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August 22, 2003, 9:00 AM ET, Alert No. 724.
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FCC Releases Triennial Review Order

8/21. The Federal Communications Commission (FCC) released its triennial review order [576 pages in PDF]. This is titled "Report and Order and Order on Remand and Further Notice of Proposed Rulemaking". See especially, Appendix B [HTML], which contains the final rules.

This is the proceedings titled "In the Matter of Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, and Deployment of Wireline Services Offering Advanced Telecommunications Capability", and numbered CC Docket No. 01-338, CC Docket No. 96-98, and CC Docket No. 98-147.

The FCC announced, but did not release, this order six months ago, on February 20, 2003.

See, stories titled "FCC Announces UNE Report and Order", "FCC Order Offers Broadband Regulatory Relief", "FCC Announces Decision on Switching", "Commentary: Republicans Split On FCC UNE Order", and "Congressional Reaction To FCC UNE Order" in TLJ Daily E-Mail Alert No. 609, February 21, 2003.

Editor's Note: The FCC published this order in the FCC website late on Thursday, August 21. Further coverage of this order will be published in the Monday, August 25 issue of the TLJ Daily E-Mail Alert.

Music Publishers File Appeal Brief in P2P Infringement Case

8/18. The National Music Publishers Association (NMPA), representing Jerry Liebler and other music publishers and songwriters, and the Recording Industry Association of America (RIAA) and Motion Picture Association of America (MPAA), representing MGM and other movie and record companies, filed appeal briefs with the U.S. Court of Appeals (9thCir) in Liebler v. Grokster and MGM v. Grokster.

Metro Goldwyn Meyer (MGM), and other movie companies, and various record companies, filed a complaint in the District Court against Grokster, Streamcast and Kazaa alleging copyright infringement, in violation of 17 U.S.C. § 501. They allege contributory and vicarious infringement. No direct infringers -- the users of the peer to peer networks -- were not named as defendants in this action.

In addition, professional songwriters and music publishers filed a class action complaint against the same defendants alleging contributory and vicarious infringement. The two actions were consolidated. The parties filed cross motions for summary judgment regarding the current versions of software provided by Grokster and Streamcast, but not by Kazaa.

On April 25, 2003, the U.S. District Court (CDCal) issued its opinion in holding that Grokster's and Streamcast's peer to peer file copying networks do not contributorily or vacariously infringe the copyrights of the holders of music and movie copyrights. See also, story titled "District Court Holds No Contributory or Vicarious Infringement by Grokster or Streamcast P2P Networks" in TLJ Daily E-Mail Alert No. 650, April 28, 2003.

The District Court reasoned that to be held contributorily liable, the defendants must have "knowledge" of the infringing activity. The District Court, unlike the Appeals Court in the Napster case, found that the defendants do not possess "knowledge" that their networks or being used to infringe copyrights. The District Court also wrote that to be held liable vicariously, the defendants must have the "right and ability to supervise the infringing conduct". It found that they did not.

Both the NMPA and the MPAA/RIAA appealed to the Ninth Circuit. The Appeals Court has consolidated the two appeals.

The MPAA/RIAA brief was filed under seal. The NMPA brief is also under seal. However, the NMPA has released a public redacted version of its brief [45 pages in PDF].

The NMPA wrote that "This lawsuit is about MusicCity's and Grokster's knowing operation of illicit commercial businesses that actively facilitate, materially contribute to, and encourage the wholesale infringement of Appellants' copyrighted works. Like the now defunct and notorious Napster service, MusicCity and Grokster operate unlicensed, peer-to-peer Internet ``file-sharing´´ services. Their business model depends upon their millions of end-users offering a veritable treasure trove of copyrighted music and motion pictures for downloading by others -- all for free and without any compensation to the copyright owners."

Knowledge. The NMPA argues in its brief that "The record indisputably demonstrates that MusicCity and Grokster have actual knowledge of infringing activity" and are therefore contributorily liable.

