3/14. The U.S. Court of Appeals (9thCir) issued an opinion [35 pages in PDF] in In re Napster, Inc. Copyright Litigation reversing the District Court's discovery order directing Bertelsmann to produce certain attorney client communications. The case is remanded, but the copyright holders will not obtain the requested documents, which pertain to Bertelsmann's transactions with Napster.

This is a continuation of the long running litigation that began in December of 1999 with the filing of the first complaint against Napster, Inc. alleging violation of copyright law in connection with its operation of a peer to peer file sharing network. Napster has since gone bankrupt.

The plaintiffs are record companies and other copyright holders. They obtained a preliminary injunction against Napster, which this Court of Appeals upheld. See, A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (2001). However, before final disposition of the claims against Napster, it filed a bankruptcy petition.

The plaintiffs also filed a complaint against Bertelsmann AG, which had participated in transactions with Napster, the precise nature of which are part of the dispute. Bertelsmann asserts that it loaned Napster a total $85 Million to fund an anticipated transition to a licensed digital music distribution system. This system was not deployed. The plaintiffs assert that these transactions included an assumption of control, and acquisition of an equity interest.

The plaintiffs filed a complaint in U.S. District Court (SDNY) against Bertelsmann alleging vicarious and contributory liability for copyright infringement by Napster and/or Napster's users. The action was transferred to the U.S. District Court (NDCal), the venue of the original action against Napster.

The plaintiffs' claims against Bertelsmann are still in the pre-trial discovery stage. The plaintiffs requested production of documents from Bertelsmann that constitute communications with its attorneys regarding the structuring of a $50 Million loan to Napster that was convertible to equity. These communications involve the law firms of Boies Schiller & Flexner and Wilson Sonsini Goodrich & Rosati.

Bertelsmann asserted the attorney client privilege. The plaintiffs moved to compel production, asserting that these records fall under the crime-fraud exception to the attorney-client privilege. The plaintiffs argue first that the transaction was a sham loan intended to obtain control, but evade possible future liability under copyright law. Alternatively, the plaintiffs argue that Bertelsmann attempted to defraud the courts by omitting from the loan documents a side agreement that allowed Napster to channel some of the $50 Million into Napster's litigation expenses.

The District Court ordered Bertelsmann to disclose all attorney client communications "related to the creation of the loan document and to the submission of that loan document in the bankruptcy proceedings and to this court".

This interlocutory appeal followed.

The Court of Appeals first held that it has jurisdiction, even though the discovery order was not a final decision, under the collateral order test.

The Court of Appeals discussed the importance of this privilege, but added, "Notwithstanding its importance, the attorney-client privilege is not absolute. The ``crime-fraud exception´´ to the privilege protects against abuse of the attorney-client relationship."

The Court of Appeals elaborated that a party seeking to vitiate the attorney client privilege under the crime fraud exception must satisfy a two part test. First, the party must show that the client was engaged in or planning a criminal or fraudulent scheme when it sought the advice of counsel to further the scheme. Second, it must demonstrate that the attorney client communications for which production is sought are sufficiently related to and were made in furtherance of the intended, or present, continuing illegality.

The Court of Appeals also wrote that "we bear in mind that the party challenging the privilege may lack sufficient evidence to prove crime or fraud to a liability standard, particularly given the fact that the best evidence is likely to be in the hands of the party invoking the privilege." It added that "the problem of limited access to proof by the party seeking to vitiate the attorney-client privilege is mitigated by the possibility of in camera review of the communications by the district court".

The Court of Appeals concluded that "in a civil case the burden of proof that must be carried by a party seeking outright disclosure of attorney-client communications under the crime-fraud exception should be preponderance of the evidence." However, the District Court did not apply this standard.

