News Briefs from November 1-5, 2001

Senators Seek Tax Credit for Home Computer Purchases
11/5. Sen. George Allen (R-VA) and Sen. Barbara Boxer (D-CA) are seeking to have a temporary version of S 488, the Education Opportunity Tax Credit Act, included in economic stimulus legislation. Sen. Allen and others introduced the bill on March 8, 2001.
This bill provides that for individuals "there shall be allowed as a credit ... an amount equal to the qualified elementary and secondary education expenses", the definition of which includes "computer technology or equipment expenses", including "Internet access and related services". The bill sets a maximum credit of $1,000 per student or $2,000 per household.
The two Senators wrote a letter to President Bush in which they stated that a short term version of the bill would stimulate the economy and help close the "digital divide". The wrote that "This proposal increases access to computers and the Internet in the home for households of all incomes, and consumers reap the tangible, and intangible, benefits of buying a major durable good -- something they would not otherwise do during these uncertain economic times." See, Allen release.
Sen. Hatch Comments on Microsoft Settlement
11/5. Sen Orrin Hatch (R-UT), the leading critic of Microsoft in the Senate, released a statement regarding the proposed settlement between the Department of Justice and Microsoft. He stated that "In the coming days, I will study the settlement proposal closely to ensure that it would restore competition to the computer industry, particularly where the D.C. Circuit found Microsoft to have violated the antitrust laws. As we all know, the devil is in the details."
EPIC Wants Commerce Committee to Question Muris on Microsoft
11/5. The Electronic Privacy Information Center (EPIC) wrote a letter to members of the House Commerce Committee's Commerce, Trade, and Consumer Protection Subcommittee regarding its hearing scheduled for Wednesday, November 7. Federal Trade Commission (FTC) Chairman Timothy Muris will be the only witness at the hearing, which is titled "Challenges Facing the Federal Trade Commission". President Bush appointed Muris to head the FTC earlier this year. This hearing will be the first time that Muris will testify to the House Commerce Committee as Chairman of the FTC.
The EPIC wrote that "we urge committee members to ask Chairman Muris why his agency has not begun a public investigation into information collection practices of Microsoft through Passport and associated services." The letter was written by Marc Rotenberg and Chris Hoofnagle of EPIC and Jason Catlett of Junkbusters.
On July 26, 2001, EPIC and others filed a complaint [PDF] with the FTC requesting that it conduct an investigation of Microsoft, and enjoin a number of software features and services which it alleges violate § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. The EPIC and others submitted an updated complaint [PDF] to the FTC regarding Microsoft's Passport and other software and services on August 15. The FTC has not publicly announced that it has taken any action with respect to these complaints.
See also, speech by Timothy Muris titled "Protecting Consumers' Privacy: 2002 and Beyond", which he delivered on October 4, 2001 at a privacy conference in Cleveland, Ohio.
Fed Circuit Rules on Doctrine of Unclean Hands in Patent Infringement Suits
11/5. The U.S. Court of Appeals (FedCir) issued its opinion in Aptix v. Quickturn Design Systems, a case involving the application of the doctrine of unclean hands to patent prosecutions and patent infringement litigation.
Amr Mohsen, the founder and Ch/CEO of Aptix Corporation is the inventor of U.S. Patent No. 5,544,069, titled "Structure having different levels of programmable integrated circuits interconnected through bus lines for interconnecting electronic components". This patent discloses and claims field programmable circuit boards that permit computer programmers to reconfigure the electronic components of an integrated circuit. Aptix is the assignee of this patent. Aptix, in turn, licensed this patent to both Meta Systems and Mentor Graphics.
In 1998, Aptix and Meta jointly filed a complaint in U.S. District Court (NDCal) against Quickturn Design Systems alleging infringement of this patent. Quickturn asserted counterclaims and added Mentor Graphics as a counterclaim defendant.
During this litigation Mohsen forged research notebooks, staged the disappearance and reappearance of notebooks, and ultimately, asserted the Fifth Amendment at an evidentiary hearing.
The District Court determined that this patent was unenforceable and dismissed the complaint, invoking the unclean hands doctrine stated in Keystone Driller v. General Excavator, 290 U.S. 240 (1933). The District Court then found that this was an exceptional case under 35 U.S.C. § 285, and ordered Aptix to pay Quickturn's attorney fees and costs.
The Appeals Court distinguished between misconduct before the USPTO in prosecuting a patent, and subsequent misconduct before the U.S. District Court in a proceeding concerning the validity of the patent. The Appeals Court stated that Mohsen's misconduct was entirely in the U.S. District Court. Moreover, the Appeals Court noted that the licensees of the patent, Meta Systems and Mentor Graphics, had engaged in no misconduct. Hence, Judge Rader, writing for the Court, concluded that "The trial court had broad discretionary power to fashion appropriate relief in this case, including denying any and all relief to Aptix, and ordering Aptix to compensate Quickturn for its reasonable attorney fees and costs. Indeed, this relief was entirely fitting. However, the record does not support a judgment rendering the '069 patent unenforceable. Keystone I and the doctrine of unclean hands do not provide a basis for punishing Aptix by nullifying the grant of a property right. Accordingly, this court affirms the district court's dismissal of the complaint and its award of attorney fees, and vacates the judgment of unenforceability."
