News from March 16-20, 2002

Senate Subcommittee Holds Another Hearing on Identity Theft
3/20. The Senate Judiciary Committee's Subcommittee on Technology, Terrorism, and Government Information will held yet another hearing on identity theft. Sen. Dianne Feinstein (D-CA) presided. She is the sponsor of S 1399, the Identity Theft Prevention Act of 2001.
See, prepared testimony of witnesses: Howard Beales (Director of the Federal Trade Commission's Bureau of Consumer Protection), Christine Gregoire (Attorney General of Washington), Linda Foley (Identity Theft Resource Center), Lou Cannon (Fraternal Order of Police), and Sallie Twentyman. See also, prepared statement of Sen. Orrin Hatch (R-UT), the ranking Republican on the Senate Judiciary Committee.
House Passes Telecommuting Bill
3/20. The House passed HR 3924, the "Freedom to Telecommute Act of 2002", by a vote of 421-0. See, Roll Call No. 71. This bill would permit the use of telecommuting by employees of federal contractors in the performance of contracts with executive agencies.
Rep. Cubin Introduces Wireless One Percent Bill
3/20. Rep. Barbara Cubin (R-WY) introduced HR 4012, the "Rural Wireless Telecommunications Consumer Enhancement Act of 2002". This bill would amend the Communications Act of 1934 to provide regulatory relief to wireless telecommunications providers with fewer that one percent of subscribers. It was referred to the House Commerce Committee, of which she is a member.
The bill would provide regulatory relief to "small rural wireless carriers". However, the bill's definition of this term makes no reference to "rural". Rather, it is based on subscriber base. It is "any wireless company (together with all affiliates) whose wireless subscribers are fewer than 1 percent of the Nation's wireless subscribers in the aggregate nationwide".
The bill then provides that "In adopting rules that apply to small rural wireless carriers ... the Commission shall separately evaluate the burden that any proposed regulatory, compliance, or reporting requirements would have on small rural wireless carriers." For example, the bill provides that if the FCC's "evaluation determines that any proposed regulatory, compliance, or reporting requirement would create a financial burden on small rural wireless carriers by imposing additional costs that require small rural wireless carriers to divert resources from improving existing and advanced services, making infrastructure investments, and other competitive initiatives for the benefit of businesses and residents in rural areas, the Commission shall forbear from imposing such requirement on small rural wireless carriers unless it determines such forbearance is not in the public interest."
The bill would also create at the FCC an "Office of Rural Advocacy" to be headed by a "Rural Advocate" who would be appointed by the President and confirmed by the Senate.
Rep. Rothman Introduces Teacher Technology Training Bill
3/20. Rep. Steve Rothman (D-NJ) introduced HR 4064, the "Education for the 21st Century (E-21) Act". This bill was referred to the Committee on Education and the Workforce.
The bill would authorize appropriations of $30 Million for each of fiscal years 2003 through 2007 to fund a grant program for teacher training in technology.
The bill would also authorize appropriations of $5 Million for each of fiscal years 2003 through 2007 to fund a grant program relating to education software and web sites. The bill states that "The Secretary of Education is authorized to award grants, on a competitive basis, to students in secondary schools and institutions of higher education, working with faculty of an institution of higher education, software developers, and experts in educational technology for the development of high-quality educational software and Internet websites by such students, faculty, developers, and experts."
1st Circuit Rules in PSLRA Case
3/20. The U.S. Court of Appeals (1stCir) issued its opinion in Aldridge v. A.T. Cross, a securities class action against a tech company that involves construction of the heightened pleading requirements of the PSLRA.
Background. Cross is a publicly traded company that make writing instruments. It also briefly produced pen based computing products, without financial success. It stock price suffered as a result. Michael Aldridge owned stock in Cross.
Complaint. Aldridge filed a complaint in U.S. District Court (DRI) against Cross and four of its officers, and trusts which own a part of Cross, alleging violation of federal securities laws -- §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b5 thereunder. Aldridge sought class action status. Defendants moved to dismiss for failure to state a claim pursuant to Rule 12(b)(6), FRCP, and the PSLRA.
Private Securities Litigation Reform Act (PSLRA). Congress passed the PSLRA, 15 U.S.C. § 78u-4, to insulate defendants, and especially info and bio tech companies, from abusive class action law suits. The PSLRA creates both a safe harbor for forward looking statements, and a heightened pleading requirement. Plaintiffs must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind."
Other Circuits. The pleading requirements of the PSLRA have been interpreted, with conflicting conclusions, by various circuits. See, for example, Janas v. McCracken (In re Silicon Graphics Sec. Litig.), 183 F.3d 970 (9th Cir 1999); Novak v. Kasaks, 216 F.3d 300 (2d Cir); In re Advanta Corp. Sec. Litig., 180 F.3d 525 (3d Cir 1999); Bryant v. Avado Brands, 187 F.3d 1271 (11th Cir 1999); Helwig v. Vencor, (6th Cir 2001); Philadephia v. Fleming (10th Cir, 2001); and Nathenson v. Zonagen (5th Cir, 2001).
Holding. The District Court dismissed the complaint. The Court of Appeals, following its precedent in Greebel v. FTP Software, 194 F.3d 185 (1st Cir 1999), reversed and remanded, except as to the trust defendants. The Appeals Court stated that "the PSLRA did not mandate a particular test to determine scienter and that this court would continue to use its case by case fact specific approach". It further stated that "plaintiff must show either that the defendants consciously intended to defraud, or that they acted with a high degree of recklessness" and that "the plaintiff may combine various facts and circumstances indicating fraudulent intent to show a strong inference of scienter. As part of the mix of facts, the plaintiff may allege that the defendants had the motive ... and opportunity ... to commit the fraud".
