News from June 21-25, 2002

WorldCom Announces Accounting Fraud
6/25. WorldCom stated in a release that "it intends to restate its financial statements for 2001 and the first quarter of 2002. As a result of an internal audit of the company's capital expenditure accounting, it was determined that certain transfers from line cost expenses to capital accounts during this period were not made in accordance with generally accepted accounting principles (GAAP). The amount of these transfers was $3.055 billion for 2001 and $797 million for first quarter 2002."
WorldCom further stated that Andersen LLP "audited the company's financial statements for 2001 and reviewed such statements for first quarter 2002".
WorldCom stated that it "has terminated Scott Sullivan as chief financial officer and secretary" and "accepted the resignation of David Myers as senior vice president and controller." WorldCom also stated that it has "notified" the Securities and Exchange Commission (SEC).
Online News Media Sue Gator for Copyright Infringement
6/25. The Washington Post and others major news media that publish content online filed a complaint [99 pages in PDF] in the U.S. District Court (EDVa) against Gator Corporation alleging copyright infringement and related claims.
The plaintiffs, which include the Washington Post Newsweek Interative Company, Washington Post Company, New York Times Company, Gannett Satellite (USA Today), Globe Newspaper Company (Boston Globe), Dow Jones & Company (Wall Street Journal), Smart Money, Tribune Interactive (LA Times and Chicago Tribune), and Knight Ridder Digital (Miami Herald and Philadelphia Inquirer), publish news stories and other original content. Defendant Gator operates a web site that displays content from plaintiffs' web sites. It also sells advertising to run on its web pages.
The complaint states that Gator is "a parasite on the Web that free rides on the hard work and investments of Plaintiffs and other website owners. Gator makes money by placing advertisements for third parties on the Plaintiffs' websites without Plaintiffs' authorization."
The complaint continues that "Gator Corp. free rides on the valuable intellectual property rights of the Plaintiffs and the substantial investment Plaintiffs have made, and continue to make, to draw millions of visitors to their websites."
Plaintiffs plead trademark infringement, unfair competition, trademark dilution, copyright infringement, contributory copyright infringement, misappropriation, interference with prospective economic advantage, unjust enrichment, and violation of the Virginia Business Conspiracy Act.
Plaintiffs seek injunctive and monetary relief. They seek, among other things, an order prohibiting Gator from "continuing to perpetrate its pop-up advertising scheme against, or display any other advertising on any website owned by or affiliated with the Plaintiffs without the express consent of the Plaintiffs". They also seek an accounting, restitution, damages, and corrective advertising by Gator.
Plaintiffs also filed a motion for a preliminary injunction. See, Memorandum in Support of Plaintiffs' Motion for Preliminary Injunction [35 pages in PDF]. The Court has scheduled a hearing for July 12 on this motion.
Judge Claude Hilton has been assigned to this case. Plaintiffs are represented by the law firm of Gibson Dunn & Crutcher. Lead counsel is Terence Ross. He stated on Friday, June 28, that he had not yet received an entry of appearance from opposing counsel. This is D.C. No. 02-904-A.
Gator issued a release in which it stated that it "will vigorously defend itself against, and may counter-sue". Gator did not assert authorship, license or fair use in its release. Rather, it asserted that the suit "flies in the face of the very nature of the Windows operating system, and is ridiculous."
Gator further asserted that it "is a well capitalized, profitable company, and has spent the last six months doubling its revenue, more than doubling its audience size, doubling its customer base, and -- most tellingly -- winning significant contracts in lucrative vertical markets that have traditionally spent advertising dollars with the plaintiffs and other, traditional media companies."
Editor's Note. Tech Law Journal is an intellectual property owner. Its works of authorship are infringed. Readers may wish to take this into consideration is assessing the objectivity of its coverage of this case.
Rep. Berman to Advocates Self Help to Combat P2P Piracy
6/25. Rep. Howard Berman (D-CA) gave a speech regarding solutions to peer to peer piracy. He said he intends to introduce legislation to create a safe harbor for copyright owners who employ technological self help measures to thwart peer to peer piracy.
Rep. Berman, who is the ranking Democrat on the House Judiciary Committee's Court, Internet and Intellectual Property Subcommittee, stated that the "future and fate of the technology sector is also inextricably tied to that of the entertainment industry". He also stated that the "next growth cycle for many technology companies depends, to a certain extent, on the availability of media products and services". Moreover, "Internet piracy threatens to undermine the symbiosis between the technology and media industries". And hence, "P2P piracy must be cleaned up".
He advocated "the use of strong DRM technologies", but not "government mandates on technology". He also said the "Copyright infringement lawsuits against infringing P2P users have a role to play, but are not viable or socially desirable options for addressing all P2P piracy".
He then advocated "technological self help measures". He elaborated that "Copyright owners could employ a variety of technological tools to prevent the distribution of copyrighted works over a P2P network. Interdiction, decoy, redirection, file blocking, and spoofing technologies can help prevent unauthorized P2P distribution."
