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Wednesday, April 3, 2013, Alert No. 2,545.
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SEC Will Not Pursue Netflix or Hastings for Using Facebook

4/2. The Securities and Exchange Commission (SEC) released a report [8 pages in PDF] that announces that it will "not to pursue an enforcement action" against either Netflix or its CEO, Reed Hastings, on account of Hastings having used Facebook last summer.

The report also provides guidance for public companies on using social media. One of the key points is that if a publicly traded company plans to disseminate material non-public information via social media, it should first disclose to investors which social media it plans to use for this purpose.

Netflix filed a Form 8-K with the SEC on December 5, 2012, that disclosed that the SEC is investigating Netflix because Hastings posted short items in Facebook last summer announcing that Netflix had reached one "billion hours per month". See, story titled "The SEC Strikes Again" in TLJ Daily E-Mail Alert No. 2,486, December 8, 2012.

The SEC has a history of bringing meritless but high publicity cases against famous and wealthy founders of technology and web based companies, such as Mark Cuban, Henry Samueli, Martha Stewart and Sam and Charles Wyly. Hence, there was the possibility that the SEC might bring another unjustified action against Netflix or Hastings.

However, with this report, the SEC has announced that it will not pursue Netflix or Hastings.

This report is also significant because it provides guidance going forward regarding use of social media by public companies. Such guidance is important because the SEC's Regulation FD is outdated. Moreover, the SEC's August 7, 2008 release [47 pages in PDF] titled "Guidance on the Use of Company Web Sites" did not address Facebook or social media.

The SEC wrote in this report that "public companies are increasingly using social media to communicate with shareholders and the market generally", but that the SEC "has not explicitly addressed the application of Regulation FD and the 2008 Guidance to disclosures made through social media channels".

It explained that "Regulation FD provides that when an issuer, or a person acting on its behalf, discloses material, nonpublic information to securities market professionals or shareholders where it is reasonably foreseeable that they will trade on the basis of the information, it must distribute that information in a manner reasonably designed to achieve effective broad and non-exclusionary distribution to the public.3 When the disclosure of material, nonpublic information is intentional, distribution of the same information to the public must be made simultaneously. When the disclosure of material, nonpublic information is inadvertent, distribution of the same information to the public must be made promptly afterwards."

The SEC wrote that "issuer communications through social media channels require careful Regulation FD analysis comparable to communications through more traditional channels".

It continued that "if an issuer makes a disclosure to an enumerated person, including to a broader group of recipients through a social media channel, the issuer must consider whether that disclosure implicates Regulation FD. This would include determining whether the disclosure includes material, nonpublic information. Further, if the issuer were to elect not to file a Form 8-K, the issuer would need to consider whether the information was being disseminated in a manner ``reasonably designed to provide broad, non-exclusionary distribution of the information to the public.´´" (Footnotes omitted.)

The SEC also wrote that "the principles outlined in the 2008 Guidance -- and specifically the concept that the investing public should be alerted to the channels of distribution a company will use to disseminate material information -- apply with equal force to corporate disclosures made through social media channels".

It stated that although the 2008 guidance addressed web sites, it "continues to provide a relevant framework for applying Regulation FD to evolving social media channels of distribution".

The key guidance of this report is the necessity of providing advance notice of which social media a company will use. The SEC report states that "in light of the direct and immediate communication from issuers to investors that is now possible through social media channels, such as Facebook and Twitter, we expect issuers to examine rigorously the factors indicating whether a particular channel is a "recognized channel of distribution" for communicating with their investors. We emphasize for issuers that the steps taken to alert the market about which forms of communication a company intends to use for the dissemination of material, non-public information, including the social media channels that may be used and the types of information that may be disclosed through these channels, are critical to the fair and efficient disclosure of information. Without such notice, the investing public would be forced to keep pace with a changing and expanding universe of potential disclosure channels, a virtually impossible task." (Footnote omitted.)

And, the SEC warned that "disclosure of material, nonpublic information on the personal social media site of an individual corporate officer, without advance notice to investors that the site may be used for this purpose, is unlikely to qualify as a method ``reasonably designed to provide broad, non-exclusionary distribution of the information to the public´´ within the meaning of Regulation FD". (Footnote omitted.)