Cal App Rules on Malicious Prosecution of Trademark Claims
3/20. The California Court of Appeal (2/7) issued its opinion [PDF] in Vanzandt v. Daimler Chrysler, a case regarding malicious prosecution involving trademark claims.
Ted Vanzandt filed a complaint in Superior Court in Los Angeles County, California, against Daimler Chrysler, its law firms, and individual attorneys, alleging malicious prosecution. In a previous action, Daimler Chrysler filed a complaint in U.S. District Court against Vanzandt alleging trademark infringement, trademark dilution, and unfair competition in connection with Vanzandt's production and sale of radiator grille overlays for Daimler Chrysler Jeep vehicles. The District Court initially granted Daimler Chrysler partial summary judgment. However, the U.S. Court of Appeals reversed, and Vanzandt ultimately prevailed in that action. In the present action, the Superior Court held that the complaint was barred because Vanzant could not demonstrate that the defendants lacked probable cause to prosecute the previous action.
The Court of Appeal affirmed. It wrote that "The tort of malicious prosecution recognizes the right of an individual to be free from unjustifiable litigation or criminal prosecution." However, it cautioned that "the action has traditionally been regarded with disfavor and the tort's elements have been strictly construed and carefully circumscribed."
The Court of Appeals listed the elements of a malicious prosecution claim: "the prior action (1) was commenced by or at the direction of the defendant and was pursued to a legal termination in the plaintiff’s favor; (2) was brought without probable cause; and (3) was initiated with malice."
This case focused on the element of probable cause. The Court of Appeal elaborated that "A plaintiff has probable cause to bring a civil suit if the claim is legally tenable. This issue is considered objectively, without regard to the mental state of the plaintiff or counsel; and the trial court determines as a question of law whether probable cause exists. ... Probable cause may be found even where a suit lacks merit."
The Court of Appeal concluded that since the U.S. District Court had initially ruled in Daimler Chrysler's favor, there was probable cause. It wrote, "Where a plaintiff in the underlying action obtains a favorable judgment on the merits, such ruling is, unless procured by fraud, conclusive proof the proceedings were prosecuted with probable cause, notwithstanding the fact the decision is reversed on appeal."
The opinion provides little guidance where the defendant in a malicious prosecution action did not obtain a favorable judgment.
6th Circuit Rules in Copyright Registration Case
3/20. The U.S. Court of Appeals (6thCir) issued its opinion in Coles v. Stevie Wonder, a case regarding copyright registrations that deposit copies reconstructed from memory.
Derrick Coles applied for a copyright registration for a song in 1990. The recording of the song deposited with his application was made in 1990, from memory. Stevie Wonder had produced recordings of the song in the early 1980s.
Coles filed a complaint in U.S. District Court (NDOhio) in 1998 against Stevie Wonder and others alleging copyright infringement. The District Court held for defendants.
The Appeals Court affirmed. It wrote that "the 1990 recording must be viewed as a reconstruction only, not a copy, and therefore he could not receive a valid copyright registration in the 1982 version of the song." The Court added that this "rule permits an artist to protect an original song against potential infringement by registering the original work with the Copyright Office immediately after its creation by depositing either a recording of the song or a written version of it with the copyright application; by retaining a copy of a recording of the original song or written version of it that dates from the time of creation for deposit with a subsequent copyright application; or by making the copy for deposit by referring to a recording or written version of the original work." The Appeals Court relied upon Kodadek v. MTV Networks, 152 F.3d 1209 (9th Cir. 1998).
Antitrust and Sports Leagues
3/20. The U.S. Court of Appeals (1stCir) issued its opinion in Fraser v. Major League Soccer, an antitrust case involving sports leagues.
Soccer players filed a complaint in the U.S. District Court (DMass) against Major League Soccer, its member teams, and others, alleging violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and Section 7 of the Clayton Act, 15 U.S.C. § 18.
The District Court granted summary judgment for defendants on the Sherman § 1 and Clayton Act counts. After a 12 week trial on the § 2 count, the jury returned a special verdict leading to judgment in favor of defendants. The players appealed. The Court of Appeals affirmed.
9th Circuit Upholds Service By E-Mail
3/20. The U.S. Court of Appeals (9thCir) issued its opinion in Rio Properties v. Rio International, a trademark case involving Rule 4 alternative service of process by e-mail, pre-trial discovery, and default. The Appeals Court upheld the District Court order allowing service by e-mail.
Rio Properties, Inc. (Rio) owns the RIO All Suite Casino Resort, a major Las Vegas hotel and gambling casino. Rio International Interlink (RII) is an offshore Internet gambling operation that infringed Rio's trademarks in print advertising and domain name registrations. RII has no physical location. However, it does have a presence on web servers, and it has an e-mail address.
Rio filed a complaint in U.S. District Court (DNev) against RII alleging various trademark related claims. RII evaded service of process. The District Court granted Rio's motion for alternate service of process, pursuant to Rule 4(f), FRCP. Specifically, the Court allowed service by e-mail at the address advertised by RII, and by regular mail at the address provided by RII when registering infringing domain names. RII subsequently provided inadequate responses to discovery requests. It then failed to comply with the Court's discovery orders. The Court granted judgment by default to Rio. RII appealed.
The Appeals Court affirmed. On the issue of alternative service of process, the Appeals Court found the e-mail and regular mail service to be adequate.
