Tech Law Journal Daily E-Mail Alert
May 22, 2002, 9:00 AM ET, Alert No. 436.
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Librarian of Congress Rejects CARP's Proposed Rates for Webcasting
5/21. The Librarian of Congress, at the recommendation of the Register of Copyrights Marybeth Peters, issued an order rejecting the Copyright Arbitration Royalty Panel's (CARP) February 20 determination proposing rates and terms for licenses in the proceeding titled "In the Matter of Digital Performance Right in Sound Recordings and Ephemeral Recordings".
On February 20, 2002, the CARP released its report [143 pages in PDF] recommending rates and terms for the statutory license for eligible nonsubscription services to perform sound recordings publicly by means of digital audio transmissions, also known as webcasting, pursuant to 17 U.S.C. § 114, and to make ephemeral recordings of sound recordings for use of sound recordings under the statutory license set forth in 17 U.S.C. § 112. May 21 was the deadline for the Librarian of Congress to accept or reject the CARP's recommendation.
The CARP recommended that both webcasters and commercial broadcasters pay a performance fee of 0.07¢ per performance, and 9% of performance fees due, for simultaneous Internet retransmissions of over the air AM or FM radio broadcasts. It recommended that the performance fee be 0.14¢ per performance and 9% of performance fees due for all other Internet transmissions.
It further recommended that non commercial broadcasters pay a performance fee of 0.02¢ per performance for simultaneous Internet retransmissions of over the air AM or FM radio broadcasts, and 0.05¢ for other Internet transmissions, including up to two side channels of programming consistent with the public broadcasting mission of the station.
At that time, record industry representatives complained that the rates were too low, while webcasters said they were too high. The May 21 order does not state the basis for rejecting the CARP's recommendation.
The body of the order states, in full: "On February 20, 2002, the Copyright Arbitration Royalty Panel (CARP) reported its determination to the Librarian of Congress in the above- captioned proceeding. In accordance with 17 U.S.C. 802(f), the Librarian is given 90 days from date of delivery of a CARP report to review the determination and issue a decision setting forth the final royalty fee and terms of payment. However, if the Librarian rejects the CARP's determination, section 802(f) provides an additional 30 days for the Librarian to render his final determination. The Register of Copyrights recommends, and the Librarian agrees, that the CARP's determination must be rejected. A final decision will be issued no later than June 20, 2002."
The Recording Industry Association of America (RIAA) responded in a release: "The Librarian has rejected the arbitration panel’s determination, but we do not know why or what decision the Librarian will ultimately make based on the evidence presented. Since both sides appealed the panel’s determination, anything is possible. We look forward to the conclusion of this process on June 20th, and to the day when artists and labels finally get paid for the use of their music."
John Simson of SoundExchange stated in a release that "Given the complexity of the issues, I am not surprised by the Librarian's decision. I remain confident that we can find creative solutions to enable webcasting to thrive while providing recording artists and those who invest in sound recordings a fair and equitable royalty in return. Over the past three years, webcasters have paid for bandwidth, rent, hardware, software and other business expenses. It is time that they finally start to pay the Artists and record companies whose creative output is the most important component of their business."
SEC Initiates Actions Against Software Companies
5/21. The Securities and Exchange Commission (SEC) announced a series of civil, administrative and criminal actions against former officers of three northern California software companies in connection with accounting practices. See, SEC release.
The SEC filed a civil complaint in U.S. District Court (NDCal) against David Malmstedt and Mark Huetteman, former executives at Legato Systems, alleging violation of federal securities laws for causing Legato to recognize revenue on unconsummated "sales". Legato is a Delaware corporation based in Mountain View, California, that develops and markets software for managing the data storage functions of computer networks.
The SEC also filed a civil complaint in U.S. District Court (NDCal) against Unify Corporation, and two of its former executives, Reza Mikailli and Gary Pado, alleging violation of federal securities laws in connection with the improper recognition of revenue. Unify is a software company based in Sacramento, California, that manufactures and sells database management software. See, SEC release.
The SEC also filed a civil complaint in U.S. District Court (NDCal) against Alan Anderson alleging violation of federal securities laws for forging contracts, e-mails, purchase orders, letters, and an audit confirmation in order to boost Quintus' financial results. The SEC also announced that the U.S. Attorneys Office (NDCal) has charged Anderson with one count of securities fraud. See, SEC release.
In addition, on May 20, the SEC announced that it initiated administrative proceedings against former officers of Legato Systems, Quintus, and Unify for perpetrating financial accounting frauds. See, SEC release. See for example, Order Instituting Public Cease and Desist Proceedings, Making Findings and Issuing a Cease and Desist Order in its proceeding titled "In the Matter of: Legato Systems, Inc. and Stephen Wise". Stephen Wise was Legato's Chief Financial Officer.
