News from July 1-5, 2003

World Radio Conference 2003 Concludes

7/4. The International Telecommunications Union's (ITU) World Radio Conference 2003 (WRC-03) concluded on July 4, 2003. The WRC-03 took place in Geneva, Switzerland from June 9 through July 4. One of the items on the agenda was allocation of spectrum for unlicensed uses, such as for 802.11 (Wi-Fi) and Bluetooth devices.

On May 15, 2003, the Federal Communications Commission (FCC) adopted a Notice of Proposed Rulemaking (NPRM) [28 pages in PDF] proposing to make available an additional 255 MHz of spectrum for unlicensed use. This NPRM proposed allocating the 5.470-5.725 GHz band. See also, FCC press release [PDF], and stories titled "FCC Adopts NPRM to Increase Unlicensed Spectrum" and "FCC Unlicensed Spectrum NPRM and the Jumpstart Broadband Act" in TLJ Daily E-Mail Alert No. 663, May 16, 2003.

The ITU stated in a July 4 release that the WRC-03 "established new frequency allocations to the mobile service in the bands 5 150-5 350 MHz and 5 470-5 725 MHz for the implementation of wireless access systems including RLANs. Wireless devices that do not require individual licenses are being used to create broadband networks in homes, offices and schools. These networks are also being used in public facilities in so-called hot spots such as airports, cafes, hotels, hospitals, train stations and conference sites to offer broadband access to the Internet."

The ITU added that "The lower part of the 5 GHz spectrum will be predominantly used for indoor applications with the first 100MHz (5 150-5 250 MHz) restricted to indoor use. The use of these frequency bands is conditional to provisions that provide for interference mitigation mechanisms and power emission limits to avoid interference into other radiocommunication services operating in the same spectrum range."

Representatives of the FCC's International Bureau (IB) will report to the FCC Commissioners on the WRC-03 at the July 10 meeting of the FCC.

In addition, John Giusti (FCC's IB), Jennifer Manner (Legal Advisor to FCC Commissioner Kathleen Abernathy), Cecily Holiday (State Department), Karl Nebbia (NTIA's Office of Spectrum Management), James Voorhies (NTIA International Spectrum Plans Program Manager), Audrey Allison (Boeing), and Jennifer Warren (Lockheed Martin) are scheduled to speak at a luncheon titled "Is There a Worldwide Consensus on Implementing New Wireless Services? - A Debriefing of the 2003 World Radiocommunications Conference" on July 16. The luncheon is hosted by the Federal Communications Bar Association's (FCBA) International Practice Committee and the Computer & Telecommunications Law Section of the D.C. Bar Association. It will take place at 12:00 NOON at the law offices of Wilmer Cutler & Pickering, 2400 N St., NW, Concourse Level.

See also, the FCC IB's WRC-03 web site.

District Court Dismisses Sharman's Sherman Act Counterclaims

7/3. The U.S. District Court (CDCal) issued an Order Granting in Part Plaintiffs' Motion to Dismiss Counterclaims [PDF] in MGM v. Grokster. The order dismisses Sharman's counterclaims alleging antitrust violations.

This case involves two consolidated actions directed at shutting down Kazaa. In one action, Metro Goldwyn Mayer Studios Inc. (MGM) and other movie and music recording companies filed a complaint against Grokster, Ltd. and others involved in the exchange of copyrighted music, movies and other digital works over the internet. These plaintiffs alleged copyright infringement in violation of 17 U.S.C. § 501. In the second action, Jerry Leiber, and other professional songwriters and music publishers, filed a complaint against Consumer Empowerment BV a/k/a FastTrack and others. Both suits involve essentially the same claims against the same defendants.

Sharman, which now owns the key assets of Kazaa, is organized in the offshore jurisdiction of Vanuatu, apparently for the purpose of evading the reach of U.S. courts. However, in January the District Court issued an order and opinion in which it denied Sharman Network's motion to dismiss for lack of personal jurisdiction. See, TLJ story titled "District Court Squeezes Sharman on Internet Based Personal Jurisdiction", January 9, 2003.

Sharman provides free software, known as the Kazaa Media Desktop (KMD), that can be downloaded and used to search for and exchange digital music, movies, and other mostly copyrighted works, using FastTrack file sharing technology.

