News from October 1-5, 2002

Posner Opinion Provides Economic Analysis of Trademark, Dilution & Cybersquatting
10/4. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Ty, Inc. v. Perryman, a case regarding the application of the law of trademark dilution to an Internet based merchant who used the words "bargain beanies" in her web site and domain name over the objections of the company which manufactures, and holds the trademark for, "Beanie Babies". Bottom line: there is no dilution -- she gets to keep her business name and domain name.
This is not an ordinary trademark infringement case, because that would entail the marketing of a competing product in a manner that is likely to cause confusion with the product with the trademarked name. Here, the issue is not the use of a trademark in the context of the sale of a competing product, but rather, the use of the trademark in a secondary market, that is, resale over the Internet. This is a trademark dilution case, which involves the notion that, even in the absence of the use of a trademark that will cause a likelihood of confusion, or in the absence of competition with the owner of a trademark, someone may nevertheless lessen the capacity of a famous mark to identify goods or services.
This opinion contains a thorough review of both the legal and economic bases for the law of dilution. The opinion may be significant for anyone who sells or auctions the trademarked products of others over the Internet, as well as the holders of the relevant trademarks.
Background. Ty Inc. makes Beanie Babies, which are plush toy animals that consist of plastic bean pellets inside of stitched fabric. Ty has obtained a U.S. trademark registration for the mark "Beanie Babies". Ty aggressively asserts its intellectual property rights. Ruth Perryman sells second hand beanbag stuffed animals over the Internet. About 80% of her sales are Ty Beanie Baby products. Her web site, where she disclaims any affiliation with Ty, was located This URL is still active, but now contains only the text "ERROR, Page Not Available".
District Court. Ty filed a complaint in U.S. District Court (NDIll) against Perryman alleging trademark infringement. The appellate opinion does not list the claims in the complaint, or the issues on appeal. However, the opinion deals with the issue of trademark dilution. The District Court granted summary judgment to Ty, and enjoined Perryman from using "BEANIE or BEANIES or any colorable imitation thereof (whether alone or in connection with other terms) within any business name, Internet domain name, or trademark, or in connection with any non-Ty products." (Parentheses in original.) Perryman appealed.
Dilution Statute. 15 U.S.C. § 1125(c) provides, in part, that "The owner of a famous mark shall be entitled, subject to the principles of equity and upon such terms as the court deems reasonable, to an injunction against another person's commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark ..."
Appeals Court. Judge Richard Posner wrote the opinion for the three judge panel vacating and remanding. He reviewed the purpose of trademark law, and the nature of consumer confusion and various forms of dilution, in an opinion laced with economic analysis.
He began by noting that the "fundamental purpose of a trademark is to reduce consumer search costs by providing a concise and unequivocal identifier of the particular source of particular goods. The consumer who knows at a glance whose brand he is being asked to buy knows whom to hold responsible if the brand disappoints and whose product to buy in the future if the brand pleases. This in turn gives producers an incentive to maintain high and uniform quality, since otherwise the investment in their trademark may be lost as customers turn away in disappointment from the brand."
Posner continued that "A successful brand, however, creates an incentive in unsuccessful competitors to pass off their inferior brand as the successful brand by adopting a confusingly similar trademark, in effect appropriating the goodwill created by the producer of the successful brand. The traditional and still central concern of trademark law is to provide remedies against this practice."
Posner then wrote that there is no confusion in this case, because Perryman sells few competing products, and clearly disclaims affiliation with Ty. Hence, Ty's case must rest upon dilution of its mark.
Posner then reviewed three theories of dilution -- blurring, tarnishment, and free riding -- but concluded none are applicable in this case. He wrote "But what is ``dilution´´? There are (at least) three possibilities relevant to this case, each defined by a different underlying concern. First, there is concern that consumer search costs will rise if a trademark becomes associated with a variety of unrelated products." This is Posner's economic definition of blurring. (Parentheses in original. All parenthetical statements within quotes are in the original.)
Second, wrote Posner, there is tarnishment, where, "because of the inveterate tendency of the human mind to proceed by association" a mark may be "tarnished by the association of the word" with its use by someone who is selling a non-competing product.
Posner then suggested a third type of dilution -- free riding. "Third, and most far reaching in its implications for the scope of the concept of dilution, there is a possible concern with situations in which, though there is neither blurring nor tarnishment, someone is still taking a free ride on the investment of the trademark owner in the trademark." In this situation, "the efficacy of the trademark as an identifier will not be impaired."
Posner offered a possible rationale for such a theory. If the trademark owner has a dilution claim, then the "investment in creating a famous name will be, as economists say, ``internalized´´" That is, the owner "will realize the full benefits of the investment rather than sharing those benefits with others -- and as a result the amount of investing in creating a prestigious name will rise." Although, he added that the rationale "has not yet been articulated in or even implied by the case law". Posner also questioned the validity of the rationale.
Then, having set out three rationales for dilution, Posner concluded that none apply in the present case. "Perryman is not producing a product, or a service, ... that is distinct from any specific product; rather, she is selling the very product to which the trademark sought to be defended against her ``infringement´´ is attached. You can't sell a branded product without using its brand name, that is, its trademark. Supposing that Perryman sold only Beanie Babies (a potentially relevant qualification, as we'll see), we would find it impossible to understand how she could be thought to be blurring, tarnishing, or otherwise free riding to any significant extent on Ty's investment in its mark."
Cybersquatting. The appellate opinion does not review a District Court judgment rendered pursuant to the Anti- Cybersquatting Consumer Protection Act (ACPA). However, Judge Posner discussed this statute, because it was relevant to his analysis of secondary markets, or aftermarkets.
Posner wrote that there is a secondary market for beanie babies. In fact, Ty employs a marketing strategy that seeks the creation of a secondary market. And, wrote Posner, Perryman is a middleman in this secondary market, or aftermarket.
He then wrote that "we know from the events that led up to the passage in 1999 of the Anticybersquatting Consumer Protection Act, 15 U.S.C. § 1125(d), that many firms value having a domain name or Web address that signals their product. (The ``cybersquatters´´ were individuals or firms that would register domain names for the purpose of selling them to companies that wanted a domain name that would be the name of their company or of their principal product.) After all, many consumers search by typing the name of a company in the Web address space (browser) on their home page rather than by use of a search engine."
Posner continued that "We do not think that by virtue of trademark law producers own their aftermarkets and can impede sellers in the aftermarket from marketing the trademarked product. In this respect the case parallels our most recent decision dealing with Ty's intellectual property, in which we found that Ty was attempting to control the market in collectors' guides to Beanie Babies by an overly expansive interpretation of its copyrights." See, story titled "7th Circuit Rules in Copyright and Fair Use Case" in TLJ Daily E-Mail Alert No. 444, June 5, 2002. See also, May 30, 2002, opinion in Ty v. Publications International.
Posner concluded that "We surmise that what Ty is seeking in this case is an extension of antidilution law to forbid commercial uses that accelerate the transition from trademarks (brand names) to generic names (product names)."
He added that "Although there is a social cost when a mark becomes generic -- the trademark owner has to invest in a new trademark to identify his brand -- there is also a social benefit, namely an addition to ordinary language." In addition, "An interpretation of antidilution law as arming trademark owners to enjoin uses of their mark that, while not confusing, threaten to render the mark generic may therefore not be in the public interest. Moreover, the vistas of litigation that such a theory of dilution opens up are staggering."
And hence, the Appeals Court vacated and remanded to the District. However, since 20% of Perryman's sales are not Beanie Babies, the summary judgment and injunction as to use of the trademark in connection with the sale of that 20% might stand on remand. However, the Appeals Court all but instructed the District Court to allow Perryman to keep and use the domain name: "we cannot imagine a state of facts consistent with the extensive record compiled in the summary judgment proceeding that could possibly justify an injunction against Perryman’s representing in her business name and Internet and Web addresses that she is doing what she has a perfect right to do, namely sell Beanie Babies."
Interstate and Foreign Commerce. Judge Posner also suggested in obiter dictum that use of a web site to sell something constitutes both interstate and foreign commerce. He wrote: "And Perryman's use of these words was commercial in nature and took place in interstate commerce, and doubtless, given the reach of the aptly named World Wide Web, in foreign commerce as well."
