Tech Law Journal Daily E-Mail Alert
October 9, 2002, 9:00 AM ET, Alert No. 526.
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10/8. Yesterday's issue of the TLJ Daily E-Mail Alert (No. 525, October 7, 2002) included a story titled "House Votes to Delay Webcasting Rule for Six Months". The story stated that the House passed HR 5469, the Small Webcaster Amendments Act of 2002, by a voice vote. The story also incorrectly stated that the House passed the bill as introduced on September 26. In fact, the House passed a manager's amendment to the bill that is significantly different from the original version. The original bill simply provided for a six month extension of the effective date of the Librarian of Congress's webcasting rule. The bill as passed, among other things, establishes royalty rates for small webcasters.
House Passes Small Webcaster Amendments Act of 2002
10/8. The House approved a manager's amendment to HR 5469, the Small Webcaster Amendments Act of 2002, by a voice vote, on October 7.
Rep. James Sensenbrenner (R-WI), the Chairman of the House Judiciary Committee, spoke in the House during the debate on the bill. He is also the sponsor of the bill. The version of the bill that passed the house was his "manager's amendment".
Rep. Sensenbrenner explained the developments that led up to his manager's amendment. He stated that "the 1995 Digital Performance Right and Sound Recording Act that created a performance right in sound recordings for digital transmissions did not specifically address the issue of webcasting or Internet radio broadcasts. As a result, the 1998 Digital Millennium Copyright Act contains provisions that authorize eligible webcasters to accept a compulsory license, thereby enabling them to operate over the Internet without negotiating licenses in the marketplace. A compulsory license essential allows an individual or entity to use copyrighted works like music and movies at an industry negotiated or government mandated rate."
Rep. Sensenbrenner said that "Because webcasters and members of the recording industry could not agree to a rate, a statutorily authorized arbitration panel, called a CARP, was convened at the U.S. Copyright Office to determine what the rate would be. The arbitrators issued a decision on February 20, 2002. The copyright holders in the recording industry thought that the rate was too low, and the webcasters thought that the rate was too high."
He continued that "the Librarian of Congress, based upon a recommendation by the Register of Copyrights, decided on June 8 to reject the suggestions of the webcasting CARP. On June 20, he issued a final decision which lowered the rate further. Some webcasters believe that the rate is still excessive. The copyright holders maintain that this lower rate is even less reflective of a fair market standard. That decision is now on appeal" to the U.S. Court of Appeals (DCCir).
On June 20, 2002, the Librarian of Congress issued his final rule providing the 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.
The Librarian also released a summary stating that he "accepted the recommendation of the Register of Copyrights and rejected the rates and terms recommended by a Copyright Arbitration Royalty Panel (CARP) ... The most significant difference between the CARP's determination and the Librarian's decision is that the Librarian has abandoned the CARP's two tiered rate structure of 0.14¢ per performance for ``Internet  only´´ transmissions and 0.07¢ for each retransmission of a performance in an AM/FM radio broadcast, and has decided that the rate of 0.07¢ will apply to both types of transmission."
Rep. Sensenbrenner also stated that "Although a resolution to this dispute is legally in play, implementation of the decision by the Librarian takes effect on October 20 and is retroactive to 1998. Unless Congress acts, some webcasters will shut down. This explains the point of H.R. 5469 as originally drafted: to suspend the implementation of the Librarian's decision for 6 months, effective October 20. This delay would ensure that all parties would receive all of the judicial process to which they are entitled under the law before the rate took effect."
He also explained his legislative strategy: "I am happy to report that introduction of this bill placed a burr under the saddle of both the copyright holders and the small webcasters to conclude negotiations on these matters that began last summer. Since last week, the parties have negotiated around the clock. They have now arrived at a deal that sets new rates and payment terms that will obviate the need for further legal and administrative intervention. The manager's amendment simply codifies the terms of that deal." Rep. Sensenbrenner's statement is at Congressional Record, October 7, 2002, pages H7046-7.
Rep. Howard Berman (D-CA), the ranking Democrat on the House Courts, Internet and Intellectual Property Subcommittee, spoke in favor of the manager's amendment. He explained that "The terms of the deal are somewhat complicated, but the basic provisions are this. Small webcasters pay webcasting royalties that equal 8 percent of their gross revenues for the years 1998 through 2002, or a statutory minimum, whichever is greater. In 2003 and 2004, small webcasters will pay the greater of 10 percent of their gross revenues under $250,000 and 12 percent of their gross revenues over $250,000, or 7 percent of expenses."