As for service by e-mail, the Court wrote: "We acknowledge that we tread upon untrodden ground. The parties cite no authority condoning service of process over the Internet or via email, and our own investigation has unearthed no decisions by the United States Courts of Appeals dealing in the federal courts. Despite this dearth of authority, however, we do not labor long in reaching our decision. Considering the facts presented by this case, we conclude not only that service of process by email was proper -- that is, reasonably calculated to apprise RII of the pendency of the action and afford it an opportunity to respond -- but in this case, it was the method of service most likely to reach RII."
"To be sure, the Constitution does not require any particular means of service of process, only that the method selected be reasonably calculated to provide notice and an opportunity to respond."
The Court also wrote that "Although communication via email and over the Internet is comparatively new, such communication has been zealously embraced within the business community. RII particularly has embraced the modern e-business model and profited immensely from it. In fact, RII structured its business such that it could be contacted only via its email address. RII listed no easily discoverable street address in the United States or in Costa Rica. Rather, on its website and print media, RII designated its email address as its preferred contact information."
The Appeals Court concluded that "RII had neither an office nor a door; it had only a computer terminal. If any method of communication is reasonably calculated to provide RII with notice, surely it is email -- the method of communication which RII utilizes and prefers. In addition, email was the only court ordered method of service aimed directly and instantly at RII, as opposed to methods of service effected through intermediaries ... Indeed, when faced with an international ebusiness scofflaw, playing hide and seek with the federal court, email may be the only means of effecting service of process. Certainly in this case, it was a means reasonably calculated to apprise RII of the pendency of the lawsuit, and the Constitution requires nothing more."
Senators Introduce Net Guard Bill
3/20. Sen. Ron Wyden (D-OR) and Sen. George Allen (R-VA) introduced the Science and Technology Emergency Mobilization Act, a bill to provide for the mobilization of technology and science experts to respond quickly to the threats posed by terrorist attacks and other emergencies. It would create a National Emergency Technology Guard (NET Guard), a Technology Reliability Advisory Board, and a center for evaluating antiterrorism and disaster response technology within the National Institute of Standards and Technology (NIST).
This NET Guard would bear some similarity to the National Guard. However, it would be involved in such activities as rebuilding "critical technology infrastructures in the event of a future major terrorist attack, natural disaster, or other emergency."
"This country has already mobilized the military, the government and law enforcement to fight terrorism, but America has yet to tap the tremendous technology and science talents of the private sector," said Sen. Wyden in a release. "This legislation invites a generation raised on information technologies to help their fellow citizens when crisis strikes."
"Mobilizing private sector technologists to help meet our basic communications needs during times of crisis is one of the most important capabilities necessary to properly respond with coordinated efforts to protect our people and ensure our homeland security," said Sen. Allen. "September 11 taught us at least two things: how technological improvements to help our security are needed for State, local and federal services, and the depth of the reservoir of American good will to provide solutions."
The bill provides that its purpose is to create "teams of volunteers with technology and science expertise, organized in advance and available to be mobilized on short notice ... a database of private sector equipment and expertise that emergency officials may call upon in an emergency ... (and) a national clearinghouse and test bed for innovative civilian technologies relating to emergency prevention and response."
NET Guard. The bill provides that "the President shall establish an office within the Executive Branch for the purpose of mobilizing technology and science experts to form a national emergency technology guard. The office shall be headed by a Director, who shall be appointed by the President by and with the advice and consent of the Senate. ... The Director shall develop a procedure by which a group of individuals (including individuals from a single company or academic institution or from multiple such entities) with technological expertise may form a team and apply for certification as a national emergency technology response team." The bill also addressed certification and compensation.
Technology Reliability Advisory Board. The bill would also create a nine member Board to "provide guidance to government, industry, and the public on technical aspects of how to make technology infrastructure less vulnerable to disruption", "make recommendations with respect to what constitute good practices with respect to redundancy, backups, disaster planning, emergency preparedness and recovery of technological and communications systems", and "coordinate its efforts, as appropriate, with the Office of Homeland Security, the President’s Critical Infrastructure Protection Board, and the National Communications System".
Center for Civilian Homeland Security Technology Evaluation. Finally, the bill would create at the NIST a Center that would "serve as a national clearinghouse for innovative technologies relating to security and emergency preparedness and response".
FEC Holds Hearing on Political Activity on the Internet
3/20. The Federal Election Commission (FEC) held a hearing on its Notice of Proposed Rulemaking (NPRM) [PDF] regarding political activity on the Internet. The FEC did not vote on adoption of its proposed rule changes.
This NPRM proposes three rule changes, each of which lists specific political activities on the Internet which are permissible. It would allow individuals to use their own computer to engage in campaign activity on the Internet; it would allow corporations and unions to place hyperlinks to candidates and parties in their web sites; and, it would allow corporations and unions to publish in their web sites press releases announcing candidate endorsements. (This NPRM was published at Federal Register, October 3, 2001, Vol. 66, No. 192, at pages 50358 - 50366.)
The FEC is the federal agency responsible for enforcing the Federal Election Campaign Act (FECA). The FECA gives the FEC authority to regulate campaign contributions and expenditures.
The NPRM proposes a new rule 117.2 that 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, political committee or party committee for no charge or for a nominal charge would not be a contribution or expenditure" within the meaning of the FECA."
The NPRM also proposes a new rule 117.3 that would provide that "a corporation or labor organization may make a press release announcing a candidate endorsement available to the general public on its web site" under certain enumerated conditions.
Third, the NPRM proposes that "no contribution results where an individual, without receiving compensation, use 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 for Federal office, whether or not the individual's activities are known to or coordinated with any candidate, authorized committee or party committee."
The three rules state activities that are permissible. However, witnesses, and at least one Commissioner, expressed reservations about rule making in this area.
