News from January 26-31, 2002

Rogan Announces USPTO FY 2003 Budget Proposal
1/31. U.S. Patent and Trademark Office (USPTO) Director James Rogan announced that the administration's FY 2003 budget request for the USPTO will be $1.365 Billion. He stated in a press teleconference on January 31 that this is a 21.2% increase over the FY 2002 appropriation, and that it will enable the USPTO to hire more patent examiners, reduce patent pendency, and improve patent quality.
Rogan stated that this will enable the USPTO to hire an additional 950 patent examiners. Rogan noted that the average pendency is now 25 months. "By hiring more examiners we are hoping that it will help us with the backlog."
Nicholas Godici, the Commissioner for Patents, also participated in the teleconference. He added that "with this kind of hiring ... our projections are that we are going to be able to act on 60,000 more patent applications than we would have."
Rogan also said that the proposed budget would enable the USPTO to complete the transformation of the trademark filing system into a fully electronic operation by 2004.
The USPTO is entirely funded by user fees. However, for many years, appropriations bills have diverted some of these fees to fund other government programs. Opponents have argued that this diversion leads to under funding of the USPTO, which in turn delays the issuance of patents, and harms innovation and the development of new technologies.
Rogan stated that "the administration is proposing a one time surcharge" of $207 Million. "45 Million will be budgeted for the USPTO's business plan" and $162 Million will go for national security and homeland defense. Rogan stated that "there will be a 19.3 percent proposed surcharge for patents." Rogan reiterated that while this is a one time surcharge, he can make no guarantees regarding budget proposals in future years.
He also stated that the administration is proposing budget increases of around 3% for agencies that are not related to national defense or homeland security. Hence, the 21% proposed increase for the USPTO reflects "an incredible investment in the work at the Patent and Trademark Office."
Rogan will speak in Washington DC at a hearing on February 6 titled "Competition and Intellectual Property Law and Policy in the Knowledge Based Economy". This hearing is part of a series being hosted by the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ).
FTC to Take Action Against Spammers
1/31. Howard Beales, Director of the FTC's Bureau of Consumer Protection, spoke on "Privacy Regulation and the Federal Trade Commission" at the 2nd Annual Privacy & Data Security Summit sponsored by the International Association of Privacy Officers. He also addressed unsolicited e-mail.
He stated that "What we are planning to do, what we are in the process of doing, actually, for the first time, is to launch a systematic attack on spam that is itself fraudulent and deceptive. And that is an enormous fraction of what we see in our spam database. We have a database where you can forward your spam if you like -- We get about 10,000 pieces of spam a day."
He continued that "we are busy looking for cases. Some of those cases will involve messages that are themselves deceptive. We are also working on cases that involve claims that you can opt out, when in fact what clicking on the link to unsubscribe will do is simply verify that you have a valid e-mail address, so that you can get lots of spam, instead of just a little. Those cases take a little bit longer to develop. But, we will be acting on that front, and you will see the first set of cases very soon."
FCC Commissioner Abernathy Addresses Regulation, 3G, IP Telephony, and Trade
1/31. FCC Commissioner Kathleen Abernathy spoke at a luncheon hosted by the Federal Communications Bar Association's International Practice Committee at the FCC offices in Washington DC.
She stated that there are five key principles to her regulatory philosophy: (1) Congress, through the Communications Act, defines the agenda of the FCC, (2) the FCC should rely upon competitive markets whenever possible, (3) the FCC should write clear rules, with clear definitions, and then enforce these rules, (4) the FCC should be humble about what it can know, and (5) the FCC is a service based organization that should act promptly.
She stated that both domestically, and internationally, there are five areas where markets do not function efficiently, and hence, there is a role for regulators: (1) interconnection, (2) resale obligations, (3) colocation, (4) rights of way, and (5) non discriminatory access to critical facilities.
IP Telephony. Abernathy was asked about promoting Internet protocol telephony. She stated that "IP telephony is not necessarily ready for prime time in the U.S." She also noted that some engineers say that it is vastly superior to analog, and that the FCC has increased its hiring of engineers in this area.
3G Spectrum. Abernathy was also asked about what the FCC is doing to make more spectrum available for Third Generation (3G) wireless services, which are intended to bring broadband Internet access to portable devices. She responded that "we have less spectrum than any other country in the world to assign to new technologies." She added that "we have more spectrum devoted to defense" than any other country, and that much spectrum is devoted to broadcast.
"There is a need for increased spectrum for wireless," said Abernathy. "It is inbumbent upon us .. to figure out how we get it ... and how we balance 3G needs with defense needs and public safety needs." She concluded by saying that "we are in that process as we speak."
She did not address specific spectrum bands for potential reallocation. Nor did she mention the creation of secondary markets in spectrum rights.
Trade. Abernathy was also asked about the United States Trade Representative (USTR) and telecom competition. February 1 is the extended deadline for filing comments with the USTR regarding the operation and effectiveness of the World Trade Organization (WTO) Basic Telecommunications Agreement, the telecommunications provisions of the North American Free Trade Agreement (NAFTA), and other telecommunications trade agreements. See, supplemental notice in Federal Register.
Abernathy stated that "we cannot apply the trade pressure that other entities in the U.S. can." She said that the FCC can engage in dialogue with other nations, and can work with the USTR on an "information sharing basis." However, "at the end of the day, they are the ones making the trades."