Judge Mayer dissented in part: "Because a fraud upon the court is no less grave than a fraud on the Patent and Trademark Office, I would affirm the district court's holding that the '069 patent is unenforceable. The maxim of unclean hands is applied broadly, giving substantial discretion to the officer of the court in its application."
USPTO Tests Negative for Anthrax
11/5. The USPTO announced that "over the weekend, the Centers for Disease Control and Prevention (CDC) confirmed that all 88 samples taken at the USPTO tested negative for Anthrax. Consequently, the tests taken to date indicate that the USPTO is Anthrax free. In the interest of continued safety, the USPTO will test for Anthrax periodically." See, release.
People and Appointments
11/5. Peter Bresnan was named Deputy Chief Litigation Counsel of the SEC's Division of Enforcement. He replaces Stephen Crimmins, who left the SEC in July. Bresnan joined the SEC in 1995. Before that, he worked in the New York office of the law firm of Davis Polk & Wardwell. Bresnan is currently litigating the SEC's first insider trading case alleging the passing of inside information over the Internet. See, SEC release.
11/5. Global Crossing named Mike McDuffie VP for Federal Programs. He is a retired Army general and former director for logistics for the Joint Chiefs of Staff for the U.S. Department of Defense. See, release.
11/5. The law firm of Wilson Sonsini Goodrich & Rosati announced that it elected five associates as new members of the firm. Cynthia Ann Dy is in the firm's Securities and Commercial Litigation practice group in its Palo Alto, California, office. Steven Guggenheim is in the Securities Litigation practice group in the Palo Alto office. Robert Ishii is in the Corporate and Securities practice group in the San Francisco office. Christian Montegut is in the Corporate and Securities practice group in the Kirkland, Washington, office. Robert O'Connor is in the Corporate and Securities practice group, and is Managing Attorney of Salt Lake City office. See, WSGR release.
More News
11/5. Albert Foer, President of the American Antitrust Institute, sent a letter to Charles James, Assistant Attorney General in charge of the Department of Justice's Antitrust Division opposing the EchoStar DirecTV merger.
11/5. The U.S. Court of Appeals for the District of Columbia Circuit heard oral argument in Teledesic v. FCC, No. 00-1466.
DOJ and Microsoft Reach Settlement
11/2. The Department of Justice (DOJ) and Microsoft agreed to terms of settlement of the government's antitrust law suit against Microsoft. They released a Stipulation and Proposed Final Judgment which prohibits Microsoft from engaging in certain enumerated business practices, and specifies enforcement mechanisms.
The Proposed Final Judgment (PFJ) requires Microsoft to establish uniform licensing practices, to allow OEMs to put icons and shortcuts on the desktop, and to disclose certain application programming interfaces (APIs) and communications protocols. The PFJ also bars Microsoft from preventing original equipment manufacturers (OEMs) from distributing or promoting non Microsoft middleware, such as browsers, and from preventing the automatic launching of such middleware. The PFJ also bans certain exclusive dealing, and compels the licensing of certain Microsoft intellectual property rights (IPR).
The PFJ has a duration of five years, but can be extended. It provides that the DOJ may continue to investigate Microsoft via depositions, interrogatories and inspections. It also creates a three person technical committee to monitor Microsoft's compliance with the PFJ for the Court. The PFJ provides that the Court retains jurisdiction, and that only the DOJ has remedies under the PFJ.
None of the states that also sued Microsoft are yet a party to the settlement. Also, the PFJ has yet to be approved by the newly assigned U.S. District Court Judge, Colleen Kotelly.
Attorney General John Ashcroft stated that "A vigorously competitive software industry is vital to our economy and effective antitrust enforcement is crucial to preserving competition in this constantly evolving high-tech arena. ... This historic settlement will bring effective relief to the market and ensure that consumers will have more choices in meeting their computer needs." See, DOJ release.
Microsoft Chairman and Chief Software Architect Bill Gates said in statement that "This agreement contains significant rules and regulations on how we develop and license our software, but it also allows Microsoft to keep innovating on behalf of consumers. It goes beyond the Court of Appeals decision in some areas, and provides for ongoing oversight by an independent committee. We are resolved to implementing this settlement promptly and fully, and we will put all the necessary resources in place to ensure this." See also, MSFT release.
Summary of Prohibited Conduct Sections of the Proposed Final Judgment
11/2. The Proposed Final Judgment (PFJ) prohibits Microsoft from engaging in certain business practices, and requires it to follow certain other practices.
No Retaliation. Microsoft is prohibited from retaliating against any original equipment manufacturer (OEM) for developing or selling any competing software. The PFJ states that "Microsoft shall not retaliate against an OEM by altering Microsoft's commercial relations with that OEM ... because it is known to Microsoft that the OEM is or is contemplating: 1. developing, distributing, promoting, using, selling, or licensing any software that competes with Microsoft Platform Software or any product or service that distributes or promotes any Non-Microsoft Middleware; 2. shipping a Personal Computer that (a) includes both a Windows Operating System Product and a non-Microsoft Operating System, or (b) will boot with more than one Operating System; or 3. exercising any of the options or alternatives provided for under this Final Judgment." See, PFJ, § III.A.