The FEC heard from three witnesses, Robert Bauer of the Perkins Coie Political Law Group, Laurence Gold of the AFL-CIO, and James Bopp of the James Madison Center for Free Speech. These witnesses argued in their formal comments, and in their oral testimony, that while the proposed rule changes merely state activities that are permissible and unregulated, these rules would give rise to the implication that other political activities on the Internet are impermissible, or regulated.
For example, Bauer stated in his formal comments submitted on December 3, 2002 that "The unspoken yet unavoidable conclusion is that, should the Commission adopt the NPRM, Commission regulations would restrict all other uses of Internet applications." He added in his oral testimony that the adoption of these rules would be the first step in a process of building a body of rules that will become too complicated for individuals to understand without the assistance of counsel. This, said Bauer, would lead many individuals to simply forego engaging in political activity on the Internet.
Gold stated that there are several other problems with the proposed regulations. He stated that the proposed regulations are not placed within the context of Reno v. ACLU, 521 U.S. 844 (1997), and that this leaves regulated parties in the dark. He objected to the proposed rule allowing corporations and unions to provide hyperlinks in their web sites. He argued that the provision of a hyperlink should not be regulated, and should not be subject to conditions. He added that a hyperlink is merely like providing an address, and does not constitute "anything of value" within the meaning of the FECA. That is, he argued that "the item at issue is exempt to begin with". He also stated that the proposed rule regarding press releases announcing candidate endorsements is "unduly restrictive".
Bopp argued in his prepared testimony that "the proposed rules are underprotective of the free speech rights of those engaged in the political marketplace of ideas. ... the proposed rules should be withdrawn."
This NPRM is a part on an ongoing process at the FEC that began years ago, and will likely continue for some time. On November 1, 1999, the FEC issued a Notice of Inquiry (NOI) that revealed that the FEC was considering treating common activities such as email and hyperlinking as political contributions or expenditures under the FECA, and hence subject to FEC regulation, reporting requirements, and/or contribution limits. See, TLJ story, FEC to Review Campaign Activity on the Internet, November 8, 1999.
The FEC received about 1,300 comments in response to its NOI. Almost all were critical of the FEC for considering regulation of the Internet or freedom of speech. See, TLJ story, Citizens Urge FEC to Stay Away from the Internet, January 12, 2000.
One of the events which preceded the FEC's NOI was the filing of a complaint with the FEC regarding a personal web site operated by Zach Exley. Benjamin Ginsburg, an elections lawyer with the law firm of Patton Boggs, who was also affiliated with the Bush presidential campaign, filed a complaint with the FEC on May 4, 1999. The complaint alleged that Zach Exley's anti-Bush web site violated various technical rules governing campaign money in federal elections. In particular, he alleged that Exley violated the FECA by failing to file campaign expenditure reports. Zach Exley's web site was parodic, defamatory, immature, low budget, and highly critical of George Bush. After receiving public comment in response to its NOI, the FEC determined to take no action against Exley. It released a letter to Exley, and an FEC narrative, on or about April 14, which stated that the FEC would take "no action" against him. See, TLJ story, FEC Takes No Action Against Anti Bush Web Site, April 20, 2000.
FEC Commissioner Sandstrom raised the issue of the meaning of hyperlinks. The proposed regulations use the term, but provide no definition. He stated that the technology is changing. "We are using a technical term, ... we are are not sure of its meaning." He questioned whether technology such as Microsoft Smart Tags would constitute hyperlinks.
The hearing of March 20 was solely a hearing. The FEC did not approve the regulations proposed in the NPRM. TLJ asked two Commissioners and one FEC employee whether the FEC would act before the November 2002 federal elections. One said that it may not; one said "sure"; and one was non-committal.
Commissioner Brad Smith told TLJ during a break that several years ago it appeared as though the Internet might play a significant role in political campaigning. However, he added that that has not happened, as candidates have continued to use traditional media for advertising.
Trade Promotion Authority News
3/20. Sen. Charles Grassley (R-IA) and 25 other Republican Senators wrote a letter to the Sen. Tom Daschle (D-SD) and Sen. Trent Lott (R-MS) requesting that a date certain be set for a vote in the Senate on HR 3005, a bill to give the President trade promotion authority. The House passed the bill on December 6, 2001. The Senate Finance Committee then approved its version of the bill by a vote of 18 to 3.
The House Appropriations Committee's Subcommittee on Commerce, Justice, State, and the Judiciary held a hearing on the proposed budget for FY 2003 for the Office of the U.S. Trade Representative (USTR). Subcommittee Chairman Rep. Frank Wolf (R-VA) stated that the USTR's proposed budget ($32 Million) is "miniscule", and hence, the hearing ought to address policy, rather than appropriations. USTR Robert Zoellick then testified that, among other things, the Congress ought to enact legislation granting the President trade promotion authority. Subcommittee members discussed Russian chicken policy, Mexican tomatoes, the Cuban trade embargo, U.S. sugar policy, and other issues.
SEC Files Insider Trading Complaint
3/20. The Securities and Exchange Commission (SEC) announced that it filed a civil complaint in U.S. District Court (DAriz) against John Harbottle alleging insider trading in violation of § 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. The complaint alleges that Harbottle traded in the stock of Interact Commerce Corp. prior to the public announcement that Interact would be acquired by Sage Group. Harbottle was previously CFO of Interact. See also, SEC release.
People and Appointments
3/20. President Bush nominated Kathie Olsen to be an Associate Director of the Office of Science and Technology Policy. See, White House release.
