News from December 21-25, 2003

District Court Compares AT&T to Lily "Ernestine" Tomlin

12/24. The U.S. District Court (DMass) issued an Memorandum and Order [17 pages in PDF] in Veno v. AT&T on cross motions for summary judgment. AT&T repeatedly accessed Veno's credit report, without authority, and over Veno's repeated demands that it stop. The District Court ruled that the case may go to a jury on some, but not all of the claims in the complaint alleging violation of the federal Fair Credit Reporting Act (FCRA), and related Massachusetts statutes.

AT&T repeatedly obtained Robert Veno's credit report between June 1996 and August 2000. Veno has never been a customer of AT&T, and AT&T had no authority to obtain the reports. Veno repeatedly telephoned and wrote AT&T to complain. Eventually, his attorney wrote on his behalf, to no avail.

Finally, Veno filed a complaint in District Court against AT&T alleging violations of federal and state law. Count I alleges violation of the FCRA by obtaining a report under false pretenses. Count II alleges violation of the FCRA by knowingly obtaining a report without permissible purpose. Count III alleges violation of the FCRA by willfully obtaining a report without permissible purpose. Count IV alleges invasion of financial privacy under Massachusetts statute. Count V alleges another state law violation.

In litigation, AT&T did not dispute that it had accessed credit reports without authority. It argued that the whole four year series of accessing credit reports, and ignoring complaints, was an understandable mistake, resulting in a nuisance suit. It was seeking credit reports of Veno's father, Robert Veno, Sr.

The Court was not impresse with the understandable mistake argument. It wrote that despite of of Veno's phone calls, letters, and attorney letters, "AT&T's response to these efforts might best be summarized by ``Ernestine´´, the telephone operator portrayed by Lily Tomlin on ``Saturday Night Live´´: ``We don't care. We don't have to. We're the phone company.´´"

(The District Court omitted a "snort" from the original. See, excerpt from episode of Saturday Night Live.)

However, the bulk of the opinion is devoted to application of summary judgment standards to each of the counts in the complaint. The opinion thus contains a review of the precedent on FRCA provisions relating to obtaining credit reports without authorization.

The Court granted AT&T summary judgment on Count I. It dismissed Count II on its own motion. It lets stand for trial the remaining counts. It also noted that Veno might want to amend his complaint to add a claim for violation of the FRCA for negligently obtaining a report without permissible purpose.

The Court wrote that "There is at the very least a triable issue on whether AT&T's conduct meets the ``willful´´ standard required under FCRA, 15 U.S.C. § 1681n."

This case is Robert Veno v. AT&T, U.S. District Court of the District of Massachusetts, D.C. No. 02-10383-NG, Judge Nancy Gertner presiding.

EPIC Asserts Microsoft's Palladium Raises Privacy Issues

12/24. The Electronic Privacy Information Center (EPIC) published in its web site a document [PDF] titled "Palladium", by Michael Aday, Senior Program Manager, Windows Trusted Platform Technologies, Microsoft Corporation. The EPIC states that Palladium's unique machine identifiers raises privacy issues.

Microsoft no longer uses the term "Palladium" or "Pd". It uses the phrase "Next-Generation Secure Computing Base for Windows". But, whatever it is called, it is a forthcoming set of security oriented capabilities in the Windows operating system.

Microsoft wrote in its web site in 2002 that "``Palladium´´ is the code name for an evolutionary set of features for the Microsoft Windows operating system. When combined with a new breed of hardware and applications, ``Palladium´´ gives individuals and groups of users greater data security, personal privacy and system integrity. Designed to work side-by-side with the existing functionality of Windows, this significant evolution of the personal computer platform will introduce a level of security that meets the rising customer requirements for data protection, integrity and distributed collaboration." See, Microsoft overview.

The EPIC obtained the document from the National Institute of Standards and Technology (NIST) in response to a request made pursuant to the Freedom of Information Act (FOIA). The Computer Security Division is a part of the NIST.

The document just published by the EPIC appears to be a lecture or presentation outline. It is undated, but contains a 2002 copyright notice.

