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April 15, 2004, 9:00 AM ET, Alert No. 877.
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Appeals Court Rejects Entrapment Argument in Encryption Export Case

4/14. The U.S. Court of Appeals (4thCir) issued its opinion [PDF] in U.S. v. Hsu, affirming the District Court's convictions of Eugene You-Tsai Hsu and David Tzuwei Yang for violation of the Arms Export Control Act (AECA) in connection with the efforts to export a controlled encryption product to the People's Republic of China. Hsu and Yang, who acquired the product from an undercover U.S. Customs Bureau agent, argued that they were entitled to a jury instruction on entrapment.

Hsu and Yang attempted to export an encryption unit manufactured by Mykotronx, Inc. to the PR China. Hsu contacted Mykotronx, which referred him to a sales representative, who was actually an undercover agent of the U.S. Customs Bureau. Both Hsu and Yang had numerous conversations with the Customs agent, who repeatedly stated that the product was on the controlled munitions list, and that export to the PR China was illegal. Hsu and Yang persisted in their efforts to export the product. The Customs Bureau agent shipped  units to Yang, and then had the two arrested.

A jury returned verdicts of guilty for both Hsu and Yang on two counts: conspiracy to export Munitions List articles without a license in violation of the AECA or to make materially false statements to the United States Customs Service in violation of 18 U.S.C. § 371 (2000), and attempt to export items covered by the Munitions List without a license in violation of the AECA.

The Appeals Court affirmed. The bulk of the opinion addressed Hsu and Yang's argument that the District Court erred in refusing to instruct the jury on entrapment.

The Appeals Court also rejected Hsu and Yang's argument that the AECA and its implementing regulations are unconstitutionally vague as applied to them.

The Appeals Court wrote that entrapment exists where there is both "(1) government inducement to commit a crime and (2) the lack of predisposition on the part of the defendant to engage in criminal conduct."

The Court applied the facts to this definition. It noted that Hsu and Yang initiated the contact with the undercover agent, not vice versa, that the agent repeatedly told them that the scheme was illegal, and that Hsu and Yang insisted on continuing. The Court therefore concluded that Hsu and Yang did not satisfy their burden of showing facts in support of an entrapment defense. And hence, they were not entitled to an instruction to the jury regarding entrapment.

This case is U.S.A. v. Eugene You-Tsai Hsu and U.S.A. v. David Tzuwei Yang, consolidated, App. Ct. Nos. 02-4859 and 02-4860, appeals from the U.S. District Court for the District of Maryland, at Baltimore, Judge Andre Davis presiding, D.C. No. CR-01-485-AMD.

Senators Ask TSA for Information about Acquisition of Airline Passenger Data

4/14. Sen. Susan Collins (R-ME) and Sen. Joe Lieberman (D-CT) wrote a letter to Asa Hutchinson, the Under Secretary for Border and Transportation Security at the Department of Homeland Security (DHS) asking for information about the transfer of passenger name record (PNR) data from airlines to the DHS's Transportation Security Administration.

On April 9, American Airlines (AA) stated in a release that "in June 2002, at the request of the Transportation Security Administration (TSA), some passenger travel data was turned over by an American Airlines vendor to four research companies vying for contracts with TSA". See, story titled "American Airlines Gave Passenger Data to TSA and Others" in TLJ Daily E-Mail Alert No. 874, April 12, 2004.

Sen. Susan CollinsSen. Collins (at left) and Sen. Lieberman, who are the Chairman and ranking Democrat on the Senate Governmental Relations Committee, wrote that "We are concerned by potential Privacy Act and other implications of this reported incident. From initial accounts, it appears that TSA requested PNR data from American Airlines for its own research purposes rather than merely requesting that data be provided to another agency, as occurred in the JetBlue matter."

They ask, for example, "Did any TSA official ask American Airlines or its vendor to provide the PNR data to the agency or to any of the four companies?" and "If so, why did TSA ask that data be provided?"

FRB Governors Offer Economic Analyses of Offshoring and Free Trade

4/8. Two Governors of the Federal Reserve Board (FRB) gave speeches recently in which they discussed the state of the economy, with reference to outsourcing, trade, the high tech sector, and appropriate policies. Both argued that an appropriate policy response to a weak labor market is education and training.

On April 8, Roger Ferguson gave a speech titled "Macroeconomic Outlook and Uncertainties" at a Federal Reserve Bank of San Francisco luncheon.

Ferguson addressed the state of the U.S. economy, which he said "appears to be engaged in a gradual process of recovery". He added that "production and aggregate income have increased strongly in the past few quarters, but the labor market has been surprisingly weak".

Roger FergusonFerguson (at left) reviewed the statistics that show "weak performance of the labor market". He then reviewed various hypotheses that have been advanced to explain the state of the labor market.

