News Briefs from December 1-5, 2001

Domain Name Registrants Who Lose Before UDRP Panel May Sue Under ACPA
12/5. The U.S. Court of Appeals (1stCir) issued its opinion in Sallen v. Corinthians, a case regarding whether domain name registrants who have lost in a World Intellectual Property Organization (WIPO) adjudicated Uniform Domain Name Dispute Resolution Policy (UDRP) proceeding may bring an action in U.S. District Court pursuant to § 1114(2)(D)(v) of the Anticybersquatting Consumer Protection Act (ACPA) seeking to reverse the result of the WIPO proceeding by having their status as a nonviolator of the ACPA declared and by obtaining an injunction requiring the transfer of the domain name back to them. The District Court had held that it lacked jurisdiction over such claims brought under the ACPA. The Appeals Court reversed. It held that registrants who lose before a UDRP panel may sue under the ACPA to have the domain names transferred back to them.
Sallen. The appellee, Jay Sallen, is an individual who resides in Brookline, Massachusetts. He registered the domain name in 1998. He then tried to sell it to the Brazilian soccer team "Corinthians".
Corinthians. The appellant, Corinthians Licenciamentos, is a Brazilian corporation, and the exclusive licensee of the intellectual property owned by Sport Club Corinthians Paulista, which owns the popular Brazilian soccer team knows as the Corinthians, and holds a trademark for Corinthiao, which is Portuguese for Corinthians.
WIPO UDRP Proceding. Corinthians Licenciamentos filed a complaint on May 18, 2000 with the WIPO pursuant to its Uniform Domain Name Dispute Resolution Policy (UDRP). On July 17, 2000, the dispute resolution panel issued its decision in favor of Corinthians. It held that the domain name is confusingly similar to the registered trademark of the soccer club, that Sallen had registered the domain in bad faith (for the sole purpose of selling it back to the soccer team), and that Sallen had not made use of the domain name. It ordered that the domain name be transferred. The domain name has been transferred to the soccer club. Corinthians never sued Sallen under the ACPA.
U.S. District Court. After losing before the UDRP panel, Sallen filed a complaint in the U.S. District Court (DMass) against Corinthians seeking declaratory judgment that his registration and use of was not unlawful under the ACPA. The District Court held that it had no jurisdiction, and dismissed.
ACPA. Congress passed the Anticybersquatting Consumer Protection Act (ACPA) in the 106th Congress. It amends the Trademark Act of 1946. 15 U.S.C. § 1114(2)(D)(v) provides that: "A domain name registrant whose domain name has been suspended, disabled, or transferred under a policy described under clause (ii)(II) may, upon notice to the mark owner, file a civil action to establish that the registration or use of the domain name by such registrant is not unlawful under this chapter. The court may grant injunctive relief to the domain name registrant, including the reactivation of the domain name or transfer of the domain name to the domain name registrant."
Appeals Court. The First Circuit reversed. It held that the ACPA "grants domain name registrants who have lost domain names under administrative panel decisions applying the UDRP an affirmative cause of action in federal court for a declaration of nonviolation of the ACPA and for the return of the wrongfully transferred domain names."
Cal App Rules on Liability of Officers and Directors in Securities Fraud Cases
12/5. The California Court of Appeal (6) issued its opinion [PDF] in Kamen v. Lindly, a class action suit alleging securities fraud under California Corporations Code Sections 25400 and 25500. The Court of Appeal held that for corporate officers and directors to be liable, they must both sell and/or offer to sell or buy and/or offer to buy, and make misleading statements for the purpose of inducing the purchase or sale of a security.
Sonic Blue. S3, a publicly traded corporation based in Santa Clara, California, makes the Rio digital audio player, and other digital media, entertainment and consumer electronics products. In 2000 S3 changed its name to Sonic Blue. At relevant times, Dale Lindly was S3's Corporate Comptroller and then Chief Financial Officer.
Complaint. In 1997 investors who brought S3 stock filed a class action complaint in the Superior Court for Santa Clara County against S3, various of its directors and officers, and an accounting firm, alleging violation of California Corporations Code Sections 25400 and 25500. The complaint alleges that officers and directors and the accounting firm made materially false financial statements that overstated revenues, and materially false and misleading statements about operations, products, future business prospects. Lindly, another officer, and the accounting firm, did not sell any S3 securities at relevant times.
Section 25400. This section provides, in part, that "It is unlawful for any person, directly or indirectly, in this state: ... If such person is a ... person selling or offering for sale or purchasing or offering to purchase the security, to make, for the purpose of inducing the purchase or sale of such security by others, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or which omitted to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and which he knew or had reasonable ground to believe was so false or misleading."
