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August 7, 2003, 9:00 AM ET, Alert No. 713.
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Court Holds That State Laws Requiring Opt-In For Information Sharing Among Affiliated Financial Institutions Are Preempted

7/29. The U.S. District Court (NDCal) issued its Order on Cross Motions for Summary Judgment [23 pages in PDF] in Bank of America v. Daly City, regarding whether municipal and county ordinances regulating the sharing of information among affiliated financial institutions is preempted by various federal statutes.

The District Court wrote, "The Court declares that the ordinances at issue are preempted under federal law to the extent that the ordinances restrict the sharing of confidential consumer information between financial institutions and their affiliates. The Court enjoins enforcement of the ordinances to that extent. The Court upholds the ordinances’ restrictions on the sharing of information between financial institutions and non-affiliated third parties."

The Bank of America (BA) is a bank that does business, among other places, in California. It affiliates include Banc of America Investment Services, Inc., and Bank of America Insurance Services, Inc. These affiliates use BA's customer information to conduct business and to sell credit card, securities and other products to BA customers. Wells Fargo Bank, and its affiliates, also do business in California. They similarly share information.

The City of Daly City is a city of 100,000 people in northern San Mateo County, California, near San Francisco. It passed an ordinance that bars financial institutions operating in Daly City from disclosing or sharing confidential consumer information to either affiliates or non-affiliated third parties without first providing written notice to the consumer, and obtaining a consent acknowledgment from the consumer.

That is, the ordinance requires financial institutions to obtain a consumer's consent, or opt-in, prior to releasing confidential information about the consumer, as opposed to requiring financial institutions to allow consumers to opt-out of such information disclosures.

San Mateo County and Contra Costa County also passed substantially similar ordinances.

The Bank of America, and its affiliates, and the Wells Fargo Bank, and its affiliates, filed a complaint in the District Court against Daly City, San Mateo County and Contra Costa County, challenging their consumer privacy ordinances as preempted under federal law.

They sought a declaration that the ordinances are preempted by the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681 et seq., the Gramm Leach Bliley Act (GLBA), 15 U.S.C. §§ 6801 et seq., and the National Bank Act (NBA), 12 U.S.C. §§ 21 et seq. They also sought injunctive relief barring the defendants from enforcing their ordinances.

FCRA. First, the Court found that the ordinances are preempted by the FCRA, which provides, at 15 U.S.C. § 1681t(b)(2) that "No requirement or prohibition may be imposed under the laws of any State ... with respect to the exchange of information among persons affiliated by common ownership or common corporate control ..." Daly City and the other defendants argued that this applies to consumer reports. However, the Court concluded that "``information,´´ as used in § 1681t(b)(2), encompasses the confidential consumer information that is the subject of the ordinances."

GLBA. Second, the Court addressed the GLB Act. The defendants relied upon §§ 6807(a) and (b).

§ 6807(a) provides that "This subchapter and the amendments made to this subchapter shall not be construed as superseding, altering, or affecting any statute, regulation, order, or interpretation in effect in any State, except to the extent that such statute, regulation, order, or interpretation is inconsistent with the provisions of this subchapter, and then only to the extent of the inconsistency."

§ 6807(a) provides that "For purposes of this section, a State statute, regulation, order, or interpretation is not inconsistent with the provisions of this subchapter if the protection such statute, regulation, order, or interpretation affords any person is greater than the protection provided under this subchapter and the amendments made by this subchapter ..."

But, the Court concluded, the subchapter referred to in these clauses regulate only the disclosure of nonpublic personal information to a nonaffiliated third parties. The present case pertains to disclosure to affiliated parties. The Court therefore concluded that "States and local governments are free to enact law affording some protection to consumer privacy greater than that provided by federal law, but not with regard to the disclosure of information to affiliates."

BA and Wells Fargo also argued that the ordinances are preempted by the GLBA. However, the Court concluded that, "having concluded that the ordinances are preempted by the FCRA with regard to affiliate disclosures, it need not consider this argument."

