News from September 11-15, 2002
IIPI Conference Addresses Creation of Specialized Courts for Copyright Cases
9/13. The International Intellectual Property Institute (IIPI) hosted a two day conference in Washington DC titled "Specialized Intellectual Property Courts" on September 12 and 13. One of the topics addressed was the creation of specialized courts with jurisdiction over copyright law. See, full story.
Judge Rader Comments on IPR and Courts in PR China
9/13. Randall Rader, Chief Judge of the U.S. Court of Appeals for the Federal Circuit, addressed enforcement of intellectual property rights in the People's Republic of China in a meeting with reporters. He stated that the Shanghai High Court is doing very well, but other courts are behind.
Judge Rader, who has been to China five times since 1994, stated that "China has places like Shanghai that just expanding economically. And I think the correlation there is that the Shanghai High Court has been very diligent in enforcing contracts, and protecting intellectual property, and resolving commercial disputes, which has formed the climate for investment, and for growth. And, if an international business feels that they are not working in a climate that protects their property, they will take their business elsewhere. And I think the best thing that can happen for an emerging economy, or a transitioning economy, is to have a really sound court system -- independent court system, a competent court system. They need to learn the international standard and enforce it."
Judge Rader, who was responding to questions from a China Radio International reporter, continued that China "is uneven". He continued, "Let me humbly offer this opinion. It is not for me to judge a great nation like China. My observation is that some places are approaching the international standard, and working hard to achieve it."
He continued that "Shanghai I think is doing very well. Other places are behind Shanghai, and not recognizing their potential yet. Shanghai, Hong Kong, of course, for many years have been economic centers, and they recognize the importance of international investment. But, if you go more into the western reaches of China you see less evidence of this concern about economic -- protection of economic rights."
He was asked what are the most pressing problems that China needs to address. Rader responded, "it is all somewhat interconnected, but I do think you need more judicial resources, you need to train those resources. We are talking about judges, but it stretches beyond judges. You need policemen. You need customs authorities. You need legislatures and law makers who will make their laws conform to the laws of TRIPS, who will provide the funding for the courts, who will provide the funding for the customs officers. It is a national commitment to make their economic institutions work. And, our narrower focus is on judicial capacity and judicial resources. But, we recognize that judges will only become independent and capable if they have the support of their governments, their police forces, their justice ministries, their societal framework in general."
Judge Rader also stated that "I have seen progress. Each time I go back more judges are becoming educated in intellectual property. And I have seen a growing effort to enforce economic rights."
IIPI Report Argues IP Courts are Critical for Economic Growth
9/13. Michael Ryan, a professor at the Georgetown University McDonough School of Business, and Albena Petrova, of the International Intellectual Property Institute (IIPI), wrote a report titled "Judicial Capacity Regarding Intellectual Property -- Enforcement and Dispute Settlement".
The two argue that "capitalist, market based economies owe their successes in part to effective social institutions, governments and courts. ... Courts are becoming increasingly appreciated as critical institutions for economic success. We contend that growth in the developing and transitioning economies of Latin America, Africa, eastern Europe, the Middle East, Asia, and the Pacific critically rests on the capacities of courts and judges to enforce commercial rights and resolve commercial conflicts."
The report argues that "increased specialization by judges and courts can help manage challenges of complexity ..." It also argues that "the establishment of specialized IP courts composed of knowledgeable, fair judges, adequately supported through transparent, meritocratic processes, who are well-paid, who are empowered with bench authority, yet made accountable to the public and their elected representatives will over time earn legitimacy."
It concludes that "the establishment of specialized intellectual courts is an emerging trend in the world economy. The logic of the organizational demands of building judicial capacity to manage knowledge, achieve efficiency, and earn legitimacy with respect to IP enforcement and dispute settlement suggests that specialized IP courts may become ever-more common around the world."
The 120 report was published by the IIPI. It was sponsored by the USPTO.