Rep. Berman added that "When deployed to thwart P2P piracy, however, such technological self-help may run afoul of common law doctrines and state and federal statutes, including the federal Computer Fraud and Abuse Act. In other words, while P2P technology is free to innovate new, more efficient methods of P2P distribution that further exacerbate the piracy problem, copyright owners are not equally free to craft technological responses."
Hence, he argued that "Congress should free copyright creators and owners to develop and deploy technological tools for addressing P2P piracy. We could do this by creating a safe harbor from liability for copyright owners that use technological means to prevent the unauthorized distribution of their copyrighted works via P2P networks."
He added that "Such legislation should not allow a copyright owner to damage the property of a P2P file trader or any intermediaries, including ISPs. For instance, a copyright owner shouldn't be allowed to introduce a virus that disables the computer from which infringing works are being made available to a decentralized, P2P network."
He concluded by stating that "I intend to introduce legislation creating such a safe harbor for technological self help measures."
BSA Survey Shows IT Professionals Expect Cyber Attack on Government
6/25. The Business Software Alliance (BSA) released the results of a survey [PPS] of information technology professionals regarding their beliefs about government cyber security. The survey found, among other things, that 59 percent think a major cyber attack against the government is likely in the next year.
The survey also found that 86 percent agree that as much or more time and resources should be invested to protect against cyber attacks than was devoted to Y2K. Ispos Public Affairs surveyed online 395 private sector IT professionals between June 5 and June 7.
BSA P/CEO Robert Holleyman stated in a release that "There is a true sense of urgency here. It is critical that the Bush Administration and Congress move quickly on their commitments -- both financial and philosophical -- to secure this nation and its critical infrastructure".
House Passes Bill Affecting Computer Generated Images
6/25. The House passed HR 4623, the Child Obscenity and Pormography Prevention Act of 2002, by a vote of 413-8. See, Roll Call No. 256. The House Judiciary Committee approved the bill on June 18, and voted to report the bill on June 19.
This bill is a reaction to the Supreme Court's April 16, 2002, opinion [PDF] in Ashcroft v. Free Speech Coalition, in which the Court held unconstitutional on First Amendment and overbreadth grounds provisions of the Child Pormography Prevention Act of 1996 (CPPA) banning computer generated images depicting minors engaging in sezually explicit conduct.
Rep. Lamar Smith (R-TX), the sponsor of the bill, issued a release that states that the bill "reaffirms the ban on child pormography in a manner that can withstand constitutional review."
Attorney General John Ashcroft stated in a release that "I am pleased that the House of Representatives passed the Child Obscenity and Pormography Prevention Act, a bill that will strengthen the ability of law enforcement to protect children from abuse and exploitation. I urge the Senate to bring this important legislation to the floor as soon as possible."
He added that "The Department of Justice remains solid in its commitment to identify, investigate, and prosecute those who sezually exploit children. I look forward to working with Congress to see to it that this legislation becomes law, so that we may continue in our efforts to eliminate child pormography and prosecute offenders."
The 1996 CPPA expanded the federal prohibition on child pormography to encompass new technologies. 18 U.S.C. § 2256, the section containing definitions, was amended to provide that child pormography means "any visual depiction, including any photograph, film, video, picture, or computer or computer- generated image or picture, whether made or produced by electronic, mechanical, or other means, of sezually explicit conduct, where (A) the production of such visual depiction involves the use of a minor engaging in sezually explicit conduct; (B) such visual depiction is, or appears to be, of a minor engaging in sezually explicit conduct; (C) such visual depiction has been created, adapted, or modified to appear that an identifiable minor is engaging in sezually explicit conduct; or (D) such visual depiction is advertised, promoted, presented, described, or distributed in such a manner that conveys the impression that the material is or contains a visual depiction of a minor engaging in sezually explicit conduct;"
Justice Anthony Kennedy, who wrote the opinion of the Court in Ashcroft v. FSC in April, concluded that the CPPA, to the extent that it extends the federal prohibition against child pormography to sezually explicit images that appear to depict minors but were produced without using any real children, is substantially overbroad and violates the First Amendment.
He elaborated that the prohibited conduct is not obscene under the standard announced in Miller v. California, 413 U.S. 15 (1973), and it is not child pormography under the standard announced in New York v. Ferber, 458 U.S. 747 (1982).
Supporters of HR 4623 have argued that the Supreme Court's ruling leaves prosecutors unable to prosecute child pormography that involves the use of children, because it is nearly impossible to prove that a photograph is not computer generated. That is, a defense attorney can defeat a criminal prosecution simply by arguing that images of child pormography might have been computer generated, because the prosecution cannot prove the contrary.
HR 4623 amends § 2256(8)(B) to read "such visual depiction is a computer image or computer- generated image that is, or is nearly indistinguishable ... from, that of a minor engaging in sezually explicit conduct". In addition, the bill also provide that "it shall be an affirmative defense to a charge of violating this section that the alleged offense did not involve the use of a minor or an attempt or conspiracy to commit an offense under this section involving such use."
