By Vernon Loeb
Washington Post Staff Writer
Wednesday, February 16, 2000; Page A21

The Central Intelligence Agency's new venture capital fund, In-Q-Tel, has entered into a $3 million contract with Science Applications International Corp. (SAIC) for development of software designed to protect Web sites against "denial of service" attacks and to make computer addresses invisible to "sniffer" programs.

In-Q-Tel announced its venture with SAIC last week as hackers commandeered hundreds, if not thousands, of computers and launched just such attacks, flooding Yahoo, Amazon, Excite and other major companies on the Web with traffic that temporarily shut down their systems.

Gilman Louie, In-Q-Tel's president and chief executive officer, said in an interview yesterday that the seed investment in a patented SAIC technology called netEraser gives the CIA development input, testing rights and, if all goes well, ultimate use of a highly promising new technology. Under its contract, In-Q-Tel would receive royalties from sales of netEraser.

Indeed, Louie said In-Q-Tel's investment in the software illustrates why CIA Director George J. Tenet and Congress invested an initial $28 million last year in the venture capital initiative, hoping to help generate advanced analytic and spy technologies--and cement relationships between the CIA and new-age computer entrepreneurs.

Louie said SAIC scientists actually discovered netEraser by accident, working on weekends.

"It wasn't until we came along that they kind of pulled [netEraser] out of the back room and began to implement the technology in a way that would be useful not only for the CIA, but for anybody who has the need for security on the Internet," said Louie, who joined In-Q-Tel late last year after selling his own video-game company, Microprose, to Hasbro for $70 million.

SAIC officials tell a slightly different story, saying they had patented netEraser long before In-Q-Tel ever offered to provide development funding and had initially decided against any government involvement, fearing that many of SAIC's clients in the federal government--the CIA among them--would insist on exclusive use of the product.

SAIC changed strategies, they said, only after learning that In-Q-Tel insists upon commercial applications for all technologies that it funds.

"It really is a new way of doing business that [In-Q-Tel] reached out with," an SAIC spokesman said, crediting In-Q-Tel with speeding the development cycle.

The SAIC spokesman said netEraser is to be used in tandem with an operating system, such as Windows, that is capable of rejecting undesired packets of information at high speeds. NetEraser is also capable of disguising a computer user's identity, the spokesman said, by constantly changing a computer's Internet protocol address.

One CIA official who deals extensively with In-Q-Tel said SAIC's technology is capable of rejecting thousands of packets per second that are not compatible with netEraser's protocol. The technology, the official said, has both defensive and offensive implications for CIA spies, protecting their networks while enabling them to probe adversaries' computer systems in anonymity.

"We don't want to go to the Hezbollah Web site as cia.gov," the official said, explaining that the agency hopes to begin testing a netEraser prototype soon.

Louie said SAIC has completed the prototype for about half the $3 million investment.

"This is kind of a new business model for the federal government: Can you [a federal agency] strategically align your goals with a corporation's strategic goals?" Louie said. "If you can, then what you're financing is the start-up of an organization, not necessarily cost plus hours, and I fundamentally think that's good for the CIA."