It states that "Palladium systems will provide the means to protect user privacy better than any operating system does today."

This 2002 document states that "Palladium will be designed as an opt-in system", "All Pd programs can be run only if authorized by user", and "User information is not a requirement for Palladium to work."

It also states that one of its applications is "DRM", or digital rights management.

It then lists several policy issues, including privacy. It states that "Since the Pd RSA key pair is unique to the platform, what steps should we take to defend against traffic analysis of user behavior?"

It adds that "Palladium uses at least two sets of unique hardware keys (one AES key, one RSA key pair)". (Parentheses in original.) AES is the NIST/CSD Advanced Encryption Standard. RSA is an encryption standard invented in 1978 by Ron Rivest, Adi Shamir, and Leonard Adleman.

It then states that this is "Essentially equivalent to unique machine identifiers", but adds that "this is the only way to keep your stuff safe!"

It also points out that while Palladium uses a unique AES key, and a unique RSA key, both are "Opt-in", meaning that "user designates what software can access functions". It also states that "only one export of RSA public key is allowed per power cycle"

The EPIC wrote in its web site that this document describes "Palladium's applications for Digital Rights Management and note that the technology embeds ``unique machine identifiers,´´ thus raising risks that user behavior may be subject to traffic analysis. Issues raised by Palladium, which is now known as the Next Generation Secure Computing Base, are similar to privacy problems with the controversial Intel Pentium Serial Number."

See also, the EPIC Palladium web page.

FCC News

12/24. The Federal Communications Commission (FCC) published a notice in the Federal Register that describes, and provides an effective date (February 23, 2004 for most sections), for its new rules expanding the entities eligible for universal service subsidies for rural health clinics, and expanding the services that qualify for subsidies. See, Federal Register, December 24, 2003, Vol. 68, No. 247, at Page 74492 - 74504. On November 13, 2003, the FCC adopted its "Order, Order on Reconsideration, and Further Notice of Proposed Rulemaking". This is FCC 03-288 in WC Docket No. 02-60. See also, story titled "FCC Expands Universal Service Support for Rural Clinics and Telemedicine" in TLJ Daily E-Mail Alert No. 779, November 14, 2003.

12/24. The Federal Communications Commission (FCC) published a notice in the Federal Register that describes, and provides comments deadlines for its proposed rules regarding universal service subsidies for rural health clinics. Comments are due by February 23, 2004. Reply comments are due by April 7, 2004. See, Federal Register, December 24, 2003, Vol. 68, No. 247, at Pages 74538 - 74541.

12/24. The Federal Communications Commission (FCC) filed its brief [46 pages in PDF] with the U.S. Court of Appeals (DCCir) in AT&T v. FCC. This is a petition for review of an order of the FCC pertaining to pay telephones. (See, Implementation of the Pay Telephone Reclassification and Compensation Provisions, Fifth Order on Reconsideration and Order on Remand.) The FCC also argues that the Court lacks jurisdiction on the argument that the order is unreviewable because it is an order denying reconsideration of a previous order. This case in AT&T Corporation v. FCC and USA, U.S. Court of Appeals for the District of Columbia, No. 03-1017. Oral argument is scheduled for Monday, February 23, 2004.

12/24. The Federal Communications Commission (FCC) extended the deadlines to submit comments in response to its Notice of Proposed Rulemaking [35 pages in PDF] regarding unlicensed devices. See, notice in the Federal Register, December 10, 2003, Vol. 68, No. 237, at Pages 68823 - 68831. The FCC adopted this NPRM on September 10, 2003. See, FCC release [PDF]. The FCC released the NPRM [35 pages in PDF] on September 17, 2003. This NPRM is FCC 03-223 in ET Docket No. 03-201. See also, stories titled "FCC Announces NPRM Regarding Unlicensed Devices" in TLJ Daily E-Mail Alert No. 739, September 15, 2003, and "FCC Announces Deadlines for Comments on Unlicensed Devices NPRM" in TLJ Daily E-Mail Alert No. 800, December 16, 2003. The FCC released an order [PDF] on December 24, 2003 extending the deadline for comments from January 9 to January 23, and extending the deadline for reply comments from January 26 to February 7.

