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January 8, 2004, 11:00 AM ET, Alert No. 811.
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FRB Governor Kohn Addresses Role of Technological Change in Global Economy

1/7. Federal Reserve Board (FRB) Governor Donald Kohn gave a speech in Atlanta, Georgia titled "The United States in the World Economy". He addressed the global economy, job restructuring, trade and current accounts deficits, and the merits of unregulated markets.

He stated, among other things, that there has been a "major increase in global productivity", for two reasons. First, there is "the spreading recognition in recent decades, reinforced by the collapse of the Soviet Union, that market economies work best". Second, there is "a heightened pace of technological change, especially the declining cost of generating and transmitting information."

Donald Kohn"Globally, cheaper access to more information has eased the integration and coordination of geographically diverse production processes. This development has opened up opportunities to transfer production to locations in which the work can be accomplished less expensively, and the trend toward market-based economies has multiplied the number of feasible locations", said Kohn (at right).

He continued that "because of the new applications of information technology and telecommunications, an increasing variety of services that used to be attached to a particular business location can be carried out anywhere in the world. For example, call centers have moved to India and elsewhere. Routine back office accounting work such as handling accounts receivable is also shifting overseas and becoming centralized for global corporations. Many types of routine programming can be carried out around the clock, handed off from time zone to time zone by e-mail."

He also stated that "Workers in the United States and other advanced economies will need to shift toward industries specializing in the types of goods and services we produce relatively more efficiently. Typically, production of these goods and services involve more complex processes, often those that are more rooted in the higher knowledge and skills of our workers. As workers shift to higher value-added employment, real wages will rise commensurately."

He went on to argue for free markets and free trade. He stated that protectionism, including "in exchange rates, in labor and product markets, in quotas and tariffs on international trade" could disrupt markets, impede market resiliency, limit productivity, and ultimately, affect standards of living.

Posner Opines on Copyright and Fair Use

12/31. The U.S. Court of Appeals (7thCir) issued its opinion [14 pages in PDF] in Chicago Board of Education v. Substance, Inc., a copyright case involving the defense of fair use.

Judge Richard Posner wrote the opinion, in which Judges Easterbrook and Rovner joined. Posner just published a book titled The Economic Structure of Intellectual Property Law. Although, the present opinion contains little economic analysis.

Background. The Chicago Board of Education (CBE), which governs the city of Chicago, Illinois' public school system, created and copyrighted a series of standardized tests named "Chicago Academic Standards Exams" (CASE). These tests are administered under supervision at specified centers on specific dates. All copies of the test are then accounted for and either destroyed or returned to restricted locked storage. By keeping the tests secure, and unmarketed, test questions case be reused.

George Schmidt is a school teacher who owns Substance, Inc., which publishes a newspaper directed at school teachers. He published six CASE tests without permission from the CBE. He did so because he thought that they were bad tests.

District Court. The CBE filed a complaint in U.S. District Court (NDIll) against Substance, Inc. and Schmidt alleging copyright infringement. The defendants asserted the affirmative defense of fair use. The District Court ruled in favor of the CBE on fair use, and granted judgment to the CBE.

Appeals Court. The Appeals Court affirmed in part and vacated in part. However, the Court was clear that the fair use defense fails in this case. Posner roasted the the Magistrate Judge for writing an "an appallingly bad injunction". (Emphasis in original.) He sent the injunction back for redrafting.

"It may seem paradoxical to allow copyright to be obtained in secret documents, but it is not", Posner began. "For one thing, the tests are not secret from the students taking them. For another, federal copyright is now available for unpublished works that the author intends never to see the light of day." He added the "Most important, tests are expressive works that are not costlessly created, and the costs are greater and so the incentive to create the tests diminished if the tests cannot be reused. ... There is no analytical difference between destroying the market for a copyrighted work by producing and selling cheap copies and destroying the subsequent years’ market for a standardized test by blowing its cover." (Citatitions omitted.)

Posner then turned to the purpose of the fair use defense. He wrote that it is "to facilitate criticism of copyrighted works by enabling the critic to quote enough of the criticized work to make his criticisms intelligible. Copyright should not be a means by which criticism is stifled with the backing of the courts."

He continued that "the fact that the CASE tests were quasi-secret does not exclude the possibility of a fair use defense." Schmidt "was entitled to criticize the tests and to do that effectively he had to be able to quote from them, just as a parodist has to be able to quote, sometimes very extensively, from the parodied work in order to make the criticism of it that is implicit in parodying it comprehensible."

