TLJ News from December 11-15, 2005

House Commerce Committee Postpones Markup of DATA Bill

12/15. The House Commerce Committee (HCC) met to mark up three bills, including HR 4127, the "Data Accountability and Trust Act (DATA)". It postponed markup of HR 4127.

Rep. Joe Barton (R-TX), the Chairman of the HCC, stated that "we had originally planned to markup H.R. 4127 but, Mr. Dingell and I agreed to put off consideration in order to finalize agreements that have been reached in negotiations with the majority and minority. It is the intention of the chair to consider the DATA protection privacy bill as soon as possible. That could happen as early as tomorrow if we're in session, but it likely won’t happen until sometime in 2006." See, transcript.

Rep. John Dingell (D-MI), the ranking Democrat on the HCC, stated that "I want to commend you, Mr. Chairman, along with Subcommittee Chairman Stearns and Ranking Member Schakowsky, for your hard work since the Subcommittee markup to resolve the many issues that were highlighted at that markup."

Rep. John DingellRep. Dingell (at right) explained that "The remaining major issue is a most important one, and that is the issue of enforcement. We are all in agreement that we need tough enforcement that will deter violations of the act. This bill is designed to provide important rights to consumers when their confidential information is compromised. But rights are meaningless without enforcement."

Rep. Dingell concluded that "I am encouraged that the staff on both sides of the aisle are engaged in discussions that can lead to a resolution on this matter, so that we can proceed to report this bill early next year. I want to personally thank you, Mr. Chairman, for postponing this matter to give us time to reach that resolution." See, transcript.

Senate Commerce Committee Approves Bill to Expand FTC Powers to Pursue Online Fraud

12/15. The Senate Commerce Committee (SCC) approved S 1608, the "Undertaking Spam, Spyware, and Fraud Enforcement With Enforcers Beyond Borders Act of of 2005 (U.S. SAFE WEB Act). The SCC approved the bill after little discussion, with no amendments, and by unanimous consent.

Sen. Gordon SmithSen. Gordon Smith (R-OR) (at right) introduced this bill on July 29, 2005.

The purpose of this bill is to increase Federal Trade Commission (FTC) authority to pursue fraud, and especially online fraud, that crosses national boundaries. It would also assist foreign governments in pursuing fraud that involves activity in the U.S.

Section 5 of the Federal Trade Commission Act (FTCA), which is codified at 15 U.S.C. § 45, is the provision that the FTC usually relies upon in actions against perpetrators of online fraud. It currently provides, in part, that "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful"

The bill would expand the definition of "unfair or deceptive acts or practices" to include "foreign commerce that -- (i) cause or are likely to cause reasonably foreseeable injury within the United States; or (ii) involve material conduct occurring within the United States."

The bill provides that the FTC may obtain ex parte orders from a court for delayed notice of, and prohibition of disclosure of, compulsory process, such as subpoenas. The SCC stated in a release summarizing the bill that the purpose of this is to "prevent notifying subjects of investigations if they may be likely to destroy evidence or move assets offshore".

Perhaps it is noteworthy that the members of the SCC are not concerned with the consequences of increasing the FTC's ability to provide delayed notice, and obtain gag orders, but some Senators and Representatives are arguing emphatically about the PATRIOT Act's, and HR 3199's, provisions regarding Department of Justice (DOJ) authority to provide delayed notice, and obtain gag orders.

The bill also provides a broad immunity, not only from suits arising under law, but also from suits for breach of contract, for disclosure to and cooperation with the FTC. First, it provides that "the recipient of compulsory process issued by the Commission under this Act shall not be liable under" any federal, state, or local constitution, statute or regulation, "or under any contract or other legally enforceable agreement, for failure to provide notice to any person that such process has been issued or that the recipient has provided information in response to such process".

The bill further provides that any "Internet service provider or provider of telephone services", "financial institution", "operator of a credit card system", "consumer reporting agency", or other enumerated entity, "that voluntarily provides material to the Commission that such entity reasonably believes is relevant to (A) a possible unfair or deceptive act or practice, as defined in section 5(a) of this Act; or (B) assets subject to recovery by the Commission, including assets located in foreign jurisdictions; shall not be liable to any person" for violation of any federal, state, or local law, "for such provision of material or for any failure to provide notice of such provision of material or of intention to so provide material."

The SCC release states that these grants of immunity "protect entities from liability for voluntary disclosures to the FTC relating to suspected fraud and deception, increasing the likelihood of such disclosures from third parties".

The bill also provides for venue of certain actions in the District of Columbia. It provides that "All judicial proceedings initiated by the Commission under the Right to Financial Privacy Act (12 U.S.C. 3401 et seq.), chapter 121 of title 18, United States Code, or this section may be brought in the United States District Court for the District of Columbia or any other appropriate United States District Court. All ex parte applications by the Commission under this section related to a single investigation may be brought in a single proceeding."