Rep. Berman added that "The criteria for eligibility as a small webcaster are reasonable and allow such webcasters to grow and yet still obtain the royalty discount provided by the legislation. A webcaster will be eligible for the discounted royalty rate for the past 4 years if it had less than $1 million in gross revenues over those four years. A webcaster will be eligible in the year 2003 if it has gross revenues under $500,000 for that calendar year and in 2004 if it has gross revenues under $1.25 million." His statement is at Congressional Record, October 7, 2002, page H7047.
He concluded that "this legislation provides small webcasters with much better terms than the webcasting rates set by the Librarian of Congress. As such, it addresses the concerns that the Librarian's rate might drive many small webcasters out of business."
The manager's amendment also provides for the direct payment to artists of royalties for digital performance of sound recordings. It also requires the Register of Copyrights and the Comptroller General to prepare a report for the Congress on small webcasters by June 1, 2004.
Rep. John Conyers (D-MI), the ranking Democrat on the Judiciary Committee, and Rep. Karen McCarthy (D-MO), also spoke in favor of the bill. It then passed by a voice vote.
Senate Passes Conference Report on DOJ Authorization Bill
10/3. The Senate passed the conference report on HR 2215, the 21st Century Department of Justice Appropriation Authorization Act, by unanimous consent on Thursday, October 3. The House passed the conference report on September 26, by a vote of 400-4. See, Roll Call No. 422. The bill does far more than authorize the Department of Justice (DOJ). It is also the vehicle for passage of numerous tech related items.
The bill contains numerous substantive provisions. It requires the DOJ to annually report certain information to the Congress regarding use of the Carnivore e-mail surveillance system. It changes the procedure for serving certain search warrants upon ISPs. It modifies the process for extending H1B visas for high tech workers. It amends the Copyright Act to facilitate distance learning (TEACH Act). It amends the Patent Act regarding inter partes reexamination, and other matters. It also it includes the Madrid Protocol Implementation Act.
The bill had been delayed in the Senate for one week by disputes over procedure. Sen. Patrick Leahy (D-VT) stated in the Senate on October 1 that "there is a Republican hold" on the bill. Sen. Jon Kyl (R-AZ) also spoke in the Senate on October 1. He stated that "It is not that this is a bad bill." Rather, he raises two points. First, he said it is a matter of priorities. He said that the Senate should not devote time to this bill when it had yet to pass a bill creating a new Department of Homeland Security, a resolution authorizing the use of force against Iraq, and a Department of Defense appropriations and authorization bill. Second, he said that conference reports are supposed to iron out differences between two versions of a bill, and not serve as a vehicle for passage of items not addressed in the original bills.
On October 3 the Senate voted on a cloture motion to cut off debate on the bill. Once it became apparent during the vote that the motion would pass, almost all Senators switched their votes to support for the motion. It passed by a vote of 93-5. See, Roll Call No. 229.
Deputy Treasury Secretary Addresses FSC/ETI and WTO Rulings
10/8. Kenneth Dam, Deputy Secretary of the Treasury, gave a speech titled "Current WTO Induced Issues in U.S. Taxation of International Business" at a Washington DC luncheon. He said the American international tax rules no longer serve the national interest, and cited as an example the problems created for American businesses by the World Trade Organization's (WTO) recent rulings that both the Foreign Sales Corporation (FSC) and Extraterritorial Income Exclusion (ETI) tax regimes are illegal.
He offered a gloomy short term outlook for American exporters. He said that "The chances of going back to a FSC look alike law are nil." Moreover, he said that "it will not be possible to replicate for each and every American company the tax relief they obtained under FSC or ETI. Nor can we assure each and every American company that it will receive any tax relief at all from the tax legislation now being considered in Congress."
He said that instead "We need to focus on making the U.S. economy -- and that means U.S. enterprises as a whole -- better off as a result of the legislative changes." However, he did not say what such a future tax regime should be, or when it might be enacted.