This language shifts the burden of proving that an image is computer generated to the defendant. Opponents of the bill, a small group of Democrats on the Judiciary Committee, have argued that this burden shifting is unconstitutional. In rebuttal, supporters of the bill have argued that burden shifting is permissible when it is the the defendant who is in possession of the relevant facts.
In addition, supporters of the bill have relied upon the concurring opinion of Justice Clarence Thomas in Ashcroft v. FSC. Thomas wrote in April that "technology may evolve to the point where it becomes impossible to enforce actual child pornography laws because the Government cannot prove that certain pornographic images are of real children. In the event this occurs, the Government should not be foreclosed from enacting a regulation of virtual child pornography that contains an appropriate affirmative defense or some other narrowly drawn restriction. ... The Court does leave open the possibility that a more complete affirmative defense could save a statute's constitutionality ..."
Editor's Note. TLJ Daily E-Mail Alert is delivered by e-mail. Some subscribers receive their copies via e-mail servers that run e-mail filtering software that blocks the TLJ Daily E-Mail Alert if it contains certain words. TLJ intentionally misspells certain words, such as pormography, to circumvent this blocking.
NTIA Director Addresses Critical Infrastructure Protection
6/25. National Telecommunications and Information Administration (NTIA) Director Nancy Victory gave a speech to the United Telecom Council in Washington DC.
She stated that "NTIA is the Government's lead agency for ensuring that the critical communications networks within the communications and information sector continue to function in the face of a cyber or physical attack."
She also stated that President Bush's plan to create a new Department of Homeland Security provides that "infrastructure protection would be placed under a new undersecretary for information analysis and infrastructure protection ... Under the President's proposal, the Department's Critical Infrastructure Assurance Office and NIST's Computer Security Division will become part of the Department of Homeland Security and contribute to this new information analysis and infrastructure protection function."
Most of her address focused on NTIA and FCC management of spectrum.
Senate Committee Holds Hearing on Department of Homeland Security
6/25. The Senate Judiciary Committee's Subcommittee on Technology, Terrorism, and Government Information held a hearing on President Bush's proposal for reorganizing homeland defense infrastructure.
James Gilmore, a former Governor of Virginia, provided testimony. He is Chairman of the Advisory Panel to Assess Domestic Response Capabilities for Terrorism Involving Weapons of Mass Destruction, which is also known as the "Gilmore Commission". It has produced three annual reports that have addressed, among other issues, cyber security.
Gov. Gilmore testified that his panel has offered the following recommendations: "Include private and State and local representatives on the interagency critical infrastructure advisory panel"; "Create a commission to assess and make recommendations on programs for cyber security"; Establish a government funded, not for profit entity for cyber detection, alert, and warning functions"; "Convene a ``summit´´ to address Federal statutory changes that would enhance cyber assurance"; "Create a special ``Cyber Court´´ patterned after the court established in FISA"; and "Develop and implement a comprehensive plan for cyber security research, development, test, and evaluation".
David Walker, Comptroller General of the U.S., submitted testimony [PDF] titled "Proposal for Cabinet Agency Has Merit, But Implementation Will be Pivotal to Success".
He wrote that "There is likely to be considerable benefit over time from restructuring some of the homeland security functions, including reducing risk and improving the economy, efficiency and effectiveness of these consolidated agencies and programs. Realistically, however, in the short term, the magnitude of the challenges that the new department faces will clearly require substantial time and effort, and will take additional resources to make it fully effective. Numerous complicated issues will need to be resolved in the short term, including a harmonization of information technology systems ..."
He also wrote that "Within this framework, the Congress will likely need to make trade off decisions between concerns over access and utility of information and the concerns that some Americans may have about civil rights issues associated with any larger consolidation of domestically oriented intelligence operations. It is also important to note that while certain cyber/ critical infrastructure protection functions are proposed for transfer into DHS, a significant number of federal organizations involved in this effort will remain in their existing locations, including the Critical Infrastructure Protection Board, the Joint Task Force for Computer Network Operations, and the Computer Investigations and Operations Section of the FBI."
See also, prepared testimony of Paul Light (Brookings), Ivo Daalder (Brookings), and Ivan Eland (Cato Institute).
House Commerce Committee Holds Hearing on Department of Homeland Security
6/25. The House Commerce Committee's Subcommittee on Oversight and Investigations held a hearing on the administration's proposal to create a Department of Homeland Security.
See, prepared testimony of Tom Ridge, Director of the President's Office of Homeland Security. See also, prepared testimony of Claude Allen (Department of Health and Human Services), General John Gordon (National Nuclear Security Administration), Jan Heinrich (General Accounting Office), Harry Vantine (Lawrence Livermore National Laboratory), David Nokes (Sandia National Laboratories), Donald Cobb (Los Alamos National Laboratory), Lew Stringer (North Carolina Department of Crime Control and Public Safety), Edward Plaugher (Arlington County Fire Department), Philip Anderson (Center for Strategic and International Studies), Ronald Atlas (American Society for Microbiology), and Tara O'Toole (Center for Civilian Biodefense Studies).