Uniform License Agreements. The PFJ states that "Microsoft's provision of Windows Operating System Products to Covered OEMs shall be pursuant to uniform license agreements with uniform terms and conditions." See, PFJ, § III.B.
No Restriction on Desktop Icons and Shortcuts. The PFJ states that "Microsoft shall not restrict by agreement any OEM licensee from exercising any of the following options or alternatives: 1. Installing, and displaying icons, shortcuts, or menu entries for, any Non-Microsoft Middleware or any product or service ... that distributes, uses, promotes, or supports any Non-Microsoft Middleware, on the desktop or Start menu, or anywhere else ..." See, PFJ, § III.C.1.
Middleware. The PFJ bars Microsoft from preventing OEMs from distributing or promoting non Microsoft middleware, such as browsers, Java Virtual Machine, media players, messaging software, and e-mail software. See, PFJ, § III.C.2. The PFJ also bars Microsoft from restricting OEMs from "Launching automatically, at the conclusion of the initial boot sequence or subsequent boot sequences, or upon connections to or disconnections from the Internet, any Non-Microsoft Middleware ..." See, PFJ, § III.C.3.
Disclosure of APIs and Communications Protocols. The PFJ contains provisions designed to give independent software vendors (ISVs) and others the opportunity to develop products that compete with Microsoft's middleware products. These provisions require the disclosure of application programming interfaces (APIs) and communications protocols.
The PFJ requires Microsoft to disclose "for the sole purpose of interoperating with a Windows Operating System Product, via the Microsoft Developer Network ("MSDN") or similar mechanisms, the APIs and related Documentation that are used by Microsoft Middleware to interoperate with a Windows Operating System Product." See, PFJ, § III.D.
Moreover, the PFJ requires Microsoft to "make available for use by third parties, for the sole purpose of interoperating with a Windows Operating System Product, on reasonable and non-discriminatory terms ..., any Communications Protocol that is, on or after the date this Final Judgment is submitted to the Court, (i) implemented in a Windows Operating System Product installed on a client computer, and (ii) used to interoperate natively (i.e., without the addition of software code to the client or server operating system products) with Windows 2000 Server or products marketed as its successors installed on a server computer." (Parentheses in original.) See, PFJ, § III.E.
However, the PFJ also limits disclosure by Microsoft. It states that Microsoft is not required to disclose "portions of APIs or Documentation or portions or layers of Communications Protocols the disclosure of which would compromise the security of anti-piracy, anti-virus, software licensing, digital rights management, encryption or authentication systems, including without limitation, keys, authorization tokens or enforcement criteria." See, PFJ, § III.J.1.
No Exclusive Agreements. The PFJ prohibits Microsoft from entering into agreements requiring the exclusive support or development of certain Microsoft software. It provides, subject to certain exceptions, that "Microsoft shall not enter into any agreement ... on the condition that such entity distributes, promotes, uses, or supports, exclusively or in a fixed percentage, any Microsoft Platform Software ..." See, PFJ, § III.G.
Compulsory Licensing of IPR. The PFJ requires Microsoft to license intellectual property rights (IPR) to ISVs and others "that are required to exercise any of the options or alternatives expressly provided to them under this Final Judgment, provided that 1. all terms, including royalties or other payment of monetary consideration, are reasonable and non-discriminatory; 2. the scope of any such license (and the intellectual property rights licensed thereunder) need be no broader than is necessary ... 3. ... rights may be conditioned on its not assigning, transferring or sublicensing its rights under any license granted under this provision ..." (Parentheses in original.) See, PFJ, § III.I.
Summary of the Enforcement Provisions of the Proposed Final Judgment
11/2. The Proposed Final Judgment (PFJ) negotiated by Microsoft and the Justice Department also provides for enforcement of its terms.
No Third Party Rights. The PFJ creates no remedies for states, Microsoft's competitors, or any other third parties. It states that "The United States shall have exclusive responsibility for enforcing this Final Judgment." See, PFJ, § IV.A.1. It further states that "Nothing in this Final Judgment is intended to confer upon any other persons any rights or remedies of any nature whatsoever ..." See, PFJ, § VIII.
Inspection, Depositions and Interrogatories. The PFJ gives the DOJ many authorities to facilitate its enforcement of the terms of the PFJ. It allows it "Access during normal office hours to inspect any and all source code, books, ledgers, accounts, correspondence, memoranda and other documents and records in the possession, custody, or control of Microsoft ..." It also allows the DOJ to interview Microsoft employees either "informally or on the record". It also requires Microsoft to respond, under oath, to written interrogatories from the DOJ. See, PFJ, § IV.A.2.
Further Court Proceedings. The PFJ also allows the DOJ "to seek such orders as are necessary from the Court to enforce this Final Judgment ..." See, PFJ, § IV.A.4.
