TLJ News from May 16-20, 2005

University Publishers Accuse Google of Systematic Infringement of Copyright on a Massive Scale

5/20. The Association of American University Presses (AAUP), a group that represents 125 non-profit scholarly publishers, wrote a letter [PDF] to Google asserting that its plan to digitize books appears to involve systematic infringement of copyright on a massive scale.

On December 14, 2004, Google announced that it "is working with the libraries of Harvard, Stanford, the University of Michigan, and the University of Oxford as well as The New York Public Library to digitally scan books from their collections so that users worldwide can search them in Google." See, Google release. See also, Oxford release titled "Google checks out Bodleian Library books".

See, full story.

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5/20. Attorney General Alberto Gonzales gave a speech in Washington DC. He addressed many topics, including extending the sunsetting provisions of the USA PATRIOT Act. He stated that "Because the threat remains, we must continue to provide law enforcement with the tools it needs to take the fight to our terrorist enemies -- and one of those tools is the PATRIOT Act. Over the past several weeks, I -- and others in the Department -- have testified before Congress about the importance and effectiveness of these authorities. And United States Attorneys from around the country have shared stories of the Act's usefulness from the front lines of the war on terror -- both with Congress and in public forums. This is all part of our effort to focus on the facts. That's why we have de-classified information about the frequency with which we've used some of the authorities of the Act. The Department has rebutted many misconceptions. There has not been one single verified violation of civil rights or civil liberties in the three-and-a-half year history of the PATRIOT Act."

FRB Governor Addresses Technological Innovation in Payments System

5/19. Federal Reserve Board (FRB) Governor Mark Olson gave a speech titled "The Federal Reserve in an Electronic World". He spoke at the 2005 Payments Conference, at the Federal Reserve Bank of Chicago.

He stated that "users of the payments system are moving away from the use of paper checks and toward much greater use of electronic payments".

The reviewed technological developments behind this trend, legal and regulatory changes, such as the Check Clearing for the 21st Century Act, and the role of the Federal Reserve in the payments system.

He found that "Overall, a more electronic payments system will benefit society and will help improve payments system efficiency." He said that "With more channels for processing payments, the payments system infrastructure will become more diverse and more resilient."

However, he added that "the payments industry will have to rely more heavily on key telecommunications networks and computing systems. Mitigating the risk associated with greater reliance on electronic processing is vital and should be a top priority for the payments industry."

He also addressed whether the ongoing innovation and change in the payments system warrants changes in the regulation. He cautioned that "efforts to alter current laws and regulations may assume that today's technological state of the art will also be tomorrow's" and that "any changes based on that assumption could have the unintended consequence of stifling innovation."

People and Appointments

5/19. President Bush nominated Edmund Hawley to be an Assistant Secretary of Homeland Security. See, White House release.

5/19. Olin Wethington was named Special Envoy on China by Secretary of the Treasury John Snow. He will remain Counselor to the Treasury Secretary. He has previously held various positions at the Treasury Department related to international financial diplomacy. He has also been a partner at the law firm of Steptoe & Johnson. See, Treasury release.

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5/19. The Federal Communications Commission (FCC) held an event titled "open meeting" on Thursday, May 19. The FCC released an agenda [PDF] for this event on Thursday, May 12. That agenda listed two items. First, there was the matter regarding 911/E911 rules and voice over internet protocol (VOIP) services. The FCC adopted an order and further notice of proposed rulemaking. Second, the May 12 agenda stated that the FCC would consider an item regarding its lack of management and oversight of its programs that subsidize schools and libraries and rural health care. The FCC issued a written notice [PDF] on May 19 stating that this item was deleted from the meeting agenda.

5/19. The Government Accountability Office (GAO) published a report [22 pages in PDF] titled "Information Security: Federal Deposit Insurance Corporation Needs to Sustain Progress". This report finds that "Although FDIC has made substantial improvements in its information system controls, GAO identified additional weaknesses that diminish FDIC’s ability to effectively protect the integrity, confidentiality, and availability of its financial and sensitive information systems. These included weaknesses in electronic access controls, network security, segregation of computer functions, physical security, and application change control. Although these do not pose significant risks to FDIC’s financial and sensitive systems, they warrant management’s action to decrease the risk of unauthorized modification of data and programs, inappropriate disclosure of sensitive information, or disruption of critical operations."

5/19. Secretary of Homeland Security Michael Chertoff gave a speech at the Center for Strategic and International Studies (CSIS) in Washington DC. He spoke about, among other things, use of new technologies.

FCC Adopts Order Expanding E911 Regulation to Include Some VOIP Service Providers

5/19. The Federal Communications Commission (FCC) adopted, but did not release, a First Report and Order and Notice of Proposed Rulemaking in its proceeding titled "In the Matter of IP-Enabled Services" at its event titled "Open Meeting". This item requires "interconnected VOIP service providers" to comply with 911/E911 rules within 120 of publication of this item in the Federal Register. See, full story.

Summary of the FCC's 911 VOIP Order

5/19. The Federal Communications Commission (FCC) has not yet released the text of its First Report and Order and Notice of Proposed Rulemaking that requires "interconnected VOIP service providers" to comply with 911/E911 rules within 120 days of publication of this item in the Federal Register.

The FCC has not released the order. This is the standard procedure followed by the FCC for items adopted at Commission meetings. The FCC issued a brief release [PDF] that describes the content of this item. This release is short and vague, even by FCC standards. The four FCC Commissioners spoke at this event about this item, but said little about its content. Chairman Kevin Martin also spoke briefly with reporters after the meeting, and Tom Navin, the acting Chief of the FCC's Wireline Competition Bureau (WCB) conducted a brief news conference after the meeting.

VOIP Provider Obligations. The FCC release states that "The Order places obligations on interconnected VoIP service providers that are similar to traditional telephone providers in that they enable customers to receive calls from and terminate calls to the public switched telephone network (PSTN). It does not place obligations on other IP-based service providers, such as those that provide instant messaging or Internet gaming services, because although these services may contain a voice component, customers of these services cannot receive calls from and place calls to the PSTN."

Nothing disclosed at the meeting provides further clarification of, or a definition of, the class, "interconnected VoIP service providers". Navin did state that "Xbox would not covered". He also stated that "interconnectedness can be either direct or indirect". He added that "We do have a further notice with this item. We have solved as many of the problems as we possible could in a very quick period of time".

