TLJ News from August 26-31, 2005

USTR Lifts Trade Sanctions on Ukraine and Announces Special 301 Out of Cycle Review

8/31. The Office of the U.S. Trade Representative (USTR) announced in a release the "lifting of 100% tariff sanctions that since 2002 had been imposed on $75 million worth of Ukrainian exports to the United States." It also announced that it will conduct a Special 301 out of cycle review.

Ukraine is classified by the USTR as a priority foreign country, and has been subjected to tariff sanctions, for its optic media piracy. The Trade Act of 1974 requires the USTR to identify annually foreign countries that deny adequate and effective protection of intellectual property rights or fair and equitable market access for U.S. persons that rely on intellectual property protection. These are known as Special 301 designations.

The USTR elaborated that "In July 2005, the Ukrainian parliament (Rada) adopted an important set of amendments to Ukraine’s Laser-Readable Disk Law. These amendments, which went into force on August 2, will strengthen Ukraine’s licensing regime and enforcement efforts to stem the illegal production and trade of CDs and DVDs."

The USTR also stated that "As a further step, the Administration is conducting a Special 301 Out-of-Cycle Review (OCR) to focus on Ukraine’s IPR enforcement and consider Ukraine’s status as a Priority Foreign Country and its eligibility for Generalized System of Preferences benefits."

Robert Holleyman, P/CEO of the Business Software Alliance (BSA), praised the actions of both the government of Ukraine and the USTR. He stated in a release "Over the past few months the Ukrainian government has made a concerted effort to improve its intellectual property protection".

FCC Issues Public Notices Related to Hurricane Katrina

8/31. The Federal Communications Commission (FCC) released four public notices related to the devastation caused by Hurricane Katrina.

First, the FCC issued a public notice [PDF] that extends the deadline for paying FCC fees by licensees and other regulated entities in the areas affected by Katrina. The notice states that "Due to the interruption of essential services such as, but not limited to, banking, mail, utilities, and other public services, the Commission is extending the deadline date for those licensees and regulatees in the affected area for filing FY 2005 Regulatory Fees from 11:59 PM, September 7, 2005 to 11:59 PM September 28, 2005. For all others, i.e., those not affected by the hurricane, the previous announced window remains in effect, and the Commission’s rules concerning late payment or non-payment will be enforced."

Second, the FCC's Office of Engineering and Technology (OET) issued a public notice [PDF] regarding making requests to the OET for special temporary authority (STA) to help emergency communications services resume and maintain operations in the areas impacted by Hurricane Katrina.

Third, the FCC's Media Bureau (MB) issued a public notice [PDF] that states that Cable Television Relay Service (CARS) stations in areas impacted by Hurricane Katrina "may file requests for Special Temporary Authority (STA) for temporary facilities or modification to existing facilities for restoration informally, including through E-mail communications, and will be given expedited processing." This notice also states that certain multichannel video programming distributor (MVPD) technical compliance rules are waived for ninety days.

Fourth, the MB issued a second public notice [PDF] regarding emergency procedures to help radio and television stations resume and maintain broadcast operations to the residents of the areas impacted by Hurricane Katrina. It addresses STA requests, erecting temporary antennas without prior FCC authority, and AM stations' use of their full daytime facilities during nighttime hours to broadcast emergency information, provided that all operation is conducted on a noncommercial basis.

See, also FCC release [PDF].

People and Appointments

8/31. President Bush announced his intent to give a recess appointment to Alice Fisher to be Assistant Attorney General in charge of the Criminal Division. See, White House release. John Richter is the acting head of the Criminal Division. The Criminal Division is responsible for matters related to the Communications Assistance for Law Enforcement Act (CALEA), cybercrime, enforcement of intellectual property laws, wiretaps, and electronic surveillance, searches and seizures involving new information technologies. See also, stories titled "Bush to Nominate Alice Fisher to Head DOJ's Criminal Division" in TLJ Daily E-Mail Alert No. 1,107, April 1, 2005, and "Recess Appointments in the August Break" in TLJ Daily E-Mail Alert No. 1,192, August 10, 2005.

8/31. The Department of Justice (DOJ) gave its John Marshall Award for Providing Legal Advice to Jon Pifer (Assistant General Counsel in the Federal Bureau of Investigation's Office of General Counsel), and Thomas Gregory Motta (Associate General Counsel). The DOJ stated in a release that "The two lawyers were recognized for the key role they have played in revitalizing the Department's advocacy under the Communications Assistance for Law Enforcement Act." The CALEA is codified at 47 U.S.C. §§ 1001-1010. Pifer has signed comments filed with the Federal Communications Commission (FCC) in various proceedings in which he has advocated promulgation of rules that exceed the statutory authority of the FCC, and expand the regulatory reach of the CALEA. See for example, comment [PDF] and comment [PDF].