Section 25500. This section, in turn, provides that "Any person who willfully participates in any act or transaction in violation of Section 25400 shall be liable to any other person who purchases or sells any security at a price which was affected by such act or transaction for the damages sustained by the latter as a result of such act or transaction."
Trial Court. The Superior Court sustained the demurrer of  Lindly and others, on the grounds that, while the complaint alleged that they made materially false statements, it did not allege that they also sold stock.
Appeals Court. The Court of Appeal affirmed. It reasoned that 25400 prohibits market manipulation, and that 25500 creates a private right of action for violations of 25400. It continued that the requirement of 25500 that a person "willfully participates" means that "civil liability pursuant to section 25500 applies only to a defendant who is either a person selling or offering to sell or buying or offering to buy a security."
Federal Reserve Governor Addresses Spread of E-Money
12/5. Federal Reserve Board Governor Laurence Meyer gave a speech at Swarthmore College in Pennsylvania titled "The Future of Money and of Monetary Policy". He stated that while the paper check is still the most widely used method for transferring money by the public, "The next step in the evolution of the nature and transfer of money appears to be the spread of electronic forms of money and payment."
Meyer stated that in the 1990s "a new generation of technology created the possibility of storing monetary value on a silicon chip embedded in a plastic card or in a personal computer. With these developments, the focus of payments development shifted to electronic money -- e-money -- using card based and computer based products (often referred to as stored value cards and network money, respectively) that consumers might use as a general means of payment in both the physical and the virtual worlds." He added that "this first generation of e-money products was not widely adopted in the United States", but pointed out that other technologies, such as the ATM and debit cards took years to catch on.
Meyer reviewed the long history of money over the millennia, and then focused on some recent developments. "Banks and technology providers are attempting to develop new payment methods, in many cases building upon the underlying the automated clearing house (ACH), debit card, and credit card networks to find more convenient and secure ways to make purchases, pay bills, settle debts, and post credits, especially over the Internet. "On-line" banking involves electronic access to information over the Internet about accounts and loans -- including current balances and transactions history -- as well as providing the ability to carry out payment related transactions -- including transfers among accounts, receiving and paying bills, applying for bank credit cards, and reordering checks. Some so-called virtual banks have been set up to service customers exclusively through electronic channels, but an increasing number of traditional "bricks and mortar" banks see the Internet as another delivery channel that improves convenience for some of their customers. Similarly, the emergence of e-money reflects the attempt to develop new payment methods as a more efficient alternative to existing electronic payment means."
Finally, Meyer addressed some of the implications of e-money for financial stability, monetary policy, and the possibility of privately issued currencies.
FTC Reports on E-Game Industry Advertising
12/5. The Federal Trade Commission (FTC) released a follow up report [5.1 MB in PDF] to its September 2000 report. It is titled "Marketing Violent Entertainment to Children: A Review of Self Regulation and Industry Practices in the Motion Picture, Music Recording & Electronic Game Industries".
The report states that the electronic game and movie industries have "made commendable progress in limiting their advertising to children of R-rated movies and M-rated games and in providing rating information in advertising." However, the report is critical of the music industry. The report states that "it has continued to advertise explicit content recordings in most popular teen venues in all media ..." See also, FTC release and concurring statement of FTC Commissioner Orson Swindle.
This report was prepared at the request of members of the Senate Commerce Committee. Members of the House Commerce Committee were quick to criticize the music industry. See, response of Rep. Billy Tauzin (R-LA) and Rep. Fred Upton (R-MI). Hillary Rosen, CEO of the RIAA, issued a statement in which she defended her members.
Insider Trading
12/5. The U.S. District Court (NDCal) sentenced Malcolm Wittenberg on one count of insider trading in violation of Section 10 of the Securities Exchange Act of 1934, 15 U.S.C. § 78j. See, USAO release. The Plea Agreement [PDF] states that Wittenberg learned of a pending merger of Sun Microsystems and Forte Software in the course of his representation of Forte. He then traded in Forte Software stock. Wittenberg admitted that he used material, non public information when he purchased stock in Forte Software. The plea agreement also states that Wittenberg at all relevant times was an attorney and partner in the San Francisco office of the Oakland law firm of Crosby Heafey Roach & May.
People and Appointments
12/5. President Bush announced his intent to nominate Kathie Olsen to be Associate Director of the Office of Science and Technology Policy. She has been Chief Scientist at NASA since May, 1999, and Acting Associate Administrator for the Office of Biological and Physical Research since July, 2000. She also worked at the National Science Foundation. See, White House release.
12/5. President Bush nominated Randal Quarles to be a Deputy Under Secretary of the Treasury.
