12/9. The U.S. Court of Appeals (7thCir) issued its opinion [9 pages in PDF] in BMG Music v. Gonzalez, a copyright infringement case brought by BMG against an individual who downloaded music with the Grokster peer to peer (P2P) software. The Court of Appeals affirmed the District Court's summary judgment for BMG.

The Supreme Court wrote on June 27, 2005 in its opinion [55 pages in PDF] in MGM v. Grokster that "one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties." See, story titled "Supreme Court Rules in MGM v. Grokster" in TLJ Daily E-Mail Alert No. 1,163, June 28, 2005.

However, that case was a dispute between copyright holders (such as record companies) and P2P services. None of the individuals who downloaded copyrighted music were parties to that case. The Supreme Court held that the P2P services could be held vicariously liable for the direct infringement by others. The District Court held that individuals who use the Grokster software to download copyrighted files directly infringe copyrights. However, this holding was not an appeal issue before the Court of Appeals or the Supreme Court.

The present case, BMG Music v. Gonzalez does squarely address whether an individual's downloading of copyright music files with the Grokster software is infringement. The Court of Appeals wrote that it unequivocally is infringement.

The Court of Appeals wrote that Gonzalez downloaded "more than 1,370 copyrighted songs during a few weeks and kept them on her computer until she was caught".

BMG filed a complaint in U.S. District Court (NDIll) against Gonzalez alleging direct copyright infringement in violation of 17 U.S.C. § 501. She asserted the affirmative defense of fair use, which is codified at 17 U.S.C. § 107.

The Court of Appeals granted summary judgment to BMG, and awarded it about $30,000 in statutory damages.

The Court of Appeals affirmed. It rejected the fair use defense, and Gonzalez's assertion that this case is analogous to Sony Corp. of America v. Universal City Studios, Inc. (also known as the Betamax case), which is reported at 464 U.S. 417.

The Court of Appeals wrote that "A copy downloaded, played, and retained on one's hard drive for future use is a direct substitute for a purchased copy -- and without the benefit of the license fee paid to the broadcaster. The premise of Betamax is that the broadcast was licensed for one transmission and thus one viewing. Betamax held that shifting the time of this single viewing is fair use. The files that Gonzalez obtained, by contrast, were posted in violation of copyright law; there was no license covering a single transmission or hearing -- and, to repeat, Gonzalez kept the copies. Time-shifting by an authorized recipient this is not."

The Court of Appeals also rejected Gonzalez's argument that her "try-before-you-buy basis is good advertising for copyright proprietors, expanding the value of their inventory." The Court wrote that "The Supreme Court thought otherwise in Grokster, with considerable empirical support. As file sharing has increased over the last four years, the sales of recorded music have dropped by approximately 30%."

The Court continued at some length on ways in which P2P downloading does harm copyright holders.

The Court also concluded that "Copyright law lets authors make their own decisions about how best to promote their works; copiers such as Gonzalez cannot ask courts (and juries) to second-guess the market and call wholesale copying “fair use” if they think that authors err in understanding their own economic interests or that Congress erred in granting authors the rights in the copyright statute."

Gonzalez asserted that it was pertinent that she asserted that she already owned copies of some of the songs that she downloaded. The Court of Appeals cited as authority the 2000 opinion [10 pages in PDF] of the U.S. District Court (SDNY) in UMG Recordings, Inc. v. MP3.com, Inc., which is reported at 92 F. Supp. 2d 349. The Court of Appeals wrote that it held that "downloads are not fair use even if the downloader already owns one purchased copy".

It may also be significant that in the copyright infringement actions brought by the Authors' Guild and by major book publishers against Google, the plaintiffs are likely to rely heavily upon UMG v. MP3.com.

The present case is BMG Music, Inc. v. Celilia Gonzalez, U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 05-1314, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 03 C 6276, Judge Blanche Manning presiding. Judge Frank Easterbrook wrote the opinion of the Court of Appeals, in which Judges Evans and Williams joined.

12/1. Twenty entities that provide voice communication services, or that represent such providers, wrote a letter to John Snow, the Secretary of the Treasury, regarding the Internal Revenue Service's (IRS) refusal to follow numerous federal judicial opinions interpreting 26 U.S.C. § 4251, which codifies a 3% excise tax on certain communications services.

The IRS continues to collect the 3% excise tax on communications from consumers of communications services that numerous federal courts have ruled are not subject to the tax, even in those circuits where the courts have ruled against the IRS.

