Tech Law Journal Daily E-Mail Alert
March 21, 2002, 9:00 AM ET, Alert No. 393.
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9th Circuit Upholds Service By E-Mail
3/20. The U.S. Court of Appeals (9thCir) issued its opinion in Rio Properties v. Rio International, a trademark case involving Rule 4 alternative service of process by e-mail, pre-trial discovery, and default issues. The Appeals Court upheld the District Court order allowing service by e-mail.
Rio Properties, Inc. (Rio) owns the RIO All Suite Casino Resort, a major Las Vegas hotel and gambling casino. Rio International Interlink (RII) is an offshore Internet gambling operation that infringed Rio's trademarks in print advertising and domain name registrations. RII has no physical location. However, it does have a presence on web servers, and it has an e-mail address.
Rio filed a complaint in U.S. District Court (DNev) against RII alleging various trademark related claims. RII evaded service of process. The District Court granted Rio's motion for alternate service of process, pursuant to Rule 4(f), FRCP. Specifically, the Court allowed service by e-mail at the address advertised by RII, and by regular mail at the address provided by RII when registering infringing domain names. RII subsequently provided inadequate responses to discovery requests. It then failed to comply with the Court's discovery orders. The Court granted judgment by default to Rio. RII appealed.
The Appeals Court affirmed. On the issue of alternative service of process, the Appeals Court found the e-mail and regular mail service to be adequate.
As for service by e-mail, the Court wrote: "We acknowledge that we tread upon untrodden ground. The parties cite no authority condoning service of process over the Internet or via email, and our own investigation has unearthed no decisions by the United States Courts of Appeals dealing in the federal courts. Despite this dearth of authority, however, we do not labor long in reaching our decision. Considering the facts presented by this case, we conclude not only that service of process by email was proper -- that is, reasonably calculated to apprise RII of the pendency of the action and afford it an opportunity to respond -- but in this case, it was the method of service most likely to reach RII."
"To be sure, the Constitution does not require any particular means of service of process, only that the method selected be reasonably calculated to provide notice and an opportunity to respond."
The Court also wrote that "Although communication via email and over the Internet is comparatively new, such communication has been zealously embraced within the business community. RII particularly has embraced the modern e-business model and profited immensely from it. In fact, RII structured its business such that it could be contacted only via its email address. RII listed no easily discoverable street address in the United States or in Costa Rica. Rather, on its website and print media, RII designated its email address as its preferred contact information."
The Appeals Court concluded that "RII had neither an office nor a door; it had only a computer terminal. If any method of communication is reasonably calculated to provide RII with notice, surely it is email -- the method of communication which RII utilizes and prefers. In addition, email was the only court ordered method of service aimed directly and instantly at RII, as opposed to methods of service effected through intermediaries ... Indeed, when faced with an international ebusiness scofflaw, playing hide and seek with the federal court, email may be the only means of effecting service of process. Certainly in this case, it was a means reasonably calculated to apprise RII of the pendency of the lawsuit, and the Constitution requires nothing more."
1st Circuit Rules in PSLRA Case
3/20. The U.S. Court of Appeals (1stCir) issued its opinion in Aldridge v. A.T. Cross, a securities class action against a tech company that involves construction of the heightened pleading requirements of the PSLRA.
Background. Cross is a publicly traded company that make writing instruments. It also briefly produced pen based computing products, without financial success. It stock price suffered as a result. Michael Aldridge owned stock in Cross.
Complaint. Aldridge filed a complaint in U.S. District Court (DRI) against Cross and four of its officers, and trusts which own a part of Cross, alleging violation of federal securities laws -- §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b5 thereunder. Aldridge sought class action status. Defendants moved to dismiss for failure to state a claim pursuant to Rule 12(b)(6), FRCP, and the PSLRA.
Private Securities Litigation Reform Act (PSLRA). Congress passed the PSLRA, 15 U.S.C. § 78u-4, to insulate defendants, and especially info and bio tech companies, from abusive class action law suits. The PSLRA creates both a safe harbor for forward looking statements, and a heightened pleading requirement. Plaintiffs must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind."