8/31. The Department of Justice (DOJ) gave its John Marshall Award for Preparation and Handling of Legislation Stephen Weglian (Senior Attorney in the Counterterrorism Section of the Criminal Division) for "his work in the initial drafting of many of the provisions of the USA Patriot Act and the Intelligence Reform and Terrorism Prevention Act of 2004, and for his Compendium of Measures of Interest to Federal Terrorism Prosecutors from the Intelligence Reform and Terrorism Prevention Act of 2004".

8/31. The Department of Justice (DOJ) gave its Distinguished Service Award to 26 current and former attorneys and economists who worked on the DOJ's antitrust cases against Microsoft. The DOJ stated in a release that "The Microsoft team's adherence to principles of both sound competition policy and vigorous law enforcement throughout the more than 10 years of work on the case has set the standard for antitrust enforcement in the United States." Kenneth Heyer (Economic Director of Enforcement in the Office of the Assistant Attorney General for the Antitrust Division), James O'Connell (Counsel to the AAG), Renata Hesse (Chief of the Networks and Technology Enforcement Section), Patricia Brink (NTES), Jessica Arkow (NTES), Joan Farragher (NTES), Kenneth Gaul (NTES), Philip Giordano (NTES), Aaron Hoag (NTES), Scott Sacks (NTES), and Adam Severt (NTES), Jeffrey VanHooreweghe (NTES), George Rozanski (former Chief of the Economic Analysis Group, Economic Regulatory Section), Wayne Dunham (economist), Suzanne Majewski (economist), Jeffrey Wilder (economist), and Dean Williamson (economist), Gregory Werden (Senior Economic Counsel in the Economic Litigation Section), Diane Owen (economist in the Competition Policy Section), Catherine O'Sullivan (Chief of the Appellate Section), Robert Nicholson (Assistant Chief of the Appellate Section), Adam Hirsh (trial attorney), Andrea Limmer (trial attorney), Steven Mintz (trial attorney), David Seidman (trial attorney), Barbara Nelson (trial attorney in the San Francisco Field Office), and Jeffrey Minear (Assistant to the Solicitor General).

8/31. President Bush announced his intent to nominate Santanu Baruah to be Assistant Secretary of Commerce for Economic Development. He is currently Chief of Staff for the Economic Development Administration. Before that, he worked for Performance Consulting Group in Portland, Oregon. See, White House release.

8/31. President Bush announced his intent to nominate Emilio Gonzalez to be Director of the Bureau of Citizenship and Immigration Services at the Department of Homeland Security (DHS). He is currently works in the Washington DC office of the law firm of Tew Cardenas. However, his is not an attorney. He previously was Director of Western Hemisphere Affairs for the National Security Council. Before that, he was a career officer in the U.S. Army. See, White House release.

9th Circuit Rules in Arizona Cartridge v. Lexmark

8/30. The U.S. Court of Appeals (9thCir) issued its opinion [14 pages in PDF]  in Arizona Cartridge Remanufacturers Association v. Lexmark, a case regarding Lexmark's efforts to limit post sale use of, and competition with, its printer cartridges.

On the surface, this is merely a diversity case involving application of California state law regarding contract and unfair business practices. However, the defendant is Lexmark, which makes printers and printer cartridges. It also has a history of creative efforts to control after markets for printer cartridges. It has resorted to use of "lock-out chips" (the 9th Circuit's term), and the Digital Millennium Copyright Act's (DMCA) anti-circumvention provisions, in an attempt to foil producers of replacement cartridges. See, discussion of Lexmark v. SCC, below.

In the present case, the plaintiff is the Arizona Cartridge Remanufacturers Association (ACRA), an association of wholesalers that sell remanufactured printer cartridges. The ACRA asserts merely violation of state unfair business practices law.

Lexmark has a program, which it previously titled "prebate", under which it gives purchasers an upfront discount, pursuant to a packing agreement, to return the empty cartridge to Lexmark for remanufacturing.

