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December 16, 2002, 9:00 AM ET, Alert No. 568.
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4th Circuit Rules in Internet Jurisdiction Case
12/13. The U.S. Court of Appeals (4thCir) issued its opinion [12 pages in PDF] in Young v. New Haven Advocate, holding that a court in Virginia does not have jurisdiction over two small newspapers, and their editors and reporters, located in Connecticut, who wrote allegedly defamatory stories about a Virginia prison warden and published them on the Internet. The Court held that the web publication did not establish minimum contacts because the newspapers are not directed at a Virginia audience.

Background. Stanley Young is the warden at the Wallens Ridge State Prison, in Big Stone Gap, Virginia. The state of Connecticut contracted with the state of Virginia to have Connecticut prisoners housed at Wallens Ridge. The New Haven Advocate and the Hartford Courant are newspapers based in the state of Connecticut. Both maintain web sites in which they publish stories. Both published stories which made statements regarding Wallens Ridge and Warden Young.

District Court. Young filed a complaint in U.S. District Court (WDVa) against the New Haven Advocate, the Hartford Courant, and individual editors and writers employed by each, alleging defamation. The defendants moved to dismiss the complaint on the ground that the District Court lacked personal jurisdiction over them. The District Court denied the motion. It held that the publication of news stories on the Internet about Virginia and available to web users in Virginia, which allegedly caused harm to reputation in Virginia, established minimum contacts with Virginia.

Appeals Court. The Court of Appeals reversed. It held that "The facts in this case establish that the newspapers’ websites, as well as the articles in question, were aimed at a Connecticut audience. The newspapers did not post materials on the Internet with the manifest intent of targeting Virginia readers. ... In sum, the newspapers do not have sufficient Internet contacts with Virginia to permit the district court to exercise specific jurisdiction over them."

The Court's analysis began, of course, with the Supreme Court's analysis of the Due Process limitations upon the exercise of personal jurisdiction announced in International Shoe v. Washington, 326 U.S. 310 (1945). The Appeals Court wrote that "The question, then, is whether the defendant has sufficient ``minimum contacts with [the forum] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’´´ (Brackets in original. Citation to International Shoe omitted.)

The Court also applied the analysis contained in its more recent treatment of the subject in ALS Scan, Inc. v. Digital Service Consultants, Inc., 293 F.3d 707 (4th Cir. 2002). In ALS Scan the Court found that there was not jurisdiction over an out of state web host in an online copyright infringement action. See, stories titled "Internet Shoes: Two Appeals Courts Address Internet Based Personal Jurisdiction", "Fourth Circuit Holds No Personal Jurisdiction Over Out of State Web Host", and "DC Circuit Suggests Personal Jurisdiction Over Out of State Online Brokerage" in TLJ Daily E-Mail Alert No. 452, June 17, 2002.

The Court wrote that in ALS Scan, "we held that ``specific jurisdiction in the Internet context may be based only on an out-of-state person’s Internet activity directed at [the forum state] and causing injury that gives rise to a potential claim cognizable in [that state].´´ Id. at 714." (Brackets in original.)

The Court continued that "When the Internet activity is, as here, the posting of news articles on a website, the ALS Scan test works more smoothly when parts one and two of the test are considered together. We thus ask whether the newspapers manifested an intent to direct their website content -- which included certain articles discussing conditions in a Virginia prison -- to a Virginia audience. As we recognized in ALS Scan, ``a person's act of placing information on the Internet´´ is not sufficient by itself to ``subject[ ] that person to personal jurisdiction in each State in which the information is accessed.´´ Id. at 712. Otherwise, a ``person placing information on the Internet would be subject to personal jurisdiction in every State,´´ and the traditional due process principles governing a State's jurisdiction over persons outside of its borders would be subverted." (Brackets in original.)

"Thus, the fact that the newspapers' websites could be accessed anywhere, including Virginia, does not by itself demonstrate that the newspapers were intentionally directing their website content to a Virginia audience. Something more than posting and accessibility is needed to ``indicate that the [newspapers] purposefully (albeit electronically) directed [their] activity in a substantial way to the forum state ... The newspapers must, through the Internet postings, manifest an intent to target and focus on Virginia readers." (Brackets and parentheses in original.)