The bill's recitation of findings states that sometimes "wrongdoers, victims, other witnesses, documents, money and third parties involved in the transaction are widely dispersed in many different jurisdictions".

The SCC release states that the purpose of this is to "avoid challenges to FTC jurisdiction issues".

This provision also has the effect of giving the FTC authority to bring, and maintain, actions in a forum that is inconvenient to affected parties.

The also provides that whenever the FTC "obtains evidence that any person, partnership, or corporation, either domestic or foreign, has engaged in conduct that may constitute a violation of Federal criminal law" it may "transmit such evidence" to the DOJ, which may then "institute criminal proceedings".

The bill also provides for increased cooperation with, and assistance to, foreign law enforcement agencies.

This bill does not addresses antitrust investigations or proceedings.

3rd Circuit Rules Directv Can Sue Under § 2520 for Violation of § 2511(1)(a)

12/15. The U.S. Court of Appeals (3rdCir) issued its opinion [17 pages in PDF] in Directv v. Pepe, holding that a direct broadcast satellite (DBS) service provider can maintain a civil action under 18 U.S.C. § 2520 for violations of 18 U.S.C. § 2511(1)(a) against an individual who intercepts its encrypted satellite television broadcast

18 U.S.C. § 2511(1) criminalizes pirate access. It provides, in part, that "any person who -- (a) intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept, any wire, oral, or electronic communication ... shall be punished ..."

18 U.S.C. § 2520, among other things, creates a private right of action for violation of § 2511. It provides, in part, that "Except as provided in section 2511(2)(a)(ii), any person whose wire, oral, or electronic communication is intercepted, disclosed, or intentionally used in violation of this chapter may in a civil action recover from the person or entity, other than the United States, which engaged in that violation such relief as may be appropriate."

Directv sued Robert Pepe and others in U.S. District Court (DNJ). The defendants defaulted. The District Court granted judgment to Directv on some claims, but not its 2520/2511(1)(a) claims. Directv brought this appeal.

The Court of Appeals reversed. It held that "Congress has made a private right of action available under §§ 2511(1)(a) and 2520 of the ECPA for the unauthorized interception of encrypted satellite television broadcasts."

There are opinions from other circuits that are consistent with this opinion. The opinion cites them. See also, story titled "4th Circuit Rules DBS Providers Can Sue Pirates for Damages" in TLJ Daily E-Mail Alert No. 1,117, April 18, 2005.

But see, June 16, 2004 opinion [12 pages in PDF] of the U.S. Court of Appeals (11thCir) issued its opinion [12 pages in PDF] in Directv v. Treworgy, case case involving 2512(1)(b) and possession of interception devices. The Court of Appeals held that 18 U.S.C. § 2520 does not provide a private right of action against persons who possess devices used to intercept satellite transmissions in violation of 18 U.S.C. § 2512(1)(b). See, story titled "11th Circuit Limits Private Suits by DBS Providers Against Pirates" in TLJ Daily E-Mail Alert No. 922, June, 21, 2004.

This case is Directv, Inc. v. Robert Pepe, et al., U.S. Court of Appeals for the 3rd Circuit, App. Ct. No. 04-4333, an appeal from the U.S. District Court for the District of New Jersey, D.C. No. 03-cv-02414, Judge Katharine Hayden presiding.

People and Appointments

12/15. President Bush nominated Stephen Larson to be a Judge of the U.S. District Court for the Central District of California. See, White House release. Larson is currently a Magistrate Judge for the Central District, at Riverside.

12/15. Qwest Communications announced the appointments to its Board of Directors of Caroline Matthews (President of Blue Cross and Blue Shield of Georgia), and David Hoover (Ch/P/CEO of Ball Corporation). See, Qwest release.

12/15. Bruce Carnes was named SVP, Finance and Administration, for the National Cable & Telecommunications Association (NCTA), effective January 1, 2006. He was previously CFO at the Department Energy (DOE). See, NCTA release. Kyle McSlarrow, the P/CEO of the NCTA, was Deputy Secretary of Energy and Chief Operating Officer at the DOE until he was hired by the NCTA early this year.

More News

12/15. Microsoft announced the filing a ten civil complaints in U.S. District Courts against various companies and individuals in connection with their sale of Microsoft software. Seven of the actions, filed in the Western District of Washington (Seattle), allege violation of an agreement, rather than infringement. That is, Microsoft runs a program titled "Microsoft Action Pack Subscriptions Initiative", or "MAPS", in which it provides discounted Microsoft software packages for product evaluation and internal use, but not for resale. Microsoft stated that this is its first round of lawsuits against MAPS Initiative resellers. Three other complaints contain more conventional allegations of distribution of counterfeit software. See, Microsoft release.