Other Circuits. The pleading requirements of the PSLRA have been interpreted, with conflicting conclusions, by various circuits. See, for example, Janas v. McCracken (In re Silicon Graphics Sec. Litig.), 183 F.3d 970 (9th Cir 1999); Novak v. Kasaks, 216 F.3d 300 (2d Cir); In re Advanta Corp. Sec. Litig., 180 F.3d 525 (3d Cir 1999); Bryant v. Avado Brands, 187 F.3d 1271 (11th Cir 1999); Helwig v. Vencor, (6th Cir 2001); Philadephia v. Fleming (10th Cir, 2001); and Nathenson v. Zonagen (5th Cir, 2001).
Holding. The District Court dismissed the complaint. The Court of Appeals, following its precedent in Greebel v. FTP Software, 194 F.3d 185 (1st Cir 1999), reversed and remanded, except as to the trust defendants. The Appeals Court stated that "the PSLRA did not mandate a particular test to determine scienter and that this court would continue to use its case by case fact specific approach". It further stated that "plaintiff must show either that the defendants consciously intended to defraud, or that they acted with a high degree of recklessness" and that "the plaintiff may combine various facts and circumstances indicating fraudulent intent to show a strong inference of scienter. As part of the mix of facts, the plaintiff may allege that the defendants had the motive ... and opportunity ... to commit the fraud".
6th Circuit Rules in Copyright Registration Case
6/20. The U.S. Court of Appeals (6thCir) issued its opinion in Coles v. Stevie Wonder, a case regarding copyright registrations that deposit copies reconstructed from memory.
Derrick Coles applied for a copyright registration for a song in 1990. The recording of the song deposited with his application was made in 1990, from memory. Stevie Wonder had produced recordings of the song in the early 1980s.
Coles filed a complaint in U.S. District Court (NDOhio) in 1998 against Stevie Wonder and others alleging copyright infringement. The District Court held for defendants.
The Appeals Court affirmed. It wrote that "the 1990 recording must be viewed as a reconstruction only, not a copy, and therefore he could not receive a valid copyright registration in the 1982 version of the song." The Court added that this "rule permits an artist to protect an original song against potential infringement by registering the original work with the Copyright Office immediately after its creation by depositing either a recording of the song or a written version of it with the copyright application; by retaining a copy of a recording of the original song or written version of it that dates from the time of creation for deposit with a subsequent copyright application; or by making the copy for deposit by referring to a recording or written version of the original work." The Appeals Court relied upon Kodadek v. MTV Networks, 152 F.3d 1209 (9th Cir. 1998).
Antitrust and Sports Leagues
6/20. The U.S. Court of Appeals (1stCir) issued its opinion in Fraser v. Major League Soccer, an antitrust case involving sports leagues.
Soccer players filed a complaint in the U.S. District Court (DMass) against Major League Soccer, its member teams, and others, alleging violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and Section 7 of the Clayton Act, 15 U.S.C. § 18.
The District Court granted summary judgment for defendants on the Sherman § 1 and Clayton Act counts. After a 12 week trial on the § 2 count, the jury returned a special verdict leading to judgment in favor of defendants. The players appealed. The Court of Appeals affirmed.
Trade Promotion Authority News
3/20. Sen. Charles Grassley (R-IA) and 25 other Republican Senators wrote a letter to the Sen. Tom Daschle (D-SD) and Sen. Trent Lott (R-MS) requesting that a date certain be set for a vote in the Senate on HR 3005, a bill to give the President trade promotion authority. The House passed the bill on December 6, 2001. The Senate Finance Committee then approved its version of the bill by a vote of 18 to 3.
The House Appropriations Committee's Subcommittee on Commerce, Justice, State, and the Judiciary held a hearing on the proposed budget for FY 2003 for the Office of the U.S. Trade Representative (USTR). Subcommittee Chairman Rep. Frank Wolf (R-VA) stated that the USTR's proposed budget ($32 Million) is "miniscule", and hence, the hearing ought to address policy, rather than appropriations. USTR Robert Zoellick then testified that, among other things, the Congress ought to enact legislation granting the President trade promotion authority. Subcommittee members discussed Russian chicken policy, Mexican tomatoes, the Cuban trade embargo, U.S. sugar policy, and other issues.