The FCC's release recited several obligations imposed upon "interconnected VoIP service providers". First, they "must deliver all 911 calls to the customer's local emergency operator. This must be a standard, rather than optional, feature of the service."

Second, they "must provide emergency operators with the call back number and location information of their customers (i.e., E911) where the emergency operator is capable of receiving it. Although the customer must provide the location information, the VoIP provider must provide the customer a means of updating this information, whether he or she is at home or away from home." (Parentheses in original.)

Third, "By the effective date, interconnected VoIP providers must inform their customers, both new and existing, of the E911 capabilities and limitations of their service."

ILEC Obligations. The FCC release includes only one obligation for the ILECs, which control most of the facilities of the 911 networks. It states that ILECs "are required to provide access to their E911 networks to any requesting telecommunications carrier. They must continue to provide access to trunks, selective routers, and E911 databases to competing carriers."

Notably, there is no requirement that ILECs provide any kind or access, or even interconnection, to "interconnected VoIP service providers". Moreover, the order does not ban port blocking.

Reporters asked FCC Chairman Kevin Martin about this after the hearing. He stated that "the incumbents, you know, continue to end up being required to provide access to the 911 elements of their networks to any other carrier when they request it. What is new about what we did today is that we are requiring VOIP providers to buy it."

He added that the ILECs' obligations are only "to any other carrier".

He was also asked about whether the order provides for regulation of rates. He said that rates would be "under the same rules that we have now". He made a reference to tariffs, but stopped when his press secretary ended the brief session.

Finally, the FCC release states that "The Commission will closely monitor this obligation. Interconnected VoIP providers must comply with these requirements, and submit to the Commission a letter detailing such compliance, no later than 120 days after the effective date of the Order."

Effective Date and Deadlines. Tom Navin said that 120 days means 120 after publication of a notice in the Federal Register. He said that this will likely occur in 30 to 45 days. Thus, interconnected VoIP service providers will be required to provide their customers 911/E911 services by about November 1.

However, this is largely an illusory transition deadline. First, the order itself contemplates that interconnected VoIP service providers will not be in compliance by this date. That is, it requires interconnected VoIP service providers to provide notice to their customers, not now, but on the effective date of the order, of VOIP services that are not compliant. However, if these service providers were compliant by the effective date, there would be no reason for giving such notices. The order therefore contemplates that services providers will not be fully compliant by the effective date, and further proceedings will continue.

Second, based on the notices of ex parte communications filed in recent weeks with the FCC, neither the VOIP industry nor the ILECs believe that compliance is possible by the effective date of the order.

For example, BellSouth, an ILEC, wrote in a notice [7 pages in PDF] of ex parte communication dated May 12 about the state of non-native and nomadic uses of VOIP. It wrote that "It is unrealistic to expect that these challenges will be solved and that E-9-1-1 and 9-1-1 functionality will be fully implemented for nomadic VoIP purposes by the end of the year."

An example of nomadic use of VOIP would be a customer of an interconnected VoIP service provider who travels with a laptop, and then uses that laptop, combined with broadband internet access services provided at hotels, coffee shops and other locations, to use VOIP services. Non-native refers to customers who obtain numbers that do not correspond to the place where they use the VOIP service.

Similarly, the VON Coalition wrote in an attachment to a  notice [9 pages in PDF] of ex parte communication dated May 12 that "it is not technically feasible for VoIP providers to provide nationwide E9-1-1 access for all nomadic customers -- which is not surprising since not all PSAPs can process E9-1-1 calls."

A PSAP is a "public safety answering point". It is a "facility that has been designated to receive 9-1-1 calls and route them to emergency service personnel". (See, definitions of the Wireless Communications and Public Safety Act of 1999).

Immunity. The FCC disclosed nothing at the meeting regarding immunity for interconnected VOIP service providers.

That is Section 4 of the Wireless Communications and Public Safety Act of 1999 enumerates several grants of protection from liability for various entities, including communications carriers. Section 4 is codified at 47 U.S.C. § 615a.

VOIP providers argued in comments filed with the FCC in this proceeding, essentially, that if they are to be subjected to the regulatory regime imposed upon communications carriers, then they should also enjoy the associated limitations of liability extended to communications carriers.

The 1999 Act is Public Law No. 106-81. Various provisions of the Act are now codified in various sections of the U.S. Code, including 47 U.S.C. § 222, 47 U.S.C. §251(e), 47 U.S.C. § 615, and 47 U.S.C. § 615a. This Act was S 800, sponsored by Sen. Conrad Burns (R-MT).

Navin said that this item will be released in "a matter of days rather than weeks".

Opponents of FCC 911 VOIP Order State that the FCC Exceeded Its Statutory Authority

5/19. The Federal Communications Commission (FCC) First Report and Order and Notice of Proposed Rulemaking adopted on May 19 that requires "interconnected VOIP service providers" to comply with 911/E911 rules may be vulnerable to legal challenge, opponents of the item state.

The FCC has not released the text of this item. Moreover, the FCC's news release describing the item says nothing about the statutory authority. However, Tom Navin, the acting Chief of the FCC's Wireline Competition Bureau, stated at the news conference after the meeting that the authority is Title I of the Communications Act.

Also, FCC Chairman Kevin Martin, who spoke briefly with reporters after the meeting, was asked "are we now saying that VOIP providers are telecom". Martin said "no".

Title I is a reference to Title I of the original Communications Act of 1934. It is in the nature of a preamble. It  recites the purposes for creating the FCC. It is codified at 47 U.S.C. § 151.

It provides that "For the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges, for the purpose of the national defense, for the purpose of promoting safety of life and property through the use of wire and radio communications, and for the purpose of securing a more effective execution of this policy by centralizing authority heretofore granted by law to several agencies and by granting additional authority with respect to interstate and foreign commerce in wire and radio communication, there is created a commission to be known as the ``Federal Communications Commission´´, which shall be constituted as hereinafter provided, and which shall execute and enforce the provisions of this chapter."

It may be pertinent to the FCC's legal authority that the 1996 Act added the phrase about race, color, and so forth, but made no other changes. In contrast, the 1996 Act amended the Communications Act of 1934 to provide that "The Internet and other interactive computer services have flourished, to the benefit of all Americans, with a minimum of government regulation" and that "It is the policy of the United States ... to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services." These provisions are codified at 47 U.S.C. § 230.