Science Committees Hold Hearing on Technology and Combatting Terrorism
6/25. The Senate Commerce Committee's Subcommittee on Science, Technology, and Space, and the House Science Committee (HSC) held a joint hearing to examine the use of science and technology to combat terrorism. See, opening statement [PDF] of Sen. Ron Wyden (D-R), and prepared testimony in PDF of witnesses, Lewis Branscomb (Harvard) and Richard Klausner (Bill and Melinda Gates Foundation).
House Judiciary Committee Holds Hearing on Identity Theft
6/25. The House Judiciary Committee's Subcommittees on Immigration, Border Security, and Claims, and Crime, Terrorism, and Homeland Security, held a joint oversight hearing titled "The Risk to Homeland Security From Identity Fraud and Identity Theft".
Paul McNulty, U.S. Attorney for the Eastern District of Virginia, wrote in his prepared testimony that "Seven of the September 11th hijackers -- none of whom actually lived in the Commonwealth -- had obtained Virginia driver's licenses by submitting false proof of Virginia residency."
Richard Stana of the General Accounting Office (GAO) provided testimony [PDF] titled "Identity Fraud: Prevalence and Links to Alien Illegal Activities". He wrote that "Federal investigations have shown that some aliens use fraudulent documents in connection with more serious illegal activities, such as narcotics trafficking and terrorism." He also wrote that "Opportunities for identity theft related criminal activities have been enhanced by growth of the Internet, which increases the availability and accessibility of personal identifying information."
See also, prepared testimony of James Huse (Inspector General of the Social Security Administration) and James Mierzwinski (USPIRG).
Akamai and Speedera Trade Complaints
6/25. Akamai filed a complaint in California Superior Court in San Francisco against Speedera Networks alleging theft of trade secrets. See, Akamai release. Speedera, in turn, filed a complaint in U.S. District Court (NDCal) against Akamai alleging unfair competition, false advertising, trade libel and intentional interference with prospective business advantage. See, Speedera release.
Adelphia Files Chapter 11 Petition
6/25. Adelphia Communications filed a Chapter 11 petition for bankruptcy in the U.S. Bankruptcy Court (SDNY). See, Adelphia release [PDF].
People and Appointments
6/25. Wilson Lowery was named Executive Assistant Director for Administration of the Federal Bureau of Investigation (FBI). He has been a special assistant to the FBI Director, tasked with overseeing the FBI's reorganization and re-engineering implementation. He previously worked for IBM. He replaces Robert Chiaradio. See, FBI release.
6/25. Mark Slaven was named Chief Financial Officer of 3Com Corporation. He was previously Vice President and Treasurer of 3Com. He replaces Mike Rescoe. See, 3Com release.
More News
6/25. The Dallas, Texas law firm of Gardere Wynne Sewell agreed to pay $1.2 Million for violating a court order in a pending Securities and Exchange Commission (SEC) civil lawsuit against one of the firm's former clients. See, SEC release.
6/25. The Customs Service published a notice in the Federal Register describing its interim rule regarding electronic access to passenger name records (PNR). The interim rule requires air carriers to provide Customs with electronic access to requested PNR information contained in the carrier's automated reservation system and/or departure control system. The notice also request public comments, which must be received by August 26, 2002. See, Federal Register: June 25, 2002, Vol. 67, No. 122, at Pages 42710 - 42713.
DOJ Official Addresses Antitrust Enforcement
6/24. The Department of Justice's (DOJ) William Kolasky gave another in his series of speeches on antitrust enforcement. He gave a speech titled "Economic Competition Day: Shared Experiences" in Mexico City, Mexico in which he reviewed eight guiding principles.
On March 18 he gave a speech in which he listed and explained six guiding principles for antitrust enforcement. These six were (1) Protect competition, not competitors, (2) recognize the central role of efficiencies, (3) base decisions on sound economics and hard evidence, (4) realize that our predictive capabilities are limited, (5) impose no unnecessary bureaucratic roadblocks, and (6) be flexible and forward looking.
On June 14 he gave a speech in which he elaborated on the principle that antitrust enforces should base their decisions on sound economics and hard evidence.
In his June 24 speech he expanded his list of principles from six to eight. The two newly added principles are "Impose Strong Deterrent Measures Against Hard Core Cartels" and "Protect Consumer Welfare Through Competition Advocacy".
He elaborated that "Detection and prosecution of hard core cartels should be every competition authority's top enforcement priority. Cartels -- whether in the form of price fixing, output restrictions, bid rigging, or market division -- raise prices and restrict supply, enriching producers at consumers' expense and acting as a drag on the entire economy. In the U.S., we view cartels as crimes, pure and simple, and prosecute those who perpetrate them as criminals."