Technical Committee. The PFJ requires the appointment of a three person technical committee (TC), to be located at Microsoft's Redmond campus, that will provide services to the Court. The PFJ provides that "The TC shall have the power and authority to monitor Microsoft's compliance with its obligations under this final judgment." The DOJ picks one member; Microsoft picks a second; and these two pick a third. All are required to be unbiased experts in software design and engineering. See, PFJ, § IV.B.
Microsoft Internal Compliance Officer. The PFJ requires Microsoft to appoint an internal Compliance Officer with duties enumerated in the PFJ. See, PFJ, § IV.C.
Five Year Duration. The PFJ states that "Unless this Court grants an extension, this Final Judgment will expire on the fifth anniversary of the date it is entered by the Court." See, PFJ, § V.
Reaction to the Microsoft Proposed Final Judgment
11/2. Reaction to the Proposed Final Judgment (PFJ) negotiated by Microsoft and the Department of Justice has been as varied as support for the underlying lawsuit. Those who opposed the government's law suit have tended to praise the settlement, while those who supported the law suit and favored the break up of Microsoft condemned the settlement.
Jeffrey Eisenach of the Progress and Freedom Foundation said in a release that the "settlement that fails to meaningfully address any of the court's findings. It's an embarrassment for the Justice Department, a disservice to the law and an affront to the DC Circuit." He also stated that "The states should not accept this deal, and the judge should reject it, with prejudice." Anti Microsoft groups also condemned the PFJ. See, SIIA release and CCIA release and analysis.
In contrast, Robert Levy of the Cato Institute said that settlement "means Microsoft's billionaire rivals will have failed in their attempt to use government to win in the political arena what they couldn't win in the marketplace. It also means that consumers won’t have to pick up the tab while high-tech executives devote more resources to politicking than to the development of integrated products. To settle the case, Microsoft will have to make more concessions than justified by this baseless lawsuit and the company still faces litigation from competitors, opportunistic trial lawyers, the European Union, and perhaps even state attorneys general who don't agree to the settlement. That's regrettable, but at least the federal antitrust lawsuit won't be around to sap economic growth so essential to the post WTC recovery."
House Majority Leader Dick Armey (R-TX) also released a statement in which he said that "Although this issue should have been settled long ago, today's decision is welcome. In a time of economic distress, the court has delivered a homerun for consumers. Businesses should not be afraid that when they create popular products, they'll be saddled with endless litigation. They shouldn't be second guessed by lawyers and bureaucrats. It's the consumers who benefit when companies spend less time in the courtroom, and more time developing new products. I urge the state attorneys general to avoid dragging this case out in these tough economic times. This is a case that the government should never have brought."
Sen. Leahy Plans Hearing on Microsoft Settlement
11/2. Sen. Patrick Leahy (D-VT), Chairman of the Senate Judiciary Committee, stated that his committee will hold hearing on the proposed settlement of the Microsoft antitrust case. He stated that the Committee "has closely monitored high tech competition issues over the last few years, and we will continue to do so. The terms of the settlement and its implementation will be the focus of future hearings. We will want to hear from the Justice Department, and other affected parties, about whether the remedies ensure that consumers get high-quality and innovative products at reasonable prices. We will want to examine whether competitors have adequate opportunities to provide those products and computer manufacturers have the freedom to configure their machines as they think best, and whether the remedies are sufficiently adaptable to the constantly changing competitive environment of the Internet and computer industries." See, statement.
Fed Circuit Rules in J&M v. Harley Davidson
11/2. The U.S. Court of Appeals (FedCir) issued its opinion in J&M v. Harley Davidson, a patent infringement case involving microphones in motorcycle helmets. The plaintiffs are the applicants and licensee of U.S. Reissue Patent Number 34,525. Plaintiffs alleged infringement by Harley Davidson, and its supplier, Radio Sound. The District Court held that the patent in suit was not infringed, either literally, or under the doctrine of equivalents. The Appeals Court affirmed.
USPTO Encourages Fax Use for Some Communications
11/2. Nicolas Godici, acting head of the USPTO, wrote a letter in which he stated that "we at the USPTO would like to encourage you to communicate with the USPTO via facsimile. Facsimile transmissions may be used for correspondence as set forth in 37 CFR 1.6 such as: amendments, petitions for extension of time, authorization to charge a deposit account, an IDS, terminal disclaimers, a notice of appeal, an appeal brief, CPAs under 37 CFR 1.53(d), and RCEs." However, the USPTO also stated that "the Office currently does not permit new application filings (other than a CPA under 37 CFR 1.53(d)), requests for reexamination, drawings, and certain correspondence set forth in 37 CFR 1.6(d) by facsimile."
NIPC Issues Advisory re DDoS Attacks
11/2. The FBI's National Infrastructure Protection Center (NIPC) issued Advisory 01-026 regarding politically motivated cyber attacks, and distributed denial of service (DDoS) attacks. It stated that "Cyber protests and hacktivist activity have increased since Advisory 01-021 was issued and the potential for targeting U.S. organizations is higher than in September. In the aftermath of the 11 September attacks, hacking groups have formed and participated in pro-U.S. and anti-U.S. cyber activities, fought mainly through web defacements. There has been minimal activity in the form of DDoS attacks, mostly between opposing protesting groups."
