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August 14, 2003, 9:00 AM ET, Alert No. 718.
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SCO Group Delivers Notice to IBM of Termination of UNIX License Agreement

8/13. SCO Group announced in a release that it "delivered final written notice yesterday to Sequent Computer Systems for termination of its UNIX System V software contract. Sequent is now owned by IBM. The Sequent (IBM) contract was terminated for improper transfer of Sequent's UNIX source code and development methods into Linux. As a result, IBM no longer has the right to use or license the Sequent UNIX product known as ``Dynix/ptx.创 Customers may not acquire a license in Dynix/ptx from today's date forward."

SCO Group stated in its June 13, 2003 From 10-Q filed with the Securities and Exchange Commission (SEC) that "We have provided IBM notice that we will have the authority to revoke its UNIX license agreement that underlies their AIX software on June 13, 2003, unless IBM cures the claims that we have asserted."

IBM acquired Sequent in 1999. See, IBM release announcing merger plans.

On March 6, 2003, Caldera filed a complaint in state court in Utah against IBM alleging misappropriation of trade secrets, tortious interference, unfair competition and breach of contract in connection with IBM's alleged use of Caldera's proprietary UNIX code. The complaint did not assert copyright or patent infringement. IBM removed the action to the U.S. District Court (DUtah). This is D.C. No. 2:03CV0294. See also, amended complaint, filed on June 16. (In May, Caldera amended its articles of incorporation to change its name to SCO Group.)

IBM filed its answer [17 page PDF scan] on April 30, 2003. It asserted that "contrary to Caldera's allegations, by its lawsuit, Caldera seeks to hold up the open source community (and development of Linux in particular) by improperly seeking to assert proprietary rights over important, widely used technology and impeding the use of that technology by the open source community." (Parentheses in original.) See also, IBM's amended answer [19 page PDF scan], filed on June 16.

SCO Group also wrote a letter to Linux customers on May 12, 2003. It asserted that "SCO holds the rights to the UNIX operating system software originally licensed by AT&T to approximately 6,000 companies and institutions worldwide (the ``UNIX Licenses创). The vast majority of UNIX software used in enterprise applications today is a derivative work of the software originally distributed under our UNIX Licenses."

SCO Group further stated in its August 13 release that "SCO's System V UNIX contract allowed Sequent to prepare derivative works and modifications of System V software ``provided the resulting materials were treated as part of the Original [System V] Software.创 Restrictions on use of the Original System V Software include the requirement of confidentiality, a prohibition against transfer of ownership, and a restriction against use for the benefit of third parties. Sequent-IBM has nevertheless contributed approximately 148 files of direct Sequent UNIX code to the Linux 2.4 and 2.5 kernels, containing 168,276 lines of code. This Sequent code is critical NUMA and RCU multi-processor code previously lacking in Linux. Sequent-IBM has also contributed significant UNIX-based development methods to Linux in addition to the direct lines of code specified above. Through these Linux contributions, Sequent-IBM failed to treat Dynix as part of the original System V software, and exceeded the scope of permitted use under its UNIX System V contract with SCO."

SCO Group also stated that it provided two months written notice prior to termination, and that IBM did not cure the breach of contract. SCO Group also asserted that "SCO's termination of the Sequent-IBM UNIX System V license is self-effectuating and does not require court approval. SCO previously terminated IBM's right to use or license IBM's UNIX product known as AIX. From and after June 16, 2003, customers no longer have the legal right to acquire new AIX licenses."

SCO Group also announced, on August 11, that it has signed its "first Intellectual Property Compliance License for SCO UNIX Rights". SCO Group, however, did not reveal who signed the license. It merely stated in a release that it is a "Fortune 500 company".

SCO Group stated in its June 13, 2003 Form 10-Q that "Pursuit of the litigation against IBM and, potentially, others will be costly, and management expects the costs for legal fees could be substantial. In addition, the Company may experience a decrease in revenue as a result of the loss of sales of Linux products and initiatives previously undertaken jointly with IBM and others affiliated with IBM. The Company anticipates that participants in the Linux industry will seek to influence participants in the markets in which we sell our products to reduce or eliminate the amount of our products and services that they purchase. There is also a risk that the assertion of the Company's intellectual property rights will be negatively viewed by participants in our marketplace and we may lose support from such participants. Any of the foregoing could adversely affect the Company抯 position in the marketplace and our results of operations. The ultimate outcome or potential effect on the Company抯 results of operations or financial position is not currently known or determinable."

