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January 14, 2009, Alert No. 1,883.
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4th Circuit Rules in Case Regarding Local Taxation of Online Travel Sales Companies

1/14. The U.S. Court of Appeals (4thCir) issued its opinion [12 pages in PDF] in Pitt County v., affirming the District Court's dismissal of an action to collect hotel room occupancy taxes from online travel companies.

However, this diversity case turned on the narrow language of a North Carolina hotel tax statute. Hence, this opinion will provide little relief to online businesses from aggressive tax collectors elsewhere.

Pitt County is a rural county located in the eastern portion of the southern state of North Carolina. U.S. Highway 264 runs through it.

There are hotels in Pitt County, which pay taxes to it under its occupancy tax ordinance. However, Pitt County also wants to collect taxes from online travel companies that sell hotel rooms through web sites.

For example, if an online travel company purchases hotel rooms at one rate (wholesale), and then resells them to consumers at a higher rate (retail), Pitt County wants to tax the hotel for the wholesale rate, and the online travel company for the difference between the wholesale and retail rates.

Pitt Country is a political subdivision of the state of North Carolina. A state statute permits counties to enact ordinances for the collection of occupancy taxes on businesses that rent rooms in the county, provided that the business is a retailer under the state sales tax statute.

The state statute provides that a county can "levy a room occupancy tax of three percent (3%) of the gross receipts derived from the rental of any room, lodging, or similar accommodation furnished by a hotel, motel, inn, or similar place within the county that is subject to sales tax imposed by the State ..."

The statute further provides that these retailers are "Operators of hotels, motels, tourist homes, tourist camps, and similar type businesses and persons who rent private residences and cottages to transients ..."

Pitt County enacted an ordinance under this statute.

Pitt County filed a class action complaint in state court against, Expedia, Travelocity, Orbitz, Priceline, and numerous other named and unnamed defendants. It alleged that they failed to pay taxes to it under its occupancy tax ordinance.

The defendants removed the action to the U.S. District Court (EDNC). The District Court dismissed the complaint on the grounds that Pitt Country lacks standing to sue. Pitt County brought the present appeal.

The Court of Appeals affirmed, on other grounds. It held that Pitt County has standing, but that the complaint fails to state a claim upon which relief can be granted, under Rule 12(b)(6), FRCP.

It concluded that "Online travel companies are not operators of the hotels whose rooms they offer to the public on the internet."

It wrote that "under the plain meaning of" the statute, "an online travel company is not a retailer because it is not a business of a type that is similar to a hotel, motel, or tourist home or camp. As a result, an online travel company is not subject to the Pitt County occupancy tax."

Thus, the online travel companies prevailed in this action. However, were the state to enact a statute that authorizes counties to tax not only hotels, but also online travel companies that resell their rooms, then the county would survive the online travel companies' Rule 12(b)(6) motion to dismiss.

This case is Pitt County v., L.P., et al., U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 07-1900, an appeal from the U.S. District Court for the Eastern District of North Carolina, D.C. No. 4:06-cv-00030-BO, Judge Terrence Boyle presiding. Judge Michael wrote the opinion of the Court of Appeals, in which Judges Agee and Martin Reidinger (USDC/WDNC) joined.

4th Circuit Holds US Can Use Video Obtained From Warrantless Hidden Video Cameras Placed on Owner's Private Property

1/8. The U.S. Court of Appeals (4thCir) issued its opinion [10 pages in PDF] in USA v. Vankesteren, a criminal case regarding application of the 4th Amendment to hidden, outdoor, motion activated video cameras, placed on private property owned by the person asserting 4th Amendment rights.

Summary. The Court of Appeals affirmed the District Court's denial of Vankesteren's motion to suppress, and his conviction, citing the "open fields" exception to the 4th Amendment.

The open fields exception, announced in by the Supreme Court in its 1926 opinion in Hester v. United States, 265 U.S. 57, pertains to eye witness observations by visiting police officers, not secret placement of video cameras. The present case constitutes an significant expansion of the open fields doctrine, and a diminution of 4th Amendment protection.

This case represents another example of law enforcement agencies' successful assertion that the use of new information or communications technologies, by people or by government surveilers, reduces traditional 4th Amendment privacy rights.

The Court of Appeals asserted that this opinion "does not portend the arrival of the Orwellian state".