EU Lists Products Under Consideration for FSC/ETI Related Retaliatory Tariffs
9/13. The European Union published a document [14 pages in PDF] titled "Notice relating to the WTO Dispute Settlement proceeding concerning the United States tax treatment of Foreign Sales Corporations (FSC) -- Invitation for comments on the list of products that could be subject to countermeasures".
On August 30, the World Trade Organization (WTO) issued a Decision of the Arbitrator [46 pages in PDF] in the FSC/ETI dispute. The WTO had previously held that the United States' Foreign Sales Corporation (FSC) tax regime, and its replacement, the Extraterritorial Income (ETI) regime, constitute illegal export subsidies. This decision authorizes the EU to impose $4 Billion in countermeasures, or retaliatory tariffs.
The just released EU notice states that "In order to elaborate the final list of products to be presented to the WTO and which could be subject to countermeasures, the Commission invites European Community companies, trade associations or any other interested party in the European Community ... to present their views and comments."
It continues that "Interested parties are hereby invited to present their views and comments on the products covered by the list contained in Annex A to this notice within 60 days from the publication of this notice in the Official Journal of the European Communities."
The attached Annex A then lists thousands of product category numbers from the European Union Harmonized Tariff Schedule 2002 (EUHTS). Notably, page 12 of the EU notice lists 310 product category codes from Chapter 85 [PDF] of the EUHTS, which pertains to "Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles".
This list includes some products of the U.S. electronics industry. However, it does not list many other products of the U.S. electronics and other high tech industry sectors.
The following is a partial listing of category numbers, and the associated product descriptions, that are on the EU list: 8517 telephone equipment, 8518 microphones and speakers, 8519 cassette players and other sound producing devices, 8520 tape recorders and other sound recording apparatus, 8521 video recording or producing apparatus, 8523 magnetic disks, 8524 20 91 transmission apparatus for cellular networks, 8525 40 11 digital cameras, 8527 21 radio receivers, 8528 12 television reception apparatus, 8528 21 14 video monitors, 8531 20 LCDs and LEDs, 8532 electrical capacitors, 8533 electrical resistors, 8535 & 8536 switches, circuit breakers, relays, 8541 21 dynamic random  access memories (DRAMs), Static random access memories (SRAMs), and FLASH E²PROMs, 8542 29 70 interface circuits and interface circuits capable of performing control functions, and 8548 90 10 memories in multicombinational forms such as stack DRAMs and modules.
The EU list also includes books and newspapers.
The U.S. may avoid the imposition of EU retaliatory measures, by repealing the ETI. Rep. Bill Thomas (R-CA), the Chairman of the House Ways and Means Committee, introduced HR 5095, the American Competitiveness and Corporate Accountability Act of 2002, on July 11, 2002, to address the WTO's rulings regarding the FSC and ETI. See also, Rep. Thomas' summary. However, no action has been taken on the bill. Also, there is no replacement legislation pending in the Senate.
More News
9/13. California Gov. Gray Davis signed SB 2095, sponsored by Sen. Ross Johnson (R-Irvine). This bill provides that "The Secretary of State shall include on the Internet Web site of the Secretary of State's office, as part of the campaign finance activity that is publicly disclosed, any independent expenditure, as defined in Section 82031, that is reported pursuant to Section 85500 with respect to a candidate for elective state office and a statewide ballot measure. This information shall be linked to the part of the Web site that the Secretary of State maintains concerning that candidate or ballot measure." It covers expenditures of $1,000 or more made for candidates for state office or state ballot measures.
9/13. California Gov. Gray Davis returned, without his signature, AB 2048, sponsored by Simon Salinas (D-Salinas). This bill would have allowed videotapes or recordings made by security cameras on public transit systems to be destroyed immediately. Gov. Davis wrote a letter [PDF] to the state legislature explaining why he did not sign the bill. "While AB 2048 is intended to free transit agencies from the added expense of processing and storing these videotapes, such tapes can be a valuable tool to help solve crimes. The fact that a monitoring video contains useful information may not be known in time to preserve a particular tape under the terms in this bill. Requiring transit agencies to hold tapes for a least a short period of time could prevent the loss of useful evidence."
