Tomorrow's Wall Street Journal: http://interactive3.wsj.com/edition/current/articles/SB863997652645676500.ht... Sun Sells Encryption Software Overseas, Skirting U.S. Policy By DAVID BANK Staff Reporter of THE WALL STREET JOURNAL MOUNTAIN VIEW, Calif. -- Sun Microsystems Inc. plans to sell advanced data-security software from a Russian supplier to overseas customers, a move that skirts U.S. export regulations and is likely to receive close U.S. government scrutiny. Sun is expected to announce Monday that it will sell encryption software licensed from Elvis+ Co., a company formed by scientists from the former Soviet space program. Sun I actually think that Elvis+ is mostly composed of the former KGB scientists, not space scientists. I may be mistaken though. -- igor has a 10% equity stake in the Russian firm. The Elvis+ products will be shipped to overseas customers from Sun distributors in third countries to keep them from falling under U.S. jurisdiction. Sun's move illustrates how global market pressures are making it increasingly difficult for U.S. officials to control the spread of advanced encryption hardware and software. The technology, which scrambles data to protect it from computer eavesdroppers, is considered vital to the growth of electronic commerce. But export of powerful encryption products is barred under U.S. export-control laws, on grounds that terrorists and others will use it to evade surveillance. Challenge to U.S. Policy The Sun action will cause the Clinton administration to face a difficult decision, said Jim Bidzos, president and chief executive of RSA Data Security Inc., a unit of Cambridge, Mass.-based Security Dynamics Technologies Inc., a major supplier of encryption technology. "The government has to shut this down, or else the competitors of Sun probably have to say, 'We're going to do the same thing,' " he said. Mr. Bidzos, a long-time critic of the export controls, praised Sun's move as "blatant and in-your-face." An administration official said Sunday the White House didn't have enough information to comment. Computer-industry executives, concerned that they could lose a valuable market to foreign competition, have long discussed strategies to exploit loopholes in the export laws. But Sun appears to be the first major company to use foreign software to supply overseas customers. Sun executives said they hadn't discussed the plans with U.S. government officials but had strictly adhered to current laws. "This is not being done to subvert export-control laws but to deliver solutions to customers," said Humphrey Polanen, general manager of Sun's network-security products group. "Never before have organizations outside of the United States had access to such advanced security software." Privacy advocates said Sun's initiative would boost their goal of making high-strength encryption widely available. "We think the benefit for security outweighs the liability for law enforcement," said Jerry Berman, executive director of the Center for Democracy and Technology in Washington, D.C. Critical Distinction Elvis+ is based in Zelenograd, a Moscow suburb that was once known as the "Soviet Silicon Valley." The company's products are based on a security protocol called SKIP that was developed by Sun, but Sun says it provided no technical assistance to the Russian company. The distinction is crucial; the export controls cover any product developed with such assistance from a U.S. company. The product, which will be marketed under the name SunScreen SKIP E, employs various encryption algorithms, or formulas, including so-called three-key triple DES and 128-bit ciphers, which security experts consider to be virtually unbreakable. The algorithms, in wide use within the U.S., are used to scramble digital communications; in general, the longer the bit length of the encryption key, the more difficult the code is to break. Current export controls allow the export of cryptography keys up to 40 bits, which have been cracked by computer hackers in as little as 10 minutes. Companies with special approval from the Commerce Department have recently begun exporting 56-bit encryption software, but customers have been clamoring for much stronger keys. Global Competition The restriction on U.S. exports has opened market opportunities for strong encryption products from foreign competitors, including Germany's Brokat Informationssysteme GmbH and Siemens Nixdorf Informationssysteme AG, a unit of Siemens AG. "Sun's announcement is further evidence that current U.S. policy is forcing companies to look overseas to obtain strong encryption," said Edward Black, president of the Computer and Communications Industry Association, a Washington D.C., trade group that is lobbying for relaxation of the export controls. Last year, RSA Data Security announced plans to fund an effort by Chinese government scientists to develop strong encryption technology, but the effort has stalled, Mr. Bidzos said. RSA now sends legally exportable products to its Japanese subsidiary, RSA Japan, for bundling with Japanese encryption software. "I can't just let this world-wide global electronic-commerce market take off without participating," Mr. Bidzos said. Sun's Mr. Polanen said SunScreen SKIP E+ will work with other products based on the SKIP protocols. A commercial version will be available in August; evaluation copies are available for download from an Elvis+ site on the World Wide Web. The software will be priced at $99 for versions that run on Microsoft Corp.'s Windows 3.1 and Windows 95 operating systems and at $149 for the Windows NT version.