News from May 11-15, 2004

Ashcroft Calls for Extension of PATRIOT Act Provisions

5/14. Attorney General John Ashcroft gave a speech regarding the National Criminal Intelligence Sharing Plan. He once again advocated permanent extension of those portions of the PATRIOT Act that are scheduled to expired at the end of 2005.

He stated that "The National Criminal Intelligence Sharing Plan is a work of tremendous initiative. And its impact will be that much greater because it builds on the critical tools for law enforcement won with the passage of the USA PATRIOT Act. Today, 32 months after the attacks of September 11, we know that the PATRIOT Act has helped the FBI and state and local police wage a winning war again terrorism. In the past two and a half years, we have dismantled terrorist cells in Oregon, Washington, New York, North Carolina and Virginia. We have arrested terrorist operatives in California, Ohio, Texas, Florida and Idaho. We have frozen more than $138 million of funds from organizations suspected of supporting terror. More importantly, we have not suffered another major terrorist attack on our shores."

John Ashcroft"Armed with the tools provided in the PATRIOT ACT, local law enforcement is making the critical difference in the war on terror", said Ashcroft (at left).

He added that "The PATRIOT Act has been key to law enforcement's ability to protect Americans. But many of the PATRIOT Act's most critical anti-terrorism tools will expire next year. Congress must once again do its part. Congress must keep these tools in place for law enforcement. Congress must make the PATRIOT Act's provisions permanent."

AG Ashcroft's most specific statement on extending the sunsetting provisions of the PATRIOT Act is his January 28, 2004 letter [4 page PDF scan] to Senate leaders in which he opposed passage of S 1709, the "Security and Freedom Ensured Act of 2003" (SAFE Act). See, story titled "Ashcroft Opposes Senate Bill to Roll Back PATRIOT Act Provisions", TLJ Daily E-Mail Alert No. 827, February 2, 2004.

OECD Meeting Addresses Doha and Outsourcing

5/14. The Organization for Economic Cooperation and Development (OECD) held a ministers meeting in Paris, France. Among the issues addressed were World Trade Organization (WTO) trade negotiations, the Doha round, and offshore outsourcing.

At the conclusion of the meeting, the OECD released a document titled "Chairman's Summary". It states that "Ministers were determined to reach basic agreements on frameworks for key issues of the Doha Agenda by July of this year. They shared the view that these agreements need to build on the lessons of the Fifth WTO Ministerial Conference in Cancún and on the work performed and the contributions made since then. They noted that momentum has been building, and that they should take advantage of the window of opportunity that has now opened."

The Chairman's Summary also praised the practice of outsourcing. It states that "Ministers discussed outsourcing. In itself, outsourcing is part of the continuing trend towards international integration, and should be welcomed because it leads to higher productivity and real incomes. However, a number of Ministers considered that the OECD could help to dispel fears about this issue. Some workers, companies and communities will be adversely affected, at least in the short term. OECD countries therefore need policies that help the adjustment of people who are dislocated because of outsourcing or other developments. If a smooth adjustment is not achieved, protectionist pressures may rise."

U.S. Trade Representative (USTR) Robert Zoellick held a press conference after the meeting. He stated that "Doha remains America's top trade priority", and "although it's an election year, President Bush has instructed me to spare no effort to try to accomplish this end." See, transcript [PDF].

Zoellick also gave a speech titled "A Strategic Opportunity for Trade" to the French Senate in Paris on May 13.

rightZoellick (at right) compared 1940 to 2003, and the evacuation at Dunkirk to the failure of negotiations at Cancun. He said that "Cancún was a missed opportunity, not a catastrophe. We lost an important chance to move the Doha agenda forward, but a number of self-proclaimed victors soon realized they had the most to lose, and it did not take long for the first signs of renewed interest to emerge."

He asserted that "We are regaining some momentum, but the road ahead could be rough. Our ability to make notable progress by this summer depends principally, in my view, on two steps: First, we need to resolve the problem of the ``Singapore Issues´´ by agreeing to focus solely on trade facilitation, the overhaul of 50-year-old customs rules that no longer match the needs of today's economy, much less tomorrow's; second, and most importantly, we need to concentrate on the draft agriculture text to see if we can agree on specific frameworks for reform. If we can break the logjam on these two critical issues, much more could quickly flow: an agreement on frameworks for cutting industrial tariffs and removing non-tariff barriers to the trade in goods, renewed energy to open services markets, and agreement on how the poorer and smaller developing countries can best participate in the global trading system."

He also said that "This bigger and more populous world marketplace is also adjusting to rapid technological change." He discussed mobile communications, nanotechnology, biotechnology, and pharmaceuticals.

Pascal Lamy, the European Commissioner for Trade gave a speech to the OECD on May 14. He used a different metaphor. He did not reference his nation's defeat in 1940. Rather, he said, WTO trade negotiations, including the Doha round, are like "volcanoes"; that is, "they can be sleeping smoking or erupting." And now, said Lamy, "the WTO volcano is smoking again".

Zoellick Addresses IPR and Russian Accession to WTO

5/14. U.S. Trade Representative (USTR) Robert Zoellick was asked at a press conference in Paris, France about the the prospectus for Russia reaching an agreement with the U.S. for World Trade Organization (WTO) accession this year

Zoellick stated that he had met with German Gref, Russia's Minister of Economic Development and Trade, and that his staff has had extensive discussions with Maxim Medvedkov, the Deputy Minister of Economic Development and Trade.

Zoellick stated that "I noted that we're having a real problem with intellectual property rights, estimated loss at about a billion dollars a year but I'm also working on that with Minister Fursenko, the Science and Education Minister, then we talked through some of the services issues, some of the telecom issues." See, transcript [PDF].

FCC Adopts NPRM Regarding One Call Notification System

5/14. The Federal Communications Commission (FCC) adopted a notice of proposed rulemaking (NPRM) regarding a national one call notification system at its meeting of Thursday, May 13. On Friday, May 14, the FCC released the text [34 pages in PDF] of the NPRM.

This NPRM is mandated by the Pipeline Safety Improvement Act of 2002. This was HR 3609 in the 107th Congress. It is Public Law No. 107-355.

The NPRM states that "A One Call notification system is a communication system established by operators of underground facilities and/or state governments in order to provide a means for excavators and the general public to notify facility operators in advance of their intent to engage in excavation activities. One Call Centers, which cover different geographic areas, are generally accessed by dialing a toll-free or local telephone number. Our objective in initiating this proceeding is to assess possible abbreviated dialing arrangements to use to access state One Call Centers, while at the same time, seeking to minimize any adverse impact on numbering resources."

FCC Chairman Michael Powell wrote a separate statement [PDF], and Commissioner Michael Copps wrote a separate statement [PDF]. The FCC also issued a release [2 pages in PDF] describing this item.

Regina Brown, of the FCC's Wireline Competition Bureau (WCB), presented this item to the Commissioners at the May 13 meeting. She can be reached at 202 418-0792.

This NPRM is FCC 04-111 in Docket No. 92-105. Comments will be due 30 days after publication of a notice in the Federal Register. Reply comments will be due 45 days after publication in the Federal Register. This publication has not yet occurred.

More News

5/14. The Federal Communications Commission (FCC) denied Entercom's Application for Review of the FCC's April 8, 2004, Memorandum Opinion and Order (FCC 04-89) imposing a $12,000 fine for broadcasting indecent material on a program titled "Andy Savage Show". See also, FCC release, separate statement by FCC Commissioner Kevin Martin, and separate statement by Commissioner Michael Copps.

5/14. Robert Crandall, Robert Hahn, Robert Litan and Scott Wallsten (all of the AEI-Brookings Joint Center for Regulatory Studies) released a paper [PDF] titled "Universal Broadband Access: Implementing President Bush’s Vision". The paper argues that "removing price and ``unbundling´´ regulations at the wholesale and retail levels would help increase the diffusion of broadband. Banning Internet access taxes would be beneficial, but we believe such a ban would be less effective than removing these regulatory barriers to competition. We argue against subsidizing broadband to increase penetration because subsidies are likely to result in economic inefficiencies."