The agreement takes the form of a written notice on the packaging of the cartridges. It states, in part, as follows: "Opening of this package or using the patented cartridge inside confirms your acceptance of the following license agreement. The patented cartridge is sold at a special price subject to a restriction that it may be used only once. Following this initial use, you agree to return the empty cartridge only to Lexmark for remanufacturing and recycling. If you don’t accept these terms, return the unopened package to your point of purchase. A regular price cartridge without these terms is available". The Court of Appeals noted that about 50% of such cartridges are returned.

The ACRA filed a complaint in U.S. District Court (NDCal) against Lexmark alleging deceptive and unfair business practices in violation of California Business and Professions Code § 17500 in connection with this printer cartridge prebate program. First, the ACRA alleged that Lexmark's advertising and promotional materials mislead customers regarding the prebate program's discounted price.

Second, the ACRA alleged that Lexmark made the implied statement that the agreement is enforceable. Third, it alleged that Lexmark's use of a lock-out chip is itself an unfair business practice. The recitation of facts in the Court of Appeals opinion does not explain the nature of the "lock-out chip". Rather, it refers readers to the 6th Circuit's description in Lexmark v. SCC.

To the extent that the agreement purports to limit the post sale use of patented technology, patent law is implicated. Also, to the extent that the lock-out chip is itself a technological effort to create non-interoperability, this case involves the issue of whether planned non-interoperability is an unfair business practice. These aspects of the case may be significant to technology law and policy.

The District Court granted summary judgment to Lexmark on all three claims. The District Court's opinion is reported at 290 F. Supp. 2d 1034.

The Court of Appeals affirmed.

First, the Court held that Lexmark can create and enforce a legally binding agreement with its consumers regarding the post-purchase use of its product. It relied on the 1992 opinion of the U.S. Court of Appeals for the Federal Circuit in Mallinckrodt v. Medipart Inc. This case is reported at 976 F.2d 700.

The 9th Circuit wrote that Mallinckrodt "held that a restriction on a patented good is permissible as long as it is ``found to be reasonably within the patent grant, i.e., that it relates to subject matter within the scope of the patent claims.´´ ... A condition is impermissible where ``the patentee has ventured beyond the patent grant and into behavior having an anticompetitive effect not justifiable under the rule of reason.´´" (Citations to Mallinckrodt omitted.)

The Electronic Frontier Foundation (EFF) filed an amicus curiae brief in which it argued that the Court should reject the Mallinckrodt opinion. The Court noted this EFF brief, but concluded that since the "ACRA has not challenged the district court's reliance on or application of Mallinckrodt ... we need not pass on the merits of the Federal Circuit’s decision for resolution of the case before us."

The EFF also wrote in its brief that "an endorsement of the Mallinckrodt rule is likely to have negative consequences far beyond Lexmark printer cartridges. Software vendors have already generated considerable controversy with their practice of using ``shrinkwrap licenses´´ in the copyright context to impose myriad unreasonable post-sale terms on consumers, much to the consternation of many courts and commentators. If Lexmark succeeds in imposing its Prebate ``single use only´´ label notice on consumers, it could well result in the widespread ``shrinkwrap-ification´´ of a wide variety of goods beyond software. Labels sporting ``no modifications or repair permitted´´ will be used to deter legitimate reverse engineering and shut down repair services."

The 9th Circuit also addressed whether the packaging nature of the purported agreement is sufficient. It held that "Lexmark has presented sufficient unrebutted evidence to show that it has a facially valid contract with the consumers who buy and open its cartridges". It explained that consumers had notice before the purchase, that the terms were clear, and that there was consideration in the form of a lower price.

Second, the 9th Circuit held, in a single paragraph, that the use of the lock-out chip is not an unfair business practice. It wrote that "the district court relied on the Federal Circuit’s Mallinckrodt decision to find that Lexmark could restrict the postsale use of its patented cartridge. ACRA has not challenged the court’s determination or alleged that Lexmark is acting beyond the scope of its patent in imposing a condition that it uses the lock-out chip to enforce. Additionally, ACRA has not attempted to show that the use of the lock-out chip -- even if designed to keep other companies from remanufacturing Prebate cartridges -- impermissibly exceeds the patent grant to produce anticompetitive effects."

Third, the 9th Circuit held that Lexmark did not mislead consumers regarding price reductions.

Hence, the Court of Appeals affirmed in full.

See also, Lexmark release praising the 9th Circuit's ruling.

This case is Arizona Cartridge Remanufacturers Association, Inc. v. Lexmark International, Inc., App. Ct. No. 03-16987, an appeal from the U.S. District Court for the Northern District of California, D.C. No. CV-01-04626-SBA/JL, Judge Saundra Armstrong presiding. Judge Raymond Fisher wrote the opinion of the Court of Appeals, in which Judges Sidney Thomas and James Robart joined.