The WTO has held that both of the FSC and ETI tax regimes constitute illegal trade subsidies. On August 30 the WTO released a Decision of the Arbitrator [46 pages in PDF] that authorizes the EU to impose $4 Billion in countermeasures, or retaliatory tariffs. On September 13 the European Union published a document [14 pages in PDF] that lists thousands of product category numbers that identify products that may be subject to retaliatory tariffs. It includes many tech products. Moreover, tech companies that export software and equipment have been leading beneficiaries of the FSC and ETI tax regimes.
Kenneth DamDam (at right) stated that "The sad truth is that our international tax rules no longer serve our national interest. In this age of globalization, international transactions generate a large and growing share of our national income. Yet changes to the international provisions of the U.S. corporate tax code in recent decades have ignored this trend, and have oftentimes more impaired than improved American companies' ability to compete abroad. More often, changes to the tax code have focused on increasing tax revenues rather than assuring the competitiveness of U.S. business operations, and thus, assuring the health of our economy."
Dam said that the WTO rulings "say that any attempt to replicate the benefits of FSC or ETI is legally doomed.  To make such an attempt would simply lead to fruitless WTO litigation and could well bring on a trade war with the European Union, which would almost certainly insist on retaliating against U.S. exports." He also reiterated that "President Bush decided several months ago that the United States would comply with the WTO ruling".
Dam said that "we need to revisit the U.S. tax rules for foreign earned income. These rules have not kept pace with the rules of our major trading partners." He added that "with today's global economy, the bottom line is clear. If we want U.S. businesses, and thus the U.S. economy, to be competitive in international transactions, then we have to reconsider our international tax rules."
SEC Brings Insider Trading Case Against Software Exec
10/7. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (NDIll) against Terry Kirch alleging insider trading.
The complaint states that Kirch was the CEO of a private software company that belonged to an executive roundtable. The executives met with the understanding that information exchanged was confidential. At one conference the CEO of another member, ShowCase Corporation, stated that his company would not meet analysts' projections for the second quarter. Kirch then sold shares of ShowCase, thereby avoiding a loss of about $45,688. The complaint alleges violations of § 10(b) of the Exchange Act and § 17(a) of the Securities Act.
The SEC seeks an injunction, disgorgement, interest, and a civil penalty. See, SEC release.
More News
10/8. The Federal Communications Commission (FCC) published a notice in the Federal Register regarding whether it should revise, clarify or adopt any additional rules in order to more effectively carry out Congress's directives in the Telephone Consumer Protection Act of 1991 (TCPA). The notice states that "New technologies have emerged that allow telemarketers to better target potential customers and make it more cost effective to market using telephones and facsimile machines. These new telemarketing techniques have also increased public concern about the effect on consumer privacy. Therefore, we seek comment on whether to revise or clarify our rules governing unwanted telephone solicitations and the use of automatic dialing systems, prerecorded or artificial voice messages, and telephone facsimile machines." It adds that "Such calls may also be disruptive to the increasing number of individuals who now work from home by tying up telephone lines or disconnecting telecommuters from the Internet." Comments are due November 22, 2002. Reply comments are due December 9, 2002. See, Federal Register, October 8, 2002, Vol. 67, No. 195, at Pages 62667 - 62681.
10/8. The Senate Judiciary Committee held over consideration of S 2541, the Identity Theft Penalty Enhancement Act of 2002, sponsored Sen. Dianne Feinstein (D-CA). It had been on the agenda for the Committee's October 8 business meeting. All bills on the agenda were held over. This was likely the Committee's last business meeting to the 107th Congress.
10/7. Rep. Chris Cox (R-CA) introduced HJRes 116, a joint resolution to recognize the rights of consumers to use copyright protected works. It was referred to the House Judiciary Committee and the House Commerce Committee.
10/7. Sen. Bill Nelson (D-FL) introduced S 3064, the Health Records Confidentiality Act of 2002. It was referred to the Senate Health, Education, Labor, and Pensions Committee. Sen. Nelson stated that "Under my legislation, pharmacies, insurance companies and other health entities would be prohibited from using private, personally identifiable health information to provide marketing services to any entity without providing notice to the consumer about its disclosure practices and obtaining the consumer's express written consent. The legislation makes an exception for treatment communications unless the covered entity receives direct or indirect remuneration from a third party for making the communication. The free flow of information is important when sought by the consumer, but treatment communications tarnished by the marketing dollars of third parties create an inherent conflict of interest by encouraging patients, who don't know their pharmacist has been paid, to purchase high cost alternative drugs that are not necessarily more effective than those prescribed by their doctor." See, Cong. Record, October 7, 2002, at S10046.