More News

12/24. The Library of Congress published a notice in the Federal Register announcing alternative methods for
the filing of claims to the digital audio recording devices and media (DART) royalty funds for the year 2003. See, Federal Register, December 24, 2003, Vol. 68, No. 247, at Pages 74481 - 74483.

12/24. The U.S. Patent and Trademark Office (USPTO) published a notice in the Federal Register stating that it has adopted a final rule "extending, until November 2, 2004, a temporary postponement of those provisions of the Trademark Rules of Practice that require electronic transmission to the USPTO of applications for international registration, responses to irregularity notices, and subsequent designations submitted pursuant to the Madrid Protocol. The postponement was announced most recently in a document published in the Federal Register on November 7, 2003." The notice adds that "The USPTO is also extending a temporary suspension, announced in the same Federal Register document, of those provisions of the Rules of Practice that allow payment of fees charged by the International Bureau of the World Intellectual Property Organization (IB) to be submitted through the USPTO, and those provisions of the Trademark Rules of Practice that require that all fees for international trademark applications and subsequent designations be paid at the time of filing." See, Federal Register, December 24, 2003, Vol. 68, No. 247, at Pages 74479 - 74481. See, also notice in the Federal Register, November 7, 2003, Vol. 68, No. 216, at Pages 63019 - 63021.

SEC Sues Vivendi and Messier

12/23. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (SDNY) against Vivendi Universal, Jean-Marie Messier (its former CEO), and Guillaume Hannezo (its former CFO), alleging violation of the antifraud, books and records, internal controls and reporting provisions of the federal securities laws.

The SEC also announced that it simultaneously settled the action. Vivendi consented to pay a $50 Million civil penalty. Messier agreed "to relinquish his claims to a € 21 million severance package that he negotiated just before he resigned his positions at Vivendi". Also, Messier and Hannezo agreed to pay disgorgement and civil penalties totalling over $1 Million. See, SEC release.

The 109 paragraph complaint alleges that "Between approximately December 2000 and July 2002 ... Vivendi, under the direction of Messier, Hannezo and/or other executive officers, reported materially false and misleading information about its ``EBITDA´´ growth and liquidity in its SEC filings and public releases. Defendants and other executive officers of Vivendi also, directly or indirectly, were responsible for improper adjustments to Vivendi's ``EBITDA´´ in order to meet targets during two quarters in 2001, concealed various material commitments and obligations, and failed to disclose the full extent of Vivendi's involvement in a transaction to purchase shares of a Polish telecommunications company."

The SEC stated in its release that "The €21million payment, now valued at approximately $25 million (including interest), to which Messier is relinquishing his claim, has already been placed in an escrow account as a result of the Commission's successful litigation pursuant to Section 1103 of the Sarbanes-Oxley of 2002. On the Commission's motion, the District Court in New York ordered Vivendi to place those funds in escrow on Sept. 24, 2003. This action represents the first resolution of a Section 1103 action, and demonstrates the Commission's commitment to use this new authority for the benefit of shareholders."

FCC Releases E-Rate Order and NPRM

12/23. The Federal Communications Commission (FCC) released the text of its Third Report and Order and Second Further Notice of Proposed Rulemaking [78 pages in PDF] pertaining to the administration of the FCC's e-rate subsidy program for schools and libraries.

This item is FCC 03-323 in Docket No. 02-6. The FCC adopted this item at its December 17 meeting. It also issued a press release [PDF] describing this item on December 17.

Comments will be due 30 days after publication of a notice in the Federal Register; reply comments will be due 60 days after publication. The FCC has not yet published a notice of this NPRM in the Federal Register.

Much of the order and NPRM deal with the FCC's problems of waste, fraud and abuse in the administration of the program. The NPRM also seeks comment of further expanding the scope of activities eligible for subsidies.

The NPRM discusses the recent rural health clinic order. Last month the FCC adopted an order that expands the entities eligible for universal service subsidies for rural health clinics. That order also expanded the services that qualify for subsidies. See, story titled "FCC Expands Universal Service Support for Rural Clinics and Telemedicine" in TLJ Daily E-Mail Alert No. 779, November 14, 2003.