Related Cases. Ty has been up to the Seventh Circuit on several prior occasions in intellectual property cases. For example, on January 23, 2001, the U.S. Court of Appeals (7thCir) issued its opinion in Ty v. Jones Group, another trademark infringement case involving the "Beanie Babies" trademark. The Jones Group made "Beanie Racers", bean filled toy NASCAR racing cars. Ty filed a complaint in U.S. District Court (NDIll). Ty also sought a preliminary injunction, which the trial court granted. The Jones Group brought an interlocutory appeal. The Appeals Court affirmed. Judge Flaum wrote that opinion.
On May 30, 2002, the 7th Circuit issued its opinion in Ty v. Publications International, a copyright infringement and fair use case. Ty holds copyrights to its Beanie Babies as "sculptural works". Publications International, Ltd. (PIL) publishes books, including For the Love of Beanie Babies and Beanie Babies Collector's Guide, which contain pictures of Beanie Babies. Ty filed a complaint in U.S. District Court (NDIll) against PIL alleging copyright and trademark infringement. PIL conceded that the Beanie Babies are copyrighted, and that its books are derivative works, but asserted the affirmative defense of fair use. The District Court ruled on summary judgment that the copying was not fair use, and granted Ty an injunction on the copyright claim. The Appeals Court reversed and remanded. The Appeals Court concluded that the issue was not appropriate for summary judgment, reversed, and remanded for further proceedings in light of its opinion.
1st Circuit Rules on Insurer's Duty to Defend Open Software Foundation
10/4. The U.S. Court of Appeals (1stCir) issued its opinion in Open Software Foundation v. U.S. Fidelity & Guaranty, a case regarding a general commercial liability insurer's duty to defend its insured under "personal injury" or "advertising injury" clauses of an insurance contract, where the insured was sued for alleged violations for antitrust and unfair competition laws for its alleged refusal to bundle software. The Appeals Court affirmed the District Court's summary judgment for the insurer; that is, there is no coverage under the policy.
Background. The Open Software Foundation was formed in 1988 by eight computer and software companies (including DEC and HP) to design and market a UNIX based operating system known as OSF/1. Addamax Corporation, a software maker, wanted the OSF to incorporate its security software into OSF/1. OSF declined. Addamax filed a complaint in U.S. District Court (DMass) against the OSF, HP and DEC alleging violation of federal and state antitrust and unfair competition laws.
OSF held a general commercial liability policy issued by U.S. Fidelity & Guarantee (USF&G) which covered, among other things, "personal injury" and "advertising injury". OSF requested that USF&G defend it. USF&G refused. OSF and defended itself and prevailed. Hence, there is no duty to indemnify issue in this appeal.
District Court. OSF and HP then brought the present action. They filed a complaint in U.S. District Court (DMass) against USF&G alleging breach of the duty to defend under the insurance contract. The District Court granted summary judgment to USF&G. This appeal followed.
Appeals Court. The Court of Appeals affirmed. Jurisdiction in this case was based upon diversity of citizenship. So, the Court applied Massachusetts law regarding the duty to defend. The Court wrote that "the insurer must accept tender of a defense if the complaints state or adumbrate a covered claim when read in light of extrinsic facts bearing some relevance to the allegations that the plaintiff did not specifically include in the complaint, but were nonetheless known or readily knowable by the insurer when the defense was tendered". However, upon reviewing the policy, the complaint, and extrinsic facts, the Court concluded that complaint against OSF did not state or adumbrate a covered claim.
People and Appointments
10/4. Suzy DeFrancis joined the Executive Office of the President as Deputy Assistant to the President for Communications. She replaces, in part, Karen Hughes, who has left the White House staff, in part. She was previously a SVP and Director of Public Affairs at the public relations firm Porter Novelli. Before that, she was Deputy Director of Communications and Congressional Affairs at the Republican National Committee. See, White House release.
10/4. Doug Badger joined the Executive Office of the President as Special Assistant to the President for Economic Policy. He replaces Mark McClellan as health policy coordinator for the National Economic Council. McClellan has been nominated to be Commissioner of the Food and Drug Administration (FDA). Badger previously worked at Ernst & Young. Before that, he worked for Sen. Don Nickles (R-OK). See, White House release.
More News
10/4. The U.S. Court of Appeals (4thCir) issued its "unpublished" per curiam opinion [4 pages in PDF] in Neurotron v. AAEM, a Lanham Act case brought by a manufacturer (Neurotron) against a publisher (AAEM) of an unfavorable technical review of a product. The Appeals Court affirmed the District Court's grant of summary judgment to the publisher. The product review was not commercial speech with the meaning of the Lanham Act.
10/4. The Digital Media Consumers’ Rights Act of 2002, introduced by Rep. Rep. Rick Boucher (D-VA) and Rep. John Doolittle (R-CA) on October 3, has been assigned number HR 5544. See also, stories in TLJ Daily E-Mail Alert No. 523, October 4, 2002.
10/4. The Digital Choice and Freedom Act of 2002, introduced by Rep. Zoe Lofgren (D-CA) and Rep. Mike Honda (D-CA) on October 2, 2002, has been assigned number HR 5522. See also, story in TLJ Daily E-Mail Alert No. 522, October 3, 2002.
10/4. The Office of the U.S. Trade Representative (USTR) issued a release in which it stated that USTR Robert Zoellick met with Bahraini Minister of Finance and National Economy Abdallah Saif. The release states that the two discussed "intellectual property rights", and that "They agreed that the two sides would follow up on the day's discussions, including on issues such as science based consideration of biotechnology and legislation to open Bahrain's telecommunications market ..."
10/4. The U.S. District Court (WDWash) sentenced Vasily Gorshkov to serve 36 months in prison following convictions 20 counts of conspiracy, various computer crimes, and fraud. The U.S. Attorneys Office (WDWash) stated that he "was one of two men from Chelyabinsk, Russia, who were persuaded to travel to the United States as part of an FBI undercover operation. The operation arose out of a nationwide FBI investigation into Russian computer intrusions that were directed at Internet Service Providers, e-commerce sites, and online banks in the United States. The hackers used their unauthorized access to the victims' computers to steal credit card information and other personal financial information, and then often tried to extort money from the victims with threats to expose the sensitive data to the public or damage the victims' computers. The hackers also defrauded PayPal through a scheme in which stolen credit cards were used to generate cash and to pay for computer parts purchased from vendors in the United States." See, USAO release and CCIPS release.
Charles James to Leave Antitrust Division
10/3. Charles James, Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division, will leave the DOJ to become Vice President and General Counsel of Chevron Texaco Corporation. He has only been head of the Antitrust Division for just over one year. See, DOJ release.
During his short tenure, he settled the DOJ's antitrust case against Microsoft, without seeking a breakup. He has also sought improved coordination with the Federal Trade Commission (FTC), and foreign competition authorities.
FTC Chairman Timothy Muris stated in a release that "Thanks to his leadership, cooperation between the Department of Justice and the FTC has never been better."
Fed Vice Chairman Addresses Post 9/11 Continuity in Data Storage and Communications
10/3. Roger Ferguson, Vice Chairman of the Federal Reserve Board, gave a speech titled "Business Continuity after September 11". He spoke at the SWIFT Sibos World Forum in Geneva, Switzerland. He addressed disaster recovery and business continuity in financial institutions, financial markets, and operations centers, including data storage and communications issues.
Roger FergusonFerguson (at right) said that "To help prevent and contain the effects of a regional event, financial utilities and critical firms should regionally diversify their back offices and operational sites that support clearing and settlement for critical markets. In particular, primary operations and backup operations need to be significantly more diverse in order to meet the greater regional risks. The old model of having primary and backup operations centers in close proximity so that they can be served by a common labor pool does not address the possibility of a significant threat to an entire region and labor pool."
He also spoke about the challenges in addressing the risks of regional disruptions. He said that one of these challenges involves technology. He stated that "Some key technologies for data storage and communication do not accommodate regional diversification as readily as we all would like. The challenge here will be to modify existing arrangements, solve technological problems, and find new ways to facilitate diversification. I am sure that the firms attending Sibos are very aware of these issues, and I trust that the market for these technologies will see a flow of very creative solutions over the coming months."
Finally, he mentioned telecommunications. He said that "We have known for some time that our progress in automating the financial markets has made us highly dependent on telecommunications. In our own discussions within the Federal Reserve and our discussions with others, the issue of telecommunications circuit diversity is very important. I encourage firms to take this issue seriously and to discuss it with individual telecommunications providers, industry groups, and appropriate government officials." 