6th Circuit Rules in Domain Name Dispute
5/21. The U.S. Court of Appeals (6thCir) issued its opinion in Bird v. Parsons, a case involving the application of trademark, cyber squatting, and copyright law to the registration of domain names. It affirmed the District Court's dismissal for failure to state a claim.
Background. Darrell Bird brought this pro se case. He has a computer software business named Financia, Inc. He registered the tradename "Financia" with the U.S. Patent and Trademark Office in 1984. He also holds the Internet domain Marshall Parsons registered the Internet domain "" through the registrar, Dotster, which is also a defendant.
District Court. Bird filed a complaint in U.S. District Court (SDOhio) against Parsons, Dotster, and others, alleging trademark infringement, unfair competition, and trademark dilution, in violation of 15 U.S.C. §§ 1114(1)(a), 1125(a), and 1125(c), respectively. He also alleged violation of the Anticybersquatting Consumer Protection Act of 1999 (ACPA), 15 U.S.C. § 1125(d), and copyright infringement in violation of 17 U.S.C. § 106. The District Court dismissed for failure to state a claim, and lack of personal jurisdiction over certain defendants.
Appeals Court. The Appeals Court ruled that the District Court erred on the jurisdictional issue. However, since the Appeals Court found that Bird had failed to state a claim upon which relief can be granted on each of his substantive claims, it affirmed the District Court.
The Court noted that the ACPA requires "a bad faith intent to profit from that mark", and that Bird failed to plead allegations amounting to bad faith by defendants. On the copyright infringement claim, the Court stated that the text that was copied -- financia -- is not only a single word, but also lacks originality, and hence, is not entitled to copyright protection.
Spectrum Management and 3G Services
5/21. Steve Berry, SVP for Government Affairs at the CTIA, spoke at a luncheon hosted by the Federal Communications Bar Association's (FCBA) Young Lawyers Committee in Washington DC. He stated that "one of the more difficult problems that the wireless industry is facing now ... is spectrum management".
He addressed the needs of the wireless industry for spectrum for Third Generation (3G) services, which are intended to bring broadband Internet access to portable devices. He said that "we don't have a spectrum management process that is designed for major movements of spectrum". He added that "the NTIA and FCC are really good at managing that spectrum that they have", but not at reassigning spectrum. He concluded that "our spectrum management process is broken; it is not working, for major realignments". He suggested that only the Congress will be able to address spectrum for 3G services.
Nevertheless, Berry stated that the U.S. has the opportunity to take the lead in 3G technology. He said that the Europeans made mistakes by going to auction and "sucking capital out of the market", and by setting technology standards.
Berry also offered some recommendations for procedural and structural reform, such as creating an interagency senior advisory group to facilitate decision making on controversial spectrum matters, developing a rolling long term spectrum planning process, and creating an independent review mechanism similar to the Base Realignment and Closure Commission.
DOJ & FTC Abandon Merger Review Agreement Under Threat from Sen. Hollings
5/20. The Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC) announced that they will not adhere to their Memorandum of Agreement concerning clearance procedures for merger reviews and other antitrust matters. The agreement attempted to define, by industry, which transactions would be reviewed by which agency. Both the FTC and DOJ have statutory authority to conduct antitrust merger reviews. Sen. Ernest Hollings (D-SC) threatened to retaliate through the appropriations process if the DOJ and FTC did not drop the agreement. He is Chairman of the Senate Commerce Committee, which oversees the FTC, but not the DOJ, and Chairman of the Senate Appropriations Committee's subcommittee that passes the appropriations bill for both the DOJ and FTC.
Charles James, Assistant Attorney General in charge of the Antitrust Division, stated in a release that "The Department stands by its view that the agreement was good public policy that was working to make antitrust enforcement more effective. In fact, since the agreement became effective, antitrust investigations were being commenced within a matter of days, and there were no clearance disputes between the agencies. However, in view of the opposition expressed by Senator Hollings, Chairman of the Commerce, Justice and State Appropriations Subcommittee, to the agreement and the prospect of budgetary consequences for the entire Justice Department if we stood by the agreement, the Department will no longer be adhering to the agreement."
The agreement stated that the FTC will have responsibility for "Computer Hardware", which it defined as "Matters involving computer hardware do not become matters involving computer software, for purposes of this allocation, merely because software is being shipped with the hardware. In matters involving both hardware and software, clearance will be determined on the basis of the market in which the competitive effects being investigated are predominantly likely to occur." The FTC would also have been assigned transactions involving "Professional Services" and "Satellite Manufacturing and Launch, and Launch Vehicles".
