News from May 16-21, 2002

Supreme Court Rules on Federal Jurisdiction In Suits Against State PUCs
5/20. The Supreme Court of the U.S. issued its opinion [PDF] in Verizon Maryland v. Maryland Public Service Commission, holding that federal courts have jurisdiction over suits brought by telecommunications carriers against state public utility commissions regarding whether their orders pertaining to reciprocal compensation for telephone calls to ISPs violate the Communications Act.
The underlying dispute involves reciprocal compensation rights under telecommunications interconnection agreements. However, the Supreme Court did not address the merits of this issue. Rather, the Court addressed the procedural question of whether the federal courts have jurisdiction to hear cases against state PUCs that involve these disputes. The outcome is significant, in part because state PUCs have a home court advantage in their states' courts, while telecommunications carriers are more likely to prevail in federal courts than in state courts.
Justice Scalia, writing the opinion for a unanimous Supreme Court, rejected Maryland's arguments that federal question jurisdiction is absent, and that the suit is barred by the Eleventh Amendment.
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."
Background. Verizon Maryland (then known as Bell Atlantic Maryland), which is an incumbent local exchange carrier, informed WorldCom that it would no longer pay reciprocal compensation for telephone calls made by Verizon's customers to the local access numbers of ISPs, claiming that ISP traffic is not local traffic subject to the reciprocal compensation requirements of 47 U.S.C. § 251. WorldCom complained to the Maryland Public Service Commission (MPSC), which issued an order in which it sided with WorldCom.
District Court. Verizon Maryland then filed a complaint in U.S. District Court (DMd) against the MPSC and others challenging the MPSC order; it sought declaratory and injunctive relief. The District Court dismissed the action on jurisdictional grounds.
Appeals Court. A three judge panel of the U.S. Court of Appeals (4thCir) affirmed, 2-1. It issued its opinion on February 14, 2001, in Bell Atlantic Maryland v. MCI WorldCom, 240 F. 3d 279. It held that the action against the MPSC and its individual members in their official capacity is barred by the Eleventh Amendment. Judge Niemeyer wrote the opinion; Judge Widener joined; Judge King dissented.
Supreme Court. The Supreme Court reversed the lower courts, and remanded. It held that the District Court does have jurisdiction over this case. It held that there is federal question jurisdiction under 28 U.S.C. § 1331 and 47 U.S.C. § 252. It also held that the doctrine of Ex Parte Young, 209 U.S. 123 (1908), permits Verizon's suit to go forward against the state commissioners in their official capacities.
However, the Court did not address the issue of whether Maryland waived its Eleventh Amendment immunity. It wrote that "Whether the Commission waived its immunity is another question we need not decide, because -- as the same parties also argue -- even absent waiver, Verizon may proceed against the individual commissioners in their official capacities, pursuant to the doctrine of Ex parte Young ..."
Justice Kennedy wrote a concurring opinion. Justice Souter wrote a concurring opinion in which Justices Ginsburg and Breyer joined. He wrote "to question whether these cases even implicate the Eleventh Amendment."
Related Supreme Court Actions
5/20. The Supreme Court also issued a short per curiam opinion [PDF] in Mathias v. WorldCom, a case raising issues similar to those in Verizon Maryland v. MPSC. The Court dismissed its previous grant or writ of certiorari as "improvidently granted".
5/20. The Supreme Court also granted certiorari in AT&T v. Southwestern Bell. It further wrote that "The judgment is vacated and the case is remanded to the United States Court of Appeals for the Eighth Circuit for further consideration in light of Verizon Communications Inc. v. Federal Communications Commission, 535 U.S. __ (2001)." See, Order List [PDF] at page 1.
Economists File Amicus Brief in Opposition to CTEA
5/20. A group of free market economists filed an amicus curiae brief [PDF] with the Supreme Court in Eldred v. Ashcroft, a constitutional challenge to the Copyright Term Extension Act of 1998 (CTEA). The 105th Congress passed the CTEA to extend the maximum duration of both new and existing copyrights from 75 to 95 years.
Case Background. The late Rep. Sonny Bono (R-CA) sponsored the House version of the bill in 1997. Hence, the statute is also known by his name. (See, P.L. 105-298, 112 Stat. 2827. It amends 17 U.S.C. § 304(b).) On January 11, 1999 the plaintiffs filed their original complaint in the U.S. District Court (DC). (See also, TLJ story.) On June 28, 1999, the plaintiffs filed their Second Amended Complaint. Plaintiffs allege, among other claims, that the CTEA violates the First Amendment and the copyright clause of the Constitution. On October 27, 1999, the District Court ruled that the CTEA does not violate the Constitution. See, Memorandum of the Court. (See also, TLJ story.) On February 16, 2001, the The U.S. Court of Appeals (DCCir) issued its opinion affirming the District Court. On July 13, 2002, the Court of Appeals issued an order and opinion denying plaintiffs' petition for a rehearing en banc. The Supreme Court granted certiorari on February 19, 2002. Its review is limited to the constitutionality of the CTEA.
Constitution, Art. I, Sec. 8. The Constitution provides, in relevant part, that "Congress shall have the Power... To regulate Commerce ... To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries ... To make all Laws which are necessary and proper for carrying into Execution the foregoing Powers ..."
Argument of Amici. The brief provides an economic analysis of the twenty year copyright term extension for existing and future works. It argues that "The longer term for new works provides some increase in anticipated compensation for an author. Because the additional compensation occurs many decades in the future, its present value is small, very likely an improvement of less than 1% compared to the pre-CTEA term. This compensation offers at most a very small additional incentive for an economically minded author of a new work. The term extension for existing works makes no significant contribution to an author's economic incentive to create, since in this case the additional compensation was granted after the relevant investment had already been made."