12/5. AOL Time Warner announced that Gerald Levin will retire as CEO in May 2002. It further stated in its release that "Richard Parsons, Co-Chief Operating Officer, will become Chief Executive Officer of the Company, and Robert Pittman, now Co-Chief Operating Officer with Mr. Parsons, will become the sole Chief Operating Officer. Steve Case will continue to have an active role as Chairman ..." (Emphasis added.)
12/5. Verizon named Shaygan Kheradpir its new Chief Information Officer. He will replace Joseph Castellano, who will retire on December 31. Kheradpir is currently President of Verizon's e-business unit. See, release.
12/5. Matthew Flanigan, President of the Telecommunications Industry Association (TIA), wrote a letter [PDF] to FCC Chairman Michael Powell regarding a national broadband policy.
More News
12/5. The Supreme Court of the United States heard oral argument in Verizon Maryland v. Public Service Commission of Maryland, a case regarding Eleventh Amendment immunity and federal court review of state public utility commission orders. (Nos. 00-1531 and 00-1711.)
12/5. The Senate Commerce Committee's Subcommittee on Science, Technology, and Space held a hearing on the technology sector in times of crises. See, prepared testimony of witnesses: John Marburger (Office of Science & Technology Policy), Craig McCaw (Eagle River, Inc.), Will Pelgrin (Governor's Office for Technology, State of New York), Roger Cochetti (Verisign), Julie Coppernoll (Intel), Timothy Graham (WinStar), and Stephen Rohleder (Accenture).
House Committees Hold Hearings on EchoStar DirecTV Merger
12/4. The House Judiciary Committee and the House Commerce Committee's Subcommittee on Telecommunications and the Internet both held hearings on the proposed merger of DBS providers EchoStar and DirecTV, focusing on the status of competition between DBS providers, and between DBS and cable companies.
Representatives of EchoStar and DirecTV, and their supporters, argued that the proposed merger would enable the new satellite company to compete more effectively with cable companies, and thereby benefit consumers. Opponents argued that the merger would decrease competition between satellite service providers, and thereby harm consumers, particularly in rural areas not served by cable companies.
Commerce Committee Hearing. See, prepared testimony of witnesses: Charles Ergen (CEO of EchoStar), Eddy Hartenstein (Ch/CEO of DIRECTV), Robert Sachs (P/CEO of the NCTA), Neal Schnog (President of Uvision, on behalf of the ACA), Bob Phillips (P/CEO of the National Rural Telecommunications Cooperative), Jared Abbruzzese (Acting CEO of WSNET), Marshall Pagon (P/CEO of Pegasus Communication), Michael Fiorile (P/CEO of Dispatch Broadcast Group on behalf of the NAB). See also, opening statement of Rep. Billy Tauzin (R-LA), Chairman of the full Committee, and opening statement of Rep. John Dingell (D-MI), the ranking Democrat.
Judiciary Committee Hearing. See, prepared statements of Charles Ergen (EchoStar), Gene Kimmelman (Consumer's Union), Bob Phillips (National Rural Telecommunications Cooperative), and Robert Pitofsky (former FTC Chairman).
EchoStar DirecTV Merger and Broadband Internet Access
12/4. Hearings held in the House on the proposed merger of EchoStar and DirecTV focused primarily on the consequences for multi channel video programming, such as news and entertainment shows. However, several witnesses and Representatives also focused on the potential consequences for the deployment of Internet services.
Charles Ergen, the Chairman and CEO of EchoStar, addressed deployment of satellite based broadband Internet access services in his written testimony for the House Judiciary Committee. He argued that the merger is necessary to upgrade facilities to provide this high speed service.
Ergen wrote that "only through consolidation of satellites and spectrum will the new EchoStar be able to achieve the economies of scale and spectrum necessary to enable it to compete more effectively against the bundled cable telephony Internet services of cable. While broadband is widely available in much of urban and suburban America, service to rural areas has lagged far behind. The efficiencies created by this merger will help bridge the ``digital divide´´ ..." He elaborated that due to installation costs of about $1,000 and monthly fees or $60 to $100, "the service is simply not competitive on a price quality basis with cable modem service or DSL." He added that there are currently less than 200,000 subscribers to this service. He also said that a competitive service would require investment in "research and development, satellite launches, and related infrastructure".
Rep. Rick Boucher (D-VA), a Co-Chair of the Congressional Internet Caucus, supports the merger of EchoStar and DirecTV, in part, because he argues that it will facilitate the deployment of broadband Internet access service via satellite. He spoke with Tech Law Journal after the House Judiciary Committee hearing on the merger.