The agreement assigned to the DOJ's Antitrust Division transactions involving "Computer Software", which it defined as "Matters involving computer software do not become matters involving computer hardware, for purposes of this allocation, merely because the software is being shipped with hardware. In matters involving both hardware and software, clearance will be determined on the basis of the market in which the competitive effects being investigated are predominantly likely to occur."
The agreement also gave the DOJ "Media and Entertainment", which it stated "Includes cable services, satellite services, television and radio broadcasting, publishing, newspapers, magazines, movies, movie theaters and upstream video distribution, advertising, music, toys and games, gaming, and sports".
The agreement also gave the DOJ "Telecommunications Services and Equipment", which it stated "Includes set-top boxes, cable plant and related infrastructure, satellite data and programming, communications infrastructure, and telecommunications equipment (e.g., telephones, pagers, switches, Internet backbone, telephone cable)".
Finally, the agreement assigned to the DOJ "Financial Services/ Insurance/ Stock and Option, Bond, and Commodity Markets" and "Defense Electronics".
Sen. Hollings objected to the allocation of the media and entertainment industries to the DOJ. The DOJ's oversight committee is the Senate Judiciary Committee, not Sen. Hollings' Commerce Committee.
On April 15, Federal Trade Commission (FTC) Chairman Timothy Muris issued a statement regarding statements made by Sen. Ernest Hollings (D-SC). Muris stated that "A press report indicates that Senator Ernest F. Hollings of the Senate Appropriations Committee is considering suspending funding for the salaries of all of the Commissioners and the senior staff of the Federal Trade Commission. Although this step would not affect the salaries of the vast majority of employees at the FTC, it essentially would eliminate the Commission's ability to enforce the laws under its jurisdiction. ... I am surprised that Senator Hollings, being such a strong advocate of consumer protection, would consider a measure that would virtually eliminate the FTC's ability to protect consumers."
The Computer & Communications Industry Association (CCIA) praised the decision by the DOJ and FTC to abandon their agreement, although, for different reasons. The CCIA, which is a leading proponent of government antitrust action against Microsoft, objected to the DOJ handling all software related mergers. See, CCIA release.
House Passes Bill to Expand Wiretap Authority
5/21. The House passed HR 1877, the Child Sez Crimes Wiretapping Act of 2001, by a vote of 396-11. See, Roll Call No. 175.
This bill would amend 18 U.S.C. § 2516 to expand the list of predicate offenses that may serve as the basis for the issuance of a wiretap order.
FRB Governor Addresses Technology, Privacy and Banking
5/21. Federal Reserve Board Governor Mark Olson gave a speech titled "A Look at the Banking Industry in 2002.
Olson stated that "The major driver of future change will undoubtedly continue to be technological changes. With all the changes in technology to this point, experts tell us we are nowhere near the limits of technological improvement. As new options become available, decisions regarding the use of technology may be the most critical decision that bank management will make. That banks first identify a business strategy and then make technology decisions to support that strategy has become increasingly critical. The range of choices is not limited to large institutions. Even the smallest institutions can offer real time online account access to their customers and can have access to data on customer profitability, which allows them to better develop and price their products."
He continued that "Greater technological sophistication has two other important ramifications for banks. First, it allows your nonbank competitors to improve both the speed to market and the quality of their financial products. Second, it continues to concern customers who more and more ask for assurances about the privacy of their financial information. Privacy issues continue to be topics for potential state and federal legislation. Though the banking industry is rightfully concerned about the effects of these legislative initiatives, it must remember that privacy is a political issue because it reflects the genuine concern of bank customers. Providing the assurance of financial privacy is a vital part of managing technological change in the banking industry."
Olson spoke at the 107th Annual Convention of the Maryland Bankers Association, Palm Beach, Florida. 
People and Appointments
5/17. Debra Yang was sworn in as the U.S. Attorney for the Central District of California. See, release.
More News
5/21. The U.S. Court of Appeals (5thCir) issued its opinion in David Abrams v. Baker Hughes, a class action securities case involving the pleading requirements of the Private Securities Litigation Reform Act (PSLRA). The District Court dismissed for failure to state a claim, on the basis that the plaintiffs failed to adequately allege particularized facts to establish the necessary element of scienter. The Appeals Court affirmed.
5/20. The World Intellectual Property Organization (WIPO) Phonograms and Performances Treaty (WPPT) entered into force on May 20, 2002. See, WIPO release.
