Jerry Yang on the Hot Seat

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A Search for a Role Model

The hope among some committee members was that Yahoo would set an example for other Internet companies doing business in China and other countries without freedom-of-speech guarantees. If Yahoo publicly promised not to hand over certain types of information or block access to certain Web pages, such as U.S. embassy Web sites, other Internet companies might have followed suit.

In his opening remarks to Congress, Yang made no such promises. He did, however, outline some actions Yahoo is taking to protect human rights in China. Yahoo has established a team to address privacy and freedom of expression issues. The team, said Yang, consults with academics and U.S. agencies such as the State Dept. to adopt strategies that "limit risks around challenges to freedom of expression and privacy in new markets." Yahoo is also working with nonprofits to develop an industry code of conduct along with other companies.

Yang may wish Yahoo could do more in China. However, his company no longer has much influence in the country. In 2005, Yahoo merged its Chinese operations into Alibaba Group, a Chinese company that runs the e-commerce sites Alibaba.com and Taobao.com, paying $1 billion for a nearly 40% stake in the parent company.

Coincidentally, Alibaba.com held an initial public offering (BusinessWeek.com, 11/6/07) of stock on the Hong Kong Stock Exchange on Nov. 6, the same day Yang will will be testifying before Congress. While the parent company will retain a majority interest in Alibaba.com after the IPO, Yahoo's sizable stake isn't big enough to control the Chinese site's policies. And the CEO of Alibaba.com and its parent has already asserted publicly that he plans to cooperate with Chinese authorities.

The Global Online Freedom Act

Committee members also wanted Yang to weigh in on a proposed law called the Global Online Freedom Act of 2007. The bill, introduced by Representative Smith, would make it a crime for U.S. technology companies to supply any government authorities with information about customers that could be used to identify a person. Such information would include names, Social Security numbers, phone numbers, and home addresses.

Already approved by the House Committee on Foreign Affairs, the measure is now being weighed by the House Commerce Committee. "Not only does it protect human-rights activists in countries like China where rights are suppressed, but it also protects the Internet companies," says Patrick Creamer, communications director for Representative Smith. "Yahoo and other companies say they are just following the laws that they are forced to [in other countries].… This gives American IT companies a leg to stand on."

Bound By Local Laws

But Yang's early testimony showed few signs of giving Congress the answers it wants regarding the bill. Although Yahoo officials have said they support the "general objectives" behind the legislation, they argue it "effectively bans" U.S. Internet companies from doing business in China.

Should such a law exist, they say, countries such as China might not allow U.S. companies to operate within their borders since, to do so, they must agree to comply with local laws. Even if a company was permitted to set up shop in a foreign country under such circumstances, its employees there would be vulnerable to arrest if they tried to comply with the proposed U.S. law in a way that violated local regulations.

"Just as companies doing business in the U.S. are bound to follow the laws here, U.S. companies doing business elsewhere are bound by host country laws," Yahoo said in a statement e-mailed to BusinessWeek. "As a company, if Yahoo! is served with a lawful request and refuses to comply, local employees could be subject to civil and criminal penalties, including arrest."

Holahan is a writer for BusinessWeek.com in New York .