by the digital lock then you have to unlock. when americans overwhelmingly in the petition that we saw over 100,000 americans and ask for the right to unlock their cell phones they are not asking for right to unlock their cell phones in order to make copies of the firmware on their phones. they are just asking for the right to unlock in order to take it to a different carrier. that's very different from what the dmca intended to do it if i could just address something that larry brought up, i totally agree that it's good to have different choices for consumers in the market including subsidized phone options so you can have an option where you buy an unlocked phone. say an iphone is 600 or $700 if you buy it and you can take it anywhere or you can buy it for $200 or $100 if you make a promise to stay with your carrier for two years into subsidized model. but there is no reason why that

choice between subsidized and unsubsidized can't exist with simply a contract regime. there is no reason why you need the dmca. as ryan was mentioning, you make that promise and he signed that contract and you are bound for those two years, whether you unlock the phone or not. if you unlock the phone and go to another carrier let's say you are on verizon and you go to at&t verizon can still keep sending you the bill. >> verizon operates a seedy network and -- operates a gdm network. >> okay so if you move to france and you take your phone to france for eisen is going to keep sending you the bill. they don't care if you move to france. that can happen through either an efficient breach or some other manner maybe.

>> before you jump in here larry of course there were networks in the u.s. that are compatible so let's take those examples to make it simple and let's say i'm switching from at&t to t-mobile. so what is the problem? why shouldn't i be able to unlock the phone? >> prior to leaving the contract? >> yeah. let's say either/or want to end the contract and pay the early termination fee you or whatever else the penalty may be or i want to simply stay on the contract but i want to unlock the phone when i take it overseas or in the third example my contract has expired. >> i think if you were to call the subscriber and i can't speak for at&t but if i go to europe i have heard anecdote of glee if you are long-time subscriber it wouldn't be that big of a deal. if you want to pay the early termination fee and get out i don't see a problem with that. the question is, in terms of

bringing copyright one can certainly make a legitimate argument and i'm not unsympathetic to it that way are we dealing with copyright and terms of handset unlocking? to me, i don't approach it -- though there's a fix and i'm sure ajit pai is right we can put this term cell phone locking behind us. my view on cell phone locking is the copyright is incidental to the overall desire of basically getting an unlocked phone at a subsidized price and that is what this issue is all about. it doesn't have anything to do with the copyright. i think people are using copper a -- in the register came out of this copyright decision a couple of months ago people at not focused on the unlocking issue. those of us who have been doing this a long time, back in 2007 again you revisit the whole wireless card or issue. this is all about trying to get subsidized phones an and

unlocked phone and subsidized price and that is what people are very upset about. >> lets him pack that. chris is that a fair characterization? >> i think it's important to note that when the copyright office first created this in 2006 there were already entrepreneurs and individuals who are unlocking their phones and being sent notices, dmca notices that they were in violation of that time so you know i don't know that the intention was to protect a certain -- and i don't think the intention should it be to protect a certain business model was subsidized phones. that being said i find it hard to understand why the idea of unlocking a phone and having subsidized cell phone service can't be compatible together. consumers should have a choice whether or not they want to win the contract ends or they want to get out of the contract they

should be able to make that choice but there is also, there is also no reason why they can't hope to actually sell their phone or keep their phone or move it to another network. to me, this issue is really about ownership of a device and if you know, consumer should have the option to own a device in use and use the things they purchased how they like. the right to unlock doesn't change the contract rights and that is the point a lot of folks on the panel been making an effect against consumers greater choices. if the consumer for example enters a contract with at&t and they pay $200 for the iphone a year later maybe they don't like at&t's service. i'm not trying to say anything bad about at&t but the consumer has a right to change their minds at taking advantage of an

early termination fee and switching to another carrier is within their rights. under contract and also their right to -- at a device. opening up the marketplace for tools and services that allow ordinary customers to unlock their cell phones seems like common sense to most consumers when they have spent money to buy their own device. >> larry, since we have sort of stack up panel slightly against you let me jump in here and your defense. let me jump in on your defense and say i actually agree with you that there is a larger current here of people trying to turn this into a conversation about subsidization of phones and for some people and chris alluded to this, for some people this is about a broader issue like as chris said you should own your phone period and it's certainly true that in 2006, 2007, 2008 there was quite a scandal or at least quite a

controversy about the initial launch of the iphone. you're quite right in you done great research showing that actually the subsidies that launch phones are not only making phones cheaper but actually help to ensure that innovative devices like the iphone get launched in the first place and in fact contrary to the assumptions some people made it wasn't at&t that extent insisted on exclusive subsidies. it was actually a double so i'm all with you in defending exclusivity is something that is very good for consumers even though it might not seem that way. some people him may think that they would be better off buying fully unsubsidized devices. >> lets also not forget that the government in this administration has pushed very hard to get those early termination fees prorated. so this notion, 18 months pretty much zero atfs so this is a method of contract enforcement and by way of analogy it's not

really accurate. if i want to go buy a car i take the pledge, g takes the pledge of my car. the car is repossessed. no one is going to do that for a handset. you are trying to find ways to mitigate the market and we hear about individual people. what this is really about is developing the black market, taking these phones and pain be etf fees. i could construct a mathematical example where still worth it to buy the phone and pay the etf and so walk away and still these around the rest of the world which is what happens. the overall enforcement i have no problem with the fix that commissioner pai is proposing. we should not be revisiting these things because it's not worth going through this every three years. and that is why said you have to parse out the difference between the question of whether we should subsidize handsets and pay for that versus copyright enforcement which is a

completely separate issue. >> i guess i'm just curious if the contract is currently written is profitable to pay the early termination fee and resell it. first of all if you are doing that and the carrier is getting what it expects to get at a profit or however you want to define that in and the person is reselling it overseas, i don't see a problem with that. but out of curiosity why not write the contract in a way where the penalty is higher than buying an unlocked phone? that is totally done within contract and you don't need the dmca. spam trying to address the issue. >> i think what everyone on this panel i think agrees that we don't want to subvert contract law. >> absolutely, right. >> to larry's point about people that are buying phones and selling them in a way that is profitable that is a problem.

a track phone has a business model whereby they cell phones that are subsidize unlock their network. the buyers do not contractually promise to stay on the track phone however the devices are blocks of the lots of the track phone expects people will stay on the network. some resellers are buying up trac phones unlocking them and selling them. i agree this is a problem. the question however is whether we need the dmca, what do we need the dmca in this context. we certainly need the law or some aspects but if you look to the cases where trac phones -- there is a laundry list of claims on which trac phones which make the litigator happy. trademark violation unfair competition violation of the land act and so forth so if indeed this is happening companies like track phone should have remedies but i see no reason why the remedies that

exist outside of the millennium copyright act are not sufficient >> larry, do you disagree? why should legislation whether it's copyright or the sort of interference you are looking to about the administration and the fcc trying to discourage early termination fees or trying to encourage that they'd be prorated why should the government interfere with any of this? why can't s. commissioner pai said why can't wireless companies sort out whatever arrangement makes sense and terms of an early termination fee or whatever other penalty there might be under contract? >> take the world we live in now, i mean it is what it is but talking a policy perspective you're asking from some mist and -- fundamental question here. i think we have to view the debate in this.

the first question is handset unlocking a good idea or a bad idea in the second question is was the registrar's decision correct or not? under the reading reading of the law shirt is but do we want that? in the third issue and this is what i'm picking up on the panel is do we need the dmca at all and you are talking about a very very important law. you're talking about a very complex issue. i spent i father's day weekend curled up with jerry's book this weekend. i paid for it lawfully. so, these issues with the internet technology where your cost of duplication is zero we are asking the dmc road require it. that is a loaded question in and of itself as well. you have to sort of think about it because as i was leaving -- reading through your book -- >> copyright unbound. >> okay, good and what i picked up is you sort of had two schools of thought in your book

which was the first one was well, copyright isn't really a full right and the second one is it's a victimless crime and do we want to make copyright criminal at all? everybody keeps having been involved in this debate a long time, every time i get on one of these panels someone says the guys in the black holocaust are suing to swoop down and arrest my mother for unlocking her phone. what we are talking about here broadly with copyright and i think moving off the handset issue for a moment is that it is not costless. we have copyright to protect works of intellectual property and there is a lot of debate about that but to make and i use an example in the supplies slopes upward so if we don't have a way of we want more

output we need more revenue. this whole copyright debate comes back to what is the appropriate enforcement? some people say it's the cost of compliance but there are costs involved and i think that is where we need to start to focus the conversation. >> let me remind you that this is about unlocking and not about the entire copyright debate. we did have that event last year and it's up on our web site. jerry and ryan were both there and you can read jerry's book copyright imbalance if you want more information on that. copyright unbalanced, excuse me. and one might fairly say the book is a little unbalanced, fairly. certainly there are people here who believe in copyright who actually think copyright should not apply to unlocking and the larger debate about copyright should not be the issue here. before we get into the larger context of the dmca, jerry and i

apologize for the slide on your book. it's a great look. there's a lot to be said for copyrighted actually as somebody who believes in copyrighted think one of the issues that never gets talked about his copyright at the end of the day is something that works only if we all respect it and criminalizing something like cell phone unlocking even if larry is right, that it's been exaggerated exactly with the practical effect of the copyright's decision will be criminalizing copyright helps people feel an isa fill an isa system and i think it certainly helps to demonize the system that is really great for artists and content creators so again i'm somebody who thinks the library and has gone way too far here. do you want to respond to larry? >> what you mean is a presented one-sided the perspective and that is what the book was meant to do, to present one side.

