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August 11, 2004, 9:00 AM ET, Alert No. 957.
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9th Circuit Rules in Anonymous Speech Case

8/6. The U.S. Court of Appeals (9thCir) issued its opinion [41 pages in PDF] in ACLU Nevada v. Heller, a First Amendment case involving anonymous political speech.

The state of Nevada enacted a statute that requires certain groups or entities publishing "any material or information relating to an election, candidate or any question on a ballot" to reveal on the publication the names and addresses of the publications' financial sponsors.

The American Civil Liberties Union of Nevada and its executive director, Gary Peck, filed a complaint in U.S. District Court (DNev) against Dean Heller, in his capacity as the Secretary of State of Nevada, and others, alleging that the state statute violates the First Amendment of the U.S. Constitution. The District Court upheld the constitutionality of the statute.

The Appeals Court vacated the District Court judgment. It held, under strict scrutiny analysis, that the Nevada statute is facially unconstitutional because it violates the free speech clause of the First Amendment. The Appeals Court followed the Supreme Court precedent of McIntyre v. Ohio Elections Commission, 514 U.S. 334 (1995).

The case is ACLU Nevada and Gary Peck v. Dean Heller, et al., No. 01-15462, an appeal for the U.S. District Court for the District of Nevada, D.C. No. CV-00-00370-DWH, Judge David Hagen presiding. Judge Marsha Berzon wrote the opinion of the Court of Appeals.

Court Rules in Case Regarding Breach of Contract to Transfer Stock in Failed Dot Com

8/6. The U.S. Court of Appeals (7thCir) issued its opinion [10 pages in PDF] in Haslund v. Simon Property Group, a dispute regarding a agreement to give an employee an equity interest in an internet based company.

Simon Property Group (SPG) operates hundreds of shopping malls. It formed a subsidiary company to function as an internet related services ancillary to its mall business. SPG hired Shannon Haslund to be the subsidiary's vice president for operations. The employment agreement, which was confirmed in a letter, provided that she would receive "$175,000 plus 1% equity ... structure to be determined."

The subsidiary soon after terminated Haslund's employment, without giving her stock in the company. Soon after that, subsidiary was dissolved. It never made a profit.

Haslund filed a complaint in U.S. District Court (NDIll) against SPG alleging breach of contract under Illinois state law in connection with its failure to transfer stock to her. The District Court awarded Haslund $537,634.41 in damages, which the Court calculated by taking one percent of its estimate of the net worth of the subsidiary at the time she was terminated. It examined the dollar value of a purchase of stock in the subsidiary. The buyer (CPG) acquired a 9.3 percent equity interest for $5 million. The District Court calculated from this the value of 100% of the stock.

The Appeals Court reversed and remanded. The first issue that the Appeals Court addressed was whether the contract was void for indefiniteness. That is, the contract did not specify whether Haslund was to receive voting or non-voting stock, whether there were restrictions on vesting, and so forth. However, the Appeals Court held that the contract was not void.

Judge Richard Posner wrote the opinion. He wrote that "The fact that a contract is incomplete, presents interpretive questions, bristles with unresolved contingencies, and in short has as many holes as a Swiss cheese does not make it unenforceable for indefiniteness. Otherwise there would be few enforceable contracts. Complete contingent contracts are impossible. The future, over which contractual performance evolves, is too uncertain."  Hence, this contract was enforceable, and broken by SPG.

The second issue addressed by the Court was the measurement of damages. The Appeals Court held that the District Court erred in concluding that the subsidiary had a net worth of $54 Million. The Appeals Court noted that the subsidiary never turned a profit, and had no assets that could be appraised. The Appeals Court rejected the District Court's method of valuing the company. The Appeals Court concluded that CPG transaction was devoid of economic substance, because, at the same time that CPG paid SPG for equity in its subsidiary, SPG paid CPG and equal amount for an interest in one of its subsidiaries.

Thus, the Appeals Court concluded that the failed dot com had never been worth anything. While SPG breached its contract with Haslund to give her 1% of the stock, the value of that stock could never have had any value. Hence, she is entitled to only nominal damages, not $537,634.41.

This case is Shannon Haslund v. Simon Property Group, Inc., No. 03-3658, an appeal from the U.S. District Court for the Northern District of Illinois, D.C. No. 01 C 9587, Judge Milton Shadur presiding.

Cato Releases Paper on Threats to Privacy

8/4. The Cato Institute released a paper [20 pages in PDF] titled "Understanding Privacy -- and the Real Threats to It".  See also, executive summary.

The paper begins with an unconventional definition of privacy. The paper states that privacy "is the subjective condition people experience when they have power to control information about themselves. Because privacy is subjective, government regulation in the name of privacy can only create confidentiality or secrecy rules based on politicians' and bureaucrats' guesses about what ``privacy´´ should look like. The most important, but elusive, part of true privacy protection is consumers' exercise of power over information about themselves. Ultimately, privacy is a product of personal responsibility and autonomy."

Hence, the paper argues that "The best way to protect true privacy is to leave decisions about how personal information is used to the people affected. Political approaches take privacy decisionmaking power away from the people."