Computer Crime
1/31. The U.S. Court of Appeals (3rdCir) issued its opinion in USA v. Moore, an appeal of a sentence imposed for violation of 18 U.S.C. § 491. The defendant is a juvenile who participated in a scheme to create counterfeit $20 bills at home using a personal computer, scanner, printer and paper cutter, and then pass them at a Six Flags theme park. He was caught, plead guilty, and was sentenced to 12 months imprisonment, one year of supervised release, and restitution to Six Flags. He appealed the sentence. The Appeals Court affirmed.
Cal App Holds for Visa in Gambling Debts Case
1/31. The Court of Appeal of California (3) issued its opinion [PDF] in Emery v. Visa, holding that Visa cannot be held liable under California consumer protection laws for the use of Visa bank cards to pay illegal gambling debts.
Paul Emery filed a complaint in California Superior Court against Visa International Service Association and Visa U.S.A. Inc. alleging unfair and unlawful business practices and deceptive advertising in connection with the use of VISA bank cards to pay illegal gambling debts.
The trial court granted Visa's motion for summary judgment. The Court of Appeal affirmed. It wrote that "This lawsuit is misconceived legally and factually. As a so-called consumer protection action, it lacks a defendant who has engaged in any wrongful conduct and consumers who have been harmed. Because plaintiff, a misguided private attorney general, has failed to identify any triable issues of fact and bases his lawsuit on mistaken legal concepts of expansive civil and criminal liability where none exists, we affirm."
The Court of Appeal reasoned that "VISA does not approve merchants, does not endorse their activities, does not authorize any particular merchant transactions, and has no say whatsoever in how the merchants operate their day to day businesses. Indeed, the unrefuted evidence shows that VISA has no regular, direct dealings at all with any of the merchants. VISA merely makes available a payment system to member financial institutions, which merchants can use, and adjusts credit transactions among those members."
The Court continued: "In essence, plaintiff ascribes vicarious liability to VISA for its failure to police millions of merchants who allow payment with a VISA bank card. While such expansive responsibility may be plaintiff’s idea of needed social policy, he fails to present evidence of any viable theory of agency. In the absence of sufficient evidence to raise a genuine triable issue of fact, his lawsuit fails, along with his misguided notion of consumerism."
Editor's Note: See, HR 556, the Unlawful Internet Gambling Funding Prohibition Act, which was passed by the House Financial Services Committee on October 31, 2001. The bill 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. It provides that "No person engaged in the business of betting or wagering may knowingly accept, in connection with the participation of another person in unlawful Internet gambling (1) credit ... (including credit extended through the use of a credit card); (2) an electronic funds transfer ... ; (3) any check ...; or (4) the proceeds of any other form of financial transaction as the Secretary may prescribe by regulation ..." See also, TLJ Daily E-Mail Alert No. 299, November 1, 2001.
FCC Comments on FTC's Proposed Changes to Telemarketing Sales Rule
1/31. Dane Snowden, Chief of the FCC's Consumer Information Bureau, commented in a release on the FTC's proposal to change the Telemarketing Sales Rule (TSR). He stated that "We at the Federal Communications Commission share the Federal Trade Commission's commitment to ensuring that consumers' concerns are addressed by telemarketing rules. We will be following closely the progress of the FTC's recent proposal to create a national do-not-call registry to help consumers in their interactions with telemarketers."
On January 22, the FTC announced that it is proposing numerous changes to its TSR. The proposals include the creation of a national "do not call" registry, and a prohibition on blocking caller ID systems by telemarketers. In addition, the proposed rule contains several Internet related items.
The TSR, which is codified 16 CFR Part 310, implements the 1994 Telemarketing Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101-6108. The TSR prohibits specific deceptive and abusive telemarketing acts or practices, requires disclosure of certain material information, requires express verifiable authorization for certain payment mechanisms, sets record keeping requirements, and specifies those transactions that are exempt from the TSR. The proposed ruled is contained in an FTC notice [150 pages in PDF].
European Commission Approves HP Compaq Merger
1/31. The European Commission approved the merger of Hewlett Packard Company and Compaq Computer Company.
It stated in a release that its "analysis focused on the combination of HP's and Compaq's activities in the markets for personal computers (PCs), servers, handheld products, storage solutions and services. In addition, the Commission also assessed the impact of the merger on HP's joint development of the Itanium processor with Intel as well as the importance of HP's increased opportunity for joint sales of PCs and printers following the integration of Compaq's PC products."
PC Market. It concluded that in the PC market "the merged entity will continue to face strong competition in Europe from a number of credible rivals including IBM, Dell and Fujitsu Siemens, which together with the absence of significant barriers to entry and the practice of non-exclusive contractual relationships between retailers and manufacturers would prevent the new HP from any attempt to raise prices significantly."
Server Market. It concluded that in the server market "the proposed transaction was not likely to raise competitive issues. Indeed, while the servers market can be broken down according to price bands into entry level servers, mid-range and large servers, HP and Compaq are largely complementary except in the entry level market segment where the combined entity will have relatively high market shares. However, the Commission's analysis of that segment confirmed that the new HP would not be able to act independently from either customers or competitors as a result of the combination of series of elements among which the dynamic and growing nature of the market, the absence of entry barriers and the presence of several strong competitors as well a series of fringe suppliers, not to mention the white brands built around Intel processors."
Itanium. In addition, "As to the potential impact of HP and Intel's jointly developed Itanium processor, the Commission's analysis concluded that the merged entity would not be able to foreclose competitors' access to this component and that it was in HP and Intel's interest to guarantee unrestricted access."
