Washington and the Web.

106th Congress Moves to Expand Government Regulation of the internet

The 106th Congress has confronted a rapidly expanding agenda of Internet and e-commerce issues that reflects U.S. lawmakers' growing awareness of the vast political and economic impact of such issues.

As regulation of the Internet and e-commerce has moved from a possibility to a reality, members of Congress are wrestling over what committees will have jurisdiction over these issues. The ultimate pace of legislative action will depend in part on resolving the jurisdictional tussles, as well as marketplace developments, highly publicized events (such as the Love Bug virus) and, in some cases, court decisions.

Some key legislative initiatives include:

Digital Signatures -- On June 30,2000, President Bill Clinton used both a traditional ink signature and a digital signature to sign into law the Electronic Signatures in Global and National Commerce Act. This new law, which passed after many months of heated negotiations, gives electronic commerce a major boost by establishing uniform federal rules for the acceptance of electronic signatures, contracts and other records in interstate and foreign transactions. However, it does not endorse any specific type of technology for such signatures and records.

It also provides a number of consumer protections -- Most importantly, consumers can receive electronically any information that they are currently entitled to receive in writing after being provided certain notices and after being given a chance to consent to the use of electronic records.

The new law does not apply to wills and trusts, records in family law matters, foreclosures on primary residences, cancellation or termination of health or life insurance benefits, product recalls and many other matters. However, federal regulators will have the power to eliminate any of these exceptions after giving the public a chance to comment on any proposed changes.

States are allowed to preempt the new Act if they adopt the 1999 model version of the Uniform Electronics Transactions Act or specify alternative procedures or requirements that are consistent with the new federal law

The new law, set to become effective on Oct. 1, 2000, likely will generate lawsuits in years to come as Congress effectively left the courts with the responsibility of interpreting its many undefined aspects.

Internet Taxes -- With the Internet user tax moratorium set to expire at the end of 2001, Congress is working toward an extension. In May, the House passed legislation to extend the moratorium for an additional five years. Although the Senate version of the House bill passed out of committee before the end of June, debate continued on the appropriate length of the extension, with proposals ranging from a two-year to a permanent extension. The E-Fairness Coalition, consisting of brick and mortar retailers, opposes any extension.

One proposal enjoying broad bipartisan support would extend the Internet tax moratorium until Dec. 31, 2005, while encouraging states and local governments to work together to develop a uniform sales and tax system involving a single, unified statewide tax rate with which all Internet and catalog sellers could comply. To facilitate the development of such a system, states would be authorized to enter into an Internet Sales and Use Tax Compact' that would be submitted to Congress for ratification within a specified period after it is adopted by 20 states. States that did not adopt the simplified sales and use tax system would be prohibited from requiring sellers to collect and remit sales and use taxes on sales made to residents from outside the state.

Other tax initiatives under consideration include banning Internet access taxes, repealing the 3 percent surcharge on telephone use imposed in 1898 to finance the Spanish-American War, and taxing wireless communications.

Cybercrime and Computer Security -- Two legislative proposals have seen their fate wax and wane with the latest computer virus. One bill sponsored by two key members of the Senate Judiciary Committee would, among other things, enhance the ability of law enforcement authorities to prosecute cybercrimes domestically and internationally, protect consumers from fraudulent unsolicited e-mails, and limit online collection and dissemination of personally identifiable information. A narrower bill addressing computer security issues was under consideration in the House. Although these two bills are not the only legislative proposals to address cybercrime and security, they were the ones chosen to be placed on a faster track after the outbreak of the Love Bug virus, only to be sidetracked not long after the initial panic ebbed.

Privacy -- While privacy is not solely an Internet issue, the Web has heightened public concern and accelerated Congressional review. The number of bills introduced in the House and Senate to address a variety of privacy-related concerns, coupled with growing public attention to the matter, may prevent the 106th Congress from adjourning without some action on the issue.

Expressing concerns about self-regulatory efforts of the Internet community, the Federal Trade Commission in May submitted to Congress a legislative proposal focused on Internet privacy issues. The Clinton Administration also offered a proposal to expand the scope of the privacy provisions included in the Gramm Leach-Bliley Act, which was enacted into law in late 1999. The law currently prohibits (only) financial services companies (which can include technology-related companies) from sharing information with nonaffiliated third parties without giving customers the opportunity to opt out of such sharing. The Administration's proposal also would prevent a company from sharing information with its affiliates without customer consent and provide additional protection for medical information.

The least controversial of the pending proposals is probably the bill to create an 18-month Privacy Commission to study various privacy issues and potential legislative responses. A provision focused solely on protecting genetic information was attached to one of a few bills that must pass in 2000. Protection of medical information is also high on the Congressional agenda. In addition to the Clinton Administration proposal, the House Banking Committee approved legislation to block the sharing of such information without affirmative consumer consent.

Approval of more comprehensive proposals depends on events leading up to the November election. For example, action could be triggered by a highly publicized misappropriation of personal information. Recent Federal Trade Commission action against a bankrupt company's sale of previously protected personal data could serve as a catalyst

Children -- Protection of children online continues to be an issue of concern following the April2000 implementation of the Children's Online Privacy Protection Act (COPPA). The Children's Internet Protection Act was attached to one of the few bills that must be passed before Congress adjourns. This legislation requires the installation of web filters on school and public library computers if the schools and libraries want to receive federal funds designated for providing broader Internet access. Objectionable materials to be filtered include child pornography, "obscene material," or any other material "deemed inappropriate" by schools, school boards, or other authorities.

At the same time, the FTC's Commission on Online Child Protection continues hearings around the country on filtering, labeling and rating methods and technologies that can help reduce access by minors to material that is "harmful to minors."

Internet Gambling - Legislation passed in June by the House Committee on Banking and Financial Services may present the most immediate legislative threat to Internet gambling. This bill, which is only one of a number of proposals to address the issue, would prohibit the acceptance of checks, credit cards, debit cards or wire transfers in connection with Internet gambling. The fate of this legislation in the 106th Congress, though, rests in the hands of other Congressional committees that asserted jurisdiction over the bill.

Digital Entertainment-The effectiveness of existing laws protecting intellectual and other property rights are being tested by the Internet. Last year, Congress acted to clarify rules governing domain names, including famous names. The proliferation of business method patents being sought to protect new Internet and other technological developments has led to a review of the patent process and the operations of the U.S. Parent and Trademark Office. The Napster and MP3 lawsuits also have focused Congressional attention on issues relating to the digital media and copyrights. While no legislation has been proposed to address questions raised by the online music file-sharing craze, the spate of Napster imitators means the issue won't die anytime soon.

Broadband Regulation-Hedging bets that the market forces will ensure open access to cable platforms, the Federal Communications Commission has begun the process of addressing the legal issues raised by a recent federal appellate court ruling that high speed Internet access is both a telecommunications service and an information service. Congressional representatives should be expected to monitor this process closely.

The Internet and e-commerce have presented a different type of gold rush for members of Congress. Virtually every committee is expected to want a role in creating the new legal structure. Inevitably, these desires will continue to raise jurisdictional issues that, with other political considerations, will affect the pace of legislation in the coming months.

Carol B. Van Cleef is a partner at the law firm of Katten Muchin Zavis, where her broad-based commercial law practice includes monitoring legislative and regulatory developments in the technology, privacy and e-commerce areas.