Kolasky is a Deputy Assistant Attorney General in the DOJ's Antitrust Division. See also, other speeches by Kolasky.
Cal App Reverses in Domain Name Registration Dispute
6/24. The California Court of Appeal (2/4) issued its opinion [PDF] in Lim v. The.TV Corporation, a contract dispute involving the registration of a domain name. The Court of Appeal reversed the Superior Court's dismissal of the complaint for failure to adequately plead a cause of action for breach of contract.
Plaintiff, Je Ho Lim, is a resident of South Korea. Defendant, dotTV, a Delaware corporation based in California, registers Internet domain names for a fee. It acquired the top-level domain name "tv" through an agreement with the island nation of Tuvalu, which owns the rights to that geographic designation. Lim alleges that he purchased at auction the domain name, but that dotTV later disavowed the sale.
Lim filed a complaint in California Superior Court against dotTV alleging breach of contract, intentional misrepresentation and fraud, and breach of the implied covenant of good faith and fair dealing. The Superior Court sustained dotTV's demurer as to the adequacy of the complaint. The Court of Appeal reversed and remanded.
Rep. Dreier Addresses Tech Related Legislation
6/24. Rep. David Dreier (R-CA), the Chairman of the House Rules Committee, spoke about technology related legislation at a conference hosted by the Computer & Communications Industry Association (CCIA) in Washington DC. He addressed trade promotion authority, the Export Administration Act, and the Internet gambling bill.
Trade Promotion Authority. He stated that "my top priority is ... trade promotion authority". Trade promotion authority, which is also known as "TPA" and "fast track", would permit the President to negotiate trade agreements that the Congress could accept or reject, but not amend. TPA would strengthen the bargaining position of the President, and the U.S. Trade Representative (USTR), in trade negotiations with other nations.
The House passed its version of the bill, HR 3005, the Bipartisan Trade Promotion Authority Act of 2001, on December 6, by a vote of 215-214. The Senate passed its version last month. For a bill to be signed by the President, the House and Senate must be reconcile their differences in a conference committee.
The House Rules Committee sets rules for consideration of bills on the House floor. This Committee has not yet brought to the House floor a procedural motion that would set the structure and mandate for the House's negotiating team.
Rep. Dreier stated that "We have been trying over the week and a half to pass a, basically, a motion to go to conference". He explained that he has not brought the motion to the floor because he currently lacks the votes for passage. He noted that some of the Democrats who voted for the bill last December are not now supportive. He commented that "Speaker Hastert has said we bring legislation to the floor when we have the votes to pass it." He also stated that "We are going to work hard. We are going to take it one vote at a time." He concluded that "We do very much want to get it done this week before we break for the Fourth of July."
Export Administration Act. Rep. Dreier also addressed the Export Administration Act (EAA). The bill would modernize export control laws. It would ease restraints on most dual use products, such as computers and software, but increase penalties for violations. He stated that "eliminating MTOPS as a gauge is obviously the right thing for us".
The Senate passed S 149, the Export Administration Act of 2001, sponsored by Sen. Mike Enzi (R-WY), by a vote of 85-14, just prior to the terrorist attacks of September 11. This bill is supported by the Bush administration. Rep. Dreier introduced HR 2568, the administration bill in the House, on July 19, 2001. It has not passed the House. However, HR 2581, sponsored by Rep. Benjamin Gilman (R-NY), which is a much different export bill that is not supported by the administration or Rep. Dreier, passed the House International Relations Committee on August 1, 2001.
Rep. Dreier stated that he is working with the administration and House Committees. He concluded that EAA "continues to be a high priority".
Internet Gambling. Rep. Dreier was asked during the question and answer session when several bills, including HR 3215, the Combatting Illegal Gambling Reform and Modernization Act (also known as the Goodlatte Internet gambling bill), would be brought to the floor. The House Judiciary Committee completed its mark up the bill on June 18.
Rep. Dreier stated that "right now we are focused on the homeland security bills ... and appropriations bills". He added that "we are trying to see if we can work out a compromise". He also stated that "I don't want to say that we are not going to do them", but "they are not on the agenda".
Microsoft Advocates Passage of Cyber Security Enhancement Act
6/24. Microsoft published an essay in its web site titled "Securing Cyberspace: Our justice system needs better tools for fighting cybercrime".
The essay states that "In order to curb cybercrime, lawmakers should consider more forceful deterrents. The Cyber Security Enhancement Act of 2002, now before the U.S. House of Representatives, addresses weaknesses in current law by directing the U.S. Sentencing Commission to review and amend Federal computer crime sentencing guidelines. The bill empowers judges to issue appropriately tough sentences for computer crime by allowing them to consider intent, violations of privacy rights and the sophistication of the offense in addition to actual loss. Once enacted, the law will help deter cyber crime by subjecting hackers to real penalties for committing real crimes."
