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May 22, 2001, 8:00 AM ET, Alert No. 192.
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Supreme Court Diminishes Electronic Privacy
5/21. The Supreme Court of the United States issued its opinion [PDF] in Bartnicki v. Vopper, holding that a radio host cannot be sued for playing an audio recording of a cellular telephone conversation, despite a federal statute which made illegal both the interception of the conversation, and its disclosure by the radio host. The majority reasoned that the case pitted statutes banning disclosure of illegally obtained electronic communications against the First Amendment freedom of speech claims of persons with illegally obtained recordings to disclose them if their content pertains to a public issue.
Statute: 18 U.S.C. § 2511 provides criminal and civil liability for any person who "intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept, any wire, oral, or electronic communication" or who "intentionally discloses, or endeavors to disclose, to any other person the contents of any wire, oral, or electronic communication, knowing or having reason to know that the information was obtained through the interception of a wire, oral, or electronic communication in violation of this subsection".
Facts: Bartnicki used a cell phone in her car to talk with Kane. An unidentified person intercepted and recorded that conversation, in violation of federal wiretapping law. Vopper, a radio commentator, obtained and played a tape of the intercepted conversation on his public affairs talk show, also in violation of the statute. The conversation pertained to ongoing collective bargaining negotiations between a teachers' union and the local school board. Bartnicki was the union's chief negotiator. Bartnicki and Kane filed a complaint in U.S. District Court for violation of Section 2511. Vopper asserted his actions constituted constitutionally protected speech.
Majority Opinion: Justice Stevens wrote the opinion of the Court. He wrote that the recording violated federal wiretapping law, that Vopper knew this, but that he did not make the illegal intercept. Stevens reasoned that the statute's application in this situation would violate Vopper's free speech rights under the First Amendment. Justice Breyer wrote a concurring opinion, in which Justice O'Connor joined.
Dissent: Chief Justice Rehnquist wrote a dissenting opinion, in which Scalia and Thomas joined. "Technology now permits millions of important and confidential conversations to occur through a vast system of electronic networks. These advances, however, raise significant privacy concerns. We are placed in the uncomfortable position of not knowing who might have access to our personal and business e-mails, our medical and financial records, or our cordless and cellular telephone conversations. In an attempt to prevent some of the most egregious violations of privacy, the United States, the District of Columbia, and 40 States have enacted laws prohibiting the intentional interception and knowing disclosure of electronic communications. The Court holds that all of these statutes violate the First Amendment insofar as the illegally intercepted conversation touches upon a matter of "public concern," an amorphous concept that the Court does not even attempt to define. But the Court’ s decision diminishes, rather than enhances, the purposes of the First Amendment: chilling the speech of the millions of Americans who rely upon electronic technology to communicate each day."
Supreme Court Rules in Securities Fraud Case
5/21. The Supreme Court of the United States issued its opinion [PDF] in Wharf Holdings v. United International Holdings, a case construing Section 10b of the Securities Exchange Act of 1934. Wharf is a Hong Kong firm. United is Colorado based company. In 1991 Wharf prepared a bid to the Hong Kong government to become the exclusive cable TV operator. Wharf engaged United to help prepare its application, negotiate contracts, design the system, and arrange financing. Wharf orally sold United an option to buy 10% of the stock of the new Hong Kong cable system. However, it never intended to honor the option. Hong Kong awarded Wharf the cable TV license. United attempted to exercise its option. Wharf refused. United filed a complaint in U.S. District Court (DColo) alleging securities fraud under § 10b. The jury found in Wharf's favor, awarding $67 Million in compensatory damages, and $58.5 Million in punitive damages. The U.S. Court of Appeals (10thCir) upheld. The Supreme Court granted certiorari. Wharf argued that the was no violation of § 10b because the contract was oral, and because this was a breach of contract case not actionable under federal securities law. Justice Stephen Breyer, writing for a unanimous court, rejected both arguments.
Supreme Court Denies Cert in Ravens Copyright Case
5/21. The Supreme Court of the United States denied certiorari in Baltimore Ravens v. Bouchat, a copyright infringement case, Docket No. 00-1494. See, May 21, 2001 Order List [PDF], at page 2.