CAI Settles Suit Brought By The Canopy Group

8/12. Computer Associates International (CAI) announced that "it has reached an agreement with The Canopy Group and Center 7 to settle all claims in pending litigation between the parties."

The Canopy Group filed a complaint in U.S. District Court (DUtah) against CAI in April of 2001 alleging breach of contract and breach of the implied covenant of good faith and fair dealing.

CAI added that "The settlement will involve a cost to the company of approximately $40 million and will have an impact to earnings in the range of 2-3 cents per share. It is expected that the settlement will be approved by the Court in the current quarter. As part of the agreement between the parties, no other terms of the settlement will be disclosed."

CAI stated in its July 23, 2003 Form 10-Q filed with the Securities and Exchange Commission (SEC) that "In April 2001, a lawsuit captioned The Canopy Group, Inc., et al. v. Computer Associates International, Inc. was filed in the United States District Court for the District of Utah, Central Division. Based upon a series of written agreements involving the licensing of certain software products, the complaint seeks monetary damages based upon claims for, among other things, breach of contract and breach of the implied covenant of good faith and fair dealing."

See also, stories titled "SCO And Novell Continue Argument Over Rights in UNIX Operating System" in TLJ Daily E-Mail Alert No. 676, June 9, 2003; "Novell Asserts Intellectual Property Rights in UNIX Technology" and "German Software Group Threatens to Sue SCO Over Linux Claims", in TLJ Daily E-Mail Alert No. 670, May 30, 2003; and "Microsoft Licenses Technology at Issue in Caldera v. IBM", in TLJ Daily E-Mail Alert No. 669, May 29, 2003.

Commentary: Canopy Group, SCO and Caldera

8/13. Linux users and the open source community have expressed outrage over the actions of the SCO Group. Many have also labeled the IBM lawsuit meritless. However, the litigation history of SCO Group, and affiliated entities, suggest a capacity for extracting large settlements from the targets of their litigation.

The Canopy Group is the principle stockholder of SCO Group, which until recently was named Caldera. The SCO Group filed the lawsuit, that is now pending in the U.S. District Court (DUtah), against IBM, regarding IBM's alleged use of its proprietary UNIX code, that has so angered the open source community.

Previously, Caldera brought, and settled, a similar lawsuit in the U.S. District Court (DUtah) against Mircosoft. In that action, Caldera obtained DR-DOS from Novell in 1996, and then filed its complaint, in which it alleged violation of federal antitrust laws. See, amended complaint. That action was D.C. No. 2:96 CV 645B. In the IBM case, SCO Group alleged that it purchased the rights and ownership of UNIX and UnixWare that had been originally owned by AT&T. It then sued IBM. See, above story, titled "SCO Group Delivers Notice to IBM of Termination of UNIX License Agreement", for the latest developments in this case.

And, just recently, Computer Associates International (CAI) settled a lawsuit brought against it by the Canopy Group in the U.S. District Court (DUtah). See, above story, titled "CAI Settles Suit Brought By The Canopy Group".

Whatever the technological innovation of The Canopy Group companies may be, The Canopy Group and its companies have demonstrated in the Microsoft, CAI and IBM cases that they are highly innovative at litigation. And, as the Microsoft and CAI cases suggest, they are successful at extracting huge settlements.

Cato Paper Criticizes McCain Proposal to Mandate Campaign Programming and Create Campaign Ad Voucher System

8/13. The Cato Institute released a paper [27 pages in PDF] titled "Why Subsidize the Soapbox? The McCain Free Airtime Proposal and the Future of Broadcasting". See also, summary.

The paper states that Sen. John McCain (R-AZ) plans to introduce a bill in the 108th Congress that would require broadcasters to devote airtime to political campaigns and to subsidize electoral advertising for candidates. Sen. McCain introduced a similar bill in the previous Congress. See, S 3124 (107th), the "Political Campaign Broadcast Activity Improvements Act", introduced on October 16, 2002.

The Cato paper states that the forthcoming McCain bill "imposes two major requirements on broadcasters. It requires broadcasters to run 12 hours of ``candidate-centered and issue-centered programming创 in the six weeks prior to primary and general elections. The bill outlines the required programming as follows: ``Candidate-centered programming创 refers to debates, interviews, candidates statements, and other news or public affairs formats that provide for a discussion of issues by candidates; it does not include paid political advertisements. ``Issue-centered programming创 refers to debates, interviews, and other formats that provide for a discussion of ballot measures in the forthcoming election. It does not include paid political ads." (Footnote omitted.)