He stated that "Neither EchoStar, nor DirecTV, has created a truly viable high speed Internet access satellite based service. And the reason they haven't is because it is very difficult to attract the capital necessary to launch this service. The fixed cost of putting the infrastructure in place to provide that service is about two billion dollars per company. So, EchoStar would have a two billion dollar fixed cost. DirecTV would have a two billion dollar fixed cost, for the infrastructure necessary to deploy a really robust and vigorous high speed Internet access service."
Rep. Boucher continued that "The capital markets have looked at those numbers, and looked at the potential subscriber base, and have decided that at a fixed cost of two billion dollars to put that infrastructure in place, there simply is not a viable business, given the subscriber base of EchoStar separately, and given the subscriber base of DirecTV separately.
He concluded that "If you combine the two companies, bearing in mind that you only have to deploy this infrastructure once, and then the marginal cost of adding subscribers is virtually zero, you can deploy the infrastructure once, at an estimated cost of about 2.5 billion dollars for the one merged company, and then you would enjoy the potential subscriber base of both companies. And so, the cost of deployment per subscriber is brought down dramatically. And that in turn, would make this service far more attractive to the financial markets that would finance the deployment of it. So, it becomes a viable service, whereas today it is not."
In contrast, Robert Pitofsky, who was Chairman of the FTC during the Clinton administration, argued that "the proposed merger raises troubling issues in the emerging broadband market." He wrote in his prepared testimony that "In a series of proceedings -- including those occasioned by the AOL/Time Warner merger and the AT&T/Media One merger, the Antitrust Division, the FTC and the FCC have all sought to preserve competition in this extremely important new market. Congress has also been concerned that megamergers not lead to a situation in which high speed access to the Internet will come under the control of one or a small handful of companies. This merger would threaten a potential monopoly in satellite broadband services."
Pitofsky conceded that cable and phone companies have been slow to deploy broadband service in rural areas, and that satellite "provides the most viable technology that can bridge the digital divide in rural America." However, he continued that "the merging parties argue that the merger, by increasing capacity and eliminating ``duplication,´´ will enable them to devote more capacity to rolling out broadband services. But the ``duplication´´ they seek to eliminate is competition itself. Moreover, they would have to bear the burden of showing why the increase in capacity this merger would produce is necessary to bring out the services that both DirecTV and EchoStar have promised consumers for some time that each separately would provide."
Representatives Introduce Cyber Security Bills
12/4. Rep. Sherwood Boehlert (R-NY), Rep. Ralph Hall (D-TX), Rep. Nick Smith (R-MI), and other members of the House Science Committee, introduced a pair of bills pertaining to cyber security. Rep. Boehlert, the Chairman of the Committee, introduced the "Cyber Security Research and Development Act". He stated at a press conference that "Under the bill, the National Science Foundation (NSF) will create new cyber security research centers, undergraduate program grants, community college grants and fellowships. The National Institute of Standards and Technology (NIST) will create new program grants for partnerships between academia and industry, new post-docs, and a new program to encourage senior researchers in other fields to work on computer security." He added that government research is necessary because there are not market incentives to develop cyber security.
Rep. Smith, the Chairman of the Research Subcommittee, introduced the "Networking and Information Technology Research Advancement Act". It authorizes an increase in basic research in information technology at six federal agencies.
Democrats and Republicans at the press conference stated that the bills enjoy bipartisan support on the House Science Committee. The bills will be marked up on Thursday, December 6.
FTC Commissioner Addresses Antitrust Law
12/4. FTC Commission Thomas Leary gave a speech on antitrust law to the New York City bar association titled "Three Hard Cases and Controversies: The FTC Looks at Baby Foods, Colas and Cakes". He discussed three recent antitrust cases -- FTC v. H.J. Heinz, PepsiCo / The Quaker Oats Company (Gatorade), and General Mills / Pillsbury. None of these three cases involved technology. However, the antitrust analysis may be pertinent beyond food.
Commerce Department Adopts Encryption Standard
12/4. The Department of Commerce announced its approval of a new encryption standard for the federal government -- the Advanced Encryption Standard, or AES. See, release.
NIPC Issues Worm Warning
12/4. The FBI's National Infrastructure Protection Center (NIPC) issued a warning regarding the Goner worm. NIPC stated that it "is tracking a new mass mailing worm ... . This is a very fast spreading mass-mailing worm that appears to take advantage of Visual Basic Scripting built into Microsoft Outlook and Outlook Express. Developing information indicates that this worm mails itself to all the addresses within the infected computer's Outlook or Outlook Express address book, sets itself as a server process so it does not show up in the task manager, and deletes the anti virus definitions from many common anti virus products." See, NIPC Alert 01-029.