This bill, numbered HR 3482, is sponsored by Rep. Lamar Smith (R-TX). The House Crime Subcommittee marked up the bill on February 26, 2002. See, TLJ Daily E-Mail Alert No. 377, Feb. 27, 2002. It was approved by the House Judiciary Committee on May 8, 2002. It has not yet been voted on by the full House.
The Microsoft essay continued that "Legislators can promote cyber security in other ways as well. They can increase funding for law enforcement personnel and funding for more training and equipment to investigate and prosecute cyber criminals."
It also argued that "Action is needed to foster the sharing of information between industry and government about vulnerabilities and threats to critical technological infrastructures. Currently, companies are reluctant to share information because existing law may not adequately protect sensitive or proprietary information provided to federal agencies. Legislation that clarifies and strengthens existing Freedom of Information Act exemptions would encourage more companies to participate in initiatives to protect critical infrastructures."
More News
6/24. The Federal Communications Commission (FCC) approved Verizon's Section 271 application to provide in-region interLATA services in the state of New Jersey. This is WC Docket No. 02-67.
6/24. The FCC held an en banc hearing on FCC broadcast and cable equal employment opportunity rules.
6/24. Pascal Lamy, European Commissioner for Trade, gave a speech in Washington DC regarding transatlantic trade relations.
6/24. The Securities and Exchange Commission (SEC) instituted an administrative proceeding against one Benjamin Snyder, a 17 year old investor. He purchased shares in a thinly traded stock through an online brokerage account that his father had just opened for him. He then posted a bogus Bloomberg news story in Internet message boards about that stock. Other investors did not act upon his postings. The price did not rise. However, the SEC took notice. It concluded that he violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. And, his father closed his account. See, SEC order instituting proceedings.
6/24. The Supreme Court denied certiorari in Fin Control Systems v. Surfco Hawaii, No. 01-863, a patent infringement case. See, Order List [PDF] at page 2.
6/24. The Supreme Court denied certiorari in Jazz Photo v. USITC, No. 01-1158, and Fuji Photo Film v. Jazz Photo, No. 01-1376. See, Order List [PDF] at page 8.
DC Circuit Modifies Opinion in Fox v. FCC
6/21. The U.S. Court of Appeals (DCCir) issued its opinion in Fox v. FCC, granting the Federal Communications Commission's (FCC) petition for rehearing, and modifying its previous opinion, regarding the meaning of the word "necessary" in Section 202(h) of the Telecom Act. The underlying case pertains to FCC ownership rules. However, this opinion only revises the original opinion as to the standard to be applied by the FCC in its biennial reviews of its ownership rules.
Summary. The FCC is required by statute to conduct biennial reviews of its ownership rules. The statute requires that it "shall determine whether any of such rules are necessary in the public interest" and repeal those sections that are no longer in the public interest. The FCC conducted its first biennial review in 1998, but did not repeal or modify its national TV station ownership rule (NTSO) or cable broadcast cross ownership rule (CBCO) as a result. Various parties, including Fox and Time Warner, filed petitions for review with the Court of Appeals. The Court applied this statutory language in its plain meaning in its February 19, 2002 opinion. (It held that the FCC's NTSO and CBCO both violate the Administrative Procedure Act (APA) as arbitrary and capricious, and Section 202(h) of the Telecom Act.)
The Court wrote, with respect to the standard of review to be applied under Section 202, that: "Next, Time Warner argues that the Commission applied too lenient a standard when it concluded only that the CBCO Rule ``continues to serve the public interest,´´ 1998 Report ¶ 102, and not that it was ``necessary´´ in the public interest. Again the Commission is silent, but this time we agree with Time Warner; the Commission appears to have applied too low a standard. The statute is clear that a regulation should be retained only insofar as it is necessary in, not merely consonant with, the public interest."
The FCC filed a Petition for Rehearing En Banc [40 pages in PDF] arguing that the term "necessary" should not necessarily be construed to mean "necessary"; and, if it is, this "threatens to impose a continuing and unworkable burden on the agency in carrying out its biennial review responsibilities." The FCC argued that necessary means "useful", not "indispensable".
The Court of Appeals concluded in its June 21 opinion that it is not necessary to interpret the word "necessary". It revised its February 19 opinion by deleting its interpretation of the word "necessary". It wrote that "We agree with the Commission that the subject paragraph is itself not necessary to the opinion and should be modified. The court's decision did not turn at all upon interpreting ``necessary in the public interest´´ to mean more than ``in the public interest´´: It was clear the Commission failed to justify the NTSO and the CBCO Rules under either standard."
Background. After its 1998 biennial review, the FCC maintained its NTSO rule (47 C.F.R. § 73.3555(e)) and its CBCO rule (47 C.F.R. § 76.501(a)). Fox Television Stations and various other TV networks and cable companies petitioned the Court of Appeals for review of the FCC's decision not to repeal or modify these two rules. The petitioners asserted that these rules violate the Administrative Procedure Act (APA), § 202(h) of the Telecom Act of 1996, and the First Amendment of the Constitution.