10/8. The Supreme Court heard oral argument in FCC v. Nextwave, Case No. 01-653, and Arctic Slope Corp. v. Nextwave, Case No. 01-657.
10/4. The U.S. District Court (WDWash) sentenced Vasily Gorshkov to serve 36 months in prison following convictions 20 counts of conspiracy, various computer crimes, and fraud. The U.S. Attorneys Office (WDWash) stated that he "was one of two men from Chelyabinsk, Russia, who were persuaded to travel to the United States as part of an FBI undercover operation. The operation arose out of a nationwide FBI investigation into Russian computer intrusions that were directed at Internet Service Providers, e-commerce sites, and online banks in the United States. The hackers used their unauthorized access to the victims' computers to steal credit card information and other personal financial information, and then often tried to extort money from the victims with threats to expose the sensitive data to the public or damage the victims' computers. The hackers also defrauded PayPal through a scheme in which stolen credit cards were used to generate cash and to pay for computer parts purchased from vendors in the United States." See, USAO release and CCIPS release.
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Wednesday, October 9
The House will meet at 10:00 AM for legislative business.
The Supreme Court will hear oral argument in Eldred v. Ashcroft, Case No. 01-618.
Day one of a two day symposium titled "The Rule of Law in the Information Age: Reconciling Private Rights and Public Interest" hosted by the Catholic University of America School of Law. See, schedule. Location: CUA, Walter Slowinski Court Room.
10:00 AM. The House Commerce Committee's Subcommittee on Commerce, Trade, and Consumer Protection will hold a hearing titled "Telecommunications and Trade Promotion Authority: Meaningful Market Access Goals for Telecommunications Services in International Trade Agreements". The scheduled witnesses include Leonard Waverman (London Business School), Larry Darby (Darby Associates), Scott Harris (Harris Wiltshire & Grannis), Gregory Sidak (American Enterprise Institute), and Florizelle Liser (Asst. USTR for Industry and Telecommunications). Web cast. See, notice. Location: Room 2322, Rayburn Building.
10:00 AM. The Senate Commerce Committee's Subcommittee on Technology, Terrorism, and Government Information will hold a hearing on new laws implemented by the Administration in the fight against terrorism. Location: Room 226, Dirksen Building.
10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Northrop Grumman v. Intel, No. 02-1024. Location: Courtroom 402, 717 Madison Place, NW.
Day two of a three day public workshop hosted by the FTC to "explore how certain state regulations and private business practices may be having significantly anticompetitive effects on e-commerce". See, FTC release. Location: FTC, 600 Pennsylvania Ave., NW.
TIME? The Federal Accounting Standards Advisory Board (FASAB) will meet to "obtain information from interested individuals, organizations, and groups about potential future projects". For more information, contact Charles Jackson at 202 512-7352. See, notice in Federal Register.
Deadline to submit comments to the FCC regarding SBC's Section 271 application with the FCC to provide in region interLATA service in the state of California. This is WC Docket No. 02-306. See, FCC notice [PDF].
Thursday, October 10
The House will meet at 10:00 AM for legislative business.
9:00 AM. The House Judiciary Committee's Subcommittee on the Constitution will hold an oversight hearing titled "A Judiciary Diminished is Justice Denied: the Constitution, the Senate, and the Vacancy Crisis in the Federal Judiciary". Web cast. Location: Room 2141, Rayburn Building.
9:30 AM. The FCC will hold a meeting. The agenda includes four items. First, the FCC will consider a NPRM concerning the reform of the International Settlements Policy, its international simple resale and benchmarks policy, and the issue of foreign mobile termination rates. (IB Docket No. 96-261). Second, the FCC will consider a First Report and Order regarding digital operation by terrestrial radio broadcasters. (MM Docket No. 99-325). Third, the FCC will a Forefeiture Order concerning compliance with the shared transport condition of the SBC Ameritech merger order. Finally, the FCC's Enforcement Bureau will report on recent enforcement activities. Location: FCC, 445 12th Street, SW, Room TW-C05 (Commission Meeting Room).