The Court of Appeals wrote that "the district court did not apply the preponderance of the evidence standard that we today hold is applicable to a civil case in which outright disclosure of attorney-client communications is sought under the crime-fraud exception. Looking at the evidence presented in this case under the preponderance standard, we hold that even if all of the evidence proffered by appellees is believed, there is an insufficient basis to hold that the attorney-client privilege may be vitiated under the crime-fraud exception."

The case now goes back to the District Court. The plaintiffs may pursue their claims against Bertelsmann. They just will not have access to Bertelsmann's communications with its attorneys.

This case is In re Napster, Inc. Copyright Litigation, App. Ct. Nos. 06-15886 and 06-72515, appeals from the U.S. District Court for the Northern District of California, Judge Marilyn Patel presiding. Judge William Fletcher wrote the opinion of the Court of Appeals, in which Judges Ferdinand Fernandez and Johnnie Rawlinson joined.

3/12. The Securities and Exchange Commission (SEC) filed a civil complaint [30 pages in PDF], and the U.S. District Court (DNeb) unsealed a criminal indictment, both of which allege violation of federal securities laws by Jaisankar Marimuthu, Chockalingam Ramanathan and Thirugnanam Ramanathan in connection with their using stolen usernames and passwords to hijack online brokerage accounts.

The SEC's complaint states that the three defendants "repeatedly hijacked the online brokerage accounts of unwitting investors using stolen usernames and passwords. Prior to intruding into these accounts, the Defendants acquired positions in the securities of at least thirteen issuers and options on shares of another issuer. Then, without the account holders' knowledge, and using the victims' own accounts and funds, the Defendants placed scores of unauthorized buy orders at above-market prices. After these unauthorized buy orders were placed, the Defendants sold the positions held in their own accounts at the artificially inflated prices. These transactions created the appearance of legitimate trading activity and pumped up the prices of the fourteen securities."

This complaint adds that as a result, the defendants "realized unlawful trading profits of at least $121,500. Online broker-dealers whose customers' accounts were compromised suffered losses of at least $875,000 as a result of the Defendants' fraudulent conduct."

See also, SEC release. The SEC's civil action is SEC v. Jaisankar Marimuthu, Chockalingam Ramanathan and Thirugnanam Ramanathan, U.S. District Court for the District of Nebraska, D.C. No. 8:07CV94.

The Department of Justice (DOJ) is criminally prosecuting the same three defendants. A grand jury of the U.S. District Court (DNeb) returned a 23 count indictment in January of 2007 that alleges conspiracy, computer fraud in violation of 18 U.S.C. § 1030, securities fraud in violation of 18 U.S.C. § 1348, wire fraud in violation of 18 U.S.C. § 1343, and aggravated identity theft in violation of 18 U.S.C. § 1028A.

The District Court unsealed this indictment on March 12, 2007.

The DOJ stated in a release that "Today's case marks the first time that individuals have been arrested overseas in connection with an online brokerage intrusion scheme perpetrated in the United States."

This case is USA v. Jaisankar Marimuthu, Chockalingam Ramanathan and Thirugnanam Ramanathan, U.S. District Court for the District of Nebraska, D.C. No. 8:07CR30.

See also, speech by John Walsh, Associate Director and Chief Counsel of the SEC's Office of Compliance Inspections and Examinations, and story titled "SEC Official Addresses Online Identity Theft and Securities Fraud" in TLJ Daily E-Mail Alert No. 1,466, October 11, 2006.

3/6. The Securities and Exchange Commission (SEC) filed a civil complaint [25 pages in PDF] in U.S. District Court (DC) against "unknown persons" and the JSC Parex Bank in Latvia seeking disgorgement of any and all assets obtained as a result of the unknown persons' violations of federal securities laws. The complaint identifies a securities fraud scheme involving the hijacking of online brokerage accounts.

The complaint states that "This action stems from a modern-day, technological version of the traditional ``pump-and-dump´´ market manipulation scheme. From at least December 2005 through December 2006, the defendants engaged in a scheme to fraudulently use the Internet to intrude into the online brokerage accounts of unsuspecting customers at U.S. broker dealers and place unauthorized trades in the accounts for the defendants' own pecuniary benefit."