Microsoft Seeks Tougher Cyber Crime Laws
12/4. Microsoft published an essay titled "Thwarting Cyber Terrorism". It argues that "Additional resources are needed by the Department of Justice and the FBI to hire, train and equip agents and prosecutors specializing in cyber crime. International cyber crime laws and penalties must be strengthened. The author of the ``Lovebug´´ virus remains free because his nation did not have cyber crime laws. The ``AnnaKournikova´´ virus caused billions of dollars in damage, but the individual who distributed it received only 150 hours of community service as a penalty."
House Passes Bill Banning Circumvention of Caller ID
12/4. The House passed HR 90, the Know Your Caller Act, by a voice vote. This bill amends the Communications Act of 1934 to provide that "It shall be unlawful for any person within the United States, in making any telephone solicitation (A) to interfere with or circumvent the capability of a caller identification service to access or provide to the recipient of the telephone call involved in the solicitation any information regarding the call that such service is capable of providing; and (B) to fail to provide caller identification information in a manner that is accessible by a caller identification service, if such person has capability to provide such information in such a manner." This bill is sponsored by Rep. Rodney Frelinghuysen (R-PA).
FEC and Political Speech on the Internet
12/4. The Center for Democracy and Technology (CDT) submitted a comment to the Federal Election Commission (FEC) in response to its Notice of Proposed Rulemaking (NPRM) regarding political activity on the Internet. The CDT wrote that "in cases of Internet activity by individuals, the Commission should presume that federal election law is not applicable." It also recommended several changes to the proposed rule.
December 3 was the deadline to submit comments to the FEC regarding its proposed rule changes affecting political activity on the Internet. This NPRM proposes to permit certain personal political web sites, and to allow corporations and unions to put certain hyperlinks and press releases in their web sites. See, TLJ story of September 27, 2001, and TLJ Daily E-Mail Alert No. 320, December 3, 2001. See also, FEC release, and notice in the Federal Register.
Specifically, the NPRM states that the FEC "is proposing to add a new section 117.1, which would describe certain types of individual Internet activities that would not be treated as contributions or expenditures. Section 117.19(a) would contain an exception from the definition of "contribution" in section 100.7(a) of the current regulations. Section 117.1(b) would contain a parallel exception from the expenditure definitions in sections 100.8(a) and 109.1. Proposed sections 117.1(a) and (b) would state that no contribution or expenditure results where an individual, without receiving compensation, uses computer equipment, software, Internet services or Internet domain name(s) that he or she personally owns to engage in Internet activity for the purpose of influencing any election to Federal office."
The CDT recommended that "The regulations need to be clarified in that the exemption for use of Internet services and equipment owned by an individual does not account for use of computer and Internet services at public access facilities and in other contexts where the same presumptions should apply. Many people use computers at libraries, universities, community centers, or public schools as their primary source of Internet connectivity."
The CDT also wrote that "people use Internet accounts or computers supplied by their place of employment as their primary means of Internet access. Businesses may provide their employees with computer equipment for use at home or with laptops. Individuals then use these computers for both business and personal use. Similarly, a business may provide its employees with home connectivity that may them be used for both personal and business purposes. Use of these services and this equipment for Web site production or uploading, but not hosting, should be exempted from reporting absent evidence of employer encouragement or coercion."
Supporters of Tauzin Dingell Bill Seek Vote in House
12/4. Supporters of HR 1542, the Tauzin Dingell bill, are lobbying for a House vote on the bill before the House recesses for the year. See, for example, release of the USTA. See also, release of CompTel criticizing HR 1542.
Rep. Fred Upton (R-MI), Rep. Rick Boucher (D-VA), and other House members will hold a news conference on December 5 to release a letter signed by close to 100 members of the House. The letter urges House Speaker Dennis Hastert (R-IL) and House Majority Leader Dick Armey (R-TX) to schedule a vote on HR 1542.
People and Appointments
12/4. President Bush named former Montana Gov. Marc Racicot to chair the Republican National Committee. He will replace Virginia Gov. James Gilmore.
12/4. The U.S. District Court (NDCal) sentenced Mikahel Chang to one year of imprisonment on a felony charge of copying a trade secret in 18 U.S.C. § 1832. Chang stated in his Plea Agreement that he received, possessed and appropriated without authorization stolen trade secret information belonging to his former employer, Semi Supply, Inc., of Livermore, California. The trade secrets were customer and order information in sales databases. See, USAO release and CCIPS release.
More News
12/4. The GAO released a report [PDF] titled "Loan Monitoring System: SBA Needs to Evaluate Use of Software".