It may also be significant that on May 6, 2005 the U.S.Court of Appeals (DCCir) issued its opinion [34 pages in PDF] in American Library Association v. FCC overturning the FCC's broadcast flag rules. The FCC has statutory authority to license and regulate the use of electromagnetic spectrum, including devices that transmit and receive radio frequency signals. However, there is no express grant of authority to protect copyrights, or to regulate consumer electronic equipment for the purpose of protecting copyrights. The FCC nevertheless argued that it had authority under Title I. The Court rejected the FCC's argument.

The Court of Appeals also found it important that "the FCC has never before asserted such sweeping authority". The FCC has not before asserted that it has authority to impose telecommunications regulations upon information service providers.

However, in the case of 911 rules, but not in the case of broadcast flag rules, the FCC can cite the phrase in Title I that one of the purposes in creating the FCC was "promoting safety of life and property".

The FCC received comments from information technology companies in this proceeding that argue that the FCC lacks statutory authority to do what it has now done.

Also, after the FCC adopted its order, Harris Miller, President of the Information Technology Association of America (ITAA), stated in a release that "However well intentioned, today's FCC ruling seems to test the outer limits of the FCC's jurisdiction ... Just two weeks ago the DC Circuit ruled regarding the broadcast flag that the Commission had overstepped its authority. Now that seems to be happening again. Congress never intended the FCC to be the 'Federal Technology Commission,' with broad authority over technology applications and services."

This ITAA release further states that "While Title I allows the Commission to adopt rules governing common carriers' participation in the information services market, it does not provide the Commission with general authority to regulate information services."

TLJ spoke with Mark Uncapher of the ITAA. He said that ITAA is not planning to file a petition for review, "at this point".

The supporters of the FCC's order have filed numerous comments with the FCC that have articulated various authorities. For example, the U.S. Telecom Association (USTA) filed a comment [PDF] on May 28, 2004 in which it wrote that Title I is "certainly broad enough to permit the Commission to impose the same obligations to preserve social priorities, including universal service, E911, disabilities access, consumer protection and assistance to law enforcement on IP-enabled information services as are applied to the telecommunications services that the IP based services are replacing and with which they compete. It is necessarily ``reasonably ancillary´´ to the Commission’s authority over those telecommunications services to impose analogous obligations on competing services to ensure a competitive level playing field and the preservation of congressional priorities."

However, some have argued that the FCC can rely on Title II telecommunications authority, or even theWireless Communications and Public Safety Act of 1999. Some have argued non-statutory principles such as "consumer expectation" and "solemn obligation".

More Reaction to the FCC's 911 VOIP Order

5/19. The incumbent local exchange carriers (ILECs) are pleased with the Federal Communications Commission (FCC) First Report and Order and Notice of Proposed Rulemaking adopted on May 19 that requires "interconnected VOIP service providers" to comply with 911/E911 rules.

Ed Merlis of the U.S. Telecom Association (USTA), a group that represents the interests of ILECs, stated in a release that "We applaud the Commission’s quick action to ensure that all service providers offer consumers access to emergency services."

Glenn Reynolds of BellSouth, an ILEC, praised the FCC's order. He stated in a release that "The FCC's action seems fair and demonstrates a willingness to make tough calls quickly ..."

Gary Lytle of Qwest, another ILEC, stated in a release that "We commend Chairman Martin for his leadership role ... VoIP providers must treat 911 access as integral to the service they provide, and as a necessary cost of doing business".

In addition, Kyle McSlarrow of the National Cable Telecommunications Association (NCTA) stated in a release that "We applaud Chairman Martin and the FCC for taking action on this important public safety issue which is of critical importance for every telephone customer, no matter what technology is used. Every customer expects 911 to be part of their basic voice service and the cable industry has and will continue to provide this essential service to our VoIP customers."

Level 3's CEO, James Crowe, stated in a release that it "welcomes and applauds" the FCC's order.

In contrast, Mark Cooper, of the Consumer Federation of America, wrote in a release that "public safety and security require that the FCC ensure that E-911 be effectively and ubiquitously deployed for all communications services, including Internet phone service."

"In its Order to this effect, however, the FCC must also meaningfully and enforceably mandate access by competitive companies providing Internet phone service to the underlying facilities and databases controlled by incumbent providers, on a competitively neutral and non-discriminatory basis."

“The incumbent track record of thwarting competition at consumers’ expense is too blatant to ignore. Requiring universal E-911 deployment in order to protect citizens’ lives, while leaving the door open for incumbents to raise consumer prices by blocking access by competitors would be robbing Peter to pay Paul.

Jeff Pulver, of, attacked the FCC's order. He wrote that "The FCC had a golden opportunity to take one positive steps to promote IP-based communications. The FCC could have prohibited ``port blocking´´ and compelled direct access to the ILEC-controlled emergency response infrastructure. Instead, the FCC chose to regulate the previously unregulated, and declined to regulate those that it has obvious authority to regulate -- the traditional telecom carriers.  As it stands, unaffiliated VoIP providers are left to the mercy or goodwill of their retail rivals. -- the telecom carriers that control access to the emergency response network."

"IP technology could allow for functions far beyond the capabilities of traditional communications networks, but it requires farsighted regulators to look at the technology with a fresh eye and a commitment not to stifle the potential and allow innovators to experiment and push the limits of IP technology.  Today, the FCC caved to the shortsighted vision and sacrificed our long-term emergency response capabilities and America’s role as a leader in communications, the Internet and innovation."

He also wrote that "What seems most bizarre to me is that the regulators don't even seem willing to give the unaffiliated VoIP providers the minimum set of tools necessary to accomplish their objective for a guaranteed nationwide E911 network that would allow anyone, anywhere to pick up any device, dial 911 and have an emergency responder find that caller. If regulators tell the industry to provide nationwide E911 for nomadic VoIP services, without simultaneously compelling fair access by unaffiliated VoIP providers to selective routers and prohibiting port blocking, how can they expect us to accomplish their mission? Make excessive demands on the never before regulated and most-vulnerable new start-ups, but don't dare impose any access obligation on the traditionally regulated entities, the only ones with the essential infrastructure? I don't get it."