FCC Seeks Comments on Scenarios for Relief of NextWave Re-Auction Winners
9/12. The Federal Communications Commission (FCC) issued a Public Notice [7 pages in PDF] in which it asks for public comments regarding two possible scenarios for providing relief to the Auction No. 35 winners: full refund and option to dismiss all pending applications, and selective opt out for pending applications.
Companies, such as Verizon Wireless and Deutsche Telekom's T-MobileUSA, who were the winning bidders in the FCC's ill fated January 2001 re-auction of spectrum previously auctioned to NextWave, are currently obligated to pay a total of $16 Billion for the spectrum, if they do ever actually receive it.
NextWave obtained spectrum licenses at FCC auctions in 1996. The FCC permitted NextWave to obtain the licenses, and make payments under an installment plan, thus creating a debtor creditor relationship between NextWave and the FCC. NextWave did not make payments required by the plan, and filed a Chapter 11 bankruptcy petition. The FCC cancelled the licenses. It then proceeding to re-auction the disputed spectrum. The U.S. Court of Appeals (DCCir) ruled in its June 22, 2001, opinion that the FCC is prevented from canceling the spectrum licenses by § 525 of the Bankruptcy Code. The FCC petitioned the Supreme Court for writ of certiorari. The Court granted certiorari. Oral argument is scheduled for October 8.
On March 26, 2002, the FCC issued a partial refund order which granted partial refunds of the down payments made by certain winning bidders in Auction No. 35. The FCC wrote in its September 12 Public Notice that "Pursuant to the Partial Refund Order, the Commission has already refunded approximately $2.8 billion to the Auction No. 35 winning bidders ...", but that the FCC has retained $489,548,061, and that the total amount of the obligations of the Auction No. 35 winners to the FCC is now $16,318,268,700.
The winning bidders in Auction No. 35, and their many supporters in Congress, have repeatedly argued that these financial obligations adversely affect their ability to improve their facilities, because they must always have this capital on hand in the event the the FCC is ever able to provide them spectrum rights.
The Public Notice states that "Specifically, we seek comment on whether we should consider further, inter alia, the following scenarios: (1) Full Refund and Option to Dismiss All Pending Applications. Upon request, the Commission would refund to the payor of record the full amount of monies on deposit with the Commission for the licenses subject to the NextWave litigation and Urban Comm proceedings. The Commission would also provide a period of time for individual applicants to request voluntary dismissal of all of their applications, with prejudice. Under this scenario, applicants obtaining a full refund and choosing to dismiss their applications would lose all claims to the affected Auction No. 35 licenses. Should the Commission prevail in the litigation, new initial licenses for the spectrum would be assigned by auction at a future date."
The second scenario announced in the Public Notice is as follows: "(2) Selective Opt-Out for Pending Applications. Under this scenario, the Commission would provide applicants the opportunity to pick and choose licenses for which to keep the applications pending and which to dismiss. We seek comment on whether all of the down payments should be refunded or only down payments associated with the dismissed licenses."
FCC Commissioner Michael Copps issued a concurring statement. He wrote that "I believe that there are strong equitable arguments to support returning the remaining funds on deposit related to Auction 35, and even for dismissing all pending applications related to that auction. But I am frankly somewhat concerned about the timing of today's Public Notice, as drafted. I have been in this town long enough to know that there is something called the Law of Unintended Consequences, and I never underestimate its power. I must, therefore, concur rather than approve of this action."
Tom Wheeler, P/CEO of the Cellular Telecommunications & Internet Association (CTIA), praised the FCC's Public Notice. He stated in a release that "By proposing to remove this enormous contingent liability, the FCC, with the support of the Bush Administration and Congress, will free billions of dollars for network expansion and upgrades, which will in turn, create tens of thousands of jobs ... Today's action promises to provide a boost to every wireless carrier, whether they participated in the auction or not. This debt overhang had created severe capital restrictions throughout the entire industry".