On April 25, 2003, the District Court issued its opinion that Grokster's and Streamcast's peer to peer file copying networks do not contributorily or vacariously infringe the copyrights of the holders of music and movie copyrights. The holding of the District Court is arguably inconsistent with the opinion of the Court of Appeals in the case A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (2001), which held that Napster contributorily and vicariously infringed copyrights. See, story titled "District Court Holds No Contributory or Vicarious Infringement by Grokster or Streamcast P2P Networks" in TLJ Daily E-Mail Alert No. 650, April 28, 2003.

The present order pertains to Sharman's counterclaims. Sharman counterclaimed under Section 1 of the Sherman Act, 15 U.S.C. § 1, which prohibits conspiracies or combinations in restraint of interstate commerce, and under Section 2, 15 U.S.C. § 2 which bars monopolization of trade. Sharman also plead state antitrust counterclaims. Sharman also raised misuse of copyright.

Sharman entered into a partnership with Altnet, which is not a party to this case. Sharman plead that Altnet licenses copyrighted works.

The District Court summarized the counterclaims at issue: "While there is considerable redundancy in the counterclaims, the essence of Sharman’s grievance appears to be thus: Sharman alleges that Plaintiffs control as much as eighty-five percent of the market for manufacturing, labeling and distributing copyrighted music and films. Sharman further alleges that Plaintiffs together have acted monopolistically and in restraint of trade by refusing to license any copyrighted works to Altnet. This conduct, the FAAC claims, unlawfully precludes Sharman and Altnet from competing effectively in the market for distribution of licensed copyrighted works."

The Court held that Sharman lacks antitrust standing. "Sharman is neither a competitor nor customer in the restrained market, and because its injury is incidental, and not integral, to the alleged anticompetitive scheme". The Court wrote that "Sharman’s alleged injuries arise only because it stands to benefit from Altnet's potential success in the relevant market."

The Court added that "Here, Altnet, not Sharman, is the primary target of the conduct alleged and would suffer the principal injury. Accordingly, Altnet has the greatest motivation to enforce the antitrust laws in the form of a private claim, thereby further diminishing any justification for allowing Sharman to do so."

Copyright Misuse. The District Court also dismissed with prejudice Sharman's counterclaim for declaratory relief regarding copyright misuse. However, the issue of copyright misuse remains at issue in this case. Sharman has also raised copyright misuse as an affirmative defense. The Court simply held that the counterclaim was redundant of the unresolved affirmative defense, and dismissed the counterclaim.

The District Court wrote also that "Copyright misuse is a relatively recent addition to the corpus of judge-made copyright law. Historically, most courts to consider the question held that a copyright holder’s violation of the antitrust laws did not give rise to a defense in a copyright infringement action."

Napster unsuccessfully asserted copyright misuse in A&M Records v. Napster. In that case the alleged misuse arose out of alleged anticompetitive actions by the record companies in the online music distribution market.

Copyright misuse could be an area of law that expands in future years. For example, in an obscure opinion last year in a copyright case involving Beanie Babies, the U.S. Court of Appeals (7thCir) hinted, but did not hold, that copyright misuse could arise out of copyright licensing practices and litigation strategies intended to suppress critical reviews of products -- a purpose that is contrary to the underlying purposes of copyright protection. Judge Richard Posner wrote the opinion. The Supreme Court denied certiorari in January. (Ty v. Publications International).

Reaction. Matthew Oppenheim of the Recording Industry Association of America (RIAA) stated in a release that "Sharman Networks was grasping at straws to distract the court from their own improper behavior. We are pleased that the court recognized what we have said all along -- that these claims lacked any merit."

FCC Announces Agenda for July 10 Meeting

7/3. The Federal Communications Commission (FCC) announced the agenda [PDF] for its Thursday, July 10 meeting.

First, representatives of the FCC's International Bureau will report on the World Radio Conference 2003, which took place in Geneva, Switzerland from June 9 through July 4. One of the items on the agenda was allocation of spectrum for unlicensed devices in the 5 GHz band.

Second, the FCC will consider a Report and Order regarding the compatibility of digital wireless phones and hearing aids. This is WT Docket No. 01-309.

Third, the FCC's Homeland Security Policy Council will report on its accomplishments and future activities.

The meeting will be held at 9:30 AM in the Commission Meeting Room, Room TW-C305, 445 12th Street, SW. The meeting will be webcast.