Reps. Boucher and Doolittle Introduce Digital Media Consumer Rights Act
10/3. Rep. Rick Boucher (D-VA) and Rep. John Doolittle (R-CA) introduced the Digital Media Consumers’ Rights Act of 2002. Rep. Boucher gave a lengthy speech at an event to announce the introduction of the bill. He stated that the bill would "reaffirm and reinforce the Fair Use doctrine in this digital era."
Rep. Boucher (at right) summed up the problem that the bill addresses. He said that "The Fair Use doctrine is threatened today as never before. Historically, the nation’s copyright laws have reflected a carefully calibrated balance between the rights of copyright owners and the rights of the users of copyrighted material as reflected in the Fair Use doctrine. The Digital Millennium Copyright Act of 1998 (DMCA) dramatically tilted the copyright balance toward complete copyright protection. The 1998 law enables the copyright owner to enshroud his material with a technological protection measure and then makes it a civil wrong and a potential federal felony for anyone to circumvent the technical measure for any purpose. Even people who have purchased and paid for copyrighted material would be liable if they bypass the technical protection for the purpose of making Fair Use of the work they have lawfully acquired."
He continued that "The Digital Millennium Copyright Act of 1998 places the force of law behind the technical barriers put in place by copyright owners. We have no quarrel with a law which prohibits circumvention of a technological protection measure for the purpose of infringing the copyright. We have a huge quarrel with the current law which punishes circumvention to make Fair Use -- or any non-infringing use -- of copyrighted material.
"Accordingly," said Rep. Boucher, "the bill we are introducing today will amend Section 1201 of the DMCA to provide that the only time the act of circumvention is prohibited when the purpose of the circumvention is to infringe the copyright in the work. Circumvention for Fair Use purposes will no longer be penalized when our bill is enacted into law."
Rep. Boucher has long been active on IPR, tech and telecom issues. Rep. Doolittle (at right), in contrast, has not heretofore been a leader in these areas. He is a conservative Republican who was first elected to Congress in 1990. He now sits on the Appropriations Committee. His 4th District lies to the West of Sacramento. While it includes much of the Sierra Nevada range, including Yosemite National Park, it is also home to the facilities and employees of some tech companies located in the Sacramento area. Two of the leading employers in his district are Hewlett Packard and Intel.
Intel sent a representative to the press conference to speak in support of the bill. So did Gateway. Sun Microsystems did not have a representative speak. However, it wrote a letter expressing its support.
The bill also enjoys support in the telecommunications industry. Verizon announced its support at the event.
The bill also has the support, as has long been the case, of companies that make the devices that consumers can use to store and play back digitally recorded music. Representatives of both the Consumer Electronics Association and Phillips Electronics spoke at the press conference.
Finally, the bill is supported by traditional proponents of broad fair use rights, including library groups, the Consumers Union, and the newly formed group named Public Knowledge.
Rep. Boucher predicted that "we inevitably are going to prevail", but he did not say when. Since the current Congress is about to end, he stated that the bill will be reintroduced in the next Congress.
Boucher said that the bill "borrows the Betamax standard, and applies it to the provisions in the DMCA that apply to circumvention devices. And that is really all it does. That is an important change to make."
Rep. Boucher has advocated many changes to fair use under copyright law in the last few years. See, for example, his speech of March 6, 2001. This bill, however, does not address all of his concerns.
For example, this bill does not deal with peer to peer networks. Boucher stated that "this legislation is designed to address circumvention devices, and really, is drafted in such a way as is limited to circumvention devices. And, peer to peer file sharing architectures are really not circumvention devices."
However, he added that "I have my own views about the value of peer to peer networks for non-infringing purposes. And they are applicable to many non-infringing purposes, and I think, a valuable addition to the Internet architecture. And, I support the expansion of peer to peer networks, consistent with sound copyright principles. But, that is a debate beyond the scope of this bill."
Boucher predicted that record companies, movie companies and book publishers "will oppose the passage of this legislation."
Summary of the Digital Media Consumer Rights Act
10/3. The Digital Media Consumers’ Rights Act of 2002, introduced by Rep. Rick Boucher (D-VA) and Rep. John Doolittle (R-CA) on October 3, would do two things. First, it would  require that certain information be placed on the labels of music discs, and that a violation would constitute an unfair or deceptive trade practice within the meaning of the Federal Trade Commission Act. Second, and more importantly, the bill would roll back the anti- circumvention provisions of the Digital Millennium Copyright Act (DMCA). Specifically, it would create fair use exceptions to the bans on circumvention of technological measures to protect copyrighted works.
Anti Circumvention and Fair Use. The Boucher Doolittle bill would make two changes to the DMCA's anti- circumvention provisions. First, it would provide an exception for scientific research into technological protection measures. Second, the key language of the bill would create a fair use exception to the DMCA's bans on circumvention.
Currently, § 1201(a)(1)(A) of the Copyright Act, which was added in 1998 by the DMCA, provides that "No person shall circumvent a technological measure that effectively controls access to a work protected under this title."
Then, § 1201(a)(2)(A) provides that "No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that --- (A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title;"
Furthermore, § 1201(b)(1)(A) provides that "No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that --- (A) is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof;"
The Boucher Doolittle bill would add to both of these sections an exception for scientific research. Specifically, the bill provides that "Subsections (a)(2)(A) and (b)(1)(A) ... are each amended by inserting after ‘‘title’’ in subsection (a)(2)(A) and after ‘‘thereof’’ in subsection (b)(1)(A) the following: ‘‘unless the person is acting solely in furtherance of scientific research into technological protection measures’’."
Perhaps, this could be called the Professor Edward Felton exception.
Then, there is the critical part of the bill. Currently, § (c)(1) provides that "Nothing in this section shall affect rights, remedies, limitations, or defenses to copyright infringement, including fair use, under this title."
The Boucher Doolittle bill would to this sentence the following phrase: "and it is not a violation of this section to circumvent a technological measure in connection with access to, or the use of, a work if such circumvention does not result in an infringement of the copyright in the work".
Also, the bill would add to § (c) the following new subparagraph: "(5) It shall not be a violation of this title to manufacture, distribute, or make noninfringing use of a hardware or software product capable of enabling significant noninfringing use of a copyrighted work."
Neither of these two additions to § 1201(c) uses the term "fair use"; and neither references § 107, which codifies the fair use doctrine. However, the title of the subsection of the bill that contains these two additions is "FAIR USE RESTORATION".
Labeling and Unfair Trade Practices. The bill also imposes certain labeling requirements for digital music discs.
It provides that "The introduction into commerce, sale, offering for sale, or advertising for sale of a prerecorded digital music disc product which is mislabeled or falsely or deceptively advertised or invoiced, within the meaning of this section or any rules or regulations prescribed by the Commission pursuant to subsection (d), is unlawful and shall be deemed an unfair method of competition and an unfair and deceptive act or practice ..."
Next, the bill provides that "Prior to the time a prerecorded digital music disc product is sold and delivered to the ultimate consumer, it shall be unlawful to remove or mutilate, or cause or participate in the removal or mutilation of, any label required by this section or any rules or regulations prescribed by the" FTC.
And hence, the bill also gives the FTC authority to engage in rule making proceedings to promulgate rules that would, among other things, "require the proper labeling of prerecorded digital music disc products".
Moreover, the bill gives the FTC civil enforcement authority. However, the reach of this part of the bill is limited to music discs. It would not apply to e-books and movie DVDs.
Commentary: Commerce Versus Judiciary Committee Jurisdiction
10/3. Rep. Rick Boucher's (D-VA) and Rep. John Doolittle's (R-CA) bill, the Digital Media Consumers’ Rights Act of 2002, fundamentally deals with intellectual property rights, which ordinarily falls within the jurisdiction of the House Judiciary Committee. The bill's most significant provision would create a fair use exception to the anti- circumvention provisions of the DMCA, which is part of the Copyright Act. However, they have carefully drafted their bill in a manner that gives primary jurisdiction over the bill to the House Commerce Committee.
The bill is nine pages long. It is not until the bottom of page 8 that the amendments to the anti- circumvention provision are stated. The previous pages deal with amendments to the Federal Trade Commission Act (FTCA) regarding music disc labeling, unfair trade practices under the FTCA, Federal Trade Commission (FTC) rule making proceedings, and reports by the FTC. The FTC and the FTCA fall within the jurisdiction of the Commerce Committee.
By drafting so much of the bill as amendments to the FTCA, Rep. Boucher and Rep. Doolittle seek to put this bill within the primary jurisdiction of the Commerce Committee.
