News from December 16-20, 2004

People and Appointments

James Loy12/20. James Loy (at right), Deputy Secretary of the Department of Homeland Security (DHS), will step down. He was the Commandant of the U.S. Coast Guard before being appointed to his current position at the DHS in 2002. He will remain in his position until March 1, 2005, or until a successor is confirmed. See, statement by outgoing Secretary Tom Ridge.

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12/20. The Consumer Electronics Association (CEA) and the Electronic Industries Alliance (EIA) announced that they have "reached agreement to end their formal affiliation and that CEA has decided to withdraw from its sector affiliation with EIA. The termination is effective as of January 1, 2005. CEA and EIA will continue to share physical space at their mutual headquarters in Arlington, Va." See, CEA release.

11th Circuit Holds Trade Secrets Lawsuit Not Covered by Advertising Injury Clause

12/17. The U.S. Court of Appeals (11thCir) issued its opinion [PDF] in State Farm v. Steinberg, affirming the District Court, and holding that the advertising injury clause of a commercial general liability business policy does not obligate State Farm to defend and indemnify its insureds in a lawsuit brought against them alleging misappropriation of confidential business information.

State Farm filed a complaint in U.S. District Court (SDFla) against its insureds seeking a declaratory judgment that it is not obligated to defend or indemnify its insureds in the underlying trade secrets action. Subject matter jurisdiction is based upon diversity of citizenship. The District Court and Appeals Court applied contract law of the state of Florida.

The policy at issue provides that "``Advertising injury´´ is defined in the policy to include:
injury arising out of one or more of the following offenses:
  a. oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services;
  b. oral or written publication of material that violates a person’s right of privacy;
  c. misappropriation of advertising ideas or style of doing business; or
  d. infringement of copyright, title or slogan."

The Court of Appeals held that there was no advertising injury as defined by this policy.

This case is State Farm Fire and Casualty Company v. Richard Steinberg, et al., U.S. Court of Appeals for the 11th Circuit, App. Ct. No. 03-12565, an appeal from the U.S. District Court for the Southern District of Florida, D.C. No. 02-80209-CV-KLR.

People and Appointments

12/17. President Bush announced his intent to nominate Bobby Burchfield to be a member of the Antitrust Modernization Commission (AMC) for the life of the Commission. See, White House release. Burchfield is an attorney who has represented the Republican National Committee and campaigns of Republican candidates. The next public meeting of the AMC is on Thursday, January 13, 2005 at 10:00 AM at the Federal Trade Commission (FTC). See, notice [PDF] in the Federal Register, December 7, 2004, Vol. 69, No. 234, at Page 70627.

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12/17. President Bush signed S 2845, the "Intelligence Reform and Terrorism Prevention Act of 2004". See, Bush's signing statement and transcript of White House event.

12/17. The Federal Communications Commission's (FCC) Wireline Competition Bureau's (WCB) Industry Analysis and Technology Division (IATD) released a report [34 pages in PDF] titled "Quality of Service of Incumbent Local Exchange Carriers". It summarizes data provided for calendar year 2003 by regional Bell operating companies (BOCs), Sprint and other price-cap regulated incumbent local exchange carriers (ILECs). The report compares the performances of carriers on customer complaints per million access lines, initial trouble reports per thousand lines, residential installation dissatisfaction, residential installation intervals, residential repair dissatisfaction, and residential initial out-of-service repair intervals. The report also provides comparative data on switches with downtime. The report was written by Jonathan Kraushaar, who can be reached at

12/17. The Progress & Freedom Foundation (PFF) released a paper [20 pages in PDF] titled "A Model State Act for Communications". It was written by Ray Gifford (President of the PFF) and Adams Peters (PFF). The state that "We hope this Model Act provokes a critical inquiry into the widening gulf between the reality of today's communications marketplace -- which is characterized by multiple networks capable of supporting a variety of competing services -- and laws designed to regulate a single network optimized to provide traditional telecommunications services." 11 pages of the paper is the proposed Model Act, and explanatory footnotes.