FTC Report Concludes That Allowing Direct Sales of Wines Would Enhance Consumer Welfare

7/3. The Federal Trade Commission (FTC) released a report [139 pages in PDF] titled "Possible Anticompetitive Barriers to E-Commerce: Wine." Currently, many states impose a ban on direct sales of wine, in part, to protect the  in-state wineries and wholesalers from competition. Bans on direct sales particularly affect small wineries, by preventing them from marketing their product over the internet. The report concludes that consumer welfare would be enhanced by allowing direct shipment of wines. See, FTC release.

The report, which was written by FTC staff, and authorized for release by a 5-0 vote of the Commissioners, concludes "that states could significantly enhance consumer welfare by allowing the direct shipment of wine to consumers. Through direct shipping, online wine sales offer consumers lower prices and greater selection. Of course, the direct shipping debate involves other public policy goals, such as tax collection and prevention of sales to minors. To accomplish these goals, many states have adopted measures that are less restrictive than an outright ban on interstate direct shipping, and these states generally report few or no problems with tax collection or direct shipments to minors. The less restrictive means include requiring an adult signature at the point of delivery and requiring out-of-state suppliers to obtain a permit."

The report adds that "Many states have passed laws regulating e-commerce to promote other important public interest objectives, such as protecting consumers from deception and fraud by unscrupulous vendors. These actions, however, also may shield local merchants from out-of-state competition. For example, some states require that online vendors maintain a physical office in the state, while other states completely prohibit online sales or shipments of certain products, such as new cars direct from a manufacturer. Many states also require that out-of-state suppliers obtain an in-state license before selling particular goods, like caskets or contact lenses, or services, like medical or legal advice. Some observers question whether the attendant higher prices and loss of variety might outweigh the consumer protection benefits."

The report examines how consumers are harmed by state imposed barriers. For example, the FTC staff conducted a study in the Washington DC suburb of McLean, Virginia. It found that "15% of a sample of wines available online were not available from retail wine stores within ten miles of McLean." The report also noted that at a recent FTC workshop on e-commerce, testimony showed that "by banning interstate direct shipments, states seriously limit consumers' access to thousands of labels from smaller wineries."

The McLean study also found that "if consumers use the least expensive shipping method, they could save an average of 8-13% on wines costing more than $20 per bottle, and an average of 20-21% on wines costing more than $40 per bottle."

The report also addressed the concerns of states in imposing bans on direct sales, such as preventing the sale of alcohol to minors, and collecting taxes. The report concluded that a ban on direct sales is not necessary to collect taxes. The report states that "Several states that allow interstate direct shipping also collect taxes from those shipments. By requiring out-of-state suppliers to obtain permits, states such as New Hampshire have sought to achieve voluntary compliance with their tax laws. Most of these states report few, if any, problems with tax collection. Other states with reciprocity agreements forego taxing interstate direct shipments altogether."

The report also addressed alcohol sales to minors. It found that "The states that permit interstate direct shipping generally report few or no problems with shipments to minors. Some states have applied the same types of safeguards to online sales that already apply to bricks-and-mortar retailers, such as requirements that package delivery companies obtain an adult signature at the time of delivery. Some states also have developed penalty and enforcement systems to provide incentives for both out-of-state suppliers and package delivery companies to comply with the law."

This report is an economic analysis of the business of wine sales. There are also numerous legal challenges to the constitutionality of state laws banning the direct sale of wine. Plaintiffs have met with some success in arguing violation of the dormant commerce clause. However, some of the courts that have found state laws unconstitutional have done so on the grounds that the statutes ban direct sales from out of state, but not in state, suppliers.

On June 26, the U.S. Court of Appeals (5thCir) issued its opinion [39 pages in PDF] in Dickerson v. Bailey, holding that Texas' ban on direct sale by out of state wine sellers violates the dormant commerce clause. See, story titled "5th Circuit Holds Texas Wine Sales Statute Unconstitutional" in TLJ Daily E-Mail Alert No. 690, June 30, 2003,

On November 12, 2002, the U.S. District Court (SDNY) issued its opinion [32 page PDF scan] in Swedenburg v. Kelly, holding that New York state's ban on the direct shipment of out of state wine is unconstitutional. See, story titled "Court Holds New York's Ban on Internet Wine Sales Is Unconstitutional", in TLJ Daily E-Mail Alert No. 551, November 18, 2002.