Rep. Boucher spoke about jurisdiction at a press conference to announce the introduction of the bill. He stated that "the committee to which this bill is referred is the Committee on Commerce. We are standing in a Commerce Committee hearing room today. This is the Committee that will have primary jurisdiction of this bill." He added that "the Judiciary Committee will have a sequential referral of this measure when it is reported from the House Committee on Commerce. And, the Judiciary Committee, in anticipation of that sequential referral, could have hearings on this measure at any time."
He further explained that "we have written the bill in such a way as to invoke Commerce Committee jurisdiction".
There are significant strategic reasons for writing this bill to place it within the primary jurisdiction of the Commerce Committee. The two Committees are quite different in outlook. And, legislative procedures, including assignments of jurisdiction, can affect legislative outcomes. In this case, the bill is more likely to receive favorable action from the Commerce Committee than from the Judiciary Committee.
The differences between the two Committees are based on their different missions and different constituencies.
In the minds of many Judiciary Committee members, and especially its Courts, Internet and Intellectual Property (CIIP) subcommittee members, America leads the world economically and culturally because it has the most innovative and creative people and businesses. One of the main reasons Americans invent and create so prolifically is because they are rewarded for creative efforts by legal protections created by legislation written by the CIIP subcommittee. To CIIP members, its is a Constitutional mission handed down to them by the Founding Fathers. Article I, Section 8, of the Constitution provides that "Congress shall have Power ... 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".
CIIP members tend to see it as their mission, that as new technologies and industries evolve, and as new methods for infringement appear, they must adjust the law so that the creators of intellectual property have well defined quasi property rights, and the legal recourse to adequately protect those rights. This means passing new laws, and creating new legal causes of action.
Moreover, this view tends to be reinforced by their regular interaction with an intellectual property creating constituency. It consists primarily of creators and owners of intellectual property, businesses and groups which serve the intellectual property community, the U.S. Patent and Trademark Office (USPTO), and the unions which represent USPTO workers.
There is wide consensus within this constituency that strong intellectual property laws are a good thing. These are all people who depend on the protection of intellectual property, or at least observe the catastrophic effects when intellectual property protections are lacking.
In contrast, the members of the Commerce Committee tend to see things altogether differently. They are just a patriotic, just as committed to promoting prosperity, and just as convinced that they too have a Constitutional mission. Their mission derives from Article I, Section 8, of the Constitution, which provides that "Congress shall have Power ... To regulate Commerce with foreign Nations, and among the several States ..." But, they tend to have a vastly different take on intellectual property matters.
Many of the problems that the Commerce Committee deals with on a regular basis involve monopolies and bottlenecks in the economy, burdensome regulation by government bureaucracies, and the consequences of frivolous and expensive class action lawsuits. The members tend to see their mission as promoting free enterprise, and the marketplace. They tend to see monopolies, bottlenecks, bureaucracies and litigation as drags on economic efficiency. They tend to pursue their mission, not by creating new laws, and new rights, but by ending monopolies, repealing laws, and restricting lawsuits.
Many members of the Commerce Committee view intellectual property in this light. They tend to view it as creating monopolies and bottlenecks. They tend to view the Copyright Act, and the Byzantine rules promulgated by the Copyright Office, as impenetrable bureaucratic regulation. Finally, the method by which intellectual property is enforced -- litigation -- is antithetical to many Commerce Committee members.
Moreover, the companies and groups that the Commerce Committee, and particularly its Telecom and Internet Subcommmittee, deal with on a regular basis tend to be consumers, rather than producers, of intellectual property. Telecom and Internet companies do not like paying for broadcast content, or for access databases. They do not like being subpoenaed by content companies for the alleged infringing conduct of their customers. And, they do not want to have to police the conduct of their customers to protect the intellectual property rights of others.
Hence, it is only natural for the Commerce Committee members to want to leave intellectual property protection to the marketplace, rather to create statutory rights and causes of action.
Rep. Boucher is an oddity in the House. He sits on both the Judiciary Committee and the Commerce Committee. Hence, he is acutely aware of the differences between the two Committees, and the consequences of jurisdictional decisions. By writing a bill designed to place primary jurisdiction with the Commerce Committee, Rep. Boucher seeks to have his bill reviewed and molded by the Committee that is far more sympathetic to the principles underlying his bill.
Senate Passes Conference Report on DOJ Authorization Bill
10/3. The Senate passed the conference report on HR 2215, the 21st Century Department of Justice Appropriation Authorization Act, by unanimous consent on Thursday, October 3. The House passed the conference report on September 26, by a vote of 400-4. See, Roll Call No. 422. The bill does far more than authorize the Department of Justice (DOJ). It is also the vehicle for passage of numerous tech related items.
The bill contains numerous substantive provisions. It requires the DOJ to annually report certain information to the Congress regarding use of the Carnivore e-mail surveillance system. It changes the procedure for serving certain search warrants upon ISPs. It modifies the process for extending H1B visas for high tech workers. It amends the Copyright Act to facilitate distance learning (TEACH Act). It amends the Patent Act regarding inter partes reexamination, and other matters. It also it includes the Madrid Protocol Implementation Act.
The bill had been delayed in the Senate for one week by disputes over procedure. Sen. Patrick Leahy (D-VT) stated in the Senate on October 1 that "there is a Republican hold" on the bill. Sen. Jon Kyl (R-AZ) also spoke in the Senate on October 1. He stated that "It is not that this is a bad bill." Rather, he raises two points. First, he said it is a matter of priorities. He said that the Senate should not devote time to this bill when it had yet to pass a bill creating a new Department of Homeland Security, a resolution authorizing the use of force against Iraq, and a Department of Defense appropriations and authorization bill. Second, he said that conference reports are supposed to iron out differences between two versions of a bill, and not serve as a vehicle for passage of items not addressed in the original bills.
On October 3 the Senate voted on a cloture motion to cut off debate on the bill. Once it became apparent during the vote that the motion would pass, almost all Senators switched their votes to support for the motion. It passed by a vote of 93-5. See, Roll Call No. 229.
Rep. Israel Introduces Bill to Expand Tax Deduction for Computer Contributions
10/3. Rep. Steve Israel (D-NY) introduced HR 5551, a bill to amend the Section 170(e)(6)(B) of the Internal Revenue Code of 1986 relating to qualified computer contributions to allow corporations to claim a charitable deduction for the donation of services related to contributions of computer technology or equipment.
Section 170 pertains to deductions for charitable contributions. Subsection 170(e) pertains to "Certain contributions of ordinary income and capital gain property". Subsection 170(e)(6), in turn, is the "Special rule for contributions of computer technology and equipment for educational purposes". Currently, 26 U.S.C. § 170(e)(6)(B) defines ''qualified computer contribution'' as "a charitable contribution by a corporation of any computer technology or equipment". This bill would add the phrase "or any services related to computer design or to computer technology or equipment".
The bill further provides that "The value of such a contribution of services related to computer design or to computer technology or equipment shall be calculated at a rate not to exceed $65 an hour".
Moreover, the bill would add a very broad definition of the phrase "services related to computer design or to computer technology or equipment". It would include such things as "Computer repair", "Computer programming and software design", and "Network designing, installation, and support services". However, it would also include "photo retouching", banner design, and "scanning services".
The bill was referred to the House Ways and Means Committee.
FCC Announces Agenda for October 10 Meeting
10/3. The Federal Communications Commission (FCC) announced the agenda for its Thursday, October 10 meeting.
The agenda includes four items. First, the FCC will consider a NPRM concerning the reform of the International Settlements Policy, its international simple resale and benchmarks policy, and the issue of foreign mobile termination rates. This is IB Docket No. 96-261. Second, the FCC will consider a First Report and Order regarding digital operation by terrestrial radio broadcasters. This is MM Docket No. 99-325. Third, the FCC will consider a Forfeiture Order concerning compliance with the shared transport condition of the SBC Ameritech merger order. Finally, the FCC's Enforcement Bureau will report on recent enforcement activities.
The meeting will be open to the public. It will be held in the Commission Meeting Room (TW-C305), 445 12th Street, SW, at 9:30 AM.
More News
10/3. The General Accounting Office (GAO) released a report [51 pages in PDF] titled "Critical Infrastructure Protection: Commercial Satellite Security Should Be More Fully Addressed". The GAO reported that "Although federal agencies rely on commercial satellites, federal customers do not dominate the commercial satellite market, accounting for only about 10 percent of it. As a result, federal customers generally have not influenced security techniques used for commercial satellites. Federal agencies do reduce their risk by securing those system components under their control -- the data links and communications ground stations -- but most components are typically the responsibility of the satellite service provider: the satellite; the telemetry, tracking, and control links; and the satellite control ground stations" and "by relying on redundant or backup capabilities, such as additional satellite services."