Lexmark v. SCC. On December 30, 2002, Lexmark filed a complaint [17 page PDF scan] in U.S. District Court (EDKent) against Static Control Components (SCC) alleging violation of the anti-circumvention provisions of the DMCA in connection with its production and sale of replacement cartridges for certain Lexmark printers. On February 27, 2003, the District Court issued its preliminary injunction order against SCC.

The issue in this case also became one of the subjects of a Copyright Office (CO) proceeding on DMCA exemptions. See, story titled "CO to Consider Programs Embedded in Printers and Cartridges In DMCA Exemptions Rulemaking" in TLJ Daily E-Mail Alert No. 601, February 11, 2003.

SCC brought an interlocutory appeal. On October 26, 2004, the U.S. Court of Appeals (6thCir) issued its opinion vacating the District Court's preliminary injunction and remanding. All three judges of the three judge panel wrote opinions, one of which is a partial dissent. However, the three judges all agreed that the DMCA cannot be used by manufacturers to obtain a monopoly in secondary markets for replacement parts. See, story titled "6th Circuit Vacates Preliminary Injunction in DMCA Case" in TLJ Daily E-Mail Alert No. 1,012, November 5, 2004.

The Computer & Communications Industry Association (CCIA) filed an amicus curiae brief with the 6th Circuit in which it argued about the importance of the interoperability of information technology. It argued that SCC's conduct fits an exception in the DMCA. See, story titled "CCIA Files Amicus Brief In Lexmark v. Static Control" in TLJ Daily E-Mail Alert No. 692, July 7, 2003.

That case is Lexmark International, Inc. v. Static Control Components, Inc., U.S. Court of Appeals for the 6th Circuit, App. Ct. No. 03-5400, an appeal from the U.S. District Court for the Eastern District of Kentucky, at Lexington, D.C. No. 02-00571, Judge Karl Forester presiding. It is reported at 387 F.3d 522.

There is also a related case not involving Lexmark. On August 31, 2004, the U.S. Court of Appeals (FedCir) issued its opinion [46 pages in MS Word] in Chamberlain v. Skylink, another case involving the anti-circumvention provisions of the DMCA, and interoperability of after market products. The product in that case is portable radio frequency transmitting devices that activate garage door openers (GDO).

Chamberlain asserted that Skylink, by selling GDOs that interoperate with its equipment, is trafficking in devices that circumvent a technological measure that effectively controls access to a copyrighted work. The District Court rejected Chamberlain's claim. The Court of Appeals affirmed. See, story titled "Federal Circuit Rejects Anti-Circumvention Claim in Garage Door Opener Case" TLJ Daily E-Mail Alert No. 971, September 7, 2004.

GAO Reports on Government Data Mining Projects and Privacy

8/29. The General Accounting Office (GAO) released a report [82 pages in PDF] titled "Data Mining: Agencies Have Taken Key Steps to Protect Privacy in Selected Efforts, but Significant Compliance Issues Remain".

The report concludes that some federal agencies that operate data mining projects either do not comply with federal laws or federal guidance regarding individual privacy protection, information security, and accuracy of data, or claim exemption from them. However, The GAO examined only five federal government data mining projects for this report. This is only a small fraction of all federal data mining projects.

On. May 27, 2004, the GAO released a report [71 pages in PDF] titled "Data Mining: Federal Efforts Cover a Wide Range of Uses". The 2004 report found that "52 agencies are using or are planning to use data mining. These departments and agencies reported 199 data mining efforts, of which 68 were planned and 131 were operational." It also found that "122 used personal information". See also, story titled "GAO Reports on Data Mining at Federal Agencies" in TLJ Daily E-Mail Alert No. 907, May 28, 2004. The just released report builds upon the 2004 report.

The report concludes that "While the agencies responsible for these five efforts took many of the key steps required by federal law and executive branch guidance for the protection of personal information, none followed all key procedures. Specifically, most agencies notified the general public that they were collecting and using personal information and provided opportunities for individuals to review personal information, when required by the Privacy Act. However, agencies are also required to provide notice to individual respondents explaining why information is being collected: two agencies provided this notice, one did not provide it, and two claimed an allowable exemption from this requirement because the systems were used for law enforcement." These two are the FBI and IRS.