More News
3/20. The Senate Commerce Committee held a hearing on HR 1542, the Tauzin Dingell bill. Sen. Ernest Hollings (D-SC), who opposes the bill, presided. Rep. Billy Tauzin (R-LA) and Rep. John Dingell (D-MI) testified. The House passed the bill on February 27. See, prepared statement of Rep. Dingell.
3/20 The National Telecommunications and Information Administration (NTIA) published in its web site information about its April 4-5 Spectrum Summit, including the agenda.
3/20. The Bureau of Export Administration (BXA) published a notice in the Federal Register regarding rule changes pertaining to the export of microprocessors. This rule change implements President Bush's January 2, 2002 announcement that the license exception level for exports of general purpose microprocessors would be raised from 6,500 Million Theoretical Operations Per Second (MTOPS) to 12,000 MTOPS. This rule change is effective March 21, 2002. See, Federal Register, March 21, 2002, Vol. 67, No. 55, at Pages 13091 - 13092.
3/20. The Federal Communications Commission (FCC) published a notice in the Federal Register containing rule changes that implement its reorganization of the existing Cable Services and Mass Media Bureaus into a new Media Bureau. These new rules go into effect on March 25, 2002. See, Federal Register, March 21, 2002, Vol. 67, No. 55, at Page  13230 - 13235.
3/20. The Federal Communications Commission (FCC) published a notice in the Federal Register containing rule changes that implement its reorganization by establishing a Media Bureau, a Wireline Competition Bureau, and a Consumer and Governmental Affairs Bureau, and by reorganizing its International Bureau. These new rules go into effect on March 25, 2002. See, Federal Register, March 21, 2002, Vol. 67, No. 55, at Pages 13215 - 13230.
3/20. The Senate passed HR 2356, the campaign spending bill. President Bush stated in a release that he will sign the bill.
Senate Subcommittee Holds Hearing on FTC Budget
3/19. The Senate Appropriations Committee's Subcommittee on Commerce, Justice, State, and the Judiciary held a hearing on the proposed budget estimates for Fiscal Year 2003 for the Federal Trade Commission (FTC), and other agencies.
See, prepared testimony of FTC Chairman Timothy Muris, prepared testimony of FTC Commissioner Sheila Anthony, and prepared testimony of FTC Commissioner Mozelle Thompson.
Sen. Ernest Hollings (D-SC) used this event to once again state his opposition to the Memorandum of Agreement between the FTC and the Antitrust Division of the Department of Justice that divides responsibility for merger reviews between the two agencies according to industry. He threatened to reduce funding.
House Delays Consideration of Two Tech Bills
3/19. The House Republican leadership delayed consideration of two technology related bills that had been scheduled for floor votes this week: and HR 3924, the "Freedom to Telecommute Act of 2002", and HR 3925, the "Digital Tech Corps Act of 2002".
Both bills were introduced on March 12 by Rep. Tom Davis (R-VA). Both are cosponsored by Rep. Dan Burton (R-IN), the Chairman of the House Government Reform Committee. Both were marked up by that committee on March 14. HR 3924 had been scheduled for consideration under suspension of the rules on Tuesday, March 19. This procedure allows for quick consideration, with no amendments, but requires a two thirds majority for passage. HR 3295 had been scheduled for floor debate on Wednesday or Thursday, March 20 or 21.
The House goes on recess at the end of this week, thus delaying consideration of these bills at least until the House returns.
The Freedom to Telecommute Act of 2002 is a bill to permit the use of telecommuting by employees of federal contractors in the performance of contracts with executive agencies.
The Digital Tech Corps Act of 2002 would establish an exchange program between the federal government and the private sector in order to promote the development of expertise in information technology management. The bill states that "On request from or with the agreement of a private sector organization, and with the consent of the employee concerned, the head of an agency may arrange for the assignment of an employee of the agency to a private sector organization or an employee of a private sector organization to the agency. An eligible employee is an individual who (1) works in the field of information technology management; (2) is considered an exceptional performer by the individual's current employer; and (3) is expected to assume increased information technology management responsibilities in the future."
Sen. Leahy Reintroduces Bill to Close 11th Amendment Loophole to IPR
3/19. Sen. Patrick Leahy (D-VT) and Sen. Sam Brownback (R-KS) introduced S 2031, the Intellectual Property Protection Restoration Act of 2002. This is the latest version of Sen. Leahy's proposal to stop states from evading liability for infringing intellectual property rights by asserting 11th Amendment immunity.
The bill states that its purpose is to "eliminate the unfair commercial advantage that States and their instrumentalities now hold in the Federal intellectual property system because of their ability to obtain protection under the United States patent, copyright, and trademark laws while remaining exempt from liability for infringing the rights of others."
Supreme Court Cases. The problem addressed by this bill arose in 1996 when the Supreme Court of the U.S. ruled in Seminole Tribe of Florida v. Florida that the Congress lacks authority under Article I of the Constitution to abrogate the States' 11th Amendment immunity from suit in federal courts. See also, the 1999 opinions of the Supreme Court in Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank (invalidating the Patent and Plant Variety Protection Remedy Clarification Act) and College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board (invalidating the Trademark Remedy Clarification Act).
Eleventh Amendment. "The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State."
Huge Loophole. Sen. Leahy stated in the Senate on March 19 that "the decisions opened up a huge loophole in our Federal intellectual property laws. If we truly believe in fairness, we cannot tolerate a situation in which some participants in the intellectual property system get legal protection but need not adhere to the law themselves. If we truly believe in the free market, we cannot tolerate a situation where one class of market participants have to play by the rules and others do not."