Public comments are due by September 30, 2002. Reply comments are due by October 15, 2002.
FCC Announces Broad Review of Media Ownership Rules
9/12. The Federal Communications Commission (FCC) adopted, but did not release, a Notice of Proposed Rulemaking (NPRM) pertaining to its various broadcast ownership rules. Instead, it issued a short press release [PDF] in which it stated that it "initiated the third Biennial Regulatory Review of Broadcast Ownership Rules" to "develop ownership rules and policies that are reflective of the current media marketplace, are based on empirical evidence, and are analytically consistent."
The FCC release further states that the NPRM "addresses all of the media ownership rules related to use of the broadcast spectrum".
This proceeding is another element of the FCC's current trend of relaxing media ownership rules, and allowing for more media consolidation.
The NPRM covers six different sets of media ownership rules. First, there is the FCC's Newspaper Broadcast Cross Ownership Prohibition. This is already the subject of a NPRM initiated last fall. (This is Docket No. MM 01-235.)
There are also competing bills in Congress on this subject. On July 17, 2001, Sen. Ernest Hollings (D-SC), Sen. Daniel Inouye (D-HI), and Sen. Byron Dorgan (D-ND) introduced S 1189, a bill to require the FCC to amend its daily newspaper cross ownership rules. Sen. Hollings stated that at the time that "This legislation is necessary to stem the tide toward concentration in the broadcast and newspaper industries and force a thorough and reasoned examination of the claims that further consolidation will serve the public interest." In contrast, at the same time, Rep. Clifford Stearns (R-FL) introduced HR 2536, a bill to reduce restrictions on media ownership.
Second, this NPRM addresses the Local Radio Ownership rules. This is also the subject a pending NPRM. (This is Docket No. MM 00-244.)
This NPRM also addresses the National TV Ownership rule, and the Local TV Multiple Ownership rule, both of which are currently on remand from the U.S. Court of Appeals (DCCir). Finally, this NPRM addresses the Radio/TV Cross Ownership Restriction and the Dual Television Network Rule.
The FCC release also states that "the FCC has commissioned a number of empirical studies examining the current state of the media marketplace, including how consumers use the media, how advertisers view the different media outlets, and how media ownership affects diversity, localism and competition. The results of these studies will be released in the coming weeks." Then, comments will be due 60 days after release of the studies, and reply Comments will be due 30 days after the initial comment deadline. This means that the comment period may close during or just after the Christmas and New Years holiday.
FCC Commissioner Michael Copps wrote a separate statement [PDF] in which he stressed that "Because the stakes here are so incredibly high, it is far more important that we get this done right than that we get it done quickly." See also, separate statement of FCC Commissioner Kevin Martin.
Mark Cooper, of the Consumer Federation of America (CFA), condemned the FCC's announcement of this NPRM. He stated in a release that "the FCC launched the second phase in its assault on the cornerstone of a vibrant democracy by continuing and consolidating its campaign to eliminate or dramatically weaken longstanding rules designed to promote diverse ownership of media outlets and encourage an open marketplace for ideas. What's more, the FCC is in such a rush to eliminate these rules, they can't wait until the results of their own studies are in. Once again the lines have been drawn between corporate power and the public interest. And once again the public interest has come out the loser."
The proceeding initiated by this NPRM is MB Docket No. 02-277.
Satellite Broadcasters Criticize Landrieu Bill
9/12. The Satellite Broadcasting and Communications Association (SBCA) announced its opposition to S 2922, the Emergency Communications and Competition Act of 2002 (ECCA), sponsored by Sen. Mary Landrieu (D-LA) and Sen. Conrad Burns (R-MT).