The Statute. The statutory provision at issue was enacted by the Congress in the Telecom Act of 1996. It provides, at Section 202(h), that the FCC "shall review its rules adopted pursuant to this section and all of its ownership rules biennially as part of its regulatory reform review under section 11 of the Communications Act of 1934 and shall determine whether any of such rules are necessary in the public interest as the result of competition. The Commission shall repeal or modify any regulation it determines to be no longer in the public interest."
February 19 Opinion. The Court rejected the First Amendment argument. However, the Court of Appeals held: "We conclude that the Commission's decision to retain the rules was arbitrary and capricious and contrary to law. We remand the national television station ownership rule to the Commission for further consideration, and we vacate the cable/ broadcast cross ownership rule because we think it unlikely the Commission will be able on remand to justify retaining it."
Chief Judge Douglas Ginsburg, writing for a three judge panel, found that the FCC "has adduced not a single valid reason to believe the NTSO Rule is necessary in the public interest, either to safeguard competition or to enhance diversity. Although we agree with the Commission that protecting diversity is a permissible policy, the Commission did not provide an adequate basis for believing the Rule would in fact further that cause. We conclude, therefore, that the 1998 decision to retain the NTSO Rule was arbitrary and capricious in violation of the APA."
The Court similarly held that the CBCO violates the APA. It found that the FCC "failed to consider the increased number of television stations now in operation, and it is clear that the Commission failed to reconcile the decision under review with the TV Ownership Order it had issued only shortly before. We conclude, therefore, that the Commission's diversity rationale for retaining the CBCO Rule is woefully inadequate." The February 19 opinion is published at 280 F.3d 1027.
FCC Petition for Rehearing. The FCC wrote in its petition for rehearing that "The panel held in that decision that under the applicable statutory provision the Commission applied ``too low a standard´´ in conducting its biennial review of media ownership regulations and that under the correct standard set forth in Section 202(h) of the 1996 Telecommunications Act, ``a regulation should be retained only insofar as it is necessary in, not merely consonant with, the public interest.´´ ... This holding, which can be read to require a higher standard to retain an existing rule than to adopt it in the first instance, imposes a substantial and continuing burden on the agency that threatens administrative paralysis. This result is not compelled by the language of the statute or by its legislative history." (Citation to Fox omitted.)
The FCC argued for "A less stringent interpretation of the term ``necessary´´ ". It argued that the Court should construe this word in its "statutory context" rather than "in its most literal sense".
Conclusion. In its February 19 opinion, the Court vacated the CBCO rule, but merely remanded the NTSO rule to the FCC. In so doing, it gave a literal meaning to the word "necessary". In its June 21 opinion, the Court merely modified its February 19 opinion regarding the meaning of the word "necessary". It left it undefined. The February 19 opinion held the FCC to a high standard of review in challenges to its ownership rules. The June 21 leaves uncertain what the standard of review is. The Court also denied petitions for review of intervenors. Its determinations regarding the ownership rules stands.
USITC Issues Initial Determination Against Gemstar
6/21. Administrative Law Judge (ALJ) Paul Lukern of the U.S. International Trade Commission (USITC) issued his Final Initial Determination [PDF] in a proceeding titled "In the Matter of Certain Set-Top Boxes and Compenents Thereof", which pertains to certain patents held by Gemstar TV Guide.
The USITC has authority under Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337, to determine whether there is unfair competition in the importation of products into, or their subsequent sale in, the United States, on the basis that there is an infringement of a U.S. patent, copyright, or registered trademark.
Gemstar filed a complaint with the USITC alleging that EchoStar Communications Corporation, Pioneer Corporation, Pioneer Digital Technologies, Pioneer New Media Technologies, Pioneer North America, Inc., Scientific Atlanta, and SCI Systems imported set top boxes into the U.S. that infringed patents held by Gemstar.
The ALJ wrote that "it is the administrative law judge's final initial determination that there has been no violation by any of the respondents of section 337 in the importation into the United States, sale for importation, and the sale within the United States after importation of certain set-top boxes and components thereof." This is USITC Investigation No. 337-TA-4544.
Gemstar stated in a release that "the final initial determination is erroneous and that the proper application of the law does not support it. The Company intends to petition for a review of the final initial determination by the full Commission."
Jonathan Orlick, General Counsel of Gemstar, stated that Gemstar "is determined to continue to protect its intellectual properties and patents which crystallize our innovations and inventions. Today's ruling will not detract from the Company's long standing policy to assert patents against infringing parties, including those involved in the current ITC case."