"So where to draw the line?", asked Posner. He answered that "the fair use copier must copy no more than is reasonably necessary (not strictly necessary -- room must be allowed for judgment, and judges must not police criticism with a heavy hand) to enable him to pursue an aim that the law recognizes as proper, in this case the aim of criticizing the copyrighted work effectively."

Posner concluded that in the present case, copying entire tests was too much. "Granted that he had to quote some of the test questions in order to substantiate his criticisms, why entire tests?"

Posner suggested that Schmidt believes that he has the right to "destroy the tests by publishing them indiscriminately". Posner added that "such tests can make teachers look bad if their students don't do well on them".

Posner offered this cynical explanation of Schmidt and other public school teachers. "So if Schmidt can publish six tests, other dissenters can each publish six other tests, and in no time all 44 will be published. The board will never be able to use the same question twice, and after a few years of Schmidtian tactics there will be such difficulty in inventing new questions without restructuring the curriculum that the board will have to abandon standardized testing. Which is Schmidt's goal."

A Fifth Fair Use Factor? Posner added this. "And this suggests another fair use factor that supports the school board: the aspect of academic freedom that consists of the autonomy of educational institutions".

Posner added that "If Schmidt wins this case, it is goodbye to standardized tests in the Chicago public school system; Schmidt, his allies, and the federal courts will have wrested control of educational policy from the Chicago public school authorities."

However, Posner did not explain what he meant by "academic freedom that consists of the autonomy of educational institutions", or how it might apply in other cases. For example, Posner did not elaborate on whether this factor should only be available to educational institutions to defeat a claim of fair use copying of their works, or whether it should also be available to educational institutions to advance a fair use claim when they copy the works of others.

This case is Chicago Board of Education v. Substance, Inc. and George Schmidt, U.S. Court of Appeals for the 7th Circuit, No. 03-1479, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 99 C 440, Magistrate Judge Edward Bobrick presiding.

More News

1/7. The Department of Transportation (DOT) published a notice in the Federal Register that lists and describes changes to its rules governing airline computer reservations systems. See, Federal Register, January 7, 2004, Vol. 69, No. 4, at Pages 975 - 1033. See also, story titled "DOT To Allow Most Airline Computer Reservation Systems Rules to Sunset" in TLJ Daily E-Mail Alert No. 809, January 5, 2004.

1/7. MCI (formerly known as WorldCom) stated in a release that "the U.S. General Services Administration (GSA) announced it has lifted the proposed debarment of MCI and the company is again eligible to receive new government business and contract extensions."

1/6. The Office of the U.S. Trade Representative (USTR) published a notice in the Federal Register requesting public comments regarding foreign countries that deny adequate and effective protection of intellectual property rights or deny fair and equitable market access to U.S. persons who rely on intellectual property protection. The USTR is required under Section 182 of the Trade Act of 1974, codified at 19 U.S.C. § 2242, to identify which countries should be identified as Priority Foreign Countries. This section is also know as "Special 301". The deadline to submit comments is 12:00 NOON on February 13, 2004.

1/6. The Copyright Office published a notice in the Federal Register announcing "the initiation of the voluntary negotiation period for determining reasonable rates and terms for two compulsory licenses, which in one case, allows public performances of sound recordings by means of eligible nonsubscription transmissions, and in the second instance, allows the making of an ephemeral phonorecord of a sound recording in furtherance of making a
permitted public performance of the sound recording for the period beginning January 1, 2005 and ending on December 31, 2006." See, Federal Register, January 6, 2004, Vol. 69, No. 3, at Pages 689 - 690.

1/6. SBC Communications announce the acquisition of Callisma, a Palo Alto, California based network consulting company. See, SBC release.

1/5. The Securities and Exchange Commission (SEC) filed an amended complaint with the U.S. District Court (CDCal) in its civil securities fraud case against former executives of Gemstar-TV Guide International, Inc. The complaint adds three addition defendants: Peter C. Boylan, Jonathan B. Orlick, and Craig Waggy. This case SEC v. Henry Yuen, U.S. District Court for the Central District of California, D.C. CV 03-4376 NM (MANx). See, SEC release and release.