DOJ and FTC Warn Massachusetts Bar That Its Drafts Rules Restrict Legal Software

12/16. The Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC) wrote a letter to the Massachusetts Bar Association regarding its "Draft Proposed Definition of the Practice of Law in Massachusetts".

The FTC/DOJ letter states, for example, that "the definition has the potential to discourage lay activities such as ... the use of interactive self-help legal software to produce simple legal documents. This would likely raise costs for consumers and limit their choices."

The letter elaborates that the proposed definition could "restrict and eliminate" such things as "inexpensive electronic software to complete wills, trusts, tax forms, and other legal documents, because the applications can be interactive and select certain clauses for the documents based on answers that consumers give, as well as providing some legal information and/or advice about those clauses".

The letter adds that "Because the proposed rule is likely to restrain competition without providing any benefits to consumers, we recommend against adopting such a definition of the practice of law. Antitrust laws and competition policy generally consider sweeping restrictions on competition harmful to consumers and justified only by a showing that the restriction is needed to prevent significant consumer injury."

The letter concludes that "The Task Force's proposed definition of the practice of law will likely unnecessarily and unreasonably reduce competition between attorneys and non-attorneys. Massachusetts consumers will likely pay higher prices and face a smaller range of service options with little or no offsetting benefit. The Task Force makes no showing of harm to consumers from lay service providers that would justify these reductions in competition."

The DOJ/FTC letter is signed by Hewitt Pate (Assistant Attorney General in charge of the Antitrust Division), Jessica Arkow (a trial attorney in the Antitrust Division), Deborah Majoras (Chairman of the FTC), and Maureen Ohlhausen (Acting Director of the FTC's Office of Policy Planning).

TLJ spoke with Maureen Ohlhausen regarding the letter. She stated that the DOJ and FTC are not threatening to bring an enforcement action. Rather, they are simply "expressing our concerns that the proposal is not in the best interest of consumers".

The Massachusetts Supreme Judicial Court, which must approve the Massachusetts Bar Association's recommendations, is immune from federal antitrust liability under the state action doctrine. However, as the DOJ/FTC letter points out (in footnote 6), the DOJ has obtained judgments and injunctions against state bar associations for anti-competitive behavior.

EPIC Urges FTC to Open Investigation on Data Products and FRCA

12/16. The Electronic Privacy Information Center (EPIC) wrote a letter to the Federal Trade Commission (FTC) in which it urges the FTC to open an investigation regarding "data products" and the "creation and use of dossiers of personal information to evaluate individuals".

The letter reviews the Fair Credit Reporting Act of 1970 (FCRA), and argues that data aggregation companies, such as ChoicePoint, are now selling data products that it asserts fall outside of the protections contained in the FCRA, even though they have "similar data elements and descriptions" to FCRA covered products. The FTC has responsibility for enforcing the FCRA.

The letter asserts that data aggregation companies, which are regulated by the FCRA, are now structuring their electronic databases, and data products, to fall outside of the scope of the FCRA, thereby threatening individual privacy, and the policy goals underlying the FCRA.

It gives an example involving the Federal Bureau of Investigation (FBI) and ChoicePoint. It asserts that "the FBI has concluded that information it buys from ChoicePoint is not subject to the FCRA", even though that data "is often identical to what appears in a credit report from one of the ``big three´´ agencies."

The letter asserts that "Americans face a return to the pre-FCRA era if companies like ChoicePoint can amass dossiers on Americans without compliance with any regime of Fair Information Practices. That era was marked by unaccountable data companies that reported inaccurate, falsified, and irrelevant information on Americans, sometimes deliberately to drive up the prices of insurance or credit. To some extent, this pre-FCRA area has returned." (Footnote omitted.)

The EPIC wants the FTC to investigate ChoicePoint to determine whether whether its non FCRA covered products obtain information from FCRA covered sources.