§ 4251 imposes a tax on certain "communications services". § 4251(b) provides that the term ''communications services'' means "(A) local telephone service; (B) toll telephone service; and (C) teletypewriter exchange service". These cases concern "toll telephone service".

26 U.S.C. § 4252(b) provides that "toll telephone service" means

"(1) a telephonic quality communication for which
   (A) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication and
   (B) the charge is paid within the United States, and
(2) a service which entitles the subscriber, upon payment of a periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time), to the privilege of an unlimited number of telephonic communications to or from all or a substantial portion of the persons having telephone or radio telephone stations in a specified area which is outside the local telephone system area in which the station provided with this service is located."

(Parentheses in original.)

That is, to be taxable, a "toll telephone service" must include a "toll charge which varies in amount with the distance and elapsed transmission time". The key word here is "and". The IRS asserts that "and" really means "or", and collects taxes on services for which the charge varies either with distance or time. The communications consumers argue, and the federal courts have repeatedly held, that "and" means "and", and therefore the IRS can only collect the tax on services for which the charge varies with distance and time.

The letter to Snow states that "To date there have been six decisions issued by various Federal District Courts, two issued by the Federal Court of Claims and two issued by Circuit Courts of Appeals (most recently by the Sixth Circuit Court of Appeals in OfficeMax Inc. v. United States, Case No. 04-4009 (November 2, 2005)), which have held that FET is not applicable to certain long distance services."

See, opinion [20 pages in PDF] of the U.S. Court of Appeals (6thCir) in Office Max v. USA. See also, story titled "IRS Loses Another Appeal Regarding 3% Excise Tax" in TLJ Daily E-Mail Alert No. 1,246, November 3, 2005.

The letter adds that "Only one court decided this issue in favor of the IRS, and that decision was reversed on appeal earlier this year by the Eleventh Circuit Court of Appeals in American Bankers Insurance Group v. United States, Case No. 04-10720 (May 10, 2005). The government did not appeal the American Bankers case to the Supreme Court and there are currently no decisions upholding the IRS' position."

See, opinion [22 pages in PDF] of the U.S. Court of Appeals (11thCir) in ABIG v. US. See also, story titled "IRS Loses Appeal Over 3% Excise Tax on Communications" in TLJ Daily E-Mail Alert No. 1,133, May 11, 2005.

The letter continues that "Notwithstanding the complete absence of judicial support for the IRS' position, on October 20, 2005 (after the American Bankers decision became final but before the OfficeMax case was decided), the IRS issued Notice 2005-79. This Notice sets forth that the IRS plans to continue to litigate this issue and, while doing so, will continue to assess and collect the tax ..."

See, story titled "IRS Announces That It Will Violate Court of Appeals Ruling Regarding Excise Tax on Phone Service", in TLJ Daily E-Mail Alert No. 1,241, October 27, 2005.

The letter requests that Secretary Snow "provide much-needed clarity in this matter by doing two things: First, direct the IRS to cease litigating the "time and distance" issue by not seeking certiorari to the Supreme Court in the OfficeMax case and by dismissing all of the other pending cases. Second, direct the IRS to issue clear guidance indicating that it will follow not only the letter but also the spirit of these decisions, such that only communications services that fit squarely and literally within the statutory definitions will be subject to FET."

It elaborates that "the guidance should provide that the types of communications services which are not subject to tax because they do not satisfy any of the statutory definitions of taxable telephone services include (but are not limited to) long distance services of the type at issue in the OfficeMax and American Bankers cases; long distance services that are sold on the basis of an unlimited number of calls or a bundle of minutes for a flat monthly rate; and "all distance" services, including wireless and VoIP services."

The letter was sent by AT&T, BellSouth, CenturyTel, Cingular Wireless, CTIA, Global Crossing, Level 3 Communications, MCI, PAETEC Communications, Qwest, Sprint Nextel, T-Mobile, The Coalition of Service Industries, Time Warner Cable, Time Warner, TracFone Wireless, USTelecom Association, Verizon, Verizon Wireless, and Virgin Mobile USA.

See also, story titled "IRS Publishes Advance NPRM Regarding Expanding the Excise Tax on Telephones to Include New Technologies" in TLJ Daily E-Mail Alert No. 936, July 6, 2004. And see, story titled "Rep. Cox Urges Bush to Instruct IRS Not to Expand Excise Tax on Phones" in TLJ Daily E-Mail Alert No. 945, July 26, 2004.