The schools and libraries program has separate statutory authority (47 U.S.C. § 254(h)(1)(B)) from the rural health clinics program (47 U.S.C. § 254(h)(1)(A)). The two programs are also separately administered.

The NPRM then addresses whether the FCC should change its definition of internet access to expand the services eligible for subsidies. It states that the FCC seeks "more focused comment on whether we should alter the definition of Internet access used for the schools and libraries program. Support for Internet access under the schools and libraries program is provided only for ``basic conduit access to the Internet.´´ Support in the Internet access category has not been provided for virtual private networks, nor has it been provided for Internet access services that enable communications through private networks." (Footnotes omitted.)

The NPRM also states that "We are concerned that the rule adopted six years ago may not adequately address the full ranges of features and functionalities in Internet access services that are available in the marketplace today. Moreover, we seek comment on whether amending the current definition of Internet access would simplify and streamline program administration. We also seek comment on how broadening the definition of Internet access (a Priority One service) will impact the availability of funds for Priority Two services. To the extent commenters argue that the definition of Internet access should differ for the schools and libraries program, and the rural health care program, they should provide specific arguments outlining the legal, policy, or technical reasons for that position."

The NPRM then requests comments on several issues pertaining to the provision of service over wide area networks.

DOJ Ends Investigation of Pressplay and MusicNet

12/23. The Department of Justice's (DOJ) Antitrust Division's closed its investigation of Pressplay and MusicNet, two joint ventures formed by music companies to distribute music over the internet. See, DOJ release.

Pressplay was formed as a joint venture of Sony Music Entertainment and Universal Music Group. Subsequently, Roxio acquired Pressplay, as well as the Napster trademark. See, Roxio release of May 19, 2003. The music distribution business now goes by the name Napster 2.0.

MusicNet is a joint venture of Warner Music Group, EMI Group, BMG Music, and RealNetworks.

The DOJ stated in its release that "The digital music world has changed dramatically since the Division opened its investigation in the summer of 2001. In significant part as a result of that change -- most notably the emergence of new competitors and Sony's and Universal's sales of their controlling interests in pressplay -- the concerns that led the Division to open its investigation have now diminished or disappeared. Consumers can now download individual songs from a growing number of competing digital music suppliers, each of which offers songs from the music catalogs of all five of the major record labels. Consumers also have their choice of subscription-based music services that, for a monthly fee, allow subscribers to browse hundreds of thousands of songs, to listen to "streams" of an unlimited number of songs of their choice, and to download the particular songs they want to ``burn´´ to compact discs or transfer to portable devices."

Hew PateHewitt Pate (at right), Assistant Attorney General in charge of the Antitrust Division, stated that the investigation "uncovered no evidence that the major record labels' joint ventures have harmed competition or consumers of digital music. Consumers now have available to them an increasing variety of authorized outlets from which they can purchase digital music, and consumers are using those services in growing numbers."

Pate added that "None of the several theories of competitive harm that the Division considered were ultimately supported by the facts. The Division found no impermissible coordination among the record labels as to the terms on which they would individually license their music to third-party services. The development of the digital music marketplace similarly belies any concerns that the record labels used their joint ventures to stifle the development of the Internet music marketplace and to protect their present positions in the promotion and distribution of prerecorded music in physical form."

Federal Agencies to Review GLB Privacy Rules

12/23. The Federal Trade Commission (FTC) announced that the FTC and other government agencies will publish a notice requesting comments on whether these agencies agencies should consider amending existing regulations that implement sections 502 and 503 of the Gramm Leach Bliley Act (GLB) to allow or require financial institutions to provide alternative types of privacy notices.

The FTC wrote in a release that "Section 503 of the GLB Act requires financial institutions to provide a notice to each customer that describes the institution’s policies and practices regarding the disclosure to third parties of nonpublic personal information. In 2000, the agencies published consistent final regulations that implement these provisions, including sample clauses that institutions may use in privacy notices. However, the regulations do not prescribe any specific format or standardized wording for privacy notices."