SBCA President Andy Wright stated in a release that "Northpoint Technology's most recent attempt at a spectrum grab -- S. 2922 -- is anti-consumer legislation that would cause harmful interference and interrupt the service of millions of satisfied satellite TV customers. The legislation would also unilaterally enrich Northpoint over its potential competitors by giving a handful of politically connected individuals millions of dollars of publicly owned spectrum for free."
The bill would require that the Federal Communications Commission (FCC) "shall assign licenses in the 12.2-12.7 GHz band for the provision of fixed terrestrial services using the rules, policies, and procedures used by the Commission to assign licenses in the 12.2-12.7 GHz band for the provision of international or global satellite communications services in accordance with section 647 of the Open-market Reorganization for the Betterment of International Telecommunications Act (47 U.S.C. 765f)."
The bill would provide for the licensing, without auction, of digital broadcast satellite (DBS) spectrum for terrestrial use by Multichannel Video Distribution and Data Services (MVDDS) -- essentially, NorthPoint Technology.
Greenspan Testifies Regarding Fiscal Issues
9/12. Federal Reserve Board Chairman Alan Greenspan testified before the House Budget Committee on current fiscal issues.
He stated in his prepared testimony that "The U.S. economy has confronted very significant challenges over the past year -- major declines in equity markets, a sharp retrenchment in investment spending, and the tragic terrorist attacks of last September. To date, the economy appears to have withstood this set of blows well, although the depressing effects still linger and continue to influence, in particular, the federal budget outlook."
He elaborated that "A year ago, the Congressional Budget Office expected the unified budget to post large and mounting surpluses over the coming decade. As you know, CBO is currently forecasting that, if today's policies remain in place, the unified budget will post deficits through fiscal year 2005. For the fiscal year just ending, CBO now projects a budget balance that is more than $300 billion below the level it had projected a year ago."
However, he added that, "despite the budget erosion over the past year, our underlying fiscal situation today remains significantly stronger than that of a decade ago, when policymakers were struggling to rein in chronic large deficits and the ratio of federal debt to gross domestic product was approaching 50 percent and climbing."
See also, excerpts from statement by Rep. Jim Nussle (R-IA), the Budget Committee Chairman.
US Chamber Reports on PR China's Compliance with WTO Obligations
9/12. The U.S. Chamber of Commerce released a report [30 pages in PDF] titled "First Steps: A U.S. Chamber Report on China's WTO Progress". The report concludes that it "is too early to issue sweeping judgments about China's overall compliance with its WTO obligations, many of which are due to be phased in over a period of years." The report also contains specific findings and recommendations regarding enforcement of intellectual property rights in China.
In general, the report argues that "while China's progress must indeed be measured against the commitments it made to join the WTO, realistically, it must also be evaluated in the context of the enormity of this undertaking." It also finds that China has made "promising first steps" in several areas, including its issuance of "Administrative Regulations on Operational Licenses for Telecom Business", its "good faith efforts" to revise its laws and regulations governing the protection of intellectual property rights.
In contrast, the report also notes that "international companies are also concerned about insufficient progress in other areas. There are challenges that stem from a lack of transparency, insufficient consultation in the development of regulations, the lack of an independent regulator, inadequate protection of intellectual property rights, and the dominance of domestic political considerations over commercial decision making."
In the area of intellectual property rights, the report states that "China agreed to comply with the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) upon its accession to the WTO, including changes to laws and administrative practices to conform to the agreement. Although China has revised its laws to provide criminal penalties for certain IPR violations, poor enforcement and weak penalties mean that widespread IPR violations continue. While enforcement raids occur, the political will and legal institutions necessary to ensure that deterrent punishments are imposed on intellectual property pirates are clearly lacking, and there is little sign of this changing."