On April 8, 2003, the U.S. Court of Appeals (4thCir) issued its opinion [20 pages in PDF] in Beskind v. Easley, holding that North Carolina's ban on direct shipment of wine from out of state wineries to North Carolina residents violates the Commerce Clause. See, TLJ story titled "4th Circuit Holds North Carolina Ban On Internet Wine Sales Is Unconstitutional", April 8, 2003 (also published in TLJ Daily E-Mail Alert No. 640, April 9, 2003).

Also, the U.S. District Court (EDVa), which is in the Fourth Circuit, held that Virginia's statute unconstitutionally discriminated against out of state wine and beer manufacturers and sellers and was not saved by the 21st Amendment. See, Bolick v. Roberts, 199 F. Supp. 2d 397. However, the Virginia state legislature subsequently amended its statute. Then, on May 23, 2003, the Court of Appeals issued its per curiam opinion [6 pages in PDF] in Bolick v. Danielson, vacating the District Court opinion, and remanding for consideration of the statute as amended. See, story titled "4th Circuit Vacates District Court Opinion in Case Affecting Internet Alcohol Sales" in TLJ Daily E-Mail Alert No. 671, June 2, 2003.

The U.S. Court of Appeals (7thCir) issued its opinion upholding a state statute in Bridenbaugh v. Wilson. In that case, the plaintiffs challenged the constitutionality of an Indiana statute that made it unlawful for persons in another state to ship an alcoholic beverage directly to an Indiana resident. The District Court held that the Indiana direct shipment regulation was unconstitutional under the Commerce Clause, and granted the plaintiffs' summary judgment motion (Bridenbaugh v. O'Bannon, 78 F. Supp.2d 828 (N.D. Ind. 1999)). Then, the Seventh Circuit reversed, upholding the constitutionality of the state ban. The Indiana ban affected both in state and out of state sellers.

9th Circuit Affirms in PSLRA Case

7/3. The U.S. Court of Appeals (9thCir) issued its opinion [12 pages in PDF] in In Re Read-Rite Corp. Securities Litigation, a case involving application of the pleading requirements of the Private Securities Litigation Reform Act (PSLRA).

Read-Rite manufactured and sold ferrite metal-in-gap (MIG) recording heads and Tripad thin film inductive recording heads for hard disk drives. Plaintiffs were owners of common stock of Read-Rite.

Plaintiffs filed a complaint in the U.S. District Court (NDCal) against Read-Rite and several of its officers and directors alleging securities fraud under Section 10(b) of the Securities Exchange Act of 1934. The plaintiffs also sought class action status. The District Court dismissed the complaint for failure to state a claim upon which relief may be granted, pursuant to the PSLRA, for failing to meet the heightened pleading requirements of the statute.

The Appeals Court affirmed in a relatively brief opinion which it relied upon 9th Circuit precedent in Ronconi v. Larkin, 253 F.3d 423 (2001), and In re Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970 (1999).

More News

7/3. The Department of Justice, the state plaintiffs, and Microsoft filed a pleading titled "Joint Status Report on Microsoft's Compliance with the Final Judgments" with the U.S. District Court (DC) in U.S. v. Microsoft. See also, PDF version [44 pages].

7/3. The Copyright Office (CO) published a notice in the Federal Register announcing, describing, and reciting its final rule adjusting royalty rates under the Copyright Act for the statutory license for the use of sound recordings by preexisting subscription services for the period January 1, 2002 through December 31, 2007. This rule takes effect on August 4, 2003. For more information, contact David Carson (General Counsel) or Tanya Sandros (Senior Attorney) at 202 707-8380. See, Federal Register, July 3, 2003, Vol. 68, No. 128, at Pages 39837 - 39841.

7/3. The Department of the Navy's Naval Research Advisory Committee (NRAC) will hold a closed two week long meeting to discuss "the application of science and technology to FORCEnet; the reform of technology acquisition; and the assessment of electromagnetic gun technology." FORCEnet is the Navy's plan to modernize how it acquires, stores, secures and shares information in network-centric warfare. The meeting will be held from July 21 through August 1, 2003 in San Diego, California. The entirety of the meeting is closed to the public. See, notice in the Federal Register, July 3, 2003, Vol. 68, No. 128, at Page 39902. The NRAC's Panel on Technology for FORCEnet will also meet in Arlington, Virginia on July 8 through 10, 2003 to discuss "appropriate near and far term naval science and technology investments to enhance FORCEnet". The entirety of this meeting is also closed to the public. See, notice in the Federal Register, July 2, 2003, Vol. 68, No. 127, at Pages 39534 - 39535.