Amici conclude that "Taken as a whole, it is highly unlikely that the economic benefits from copyright extension under the CTEA outweigh the additional costs. Moreover, in the case of term extension for existing works, the sizable increase in cost is not balanced to any significant degree by an improvement in incentives for creating new works. Considering the criterion of consumer welfare instead of efficiency leads to the same conclusion, with the alteration that the CTEA’s large transfer of resources from consumers to copyright holders is an additional factor that reduces consumer welfare."
Amici include Milton Friedman, Ronald Coase, Kenneth Arrow, and 14 other economists. See also, TLJ Summary of Eldred v. Ashcroft.
Amicus Brief of Writers and Tech Groups. On May 23 a collection of writers' groups and technology groups also filed an amicus curiae brief [PDF] with the Supreme Court. Their brief argues that "The Framers of the Constitution understood that the creation of new works and subsequent public access to those works were vital to society; thus, they limited the copyright monopoly's duration to assure the development of a healthy public domain." The 38 page brief does not, however, cite any of the delegates to the Constitutional convention, any member of any state legislature that ratified the Constitution, or any sources contemporaneous to the drafting or ratification of the Constitution.
The brief concludes that the "Congress failed the American people by not performing its constitutional duty to balance the speculative and questionable benefits of copyright term extension against the certain harms to the public domain. This failure is reflected in the lack of any rationale for the legislation that is supported by a legitimate constitutional purpose. ... This Court must ensure that Congress, in exercising power over copyrights, fulfills its constitutional duty to consider with great care the effect of copyright protection on the progress of ``Science and the useful Arts.´´ Protections that do not promote this progress should be struck down."
Amici include the National Writer's Union, Consumer Electronics Association, and Computer and Communications Industry Association.
The CTEA is supported by holders of entertainment industry copyrights, and their trade associations, such as the Association of American Publishers, Motion Picture Association of America (MPAA), National Music Publishers' Association (NMPA), and Recording Industry Association of America (RIAA).
DOJ and FTC Abandon Merger Review Agreement Under Threat from Sen. Hollings
5/20. The Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC) announced that they will not adhere to their Memorandum of Agreement concerning clearance procedures for merger reviews and other antitrust matters. The agreement attempted to define, by industry, which transactions would be reviewed by which agency. Both the FTC and DOJ have statutory authority to conduct antitrust merger reviews. Sen. Ernest Hollings (D-SC) threatened to retaliate through the appropriations process if the DOJ and FTC did not drop the agreement. He is Chairman of the Senate Commerce Committee, which oversees the FTC, but not the DOJ, and Chairman of the Senate Appropriations Committee's subcommittee that passes the appropriations bill for both the DOJ and FTC.
Charles James, Assistant Attorney General in charge of the Antitrust Division, stated in a release that "The Department stands by its view that the agreement was good public policy that was working to make antitrust enforcement more effective. In fact, since the agreement became effective, antitrust investigations were being commenced within a matter of days, and there were no clearance disputes between the agencies. However, in view of the opposition expressed by Senator Hollings, Chairman of the Commerce, Justice and State Appropriations Subcommittee, to the agreement and the prospect of budgetary consequences for the entire Justice Department if we stood by the agreement, the Department will no longer be adhering to the agreement."
The agreement stated that the FTC will have responsibility for "Computer Hardware", which it defined as "Matters involving computer hardware do not become matters involving computer software, for purposes of this allocation, merely because software is being shipped with the hardware. In matters involving both hardware and software, clearance will be determined on the basis of the market in which the competitive effects being investigated are predominantly likely to occur." The FTC would also have been assigned transactions involving "Professional Services" and "Satellite Manufacturing and Launch, and Launch Vehicles".
The agreement assigned to the DOJ's Antitrust Division transactions involving "Computer Software", which it defined as "Matters involving computer software do not become matters involving computer hardware, for purposes of this allocation, merely because the software is being shipped with hardware. In matters involving both hardware and software, clearance will be determined on the basis of the market in which the competitive effects being investigated are predominantly likely to occur."
The agreement also gave the DOJ "Media and Entertainment", which it stated "Includes cable services, satellite services, television and radio broadcasting, publishing, newspapers, magazines, movies, movie theaters and upstream video distribution, advertising, music, toys and games, gaming, and sports".
The agreement also gave the DOJ "Telecommunications Services and Equipment", which it stated "Includes set-top boxes, cable plant and related infrastructure, satellite data and programming, communications infrastructure, and telecommunications equipment (e.g., telephones, pagers, switches, Internet backbone, telephone cable)".
Finally, the agreement assigned to the DOJ "Financial Services/ Insurance/ Stock and Option, Bond, and Commodity Markets" and "Defense Electronics".
Sen. Hollings objected to the allocation of the media and entertainment industries to the DOJ. The DOJ's oversight committee is the Senate Judiciary Committee, not Sen. Hollings' Commerce Committee.
On April 15, Federal Trade Commission (FTC) Chairman Timothy Muris issued a statement regarding statements made by Sen. Ernest Hollings (D-SC). Muris stated that "A press report indicates that Senator Ernest F. Hollings of the Senate Appropriations Committee is considering suspending funding for the salaries of all of the Commissioners and the senior staff of the Federal Trade Commission. Although this step would not affect the salaries of the vast majority of employees at the FTC, it essentially would eliminate the Commission's ability to enforce the laws under its jurisdiction. ... I am surprised that Senator Hollings, being such a strong advocate of consumer protection, would consider a measure that would virtually eliminate the FTC's ability to protect consumers."
The Computer & Communications Industry Association (CCIA) praised the decision by the DOJ and FTC to abandon their agreement, although, for different reasons. The CCIA, which is a leading proponent of government antitrust action against Microsoft, objected to the DOJ handling all software related mergers. See, CCIA release.
Science Committee to Mark Up NSF Bills
5/20. The House Science Committee announced that it will meet on Wednesday, May 22, to mark up several bills, including HR 4664, the Investing in America's Future Act of 2002, and HR 3130, the Undergraduate Science, Mathematics, Engineering and Technology Improvement Act (Technology Talent Act of 2001).
