Elvis+ to sing new tune

Elvis+ president plans major changes as investment contract with Sun ends

By Ken Masica

March  1998
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San Francisco (February 27, 1998) -- After a five-year relationship, the Elvis+ Company, a Russian software vendor of Internet security products, is beginning to distance itself from Sun Microsystems. In an exclusive interview with SunWorld in Russia, Elvis+ President Alexander Galitsky says he is planning a major shake-up that will see a significant portion of the company's product line and staff moved to another country and put under the leadership of a senior employee hired away from Sun.

Elvis+ is allowing a five-year investment agreement with Sun to lapse on March 1, but will remain a Sun technology partner. It will attain more independence and an international focus by soliciting new U.S. and international investors. Elvis+ will develop an enterprise security product line with a cross-platform, Open Crypto API architecture and a direct sales and marketing force behind it.

Making headlines
Elvis+ and Sun made headlines last spring by announcing their intention to work together to develop and sell strong encryption products worldwide (See "Sun puts pressure on U.S. encryption policy.") The announcement generated considerable interest and was widely viewed as a way around restrictive U.S. encryption export laws. The plan called for Elvis+ to independently develop a 128-bit software encryption product based on the public SKIP (simple key management for Internet protocol) specification. Under the agreement, Elvis+ would develop a product for the Microsoft Windows 3.11 and Windows 95 platforms, and Sun would have an exclusive OEM license to sell the products through international channels. If the plan worked, Sun would be able to sell a strong encryption product overseas without restrictions. SunScreen SKIP E+, as the Windows client software was called, was based on SKIP and could interoperate with Sun's own security products. Sun's plan never got off the ground, however, and no products from Elvis+ were ever sold by Sun.

Galitsky says the expiration of the investment contract with Sun does not affect its SunScreen SKIP E+ sales arrangement with Sun. Sun's exclusive rights to sell these products will expire in the year 2000.


Feds step in
The reason for the delay in shipment has been a U.S. Department of Commerce investigation of the working relationship between Sun and Elvis+. The official inquiry began last June shortly after Sun's announcement and delayed the company's plans to begin selling the Elvis+ products by mid-August. According to a source close to the investigation, the focus of the inquiry appears to be whether the products developed by Elvis+ were truly independent implementations or whether Elvis+ received assistance from Sun. For this reason, source code has been obtained from both companies for analysis and comparison. E-mail sent between the two companies has also been requested.

Sun and Elvis+ have no comment on the investigation other than to note that the investigation is pending and that they are cooperating fully. A Commerce Department spokesperson contacted by SunWorld declined to comment on the "ongoing investigation."

In the meantime, SunScreen SKIP E+ products have stayed on the shelf, and it remains to be seen whether Sun will ever resume its plan to resell strong encryption from Elvis+.

Strategic shift
Back in 1993, Sun and Elvis+ signed a five-year stock purchase agreement. According to Galitsky, Sun gave equipment and cash to Elvis+ in exchange for a 10 percent equity stake in the company. Under the terms of the agreement, Sun had to be informed of potential new investors and had the right of first refusal to reject the new investment and match the proposed offer. If Sun did not match the bid, the new investor could purchase a percentage of Elvis+. During the five-year period of the agreement, Sun's equity remained at 10 percent while additional investment was obtained from the London-based investment bank SBC Warburg.

The original investment agreement between Sun and Elvis+ expires on March 1. According to Galitsky, Elvis+ has elected not to renew the deal with Sun, but instead solicit new outside investment, including an investment from venture capitalist and technology pundit Esther Dyson. Elvis+ is actively seeking new investment in order to develop and sell its own enterprise security product line targeted for the international market.

As part of his new strategy, Galitsky plans to transfer its FortE+ product line to a new company, which has yet to be named. The new company will be based in western Europe and will open in mid-March. A U.S. office is scheduled to open in the middle of summer. Humphrey Polanen, formerly the general manager of Sun's Network Security Products Group at Sun, has been recruited as CEO of the new venture. Galitsky, will serve as chairman and chief technology officer.