While Pulver has had few kind words for the FCC's order, his VOIP service may grow more rapidly. That is, provides the Free World Dialup (FWD) service. FWD is a peer to peer (P2P) service. It does not appear to be subject to the regulatory requirements imposed by the FCC's order.

To the extent that the FCC's order has the effect of driving out of the market some independent VOIP providers that fall in the class of "interconnected VOIP service providers", and to the extent that the FCC's order results in higher prices for services provided by "interconnected VOIP service providers", some customers may migrate to unregulated P2P services. But then, FWD is a free service.

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5/18. The Business Software Alliance (BSA) released a study of international software piracy. See, BSA release, with hyperlink to the study.

5/18. The Progress and Freedom Foundation (PFF) released a paper [26 pages in PDF] titled "Can Broadcast Indecency Regulations Be Extended to Cable Television and Satellite Radio?" It was written by Robert Corn-Revere, an attorney with the law firm of Davis Wright Tremaine.

Senate Approves Transportation Bill With Intelligent Transportation Systems Provisions

5/17. The Senate approved HR 3, the "Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005", by a vote of 89-11. See, Roll Call No. 125. This is a huge bill that provides funding for road construction and other transportation related projects. The Senate bill provides for $295 Billion in projects. It also addresses intelligent transportation systems.

The House approved a much different version of the bill, titled the "Transportation Equity Act: A Legacy for Users", on March 10, 2005, by a vote of 417-9. See, Roll Call No. 65. The House version provides for $284 Billion.

The overall funding level is President Bush's chief concern. He favors the lower level. However, there are also many other differences between the two bills, including in the numerous provisions regarding intelligent transportation systems (ITS).

ITS involves the use of technologies, including spectrum based communications technologies and information technologies, to improve safety and efficiency in surface transportation systems, such as highways, and vehicles. See also, the Department of Transportation's (DOT) ITS web page, and the Federal Communications Commission's (FCC) ITS web page.

The trade group ITS America, praised the Senate in a May 17 release, and "expressed the hope that key ITS provisions in the House version of the bill will be accepted by the Senate during the conference committee meeting scheduled to take place sometime over the next several weeks".

Section 1205 of the House bill, titled "Intelligent Transportation Systems Deployment", provides, in part, that "The purpose of this section is to ensure that a minimum of $2,500,000,000 of the amounts authorized to be appropriated for the National Highway System, Interstate maintenance, surface transportation, and congestion mitigation and air quality improvement programs for fiscal years 2005 through 2009 is utilized to expand deployment of intelligent transportation systems".

Section 1204 of the House bill, titled "Expedited National Intelligent Transportation Systems Deployment Program", provides in part that "The Secretary shall establish a comprehensive program to accelerate the integration, interoperability, and deployment of intelligent transportation systems in order to improve the performance of the surface transportation system in metropolitan and rural areas."

Sections 5101-5103 of the House bill authorize appropriations for ITS research. Sections 5601-5612, regarding "Intelligent Transportation Systems Research", identify the ITS research to be conducted.

House Subcommittee Holds Hearings on IP Theft in China and Russia

5/17. The House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property held a pair of back to back oversight hearings titled "Intellectual Property Theft in China" and "Intellectual Property Theft in Russia".

For the China hearing, see prepared testimony of Victoria Espinel (acting Assistant USTR for Intellectual Property), prepared testimony of Ted Fishman (author), prepared testimony of Myron Brilliant (U.S. Chamber of Commerce), and prepared testimony [PDF] of Eric Smith (International Intellectual Property Alliance).

For the Russia hearing, see prepared testimony of Victoria Espinel, prepared testimony of Bonnie Richardson (Motion Picture Association of America), prepared testimony of Matt Gerson (Universal Music Group), and prepared testimony [28 pages in PDF] of Eric Schwartz (IIPA).

Rep. Lamar Smith (R-TX), the Chairman of the CIIP Subcommittee, presided at both hearings. He wrote in his opening statement for the China hearing that "the theft of intellectual property inflicts substantial economic harm on our country, our entrepreneurs, our innovators and, ultimately, American consumers. The losses incurred are not limited to those sustained by the traditional ``core´´ copyright industries but extend to virtually all manufacturers and industries throughout our economy."

He said, with respect to China and Russia, that "it is possible that the persistent failures of these two governments to adequately protect and enforce IP rights may be systemic and deliberate rather then mere ``growing pains´´ associated with the development of market economies. We need to determine for ourselves whether it is credible to believe the Chinese government is serious about enforcing the legitimate IP rights of U.S. companies when copyright piracy levels continue to average 90% and the government refuses to even police their own computers by removing unlicensed software. We need to assess whether the Chinese government has determined that they can continue to simply take without compensation the fruits of the investment, innovations and industriousness of our most creative citizens."

Victoria Espinel is responsible for the preparation of the USTR's Special 301 reports. She wrote in her prepared testimony regarding Russia that "Protection and enforcement of American’s intellectual property rights (IPRs) in Russia is an issue that is of utmost concern to USTR and the Administration and is one that we take very seriously." She made similar comments regarding China.

Members of the Subcommittee questioned her regarding what enforcement actions the administration would take against China, and when it would file a complaint with the World Trade Organization (WTO). Members also asked her if and when the administration would designate China and Russia as Priority Foreign Countries. (Both are now on the Priority Watch List.)

She made no commitments. She repeatedly stated that the Office of the USTR is concerned, that it takes these issues seriously, that it is studying these issues, that it is reassessing its strategy, that it is talking to affected industries, that it is talking to foreign governments, and that it feels the frustration of the members of the CIIP Subcommittee.

Rep. Howard Berman (D-CA), the ranking Democrat on the CIIP Subcommittee, pressured Espinel regarding taking China to the WTO. He pointed out that the Clinton administration brought numerous cases before the WTO, but the Bush administration has not.

He asked Espinel if six months would be a reasonable time frame for the USTR to reach a conclusion as to whether to file a complaint against China with the WTO. Espinel said that it might be.

Rep. William Jenkins (R-TN) asked Espinel "why aren't we in WTO court?" He suggested that you have to file a complaint to get some peoples' attention. However, he added that "I don't have as much confidence in the WTO as I do in the courts of east Tennessee".