12/8. The Progress and Freedom Foundation (PFF) released a paper [16 pages in PDF] titled "The Future of Radio Regulation: The Need for a Level Playing Field". The author is Adam Thierer, a Senior Fellow at the PFF. He states that "XM and Sirius have made impressive strides since their birth in late 2001", and that they pose a threat to terrestrial radio broadcasters. In addition, there are other threats, including various portable music devices, such as iPods.

He notes that "terrestrial radio broadcasting remains one of America’s most heavily regulated media sectors". He argues that "the best way to solve this parity problem is not through line-of-business restrictions on new players or technologies, but rather though the comprehensive liberalization of the traditional terrestrial radio broadcast sector."

Thierer responds to proposals, such as those expressed in HR 998, the "Local Emergency Radio Service Preservation Act of 2005". This bill states in its recitation of findings that there should "local origination of programming". This bill distinguishes this from "localized content". The stated rationale of the bill is that to preserve the former, the Congress must prohibit satellite radio broadcasters from providing the latter.

The bill would require the FCC to amend its rules to provide that "(1) digital audio radio satellite service licensees shall not, using any capability either on a satellite or in a radio receiver, provide services that are locally differentiated or that result in programming being delivered to consumers in one geographic market that is different from the programming that is delivered to consumers in any other geographic market; and (2) digital audio radio satellite service repeaters shall be restricted to simultaneously retransmitting the programming transmitted by satellite directly to digital audio radio satellite service subscribers' receivers, and may not be used to distribute any information not also transmitted to all subscribers' receivers."

The bill would also require the FCC to conduct a rule making proceeding to "to determine whether digital audio radio satellite service licensees should be permitted to provide locally oriented services on nationally distributed channels".

Thierer argues that the best way to preserve terrestrial radio is not to burden its competitors with regulation, but to remove the regulations that burden terrestrial radio. He argues that "Free, over-the-air radio can have a future if it is freed of its regulatory chains. This will require the elimination of the various ``public interest´´ mandates, content controls, ownership regulations, and other rules that make it difficult for traditional broadcasters to meet the new challenges posed by satellite radio operators and other new media competitors."

Thierer recommends that the Congress "remove all speech controls from traditional radio and guarantee them the same First Amendment status and rights as all other media providers; free terrestrial broadcasters from all other ``affirmative´´ public interest obligations; completely relax media ownership rules to ensure that struggling local radio stations can potentially be saved by larger operators if new competition threatens their financial viability; and, allow radio broadcasters to use their spectrum flexibly for whatever purpose they wished (including selling it to someone else for alternative uses)." (Parentheses in original.)

The House will meet at 12:00 NOON in pro forma session only. See, Republican Whip Notice.

The Senate will return from its Thanksgiving recess at 2:00 PM.

9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in EchoStar Satellite v. FCC, 04-1304. The proceeding pertains to an order of the Federal Communications Commission (FCC) adopting rules implementing the Satellite Home Viewer Extension and Reauthorization Act of 2004, which is now Public Law No. 108-447. See, brief [PDF] of the FCC. Judges Tatel, Garland and Griffith will preside. Location: Prettyman Courthouse, 333 Constitution Ave., NW.

10:00 AM. The Senate Commerce Committee (SCC) will hold another hearing on decency. Jack Valenti (former head of the MPAA) and Kyle McSlarrow (head of the NCTA) will testify. Press contact: Melanie Alvord (Stevens) at 202 224-8456, Aaron Saunders (Stevens) at 202 224-3991, or Andy Davis (Inouye) at 202 224-4546. Location: Room 562, Dirksen Building.

12:15 PM. The Federal Communications Bar Association's (FCBA) Mass Media Practice Committee will host a brown bag lunch titled "Meet the Trade Press". For more information, contact Ann Bobeck at abobeck at nab dot org. Location: National Association of Broadcasters (NAB), 1771 N St. NW.

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to the notice of proposed rulemaking (NPRM) portion of the Order and FNPRM that provides that facilities based broadband service providers and interconnected VOIP providers are subject to requirements under the 1994 Communications Assistance for Law Enforcement Act (CALEA). See, public notice [2 pages in PDF] and notice in the Federal Register, October 13, 2005, Vol. 70, No. 197, at Pages 59704 - 59710. The FCC adopted, but did not release, this item at its August 5, 2005, meeting. See, story titled "FCC Amends CALEA Statute" in TLJ Daily E-Mail Alert No. 1,191, August 9, 2005. The FCC released the text [59 pages in PDF] of this item on September 23, 2005. It is FCC 05-153 in ET Docket No. 04-295 and RM-10865.