This document is titled "Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc., and Reed Hastings".

See also, story titled "Netflix Sued Over Hastings' Facebook Posting" in TLJ Daily E-Mail Alert No. 2,526, February 20, 2013.

Euclid Addresses Sen. Franken's Location Privacy Concerns

4/1. Euclid sent a letter [10 pages in PDF] to Sen. Al Franken (D-MN) that responds to the Senator's letter to Euclid dated March 13, regarding tracking consumers' smart phones in shopping malls.

Sen. Al FrankenSen. Franken (at right) wrote on March 13 that "your company's technology can track consumers as they walk past a store, enter a store, or move between its floors by tracking a permanent and unique hardware number transmitted by those consumers' smartphones. This tracking occurs on an opt-out basis: unless someone visits your website and enters her information, Euclid's technology will track her."

He added that "All of this would suggest that the movements of millions of Americans have been tracked in your clients' stores without those consumers' permission. I find this troubling."

Euclid's Explanation of its Tracking Technology. Sen. Franken propounded numerous interrogatories. For example, he asked "Exactly how many unique smartphones has Euclid tracked in its clients' stores?"

Euclid responded, "We have counted a total of 50 million Wi-Fi-enabled devices in our clients’ stores, 93% of which are located in the United States. We do not receive the necessary information to determine specifically whether a device is a phone, tablet, or laptop."

Euclid compared its data collection to the practices of online stores. "With the advent of the Internet, there has been an explosion in online shopping. The analytical tools available to online retailers have enabled them to rapidly increase the effectiveness of their marketing, distribution, and sales. Using these insights, online stores are able to offer a more convenient and relevant shopping experience and now account for 5.2 percent of total U.S. retail sales. About three years ago, we founded Euclid to bring the advantages of the online customer experience to brick-and-mortar retailers."

Euclid also explained its technology. "Every smart device equipped with Wi-Fi (including mobile phones, laptops, tablets, and e-readers) has a unique identifier known as a MAC address. These devices regularly send out signals (``pings´´) that contain their MAC address to find Wi-Fi hotspots, such as those commonly found at coffee shops, airports, and in public spaces. When a shopper carrying a smart device walks by a retail store, the Euclid sensor at the store recognizes the broadcasted ping, scrambles the MAC address into what is known as a hash, discards the MAC address data, and sends the hashed value to Euclid's servers. In addition to the anonymous hash, the sensor also transmits basic device data received by our sensors: manufacturer code (Apple, Samsung, etc.), signal strength, and, if the device is currently connected to a specific Wi-Fi network, and the name of that Wi-Fi network." (Parentheses in original.)

Eucid also explained that its tracking is anonymous, because "we have specifically prevented any linkage between data received by Euclid’s sensors and a store's checkout system and customer database. Euclid has no information, whatsoever, on whether a device owner has purchased anything or not, and we have made sure that our system never receives information such as a consumer's name, address, phone number, or email."

Sen. Franken stated in response to Euclid's letter that "I believe that Euclid has a sincere desire to protect consumer privacy, and I'm pleased that they've pledged to do even more -- including a promise to never sell consumer data to data brokers. However, Euclid's use of opt-out location tracking -- regardless of whether a consumer actually enters a store equipped with this technology -- simply doesn't meet the standard of privacy Americans should be able to count on."

Sen. Franken's Proposed Legislation. Sen. Franken added in his release that Euclid's "continued use of opt-out technology underscores the need for Congressional action to protect consumer location privacy."

Sen. Franken also stated that he plans to re-introduce a bill that he introduced in the 112th Congress, S 1223 [LOC | WW], the "Location Privacy Protection Act of 2011".

However, that bill, as introduced, and as marked up by the Senate Judiciary Committee (SJC) on December 17, 2012, is not primarily directed at the type of anonymous shopping center tracking practiced by Euclid.