District Court. The U.S. criminally prosecuted Steve Vankesteren in the U.S. District Court (EDVa) for taking a migratory bird without a permit, in violation of 16 U.S.C. § 703 and 50 C.F.R. § 21.11. The U.S. accused him of killing two hawks.

Vankesteren is a farmer with an interest in removing certain predators. The evidence against Vankesteren came from a motion activated video camera, secretly placed on Vankesteren's property by Virginia law enforcement officers, without notice, consent or a warrant.

Vankesteren moved to suppress the video evidence as violative of his 4th Amendment rights. The District Court denied the motion, and convicted Vankesteren.

Court of Appeals. Vankesteren brought the present appeal.

The 4th Amendment provides in full that "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

The Court of Appeals affirmed, citing the "open fields" exception to the 4th Amendment's warrant requirement.

In addition to the seminal case, Hester v. US, the Court of Appeals relied on two more recent open fields exception cases: Oliver v. US, 466 U.S. 170 (1984) and US v. Dunn, 480 U.S. 294 (1987).

The Court of Appeals wrote that "Given the facts of these Supreme Court decisions, Vankesteren has little on which to base his case. Vankesteren’s fields were located a mile or more from his home, the land was being used for farming and not intimate activities, VDGIF had received a report of a trapped protected bird, and there is no indication in the record that Vankesteren had taken any steps to protect his field from observation. Therefore, under the Supreme Court’s jurisprudence, the subject land must be classified as open fields and not curtilage, and Vankesteren has no reasonable expectation of privacy in those open fields."

None of these cases, however, involved cameras. All involved in person observations by law enforcement officers.

The Court of Appeals cited opinions and hypotheticals involving camera surveillance, but all of these involved public places such as banks, or public lands such as national forests.

The Court of Appeals equated privately owned open lands to public lands for 4th Amendment analysis. It concluded that "Since Vankesteren had no legitimate expectation of privacy, the agents were free, as on public land, to use video surveillance".

TLJ Commentary. This opinion fails to identify the fundamental differences between eye witness observation and hidden video cameras. In person visits are of short duration. If police remain, their detection becomes probable, and owners can exercise their ownership rights to eject them, until they obtain a search warrant. Cameras can be installed surreptitiously, and operate for long duration. Cameras also collect more detailed information, and can observe things at greater distances. Also, images and video collected by hidden cameras are more susceptible to theft or misuse by third parties.

It may also be pertinent that in the present case, and in the open fields cases relied upon by the Court of Appeals, the government law enforcement objectives were relatively minor (such as catching small time moonshiners, marijuana growers, and bird trapping farmers), rather than major (such as preventing terrorist attacks).

Perhaps it should also be noted that in one recent 4th Amendment case involving use of new search and seizure technologies, the Supreme Court interpreted the 4th Amendment in a manner that maintained protection of 4th Amendment rights.

The Supreme Court held in its 2001 opinion in Kyllo v. United States, 533 U.S. 27, that the thermal imaging of a home to detect lamps used for growing marijuana constitutes a search within the meaning of the Fourth Amendment. See also, story titled "Supreme Court Opines on Searches" in TLJ Daily E-Mail Alert No. 206, June 12, 2001.

That was a 5-4 opinion. But, the Court did not break down along ideological lines. It divided generationally. Scalia wrote the opinion, and was joined by Thomas, Souter, Ginsburg and Breyer. The older members the Court, Rehnquist, O'Connor, Stevens, and Kennedy, dissented. The five members of the majority remain. Rehnquist and O'Connor are gone.

This case is U.S.A. v. Steve Vankesteren, U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 08-4110, an appeal from the U.S. District Court for the Eastern District of Virginia, at Norfolk, D.C. No. 2:07-cr-00153-RBS-1, Judge Rebecca Smith presiding. Judge Gregory wrote the opinion of the Court of Appeals, in which Judges Motz and Shedd joined.

1st Circuit Construes Federal Phone Harassment Statute

1/7. The U.S. Court of Appeals (1stCir) issued another opinion in US v. Tobin, a case regarding application of 47 U.S.C. § 223(a)(1) to political operatives who use telemarketing techniques to tie up the phone lines of the other political party on election day to disrupt a turn out the vote effort.

The Court of Appeals affirmed the District Court's judgment of acquittal. Tobin had a purpose to disrupt phone calling, not to harassment people, as required by the statute. Phone call disruption is not a crime under Section 223(a).

