Tech Law Journal Daily E-Mail Alert
November 2, 2001, 9:00 AM ET, Alert No. 300.
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Rep. Goodlatte Introduces Gambling Bill
11/1. Rep. Bob Goodlatte (R-VA) and others introduced the Combatting Illegal Gambling Reform and Modernization Act [PDF]. The bill would amend 18 U.S.C. §§ 1081 and 1084, which contain the definitions and prohibition, respectively, of the Wire Act. The Wire Act currently criminalizes the use of "wire communications facilities" in interstate commerce for gambling. The Wire Act does not ban gambling. This is a matter of state law. The Goodlatte bill expands the prohibition to cover all communications between states or with other foreign countries. It maintains the principle that gambling is otherwise a matter of state law. Hence, under the Goodlatte bill, use of the Internet for gambling purposes would become illegal (if interstate or foreign).
Rep. Goodlatte held a press conference to announce the introduction of the bill. He was joined by several cosponsors of the bill, including Rep. Mike Oxley (R-OH) and Rep. John LaFalce (D-NY), who are the Chairman and ranking Democrat on the House Financial Services Committee. On October 31, this Committee  amended and approved HR 556, the Unlawful Internet Gambling Funding Prohibition Act, by vote of 34 to 18. HR 556 would attempt to stem illegal Internet gambling by preventing the use of credit cards, wire transfers, and other financial instruments in connection with illegal Internet gambling. Rep. Oxley stated that the two bills are complimentary.
Rep. Lamar Smith (R-TX), Chairman of the House Judiciary Committee's Crime Subcommittee, stated his support for the bill. He said that he expected to hold a hearing, and maybe a mark up, before the end of the year. Rep. Jim Gibbons (R-NV) stated that legalized gambling, such as in Nevada, is heavily regulated and taxed, while Internet gambling is illegal, unregulated and untaxed. He also said that the Goodlatte bill does not conflict with, or preempt Nevada state law.
Rep. Frank Wolf (R-VA) also attended the press conference. Rep. Rick Boucher (D-VA), who is a Co-Chairman of the Internet Caucus, along with Rep. Goodlatte, did not attend; however, Rep. Goodlatte said that he supports the bill.
All Communications. The criminal prohibition of the Wire Act, 18 U.S.C. §§ 1084 currently provides that "Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers ... shall be fined under this title or imprisoned not more than two years, or both." Since the current statute affects only wire communication facilities, and some Internet communications do not involve wires, it leaves open the possibility that some Internet gambling may not be illegal under the Wire Act.
The Goodlatte bill provides that "whoever, being engaged in a gambling business, knowingly (1) for the transmission in interstate or foreign commerce ..." or between the U.S. and abroad "... of bets or wagers ... shall be fined under this title or imprisoned not more than five years, or both." Hence, it pertains to all communications, not just wire communications. Moreover, the maximum penalty for violation is increased from 2 to 5 years.
Also, the Goodlatte bill would amend 18 U.S.C. § 1081, which currently defines ''wire communication facility'' as "any and all instrumentalities, personnel, and services (among other things, the receipt, forwarding, or delivery of communications) used or useful in the transmission of writings, signs, pictures, and sounds of all kinds by aid of wire, cable, or other like connection between the points of origin and reception of such transmission." As amended, it would provide that "communications facility" means "any and all instrumentalities, personnel, and services (among other things, the receipt, forwarding, or delivery of communications) used or useful in the transmission of writings, signs, pictures, and sounds of all kinds by aid of wire, cable, satellite, microwave, or other like connection (whether fixed or mobile) between the points of origin and reception of such transmission."
Illegal Gambling Funding. The Goodlatte bill also criminalizes "the transmission of a communication in interstate or foreign commerce ... which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers". Also, like HR 556, the bill prohibits the use of credit, electronic funds transfers, and checks in connection with illegal gambling.
Exclusion of Fantasy Sports Leagues. The Goodlatte bill also contains a detailed definition of "bets or wagers". This definition excludes "participation in any game or contest in which participants do not stake or risk anything of value other than (I) personal efforts of the participants in playing the game or contest or obtaining access to the Internet". This definition also excludes certain "participation in any simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) all teams are fictional and no team is a member of an amateur or professional sports organization ..." and the distribution of winnings conforms to the requirements of the bill.