Ted Fishman, the author of China, Inc.: How the Rise of the Next Superpower Challenges America and the World [Amazon], stated that another recourse would be to "put a tax" on imports from China that involve IP theft. He said that this would cause China to enforce IP rights. He also suggested taking some action against the retailers and companies in the U.S. that sell products made in China that involve stolen intellectual property.

Fishman also argued in his prepared testimony, and again in response to questions, that the Chinese government is rationally pursuing a policy that is in the best interests of both the Chinese people and the government. He wrote that "China has been growing faster than any large economy in the history of the world. ... we must acknowledge, and grudgingly admire how the Chinese have improved their lot and moved to the forefront of the world’s economic powers."

He continued that "China's loose intellectual property regime allows the government to pass on to its citizens goods that make the Chinese people richer, smarter and healthier. They have solid reasons for doing business the way they do, and many of us would act in much the same way were we in the position the Chinese now find themselves in."

"Suppose you could transfer to your people the jewels of the world’s advanced industrialized nations, paying nothing for much of it and pennies on the dollar for some more. Suppose, in other words, you could steal the best technology, copyrighted materials, brand names and top entertainment for your wanting people. And imagine further that you had little expectation of being held to account for that theft. To the contrary, you would be rewarded for it. In fact, that theft would make your country an ever-more desirable home for the very international fashion, technology and knowledge enterprises you were so liberally borrowing from. Anyone here would make that choice -- the choice which the Chinese government and people made and still do make every day. One of the precepts of good leadership is to make one’s people prosperous and capable, and the Chinese practices have followed that hands down", wrote Fishman.

He concluded that "China's failure to police its intellectual property rules often looks less like ineffective government than a conscious policy to shift the highest value goods from other economies into the country. It is, in essence, the largest industrial subsidy in the world, and brilliantly, it costs the Chinese nothing."

Eric Smith of the IIPA then commented that China "will not continue to go up the value chain" if it remains a copying economy.

Fishman also commented that products made in China, with the benefit of IP theft, result in lower prices for U.S. consumers. Rep. Randy Forbes (R-VA) followed up that he has yet to hear from a U.S. consumer about this. However, he says he does hear from the companies that sell such products. Said Forbes, "it is the businesses that are selling these DVD players that are calling us."

Rep. Bob Goodlatte (R-VA) challenged the rational government policy interpretation of Chinese IP theft. He asked about the involvement of organized crime in both Russia and China. Witnesses throughout the hearing described optical media piracy in Russia in terms of crime and corruption. In the case of China, Eric Smith stated that there are "organized crime syndicates" in PR China, Taiwan China, and elsewhere in Asia. He added that they are involved, not only in IP theft, but also gun running and money laundering.

Rep. Smith commented in his opening statement at the hearing on Russia that "The Russian Federation now seeks to become a member of the World Trade Organization and is counting on the support of the United States government and the American people for that privilege." He added that "If Russia is permitted to join the WTO without first demonstrating a sustained and serious commitment to the enforcement of IP rights, then the real winners will be the criminal syndicates. We owe it to the Russian people and to the American people to consider this record before the U.S. advocates that the Russian government be rewarded with accession to the WTO."

The witnesses stated that the primary IP problem with Russia is illegal optical media, such as music and movie CDs and DVDs. The IIPA's Eric Schwartz stated that there are at least 34 plants in Russia that produce illegal products, and that these products have been exported to at least 27 countries.

The MPAA's Bonnie Richardson said that part of the problem with these optical media plants is that some are "restricted access regime enterprises", located on military property, where prosecutors cannot easily operate.

The industry witnesses stated that the U.S. has leverage over Russia that it should use to incent the Russia government to enforce intellectual property rights. First, there is the pending decision of the U.S. to grant permanent normal trade relations (PNTR). Second, there is Russia's pending request to accede to the WTO.

Universal Music's Matthew Gerson said that while optical media piracy is the primary problem with Russia, there is also a problem with the unlicensed sale of music recordings over the internet. Schwartz added that this is not a problem of indirect infringement, as is the situation in the Grokster case. Rather there is a problem with an infringer that is hosting a server from which it is selling music downloads, without license from the copyright holders. This is not a case of peer to peer infringement.

Rep. Darrell Issa (R-CA) raised the subject of counterfeit copies of consumer electronics devices. He previously owned a company that made such devices.

He stated that "China is not, in my opinion, going to do anything unless we pull the trigger with sanctions remedies".

He also asked if the Bush administration is "soft pedaling" the trade issue with China because of North Korea. He also asked whether China's "size, strength and geopolitical influence is part of the problem".

He did not obtain responsive answers from the USTR's Espinel. However, his questions prompted Rep. Berman to joke that "at least China is being helpful with respect to North Korea".

Bush Says New USTR Will Stop IPR Piracy in China

5/17. President Bush gave a speech at a swearing in ceremony for the new U.S. Trade Representative (USTR), Robert Portman. Bush said that the USTR will "ensure that China stops the piracy of U.S. intellectual property".

Bush said that he has three trade priorities, winning Congressional approval of the Central American and Dominican Republic Free Trade Agreement (CAFTA), pursuing the Doha Development Agenda (DDA), and enforcing existing trade agreements.

He said that "China's membership in the World Trade Organization has been a good thing for America. Our exports to China have increased 81 percent since China's entry into the WTO. When it joined the WTO, China also agreed to the rules of international trade, and it's in the interest of both China and the United States for China to abide by them."

Bush then said that "Ambassador Portman will work to ensure that China stops the piracy of U.S. intellectual property".

Portman also discussed China at this event. He said that "A top priority of mine will be China. The President already mentioned this and I concur with him that China's entry into the WTO was, and remains, in the best interests of the United States. It brought China into a rules-based system, which is very important. It also allowed us to significantly expand U.S. exports, good and services. But our trade relationship with China also presents challenges. We face a trade deficit that is too high, in part because the Chinese do not always play by the rules. I have already begun a top-to-bottom review of China trade issues, and I will work closely with Congress ..."

Bush also said that the DDA "is the largest negotiation of its kind in history, and it would reduce and eliminate tariffs in key industry sectors, and unfair agricultural subsidies, and open the global market in services."

Portman said that "By reducing barriers to trade across the board, Doha has the potential to substantially expand U.S. exports and also to spread hope and opportunity to the developing world."