HR 4664 would authorize the appropriation of $5.5 Billion for fiscal year 2003 for the National Science Foundation (NSF). Including in the funding authorization is $704 Million for networking and information technology research, $238 Million for the Nanoscale Science and Engineering Priority Area, and $60 Million for the Mathematical Sciences Priority Area. This bill is sponsored by Rep. Nick Smith (R-MI).
HR 3130 would authorize the appropriation of $25,000,000 for fiscal year 2002 for the NSF for a grant program. It provides that the NSF "is authorized to award grants, on a competitive basis to institutions of higher education with science, mathematics, engineering, or technology programs to enable the institutions to increase the number of students studying and receiving associates or bachelor's degrees in established or emerging fields within science, mathematics, engineering, and technology." It is sponsored by Rep. Sherwood Boehlert (R-NY), the Chairman of the Committee.
FTC Issues Final Rule Regarding Safeguarding Customer Financial Records
5/20. The Federal Trade Commission (FTC) issued its final rule governing the safeguarding of customer records and information for the financial institutions subject to its jurisdiction. See, notice [PDF] to be published in the Federal Register, and FTC release.
This rule is required by section 501(b) of the Gramm Leach Bliley Act to establish standards relating to administrative, technical and physical information safeguards for financial institutions subject to the Commission’s jurisdiction. The FTC's notice states that it is intended to "ensure the security and confidentiality of customer records and information; protect against any anticipated threats or hazards to the security or integrity of such records; and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer."
People and Appointments
5/20. The Federal Communications Commission's (FCC) Wireless Telecommunications Bureau announced several staff changes. Barry Ohlson was named Chief of the Policy Division. Blaise Scinto was named a Senior Deputy Division Chief. Jared Carlson was named a Deputy Division Chief.
5/20. Giovanni Barbarossa was named Chief Technology Officer and SVP of Product Development at Avanex. See, Avanex release.
More News
5/20. The Supreme Court of the U.S. denied certiorari in Echostar Communications v. CBS Broadcasting. See, Order List [PDF] at page at page 3.
5/20. The Supreme Court of the U.S. announced that it will take a recess from until Tuesday, May 28, 2002.
5/20. The Federal Communications Commission (FCC) released a Notice of Apparent Liability proposing that AT&T Wireless Services be held liable for a $2.2 million fine for violating the Enhanced 911 Phase II rules with respect to its Global System for Mobile Communications/ General Packet Radio Service network. See, FCC release.
5/20. The U.S. Patent and Trademark Office (USPTO) announced that "Effective immediately, the USPTO has established Box CONVERSION as a new Special Box for utility patent applicants who wish to file a conversion request under either 37 CFR 1.53(c)(2) or 37 CFR 1.53(c)(3). Applicants who wish to file a conversion request under either § 1.53(c)(2) or § 1.53(c)(3) by mail should designate Box CONVERSION as part of the USPTO address." See, USPTO notice.
5/20. The World Intellectual Property Organization (WIPO) Phonograms and Performances Treaty (WPPT) entered into force on May 20, 2002. See, WIPO release.
5/20. Chris Israel, the Deputy Assistant Secretary for Technology Policy, at Department of Commerce, gave a speech titled "The Security Race: Challenges, Leadership and Tools for Success" at the GovNet 2002 Summit in Hot Springs, Virginia.
Senate Commerce Committee Marks Up Tech Bills
5/17. The Senate Commerce Committee met to complete the mark up meeting that it began on May 16. It voted 15-8 to report S 2201, which is Sen. Ernest Hollings' (D-SC) bill to regulate online information practices. The Committee also amended and reported four other technology related bills.
The Committee amended, approved and reported four other technology related bills, without debate or discussion, by unanimous consent motion.
First, the Committee approved S 2037, a bill providing for the establishment of a national emergency technology guard. This is Sen. Ron Wyden's (D-OR) "Net Guard" bill. See also, bill as amended on May 17.
Second, the Committee approved S 2182, the Cyber Security Research and Development Act, a bill to authorize funding for computer and network security education and research. The bill was amended to provide for technology standards setting by the federal government.
Third, the Committee approved S 630, the Can Spam Act. See also, amendment in the nature of a substitute and Boxer amendment, both of which were approved on May 17.
Fourth, the Committee approved S 414, a bill to amend the National Telecommunications and Information Administration Organization Act to authorize technology related funding for minority serving schools.
Senate Commerce Committee Reports Bill to Regulate Information Practices
5/17. On May 16 the Senate Commerce Committee voted on amendments, and on approval of, S 2201. However, it could not vote to report the bill because Sen. Trent Lott (R-MS) invoked the 2 hour rule. The Committee completed its work on this bill by voting to report it by a vote of 15-8 on May 17.
On May 16, the Committee approved an amendment in the nature of a substitute [PDF] offered by Sen. Hollings. It also approved an amendment to this amendment offered by Sen. Bill Nelson (D-FL) requiring all ISPs, online service providers, and commercial website operators to designate a privacy compliance officer. The Committee also approved an amendment offered by Sen. Sam Brownback (R-KS) exempting certain very small businesses. However, the Committee rejected another amendment offered by Sen. Brownback that would have defined the network security procedures required by the bill. See, Brownback amendments.
The Committee also rejected an amendment offered by Sen. John McCain (R-AZ) that provided that online and offline activity would be treated equally. The Committee also rejected three amendments offered by Sen. George Allen (R-VA) that would have eliminated the private right of action contained in the bill, expanded the pre-emption language of the bill, and provided that the bill would not add requirements for persons and entities already covered by existing privacy laws, such as by the Gramm Leach Bliley Act's financial privacy provisions.