The complaint continues that "First, the defendants purchased in their own accounts shares of stock in a thinly traded company. Shortly thereafter, the defendants, directly or indirectly, intruded into the online brokerage accounts of investors at U.S. broker-dealers, liquidated existing equity positions and, using the resulting proceeds, purchased and sold thousands, and in one instance millions, of shares of the same thinly traded stocks purchased by the defendants in their own accounts. The unauthorized trading in the third-party accounts created the appearance of trading activity and pumped up the price of the stocks. Then, at the height of the price surge, the defendants sold in their own accounts their previously-purchased shares of the same stocks at the inflated prices."

The complaint adds that "the defendants masked their identities by intruding into the online accounts using the Internet Protocol addresses of innocent third parties and by trading anonymously through the domestic brokerage accounts of Latvian-based Relief Defendant JSC Parex Bank."

The complaint also states that "the defendants realized profits totaling at least $732,941 from trading in their accounts. In addition, the broker-dealers whose customers' accounts were compromised suffered in excess of $2 million in losses in their efforts to make their customers whole."

TLJ spoke with John Reed Stark, Chief of the SEC's Office of Internet Enforcement, on March 15. He stated that the SEC learned on March 14 through discovery the names of the persons identified as "unknown persons" in the complaint. However, he would not disclose their identities, state whether any are now in custody, or comment on where any may be located.

Stark did state that none of the three defendants in the Nebraska case, Jaisankar Marimuthu, Chockalingam Ramanathan and Thirugnanam Ramanathan, are any of these "unknown persons". See, story in this issue titled "SEC and DOJ Take Action Against Hijackers of Online Brokerage Accounts".

This case is SEC v. One or More Unknown Traders in the Common Stock of Certain Issuers and JSC Parex Bank, U.S. District Court for the District of Columbia, D.C. No. 1-07CV00432.

3/8. The Securities and Exchange Commission (SEC) issued an order [5 pages in PDF] that suspends trading in thirty-five companies. The order states that "for each issuer, questions have arisen regarding the adequacy and accuracy of publicly disseminated information concerning". See also, SEC release.

SEC Chairman Chris Cox spoke at a news conference. He said that the SEC "struck a blow for investors, and for every American with a computer, against one of the worst menaces of the information age: Email spam touting possibly worthless securities." See, statement.

"Today's action is the largest trading suspension of spammed companies in SEC history", said Cox (at left). "We ordered these suspensions because of serious questions about the adequacy and accuracy of information about the companies, and also because of the risk they present of future spam campaigns. Some of these securities pitches are still being made in spam campaigns underway even as we speak."

He also said that there are about 5.2 Billion spam messages per year that hype stocks and other securities.

Linda Thomsen, Director of the SEC's Division of Enforcement, said that "Today the internet has created electronic boiler rooms, which solicit not by phone but by emails simultaneously touting stocks to millions of people." See, statement.

She continued that "Today's action will disrupt the operations of these boiler rooms and make it harder for the spammers and promoters to dump their stock on an unsuspecting public. Public companies and others touting stocks must tell the truth. They also must have a reasonable basis for the statements they make when they push stocks. Many email spammers distribute false news or old news or old and false news and misleading or stale financial information. It is the lack of accurate and adequate information regarding spammed companies that makes spam emails so dangerous to investors."

Mark Schonfeld, Director of the SEC New York Regional Office, stated that "By interrupting the source of stock for spammers, we take away their ability to profit." See, statement.

He added that "Now that we have stopped the trading in these stocks, we will focus our attention on the people behind the spam and profiting from it."

The House will meet at 10:00 AM for legislative business. It will consider HR 1362, the "Accountability in Contracting Act". See, Rep. Hoyer's weekly calendar [PDF].