Court Rules Operation of Website Does Not Create Personal Jurisdiction Over Out of State Defendant

7/2. The U.S. Court of Appeals (4thCir) issued its opinion [PDF] in Carefirst Maryland v. CPC, a case involving whether the operation of a website by a local non profit group can serve as the basis for personal jurisdiction over it by an out of state court in a trademark infringement case. The District Court dismissed for lack of personal jurisdiction. The Appeals Court affirmed. See, full story.

FCC Releases Media Ownership Order and NPRM

7/2. The Federal Communications Commission (FCC) released its Report and Order and Notice of Proposed Rulemaking [257 pages in PDF] in its proceeding regarding its media ownership rules.

FCC Commissioner Jonathan Adelstein also released an additional dissenting statement [39 pages in PDF]. In addition to discussing policy considerations, he argued that "indefensible under the law" and that "today's decision departs dramatically from our statutory responsibility".

The FCC announced, but did not release, this item at its June 2, 2003  meeting. Comments will be due within 30 days of publication of a notice in the Federal Register, which has not yet occurred. Reply comments will be due within 45 days after publication.

See also, story titled "FCC Announces Revisions to Media Ownership Rules" in TLJ Daily E-Mail Alert No. 672, June 3, 2003.

Cyber Security News

7/2. The National Institute of Standards and Technology (NIST) published a notice in the Federal Register stating that it "requests nominations of individuals for appointment to the Information Security and Privacy Advisory Board (ISPAB)." There is no deadline for submissions. The ISPAB was previously named the Computer System Security and Privacy Advisory Board (CSSPAB). See, Federal Register, July 2, 2003, Vol. 68, No. 127, at Pages 39527 - 39528.

7/2. The National Communications System (NCS) published a notice in the Federal Register stating that "A meeting of the President's National Security Telecommunications Advisory Committee will be held via conference call on Wednesday, July 14, 2003, from 11 a.m. to 1 p.m." Calendars for the year 2003 indicate that July 14 is a Monday. The meeting will be held to discuss a document titled " Physical Security Assessment of Cyber Assets". Also, the NCS stated that the meeting is closed to the public. See, Federal Register, July 2, 2003, Vol. 68, No. 127, at Pages 39599 - 39600.

People and Appointments

7/2. Joel David Kaplan was named Deputy Director of the Office of Management and Budget (OMB). Kaplan is currently Special Assistant to the President in the Office of the Chief of Staff. Before that, he worked on the Bush presidential campaign. See, OMB release [PDF].

7/2. The Business Software Alliance (BSA) announced that Rep. Tom Davis (R-VA), the Chairman of the House Government Reform Committee, and Rep. Cal Dooley (D-CA), will receive its 2003 Cyber Champion Awards. See, BSA Davis release and Dooley release.

7/2. Patrick Hofer was named Deputy Assistant Attorney General for Policy and Planning in the Department of Justice's Tax Division. He previously worked for the law firm of Hogan & Hartson. See, DOJ release.

7/2. John Williams, Chief Counsel of the Internal Revenue Service (IRS), resigned. See, Treasury release.

7/2. Michael Bloomquist was named Associate General Counsel of the House Science Committee. He previously worked for the law firm of Patton Boggs.

7/2. Peter Rooney was named Deputy Staff Director for the House Science Committee. He was previously Staff Director for the Subcommittee on Research. He replaces Scott Giles, who left the Committee to become Vice-President of Policy, Research and Planning for the Vermont Student Assistance Corporation.

More News

7/2. The National Telecommunications and Information Administration (NTIA) published in its web site the May 2003 edition of the NTIA Manual of Regulations & Procedures for Federal Radio Frequency Management as a collection of PDF documents. This is the NTIA's "redbook".

7/2. The Federal Communications Commission (FCC) and the Department of Agriculture's Rural Utilities Service (RUS) hosted meeting regarding the "Federal Rural Wireless Outreach Initiative". See, FCC release and speech [PDF] by FCC Commissioner Kevin Martin.

DC Circuit Rules in Ranger Cellular v. FCC

7/1. The U.S. Court of Appeals (DCCir) issued its opinion [12 pages in PDF] in Ranger Cellular v. FCC, a case regarding how the Federal Communications Commission (FCC) awards cellular licenses. The Appeals Court denied the petition for review.