5/14. The Federal Communications Commission (FCC) published a notice in the Federal Register that describes, and sets comment deadlines for, the FCC's notice of proposed rulemaking (NPRM) regarding regarding unlicensed use of the 3650-3700 MHz band. The FCC adopted this NPRM on April 15, 2004. This item is FCC 04-100 in ET Docket Nos. 04-151, 02-380 and 98-237. Comments are due by July 28, 2004. Reply comments are due by August 27, 2004. See, Federal Register, May 14, 2004, Vol. 69, No. 94, at Pages 26790 - 26803. See also, story titled "FCC Announces NPRM Regarding Unlicensed Use in the 3650-3700 MHz Band" in TLJ Daily E-Mail Alert No. 878, April 16, 2004.

5/14. The Department of Justice (DOJ) announced in a release "a national law enforcement initiative aimed at combating the growing volume" of peer to peer child pormography. Attorney General John Ashcroft stated that the DOJ "stands side-by-side with our partners in the law enforcement community to pursue those who victimize our children under the perceived, but false, cloak of anonymity that the peer-to-peer networks provide." David Israelite, Chairman of the Intellectual Property Task Force, said in a statement that "Today's announcement is first and foremost an important blow against child pormography. It also sheds light on the growing problem of illegal activity conducted using peer-to-peer computer networks, which extends beyond the distribution of child pormography to massive theft of intellectual property."

5/14. The General Accounting Office (GAO) released a report [PDF] titled "Information Technology: Early Releases of Customs Trade System Operating, but Pattern of Cost and Schedule Problems Needs to Be Addressed".

FCC Adopts NPRM Regarding Unlicensed Use of Broadcast TV Spectrum

5/13. The Federal Communications Commission (FCC) adopted, but did not release, a notice of proposed rulemaking (NPRM) regarding use by unlicensed devices of broadcast television spectrum where the spectrum is not in use by broadcasters. The goal is to make more spectrum available (and spectrum that can go through walls) for networking electronic devices within premises, and for providing wireless broadband internet access.

The FCC issued a short release [2 pages in PDF] that briefly and vaguely describes this item. Each of the five Commissioners spoke, and issued a written statement. See, full story.

FCC Adopts Access Charge Reform Report and Order

5/13. The Federal Communications Commission (FCC) adopted, but did not release, an Eighth Report and Order and Fifth Order on Reconsideration regarding interstate access services provided by competitive local exchange carriers to interexchange carriers.

The FCC released a short release [PDF] describing this item. It states that the report and order "generally maintains the rules adopted by the FCC in April 2001, which limited competitive LECs' access charges to benchmark rates no higher than the rates charged by incumbent LECs, with some exceptions."

FCC Commission Kevin Martin stated at the meeting that "I think we have provided some really helpful guidance to industry". He added this item will "limit regulatory arbitrage opportunities".

The FCC's release adds that this report and order provides that "A competitive LEC is entitled to charge the full benchmark rate if it provides an IXC with access to the competitive LEC's own end-users", and that "The access rate a competitive LEC charges for access components when it is not serving the end-user should be no higher than the rate charged by the competing incumbent LEC for the same functions".

It further states that the competing ILEC rate for a CLEC switch "is the end office switching rate when a competitive LEC originates or terminates calls to its end-users and the tandem switching rate when a competitive LEC passes traffic from one carrier to another".

Finally, it states that "A pre-subscribed interexchange carrier charge (PICC) may be imposed by a competitive LEC qualifying for the rural exemption in addition to the rural benchmark rate if, and only to the extent that, the competing incumbent LEC charges a PICC."

This item is FCC 04-110 in Docket No. 96-262. Victoria Schlesinger of the FCC Wireline Competition Bureau's (WCB) Pricing Policy Division (PPD) presented this item to the Commission at the May 13 meeting. She can be reached at 202 418-1520 or

FCC Affirms International Bureau's Whipsawing Order

5/13. The Federal Communications Commission (FCC) adopted, but did not release, a Order on Review that affirms the FCC's International Bureau's (IB) previous decision that Philippine carriers had whipsawed U.S. carriers.

On March 10, 2003 the IB issued its Order [21 pages in PDF] in its proceeding title "In the Matter of AT&T Corp. Emergency Petition for Settlements Stop Payment Order and Request for Immediate Interim Relief and Petition of WorldCom, Inc. For Prevention of ``Whipsawing´´ On the U.S.-Philippines Route". This order is DA 03-581 in IB Docket No. 03-38.

The FCC's IB found that six Philippines carriers acted collectively to demand rate increases from U.S. carriers, and retaliating against AT&T and MCI for refusing to agree to their demand for rate increases for termination services on their networks in the Philippines.

"Whipsawing" is a term used by the FCC to describe various anticompetitive conduct by foreign carriers possessing market power, when the foreign carriers exploit that market power in negotiating settlement rates with competitive U.S. telecommunications carriers. That is, the foreign carriers demand that a U.S. carrier pay an above cost settlement rate for terminating its international traffic. Competitive carriers that do not agree to pay the demanded rate, such as AT&T and MCI in this matter, have their circuits blocked.

The IB ordered U.S. carriers providing facilities based services to suspend payments for termination services to the Philippine carriers pending restoration of circuits. This suspension has since been lifted, because the Philippine carriers restored circuits.

The IB also removed the Philippines from the FCC's list of routes approved for International Simple Resale (ISR), and required that upon restoration of the circuits U.S. carriers comply with the FCC's International Settlements Policy (ISP) for traffic terminated on the U.S Philippine route.

The FCC issued a release [PDF] that describes the Order on Review adopted on May 13. It states that the FCC affirms the IB's decision.

The release further states that "The Commission’s decision today did not grant requests of both the Philippine and U.S. carriers to restore ISR to the Philippines route and eliminate the requirement that U.S. carriers make payments in accordance with the ISP. In the Commission’s recent 2004 ISP Reform Order, it decided to eliminate the ISR policy and to remove the ISP from benchmark-compliant routes. The question of whether the U.S.-Philippines route is benchmark-compliant will be addressed in a public comment process as described in the 2004 ISP Reform Order. The 2004 ISP Reform Order set out a process by which interested parties could make public comment on those routes that the Commission believed were benchmark-compliant but that had not been approved as such through a public process. Because the ISR policies were eliminated and the question of whether benchmark-compliance will be out for public comment, the Commission today dismissed in part the Applications for Review to the extent they requested reinstatement of ISR."

This item is FCC 04-112 in IB Docket No. 03-38. Kimberly Cook presented this item to the Commission at its May 13 meeting. She can be reached at 202 418-7532.

Powell Addresses Future of Broadband

5/13. The Federal Communications Commission (FCC) Chairman Michael Powell spoke with reporters after the FCC's May 13 meeting regarding the future of broadband.

This is what he said. "You guys have been good observers of this for many many years. I think '04 truly is a year where these things are have started to turn a corner. These are not academic discussions anymore. These are not just discussions among a few big companies. I think, I think the world is really beginning to plug in to broadband infrastructure, and have a high expectation of the way its economy and its social strata is going to work going forward, being dependent on this platform. So, there just is new momentum, and even, and deeper more grass roots recognition, that consumers need, and want, an increased ability."

Michael PowellPowell (at left) continued. "I mean, I do believe that broadband ultimately does become a home appliance. It would be much like the refrigerator or the microwave oven, or something that really just have to have to be a full participant in what is going on in society. And so, what we have always been committed to is, that has got to be as many creative platforms as possible. I mean, I have been a broken record on this for seven years, because, one, I want competitive choice, and I want it in lots of differentiated ways."