Federal Circuit Addresses Collateral Estoppel in Patent Litigation
6/21. The U.S. Court of Appeals (FedCir) issued its opinion in Vardon Golf v. Karsten Manufacturing. This is an appeal from a grant of summary judgment in a patent infringement suit involving golf clubs. The opinion of the Court addresses the application of the doctrine of collateral estoppel -- the concept that matters litigated by parties in one proceeding are binding upon them in a subsequent proceeding. However, Judge Dyk also wrote a concurring opinion. The Federal Circuit follows the law of the originating circuit on the matter of collateral estoppel. Dyk questioned this. He also discussed generally when the Federal Circuit should follow the law of the various circuits, and when it should follow its own law.
DOJ Files Antitrust Suit Against Wind River and MathWorks
6/21. The Department of Justice (DOJ) announced that it filed a complaint in U.S. District Court (EDVa) against MathWorks and Wind River Systems alleging violation of federal antitrust laws in connection with an alleged agreement between the two companies that eliminates competition.
The complaint alleges violation of Section 1 of the Sherman Act. It alleges that the two companies were head to head competitors for the development and sale of dynamic control system design software tools. It further alleges that they entered into an agreement that ended competition between the two firms.
The DOJ also announced that it filed a proposed consent decree that would settle the lawsuit against Wind River. See, DOJ release.
FTC Settles with Internet Retailer
6/21. The Federal Trade Commission (FTC) announced that it filed a Stipulated Final Judgment and Order for Permanent Injunction [PDF] in FTC v. Bargains & Deals Magazine. The FTC filed a civil complaint in U.S. District Court (WDWash) against Bargains & Deals, an Internet retailer, alleging violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a), and the FTC's Mail or Telephone Order Merchandise Rule, 16 C.F.R. Part 435, which also applies to Internet sales.
The FTC stated in a release that "Defendants advertised designer name bargains but delivered cut rate products, or no products at all". The stipulated order "bars the defendant and his company from misrepresentations in the sale of any product or service and orders the defendants to provide $15,000 for consumer redress."
GAO Finds FBI's Computers, Software, and E-Mail Deficient
6/21. David Walker, Controller General of the U.S., submitted testimony [PDF] to the House Appropriations Committee's Subcommittee on Commerce, Justice, State, and the Judiciary, titled "FBI Reoganization: Initial Steps Encouraging but Broad Transformation Needed". He testified, among other things, that the FBI is lacking in computer and communications tools, and that this is hampering the FBI's ability to share information.
He concluded that "Communications has been a longstanding problem for the FBI. This problem has included antiquated computer hardware and software, including the lack of a fully functional e-mail system. These deficiencies serve to significantly hamper the FBI's ability to share important and time sensitive information with the rest of the FBI and across other intelligence and law enforcement agencies."
Walker elaborated that "Sharing of investigative information is a complex issue that encompasses legal requirements related to law enforcement sensitive and classified information and its protection through methods such as encryption. It is also a cultural issue related to a tradition of agents holding investigative information close so as not to jeopardize evidence in a case. Whereas, in a more proactive investigative environment, the need for more functional communication is of paramount importance and will be essential for partnering with other law enforcement agencies and the intelligence community. Stated differently, we do not believe the FBI will be able to successfully change its mission and effectively transform itself without significantly upgrading its communications and information technology capabilities." (See, page 11.)
He also addressed encryption in a footnote. He wrote that "Of equal concern to the FBI and other law enforcement agencies is the use of commercially available, non-recoverable encryption products by terrorists and others engaged in serious criminal activity to prevent law enforcement from effectively using encrypted information obtained through electronic surveillances or seizure of electronic data. This is attributable to the fact that law enforcement agencies cannot always obtain the means necessary to decrypt the encrypted information." (See, footnote 8.)
William Maher to Head Wireline Competition Bureau
6/21. The Federal Communications Commission (FCC) announced that Dorothy Attwood, Chief of the Wireline Competition Bureau, which was previously known as the Common Carrier Bureau, will leave the FCC "this summer". She will be replaced by William Maher.
Maher will be an oddity at the FCC. He is a lawyer who has a background in technology. He has both bachelors and masters degrees in electrical engineering. He also once worked at Bell Labs.
Maher is now a partner in the Washington DC law firm of Halprin Temple Goodman & Maher. He has also worked at both the FCC and the National Telecommunications and Information Administration (NTIA). Most recently, he represented the Multi Association Group (MAG) in access charge reform proceedings before the FCC. He has also represented the U.S. Telecommunications Association (USTA). The USTA issued a release in which it stated that its attorney is an "outstanding choice".
More News
6/21. The Federal Communications Commission (FCC) published a notice in the Federal Register regarding its Notice of Proposed Rule Making (NPRM) "regarding the sunset of the statutory requirements under section 272 imposed on Bell Operating Companies (BOCs) when they provide in-region, interLATA services". The FCC "seeks comment on whether, and if so, under what conditions, the structural and nondiscrimination safeguards established in section 272 should be extended by the Commission either generally or with respect to specific states." Comments are due by July 22, 2002. Reply comments are due by August 12, 2002. See, Federal Register, June 21, 2002, Vol. 67, No. 120, at Pages 42211 - 42215.

Go to News from June 16-20, 2002.