Related Bills. Sen. Leahy previously introduced S 1611, the Intellectual Property Protection Restoration Act of 2001, on November 1, 2001. The Senate Judiciary Committee, which Sen. Leahy chairs, held a hearing on that bill on February 27, 2002. S 2031 revises the previous bill in light of hearing testimony. Sen. Leahy also sponsored similar legislation in the 106th Congress. The related bill in the House is HR 3204, sponsored by Rep. Howard Coble (R-NC) and Rep. Howard Berman (D-CA).
Summary of S 2031. This bill would prevent states from recovering damages for infringement of state owned intellectual property, unless they have first waived their 11th Amendment sovereign immunity from suits against them for their infringement of the intellectual property of others. This bill would also provide that states that violate intellectual property rights "in a manner that deprives any person of property in violation of the fourteenth amendment of the United States Constitution, shall be liable to the party injured in a civil action in Federal court for compensation for the harm caused by such violation." The bill contains similar language for violations which constitute takings under the 5th Amendment.
DOJ Report Blames Human Error -- Not Computers -- for McVeigh Delay
3/19. The Department of Justice's (DOJ) Office of the Inspector General (OIG) released its report [198 pages in PDF] on the delayed production of investigative documents in the Timothy McVeigh prosecution. The report concludes that, contrary to earlier assertions by the FBI that computer systems caused the delay, the cause was human error. See also, the OIG's executive summary [14 pages in PDF] and DOJ release.
Sen. Charles Grassley (R-IA), a senior member of the Senate Judiciary Committee, who has been pressing the FBI on this issue, commented on the OIG report. He stated that "The FBI's excuse that 'the computer ate my homework' simply doesn't add up."
Inspector General Glenn Fine issued the report. The report states that "On May 8, 2001, one week before McVeigh's scheduled execution date, the Department of Justice and the FBI revealed to McVeigh's and Nichols' attorneys that over 700 investigative documents had not been disclosed to the defendants before their trials. The government acknowledged that it had violated a discovery order in the case, and the Attorney General stayed McVeigh's execution for one month in order to resolve the legal issues arising from the belated disclosure."
The report continues that "we did not conclude that the computer system was the cause of the belated production of documents. The FBI's computer system is antiquated and in need of substantial improvement, but we found that human error, not the inadequate computer system, was the chief cause of the failure to provide the defense with these items. The failures that we observed stemmed from individual mistakes, the FBI’s complex document processing systems, inconsistent interpretations of FBI policies and procedures, agents' failures to follow FBI policies, agents' lack of understanding of the unusual discovery agreement in this case, and the tremendous volume of material being processed within a short period of time."
However, the OIG report states that "We also recommend substantially enhanced computer training and suggest that the FBI should consider making computer usage part of the core skills needed to graduate from the new agents training academy."
Sen. Grassley added that "the McVeigh case reveals a management meltdown. Documents were mishandled, procedures were ignored, and when mistakes were discovered, supervisors in the field covered them up and managers in headquarters promoted those responsible. ... Those problems jeopardize criminal investigations."
Verizon Withdraws New Jersey Long Distance Application
3/19. Verizon withdrew its Section 271 application to Federal Communications Commission (FCC) to provide in region interLATA service in the state of New Jersey. It stated in a letter [PDF] to the FCC that "process concerns have been raise with respect to an issue that has been the focus of dispute between the parties -- the non-recurring charge for performing a hot cut. To address these concerns, Verizon hereby provides notice that it is withdrawing its application and will shortly file to initiate a new application."
A hot cut is the process used to disconnect a line over which a customer already is receiving service and to connect it to another carrier's switch.
Verizon SVP Tom Tauke stated in a release that "Verizon will refile promptly". This is CC Docket No. 01-347.
9th Circuit Rules in AT&T v. Coeur D'Alene Tribe
3/19. The U.S. Court of Appeals (9thCir) issued its opinion in AT&T v. Coeur D'Alene Tribe, a case regarding whether AT&T must provide toll free telephone service to an Indian tribe's gambling lottery that is offered interstate by telephone. The case involves the jurisdiction of federal and tribal courts, the Indian Gaming Regulatory Act (IGRA), gambling law, and telecommunications law.
The Coeur D'Alene Tribe engages in gambling activities pursuant to the Indian Gaming Regulatory Act, 25 U.S.C. § 2701 et seq. It created a National Indian Lottery that allowed off reservation participants to purchase tickets by telephone from outside of the state of Idaho. It sought toll free telephone service from AT&T for this lottery. AT&T refused, citing 18 U.S.C.§ 1084(d), which provides, in part that "When any common carrier, subject to the jurisdiction of the Federal Communications Commission, is notified in writing by a Federal, State, or local law enforcement agency, acting within its jurisdiction, that any facility furnished by it is being used or will be used for the purpose of transmitting or receiving gambling information in interstate or foreign commerce in violation of Federal, State or local law, it shall discontinue or refuse, the leasing, furnishing, or maintaining of such facility ..." It had received such letters from states.
The tribe filed a complaint in the Coeur D'Alene tribal court against AT&T seeking declaratory and injunctive relief pursuant to the common carrier obligations of the Communications Act. The Act, at 47 U.S.C. § 201(a) provides, in part, that "It shall be the duty of every common carrier engaged in interstate or foreign communication by wire or radio to furnish such communication service upon reasonable request therefor ..." The tribal court held that the telephone lottery was lawful under the IGRA, and enjoined AT&T from refusing to provide the requested service.
AT&T then filed a complaint in U.S. District Court (DIdaho) against the tribe challenging the jurisdiction of the tribal court, and its interpretation of federal statutes. The District Court did not address tribal jurisdiction, but granted AT&T declaratory relief that it was not obligated to provide the toll free service, since the lottery was illegal for allowing off reservation participation.