Finally, the Court concluded by stating that "We therefore turn to the pages from the newspapers' websites that Warden Young placed in the record, and we examine their general thrust and content. The overall content of both websites is decidedly local, and neither newspaper’s website contains advertisements aimed at a Virginia audience."

Australia Ruling. The 4th Circuit's analysis conflicts with that of an opinion issued on December 10 by the High Court of Australia in Dow Jones v. Gutnick. That case involved three procedural issues (jurisdiction, choice of law, and convenient forum) in a tort action brought in Australia for an allegedly defamatory news story published on the Internet by Dow Jones, a U.S. publisher. The Court held that because of publication on the Internet, the Australian courts have jurisdiction, that Australian law applies, and that the case should proceed in the trial court in the Australian state of Victoria.

The Australian Court wrote in the Gutnick case that "defamation is to be located at the place where the damage to reputation occurs. ... In the case of material on the World Wide Web, it is not available in comprehensible form until downloaded on to the computer of a person who has used a web browser to pull the material from the web server. It is where that person downloads the material that the damage to reputation may be done. Ordinarily then, that will be the place where the tort of defamation is committed."

The Center for Democracy and Technology (CDT) stated in a release that the 4th Circuit opinion "protects and promotes free speech on the Internet". It added that the "Australian decision raises serious questions and concerns about Internet free speech internationally, and is in tension with the 4th Circuit's decision". The CDT participated as amicus curiae in the 4th Circuit case.

TLJ Commentary. It might be noted that one of the reasons that the defendants did not have "minimum contacts" with the state of Virginia was because they had minimum journalistic standards. Neither publication maintained an office or bureau in Virginia. Neither had any employees or stringers in Virginia. And, even thought they wrote stories about Virginia prison facilities and conditions, neither publication ever sent a reporter to Virginia. The Court's opinion states that their sole reportorial efforts connected to Virginia were "a few telephone calls" to "a spokesman for the Virginia Department of Corrections".

So, while hypothetically, any opinion holding that the Connecticut newspapers are subject to the jurisdiction of Virginia would have created a disincentive for news organizations to report and disseminate news on the Internet, the opinion, as actually written, may create a perverse incentive for web based publications to refrain from thorough investigation of the out of state news that they report, for fear that the actions that go into a thorough investigation may also constitute the minimum contacts that subject them to litigation in other states.

SEC Amends Rule for Internet Investment Advisers
12/12. The Securities and Exchange Commission (SEC) adopted a final rule providing relief for Internet investment advisers. The rule exempts certain investment advisers who provide advisory services through the Internet from the prohibition on SEC registration. The rule change permits advisers whose businesses are not connected to any state to register with the SEC instead of with state securities authorities.

Outgoing SEC Chairman Harvey Pitt said in a prepared statement on December 12 that "Our second item is a recommendation from the Division of Investment Management that we adopt a new rule to permit so-called Internet investment advisers to register with the Commission rather than the states."

He continued that "Today one third of Americans invest in the markets through 401(k) plans, IRAs and similar self-directed retirement plans. Most experts agree that investors need help making the right decisions for themselves and their families. Some of these investors have turned to seeking advice from investment advisers accessed through the Internet. Technology available through the Internet has the promise to deliver investment advice to those who need but otherwise might not be able to afford investment advice."

Pitt concluded that "The new rule would permit Internet investment advisers to register in one place -- at the Commission. By reducing the cost and complexity of their registration process, without diminishing investor protections, this forward-looking rule should make Internet adviser services more readily available to the huge number of Americans who will approach retirement in the next 20 years."

The action taken on December 12 changes Rule 203A-2(f). The change takes effect on January 20, 2003. For more information, contact Marilyn Barker at 202 942-0523.

5th Circuit Rules in Online Gambling Case
12/13. The U.S. Court of Appeals (5thCir) issued its revised opinion [PDF] in Thompson v. Mastercard, a case upholding the dismissal of class action lawsuits against Mastercard, Visa and banks seeking damages under the RICO in connection with the financing of Internet gambling.