The paper argues that "Although privacy threats from business and new technology are real, the clearest menace to privacy comes from governments. Unlike other social institutions, governments extract information using the force of law. Governments alone can change the rules under which they hold information -- without recourse to those aggrieved. And governments routinely frustrate opportunities for individuals to protect privacy as they see fit."

The paper elaborates that "Governments threaten privacy in three principal ways" -- surveillance, collecting and sharing information for administrative purposes, and laws that degrade people's ability to protect their privacy.

With respect to surveillance, the paper addresses some of the major threats, including passage and amendment of the electronic surveillance provisions of the PATRIOT Act, the Department of Justice's (DOJ) ongoing attempt to persuade the Federal Communications Commission (FCC) to expand the application of the Communications Assistance for Law Enforcement Act (CALEA) from telecommunications carriers to internet services and applications, the DOJ's carnivore program, and the Transportation Security Agency's (TSA) proposed next generation Computer Assisted Passenger Pre-Screening program (CAPPS II).

With respect to administrative databases, the CATO paper states that "to provide benefits and entitlements -- and, of course, to tax -- governments take personal information from citizens by the bushel. Nearly every new policy or program justifies new or expanded databases of information -- and a shrunken sphere of personal privacy. The helping hand of government routinely strips away privacy before it goes to work." The paper also notes examples of how government agencies exchange and merge personal information from their databases.

With respect to laws that degrade people's ability to protect privacy, the paper states that "Myriad laws and rules deprive people of autonomy, preventing them in various ways from taking steps to protect privacy as they see fit. Anti-privacy law and regulation may prevent people from using privacy-protecting technologies, it may prohibit privacy-protecting contracts, or, by distorting markets, it may push people to give up privacy in ways they ordinarily would not."

The paper offers examples, including the federal government's efforts to prevent people from using strong encryption, banking laws that prevent financial institutions from assuring their customers of privacy in financial information, and the FCC's mandate that location tracking technology be incorporated onto mobile phones.

The paper concludes that "Claims by regulators and politicians that they are going to deliver privacy usually involve some kind of regulation placed on the private sector. The most productive approach, however, would be for our representatives in Congress and the state legislatures to reduce the privacy-eroding features of the laws and programs they themselves pass and oversee."

The paper was written by Jim Harper, the incoming Director of Information Policy Studies at the Cato Institute, and Editor of

CBO Releases Economic Analysis of Copyright and Digital Media

8/10. The Congressional Budget Office (CBO) released a report titled "Copyright Issues in the Digital Media".

This report reviews legal and technological developments affecting copyright. This report then offers an economic analysis of property rights in certain works reproduced in digital media, and analyses three different options available to the Congress.

First, the Congress could do nothing and let the various copyright owners and consumers act in the free market unrestrained by further legislation. The report contemplates the copyright owners will further develop digital rights management technologies and business methods that protect their works and revenues.

Second, the Congress could legislate a compulsory licensing regime. Prices would be regulated, and revenues would be distributed to copyright owners according to the relative use of their works.

Third, the Congress could "revise copyright law in favor of one of the groups whose interests are at stake in the copyright debate: the copyright owners or the users of copyrighted material".

Washington Tech Calendar
New items are highlighted in red.
Wednesday, August 11

The House and Senate are in recess through September 6.

9:00 AM The House Armed Services Committee (HASC) will hold a hearing on the report of the National Commission on Terrorist Attacks Upon the United States, which is also known as the 9-11 Commission. Stephen Cambone (Under Secretary of Defense for Intelligence) and others will testify. Location: Room 2118, Rayburn Building.

2:00 PM The House Armed Services Committee (HASC) will hold a hearing on the report of the National Commission on Terrorist Attacks Upon the United States, which is also known as the 9-11 Commission. Location: Room 2118, Rayburn Building.

Thursday, August 12

Deadline to submit comments to the Library of Congress in response to its notice of proposed rulemaking (NPRM) regarding amendments its regulations to provide for the reporting of uses of sound recordings performed by means of digital audio transmissions pursuant to statutory license for the period October 28, 1998, through March 31, 2004. See, notice in the Federal Register, July 13, 2004, Vol. 69, No. 133, at Pages 42007 - 42010.

Monday, August 16

9:30 AM. The Senate Governmental Affairs Committee will hold a hearing titled "Reorganizing America's Intelligence Community: A View from the Inside". Location: Room 342, Dirksen Building.

9:30 AM. The Senate Commerce Committee will hold a hearing on titled "9/11 Commission Recommendations on Transportation Security". The witnesses will be Thomas Kean (Chairman of the 9/11 Commission), Lee Hamilton (Vice-Chairman of the 9/11 Commission), and Asa Hutchinson (Under Secretary for Border and Transportation Security, Department of Homeland Security).  See, notice. Location: Room 253, Russell Building.