NBA. BA and Wells Fargo also argued that the ordinances are preempted by the National Banking Act (NBA). Here again, the Court concluded that "Having concluded that the ordinances are preempted by the FCRA to the extent that they restrict such affiliate disclosure, the Court need not consider Plaintiffs’ arguments regarding the NBA."

Hence, the Court granted summary judgment for BA and Wells Fargo, and their affiliates, on the question of preemption of the ordinances, to the extent that they purport to regulate information sharing among affiliates. However, the Court granted summary judgment to Daly City and the counties on the question of those portions of the ordinances that regulate information sharing among non-affiliated entities.

The Electronic Privacy Information Center (EPIC) characterized the order as "a serious setback to privacy rights". It elaborated that "The ordinances were intended to supplement the federal Gramm Leach Bliley Act (GLBA), which sets weak, opt-out standards for information sharing among non-affiliates, and does not allow any choice in regards to affiliate sharing. The court invalidated opt-in requirements for affiliate sharing, but upheld an opt-in standard for non-affiliate information sharing. The court's decision is likely to be appealed, as Congress clearly intended to allow states to regulate information sharing in passing the GLBA."

This case is Bank of America, et al. v. Daly City, et al, D.C. Nos. 02-4343 CW and 02-4943 CW, Judge Claudia Wilken presiding.

DOJ Files Brief with Appeals Court in Challenge to Consent Judgment in Microsoft Case

8/6. The Department of Justice's (DOJ) Antitrust Division filed its brief with the U.S. Court of Appeals (DC) in U.S. v. Microsoft. This brief pertains to the appeal of the Computer & Communications Industry Association (CCIA) and the Software and Information Industry Association (SIIA) of the entry of the consent decree in the government's antitrust case against Microsoft. On December 20, 2003, the CCIA and SIIA filed a motion and memorandum [25 pages in PDF] with the U.S. District Court (DC) seeking leave to appeal the November 12, 2002 Final Judgment. The pertinent fact is that neither the CCIA nor the SIIA are parties to the case. The District Court denied the motion. This appeal followed.

The DOJ brief states that the issues on appeal are "Whether the district court abused its discretion in denying appellants' motion for leave to intervene for purposes of appeal of the entry of a consent judgment" and "If the Court reversed the denial of appellants' motion, two additional issues would be presented: A. Whether the district court abused its discretion in determining that there were no procedural obstacles to entry of the consent decree; and B. Whether the district court abused its discretion in concluding that entry of the consent decree was in the public interest."

The DOJ brief argues that the District Court, in approving the consent judgment, "conducted a careful and comprehensive Tunney Act review of the proposed consent decree in this government antitrust enforcement action, painstakingly reviewing massive quantities of information, including this Court's prior decision, the government's submissions, Microsoft's submissions, amici's submissions, and an unprecedented number of public comments."

It continues that "Appellants, private trade associations representing many of Microsoft's rivals, nonetheless seek to intervene for the purpose of pursuing their own vision of relief. In so doing, they ignore the legal standards governing intervention and distort the purpose of the Tunney Act."

The brief argues that the District Court "properly exercised its discretion in denying permissive intervention for purposes of appeal", that "the government fully complied with Tunney Act procedural requirements", and that the District Court "properly found the decree to be in the public interest".

See also, stories titled "CCIA and SIIA Seek to Appeal as Amici in Microsoft Case" in TLJ Daily E-Mail Alert No. 573, December 23, 2002; "DOJ Opposes CCIA and SIIA Attempt to Appeal in Microsoft Antitrust Case" in TLJ Daily E-Mail Alert No. 577, January 7, 2003.

This is District Court Civil Action No. 98-1232 (CKK), and Appeals Court No. 03-5030.