The Senate will meet at 9:30 AM for morning business. It will then resume consideration of SJRes 9, the "United States Policy in Iraq Resolution of 2007".

8:20 AM. Secretary of Homeland Security Michael Chertoff will give a speech to the Northern Virginia Technology Council. Press contact: 202-282-8010. Location: McLean Hilton, 7920 Jones Branch Drive, McLean, VA.

9:00 AM - 4:30 PM. Catholic University of America's (CUA) law school will host a conference titled "Content Abundance in a Multimedia World: Challenges & Opportunities for Multi-Platform Content Delivery & Regulation". See, agenda and registration page [PDF]. Location: CUA, Columbus School of Law, 3600 John McCormick Road, NE.

10:00 AM. The Senate Judiciary Committee (SJC) may hold a business meeting. The agenda includes consideration of S 236, the "Federal Agency Data Mining Reporting Act of 2007". The SJC rarely follows its published agendas. Press contract: Tracy Schmaler (Leahy) at 202-224-2154 or Courtney Boone (Specter) at Courtney_Boone at judiciary-rep dot senate dot gov or 202-224-2984. See, notice. Location: Room 226, Dirksen Building.

11:00 AM. The House Commerce Committee's (HCC) Subcommittee on Commerce, Trade, and Consumer Protection will hold a hearing titled "Combating Spyware: H.R. 964, The Spy Act". The witnesses will be Ari Schwartz (Center for Democracy & Technology), Dave Morgan (TACODA, Inc.), Christine Varney (Hogan & Hartson), Jerry Cerasale (Direct Marketing Association), and Fran Maier (TRUSTe). Press contact: Jodi Seth (Dingell) at 202-225-5735, or Alec Gerlach (Dingell) at alec dot gerlach at mail dot house dot gov or 202-225-5735. Location: Room 2322, Rayburn Building.

12:00 NOON. Kyle McSlarrow, head of the National Cable and Telecommunications Association (NCTA) will hold a news briefing. The NCTA notice states, "Please contact Pam Ford at 202-222-2356 if you plan on attending". Lunch will be served. Location: NCTA Headquarters, 25 Massachusetts Ave., NW.

1:00 PM. The House Ways and Means Committee's Subcommittee on Trade will hold a hearing on HR 1229, the "Nonmarket Economy Trade Remedy Act of 2007". Location: Room 1100, Longworth Building.

RESCHEDULED FROM MARCH 8. 2:00 - 4:00 PM. The Department of State's (DOS) International Telecommunication Advisory Committee (ITAC) will meet to prepare advice on U.S. positions for the International Telecommunication Union's (ITU) Telecommunication Standardization Sector Study Group 3 (Tariff and accounting principles including related telecommunication economic and policy issues). See, original notice in the Federal Register, January 11, 2007, Vol. 72, Number 7, at Page 1363. See, rescheduling notice in the Federal Register, February 12, 2007, Vol. 72, No. 28, at Pages 6640-6641. Location: AT&T, Suite 210, 1133 21st St., NW.

2:00 - 4:00 PM. The Department of State's (DOS) International Telecommunication Advisory Committee (ITAC) will meet to prepare advice for the meeting of the Telecommunication Development Advisory Group (TDAG). See, notice in the Federal Register: February 12, 2007, Vol. 72, No. 28, at Pages 6640-6641. Location: DOS, Room 2533A.

Deadline to submit comments to the Office of the U.S. Trade Representative (OUSTR) regarding the 2005 WTO ministerial decision on duty free quota free market access for the least developed countries. See, notice in the Federal Register, January 18, 2007, Vol. 72, No. 11, at Pages 2316-2317.

Rep. Hoyer's weekly calendar [PDF] states that "no votes are expected in the House".