12/15. Basit Chaudhary pled guilty in U.S. District Court (DC) to one count of felony theft of government property, in connection with his theft 12 laptop computers from the Department of Labor, where he previously worked. See, Department of Justice (DOJ) release. The DOJ, which prosecuted this case, has its own problems with missing laptops and computer crime. For example, on August 5, 2002, the DOJ's Office of the Inspector General (OIG) released a series of reports on the control of laptop computers and weapons at five DOJ components. It stated that there were a total of 400 missing laptops, and 775 missing weapons. For the FBI, it reported 317 missing laptops and 212 missing weapons. Moreover, the OIG found that the FBI does not know if sensitive data was lost. See, story titled "FBI Loses 317 Laptops" in TLJ Daily E-Mail Alert No. 485, August 6, 2002. See also, story titled "FBI Employee Pleads Guilty to Computer Crime" in TLJ Daily E-Mail Alert No. 791, December 3, 2003.

12/15. A trial jury of the U.S. District Court (DMaine) returned a verdict of guilty against James Tobin on one count of conspiracy to commit telephone harassment in violation of 18 U.S.C. § 371 and 47 U.S.C. § 223 (a)(1)(D), and one count of aiding and abetting of telephone harassment in violation of 47 U.S.C. § 223 (a)(1)(D) and 18 U.S.C. § 2. Tobin is a former Republican National Committee employee who schemed to disrupt phone service to five Democratic party offices election day 2002. See, Department of Justice (DOJ) release.

12/15. The U.S. Court of Appeals (4thCir) issued its per curiam opinion [19 pages in PDF] in Aikens v. Microsoft, a class action antitrust case that followed the U.S. antitrust action against Microsoft. These plaintiffs filed their complaint in the state of Louisiana. Microsoft removed the case to U.S. District Court. In this opinion, the Court of Appeals affirmed the District Court's denial of the plaintiffs' motion to remand to the state court, and the District Court's dismissal of their causes of action for failure to state a claim under Louisiana law. The Court of Appeals wrote that this opinion is "unpublished" and that "Unpublished opinions are not binding precedent in this circuit. See Local Rule 36(c)." This case is Cynthia Aikens, et al. v. Microsoft, U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 05-1013, an appeal from the U.S. District Court for the District of Maryland, at Baltimore, Judge Frederick Motz presiding, D.C. Nos. CA-00-2132-JFM and CA-00-1332-MDL.

House Approves Conference Report on PATRIOT Act Extension Bill

12/14. The House approved the conference report on HR 3199, the "USA PATRIOT Improvement and Reauthorization Act of 2005", by a vote of 251-174. See, Roll Call No. 627. See, full text of the conference report [219 pages in PDF]. The Senate has yet to approve this conference report.

Much of the debate in the House focused on Section 215 of the PATRIOT Act, which pertains to access to business records, including library records, under the Foreign Intelligence Surveillance Act (FISA).

Rep. John ConyersRep. John Conyers (D-MI) (at right), the ranking Democrat on the House Judiciary Committee (HJC), was the Democratic floor manager. He said the the provisions in the conference report do not meet the concerns of the American Library Association (ALA). He said that the conference report is "a downward, backward movement in which the PATRIOT Act becomes meaner, less democratic".

Rep. James Sensenbrenner (R-WI), the Chairman of the HJC, and the Republican floor manager, responded, "I wish the Library Association had read it." He added that "I don't think we should make libraries off limits to an investigation" regarding terrorism.

Rep. Jerrold Nadler (D-NY), a senior member of the HJC, complained about the procedure being employed by the Republican leadership to enact this legislation. He called it "blackmail". He said that members could only vote for or against the bill. He said that Republicans are essentially saying "we will blackmail you". If you do not vote for the bill, the "there will be blood on your hands". He called for a three month extension, and a revision of the language regarding Sections 215 and 505 (national security letters).

While the voting correlated strongly with party affiliation, due in part to pressure from the Bush administration and Republican leaders, some members crossed party lines. Rep. Dana Rohrabacher (R-CA) voted against the conference report, and spoke against it on the floor. Rep. Sensenbrenner did not yield time to him. Rep. Conyers did. Rep. Rohrabacher argued that "we have opened the door to abuse". He said that expanded police powers will be use against the pro life movement.

Rep. Bennie Thompson (D-MS), the ranking Democrat on the House Homeland Security Committee, also spoke of abuse of police powers. He said that he was spied on by the government when he was involved in the civil rights movement.