10/3. The The General Accounting Office (GAO) released a report [100 pages in PDF] titled "World Trade Organization: Analysis of China's Commitments to Other Members". The report is an analysis of PR China's World Trade Organization (WTO) accession agreement, 800 pages of legal documents that set forth China obligations to other WTO members, and how China will adhere to the WTO's underlying agreements, principles, rules, and specific procedures. The report was prepared for Sen. Max Baucus (D-MT) and Rep. Bill Thomas (R-CA), the Chairmen of the Senate Finance Committee and the House Ways and Means Committee.
10/3. The U.S. Patent and Trademark Office (USPTO) announced that its now offers the complete collection of over 6.5 Million U.S. patents on DVD-ROM discs. See, release.
10/3. The U.S. District Court (NDIll) entered judgment in SEC v. System Software Associates, Roger Covey and Joseph Skadra. The Securities and Exchange Commission (SEC) filed a civil complaint against System Software Associates (SSA), and Covey, a former Ch/CEO, and Skadra, a former CFO, in July of 2000 alleging that Covey and Skadra caused SSA to misstate its financial results for several years by improperly reporting revenue on sales of a UNIX language software product before the product was developed sufficiently to support revenue recognition under Generally Accepted Accounting Principles (GAAP). Covey and Skadra are enjoined from further violations of federal securities laws. Covey is also required to pay $216,205.38 in disgorgement and prejudgment interest and $100,000 in civil penalties. See, SEC release.
Rep. Lofgren Introduces Digital Fair Use Bill
10/2. Rep. Zoe Lofgren (D-CA) introduced a bill titled the Digital Choice and Freedom Act of 2002. This bill would broadly expand the rights of persons who lawfully acquire digital copies of copyrighted works, while diminishing the rights of copyright holders.
Basically, the bill does five things. First, the bill adds a reference to "analog or digital transmissions" to § 107 (the fair use section) of the Copyright Act. Second, the bill creates a new § 123 in the Copyright Act that limits the basic exclusive rights of § 106. This new section allows copying of lawfully obtained copies for storage, or for use on a preferred digital media device. Third, the bill limits the enforceability of non-negotiable license terms. Fourth, the bill expands the § 109 right of sale to digital works. Fifth, the bill limits the anti circumvention provisions of the Digital Millennium Copyright Act (DMCA). See, full story.
Reps. Boucher and Doolittle to Introduce Copyright Bill
10/2. Rep. Rick Boucher (D-VA) and Rep. John Doolittle (R-CA) will hold a press conference to announce the "introduction of legislation to reaffirm fair use rights in the digital era". Their bill is different from Rep. Lofgren's bill, although both deal with the rights of users.
Reps. Boucher and Doolittle have not released a copy, or a summary, of their bill. However, they have released a list of supporters. It includes the Consumer Electronics Association (CEA), Intel, Sun Microsystems, Verizon, Association of American Universities, Association of Research Libraries, Consumers Union, Public Knowledge, Computer & Communications Industry Association (CCIA), and Digital Future Coalition. Some of these have also already announced their support for Rep. Lofgren's bill.
The press conference will be held at 11:00 AM in Room 2218 of the Rayburn House Office Building.
NTIA Director Addresses Barriers to Broadband and Universal Service
10/2. Nancy Victory, Director of the National Telecommunications and Information Administration (NTIA), gave a speech titled "Tulips and Telecom -- Ending Excesses And Encouraging Economic Growth" to the U.S. Telecom Association (USTA) in Boca Raton, Florida.
She stated that "the telecom industry with its broadband future is a solid business with an enormous potential for growth - growth based upon sound economic realities rather than hype, excess and cooked books. The challenge for you is to get back on that path to the future. The challenge for those of us in government is to provide a policy framework in which our country's telecom industry can prosper, innovate and advance to the benefit of us all."
She noted that there are "important proceedings pending" pertaining to competition, but that they are pending at the Federal Communications Commission (FCC).
She instead focused on two other aspects of regulation, "barriers to broadband deployment at all levels of government", and perpetuating universal service subsidies.
Barriers to Broadband. Victory stated that the Bush administration "has also been working to identify and eliminate unnecessary government impediments to broadband competition and deployment. As many of you know, one issue where NTIA is focusing its attention is on public rights of way management."
She noted that "all sectors of the broadband industry -- rural carriers, Bell Operating Companies, CLECs, cable companies, overbuilders, and wireless providers -- actually share the same point of view."
Victory focused on the interests and perspective of broadband service providers. Representatives of state and local governments, which bear the burden of managing public rights of way, and rebuilding torn up streets, disagree with the assertion that they pose a barrier to broadband deployment.
Victory then reviewed what the NTIA is doing in this area. She said that "To ensure that rights of way regulation is appropriate and not an impediment to broadband deployment, NTIA has undertaken a series of actions. We conducted a broadband forum last fall and launched a broadband deployment proceeding at the end of last year, both of which raised rights of way as an issue. We have participated in NARUC's rights of way discussions, particularly its Rights of Way Study Committee."
She continued that "Our mission is to develop ``best practices´´ for federal rights of way management, particularly as it impacts broadband deployment. Our tasks include streamlining and standardizing current federal rights of way application processes where possible, ensuring that federal fee structures are just and reasonable, and developing appropriate policies to make certain that telecommunications providers fulfill their rights of way obligations. We want to see the federal government lead by example, and create a model of cooperation that others can emulate."
Universal Service. Victory stated that "we must look ahead to anticipate the challenges that the transition to a digital broadband telecom world will pose for important universal service goals."
She said that "We are facing the increasing transition from yesterday's narrowband to tomorrow's broadband. We have the growing possibility of breakthroughs in Internet Protocol telephony. We have unlicensed products like Wi-Fi or 802.11 that are starting to make their mark. And we have providers offering a wide variety of bundled services that are beginning to blur jurisdictional lines and regulatory classifications."
She continued that "We need to understand fully the potential effects of new services and technologies upon important policy goals such as universal service. There are many fundamental questions currently being asked on a host of universal service issues. Who should contribute? How should contributions be calculated? Who should receive support? And what should they use it for?"
However, she provided no answers to her questions.
Crime, the Internet and Computer Generated Images
10/2. Attorney General John Ashcroft and others spoke at a White House Conference on Missing, Exploited and Runaway Children. Ashcroft addressed Internet related issues, including computer generated images. See, prepared text. Also, the Senate Judiciary Committee held a hearing titled "Stopping Child Pormography: Protecting our Children and the Constitution", at which Senators and witnesses addressed some of the same issues.
Ashcroft stated that the Department of Justice (DOJ) is "aggressively defending our children in a growing arena for predators -- the Internet. As technology has evolved, so have the means of exploiting our children. While the internet provides children a wealth of educational resources, it is also a tool for child exploitation. Internet Crimes Against Children Task Forces throughout the nation have helped state and local law enforcement agencies develop effective responses to cyber enticement and child pormography cases."
He also stated that the "FBI's Crimes Against Children and Innocent Images Programs have made tremendous progress in combating online child pormography and sexual exploitation. The FBI opened just 113 Innocent Images cases in 1996. In the past year alone, the FBI opened 2,366 cases. Since 1995, Innocent Images Task Forces have conducted over 5,700 investigations. 3,000 offenders have been convicted."
He added that the Innocent Images Task Forces have "already made a significant impact. In March, the Department of Justice announced the success of ``Operation Candyman,´´ a nationwide crackdown on the distribution of child pornography on the Internet."
Ashcroft also stated that the DOJ will seek legislation from the Congress that would, among other things, "enhance law enforcement tools for identifying, apprehending, and prosecuting offenders by broadening the inclusion of child sexual exploitation and sexual abuse offenses as wiretap predicates".
Computer Generate Images. Finally, Ashcroft addressed the issue of computer generated images. On April 16, 2002, the Supreme Court issued its opinion [PDF] in Ashcroft v. Free Speech Coalition. It held unconstitutional a prohibition on computer generated child pormography.
Ashcroft stated that "This past April, a decision by the United States Supreme Court hampered gravely our ability to protect children from exploitation by striking down provisions of the Child Pornography Prevention Act" (CPPA).