HP Ch/CEO Carly Fiorina said that this "announcement confirms that the deal does not raise competition concerns in Europe, and we see it as an encouraging step in the continuing process of satisfying regulators worldwide that this deal will provide a real stimulus for competition in information technology markets." See, HP release.
The deal still requires the approval of the Federal Trade Commission (FTC), and shareholders. The FTC is not likely to raise objections.
USTR Zoellick Addresses China, WTO and IT
1/31. Robert Zoellick, the U.S. Trade Representative (USTR), gave a speech to the U.S. China Business Council in Washington DC in which he discussed the PR China's accession to the WTO, and information technology.
He stated that "China's 15-year long journey to attain membership in the World Trade Organization has been a modern long march, not to the caves of the hinterland, but toward the seas of commerce and the ports of new open doors." He added that "The prospects for peace depend significantly -- but of course not completely -- upon the maintenance and acceleration of China's path in the last quarter century: toward openness to the outside world and acceptance of international norms."
Zoellick also focused on information technology. He stated that "The policies that have been at the core of China's spectacular growth in the last twenty-five years -- progress toward freer markets, greater openness to foreign competition and investment, deregulation and privatization, tariff reduction -- could serve as a model to others.
He continued: "Let me cite one example -- information technology. China could have taken the route of East Asian industrial policy, such as it experimented with through automobiles in the mid-1990s, and tried to build up a domestic industry behind high protectionist walls. Understanding the global character of the emerging IT sector, China chose a different course. It has joined the Information Technology Agreement, agreeing to reduce its tariffs on all IT products to zero by the year 2005."
"The result? Taiwanese companies, the IT powerhouses of the region, have invested about $9 billion in assembly and production plants on the Mainland. One quarter of the world's desktop computers are already manufactured in China, and one-half of the world's CD-ROMs. Within this decade, China will become the world's largest supplier of IT hardware. It will be the location of choice for IT assembly. It is becoming a design and development partner, and will challenge Taiwan as a semiconductor production center. It will soon be the second largest market in the world for personal computers. This is a spectacular example of how openness can lead to growth", said Zoellick.
Zoellick also cautioned that "Japan's experience provides a note of caution for China: If China tries to subvert the free trade principles of the WTO by twisting them into elements of a bureaucratic industrial policy, it will both fail to derive the advantages of those principles and undercut global WTO objectives. For example, it is critical for China to understand that the benefits it has accrued from the zero tariffs of the Information Technology Agreement will evaporate if it attempts to distort the basic intent of the Agreement. I have in mind provisions in China's new tariff schedule and implementing regulations that would differentiate between imports of IT products for domestic production and those intended for domestic sale, with the latter being subject to a tariff. We will make this point as often as necessary -- and it will have to be made often -- to the Chinese."
People and Appointments
1/31. Microsoft named Scott Charney as its chief security strategist, effective April 1. Charney is currently a principal for Price Waterhouse Coopers' Cybercrime Prevention and Response Practice. From 1991 through 1999 he was chief of the Computer Crime and Intellectual Property Section (CCIPS) of the Criminal Division of the Department of Justice. See, MSFT release.
1/31. President Bush named Jay Lefkowitz Deputy Assistant to the President and Director of the Domestic Policy Council. Lefkowitz has been General Counsel at the Office of Management and Budget since March 2001. Before that, he was a partner in the Washington DC office of the law firm of Kirkland & Ellis. He also worked for the elder George Bush from 1991 to 1993. See, WH release.
1/31. Tim Caruso was named Deputy Executive Assistant Director of the FBI for Counterintelligence and Counterterrorism. Pat D'Amuro was named Assistant Director of the FBI for Counterterrorism. See, FBI release and biographies of Caruso and D'Amuro.
1/31. The Silicon Valley based law firm of Gray Cary merged with the nine attorney Washington DC law firm of Blumenfeld & Cohen. Gray Cary has over 470 attorneys in offices in Palo Alto, San Diego, San Francisco, Austin, Sacramento, and Seattle. Blumenfeld & Cohen focuses on telecommunications and technology law. See, GC release.
1/31. The Washington DC law firm of Wiley Rein & Fielding added Rod Glover and Attison Barnes as partners, and Charles Lemley as an associate. All three previously worked in the Washington DC office of the law firm of Gardner Carton & Douglas. They are litigators who represent technology based companies. See, WRF release.
1/31. Edward DuMont joined the Washington DC law firm of Wilmer Cutler & Pickering as counsel in the firm's litigation section. He was previously Assistant to the Solicitor General of the U.S. He also worked briefly on computer crime and privacy issues an Associate Deputy Attorney General. He is also a former law clerk to Judge Richard Posner of the U.S. Court of Appeals (7thCir). See, WCP release.
1/31. Jano Cabrera left the Recording Industry Association of America (RIAA) to join former Vice President Al Gore's political action committee as communications director. Before going to work for the RIAA he worked for the Gore Lieberman campaign as Gore's Deputy National Spokesman. Before that he was a Deputy Press Secretary in the Office of the Vice President.
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1/31. The Copyright Office published a notice in the Federal Register announcing that it is further extending the time period for filing additional comments in response to its March 9, 2001, Notice of Inquiry concerning the interpretation and application of the copyright laws to certain kinds of digital transmissions of prerecorded musical works in light of an agreement between the Recording Industry Association of America (RIAA), the National Music Publishers Association (NMPA), and The Harry Fox Agency (HFA). See, 17 U.S.C. § 115. Comments are due by February 6, 2002. Reply comments are due February 27, 2002. See, Federal Register, January 31, 2002, Vol. 67, No. 21, at Pages 4694 - 4695. This is Docket No. RM 2000-7B.