The Court of Appeals held that the tribal court lacked jurisdiction, but reversed the District Court holding that the lottery violated the IGRA. It reversed and remanded. Judge Betty Fletcher wrote the opinion. Judge Ronald Gould dissented in part. He would have also affirmed the District Court's holding that the lottery was illegal.
People and Appointments
3/19. John Bruckner joined the Austin office of the law firm of Gray Cary. He was previously counsel in the Austin office of Fulbright & Jaworski. He is a patent attorney who focuses on software, electronics and materials science industry. See, Gray Cary release.
3/19. Neal Dittersdorf joined the Washington DC office of the Venable law firm as counsel in the Business Transactions and Corporate Technology practices. He focuses on information technology, outsourcing, software, e-commerce and other technology matters. See. Venable release.
3/19. James Miller joined the Washington DC office of the the law firm of Howrey Simon law firm as head of its Capitol Consulting group. He was Chairman of the Federal Trade Commission (FTC) during the first Reagan administration, and Director of the Office of Management and Budget (OMB) during the second Reagan administration.
More News
3/19. The Office of the U.S. Trade Representative (USTR) released its annual report titled "2002 Trade Policy Agenda and 2001 Annual Report of the President of the United States on the Trade Agreements Program".
3/19. Net2Phone and Adir Technologies filed a complaint in U.S. District Court (DNJ) against Cisco Systems alleging breach of contract, theft of trade secrets, unfair competition, fraud and other claims.
3/19. The General Accounting Office (GAO) released a report [PDF] titled "Information Technology: Enterprise Architecture Use across the Federal Government Can Be Improved".
Supreme Court Denies Cert in Patent Cases
3/18. The Supreme Court of the U.S. denied certiorari in Tokyo Electron America v. Tegal, No. 01-962, and Tegal v. Tokyo Electron America, No. 01-993. See, Order List [PDF] at page 3. This an appeal from the U.S. Court of Appeals (FedCir) in a patent infringement action. Tegal filed a complaint in U.S. District Court (EDVa) against Tokyo Electron America (TEA) alleging infringement of its U.S. Patent No. 4,464,223, which relates to plasma etching equipment that is used in fabricating semiconductor chips.
3/18. The Supreme Court of the U.S. denied certiorari in Andrx Pharmaceuticals v. Biovail, No. 01-1050. See, Order List [PDF] at page 5. This an appeal from the U.S. Court of Appeals (FedCir) in a patent infringement action involving a drug used to treat hypertension and angina. See, opinion of the Court of Appeals.
6th Circuit Rules on Duty to Defend Patent Suits
3/18. The U.S. Court of Appeals (6thCir) issued its opinion in Weiss v. St. Paul Fire And Marine Insurance, a case regarding the duty of insurers to defend and indemnify their insureds in patent infringement actions under advertising injury coverage.
Background. St. Paul Fire and Marine Insurance (St. Paul) provided liability coverage for Mor-Flo, a manufacturer of water heaters. In another action, Mor-Flo was sued for patent infringement. Mor-Flo requested that St. Paul defend and indemnify it. St. Paul refused. Mor-Flo lost that suit, and paid the patent holder over $9.9 Million in damages and over $2.2 Million in fees and costs.
District Court. A successor in interest to Mor-Flo's duty to defend claim filed a complaint in U.S. District Court (NDOhio) against St. Paul alleging breach of its duty under the insurance policy to defend and indemnify for advertising injuries. Federal jurisdiction was based upon diversity of citizenship. The District Court held that St. Paul owed Mor-Flo a duty to defend the patent infringement action and that it was liable for the attorney's fees and costs incurred by Mor-Flo in defending that action. However, the District Court held that St. Paul had no duty to indemnify.
Court of Appeals. The Appeals Court, construing the insurance contract pursuant to Ohio state law, reversed the District Court on the issue of duty to defend, and upheld the District Court on the issue of duty to indemnify.
DOJ Official Addresses Antitrust, Politics and Technology
3/18. William Kolasky gave a speech titled "Comparative Merger Control Analysis: Six Guiding Principles for Antitrust Agencies -- New and Old" to antitrust regulators in Cape Town, South Africa. He offered general principles for antitrust regulators. He also focused on the politics of antitrust enforcement, and the problems of applying antitrust principles to new technologies.
Kolasky is a Deputy Assistant Attorney General in the Antitrust Division of the Department of Justice. He spoke to the International Bar Association's Conference on Competition Law and Policy in a Global Context.
He stated that "Rigorous enforcement of antitrust laws is essential in preserving and extending the gains that open markets have brought to national economies and the global economy as a whole. But it is equally critical that antitrust enforcement not become a bureaucratic obstacle to efficient transactions and that antitrust enforcers not unnecessarily regulate -- and thereby stifle -- the competitive forces we mean to protect."
Six Principles of Antitrust Enforcement. He offered six basic principles to guide antitrust officials. First, "Antitrust enforcers should not be in the business of picking winners or protecting losers." Second, "efficiencies should play a central role in our analysis of mergers and other allegedly anticompetitive conduct." Third, "we must do everything we can to prevent antitrust from becoming politicized." Fourth, "Antitrust authorities should be law enforcers, not industrial policy makers who try to move industries in a certain direction or dictate particular market results." Fifth, "we must work hard to ensure that the antitrust laws do not themselves become bureaucratic roadblocks to efficient transactions." And sixth, "We must make sure that antitrust adapts to changes in technology and in the economy."