2:00 PM. The Progress & Freedom Foundation (PFF) will host a panel discussion titled "What Goes Up Must Come Down: Copyright and Process in the Age of User-Posted Content". The speakers will include Jim Delong (PFF moderator), Bill Rosenblatt (DRMWatch and GiantSteps Media Strategies), Solveig Singleton (PFF), and Don Verrilli (Jenner & Block). See, notice. Location: Room B340, Rayburn Building, Capitol Hill.

Saint Patrick's Day.

7:30 AM - 5:00 PM. The Information Technology Association of America (ITAA) will host an event titled "Beyond the Beltway 2007: State & Local Government IT Market Watch". See, notice. Location: Ritz-Carlton, Tysons Corner, McLean, VA.

10:00 AM. The Department of Commerce's (DOC) National Telecommunications and Information Administration (NTIA) will hold a public meeting to discuss its just released DTV coupon program rules. See, notice [PDF] to be published in the Federal Register. Location: DOC, Auditorium, 1401 Constitution Ave., NW.

Deadline to submit comments to the U.S. Patent and Trademark Office (USPTO) regarding several proposed rule changes. See, notice in the Federal Register, February 16, 2007, Vol. 72, No. 32, at Pages 7583-7587.

Deadline to submit initial comments to the Federal Communications Commission (FCC) regarding AT&T's petition for forbearance from enforcement of certain FCC cost assignment rules. See, Public Notice [3 pages in PDF] (DA 07-731). This proceeding is WC Docket No. 07-21.

10:30 AM - 12:30 PM. The House Science Committee's (HSC) Research and Science Education Subcommittee will hold a hearing titled "National Science Foundation Reauthorization, Part 1". The witnesses will be Arden Bement (Director of the National Science Foundation) and Steven Beering (Chairman of the NSF's National Science Board). Press contact: Alisha Prather at 202-225-6375 or alisha dot prather at mail dot house dot gov. Location: Room 2318, Rayburn Building.

12:15 - 1:30 PM. The Federal Communications Bar Association's (FCBA) Common Carrier Practice Committee will host an event titled "Practice before other agencies: Why it matters and what you should know". The speakers will be representatives of the NTIA, FTC and DOJ. For more information, contact Colleen Nunez at cnunez at gci dot com or 202-457-8815. Location: Sidley Austin, 1501 K Street NW, 6th Floor.

2:15 PM. The Senate Judiciary Committee (SJC) will hold a hearing titled "The XM-Sirius Merger: Monopoly or Competition from New Technologies". Press contract: Tracy Schmaler (Leahy) at 202-224-2154 or Courtney Boone (Specter) at Courtney_Boone at judiciary-rep dot senate dot gov or 202-224-2984. Sen. Herb Kohl (D-WI) will preside. Location: Room 226, Dirksen Building.

2:30 PM. Thomas Donohue, head of the U.S. Chamber of Commerce, will hold a news briefing to outline the Chamber's views on trade, innovation, and intellectual property rights. Location: U.S. Chamber, 1615 H Street, NW.

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to Locus Telecommunications, Inc.'s petition for a declaratory ruling that calls to a prepaid calling card provider’s toll-free customer service numbers are not subject to payphone compensation or, in the alternative, to initiate a rulemaking. See, Public Notice [3 pages in PDF] (DA 07-513). This is proceeding is RM 11354.

9:00 AM - 4:00 PM. Day one of a two day public meeting of the Federal Accounting Standards Advisory Board (FASAB). See, notice in the Federal Register, July 12, 2006, Vol. 71, No. 133, at Pages 39318. Location: Room 7C13, GAO Building, 441 G St., NW.

12:15 PM. The Federal Communications Bar Association's (FCBA) Young Lawyers Committee will host a brown bag lunch titled "The Business of Telecommunications". For more information, contact Devin Crock at drcock at dc dot bhb dot com, Natalie Roisman at nroisman at akingump dot com, Chris Fedeli at chrisfedeli at dwt dot com, or Devin Crock at dcrock at dc dot bhb dot com. Location: Akin Gump, 1333 New Hampshire Ave., NW, 10th Floor.