1/31. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Gardner v. Nike, a case regarding the assignability of exclusive licenses under the Copyright Act. Affirmed.
1/31. Chris Israel gave a speech titled "Online Privacy -- Observations, Acknowledgements, Actions Taken and Challenges" at the Privacy Officers Association Second Annual Privacy and Data Security Summit Washington DC. Israel is the Deputy Assistant Secretary for Technology Policy at the Department of Commerce.
Antitrust Regulators to Hold Hearings on Intellectual Property
1/30. The Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) will hold a series of joint hearings on antitrust and intellectual property. The hearings are titled "Competition and Intellectual Property Law and Policy in the Knowledge Based Economy".
The opening hearing will be on February 6 at 2:00 PM at the FTC's main building in Washington DC. It will feature addresses by current and former government officials. The speakers at this event will be Timothy Muris (FTC Chairman), Charles James (Assistant Attorney General for the Antitrust Division), James Rogan (Director of the USPTO), Pauline Newman (Judge of the U.S. Court of Appeals for the Federal Circuit), Robert Pitofsky (Professor at Georgetown University Law Center), Todd Dickinson (Howrey Simon), Gerald Mossinghoff (Oblon Spivak), Richard Gilbert (Professor at U.C. Berkeley), and Richard Levin (President of Yale).
On February 8, there will be two concurrent sessions in the morning at the FTC, titled "Patent Law for Antitrust Lawyers" and "Antitrust Law for Patent Lawyers". On February 20, there will be a day long set of sessions at the FTC titled "Economic Perspectives on Intellectual Property, Competition and Innovation".
The series will continue at the Haas School of Business at the University of California at Berkeley on February 25-28. The title of these sessions will be "Business and Economic Perspectives on Real World Experience with Patents". Finally, on March 19-20, there will be sessions back at the FTC titled "Business and Other Perspectives on Real World Experience with Patents". See, FTC release and DOJ release.
William Kolasky, Deputy Assistant Attorney General for the Antitrust Division, gave a speech on January 25 in which he discussed this series of hearings. He stated that "We will invite interested businesses, consumers, legal practitioners, academics, and government agencies to participate in discussions covering a broad range of topics, including: the importance of intellectual property to businesses and innovation; competitive issues raised by the type and scope of patents issued, as well as by the procedures and criteria used during the patent examination process; the licensing of intellectual property; standard setting; competitive concerns raised by the settlement of patent disputes; comparative international treatment of many of these issues; and the role of the U.S. Court of Appeals for the Federal Circuit in developing antitrust law."
Kolasky also stated that the hearings will address "whether and, if so, under what circumstances, a refusal to license intellectual property might give rise to an antitrust violation". He added that the hearings will address "how our approach compares to that of the EU and our other major trading partners. Recently, for example, the European Commission appears to be taking a more expansive view than we do of the essential facilities doctrine, especially as it applies to intellectual property. In the United States, we have generally applied the essential facilities doctrine much more narrowly, believing that its overuse might reduce incentives to innovate and invest."
Fed Circuit Rules on Breach of Duty to Assign Patent Applications
1/30. The U.S. Court of Appeals (FedCir) issued its opinion in University of West Virginia v. VanVoorhies, a case regarding breach of duty to assign patent applications by university students and professors.
Kurt VanVoorhies was a graduate student in engineering, and later post graduate research assistant professor, at the University of West Virginia (UWV). UWV had a policy that provided that UWV "owns worldwide right, title and interest in any invention made at least in part by University personnel, or with substantial use of University resources ..." Moreover, VanVoorhies and a UWV professor executed a patent application in 1992. They assigned all rights to the UWV. The written assignment also covered continuation in part (CIP) applications relating to the invention.
VanVoorhies later executed a second patent application in which he claimed himself as the sole inventor, and a company owned by him as assignee. The patent applications pertained to antennae for wireless power transmission.
WVU sued VanVoorhies in 1997 in U.S. District Court (NDWV) alleging that VanVoorhies breached his duty to assign the second invention to WVU. VanVoorhies filed various counterclaims, including fraud, breach of fiduciary duty, breach of contract, invalid assignment, and RICO. The District Court granted WVU summary judgment that VanVoorhies breached his duty to assign to WVU; it also granted WVU summary judgment on VanVoorhies' counterclaims.
The Appeals Court held that the second application was a continuation in part of the first application, and that VanVoorhies had a duty to assign it. Affirmed.
People and Appointments
1/30. Riaz Karamali joined the Menlo Park office of the law firm of Perkins Coie as a partner. He focuses on corporate finance, mergers and acquisitions, and venture capital transactions for technology companies and investors in such companies. He was previously a partner with General Counsel Associates in Mountain View, California. Before that, he an associate with the law firm of Gibson Dunn & Crutcher. See, PC release.
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1/30. The Copyright Office published a notice in the Federal Register announcing "the initiation of the voluntary negotiation period for determining reasonable rates and terms for two compulsory licenses, which in one case, allows public performances of sound recordings by means of eligible nonsubscription transmissions, and in the second instance, allows the making of an ephemeral phonorecord of a sound recording in furtherance of making a permitted public performance of the sound recording." See, Federal Register, January 30, 2002, Vol. 67, No. 20, at Pages 4472 - 4474.