12/4. Rep. Jane Harman (D-CA) and others introduced HR 3397, a bill to provide for the expedited and increased assignment of spectrum for public safety purposes. It was referred to the House Commerce Committee.
Supreme Court Denies Cert in Cable Caps Case
12/3. The Supreme Court denied a petition for writ of certiorari, without opinion, in Consumer Federation of America v. FCC, a case regarding cable ownership caps. See, Order List at page 2. (Supreme Court No. 01-223.)
The Consumer Federation of America sought review of the March 2, 2001, opinion of the U.S. Court of Appeals (DCCir) in Time Warner Entertainment v. FCC, 240 F.3d 1126 (DC Cir, 2001). That opinion overturned the FCC's cable ownership caps. AT&T and Time Warner petitioned for review of the FCC's cable ownership rules on First Amendment grounds. The FCC's horizontal rule imposed a 30% limit on the number of subscribers that may be served by a multiple cable system operator. Its vertical limit was set at 40% of channel capacity, reserving 60% for programming by non affiliated firms.
The three judge panel of the Court of Appeals reversed and remanded both the horizontal and vertical limits. The Court followed the Supreme Court's ruling in Turner Broadcasting I that cable operators are "entitled to the protection of the speech and press provisions of the First Amendment." The court, applying the intermediate scrutiny standard, then held that the "horizontal limit interferes with petitioners' speech rights by restricting the number of viewers to whom they can speak. The vertical limit restricts their ability to exercise their editorial control over a portion of the content they transmit."
The Office of the Solicitor General filed a brief in opposition to granting certiorari in November. It argued several grounds, including that the FCC initiated a Further Notice of Proposed Rulemaking [60 page PDF file] on September 21, 2001, to further develop the record in support of an order that might withstand judicial scrutiny. See also, FCC release. (FCC 01-263.)
FEC NPRM on Internet Speech
12/3. Monday, December 3, was the deadline to submit comments to the Federal Election Commission (FEC) regarding its proposed rule changes affecting political activity on the Internet. The FEC is the agency charged with enforcing the Federal Election Campaign Act (FECA), which regulates political contributions and expenditures. While the FEC had previously considered wide ranging regulation of political speech on the Internet, this Notice of Proposed Rulemaking (NPRM) merely proposes to permit certain personal political web sites, and to allow corporations and unions to put certain hyperlinks and press releases in their web sites. See, TLJ story of September 27, 2001. See also, FEC release, and notice in the Federal Register.
The Alliance for Justice submitted a comment in which it stated that it "generally supports the regulations proposed" by the FEC. It further stated that "any regulation should foster the Internet's potential to be a low-cost, democratic forum for greater participation in the political process."
The FEC approved the Notice of Proposed Rulemaking (NPRM) [PDF] at its September 27 meeting. It  proposes three rule changes. First, it would provide that there would be no contribution or expenditure within the meaning of the FECA when an individual, without receiving compensation, uses his or her own computer equipment, software, Internet services or domain names to attempt to influence a federal election. Second, it would allow corporations and unions to include hyperlinks to the web sites of candidates and political committees. Third, it would allow corporations and unions to publish in their web sites copies of press releases endorsing candidates.
Personal Web Sites. First, the NPRM states that the FEC "is proposing to add a new section 117.1, which would describe certain types of individual Internet activities that would not be treated as contributions or expenditures. Section 117.19(a) would contain an exception from the definition of "contribution" in section 100.7(a) of the current regulations. Section 117.1(b) would contain a parallel exception from the expenditure definitions in sections 100.8(a) and 109.1. Proposed sections 117.1(a) and (b) would state that no contribution or expenditure results where an individual, without receiving compensation, uses computer equipment, software, Internet services or Internet domain name(s) that he or she personally owns to engage in Internet activity for the purpose of influencing any election to Federal office."
Corporate and Union Hyperlinks. Second, the NPRM states "New section 117.2 would state that the establishment and maintenance of a hyperlink from the web site of a corporation or labor organization to the web site of a candidate or party committee for no charge or for a nominal charge would not be a contribution or expenditure ..." However, there are also limitations on this rule.
Corporate and Union Press Releases. Third, the NPRM states that "a corporation or labor organization may make a press release announcing a candidate endorsement available to the general public on its web site ..." However, to qualify, the corporation or union must regularly publish press releases in its web site, the release must be limited to the announcement of the endorsement and the reasons, the release must be made available in the same manner as other releases, and the cost must be de minimis.