However, the Advisory continues that the "NIPC has reason to believe that the potential for future DDoS attacks is high. The protesters have indicated they are targeting web sites of the U.S. Department of Defense and organizations that support the critical infrastructure of the United States, but many businesses and other organizations -- some completely unrelated to the events -- have been victims. In the current situation, infrastructure support systems must take a defensive posture and remain vigilant at a higher state of alert. System administrators are encouraged to check their systems for zombie agent software and ensure they institute best practices such as ingress and egress filtering."
More News
11/2. The U.S. Court of Appeals for the District of Columbia Circuit heard oral argument in COMSAT v. FCC, No. 00-1458.
Rep. Goodlatte Introduces Gambling Bill
11/1. Rep. Bob Goodlatte (R-VA) and others introduced the Combatting Illegal Gambling Reform and Modernization Act [PDF]. The bill would amend 18 U.S.C. §§ 1081 and 1084, which contain the definitions and prohibition, respectively, of the Wire Act. The Wire Act currently criminalizes the use of "wire communications facilities" in interstate commerce for gambling. The Wire Act does not ban gambling. This is a matter of state law. The Goodlatte bill expands the prohibition to cover all communications between states or with other foreign countries. It maintains the principle that gambling is otherwise a matter of state law. Hence, under the Goodlatte bill, use of the Internet for gambling purposes would become illegal (if interstate or foreign).
Rep. Goodlatte held a press conference to announce the introduction of the bill. He was joined by several cosponsors of the bill, including Rep. Mike Oxley (R-OH) and Rep. John LaFalce (D-NY), who are the Chairman and ranking Democrat on the House Financial Services Committee. On October 31, this Committee  amended and approved HR 556, the Unlawful Internet Gambling Funding Prohibition Act, by vote of 34 to 18. HR 556 would attempt to stem illegal Internet gambling by preventing the use of credit cards, wire transfers, and other financial instruments in connection with illegal Internet gambling. Rep. Oxley stated that the two bills are complimentary.
Rep. Lamar Smith (R-TX), Chairman of the House Judiciary Committee's Crime Subcommittee, stated his support for the bill. He said that he expected to hold a hearing, and maybe a mark up, before the end of the year. Rep. Jim Gibbons (R-NV) stated that legalized gambling, such as in Nevada, is heavily regulated and taxed, while Internet gambling is illegal, unregulated and untaxed. He also said that the Goodlatte bill does not conflict with, or preempt Nevada state law.
Rep. Frank Wolf (R-VA) also attended the press conference. Rep. Rick Boucher (D-VA), who is a Co-Chairman of the Internet Caucus, along with Rep. Goodlatte, did not attend; however, Rep. Goodlatte said that he supports the bill.
All Communications. The criminal prohibition of the Wire Act, 18 U.S.C. §§ 1084 currently provides that "Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers ... shall be fined under this title or imprisoned not more than two years, or both." Since the current statute affects only wire communication facilities, and some Internet communications do not involve wires, it leaves open the possibility that some Internet gambling may not be illegal under the Wire Act.
The Goodlatte bill provides that "whoever, being engaged in a gambling business, knowingly (1) for the transmission in interstate or foreign commerce ..." or between the U.S. and abroad "... of bets or wagers ... shall be fined under this title or imprisoned not more than five years, or both." Hence, it pertains to all communications, not just wire communications. Moreover, the maximum penalty for violation is increased from 2 to 5 years.
Also, the Goodlatte bill would amend 18 U.S.C. § 1081, which currently defines ''wire communication facility'' as "any and all instrumentalities, personnel, and services (among other things, the receipt, forwarding, or delivery of communications) used or useful in the transmission of writings, signs, pictures, and sounds of all kinds by aid of wire, cable, or other like connection between the points of origin and reception of such transmission." As amended, it would provide that "communications facility" means "any and all instrumentalities, personnel, and services (among other things, the receipt, forwarding, or delivery of communications) used or useful in the transmission of writings, signs, pictures, and sounds of all kinds by aid of wire, cable, satellite, microwave, or other like connection (whether fixed or mobile) between the points of origin and reception of such transmission."
Illegal Gambling Funding. The Goodlatte bill also criminalizes "the transmission of a communication in interstate or foreign commerce ... which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers". Also, like HR 556, the bill prohibits the use of credit, electronic funds transfers, and checks in connection with illegal gambling.
Exclusion of Fantasy Sports Leagues. The Goodlatte bill also contains a detailed definition of "bets or wagers". This definition excludes "participation in any game or contest in which participants do not stake or risk anything of value other than (I) personal efforts of the participants in playing the game or contest or obtaining access to the Internet". This definition also excludes certain "participation in any simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) all teams are fictional and no team is a member of an amateur or professional sports organization ..." and the distribution of winnings conforms to the requirements of the bill.
Exclusion of Intrastate Online Gambling. The bill also excludes certain intrastate Internet gambling activities. It provides that "Nothing in this section prohibits the use of a communication facility for the transmission of bets or wagers or information assisting in the placing of bets or wagers, if (1) at the time the transmission occurs, the individual or entity placing the bets or wagers or information assisting in the placing of bets or wagers, the gambling business, and any facility or support service processing those bets or wagers is physically located in the same State, and the State has a secure and effective customer verification and age verification system to assure compliance with age and residence requirements ..." Nevada has enacted a relevant statute, but not licensed any such operations.