Exclusion of Intrastate Online Gambling. The bill also excludes certain intrastate Internet gambling activities. It provides that "Nothing in this section prohibits the use of a communication facility for the transmission of bets or wagers or information assisting in the placing of bets or wagers, if (1) at the time the transmission occurs, the individual or entity placing the bets or wagers or information assisting in the placing of bets or wagers, the gambling business, and any facility or support service processing those bets or wagers is physically located in the same State, and the State has a secure and effective customer verification and age verification system to assure compliance with age and residence requirements ..." Nevada has enacted a relevant statute, but not licensed any such operations.
Exclusion of Internet Advertising. The Goodlatte bill also excludes advertising from its definition of "information assisting in the placing of bets or wagers". Hence, legal gambling operations could still advertise on the Internet.
Enforcement. In addition to criminal penalties, the bill would allow federal, state, local, and tribal law enforcement agencies to obtain injunctions against violation of the act. It also provides that "any common carrier, subject to the jurisdiction of the Federal Communications Commission" may enjoined from providing service to entities in violation of the act, and gives such carriers immunity from suit for discontinuing such service.
ISP Exception. Finally, the bill provides that "No relief requiring the blocking of websites may be granted under paragraph (1) against an interactive computer service (as defined in section 230(f) of the Communications Act of 1934), unless the service is acting in concert with a person who is violating the law and the service receives actual notice of the relief."
Colin Powell Addresses Trade and Technology
10/31. Secretary of State Colin Powell gave a speech in Washington in which he praised the benefits of trade, trade promotion authority, and technology.
He stated that "in this new century, we have the potential to lift tens of millions of people out of poverty, to help them give voice to their aspirations for a better life, and to free the human spirit within them. I believe in the power of trade and technology, because I have seen it here in America, I have seen how it works. Our country has the world's highest standard of living and the largest and most innovative economy, in large part thanks to you, the manufacturers of America, willing to take advantage of technology and the new open trading opportunities that exist."
Benefits of World Trade. Powell stated that trade and investment "lift people out of poverty and expand the global middle class", "create conditions for expanded personal freedom", "support rule by law, not by political whim", "promotes international responsibility", and "are the keys to open and vibrant societies that are receptive to new ideas".
Trade Promotion Authority. Powell also argued that "most important of all, we need Trade Promotion Authority, TPA. Because for the United States to be credible at the negotiating table, our trading partners need to know that there will be no further negotiation on an agreement once we have reached an agreement with them. And that is what TPA does. It gives us credibility in the negotiating process and paves the way for US leadership."
Technology at the State Department. Powell stated that "We are all on the same web page, so to speak. For I believe that trade and technology -- my children are trying to make me literate in all this stuff -- I've gotten pretty good. In fact, I scare the devil out of the guys at the State Department. Because I say, we're all going to be on the Web at State, all 30,000 computers that we have around the world, I want everyone to have Internet access immediately. And that's costing us a bunch of money, and it's causing people to change the way we think about doing things."
Powell Forms Merger Review Team for EchoStar DirecTV
11/1. FCC Chairman Michael Powell announced the formation of an FCC merger review group for EchoStar's proposed acquisition of DirecTV. The group will be headed by Kenneth Ferree. The other members will be Jim Bird, David Sappington, Barbara Esbin, Julius Knapp, JoAnn Lucanik, Royce Sherlock, Donald Stockdale, and Doug Webbink.
Ferree is Chief of the FCC's Cable Services Bureau. Another member of the group, Royce Sherlock, is the Deputy Chief of the Policy Division of the Cable Services Bureau. Esbin also works in this bureau. However, neither EchoStar nor DirecTV are cable companies; they are satellite broadcasters. Also, Knapp is Deputy Bureau Chief of the Office of Engineering & Technology. Moreover, three of the eight are economists. Sappington is the FCC's Chief Economist. Stockdale is an Economist in the FCC's Office of Plans and Policy. Webbink is an Economist in the FCC's International Bureau.