Larry Thompson and Lawrence Bradley gambled at online. They lost lots of money. They then filed complaints in the U.S. District Court (EDLa) against Mastercard, Visa, and banks that issue Mastercard and Visa credit cards, alleging violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, in connection with the plaintiffs' use of Mastercard and Visa credit cards to gamble online. Plaintiffs sought class action status. They sought damages under the RICO, and a declaratory judgment that their gambling debts are unenforceable because they are illegal.

The District Court dismissed the actions. The Appeals Court affirmed. The Appeals Court wrote that "Thompson and Bradley simply are not victims under the facts of these cases. Rather, as the district court wrote, ``they are independent actors who made a knowing and voluntary choice to engage in a course of conduct.´´ In engaging in this conduct, they got exactly what they bargained for -- gambling ``chips´´ with which they could place wagers. They cannot use RICO to avoid meeting obligations they voluntarily took on."

Monday, December 16
The Supreme Court will be in recess from December 16 through January 12.

12:15 PM. The FCBA's Professional Responsibility Committee will host a brown bag luncheon. For more information, contact Frank Montero at 202 663-8936. RSVP to Location: Arnold & Porter, 555 12th St., NW.

Deadline to submit comments to the National Institute of Standards and Technology (NIST) regarding its draft publication [90 pages in PDF] file titled "Security Metrics Guide for Information Technology Systems". This is NIST Special Publication 800-55. It was written by Marianne Swanson, Nadya Bartol, John Saboto, and Joan Hash in the NIST's Information Technology Laboratory's Computer Security Division. Send comments to marianne.swanson

Tuesday, December 17
9:00 AM. The Securities and Exchange Commission (SEC) will hold a roundtable meeting to discuss the international impact of proposed rules to be promulgated under the Sarbanes Oxley Act of 2002 on auditor independence. Audio of the meeting will be web cast. See, SEC release. Location: SEC headquarters, 450 Fifth Street, NW.

10:00 AM - 12:00 NOON. The Department of State's (DOS) U.S. International Telecommunication Advisory Committee (ITAC) will hold a meeting to discuss matters related to the World Summit on the Information Society (WSIS) scheduled for December 2003. See, notice in the Federal Register, December 3, 2002, Vol. 67, No. 232, at Page 72018. Location: National Academy of Sciences, 2100 C St. NW.

1:30 - 3:30 PM. The FCC's WRC-03 Advisory Committee, Informal Working Group 7, Regulatory Issues and Future Agendas, will meet. Location: Boeing Company, Arlington, VA.

2:00 PM. The Securities and Exchange Commission (SEC) will hold a roundtable meeting to discuss the international impact of proposed rules to be promulgated under the Sarbanes Oxley Act of 2002 on attorney conduct. Audio of the meeting will be web cast. See, SEC release. Location: SEC headquarters, 450 Fifth Street, NW.

Wednesday, December 18
Deadline to submit comments to the FCC regarding AT&T's petition for declaratory ruling that its phone to phone Internet protocol telephony services are exempt from access charges. AT&T filed the petition on October 18, 2002. This is WC Docket No. 02-361. For more information, contact Kathy O’Neill at 202 418-1520 or Julie Veach at 202 418-1558. See, FCC notice [4 pages in PDF].
Thursday, December 19
Deadline for the FCC to rule on 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].

Deadline for the FCC to rule on 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].

1:00 - 4:00 PM. The U.S. Patent and Trademark Office (USPTO) will host a roundtable meeting. The USPTO has offered two descriptions of the purpose of this meeting. It stated in an October 28 notice in the Federal Register that the meeting will address small business views on foreign patent challenges. It stated in a December 9 notice that the meeting will address harmonization of patent laws. This roundtable, along with two others in Los Angeles and Chicago, are being held pursuant to a recommendation contained in a General Accounting Office (GAO) report [PDF] titled "Federal Action Needed to Help Small Businesses Address Foreign Patent Challenges". This report was released on August 22, 2002. See also, story titled "GAO Reports Foreign Patent Challenges Facing Small Businesses" in TLJ Daily E-Mail Alert No. 497, August 23, 2002. December 19 is also the deadline to submit written comments. To make reservations to attend, contact Velica Steadman at 703 305-9300 or velica.steadman Location: Crystal Park 2, 2121 Crystal Drive, Arlington, VA.