He added, "And I also think about it as, and you have heard me say this, you want as many tools in the toolbox to reach all of our population. And I think rural areas have their own unique problems. Inner cities are a different kind of unique problem. The more technologies that are capable of delivering broadband, the more likely we are to succeed, I think, even better than we did with the phone deployments of the last 100 years, with broadband. And that's ___"

He was then asked an inaudible question about broadband versus television.

He responded, "No, you can't get me to say that. The point is, shouldn't consumers decide. Shouldn't we make sure that consumers at least have choices to make. As far as I am concerned, if a person wants to watch television to get their news, they should be able to. But if they want to get it from Google News exclusively, they should be able to do that too. And the key is, I don't think you should make excessive value judgments about one to the other. I think you should try to get them access to all of that stuff, and we will see where the populace goes. We will see if they read your product from now on on line, or they still get it in newspapers, or they still get it over the air. My view is lets try to get them all of that stuff. And, let people unfold the way people unfold, as opposed to us prejudge or preordain the best way."

Powell is also scheduled to be the opening speaker at the FCC's event titled "Wireless Broadband Forum", beginning at 9:30 AM on Wednesday, May 19.

FCC Commissioner Kathleen Abernathy will moderate a panel titled "Wireless Broadband Technologies" at 9:45 AM. Commission Jonathan Adelstein will moderate a panel titled "Broadband Business Strategies" at 11:15 AM. Commissioner Kevin Martin will moderate a panel titled "Barriers to Entry in the Broadband Market" at 2:00 PM. Commissioner Michael Copps will moderate a panel titled "Looking to the Future" at 3:30 PM.

The event will be held at the FCC in the Commission Meeting Room. It will also be webcast by the FCC. See, notice and agenda [PDF].

DHS Creates Data Analysis Entity

5/13. The Department of Homeland Security (DHS) announced in a release that it has created an entity named the National Visual Analytics Center (NVAC). The DHS states that the NVAC will "provide scientific guidance and coordination for the research and development of new tools and methods that Homeland Security has identified as required for managing, visually representing, and analyzing enormous amounts of diverse data and information."

The DHS adds that NVAC projects are "all related to analysis of enormous, dynamic and complex information streams that consist of structured and unstructured text documents, measurements, images, and video data".

The DHS also stated that the NVAC "will be led by" the Department of Energy's Pacific Northwest National Laboratory (PNNL).

The DHS description of the NVAC bears similarities to the Defense Advanced Research Projects Agency's (DARPA) description of its former Information Awareness Office.

Finally, the DHS states that the NVAC will not collect data, and that it will protect the privacy of individuals.

Rep. Markey Introduces Data Protectionism Bill

5/13. Rep. Ed Markey (D-MA) introduced HR 4366, the "Personal Data Offshoring Protection Act of 2004". This bill is part data privacy legislation, and part protectionist restraint on trade in services legislation. It would prohibit entities from sending personally identifiable information to another country, unless the FTC has certified that the country has adequate privacy protections, such as those embodied in the EU privacy directive, or the entity receives consent from the affected individuals.

This bill is similar, but not identical, to S 2312. On April 8, 2004, Sen. Hillary Clinton (D-NY) and Sen. Mark Dayton (D-MN) introduced S 2312, the "SAFE-ID Act". See, story titled "Sen. Clinton Introduces Bill That Mixes Trade Protectionism and Data Privacy" in TLJ Daily E-Mail Alert No. 876, April 14, 2003.

The Markey bill provides that "A business enterprise may transmit personally identifiable information regarding a citizen of the United States to any foreign affiliate or subcontractor located in a country that is a country with adequate privacy protection, provided that the citizen has been provided prior notice that such information may be transmitted to such a foreign affiliate or subcontractor and has not objected to such transmission."

The bill would leave it to the Federal Trade Commission (FTC) to certify which countries are countries "with adequate privacy protection". It adds that "A country that has comprehensive privacy laws that meet the requirements of the European Union Data Protection Directive shall be certified under this section unless the Federal Trade Commission determines that such laws are not commonly enforced within such country." Thus, the gist of this bill is that it should be the U.S. law that U.S. entities in the U.S. must comply with European Union law.

There are several key differences between the Clinton and Markey bills. In each case, the Markey version imposes the more onerous requirements.

The Clinton version of the bill is vague as to whom has authority to enforce the statute, and/or sue for violations. The Markey bill is more clear. It would give enforcement authority to the FTC. It would also give the states authority to sue, in federal court, for damages. It would also give any person or entity a private right of action, in state court, for damages.

Another difference is the definition of "business enterprise". The Clinton version defines this term as "any organization, association, or venture established to make a profit". The Markey version defines this term to include non-profit organizations.

Another difference is in the list of items that constitute "personally identifiable information", or PII. The Clinton version contains many items commonly understood as PII, such as names, addresses, and social security numbers. The Markey version adds the phrase "any consumer transactional or experiential information relating to the person".

HR 4366 was referred to the House Commerce Committee. Rep. Markey is a member of the Committee, and the ranking Democrat on the Subcommittee on Telecommunications and the Internet.

House Subcommittee Holds Hearing on Business Activity Taxes

5/13. The House Judiciary Committee's Subcommittee on Commercial and Administrative Law held a hearing on HR 3220, the "Business Activity Tax Simplification Act of 2003". This bill does not reference electronic commerce, digital products, or the internet. However, by requiring a physical presence with the taxing jurisdiction before a business activity tax may be assessed, the bill would protect companies, for example, that sell products over the internet from being subjected to business activity taxes in every taxing jurisdiction in which their customers are located.

The bill does not affect taxation of e-commerce sales, or other remote sales or transactions.

Rep. Bob Goodlatte (R-VA), Rep. Rick Boucher (D-VA), and others introduced this bill on October 1, 2003. See, story titled "Reps. Goodlatte and Boucher Introduce Bill to Limit Business Activity Taxes" in TLJ Daily E-Mail Alert No. 753, October 6, 2003.

Also, the two co-sponsored a similar bill in the 107th Congress. See, HR 2526 (107th Congress) titled the "Internet Tax Fairness Act of 2001". See, stories titled "Goodlatte and Boucher Introduce Net Tax Moratorium Bill" in TLJ Daily E-Mail Alert No. 229, July 18, 2001; and "House Subcommittee Approves Bill to Limit Business Activity Taxes" in TLJ Daily E-Mail Alert No. 471, July 17, 2002.

The present bill, HR 3220, addresses the question of when an out-of-state business may be assessed a tax by a state for doing business in that state.

Rep. Bob GoodlatteRep. Goodlatte (at right) stated at the hearing that "With the growth of the internet, companies are increasingly being able to conduct transactions" across boundaries.

Now, however, he continued, "A growing number of jurisdictions have sought to collect business activity taxes on businesses located in other states, even though those businesses receive no appreciable benefits from the taxing jurisdiction, and even though Supreme Court has ruled that the Constitution prohibits the states from imposing taxes on businesses that lack substantial connections to the state. This has lead to unfairness and uncertainty, generated contentious and widespread litigation, and hindered business expansion due to the fear of exposure to unfair tax burdens."

Goodlatte asserted that "In order for e-commerce, and interstate commerce generally, to continue to grow and prosper, it is imperative that clear and easily navigable rules be set forth regarding when an out of state business is allowed to pay business activity taxes to a state."

Rep. Goodlatte stated that HR 3220 "provides a bright line that clarifies state and local authority to collect business activity taxes from out of state entities which will bring predictability to an unpredictable tax environment for businesses and states. Specifically, the bill would establish a physical presence test".

Rep. Goodlatte is a member of the House Judiciary Committee, but not its Subcommittee on Commercial and Administrative Law. Nevertheless, he was allowed to participate in the hearing as a member, delivering an opening statement, and questioning witnesses.

The bill provides that "no taxing authority of a State shall have power to impose, assess, or collect a net income tax or other business activity tax on any person relating to such person's activities in interstate commerce, unless such person has a physical presence in the State during the taxable period with respect to which the tax is imposed".