5/17. The U.S. District Court (EDVa) sentenced John Sankus to 46 months in federal prison for conspiring to violate the criminal copyright laws. Shankus was a was co-leader of the online software piracy group known as DrinkOrDie. A co-conspirator, Barry Erickson, was sentenced to 33 months in prison on May 2. The Department of Justice's Computer Crimes and Intellectual Property Section (CCIPS) announced in a release that "The sentences are the longest ever imposed for organized Internet software piracy." The Software & Information Industry Association (SIIA) praised the prosecutors. SIIA release.
5/21. The U.S. Postal Service (USPS) published a notice in the Federal Register containing a proposed rule to require, in most instances, that participants in USPS proceedings file documents electronically over the Internet. The USPS requests public comments by June 21 on this proposed rule -- on paper. See, Federal Register, May 21, 2002, Vol. 67, No. 98, at Pages 35766 - 35774.
House Passes Dot Kids Domain Bill
5/21. The House passed HR 3833, the Dot Kids Implementation and Efficiency Act of 2002, by a vote of 406-2. See, Roll Call No. 174.
The bill would require the Department of Commerce's National Telecommunications and Information Administration (NTIA) to operate a .kids second level domain within the .us country code domain. Currently, the NTIA has contracted with NeuStar to act as the registry of the .us country code.
The bill would amend the NTIA Organization Act, 47 U.S.C. § 902, to provide that "The NTIA shall require the registry selected to operate and maintain the United States country code Internet domain to establish, operate, and maintain a second level domain within the United States country code domain that provides access only to material that is suitable for minors and not harmful to minors".
The bill would also require that the registrar enter into written agreements with registrants "to prohibit two-way and multiuser interactive services in the new domain, unless the registrant certifies to the registrar that such service will be offered in compliance with the content standards ... and does not compromise the safety or security of minors."
Also, registrars would be required to enter into written agreements with all users of the new domain "to prohibit hyperlinks in the new domain that take new domain users outside of the new domain." Thus, a web site in the new domain could not hyperlink to children's web sites in the .com domain.
The bill is sponsored by Rep. John Shimkus (R-IL), Rep. Ed Markey (D-MA), and 38 others. It was reported by the House Commerce Committee earlier this year. Rep. Billy Tauzin (R-LA), the Chairman of the Committee, stated in a release that "This legislation will ensure that our country's children will have safer experiences on the Internet. We believe the '' domain will be hugely successful, and we hope that all parents will take advantage of its benefits."
See also, TLJ story, "House Commerce Committee Approves Dot Kids Bill," TLJ Daily E-Mail Alert No. 408, April 11, 2002.
Wednesday, May 22
The House will meet at 10:00 AM for legislative business.
9:00 AM - 4:30 PM. The Antitrust Division of the Department of Justice and the FTC will hold another in their series of hearings on antitrust and intellectual property. This event is titled "An International Comparative Law Perspective on the Relationship Between Competition and Intellectual Property, Part I". The DOJ requires that attendees provide their name and date of birth 24 hours in advance to Kathleen Leicht at kathleen.leicht or 202 514-7018. For more information, contact Gina Talamona in the Office of Public Affairs at 202 514-2007, or Frances Marshall in the Antitrust Division at 202 305-2520. See, FTC notice. Location: Great Hall, Department of Justice, Main Building, 950 Pennsylvania Avenue, NW.
9:00 AM. Microstrategy will host a press breakfast on the "state of the industry". For more information, contact Mark Brailov at 703 770-1670. Location: Murrow Room, National Press Club, 529 14th St. NW, 13th Floor.
9:30 AM. The Senate Commerce Committee will hold a hearing titled "Promoting Local Telecommunications Competition: The Means to Greater Broadband Deployment". Sen. Ernest Hollings (D-SC) will preside. The scheduled witnesses will be Rep. Edward Markey (D-MA), Loretta Lynch (California PUC), Robert Nelson (Michigan PSC), Mary Jo White (Pennsylvania State Senator), Paul Vassington (Mass. Dept. of Telecom. & Energy). Press contact: Andy Davis 224-6654. Location: Room 253, Russell Building.
10:00 AM. The House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property has rescheduled its hearing titled "The Accuracy and Integrity of the Whois Database". Howard Beales, Director of the FTC's Consumer Protection Bureau is scheduled to testify. Webcast. Press contact: Jeff Lungren or Terry Shawn at 202 225-2492. Location: Room 2141, Rayburn Building. This hearing has been scheduled and postponed twice.