He stated one explanation is that firms have attained higher productivity "because they have realized a delayed efficiency payoff to the substantial investments in high-tech equipment in the late 1990s."

Another explanation is "the recent sizable increases in health insurance costs and in pension costs are cited by some as a reason for businesses to avoid hiring new employees".

Then, he said that "Other observers have pointed to the outsourcing of production abroad as a reason for the weakness in the labor market. Again, however, the magnitude of this phenomenon seems too small to explain more than a small part of the decline in employment over the past two years. Private-sector estimates of outsourcing are on the order of 1 percent of the gross job losses that occur each year. Moreover, because outsourcing abroad represents a shift of both production and labor input to a foreign country, outsourcing is probably not a major explanation for our recent history of elevated productivity growth."

He also reviewed trends in investment in high tech equipment. He stated that "the economic environment now seems more conducive to business investment. For much of the past three years, businesses were reluctant to invest in new capital equipment. At first, the downturn in investment seemed to be a reaction to what in hindsight appears to have been a substantial overinvestment in high-tech equipment in the late 1990s."

He added that "By the middle of last year, however, firms were beginning to boost their capital spending. And, in the second half, real fixed investment rose more than 10 percent at an annual rate, the fastest two-quarter rate of increase since early 2000. To be sure, a sizable portion of the recent strength in investment has been for high-tech equipment, and much of it probably reflects replacement of outdated machines rather than an expansion of existing production capacity."

Ferguson then offered his policy recommendation -- investment in education and skills. He said that "In the longer run, it is important that we as a society recognize the considerable economic benefits associated with sustainable increases in productivity and intensify our efforts to ensure that as many individuals as possible profit from the substantial productivity gains associated with innovation and increased competition. Unless we do so, the support of the population for flexible markets, technological change, and free and open trade--so crucial to the ongoing improvement of our standard of living -- will erode further."

"In my view, the best long-run response to the inevitable turbulence of a dynamic market economy is to increase our investment in the education and skills of the workforce", said Ferguson. And, he said that that community colleges provide workers an opportunity "to retool their skills to meet the changing requirements of the economy".

On March 30, FRB Governor Ben Bernanke gave a speech titled "Trade and Jobs" at Duke University in Durham, North Carolina. He said that "free trade among nations promotes economic prosperity".

While Ferguson spoke generally about the economy, and touched on outsourcing as one issue, Bernanke focused solely on trade issues.

Ben Bernanke

Bernanke (at right) argued that "although trade in general, and outsourcing abroad in particular, may bring with them structural change in the economy, they are not the principal reason for the current underperformance of the labor market. Rather, the sources of slow job creation are primarily domestic."

He added that "although trade does lead to the loss of jobs in some industries and locations, trade also creates jobs, both directly and indirectly. Directly, trade creates jobs in the United States by expanding the potential market for U.S. goods and services." And, he pointed out that one of the sectors that benefits from trade is technology.

Bernanke argued that "Attempts to restrict trade through the imposition of tariffs, quotas, or other trade barriers are not a good solution. Such actions may temporarily slow job loss in affected industries. But they do so by imposing on the overall economy costs that typically are many times greater than the benefits. In the short run, the costs of trade barriers include higher prices for consumers and higher costs (and thus reduced competitiveness) for U.S. firms. Trade barriers typically provoke retaliation from trading partners as well, with potentially large costs for exporters. And history shows that in the longer run, economic isolationism and retreat from international competition lead to bloated, inefficient industries, lower productivity, and lower living standards." (Parentheses in original.)

He said that "policy should be directed at helping to ensure that jobs become available for those who have been displaced. In particular, over time, appropriate monetary policies can help the economy achieve maximum employment with low inflation, irrespective of the trade situation. The nation's trade policies, rather than attempting to restrict trade, should be used to push for even more trade. By opening markets abroad, trade policy provides greater opportunities for U.S. firms and workers."

Then he argued that "The second piece of a constructive policy toward trade is to help displaced workers train for and find new work."

He said that training is good for several reasons, including that it provides new job opportunities for workers. He also concluded that one of the reasons for retraining displaced workers is that "if workers are less fearful of change, less pressure will be exerted on politicians to erect trade barriers or to take other actions that would reduce the flexibility and dynamism of the U.S. economy. In the long run, avoiding economic isolationism and maintaining economic dynamism will pay big dividends for everybody."

People and Appointments

4/14. Secretary of the Treasury John Snow named Ambassador Paul Speltz to be his "economic and financial emissary to China". Speltz will also remain in his current position as the U.S. Executive Director to the Asian Development Bank. See, Treasury release.

Washington Tech Calendar
New items are highlighted in red.
Thursday, April 15

The House is in recess until Monday, April 19, 2004.

The Senate is in recess until April 19, 2004.

The Supreme Court is in recess until April 19, 2004.