There was no issue of the TLJ Daily E-Mail Alert yesterday, January 7, 2004.
Washington Tech Calendar
New items are highlighted in red.
Thursday, January 8

The House is in adjournment. (It will convene on January 20, 2004.)

The Senate is in adjournment. (It will convene on January 20, 2004.)

The Supreme Court is in recess. (It will return on January 12, 2004.)

11:00 AM - 1:00 PM. The American Enterprise Institute (AEI) will host a pair of panel discussions titled "Expensing Employee Stock Options Looks Like a Major Mistake". The speakers will include Kevin Hassett (AEI), Charles Calomiris (Columbia University), James Glassman (AEI), Peter Wallison (AEI), Paul Atkins (SEC), and George Benston (Emory University). See, notice. Location: AEI, Twelfth floor, 1150 17th St., NW.

Friday, January 9

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Fujitsu Compound Semiconductor v. U.S., No. 03-1293. Location: Courtroom 201, 717 Madison Place, NW.

12:15 PM. The Federal Communications Bar Association's (FCBA) Wireless Committee will host a luncheon. Mark Rubin (Western Wireless) and Marie Gillory (National Telephone Cooperative Association) will speak on universal service and the distribution of funding in rural areas. The price to attend is $15. RSVP to Wendy Parish at by 5:00 PM on Wednesday, January 7. For more information, contact Laura Phillips at 202 842-8891 or Location: Sidley Austin, 1501 K Street, NW, 6th Floor.

EXTENDED TO JANUARY 23. Deadline to submit comments to the Federal Communications Commission (FCC) in response to its Notice of Proposed Rulemaking [35 pages in PDF] regarding unlicensed devices. See, notice in the Federal Register, December 10, 2003, Vol. 68, No. 237, at Pages 68823 - 68831. The FCC adopted this NPRM on September 10, 2003. See, FCC release [PDF]. The FCC released the NPRM [35 pages in PDF] on September 17, 2003. This NPRM is FCC 03-223 in ET Docket No. 03-201. See also, stories titled "FCC Announces NPRM Regarding Unlicensed Devices" in TLJ Daily E-Mail Alert No. 739, September 15, 2003, and "FCC Announces Deadlines for Comments on Unlicensed Devices NPRM" in TLJ Daily E-Mail Alert No. 800, December 16, 2003.

Monday, January 12

The Supreme Court will return from the recess that it began on December 15, 2003.

The Supreme Court will hear oral argument in Nixon v. Missouri Municipal League, and related petitions, regarding 47 U.S.C. § 253(a) and state statutes that prohibit political subdivisions from offering telecommunications services. See, story titled "Supreme Court Grants Certiorari in Nixon v. Missouri Municipal League" in TLJ Daily E-Mail Alert No. 687, June 25, 2003, and "Briefs Filed With Supreme Court in Nixon v. Missouri Municipal League" in TLJ Daily E-Mail Alert No. 776, November 11, 2003. Location: 1 First St., NW.

Deadline to submit comments to the Department of Commerce's (DOC) Bureau of Industry and Security (BIS), which is also known as the Bureau of Export Administration (BXA), regarding its notice of proposed rulemaking (NPRM) regarding amending the Export Administration Regulations (EAR) to implement a revised version of the BIS's Simplified Network Application Processing (SNAP+) system. This proposed rule also would mandate use of SNAP+ for all filings of Export License applications (except Special Comprehensive Licenses), Reexport Authorization requests, Classification requests, Encryption Review requests, and License Exception AGR notifications, unless the BIS authorizes paper filing for a particular user or transaction. See, notice in the Federal Register, November 12, 2003, Vol. 68, No. 218, at Pages 64009-64023.

Tuesday, January 13

9:00 AM. The North American Numbering Council (NANC) will meet. See, notice in the Federal Register, December 2, 2003, Vol. 68, No. 231, at Page 67441. Location: FCC, 445 12th Street, SW, Room TW-C305.

9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in Carol De La Hunt v. FCC, No. 03-1029. Judges Edwards, Roberts and Williams will preside. Location: 333 Constitution Ave. NW.

3:00 - 6:00 PM. The National Infrastructure Advisory Council (NIAC) will meet. The NIAC advises the President on the security of information systems for critical infrastructure supporting other sectors of the economy, including banking and finance, transportation, energy, manufacturing, and emergency government services. For more information, contact Nancy Wong at 202 482-7488. See, notice in the Federal Register, December 24, 2003, Vol. 68, No. 247, at Pages 74624 - 74625. Location: Room 207, Washington Convention Center, 801 Mount Vernon Place, NW.