Deadline to submit comments to the Federal Communications Commission's (FCC) Consumer and Governmental Affairs Bureau regarding informal complaints submitted to the FCC regarding slamming, or the unauthorized change of a subscriber's selection of telephone exchange or telephone toll service. See, FCC notice [PDF], and notice in the Federal Register, August 4, 2004, Vol. 69, No. 149, at Pages 47152 - 47153.

Deadline to submit reply comments to the Federal Communications Commission (FCC) regarding reserve prices, minimum opening bids, and other auction procedures for the FCC's broadband PCS spectrum auction (Auction No. 58), which is scheduled to commence on January 12, 2005. See, FCC Public Notice [PDF] (DA 04-2451).

Tuesday, August 17

1:30 - 4:00 PM. The Federal Communications Commission's (FCC) WRC 07 Advisory Committee, Informal Working Group 1: Terrestrial and Space Science Services, will meet. See, notice [PDF]. Location: FCC, 445 12th Street, SW, 8th Floor, Room 8-B411 (Conference Room #5).

6:00 - 8:15 PM. The DC Bar Association's Intellectual Property Law Section and Computer and Telecommunications Law Section will host a continuing legal education (CLE) program titled "Introduction to Anti-Spam Laws". The speakers will be Jason Levine (Covington & Burling) and Samuel Kaplan (Department of Justice). Prices vary. See, notice. For more information, contact 202-626-3488. Location: D.C. Bar Conference Center, B-1 Level, 1250 H Street, NW.

Wednesday, August 18

1:30 - 3:30 PM. The Federal Communications Commission's (FCC) WRC 07 Advisory Committee, Informal Working Group 5: Regulatory Issues, will meet. See, notice [PDF]. Location: The Boeing Company, Arlington, VA.

Thursday, August 19

10:00 AM. The Senate Judiciary Committee will hold a hearing titled "The 9-11 Commission and Recommendations for the Future of Federal Law Enforcement and Border Security". Location: Room 226, Dirksen Building.

12:00 NOON - 1:30 PM. The DC Bar Association's International Law Section and Antitrust and Consumer Law Section will host a panel discussion titled "The Reach Of U.S. Antitrust Law After Empagran". The subject will be the U.S. Supreme Court's June 14, 2004 opinion [23 pages in PDF] in F. Hoffmann-La Roche Ltd., v. Empagran, S.A. The speakers will be Steven Mintz (Department of Justice, Antitrust Division), Peter Orszag (Brookings Institution), Elaine Metlin (Dickstein Shapiro), and Jonathan Franklin (Hogan & Hartson). See, notice. Prices vary from $10-$15. For more information, call 202 626-3463. Location: Fried Frank, 1001 Pennsylvania Ave. NW.

6:00 - 9:15 PM. The DC Bar Association's Telecommunications Law Section will host a continuing legal education (CLE) program titled "New FCC Media Ownership Rules Made Simple". The speakers will be Tom Davidson (Akin Gump) and Gregory Masters (Wiley Rein & Fielding). Prices vary. See, notice. For more information, contact 202-626-3488. Location: D.C. Bar Conference Center, B-1 Level, 1250 H Street, NW.

People and Appointments

8/10. President Bush announced his intent to nominate Rep. Porter Goss (R-FL) to be Director of the Central Intelligence Agency (CIA). See, Bush speech.

More News

8/6. The Progress and Freedom Foundation (PFF) released a paper [20 pages in PDF] titled "The Fallacy of Predation in Wireline Communications". The paper argues that price predation, which it defines as "the lowering of prices to drive out rivals" is often alleged in debates over communications policy, but is rarely a real concern. It points out that price predation is competing through lower prices, which benefits consumers. It asserts that "Though a theoretical case might be made about predation, the actual threat of it occurring is low. At most, predation claims in communications markets should be tried after the fact through an antitrust-like adjudicatory method, rather than the current practice of retail rate regulation and prohibitions on downward price movements by incumbents." And finally, the paper argues that government regulators cannot tell the difference between beneficial competitive behavior and harmful predatory pricing behavior. This paper was written by Raymond Gifford and Adam Peters of the PFF.

8/6. The International Intellectual Property Alliance (IIPA) submitted a comment [9 pages in PDF] to the Office of the U.S. Trade Representative (USTR) regarding its Special 301 out of cycle review of Israel and other nations. IIPA recommends that the USTR place Israel on its Priority Watch List. It states that the government of Israel is not affording protection to copyrights in sound recordings. Section 182 of the Trade Act of 1974, which is codified at 19 U.S.C. § 2242, requires the USTR to identify 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. This is also referred to as the Special 301 provision. August 6 was the deadline for submitting such comments. See, notice in the Federal Register, July 13, 2004, Vol. 69, No. 133, at Pages 42077-42078.

8/3. The International Intellectual Property Alliance (IIPA) submitted a comment [33 pages in PDF] to the U.S. International Trade Commission (USITC) for its proceeding on the economic effects of the U.S.-Bahrain Free Trade Agreement, which is currently being negotiated. The IIPA stated that this FTA "holds the promise of significantly raising the standards of copyright protection and enforcement in Bahrain and then, hopefully, the rest of the Gulf region."

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