If regulators at the DOJ, FTC and FCC were to focus on the market for multi channel video programming via satellite broadcast as the relevant market for antitrust analysis purposes, then the merger would be objectionable on the basis of concentration. However, if regulators were to view the relevant market as all providers of multi channel video programming, including DBS, cable, and technologies still in development, then the merger may be good for competition. Hence, it may be significant that Chairman Powell has selected a team that includes cable regulators as well as satellite regulators, and technologists and economists as well as lawyers.
Jim Bird, who has also been picked for the team, holds the titles of Senior Counsel in the FCC's Office of General Counsel, and head of its Transaction Team. Former FCC Chairman William Kennard brought Bird to the FCC in January of 2000 to head of the FCC's de facto antitrust merger review process. He previously worked for the law firm of Shea & Gardner. See, FCC release of January 12, 2000.
JoAnn Lucanik is with the Satellite Division of the FCC's International Bureau.
Finally, Esbin is an Associate Bureau Chief in the Cable Services Bureau. She is the author of the FCC's 1998 study, OPP Working Paper No. 30 [PDF], titled "Internet Over Cable: Defining the Future in Terms of the Past." This is a tome -- 129 pages and 497 footnotes. See, TLJ News Analysis from 1998 regarding this report. Esbin recently returned to the FCC following a short stay at the law firm of Dow Lohnes.
Chairman Powell stated in a release that "The team I have assembled includes experts from different FCC offices and bureaus that deal with areas and issues relevant to these companies and I am confident that the review will be thorough, fair and timely. Given the significant concentration that would result from this transaction, it will be rigorously scrutinized by this team and the Commission."
On October 28, EchoStar Communications, which provides satellite broadcasting under the name Dish Network, and General Motors (GM), which owns Hughes Electronics, which provides satellite broadcasting under the name DirecTV, announced the signing of definitive agreements that provide for the spin off of Hughes from GM and the merger of Hughes with EchoStar. See, EchoStar release announcing the merger.
The FCC has no statutory authority to conduct antitrust merger reviews; the DOJ and FTC do. The FCC does, however, have authority to determine whether the transfer of licenses issued by the FCC are in the public interest. It often conducts proceedings on license transfer applications that are duplicative of the DOJ's or FTC's antitrust merger reviews. Also, while Powell has appointed a team to review this transaction, no license transfer application has been submitted to the FCC for its review.
House Subcommittee Holds Hearing on Kids Domain
11/1. The House Commerce Committee's Subcommittee on Telecommunications and the Internet held a legislative hearing on HR 2417, the Dot Kids Domain Name Act of 2001. The bill, as introduced, would attempt to require the ICANN to create a top level domain for content suitable for minors. However, an amendment would merely require the NTIA to ensure that a second level domain -- -- is created for this purpose. Members of the subcommittee lauded these proposals. Nancy Victory, head of the NTIA, offered her criticism.
Rep. Fred Upton (R-MI), the Chairman of the Subcommittee, stated that "just like dot com, or dot gov, or dot org -- a dot kids should be created, which would be a safe place devoted solely to material which is appropriate for kids -- where parents could choose to send their kids."
Rep. Ed Markey (D-MA), the ranking Democrat, said that this arrangement would be distinguishable from prior legislation that has been held unconstitutional by the courts. He said that only speech in the space would be affected. Speech elsewhere on the Internet would remain unaffected. He added that "there is no requirement that anyone use this space." Rep. John Shimkus (R-IL), the lead sponsor of the bill, predicted that the bill has a good chance of moving in the House.
Nancy Victory said in her opening testimony that "The bill as introduced seeks to mandate the creation of a top level ".kids" domain by requiring the Internet Corporation for Assigned Names and Numbers (ICANN) to select a .kids domain operator. Such regulation of the management of the Internet domain name system is inconsistent with the established policy goal of privatization of that system, and particularly, private sector leadership with respect to the introduction of new top level domains."
She continued that "Among other things, unilateral action by the United States to create an "international" .kids domain is at odds with the global nature of the Internet and its domain name system. International reaction to U.S. efforts to legislate in the area of domain name management could hamper the United States' abilities to advance its foreign policy objectives, particularly critical telecommunications and information policy goals. Our international allies have a strongly held aversion to United States' efforts to assert its national will on the Internet, a global resource."