The final vote on reporting the bill was 15-8. The Senators voting in favor were all of the Democrats (Hollings, Inouye, Rockefeller, Kerry, Breaux, Dorgan, Wyden, Cleland, Boxer, Edwards, Carnahan, and Nelson) and three Republicans (Stevens, Burns, and Gordon Smith). The remainder of the Republicans voted against (McCain, Lott, Hutchison, Snowe, Brownback, Fitzgerald, Ensign, and Allen). Of the Republicans who opposed the bill, only Sen. Allen attended the May 17 meeting. The rest cast their votes by proxy.
See also, TLJ Daily E-Mail Alert No. 433, Friday, May 17.
Cyber Security Bill Would Require that Government Set Technology Standards
5/17. The Senate Commerce Committee amended and approved S 2182, the Cyber Security Research and Development Act. This bill, which was introduced by Sen. Ron Wyden (D-OR) on April 17, began as the Senate companion bill to HR 3394, which passed the House on February 7 by a vote of 400-12. The House bill, and the Senate bill as introduced, authorize funding for various new research and education programs pertaining to cyber security. However, the amendment in the nature of a substitute approved by the Senate Commerce Committee on May 17 also requires that the National Institute for Standards and Technology (NIST) mandate technology standards for cyber security.
Research and Education Funding. The funding authorized by the bill would go to a variety of research and education projects. The bill contains new or additional funding for five National Science Foundation (NSF) programs. It would authorize appropriations of $233 Million over 5 years to the NSF to make "network security research grants". It would authorize $144 Million over 5 years to the NSF to award to universities "to establish multi disciplinary Centers for Computer and Network Security Research." These programs would fund research regarding "authentication and cryptography; ... computer forensics and intrusion detection; ... reliability of computer and network applications, middleware, operating systems, and communications infrastructure; and ...privacy and confidentiality."
The bill would also authorize funding to be administered by the NSF for training undergraduate university students ($95 Million), community college students ($6 Million), and doctoral students ($90 Million) in cyber security fields.
The bill also authorizes funding for programs at the National Institute of Standards and Technology (NIST). One item authorizes $275 Million for NIST to assist universities that partner with for profit entities in long term, high risk, cyber security research. Another item authorizes $32 Million for in house research at NIST.
Government Technology Standard Setting. Section 8 of the House bill, and S 2182 as introduced by Sen. Wyden on April 17, create a research program in cyber security at the NIST. The version of the bill approved on May 17 greatly expands this Section 8. In addition to research, it mandates that the NIST set technology standards for cyber security.
The new language is at Section 8(c). Section 8(c)(1) requires that "the Director of the National Institute of Standards and Technology shall submit ... a report that -- (A) identifies specific Federal agency benchmark security standards that should be developed by the Institute ... and that should serve as the basis for security standards that will eventually be adopted by the departments and agencies of the Federal Government".
The new version of the bill also adds to the definitions section a definition of the phrase "Federal agency benchmark security standards". It means "a baseline minimum security configuration for specific computer hardware or software components, an operational procedure or practice, or organizational structure that increases the security of the information technology assets of a department or agency of the Federal Government." See, Section 3(3).
Then, the bill provides, at Section 8(c)(2), that "Not later than 1 year after" the report required by 8(c)(1) is submitted, the NIST "shall ... prepare a report ... that contains recommendations for specific, reasonable Federal agency benchmark security standards to be adopted by civilian departments and agencies of the Federal Government".
However, the "recommendations" are actually mandates. The bill further provides, at Section 8(c)(3), that within another 90 days, "each civilian department and agency of the Federal Government shall implement the appropriate benchmark security standards recommended by such report."
The bill requires that the standard setting report be sent to private entities. However, this version of the bill does not require that private sector entities comply with these government standards.
Tech Sector Reaction. Technology groups criticized the standards setting language. Robert Holleyman, P/CEO of the Business Software Alliance (BSA) stated in a release that "Such requirements are both inappropriate and unworkable, as cyber security threats are always changing and technologies must rapidly evolve to meet them ... Any technology specific requirements would quickly render federal security systems outmoded and lead to the creation of a ceiling, rather than a floor, for federal cyber security. This ceiling could then easily migrate to the private sector. The adoption of performance guidelines and best practices, not technological standards, is the key to improved federal cyber security".
Holleyman also wrote a letter to Sen. Wyden on May 16 in which he stated that the bill "vastly expands the scope of the NIST's current responsibilities and effectively puts the Federal Government in the position of determining what are or are not appropriate computer security standards." He also wrote that "we learned just today" about the new language in the bill.
Similarly, Harris Miller, President of the Information Technology Association of America (ITAA), stated in a release that "the standards requirement in the amendment that was passed by the Commerce Committee earlier today could harm innovation that drives vast improvements in security technology, and we cannot support the language as written". Otherwise, both the BSA and ITAA support the funding provisions of the bill.
SCC Approves Tech Grant Program for Minority Serving Institutions
5/17. The Senate Commerce Committee reported S 414, the NTIA Digital Network Technology Program Act. The Committee approved an amendment in the nature of a substitute offered by Sen. Max Cleland (D-GA), without debate and without discussion. The bill would establish a grant program for educational institutions to be administered by the Department of Commerce's National Telecommunications and Information Administration (NTIA).
The entities that could receive grants under this bill include historically black colleges and universities, Hispanic serving institutions, tribally controlled colleges and universities, Alaska Native serving institutions, Native Hawaiian serving institutions, and other institutions that have "enrolled a substantial number of minority, low income students".
The bill would provide $250 million in grants to enable minority serving institutions to upgrade their technology infrastructure, provide educational services for technology degrees, to provide educator training and to implement technology projects in conjunction with government agencies.
Sen. George Allen (R-VA), a cosponsor of the bill, stated in a release that "The best jobs in the future will go to those who are the best prepared. However, I'm concerned that when it comes to high technology jobs, which pay higher wages, we run the risk of economically limiting a large segment of our society. It is important for all Americans that we close this opportunity gap".