9:30 AM. The Federal Communications Commission (FCC) will hold a meeting. See, agenda [PDF]. The event will be webcast. Location: FCC, 445 12th Street, SW, Room TW-C05 (Commission Meeting Room).

9:30 AM - 12:00 NOON. The WRC-07 Advisory Committee's Informal Working Group 4: Broadcasting and Amateur Issues will meet. See, FCC notice [PDF]. Location: Shaw Pittman, 2300 N Street, NW.

9:30 AM. The U.S. Court Appeals (DCCir) will hear oral argument in AT&T v. FCC, No. 03-1035. Judges Edwards, Tatel and Sentele will preside. Location: Prettyman Courthouse, 333 Constitution Ave.

12:00 NOON. The Progress & Freedom Foundation (PFF) will host a luncheon titled "Should Spectrum Be Public or Private?". The speakers will be Stuart Benjamin (Duke University Law School), Randolph May (PFF), Peter Pitsch (Intel), and Stuart Buck (Kellogg Huber). See, notice and registration page. Location: Room 192, Dirksen Building, Capitol Hill.

12:00 NOON - 1:30 PM. The Open Source and Industry Alliance (OSAIA) will host a luncheon briefing on open source software. The speakers will be representatives of IBM, Novell, OSAIA, the Open Source Development Lab, and Red Hat. RSVP to Pat Steckler (OSAIA) at 202 783-2942. Location: Room B-354, Rayburn Building, Capitol Hill.

12:30 PM. The Federal Communications Bar Association's (FCBA) Diversity Committee will hold a brown bag lunch. Natalie Ludaway will speak on "the benefits of launching a legal career at a small law firm and establishing and maintaining a diverse client base". For more information, contact Joy Ragsdale at 202 261-1427 or RSVP by April 12, 2004 to Angela Bushnell at at 202 434-9121 or Location: Leftwich & Ludaway, 1401 New York Ave., NW.

2:00 - 4:00 PM. The WRC-07 Advisory Committee's Informal Working Group 2: IMT-2000 and 2.5 GHz Sharing Issues will meet. See, notice [PDF]. Location: FCC, 445 12th Street, SW, South Conference Room (6th Floor, Room 6-B516).

Friday, April 16

8:30 AM - 4:30 PM. The New America Foundation will host a conference titled "Pervasive Connectivity: How Unlicensed Spectrum Will Help The World Go Wireless". The event is free. RSVP to Matt Barranca at or 202 986-2700. See, notice. Location: National Guard Association of the United States, One Massachusetts Ave, NW.

Monday, April 19

The House will return from its Spring/Easter recess.

The Senate will return from its Spring/Easter recess.

The Supreme Court will return from the recess that it began on April 5.

The Intellectual Property Owners Association (IPO) will host an event titled "Patent Quality Conference". For more information, contact 202 466-2396 or Location: Ronald Reagan Building and International Trade Center.

Deadline to submit comments to the Federal Communications Commission (FCC) in response to its notice of proposed rulemaking (NPRM) regarding whether certain rules should be repealed or modified because they are no longer necessary in the public interest. The FCC released this NPRM on January 12, 2004. This item is FCC 03-337 in WC Docket No. 02-313. See, notice in the Federal Register, March 18, 2004, Vol. 69, No. 53, at Pages 12814-12826.

Tuesday, April 20

The Supreme Court will hear oral argument in Intel v. AMD, a case regarding the availability of a discovery order from a U.S. District Court, pursuant to 28 U.S.C. § 1782, for a complainant in an antitrust matter before the European Commission. See, Order List [8 pages in PDF] at page 1. See, story titled "Supreme Court Grants Certiorari in Intel v. AMD", also published in TLJ Daily E-Mail Alert No. 776, November 11, 2003; and story titled "9th Circuit Rules on Discovery in U.S. for EC Antitrust Proceeding" in TLJ Daily E-Mail Alert No. 446, June 7, 2002.

10:00 PM. The Senate Governmental Affairs Committee's Subcommittee on Oversight will hold a hearing titled "Pirates of the 21st Century: The Curse of the Black Market". The hearing will review the effectiveness of the federal government's efforts to enforce existing intellectual property rights. See, notice. Location: Room 342, Dirksen Building.

1:00 - 5:00 PM. The U.S. Patent and Trademark Office's (USPTO) Nanotechnology Customer Partnership will meet. RSVP to Jill Warden at 571 272-1267 or See, notice. Location: Conference Center, Rooms 1D70 and 1D80, Jefferson Building, 500 Dulany Street, Alexandria, VA.

2:30 PM. The Senate Governmental Affairs Committee's Subcommittee on Financial Management, the Budget, and International Security will hold a hearing titled "Oversight Hearing on Expensing Stock Options: Supporting and Strengthening the Independence of the Financial Accounting Standards Board". See, notice. Location: Room 342, Dirksen Building.