1/30. The Securities and Exchange Commission (SEC) announced that it has developed a series of fake investment scam web sites that are "designed to warn investors who rush into investment opportunities on the Internet without fully investigating the offers." See, SEC release.
1/30. The U.S. Patent and Trademark Office (USPTO) announced that "An examination for persons seeking registration before the United States Patent and Trademark Office as patent attorneys and agents will be held on Wednesday, October 16, 2002, pursuant to the provisions of 37 CFR §§ 10.5, 10.6, and 10.7. The deadline for filing applications along with the $40.00 non-refundable application fee and the $310.00 examination fee and all necessary showings required by 37 CFR §§ 10.7(a) and (b) is Friday, July 5, 2002." See, USPTO notice.
1/30. U.S. Trade Representative (USTR) Robert Zoellick and Australian Minister of Trade Mark Vaile met. The office of the USTR released a statement in which it said that the two "considered how they might advance the proposal for a possible free trade agreement (FTA) between the United States and Australia. They discussed how an FTA could contribute to their shared goals of achieving open markets globally in the WTO's Doha Development Agenda and in the Asia-Pacific region. They directed their staffs to examine the elements of a possible FTA and to provide the results of this work in the coming months." See, USTR release.
1/30. The Office of the U.S. Trade Representative (USTR) announced that on January 30 "the United States and Hungary signed an agreement in Budapest in which Hungary agreed to reduce or suspend its tariffs on $180 million worth of key U.S. agricultural and industrial exports annually, starting in April 2002." The agreement covers, among other things, automatic data processing machines, office machine parts, laser disks, and telephone equipment. See, USTR release.
EPIC Seeks Government Investigations of Microsoft's Passport
1/29. The Electronic Privacy Information Center (EPIC) announced that it will continue its efforts to induce government regulators to investigate Microsoft in connection its Passport and related services. It urged state attorneys general to take action under state unfair and deceptive trade practices statutes. It will also file a complaint with the FTC pertaining to the EU safe harbor provisions.
Last year, the EPIC unsuccessfully sought a Federal Trade Commission (FTC) investigation. See, original complaint [PDF] submitted on July 26, 2001, and updated complaint [PDF] submitted on August 15. EPIC requested that the FTC conduct an investigation of Microsoft, and enjoin a number of software features and services, that EPIC alleges violate § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. However, the FTC has not publicly announced that it has taken any action with respect to these complaints.
EPIC alleged in its complaints that this "concerns the privacy implications of the Microsoft XP operating system that is expected to become the primary means of access for consumers in the United States to the Internet. ... Microsoft has engaged, and is engaging, in unfair and deceptive trade practices intended to profile, track, and monitor millions of Internet users. Central to the scheme is a system of services, known collectively as ``.NET,´´ which incorporate ``Passport,´´ ``Wallet,´´ and ``HailStorm´´ that are designed to obtain personal information from consumers in the United States unfairly and deceptively. The public interest requires the Commission to investigate these practices and to enjoin Microsoft from violating Section 5" of the FTCA.
EPIC Legislative Counsel Chris Hoofnagle stated in a teleconference on January 29 that the EPIC is pursuing two other strategies. First, it just sent a letter to state attorneys general urging them "to take action to protect consumers against unfair and deceptive trade practices raised by Microsoft Corporation’s Passport service ..."
Second, Hoofnagle stated that EPIC intends to submit another complaint to the FTC in which it will allege that Microsoft's actions violate the safe harbor provisions of the EU directive on data protection.
Hoofnagle added that Microsoft is violating federal and state unfair and deceptive trade practices laws by not disclosing the security risks associated with Microsoft's Passport. However, he conceded that while there have been numerous security breaches involving the loss of personal information, none have involved Microsoft's Passport. He also stated that EPIC will not file its own private lawsuit against Microsoft.
TOP Grants
1/29. The National Telecommunications and Information Administration (NTIA) published a notice in the Federal Register regarding the availability of Technology Opportunity Program (TOP) grants for FY 2002. All grants awarded for FY 2001 involved projects that make some use of the Internet. Some funded projects provide medical, public housing, and other information through web sites. Other projects provide networking and training. See, NTIA list of grantees for FY 2001.
Grant applications for FY 2002 are due by 8:00 PM EST, on March 21, 2002. See, Federal Register, January 29, 2002, Vol. 67, No. 19, at Page 4240.
State of the Union Address
1/29. President Bush delivered the State of the Union address to a joint session of the Congress. He focused on the war against terrorism, homeland defense, and the state of the economy. However, he also briefly touched upon two technology related issues.
He stated that "We will improve intelligence collection and sharing, expand patrols at our borders, strengthen the security of air travel and use technology to track the arrivals and departures of visitors to the United States." However, he did not elaborate further on the use of technology.
He also urged the Senate to pass legislation granting the President trade promotion authority, which is also known as fast track. He stated that "Good jobs depend on expanded trade. Selling into new markets creates new jobs, so I ask Congress to finally approve Trade Promotion Authority." The House has already passed its TPA bill, HR 3005.
Sen. Charles Grassley (R-IA) issued a release in which commented on the State of the Union address. It stated that he would "continue to work to advance trade promotion authority for the President, noting free trade is key to creating jobs." Sen. Grassley is the ranking Republican on the Senate Finance Committee, which has jurisdiction over TPA legislation.