In 2002 James Tobin was New England Regional Director of the Republican National Committee and Regional Political Director for the National Republican Senatorial Committee. He was involved in a scheme, which was put into effect for two hours, to disrupt the activities of the New Hampshire Democratic Party and a union that supported it.

Tobin's purpose was to disrupt phone operations, not to harass or to emotionally upset anyone.

At trial, Tobin was convicted of conspiracy, aiding and abetting, and violation of 47 U.S.C. § 223(a)(1)(D), and sentenced to ten months imprisonment. He appealed. In its previous opinion, reported at 480 F.3d 53, the Court of Appeals reversed and remanded. On remand, the District Court held that a specific purpose to cause emotional upset in a person at the telephone number called was required. It further found that the US had insufficient evidence to meet this mens rea requirement. Hence, it entered a judgment of acquittal. The US then brought the present appeal.

The US argued that 47 U.S.C. § 223(a)(1)(D)'s intent to harass any person at the called number does not require purpose, but only knowledge of probable consequences.

The Court of Appeals affirmed the judgment of the District Court.

The Court of Appeals noted that some states have statutes that prohibit not only harassment, but also disruption of phone calling. In contrast, the Congress has not banned disruption. It wrote that "The apt solution is not to stretch out of shape a law about harassment by ringing, but for Congress to prescribe such deliberate interference by whatever means."

This case is U.S.A. v. James Tobin, an appeal from the U.S. Court of Appeals for the 1st Circuit, App. Ct. No. 08-1340, an appeal from the U.S. District Court for the District of New Hampshire, Judge Steven McAuliffe presiding. Judge Lynch wrote the opinion of the Court of Appeals, in which Judges Boudin and Stahl joined.

GAO Finds IT Security Weaknesses at IRS

1/9. The Government Accountability Office (GAO) released a report [30 pages in PDF] titled "Information Security: Continued Efforts Needed to Address Significant Weaknesses at IRS". It finds that Internal Revenue Service (IRS) "information security control weaknesses continue to jeopardize the confidentiality, integrity, and availability of financial and sensitive taxpayer information."

It elaborates that the "IRS did not consistently implement controls that were intended to prevent, limit, and detect unauthorized access to its systems and information. For example, IRS did not always (1) enforce strong password management for properly identifying and authenticating users; (2) authorize user access, including access to personally identifiable information, to permit only the access needed to perform job functions; (3) encrypt certain sensitive data; (4) effectively monitor changes on its mainframe; and (5) physically protect its computer resources."

It concludes that the IRS "remains particularly vulnerable to insider threats".

It adds that the IRS "is at increased risk of unauthorized access to and disclosure, modification, or destruction of financial and taxpayer information, as well as inadvertent or deliberate disruption of system operations and services".

The GAO released a similar report one year ago. See, report [31 pages in PDF] titled "Information Security: IRS Needs to Address Pervasive Weaknesses".

See also, April 15, 2005, GAO report [30 pages in PDF] titled "Information Security: Internal Revenue Service Needs to Remedy Serious Weaknesses over Taxpayer and Bank Secrecy Act Data", and story titled "IRS Information Security Weaknesses Put Taxpayer Data at Risk" in TLJ Daily E-Mail Alert No. 1,117, April 18, 2005.

The IRS has a long history of information security weakness. See for example, story titled "Sen. Grassley Condemns IRS for 2,300 Missing Computers" in TLJ Daily E-Mail Alert No. 342, January 9, 2002; story titled "IRS Loses More Computers, Jeopardizes Taxpayer Info" in TLJ Daily E-Mail Alert No. 493, August 16, 2002; story titled "GAO Report Finds That Computer Weaknesses At IRS Put Taxpayer Data At Risk" in TLJ Daily E-Mail Alert No. 673, June 4, 2003; and story titled "IRS Data Vulnerable" in TLJ Daily E-Mail Alert No. 145, March 16, 2001.

In This Issue

This issue contains the following items:
 • 4th Circuit Rules in Case Regarding Local Taxation of Online Travel Sales Companies
 • 4th Circuit Holds US Can Use Video Obtained From Warrantless Hidden Video Cameras Placed on Owner's Private Property
 • 1st Circuit Construes Federal Phone Harassment Statute
 • GAO Finds IT Security Weaknesses at IRS

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

The House will meet at 10:00 AM for legislative business. It will consider HR 384, the "TARP Reform and Accountability Act". See, Rep. Hoyer's schedule for week of January 12, and schedule for January 15.