you know, i don't think that the book says anywhere that i saw that copyright infringement is a victimless crime or anything of the like. i think what the book says is you do have cost and at the same time there are also costs of overregulation where you can go too far. so take for example you know, burglary. we can get rid of burglary if we have the death penalty. we don't do that however. we see a sense of proportionality proportionality because the cost to be too high and what we need to do is strike the right balance. i believe in copyright. i believe copyright is it right that should be protected but i think some cases cell phone unlocking we have gone too far so we get unintended consequences as a result. what we need is balance and that is why the book is called copyright unbalanced. maybe unlocking is one place to

start. >> chris, please. >> i'm sorry, go ahead. >> no, is going to turn over to you. >> i really agree jerry and i want to add the writer discussion of unlocking not just with handsets but devices in general is an important one for us to have and actually i think i am hopeful that the congress will have in the future as they look at broader copyright forum. the reason that is, with the world we live in was digital media and new technology we can put a technological protection measure, tpm which is discussed in the dcma. you can put t. -- tpm on just about anything these days. it really gets at what does it mean to own something in the digital age? one of the best examples out there right now is with cars. cars are pretty much computers on wheels these days and you will find tpm and your car. now if you want to change your oil and the card that you bought

and owned you should be able to do that with cars these days you have a light the toaster your oil is low and you can't sometimes you can't turn the light off unless you have the code to circumvent that lock on your car. there are a number of things now and probably a number of things in the future where we will see manufactures putting locks and tpm on devices and it's important that we look at them just as we look at cell phone unlocking right now and we see if it's worthwhile to create exemptions for them. i would say that for someone to be able to change the oil in the car that they just bought is a commonsense fix and there are others out there. so i don't think you know, we are certainly not asking that you eliminate copyright law totally. we are just asking for targeted fixes that allow you to update the law and balance the law for

technological uses. >> the larger debate about anti-circumvention. >> you can't download a car or sell them. >> you could 3-d print them. [laughter] >> but distinction is very important between expressive works that are called nonrival is where you can duplicate them at zero or minimal cost and devices where you have an agreement with the company a seller or manufacture or wireless carrier, congress needs to and i think is thinking about how to ensure antic circumvention prevention said the digital millennium copyright act go to the issue preventing the unauthorized copy reproduction of expressing works which is in many cases a real problem and seriously harmful in distinguishing that from a situation like a car or a cell phone. the house judiciary committee

under chairman goodlatte is taking a careful look

>> what does everyone else think? >> i think the answer is yes but if you look at the laws or excuse me the bills that have been introduced so far some of them do not give you that permanent fix. so just kicking, overturning the decision of the copyright office by kicking the can down the road as you said three years from now and allowing them to revisit that decision does not give us that permanent fix on the cell phone law. >> want to be sure that whatever happens a copy -- the library of congress can't simply refers whatever congress might do legislatively today? >> i would say on the cell phone locking issue itself there is

no reason when there is this sort of bipartisan consensus that we shouldn't be able to have some sort of exemption written into the dmca for mobile devices. >> including tablets? jerry? >> i agree with that except i think when you write and with all apologies to commissioners said three when you write into law wireless devices and it goes to the committee patients networks that includes definitions of what is a wireless device, what about devices that may be your car with your oil change or something. that is not a wireless device. i think representative zoe lofgren has an elegant way of doing it in her bill where she says circumvencircumven ting a lock is a crime if it is done in order to breach copyright. that make sense. that is the purpose of the dmca

and you don't have to define wireless devices. unlock your phone to your tablet or your car, that is a-ok because you're not trying to infringe copyright. >> what do you think about those options? what could you live with? >> i will tell you what i can't live with which is probably better to say. i think jerry raises a very good point on definitional policy. as lawyers we all know how one can fall into that trap. it's interesting, the copy of the goodlatte bill and i have a copy of the senator klobuchar's bill and the to take a different approach. it highlights the panel. the goodlatte bill says well you know we are just going to repeal the most recent ruling and have a rulemaking and let's try to put this to bed. everybody seems to be generally in support of that. jerry would say perhaps not but it seems to work but going back to contract rights i would commend you to look at senator

klobuchar's bill which is cosponsored with senator lee and senator blumenthal where it says it directs to get the fcc involved the fcc not wait weight 180 day show direct dividers data services. [inaudible] to unlock the devices access to such services so in other words we are talking about using contract is a right and take the klobuchar bill that it essentially it asserts the whole use of contract and say by the way sign a contract that any form of enforcement is gonzo again there are different approaches to this. >> in summary you want to make sure the fcc isn't put in charge and also want to make sure -- respect by the contract? >> you are trying to find some mechanism to minimize theft. >> we talk about richard epstein's concept about simple rules for a complex world.

one way of paraphrasing what you said is that we don't want to take rules that are already complex and make them more complex by layering on more exceptions and special circumstances. so to the point that jerry in particular was raising how do we write a simple rule that will actually hold up when we are talking about unlocking lots of other sorts of devices keeping in mind that there may be anticircumvention rules that should be covered by the dmca or at least that's a separate issue and what we are really talking about here today is unlocking for interoperability purposes and other purposes that we have all agreed the users should be able to pursue and are consistent with the goals of copyright which is promoting innovation and creativity so how do we write that simple standard? jerry, you already alluded to that and chris. >> again, i like the approach that representative lofgren

takes. you basically say the predicate here is copyright infringement. after all that is the point of dmca. if you're circumventing the law, that's a problem but if you're circumventing a law for a lawful purpose such as increasing the font size because you can't see very well and you want to change the oil in your car yourself and turn off the light these are lawful purposes. it's a very simple and elegant way to do it. >> i would agree with jerry. i think you should be able to write a law which allows for general unlocking for noninfringing purposes and that should be extended to not just the individual but the individual's agent or someone offering a service that helps them to do that so that you don't have to be a software engineer or a programmer in order to unlock your phone, unlock your car and get access to e-books.

without that sort of law i think it becomes much more complicated if we are stuck with just the triennial review process for exemptions very many things. the idea that for example at each review every three years is it to nova review and doesn't take into account previous decisions by the copyright office. what probably harms cell phone exemption when it came in 2012. when an exemption has been there for several years 2006, 2009 in 2012 it goes away that is sort of, that is regular review can cause innovators not to want to create services and tools that allow you to unlock if they think that they will be suddenly outlawed in three years. >> of the cost of enforcing the

copyright act were zero, that is if we could make sure everyone who circumvents to infringe is punishing everyone who circumvents for non-- it would be a no-brainer but i have reservations about because the fact the costs are very high. what if a company invest to develop the service that circumvents say hulu or netflix or student platform to allow you to extract a 30-second video. the user certifies to use that chunk for a transformative manner. that would infringe on the development and the distribution and the use but let's say other actors come along and repurpose that. somehow they reverse engineered the platform and the investment in circumvention to make a tool that actually can be -- the point is the distinguishing between circumvention of content protection tpm to actually

protect expressive works as opposed to say cars, protecting that content creates real challenges when circumvention can occur for noninfringement purposes. one solution to that of course is the owner of the content actually enables users to make fair uses so that there is no need in the first place for anyone to come up with circumvention because they are already ways. i really should embrace it until we think more carefully about the costs of distinguishing between circumvention. >> just add to that real quick, going from a policy ideas to a rule is a very difficult thing. i know lots of policy ideas that i like. try to add a rule of unintended consequences is another matter in and what we have to understand is as we start to craft legislation if we are going to go that route, firms are not passing legislation.