Sen. Kyl Criticizes Export Administration Act
1/29. Sen. Jon Kyl (R-AZ) spoke in the Senate about the S 149, the Export Administration Act of 2001, and the PR China's use of foreign technology to modernize its military. He stated that it is "China's primary objective in acquiring these and other military technologies, to be able to defeat our long standing, democratic ally Taiwan in a conflict quickly enough to prevent American military intervention."
Sen. Kyl continued that "S 149 was approved despite serious concerns of some, including myself, that the U.S. export control process is ineffective in stopping the export of militarily sensitive technologies to countries, like China, that pose a potential military threat to the United States or to U.S. interests abroad. S 149, if enacted into law, would allow China to import even more sensitive technology than it has in the past. It would decontrol a number of dual use technologies, including items used to make nuclear weapons and long range missiles."
S 149 would modernize export control laws. It would ease restraints on most dual use products, such as computers and software, but increase penalties for violations. The Bush Administration has endorsed it. The Senate passed it by a vote of 85 to 14, five days before the terrorist attacks of September 11, over the opposition of a small group of Senators who asserted that it would harm national security. See, Roll Call No. 275. The House International Relations Committee passed a much different version just before the August 2001 recess.
Privacy News
1/29. The Electronic Privacy Information Center (EPIC) wrote a letter to state attorneys general urging them "to take action to protect consumers against unfair and deceptive trade practices raised by Microsoft Corporation’s Passport service and related “Wallet,” “Kids Passport,” “Hailstorm,” and “.Net Services.” These systems unfairly and deceptively gather personal information and expose consumers to the release, sale, and theft of their personal information." Last year, the EPIC unsuccessfully sought a Federal Trade Commission (FTC) investigation of the same practices.
People and Appointments
1/29. Steve Moore joined the Institute for Policy Innovation as a Senior Research Fellow. Moore is also the President of The Club for Growth.
1/29. IBM's Board of Directors elected Samuel Palmisano CEO, effective March 1. He is currently President and Chief Operating Officer. He will remain as President. He will replace Louis Gerstner, who will remain IBM Chairman through the end of 2002. In addition, John Thompson, IBM Vice Chairman, will retire from the company and board on September 1. See, IBM release.
1/29. Matthew Kaminer joined the Washington DC office of the law firm of Fulbright & Jaworski as a senior associate. He focuses on intellectual property, information technology and corporate matters. See, FJ release.
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1/29. The Federal Communications Commission (FCC) released its it annual report [PDF] titled "Telecommunications Industry Revenues: 2000".
1/29. The General Accounting Office (GAO) released a report [PDF] titled "Defense Acquisitions: Collection and Reporting of Information Technology Purchases". The Floyd Spence National Defense Authorization Act for FY 20011 directed the Secretary of Defense to collect specific procurement data on the purchase of information technology products and services made by the military services and defense agencies, and to issue his first annual report to the Armed Services Committees by March 15, 2002. This brief report concludes that the DOD is making good progress in meeting these requirements.
1/29. The U.S. Court of Appeals (FedCir) issued its opinion in In Re Kenneth Berger. Berger filed a patent application which described a shape for beverage cans. The patent examiner rejected certain claims, pursuant to 35 U.S.C. § 112, for being indefinite. The U.S. Patent and Trademark Office Board of Patent Appeals and Interferences affirmed. The Appeals Court affirmed.
Global Crossing Files Chapter 11 Petition
1/28. Global Crossing, and some of its affiliates, filed a Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court (SDNY). Global Crossing also stated in a release that it filed "coordinated proceedings in the Supreme Court of Bermuda." Global Crossing operates a fiber optic network in Asia, the Americas, and Europe. It also provides telephone, Internet access, and data transport services.
Motorola & Nokia Sue Turkish Cellular Company for RICO Violations and Computer Hacking
1/28. Motorola Credit Corporation and Nokia Corporation filed a complaint in U.S. District Court (SDNY) against Kemal Uzan, other members of the Uzan family, and corporations controlled by the Uzan family, regarding cellular communications deals in the nation of Turkey. Motorola and Nokia allege "theft of more than $3 billion".
The complaint states that the defendants, who are politically well connected in Turkey, were awarded a Global System for Mobile Telephony (GSM) license by the Turkish government. Motorola then provided defendants loans to obtain base stations from Motorola, and Nokia provided loans to obtain switching equipment from Nokia. This equipment was then used to build a GSM and 2.5G wireless telecommunications system in Turkey. However, Motorola and Nokia did not get paid up front. And now, they allege they have been defrauded out of $3 Billion.
The complaint states that the defendants borrowed from Motorola and Nokia, and then intentionally and illegally diluted the value of stock pledged as collateral for the loans. The complaint also alleges that defendants manufactured transactions to transfer assets from the debtor companies.
The complaint alleges numerous violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962. It alleges that the predicate acts of racketeering are mail fraud, wire fraud, extortion, intimidation and computer hacking.
Computer Hacking. Count 8 alleges fraud in connection with computers in violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030(a)(4). Count 9 alleges interception of electronic communications in violation of the Electronic Communications Privacy Act, 18 U.S.C. § 2511(1)(a). Count 10 alleges X unlawful access to stored electronic communications in violation of the Electronic Communications Privacy Act, 18 U.S.C. § 2701(a)(2).
The complaint states that defendants twice recruited employees of Motorola Turkey to hack into the computer system of Motorola Inc. to obtain unauthorized access to proprietary and confidential information about Motorola Inc. and its customers. The complaint further states that the target of the hacking was "Motorola Inc.’s global customer contacts outside of North America", and that the second attempt succeeded. The allegations of fact pertaining to computer hacking are found at ¶¶ 165- 176.