Bush Nominates Prost for Fed Circuit
5/21. President Bush nominated Sharon Prost to be U.S. Circuit Judge for the Federal Circuit, replacing Jay Plager, who retired. See, release. Prost is a longtime aide to Sen. Orrin Hatch (R-UT) Chairman of the Senate Judiciary Committee, the jurisdiction of which includes intellectual property issues. The Federal Circuit, which is based in Washington DC, has appellate jurisdiction based on subject matter, rather than territory. It hears patent, trademark, customs, and other appeals, and hence, decides many cases of importance to high tech industries.
FCC Reports Jump in CLEC Market Share
5/21. The FCC reported that CLECs' share of all local telephone lines in the U.S. grew 93% in 2000. The FCC stated that "CLECs reported about 16.4 million (or 8.5%) of the approximately 194 million nationwide local telephone lines in service to end-user customers at the end of the year 2000, compared to 8.3 million (or 4.4% of nationwide lines) at the end of 1999. CLEC market share grew 93% over the one-year period of January to December 2000." The FCC also found that "About 60% of CLEC local telephone lines served medium and large business, institutional, and government customers. By contrast, almost 20% of incumbent local exchange carrier (ILEC) lines served medium and large business customers. CLECs served 4.6% of the residential and small business customers at the end of the year 2000, compared to 2.3% for the year ago period." See, FCC release.
The ILECs seized upon the report to promote their efforts to obtain regulatory permissions to provide long distance service. (Section 271 of the Telecom Act provides that the incumbent carriers cannot provide long distance service in a state until it has opened its networks to competition in that state.) "The market is open. It is time to let the Bells compete in long-distance," said Bill McCloskey, Director Media Relations for BellSouth. "The results of the FCC's study confirms what millions of Americans already know: our local markets are fully open and that competitors are successfully winning customers and increasing their market share," said Priscilla Ardoin, an SVP of SBC Communications. See, SBC release. See also, Verizon release.
Powell Addresses Forrester Forum
5/21. FCC Chairman Michael Powell spoke and answered questions at a Forrester Research Telecom Forum in Washington DC. He addressed the status of local competition, the success of the Telecom Act of 1996, Alcatel's possible acquisition of Lucent, legislation pending in Congress regarding broadband deployment, enforcement of telecom laws, and other issues.
Local Competition. Powell stated that the notion that 100 year old telecom monopolies "were going to be eviscerated on a five year or six year time horizon" was "a fantastically naive expectation". He added that local competition and consumer choice is coming from "new and advanced and newly differentiated services". He elaborated that e-mail, instant messaging and cellular communications all compete with the copper based phone networks.
Alcatel and Lucent. Powell was asked for his view of Alcatel's possible acquisition of Lucent. He declined to comment, for two reasons. First, he stated that "I don't think it is my place to interject into the marketplace without the record to make a serious evaluation of." Second, he stated, "I am not so sure this merger will even be subject to Commission review, because we don't review mergers unless there is a transfer of licenses that are issued by us. And if there are not, even mergers that seemingly are communication related, do not necessarily have an FCC review. They will have an antitrust review."
Tauzin Dingell Bill. Powell was asked for his view on HR 1542, sponsored by Rep. Billy Tauzin (R-LA) and Rep. John Dingell (D-MI), and other legislation pertaining to broadband deployment and open access. Powell declined to endorse any particular bill. However, he stated that there are two competing visions of competition underlying the various legislative proposals. "One view is this -- that real competition and choice are going to come to consumers solely by virtue of major technology differentiated offerings, so that there will be a wireline alternative on the public switched telephone network. There will be a cable modem alternative on the cable infrastructure". He added that there may be other "pipes", including wireless and satellite. He also stated that under this vision "choice and differentiation may be among monopolies or oligopolies." This is the view which underlies the Tauzin Dingell approach. The other approach, said Powell, believes that competition within each pipe is important: "It puts the heat on the incumbent. And if you believe in that, strongly, then you are a much bigger proponent of open access and open systems". Powell did not say which vision of competition he held.
The Rat Choice Chairman
5/21. Powell made several statements at the Forrester Forum about the conduct of telecom and Internet companies, and regulation of those companies, that are consistent with a "Chicago School", or rational choice, view of economics and regulation. The FCC is a agency of telecom lawyers, which relies on statutes, voluminous rules, and countless orders, to attempt to direct the conduct of regulated companies. Powell stated that, in contrast, "I just come from antitrust background, economic background". He also opined on the effectiveness of legal rule making: "I do not generally, after completing that review, find myself thinking, gosh, there are just not enough rules out there. Usually, what I find is where there are shortcomings, is that there are rules all over the place, and a lot of the time it is just cost effective to ignore them."