as soon as people know what rules are and they want to exploit the rules they will. the idea of a training seemed like a good idea to time. perhaps that was too short of the time, who knows what i think we have to be exceedingly careful in the spaces we start to tread here. >> a question on twitter here for ryan. when a lawful person -- purpose is fair use how does the standard apply given how difficult this area is? in your example you talked about users certifying the tool that what they were doing was fair use. how would you respond to content owners who would be concerned that the line might be drawn in such a way as to open the door to circumvention tools? >> i would respond to that is a fair point and that is the reason we should be careful about writing a law that exempts fair use. really i think this may welcome down to a balance, a weighing on

the one hand is fair use importance in circumvention and on the other to what extent do the anticircumvention provisions prevent -- and when you look at the internet you can bet get a copy of every right despite the digital millennium copyright so on the march march and what does the law due to protect that content? the answers relatively little but that is not the case in the future. that may not be the case as we move toward a model where people are on the internet and perhaps with which drm will decrease. or have to love will do more to prevent infringement on the future and congress needs to consider. there is also the basic standard that it is lawful. it's not a question to which i have a good answer but it's

difficult and has a lot of tough empirical questions. >> so are you all in agreement then that is a procedural manner and repeating the process that the librarian of congress has gone through and past which is to say not just the fact that it issues exemptions every three years and reviews them every three years but there is this five-part test that any advocate of an exemption has to satisfy and if they fail to meet that burden exemption disappears or is never granted in the first place as in the case of tablets. larry? >> and open notice preceding where they deliberately did not politicize it by turning into a popularity contest at the white house. if you read the law one concert may argue that there is almost a presumption of exemptions rather than both circumvention. you know to people like to have to go in every three years? probably not and that is an

issue that needs to be discussed with the process is what it is because it has worked so far. perhaps not perfectly but that is the system that we have today. >> jerry? >> i think i would say that you're absolutely right. the library and i think did a good job following a process and there is no reason to criticize the determination on the merits working within that framework that doesn't mean given the outcome and given the outcome as a last straw in a long series of determinations that we can't decide as a country that we don't want that process anymore and i think that is what we are saying here. it is a process where every three years for people who have poor eyesight have to go and request permission to users devices anyway that makes it so that they can read them.

we shouldn't be doing that. >> lets talk about presumptions here and try to move into the bigger picture here. it seems to me what you're getting at is the general rule of anglo-saxon law that is that which is not prohibited, excuse me that you are free to do anything that is not prohibited and the opposite is true in certain continental legal systems where you are essentially free to do only what the law permits you to do. jerry what you just said is the dmca quite fairly the dmca is essentially in that sense profoundly un-american presumption that you only free to do what the law permits you to do. it exists for reason. a reason. congress was concerned quite legitimately about circumvention of technological protection measures so with -- without regard to the specifics here, how do we deal with that problem? how do we craft a rule that both the deaths better to new

technologies and doesn't force innovators and users to go running to washington for permission to do something innovative? >> i couldn't put it better myself, the way he described it. this is a system where you have to get permission before you do something. how you craft that rule, think you focus that purpose of the dmca has eyes ben which is to address copyright infringement and allow content creators as ryan keeps emphasizing to protect your works so make copyright infringement the predicate related to the dmca. don't make it a case-by-case termination that this use is allowed in this use is not. make it any use is allowed as long as it's not related or not infringing on copyrights be so they're no longer needs to be an extension process because she wouldn't be in the business of granting exemptions.

you were to say my technology does not infringe copyright so therefore would be covered? >> the burden of proof would need on the person is alleging that you are using the technology in order to infringe copyright. ..

>> i'd rather see a common law approach where you try things and then, you know, you experiment in the marketplace, and if something doesn't work out, you can solve that through a common law process. >> chris, do you have a -- >> i was just going to add, i mean, i get concerned when folks talk about outlawing technology, forcing technology to prove that it's not infringing. i mean, before we had a digital age, we had xerox machines. xerox machines could copy any sort of copyrighted book that you wanted. no one, you know, no one ever expected or no reasonable person expected you're going to outlaw a xerox machine just because it could copy a book. the hard part, and i think this is what you're getting at, the the hard part is how do you in a digital age deal with technology that can rapidly copy something over and over again and make almost perfect copies?

that's a hard question. that's a different question. but i think we need to as we look for that balance in the law, we need to try and find a way not to outlaw the technology that brings about all these new, innovative uses. i think the point about folks who can't read a device, or i often use the example of reading an e-book if you're blind. you know, the ability to circumvent a lock to allow someone to read when all digital media's going towards digital books and fewer and fewer paper books is something that we need to make sure is there. and that's part of that balance. and, yes, how -- i don't know if i have the exact answer of how you protect folks from those repeated, easy, perfect digital copies, but that's the sort of discussion we need to be having instead of outlawing -- >> and to summarize, i think you're both implicitly saying a distinction can be made between allowing users to unlock their

devices for the purposes we've been talking about today to customize them for lawful purposes, to change them to a different carrier on the one hand, and on the other hand the sort of example that ryan gave of breaking a technological protection measure in such a way as to start infringing actual copyrights. you think that there's a principled way to draw that line. >> absolutely. i think you can make a determination of whether a lock was circumvented, and a court could make a copyright determination about what you were doing after you circumvented was infringement or not. so that's, you know, that's a determination that a court could make. and i would say to ryan's earlier point, um, you could end up with the world where if you accept a case-by-case determination where the folks who would make noninfringing uses of a circumvention technology would end up not being able to do it because they're trying to do the right

thing. but the criminals who are trying to rip the netflix stream are still going to do that. >> so, larry, what do you think about the practical implications of this kind of revision? >> to be honest, i haven't really thought it through. but as i'm listening to the conversation, i'm immediately -- the one thing that just popped into my head was at the lent controls. and if we -- patent controls. all of a sudden you're being sued out of nowhere because you're using my technology, you're infringing. i had no idea, and all of a sudden we're clogged. and that's the problem with our patent system. i'm not sure what the answer is. it's extremely -- i mean, we have a system. we've thought it through a lot. we've made a societal judgment that protecting ip is a good idea and starting with that presumption. some people may disagree with it but, you know, you've got to start somewhere. and i think having the presumption that we have now which is, you know, here's the technology, let's prove the exceptions for better or for worse seems to be working. are there problems?

yeah. can we deal with them? sure. i mean, you know, i've got a draft bill right here. so, you know, no law is perfect, and there's always the laws of unintended consequences anytime you put up a rule whether it's -- i was talking about this with my partner before i came here, and, you know, what i'm reminded of as a great example is net neutrality. here's a rule that everybody thought was a great idea and has all these unintended consequences. and going back to my point earlier where firms are not passive recipients of regulation. they're going to do what they do. if you own intellectual property, you are not going to sit by and let your intellectual property be stolen. you are going to do actions. it's not a perfect world. we have to think very, very carefully about what we're doing. >> well, larry, thank you, because what tech policy event would be complete without someone referencing net neutrality? at any other event, it's intervet crowding. -- internet

crowding. i'm going to let ryan have the last word, and then i'mgoing to turn to the audience. >> we need to look at the history of those 15 years and look to the future. what role is digital rights management going to play? is it, is there a need for congress to revisit this law? there are certainly arguments to be made in favor of it. of course, there are also problems if we go down the road of making it easier to develop technologies that facilitate infringement. the current presumption, certainly, reduces the amount of circumvention that occurs. whether it does so in a way that is worth the costs is a tough question that congress is thinking about, fortunately. >> with okay. so this is my last question. so congress is thinking about, right? just think about that sentence just for a moment, right? you know, as margaret thatcher said, there is no such thing as society. there are individuals and families. there's no such thing as congress.

there are individual members of congress, and there are their staffers. and they have a hard job. you know, it's easy to laugh, but they're faced with a lot of issues. and to larry's point that he raised earlier about we all have ideal policies we want to see put in place. how do but make sure they come through the wringer the right way? i have to say, well, i don't -- i think i disagree with larry where we'd come out here. i am very sympathetic to his concerns about the way this issue's being used in the sense that there's certainly a broad sentiment in the internet policy community that they stop sopa, they helped to disrail sis pa, and we were part of both those efforts. but there's a sense now that they can do anything if they just get enough people to sign petitions. they can get something done. and the question is what that thing is and what it looks like. and i think all of you agree that this is a genuinely difficult issue.

it might be a fairly simple matter to say that mobile devices shouldn't be covered by the dmca, but the question we've been talking about about how you'd either change the current process or how you write a simple fix to govern what the dmca should cover in the future, how you draw that line, it is a genuinely difficult issue. so my question to all of you is what do you think that this issue and the way that it's been covered and the way people talk about it and the way that they may, indeed, try to bring in other issues like whether cell phones should be subsidized, what do you think it says about tech policy and the ability of congress to get hard issues like this right by writing against simple rules for the future? and even more so than what it says about congress about what it says about how people who are starting to care about technology policy, how they intersect with congress? do you think that we're going in a good direction towards writing

better rules, or are the rules going to be worse in the future? let's just go down the panel. ryan? >> well, as someone who agreed with the principles underlying examples of sopa but disagreed with the way they were implemented, it's a good question. these activists who are signing petitions in mass numbers, are they going to contribute positively to the debate? if they are willing to appreciate the complexity of these issues, perhaps the answer is, yes. so far, for instance, the cell phone locking push has been positive. but as the copyright issue proceeds, it's often too easy to get confused about what's actually good for consumers. larry's points about interoperability are correct, mandate that every u.s. carrier use the same technology and same network might sound great to every consumer and internet activists but, in fact, would probably be a very bad idea.