The brief elaborates that "MusicCity and Grokster, however, claim that they do not ``know´´ about infringements because their services encrypt the specific content downloaded by users and ``outsource´´ the central indexing/directory function, enabling MusicCity and Grokster to claim a lack of awareness of what is being downloaded at any given time. MusicCity's and Grokster's profession of ignorance rings hollow, particularly where they have taken deliberate steps to shield themselves from information about the infringements taking place every day on their services. Because the record establishes that, at best, MusicCity and Grokster have ``willfully blinded´´ themselves to these infringements, the law deems them to have ``actual´´ knowledge of the infringements occurring on their services."

Sony Betamax. The NMPA brief also argues that "The District Court ignored relevant evidence in holding that there were substantial non-infringing uses of MusicCity's and Grokster's services that are commercially significant", and therefore, "the Sony-Betamax decision is not a defense to MusicCity's and Grokster's conduct."

The Supreme Court held in Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984), that the "sale of video cassette recorders (``VCR´´s) did not subject Sony to contributory copyright liability, even though Sony knew as a general matter that the machines could be used, and were being used, to infringe the plaintiffs' copyrighted works. Because video tape recorders were capable of both infringing and ``substantial noninfringing uses,´´ generic or ``constructive´´ knowledge of infringing activity was insufficient to warrant liability based on the mere retail of Sony’s products."

The MPAA brief argues that while the defendants submitted declarations on this issue, they did not address the extent of non-infringing uses. It argues that, to the contrary, "Appellants also introduced uncontroverted evidence in the District Court demonstrating that the overwhelming and primary use of the services is infringement".

Rationale for Secondary Liability. The MPAA brief next argues that imposing liability in these cases would be consistent with the rationales behind secondary liability because MusicCity and Grokster profit from illegal activity. The brief states that "the District Court's own assessment that MusicCity and Grokster know that their ``user base in the tens of millions´´ commits millions of acts of direct infringement, and that they ``may have intentionally structured their businesses to avoid secondary liability for copyright infringement,´´ the District Court concluded that MusicCity and Grokster were not liable as a matter of law. That result perverts the very meaning and purpose of secondary liability for copyright infringement."

"The District Court's Order effectively holds that a defendant may knowingly create a business that profits from widespread copyright infringement, refuse to make any effort to stop or limit the infringement, and escape any consequence for this deliberate conduct. This result makes a mockery of copyright law", according to the MPAA.

Legislative Balance. Finally, the MPAA brief argues that the District Court opinion deprives songwriters and publishers of the exclusive rights granted by the Congress, and threatens to undermine the statutory scheme for encouraging the creation and dissemination of musical works.

The brief states that "The District Court’s Order upends that carefully calibrated balance, and thus thwarts Congress’s express mandate. By acquitting the commercial services that exploit the rampant infringement on their services for profit, the court’s decision effectively deprives songwriters and music publishers of the exclusive right that Congress expressly gave them to exploit their works on the Internet, leaving the thousands of songwriters and music publishers with no realistic recourse to protect their copyrights. The Order creates an unprecedented standard for secondary copyright liability that compels copyright owners to police the conduct of millions of individual users of MusicCity's and Grokster's Internet services and pursue individual enforcement actions against private individuals."

The MPAA is represented by Carey Ramos, Aidan Synnott, and Theodore Cheng of the law firm of Paul Weiss Rifkind Wharton & Garrison, and by Kelli Sager, Andrew Thomas and Jeffrey Blum of the law firm of Davis Wright Tremaine.

More News

8/21. The Copyright Office (CO) published a notice in the Federal Register describing, and requesting comments on, its proposed rules regarding rates and terms for the use of sound recordings in eligible nonsubscription transmissions made by noncommercial licensees, and for the making of related ephemeral recordings. Comments are due by September 22, 2003. See, Federal Register, August 21, 2003, Vol. 68, No. 162, at Pages 50493 - 50495.