U.S. Antitrust Officials Address Convergence of Competition Policy
5/17. William Kolasky, a Deputy Assistant Attorney General in the Antitrust Division of the Department of Justice, gave a speech titled "North Atlantic Competition Policy: Converging Toward What?" He reviewed differences between the EU and the U.S. in antitrust policy, including regarding efficiencies in merger reviews, fidelity rebates, predatory pricing, and the essential facilities doctrine. He spoke to the BIICL Second Annual International and Comparative Law Conference in London, United Kingdom, on May 17.
On May 15, Charles James, an Assistant Attorney General at the Department of Justice in charge of the Antitrust Division, gave a speech in Brussels, Belgium, titled "Antitrust in the Early 21st Century: Core Values and Convergence". He stated that "the assertion of overlapping antitrust jurisdiction by multiple sovereigns has the potential to harm the very competitive values that antitrust is meant to protect."
James then reviewed the evolution of antitrust enforcement in the U.S. and the EU. He concluded that "we in the antitrust community need to work very hard to achieve a substantial degree of worldwide convergence on antitrust substance and process, based on the core value of protecting competition and promoting economic efficiency."
GAO Reports on State GLB Actions
5/17. The General Accounting Office (GAO) released a report [PDF] titled "Financial Privacy: Status of State Actions on Gramm Leach Bliley Act's Privacy Provisions".
Subtitle A of Title V of the Gramm Leach Bliley Act (GLB Act) prohibits financial institutions, including insurance companies, from disclosing consumers' nonpublic personal information to any entity that is not an affiliate of or related by common ownership or control to the institution, unless the consumers are given an opportunity to opt out of such disclosure. The GLB Act also requires that financial institutions provide consumers with privacy notices that explain their policies and practices for disclosing and protecting the privacy of nonpublic personal information.
This report pertains to actions take by states under the GLB Act with respect to state regulated insurance companies. The National Association of Insurance Commissioners (NAIC) issued its Model Regulation on September 26, 2000. The GAO report concludes that "All 50 states and the District of Columbia have generally followed one of two approaches to ensuring insurance industry compliance with the disclosure requirements of Subtitle A.
The report continues that "Most of the states have adopted regulations or legislation based on the 2000 Model Regulation, which generally is comparable with the regulations issued by the federal depository institution regulators and FTC. However, a number of states have decided to retain their versions of the 1982 Model Act -- which several states view as providing greater privacy protections than Subtitle A -- with some modifications to ensure compliance with all of Subtitle A's requirements. In addition, some states have modified or retained certain provisions of their laws and regulations to provide insurance consumers with greater protections than required by Subtitle A. Such actions are consistent with Subtitle A, as Congress specifically allowed states to enact statutes or issue regulations, orders, and interpretations that provide greater financial privacy protections than is contained in Subtitle A."
The report also concludes that "State insurance authorities are behind most of the federal regulators in establishing standards for safeguarding the nonpublic personal information of consumers as required by Subtitle A. NAIC's adoption of a model for states to use in developing the required standards is an important first step. Although NAIC has approved the model standards, there is no guarantee that all states will consistently implement the NAIC Model Safeguarding Regulation. Each state must independently take action to implement the NAIC Model Safeguarding Regulation. During this period, the security and the confidentiality of insurance customer information and records may not be subject to a consistent level of legal protections envisioned by Subtitle A."
The report was prepared at the request of Rep. John Dingell (D-MI), the ranking Democrat on the House Commerce Committee.
People and Appointments
5/17. Debra Yang was sworn in as the U.S. Attorney for the Central District of California. See, release.
More News
5/17. The U.S. Court of Appeals (FedCir) issued its opinion [MS Word] in Husky Injection Molding Systems v. R&D Tool & Engineering, a patent infringement case. Husky is the assignee of U.S. Patent No. Re. 33,237, titled "Apparatus for Producing Hollow Plastic Articles". Husky filed a complaint in U.S. District Court (WDMO) against R&D alleging contributory infringement of its patent. The District Court granted R&D's motion for summary judgment of non-infringement. Husky appealed. The Court of Appeals affirmed.
5/17. The U.S. District Court (EDVa) sentenced John Sankus to 46 months in federal prison for conspiring to violate the criminal copyright laws. Shankus was a was co-leader of the online software piracy group known as DrinkOrDie. A co-conspirator, Barry Erickson, was sentenced to 33 months in prison on May 2. The Department of Justice's Computer Crimes and Intellectual Property Section (CCIPS) announced in a release that "The sentences are the longest ever imposed for organized Internet software piracy." The Software & Information Industry Association (SIIA) praised the prosecutors. SIIA release.
Senate Committee Approves Hollings Bill to Regulate Online Information
5/16. The Senate Commerce Committee meet to mark up S 2201, the Online Personal Privacy Act 2002, sponsored by Sen. Ernest Hollings (D-SC). Sen. Hollings offered an amendment in the nature of a substitute. The Committee debated and rejected a series of amendments offered by Sen. John McCain (R-AZ), Sen. Sam Brownback (R-KS), and Sen. George Allen (R-VA). The Committee then voted to approve the Hollings substitute by a vote of 9-14.
However, the Committee stopped short of reporting the bill, because Sen. Trent Lott (R-MS), a member of the Committee, invoked the two hour rule, which had the effect of prevented reporting. Sen. Hollings has scheduled a second meeting for Friday, May 17 to vote to report the bill.
Sen. Fritz HollingsSen. Hollings (left), who is also the Chairman of the Committee, explained his bill in his opening statement. "What we require simply codifies industry best practices on the Internet. In fact, this bill gives industry much of what it claims it wants -- strong preemption, a notice requirement, an opt-out requirement for virtually all information collected on the Internet, and a process to apply privacy protections offline, as well as online. But for people's sensitive personal information -- their debts, income, assets, and medical records, we preserve consumer control over that information. If companies want to trade and profit in these sensitive areas -- get consumers' consent. It's that simple. And it's the right approach."