so hopefully those of us who spend all of our time working on these issues can do more to guide them in a direction that will promote positive policy change. >> okay. and then are you more or less on the to mystic now about getting laws right? >> more optimistic. >> chris? >> the short answer is i'm also more optimistic. the longer answer is, you know, public knowledge was with you guys in opposing sopa, and i'm a firm believer in the idea that the people get the government that they demand. and so when you have, when you have a congress that is made up of average citizens and they like most average citizens have a certain baseline, low-level understanding of how technology works, so important that they take the time to have experts at the table. all stakeholders at the table and that a process in determining laws around technology is done, are done

deliberately. that wasn't the case with sopa. and i caution against demonizing -- i don't know if you were trying to purposely or not, but i caution demonizing the petition efforts. because this is -- >> i certainly wasn't. >> okay. okay. i appreciate that, because i think the petition on cell phone locking and other petitions around technology issues are one of the great ways in which average americans have been able to have their voice heard on an issue that's complicated and difficult for people to understand. when they get something right away, and i think cell phone unlocking has been something everyone has gotten right away because everyone has one, it's just an enormously important tool that, of course, is protected by the constitution. so i embrace it, and i think it's a great addition that the white house has had to create the way the people petition process. but i would say moving forward it is hard to make proactive, positive policy rather than to

stop bad laws. and so it's important that congress continues to have all stakeholders at the table and that they have long, deliberative discussions about cell phone unlocking and other broader copyright reforms. it's a difficult topic, and i think it's difficult for members of congress to weed through the technology and the engineering and the law without having that time and that inputment -- input. >> let me put my question for similarly to jerry and larry which is petitions are great in getting congress excited about something and creating a sense of urgency, but what happens when it's a genuinely hard topic that there isn't a lot of attention span here for? how do you -- what does the process look like to make sure that congress gets the law right? >> i don't think there's any -- it's a process that we know and love. it's congress being congress. [laughter] what i am optimistic about, though, is, i mean, so i'm especially optimistic about copyright, and this is ultimately the issue we're talking about here. and the reason is that for about

a century the way the copyright law has been fashioned in this country, it has been a negotiation between the content makers and owners and broadcasters and other interests like librarians literally sitting down, negotiating a copyright law that congress then gives a thumbs up to. and that's worked for a long time before the internet, right? but before you could have this kind of demand on content. but now for the first time because of the internet, i see the public having a seat at the table that it's never had before. and so for that reason, i am optimistic. i think that's the reason we saw sopa fail, and i think that's the reason why for the first time in ever that i know of a register of copyright has suggested reducing the terms of copyright. because, you know, because we have had this negotiated law making for such a long time in the copyright space, we've ended up with copyright unbalanced. and so now that the public is

involved, i think we can fix that unbalance. >> you should write a book. [laughter] larry? >> well, having public engagement's always a good thing. being a former staff attorney, the only person in this room who's been both a gs1 and a gs13 it's my great professional accomplishment. the problem is, i mean, the work that we do, we've got four ph.d. economists on staff, and we publish journals, and we stare at these things, and we model these things, we try to figure it out. but this is a political process, and by definition i'll give you a quick anecdote. during the sopa/pipa debate, i noted my daughter's facebook page, so i scream out, what is that? they're going to shut down the internet. who told you that? facebook and google. would you like to read the bill? what's that? comes back five minutes later, i

took it down. that's public engagement. i've been doing this a long time, so as i like to joke, you know, when you're talking about laws and sausages, you're never going the make things right. i think we try to make things as not wrong as possible and be happy with that result. it is important to be engage ld and take these seriously. >> speaking of engagement, i'd like to take questions from the audience, and i'll field some on twitter, too, if anybody has one. my colleague, will reinhart, has the mic. don't be shy. i'm sure somebody has a question. i see a question in the back. and please make sure to identify yourself. >> hi. i'm peter -- [inaudible] great panel. my question -- [laughter] is effectively if we go with the law firm plan which is a little bit like the chamberlain decision in the federal circuit,

you need a nexus between copyright infringement -- [inaudible] at that point what does the dmca as far as circumvention provisions at all and why do we need them? other than you wrote the lock as well as intruding, in that sense the willful provisions of the copyright act would probably get at that and elevate damages instead of the dmca. >> we could imagine situations where you have an unlocking mechanism that serves no other purpose than infringement. i think ryan was sort of alluding to those. and those would remain illegal. >> anyone else? any other questions? on twitter? anyone? i'll exercise the -- i've been asking a lot of questions, i'll exercise the moderator's prerogative and just ask one final question here. so, jerry, you alluded to the --

there's another provision that's ongoing, excuse me, another proceeding that's ongoing now about revising copyright law. can you give us a little bit of background on that and tell us how you think these two debates intersect? >> boy. >> briefly. >> briefly. well, it's just been certainly the sense of the registrar of copyrights issued a report saying that it was time to renew, have a new copyright act, and congress has taken that lead, and congressman goodlatte has begun the process. how does it intersect with this? in particular she is focused on the copyright act, but dmca is, you know, ultimately closely related to the copyright act, and so i imagine that they will be taking a look at this as well. i don't know if that answers your question. >> any other comments?

chris? >> with well, i think it's probably long overdue. there's a number of issues beyond unlocking. i think unlocking, hopefully, will be a large part and receive a spotlight in the process that congress takes on with the copyright review that they're doing. but there are a number of issues i think, you know, i agree with jerry. i think it's really interesting that the registrar cop wright has -- of copyright has said it'll be interesting to look at reducing the term. it has been extended several times from its original intelligent, and it's hard to make a case to a consumer that someone who's passed away should continue to have protection of their copyrighted material that they are no longer benefiting from for decades and decades and decades. so, you know, there's a great opportunity here to rebalance copyright law whether it's on terms, whether it's unlocking,

whether it's on how we deal with takedown notices or damages. and so, you know, it's something that we should investigate. like i said before, i don't think this is something we should do quickly, but it's great that we're having the discussion, and it's great that everyone's being invited to participate in that discussion. >> ryan, do you see some of this unique bipartisan agreement on cell phone unlocking? do you see that dissipating when we get into the larger debate about copyright, or do you think it might at least help to set a good tone for having a constructive dialogue? >> i think it will be helpful. we've seen how the house and senate judiciary committees working together on reform which is a bipartisan issue, hopefully -- >> privacy issue. >> privacy issue, yes. hopefully on copyright the stakeholders can realize that a bill that takes us in the right direction is probably not going to include provisions that any one stakeholder is completely supportive of. but we need legislation reform that moves the ball forward,

that makes the copyright act better and that's going to probably have to address both the enforcement problem and also some of the overreaches dealing with cell phone locking and circumvention. >> okay. one final question from the audience. >> my name's mike -- [inaudible] intern with -- [inaudible] and -- [inaudible] and yet still the knowledge of people that are going to be using for abuse, and there also seems to be a consensus that striking that delicate balance that bringing it from the policy to the actual law, it can come through very lappinged up. i'm curious from one of the four, possibly jerry and then maybe larry, to what that might actually look like. it seems like there's a lot of this is the balance we need to strike. what might that actually look like at the end? >> that's an excellent question. wewe haven't modeled it, so i'm

not quite sure. i've been thinking about this issue for quite a while. and i think one of the challenges in a digital age is that given the proliferation of the internet is that you have what i like to call an expectation of free, right? i mean, it's so easy to get content. it's an expectation of free. and as my partner, the economist, would say free is never the right price. there is your problem. and you have, you know, there are some costs involved in making content, both human and capital costs. and trying to find that balance when you have literally a societal expectation of free now, i mean, i want to go online, i think we've all done this, you know, there's always an expanded use of fair use out there for something on the internet. and trying to find that balance of, again, not, you know, indicting the little old lady who, you know, put up two little youtube clips versus somebody who just, you know, a major