Victory added that the amendment providing for the creation of a domain space eliminates some of these objections, but "still raises some policy and legal grounds. Particularly, I note that the amendment continues to require content standards and enforcement by the Department of Commerce. It also alters the existing contractual obligations between the Department of Commerce and NeuStar that were established through the government procurement process and it changes the company's expectations with respect to its opportunities under the award."
The Subcommittee also heard testimony from David Hernand (CEO of Neu.Net), Page Howe (P/CEO of KidsDomain), Bruce Taylor (President and Chief Counsel of the National Law Center for Children and Families), and Donna Hughes (former COPA Commissioner).
No one from the Center for Democracy and Technology (CDT) testified at the hearing. However, on October 31 the group wrote a letter to Rep. Upton and Rep. Markey that is critical of HR 2417, the .kids Domain Name Act.
DOJ Files Amicus Brief in NARM v. Sony
10/31. The U.S. Department of Justice filed an amicus curiae brief in NARM v. Sony, a case involving antitrust law. The National Association of Recording Merchandisers (NARM) filed an eleven count complaint [PDF] in U.S. District Court (DDC) against Sony alleging violation of Sherman Act (illegal tying, reciprocal dealing, and exclusive dealing), the Robinson Patman Act, the Lanham Act, and other laws. NARM complained about Sony's bundling of products and services on digital sound recordings sold to NARM members.
The DOJ brief addresses only the antitrust and Robinson Patman Act issues. The DOJ wrote that "it is our view that the complaint fails to provide an adequate factual predicate for NARM's claims that Sony has violated the federal antitrust laws through its inclusion of hyperlinks and related products and services in the music CDs that it sells to NARM retailers or through its relationships with record clubs such as Columbia House." The DOJ also wrote that "the Robinson Patman Act does not apply to the transactions alleged."
The brief was prepared by David Seidman of the DOJ's Antitrust Division.
Cal App Overturns Injunction in DeCSS Case
11/1. The California Court of Appeal (6th) issued its opinion [PDF] in DVD Copy Control Association v. Bunner, reversing a trial court preliminary injunction against publishing copies of the DeCSS program in web sites. The injunction had been based upon California trade secret law.
Plaintiff. DVD is sometimes known as Digital Versatile Disc. CSS is a Content Scrambling System for DVD to protect intellectual property rights by means of encryption. The DVD Copy Control Association (DVDCCA) is a trade association of businesses in the movie industry. It controls the rights to CSS. DVDCCA licenses the CSS decryption technology to manufacturers of hardware and software for playing DVDs.
Defendant. DeCSS is a decryption tool that facilitates piracy. DeCSS consists of computer source code which describes a method for playing an encrypted DVD on a non CSS equipped DVD player or drive. It was written by Jon Johansen, a 15 year old Norwegian. Andrew Bunner published a copy of DeCSS on a web site.
Complaint. The DVDCCA filed a complaint in 1999 in California Superior Court against Andrew Brunner and others alleging violation of the California Uniform Trade Secrets Act in connection with their publishing copies of DeCSS in web sites, or linking to copies of DeCSS.
Preliminary Injunction. The Superior Court issued an order granting a preliminary injunction in January 2000 which enjoined defendants from "[p]osting or otherwise disclosing or distributing, on their web sites or elsewhere, the DeCSS program, the master keys or algorithms of the Content Scrambling system (‘CSS’), or any other information derived from this proprietary information."
The Court of Appeal. It reasoned that the DeCSS source code is speech entitled to First Amendment protection. It also noted that unlike copyright, trade secret protection is not secured by the Constitution. The Court of Appeal further reasoned that the Superior Court order constituted a prior restraint of pure speech. It reversed.
Friday, Nov 2
The House will meet at 9:00 AM for legislative business; no votes are expected past 2:00 PM.
9:00 AM - 5:00 PM. National Institute of Standards and Technology (NIST) will hold second session of a two day workshop to discuss the development of cryptographic key management guidance for federal government applications. Location: Administration Building (Bldg. 101), Lecture Room A, National Institute of Standards and Technology, Gaithersburg, MD. See, notice in Federal Register, June 27, 2001, Vol. 66, No. 124, at Page 34155.