FCC Releases NPRM on Cable Ownership Limits

5/17. The Federal Communications Commission (FCC) released a Second Further Notice of Proposed Rulemaking [90 pages in PDF] in its proceeding titled "In the Matter of The Commission's Cable Horizontal and Vertical Ownership Limits".

This NPRM proposes to write ownership limits for cable operators, to implement the Cable Television Consumer Protection and Competition Act of 1992, which the Congress enacted 13 years ago.

Section 613(f) of the 1992 act, which is codified at 47 U.S.C. § 533(f), directs the FCC to conduct proceedings to establish reasonable limits on the number of subscribers a cable operator may serve (horizontal limit), and the number of channels a cable operator may devote to its affiliated programming networks (vertical, or channel occupancy, limit).

The FCC did previously write implementing rules, which provided for a 30% horizontal ownership limit, and a 40% channel occupancy limit. However, the U.S. Court of Appeals (DCCir) vacated and remanded on March 2, 2001. See, opinion in Time Warner Entertainment Co. v. FCC, 240 F.3d 1126.

The DC Circuit wrote that "we reverse and remand the horizontal and vertical limits, including the refusal to exempt cable operators subject to effective competition from the vertical limits, for further proceedings. We also reverse and remand the elimination of the majority shareholder exception and the prohibition on sale of programming by an insulated limited partner. We uphold the basic 5% attribution rule and the creation of a 33% equity-and-debt rule."

The FCC did issue a further NPRM back in September of 2001, but did not follow through with the adoption of new rules.

Commissioners Michael Copps and Jonathan Adelstein wrote in a joint statement [PDF] that "we hope the Commission will prioritize this proceeding and move to a decision. Toward that end, we're pleased that today's item, even if it does not establish new numerical limits, does resolve some issues. Most importantly, the item puts to rest the notion that the Commission could simply decide that horizontal and vertical limits of some kind aren't necessary."

The FCC adopted this item on May 13, but did not announce or release it until May 17. This item is FCC 05-96 in MM Docket No. 92-264. See also, FCC release [PDF] describing this item.

Initial comments will be due 30 days after publication of a notice in the Federal Register. Reply comments will be due within 45 days. This publication has not yet taken place.

More News

5/17. The House approved HR 2360, the "Department of Homeland Security Appropriations Act, 2006" by a vote of 424-1. See, Roll Call No. 180.

5/17. The House Rules Committee adopted a rule for consideration of HR 1817. "Department of Homeland Security Authorization Act for Fiscal Year 2006", which includes an amended version of the "Department of Homeland Security Cybersecurity Enhancement Act of 2005", at §§ 311-314. The rule provides for the consideration of an amendment in the nature of a substitute [PDF], and numerous other amendments. (The rule in the Rules Committee web site contains hyperlinks to PDF copies of all amendments that are in order.)

5/17. The Copyright Office published a notice in the Federal Register that recites, describes, and sets the deadline for comments on, proposed rules containing a proposed settlement of royalty rates for the retransmission of digital over-the-air television broadcast signals by satellite carriers under the statutory license. The deadline to submit comments, and notices of intent to participate, is June 16, 2005. See, Federal Register, May 17, 2005, Vol. 70, No. 94, at Pages 28231 - 28233.

Supreme Court Rules in Internet Wine Sales Case

5/16. The Supreme Court issued its 5-4 opinion [73 pages in PDF] in Granholm v. Heald, and consolidated cases, holding that Michigan's and New York's regulatory schemes that permit in-state wineries directly to ship alcohol to consumers, but restrict the ability of out-of-state wineries to do so, violate the dormant commerce clause.

While the facts of these cases involve wine sales, this opinion will make it easier for businesses that engage in electronic commerce to challenge the constitutionality of state protectionist statutes that discriminate against internet based commerce. Also, this case is notable because, the states have a stronger case for restricting commerce in wine than in other products and services, because the 21st Amendment grants states special powers to regulate alcohol sales.

However, the impact of the opinion may be limited, to the extent that Michigan and New York discriminated only against out of state direct sellers (such as internet based sales). A state may avoid the consequences of this opinion simply by not carving out an exception for its in state direct sellers.

See, full story.

Supreme Court Denies Certiorari in Uzan v. Motorola

5/16. The Supreme Court denied certiorari in Uzan v. Motorola,. In this case, Motorola and Nokia filed a complaint in the U.S. District Court (SDNY) against Kemal Uzan, and other Turkish defendants, alleging, among other things, common law fraud, promissory fraud, and civil conspiracy to defraud, in connection with their borrowing from Motorola and Nokia to obtain telecommunications equipment.

The District Court held that the defendants are liable for common law fraud, promissory fraud, and civil conspiracy to defraud, and awarded over $4 Billion in compensatory damages, punitive damages, and interest. The District Court also imposed a constructive trust over certain stock.

The U.S. Court of Appeals (2ndCir) rejected the Uzans' arguments on appeal regarding lack of personal jurisdiction and other procedural issues. The Appeals Court vacated and remanded the punitive damages portion of the award, as well as the imposition of a constructive trust over stock. The Appeals Court affirmed the District Court's findings of fact, determination of liability, and award of over $2 Billion in compensatory damages. See, errata opinion [42 pages in PDF] of December 3, 2004.

The Supreme Court's denial of certiorari lets stand the judgment of the Court of Appeals.

This case is Sup. Ct. No. 04-1255. See, Order List [17 pages in PDF], at page 15.

See also, story titled "2nd Circuit Rules in Motorola v. Uzan" in TLJ Daily E-Mail Alert No. 1,008, November 1, 2004; story titled "Judge Awards Motorola $4,265,793,811.32 From Turkish Telecom Deadbeats" in TLJ Daily E-Mail Alert No. 709, August 1, 2003; and story titled "Motorola & Nokia Sue Turkish Cellular Company for RICO Violations and Computer Hacking" in TLJ Daily E-Mail Alert No. 357, January 30, 2002.

Tech Related Cases Still Pending In The Supreme Court

5/16. The Supreme Court has held all of its oral arguments for the October Term 2004. The Supreme Court will likely issue opinions in the next several weeks for the cases argued in the October Term 2004 for which it has not yet issued its opinion. It will then recess for the summer. The opening conference of the October Term 2005 is scheduled for September 26, 2005. See, calendar [PDF].