motion picture studio just spent $150 million developing, bringing in the next wolverine movie, and the next day it's on the internet. so these are the difficult challenges that we have to do is, you know, there's not one homogeneous consumer, and that's the difficult i of the enforcement. and i think there's probably consensus on that. >> where okay. i'm going to wrap this up by giving our other three panelists brief response. you know, just 30 seconds big picture. >> just briefly that i completely agree with larry that zero is not the right price. absolutely which means that we need to have copyright. the purpose of copyright is to give it incentive for folks to create what would otherwise be a public good, right? that could be, you know, could charge for it. so we need to have copyright in order to do that. the question is, what is the right amount of copyright? that's a very difficult question to answer. and it's one that, you know, it's especially -- congress is especially probably unsuited to deal wit, but that is who has to do it because that's who has the

power in the constitution. i do think, though, that we should worry about the grandmas who get arrested for copying a couple seconds of a movie -- >> i agree. >> we should worry about them, so we should look at what is that a symptom of? overkrillalization, overregulation, so we should sort of follow that thread. so that's part of that conversation. >> um, i would just add to that i think, you know, the idea of a culture of free i don't necessarily subscribe to. i think that, you know, when folks -- generally most consumers are willing to follow the rules when rules are set up that allow them to access, you know, goods and services. so, you know, when we saw, you know, when i -- in the '90s when i was growing up, we had napster, and people were downloading free music all over the place. then you have itunes, and all of a sudden everyone's willing to purchase something for 99 cents. you know, that's an improvement because the structures were set

up for it. i think it, hopefully, will be the same with the update of the copyright act for digital ownership and for digital goods. it's important that we allow for some sort of marketplace for digital goods. what it looks like, it's going to be hard to construct. but we have to understand that there's an expectation that people still should be able to go out and buy things, and if that's not out there, it will lead to more piracy. creating structures, creating laws that allow for those marketplaces to exist online and offline has shown that it will reduce piracy, and people will follow the law generally. now, should there be protections for infringement for the great pirates out there, people who want to -- yes, absolutely. and we're not saying there shouldn't be. but that's the balance that we're looking to strike from your average consumer that wants goods and wants to be law-abiding to your great pirates. there has to be a balance between the two. and it's a tough discussion.

but there are, the technology is out there right now, let's just put that on the table. the technology's out there for you to buy and sell digital goods, to buy and sell books, music and movies. it's just making sure that we structure in a way that makes it legal. >> ryan? >> sometimes the right price for content is, indeed, zero. broadcast content is streamed over the air in high definition, core supported by advertisement. same with content on the air, on the internet. that doesn't mean the copyright isn't compatible with it. quite the contrary, it's baseline. there are going to be commercials intersperlsed with it although there are some companies that are trying to stop that from being the case through questionable measures. in the context of cell phones, the baseline ought to be contract law. whether the subsidies should be accompanied with a $350 early termination fee or a thousand dollar early termination fee or whether there should even be phone subsidies, these are all

questions about how to price content, how to price cell phones that have to occur through voluntary transactions in the order subject to a set of baseline rules. sometimes it's copyright, sometimes that's property and contract. >> well, i'll just say to wrap things up that the emergent order that ryan talked about is exactly tech freedom's theme. it's letting actors build the law that best governs new technologies, and here that law evolves through a mix of contract law and copyright, actual copyright. not necessarily the dmca which, let's remember, was a statutory add-on to copyright. so i look forward to having another event about the overall revision of the copyright rules probably later this year, and you'll see some of the same faces here. and i look forward to seeing some of the rest of you at our event about children's privacy in july and what the ftc's recent changes say about chirp's media, about -- children's media, about privacy more generally and about how the ftc works and how it builds law for

governing the use of our data. having said all that, thank you again for coming. i look forward to seeing you at other events here at our new headquarters and, please, thank our panelists and also commissioner pai for joining us today. [applause] >> coming up next, we'll take you to the recent "wall street journal" chief financial officers network conference to hear two interviews. the first with marriott international ceo arne sorenson on the future of the hotel industry. he'll be followed by house ways and means committee ranking member sander levin who talked about tax policy including overhauling the tax code and taxing overseas profits. and later, the senate's back at noon eastern to resume debate on the immigration bill with a vote set at 5:30 eastern to advance a keyboarder security amendment. key border security amendment. >> now, remarks by marriott international president and ceo

arne sorenson. he was one of the speakers at "the wall street journal"'s recent chief financial officers network conference in washington d.c. he was interviewed by the paper's senior contributing editor, alan murray. this is about 25 minutes. [audio difficulty] [audio difficulty]

>> and that's how we give to the customer. the shareholders, obviously, own the business. they're fundamentally important to communicate with, but they are not about running the business. they're about, instead, communicating back and, hopefully, doing the right thing -- >> i wonder if we could get just a very quick show of hands on

the same question. how many of you if forced to choose between those three would put customers first, employees first, shareholders first? and start with the customers. [inaudible conversations] >> employee first? a few employee-first companies. shareholders? okay. >> nobody put shareholders first. [laughter] >> with so you have a, you're in 74 countries now -- >> something like that. >> you've got a pretty interesting perspective on what's going on in the world. give us your view of what's happening in the global economy right now. >> well, i think led by the united states the strength of the recovery is meaningful. i think when we issued our year-end results roughly mid february, we talked about the sequester being a looming dark cloud on the horizon, and i

think we were probably a little bit alarmist. in fact, it has hurt our business, but the strength of the u.s. recovery has been more than enough to offset that and cause us to continue to grow. and so we see good demand growth in the united states. we're back at peak level occupancies -- >> really? and that's -- >> we'll be back the peak rates probably this year. that's 2007 levels in the united states. the united states is still 75% of our business and hugely important to the global economy. but you start to move around the rest of the world, and you obviously see very complicated things. europe continues to be the weakest market we've got, no surprise in there. asia, you've got tremendous strength in places like indonesia and thailand. india's in a complicated phase again, and it's a tough place. china is meaningfully slower than it was two years ago. >> really? you notice that in your book, you have something like 20 hotels in shanghai alone. >> we opened our 20th in

shanghai in january. >> you can feel the slowing? >> we can feel the slowing, and it's a little weaker in the north, so beijing would be the weakest market. why? two big reasons. one is more of it is government-driven, and the new government is trying to reduce consumption by government officials particularly. and second, of course, is you've got these horrible pollution stories in beijing which makes that a less attractive place for people to visit. ..

taxes in many markets are extremely high. so you have a percentage and talk about hundreds of billions of dollars of tax revenue. and when we look at the next five years or so we go to 2 million international visitors and the growth in the united states continues to five, six, 7% a year and pressure the

agency and pressure on the airline's if they had enough seats to make sure. >> is it the united states to be kind of the busy world. >> we would be idiots if we didn't welcome the rest of the world because not only is it a great export, but ultimately it is a way of creating better commercial bonds and a diplomatic bonds across the world. so for all of you i suspect few of you are in the travel business but many of you were doing business active in various parts of the world. these trips are as much about folks coming to disneyland and about folks doing commerce in the business market. >> the chinese are a huge piece of this. china last year was the eda some million.

morrell down the chinese travelers in 2012 than the outbound american travelers. >> so more than any other country in the world. and you've seen that happen now and other emerging countries are you seeing it in brazil. >> the growth rates from all of these emerging economies are huge because of the growing middle class. so china would be the biggest population growing the fastest. you have great growth in the markets like this. but in a place like south korea, japan we will see tremendous growth. >> aside from these people coming to the united states how is the marriott adapting to the 74 countries operating on a global stage trying to deal with the local markets? >> mabey this gets more relevant. we started very aggressively

about three or four years ago moving authority within our company. in the past we've been very disciplined standard of driven the company. i saw that we were too slow and bureaucratic and not localized enough so they were better uniform at meeting the needs of the particular local group of travelers so putting the president's out in the field on the four of them to basically own all aspects of the business markets and said you are going to make the decisions now. they have to come back for significant couple of improvement and other issues, but we want very much to be more globalized -- localized.

>> you want people that traveled around the world -- the parts of the experience wouldn't want to be standardized that when someone text into a marriott there are certain things they know they are going to get so we how we make the balance work for the local market but maintain the global standards and on which things are the standards more important and on which things are the localization? >> i think that localization is almost always more important. now the -- >> you're turning the history of marriott -- >> the size and the cleanliness of the room, the friendliness and the greeting, the global system and reward program and all these, they are hugely important and very fundamental. but most of us i think even most of the american group in this room wants to know where they are when they go there. now they may want breakfast in their local cuisine. that is a type of comfort food.