The FTC added that "The agencies do not propose the adoption of any specific action at this time to improve privacy notices. Instead, the agencies request input on what approaches would be most useful to consumers while taking into consideration the burden on financial institutions."

The FTC also published in its website a draft [PDF] of the notice to be published in the Federal Register.

The agencies involved are the Board of Governors of the Federal Reserve System, Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance Corporation (FDIC), Federal Trade Commission (FTC), National Credit Union Administration, Office of the Comptroller of the Currency, Office of Thrift Supervision, and the Securities and Exchange Commission (SEC).

Comments will be due 90 after publication in the Federal Register. The notice had not been published in the Federal Register as of December 24. (The Federal Register was not published on December 25 or 26.) The FTC stated that the notice is "expected in early January".

People and Appointments

12/23. Eileen Powell was named Chief Financial Officer of the Internal Revenue Service (IRS). See, IRS release.

12/23. Eleven new members were selected for the Internal Revenue Service's (IRS) Internal Revenue Service Advisory Council (IRSAC). The list includes Kenneth Nirenberg, a senior software developer for Intuit. See, IRS release. The IRS also announced the appointment of eight new members to its Information Reporting Program Advisory Committee (IRPAC). See, IRS release.

12/23. The SCO Group announced the appointment of Daniel Campbell as Chairman of the Audit Committee. It also announced that Steve Cakebread, a member of the Board of Directors since July 2000, resigned effective December 22, 2003. See, SCO release.

More News

12/23. The Federal Bureau of Investigation (FBI) changed the name of its Internet Fraud Complaint Center to Internet Crime Complaint Center. See, FBI release.

12/23. The Federal Communications Commission's (FCC) Enforcement Bureau (EB) debarred John Angelides and Oscar Alvarez of Connect2 Internet Networks, Inc., from the schools and libraries universal service support mechanism for a period of three years, pursuant to 47 C.F.R. §§ 0.111(a)(14) and 54.521. See, letter to Alvarez [PDF] and letter to Angelides [PDF].

12/23. Computer Associates International (CA) announced that "it has entered into a definitive agreement to sell its 90 percent ownership of its ACCPAC International, Inc. subsidiary to The Sage Group, plc (Sage). The total value of the transaction is $110 million. After transaction and other costs, CA will receive approximately $88 million in cash for its 90 percent share." Computer Associates added that "The sale is subject to regulatory approvals and is expected to close by the end of February." ACCPAC sells accounting and customer relationship management (CRM) software. See, CA release and Sage release.

12/23. The Federal Communications Commission (FCC) published a notice in the Federal Register that describes, and provides an effective date (January 22, 2004) for rules that implement domestically various allocation decisions from several World Radiocommunication Conferences (WRC). The FCC adopted these rules changes on October 31, 2003, and released its Report and Order [99 pages in PDF] on November 4, 2003. This item is FCC 03-269 in ET Docket No. 02-305. See also, story titled "FCC Releases Report and Order Adopting Rules to Implement WRC Decisions" in TLJ Daily E-Mail Alert No. 772, November 5, 2003.

IRS Plans Crack Down on Charitable Contributions Deductions Involving Transfers of Intellectual Property

12/22. The Internal Revenue Service (IRS) issued a notice [3 pages in PDF] that states that the IRS "is aware that some taxpayers that transfer patents or other intellectual property to charitable organizations are claiming charitable contribution deductions in excess of the amounts to which they are entitled under § 170 of the Internal Revenue Code."

Mark EversonIRS Commissioner Mark Everson (at right) stated in a release that "We're seeing an increasing number of donations that don't pass the smell test. Donations that are overly inflated or made with strings attached are going to receive increased scrutiny."

The IRS notice provides more detail. It states that "the IRS has become aware of purported charitable contributions of intellectual property in which one or more of the following issues are present: 1) transfer of a nondeductible partial interest in intellectual property; 2) the taxpayer’s expectation or receipt of a benefit in exchange for the transfer; 3) inadequate substantiation of the contribution; and 4) overvaluation of the intellectual property transferred."