Powell articulated a rational choice view of the companies that the FCC regulates: "all of them are self interested money chasing actors". While comments like this are sometimes made with critical intent by representatives of the political left, Powell added that "I don't even mean that disparagingly." And this view, said Powell, informs how he regulates. He stated, "if you expect companies to do anything other than pursue their self interest, I don't know what planet you come from. They all do. They all will. And I would rather build that into how we regulate them, than to act as if people can be pushed out of their self interest".
Powell applied a calculus of compliance to the ILECs which face statutes and FCC rules regarding opening their networks to competitors. "Self interested profit maximizing actors, remember. If I tell a phone company, 'You have to have this kind of operation support system that allows a competitor to interconnect at an efficient level.' And guess what, that infrastructure will cost that CEO a billion dollars. If he doesn't do it, and he gets a fine for a million. And that is it. What will you do? I think that is an absolutely rational judgment that often occurs in the marketplace." Powell added, "And it is not just phones, by the way. You will see this in a lot of the areas that we regulate."
Powell has stated recently in testimony and correspondence to the House and Senate that he favors legislation to increase the maximum fines that the FCC can impose upon ILECs -- from one to ten million dollars. However, at the Forrester Forum, Powell also vaguely suggested that there ought to be a treble damages right of action against ILECs for not complying with the competition provisions of the Telecom Act. He said, "the antitrust statutes don't go after every merger in the economy either. They couldn't possibly. But, I don't think there is another statute in the federal code that has treble damages. There is a reason. The theory is simple. It knows that by being permissive in the marketplace, it has to be aggressive in the punitive phase, so that the deterrent value resonates across the economy." He then added that companies that contemplate mergers "hire extensive antitrust counsel to work carefully through what they think the consequences, because your fiduciary duty cannot expose the company to treble damages". He concluded, "I am not so sure in telecom we don't need similar." He stopped in mid sentence, and said nothing further on this subject.
SEC Web Survey
5/21. The SEC announced that it has received an overwhelming response to its web based survey concerning investor use of electronic media in making investment decisions. It announced the survey in a May 3, 2001, notice. At that time, it requested responses by July 1. However, as of May 21, the SEC had received over 3,000 responses. Hence, it issued a second notice shortening the response period to terminate on May 25.
BSA Software Piracy Report
5/21. The Business Software Alliance (BSA) released a report [PDF] titled "Sixth Annual BSA Global Software Privacy Report." The report, which was conducted for the BSA by the International Planning and Research Corp. (IPR), estimated that piracy losses total $11.75 Billion worldwide in 2000.
Zoeller Talks Trade and FSC
5/21. USTR Robert Zoellick held a press conference at the European Parliament in Strasbourg, France, in which he addressed trade disputes, including the Foreign Sales Corporation (FSC) dispute.
Teligent Files Chapter 11 Petition
5/21. Teligent filed a Chapter 11 petition in U.S. Bankruptcy Court (SDNY). Teligent is based in Vienna, Virginia. It provides business customers local, long distance, high-speed data and dedicated Internet services. See, release.
Supreme Court to Decide Constitutionality of COPA
5/21. The Supreme Court of the United States granted certiorari in Ashcroft v. ACLU, Docket No. 00-1293. See, May 21, 2001 Order List [PDF], at page 1. This case involves a constitutional challenge to the Child Online Protection Act, an act that bans sending to minors over the web material that is harmful to minors. The Act also allows web site operators to distribute pormography, but require those websites which distribute material that is harmful to children to verify adult status through the use of credit cards, adult access codes, adult PIN numbers, or other technologies. The U.S. District Court and U.S. Court of Appeals (3rdCir) both held that the statute violates the First Amendment. See also, ACLU release.
The House will meet at 9:00 AM for morning hour and 10:00 AM for legislative business. The House may take up HR 1, the No Child Left Behind Act of 2001 and HR 1836, the Economic Growth and Tax Relief Reconciliation Act Conference Report.
The Senate will resume consideration of will resume consideration of S 1, the Better Education for Students & Teachers Act.