The FCC previously awarded licenses for use of spectrum through either a comparative hearing or a lottery. The petitioners, Ranger Cellular and Miller Communications, filed applications in 1988 and 1989 respectively to participate in a lottery for Rural Service Area (RSA) cellular telephone licenses. The FCC awarded most of the licenses, but by the mid 1990s six licenses for RSAs were still pending due to the disqualification or withdrawal of the original winner.

Congress amended the Communications Act of 1934 by in 1993 by adding Section 309(j), codified at 47 U.S.C. § 309(j), which authorized the FCC to award almost all spectrum licenses by competitive bidding and limited the use of lotteries. The 1993 legislation provided that the FCC "shall not issue any license or permit [by lottery] ... unless ... one or more applications for such license were accepted for filing by the Commission before July 26, 1993."

Congress further amended Section 309(j) in 1997 by requiring the FCC to use competitive bidding, except in a few specifically enumerated circumstances, and terminated the FCC's authority to use a lottery, except for a small class of broadcast licenses).

The Congress also amended Section 309(l) regarding "Applicability of competitive bidding to pending comparative licensing cases". The statute provides that "With respect to competing applications for initial licenses or construction permits for commercial radio or television stations that were filed with the Commission before July 1, 1997, the Commission shall ... treat the persons filing such applications as the only persons eligible to be qualified bidders for purposes of such proceeding."

Thus, the statute bars the FCC from accepting new applications in the case of "commercial radio or television stations". The petitioners asserted that this provision applied to applications for cellular licenses, and limited the pool of bidders to those who had filed an application prior to July 1, 1997. The FCC issued an order that rejected petitioners' interpretation. Ranger Cellular and Miller Communications then filed their petition for review with the Court of Appeals.

The Court wrote that the petitioners had some credible arguments. For example, it wrote that "cellular service is regulated as a ``commercial mobile radio service,´´ 47 C.F.R. § 20.9(a), which seems to place it neatly within the more general class of  ``commercial radio and television stations´´ referenced in § 309(l)." However, the Court also found that the FCC supported its argument that "commercial radio or television stations" does not encompass cellular telephone services. The Court applied the Chevron standard, and concluded that the FCC "has shown that § 309(l), viewed in the context of the 1997 Act, supports a reading that covers only broadcast stations. Although this reading is not the only possible interpretation of § 309(l), it is certainly a reasonable one and therefore commands our deference."

The Appeals Court also held that the FCC justified its decision under the public interest standard.

Finally, it held that the FCC was not subject to 47 U.S.C. § 309(j)(7)(B), which provides that "in prescribing regulations pursuant to Paragraph 4(A) of this subsection, the Commission may not base a finding of public interest, convenience and necessity solely or predominantly on the expectation of Federal revenues from the use of a system of competitive bidding under this subsection."

CCIA Files Amicus Brief In Lexmark v. Static Control

7/1. The Computer & Communications Industry Association (CCIA) filed an amicus curiae brief [41 pages in PDF] with the U.S. Court of Appeals (6thCir) in Lexmark v. Static Control Components, a case involving the anti-circumvention provisions of the DMCA and the use of copyrighted software programs embedded in printers and cartridges to prevent interoperability of cartridges made by competitors. See also, CCIA release

Background. Lexmark makes inkjet and laser printers, and replacement cartridges. Original equipment manufacturers (OEMs) and other printer manufacturers, who want to sell replacement cartridges, use copyrighted software programs embedded in their printers and cartridges that prevent the cartridges of other manufacturers from operating in their printers.

Static Control Components (SCC) makes aftermarket printer cartridges that can be used in Lexmark printers.

The Digital Millennium Copyright Act (DMCA) prohibits circumvention of technological measures that control access to copyrighted works. More specifically, 17 U.S.C. § 1201 provides, in Subsection (a)(1)(A), that "No person shall circumvent a technological measure that effectively controls access to a work protected under this title ...".

The CCIA opposes the use of the Copyright Act or the DMCA to prevent SCC from producing cartridges that also contain these embedded software programs.

District Court. On December 30, 2002 Lexmark filed a complaint [17 page PDF scan] in U.S. District Court (EDKent) against SCC alleging violation of the anti-circumvention provisions of the DMCA in connection with its production and sale of replacement cartridges for certain Lexmark printers.

Lexmark alleged in its complaint that its "strategy is based on a business model of building an installed base of printers that will then generate demand for Lexmark's printer supplies and services. Lexmark designs, manufactures, and distributes a variety of toner cartridges for use in its installed base of laser printers."