Rather, Sen. Franken has previously explained that S 1223 is directed at preventing stalking of specific individuals who carry wireless "electronic communications devices" that enable network wide tracking via Global Positioning System (GPS) data and cellular antenna connection records.

However, S 1123 would reach Euclid's technology, because it also references tracking based upon "WiFi signals".

S 1123 bill would amend the Electronic Communications Privacy Act's (ECPA) Stored Communications Act (SCA), which is codified at 18 U.S.C. §§ 2701-2712, by adding a new Section 2713, titled "Voluntary location tracking of electronic communications devices".

The new section would provide that "a covered entity may not knowingly collect, receive, record, obtain, or disclose to a nongovernmental individual or entity the geolocation information from an electronic communications device without the express authorization of the individual that is using the electronic communications device." (The bill defines "geolocation information" to include "WiFi signals, or other technologies".)

This new section would limit commercial sale and distribution of geolocation data. However, this section would not affect access to geolocation information by government law enforcement, intelligence, public safety, or regulatory agencies. This section also includes exemptions for common carriers and cable companies.

S 1223 would also add other new sections in Title 18 to create new criminal prohibitions regarding "Geolocation information used in interstate domestic violence or stalking" and "Sale of geolocation information of young children".

Sen. Hatch Introduces Bill to Create Position of Chief Innovation and Intellectual Property Negotiator at OUSTR

3/22. Sen. Orrin Hatch (R-UT) introduced S 660 [LOC | WW ], the "Innovation Through Trade Act of 2013'", a bill to amend the Trade Act of 1974 to establish the position of Chief Innovation and Intellectual Property Negotiator (CIIPN) in the Office of the U.S. Trade Representative (OUSTR).

This bill provides that the responsibilities of the CIIPN shall "be to conduct trade negotiations and to enforce trade agreements relating to United States intellectual property and to take appropriate actions to address acts, policies, and practices of foreign governments that have a significant adverse impact on the value of United States innovation."

The CIIPN also "shall be a vigorous advocate on behalf of United States innovation and intellectual property interests".

The CIIPN also shall submit reports to the Congress every 180 days regarding enforcement actions taken by the OUSTR during the preceding 180 days "to ensure the protection of United States innovation and intellectual property interests", and regarding other actions taken by the OUSTR "to advance United States innovation and intellectual property interests".

The Trade Act of 1974 is codified at 19 U.S.C. Chapter 12. This bill would amend the section that established the OUSTR, 19 U.S.C. § 2171.

The bill does not define the term "innovation".

Confirmation of this new position, like the three Deputy U.S. Trade Representatives and the Chief Agricultural Negotiator, will be referred the Senate Finance Committee (SFC). Also, this bill was referred to the SFC. Sen. Hatch is the ranking Republican.

FCC Seeks Comments on Broadcast Indecency Policy

4/1. The Federal Communications Commission (FCC) released a Public Notice (PN) that requests comments regarding its policy on broadcast indecency.

This PN does not announce any rules changes or policy changes. Rather, it requests comments regarding "whether the full Commission should make changes to its current broadcast indecency policies or maintain them as they are".

This PN asks, "should the Commission treat isolated expletives in a manner consistent with" the April 29, 1987 Pacifica Foundation Memorandum Opinion and Order (MOO).

Or, "Should the Commission instead maintain the approach to isolated expletives set forth in" the March 18, 2004 Golden Globe Awards Memorandum Opinion and Order (MOO).

And, "should the Commission treat isolated (non-sexual) nudity the same as or differently than isolated expletives?" (Parentheses in original.)

This PN is DA 13-581 and GN Docket No. 13-86. Initial comments will be due within 30 days of publication of a notice in the Federal Register. Reply comments will be due within 60 days of such publication.

See also, the Supreme Court's June 21, 2012 opinion [23 pages in PDF] in FCC v. Fox Television Stations, and stories titled "Supreme Court Again Ducks First Amendment Issue in FCC v. Fox Television", "FCC to Resume Enforcement of Broadcast Indecency Policy" and "Reaction to Supreme Court Opinion in FCC v. Fox" in TLJ Daily E-Mail Alert No. 2,400, June 20, 2012.