Moreover, the EPIC argues that "Even if these products are not consumer reports for purposes of the FCRA, it is incumbent on the FTC to analyze them and make recommendations to Congress concerning possible expansion of the FCRA." It further argues that "Many of the public policy purposes underlying the FCRA are being circumvented by data brokers who have artfully constructed databases to avoid the Act's provisions."

The letter urges the FTC "to engage in a serious inquiry on the status of data brokers' products".

In 2001, the U.S. Court of Appeals (DCCir), in TransUnion v. FTC, upheld the constitutionality of the FCRA, and upheld the FTC's order that TransUnion must stop selling target marketing lists for purposes not listed in the FCRA. See, April 13, 2001 opinion, and story titled "Financial Privacy" in TLJ Daily E-Mail Alert No. 166, April 16, 2001.

The EPIC letter is signed by Chris Hoofnagle, Associate Director of the EPIC, and Daniel Solove, a professor at the George Washington University Law School.

Also, in November, Solove released a book [Amazon] titled "The Digital Person: Technology And Privacy In The Information Age".

People and Appointments

12/16. Suzanne Mencer, Executive Director of the Department of Homeland Security's (DHS) Office of State and Local Government Coordination and Preparedness, announced that she will resign effective January 31, 2005. See, DHS release.

12/16. The Securities and Exchange Commission (SEC) announced the formation of an advisory committee named "Securities and Exchange Commission Advisory Committee on Smaller Public Companies". The committee will examine the impact of the Sarbanes Oxley Act and other aspects of the federal securities laws on smaller public companies. The SEC also announced the appointment Co-Chairs of the committee: Herbert Wander of the law firm of Katten Muchin Zavis Rosenman (KMZR), and James Thyen, P/CEO of Kimball International, a manufacturer of furnishings and electronics. The SEC also announced that is will appoint between 9 and 19 more members to the committee. See, SEC release and KMZR release [PDF].

12/16. The six member Federal Election Commission (FEC) elected Scott Thomas Chairman and Michael Toner Vice Chairman for 2005. The term of office is one year. See, FEC release.

12/16. Eric Brown will join McAfee, Inc., on January 3, 2005, as Executive Vice President and Chief Financial Officer. He was previously P/CFO of Microstrategy, Inc. See, McAfee release.

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12/16. Covad Communications Group announced that its signed an agreement with Verizon "enabling Covad to continue to provide line sharing services to digital subscriber line (DSL) subscribers throughout Verizon territory for a four-year period." See, Covad release. Also, Federal Communications Commission (FCC) Chairman Michael Powell and Commissioner Kathleen Abernathy released a joint statement [PDF] in which they wrote that "We applaud Verizon and Covad for reaching a commercial agreement to provide for continued DSL line sharing. We have been strong proponents of such commercial arrangements, and they take on added importance and urgency as a result of the Commission's elimination of mandatory line sharing last year. This agreement and others that were reached previously will enhance choice and competition in the broadband marketplace, to the great benefit of consumers. We hope that other incumbent carriers and competitors continue to pursue negotiations to preserve line sharing as a viable model."

12/16. Security software company Symantec and storage software company Veritas announced "a definitive agreement to merge in an all-stock transaction. Based on Symantec's stock price of $27.38 at market close on December 15, 2004, the transaction is valued at approximately $13.5 billion." See, release. The merger is subject to approval by shareholders and government regulators.

12/16. Microsoft announced that it acquired Giant Company Software Inc., an anti-spyware and internet security company. Microsoft stated in a release that "Microsoft will use intellectual property and technology assets from the acquisition to provide Microsoft Windows customers with new tools to help protect them from the threat of spyware and other deceptive software. In addition, key personnel from GIANT Company will be joining Microsoft's security efforts." Microsoft added that it "plans to make available to Windows customers a beta version of a spyware protection, detection and removal tool, based on the GIANT AntiSpyware product, within one month."

Go to News from December 11-15, 2004.