He added that "Our bill also sets forth requires reasonable access and reasonable security requirements – tracking the approach the Senate supported nearly unanimously with respect to children’s privacy on the Internet in 1998, which the FTC implemented without controversy."
Sen. Hollings offered an amendment in the nature of a substitute to bill as introduced. See, Sen. Hollings' summary of his substitute.
Sen. McCain, the ranking Republican on the Committee, offered an amendment that would have provided that online and offline activity would be treated equally. It was rejected on a roll call vote of 9-14. As with most of the roll call votes on this bill, this vote broke down largely on party lines. All of the Democrats, along with Sen. Conrad Burns (R-MT) and Sen. Ted Stevens (R-AK), formed the majority block. The rest of the Republicans formed the minority block.
Sen. Hollings' amendment in the nature of a substitute did add language pertaining to offline privacy. However, this language is tentative and prospective. It provides that "the Federal Trade Commission shall submit to the Committee ... detailed recommendations and proposed regulations on standards with respect to entities that engage in the collection of personally identifiable information ... at a level of protection similar to that provided under this Act for similar types of information." Sen. McCain described this language as "purely cosmetic". He also pointed out that the FTC lacks jurisdiction over many offline businesses.
Sen. Brownback offered two amendments. One provides a safe harbor for small businesses. It was approved by a voice vote.
A second Brownback amendment would have provided a definition of security. The Hollings bill provides that "An internet service provider, online service provider, or operator of a commercial website shall establish and maintain reasonable procedures necessary to protect the security, confidentiality, and integrity of personally identifiable information maintained by that provider or operator." Sen. Hollings argued that it would be best to leave the definitions to the FTC rule making process. The amendment was rejected by a vote of 9-14.
Sen. Allen (right) offered several amendments. One amendment would have eliminated the private right of action contained in Section 204 of the bill. It would have provided that "This Act may not be considered or construed to provide any private right of action. No private civil action relating to any act or practice governed under this Act may be commenced or maintained in any State court or under State law (including a pendent State claim to an action under Federal law)."
Sen. Allen said that the bill "risks opening the floodgates to a tide of class action lawsuits." Sen. Kay Hutchison (R-TX) predicted that "the private right of action is going to kill this bill. ... It is a poison pill." This amendment was rejected on a vote of 8-15. Sen. Gordon Smith (R-OR) also joined with Democrats in defeating this amendment.
A second amendment offered by Sen. Allen would have provided that this bill would not add requirements for persons and entities already covered by existing privacy laws, such as by the Gramm Leach Bliley Act's financial privacy provisions. It would have provided that "To the extent that personally identifiable information protected under this title is also protected under a provision of Federal privacy law described in subsection (c), an Internet service provider, online service provider, or commercial website operator that complies with the relevant provision of such other Federal privacy law shall be deemed to have complied with the corresponding provision of this title." The amendment then listed seventeen other privacy laws. It was rejected on a vote of 8-14.
Finally, a third amendment offered by Sen. Allen would have provided that all "This title preempts any statutory law, common law, rule, or regulation of a State, or a political subdivision of a State, to the extent such law, rule, or regulation relates to or affects the collection, use, sale, disclosure, or dissemination of personally identifiable information in commerce." The Hollings bill would preempt some state actions, but not common law actions. This amendment was rejected by a vote of 9-14.
Technology related groups were quick to condemn the Committee's vote. The Business Software Alliance (BSA) issued a release after the mark up in which it stated that the bill "has a number of provisions that concern the high tech industry. Specifically, the legislation applies primarily to online businesses. It imposes privacy regulations on Internet companies before any new rules take effect on businesses in the physical world. ... BSA member companies are also concerned that the Hollings bill would expose Internet companies to private rights of action, which could deter online commerce."
Similarly, the Association for Competitive Technology's Jonathan Zuck stated in a release that "For small technology businesses, this bill has more landmines than the DMZ. While some larger companies may be able to navigate the provisions, the resulting costs of compliance and endless litigation will force many of the most innovative e-commerce and software companies out of the market. The situation was made even worse by the manager's amendment. The undefined 'reasonable' security provision and the changes to section 204 only increase the likelihood of nuisance litigation that small companies cannot afford."
Also, Jeffrey Eisenach, of the Progress and Freedom Foundation, wrote a letter [PDF] to Sen. Hollings on May 15 in which he argued that "market forces are leading commercial Web sites to address consumer concerns about privacy; regulation of the sort proposed by the bill would likely impose substantial costs; and, regulations that apply only to online information collection practices would create still further distortions. On balance, our research suggests that the costs to consumers of legislation like S. 2201 would substantially exceed the benefits." 
Senate Commerce Committee Postpones Consideration of Tech Bills
5/16. The Senate Commerce Committee held a meeting to mark up several bills on May 16. It only dealt with S 2201 before adjourning. Sen. Ernest Hollings (D-SC), the Chairman of the Committee, has scheduled a continuation of the mark up for Friday, May 17, at 9:30 AM.
The agenda again includes the following: S 2037, a bill providing for the establishment of a national emergency technology guard; S 2182, the Cyber Security Research and Development Act, a bill to authorize funding for computer and network security research and development and research fellowship programs; S 630, the Can Spam Act; and S 414, a bill to amend the National Telecommunications and Information Administration Organization Act to establish a digital network technology program.
Senate Judiciary Committee Approves Judicial Nominees
5/16. The Senate Judiciary Committee approved by unanimous vote the nominations of Richard Clifton (to be a Judge of the U.S. Court of Appeals for the 9th Circuit), Christopher Conner (U.S. District Court, Middle District of Pennsylvania), Joy Conti (U.S.D.C. Western District of Pennsylvania), and John Jones (U.S.D.C., Middle District of Pennsylvania). These nominations still require confirmation by the full Senate.