The Senate will meet at 10:00 AM. It will resume consideration of S 22 [LOC | WW], "Omnibus Public Land Management Act of 2009".

RESCHEDULED FROM JANUARY 8. 9:30 AM. The Senate Judiciary Committee (SJC) will hold a hearing on the likely nomination of Eric Holder to be Attorney General in the Obama administration. See, notice. The SJC will webcast this hearing. Location: Room 325, Russell Building.

9:30 AM. The Senate Foreign Relations Committee will hold a business meeting to consider the likely nomination of Hilary Clinton to be Secretary of State. See, notice. Location: Room 216, Hart Building.

10:00 AM. The Senate Banking Committee will hold a hearing on several likely nominees of President elect Obama: Mary Schapiro (CEO of the Financial Industry Regulatory Authority) to be Chairman of the Securities and Exchange Commission (SEC), Christina Romer (UC Berkeley) to be Chairman of the Council of Economic Advisors (CEA), Austan Goolsbee (University of Chicago) to be a member of the CEA, Cecilia Rouse (Princeton) to be a member of the CEA, and Daniel Tarullo (Georgetown University law school) to be a member of the Federal Reserve Board (FRB). See, notice. Location: Room 538, Dirksen Building.

10:00 AM. The Senate Homeland Security and Government Affairs Committee will hold hearing on President elect Obama's likely nomination of Janet Napolitano to be Secretary of Homeland Security. See, notice. Location: Room 342, Dirksen Building.

10:00 AM. The Federal Communications Commission (FCC) might hold an event titled "Open Meeting". The agenda includes adoption of rules to implement S 3663 [LOC | WW], "Short-term Analog Flash and Emergency Readiness Act", and annual performance awards for career Senior Executive Service personnel. The event will also include reports from FCC Bureau chiefs. Location: FCC, Commission Meeting Room, 445 12th St., SW.

11:15 AM. The Senate Finance Committee (SFC) will hold an organizational meeting. Location: Room 215, Dirksen Building.

12:00 NOON - 1:30 PM. The Federal Communications Bar Association's (FCBA) Annual Seminar Committee will hold a brown bag lunch. Location: Wilkinson Barker Knauer, 2300 N St., NW.

12:15 PM - 1:30 PM. Julius Knapp, Chief of the Federal Communications Commission's (FCC) Office of Engineering and Technology (OET) will speak at a meeting titled "White Spaces: How Will the FCC's Rules Work and What Consumer Devices are in the Pipeline?" The FCC's proceeding is titled "In the Matter of Unlicensed Operation in the TV Broadcast Bands Additional Spectrum for Unlicensed Devices Below 900 MHz and in the 3 GHz Band" and numbered ET Docket No. 04-186 and 02-380. See, FCC's order adopted on November 4, 2008, and story titled "FCC Adopts White Space Order" in TLJ Daily E-Mail Alert No. 1,852, November 4, 2008. The Federal Communications Bar Association's (FCBA) asserts that this is an FCBA event. Location: Sidley Austin, 6th floor, 1501 K St., NW.

5:00 PM. Deadline to submit applications to the National Telecommunications and Information Administration (NTIA) for a grant for the Pan-Pacific Education and Communications Experiments by Satellite (PEACESAT) Program. See, notice in the Federal Register, December 5, 2008, Vol. 73, No. 235, at Pages 74146-74148.

Friday, January 16

Rep. Hoyer's schedule for the week of January 12 states that no votes are expected in the House.

12:15 - 1:30 PM. The Federal Communications Bar Association's (FCBA) Engineering and Technical Practice and International Telecommunications Practice Committee will host a brown bag lunch titled "Satellite 201: So You Want to Launch a Satellite? Understanding the International and Domestic Regulatory Considerations". The speakers will be Tom Tycz (Goldberg Godles Wiener & Wright) and others. For more information, contact Christy Hammond chammond at wileyrein dot com or 202-719-7365. Location: Wiley Rein, 10th floor, 1750 K St., NW.