The 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;"
Attorney General John AshcroftAshcroft (at right) said that "In June, the House of Representatives responded by passing -- by an overwhelming majority -- a statute that the Department crafted carefully to address the Supreme Court's concerns while strengthening our ability to protect children from abuse and exploitation. I applaud Congress for working with the Department to pass swiftly this critical legislation. I call upon the Senate to recognize the threat to the health and safety of our children, and to act with similar urgency and see that this legislation becomes law."
Specifically, Rep. Lamar Smith (R-TX) introduced HR 4623, the Child Obscenity and Pormography Prevention Act of 2002, on April 30, 2002. It was marked up by the Crime Subcommittee on May 9, and by the House Judiciary Committee on June 19. The House passed the bill on June 25 by a vote of 413-8. See, Roll Call No. 256. The Senate has taken no action on this bill.
This bill 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". However, the bill also provides 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."
That is, the bill shifts the burden of proving that an image is computer generated to the defendant. The distinction is critical, DOJ officials have stated that prosecutors often cannot prove beyond a reasonable doubt that images are not computer generated, thus enabling defendants to escape conviction.
See also, story titled "House Subcommittee Holds Hearing on Computer Generated Porm" in TLJ Daily E-Mail Alert No. 423, May 2, 2002, and story titled "House Judiciary Committee Supports Ban on Computer Generated Child Porm" in TLJ Daily E-Mail Alert No. 454, June 19, 2002.
George Bush. President Bush also spoke at the White House event. He stated in his speech that "The threats to our children are found not just on our streets, but they're found in the technology which we use in our homes. The Internet is a wonderful tool for our children to broaden their knowledge, expand their minds, but the evils of the world have crept into the Internet. In one year alone, one in five children between the ages of 10 and 17 received a sexual solicitation over the Internet. With expanding use of the Internet and the heightened activity of predators searching for under-age victims, more children are being lured into harmful and even tragic situations."
He also stated that "Parents need to pay as much attention to their children, by the way, when they're on the Internet as when they're on a playground. They've got to know what their children are doing on the Internet. They've got to know with whom they're conversing."
Senate Hearing. The Senate has taken no action on the bill passed by the House. However, Sen. Orrin Hatch (R-U), Sen. Patrick Leahy (D-VT), and others introduced S 2520, the "Prosecutorial Remedies and Tools Against the Exploitation of Children Today (PROTECT) Act of 2002, on May 15.
Anne Coughlin, a professor at the University of Virginia School of Law, wrote in her prepared testimony that the Supreme Court would likely hold the House bill unconstitutional. Frederick Schauer, a professor at Harvard, said in his prepared testimony that HR 4623 "would almost certainly fail to survive a constitutional challenge".
Sen. Leahy stated in his opening statement that the DOJ proposal is a "quick fix" that will not withstand constitutional scrutiny.
Editor's Note: TLJ deliberately misspells words that have caused the e-mail servers of subscribers to block the TLJ Daily E-Mail Alert, such as porm and sez.
FCC Releases New Forms for E-Rate Applications
10/2. The Federal Communications Commission (FCC) published a notice [PDF] in the Federal Register announcing the release of revised FCC Forms 486 and 479, and the associated instructions, for the schools and libraries applying for e-rate subsidies. The changes reflect a District Court's holding regarding the constitutionality of the Children's Internet Protection Act.
The notice states that "The changes are adopted in response to the recent decision of the United States District Court for the Eastern District of Pennsylvania, which held that the CIPA requirements incorporated at 47 U.S.C. 254(h)(6) were facially unconstitutional as to libraries. See American Library Ass’n, Inc. v. U.S., 201 F. Supp. 2d 401 (E.D. Pa. 2002)."
The notice further states that the FCC's Schools and Libraries Division (SLD) will also continue to accept the previous versions of the FCC Forms 486 and 479. However, the notice adds that "all applicants are strongly encouraged to make use of the new forms. Unlike the prior versions, the new forms can be scanned by SLD. Use of the new forms will expedite processing and receipt of discounts."
See, Federal Register, Vol. 67, No. 191, October 2, 2002, at Pages 61881 - 61882.
NIST Publishes Computer Security Guides
10/2. The National Institute of Standards and Technology's (NIST) Computer Security Resource Center (CSRC) published four computer security guides [all large PDF and ZIP files] to provide the federal government with information in countering cyber attacks. They are as follows:
Security Guide for Interconnecting Information Technology Systems (NIST Special Publication 800-47) in PDF or ZIP.
Procedures for Handling Security Ppatches (NIST Special Publication 800-40) in PDF or ZIP.
Security for Telecommuting and Broadband Communications (NIST Special Publication 800-46) in PDF or ZIP.
Use of the Common Vulnerability and Exposures (CVE) Vulnerability Naming Scheme (NIST Special Publication 800-51) in PDF or ZIP.
9th Circuit Amends Ruling in Syntek v. Microchip Technology
10/2. The U.S. Court of Appeals (9thCir) issued its second amended opinion [PDF] in Syntek Semiconductor v. Microchip Technology, a case in which an alleged infringer (Syntek) sought a declaratory judgment from the U.S. District Court that a copyright registration of computer source code is invalid. The District Court granted summary judgment to the copyright holder (Microchip Technology). In its April 8, 2002 opinion (at 285 F.3d 857), the Appeals Court vacated. It held that, pursuant to the doctrine of primary jurisdiction, the case should be dismissed without prejudice, so that the infringer may seek an administrative remedy at the Copyright Office. See, story titled "Challenges to Source Code Copyright Registration & the Doctrine of Primary Jurisdiction" in TLJ Daily E-Mail Alert No. 406, April 9, 2002. Then, in August, the Appeals Court issued a revised opinion. On October 2, 2002, the Appeals Court issued its second revised opinion. See, story titled "9th Circuit Issues Amended Opinion in Syntek v. Microchip Technology" in TLJ Daily E-Mail Alert No. 494, August 19, 2002. The amended opinions provide that the judicial proceeding is stayed (not dismissed) pending outcome of the administrative proceeding.
Bills Introduced
10/2. Sen. Tim Johnson (D-SD) and Sen. Tom Carper (D-DE) introduced S 3034, a bill to facilitate check truncation by authorizing substitute checks, to foster innovation in the check collection system without mandating receipt of checks in electronic form, and to improve the overall efficiency of the nation's payments system. It was referred to the Senate Banking Committee. Sen. Johnson stated that this bill "improves America's check payments system by allowing banks to exchange checks electronically. Current law requires banks to physically present and return original checks, a tedious, antiquated and expensive process. This legislation will also reduce infrastructure costs for banks, allowing for more flexibility and greater cost savings for the consumer."
10/2. Sen. Tim Hutchinson (R-AR) introduced S 3035, the Eliminating Profiteering through Illegal Cigarette Sales (EPICS) Act, a bill to prohibit the sale of tobacco products through the Internet or other indirect means to underage individuals, and facilitate the collection of taxes on cigarette. It was referred to the Senate Judiciary Committee. He stated that "The EPICS Act prohibits online sales of cigarettes to minors. It also ensures that minors are not able to purchase cigarettes online using a false identification by enacting strict identification verification requirements. In order to assist states enforcement of age requirements and collection of taxes, this bill will dramatically strengthen the Jenkins Act. This law requires anyone who ships or sells tobacco products over state lines other than to licensed dealers to report those sales to the state tax administrator. When this is done, states can ensure that sales are not being made to minors and that due taxes have been collected."
People and Appointments
10/2. The Senate approved the nomination of James Gardner to be a Judge of the U.S. District Court (EDPenn).
10/2. The Senate approved the nomination of Ronald Clark to be a Judge of the U.S. District Court (EDTex).
10/2. The Senate approved the nomination of Lawrence Block to be a Judge of the U.S. Court of Federal Claims for a term of fifteen years.
More News
10/2. The Internet Corporation for Assigned Names and Numbers' (ICANN) Committee on ICANN Evolution and Reform published its proposed new bylaws.
10/2. Apple Computer announced that it settled its lawsuit against Sorenson Media. Apple filed a complaint on April 30, 2002 in U.S. District Court (NDCal) against Sorenson alleging breach of contract in connection with the licensing to Macromedia of a compression codec used in Apple's QuickTime. Sorenson counterclaimed. Apple stated in a release only that "The settlement provides for the dismissal of all claims and counterclaims." Sorenson issued a similar release.
10/2. Dell announced that the U.S. Marine Corps will buy about 30,000 desktop computers and 30,000 notebook systems. Dell stated that the "notebooks are planned for use by Marine Corps combat troops" and that "Dell will repair or replace the notebook if it has been accidentally damaged". See, Dell release.