More FCC News

4/1. The Federal Communications Commission (FCC) released a Fifth Report and Order [47 pages in PDF] regarding use of 800 MHz spectrum in the U.S.-Mexico border region. This order adopts "a reconfigured channel plan for the 800 MHz band along the U.S.-Mexico border based on the allocation plan in the Amended Protocol" and establishes "a 30-month transition period for licensees to complete rebanding in the National Public Safety Planning Advisory Committee (NPSPAC) Regions bordering Mexico".

4/1. The Federal Communications Commission (FCC) released Seventh Report and Order and Notice of Proposed Rulemaking [70 pages in PDF] regarding 700 MHz public safety narrowband spectrum (769-775/799-805 MHz). This item is FCC 13-40 in PS Docket No. 13-87, WT Docket No. 96-86, RM-11433, RM-11433, WT Docket No. 96-86, PS Docket No. 06-229, and RM-11577. Initial comments will be due within 60 days of publication of a notice in the Federal Register. Reply comments will be due within 90 days of such publication.

In This Issue
This issue contains the following items:
 • SEC Will Not Pursue Netflix or Hastings for Using Facebook
 • Euclid Addresses Sen. Franken's Location Privacy Concerns
 • Sen. Hatch Introduces Bill to Create Position of Chief Innovation and Intellectual Property Negotiator at OUSTR
 • FCC Seeks Comments on Broadcast Indecency Policy
 • More FCC News
 • More News
Washington Tech Calendar
New items are highlighted in red.
Wednesday, April 3

The House will not meet the week of April 1 through April 5, except for pro forma sessions. The House will return on Tuesday, April 9. See, House calendar for 113th Congress, 1st Session.

The Senate will not meet the week of April 1 through April 5, except for pro forma sessions. The Senate will return on Monday, April 8.

9:00 - 10:30 AM. The Information Technology and Innovation Foundation (ITIF) will host a discussion of the e-book and book titled "The Need for Speed: A New Framework for Telecommunications Policy for the 21st Century". The speakers will be the co-authors, Robert Litan and Hal Singer, and Robert Atkinson (ITIF). See, notice. Location: ITIF/ITIC, Suite 610A, 1101 K St., NW.

10:00 AM. The Center for Democracy & Technology (CDT) will host an on site and teleconferenced news briefing regarding HR 624 [LOC | WW | PDF], the "Cyber Intelligence Sharing and Protection Act" or "CISPA", and potential amendments to the Computer Fraud and Abuse Act (CFAA), which is codified at 18 U.S.C. § 1030. See, story titled "Rep. Rogers and Rep. Ruppersberger Re-Introduce CISPA" in TLJ Daily E-Mail Alert No. 2,525, February 19, 2013. The speakers will be Leslie Harris, Greg Nojeim, and Kevin Bankston. For more information, contact Mark Stanley mark at cdt dot org. Location: CDT, 11th floor, 1634 I St., NW.

6:00 - 8:15 PM. The Federal Communications Bar Association (FCBA) will host an event titled "Production and Distribution of Video Programming: Basics and Advanced Issues". Prices vary. CLE credits. See, notice. The first panel is titled "Basic Rights and Clearance Issues for Video Programming and Distribution". The speakers will be Ben Golant (USPTO), Mike Beller (PBS), Jennifer Elgin (Wiley Rein), Michael Turner (Discovery Communications), and Ben Ivins (National Association of Broadcasters). The second panel is titled "Advanced Issues in Video Programming and Distribution". The speakers will be Michael Nilsson (Wiltshire Grannis), Bob Garrett (Arnold & Porter), John Hane (Pillsbury Winthrop), Seth Davidson (Edwards Wildman), and Jeff Blum (DISH Network). Location: Drinker Biddle & Reath, 1500 K St., NW.