9:30 AM. The U.S. Court of Appeals for the District of Columbia Circuit will hear oral argument in COMSAT v. FCC, No. 00-1458. Judges Edwards, Williams and Randolph will preside. Location: 333 Constitution Ave., NW, Washington DC.
9:30 AM. The Center for Digital Democracy will hold a press conference titled "The Future of the Internet". For more information, contact Jeffrey Chester at 202 232-2234. Location: First Amendment Room, National Press Club.
12:15 PM. The Federal Communications Bar Association's (FCBA) Wireless Telecommunications Practice Committee will host a luncheon titled "Secondary Markets: FCC Initiatives on Promoting the Lease of Spectrum." The speaker will be William Kunze, Chief of the Commercial Wireless Division. The price to attend is $15. RSVP to Wendy Parish no later than Tuesday, October 30. Location: Sidley & Austin, 1501 K Street, NW, Rm 6-E, Washington DC.
Monday, Nov 5
9:30 AM. The U.S. Court of Appeals for the District of Columbia Circuit will hear oral argument in Teledesic v. FCC, No. 00-1466. Judges Edwards, Williams and Randolph will preside. Location: 333 Constitution Ave., NW, Washington DC.
10:00 AM. The FCC's Technological Advisory Council will hold a meeting. See, notice in Federal Federal Register, October 5, 2001, Vol. 66, No. 194, at pages 51046 - 51047. Location: FCC, 445 12th St., SW., Room TW-C305, Washington DC.
Status conference in USA v. Microsoft.
9:30 AM - 5:30 PM. Day one of a three day conference and exhibition hosted by the NIST and NISO titled "4th annual Electronic Book Conference". See, Nov. 5 agenda. The price to attend is $400. See, registration page. Location: Ronald Reagan Building, 1300 Pennsylvania Ave., NW, Washington DC.
Tuesday, Nov 6
9:30 AM - 5:30 PM. Day two of a three day conference and exhibition hosted by the NIST and NISO titled "4th annual Electronic Book Conference". The price to attend is $400. See, registration page. Location: Ronald Reagan Building, 1300 Pennsylvania Ave., NW, Washington DC. See, Nov. 6 agenda.
12:30 PM. The Federal Communications Bar Association's (FCBA) State and Local Practice Committee will host a brown bag luncheon on "OTARD" and status of BOMA v. FCC. The speakers will be Matthew Ames (Miller & Van Eaton), James Barker (Latham & Watkins), and Jeffrey Steinberg (Wireless Telecommunications Bureau). RSVP to Mitsi Herrera. Location: Wiley Rein & Fielding, 1750 K Street, NW, Washington DC.
Wednesday, Nov 7
9:30 AM - 5:30 PM. Day three of a three day conference and exhibition hosted by the NIST and NISO titled "4th annual Electronic Book Conference". The price to attend is $400. See, registration page. Location: Ronald Reagan Building, 1300 Pennsylvania Ave., NW, Washington DC. See, Nov. 6 agenda.
10:00 AM. The House Commerce Committee's Subcommittee on Commerce, Trade and Consumer Protection will hold a hearing titled "Challenges Facing the Federal Trade Commission". FTC Chairman Timothy Muris will be the only witness. Location: Room 2123, Rayburn Building. 
10:00 AM. The Senate Judiciary Committee has scheduled a hearing on pending nominations. Location: Room 226, Dirksen Building.
12:15 PM. The Federal Communications Bar Association's (FCBA) Online Communications Committee will host a brown bag lunch titled "Broadband, When? -- the View from Earthlink". The speaker will be Dave Baker, VP of Law & Public Policy at Earthlink. RSVP to Scott Blake Harris at sharris@ Location: Lampert & O'Connor, 5th Floor, 1750 K Street, NW, Washington DC.
3rd Circuit Dismisses Interconnection Appeal
11/1. The U.S. Court of Appeals (3rdCir) issued its opinion in AT&T v. Verizon, a case regarding interconnection agreements. The New Jersey Division of the Ratepayer Advocate appealed an order of the U.S. District Court (DNJ) affirming the New Jersey Board of Public Utilities' determination with respect to interconnection rates for AT&T's and Verizon's New Jersey corporations. The Appeals Court did not reach the merits; rather, it dismissed the appeal on the grounds that appellant lacked constitutional standing to bring this appeal.
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