First Circuit Affirms in Gupta v. Cisco
12/3. The U.S. Court of Appeals (1stCir) issued its opinion in Dev Vrat Gupta v. Cisco Systems, a dispute over ownership of stock in Maxcomm Technologies. Gupta is engineer and former employee of Cisco. He founded Maxcomm while employed by Cisco. An arbitrator, the District Court, and the Court of Appeals all upheld Cisco's right to repurchase Maxcomm stock pursuant to its agreements with Gupta that it could repurchase the stock if he left Maxcomm before January 2002.
Appeals Court Enforces Arbitration Clause in Fee Agreement
12/3. The U.S. Court of Appeals (1stCir) issued its opinion in Summit Packaging v. Kenyon & Kenyon, a case regarding the enforceability of an arbitration clause of a retainer agreement in dispute regarding alleged legal malpractice and unfair billing in a patent infringement lawsuit.
Kenyon & Kenyon is a law firm that focuses on intellectual property law. It represented Summit Packaging in a patent infringement lawsuit. The retainer agreement between them provided that "In the event any dispute arises between us concerning our representation or payment of our fees and disbursements which cannot be promptly resolved to our mutual satisfaction, you agree that the dispute will be submitted to arbitration ... or, if you prefer, submitted to the Courts of the State of New York ..."
Summit filed a complaint in New Hampshire Superior Court against Kenyon alleging legal malpractice and unfair billing practices. Kenyon removed the case to U.S. District Court (DNH). Kenyon moved for summary judgment, based on the arbitration clause. The District Court ruled that the arbitration clause is permissive, not mandatory, and denied the motion.
The Appeals Court held that the arbitrary clause is mandatory, and reversed. It wrote that "When Summit filed this action in New Hampshire Superior Court, it decided to forego bringing suit in New York. In so doing, arbitration became the mandatory, and exclusive, forum for dispute resolution."
Verizon CEO Addresses Legislative Issues
12/3. Ivan Seidenberg, P/CEO of Verizon, gave a speech at the National Press Club in Washington DC in which he addressed the Tauzin Dingell bill, spectrum regulation, and other issues.
Tauzin Dingell Bill. He stated that "the issue on broadband is really pretty simple: how to push more diverse technologies into the marketplace where they can fuel the economy, stimulate innovation, and give America the secure, redundant infrastructure it needs. In our industry -- as in all capital intensive, technology driven businesses -- it's also pretty clear how to do that: promote new investment by taking down the ``do not enter´´ signs that impede the flow of capital. At the most basic level, that’s what the broadband legislation known as the Tauzin Dingell bill is designed to do. "
This bill, HR 1542, was reported by the House Commerce Committee last spring. It was reported unfavorably by the House Judiciary Committee on June 18. It has not yet been brought to the House floor for debate and vote. Seidenberg stated that "We're hopeful that the House of Representatives will bring this legislation to a vote in the next two weeks ..."
Spectrum Management. Seidenberg stated that "In order to ensure continued growth and innovation in this vital industry, we needed to get more spectrum in the hands of companies that have the will and the wherewithal to actually put this resource to work for customers. And, while the spectrum auctions were a major step forward, the continuation of the spectrum cap put a lid on growth and acted as a barrier to the natural evolution of this industry."
Depreciation. Seidenberg also called for tax relief. He said that "the Congress should enact an economic stimulus package that contains meaningful incentives for capital investment. Unlike previous recessions that have been triggered by a decline in consumer spending, this one has been led by a huge slowdown in capital spending. Therefore, we believe any recovery package needs to include changes in the tax law to encourage new investment. In particular, we support the proposal -- included in the economic stimulus package passed by the House of Representatives as well as the one proposed by Senate Republicans -- that would give a 30 percent "bonus depreciation" for companies making new equipment purchases over the next three years."
People and Appointments
12/3. The Senate confirmed Frederick Martone to be a U.S. District Court Judge for the District of Arizona by a vote of 97-0.
12/3. The law firm of Arnold & Porter announced new partners, effective January 1. The list includes Scott Feira (a member of the telecommunications and corporate and securities groups), Myles Hansen (antitrust), and Frank Liss (antitrust). See, AP release.
12/3. The law firm of Baker & Botts announced new partners, effective January 1, 2002. The list includes Terry Stalford, who was named a partner in the Intellectual Property group in the Dallas office. He focuses on digital circuitry, integrated circuit fabrication methods, devices, materials and packaging, mass storage device design and fabrication, switching and transmission equipment, SONET, ATM, IP, and other communication protocols, and system level applications including advanced intelligence systems and services. He also focuses on software for automated calling systems, data storage and retrieval systems, and automated information routing and tracking systems. The list also includes Roger Fulghum, who was named a partner in the Intellectual Property group in the Houston office. He focuses on preparation and prosecution of patent applications, the preparation of software licenses, and involvement in patent and trade secret litigation. See, B&B release.