Thursday, April 4

9:00 AM - 3:00 PM. The U.S. China Economic and Security Review Commission (USCESRC) will host a hearing titled "China’s Maritime Disputes in the East and South China Seas". See, USCESRC notice and notice in the Federal Register, Vol. 78, No. 62, April 1, 2013, at Pages 19582-19583. Free. Open to the public. Location: Room G-50, Dirksen Building.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Interdigital Communications v. ITC, App. Ct. No. 2012-1628. LG Electronics is the intervenor. This is an appeal from the U.S. International Trade Commission (USITC) in No. 337-TA-800. Panel H. Location: Courtroom 402, 717 Madison Place, NW.

1:00 PM. The US Telecom will host a webcast seminar titled "Monitoring & Optimizing Real Time IP Networks". Free. See, notice.

1:00 - 5:00 PM. The National Telecommunications and Information Administration (NTIA) will hold another in its series of meetings regarding mobile application transparency. See, notice. This event will also be teleconferenced. Location: American Institute of Architects, 1735 New York Ave., NW.

2:00 - 4:15 PM. The Center for Strategic and International Studies (CSIS) will host a panel discussion titled "Chinese Financial Reform". The speakers will be Timothy Adams (Institute of International Finance), Markus Rodlauer (International Monetary Fund), Robert Dohner (Department of the Treasury), John Dearie (Financial Services Forum), Matthew Goodman (CSIS), and John Hamre (CSIS). See, notice. Location: CSIS, B 1 Conference Center, 1800 K St., NW.

Deadline to submit to the Federal Communications Commission (FCC) petitions to deny AT&T's acquisition of Atlantic Tele-Network's U.S. retail wireless operations. See, AT&T release of January 22, 2013, and FCC Public Notice [5 pages in PDF], DA 13-352 in WT Docket No. 13-54.

Friday, April 5

The Senate will meet at 3:00 PM in pro forma session only.

8:30 AM. The Department of Labor's (DOL) Bureau of Labor Statistics (BLS) is scheduled to release its March 2013 unemployment data.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Creative Integrated Systems v. Nintendo, App. Ct. No. 2012-1579, an appeal from the U.S. District Court (CDCal) in a patent case. Panel K. Location: Courtroom 402, 717 Madison Place, NW.

12:15 - 1:30 PM. The Federal Communications Bar Association's (FCBA) newly formed Telemedicine Ad Hoc Committee will host a brown bag lunch on the Federal Communications Commission (FCC) and wireless and wireline health technologies. Location: Wilkinson Barker Knauer, Suite 700, 2300 N St., NW.

Extended deadline to submit comments to the Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC) in connection with their joint workshop on December 10, 2012, titled "Patent Assertion Entity Activities". See, notice and agenda.

Extended deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its Notice of Proposed Rulemaking (NPRM) regarding small cell operations in the 3550-3650 MHz  band. The FCC adopted and released this NPRM on December 12, 2012. It is FCC 12-148 in GN Docket No. 12-354. See, Public Notice, DA 12-298, released on February 28, 2013, extending the reply comment deadline. See also, notice of extension in the Federal Register, Vol. 78, No. 53, March 19, 2013, at Pages 16827-16828.

Monday, April 8

The House will not meet.

The Senate will return from its Spring recess. It will meet at 2:00 PM.

10:00 - 11:30 AM. The Center for Strategic and International Studies (CSIS) will host a panel discussion titled "China's Defense Budget". The speakers will be Andrew Erickson (Harvard University), James Mulvenon (Defense Group, Inc.), Jack Georgieff (CSIS), and Christopher Johnson (CSIS). See, notice. Location: CSIS, B1 Conference Center, 1800 K St., NW.

EXTENDED TO MAY 22. Deadline to submit initial comments to the Federal Communications Commission (FCC) in response to its Notice of Proposed Rulemaking (NPRM) regarding elevating the allocation status of Earth Stations Aboard Aircraft (ESAA) in the 14.0-14.5 GHz band from secondary to primary and whether giving ESAA licensees primary status in the 14.0-14.5 GHz band would require a change to the technical rules. The FCC adopted this NPRM on December 20, 2012, and released it on December 28, 2012. It is FCC 12-161 in IB Docket No. 12-376. See, original notice in the Federal Register, Vol. 78, No. 46, March 8, 2013, at Pages 14952-14957. See also, second notice in the FR, Vol. 78, No. 61, March 29, 2013, at Page 19172.