The report also concludes that "Agencies' compliance with key security requirements that are intended to protect the confidentiality and integrity of personal information was inconsistent."

It elaborates that "While the agencies responsible for the data mining efforts we reviewed followed a number of key security procedures, none had fully implemented all the procedures we evaluated."

The report also examined agency efforts to ensure that the information used in their data mining projects is accurate, relevant, timely, and complete. The report states that, on this issue also, the "FBI and IRS claimed an allowable exemption because their records are used for criminal law enforcement."

It also finds that "three of the five agencies had prepared a privacy impact assessment -- an important tool for analyzing the privacy implications of a system or data collection -- of their data mining efforts, but none of the assessments fully complied with Office of Management and Budget (OMB) guidance."

The report also explains the nature of data mining, and the threats that it may pose to privacy. It states that "mining government and private databases containing personal information creates a range of privacy concerns. Through data mining, agencies can quickly and efficiently obtain information on individuals or groups by exploiting large databases containing personal information aggregated from public and private records. Information can be developed about a specific individual or a group of individuals whose behavior or characteristics fit a specific pattern. The ease with which organizations can use automated systems to gather and analyze large amounts of previously isolated information raises concerns about the impact on personal privacy. Before data aggregation and data mining came into use, personal information contained in paper records stored at widely dispersed locations, such as courthouses or other government offices, was relatively difficult to gather and analyze."

The five data mining projects examined for this report are as follows:

The report was prepared for Sen. Daniel Akaka (D-HI), the ranking Democrat on the Senate Homeland Security and Governmental Affairs Committee's Subcommittee on Subcommittee on Oversight of Government Management.

PFF Paper Asserts Declining Stock Prices of Media Companies Belies Media Monopoly Arguments

8/29. The Progress and Freedom Foundation (PFF) released a paper [PDF] titled "Testing ``Media Monopoly´´ Claims: A Look at What Markets Say". The authors are Adam Thierer (PFF) and Daniel English. They argue that the proponents of government limitations on media ownership engage in sloppy competition analysis. They also offer their own evidence of increasing competition in the media marketplace -- declining market capitalizations of major media companies.

Thierer and English write that "the critics never seem able to arrive at any sort of a consensus about how many companies they are talking about." They argue that there is not problem with concentration. "We have moved from an age of scarcity to an age of abundance; a world of unprecedented media availability and diversity in which citizens can access and consume whatever media they want, wherever, whenever, and however they want."

To support their argument, they examine the changes in stock prices over the last five years of Time Warner, Viacom, News Corp., Comcast, and Clear Channel, and find that they have lost a combined 52 percent of their value. Thierer and English argue that this demonstrates that these media companies are not monopolists.

They state that the old media companies "face cutthroat competition in a world where rapid-fire technological innovation and convergence are upending the way business has traditionally been done, just as Redstone pointed out to his investors. The competition for our eyes and ears has never been more intense than it is today. The deluge of new information and entertainment sources is giving traditional media operators serious heartburn. Moreover, these new outlets and technologies not only offer more media diversity for consumers, but they provide a powerful check on the market power of traditional operators. This is reflected in the mediocre stock results depicted above."

See also, Thierer's book titled "Media Myths: Making Sense of the Debate over Media Ownership", released in June of 2005. It is available in paper from Amazon, or in digital format [176 pages in PDF] from the PFF.

11th Circuit Rules in Drug Patent Antitrust Case

8/29. The U.S. Court of Appeals (11thCir) issued its opinion [20 pages in PDF] in Andrx Pharmaceuticals v. Elan, a drug patent law and antitrust law case involving the right to manufacture and sell the drug naproxen.

Elan was the owner of U.S. Patent No. 5,637,320, a drug patent for controlled release naproxen. In 1998, SkyePharma filed an abbreviated new drug application (ANDA) with the Food and Drug Administration (FDA) to manufacture and sell a generic version. Elan filed a complaint in U.S. District Court against SkyePharma alleging patent infringement. SkyePharma and Elan settled that action, with SkyePharma admitting infringement, and licensing from Elan.

Elan filed a complaint in U.S. District Court against Andrx alleging patent infringement.

Andrx filed a complaint in U.S. District Court against Elan alleging violation of antitrust laws. The gist of its argument is that pursuant to 21 U.S.C. § 355, Elan's settlement with SkyePharma gave SkyePharma an exclusive 180 day period to market the generic version of the drug. But, Andrx alleged, SkyePharma had no intention of marketing the drug, thus never triggering the 180 day period, leaving Elan with no generic competition. Andrx asserted that Elan brought its patent infringement actions to improperly protect its monopoly on the market for a controlled release naproxen.