2:30 PM. The Senate Judiciary Committee (SJC) will hold a hearing titled "Identity Theft: Innovative Solutions for an Evolving Problem". Press contract: Tracy Schmaler (Leahy) at 202-224-2154 or Courtney Boone (Specter) at Courtney_Boone at judiciary-rep dot senate dot gov or 202-224-2984. Sen. Dianne Feinstein (D-CA) will preside. Location: Room 226, Dirksen Building.

Deadline to register to attend the Federal Communications Bar Association's (FCBA) April 10 reception and dinner. The speaker will be FCC Chairman Kevin Martin. See, registration form [PDF].

Deadline to submit applications to the Federal Communications Commission (FCC) to participate in its 2007 Attorney Honors Program. This program is for new and recent law school graduates and judicial clerks. See, FCC release [PDF].

9:00 AM - 4:00 PM. Day two of a two day public meeting of the Federal Accounting Standards Advisory Board (FASAB). See, notice in the Federal Register, July 12, 2006, Vol. 71, No. 133, at Pages 39318. Location: Room 7C13, GAO Building, 441 G St., NW.

? 9:30 AM. The Federal Communications Commission's (FCC) web site lists an event titled "Open Commission Meeting". Location: FCC, Commission Meeting Room, 445 12th St. SW.

? 9:30 - 10:30 AM. Vint Cerf will give a presentation at an Federal Communications Commission (FCC) event titled "Policy and Technical Issues Affecting Internet Evolution". The Federal Communications Bar Association (FCBA) asserts that this is an event of its Engineering and Technical Practice Committee. Location: FCC, Commission Meeting Room, 445 12th St. SW.

TIME? The House Commerce Committee (HCC) may hold an oversight hearing on the National Telecommunications and Information Administration (NTIA). Location?

12:15 - 2:00 PM. The Federal Communications Bar Association's (FCBA) Communications Law, Copyright, and Digital Rights Management Committee will host a brown bag lunch titled "Meet the Register of Copyrights". The speaker will be Marybeth Peters. For more information, contact Ben Golant at bgol at loc dot gov or 202-707-9127. Location: National Association of Broadcasters, 1771 N Street, NW.

2:00 - 4:00 PM. The Department of State's (DOS) International Telecommunication Advisory Committee (ITAC) will meet to prepare advice for the meeting of the Telecommunication Development Advisory Group (TDAG). See, notice in the Federal Register: February 12, 2007, Vol. 72, No. 28, at Pages 6640-6641. Location: DOS, Room 2533A.

2:00 - 6:00 PM. The Federal Communications Bar Association's (FCBA) and the ABA will host a continuing legal education (CLE) titled "Privacy & Data Security for Communications and Media Companies". The deadline for registrations and cancellations is 5:00 PM on March 20. The price to attend ranges from $100 to $300. See, registration form [PDF]. Location: Covington & Burling, Pennsylvania Ave., NW.

3/14. Stephen Pinkos, the Deputy Under Secretary of Commerce for Intellectual Property and Deputy Director of the U.S. Patent and Trademark Office (USPTO), will leave the USPTO at the end of March. See, USPTO release.

3/15. Daniel Caprio will join the law firm of McKenna Long & Aldridge, where he will work in the firm's radio frequency identification (RFID) initiative. Caprio was previously President of the Progress and Freedom Foundation (PFF). Before joining the PFF, Caprio was the Department of Commerce's (DOC) Chief Privacy Officer and acting Assistant Secretary for Technology Policy. Prior to working at the DOC, Caprio was Chief of Staff to former Federal Trade Commission (FTC) member Orson Swindle, who is now is a Distinguished Fellow at the PFF. Caprio will continue as a Senior Adjunct Fellow of the PFF. Thomas Lenard, a long time Senior Fellow at the PFF, was named acting President of the PFF. See, PFF release.

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