It defines business activity tax (BAT) as "(i) a tax imposed on or measured by gross receipts, gross income, or gross profits; (ii) a business licence tax; (iii) a business and occupation tax; (iv) a franchise tax; (v) a single business tax or a capital stock tax; or (vi) any other tax imposed by a State on a business for the right to do business in that State or measured by the amount of, or economic results of, business or related activity conducted in that State."

The bill also clarifies that the term BAT does not include a sales or transaction tax.

The bill further provides that physical presence could be established by "Being an individual physically within the State, or assigning one or more employees to be in such State, on more than 21 days". However, neither "Gathering news and covering events for print, broadcast, or other distribution through the media", nor "Meeting government officials for purposes other than selling goods or services" would count.

Physical presence could also be established by "Using the services of another person ... in such State, on more than 21 days to establish or maintain the market in that State" or "leasing or owning of tangible personal property or real property in such State on more than 21 days".

HR 3220 would also amend 15 U.S.C. § 381, which limits the authority of states to impose a net tax on income derived within the state if the only business activity within the state is "sales of tangible personal property". HR 3220 would change the references to "sales of tangible personal property" to merely "sales". This section codifies a 1959 statute, Public Law No. 86-272.

HR 3220 is different in several respects from the previous version of the bill, HR 2526 (107th Congress). For example, HR 2526 also contained language to extend the internet tax moratorium. In the present Congress, this was dealt with in a separate bill, HR 49, the Internet Non-discrimination Act", which the House has passed.

Also, HR 3220, unlike HR 2526, lacks specific language pertaining the internet, web sites, communications and intellectual property. HR 2526 would have prohibited several internet related BATs, including taxes on "The use of the Internet to create or maintain a World Wide Web site accessible by persons" in the taxing jurisdiction. It would also have prohibited BATs on the use of an ISP, on-line service provider, internetwork communication service provider, or other internet access service provider, or web hosting service. It would also have prohibited BATs on the "use of any service provider for transmission of communications, whether by cable, satellite, radio, telecommunications, or other similar system."

HR 2526 also would have prohibited BATs based on the "presence or use of intangible personal property ... including patents, copyrights, trademarks, logos, ... electronic or digital signals, and web pages ..."

While HR 3220 does not contain internet or e-commerce specific language, it would nevertheless protect out of state businesses from many asserted bases for the collection of business activity taxes where a physical presence is lacking.

Moreover, Rep. Goodlatte discussed the bill in terms of e-commerce and internet activity. For example, he stated that under the "current morass of laws" states are asserting taxing authority "for some of the most obscure reasons". He cited as an example, "the fact that you have a server located in the state".

This witness panel was stacked with a majority of supporters of HR 3220. However, none were representatives of e-commerce or internet companies.

Arthur Rosen, a tax lawyer at the law firm of McDermott Will & Emery testified in support HR 3220 on behalf of the Coalition for Rational and Fair Taxation. He wrote in his prepared testimony [PDF] that "some state revenue departments have been creating barriers to interstate commerce by aggressively attempting to impose direct taxes on businesses located in other states that have little or no connection to their state. Some state revenue departments have even asserted that they can tax a business that merely has customers in the state based on the recently-minted notion of ``economic nexus.´´"

There can be no doubt that the rapid growth of e-commerce continues to drastically alter the shape of the American and global economies. As businesses adapt to the "new order" of conducting business, efforts by state revenue departments to expand their taxing jurisdiction to cover activities conducted in other jurisdictions constitute a significant burden on the business community's ability to carry on business. Left unchecked, this attempted expansion of the states’ taxing power will have a chilling effect on the entire economy as tax burdens, compliance costs, litigation, and uncertainty escalate."

Vernon Turner, the Corporate Tax Director for Smithfield Foods, in Smithfield, Virginia, a company that sells ham and pork products in all 50 states, testified about a BAT shakedown by the state of New Jersey. The state stopped one of Smithfield's refrigerator trucks, and seized it, and its driver, and demanded that Smithfield wire the state $150,000 for their release. Turner further testified that Smithfield has no physical presence in the state of New Jersey, and that Smithfield contested the seizures, and that the state of New Jersey apologized. But, he added, many businesses would not have the resources to contest such meritless tax practices. See, prepared testimony.

Jamie Van Fossen, the Chair of Iowa House Ways and Means Committee, also testified in support of HR 3220 on behalf of the state of Iowa and the American Legislative Exchange Council (ALEC). He stated that "This bill is about the rights of Iowa business owners and their customers to engage in interstate commerce free from the undue burdens associated with paying taxes in multiple states." See, prepared testimony.

Rick Clayburgh, the Commissioner of the North Dakota Office of State Tax Commission, testified on behalf of the National Governors Association (NGA) in opposition to HR 3220. He wrote in his prepared testimony that "The NGA opposes H.R. 3220 because it would unduly interfere with the ability of states to determine and manage their own tax policies."

Clayburgh argued also that HR 3220 favors big taxpayers over small taxpayers. He said that "big business has more resources to handle this morass" of state business activity taxes.

Rep. Goodlatte rebutted Clayburgh on this point. He pointed out that one large group of very small businesses that could be harmed by BATs would be those who sell over eBay.

Clayburgh also made a statement that North Dakota would consider items other than physical presence in determining whether to impose a BAT on a business. Rep. Mel Watt (D-NC), the ranking Democrat on the Subcommittee, followed up on this.

Rep. Watt asked what some of these other items are. Clayburgh enumerated none. Rep. Watt asked the question in many ways. Clayburgh provided no responsive information. Rep. Watt asked "What is the articulable standard?" Clayburgh articulated no standard. Finally, he stated, "economic nexus", without providing a definition.

Rep. William Delahunt (D-MA), was the sole member of the Subcommittee to speak against HR 3220 at the hearing. He rebutted the assertions of Van Fossen and Rep. Goodlatte that HR 3220 would be good for the states. He said that he has heard from representatives of states that "hold a contrary position". He said that among the states, this "legislation will create some winners and losers".

Rep. Delahunt also said that "I don't see this bill going anywhere". He acknowledged that it could pass in the House, but argued that it would not pass in the Senate. He cited the recent debate over the Internet Non-discrimination Act (INDA). He said that this bill was held up by Republicans who are former state governors. He did not mention Sen. Lamar Alexander (R-TN) by name.

Sen. Kennedy Introduces Health Care Info Tech Bill

5/13. Sen. Ted Kennedy (D-MA) introduced S 2421, the "Health Care Modernization, Cost Reduction, and Quality Improvement Act". The bill addresses many topics, including the use of information technology in health care.

The bill would create a grant program, a loan fund program, and a loan guarantee program to federally fund a conversion to electronic records. On April 27 President Bush gave a speech in which he proposed converting to electronic records. However, he advocated a government role in setting standards for interoperability, in protecting privacy, and in implementing a "strategic plan". He did not propose federal subsidies or other funding.

The bill was referred to the Senate Committee on Health, Education, Labor, and Pensions. Sen. Kennedy is the ranking Democrat on the Committee.

He stated in the Senate that "The potential savings through modern technology are immense. Transactions in health care cost $12 to $25 apiece. Brokers and bankers used to have similar costs, but now, a transaction in these industries costs less than one cent. Information technology can also improve the quality of care, at the same time it reduces costs. Automated patient record-keeping can help bring real coordination to what is often a frighteningly fragmented health care system."

Sen. Kennedy added that "To assure that modern information technology will be fully utilized in health care, the legislation sets a goal of full implementation of a broad-based system of electronic medical records and automated bill-paying. It authorizes grants, loans and loan guarantees for health providers to install and implement clinical information systems that meet national technical standards for parameters such as security and interoperability."

"The bill also offers larger reimbursements for providers who implement these types of information systems. Over a period of time, it reduces payments for large health care facilities that fail to do so. The legislation also encourages the use of information technology to reduce the administrative costs, by requiring insurance companies to adopt the same types of computerized transaction-processing systems that are the norm in other industries", said Sen. Kennedy.