8/21. The Bureau of Industry and Security (BIS), which is also still known as the Bureau of Export Administration (BXA), published a notice in the Federal Register that describes and recites a final rule amending the Export Administration Regulations (EAR). The notice states that this rule amends the EAR "to to add references to the Automated Export System (AES) and to conform the EAR to certain provisions of the Foreign Trade Statistics Regulations (FTSR) including provisions related to AES promulgated on July 17, 2003. It also conforms some terminology in part 758 to that found elsewhere in the EAR and updates references to another government agency to reflect a name change." This rule takes effect on September 22, 2003. See, Federal Register, August 21, 2003, Vol. 68, No. 162, at Pages 50470 - 50474.

People and Appointments

Michael Gallagher8/21. President Bush announced his intent to nominate Michael Gallagher (at left) to be Assistant Secretary of Commerce for Communications and Information. This is the title of the person who heads the Department of Commerce's (DOC) National Telecommunications and Information Administration (NTIA). Nancy Victory resigned from this position on August 15, 2003. Frederick Wentland was named the Acting Assistant Secretary for Communications and Information. Gallagher is currently Deputy Chief of Staff at the DOC. Before that, he was Deputy Assistant Secretary for the NTIA. He has also worked for AirTouch Communications, former Rep. Rick White (R-WA) (who is now CEO of TechNet), and the law firm of Perkins Coie. See, White House release.

Abernathy Praises FCC Broadcast Localism Initiative

8/21. Federal Communications Commission (FCC) Commissioner Kathleen Abernathy released a statement in which she expressed support for the FCC's broadcast localism initiative. On August 20, FCC Chairman Michael Powell announced the initiative, which includes creating a localism task force, issuing a notice of inquiry on localism, and speeding the activation of low power FM stations.

Kathleen AbernathyAbernathy (at right) stated that "I applaud Chairman Powell for taking positive and substantive steps to ensure that broadcasters continue to further the goal of localism in their communities. Regardless of who owns a station -- a local ``mom and pop´´ or a large media company -- each licensee has an obligation to serve its local community. Recently, concerns have been raised about whether certain practices do indeed serve local interests, and whether the Commission can do more to promote localism in television and radio. Thus, I am pleased that the Commission will consider whether changes in our rules, consistent with First Amendment principles, are appropriate and needed. I look forward to working with the Localism Task Force, my colleagues, public interest groups, and the industry to see how we can together advance this important goal."

See also, FCC release [3 pages in PDF], story titled "Powell Announces Localism in Broadcasting Initiative" in TLJ Daily E-Mail Alert No. 722, August 20, 2003, and story titled "Copps Criticizes Powell's Localism in Broadcasting Initiative" in TLJ Daily E-Mail Alert No. 723, August 21, 2003.

Meanwhile, the Media Access Project (MAP), stated in a release [PDF] that "Chairman Powell couldn't ignore the public outcry any longer. As a result, he is taking some very welcome steps, none of which offer the slightest reason to change our complete opposition to his June 2 decision decimating the FCC’s media ownership policies."

The MAP stated that "We certainly applaud the Chairman's efforts to expedite the creation of more low power FM stations. Now that the Congressionally mandated engineering study has vindicated what low power advocates have said for years, it is high time for the Commission to break up the logjam of existing applications and start the process of expanding the low power service." See also, MAP statement [PDF] on LPFM.

The MAP added that "The idea that ownership rules are unrelated to localism is absurd. Companies like Clear Channel and Sinclair Broadcasting have already exploited prior rule changes to eliminate locally originated news programming in favor of fake local newscasts beamed from thousands of miles away."

Shumaker Pleads Guilty to Criminal Copyright Infringement

8/21. Mark Shumaker plead guilty in U.S. District Court (EDVa) to one count of criminal copyright infringement, in violation of 17 U.S.C. §506(a)(1) and 18 U.S.C. §2319 (b)(1), in connection with his distribution over the internet of copyrighted music, movies, software and games. See, Plea Agreement [13 pages in PDF].