There are still several important technology related cases yet to be decided, including MGM v. Grokster (copyright and P2P systems), NCTA v. Brand X (regulation of broadband internet services), and Merck v. Integra (research exemption to patent infringement).

Copyright. The Supreme Court heard oral argument in MGM v. Grokster, Sup. Ct. No. 04-480, on March 29, 2005. See, story titled "Supreme Court Hears Oral Argument in MGM v. Grokster" in TLJ Daily E-Mail Alert No. 1,106, March 30, 2005.

Metro Goldwyn Meyer (MGM), and other movie companies, and various record companies, filed a complaint in the U.S. District Court (CDCal) against Grokster, Streamcast and Kazaa alleging copyright infringement, in violation of 17 U.S.C. § 501. They alleged contributory and vicarious infringement. They did not sue individual infringers. Also, professional songwriters and music publishers filed a complaint against the same defendants alleging contributory and vicarious infringement. The two actions were consolidated.

On April 25, 2003, the District Court issued an opinion holding that Grokster's and Streamcast's peer to peer (P2P) networks do not contributorily or vacariously infringe the copyrights of the holders of music and movie copyrights. See also, story titled "District Court Holds No Contributory or Vicarious Infringement by Grokster or Streamcast P2P Networks" in TLJ Daily E-Mail Alert No. 650, April 28, 2003

On August 19, 2004, the U.S. Court of Appeals (9thCir) issued its opinion [26 pages in PDF], affirming the District Court. See, story titled "9th Circuit Holds No Vicarious Infringement in Grokster Case" in TLJ Daily E-Mail Alert No. 963, August 20, 2004.

Regulatory Classification of Cable Modem Service. The Supreme Court heard oral argument in NCTA v. Brand X Internet Services, Sup. Ct. No. 04-277, and FCC v. Brand X Internet Services, Sup. Ct. No. 04-281, on March 29, 2005. See, story titled "Supreme Court Hears Oral Argument in Brand X Case" in TLJ Daily E-Mail Alert No. 1,106, March 30, 2005.

This case concerns the Federal Communications Commission's (FCC) Declaratory Ruling and Notice of Proposed Rulemaking [75 pages in PDF], adopted on March 14, 2002, that cable modem service is an information service, and that there is no separate offering as a telecommunications service.

The majority of the FCC Commissioners have argued that they are pursuing the policy goals of promoting investment in new facilities, promoting technological innovation, promoting intermodal competition between different providers, and ultimately, promoting the deployment of inexpensive and ubiquitous broadband, and all of the new services that will run over broadband.

The U.S. Court of Appeals (9thCir) issued its opinion [39 pages in PDF] on October 9, 2003 vacating that the FCC's declaratory ruling. See, story titled "9th Circuit Vacates FCC Declaratory Ruling That Cable Modem Service is an Information Service Without a Separate Offering of a Telecommunications Service" in TLJ Daily E-Mail Alert No. 754, October 7, 2003.

Research Exemption to Patent Infringement. The Supreme Court heard oral argument in Merck KGaA v. Integra LifeSciences I, Sup. Ct. No. 03-1237, on April 20, 2005. This is a drug patent case involving a research exemption to patent infringement. However, it is possible that the Supreme Court will issue an opinion that impacts research in other fields and technologies.

The U.S. Court of Appeals (FedCir) issued a divided opinion on June 6, 2003. Judge Randall Rader wrote the opinion of the Court, strictly construing Section 271(e)(1) of the Patent Act. Judge Pauline Newman dissented in part, emphasizing the underlying purposes of patent law; she would construe the statute more broadly, and recognize a meaningful common law research exemption. See also, the Court of Appeals' December 3, 2003 errata.

There have also been proposals to amend the Patent Act to provide a more general exemption for research. See, story titled "Supreme Court Takes Case Involving Research Exemption to Patent Infringement" in TLJ Daily E-Mail Alert No.1,053, January 11, 2005.

Constitutional Authority for Tech Related Criminal Statutes Under the Commerce Clause. There is also Ashcroft v. Raich, Sup. Ct. No. 03-1454. The Supreme Court granted certiorari back on June 28, 2004. It heard oral argument on November 11, 2004.

The facts giving rise to the case do not involve technology. The Supreme Court wrote that the question in this case is "Whether the Controlled Substances Act, 21 U.S.C. 801 et seq., exceeds Congress's power under the Commerce Clause as applied to the intrastate cultivation and possession of marijuana for purported personal ``medicinal´´ use or to the distribution of marijuana without charge for such use." See, summary [PDF].

There is no general grant of criminal law making authority in the Constitution. Some federal criminal statutes are based upon the authority of the Commerce Clause, including some technology related criminal statutes. Hence, how the Supreme Court decides this case may affect the constitutional authority of the Congress to enact technology related criminal statutes that are based upon the Commerce Clause.

For example, the Supreme Court has received a petition for writ of certiorari in U.S. v. James Maxwell, Sup. Ct. No. 04-1482. This case involves to the constitutionality of 18 U.S.C. § 2252A(a)(5)(B), which addresses pormography on computer disks or computers hard drives.

The Office of the Solicitor General (SG) filed a brief with the Supreme Court in April, 2005, urging the Supreme Court to hold this petition for writ of certiorari until it decides Ashcroft v. Raich on the merits.

The SG wrote that the issue in Maxwell is "Whether 18 U.S.C. 2252A(a)(5)(B), which prohibits the knowing possession of child pormography ``that was produced using materials that have been mailed, or shipped or transported in interstate or foreign commerce,´´ is unconstitutional, as exceeding Congress's Commerce Clause authority, as applied to respondent's intrastate possession of child pormography stored on computer disks that had traveled in interstate commerce." (TLJ misspells words that cause subscribers' e-mail servers to block delivery of the TLJ Daily E-Mail Alert.)

State Sovereign Immunity. The Supreme Court granted certiorari in Central Virginia Community College v. Katz, Sup. Ct. No. 04-885, on April 4, 2005. It has not yet heard oral argument. Hence, its opinion is not likely to come until late this year, or next year.

The underlying dispute in this case does not involve technology. This is a bankruptcy case. This case involves the authority of the Congress, under the bankruptcy clause of the Constitution, to abrogate state sovereign immunity in the bankruptcy code. See, 11 U.S.C. § 106(a). Four state colleges run by the state of Virginia challenge the constitutionality of § 106, asserting state sovereign immunity, 11th Amendment immunity, and the 10th Amendment. The Bankruptcy Court and the U.S. Court of Appeals (6thCir) ruled against the state colleges.