Friday, December 20
Deadline to submit comments to the Office of the U.S. Trade Representative (USTR) regarding its proposed free trade agreement (FTA) negotiations with Botswana, Lesotho, Namibia, South Africa and Swaziland. The proposed negotiations will address, among other things, electronic commerce, intellectual property rights (IPR), and access to telecommunications markets. See, notice in Federal Register, November 15, 2002, Vol. 67, No. 221, at Pages 69295 - 69297. See also, letter [PDF] from USTR Robert Zoellick to Sen. Robert Byrd (D-WV).
People and Appointments
12/13. The White House press office announced that Catherine Martin has been named Assistant to the Vice President for Public Affairs, where she will work for Dick Cheney. See, White House release. Martin is married to Kevin Martin, who is a Commissioner of the Federal Communications Commission (FCC). He previously worked for the Bush Cheney campaign, and then for the Bush Cheney Transition Team. He serves at the FCC with Chairman Michael Powell, son of Colin Powell, President Bush's Secretary of State. The elder Powell was also Chairman of the Joint Chiefs of Staff when Dick Cheney was Secretary of Defense, and the elder George Bush was President. Kevin Martin also previously worked as a Legal Advisor to former FCC Commissioner Harold Furchtgott Roth, who then became a scholar at the American Enterprise Institute (AEI), where he became a colleague of Lynn Cheney, wife of Dick Cheney. Meanwhile, Diana Furchtgott Roth used to work at the AEI, before becoming Chief of Staff for President Bush's Council of Economic Advisors (CEA). CEA Chairman Glenn Hubbard is a former AEI scholar. But, getting back to Catherine Martin; she was also previously Policy Director to former Texas Attorney General John Cornyn, who was the AG when George Bush was the Governor. Cornyn is a Republican who was elected last month to fill the Senate seat vacated by the retirement of Sen. Phil Gramm (R-TX). Catherine Martin has also worked for the law firm of Steptoe & Johnson, which practices in many areas, including telecommunications and technology law. Its clients include EchoStar. Martin replaces veteran Republican political strategist Mary Matlin, who is married to James Carville, who has never worked for Dick Cheney.
More News
12/13. The U.S. Court of Appeals (DCCir) issued its opinion in Commonwealth Communications v. NLRB, a petition for review of an order of the National Labor Relations Board (NLRB) finding that Commonwealth Communications violated the National Labor Relations Act. The case involves construction a collective bargaining agreement between the International Brotherhood of Electrical Workers (IBEW) and Commonwealth Communications. The Appeals Court granted the petition for review.

12/13. Federal Reserve Board (FRB) Governor Mark Olson gave a speech in Santiago, Chile titled "The Importance of Market Structure". He commented on, among other things, local banking. He stated that "On the demand side, studies in the United States indicate that both households and small businesses procure key components of their banking services overwhelmingly from suppliers located within a few miles of themselves. It is still not common for these consumers to deal with institutions that can be reached only by telephone or the Internet."

12/13. The U.S. International Trade Commission (USITC) made a determination that there is a reasonable indication that a U.S. industry is materially injured by reason of imports of dynamic random access memory semiconductors (DRAMs) and DRAM modules from Korea that are allegedly subsidized. Micron Technology filed the petition which resulted in this investigation. This is Investigation No. 701-TA-431. See, USITC release.

12/13. President Bush issued a Memorandum regarding the order of succession at the Office of Science and Technology Policy (OSTP) in the event of the death, resignation or other incapacity of the Director (who is currently John Marburger). Next in line is the Associate Director for Technology (who is currently Richard Russell). After him comes the Associate Director for Science (who is currently Kathie Olsen), followed by the Chief of Staff and the General Counsel. Russell handles technology, telecommunications, information technology, and space and aeronautics issues for the OSTP. Floyd Kvamme, who Co-Chairs the President's Council of Advisors on Science and Technology, serves in an advisory capacity, and is not in the line of succession.

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