|News from October
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
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 bargainbeanies.com.
This URL is still active, but now contains only the text "ERROR, Page Not
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
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
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
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
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
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
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
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
10/4. The U.S.
Court of Appeals (1stCir) issued its opinion
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
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
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
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
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
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
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.
Ferguson (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
10/3. Rep. Rick Boucher (D-VA) and Rep. John Doolittle (R-CA) introduced
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
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
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
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
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
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
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,
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
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
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
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
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
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
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
10/3. Rep. Steve Israel (D-NY)
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
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
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.
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
NTIA Director Addresses Barriers to Broadband and Universal
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
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
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"
The CPPA expanded the federal prohibition on child pormography to encompass new
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
Ashcroft (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.
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
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
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
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
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
See, Federal Register, Vol. 67, No. 191, October 2, 2002, at Pages 61881 -
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
Procedures for Handling Security Ppatches (NIST Special Publication 800-40) in PDF or
Security for Telecommuting and Broadband Communications (NIST Special
Publication 800-46) in PDF or
Use of the Common Vulnerability and Exposures (CVE) Vulnerability Naming Scheme
(NIST Special Publication 800-51) in PDF or
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
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
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.
10/2. The Internet Corporation for Assigned
Names and Numbers' (ICANN) Committee on ICANN Evolution and Reform published
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
Senate Judiciary Committee Considers Federalism and
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
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. 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
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
[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
10/1. The House passed HR 556, the
Unlawful Internet Gambling Funding Prohibition Act, by a voice vote after a
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
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,
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
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
USTR Zoellick Addresses Trade, Tech, and IPR
10/1. U.S. Trade Representative Robert Zoellick gave
[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
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."
Zoellick (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."
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
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
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).
10/1. The Supreme Court granted certiorari in Zapata Industries, Inc. v. W.R.
Grace & Co. - Conn., No. 01-1766. See, Order
10/1. The Supreme Court denied NextWave's motion for leave to file a
supplemental appendix (and raise additional arguments) in FCC v. NextWave.
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
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
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.