>> it's more standardized and others coming to the united states. if i'm an american traveler, i want to have that stuff done. >> so more adventurous and i want to see the chinese decorum in the lobby. >> it's fascinating. >> we talked earlier about the energy issues particularly in the united states the abundance of fossil fuel over the last five years. does that affect you? >> not very much. obviously inflation driven by energy costs is something that will then have the impact on the demand. we are not huge consumers of energy. we have a big sustainability effort to manage our costs and be as responsible as we can but we are not right in the middle

of that. >> so after the session this group is breaking up and going off into the five working groups and i just want to get you to comment quickly on the topics of the working groups to give the studio perspective before they go off to do their deliberation. one of the five is focused on the health care challenge that has to be a huge issue for the labor intense company like marriott. how has the obama health care bill affected your business? >> so far obviously not very much on the preexisting conditions and my older children who are not yet 26 and are covered, policy. if we look we are going to see the mandatory coverage. we have about 90% of employees in the united states or full-time and so we will be required to provide insurance to them. we think that could be 60 to

$100 million of increment will cost mostly borne by the hotels which are owned by the real-estate investors and not by us that there is a whole bunch of the same things we will see next year. we don't know how many of the folks who are not covered by our plans are covered by spouse plans and how many are also young and invincible to say i don't want to pay my 20 or 25%. i would rather go because i don't think anything is going to happen to me. and the folks that are too tight with their wallets. we will see when the dust settles the categories that which will be obligated to have insurance. the others already have it. >> a pretty wide range obviously so i would suggest there is still a lot we don't know.

>> we've already talked about energy. there will be a panel that looks at the global risk and the kind of risk that the globalization present for the companies. what is at the top of your -- what keeps you what that might? >> everything really. we have some benefits. the hotels are always developed by local partners and owned by local partners so we are not in the international development which we might think we would be given where we are in the real-estate justice. it's really gratifying not to be a member. >> but you are out of real-estate altogether. >> they are all for sale. there is a group looking at the taxes. your taxes are different than most of the people in this room but what is your feeling? >> i suspect they are fairly

common. the panel has asked about the foreign earnings and the shareholder activists we don't understand it as clearly a management issue. we are getting to the point that the earnings will start. >> if the of $100 billion i am sure it's not being invested and they have the right -- >> they have the right to communicate about but it doesn't seem to be a resolution. i think that is a fairly complex question. for every dollar we make out side of the united states we can leave it outside of the united states and invest it to have a dollar invested or bring it back to the united states and have so much and that 70 cents we can either return to the shareholders or invest in the united states. it doesn't take a rocket

scientist to know that if we were the terms available for the united states they are likely to be more compelling. the tax policy is bonkers to suggest that we want to make sure that companies hold this stuff offshore rather than bring it back because in all likelihood will go back to the shareholders and there will be much more liquidity in the american markets. >> uzi any chance of that changing? >> not much in the short term although part of that is i think a section of our own modeling system so that the congressional leaders basically say we will score a change in that tax policy as costing us tax revenue because the baseline assumption is that every company will bring all of those dollars back. but that is a ridiculous assumption because the money isn't coming back at least the company's growing outside of the

u.s. there is no reason to require that money back because you have opportunities around the world. so i actually don't think there is a real economic class and i think collectively the ceo and the others that score this stuff and help give congressional leaders some protection on this and support maybe get a change most people on the hill would say -- >> are you spending some time on this issue? >> we have had some conversations about this issue. i think the conversation is because it requires fiscal reform and much more focused. >> and then a task force working on the question of talent. again, the labor force you are looking for is a little different than maybe what some companies are looking for but obviously it is a big issue.

>> i expect everybody in this room is in favor of immigration reform. anybody not? skimming either there or none or they don't want to stand up. but you have got extreme funding so the one extreme all of us are interested in the classic diploma when they graduate from stanford. >> we can use more people and would be great to have those resources. the other extreme -- the book about aspen and miami beach has become a seasonal market than it's been the past but those are the basis that heavily depend on this group of international travelers who come up but the

work in hotels and they won't be able to staff jobs in those markets and so we need the policies. >> how about this base are people interested should work in the hotel's do they work for marriott? and do you have any idea in the united states what percentage of those are born outside of the united states? >> i don't but it would be substantial. >> i'm guessing here we have a very diverse groups with housekeeping events -- you don't always know what your they can to the united states but many of them would be immigrants and

they do live the american dream. >> am i right you helped the cfo? >> a long time. the veteran [inaudible] >> is being the cfo good training for being ceo? >> i think there is every reason to believe they expect the of their position because you have license to be involved in every single aspect. you are the only ones other than the ceo themselves who have the card want to wander around the company and look at the marketing dollars and capital dollars and places that investment ought to be done to communicate back on the street that is getting input.

>> he was also a cfo the risks that you need somebody in the risk skills that puts you in a different. >> it could be risk adverse or risk prone so the classic profiles. one is -- they don't have the ability to say you know what this doesn't make sense and we ought to pull back. that is a big hazard. the other is the doctor that says -- >> raise your hand if there are any in the audience. >> the one that says to every single department or business in the company no, you can't have that money. and they say it two or three times. they are only reluctantly do

they go along. if you pursue those to an extreme you can't for a ceo or president. but if you can get that balance right and actually be a proponent of investing in growth at times and be in the position to say you know what, that deal even though my team may be the proponents it doesn't make sense for us to do. it's too risky. >> you get a much better training for being the ceo than many other. >> let's open up to questions. >> i have nothing on the ipad. >> you have chased them all away. >> you scared them away. come back. >> there's one in the back. >> i actually wrote about this last year in your proxy statement from 2012 they were allowed to pledge stock for

collateral. i know you have about 195,000 shares last year and i guess now you have none. did the green mountain ceo ruin it for every one or is it best covered and not do that anymore? >> it's probably better governance not to do it anymore. it's not -- truthfully it wasn't a very big deal. we each had some shares in the margin account and the margin balance was once% of the value of the stock which was a different circumstance from the situation but you could also see that it's hardly necessary so as we looked at the landscape we felt why would we make an issue out of this? none of us really cared about it let's go to a place we are going to agree that we will pledge. >> i do think longer term and particularly with rising executives who are more dependent on taking early vesting stock and using it to support their lifestyles. we will cause the folks to sell

the stock sooner by precluding them from doing any margin in them and be the case otherwise. for anybody across the company they won't be that big of a deal. >> questions? >> yes please. >> i'm sorry. identify yourself. >> why were you not surprised when they put their hand up and linked the employee number one when the reality is if you have -- the cost of bad behavior and the cost of the d motivated work force in this country is dramatic. yet in my opinion, in my company we focus on the employee, number one because that is what drives the company. so why were you not surprised that the reaction? >> remember what i said. we are focused decidedly on our

people first and threw them on our customer. but i had a sense that we were relatively unusual. i think the classic saying these days is the customer is always first and you see it in all of the business publications and i was curious to see it was actually a fifth mabey who said their people were first. that is a little higher than i would have predicted. just based on reading the magazines and the like. >> gabrielle, "wall street journal." the figure that you gave of 1 million chinese overseas visitors five years ago and now -- >> about 80 million. >> 80 million. how is that shift or that growth prompting you to change your hotels around the world and your service? just to adapt to this huge cohort of the chinese visitors. >> it's big on chinese news. it's back to chinese breakfast.

slippers, chinese language and chinese television would be the four biggest and easiest things to do. and obviously they would leave on the markets the chinese travelers want to go which is probably not going to be topeka in big numbers but new york and london and paris. and so we are focused on those things and in many hotels they have already got those things. but in each hotel they will watch that demand to see how it moves and beyond mindful of it. one of the things that makes it relatively easy here is to see to look across the remarks in the united states using kids today in high school and college and dramatically higher numbers study in chinese it would have been a rarity 20 years ago and now it's something that lots and lots are drawn to. >> what you see in the trends in the u.s. travel abroad? are americans being more or less adventurous than they were

wsjcfo, 15, 20 years ago. >> that is a good question. we are seeing the growth mostly driven by the economy i think at the moment. so in 2008 and 2010 with the pressure of american consumers we saw less traveled in the u.s. and less outbound travel. that's coming back and coming back fairly strong the. what we are seeing as far back as 9/11 is more intensive family travel than used to be the case. and so families are going overseas to get more experience than they did in the past. i think 15 years ago it would be more likely that the husband or wife and mother and father would go along. the biggest and the most expensive trips leaving the kids trips to words is sort of domestic market and i tbrc in that change -- i think we are

seeing that change. >> good. thank you. a round of applause for arne. [applause] >> also speaking at "the wall street journal" conference was ranking member sandra. the michigan democrat talked about the prospects for overhauling the tax code. he was interviewed by the journal economic editor david wessel. this is about 35 minutes. >> [inaudible] entirely that his parents [inaudible] if he drank coffee, so he has never had coffee. unfortunately for us, dave camp is tied up in the house which seems to be argued about for

pass. but i'm very glad -- >> which one. >> it's a generic statement. but i'm very glad to have ander levin on the kennedy and a former basketball player. we had a discussion with a group of a dozen cfo's and i think that if i could guess from the one question the most wanted to hear you on a is if there is a chance that you and dave camp and max baucus and chuck grassley can get the corporate tax reform done between now and the end of 2014 were not? >> i think it is a snow all. i think it remains to be seen. i think there is a snowball. and did -- it is not held here.