"General indications are that China has been working in good faith to bring its laws and regulations into TRIPs compliance. However, technical shortcomings and bureaucratic slowness has meant that many of these laws and regulations have not been brought into force, as required by China’s commitments. In addition, as noted, while enforcement raids occur, the political will and legal institutions necessary to ensure that deterrent penalties are imposed on IP pirates are clearly lacking, and there is little sign of this changing."
The report offers several recommendations with respect to IPR in China. First, "China needs to revise its IPR laws and regulations, including those related to patents, trademarks, trade secrets, integrated circuits, and copyrights, to bring them into full compliance with TRIPs."
Second, the reports recommends that Chinese officials need more "political will", and that the "Rule of law generally, including in such areas as transparency, judicial review, and uniform enforcement of laws, also needs to be strengthened."
Finally, the report states that the "Lack of knowledge and understanding and insufficient training also impedes effective enforcement efforts. ... The U.S. government should develop a unified, mid-to-long term strategic plan for capacity building in the IP area, to replace the ad hoc and therefore haphazard efforts that are currently underway."
FCC Announces Appointments
Bryan Tramont9/12. FCC Chairman Michael Powell named Bryan Tramont (at right) his Senior Legal Advisor. Tramont will also be responsible for wireless and international issues. Since June 2001, Tramont has been Senior Legal Advisor to FCC Commissioner Kathleen Abernathy. Before that, he advised Abernathy on wireless, international, technology and enforcement issues. Before that, he was Legal Advisor and then Senior Legal Advisor to former FCC Commissioner Harold Furchtgott Roth. And before that, he was an attorney in the Washington DC office of the the law firm of Wiley Rein & Fielding. See, FCC release [PDF].
9/12. FCC Commissioner Kathleen Abernathy named Matthew Brill to be her Acting Senior Legal Advisor. He is currently her Legal Advisor for wireline competition issues. In addition, John Branscome, of the Commercial Wireless Division of the Wireless Telecommunications Bureau, will be detailed to Abernathy as Acting Legal Advisor for wireless, international and technology issues until a permanent advisor is named. See, FCC release [PDF].
Peter Tenhula9/12. Peter Tenhula (at right) was named Co- Director of the FCC's Spectrum Policy Task Force. The FCC stated in a release [PDF] that he "will be working closely with Dr. Paul Kolodzy, current Director of the Task Force, on the next phases of its mission. Mr. Tenhula will be primarily responsible for coordinating all Commission spectrum policy activities across the various bureaus, with Congress and with the administration." Tenhula will be replaced in his current position as Senior Legal Advisor to FCC Chairman Powell by Bryan Tramont. Tenhula joined Powell's staff as a Legal Advisor in 1997. He has worked in various positions at the FCC for 12 years. He has also worked for Rep. Mike Oxley (R-OH) and the National Association of Broadcasters (NAB).
People and Appointments
9/12. The Senate Banking Committee unanimously approved the nomination of Wayne Abernathy to be Assistant Secretary of the Treasury for Financial Institutions. Abernathy has worked for the Committee since 1981. He is currently the Republican Staff Director. See, Abernathy's prepared statement.
9/12. Leslie Lott, David Moyer and Jon Sandelin were named to the U.S. Patent and Trademark Office's (USPTO) Trademark Public Advisory Committee (TPAC). The TPAC was created by the American Inventors Protection Act in 1999 to advise the Under Secretary of Commerce and Director of the USPTO on the agency's operations, including its goals, performance, budget, and user fees. Leslie Lott is an attorney with the law firm of Lott & Friedland. She focuses on patent, trademark, and copyright law. David Moyer is an Associate General Counsel of Intellectual Property at the Procter & Gamble Company. Jon Sandelin is a Senior Licensing Associate at Stanford University, where he is the Founder and Director of the Trademark Licensing Program. See, USPTO release.
9/12. President Bush nominated five people to be federal judges: Maurice Hicks (to be a U.S. District Judge for the Western District of Louisiana), Ralph Erickson (U.S.D.C., District of North Dakota), William Quarles (U.S.D.C., District of Maryland), Thomas Ludington (U.S.D.C., Eastern District of Michigan), and Victor Wolski (U.S. Court of Federal Claims, for a term of fifteen years). See, White House release.