Motorola's General Counsel, Peter Lawson, stated in a release that "We are taking the unusual step of jointly filing this action because it is clear to both companies that the Uzans had no intention of dealing in good faith with us in an effort to resolve this situation. ... This action is in recognition that this is not a normal commercial dispute between private parties - it is, rather, a premeditated and unlawful attempt by the Uzans to rob both Motorola and Nokia of our assets."
Motorola seeks compensatory damages of over $2 Billion. Nokia seeks compensatory damages of $700 Million. Both also seek treble damages under RICO, and punitive damages, and well as declaratory and injunctive relief.
The complaint contains 343 numbered paragraphs. It runs 117 pages as filed, excluding exhibits. It also alleges alleges fraud, and violations of Illinois state law.
Few Congressional Web Sites are Rated Highly
1/28. The Congress Online Project (COP) released a report titled "Congress Online: Assessing and Improving Capitol Hill Web Sites". The report concludes that "There is a digital divide within Congress between a small group of offices that host good to excellent Web sites and the vast majority that host fair to poor sites."
The report also concluded that "neither congressional offices nor the public they serve are yet reaping the benefits of this powerful new medium."
The report found that "Constituents, special interest groups, and reporters are seeking basic legislative information such as position statements, rationales for key votes, status of pending legislation, and educational material about Congress. However, offices are using Web sites primarily as promotional tools ..."
The COP report identified 35 web sites for praise. It picked both the web site of the House Commerce Committee and that of the House Commerce Committee Democrats.
The COP reviewed 605 web sites of Members of Congress, Congressional committees, and Congressional leadership offices. The COP also interviewed Congressional staff and conducted constituent focus groups. The COP is funded by a grant from the Pew Charitable Trusts. The report was written by George Washington University and the Congressional Management Foundation.
ProComp Opposes Microsoft Antitrust Settlement
1/28. ProComp, an anti Microsoft group, submitted a lengthy comment [PDF] in opposition to the Proposed Final Judgment (PFJ) filed with U.S. District Court (DC) in the case U.S. v. Microsoft.
January 28 was the deadline for the public to submit comments on the proposed settlement, pursuant to the 15 U.S.C. § 16, which is also known as the Tunney Act. It requires that "Before entering any consent judgment proposed by the United States under this section, the court shall determine that the entry of such judgment is in the public interest."
ProComp's comment begins with the statement, "This proposed decree is so ineffective that it would not have prevented Microsoft from destroying Netscape and Java, the very acts that gave rise to this lawsuit. It is so ineffective in controlling Microsoft that it might as well have been written by Microsoft itself."
ProComp asserts that the "public interest" standard under the Tunney Act "is determined in this case by the unanimous legal ruling of the Court of Appeals for the District of Columbia Circuit sitting en banc. That Court held that Microsoft has maintained its monopoly in personal computer operating systems in clear violation of Section 2 of the Sherman Act. No decree that fails to cure that illegality and prevent its recurrence can conceivably serve the public interest."
The comment elaborates that "the proposed settlement takes no steps to remedy Microsoft’s foreclosure of middleware threats from competing Internet browsers and cross platform Java technology, Microsoft’s related efforts to illegally increase the applications barrier to entry protecting its Windows monopoly, or Microsoft’s illegal commingling of browser and other middleware code with Windows. Further, the proposed settlement does not assure that future middleware competitors will have access to the necessary technical information to interoperate properly with Windows, and does not open up the critical Original Equipment Manufacturer ("OEM") distribution channel to these future competitors. Finally, the PFJ ignores the competitive threat to Microsoft’s monopoly presented by server-based distributed applications, and thus fails to address Microsoft’s practice of protecting its monopoly by controlling proprietary interfaces and communications protocols."
ProComp's comment also states that "The proposed decree is riddled with ambiguities and loopholes and grants unilateral, essentially unreviewable, power to Microsoft to define the scope of its own ambiguous obligations. As such, the PFJ is an illusory contract, and unenforceable as a matter of well settled contract law."
The comment argues that "divestiture remains the most effective remedy for Microsoft’s wide ranging unlawful practices. Conduct remedies like the proposed decree are a second best solution, because they rely on the defendants good will to comply."
In conclusion, the ProComp recommends that "the Court must find that the Proposed Final Judgment is not in the public interest. At a minimum, the Court should defer any judgment on the PFJ until the upcoming remedies hearing in the ongoing litigation is conducted. This is necessary to avoid inconsistent remedies."
ProComp's filing also included a 34 page affidavit signed by Kenneth Arrow, an emeritus professor of economics at Stanford University. His Nobel prize winning career is built upon his "Arrow's Theorem". See, Social Choice and Individual Values, first published in 1951.
Arrow wrote in his affidavit that "As the D.C. Circuit found, Microsoft violated Sec. 2 of the Sherman Act in impermissibly maintaining its monopoly through actions designed to eliminate the threat to that monopoly posed in the mid 1990s by competition from Netscape Navigator and Java middleware. Given that finding, the remedies in this case should eliminate the benefits to Microsoft of its illegal conduct; should restore, if possible, the possibility of competition in operating systems; and should not allow Microsoft to protect its illegally maintained monopoly from current and future competition in related markets, such as server operating systems and Web services. In my opinion, the PFJ fails to accomplish these objectives."