sometimes it is close to it. but it is heated up. >> what is the scenario by which something actually happens on the tax reform? >> you know, i was talking with people yesterday who were involved in the '86 tax reform. and i had tried to be on the committee that i wasn't there yet. i came and and i didn't get in but i was there for some of the discussions that were offered and we were talking about what was the key for the tax reform and 86. and i think there were major differences between then and now. for example, the subject matters or more complicated and larger. i was looking at how much in terms of taxes and 86. i was surprised that each was

120 billion. so more taxes and less taxes. but it was a major undertaking. and i think the key was it was a tripartite effort. the white house and the house and the senate, both parties, were deeply involved. and i think that is the key to success. and at this point we are not there. i do not think this can work if a bill is brought out in the house or the senate without a lot of bipartisan effort at the least and the effort to tackle the difficult issues early. so i think the key -- at least one of the keys to success would be can we have that kind of bipartisan and tripartite effort

now because if we simply believe each party rules out a bill without involvement in the white house and both parties paris but what about the conversations and the advisory and that is just not enough? both parties have to be involved in each house and the president who has laid out some ideas of the reform i think the white house has to be involved because some of the reality, there may be some mythology too but the reality of 86 was the president through jim baker for a long time. but both parties to it

>> do you think there is a way to do the tax reform as a stand-alone from individual tax reform or does it require things so complicated you have to do them all at once cox >> i'm not sure all at once but i think probably because of the interactions between the corporate and the individual. >> we've been talking about that and i talked to the staff. we set up some working groups and they did -- 11 of them began to dig in and i always a think a prelude to the effective action is large. i think that it's true. ..

>> if you look at a company, take a company like amazon, an american company, its intellectual property born here, it sells books in the u.k., maybe these days it doesn't even sell them on paper, but electronically. is it clear to you whether the profits from that should be taxed by the united states or the u.k.? how do you think about that? >> well, i think that's one change, and we discussed it briefly, you and i, here globalization is much more rampant. it's here to stay, and i don't think you turn it around. i don't think you should.

it has its minuses as well as pluses, and one of the minuses is that it's hard to really figure out how to handle the taxation, and now europe, it's interesting. we know this -- it was brought up today or yesterday; right? >> right, the ga, yeah. >> but here's my view. we have to make sure that there is taxation. i don't think it's fair to allow companies to essentially maneuver to avoid taxation. i also think, take amazon -- i don't want to get to personal -- >> no, amazon's not here, you're safe. [laughter] >> okay. so in many respects, it's an american company. some of the companies, if not all of them, have been fit --

benefited from being an american, from the -- for example, the research and development tax credits in some cases, all of the skills that are here, and i was just talking to the staff yesterday about this. there's an effort in immigration, and it's interesting how everything is connected, so a lot of the companies want visas; right? they want to be able to bring the talent into this country, and i think we need to be respectful of that. well, so essentially, it makes it more, though, its globalized, more the focus is right here in the country. >> uh-huh. >> so i want to make sure that they not only benefit from being an american company, but also while they're globalizing so they also should pay their fair

share of taxes. >> so do you think companies should have to pay taxes on profits they earn outside the united states? >> i think to some extent. >> uh-huh, and do you -- >> base simply on sales. we are a hearing last week or the week before where, essentially, someone said all you do is depend -- figure out where the sales are. that won't work. that's why we're having trouble wrestling with international taxation, and we get into these arguments about worldwide versus territorial. >> right. >> my view from the beginning has been this. it's been true of everything. you have to go beyond the rules, do more than say 5%. you have to figure out how you're going to get there, and with territorial and with worldwide, every hearing we've had, every system is a hybrid. >> right. do you worry that so many of the

companies, many of them in this room say we just have a lot of cash outside the united states, and we're not bringing it home because we don't want to pay the tax rate because that hurts the u.s. economy. shouldn't we do something to encourage them to bring the money back home? >> well, several things we could spend a new hours on it. >> let's no, yeah. >> you've probably written about it, and i read you all the time, but i don't remember every column you wrote. >> either do i so we're in the same boat. [laughter] >> i won't take a vote here, but some of the arguments i heard was some of the companies while their profits are overseas simply borrow against it so the money in some sense is here, but i think it's a problem, but my own view is that the issue of repay treization needs to be part of of the solution to the

overall problem. >> it was almost unanimous in the group i led that businesses would prefer a lower corporate tax rate, willing to pay for it by doing awe with a lot of existing tax prerchs. now, of course, on paper, that's relatively easy to do. cross them out, add up the numbers, and bring the rate down. politically, is it possible to broaden the corporate tax base, lower the rate, or is that just a pipe dream of cfos? >> i don't think it's a pipe dream. i think it should be considered, but my view has been strong from the beginning that you have to -- when you talk about broadening the base and lowering rate, you have to go beyond the kind of -- it's not a slogan, but it's a term -- >> does the concept make sense? >> you have to go beyond the concept, like, for individual, i'll spend a money on that and then back to the corporate.

i asked joint tax two years ago to give us distribution charts on all the major individuals, if they are called loopholes, they are not loopholes, and there's a mixed conception, for example. is the mortgage interest deduction mainly an upper income tax deduction? the answer is it's partly that, but it's also very middle income, so we have people, like myself, who represent a suburban area, very little income, and as i have walked the streets of these communities, where with homes built 40-50 years ago, in those days, i think a substantial portion itemized, i think the mortgage interest deduction and property tax deduction helped them become

part of the middle class, so i confess i bring that experience. my -- i'm sure, because i once peek at my father's income tax return by mistake, i saw it on the desk -- and he was very middle class. i'm sure when we bought the house, we took advantage of the mortgage interest deduction and the deduction for property taxes, and i think my father, we were comfortable, not well-to-do, would have had trouble. now let's shift to corporate. widening the base, lower the rates, okay. let's go beyond it. take section 199. so where i come from in terms of the industrial base of this country, it does matter. take the research and development tax credit. it was not your article, but it was an article in the journal a few days ago about who is using

it, i think we have a real need, and it would be interesting what you think, for more research in this country. our level of research has tapered off. do you just want to eliminate the research and development tax credit? it's true we have to be sensitive to how it's being use the. it's true that the larger entities use more -- it's also true that people like myself have tried to broaden the base of use of it with some success. you take accelerated depreciation and bonus depreciation to simply say obliterate it. i think some of you, if you add it up, would decide you'll take a lower rate, but what is it? well, other others of you might, hold on, let's really figure it out. the revival of manufacturing in

the country, i come from michigan, maybe i have special feelings. i think it's important, and so i think before we take the montra of broad ping the base and lowering the rate, we need to talk through, and that's why in a sense i wish david were here because i said early on, you set a target of 25 without giving any details as to how you get there, and the individual on the corporate side, i think it kind of is a misconception or a too fast an application without figuring out how you are going to get there. >> do you think that -- let's take the corporate tax -- do you think it's broken and hurting the u.s. economy so that we have to do something about it? >> yes. >> or not? >> so, yes. >> if you designedded reforms, what's the things you would be trying to change?

>> i would surely look at the international tax structure, and i think we have to do something about it, but people know my relationship to my kid brother, and i think he has performed a service helping to pinpoint the problem we're having with intangibles. it's interesting as we reviewed what happen in 86. they thought in ' 86 they were addressing the issue. >> right. >> were you reporting? >> no, i was in boston for the journal then. >> and so they did things with -- with the sub prime, ect., ect.. >> right. >> it's way outdated, so the answer to your question is yes, but i'd like us to sit down and to have the house on a bipartisan basis, take the international tax issue, put it on the table, have to be a bigger table than 24 --

this, and sit down right now. we had these working groups, but i'd like to go beyond that first step, sit down, and have a bipartisan discussion in the house as to how we're going to handle the international taxes. >> one of the biggest difference between you and dave kemp on tax reform, what are the things do you disagree, do you think? >> i think we need to go further before i can be sure of the answer to that. i'll give you an example, for example, the charitable contribution. the 28% cap, i think there's some problems with it. i think it needs to be on the table, but i think david has said he doesn't like that, but there should be some issue -- there should be a major

deduction, so we need to sit around the table, ways and means, democrats, and republicans, and do what i think is the key -- a key to success in 1986, and we're not there yet. >> now, what about the role of the business community? seems like every week there's another coalition. we have the rate coalition, the list coalition, and now we have the act coalition. my sense is the business community is actually trying to get, pardon the pun, get its act together, and say to congress we're willing to do some things, and we think it ought to be a lower rate, a broader based system. we'd like to have territory yal, and so forth. is the business community being constructive here? do you have a sense of what they want? is there something you would rem the business community do differently if they wanted to get -- >> let me say to you i think -- i think for many of us there's an open door, and i think the more you come in, the better.