The U.S. Attorneys Office (USAO), the Department of Justice's (DOJ) Computer Crimes and Intellectual Property Section (CCIPS), and Shumaker also submitted to the Court a Statement of Facts [6 pages in PDF] which states that Shumaker participated "in the so-called ``warez scene,´´ in particular his membership in the warez group Apocalypse Crew (``APC´´) and his support of the warez group Drink Or Die. APC was a warez organization that specialized in the unauthorized distribution of copyrighted music over the Internet. Among other things, APC sought to acquire digital copies of songs and albums before their commercial release in the United States; these songs or albums would then be distributed by APC members, in MP3 format, to Internet sites worldwide. The supply of such prerelease music was most often provided by music industry insiders, such as radio DJs or employees of music magazine publishers, who frequently receive advance copies of songs prior to their commercial release."

The Statement of Facts also recites that Shumaker "performed a number of important functions for APC and was among its core leadership. He operated the group's closed, invite-only IRC channel where members discussed group business and other warez scene activities; he served as a ``site op´´ for several FTP sites, where he and the other APC members had the administrative authority to add and remove authorized users of the site; and he acted as a ``courier´´ for APC, uploading and downloading pirated music, games, software, and movies to and from private warez FTP sites throughout the Internet."

Sentencing is scheduled for November 7, 2003.

John Malcolm, the Deputy Assistant Attorney General in charge of the CCIPS, stated in a USAO release [PDF] that "The conviction of Mark Shumaker is another example of the Department of Justice's aggressive attack against high-level Internet piracy groups that initiate the illegal distribution of copyrighted works over the Internet ... Music piracy, no less than software or movie piracy, is a crime and its victims are real; musicians deserve to be paid for their creativity and work."

Cary Sherman, President of the Recording Industry Association of America (RIAA), stated in a release that "We applaud Attorney General Ashcroft and the Department of Justice's enforcement against Mark Shumaker. The theft of music on the Internet is a serious crime, and this action shows that the Justice Department means business. Those who egregiously distribute music on the Internet should take note -- federal prosecution and jail time are real possibilities."

Friday, August 22

The House is in recess until September 3. Senate is in recess until September 2. The Supreme Court is in recess until October 6.

Deadline to submit comments to the Department of Homeland Security's (DHS) Bureau of Customs and Border Protection (CBP) regarding its proposed rule to require that CBP must receive, by electronic data interchange system, information pertaining to cargo before the cargo is either brought into or sent from the U.S. by any mode of commercial transportation. See, notice in the Federal Register, July 23, 2003, Vol. 68, No. 141, at Pages 43573 - 43606.

Monday, August 25

10:00 AM - 4:00 PM. The Commerce Department's National Medal of Technology Nomination Evaluation Committee will hold a closed meeting to discuss the relative merits of persons and companies nominated for the medal. See, notice in the Federal Register, July 24, 2003, Vol. 68, No. 142, at Page 43716. Location: Room 4813, U.S. Department of Commerce, 1401 Constitution Ave., NW.

10:00 AM. Several groups will hold a press briefing regarding the new Computer Assisted Passenger Pre-screening System (CAPPS II). The participants will include James Dempsey (Center for Democracy and Technology), Laura Murphy (ACLU), former Rep. Bob Barr (R-GA), David Keene (American Conservative Union), Grover Norquist (Americans for Tax Reform), and Hilary Shelton (NAACP). Location: Lisagor Room, National Press Club, 529 14th St. NW, 13th Floor.

Thursday, August 28

10:00 - 11:45 AM. The American Enterprise Institute (AEI) will host a panel discussion titled "Is There Any Development in the Doha Development Agenda?" The speakers will be Michael Finger (AEI), Arvind Panagariya (University of Maryland), and Sarath Rajapatirana (AEI). See, notice. Location: AEI, 12th Floor, 1150 17th Street, NW.

Sunday, August 31

Deadline to submit comments to the National Institute of Standards and Technology (NIST) regarding its second public draft [62 pages in PDF] of its publication titled "Guide for the Security Certification and Accreditation of Federal Information Systems". This is NIST Special Publication 800-37 authored by Ron Ross and Marianne Swanson. Comments may be submitted to

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