EC Releases Statement About Its Microsoft Antitrust Investigation

8/6. The European Union (EU) issued a release regarding the European Commission (EC) antitrust investigation of Microsoft. It states that the EC "has gathered additional evidence from a wide variety of consumers, suppliers and competitors. This evidence confirms and in many respects bolsters the Commission's earlier finding that Microsoft is leveraging its dominant position from the PC into low-end servers and that Microsoft's tying of Windows Media Player to the Windows PC operating system weakens competition on the merits, stifles product innovation, and ultimately reduces consumer choice."

The EU also stated that the EC "invites Microsoft to submit its comments on a series of remedies it intends to impose in order to bring the antitrust infringements it has identified to an end. As this complex investigation draws to a close, the Commission will continue to ensure a meticulous respect of due process. Therefore, the Commission has addressed to Microsoft a final Statement of Objections."

Ed Black, P/CEO of the Computer & Communications Industry Association (CCIA), stated in a release that "The Commission’s statement today should also lay to rest any doubt that Mario Monti is committed to ending Microsoft’s illegal abuse of its interlocking monopolies." He also stated that the EC should require Microsoft to make a version of Windows XP with Media Player, and mandate "interface disclosure requirements to ensure interoperability of competitors products with Windows in the low-end server market".

Black added that "The European Commission now has the opportunity to adopt remedies which can actually break Microsoft’s monopoly stranglehold on consumers, PC manufacturers and software developers, something no other competition authority anywhere has yet managed to do".

Thursday, August 7

The House is in recess until September 3. Senate is in recess until September 2. The Supreme Court is in recess.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Microsoft v. Multi-Tech Systems, No. 03-1138, and Multi-Tech Systems v. Net2Phone, No. 03-1139. This is an appeal from the U.S. District Court (DMinn) in a patent infringement case involving data communications technology. Location: Courtroom 201, 717 Madison Place, NW.

10:00 AM - 12:00 NOON. The Federal Communications Commission (FCC) Office of Engineering and Technology (OET) will sponsor a tutorial titled "Fiber to the Home Technology". Location: FCC, 445 12th Street, SW, Room TW-C05 (Commission Meeting Room). See, notice [PDF].

Friday, August 8

Deadline to submit comments to the Federal Communications Commision (FCC) in response to its notice of proposed rulemaking (NPRM) [7 pages in PDF] regarding the draft Nationwide Agreement [28 pages in PDF] of the FCC, the Advisory Council on Historic Preservation, and the National Conference of State Historic Preservation Officers, regarding undertakings for communications facilities, including communications towers and antennas, under the National Historic Preservation Act (NHPA). This proceeding is titled "In the matter of Nationwide Programmatic Agreement Regarding the Section 106 National Historic Preservation Act Review Process". It is WT Docket No. 03-128. For more information, contact Frank Stilwell at 202 418-1892 or See, story titled "FCC Announces NPRM Regarding Communications Facilities and the National Historic Preservation Act" in TLJ Daily E-Mail Alert No. 677, June 10, 2003. See also, notice in the Federal Register, July 9, 2003, Vol. 68, No. 131, at Pages 40876 - 40887.

Monday, August 11

2:00 - 3:30 PM. The American Enterprise Institute (AEI) will host a panel discussion titled "Trade Agreements and Capital Controls". The speakers will be John Taylor (Treasury Department) and Jagdish Bhagwati (Columbia University). See, notice. Location: AEI, 12th Floor, 1150 17th Street, NW.

Deadline to submit comments to the General Services Administration's (GSA) Office of Electronic Government and Technology regarding its draft policy titled "Draft E -- E-Authentication for Federal Agencies". See, notice in the Federal Register, July 11, 2003, Vol. 68, No. 133, at Pages 41370 - 41374.

Tuesday, August 12

Deadline to submit comments, or requests to speak at the September 2, 2003 public hearing, on the Treasury Department's and the Internal Revenue Service's (IRS) notice of proposed rulemaking (NPRM) regarding regulations that "affect certain taxpayers who participate in the transfer of stock pursuant to the exercise of incentive stock options and the exercise of options granted pursuant to an employee stock purchase plan (statutory options)." See, notice in the Federal Register, June 9, 2003, Vol. 68, No. 110, at Pages 34344 - 34370.