It further alleged that "Among the many products developed and marketed by Lexmark are its T520/522 and T620/622 laser printers and toner cartridges. Lexmark is the owner of valid copyright registrations covering computer programs that are used to control various operations of its T520/522 and T620/622 laser printers and to monitor operational characteristics of its toner cartridges."

According to the complaint, one of these programs, named the "Toner Loading Programs", is "contained on a microchip located on the T520/522 toner cartridge". There is another "Toner Loading Program" on a microchip in the T620/622. Another of Lexmark's programs is named the "Printer Engine Programs".

The complaint states that "In general, the technological measure, or authentication sequence, requires a ``secret handshake´´ between the printer and toner cartridge to enable printer functionality."

Lexmark alleges that SCC's "SMARTEK microchips are designed to enable unauthorized toner cartridges to function with Lexmark's T520/522 and T620/622 laser printers." It elaborates that these chips contain copies of Lexmark's programs, and constitutes a "circumvention" within the meaning of the DMCA.

The District Court issued a temporary restraining order on January 9, 2003 that enjoins SCC from making or selling its Smartek microchip for toner cartridges developed for the Lexmark T520/522 and T620/622 laser printers. See, Lexmark release of January 9. On February 27, 2003, the District Court issued its preliminary injunction order [54 page PDF scan] and findings of fact and conclusions of law. It provides that SCC "shall cease making, selling, distributing, offering for sale or otherwise trafficking in the ``SMARTEK´´ microchips for the Lexmark T520/522 and T620/622 toner cartridges, until further Order from this Court". See also, Lexmark release of February 27, 2003.

CCIA Brief. The CCIA first argues the importance of interoperability of information technology. Its brief states that "a computer product can function only in conjunction with hardware and other software. For example, an application program, such as a word processor, must work together with an operating system in order to perform its task; otherwise, it is a useless set of magnetic impulses. Two computer products can work together -- interoperate -- only if they conform to the same set of rules or interface specifications."

It continues that "If a company could exercise proprietary control over the interface specifications implemented by its products, that company could determine which products made by other firms -- if any -- could interoperate with its software or hardware. And should that company have a dominant position in a particular market, it could use its control over interoperability to expand its dominant position into adjacent markets. Moreover, such authority would extend the rights under copyright beyond what is necessary to protect the original expressive elements that have traditionally been offered protection under American copyright law."

The CCIA also argues that court precedent supports interoperability that permits the copying done by SCC.

The CCIA also argues that SCC's conduct fits within an exception in the DMCA. It argues that the Congress "recognized the importance of interoperability when it enacted the DMCA. To prevent precisely the sort of anticompetitive use of the DMCA demonstrated by Lexmark, Congress crafted an exception in Section 1201(f) for the express purpose of permitting the circumvention necessary to achieve interoperability between two software components. This exception provides SCC with a complete defense to Lexmark's DMCA claims."

Copyright Office Rulemaking. The Copyright Office (CO) is conducting a rulemaking proceeding, as required by the DMCA, regarding exempting certain classes of works from the prohibition against circumvention of technological measures that control access to copyrighted works. Moreover, SCC filed a petition [PDF] with the CO in this proceeding.

See, CO's web page for this rulemaking proceeding. See also, story titled "CO to Consider Programs Embedded in Printers and Cartridges In DMCA Exemptions Rulemaking" in TLJ Daily E-Mail Alert No. 601, February 11, 2003.

People and Appointments

7/1. President Bush announced his intent to nominate Sandra Townes to be a Judge of the U.S. District Court (EDNY). See, White House release.

More News

7/1. The U.S. Patent and Trademark Office (USPTO) announced that "effective June 30, 2003, all newly filed patent applications will be converted to electronic applications and processed electronically. Additionally, over the next 15 months, the USPTO will scan more than a half million pending applications into the electronic system." See, USPTO release.

7/1. The U.S. Court of Appeals (DCCir) issued its opinion [17 pages in PDF] in Z-Tel v. FCC. In 2001 the Federal Communications Commission (FCC) issued an order approving Verizon's Section 271 application to provide in region interLATA services in the state of Pennsylvania. Z-Tel, a competitive local exchange carrier, challenged the order, arguing that the FCC erred in finding that Verizon provides competitors nondiscriminatory access to its wholesale billing services. The Appeals Court affirmed the order of the FCC.

Go to News from June 26-30.