The argument advanced by the state colleges is similar to those made by the state of Florida when it successfully argued before the Supreme Court that the Patent and Plant Variety Protection Remedy Clarification Act is an unconstitutional abrogation of state's 11th Amendment immunity. Hence, the Supreme Court's opinion in this case could impact remedies for enforcing intellectual property rights.

See, story titled "Supreme Court Grants Certiorari in State Sovereign Immunity Case" in TLJ Daily E-Mail Alert No. 1,109, April 5, 2005.

House to Take Up DHS Authorization Act, With Amended DHS Cybersecurity Enhancement Act

5/16. The House will likely take up HR 1817, the "Department of Homeland Security Authorization Act for Fiscal Year 2006". The House Rules Committee is scheduled to meet to adopt a rule for consideration of HR 1817 on Tuesday, May 17 at 2:30 PM. The full House is scheduled to take up the bill later in the week. See, Republican Whip Notice.

The bill, as reported by the House Homeland Security Committee (HHSC) on May 3 and 13, 2005, contains a rewritten version of HR 285, the "Department of Homeland Security Cybersecurity Enhancement Act of 2005". The HHSC's Subcommittee on Economic Security, Infrastructure Protection, and Cybersecurity approved HR 285 on April 20, 2005. HR 1817 RH scales back HR 285. See, HR 1917 RH [79 pages in PDF] and House Report No. 109-71, in Part 1 and Part 2.

Cybersecurity. HR 285 would create the new position of Assistant Secretary for Cybersecurity in the Department of Homeland Security's (DHS) Directorate for Information Analysis and Infrastructure Protection. It would also create a National Cybersecurity Office, to be headed by this Assistant Secretary. The bill would increase the rank of the top cybersecurity officer at the DHS, and define and expand the responsibilities of this officer. However, there is nothing in HR 285 that would increase governmental authority over the private sector. See, story titled "House Subcommittee Approves Cybersecurity Bill" in TLJ Daily E-Mail Alert No. 1,120, April 21, 2005.

HR 1817, as reported by the HHSC, includes a greatly revised version of HR 285. HR 1817 creates an Assistant Secretary for Cybersecurity, but does not require that the position be in the Directorate for Information Analysis and Infrastructure Protection. It also adds that this is a Presidential appointment.

While HR 285 provides that the Assistant Secretary for Cybersecurity "shall have primary authority within the Department for all cybersecurity-related critical infrastructure protection programs of the Department", HR 1817 omits this language. HR 1817 also omits HR 285's enumeration of responsibilities of the Assistant Secretary for Cybersecurity

HR 1817 provides that the Assistant Secretary for Cybersecurity, along with the National Science Foundation (NSF), may create a program to provide grants to universities for cybersecurity research. However, it provides that the NSF "shall operate the program".

HR 1817 also provides that "Of the amount authorized under section 101, there is authorized to be appropriated to the Secretary for carrying out this section $3,700,000 for fiscal year 2006."

Section 101 is the general authorization for appropriations. It provides that "There is authorized to be appropriated to the Secretary of Homeland Security for the necessary expenses of the Department of Homeland Security for fiscal year 2006, $34,152,143,000."

HR 1817 also provides that the "Under Secretary for Science and Technology" -- not the Assistant Secretary for Cybersecurity -- "shall support research and development, including fundamental, long-term research, in cybersecurity to improve the ability of the United States to prevent, protect against, detect, respond to, and recover from cyber attacks, with emphasis on research and development relevant to large-scale, high-impact attacks."

Section 105 provides that "there are authorized to be appropriated for fiscal year 2006 ... (3) $19,000,000 for cybersecurity-related research and development activities".

Freedom of Information Act Exemption. Section 334 of HR 1817 RH contains a broad exemption to the Freedom of Information Act (FOIA) for certain critical infrastructure information.

It provides as follows: "(a) PROTECTION OF INFORMATION.---The information set forth in subsection (b) that is generated, compiled, or disseminated by the Department of Homeland Security in carrying out this subtitle ... is exempt from disclosure under section 552 of title 5 ...". The FOIA is codified at 5 U.S.C. § 552.

It further provides that this information "shall not, if provided by the Department to a State or local government or government agency---(A) be made available pursuant to any State or local law requiring disclosure of information or records; (B) otherwise be disclosed or distributed to any person by such State or local government or government agency without the written consent of the Secretary; or (C) be used other than for the purpose of protecting critical infrastructure or protected systems, or in furtherance of an investigation or the prosecution of a criminal act."

The above referenced subsection (b) enumerates the information that is covered by this section 334. This list includes "The Secretary’s prioritization of critical infrastructure", "the Secretary’s review of existing security plans for such infrastructure", "The Secretary’s recommendations for changes to existing plans for securing such infrastructure", and "The nature and scope of protective efforts with respect to such infrastructure".

More News

5/16. TLJ published a story titled "Debate Over Broadcast Flag Legislation Begins" in TLJ Daily E-Mail Alert No. 1135, May 13, 2005. This story states that "Public Knowledge, one of the groups that challenged the FCC's broadcast flag rules in court, released a draft bill that it states comes from the Motion Picture Association of America (MPAA)." TLJ subsequently talked with a spokesman for the MPAA, who stated that this draft bill did not come from the MPAA. He also volunteered that he did not know whether or not it came from one of the members of the MPAA.

5/16. The Supreme Court announced that it "will take a recess from Monday, May 16, 2005, until Monday, May 23, 2005." See, Order List [17 pages in PDF], at page 17.

5/16. Deputy Assistant Secretary of the Treasury Scott Parsons gave a speech in Scottsdale, Arizona, on identity theft. "We have also seen an explosion of promising technological innovation," said Parsons. "We applaud the opportunity for a market based solution versus a more heavily regulated environment. Anti-phishing and anti-spyware software, software updates, and firewalls all exist to help spot the crime, spot the origin of the Internet scam, and slow the amount of potentially dangerous spam email that gets through to users. Financial institutions also have developed sophisticated, automated anti-fraud technologies that can spot unusual or risky transactions and stop them quickly."

Go to News from May 11-15, 2005.