The Committee also had on its agenda the nomination of Brooks Smith (U.S.C.A., 3rd Circuit). This was held over.
Senate Judiciary Committee Approves Identity Bills
5/16. The Senate Judiciary Committee approved S 848, the Social Security Number Misuse Prevention Act of 2001, sponsored by Sen. Diane Feinstein (D-CA) and Sen. Judd Gregg (R-NH). This bill would provide that "no person may sell or purchase any individual's social security number without the affirmatively expressed consent of the individual", subject to certain exceptions. This bill proceeds next to the Senate Finance Committee.
The Committee also amended and approved S 1742, the Restore Your Identity Act of 2001, sponsored by Sen. Maria Cantwell (D-WA).
House Judiciary Committee Postpones More Meetings
5/16. The House Judiciary Committee and its Subcommittee have postponed more scheduled hearings and mark up sessions that had been scheduled for Thursday, May 16, and Friday, May 17.
The full Committee had been scheduled to mark up several bills on May 16, including HR 4623, the Child Obscenity and Pormography Prevention Act of 2002 (which pertains to computer generated images), and HR 3215, the Combatting Illegal Gambling Reform and Modernization Act (Goodlatte Internet gambling bill). HR 4623 was amended and approved by the Crime Subcommittee on May 9. It likely has wide support in the House. HR 3215 has been scheduled for mark up, but held over, on many previous occasions. The Committee lacked a quorum.
Also on May 16, the House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property again noticed and postponed its hearing titled "The Accuracy and Integrity of the Whois Database."
The House Judiciary Committee's Subcommittee on Crime again postponed its hearing on, and mark up of, several bills, including HR 4640, a bill to provide criminal penalties for providing false information in registering a domain name on the Internet, and HR 4658, the Truth in Domain Names Act. This had been scheduled for Friday, May 17.
Committee members and staff have cited various reasons for not following schedules in the past several weeks, including that the Democrats have invoked the 24 hour rule, that the Republicans have had a conference to attend, that not enough members have attended for a quorum, that there have been floor votes, and that there has not been enough time.
En Banc Panel of 9th Circuit Reverses in Abortion Speech Case
5/16. The U.S. Court of Appeals (9thCir) issued its en banc opinion [118 pages in PDF] in Planned Parenthood v. American Coalition of Life Activists, an abortion related case with an Internet element. Speech by the defendants in various forms, including on the web, forms the basis of the civil claims against them. The District Court rejected the defendants' First Amendment argument, and found that they violated the Freedom of Access to Clinics Entrances Act. A three judge panel of the Court of Appeals reversed, on First Amendment grounds. In the present opinion, the Appeals Court, sitting en banc, reinstated the District Court decision in a 6-5 split.
The plaintiffs are four doctors and two abortion clinics. The defendants are the American Coalition of Life Activists (ACLA) and others. Defendants published "wanted" and "unwanted" posters that identified abortion doctors. These posters were published in various places, including on the world wide web. The posters did not advocate violence. Rather, they advocated praying for abortion doctors.
The plaintiffs filed a complaint in U.S. District Court (DOre) against the ACLA and others alleging violation of the Freedom of Access to Clinics Entrances (FACE) Act, 18 U.S.C. § 248, in connection with their publication of posters.
The FACE Act, at § 248(a)(1), prohibits "Whoever (1) by force or threat of force or by physical obstruction, intentionally injures, intimidates or interferes with or attempts to injure, intimidate or interfere with any person because that person is or has been, or in order to intimidate such person or any other person or any class of persons from, obtaining or providing reproductive health services ..." § 249(c)(1) then creates a private right of action.
District Court denied defendants' motion for summary judgment, in which they argued that their conduct was protected speech. The jury returned a verdict for plaintiffs, and awarded compensatory damages of $12 Million and punitive damages of $108 Million.
A three judge panel of the Court of Appeals then reversed, holding that the defendants had been held liable for conduct that is protected by the First Amendment. See, 244 F.3d 1007.
The Ninth Circuit then reheard the case with an eleven member en banc panel. It reversed the three judge panel, and upheld the trial court verdict, on a vote of 6 to 5.
Judge Pam Rymer wrote the opinion of the Court. She wrote that "A ``threat of force´´ for purposes of FACE is properly defined in accordance with our long- standing test on ``true threats,´´ as ``whether a reasonable person would foresee that the statement would be interpreted by those to whom the maker communicates the statement as a serious expression of intent to harm or assault.´´ This, coupled with the statute's requirement of intent to intimidate, comports with the First Amendment."
She continued that "We have reviewed the record and are satisfied that use of the Crist Poster, the Deadly Dozen Poster, and the individual plaintiffs' listing in the Nuremberg Files constitute a true threat. In three prior incidents, a ``wanted´´- type poster identifying a specific doctor who provided abortion services was circulated, and the doctor named on the poster was killed. ACLA and physicians knew of this, and both understood the significance of the particular posters specifically identifying each of them. ACLA realized that ``wanted´´ or ``guilty´´ posters had a threatening meaning that physicians would take seriously. In conjunction with the ``guilty´´ posters, being listed on a Nuremberg Files scorecard for abortion providers impliedly threatened physicians with being next on a hit list. To this extent only, the Files are also a true threat. However, the Nuremberg Files are protected speech."
"There is substantial evidence that these posters were prepared and disseminated to intimidate physicians from providing reproductive health services. Thus, ACLA was appropriately found liable for a true threat to intimidate under FACE. Holding ACLA accountable for this conduct does not impinge on legitimate protest or advocacy. Restraining it from continuing to threaten these physicians burdens speech no more than necessary", wrote Judge Rymer.
The Appeals Court, en banc panel, affirmed the District, except as to punitive damages, on which it remanded.