10:00 AM. The House Science Committee will hold a hearing titled "Conducting Research During the War on Terrorism: Balancing Openness and Security." The scheduled witnesses include John Marburger (Director of the White House Office of Science and Technology Policy), Ronald Atlas (American Society of Microbiologists), M.R.C. Greenwood (UC Santa Cruz), and Sheila Widnall (MIT). See, notice. Press contacts: Heidi Tringe or Jeff Donald at 202 225-4275. Location: Room 2318, Rayburn Building.
12:00 PM. The Cato Institute will host a book forum. Jagdish Bhagwati (Columbia University) will discuss his book, Free Trade Today, and a collection which he edited, Going Alone: The Case for Relaxed Reciprocity in Freeing Trade. Robert Litan (Brookings) will comment. Webcast. Lunch will follow the program. See, notice. Location: Cato, 1000 Massachusetts Ave., NW.
3:00 PM. The House Judiciary Committee's Subcommittee on Commercial and Administrative Law will meet to mark up HR 5429, the Satellite Services Act of 2002. Webcast. Location: Room 2141, Rayburn Building.
Day two of a two day symposium titled "The Rule of Law in the Information Age: Reconciling Private Rights and Public Interest" hosted by the Catholic University of America School of Law. See, schedule. Location: CUA, Walter Slowinski Court Room.
Day three of a three day public workshop hosted by the FTC to "explore how certain state regulations and private business practices may be having significantly anticompetitive effects on e-commerce". See, FTC release. Location: FTC, 600 Pennsylvania Ave., NW.
Day one of a two day Annual Update Conference on Export Controls and Policy hosted by the Department of Commerce's Bureau of Industry and Security (BIS). See, agenda. Location: to be announced.
Deadline to submit comments to the FCC regarding BellSouth's Section 271 application with the FCC to provide in region interLATA service in the states of Florida and Tennessee. This is WC Docket No. 02-307. See, FCC notice [PDF].
Friday, October 11
The House will meet at 9:00 AM for legislative business.
Day two of a two day Annual Update Conference on Export Controls and Policy hosted by the Department of Commerce's Bureau of Industry and Security (BIS). See, agenda. Location: to be announced.
Deadline to submit comments to the FCC in response to it Public Notice [7 pages in PDF] regarding relief for the Auction No. 35 winners. The FCC asks for public comments regarding two possible scenarios for providing relief to the winning bidders in the January 2001 re-auction of spectrum previously auctioned to NextWave: full refund and option to dismiss all pending applications, and selective opt out for pending applications. See also, notice in Federal Register.
Monday, October 14
Columbus Day. The FCC will be closed. The National Press Club will be closed.
Tuesday, October 15
9:00 AM - 12:00 NOON. The U.S. Patent and Trademark Office's (USPTO) Technology Center 2800 will hold a Semiconductor Customer Partnership Meeting to discuss the quality and timeliness of the examination process. (2800 pertains to semiconductors, electrical and optical systems and components.) RSVP to Tom Thomas at tom.thomas or 703 308-2772. See, USPTO notice. Location: Crystal Park 1, Suite 819, 2011 Crystal Drive, Arlington, Virginia.
12:00 NOON. James Rogan (Under Secretary of Commerce for Intellectual Property and
Director of the USPTO) will give an address titled "Reaffirming Intellectual Property Rights in an Information Age". See, notice. Location: Heritage Foundation, 214 Massachusetts Ave., NE.
Day one of a two day conference of the Association Internationale pour la Protection de la Propriété Intellectuelle (AIPPI) titled "How to be Successful with Patent and Trademark Litigation: Europe and the Far East". The agenda includes a business meeting (1:00 - 1:30 PM), a CLE seminar (1:30 - 5:00 PM), and a reception (5:00 - 6:30 PM). Location: Faculty Conference Room, Burns Building, 5th Floor, GWU Law School, 716 20th Street, NW.
Deadline to submit comments to the FCC in response to Qwest Communications' Section 271 application to provide in region interLATA service in the states of Colorado, Idaho, Iowa, Montana, Nebraska, North Dakota, Utah, Washington and Wyoming. This is WC Docket No. 02-314. See, FCC release [PDF].