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to the notice of proposed rulemaking (NPRM) regarding the the specific relocation procedures applicable to Broadband Radio Service (BRS) operations in the 2150-2160/62 MHz band, which the FCC previously decided will be relocated to the newly restructured 2495-2690 MHz band. The FCC also seeks comment on the specific relocation procedures applicable to Fixed Microwave Service (FS) operations in the 2160-2175 MHz band. This NPRM is FCC 05-172 in ET Docket No. 00-258. See, notice in the Federal Register, October 26, 2005, Vol. 70, No. 206, at Pages 61752 - 61762.

Deadline to submit initial comments to the Federal Communications Commission (FCC) regarding the petition for declaratory ruling (DR) filed by Grande Communications that seeks a DR regarding the treatment of traffic terminated through Grande to end users of interconnected local exchange carriers (LECs), in circumstances where customers of Grande have certified that the traffic originated in Internet protocol (IP) format. See, notice in the Federal Register, November 2, 2005, Vol. 70, No. 211, at Pages 66411 - 66412. See also, story titled "FCC Sets Comment Deadlines for DR Petition on IP Originated VOIP Traffic and Intercarrier Compensation" in TLJ Daily E-Mail Alert No. 1,246, November 3, 2005. This proceeding is WC Docket No. 05-283.

The House will meet at 12:30 PM for morning hour, and at 2:00 PM for legislative business. The House will consider numerous non-technology related items under suspension of the rules. Votes will be postponed until 6:30 PM. See, Republican Whip Notice.

9:00 AM. The Cyber Security Industry Alliance (CSIA) will host a news conference titled "Cyber Security 2006". For more information, contact Jan Baker at 781 876-6269  Location: Lisagor Room, National Press Club, 529 14th St. NW, 13th Floor.

TIME CHANGE. 10:30 AM. The Senate Commerce Committee (SCC) will hold a hearing on the nominations of Deborah Tate and Michael Copps to be members of the Federal Communications Commission (FCC). Press contact: Melanie Alvord (Stevens) at 202 224-8456, Aaron Saunders (Stevens) at 202 224-3991, or Andy Davis (Inouye) at 202 224-4546. The hearing will be webcast by the SCC. See, notice. Location: Room 106, Dirsksen Building.

11:00 AM. The Federal Trade Commission (FTC) will hold a news conference to announce an against against, and settlement of, a violator of the FTC's Do Not Call Rule. See, notice. Location: FTC main, Room 432, 600 Pennsylvania Ave., NW.

1:00 PM. The House Commerce Committee's (HCC) Subcommittee on Oversight and Investigations will hold a hearing titled "Safety of Imported Pharmaceuticals: Strengthening Efforts to Combat the Sales of Controlled Substances Over the Internet". The witnesses will include Karen Tandy, Administrator of the Drug Enforcement Administration (DEA), and Jayson Ahern, Assistant Commissioner of Customs and Border Patrol (CBP). The hearing will be webcast by the HCC. Location: Room 2123, Rayburn Building.

2:00 PM. The Senate Appropriations Committee's Subcommittee on Homeland Security will hold a hearing on The Department of Homeland Security's (DHS) US-VISIT program. Jim Williams, Director of US-VISIT, will testify. Location: Room 124, Dirksen Building.

2:30 PM. The Senate Commerce Committee (SCC) will hold a business meeting. Press contact: Melanie Alvord (Stevens) at 202 224-8456, Aaron Saunders (Stevens) at 202 224-3991, or Andy Davis (Inouye) at 202 224-4546. Location: Room 106, Dirsksen Building.

5:30 PM. The House Judiciary Committee's (HJC) Subcommittee on Commercial and Administrative Law will meet to mark up HR 1956, the "Business Activity Tax Simplification Act of 2005". See, story titled "House Subcommittee Holds Hearing on State Business Activity Taxes" in TLJ Daily E-Mail Alert No. 1,223, September 28, 2005. Press contact: Jeff Lungren or Terry Shawn at 202 225-2492. The meeting will be webcast by the HJC. See, notice. Location: Room 2141, Rayburn Building.

5:30 PM. The House Rules Committee will meet to adopt a rule for consideration of the conference report on HR 3199, the "USA PATRIOT Improvement and Reauthorization Act of 2005". See, full text of the conference report [219 pages in PDF]. Location: Room H-309, Capitol Building.