12/3. Michael Schlesinger joined the Washington DC office of the law firm of Latham & Watkins as a partner in its Corporate Department. He focuses on venture capital and technology. He was previously at partner at the Venable law firm. See, L&W release.
More News
12/3. The U.S. Court of Appeals (FedCir) heard oral argument in Datapoint Corporation v. Standard Microsystems, No. 99-1239, and Charles E. Hill & Associates v. Compuserve, No. 00-1562.
12/3. The GAO released a report [PDF] titled "Information Technology: Leading Commercial Practices for Outsourcing of Services". The report was prepared for Sen. Daniel Akaka (D-HI) and Sen. James Inhofe (R-OK), the Chairman and ranking Republican on the Senate Armed Service Committee's Subcommittee on Readiness and Management Support.
Bankruptcy Court Allows At Home to Reject Contracts with Cable Companies
12/1. The U.S. Bankruptcy Court (NDCal) held a hearing, and issued several orders, on November 30, in the At Home Corporation bankruptcy proceeding. The Court granted At Home's motion to permit it to reject its contracts with cable companies, and hence, terminate broadband Internet access service to cable subscribers. On Saturday, December 1, At Home terminated service to AT&T's cable subscribers.
At Home Corporation, and others, filed a Chapter 11 bankruptcy petition in Bankruptcy Court in San Francisco on September 28, 2001. (See, Case No. 01-32495-TC.) The At Home operates the Excite@Home high speed cable Internet access service.
Court Orders. The Court wrote in its Order Denying Stay Pending Appeal that "On November 30, 2001, the court held a hearing on Debtor's motion to reject certain executory contracts with Cox Communications, Inc. (Cox) and other cable companies. The court granted the motion. Cox then requested that the order be stayed pending appeal. It appearing that (1) appellants are not likely to prevail on appeal; (2) delaying the effect of the order would cause harm to the bankruptcy estate that would be very difficult to measure; (3) rejection need not lead to an immediate cessation of Debtor's operations; and (4) the entire strategy of Cox and the other cable companies in this proceeding has been to delay consideration of Debtor's motion to prevent Debtor from enjoying the benefits of a quickly wasting asset; the motion for a stay pending appeal is denied." See also, Decision Re Debtor's Motion to Reject Executory Contracts, and Order Pursuant to 11 U.S.C. § 365(a) Approving Rejection of Executory Contracts Related to Access Services.
FCC Letter. On December 29, FCC Chairman Michael Powell wrote a letter [PDF] to the Bankruptcy Court regarding the the At Home bankruptcy proceeding. He stated that "It has come to my attention that, in the course of the Excite@Home bankruptcy litigation now before you, you may be asked to permit or perhaps order the service to be discontinued. I write to urge you to balance not just the interest of one debtor and its creditors, but also those of millions of customers and the American public as you consider these requests. In particular, in the event that you permit service to be discontinued, I respectfully urge you, at a minimum, to provide for an orderly transition rather than a precipitous shutdown of Excite@Home, to avoid disrupting broadband service to a significant percentage of U.S. customers."
Powell wrote that "more than 40% of the cable Internet consumers and more than 27% of the total broadband consumers -- are subscribers to cable Internet services jointly provided by cable companies and Excite@Home." He cited no section of the Bankruptcy Code as authority for this. However, he asserted "the proposition that a bankruptcy court acts in equity and can and should consider the interests of consumers and the public at large."
On November 30, At Home issued a release in which it stated that the Bankruptcy Court "granted the Company's motion to reject the master distribution agreements with its cable company customers because the agreements are financially unfavorable to the company. Once rejected, the cable companies must negotiate new agreements acceptable to the company or risk the possibility that the @Home service may be terminated." Then, on December 1, it issued a second release in which it stated that "it was in negotiations with all of its cable company customers other than AT&T regarding arrangements for the continuation of Internet access and related services. After determining that it would not be able to reach agreement with AT&T, the company terminated service to AT&T."
Also on November 30, NCTA P/CEO Robert Sachs issued a release in which he stated that "We are deeply disappointed by the Bankruptcy Court's decision, which failed to take into account the substantial impact it would have on consumers. Most unfortunately, the court's decision is likely to result in temporary disruptions for Excite@Home customers who have enjoyed a service that has seen rapid deployment and produced high customer satisfaction. Cable operators are working around the clock to implement solutions to restore high speed Internet service to Excite@Home customers." The NCTA is a trade groups for cable companies.

Go to News Briefs from November 26-30, 2001.