Exclusion of Internet Advertising. The Goodlatte bill also excludes advertising from its definition of "information assisting in the placing of bets or wagers". Hence, legal gambling operations could still advertise on the Internet.
Enforcement. In addition to criminal penalties, the bill would allow federal, state, local, and tribal law enforcement agencies to obtain injunctions against violation of the act. It also provides that "any common carrier, subject to the jurisdiction of the Federal Communications Commission" may enjoined from providing service to entities in violation of the act, and gives such carriers immunity from suit for discontinuing such service.
ISP Exception. Finally, the bill provides that "No relief requiring the blocking of websites may be granted under paragraph (1) against an interactive computer service (as defined in section 230(f) of the Communications Act of 1934), unless the service is acting in concert with a person who is violating the law and the service receives actual notice of the relief."
House Subcommittee Holds Hearing on Kids Domain
11/1. The House Commerce Committee's Subcommittee on Telecommunications and the Internet held a legislative hearing on HR 2417, the Dot Kids Domain Name Act of 2001. The bill, as introduced, would attempt to require the ICANN to create a top level domain for content suitable for minors. However, an amendment would merely require the NTIA to ensure that a second level domain -- -- is created for this purpose. Members of the subcommittee lauded these proposals. Nancy Victory, head of the NTIA, offered her criticism.
Rep. Fred Upton (R-MI), the Chairman of the Subcommittee, stated that "just like dot com, or dot gov, or dot org -- a dot kids should be created, which would be a safe place devoted solely to material which is appropriate for kids -- where parents could choose to send their kids."
Rep. Ed Markey (D-MA), the ranking Democrat, said that this arrangement would be distinguishable from prior legislation that has been held unconstitutional by the courts. He said that only speech in the space would be affected. Speech elsewhere on the Internet would remain unaffected. He added that "there is no requirement that anyone use this space." Rep. John Shimkus (R-IL), the lead sponsor of the bill, predicted that the bill has a good chance of moving in the House.
Nancy Victory said in her opening testimony that "The bill as introduced seeks to mandate the creation of a top level ".kids" domain by requiring the Internet Corporation for Assigned Names and Numbers (ICANN) to select a .kids domain operator. Such regulation of the management of the Internet domain name system is inconsistent with the established policy goal of privatization of that system, and particularly, private sector leadership with respect to the introduction of new top level domains."
She continued that "Among other things, unilateral action by the United States to create an "international" .kids domain is at odds with the global nature of the Internet and its domain name system. International reaction to U.S. efforts to legislate in the area of domain name management could hamper the United States' abilities to advance its foreign policy objectives, particularly critical telecommunications and information policy goals. Our international allies have a strongly held aversion to United States' efforts to assert its national will on the Internet, a global resource."
Victory added that the amendment providing for the creation of a domain space eliminates some of these objections, but "still raises some policy and legal grounds. Particularly, I note that the amendment continues to require content standards and enforcement by the Department of Commerce. It also alters the existing contractual obligations between the Department of Commerce and NeuStar that were established through the government procurement process and it changes the company's expectations with respect to its opportunities under the award."
The Subcommittee also heard testimony from David Hernand (CEO of Neu.Net), Page Howe (P/CEO of KidsDomain), Bruce Taylor (President and Chief Counsel of the National Law Center for Children and Families), and Donna Hughes (former COPA Commissioner).
No one from the Center for Democracy and Technology (CDT) testified at the hearing. However, on October 31 the group wrote a letter to Rep. Upton and Rep. Markey that is critical of HR 2417, the .kids Domain Name Act.
Legislators Introduce Bills to Address Infringement by States
11/1. Rep. Howard Coble (R-NC) and Rep. Howard Berman (D-CA) introduced HR 3204, the Intellectual Property Protection Restoration Act (IPPRA) of 2001. Sen. Patrick Leahy (D-VT) introduced S 1611, the companion bill in the Senate. Reps. Coble and Berman are the Chairman and ranking Democrat on the House Judiciary Committee's Courts, Internet and Intellectual Property Subcommittee. Sen. Leahy is the Chairman of the Senate Judiciary Committee. Sen. Leahy sought unsuccessfully to pass similar legislation in the last Congress, while Sen. Orrin Hatch (R-UT) was Chairman of the Senate Judiciary Committee.
The purpose of these bills is to prevent states from infringing patents, copyrights and trademarks. The bill would, among other things, prevent states from recovering damages for infringement of state owned intellectual property, unless they have first waived their Eleventh Amendment sovereign immunity from suits against them for their infringement of the intellectual property of others.
The problem addressed by these bills arose in 1996 when the Supreme Court of the U.S. ruled in Seminole Tribe of Florida v. Florida that the Congress lacks authority under Article I of the Constitution to abrogate the States' 11th Amendment immunity from suit in federal courts. See also, the 1999 opinions of the Supreme Court in Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank (invalidating the Patent and Plant Variety Protection Remedy Clarification Act) and College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board (invalidating the Trademark Remedy Clarification Act).