The District Court held that the Noerr-Pennington doctrine immunized Elan from the maintenance of an antitrust suit based on the allegations Elan engaged in patent infringement proceedings to improperly protect its monopoly on the market for controlled release naproxen. The District Court also held that Andrx's allegations regarding a licensing agreement entered into by Elan and another competitor to settle a separate infringement suit were insufficient to support an antitrust action under the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2.

This appeal followed. The Court of Appeals affirmed the District Court on the Noerr-Pennington doctrine issue, but reversed on the settlement and licensing issue.

This case is Andrx Pharmaceuticals, Inc. v. Elan Corporation, PLC and SkyePharma, Inc., App. Ct. No. 03-13605, an appeal from the U.S. District Court for the Southern District of Florida, D.C. No. 00-03481-CV-AJ. Judge Birch wrote the opinion of the Court of Appeals, in which Judges Wilson and Dowd joined.

More News

8/29. The U.S. Court of Appeals (7thCir) issued its divided opinion [42 pages in PDF] in USA v. Stephens, an appeal from a criminal conviction for wire fraud. The appeal issues (jury selection process and sufficiency of the evidence) are not technology related. What may be significant is that the defendant, Wayne Stephens, was a manager at Accenture. Accenture states in its web site that its is a "global management consulting, technology services and outsourcing company". On June 1, 2004, the Department of Homeland Security (DHS) announced that it selected Accenture to be the prime contractor for the US-VISIT program, a contract that could valued as high as $10 Billion. See, DHS release. The US-VISIT is a program that maintains and integrates computer databases containing visitor information, including entry, exit, and biometric data. It is intended to enable the DHS to permit entry to legitimate visitors, but to keep out terrorists and certain others. The gist of the criminal charges against Stephens is that he used a computer program at Accenture to fraudulently obtain cash advances from Accenture. His fraud proceeded undetected because he kept his requests under $10,000. He was only caught when he requested a cash advance of $22,980, which then triggered an audit. This case is USA v. Wayne Stephens, U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 03-2964, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 02 CR 661.

Greenspan Discusses Innovation and Free Trade

8/27. Alan Greenspan, Chairman of the Federal Reserve Board, gave a speech on August 26, 2005, in Jackson Hole, Wyoming, in which he discussed the importance of innovation, new technologies, creative destruction, and free trade for economic growth and resilience.

Alan GreenspanGreenspan (at right) stated that "In recent years, the U.S. economy has prospered notably from the increase in productivity growth that began in the mid-1990s and the enhanced competition engendered by globalization. Innovation, spurred by competition, has nurtured the continual scrapping of old technologies to make way for the new. Standards of living have risen because depreciation and other cash flows generated by industries employing older, increasingly obsolescent technologies have been reinvested to finance newly produced capital assets that embody cutting-edge technologies."

He continued that "there is also no doubt that this transition to the new high-tech economy, of which expanding global trade is a part, is proving difficult for a segment of our workforce that interfaces day by day with our rapidly changing capital stock. This difficulty is most evident in the increased fear of job-skill obsolescence that has induced significant numbers of our population to resist the competitive pressures inherent in globalization from workers in the major newly emerging market economies. It is important that these understandable fears be addressed through education and training and not by restraining the competitive forces that are so essential to overall rising standards of living of the great majority of our population. A fear of the changes necessary for economic progress is all too evident in the current stymieing of international trade negotiations."

"The developing protectionism regarding trade and our reluctance to place fiscal policy on a more sustainable path are threatening what may well be our most valued policy asset: the increased flexibility of our economy, which has fostered our extraordinary resilience to shocks", said Greenspan. "The more flexible an economy, the greater its ability to self-correct in response to inevitable, often unanticipated, disturbances. That process of correction limits the size and the consequences of cyclical imbalances."

He cited as examples of the resilience, the weathering of of October 1987 stock market decline, the credit crunch of the early 1990s, the bursting of the stock market bubble in 2000, the events of September 11, 2001, and the recent rises in oil and natural gas prices.

FRB Governor Donald Kohn gave a speech at the same conference the following day, August 27. He stated that "I believe that the Greenspan doctrine, if I may call it that, has reflected the Chairman's analysis and deeply held belief that private interest and technological change, interacting in a stable macroeconomic environment, will advance the general economic welfare. Chairman Greenspan has welcomed the ability of new technologies in financial markets to reduce transactions costs, to allow the creation of new instruments that enable risk and return to be divided and priced to better meet the needs of borrowers and lenders ..."