The ProComp comment lists as its authors the famous lawyers Robert Bork and Kenneth Starr. It also lists Michael Pettit of ProComp and Kevin Arquit of the law firm of Clifford Chance. Finally, its lists Glenn Manishin of the law firm of Kelley Drye & Warren. See also, ProComp release.
Sen. Edwards Introduces Bills to Fight Cyber Jihad
1/28. Sen. John Edwards (D-NC) introduced S 1900, the Cyberterrorism Preparedness Act of 2002, and S 1901, the Cybersecurity Research and Education Act of 2002. Sen. Edwards stated that "we must be prepared to fight against a cyberjihad."
S 1900 would authorize the appropriation of $70 Million in FY 2003 for grants to be administered by the National Institute of Standards and Technology (NIST) "to support the development of appropriate cybersecurity best practices, support long-term cybersecurity research and development, and perform functions relating to such activities." S 1901 would authorize appropriations for a cybersecurity graduate fellowship program, and other educational programs.
Sen. Edwards spoke in the Senate in support of his bills. He stated that "there is a dark side to the internet, a new set of dangers. Today, if you ask an expert quietly, he or she will tell you that cyberspace is a very vulnerable place. Terrorists could cause terrible harm. They might be able to stop all traffic on the internet. Shut down power for entire cities for extended periods. Disrupt our phones. Poison our water. Paralyze our emergency services--police, firefighters, ambulances. The list goes on. We now live in a world where a terrorist can do as much damage with a keyboard and a modem as with a gun or a bomb."
He added that "cybercrime is already a billion dollar drain on our economy, a drain growing larger each year."
He also said that The Cyberterrorism Preparedness Act will address the first goal of cybersecurity -- making sure we're taking the steps we already know to improve our security. The second bill I am introducing today -- the Cybersecurity Research and Education Act -- focuses on our second task: ``training the trainers´´ and increasing the number of researchers, teachers, and workers committed to cybersecurity."
ACT Submits Comments on Microsoft Settlement
1/28. The Association for Competitive Technology (ACT) submitted a comment [PDF] in support of the Proposed Final Judgment (PFJ) filed with U.S. District Court (DC) in the case U.S. v. Microsoft. It states that the PFJ "
prevents Microsoft from engaging in exclusionary or retaliatory tactics, as well as foreclosing a number of more specific paths to unfair competition. However, it is carefully crafted to ensure that Windows will remain available to consumers as a reliable operating platform."
ACT also stated that "many of the Litigating States' proposals seem to have been designed by Microsoft’s competitors. Indeed, the companies that will benefit most from the Litigating States' efforts are the same ones that have led the campaign to scuttle settlement efforts in this case and to impose far-reaching restrictions on Microsoft: AOL Time Warner, Sun Microsystems, Oracle, IBM, and Apple."
DOJ Recommends Approval of Verizon NJ 271 Application
1/28. The Antitrust Division of the Department of Justice (DOJ) submitted its evaluation [PDF] to the Federal Communications Commission (FCC) recommending that it approve Verizon's Section 271 application to provide in region interLATA services in the state of New Jersey. This is CC Docket No. 01-347. See, DOJ release.
The DOJ wrote that "The record in this matter suggests that Verizon has succeeded in opening its local markets in New Jersey to competition in most respects. Subject to the Commission satisfying itself as to the pricing issues discussed below, the Department recommends approval of Verizon’s application ..."
Verizon has already gained approval to provide long distance services in Pennsylvania, Connecticut, Massachusetts, and New York. It also has applications pending for the states of Rhode Island and Vermont. Sarah Deutsch, VP and Associate General Counsel of Verizon, stated in a release that "We are very pleased ..."
6th Cir Rules in H1B Case
1/28. The U.S. Court of Appeals (6thCir) issued its opinion in CDI v. Reno, an H1B visa case. Prakash Vaideeswaran received a non-immigrant, temporary employee visa pursuant to 8 U.S.C. § 1101(a)(15)(H)(i)(b). That is, he held an H1B visa that enabled him to work for a computer company. The Immigration and Naturalization Service (INS) denied a request to extend this visa on the grounds that he had moved from Oregon to Hawaii. The District Court upheld the INS decision. The Appeals Court ruled that it lacked jurisdiction. It referred to 8 U.S.C. § 1252(a)(2)(B)(ii), which provides that "no court shall have jurisdiction to review . . . (ii) any other decision or action of the Attorney General the authority for which is specified under this subchapter to be in the discretion of the Attorney General ..."
Privacy News
1/28. Qwest announced that "it is withdrawing its plans to share private customer account information among different divisions in the company. Citing customer concerns, the company said a decision on when and how it might share information within Qwest would be made after the Federal Communications Commission (FCC) has an opportunity to issue new rules, expected later this year." See, Qwest release.
People and Appointments
1/28. Jeffrey Sheldon joined the Washington DC office of the law firm of McDermott Will & Emery as a partner in the firm's regulation and government affairs department. He will also be a member the firm's telecommunications practice group, advising telecom clients regarding legislative and regulatory matters. He was previously VP of Cogent Communications. Before that, he was VP and General Counsel of United Telecom Council. See, MWE release.
1/28. Ernest Kelly will retire as President of the Association of Communications Enterprises (ASCENT) on April 30, 2002. His replacement has not been named. See, release.
More News
1/26. President Bush stated in his regular Saturday radio address that "My budget calls for the largest increase in defense spending in the last 20 years, investing in more precision weapons, missile defenses, unmanned vehicles, and high tech equipment for our soldiers on the ground."

Go to News Briefs for January 21-25, 2002.