SEC Files Insider Trading Complaint
3/20. The Securities and Exchange Commission (SEC) announced that it filed a civil complaint in U.S. District Court (DAriz) against John Harbottle alleging insider trading in violation of § 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. The complaint alleges that Harbottle traded in the stock of Interact Commerce Corp. prior to the public announcement that Interact would be acquired by Sage Group. Harbottle was previously CFO of Interact. See also, SEC release.
FEC Holds Hearing on Political Activity on the Internet
3/20. The Federal Election Commission (FEC) held a hearing on its Notice of Proposed Rulemaking (NPRM) [PDF] regarding political activity on the Internet. The FEC did not vote on adoption of its proposed rule changes.
This NPRM proposes three rule changes, each of which lists specific political activities on the Internet which are permissible. It would allow individuals to use their own computer to engage in campaign activity on the Internet; it would allow corporations and unions to place hyperlinks to candidates and parties in their web sites; and, it would allow corporations and unions to publish in their web sites press releases announcing candidate endorsements. (This NPRM was published at Federal Register, October 3, 2001, Vol. 66, No. 192, at pages 50358 - 50366.)
The FEC is the federal agency responsible for enforcing the Federal Election Campaign Act (FECA). The FECA gives the FEC authority to regulate campaign contributions and expenditures.
The NPRM proposes a new rule 117.2 that would state that "the establishment and maintenance of a hyperlink from the web site of a corporation or labor organization to the web site of a candidate, political committee or party committee for no charge or for a nominal charge would not be a contribution or expenditure" within the meaning of the FECA."
The NPRM also proposes a new rule 117.3 that would provide that "a corporation or labor organization may make a press release announcing a candidate endorsement available to the general public on its web site" under certain enumerated conditions.
Third, the NPRM proposes that "no contribution results where an individual, without receiving compensation, use computer equipment, software, Internet services or Internet domain name(s) that he or she personally owns to engage in Internet activity for the purpose of influencing any election for Federal office, whether or not the individual's activities are known to or coordinated with any candidate, authorized committee or party committee."
The three rules state activities that are permissible. However, witnesses, and at least one Commissioner, expressed reservations about rule making in this area.
The FEC heard from three witnesses, Robert Bauer of the Perkins Coie Political Law Group, Laurence Gold of the AFL-CIO, and James Bopp of the James Madison Center for Free Speech. These witnesses argued in their formal comments, and in their oral testimony, that while the proposed rule changes merely state activities that are permissible and unregulated, these rules would give rise to the implication that other political activities on the Internet are impermissible, or regulated.
For example, Bauer stated in his formal comments submitted on December 3, 2002 that "The unspoken yet unavoidable conclusion is that, should the Commission adopt the NPRM, Commission regulations would restrict all other uses of Internet applications." He added in his oral testimony that the adoption of these rules would be the first step in a process of building a body of rules that will become too complicated for individuals to understand without the assistance of counsel. This, said Bauer, would lead many individuals to simply forego engaging in political activity on the Internet.
Gold stated that there are several other problems with the proposed regulations. He stated that the proposed regulations are not placed within the context of Reno v. ACLU, 521 U.S. 844 (1997), and that this leaves regulated parties in the dark. He objected to the proposed rule allowing corporations and unions to provide hyperlinks in their web sites. He argued that the provision of a hyperlink should not be regulated, and should not be subject to conditions. He added that a hyperlink is merely like providing an address, and does not constitute "anything of value" within the meaning of the FECA. That is, he argued that "the item at issue is exempt to begin with". He also stated that the proposed rule regarding press releases announcing candidate endorsements is "unduly restrictive".
Bopp argued in his prepared testimony that "the proposed rules are underprotective of the free speech rights of those engaged in the political marketplace of ideas. ... the proposed rules should be withdrawn."
