Testimony

of David Peyton

Director, Technology Policy

National Association of Manufacturers

on behalf of the National Association of Manufacturers

before the Subcommittee on Courts and Intellectual Property

on H.R. 1714

The Electronic Signatures in Global and National Commerce

(E-SIGN) Act

September 30, 1999

Good morning, Mr. Chairman. I am David Peyton, Director, Technology Policy for the National Association of Manufacturers (NAM), which represents 14,000 companies - 10,000 of which are small businesses.

The overall theme that guides every policy position that the NAM takes is promoting faster overall economic growth. In the last several years, the realization has become widespread that technology applications drive our economic growth. By the NAM's calculations, seconded by numerous other assessments, technology applications account for two-thirds of labor productivity gains and one-third of long-run economic growth.

Any pro-growth stance leads one, ineluctably, to support legislation to boost productivity and to facilitate e-commerce. In the former category fall such measures as boosting federal spending on civilian science, establishing a permanent R&D tax credit, and modernizing the patent system. In the latter category, measures clearly needed are adequate computer security, included electronic message protection by encryption and signature protection, and addition progress in intellectual property rights and Internet privacy protection. The NAM is pleased at the growing bipartisan consensus on a number of these questions, as reflected in the House Republican Leadership's "E-Contract" and the New Democrat Network's "E-Genda," both of which specifically mention electronic signatures.

It's no secret that the information technology industry is enjoying both the greatest internal productivity gains and, simultaneously, generating external growth for other industries. The stock market has risen in total capitalization by about $11 trillion, of which about 80 percent represents intangibles, such as intellectual property rights and business models, rather than traditional physical assets. In the last two weeks, both Newsweek and Business Week have run cover stories on the Internet's transformative effects.

That brings us to the significance of the legislation before us this morning. Allow me to quote from the May 26 letter to Senator Abraham in support of S. 761, signed not only by the NAM but also by the U.S. Chamber of Commerce, the Information Technology Industry Council, the Information Technology Association of America, and the American Electronics Association:

During the last Christmas shopping season, American consumers opted in record numbers for the speed and convenience of Internet-based transactions. Point-and-click credit-card purchases for limited sums rested on the underlying structure of one-time paper contracts among credit-card associations, banks and consumers.

Business-to-business transactions -- by most credible projections, ultimately far larger than consumer sales -- must go beyond the credit-card domain. Today, legal uncertainty and non-conformity push firms down to a lowest common denominator of paper contracts for interstate commerce, which precludes complete automation.

Here is the key policy problem: American business is eager to get rid of paper contracts, but the process of developing and enacting a uniform state law on electronic contracting is far from complete. Before electronic commerce can reach its full potential, business must be provided assurance that traditional signature law encompasses electronic authentication. Unfortunately, some states still do not have such laws, and the ones that do are far from uniform.

Diligent work by the National Conference of Commissioners on Uniform State Laws will yield, later this year, a "Uniform Electronic Transactions Act." Even so, enactment of this model law by all 50 states could take several more years. In the world of e-commerce, with its unprecedented business velocity, that is simply far too long. S. 761 can act as a highly effective "bridge loan" until all 50 states agree on the rules for electronic transactions. We hope that as many states as possible will enact the model law forthwith, thus reducing business uncertainty, and intend this bill to hasten that process at a time when foreign competitors do not face similar legal challenges from a federal governmental system.

We are not market forecasters, Mr. Chairman, and have no numbers to add to the market aggregates that many are predicting. But we are sure of two things:

First, eliminating paper contracts will achieve great internal administrative savings. Don Peterson, the chief financial officer of Lucent and an NAM board member, has compared the costs of traditional procurement transactions and new electronically enabled ones. The cost goes down from $5 to $1.50 per transaction. That will add up to billions in savings for industry.

Second, at the operations level in manufacturing, cooperation is the new frontier among firms. Almost three years ago, the Next-Generation Manufacturing Report called the close work among companies in a supply chain an "extended enterprise." Our own series of Technology on the Factory Floor Reports, conducted with Auburn University and based on answers from about 1,000 plant managers, shows that firms have essentially reached saturation with stand-alone automated machines and are now moving aggressively to link them in factory networks. The next leap, already well underway in the electronics industry, allows companies to specialize in a new way. The virtual manufacturer does the R&D, product design, marketing and support. The contract manufacturer specializes in rapid setup and reconfigurations, slices out middle management, and does the actual fabrication. We assure you that the account to this effect in the current cover story of Business Week (October 4, 1999, "The Internet Age") is accurate.

For these reasons, the NAM commends the legislation as it stands in the Senate. It accomplishes the fundamental purpose of giving legal effect to e-signatures in interstate commerce, with the important provision that the actions of authorized intelligent agents will be recognized, as in the model law. At the same time, it shaves down the unavoidable degree of preemption to the minimum, in recognition of federal-state comity. Moreover, it gives explicit effect to the understanding that many of us supporting the bill already known that it should not alter existing federal or state consumer protections.

Mr. Chairman, we believe that passage of e-signature legislation this year is not only desirable but also achievable. Even with the growing and welcome bipartisan consensus on technology issues, the 106^th Congress has enacted, thus far, only two technology-related measures: amendments to the Fastener Quality Act, and the second Y2K law. Enactment of an e-signature law would represent a solid legislative achievement for the 106^th Congress.

Let me hasten to add, this Subcommittee has been, by far, the most productive one in the entire Congress on technology issues. The Courts Subcommittee has yielded legislation to assure that Americans can use encryption, to modernize the patent system and to protect databases, with the prospect of action which will protect product identification codes, as well. The NAM has had the privilege of working with this Subcommittee in almost all of these endeavors and appreciates the opportunity to take part in this proceeding, as well. The Subcommittee can continue its outstanding record by reporting H.R. 1714 right away, preferably in a version close to what has been negotiated to the relative satisfaction of various parties in the Senate.

Mr. Chairman, I would be happy to take questions afterwards.