The bill would also create a voucher system for the purchase of commercial broadcast airtime for political advertisements, financed by an annual spectrum use fee on all broadcast license holders.

The paper criticizes the proposal. It argues that the bill would limit the editorial control of broadcasters, and constitute a tax on broadcasters. It further argues the the underlying rationale for the bill, that government regulation of broadcasters is warranted because of spectrum scarcity and signal interference, is based on outdated assumptions that no longer hold up.

The paper was written by John Samples and Adam Thierer of the Cato Institute.

More News

8/13. Rep. Bob Goodlatte (R-VA) issued a release that states that he traveled to Chile and met with Chilean Undersecretary of the Economy, Alvaro Diaz, "to discuss the recently passed Free Trade Agreement and the need for proper enforcement of piracy provisions". Rep. Goodlatte is a Co-Chair of the Congressional Internet Caucus, and a member of the House Judiciary Committee and its Courts, the Internet and Intellectual Property Subcommittee.

8/6. The U.S. International Trade Commission (USITC) released a study [472 pages in PDF] titled "The Impact of Trade Agreements: Effect of the Tokyo Round, U.S.-Israel FTA, U.S.-Canada FTA, NAFTA, and the Uraquay Round on the U.S. Economy". On February 14, 2003, the International Intellectual Property Alliance (IIPA) submitted comments [6 pages in PDF] to the USITC regarding the economic costs and benefits of strengthening copyright protection and enforcement protection of copyrighted products in the Uruguay Round and NAFTA. On August 11, 2003, Sen. Charles Grassley (R-IA), the Chairman of the Senate Finance Committee issued a release [PDF] stating his reactions to the report.

8/13. The U.S. Patent and Trademark Office (USPTO) published a notice in the Federal Register that describes and recites its final rule amending its rules to separate the provisions for patent matters and trademark matters with respect to filing correspondence, requesting copies of documents, payment of fees, and general information. The notice states that the USPTO is "amending its Rules of Practice in Patent Cases to delete all references to trademark matters, and amending its Rules of Practice in Trademark Cases to add new rules setting forth provisions for corresponding with and paying fees to the Office in trademark cases, and for requesting copies of trademark documents." These changes take effect on September 12, 2003. See, Federal Register, August 13, 2003, Vol. 68, No. 156, at Pages 48286 - 48293.

8/13. The Copyright Office published a notice in the Federal Register directing all claimants to royalty fees collected for calendar year 2001 under the cable statutory license to submit comments as to whether a Phase I or Phase II controversy exists as to the distribution of those fees and a Notice of Intention to Participate in a royalty distribution proceeding. These comments and notices of intention to participate are due by September 12, 2003. See, Federal Register, August 13, 2003, Vol. 68, No. 156, at Pages 48415 - 48417.

9th Circuit Applies Section 230 Immunity to Online Dating Service

8/13. The U.S. Court of Appeals (9thCir) issued its opinion [12 pages in PDF] in Carafano v. Metrosplash.com, a case regarding application of Section 230 interactive computer service immunity to an online dating service. The District Court had held that the online dating service, which wrote the questionnaire to be used by persons who post their profiles, did not have  230 immunity for a false posting, because it contributed to the content. The Appeals Court held that the service does have  230 immunity.

Background. Matchmaker.com is a commercial internet dating service. Members of Matchmaker post anonymous profiles of themselves, and may view profiles of other members in their area, contacting them by e-mail sent through the Matchmaker server.

Christianne Carafano is a movie and television actress who is also known as Chase Masterson. She is not a member of Matchmaker.

A person or persons unknown to the Court appropriated Carafano's identity, by posting false content to the Matchmaker service that purported to have been posted by Carafano. It was vulgar, and it solicited services from men. The anonymous person also provided her home address and phone number. Carafano moved out of her home for several months to protect her safety.

District Court. Carafano filed a complaint in California state court against Matchmaker and its corporate successors, alleging invasion of privacy, misappropriation of the right of publicity, defamation, and negligence. Matchmaker removed the case to the U.S. District Court (CDCal). Matchmaker asserted  230 immunity. The District Court granted Matchmaker's motion for summary judgment. But, the District Court rejected the Section 230 argument, on the basis Matchmaker had written the questionnaire that posters use to post their profiles.