10:00 AM. The House Science Committee will hold a meeting to mark up several bills, including HR 4664, the Investing in America's Future Act of 2002, and HR 3130, the Undergraduate Science, Mathematics, Engineering and Technology Improvement Act (Technology Talent Act of 2001). Webcast. Press contact: Heidi Tringe at Heidi.Tringe Location: Room 2318, Rayburn Building.
1:00 - 5:00 PM. The FCC will host a discussion of regulatory issues affecting broadband deployment. At 1:00 PM, FCC Chairman Michael Powell and Industry Canada's Michael Binder will speak. At 2:15 PM, FCC Commissioners Kathleen Abernathy, Michael Copps and Kevin Martin, FCC Wireline Competition Bureau Chief Dorothy Attwood, and Michael Binder will speak on rural broadband. At 3:45 PM Jeong Seon Seol, Information and Communications Counselor at the Korean Embassy, and Simon Towler, Telecommunications Attache at the British Embassy, will speak. See, FCC notice [PDF]. For more information, contact Patricia Cooper at 202 418-0723 or Linda Haller at 202 418-1408. Location: FCC, 445 12th Street, SW, Commission Meeting Room.
1:30 - 3:30 PM. The FCC's WRC-03 Advisory Committee, Informal Working Group 7: Regulatory Issues and Future Agendas, will hold a meeting. Location: FCC, 445 12th Street, SW, Room 7-B516 (7th Floor South Conference Room).
2:30 PM. The Senate Commerce Committee's Subcommittee on Science, Technology, and Space will hold a hearing on the National Science Foundation budget, focusing on federal research and development activities. Location: Room 253, Russell Building.
Day five of a five day annual conference of the International Trademark Association (INTA). See, agenda. Location: Washington Convention Center, 900 9th Street NW.
Day one of a two day conference titled "The Forrester Telecom Summit: The Impact Of Displacement". See, conference web site. The price to attend ranges from $1295 to $1495. For more information, contact events or 1 888 343-6786. Location: Grand Hyatt Washington.
Thursday, May 23
The House will meet at 10:00 AM for legislative business.
9:30 - 11:45 AM. The Antitrust Division of the Department of Justice and the FTC will hold another in their series of hearings on antitrust and intellectual property. This event is titled "An International Comparative Law Perspective on the Relationship Between Competition and Intellectual Property, Part II". For more information, contact Derick Rill (FTC Office of Public Affairs) at 202 326-2472 or Susan DeSanti (FTC Policy Planning Division) at 202 326-2167. See, FTC notice. Location: Room 432, FTC, 600 Pennsylvania Ave., NW.
10:00 AM. The Senate Judiciary Committee will hold a business meeting. The agenda includes a vote on Brooks Smith to be a Judge of the U.S. Court of Appeals for the Third Circuit (held over from last week), and consideration of S 1989, The National Cyber Security Defense Team Authorization Act. See, agenda. Press contact: Mimi Devlin at 202 224-9437. Location: Room 226, Dirksen Building.
12:00 NOON. Congressional Internet Caucus Advisory Committee will host a panel discussion of online pormography, the Children's Online Protection Act, and the National Academy of Science's report to Congress titled "Youth, Pormography, and the Internet." Lunch will be served. RSVP to rsvp or call Danielle at 202 638-4370. Location: Room HC-5, Capitol Building.
2:00 PM. The Senate Judiciary Committee will hold a hearing on pending judicial nominations: Lavenski Smith (to be a Judge of the U.S. Court of Appeals for the Eighth Circuit), Henry Autrey (U.S. District Court, E.D. Missouri), Richard Dorr (U.S.D.C., W.D. Missouri), Amy St. Eve (U.S.D.C., N.D. Illinois), Henry Hudson (U.S.D.C., E.D. Virginia), and Timothy Savage (U.S.D.C., E.D. Pennsylvania). See, agenda. Press contact: Mimi Devlin at 202 224-9437. Location: Room 226, Dirksen Building.
2:15 PM. The Senate Foreign Relations Committee will hold a business meeting to consider many items, including the nomination of David Gross to be Deputy Assistant Secretary of State for International Communications and Information Policy in the Bureau of Economic and Business Affairs and U.S. Coordinator for International Communications and Information Policy. Location: Room 419, Dirksen Building.
Day one of a two day conference titled "The Forrester Telecom Summit: The Impact Of Displacement". See, conference web site.
Friday, May 24
The House will meet at 9:00 AM for legislative business. No votes expected after 2:00 PM.
Monday, May 27
Memorial Day. The House and Senate will not be in session from Monday, May 27 through Friday, May 31, for the Memorial Day District Work Period. The FCC will be closed. The National Press Club will be closed. The Library of Congress will be closed.
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