The notice warns that "The purpose of this notice is to advise taxpayers that, in appropriate cases, the IRS intends to disallow all or part of these improper deductions and may impose penalties under § 6662. In addition, this notice advises promoters and appraisers that the IRS intends to review promotions of transactions involving these improper deductions, and that the promoters and appraisers of the intellectual property may be subject to penalties under §§ 6700, 6701, and 6694."

FCC Releases Telephone Subscriber Data

12/22. The Federal Communications Commission (FCC) Wireless Competition Bureau's (WCB) Industry Analysis and Technology Division (IATD) released a report [21 pages in PDF] titled "Local Telephone Competition: Status as of June 30, 2003". See also, FCC release [PDF].

The report shows that the total number of reported end user switched access lines continues to decline. However, the number reported by competitive local exchange carriers (CLECs) continues to grow. The data in the table below is taken from Table 1 of the report.

  ILEC Lines CLEC Lines Total Lines

June 2002

167,472,318 21,644,928 189,117,246
Dec. 2002 162,742,937 24,780,979 187,523,916
June 2003 155,922,118 26,890,594 182,812,712

The report shows that the reported number of mobile wireless telephone subscribers continues to grow. The report states that the total reported for June 2002 was 130,751,459. For December 2002 it was 138,878,293. And, for June 2003 it was 147,623,734. (See, Table 13.)

The report shows that cable telephony grew modestly in the first half of 2003. The report states that the number of CLEC coaxial cable lines reported for June 2002 was 2,597,000. For December 2003 it was 2,988,000. And, for June 2003 it was 3,028,000.

The report also states that "CLECs reported providing about 18% (a decline from 43% in December 1999) of their switched access lines by reselling the services of other carriers and about 58% (an increase from 24% in December 1999) by means of unbundled network elements (UNEs) leased from other carriers. The remainder of CLEC lines was provided over local-loop facilities owned by the CLECs."

It also states that "ILECs reported providing about 27% more unbundled network element (UNE) loops with switching to unaffiliated carriers at the end of June 2003 than they reported six months earlier (13.0 million compared to 10.2 million) and about 1% fewer UNE loops without switching (about 4.2 million compared to 4.3 million)."

More FCC News

12/22. The Federal Communications Commission (FCC) released a report [715 pages in PDF] titled "Universal Service Monitoring Report; CC Docket No. 98-202; 2003". See also, FCC release [2 pages in PDF]. This report covers all of the FCC universal service subsidy programs, including low income support, high cost support, the e-rate program, and rural health care support.

12/22. The Federal Communications Commission (FCC) announced that "In response to the December 21, 2003 increase in the Homeland Security Threat Level from "Elevated" (Yellow) to "High" (Orange), the FCC has taken additional security precautions that will limit visitor access to the FCC headquarters building in Washington, DC. Until further notice, the Maine Avenue lobby is closed. All visitors must enter the building through the 12th Street lobby, and must be escorted by FCC staff. The Reference Information Center is closed. Filing and docket information remains accessible online."

More News

12/22. The General Accounting Office (GAO) released a report [64 pages in PDF] titled "Information Technology: Architecture Needed to Guide NASA's Financial Management Modernization". The report was prepared for the Chairman and ranking Democrats on the Senate Commerce Committee and the House Science Committee.

12/22. The Copyright Office adopted a new seal. It will be used to authenticate copyright registrations, certifications of documents and other official documents. See, notice [PDF] in the Federal Register, December 22, 2003, Vol. 68, No. 245, at Pages 71171. The seal appears to be a big circle, with a big letter C inside the circle -- that is, the copyright symbol, ©. In addition, there is an eagle perched in the letter C, with its wings spread, and a shield on its chest. It resembles the eagle on the back of the one dollar bill. Although, unlike many other government eagles, the Copyright Eagle clutches no arrows in its talons -- not even a § 512(h) subpoena.

12/22. The Treasury Department announced that it has issued final regulations for the research credit. See, Treasury release.

Go to News from December 16-20, 2003.