The bill provides that the Secretary of Health and Human Services "shall award grants or cooperative agreements to eligible entities to assist such entities to acquire, develop, enhance, or implement (including the training of personnel needed for effective implementation) qualified clinical informatics systems". (Parentheses in original.)

The bill defines a "qualified clinical informatics system" as "a computerized system (including both hardware and software components of such system) that", among other things, "maintains and provides immediate access to patients' medical records in an electronic format". (Parentheses in original.)

The bill also provides for a revolving loan fund, and loan guarantees. The bill authorizes the appropriations of an unspecified amount to fund these grant, loan fund, an loan guarantee programs.

The bill also provides that "the Secretary shall develop or adopt technical standards for qualified clinical informatics systems"

On April 27, 2004, President Bush gave a speech in Baltimore, Maryland in which he advocated the use of electronic records in the health care industry. He also issued an executive order regarding "the development and nationwide implementation of an interoperable health information technology infrastructure". See, story titled "President Bush Advocates Conversion to Electronic Medical Records" in TLJ Daily E-Mail Alert No. 886, April 28, 2004.

Capitol Hill News

5/13. Rep. Chris Cannon (R-UT) commented on the Internet Non-discrimination Act (INDA) at the House Judiciary Committee's Subcommittee on Commercial and Administrative Law hearing on HR 3220, the "Business Activity Tax Simplification Act of 2003" (BATSA), on May 13. Rep. Cannon stated that House passed the bill "in its pure and proper form", while the Senate passed the bill "in abominable form". The Senate bill extends the moratorium of the 1998 Internet Tax Freedom Act until November 1, 2007. However, the bill also includes numerous exceptions and qualifications that provide state and local governments a wide range of opportunities to tax internet access. The House version makes the moratorium permanent, and lacks the exceptions and qualifications found in the Senate version. The House passed its version, HR 49, on September 17, 2003. The Senate passed its version, S 150, on April 29, 2004. See, story titled "Senate Passes Weakened Version Internet Non-discrimination Act" in TLJ Daily E-Mail Alert No. 889, May 3, 2004. (TLJ will publish a story on the BATSA in the Monday, May 17 issue.)

5/13. The Senate Judiciary Committee held a meeting to mark up several bills. However, it held over all of the technology related items on the agenda: S 1933, the "Enhancing Federal Obscemity Reporting and Copyright Enforcement (ENFORCE) Act of 2003", S 1635, the "L-1 Visa (Intracompany Transferee) Reform Act of 2003", and S 2013, the "Satellite Home Viewer Extension Act of 2004".

5/13. The House Science Committee held a hearing on HR 4218, the "High-Performance Computing Revitalization Act of 2004". John Marburger, Director of the White House Office of Science and Technology Policy, wrote in his prepared testimony [PDF] that "I share your enthusiasm for and commitment to high-performance computing and I am pleased to convey the Administration's support for the High-Performance Computing Revitalization Act of 2004, in its current form." See also, prepared testimony of Irving Wladawsky-Berger (IBM), prepared testimony of Rick Stevens (Director of the NSF TeraGrid). and prepared testimony of Daniel Reed (University of North Carolina at Chapel Hill). See also, Report of the High End Computing Revitalization Task Force [80 pages in PDF] and Committee release.

5/13. The House Commerce Committee postponed its markup of "Satellite Home Viewer Extension and Reauthorization Act".

People and Appointments

5/13. Federal Communications Commission (FCC) Commissioner Michael Copps introduced two new interns in his office, Laura Hendrickson (a student at Georgetown University Law Center) and John Cascarano (a student at the University of Michigan Law School), at the May 13 meeting of the FCC.

More News

5/13. Nine Senators who are members of the Senate Republican High Tech Task Force wrote a letter [PDF] to Sen. Bill Frist (R-TN), the Majority Leader of the Senate requesting a floor vote in the Senate on HR 1561, the USPTO fee bill, before the end of the current session. This bill contains increases in user fees that implement the U.S. Patent and Trademark Office's (USPTO) 21st Century Strategic Plan. It also provides for U.S. outsourcing of patent searches, and an end to the diversion of user fees to subsidize other government programs. The Senate Judiciary Committee approved the bill on April 29, 2004. See, story titled "Senate Judiciary Committee Approves Four Intellectual Property Bills" in TLJ Daily E-Mail Alert No. 888, April 30, 2004. The House passed this bill on March 3, 2004 by a vote of 379-28. See, Roll Call No. 38. See also, story titled "House Passes USPTO Fee Bill" in TLJ Daily E-Mail Alert No. 849, March 4, 2004. The nine Senators are John Ensign (R-NV), Wayne Allard (R-CO), George Allen (R-VA), Mike Crapo (R-ID), Sam Brownback (R-KS), Conrad Burns (R-MT), John Sununu (R-NH), Jim Bunning (Kentucky), and Gordon Smith (R-OR). They wrote that "Intellectual Property rights protection provides America an edge in the world economy and supports new developments in high-tech. Patents and trademarks encourage invention, innovation and investment for companies large and small."

5/13. The Federal Communications Commission (FCC) held a meeting at which John Muleta (Chief of the Wireless Telecommunications Bureau), Dane Snowden (Chief of the Consumer & Governmental Affairs Bureau), and Bill Maher (Chief of the FCC's Wireline Competition Bureau) gave a status report on number portability. See, FCC release [PDF], and presentation slides [13 pages in PDF]. Chairman Michael Powell stated that he had ported numbers, and had no difficulty. After the meeting, Powell met with reporters. He was asked, "So whose phone did you port?" He answered, "I'm not telling."

Capital Markets Subcommittee Approves Stock Options Bill

5/12. The House Financial Services Committee's Subcommittee on Capital Markets amended and approved HR 3574, the "Stock Options Accounting Reform Act".

Rep. Richard BakerThe Subcommittee approved an amendment in the nature of a substitute offered by Rep. Richard Baker (R-LA) (at right), the Chairman of the Subcommittee, and lead sponsor of the bill.

On March 31, 2004, the Financial Accounting Standards Board (FASB) released a document titled "Exposure Draft, Share-Based Payment, an Amendment of FASB Statements No. 123 and 95" that proposes that companies must expense stock option plans for all employees.

The FASB exposure draft has been condemned by technology companies and the trade groups that represent them, which argue that broad based employee stock option plans incent innovation, and enable new start up companies to compete.

Rep. Baker stated that this bill "would simply require the expensing of stock options for the top five employees of each corporation". See, full story.

House Judiciary Committee Holds Mark Up Session

5/12. The House Judiciary Committee held a meeting to mark up numerous bills. Several are technology related.

The Committee amended and approved HR 3754, the "Fraudulent Online Identity Sanctions Act", with little discussion, by voice vote. See, following story titled "House Judiciary Committee Approves Domain Name Fraud Bill"

The Committee amended and approved S 1301, the "Video Voyeurism Prevention Act". The full Senate has already passed this bill.

The Committee also amended and approved HR 1731, the "Identity Theft Penalty Enhancement Act". This bill pertains to penalties for "aggravated identity theft", including identity theft that is associated with terrorism crimes and certain enumerated felonies.

The Committee held over HR 3632, the "Anticounterfeiting Amendments of 2003". This bill would revise and expand 18 U.S.C. § 2318, which pertains to trafficking in counterfeit labels, documentation and packaging of computer programs, phonorecords, and movies. See, story titled "Rep. Smith Introduces Bill to Strengthen Ban on Counterfeit Labeling of Software, Movies and Music" in TLJ Daily E-Mail Alert No. 787, November 26, 2003.

Finally, the Committee held over HR 338, the "Federal Agency Protection of Privacy Act". This bill would amend Title 5 to require that when federal agencies promulgate rules, that they take into consideration the impact of such rules on the privacy of individuals. The Committee and the full House passed a similar bill in the 107th Congress.

Rep. James Sensenbrenner (R-WI), the Chairman of the Committee, did not state when the Committee would continue its mark up. However, Wednesday, May 19, at 10:00 AM would be a likely time.