9:00 AM. The USTR's Industry Sector Advisory Committee on Services (ISAC-13) will hold a meeting. The meeting will be open to the public from 9:00 to 9:45 AM, and closed to the public from 9:45 AM to 12:00 NOON. See, notice in Federal Register.
9:45 AM. FTC Commissioner Thomas Leary will participate in a panel discussion titled Securing Private Data - How to Assure the Customer, at a conference titled Trust in the Internet: Required Technology and Policy Solutions Conference. Location: Hilton Washington Dulles Airport, 13869 Park Center Road, Herndon, Virginia.
10:00 AM. The Senate Judiciary Committee's Subcommittee on Technology, Terrorism and Government Information will hold a hearing titled Challenges in Cybercrime: The National Infrastructure Protection Center. Sen. Jon Kyl (R-AZ) will preside. Location: Room 366, Dirksen Building.
10:00 AM. The House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property will hold a meeting to mark up HR 1866 and HR 1886, both of which pertain to patent reexamination. Location: Room 2141, Rayburn Building. 
2:00 PM. The House Commerce Committee's Subcommittee on Commerce, Trade, and Consumer Protection will hold a hearing on Impediments to Digital Trade. The scheduled witnesses include Bonnie Richardson (Motion Picture Association of America), George Vradenburg (AOL/Time Warner), Debra Waggoner (Corning Inc.), and Barbara Wellbery (Morrison and Foerster). Location: Room 2322, Rayburn Building.
2:00 PM. The House Judiciary Committee will hold a hearing HR 1698, the "American Broadband Competition Act of 2001," and HR 1697, the "Broadband Competition and Incentives Act of 2001." Location: Room 2141, Rayburn Building.
2:00 PM. The Senate Judiciary Committee might hold a hearing on competition in the pharmaceutical marketplace, focusing on the antitrust implications of patent settlements. Location: Room 226, Dirksen Building. This hearing has been noticed for both May 22 and 24.
Wednesday, May 23
10:00 AM. The House Commerce Committee's Subcommittee on Commerce, Trade, and Consumer Protection will hold a hearing titled On-line Fraud and Crime: Are Consumers Safe? Location: Room 2123, Rayburn Building.
10:00 AM. The House Commerce Committee's Subcommittee on Oversight and Investigations will hold a hearing titled "How Secure Is Private Medical Information? A Review of Computer Security at the Health Care Financing Administration and Its Medicare Contractors." The scheduled witnesses include Michael McMullan and Jared Adair (Health Care Financing Administration), Joseph Vengrin and Ed Meyers (Department of Health and Human Services), and Michael Neuman (En Garde Systems, Inc.). Location: Room 2322, Rayburn Building.
10:00 AM. The House Judiciary Committee will hold a mark up session. The agenda includes HR 718, the Unsolicited Commercial Electronic Mail Act of 2001. Location: Room 2141, Rayburn Building.
12:15 PM. The Federal Communications Bar Association's Online Committee will host a brown bag luncheon. The speaker will be Cliff Sloan, VP and General Counsel of the Washington Post-Newsweek Interactive. RSVP to Diane Hinson. Location: Lampert & O'Connor, Suite 600, 1750 K Street, NW, Washington DC.
1:00 - 4:30 PM. The SEC will host a roundtable on issues related to relationships between broker-dealers and Internet web sites. The roundtable will address several questions, including: What is happening outside of the financial services area on the Internet? What is happening in the financial services area on the Internet? How do broker-dealer web sites and other financial web sites differ? What role do the NASD rules play? When is a web site operator is a broker? What are the investor protection issues? What are the alternatives to broker-dealer registration? See, agenda. Location: Room 1C30, SEC, 450 Fifth Street, NW, Washington DC.
Deadline to submit nominations for the Electronic Tax Administration Advisory Committee to the IRS. The ETAAC provides an organized public forum for discussion of electronic tax administration issues in support of the goal that paperless filing should be the preferred and most convenient method of filing tax and information returns. See, notice in the Federal Register, April 23, 2001, Vol. 66, No. 78, at Pages 20525 - 20526.
Deadline to file comments with the FCC in response to its Notice of Proposed Rulemaking (NPRM) regarding revisions to the method of subsidizing schools and libraries under its e-rate program when there is insufficient funding to support all requests. See, Federal Register, May 8, 2001, Vol. 66, No. 89, at Pages 23204 - 23208.
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