The Eleventh Amendment states: "The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State."
Rep. Coble described the bills as a "balanced and minimal approach to solving the complex problem of preventing the individual States from infringing intellectual property with impunity." See, Congressional Record, November 1, 2001, at page E1986.
Rep. Berman stated that "These bills will rectify a serious inequity in intellectual property protection resulting from recent Supreme Court decisions. These recent decisions held that, under the Eleventh Amendment of the United States Constitution, states have sovereign immunity in state and federal courts against money damages suits for intellectual property infringements. The Supreme Court came to this conclusion despite unequivocal Congressional intent to abrogate state sovereign immunity through enactment of the Copyright Remedy Clarification Act (CRCA), Patent Remedy Act (PRA), and Trademark Remedy Clarification Act (TRCA) in 1992."
Rep. Berman continued: "While immune from suit for money damages when they infringe the intellectual property rights of others, states can still secure protection for their own patents, copyrights, and trademarks under federal law, and can sue infringers of their rights for money damages. I believe it is a serious inequity to allow a State to sue infringers of its intellectual property rights when the State itself can infringe the rights of others with impunity." See, Congressional Record, November 1, 2001, at pages E1993-4.
Sen. Leahy also summarized the bills. "The IPPRA has two essential components. First, it places States on an equal footing with private parties by eliminating any damages remedy for infringement of State owned intellectual property unless the State has waived its immunity in Federal suits for infringement of privately owned intellectual property. Second, it improves the limited remedies that are available to enforce a nonwaiving State's obligations under Federal law and the United States Constitution." See, Congressional Record, November 1, 2001, at pages S11364-5.
Powell Forms Merger Review Team for EchoStar DirecTV
11/1. FCC Chairman Michael Powell announced the formation of an FCC merger review group for EchoStar's proposed acquisition of DirecTV. The group will be headed by Kenneth Ferree. The other members will be Jim Bird, David Sappington, Barbara Esbin, Julius Knapp, JoAnn Lucanik, Royce Sherlock, Donald Stockdale, and Doug Webbink.
Ferree is Chief of the FCC's Cable Services Bureau. Another member of the group, Royce Sherlock, is the Deputy Chief of the Policy Division of the Cable Services Bureau. Esbin also works in this bureau. However, neither EchoStar nor DirecTV are cable companies; they are satellite broadcasters. Also, Knapp is Deputy Bureau Chief of the Office of Engineering & Technology. Moreover, three of the eight are economists. Sappington is the FCC's Chief Economist. Stockdale is an Economist in the FCC's Office of Plans and Policy. Webbink is an Economist in the FCC's International Bureau.
If regulators at the DOJ, FTC and FCC were to focus on the market for multi channel video programming via satellite broadcast as the relevant market for antitrust analysis purposes, then the merger would be objectionable on the basis of concentration. However, if regulators were to view the relevant market as all providers of multi channel video programming, including DBS, cable, and technologies still in development, then the merger may be good for competition. Hence, it may be significant that Chairman Powell has selected a team that includes cable regulators as well as satellite regulators, and technologists and economists as well as lawyers.
Jim Bird, who has also been picked for the team, holds the titles of Senior Counsel in the FCC's Office of General Counsel, and head of its Transaction Team. Former FCC Chairman William Kennard brought Bird to the FCC in January of 2000 to head of the FCC's de facto antitrust merger review process. He previously worked for the law firm of Shea & Gardner. See, FCC release of January 12, 2000.
JoAnn Lucanik is with the Satellite Division of the FCC's International Bureau.
Finally, Esbin is an Associate Bureau Chief in the Cable Services Bureau. She is the author of the FCC's 1998 study, OPP Working Paper No. 30 [PDF], titled "Internet Over Cable: Defining the Future in Terms of the Past." This is a tome -- 129 pages and 497 footnotes. See, TLJ News Analysis from 1998 regarding this report. Esbin recently returned to the FCC following a short stay at the law firm Dow Lohnes.
Chairman Powell stated in a release that "The team I have assembled includes experts from different FCC offices and bureaus that deal with areas and issues relevant to these companies and I am confident that the review will be thorough, fair and timely. Given the significant concentration that would result from this transaction, it will be rigorously scrutinized by this team and the Commission."
On October 28, EchoStar Communications, which provides satellite broadcasting under the name Dish Network, and General Motors (GM), which owns Hughes Electronics, which provides satellite broadcasting under the name DirecTV, announced the signing of definitive agreements that provide for the spin off of Hughes from GM and the merger of Hughes with EchoStar. See, EchoStar release announcing the merger.
The FCC has no statutory authority to conduct antitrust merger reviews; the DOJ and FTC do. The FCC does, however, have authority to determine whether the transfer of licenses issued by the FCC are in the public interest. It often conducts proceedings on license transfer applications that are duplicative of the DOJ's or FTC's antitrust merger reviews. Also, while Powell has appointed a team to review this transaction, no license transfer application has been submitted to the FCC for its review.