House Judiciary Committee Approves Domain Name Fraud Bill

5/12. The House Judiciary Committee amended and approved HR 3754, the "Fraudulent Online Identity Sanctions Act", with little discussion, by voice vote. The Committee deleted from the bill two clauses that provided limited immunity from liability for domain name registrars.

Rep. Lamar Smith (R-TX) and Rep. Howard Berman (D-CA), the Chairman and ranking Democrat on the Subcommittee on Courts, the Internet and Intellectual Property (CIIP), introduced this bill on February 3, 2004. The CIIP Subcommittee amended and approved this bill on March 31, 2004.

The bill addresses the registration of domain names with false information. Law enforcement authorities use the Whois database to identify and locate people who use web sites to commit crimes. False registration information makes identifying the fraud artists more difficult. False registration information also makes it harder for trademark holders to pursue cybersquatters, for copyrights holders to locate online infringers, and for manufacturers to locate online sellers of counterfeit goods.

The bill adds new civil remedies and criminal penalties for violation of existing statutes, where the violation also involves registering a domain name with false information. For example, it amends the Copyright Act to provide that, for the purpose of calculating statutory damages for infringement, the infringement shall be considered willful if the infringement also involves registering a domain name with false information.

The provides provides, "In a case of infringement, it shall be a rebuttable presumption that the infringement was commited willfully for purposes of determining relief if the violator, or a person acting in concert with the violator, knowingly provided or knowingly caused to be provided materially false contact information to a domain name registrar, domain name registry, or other domain name registration authority in registering, maintaining, or renewing a domain name used in connection with the infringement."

The bill as introduced creates no new civil or criminal prohibition of registering a domain name with false information. Nor does it impose any requirements upon domain name registrars to verify domain name registration information, to refuse to register domain names when it knows that the registration information is false, or to cancel registrations made with false registration information.

The Committee approved an amendment offered by Rep. Lamar Smith (R-TX) that removes two provisions of the bill providing immunity to registrars. For example, in the copyright section, the amendment removed the following language: "Nothing in this paragraph shall impose any new liability on a domain name registrar unless the domain name registrar knowingly provides materially false contact information to a domain name registry or other domain name registration authority."

Rep. Berman stated that domain name registrars had determined that they would prefer that the immunity language not be included in the bill; while it created immunity from certain liability, it also might have created new liability.

Ken Wasch, President of the Software & Information Industry Association (SIIA), stated in a release after the markup that "With its action today to restore accuracy and reliability to the Whois database of registration data for domain names, the Judiciary Committee has taken an important step to uphold consumer protection; enforce intellectual property rights; assist law enforcement investigations of online crimes; and promote network security."

See, story titled "Representatives Introduce Bill to Deter Domain Name Fraud" and "House Subcommittee Holds Hearing on False Domain Name Registration Data" in TLJ Daily E-Mail Alert No. 830, February 5, 2004, and story titled "Groups Oppose Fraudulent Online Identity Sanctions Act" in TLJ Daily E-Mail Alert No. 891, May 5, 2004.

House Subcommittee Holds Hearing on Creating Fair Use Exceptions to DMCA

5/12. The House Commerce Committee's Subcommittee on Commerce, Trade, and Consumer Protection  held a hearing on HR 107, the "Digital Media Consumers' Rights Act of 2003".

Rep. Rick Boucher (D-VA) and Rep. John Doolittle (R-CA) introduced this bill on January 7, 2003. There are now 19 sponsors, including Rep. Joe Barton (R-TX), the Chairman of the House Commerce Committee.

Rep. Rick BoucherThis bill would provide fair use exceptions to the anti-circumvention provisions of the Digital Millennium Copyright Act (DMCA). Rep. Boucher (at left) and Rep. Doolittle testified in support. They were joined by representatives of groups that advocate fair use rights, and consumer electronics industry representatives. They were opposed by representatives of various copyright industries.

The hearing was unusually long. There were three panels of witnesses, and almost all of the members of the Subcommittee participated in at least part of the hearing. The hearing room was packed, with attendees lined up outside the hearing room until long after the start of the hearing. The witnesses, and some of the members of the Subcommittee, expressed sharply divergent views on this issue.

Rep. Joe Barton (R-TX) spoke favorably about the bill. "We are now beginning to understand that some of the fair uses by consumers are no longer protected because of the anti-circumvention provision. H.R. 107 would restore the ability consumers to use copyrighted material lawfully and would permit consumers the ability to circumvent copy protection technology as long as it was consistent with fair use. At the same tiem, H.R. 107 maintains the protections for copyright producers to use copy-protection technology against illegal piracy. The balance between consumers' rights and producers' rights over copyright material needs to be restored to ensure our society progresses, not regresses. This legislation accomplishes that goal and I support it."

Rep. Joe BartonRep. Barton (at right) did not specify whether the final word -- "it" -- refers to the "legislation", or to the "goal" of the legislation. This quotation is from a written opening statement, which Rep. Barton read early in the hearing.

Rep. Cliff Stearns (R-FL), the Chairman of the Subcommittee holding the hearing, stated that supporters of HR 107 argue that the DMCA "prevents consumers from making fair use of encrypted materials. As a practical matter this means that a consumer cannot make a copy of a DVD for his or her ``fair use.´´" In contrast, said Stearns, the opponents of HR 107 argue that "without the prohibition against breaking encryption, the protection for copyrighted works under current law would be weakened. They also hold that allowing persons the ability to ``unlock´´ anti-tampering technology and access the copyrighted material would quickly spur piracy gadgets and technology that would quickly devalues their products and put them out of business." He concluded that he supports "fair and balanced intellectual property laws". See, prepared statement.

Rep. Janice Schakowsky (D-IL), the ranking Democrat on the Subcommittee, stated that the "DMCA was drafted with such broad strokes that it swept away fair use". She worried that unless the Congress revisits the DMCA, then "libraries may have to charge for services that they have traditionally provided for free".

See also, prepared statement of Rep. John Dingell (D-MI), the ranking Democrat on the full Committee.

DMCA Anti-Circumvention. § 1201(a)(1)(A) of the Copyright Act, which was added in 1998 by the DMCA, provides that "No person shall circumvent a technological measure that effectively controls access to a work protected under this title." See, 17 U.S.C. § 1201.

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".

HR 107. One key provision of HR 107 would amend § 1201(c)(1), which currently provides that "Nothing in this section shall affect rights, remedies, limitations, or defenses to copyright infringement, including fair use, under this title."

HR 107 bill would add to this sentence the following phrase: "and it is not a violation of this section to circumvent a technological measure in connection with access to, or the use of, a work if such circumvention does not result in an infringement of the copyright in the work".

Also, the bill would add to § (c) the following new subparagraph: "(5) It shall not be a violation of this title to manufacture, distribute, or make noninfringing use of a hardware or software product capable of enabling significant noninfringing use of a copyrighted work."

The bill would also add to both § 1201(a)(1)(A) and § 1201(b)(1)(A) 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’’."

Testimony and Debate. Jack Valenti, the P/CEO of the Motion Picture Association of America (MPAA), testified that "H.R. 107 has one unfixable defect: It will legalize the hacking of copy protection measures, which in turn will make it impossible to truly protect valuable creative property."

He elaborated that once encryption is broken, once the circumvention has taken place, you cannot restrict the copying to just one copy. In addition, he said that there is no known device that can distinguish between a fair use circumvention and an infringing one.

He also argued that the intellectual property industries greatly benefit the U.S. economy. He said that these industries are creating new jobs at three times the national rate. See, prepared testimony.

Rep. Adolphus Towns (D-NY), a senior member of the Committee, echoed this thought. He said that "this is a jobs issue".

Rep. Mike Ferguson (R-NJ) discussed the argument that consumers who buy CDs should be able to make copies for their personal use. He asked what is different about purchasing a car, and asking a dealer to provide a second car, for your own personal use?