6:00 - 9:15 PM. The DC Bar Association will host a continuing legal education (CLE) seminar titled "2005 Intellectual Property Law Review Series, Part 1: Copyright, Trademark and Internet Update". The speakers will include Brian Banner (Banner & Witcoff), Beckwith Burr (Wilmer Cutler), and Terence Ross (Gibson Dunn & Crutcher). The price to attend ranges from $70-$125. For more information, call 202 626-34638. See, notice. Location: D.C. Bar Conference Center, 1250 H Street NW, B-1 Level.

The House will meet a 10:00 AM for legislative business. It may consider the conference report on HR 3199, the "USA PATRIOT Improvement and Reauthorization Act of 2005". See, full text of the conference report [219 pages in PDF]. See, Republican Whip Notice.

10:00 AM. The Securities and Exchange Commission (SEC) will hold an open meeting. See, agenda. Location: SEC, Room L-002, 100 F St., NE.

11:00 AM. The Senate Finance Committee will hold a hearing on several nominations, including those of David Spooner to be Assistant Secretary of Commerce for Import Administration, and David Bohigian, to Assistant Secretary of Commerce, Market Access and Compliance. Location: Room 215, Dirksen Building.

6:00 -8:15 PM. The DC Bar Association will host a continuing legal education (CLE) seminar titled "2005 Intellectual Property Law Review Series, Part 2: Patent Law Update". The speakers will include Bradley Wright (Banner & Witcoff) and Eric Wright (Morgan & Finnegan). The price to attend ranges from $70-$125. For more information, call 202 626-3488. See, notice. Location: D.C. Bar Conference Center, 1250 H Street NW, B-1 Level.

The House will meet a 10:00 AM for legislative business. It may consider the conference report on HR 3199, the "USA PATRIOT Improvement and Reauthorization Act of 2005". See, full text of the conference report [219 pages in PDF]. See, Republican Whip Notice.

10:00 AM. The Internal Revenue Service (IRS) will hold a public hearing on its notice of proposed rulemaking (NPRM) regarding the source of income derived from international communications activity. See, notice in the Federal Register, September 19, 2005, Vol. 70, No. 180, at Pages 54859 - 54878. Location: Auditorium, Internal Revenue Building, 1111 Constitution Ave., NW.

The House may meet for legislative business at 9:00 AM. See, Republican Whip Notice.

9:00 - 11:00 AM. The Federal Communications Commission's (FCC) Network Reliability and Interoperability Council (NRIC) will meet. The agenda includes discussion of "E911 issues, final recommendations for next generation E911 architectures and transition issues, new best practices for improving the reliability of E911 networks and services, target network architectures for communications with emergency services personnel, and best practices for network security". See, FCC notice [PDF]. Location: FCC, Commission Meeting Room, 445 12th St., SW.

The House may meet for legislative business. See, Republican Whip Notice.

Deadline to submit initial comments to the Federal Communications Commission (FCC) in response to its notice of proposed rulemaking regarding its rules affecting Wireless Radio Services. This item is FCC 05-144 in WT Docket Nos. 03-264. The FCC adopted this item on July 22, 2005. It released the text [67 pages in PDF] on August 9, 2005. See, notice in the Federal Register, October 19, 2005, Vol. 70, No. 201, at Pages 60770 - 60781.

Deadline to submit comments to the Securities and Exchange Commission (SEC) regarding improving the draft RFP [154 pages in PDF] for remaking the SEC's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) Platform. See also, SEC release, draft RFP cover letter [PDF], and story titled "SEC Seeks Contractor to Remake EDGAR" in TLJ Daily E-Mail Alert No. 1,259, November 23, 2005.

12/9. BellSouth's Herschel Abbott stated in a release that "we are fully supportive of Chairman Martin's call for a la carte and family friendly programming tiers. IPTV holds much promise for the consumer and greater programming options is just one example of how consumers will benefit by having choice in video service providers. As long as content can be acquired in a manner that allows flexibility, we would look forward to meeting the needs of our customers with even more choice through a la carte and family-tiered offerings."

12/9. Verizon Wireless stated in a release that on November 29, 2005, the Superior Court in Sacramento, California, entered an injunction against Intelligent Alternatives, a telemarketing firm, barring it from making auto-dialer and prerecorded calls to cell phones. VW also stated that VW has a "record of protecting customer privacy", and describes other recent lawsuits filed by VW.

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