Tuesday, April 9

The House will return from its Spring recess.

10:30 AM. The Senate Commerce Committee (SCC) will hold a hearing titled "State of Rural Communications". The witnesses will be John Strode (Ritter Communications), Steven Davis (CenturyLink), Patricia Jo Boyers (BOYCOM Cablevision), and Leroy Carlson (U.S. Cellular). See, notice. Location: Room 253, Russell Building.

2:30 PM. The Senate Homeland Security and Governmental Affairs Committee (SHSGAC) will hold a hearing on the nomination of Sylvia Burwell to be Director of the Office of Management and Budget (OMB). See, notice. Location: Room 342, Dirksen Building.

Wednesday, April 10

Day one of a three day event hosted by the American Bar Association (ABA) titled "Antitrust Law 2013 Spring Meeting". See, notice. Location: JW Marriott Hotel, 1331 Pennsylvania Ave., NW.

10:00 AM. The House Appropriations Committee's (HAC) Subcommittee on Commerce, Justice, Science, and Related Agencies will hold a hearing on the Department of Justice (DOJ). Attorney General Eric Holder will testify. See, notice. Location: Room 2359, Rayburn Building.

12:00 NOON - 1:30 PM. The Information Technology and Innovation Foundation (ITIF) will host an event titled "The Social and Economic Case for Autonomous Vehicles". The speakers will be Robert Atkinson (ITIF), Bill Krenik (Texas Instruments), and Jason Schultz (Toyota). See, notice. Location: Room B-338, Rayburn Building, Capitol Hill.

2:30 PM. The Senate Judiciary Committee (SJC) will hold a hearing on the nomination of Srikanth Srinivasan to be a Judge of the U.S. Court of Appeals (DCCir). Webcast. See, notice. Location: Room 226, Dirksen Building.

More News

4/3. The U.S. Patent and Trademark Office (USPTO) published a notice in the Federal Register (FR) that announces, describes, recites, and sets the effective date for, the new USPTO Rules of Professional Conduct. The effective date is May 3, 2013. See, FR, Vol. 78, No. 64, April 3, 2013, at Pages 20179-20211.

4/2. Lawrence Strickling, head of the Department of Commerce's (DOC) National Telecommunications and Information Administration (NTIA), wrote a short piece titled "Moving Together Beyond Dubai". He wrote that the U.S. government remains "committed to the multistakeholder model as the appropriate process for addressing Internet policy and governance issues".

4/1. April 1, 2013 was the opening day for filing H1B visa applications. The Business Software Alliance (BSA) stated in a release that "There are individual software companies with thousands of unfilled jobs in research, product development, and engineering. Across the economy, the Bureau of Labor Statistics has predicted that between 2010 and 2020 there will be at least 1.2 million job openings in computing professions that require a bachelor’s degree. But the National Center for Educational Statistics says we’re on pace to produce less than half that many graduates."

4/1. The New America Foundation (NAF) released a paper [20 pages in PDF] titled "Mobile Leapfrogging and Digital Divide Policy: Assessing the Limitations of Mobile Internet Access". The authors are Philip Napoli (Fordham University) and Jonathan Obar (Michigan State University). This paper states that "policymakers should be cautions about promoting mobile access as a solution to the digital divide". This paper states that mobile leapfrogging occurs when new internet users gain access to the internet via mobile devices, rather than than personal computers. And, it is not the same, because of the "more limited functionality of mobile Internet devices and networks".

4/1. The Semiconductor Industry Association (SIA) announced in a release that "worldwide sales of semiconductors reached $23.25 billion for the month of February 2013, an increase of 1.4 percent from February 2012 when sales were $22.93 billion." However, worldwide sales are down from late 2012, and from January of 2013. See, SIA tables [PDF]. The SIA's Brian Toohey added that the federal government should spend more money on research, "reform the high-skilled immigration system to welcome the top scientific minds from around the world, and modify the tax system so businesses can expand, invest and hire new workers".

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