you have disagreements, and i think that's fine. actually, we've met with some groups who began to disagree among themselveses while they were there, and i'm all for that because that's what we need to do, but i think there's a level of frustration on the part of the business community because i think what the business community would like is to have a feeling we are doing our job, and that we are, indeed, sitting around the library. how many of you have been in the libraries of ways and means? none of you? one. >> one. >> the tour is at 5:30. you know, it's a wonderful table, big table. it would handle all of the ways and means members more or less i

think the feeling in the business community is they'd like us to sit around, democrats and republicans, and talk about these issues. >> well, what could they do to make that more likely to happen? >> by urging there be a more active more bipartisan meaningful effort to go beyond the rhetoric and to avoid, i think we should learn, for example, from the way the budget committee -- the way the budget's been handled. in each part, in each house, there's not an effort in the house to put together bipartisan budget, and there was not much of one in the senate. >> we're rather polarized. >> so you bring up each party brings up a product, house, senate, and nothing happens, so i think the business community

would benefit if they could persuade a real effort at a bipartisan effort in the house and the senate with the active participation of the administration. >> before we turn to questions, let me ask you one question about congress. i saw, you know, the gat line up poll regularly ask people how much confidence they have in institutions, and the press doesn't do very well, but 23% of the people said they had a great deal or some confidence in the press, and 10 #% said that about congress, and you could just, like, going down and down. why do you think that is, and is it a problem? >> it's a problem. >> why is it? what is it? what is it reflect? >> well, you know, i think folks have to be written on this. there's been a polarization. just briefly, we talked about international tax, many, many years ago, holton on ways and

means committee, and i sat down with the joint task committee for two full days, just the two of us, and we said to them, give us a two-day seminar on international tax sages, so we sat there for two days listening, asking some questions, and what came of that was that amo and i put together some legislation on a bipartisan basis. we stoppedded the deferral. it became too complicated. >> right. >> we introduced it, and some of it was passed. that spirit has been replaced by polarization and impersonalization. we don't know each other as well, and the polarization has very much gripped virtually every issue, and i think trenton's effective issue on tax reform. >> there you have it. questions?

one over there. please. >> scott from beemus company. congressman, i think there was a lot of hope three years ago when simpson-bowles was published and died on the steps of the white house. now, three years later, what would it take to achieve a similar compromise among the three constituents that you said were critical to any kind of an agreement? >> i mean, there were problems with simpson-bowles. i think it essentially said the deficit is a problem, which it is, but when it came to tax policy and, as you know, there's been a revision, essentially, they said, start from scratch with all of the tax policies, go down to zero and then build them back up. that isn't very helpful because you need to get into the essence

of each of these policies. as you know, there's loopholes. for some of you, i think my interest and carried interest doesn't carry you very far. i think that's a loophole, and there are other loopholes, but i don't think 199 is a loophole. i don't think accelerated depreciation is a loophole. i don't think bonus depreciation is a loophole, and i dent think r and d is a loophole. i don't think the major individual itemized deductions are loopholes, so i think what we need to do is what i suggested, and it's to now go beyond the -- the basic kind of rhetoric of tax reform and really dig ourselves, dig into it with everybody's

participation. i think it's the only way we're going to have major tax reform if we dig in and we began to do that with these working groups that david and i set up, but they essentially looked into the facts, and we didn't get into a discussion of the policies, and it was interesting as outside, as various groups, some of you came to the meetings, you had very different views about, for example, mortgage interest, and also about section 199, and there's very different views than some of you who are not, and in terms of the rights, there's very different views, and in terms of international tax sages, there are very different views, so i think we now need to go beyond simpson-bowles and do -- sit down and do what with tax

reform what we are doing with immigration. >> a gang of 8 in tax reform? i mean, do we need eight members of congress say, you come up with a plan and sell it? >> i think it would help -- it will -- on tax reform, it's going to have to be that and broader. by the way, it's broader than that on immigration like in the house, but i think the immigration approach shows the benefit of doing it that way versus the way we've handled the budget, and so that's my answer so simpson bowles. i think it shined a light on the issue that we now need to take the light and use it to germinate. >> all right. a questioner, i want to make sure i get the question right, in a personal tax reform, how important is creating a tax

regime that is globally competitive? territoriality was part of the list of priorities that this group came up with, the importance of that. if that is not the top reform principle, that is a globally competitive tax regime, what is? >> no, i think whoever asked it, it's one of the essentials. i think you should expect that from me. let me just quickly say why. all of my involvement in trade over these years has been on the basic principle that trade policy needs to allow us to be competitive, and i've been fierce about that. it's not the only principle of trade issues, but for example,

we're going to have a big, if i might say so, not to take so much time up, tpp. i think it's a useful effort, and i think it's part of the globalization. >> transpacific partnership agreement. >> excuse me, right, i'm sorry. now japan is part of it or will become part of it, so what's my reaction? my reaction is, okay, but for -- for decades, japan has shut out automotive sector and shut out our insurance sector, totally, and if we're going to have a tpp, we have to address the value of global competition, and the same in tpp, we also have to

look at the state owned enterprises because vietnam is going to be part -- is part of tpp, and my feeling is i -- i think it's good for them to be in. i think there's issues of work of rights, but there's also the issue -- it was a communist entity, and there are major vestages so expect someone like myself who's been so involved in trying to make sure that there are fair rules of trade for the u.s. as part of globalization that i would want to be sure that our companies had a fair crack at it in terms of tax policy. >> good, thank you very much. is there another question? we have time for one more. yeah, joe. >> [inaudible]

>> can we get a mic? >> the company of 120 billion in revenues, they are in 213 countries in the world, so if you talk about taxation, we really know what you talk about, and the united states is about 20 # billion, and and we have to singlize the tax rates in all 213 countries. pay the -- >> the single highest tax rates -- >> right, of the 13 countries, to pay taxes here because we make money, and we, obviously, have a good time and are competitive. if i heard your side, you'd rather have your american companies taxed based on their experts. would that mean those here at home pay the taxes or should they have to pay here in the

country? >> it's a fair question. i think the answer is we need to figure this out and have a fair balance. i'm not in favor of taxing all of the profits of american companies of all kinds in the u.s.. there has to be a balance. the problem we're having is that it's a whacky kind of disorganized system, and so we're going to have to work it out, but i think all the companies need to understand the reaction of individual citizens in europe and the u.s., and we should not dismiss it because for the typical family that i represent, and this is true throughout much of the country, and it's true in europe, for the middle class, the middle income

brackets of families of this country, for the last 20-30 years essentially it's been treading water. in some respects going backwards, and so there has to be an element of fairness, and so the notion that some companies, i know your company well, you i don't know exactly how you operate in terms of taxes, but when we read that some companies are essentially using imagine their entities in order to avoid taxation, and that in some cases that they have no employees there, and they are simply using shelters, just imagine what it is like for the typical family that has no shelter, taxed shelter, so i'm not suggesting you're right, we have to be careful because what

is good for the goose ised -- is good for for the gandor, andi think there's difficulty in working this out, but i think we should be a bit optimistic in this sense because i think for the first time this issue is in the ga. >> that's good. i think with that -- >> okay -- >> if you're going to end on that note, we have to stop there because i'm afraid of what would follow. >> okay. >> join me in thanking len anyone. >> 1996 is a recent time when the tell come act went in effect, we had digital video, broadband services, residential telephone services, commercial services, and bringing the bundle to the market, the first

in the country to start bundling products together, and for that, a, our customers responded positively, there's high penetration of products today, and we were able to get into new businesses that, you know, others didn't dream about because we got in early, and we were rewarded for that. >> every understands sports and live sports right now is a sweet spot of media. it's almost the only thing that you have to watch live. that increased its value. i think everybody's seeing that now, whether they be social media sites that are partnering with us from tweeting about sports or showing sports that we have, a lot of sports on facebook, other networks, other cable network, the leagues, i mean, i think everybody understands that sports writes are quite valuable. >> more of what's happening in today's cable industry from this year's annual cable show with the largest communications companies. "the communicators"

tonight at eight eastern on c-span2. >> the u.s. senate is about to gavel in to continue work on the immigration bill. the major creates a path to citizenship for illegal immigrants allowing additional high and low skilled workers, and a number of provision like a border search were called last week to strengthen the u.s. border. now live to the senate floor on c-span2. who in your infinite wisdom, ordained that we might live our lives within the narrow boundaries of time and circumstances, we honor your name. today, supply our senators with the strength they need to serve you. help them to seize