This NPRM is a part on an ongoing process at the FEC that began years ago, and will likely continue for some time. On November 1, 1999, the FEC issued a Notice of Inquiry (NOI) that revealed that the FEC was considering treating common activities such as email and hyperlinking as political contributions or expenditures under the FECA, and hence subject to FEC regulation, reporting requirements, and/or contribution limits. See, TLJ story, FEC to Review Campaign Activity on the Internet, November 8, 1999.
The FEC received about 1,300 comments in response to its NOI. Almost all were critical of the FEC for considering regulation of the Internet or freedom of speech. See, TLJ story, Citizens Urge FEC to Stay Away from the Internet, January 12, 2000.
One of the events which preceded the FEC's NOI was the filing of a complaint with the FEC regarding a personal web site operated by Zach Exley. Benjamin Ginsburg, an elections lawyer with the law firm of Patton Boggs, who was also affiliated with the Bush presidential campaign, filed a complaint with the FEC on May 4, 1999. The complaint alleged that Zach Exley's anti-Bush web site violated various technical rules governing campaign money in federal elections. In particular, he alleged that Exley violated the FECA by failing to file campaign expenditure reports. Zach Exley's web site was parodic, defamatory, immature, low budget, and highly critical of George Bush. After receiving public comment in response to its NOI, the FEC determined to take no action against Exley. It released a letter to Exley, and an FEC narrative, on or about April 14, which stated that the FEC would take "no action" against him. See, TLJ story, FEC Takes No Action Against Anti Bush Web Site, April 20, 2000.
FEC Commissioner Sandstrom raised the issue of the meaning of hyperlinks. The proposed regulations use the term, but provide no definition. He stated that the technology is changing. "We are using a technical term, ... we are are not sure of its meaning." He questioned whether technology such as Microsoft Smart Tags would constitute hyperlinks.
The hearing of March 20 was solely a hearing. The FEC did not approve the regulations proposed in the NPRM. TLJ asked two Commissioners and one FEC employee whether the FEC would act before the November 2002 federal elections. One said that it may not; one said "sure"; and one was non-committal.
Commissioner Brad Smith told TLJ during a break that several years ago it appeared as though the Internet might play a significant role in political campaigning. However, he added that that has not happened, as candidates have continued to use traditional media for advertising.
Senate Subcommittee Holds Another Hearing on Identity Theft
3/20. The Senate Judiciary Committee's Subcommittee on Technology, Terrorism, and Government Information will held yet another hearing on identity theft. Sen. Dianne Feinstein (D-CA) presided. She is the sponsor of S 1399, the Identity Theft Prevention Act of 2001.
See, prepared testimony of witnesses: Howard Beales (Director of the Federal Trade Commission's Bureau of Consumer Protection), Christine Gregoire (Attorney General of Washington), Linda Foley (Identity Theft Resource Center), Lou Cannon (Fraternal Order of Police), and Sallie Twentyman. See also, prepared statement of Sen. Orrin Hatch (R-UT), the ranking Republican on the Senate Judiciary Committee.
People and Appointments
3/20. President Bush nominated Kathie Olsen to be an Associate Director of the Office of Science and Technology Policy. See, White House release.
More News
3/20. The Senate Commerce Committee held a hearing on HR 1542, the Tauzin Dingell bill. Sen. Ernest Hollings (D-SC), who opposes the bill, presided. Rep. Billy Tauzin (R-LA) and Rep. John Dingell (D-MI) testified. The House passed the bill on February 27. See, prepared statement of Rep. Dingell.
3/20 The National Telecommunications and Information Administration (NTIA) published in its web site information about its April 4-5 Spectrum Summit, including the agenda.
3/20. The Bureau of Export Administration (BXA) published a notice in the Federal Register regarding rule changes pertaining to the export of microprocessors. This rule change implements President Bush's January 2, 2002 announcement that the license exception level for exports of general purpose microprocessors would be raised from 6,500 Million Theoretical Operations Per Second (MTOPS) to 12,000 MTOPS. This rule change is effective March 21, 2002. See, Federal Register, March 21, 2002, Vol. 67, No. 55, at Pages 13091 - 13092.
3/20. The Federal Communications Commission (FCC) published a notice in the Federal Register containing rule changes that implement its reorganization of the existing Cable Services and Mass Media Bureaus into a new Media Bureau. These new rules go into effect on March 25, 2002. See, Federal Register, March 21, 2002, Vol. 67, No. 55, at Page  13230 - 13235.