9/12. The Senate confirmed Arthur Schwab to be a Judge of the U.S. District Court for the Western District of Pennsylvania by a vote of 92-0. See, Senate Roll Call No. 216.
9/12. The Senate confirmed Timothy Corrigan to be a Judge of the U.S. District Court for the Middle District of Florida by a vote of 88-0. See, Senate Roll Call No. 213.
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9/12. The Federal Communications Commission (FCC) announced, but did not release, a Notice of Proposed Rulemaking (NPRM) and Memorandum Opinion and Order (MOO) regarding its telemarketing rules. The FCC issued a press release [PDF] in which it stated that among the questions asked in the NPRM is whether "to revisit the option of establishing a national do not call list and, if so, how such action might be taken in conjunction with (1) the Federal Trade Commission's (FTC) recent proposal to adopt a national do not call list and (2) the various state do not call lists." See also, statement [PDF] of Michael Powell, and statement [PDF] of Kathleen Abernathy.
9/12. The U.S. International Trade Commission (USITC) announced that it has extended its deadline to complete its investigation titled "Certain Integrated Circuits, Processes for Making Same, and Products Containing Same" until October 7, 2002. This is the USITC's Investigation No. 337-TA-450. See, notice in the Federal Register, September 12, 2002, Vol. 67, No. 177, at Pages 57850 - 57851.
9/12. Assistant U.S. Trade Representative (USTR) Dan Brinza gave a speech to a special session of the World Trade Organization (WTO) Dispute Settlement Body (DSB) in Geneva, Switzerland, in which he advocated making the WTO dispute settlement system more open and transparent. He addressed permitting amicus curiae briefs, and publication of submissions, statements and final reports.
9/12. The Electronic Privacy Information Center (EPIC) and other groups published a book titled "Litigation Under the Federal Open Government Laws 2002". The 570 page book covers the Freedom of Information Act,  Privacy Act, Federal Advisory Committee Act, and Government in the Sunshine Act. The price is $40.00. See, information and online order page.
9/12. The House Judiciary Committee's Subcommittee on the Constitution held an oversight hearing titled "Privacy Concerns Raised by the Collection and Use of Genetic Information by Employers and Insurers". See, opening statement by Rep. Steve Chabot (R-OH), Chairman of the Subcommittee. See also, prepared testimony of witnesses: Deborah Peel (American Psychoanalytic Association), John Rowe (Aetna), Joanne Hustead (Georgetown University's Institute for Health Care Research and Policy), and Tom Miller (Cato Institute).
9/12. The Senate Commerce Committee's Subcommittee on Science, Technology, and Space Subcommittee held a hearing to examine S 2537, the Dot Kids Implementation and Efficiency Act of 2002, and HR 2417, the Dot Kids Domain Name Act of 2001. These bills would facilitate the creation of a new second level Internet domain within the U.S. country code domain that would provide a safe online environment for children. The House has already passed another version -- HR 3833. See, prepared testimony of Rep. John Shimkus (R-IL), sponsor of HR 3833. See also, prepared testimony of other witnesses: Ruben Rodriguez (National Center for Missing and Exploited Children), Ann Brown (Safer America for Everyone), and James Casey (Director of Policy and Business Development of NeuStar, which operates the .us country code top-level domain under contract with the Department of Commerce).
9th Circuit Rules on Priority of Security Interests in Unregistered Copyrights
9/11. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Aerocon Engineering v. Silicon Valley Bank, a bankruptcy case involving the question of whether federal or state law governs priority of security interests in unregistered copyrights. The Appeals Court's holding (that state law governs), as well as its discussion, may be of interest to lenders who obtain security interests in software copyrights as collateral for their loans.