Rep. Karen McCarthy (D-MO) says that when she wants two copies of CDs to keep at two locations, she buys two copies of the CD. She also made the point that "what you are proposing today is ahead of the technology to control it".

Robert Holleyman, the P/CEO of Business Software Association (BSA), testified that creating fair use exceptions to the anti-circumvention provisions "would swallow the rule; they would effectively nullify section 1201. Congress rejected this proposal in 1998, and this subcommittee should reject it now." See, prepared testimony.

Cary Sherman, President of the Recording Industry Association of America (RIAA), stated that "HR 107 destroys this balance of interests and the protections Congress so carefully crafted. The amendments contained in this bill create not merely a loophole, but an exception that swallows the rule, leaving copyright holders and content providers with no way to protect the works they create." See, prepared testimony.

The Subcommittee also heard from numerous supporters of HR 107. Gary Shapiro, P/CEO of the Consumer Electronics Industry (CEA), stated that this bill "would restore some balance to a copyright system that has recently been tilted to elevate the interests of media giants over those of ordinary people". See, prepared testimony.

Similarly, Lawrence Lessig, a law professor at Stanford University, stated that "Congress's zealous efforts to attack ``piracy´´ have had the unintended collateral effect of destroying a crucial balance in copyright law. Never in the history of our nation has the law of copyright regulated as broadly; never has it regulated as extensively. And in light of the creative and commercial potential of digital technologies, never has the law burdened creative work as directly or pervasively." See, prepared testimony.

Commerce Committee and Intellectual Property Rights. The primary purpose of the bill is to create fair use exceptions to the anti-circumvention provisions of the DMCA. A lesser purpose is to create an exception for certain scientific research.. These are all amendments to the Copyright Act. This falls within the jurisdiction of the House Judiciary Committee, and its Subcommittee on Courts, the Internet and Intellectual Property (CIIP). Hence, this bill has also been referred to the House Judiciary Committee.

This bill is before the Commerce Committee because Rep. Boucher drafted it with jurisdiction in mind. He added a provision giving the Federal Trade Commission (FTC) authority regulate, as unfair and deceptive trade practices, the mislabeling of DVDs. The FTC and the FTC Act lie within the jurisdiction of the Commerce Committee.

The DVD labelling provisions of the bill were all but forgotten at the Commerce Committee hearing, which focused almost exclusively on the intellectual property provisions of the bill.

The Commerce Committee has a history of aggressively defending and expanding its authority. This has led to turf fights with the Judiciary Committee. See for example, story titled "House Commerce and Judiciary Committees Vie for High Tech Leadership", June 15, 1999.

Neither the House Judiciary Committee, nor its CIIP Subcommittee, have held a hearing or markup for this bill. Rep. Boucher is also a member of the CIIP Subcommittee, as is Rep. Zoe Lofgren (D-CA), who is a cosponsor of HR 107. However, support for this bill is limited at the CIIP Subcommittee, which is more concerned with holding hearings on, and marking up, bills that further protect intellectual property in digital media.

Related Stories. See, story titled "Reps. Boucher and Doolittle Introduce Digital Fair Use Bill" in TLJ Daily E-Mail Alert No. 582, January 14, 2003, and stories titled "Reps. Boucher and Doolittle Introduce Digital Media Consumer Rights Act" and "Summary of the Digital Media Consumer Rights Act" in TLJ Daily E-Mail Alert No. 532, October 4, 2002.

See also, speech by Rep. Boucher of March 6, 2001, and story titled "Boucher Proposes Changes to Copyright Law" in TLJ Daily E-Mail Alert No. 138, March 7, 2001.

Rep. Barton Addresses Spyware

5/12. Rep. Joe Barton (R-TX), the Chairman of the House Commerce Committee, used the occasion of the hearing on HR 107 to once again express his views on the topic of spyware.

He stated that "Two weeks ago during a hearing before this subcommittee, I made my intentions know regarding spyware. I object strongly to any company invading my computer -- invited -- and planting software or other tracking device to spy on me. My computer is my property, no different than my home. I determine who I permit to enter, how long they can stay, and what they can do while they are in my home. Anyone who enters my house uninvited and without my knowledge is trespassing, at the least, and  possibly breaking and entering."

There are several bills pending in the Congress that reference spyware.

First, there is HR 2929, the "Safeguard Against Privacy Invasions Act", introduced by Rep. Mary Bono (R-CA) and Rep. Adolphus Towns (D-NY) on July 25, 2004. See also, story titled "Rep. Bono Introduces Spyware Bill" in TLJ Daily E-Mail Alert No. 706, July 29, 2003.

Second, there is HR 4255, the "Computer Software Privacy and Control Act'", introduced by Rep. Jay Inslee (D-WA) on April 30, 2004.

Third, there is S 2145, the "Software Principles Yielding Better Levels of Consumer Knowledge Act", or "SPY BLOCK Act", introduced by Sen. Conrad Burns (R-MT) on February 27, 2004. See also, story titled "Senators Introduce Anti-Spyware Bill" in TLJ Daily E-Mail Alert No. 847, March 2, 2004.

Also, there is HR 4077, the "Piracy Deterrence and Education Act of 2004", introduced by Rep. Lamar Smith (R-TX) on March 31, 2004, which references spyware on peer to peer systems.

The Senate Commerce Committee held a hearing on spyware on March 23, 2004. See, story titled "Senate Communications Subcommittee Holds Hearing on Spyware Bill" in TLJ Daily E-Mail Alert No. 862, March 24, 2004.

The House Commerce Committee's Subcommittee on Commerce, Trade, and Consumer Protection held a hearing on spyware on April 29, 2004. See, links to prepared testimony.

More Capitol Hill News

5/12. The House Government Reform Committee's Subcommittee on Technology, Information Policy, Intergovernmental Relations and the Census postponed its hearing titled "The Science of Voting Machine Technology: Accuracy, Reliability, and Security".

5/12. The Senate Commerce Committee held a hearing titled "Telecommunications Policy Review: A View from Industry". See, opening statement of Sen. John McCain (R-AZ), the Chairman of the Committee. See also, prepared testimony of witnesses: Ivan Seidenberg (Ch/CEO of Verizon), Brian Roberts (P/CEO of Comcast), Scott Ford (P/CEO of ALLTEL), Garry Betty (P/CEO of Earthlink), and Delbert Wilson (former CEO of the Central Texas Telephone Cooperative).

5/12. The Senate Judiciary Committee held a hearing on S 2013, the "Satellite Home Viewer Extension Act of 2004", a bill to amend 17 U.S.C. § 119. See, opening statement of Sen. Orrin Hatch (R-UT), the Chairman of the Committee, opening statement of Sen. Patrick Leahy (D-VT), the ranking Democrat on the Committee, and opening statement of Sen. Russ Feingold (D-WI). See also, prepared testimony of witnesses: David Carson (Copyright Office), Charles Ergen (EchoStar), Bruce Reese (Bonneville International Corporation), Eddy Hartenstein (DirecTV), Fritz Attaway (Motion Picture Association of America), and John King (Vermont Public Television).

Muris Resigns, Majoras Nominated

5/11. Timothy Muris, the Chairman of the Federal Trade Commission (FTC), announced that he plans to leave the FTC "this summer". President Bush nominated Deborah Majoras to replace him.

Timothy MurisMuris (at right) said in a brief statement that "I plan to leave the Federal Trade Commission this summer."

He continued that "Serving as Chairman of the Commission has been the greatest honor of my professional career. I deeply appreciate the trust that President Bush placed in me by providing this opportunity to serve. As I have said repeatedly, the mission of the agency is vital; the issues are fascinating; and the people are outstanding. It is a great pleasure to work with such superb fellow Commissioners and staff."

"President Bush's nominee to replace me is Deborah P. Majoras. She is a highly talented and experienced lawyer, and, if confirmed by the Senate, would be an excellent Chairman. I look forward to my remaining tenure at the FTC and to a smooth transition to the next Chairmanship."