"The Greenspan doctrine holds that these developments ...  have also made the financial system more resilient and flexible -- better able to absorb shocks without increasing the effects of such shocks on the real economy."

Kohn added that "New technologies and changing market structures imply that regulation should be constantly under review; at times rolling back regulation -- for example, by lifting the Glass-Steagall restrictions on banking organizations -- will benefit competition and help the financial sector deliver services more efficiently and effectively. Moreover, regulation itself can benefit from competition. Running regulated and unregulated markets side by side gives people a choice of whether they want protection and helps to constrain regulation. Some of the same purposes can be served by having multiple regulators for the same function; in some circumstances, the possible adverse consequences of competition in laxity may be smaller than the potential for regulatory conformity and regulator risk-aversion to impinge on innovation and change."

4th Circuit Upholds TSR Provisions Regarding Fundraising on Behalf of Charities

8/26. The U.S. Court of Appeals (FedCir) issued its divided opinion [36 pages in PDF] in National Federation of the Blind v. FTC, upholding the FTC's rules that regulate abusive practices by professional fundraisers at for profit companies who solicit donations on behalf of charities.

The Telemarketing Consumer Fraud and Abuse Prevention Act, as amended, instructs the Federal Trade Commission (FTC) to promulgate rules prohibiting deceptive and other abusive telemarketing acts or practices. The Act defines "telemarketing" to cover charitable solicitations. However, the Act does not give the FTC authority to regulate charitable entities. The FTC's Telemarketing Sales Rule (TSR) regulates deceptive and abuse telemarketing by commercial entities that solicit on behalf of charities. Telemarketing activities conducted by charities remain unregulated.

The National Federal of the Blind and Special Olympics Maryland, Inc., filed a complaint in U.S. District Court (D-Md) against the FTC seeking declaratory relief that some of the TSR's provisions that apply to entities that solicit on behalf of charities are beyond the FTC's statutory authority and in violation of the First and Fourteenth Amendments.

The plaintiffs challenge several of the TSR's provisions, including the prohibition on calls before 8:00 AM of after 9:00 PM, the prohibition on abandoned call, and the requirement that telemarketers transmit their name and phone number to caller identification services.

The District Court granted summary judgment to the FTC. See, opinion reported at 303 F. Supp. 2d 707. This appeal followed.

A three judge panel of the Court of Appeals affirmed, in a split opinion. Judge Wilkinson wrote for the majority, while Judge Duncan dissented.

Wilkinson concluded that "Our Constitution does not prevent the democratic process from affording the American family some small respite and sense of surcease. We hold, therefore, that the FTC was authorized by Congress to promulgate the TSR, and we find that the rule is consistent with the First Amendment. Since it is "narrowly drawn" to serve the "strong subordinating interest" of protecting residential peace, the TSR embodies a proper compromise between the important speech interests of charities and the equally important need to protect the public from excessive intrusions into the home."

This case is National Federation of the Blind, et al. v. FTC, U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 04-1378, an appeal from the U.S. District Court for the District of Maryland, at Baltimore, D.C. No. CA-03-963-JFM, Judge Frederick Motz presiding. Judge Harvey Wilkinson wrote the opinion of the Court of Appeals, in which Judge Traxler joined. Judge Duncan wrote a dissent.

11th Circuit Construes Driver's Privacy Protection Act

8/26. The U.S. Court of Appeals (11thCir) issued its opinion [PDF] in Kehoe v. Fidelity Federal Bank and Trust, holding that a plaintiff does not need to prove actual damages to recover liquidated damages for a violation of the Driver's Privacy Protection Act (DPPA), which is codified at 18 U.S.C. § 2721, et seq.

The Congress enacted the DPPA in 1994, and amended it in 1999. The 1999 amendment prohibited a state department of motor vehicles from disclosing an individual's driver's license information without express permission from the individual.

§ 2724(a) provides that "A person who knowingly obtains, discloses or uses personal information, from a motor vehicle record, for a purpose not permitted under this chapter shall be liable to the individual to whom the information pertains, who may bring a civil action in a United States district court." § 2724(b) provides that "The court may award -- (1) actual damages, but not less than liquidated damages in the amount of $2,500; (2) punitive damages upon proof of willful or reckless disregard of the law; ..."