Deadline to submit comments to the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) regarding its SP 800-57 Part 3 [103 pages in PDF] titled "Recommendation for Key Management, Part 3 Application-Specific Key Management Guidance".

Deadline to submit reply comments to the Office of the U.S. Trade Representative (OUSTR) regarding the operation, effectiveness, and implementation of and compliance with trade agreements regarding telecommunications products and services, including the World Trade Organization (WTO) General Agreement on Trade in Services, the North American Free Trade Agreement (NAFTA), free trade agreements (FTAs) with Australia, Bahrain, Chile, Morocco, and Singapore, the Dominican Republic-Central America-United States FTAs. See, notice in the Federal Register, November 25, 2008, Vol. 73, No. 228, at Page 71707-71708.

Effective date of the U.S. Patent and Trademark Office's (USPTO) changes to its Trademark Rules of Practice. These changes pertain to applications, intent to use documents, amendments to classification, requests to divide, and post registration practice. See, notice in the Federal Register, November 17, 2008, Vol. 73, No. 222, at Pages 67759-67776.

Monday, January 19

Martin Luther King's Birthday. See, Office of Personnel Management's (OPM) list of 2009 federal holidays.

The House will not meet.

Effective date of the Department of the Treasury's (DOT) and the Federal Reserve Board's (FRB) rules implementing the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). See, text of UIGEA and notice in the Federal Register that describes and recites these rules. See, Federal Register, November 18, 2008, Vol. 73, No. 223, at Pages 69381-69411. See also, story titled "Treasury & FRB Publish Internet Gambling Rules" in TLJ Daily E-Mail Alert No. 1,858, November 18, 2008.

Tuesday, January 20

Inauguration Day.

The House will not meet.

Wednesday, January 21

12:30 - 2:00 PM. The Federal Communications Bar Association's (FCBA) Diversity and Young Lawyers Committees will host a brown bag lunch titled "Work/Life Balance". For more information, RSVP to Jessica Gonzalez at jg433 at law dot georgetown dot edu or Elizabeth Goldin at EGoldin at wileyrein dot com. Location: Georgetown University Law Center, 600 New Jersey Ave., NW.

Thursday, January 22

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its notice of proposed rulemaking (NPRM) regarding creating a new replacement digital television translator service that will permit full service television stations to continue to provide service to viewers within their coverage area who have lost service as a result of those stations' digital transition. The FCC adopted this item on December 22, 2008, and released the text [14 pages in PDF] on December 23, 2009. It is FCC 08-278 in MB Docket No. 08-253. See, notice in the Federal Register, January 2, 2009, Vol. 74, No. 1, at Pages 61-67.

People and Appointments

1/13. Lydia Parnes, Director of the Federal Trade Commission's (FTC) Bureau of Consumer Protection (BCP), will leave the FTC. She will join the Washington DC office of the law firm of Wilson Sonsini in March. Eileen Harrington, the Deputy Director of the BCP, will be the acting Director. See, FTC release and Wilson Sonsini release.

1/12. Federal Reserve Board (FRB) Governor Randall Kroszner submitted a resignation letter [PDF] to President Bush, effective January 21, 2009. See, FRB release.

More News

1/14. President elect Obama and VP elect Biden met with members of the Supreme Court at the Supreme Court. See, Obama transition office release.

1/13. The Federal Trade Commission (FTC) released the agenda [PDF] for its two day conference, to be held on March 16-17, 2009, titled "Securing Personal Data in the Global Economy". See also, FTC release.

1/12. The Federal Trade Commission (FTC) released the agenda [PDF] for its two day conference, to be held on February 11-12, 2009, titled "The Evolving IP Marketplace: Patent Remedies". See also, FTC release.

1/9. The Office of the U.S. Trade Representative (OUSTR) issued a release [4 pages in PDF] regarding trade with Japan. It addresses, among other topics, telecommunications, intellectual property protection, IT procurement, and antitrust law.

1/9. The Federal Communications Commission (FCC) announced the creation of a program titled "International TV White Spaces Fellowship and Training Initiative". The FCC's Office of Engineering and Technology (OET) and International Bureau (IB) will oversee the program. The FCC has not announced details regarding how or when to apply. See, FCC release.

1/7. The Government Accountability Office (GAO) released a report [73 pages in PDF] titled "Information Technology: Demand for the Social Security Administration's Electronic Data Exchanges Is Growing and Presents Future Challenges".

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