Cal App Overturns Injunction in DeCSS Case
11/1. The California Court of Appeal (6th) issued its opinion [PDF] in DVD Copy Control Association v. Bunner, reversing a trial court preliminary injunction against publishing copies of the DeCSS program in web sites. The injunction had been based upon California trade secret law.
Plaintiff. DVD is sometimes known as Digital Versatile Disc. CSS is a Content Scrambling System for DVD to protect intellectual property rights by means of encryption. The DVD Copy Control Association (DVDCCA) is a trade association of businesses in the movie industry. It controls the rights to CSS. DVDCCA licenses the CSS decryption technology to manufacturers of hardware and software for playing DVDs.
Defendant. DeCSS is a decryption tool that facilitates piracy. DeCSS consists of computer source code which describes a method for playing an encrypted DVD on a non CSS equipped DVD player or drive. It was written by Jon Johansen, a 15 year old Norwegian. Andrew Bunner published a copy of DeCSS on a web site.
Complaint. The DVDCCA filed a complaint in 1999 in California Superior Court against Andrew Brunner and others alleging violation of the California Uniform Trade Secrets Act in connection with their publishing copies of DeCSS in web sites, or linking to copies of DeCSS.
Preliminary Injunction. The Superior Court issued an order granting a preliminary injunction in January 2000 which enjoined defendants from "[p]osting or otherwise disclosing or distributing, on their web sites or elsewhere, the DeCSS program, the master keys or algorithms of the Content Scrambling system (‘CSS’), or any other information derived from this proprietary information."
The Court of Appeal. It reasoned that the DeCSS source code is speech entitled to First Amendment protection. It noted that unlike copyright, trade secret protection is not secured by the Constitution. The Court of Appeal further reasoned that the Superior Court order constituted a prior restraint of pure speech. It reversed.
Fed Circuit Addresses Certificates of Correction in Patent Cases
11/1. The U.S. Court of Appeals (FedCir) issued its divided opinion in Superior Fireplace v. Majestic Products, an patent infringement case involving the granting of certificates of correction.
The District Court ruled on summary judgment that Superior Fireplace’s certificate of correction for U.S. Patent No. 5,678,534 is invalid and that the uncorrected version of this patent is not infringed. The Appeals Court affirmed, 2 to 1, this portion of the District Court judgment. However, it vacated and remanded the District Court's decision on an attorneys fees issue.
Judge Linn, writing for the majority, opined that because the correction of the alleged mistake under 35 U.S.C. § 255 broadened a claim and was not clearly evident from the specification, drawings, and prosecution history, the certificate of correction is invalid.
Judge Dyk wrote in his dissent that "I part company with the majority when it reads into the statute a requirement that the error be apparent from the prosecution history, a requirement which is equally lacking an 'express indication' in the statute. I accordingly dissent from the majority’s holding that the certificate of correction is invalid ..."
Rogan to Get Confirmation Hearing
11/1. James Rogan, President Bush's nominee to head the USPTO, is finally scheduled to receive a confirmation hearing before the Senate Judiciary Committee. The Senate Republican High Tech Task Force sent a letter last week to Sen. Patrick Leahy (D-VT), Chairman of the Committee, seeking prompt consideration of this nomination. See, HTTF release.
Rogan, a Republican, was a member of the House Judiciary Committee, and its Courts and Intellectual Property Subcommittee, until he was defeated in the 2000 general election. He is also considered to be a potential candidate for statewide office in California. Confirmation for this post could take him out of contention for statewide office. Sen. Dianne Feinstein (D-CA) will preside at his confirmation hearing at 10:00 AM on November 7.
3rd Circuit Dismisses Interconnection Appeal
11/1. The U.S. Court of Appeals (3rdCir) issued its opinion in AT&T v. Verizon, a case regarding interconnection agreements. The New Jersey Division of the Ratepayer Advocate appealed an order of the U.S. District Court (DNJ) affirming the New Jersey Board of Public Utilities' determination with respect to interconnection rates for AT&T's and Verizon's New Jersey corporations. The Appeals Court did not reach the merits; rather, it dismissed the appeal on the grounds that appellant lacked constitutional standing to bring this appeal.
11/1. AOL Time Warner named Wayne Pace its new EVP and CFO. Michael Kelly, who previously held the position, was moved down to COO of AOL. See, release.
More News
10/1. Rep. Billy Tauzin (R-LA), Rep. Ed Markey (D-MA), and Rep. Richard Burr (R-NC) sent a letter [PDF] to FCC Chairman Michael Powell stating their "disappointment with a recent Commission decision permitting increased commercialization of public broadcasting licenses."
11/1. Sen. Max Baucus (D-MT) spoke in the Senate to express his concerns about the upcoming World Trade Organization (WTO) meeting in Doha, Qatar. He addressed protecting the U.S. softwood lumber and steel industries, including environment and labor provisions, and assuring accession of Taiwan to the WTO. See, Congressional Record, November 1, 2001, at page S11355.
11/1. Rep. Tom Tancredo (R-CO) introduced HR 3222, a bill to limit the number of H1-B nonimmigrant visas issued in any fiscal year. The bill was referred to the House Judiciary Committee.

Go to News Briefs from October 26-31.