Sun executives had no comment as to how the departure of its Elvis+ point man, Polanen, will affect the two companies' relationship. Galitsky claims, "Everything is very good with Sun going forward."

The new plan calls for engineering and development groups to remain in Russia, while the management, marketing, and sales personnel will be based Europe. The Elvis+ brand name will be retained only for the integration and consulting services currently offered in Russia. Otherwise, all new products and services will carry the new company name.

The move to western Europe is designed to focus the company on the international security market and to target large multinational companies in such industries as banking and telecommunications. The move also appears to be motivated in part by the need for Elvis+ to distance itself from the current business and legal climate in Russia. They hope to find in the new European location an environment more suitable to conducting international business, and encryption export laws that are less restrictive.

Although his strategic changes are designed to move Elvis+ in a new and independent direction, Galisky hopes to continue working closely with Sun. It is likely that Elvis+ will continue to be a Sun business partner, given Sun's remaining 10 percent equity stake and continuation of the existing joint technology license and development agreement between the companies that was signed in 1992. Under this agreement, which is separate from the 1993 investment agreement and the SunScreen SKIP E+ deal, the two companies can share developed technologies based on a five percent royalty arrangement.

As Alexander Galitsky puts it: "Of course we are still very interested in working with Sun and continuing to be a SKIP technology partner. However, we are also developing and intend to market our own product line that will be based on the emerging IPSEC/ISAKMP standards as well as on SKIP."

Strong solution
Although Elvis+ is primarily known in the U.S. for its business dealings with Sun, it has actually created its own enterprise security product line targeted for the international market. Based on the SKIP IP security protocol specification, its FortE+ product line provides strong security (up to 256-bit private keys for some algorithms) for the desktop, LAN, and intranet. Supported platforms include Solaris, SCO Unix, Windows 3.11, Windows 95, and Windows NT.

Protection of single-node machines, either attached to a local network or mobile, is provided by the FortE+ Client product. This product provides desktops with access control and the ability to communicate securely with remote nodes or networks that are SKIP-compatible. The product line also includes a SKIP security server called FortE+ Branch that can provide SKIP-based encryption and authentication services to a group of nodes located on a LAN or at a given remote location. Lastly, FortE+ Enterprise is a packet-filtering firewall product that has an embedded SKIP engine. This product can provide perimeter protection as well as establish encrypted channels to remote SKIP hosts and networks.

Products in the FortE+ line can be used individually to achieve point-to-point security or in combination to build more sophisticated secure virtual private network architectures.

Open API architecture
Perhaps motivated by its recent entanglement with Sun and the U.S. government, Elvis+ has developed an Open Crypto API specification that is intended to solve the problem of government restrictions on the import and export of strong encryption.

The API will allow customers or independent software and hardware vendors to develop and plug in cryptographic engines that satisfy local government regulations or corporate security policies. By separating the security application software from the SKIP security module, the Open Crypto API will allow developers to write applications that are independent of the cryptographic engine and are portable across platforms. Elvis+ engineers presented their Open Crypto API plans at the recent SKIP Developers Workshop. Elvis+ will integrate the Open Crypto API across its FortE+ product line and hope that other vendors of SKIP products will also support the new API.

Company to watch
Sitting on a shelf in Mr. Galitsky's Zelenograd, Russia office is a photo of him with Bill Gates. There could hardly be a more striking symbol of the emergence of Elvis+ from the shadow of Sun than the image of Sun's public enemy number one. In fact, there were rumors last fall that Microsoft was considering an investment in Elvis+ -- rumors that Elvis+ investor Esther Dyson claims are untrue.

In its quest to be a player in the international security market and to solve the holy grail of legal cross-border encryption, Elvis+ has crafted a bold strategy and appears open to partnering with whomever can help it realize its vision. It will be interesting to watch this company from Zelenograd, Russia as it wades into the rough waters of international encryption in search of strong but legal solutions.

--Additional reporting by Robert McMillan


About the author
Ken Masica is an electrical engineer specializing in the areas of network design, simulation, and security. Reach Ken at ken.masica@sunworld.com.

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