Senate Judiciary Committee Considers Federalism and Intellectual Property
10/1. The Senate Judiciary Committee held a hearing titled "Narrowing the Nation's Power: The Supreme Court Sides with the States". Sen. Charles Schumer (D-NY) presided, and Sen. Jeff Sessions (R-AL) actively participated. The hearing focused broadly on a wide area of Supreme Court decisions that have held unconstitutional various federal statutes for exceeding federal authority.
One of the these areas is intellectual property rights. That is, the Supreme Court held in 1996 in Seminole Tribe of Florida v. Florida that the Congress lacks authority under Article I of the Constitution to abrogate the States' 11th Amendment immunity from suit in federal courts. The Supreme Court extended this to the context of intellectual property in the 1999 rulings in Florida Prepaid v. College Savings Bank (invalidating the Patent and Plant Variety Protection Remedy Clarification Act) and College Savings Bank v. Florida Prepaid (invalidating the Trademark Remedy Clarification Act).
Sen. Patrick Leahy (D-VT) addressed this issue in his prepared statement for the hearing. He stated that "I began expressing my concerns about the Court's new direction in July 1999, shortly after it issued its end-of-term decisions in the Florida Prepaid, College Savings Bank, and Alden cases. In Florida Prepaid and College Savings Bank, the Court ruled that states could no longer be held liable for violating the federal intellectual property laws, even though they can and do enjoy the full protection of those laws for themselves. ... In short, the Court held that state institutions were above the law.
Sen. Patrick Leahy.Sen. Leahy continued that "The Court's decisions in the Florida Prepaid  trilogy have been the subject of bipartisan criticism. Charles Fried, a former Solicitor General during the Reagan Administration, has called these decisions ``truly bizarre.´´ Senator Specter has remarked that they ``leave us with an absurd and untenable state of affairs,´´ where ``States will enjoy an enormous advantage over their private sector competitors.´´ I could not agree more. I also agree with the four dissenting justices that these decisions constitute an egregious example of judicial activism and a misapplication of the Constitution. In their rush to impose their natural law notions of sovereignty as a barrier to democratic regulation, the activist majority cast aside the text of the Constitution, ripped up precedent, and treated Congress with less respect than that due to an administrative agency."
Sen. Patrick Leahy (D-VT) and others have introduced S 2031, the Intellectual Property Protection Restoration Act of 2002, to stop states from evading liability for infringing intellectual property rights by asserting 11th Amendment immunity. It would provide, among other things, that states would not receive the protections of federal intellectual property laws unless they first waive their 11th Amendment immunity in IP suits.
Sen. Leahy referenced this bill at the hearing. He said that the bill "would repair some of the damage caused by the Florida Prepaid decisions by restoring federal remedies for violations of intellectual property rights by states. The Committee held a hearing on the bill in February, and I had hoped that we could have made more progress before the end of the session."
This bill has been placed on the agenda of several business meetings of the Senate Judiciary Committee. However, it has always been held over.
A Judiciary Committee aide to Sen. Leahy explained to Tech Law Journal that Committee consideration of the S 2031 has been delayed by attempts to accommodate the interests of certain major state run research universities. That is, some major universities, such as the University of California at Berkeley assert that they could be caught in the position of losing their own intellectual property protections because they cannot convince their states to waive sovereign immunity. Such an outcome would cause Berkeley and some other state universities to lose licensing revenue, and top faculty.
Sen. Dianne Feinstein (D-CA), who is a member of the Judiciary Committee, is the main obstacle to passage of S 2031 in its current form.
Grand Jury Indicts Shan
10/1. A grand jury of the U.S. District Court (NDCal) returned an indictment [PDF] charging Yan Ming Shan, aka Shan Yan Ming, a citizen of the People's Republic of China, with one count of unauthorized access of a protected computer with intent to defraud, in violation of 18 U.S.C. § 1030(b)(4). The indictment states that he accessed a computer of 3DGeo Development, Inc. to obtain proprietary software, programs and source code.
The U.S. Attorneys Office (USAO) stated in a release that Shan works for PetroChina. It further stated that "3DGeo produces software that allows seismic data to be converted into three dimensional images thereby assisting petroleum companies in selecting locations for drilling. 3DGeo sold one of its software products to PetroChina and was in the process of training PetroChina employees in the use of the software when 3DGeo officials discovered that Mr. Shin made unauthorized access to 3DGeo's computer system and copied 3DGeo's proprietary software programs and source code onto a laptop belonging to another DaQing employee who was receiving training with Mr. Shan. 3DGeo officials examined the laptop and found copies of the proprietary software programs and source code. They also found a program on the laptop called ``crack´´, which is used to penetrate encrypted software programs by decoding protected passwords." The USAO also stated that the FBI arrested Shin as he tried to board an airplane to China.
House Approves Unlawful Internet Gambling Funding Prohibition Act
10/1. The House passed HR 556, the Unlawful Internet Gambling Funding Prohibition Act, by a voice vote after a brief debate.
Many legislators have been trying for several Congresses to pass legislation aimed at limiting Internet gambling. While Sen. Jon Kyl (R-AZ) has had success moving legislation in the Senate in the past, this is the first time that the full House has passed a bill. The Senate has not yet passed HR 556.
Rep. Bob Goodlatte (R-VA) has tried for years to pass a bill in the House. In this Congress, he is the sponsor of HR 3215, the Combating Illegal Gambling Reform and Modernization Act. However, the bill just passed by the House is a more narrow and targeted bill sponsored by Rep. James Leach (R-IA) and reported by the House Financial Services Committee (HFSC). It is directed only at financial instruments used in connection with Internet gambling.
HR 556 provides, in part, that "No person engaged in the business of betting or wagering may knowingly accept, in connection with the participation of another person in unlawful Internet gambling (1) credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card); (2) an electronic fund transfer or funds transmitted by or through a money transmitting business, or the proceeds of an electronic fund transfer or money transmitting service, from or on behalf of the other person; (3) any check, draft, or similar instrument which is drawn by or on behalf of the other person and is drawn on or payable at or through any financial institution; or (4) the proceeds of any other form of financial transaction as the Secretary may prescribe by regulation which involves a financial institution as a payor or financial intermediary on behalf of or for the benefit of the other person."
The HFSC approved the bill by a vote of 34-18 on October 31, 2001. See, story titled "House Committee Passes Internet Gambling Funding Bill" in TLJ Daily E-Mail Alert No. 299, Nov. 1, 2001. See also, HFSC release of October 1, 2002.
NTIA Seeks Comments on Family Law Documents Exception to E-SIGN Act
10/1. The National Telecommunications and Information Administration (NTIA) published a notice in the Federal Register announcing that it is seeking public comments on the domestic and family law documents exception to the E-SIGN Act.
The Electronic Signatures in Global and National Commerce (E-SIGN) Act provides, at Section 101, for the acceptance of electronic signatures in interstate commerce, with certain enumerated exceptions. Section 103 of the Act provides that "The provisions of section 101 shall not apply to ... a State statute, regulation, or other rule of law governing adoption, divorce, or other matters of family law". The Act also requires the NTIA to review, evaluate and report to Congress on each of the exceptions.
The deadline to submit written comments to the NTIA regarding this exception is December 2, 2002. See, Federal Register, October 1, 2002, Vol. 67, No. 190, at Pages 61599 - 61601.
This is the fourth notice in a series. On September 3, the NTIA published a pair of notices in the Federal Register regarding two other exceptions -- court records and hazardous materials notices. The deadline for comments on those exceptions is November 4. See also, NTIA release, notice in Federal Register, September 3, 2002, Vol. 67, No. 170, at Pages 56277 - 56279, regarding court records, and notice in Federal Register, September 3, 2002, Vol. 67, No. 170, at Pages 56279 - 56281, regarding hazardous materials notices. On September 24, the NTIA published a notice in the Federal Register that it is seeking public comments on the product recall notices exception. See, Federal Register, September 24, 2002, Vol. 67, No. 185, at Pages 59828 - 59830.
6th Circuit Rules Rules on "Smart Power" Trademark
10/1. The U.S. Court of Appeals (6thCir) issued its opinion in Natron v. ST, a trademark case regarding the use of the term "smart power" in connection with semiconductors. The Appeals Court ruled that "smart power" has become a generic term in the semiconductor industry, and hence, affirmed a grant of summary judgment to a semiconductor producer that had been sued for trademark infringement.