6:00 - 8:15 PM. The Federal Communications Bar Association (FCBA) will host a Continuing Legal Education (CLE) program titled "FCC Equipment Regulation". The speakers will be Henry Goldberg (Goldberg Godles), Mitchell Lazarus (Fletcher Heald & Hildreth), Richard Fabina (FCC's Office of Engineering and Technology), Cathy Zima (FCC's Wireline Competition Bureau), and Brian Butler (FCC's Enforcement Bureau). The prices to attend range from $50 to $125. For more information, contact Mitchell Lazarus at 703 812-0440 or See, notice. Location: Skadden Arps, 700 14th Street, NW, 11th Floor.

Wednesday, January 14

12:30 PM. Federal Communications Commission (FCC) Chairman Michael Powell will give a luncheon speech. For information about prices and reservations, call 202 662-7501. Location: Ballroom, National Press Club, 529 14th St. NW, 13th Floor.

Deadline to submit comments to the Federal Communications Commission (FCC) in response to its Report and Order Further Notice of Proposed Rulemaking [72 pages in PDF] in its proceeding titled "In the Matter of Digital Broadcast Content Protection". This item is FCC 03-273 in MB Docket 02-230. This FNPRM seeks comment regarding a permanent approval mechanism for content protection and recording technologies to be used in conjunction with device outputs. For more information, contact Rick Chessen or Susan Mort at or 202-418-7200.

Deadline to submit comments to the Federal Communications Commission (FCC) in response to its Second Further Notice of Proposed Rulemaking regarding digital plug and play compatibility. The FCC announced its Second Report and Order and Second Further Notice of Proposed Rulemaking at its September 10, 2003 meeting. See, story titled "FCC Adopts Digital Plug and Play Cable Compatibility Rules" in TLJ Daily E-Mail Alert No. 737, September 11, 2003. The notice in the Federal Register states that the NPRM seeks public comments "on the mechanisms and standards by which new connectors and associated content protection technologies can be approved for use with unidirectional digital cable products". It further seeks comments on "the potential extension of digital cable system transmission requirements to digital cable systems with an activated channel capacity of 550 MHz or higher; whether it is necessary to require consumer electronics manufacturers to provide pre-sale information to consumers regarding the functionalities of unidirectional digital cable televisions; and whether the Commission should ban or permit the down-resolution of non-broadcast MVPD programming." This item is FCC 03-225 in CS Docket 97-80 and PP Docket 00-67. See, notice in the Federal Register, November 28, 2003, Vol. 68, No. 229, at Pages 66776 - 66781.

Deadline to submit comments to the Federal Communications Commission (FCC) in response to its Further Notice of Proposed Rulemaking (FNPRM) regarding revisions to the FCC's high cost universal service support mechanism. This is FCC 03-249 in CC Docket No. 96-45. This is also known as the "10th Circuit Remand". See, notice in the Federal Register, December 15, 2003, Vol. 68, No. 240, at Pages 69641 - 69647. See also, stories titled "FCC Announces Order on Remand Regarding High Cost Universal Service Support Mechanism" in TLJ Daily E-Mail Alert No. 761, October 20, 2003, and "FCC Publishes Notices Regarding 10th Circuit Universal Service Remand" in TLJ Daily E-Mail Alert No. 800, December 16, 2003.

Thursday, January 15

9:30 AM. The Federal Communications Commission (FCC) will hold a meeting. Location: FCC, 445 12th Street, SW, Room TW-C05 (Commission Meeting Room).

People and Appointments

1/7. Meredith Attwell was named Senior Advisor to Michael Gallagher, the acting head of the National Telecommunications and Information Administration (NTIA). She previously worked at Williams Mullen Strategies. From June 2000 to April 2002, she was Senior Counsel to Covad Communications. From January 1998 to June 2000, she was Director of Congressional Affairs at the Cellular Telecommunications Industry Association (CTIA). See, NTIA release.

1/7. Brian Kidney was named Chief Operating Officer for the Cellular Telecommunications & Internet Association (CTIA). See, release.

1/6. President Bush announced his intent to appoint Andrew Maner to be the Chief Financial Officer of the Department of Homeland Security (DHS). See, White House release.

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