Muris has been Chairman since early 2001. He was previously at law professor at George Mason University. He also had previous experience at the FTC before becoming Chairman. He was Assistant Director of the Planning Office from 1974 to 1976, Director of the Bureau of Consumer Protection from 1981 to 1983, and Director of the Bureau of Competition from 1983 to 1985. He was a law professor from 1988 to 2001. Although, he also worked as of counsel to major law firms -- Collier Shannon Rill & Scott , and then Howrey Simon.

Muris's predecessor, Robert Pitofsky, is also a law professor, at Georgetown University Law Center.

Majoras, in contrast, is a practicing antitrust lawyer in the Washington DC office of the law firm of Jones Day.

A search of political contributors in the Political Money Line website turns up 212 contributions from Jones Day employees thus far in the 2004 election cycle. Most of these contributions are to Republicans.

From 2001 to 2003, Majoras was Deputy Assistant Attorney General (DAAG), and then Principal DAAG, in the Department of Justice's Antitrust Division.

The Jones Day biography of Majoras references her experience in representing large pharmaceutical companies in antitrust matters. However, she also had some experience at the DOJ working on technology related cases, including the Microsoft and First Data/Concord cases.

Also, on March 5, 2004, President Bush named Majoras to be a member of the Antitrust Modernization Commission. See, White House release.

Bush nominated Majoras to serve the remainder of a seven year term expiring on September 25, 2008. See, White House release announcing Bush's intent to nominate Majoras, and release announcing her nomination.

G8 Nations Issue Statement on Cyber Security

5/11. Justice and homeland security department heads from the Group of Eight (G8) nations met in Washington DC on May 10 and 11 to discuss security issues. On May 11, at the conclusion of the meeting, they held a press conference and released documents. They addressed, among other issues, greater information sharing, border security, transportation security, biometric identification and official corruption. See, transcript.

In addition, the meeting addressed cyber security. U.S. Attorney General John Ashcroft stated that "we will seek ways to strengthen domestic laws that criminalize misuse of computer networks."

Irwin CotlerCanada's Justice Minister and Attorney General Irwin Cotler (at right) stated that "we adopted today a significant and comprehensive blueprint or plan of action in four distinct areas. ... The third is the combating of cyber crime, particularly in matters of hate crimes, cyber terrorism and cyber pormography." See also, release of the Canadian Department of Justice.

The G8 department heads also issued a document [4 pages in PDF] titled "Communique", which addresses cyber security issues in greater length, though not much greater detail. It states that "all countries must continue to improve laws that criminalize misuses of computer networks and that allow for faster cooperation on Internet-related investigations."

The Communique states that "A key aspect of our work in preventing and combating global terrorism and criminal activity is enhancing our abilities to respond to those who use electronic communications and the freedoms of cyberspace to threaten public safety. The network of 24-hour points of contact for high-tech crime, which we created in 1997 among G8 countries, has grown almost five-fold. In March, our G8 experts hosted a training conference in Rome for the membership of this network. The conference, which focused on improving operational aspects of urgent cross-border investigations, was attended by senior representatives from computer crime units from six continents. We commend this kind of capacity-building -- which extends well beyond our membership -- and seek further efforts that combine operational aspects with practical exercises."

It also states that "To truly build global capacities to combat terrorist and criminal uses of the Internet, all countries must continue to improve laws that criminalize misuses of computer networks and that allow for faster cooperation on Internet-related investigations. With the Council of Europe’s Convention on Cybercrime coming into force on July 1, 2004, we should take steps to encourage the adoption of the legal standards it contains on a broad basis."

Finally, it states that "We are pleased that the essential elements of the principles for protecting critical information infrastructures that we approved last year have since been adopted by the United Nations General Assembly. Today we endorse Best Practices for Network Security, Incident Response and Reporting to Law Enforcement (attached) and we encourage other similar work to improve cooperation with victims and the providers of communications services." (Parentheses in original.)

The G8 department heads also issued a document [9 pages in PDF] for network operators and systems administrators titled "Best Practices for Network Security, Incident Response and Reporting to Law Enforcement".

The eight nations are the United States, Great Britain, France, Germany, Japan, Russia, Canada and Italy.

2nd Circuit Affirms in CalPERS v. WorldCom

5/11. The U.S. Court of Appeals (2ndCir) issued its opinion [32 pages in PDF] in CalPERS v. WorldCom, a securities case involving the conflicting removal provisions of the Bankruptcy Code and the Securities Act of 1933. The Appeals Court held that the bankruptcy removal provision controls.

Soon after WorldCom announced that it had improperly treated $3.8 Billion in ordinary costs as capital expenditures, plaintiffs' lawyers started filing a multitude of complaints alleging securities fraud against WorldCom, its former executives, directors, its bond underwriters, its accountants, and research analysts. These actions were consolidated in the U.S. District Court (SDNY).

WorldCom filed a Chapter 11 petition for bankruptcy in the U.S. Bankruptcy Court (SNDY).

The plaintiffs below, and appellants in this appeal, are the California Public Employees Retirement System (CalPERS), which bought WorldCom bonds. CalPERS carefully drafted its complaint for the purpose of attempting to evade removal to the U.S. Bankruptcy Court. It filed complaints in state courts, and only plead under the Securities Act of 1933, which provides in Section 22(a), which is codified at 15 U.S.C. § 77v(a), that "no case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States."

The Bankruptcy Code provides, at 28 U.S.C. § 1452(a), that claims that are "related to" a bankruptcy case may be removed to the Bankruptcy Court.

That is, there is a conflict between these two provisions.

The District Court held that the anti-removal provision in the Securities Act of 1933, 15 U.S.C. § 77v(a), does not preclude removal of the individual actions under the bankruptcy removal statute, 28 U.S.C. § 1452(a).

The Court of Appeals wrote that this is a "case of first impression in the courts of appeals", and a "close question", and affirmed the District Court.

It held that "generally nonremovable claims brought under the Securities Act of 1933 may be removed to federal court if they come under the purview of 28 U.S.C. § 1452(a), which confers federal jurisdiction over claims that are related to a bankruptcy case. In so holding, we do not decide whether the particular claims at issue in this case come under the purview of 28 U.S.C. § 1452(a). Instead, we simply affirm the District Court’s decision to assert jurisdiction over the Bondholders’ individual Securities Act claims despite the conflict between Section 22(a) and Section 1452(a)."

This case is California Public Employees Retirement System v. WorldCom, U.S. Court of Appeals for the 2nd Circuit, App. Ct. No. 04-0219, an appeal from the U.S. District Court for the Southern District of New York.

People and Appointments

5/11. President Bush announced his intent to nominate Brett Palmer to be Assistant Secretary of Commerce for (Legislative Affairs). See, White House release.

5/11. Eric Schuppenhauer was named senior advisor to Donald Nicolaisen, the Securities and Exchange Commission's (SEC) Chief Accountant. See, SEC release.

More News

5/11. The Senate passed S 1637, the "Jumpstart Our Business Strength (JOBS) Act". See, Roll Call No. 91. This bill would, among other things, replace the foreign sales corporation (FSC) and extraterritorial income (ETI) tax regimes that the World Trade Organization (WTO) found were illegal export subsidies.

5/11. Erkki Liikanen, the European Commission's member responsible for Enterprise and the Information Society, gave a speech in London, United Kingdom, titled "Mobile Communications and the EU's New Regulatory Framework".

5/11. The U.S. Court of Appeals (DCCir) issued its opinion in American Family Association v. FCC, petitions for review of the Federal Communications Commission's (FCC) order establishing its points system for allocating noncommercial educational (NCE) broadcast licenses among competing applicants. The Court denied the petitions. This case is American Family Association v. FCC and FCC, respondents, National Public Radio and Association of Public Television Stations, intervenors, U.S. Court of Appeals for the District of Columbia, App. Ct. Nos. 00-1310, 00-1479, and 01-1222.

Go to News from May 6-10, 2004.