3/20. The Federal Communications Commission (FCC) published a notice in the Federal Register containing rule changes that implement its reorganization by establishing a Media Bureau, a Wireline Competition Bureau, and a Consumer and Governmental Affairs Bureau, and by reorganizing its International Bureau. These new rules go into effect on March 25, 2002. See, Federal Register, March 21, 2002, Vol. 67, No. 55, at Pages 13215 - 13230.
3/20. The Senate passed HR 2356, the campaign spending bill. President Bush stated in a release that he will sign the bill.
House Passes Telecommuting Bill
The House passed HR 3924, the "Freedom to Telecommute Act of 2002", by a vote of 421-0. See, Roll Call No. 71. This bill would permit the use of telecommuting by employees of federal contractors in the performance of contracts with executive agencies.
Senators Introduce Net Guard Bill
3/20. Sen. Ron Wyden (D-OR) and Sen. George Allen (R-VA) introduced the Science and Technology Emergency Mobilization Act, a bill to provide for the mobilization of technology and science experts to respond quickly to the threats posed by terrorist attacks and other emergencies. It would create a National Emergency Technology Guard (NET Guard), a Technology Reliability Advisory Board, and a center for evaluating antiterrorism and disaster response technology within the National Institute of Standards and Technology (NIST).
This NET Guard would bear some similarity to the National Guard. However, it would be involved in such activities as rebuilding "critical technology infrastructures in the event of a future major terrorist attack, natural disaster, or other emergency."
"This country has already mobilized the military, the government and law enforcement to fight terrorism, but America has yet to tap the tremendous technology and science talents of the private sector," said Sen. Wyden in a release. "This legislation invites a generation raised on information technologies to help their fellow citizens when crisis strikes."
"Mobilizing private sector technologists to help meet our basic communications needs during times of crisis is one of the most important capabilities necessary to properly respond with coordinated efforts to protect our people and ensure our homeland security," said Sen. Allen. "September 11 taught us at least two things: how technological improvements to help our security are needed for State, local and federal services, and the depth of the reservoir of American good will to provide solutions."
The bill provides that its purpose is to create "teams of volunteers with technology and science expertise, organized in advance and available to be mobilized on short notice ... a database of private sector equipment and expertise that emergency officials may call upon in an emergency ... (and) a national clearinghouse and test bed for innovative civilian technologies relating to emergency prevention and response."
NET Guard. The bill provides that "the President shall establish an office within the Executive Branch for the purpose of mobilizing technology and science experts to form a national emergency technology guard. The office shall be headed by a Director, who shall be appointed by the President by and with the advice and consent of the Senate. ... The Director shall develop a procedure by which a group of individuals (including individuals from a single company or academic institution or from multiple such entities) with technological expertise may form a team and apply for certification as a national emergency technology response team." The bill also addressed certification and compensation.
Technology Reliability Advisory Board. The bill would also create a nine member Board to "provide guidance to government, industry, and the public on technical aspects of how to make technology infrastructure less vulnerable to disruption", "make recommendations with respect to what constitute good practices with respect to redundancy, backups, disaster planning, emergency preparedness and recovery of technological and communications systems", and "coordinate its efforts, as appropriate, with the Office of Homeland Security, the President’s Critical Infrastructure Protection Board, and the National Communications System".
Center for Civilian Homeland Security Technology Evaluation. Finally, the bill would create at the NIST a Center that would "serve as a national clearinghouse for innovative technologies relating to security and emergency preparedness and response".
Thursday, March 21
8:30 AM - 12:00 NOON. The law firm of Steptoe & Johnson and The Open Group will host a workshop titled "Liability and Information Assurance: The Role of Law, Regulation, and Self Regulation". The workshop will focus on allocating liability for breaches of information security, and the various roles that law, regulation, and private contractual agreements can or should play in the allocation of responsibility for information security failures. RSVP to salbertaz For more information, contact mschneck Location: 1330 Connecticut Avenue, NW.