Extended deadline to submit comments to the Federal Trade Commission (FTC) in response to its notice in the Federal Register requesting comments regarding a National Do Not E-mail Registry. Section 9 of S 877, the "Controlling the Assault of Non-Solicited Pormography and Marketing Act of 2003" (CAN-SPAM Act), requires the FTC to write a report to the Congress on establishing a nationwide Do Not E-Mail Registry. It is due by June 16, 2004. See, story titled "FTC Announces CAN-SPAM Act Rulemaking" in TLJ Daily E-Mail Alert No. 855, March 15, 2004. The notice (setting the original comment deadline of March 31, 2004) is published in the Federal Register, March 11, 2004, Vol. 69, No. 48, at Pages 11775-11782. See also, FTC release summarizing the notice. The notice (extending the deadline to April 20, 2004) is published in the Federal Register, April 9, 2004, Vol. 69, No. 69, at Pages 18851 - 18852.

Wednesday, April 21

7:45 AM. The Federal Communications Bar Association (FCBA) will host a breakfast. The speaker will be John Rogovin, General Counsel of the Federal Communications Commission (FCC). Prices vary. The buffet will begin at 7:45 AM. Location: Mayflower Hotel, 1127 Connecticut Avenue, NW.

10:00 AM. The House Financial Services Committee's (HFSC) Subcommittee on Capital Markets will hold a hearing to evaluate the Financial Accounting Standards Board's (FASB) exposure draft on share-based payments, or stock options, and its effects on publicly traded companies. See, HFSC release. Location: Room 2128, Rayburn Building.

12:00 NOON. The Federal Communications Bar Association's (FCBA) Transactional Practice Committee will host a brown bag lunch titled "M&A Opportunities in Telecom & Media". The speakers will be Michael Price (Evercore Partners) and Chuck Wiebe (BIA Capital). RSVP to Ava Smith 202 371-7201 or Location: Skadden Arps, 700 14th St., NW, 11th Floor.

1:00 - 5:00 PM. Day one of a three day meeting of the National Commission on Libraries and Information Science (NCLIS) will hold a meeting. See, notice in the Federal Register, April 12, 2004, Vol. 69, No. 70, at Page 19240. Location: 1110 Vermont Avenue, NW, Suite 820.

2:00 PM. The House Government Reform Committee's Subcommittee on Technology, Information Policy, Intergovernmental Relations and the Census will hold a hearing titled "Protecting Our Nation’s Cyber Space: Educational Awareness for the Cyber Citizen". For more information, contact Juliana French at 202 225-6751. Location: Room 2154, Rayburn Building.

Deadline to submit comment to the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) regarding its "Pre-Publication Final" draft [67 pages in PDF] of NIST Special Publication 800-37, titled "Guide for the Security Certification and Accreditation of Federal Information Systems". Comments should be addressed to

Thursday, April 22

9:00 - 10:30 AM and 1:00 - 5:00 PM. Day two of a three day meeting of the National Commission on Libraries and Information Science (NCLIS) will hold a meeting. See, notice in the Federal Register, April 12, 2004, Vol. 69, No. 70, at Page 19240. Location: 1110 Vermont Avenue, NW, Suite 820.

9:30 AM. The U.S. Court Appeals (DCCir) will hear oral argument in Verizon v. FCC, No. 03-1396. Judges Ginsburg, Garland and Roberts will preside. Location: Prettyman Courthouse, 333 Constitution Ave.

More News

4/14. Microsoft, the Department of Justice, and state plaintiffs filed with the U.S. District Court (DC) their Joint Status Report on Microsoft's Compliance with the Final Judgments [10 pages in PDF]. This report relates to current enforcement activities, including licensing of communications protocols (CP) by Microsoft (technical documentation provided to licensees, and the April 1 settlement and agreement between Microsoft and Sun Microsytems) and original equipment manufacturer (OEM) relations and Windows licensing terms, and the EU's recent (but yet to be released) decision affecting Microsoft.

4/14. The U.S. Court of Appeals (4thCir) issued its split opinion [26 pages in PDF] in Goldstein v. Moatz, a case regarding a disciplinary investigation conducted by the U.S. Patent and Trademark Office's (USPTO) Office of Enrollment and Discipline (OED). The case concerns the immunity accorded officials of the USPTO for their conduct in an attorney disciplinary investigation in a subsequent Bivens suit for damages. The District Court dismissed, holding that all of the defendants have absolute immunity. The Appeals Court affirmed as to the head of the USPTO, but not as to the other defendants. This case is Richard Goldstein v. Harry Moatz, et al., App. Ct. No. 03-1257, an appeal from the U.S. District Court for the Eastern District of Virginia, Judge Leonie Brinkema presiding, D.C. No. CA-02-1734-A.

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