Wednesday, August 13

Day one of a three day conference hosted by the American Intellectual Property Law Association (AIPLA) titled "2003 Practical Patent Prosecution Training for New Lawyers". See, notice [PDF]. Location: Arlington, VA.

Thursday, August 14

Deadline to submit comments to the National Institute of Standards and Technology (NIST) regarding its document [12 pages in PDF] titled "Draft Federal Information Processing Standard (FIPS) 199 on Standards for Security Categorization of Federal Information and Information Systems". The NIST states that this document "defines requirements to be used by Federal agencies to categorize information and information systems, and to provide appropriate levels of information security according to a range of risk levels." For more information, contact Ron Ross at 301 975-5390 or See, notice in the Federal Register, May 16, 2003, Vol. 68, No. 95, at Pages 26573 - 26574.

People and Appointments

8/6. Ann Malester was named Deputy Director of the Federal Trade Commission's (FTC) Bureau of Competition. She has been Assistant Director for Mergers I, which has reviewed proposed mergers in the pharmaceutical, biotechnology, medical device, and defense and aerospace industries, since 1991. Steven Bernstein will replace Malester as Assistant Director for Mergers I. He has been a FTC staff attorney for 12 years. See, FTC release.

8/6. Michelle Dennedy was named Chief Privacy Officer of Sun Microsystems. See, Sun release.

More News

8/6. The Federal Trade Commission (FTC) published a notice in the Federal Register in which it announced that it has authorized the Director of the FTC's Bureau of Consumer Protection to share certain non-public information (consumer complaint information from the Identify Theft Data Clearinghouse and Consumer Information System databases) with consumer reporting agencies. See, Federal Register, August 6, 2003, Vol. 68, No. 151, at Page 46642.

8/6. The Executive Office of the President's (EOP) Office of Science and Technology Policy's (OSTP) National Science and Technology Council's (NSTC) Subcommittee on Research Business Models published a notice in the Federal Register stating that it "is undertaking a review of policies, procedures, and plans relating to the business relationship between federal agencies and research performers with the goal of improving the performance and management of federally sponsored basic and applied scientific and engineering research. As part of that effort, the Subcommittee will hold a series of regional workshops in the Fall of 2003 to solicit input and feedback from the research performer community. This notice is intended to collect data that will assist the Subcommittee in setting agendas for those regional workshops." The deadline to submit comments is September 22, 2003. See, Federal Register, August 6, 2003, Vol. 68, No. 151, at Pages 46631 - 46632.

8/1. The Office of Management and Budget (OMB) released a memorandum [13 pages in PDF] regarding "Implementation Guidance for the E-Government Act of 2002". This memorandum, M-03-18, states that it "(1) outlines new E-Government Act requirements for Federal agencies; (2) explains what agencies are expected to provide under the E-Gov Act to support ongoing initiatives and new activities, including reports; and (3) explains how the Act authorizes certain ongoing governmentwide initiatives. This guidance also explains, throughout the document, how the E-Government Act fits within existing IT policy, such as OMB Circulars A-11 and A-130."

8/6. The U.S. District Court (EDNY) approved two stipulated orders in cases brought by the Federal Trade Commission (FTC) against Rhino International, Inc. and Safety Cell, Inc. alleging the marketing on television and on the internet of bogus cell phone radiation protection patches. The orders require the two defendants to have adequate scientific evidence to substantiate claims about the performance, efficacy, or benefit of any good or service, and prohibits them prohibited from marketing or selling any product that claims to protect consumers from harmful radiation and electromagnetic energy, unless the claims can be substantiated by competent and reliable scientific evidence. The Rhino order also includes a fine of $342,665. This is FTC v. Rhino International, D.C. No. CV 03-3850 and FTC v. Safety Cell, D.C. No. CV 03-3851. See, FTC release.

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