Politics of Antitrust Enforcement. Kolasky went into detail on how politics can corrupt antitrust regulation. He stated that "As an economy grows, and the stakes become ever larger, firms are naturally driven to seek protection and help from their governments. They can be expected to try to use antitrust as a weapon to be wielded against their competitors. This is a problem faced by new antitrust agencies and old -- newer agencies can expect to see their legitimacy challenged, and more mature agencies are increasingly confronted by lobbyists and public relations experts seeking to influence decisions, not through arguments on the competitive merits, but through the media and otherwise."
Kolasky continued that "The best thing that both new and old antitrust enforcement regimes can do to prevent antitrust from becoming politicized is to make sure our decisions are soundly grounded in economic theory and fully supported by the empirical and factual evidence. When complaints -- particularly those of competitors -- are brought to us, they must be tested against what Joseph Schumpeter called ``the cold metal of economic theory.´´ We must also ensure that our decision making is transparent and fair. Senior enforcement officials should give merging parties and complainants an opportunity to engage them substantively before reaching a decision, and should bring their own mature judgment to cases and not rely uncritically on the advice of their staffs. And, we must have in place effective mechanisms for judicial review."
New Technologies and Antitrust. Kolasky concluded with a discussion of new technologies. He said that "we should recognize that in our new, knowledge based economy, competition in some markets is driven more by innovation than price. New economy industries frequently require very large and risky upfront investments that will not be made without the promise of a substantial return. They also are often characterized by large network effects and low marginal product costs. All of this means that the most efficient outcome in some markets may be for a single firm to serve the entire market for at least a period of time."
He added that "In the new economy, the costs of regulatory missteps are therefore very high. Too much government interference will frustrate innovation and discourage efficient practices to the detriment of consumers worldwide. On the other hand, a totally hands-off approach could lead to high prices and frustrate the emergence of potentially superior technologies -- also to the detriment of consumers. The fact that many of the new economy industries are global in nature, coupled with the reality that numerous enforcement agencies may now be looking at the same transactions, make it that much more important -- and that much more difficult -- to get it right."
FCC Commissioner Martin Addresses ITU Conference
3/18. Federal Communications Commission (FCC) Commissioner Kevin Martin gave a speech at the ITU World Telecommunication Development Conference in Istanbul, Turkey, titled "Seizing Digital Opportunities".
He advocated removing "regulatory underbrush", maintaining transparent processes, and relying on the private sector. He stated that "The more private sector interest we can generate in our markets, the more services will be available to our consumers and at prices they can afford. Competition, small and large, is the best mechanism for encouraging infrastructure buildout and achieving universal access."
Sen. Grassley Urges Passage of TPA Bill
3/18. Sen. Charles Grassley (R-IA) gave a speech in the Senate in which he stated that "It is time for the Senate to pass Trade Promotion Authority for President Bush." The House passed HR 3005, the Bipartisan Trade Promotion Authority Act of 2001, on December 6. The Senate Finance Committee approved its version [75 pages in PDF] of HR 3005, by a vote of 18 to 3, on December 12.
Trade promotion authority (TPA), which is also known as fast track, gives the President authority to negotiate trade agreements which can only be voted up or down, but not amended, by the Congress. TPA strengthens the bargaining position of the President, and the U.S. Trade Representative (USTR), in trade negotiations with other nations.
Sen. Grassley stated that "We will sit on the sidelines and our competitors will continue to make deals that exclude us -- it's a game plan for failure. Without TPA, American negotiating power to bring down trade barriers is severely limited. Foreign competitors will continue to weave a web of preferential trade and investment opportunities for themselves and we will fall further behind.
House to Consider Bill Creating IT Worker Exchange Program
3/18. The House will likely consider HR 3925, the "Digital Tech Corps Act of 2002", on Wednesday or Thursday, March 20 or 21. The House Rules Committee is scheduled to meet to adopt a rule for consideration of HR 3925 at 5:00 PM on Tuesday, March 19.
This bill was introduced by Rep. Tom Davis (R-VA) on March 12, 2002. It is cosponsored by Rep. Dan Burton (R-IN), the Chairman of the House Government Reform Committee. The Committee marked up the bill on March 14.
HR 3925 would establish an exchange program between the federal government and the private sector in order to promote the development of expertise in information technology management. It states that "unless action is taken soon, there will be a crisis in the government's ability to deliver essential services to the American people".
The bill states that "On request from or with the agreement of a private sector organization, and with the consent of the employee concerned, the head of an agency may arrange for the assignment of an employee of the agency to a private sector organization or an employee of a private sector organization to the agency. An eligible employee is an individual who (1) works in the field of information technology management; (2) is considered an exceptional performer by the individual's current employer; and (3) is expected to assume increased information technology management responsibilities in the future."
More News
3/18. The Office of the U.S. Trade Representative (USTR) announced that it is seeking public comments on U.S. negotiating objectives and the work program launched at the Fourth Ministerial Conference of the World Trade Organization (WTO) in November at Doha. Comments are due by May 1. See, USTR release.
3/18. The Federal Communications Commission (FCC) announced that it is seeking public comments regarding ways to improve its electronic licensing systems. The deadline to submit comments is March 28. See, FCC notice [PDF].
3/18. The Federal Bureau of Investigation (FBI) announced that "more than 89 persons in over 20 states have been charged in the first phase of a nationwide crackdown on the proliferation of child pornography via the Internet." FBI Director Robert Mueller said in a release that "We will diligently shut down any and all websites, Egroups, bulletin boards, and any other mediums that will foster the continued exploitation of our children."
3/18. The U.S. Patent and Trademark Office (USPTO) published in its web site the Third Edition of the Trademark Manual for Examining Procedures.

Go to News Briefs from March 11-15, 2002.