After the effective date of the amendment, the state of Florida continued to sell to Fidelity Federal Bank and Trust the names and addresses of individuals who had registered new motor vehicles or used motor vehicles less than three years old within the preceding month in Palm Beach, Martin, and Broward Counties. The bank used this information to send auto loan refinancing solicitations to car owners. It obtained car ownership information on about 565,600 car owners.

James Kehoe is the named plaintiff in a class action lawsuit against the bank. Class actions lawyers filed a complaint in the name of Kehoe in the U.S. District Court (SDFl) against Fidelity alleging violation of the DPPA. The complaint does not allege that any member of the class has been injured by the disclosure of the information.

The class action lawyers seek statutory damages of $2,500 per violation, and other relief. That is, they seek about $1.4 Billion, plus punitive damages.

The District Court granted summary judgment to the bank on the grounds that the complaint did not plead actual damages, and that the statute requires actual damages before an plaintiff can obtain statutory damages.

The Court of Appeals reversed. It held, as a matter of statutory construction, that "A plaintiff need not prove a measure of actual damages to recover liquidated damages under the DPPA, and certainly need not prove actual damages to recover the other types of remedies listed in § 2724(b)", which include punitive damages, costs, and attorneys fees.

However, it is unlikely that the District Court, on remand, will award $1.4 Billion. The remedies section uses the permissive word "may", rather than the mandatory "shall". The Court of Appeals noted too that the word may "implies a degree of discretion" and that "Thus, the district court, in its discretion, may fashion what it deems to be an appropriate award."

This case is James Kehoe v. Fidelity Federal Bank and Trust, U.S. Court of Appeals for the 11th Circuit, App. Ct. No. 04-13306, an appeal from the U.S. District Court for the Southern District of Florida, D.C. No. 03-80593-CV-DTKH. Judge Wilson wrote the opinion of the Court of Appeals, in which Judges Dubina and Coogler joined.

FCC Delays Its VOIP Customer Lockout Mandate for 30 Days

8/26. The Federal Communications Commission (FCC) released an order [4 pages in PDF] that extends for thirty days (from August 30 to September 28) the FCC mandated deadline for interconnected voice over internet protocol (VOIP) service providers to lock out certain of their customers. This order does not cover all service providers. It also imposes new reporting mandates. See, full story.

More News

8/26. The National Institute of Standards and Technology (NIST) published a notice in the Federal Register announcing that the NIST's National Center for Standards and Certification Information (NCSCI) provides a web based e-mail service, named Notify U.S., that "offers U.S. citizens, industries, and organizations an opportunity to review and comment on proposed foreign technical regulations that can affect their businesses and their access to international markets". See, Federal Register, August 26, 2005, Vol. 70, No. 165, at Page 50302.

8/26. The Federal Bureau of Investigation (FBI) announced that two men have been arrested, in Morocco and Turkey, in connection with the creation and distribution of computers worms known as Mytob and Zotob. The FBI stated in a release that "With the help of Moroccan authorities, Ministry of Interior Turkish National Police , and valuable assistance from Microsoft Corporation, these individuals were arrested yesterday without incident.  Arrested in Morocco was Farid Essebar, 18, a Moroccan national born in Russia who went by the screen moniker ``Diabl0.´´ Arrested in Turkey was Atilla Ekici, aka ``Coder,´´ a 21-year old resident of Turkey. Both individuals will be subject to local prosecutions." See also, Microsoft release and Zotob web page.

8/26. The Department of Commerce's National Technical Information Service (NTIS) published a notice in the Federal Register soliciting recommendations regarding candidates to be members of the NTIS Advisory Board. See, Federal Register, August 26, 2005, Vol. 70, No. 165, at Page 50303.

8/26. The U.S. Patent and Trademark Office (USPTO) announced in a release that its Trademark Electronic Search System (TESS) "now features a new Trademark Official Gazette (TMOG) ``search line.´´ By entering the publication date of a particular TMOG into the new search line, users can generate a list of all marks published for opposition in that TMOG, or a list of all new registrations published in that TMOG."

8/26. The Los Angeles County District Attorneys Office announced that Jed Frederick Kobles plead guilty to one felony count of theft in the Los Angeles Superior Court in connection with internet based file sharing. The DA's Office stated in a release that Kobles operated an internet hub that "facilitated online poaching of copyrighted films, television shows, music and games". The Recording Industry Association of America (RIAA) issued a release praising the DA's Office. The Motion Picture Association of America (MPAA) also issue a release [MS Word] in support of the DA's office.

Go to News from August 21-25, 2005.