Background. Three companies which designed and sold products for modifying airplanes obtained financing from the Silicon Valley Bank (SVB). It took a security interest in, among other things, all "copyright rights, copyright applications, copyright registrations, and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired." SVB perfected its security interest under the California Uniform Commercial Code (UCC). The borrowers did not register the copyrights at issue.
Proceedings Below. The borrowers went into bankruptcy. Another creditor, Aerocon, purchased the copyrights from the bankruptcy trustee. SVB obtained relief from the bankruptcy stay, and foreclosed on the copyrights, pursuant to its state security interest. SVB and Aerocon both claimed priority of security interests in the borrowers' copyrights in the drawings, technical manuals, blueprints, and computer software used to make modifications to civilian aircraft. The Bankruptcy Court ruled, on summary judgment, in favor of SVB. The District Court affirmed. This appeal followed.
Appeals Court. The Appeals Court affirmed. It wrote that "this is a bankruptcy contest over unregistered copyrights between a bank that got a security interest in the copyrights from the owners and perfected it under state law, and a company that bought the copyrights from the bankruptcy trustees after the copyright owners went bankrupt."
The Court concluded, "Regarding perfection and priority of security interests in unregistered copyrights, the California U.C.C. has not stepped back in deference to federal law, and federal law has not preempted the U.C.C. Silicon Valley Bank has a perfected security interest in the debtors' unregistered copyrights, and Aerocon, standing in the bankruptcy trustees' shoes, cannot prevail against it."
The Court first noted that the Copyright Act protects original works of authorship, and provides for registration of copyrights; however, registration is permissive, not mandatory, and in fact, most copyrights are not registered. Moreover, the Act further provides for the transfer of copyright interests, and for priority between conflicting transfers, based upon constructive notice. However, one who obtains a security interest in an unregistered copyright cannot record with the Copyright Office a transfer that would give constructive notice because there is no underlying registration that would provide a title and registration number. And also, the security holder cannot register the copyright, because he is not the author or owner of the copyright. And hence, the holder of a security interest in an unregistered copyright cannot preserve his priority by filing anything at the Copyright Office.
The Court wrote that SVB perfected its security interest under California state law. State law also provides priority to perfected over non perfected security interests. Hence, if state law controls, SVB has priority.
On the other hand, Aerocon argued that the Copyright Act's recordation and priority scheme exclusively controls perfection and priority of security interests in copyrights, under either of two arguments: the step back provisions of the California UCC, or that the Copyright Act preempts the California UCC on this issue. The Appeals Court rejected both arguments.
Under this analysis, the Appeals Court rejected several District Court opinions that have held that security interests in unregistered copyrights can not be perfected under the UCC, and that perfection can be obtained only by registering the copyrights and recording the security interest with the Copyright Office.
The Court reasoned that "Though Congress must have contemplated that most copyrights would be unregistered, it only provided for protection of security interests in registered copyrights. There is no reason to infer from Congress’s silence as to unregistered copyrights an intent to make such copyrights useless as collateral by preempting state law but not providing any federal priority scheme for unregistered copyrights. That would amount to a presumption in favor of federal preemption, but we are required to presume just the opposite. The only reasonable inference to draw is that Congress chose not to create a federal scheme for security interests in unregistered copyrights, but left the matter to States, which have traditionally governed security interests." (Footnote omitted.)
RIAA Files Proposed Injunction Order in Aimster Case
9/11. The Recording Industry Association of America (RIAA) filed with the U.S. District Court (NDIll) its Plaintiffs' Proposed Preliminary Injunction Order and Memorandum in Support [101 pages in PDF] on behalf of its member companies in the proceeding titled In Re Aimster Copyright Litigation.
On September 4, the District Court issued its Memorandum Opinion and Order granting a motion for preliminary injunction filed by various record companies and music publishers against the Aimster file sharing service, which is now known as Madster. The Court also requested that the plaintiffs submit proposed language for the preliminary injunction order.

Go to News from September 6-10, 2002.