Background. Nartron makes electronic devices including sensors, acoustic devices, displays, controls, harnesses and connectors, lamps, flashers and switches. STMicroelectronics (ST) makes semiconductors, including products that combine power and intelligence on a single integrated circuit chip.
Nartron began using "Smart power" in 1978. It obtained a federally registered trademark for "Smart power" for "electrical relay assemblies in combination with electrical logic components and parts thereof" in 1982. Nartron broadened the identification of its goods to "electrical power circuits in combination with electrical logic circuits and parts thereof" in 1986.
ST has used "smart power" since 1988. So have others in the semiconductor industry. It is used to refer to technology that combines power transistors and control circuitry on a single integrated circuit.
District Court. Narton filed a complaint in 1998 in U.S. District Court (EDMich) against ST alleging wilfull infringement in violation of 15 U.S.C. §§ 1051-1127, unfair competition in violation of 15 U.S.C. § 1125(a); dilution of the distinctive and valuable quality of the "Smart power" trademark in violation of 15 U.S.C. § 1125(c), and unfair competition and trademark infringement in violation of Michigan common law.
ST moved for summary judgment on Narton's trademark infringement claim on the grounds that "smart power" is a generic term not subject to protection, and that Narton's suit is barred by the doctrine of laches, due to its unreasonable delay of 11 years in filing suit. The District Court granted summary judgment to ST on both grounds. This appeal followed.
Appeals Court. The Court of Appeals affirmed. First, as to genericness, the Appeals Court reasoned that "A generic term can never function as a trademark. ... On the other hand a term that is ``merely descriptive´´ may be used as a trademark if it has acquired a secondary meaning. Thus, in considering Nartron's challenge of ST's use of ``smart power´´ as used in connection with ST's products in the semiconductor industry ... the crucial question is whether there is a genuine issue of material fact as to whether the term is a generic (i.e., common descriptive) or ``merely descriptive´´ term." (Citations and footnotes omitted. Parentheses in original.)
The Court continued that "A generic term is one that is commonly used as the name of a kind of goods ... Unlike a trademark, which identifies the source of a product, a generic term merely identifies the genus of which a particular product is a species". It also wrote that the appropriate test is whether the relevant public perceives the term primarily as the designation of the article." (Citations omitted.)
The Court concluded that "ST produced overwhelming evidence, which Nartron failed to rebut, that the term ``smart power,´´ as used by ST and other participants in the semiconductor industry, denotes a type of technology, not goods associated with Nartron." (Emphasis in original.)
Second, as to laches, the Appeals Court wrote that "Nartron failed to rebut ST's evidence demonstrating that, for eleven years, ST had constantly and continuously used the term ``smart power,´´ and totally rejected every one of Nartron's requests to stop using the term." In determining whether the length of the delay was unreasonable, the Appeals Court referred to the Michigan state law statute of limitations for injury to personal property, which is three years.
USTR Zoellick Addresses Trade, Tech, and IPR
10/1. U.S. Trade Representative Robert Zoellick gave a speech [PDF] titled "Globalization, Trade, and Economic Security" in Washington DC. He stated that "A free and open trading system is critical to many of the most competitive sectors of the U.S. economy. ... America's dynamic high tech sector depends on exports, with $189 billion in foreign sales last year. Software producers earn over half of all their revenue overseas."
He also reviewed a proposal that he and the trade ministers of Indonesia and Singapore announced back in April. He stated that "We announced a new U.S. trade proposal, the ``integrated tariff initiative,´´ which would not only open duty free trade in certain information technology products, but also eliminate burdensome processing rules. By incorporating this initiative within our soon to be completed free trade agreement with Singapore, we can connect Indonesia to the global sourcing network of international business, drawing investment and creating jobs."
He also used the occasion to promote a ten point plan named "America's Trade Agenda". One item in the plan is to "stimulate American and global innovation and creativity by upgrading intellectual property rules to match technological innovation, insisting on enforcement, and assisting developing countries with special needs."
USTR Robert ZoellickZoellick (at right) also spoke about the broader benefits of free trade. He said that "Free trade agreements can help establish the basic building blocks for sustainable development, including private property rights, competition, the rule of law, societal gains from the transmission of ideas and technology, sectoral reforms, and regional integration. Most importantly, free trade is about freedom and open societies. These values are at the heart of America's larger reform and development agenda. The U.S. free trade agenda can help fragile democracies in Central America and Southern Africa, and other developing nations, just as U.S. trade policy after World War II helped secure democracy and hope in Western Europe and Japan. From Johannesburg to San Salvador, America is opening a new pathway to promote prosperity, the rule of law, and liberty."
Congressional Hearings
10/1. The House Government Reform Committee's Subcommittee on Technology and Procurement Policy held a hearing titled "Ensuring Coordination, Reducing Redundancy: A Review of OMB's Freeze on IT Spending at Homeland Security Agencies". See, prepared testimony [15 pages in PDF] Joel Willemssen, Managing Director for Information Technology Issues of the General Accounting Office (GAO), titled "Homeland Security: OMB's Temporary Cessation of Information Technology Funding for New Investments".
10/1. The House Commerce Committee's Subcommittee on Telecommunications and the Internet held a hearing titled "Recording Industry Marketing Practices: A Check-Up". See, prepared testimony of witnesses: Lee Peeler (Deputy Director of the Federal Trade Commission's Bureau of Consumer Protection), Michael Rich (American Academy of Pediatrics), Hilary Rosen (Recording Industry Association of America), Gary Severson (Wal Mart Stores), John Marmaduke (Hastings Entertainment), and Russell Simmons (Hip-Hop Summit Action Network).
10/1. The House Commerce Committee's Subcommittee on Oversight and Investigations held a hearing titled "Capacity Swaps by Global Crossing and Qwest: Sham Transactions Designed to Boost Revenues?" See, prepared testimony of witnesses: Lenette Crumpler, Gary Winnick (Chairman of Global Crossing), Jim Gorton (former General Counsel of Global Crossing), Dan Cohrs (CFO of Global Crossing), Joe Perrone (EVP of Finance of Global Crossing), David Walsh (former P/CEO of Global Crossing), Joseph Nacchio (former Ch/CEO of Qwest), Afshin Mohebbi (P/COO of Qwest), Peter Hellman (Chairman of the Audit Committee of Qwest), Oren Schaffer (VP/CFO of Qwest).
More News
10/1. The Supreme Court granted certiorari in Zapata Industries, Inc. v. W.R. Grace & Co. - Conn., No. 01-1766. See, Order List [PDF.]
10/1. The Supreme Court denied NextWave's motion for leave to file a supplemental appendix (and raise additional arguments) in FCC v. NextWave. See, Order List [PDF.] Oral argument will be heard on October 8.
10/1. Federal Reserve Board (FRB) Governor Susan Bies gave a speech titled "The Challenge for Corporate Governance Posed by Financial Innovation" at the Carnegie Endowment for International Peace in Washington DC. She stated that "Just as financial innovations spawned a variety of risk management tools for businesses, they have also been responsible, in part, for changes in the structure of equity ownership. Along with advances in computer processing power that have facilitated the management of ever larger portfolios, an increasing awareness among investors of the value of portfolio diversification has led to a dramatic secular rise in the share of equity that is held by institutional investors on behalf of households."
10/1. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (DMass) against Arthur Goodwin, William Burke and Christopher Whalen alleging revenue recognition fraud in violation of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 12b-20, 13a-13 and 13b2-1. The complaint states that the three were officers of Interspeed, Inc., a now defunct Massachusetts Internet equipment provider. See also, SEC release.
10/1. The National Telecommunications and Information Administration (NTIA) announced the recipients of $12.4 Million in Technology Opportunity Program (TOP) grants. See, list of grant recipients.
10/1. The Securities and Exchange Commission (SEC) temporary suspended trading of the securities of Nationwide Capital Corporation because of "questions concerning the accuracy of assertions by or about Nationwide on its Internet website" and in other materials. See, SEC release.
10/1. Scott Cate plead guilty in U.S. District Court (NDTex) to unauthorized access of a protected computer in violation of 18 U.S.C. § 1030(a)(2)(C). The USAO stated in a release that Cate "accessed 65 different member accounts on the Wyndham computer network, without permission. Cate downloaded information for nine Wyndham clients to his personal computer."
10/1. Rep. Ron Paul (R-TX) introduced HR 5516, a bill to amend the Communications Act of 1934 with respect to retransmission consent and must carry for cable operators and satellite carriers. It was referred to the House Commerce Committee.

Go to News from September 26-30, 2002.