It granted summary judgment based on its application of the law of invasion of privacy. The District Court held that Carafano could not maintain an invasion of privacy claim because her home address was newsworthy, and because Matchmaker had not disclosed her address with reckless disregard for her privacy. It dismissed the three other claims because Carafano could not show that Matchmaker acted with actual malice. See, 207 F. Supp 2d. 1055.

Statute. Section 230 provides in part that "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." This subsection is codified at 47 U.S.C. 230(c)(1).

 230 also defines "interactive computer service" as "any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet and such systems operated or services offered by libraries or educational institutions."

Appeals Court. Carafano appealed, and was supported on appeal by privacy advocacy groups and organizations representing entertainers (The American Federation of Television and Radio Artists, Gavin De Becker, Privacyactivism, Privacy Rights Clearinghouse, and the Screen Actors Guild), as amici curiae

Interactive computer service providers have business models their depend on  230. Moreover, they have achieved considerable success in asserting  230 in prior cases. Hence, the District Court's published opinion declining to apply  230 in this case posed a significant threat. AOL, eBay, the Internet Commerce Coalition, and the United States Internet Service Provider Association intervened to challenge the District Court's construction of  230.

The Appeals Court affirmed, but on other grounds -- that Matchmaker has  230 immunity.

The Appeals Court wrote that "Congress granted most Internet services immunity from liability for publishing false or defamatory material so long as the information was provided by another party. As a result, Internet publishers are treated differently from corresponding publishers in print, television and radio." It added that "Congress enacted this provision as part of the Communications Decency Act of 1996 for two basic policy reasons: to promote the free exchange of information and ideas over the Internet and to encourage voluntary monitoring for offensive or obscene material."

The Appeals Court also reviewed the precedents, and concluded that "reviewing courts have treated 230(c) immunity as quite robust, adopting a relatively expansive definition of "interactive computer service" and a relatively restrictive definition of "information content provider." Under the statutory scheme, an "interactive computer service" qualifies for immunity so long as it does not also function as an "information content provider" for the portion of the statement or publication at issue."

The Court then applied the law to the facts of this case. It held that "The fact that some of the content was formulated in response to Matchmaker's questionnaire does not alter this conclusion. Doubtless, the questionnaire facilitated the expression of information by individual users. However, the selection of the content was left exclusively to the user. The actual profile "information" consisted of the particular options chosen and the additional essay answers provided. Matchmaker was not responsible, even in part, for associating certain multiple choice responses with a set of physical characteristics, a group of essay answers, and a photograph." (Footnotes omitted.)

And thus, the Appeals Court concluded that, "despite the serious and utterly deplorable consequences that occurred in this case, we conclude that Congress intended that service providers such as Matchmaker be afforded immunity from suit. Thus, we affirm the judgment of the district court, albeit on other grounds."

Other Section 230 Cases. Interactive computer services providers have prevailed under  230 in a wide variety of cases.

The landmark victory was Zeran v. America Online, Inc., 958 F. Supp. 1124 (E.D.Va. 1997); affirmed by U.S. Court of Appeals, 4th Circuit, 129 F.2d 327 (1997); certiorari denied. The Courts applied 230(c)(1) in holding AOL not liable for defamatory statement contained in posting in various AOL bulletin boards by an AOL subscriber. See, Court of Appeals opinion, and TLJ summary of Zeran v. AOL.

In Doe v. America Online, Inc., Trial Court Case No. CL 97-631 AE; Decision: 1997 WL 374223 (Fla. Cir. Ct. June 26, 1997), the Court applied 230(c)(1) in holding that AOL was not liable for statements made by an AOL subscriber in an AOL chatroom. Plaintiff appealed to Florida's Fourth District Court of Appeals. (Case No. 97-2587.)  The appeals court affirmed the trial court decision. See, trial court opinion, and appeals court opinion.

In Blumenthal v. Drudge and AOL, AOL has raised  230(c)(1) as a defense to Sidney Blumenthal's claim that AOL is liable for alleged defamation of content provider Matt Drudge. The District Court granted AOL's Motion for Summary Judgment based on  230. See, District Court opinion and TLJ summary of Blumenthal v. Drudge.