CANCELLED. 10:00 AM. The Senate Appropriations Subcommittee's Subcommittee on Commerce, Justice, State, and the Judiciary will hold a hearing on the administration's proposed budget estimates for FY 2003 for the Federal Bureau of Investigation, Immigration and Naturalization Service, and the Drug Enforcement Administration.
ROOM CHANGE. 10:00 AM. The House Financial Services Committee will hold a hearing titled "The Effects of the Global Crossing Bankruptcy on Investors, Markets, and Employees". Location: Room 2128, Rayburn Building.
10:30 AM. Sen. George Allen (R-VA) and other members of the Senate Republican High Tech Task Force (HTTF) will hold an informal press roundtable to discuss the HTTF policy agenda. Location: Room 366, Dirksen Building.
POSTPONED. 11:00 AM. The House Commerce Committee will meet to mark up HR 3833, the Dot Kids Implementation and Efficiency Act of 2002.
11:30 AM. Federal Trade Commission (FTC) Chairman Timothy Muris will be the keynote speaker at the Privacy & American Business Eighth Annual Conference: Managing the New Privacy Revolution. Location: Omni Shoreham Hotel, 2500 Calvert Street, NW.
12:15 PM. The Federal Communications Bar Association's Transactional Practice Committee will host a brown bag lunch on satellite and other international telecommunications transactions. RSVP to Brian Madden at 202 416-6770. Location: Leventhal Senter & Lerman, 2000 K Street, NW.
2:00 PM. The House Government Reform Committee's Technology and Procurement Policy Subcommittee will hold a hearing on titled "How The Federal Government Can Transition From Old Economy Speed to Become A Model for Electronic Government". Location: Room 2154, Rayburn Building.
POSTPONED. 2:30 PM. The Senate Commerce Committee's Subcommittee on Science, Technology, and Space will hold hearing to examine federal research and development issues.
3:30 PM. Margaret Radin (Stanford University Law School) will give a lecture titled "Contract Today and Tomorrow: Binding Commitment in the Networked World". Location: Georgetown University Law Center, Faculty Lounge, 5th Floor, McDonough Hall, 600 New Jersey Ave., NW.
8:00 PM. Deadline to submit applications to the National Telecommunications and Information Administration (NTIA) for Technology Opportunity Program (TOP) grants for FY 2002. See, notice in Federal Register.
Friday, March 22
The House will not be in session.
9:00 AM. The House Government Reform Committee's District of Columbia Subcommittee will hold a hearing titled "Privacy v. Security: Electronic Surveillance in the Nation's Capital". Location: Room 2154, Rayburn Building.
10:00 AM - 1:00 PM. The Network Reliability and Interoperability Council (NRIC) will hold a meeting. See, FCC notice [PDF] of March 14, and notice in Federal Register. Location: Room TW-C305, FCC, 445 12th St. SW.
Monday, March 25
The House will be in recess for the Spring District Work Period. (The House will return on Monday, April 8). The Senate will also be in recess for two weeks.
Tuesday, March 26
8:00 AM - 5:15 PM. The Michigan State University Quello Communications Law and Policy Symposium will host its Third Annual Rethinking Access conference. See, schedule of speakers. Location: Willard Intercontinental Hotel.
Wednesday, March 27
11:00 AM. The Cato Institute will host a panel discussion on spam. The speakers will be Howard Beales (Federal Trade Commission), Rebecca Richards (TRUSTe), Chris Hoofnagle (Electronic Privacy Information Center), and Jerry Cerasale (Direct Marketing Association). See, online registration page. Lunch will follow the program. Location: Cato, 1000 Massachusetts Ave., NW.
12:15 PM. The Federal Communications Bar Association's (FCBA) Telecom Competition Committee will host a brown bag lunch. The speakers will be Jim Bird, head of the FCC's transactions team, and other FCC representatives. RSVP to Wendy Parish at wendy Location: FCC, 445 12th Street, SW, Eighth Floor, Conference Room 1.
12:30 PM. Larry Thompson, Deputy Attorney General of the U.S., will speak at the Heritage Foundation. See, notice. Location: 214 Massachusetts Ave NE.
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