Five of the eleven members of the panel dissented. Judge Reinhardt wrote a brief dissenting opinion, at page 58. Judge Kozinski wrote a longer dissent, starting at page 59. He wrote that "The majority writes a lengthy opinion in a vain effort to justify a crushing monetary judgment and a strict injunction against speech protected by the First Amendment. The apparent thoroughness of the opinion, addressing a variety of issues that are not in serious dispute, masks the fact that the majority utterly fails to apply its own definition of a threat, and affirms the verdict and injunction when the evidence in the record does not support a finding that defendants threatened plaintiffs."
Judge Berzon also wrote at lengthy dissent. He concluded: "If we are not willing to provide stringent First Amendment protection and a fair trial to those with whom we as a society disagree as well as those with whom we agree -- as the Supreme Court did when it struck down the conviction of members of the Ku Klux Klan for their racist, violence- condoning speech in Brandenburg -- the First Amendment will become a dead letter. Moreover, the next protest group -- which may be a new civil rights movement or another group eventually vindicated by acceptance of their goals by society at large -- will (unless we cease fulfilling our obligation as judges to be evenhanded) be censored according to the rules applied to the last."
FCC Announces NPRM Regarding Separate Affiliates Rules
5/16. The Federal Communications Commission (FCC) announced that it has adopted a Notice of Proposed Rulemaking (NPRM) regarding its separate affiliate and related requirements for Bell Operating Companies (BOCs) that provide in-region interLATA services, pursuant to 47 U.S.C. § 272. The FCC also announced that it "seeks comment on whether the statutory separate affiliate and related requirements of BOCs should sunset, be extended". See, FCC release [PDF].
Bob Blau, BellSouth VP for federal regulatory affairs, stated in a release that "BellSouth is encouraged that the commission intends to weigh the cost of complying with the rules set by Section 272 of the Telecommunication Act of 1996 with any conceivable benefits. We are confident that once that analysis is done, the case for letting those rules sunset on schedule will become all the more apparent."
FCC Announces NPRM Re Failure to Comply with DTV Deadlines
5/16. The Federal Communications Commission (FCC) announced that it has adopted a Notice of Proposed Rulemaking (NPRM) regarding what measures it should take regarding television broadcasters who fail to meet digital television (DTV) construction deadlines. See, FCC release [PDF].
See also, statement [PDF] by Commissioner Kevin Martin and statement [PDF] by Commissioner Michael Copps.
Other FCC Announcements
5/16. The Federal Communications Commission (FCC) announced several other actions at its May 16 open meeting. It announced that it has adopted a Report and Order implementing new service rules for the 216-220 MHz, 1390-1395 MHz, 1427-1429.5 MHz, 1429.5-1432 MHz, 1432-1435, 1670-1675 MHz, and 2385-2390 MHz bands. See, FCC release [PDF].
The FCC also announced that it has adopted a Second Report and Order modifying Part 15 of its rules to permit new digital transmission technologies to operate in the 902-928 MHz (915 MHz), 2400–2483.5 MHz (2.4 GHz) and 5725–5850 MHz (5.7 GHz) bands under the current rules for spread spectrum systems. See, FCC release [PDF]. See also, statement [PDF] by Commissioner Martin. This is ET Docket No. 99-231.
The FCC also announced that it adopted a Report and Order expanding "eligibility for licenses in the Cable Television Relay Service (CARS) to all Multichannel Video Programming Distributors. Now, Private Cable Operators (PCOs), Direct Broadcast Satellite Operators (DBS), Open Video Systems (OVS), and others who provide multiple channels of video programming can join Cable Television Systems and Wireless Cable Systems (MDS, MMDS) in using CARS microwave frequencies to support their video programming distribution." See, FCC release [PDF].
People and Appointments
5/16. California Governor Gray Davis appointed John Kelso as Chief Deputy and Interim Director of the Department of Information Technology (DOIT). Kelso is a lawyer.
5/16. President Bush nominated Michael Toner to be a Member of the Federal Election Commission (FEC) for a term expiring April 30, 2007. See, White House release.
5/16. The House adopted H Res 423, which appointed Rep. Randy Forbes (R-VA) a member of the House Judiciary Committee. See, Cong. Rec., May 16, 2002, at page H2599. Rep. Forbes was elected in a special election in 2001.
5/16. Craig Gelfound and Daphne Burton joined the Los Angeles office of the law firm of McDermott Will & Emery as partners in the firm's intellectual property practice. Also, Krista Venegas joined the firm as an associate. Burton focuses on intellectual property, commercial litigation and transactional law. Venegas focuses on biotechnology patent prosecution. See, MWE release.
More News
5/16. The Federal Communications Commission (FCC) published in the Federal Register its final rule regarding the marketing and operation of certain types of new products incorporating ultra- wideband (UWB) technology. This rule is effective July 15, 2002. See, Federal Register, May 16, 2002, Vol. 67, No. 95, at Pages 34852 - 34860.
5/16. The House Commerce Committee's Subcommittee on Telecommunications and the Internet announced that it will hold a hearing on June 4 titled "The FCC's UWB Proceeding: An Examination of the Government's Spectrum Management Process".
5/16. The General Services Administration (GSA) published a notice in the Federal Register regarding a rule making proceeding pertaining to the .gov domain. The notice states that "The purpose of this proposed rule is to provide a new policy for the Internet GOV Domain that will be included in the Federal Management Regulation (FMR)." Comments are due by July 15, 2002. See, Federal Register, May 16, 2002, Vol. 67, No. 95, at Pages 34890 - 34893.
5/16. The U.S. District Court (NDIll) sentenced Robin Rothberg to 18 months in federal prison for violation for the No Electronic Theft (NET) Act. Rothberg is one of 17 defendants indicted in May of 2000 for conspiring to pirate copyrighted software as part of a group that called itself "Pirates with Attitudes". The NET Act, passed by the Congress in 1997, has rarely been enforced. See, CCIPS release.

Go to News from May 11-15, 2002.