More recent cases include Ben Ezra, Weinstein, & Co. v. America Online Inc., 206 F.3d 980 (10th Cir. 2000), and Green v. America Online, 318 F.3d 465 (3d Cir. 2003).

Most recently, on June 24, 2003, the U.S. Court of Appeals (9thCir) issued its opinion [41 pages in PDF] in Batzel v. Smith, a case involving the application of California's Anti-SLAPP statute to a suit alleging defamation on an internet listserv. The District Court denied a defendant's motion to dismiss under the Anti-SLAPP statute. The Appeals Court, relying upon  230, vacated and remanded. See, 333 F.3d 1018. See also, TLJ story titled "9th Circuit Construes Section 230 Immunity in Suit Against Listserv Operator", also published in TLJ Daily E-Mail Alert No. 687, June 25, 2003.

The present case is Christianne Carafano v. Metrosplash.com, Inc., Lycos, Inc., and Matchmaker.com, Inc., No. 02-55658, an appeal from the U.S. District Court for the Central District of California, Judge Dickran Tevrizian presiding, D.C. No.CV-01-00018-DT.

Thursday, August 14

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

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 rross@nist.gov. See, notice in the Federal Register, May 16, 2003, Vol. 68, No. 95, at Pages 26573 - 26574.

Friday, August 15

Deadline to submit comments to the Federal Communications Commission (FCC) in response to a Petition for Rulemaking on compliance by carriers with relevant statutory provisions on disclosure of customer information in 911 emergencies. The petition was submitted by the National Emergency Number Association (NENA), the Association of Public Safety Communications Officials International (APCO), and the National Association of State Nine One One Administrators (NASNA). See, FCC notice [3 pages in PDF]. For more information, contact Barbara Reideler or Jared Carlson at 202 418-1310.

Monday, August 18

10:15 AM - 12:00 NOON. The American Enterprise Institute (AEI) will host a panel discussion titled "Trade in Services: Is More Liberalization Possible in the Doha Round?". The speakers will be Stephen Canner (U.S. Council for International Business), James Mendenhall (Office of the U.S. Trade Representative), and Robert Vastine (U.S. Coalition of Services Industries). See, notice. Location: AEI, 12th Floor, 1150 17th Street, NW.

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its Notice of Inquiry (NOI) pertaining to the possibility of incorporating receiver performance specifications into the FCC's spectrum policy. This NOI follows the recommendations of the FCC's Spectrum Policy Task Force (SPTF) report [PDF] of November 15, 2002. See, story titled "FCC Announces NOI Re Receiver Performance Standards" in TLJ Daily E-Mail Alert No. 624, March 17, 2003. See also, notice in the Federal Register, May 5, 2003, Vol. 68, No. 86, at Pages 23677 - 23686. This is ET Docket No. 03-65, FCC 03-54. For more information, contact Hugh Van Tuyl at the FCC's Office of Engineering and Technology (OET) at 202 418-7506 or hvantuyl@fcc.gov.

Tuesday, August 19

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its notice of proposed rulemaking, released on April 30, 2003, regarding changes to its rules implementing the FCCs policy to carry forward unused funds from the schools and libraries universal support mechanism (aka e-rate subsidies) in subsequent funding years. See, notice in the Federal Register, June 20, 2003, Vol. 68, No. 119, at Pages 36961 - 36967.

Wednesday, August 20

12:00 NOON. Gordon England, Deputy Secretary of the Department of Homeland Security (DHS), will give a speech titled "Leading the Department of Homeland Security: Progress and Challenges of Transition during the War on Terrorism". See, notice. Location: Lehrman Auditorium: Heritage Foundation, 214 Massachusetts Ave NE.

People and Appointments

8/13. President Bush announced his intent to nominate Ricardo Martinez to be a Judge of the U.S. District Court for the Western District of Washington. See, White House release. He is currently a Magistrate Judge. The Western District of Washington includes Seattle, Tacoma, and Redmond.

8/13. Richard Roscitt was named President and Chief Operating Officer of MCI WorldCom. Roscitt was briefly Ch/CEO of ADC. Before that, he worked for 28 years for AT&T. See, release.

8/13. Robert Switz was named P/CEO of ADC. He is currently the CFO of ADC. He will replace Richard Roscitt, who was named P/COO of MCI WorldCom. In addition, John Blanchard was named non-executive Chairman of the Board. He is already a member of the board. See, ADC release.

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