Wall Street Journal, October 20, 1997: French Proposal For Encryption Is Worrying EC By Jennifer L. Schenker A proposed French law ensuring government access to corporate electronic communications is setting off alarm bells in the business community and on the European Commission. France, presenting the law as a liberalization of its current policy, is the only Western country that bans any domestic use of cryptography - technology that encodes data for protection against prying eyes. France also places strict controls on the export of encryption tools, a restriction imposed by certain other countries, including the U.S. The new rules, submitted to the European Commission on Thursday, allow businesses operating in France to encode their corporate secrets but require that keys to unlock the code be given to a French government-approved entity in which the majority of the capital or votes is retained by French nationals. Microsoft Corp., Netscape Communications Corp. and the Business Software Association have raised objections to the French proposal. The BSA represents major international software publishers and high-tech companies, including Novell Inc., Compaq Computer Corp., Apple Computer Inc. and Lotus, a unit of International Business Machines Corp. The proposal also requires companies selling products with embedded encryption software in France to reveal "source code" - the rough equivalent of asking Coke to reveal its secret formula. Some believe that such a key-recovery system would make it easier for competitors to gain access to a company's secrets. The BSA's European chapter is expected to release a public statement this week supporting the European Commission's decision earlier this month to reject the key-recovery approach to encryption, which is championed by both the U.S. and France. The commission, which will formally comment on the French proposal by month's end, is concerned partly because the French ownership requirements may violate internal market rules. "I do not say this is the best system. It is the least bad in trying to find a balance between national-security interests, economic interests and the protection of personal privacy," said Gen. Jean-Louis Desvegnes, chief of France's Central Service for the Security of Information Systems, a civilian agency that reports directly to the French prime minister's office. He indicated that France might be flexible on the ownership requirements. -----