Rep. Jeff Flake (R-AZ) spoke in support of the conference report. He is a member of the HJC and its Crime Subcommittee. He was also active in the Crime Subcommittee long series of hearings on the PATRIOT Act earlier this year. He said that following these hearings, numerous amendments were added to HR 3199, including a relaxation of the national security letter (NSL) provision's gag rule, more reporting on use of NSLs, and a fixed time limit on delayed notice of search warrants.

Voting on approval of the conference report correlated with party affiliation. Republicans voted 207-18. Democrats voted 44-155.

The eighteen Republicans who voted against the bill (and the President and House Republican leadership) were Roscoe Bartlett (R-MD), Bob Bishop (R-UT), John Duncan (R-TN), Vernon Ehlers (R-MI), Mike Fitzpatrick (R-PA), Timothy Johnson (R-IL), Walter Jones (R-NC), Frank Lucas (R-OK), Connie Mack (R-FL), Don Manzullo (R-IL), Bob Ney (R-OH), Butch Otter (R-ID), Ron Paul (R-TX), Tom Price (R-GA), Dana Rohrabacher (R-CA), John Sweeney (R-NY), Charlie Taylor (R-NC), and Don Young (R-AK)

Many Democrats, and a few Republicans, first argued that the bill should be returned to the conference committee for further consideration. The House held a roll call vote on a motion to recommit the conference report. This failed on a vote of 202-224. See, Roll Call No. 626. Republicans voted 5-221. Democrats voted 196-3.

The Republicans who voted to recommit were Butch Otter (R-ID), Ron Paul (R-TX), Jim Leach (R-IA), Timothy Johnson (R-IL), and Christopher Shays (R-CT). The Democrats who voted against recommittal were Jerry Costello (D-IL), Chet Edwards (D-TX), and Jose Serrano (D-NY)

The Bush administration is actively and publicly advocating quick passage of the conference report. President Bush issued a statement after House approval of the conference report. He wrote that "The Patriot Act is essential to fighting the war on terror and preventing our enemies from striking America again. I commend the House for voting today on a bipartisan basis to reauthorize the Patriot Act."

He continued that "The legislation reauthorizes the 16 sunsetting provisions and makes all but two permanent. It bolsters the law's significant protection of privacy and civil liberties. The legislation includes important provisions regarding seaport security, mass transportation security, and terrorist financing. It creates a new National Security Division at the Department of Justice, which was an important recommendation of the WMD Commission that I support. It includes important provisions to strengthen Federal efforts to combat the dangerous proliferation of methamphetamine, which has affected communities across the Nation."

Bush concluded that "The Patriot Act is scheduled to expire at the end of the month, but the terrorist threat will not expire on that schedule. In the war on terror, we cannot afford to be without this law for a single moment. I urge the Senate to pass this legislation promptly and reauthorize the Patriot Act."

Attorney General Alberto Gonzales stated in a release that "The USA PATRIOT Act is an essential part of our Nation's efforts in the war against terrorism, and I commend the House of Representatives for deciding to renew these critical sections. Our number-one priority is protecting the American people from another terrorist attack, and today's bipartisan vote is an important step toward ensuring that the men and women of law enforcement continue to have the tools they need keep us safe. I strongly urge the Senate to act now."

Robert Kimmitt, Deputy Treasury Secretary, stated in a release on December 14 that "The USA PATRIOT Act is crucial to protecting our homeland and keeping Americans safe from the terrorists and criminals whose mission is to destroy the freedoms we hold dear. Not only has the Act better equipped our law-enforcement officials to investigate and take legal action against terrorists, but the Act has also strengthened our defenses against those who seek to abuse the U.S. financial system to bankroll terrorists' deadly agendas."

See also, December 14 release of the Department of Homeland Security (DHS).

People and Appointments

12/14. President Bush nominated Patrick Schiltz to be a Judge of the U.S. District Court for the District of Minnesota. See, White House release.

12/14. President Bush nominated Jack Zouhary to be a Judge of the U.S. District Court for the Northern District of Ohio. See, White House release.

More News

12/14. President Bush signed an executive order regarding the Freedom of Information Act (FOIA), which is codified at 5 U.S.C. § 552. The order states that agencies shall respond to FOIA requests "appropriately". It also states that "agencies shall process requests under the FOIA in an efficient and appropriate manner and achieve tangible, measurable improvements in FOIA processing." The order is 2,272 words long. However, it nowhere directs agencies to comply with the language of the statute. For example, most agencies routinely violate the time limits imposed by the FOIA. Bush's order does not direct agencies to comply with these statutory requirements.

12/14. The Federal Communications Commission (FCC) published a notice in the Federal Register that describes, and sets comment deadlines for, its Notice of Proposed Rulemaking (NPRM) [26 pages in PDF] regarding Section 621(a)(1)'s directive that local franchising authorities (LFAs) not unreasonably refuse to award competitive franchises. The FCC adopted this NPRM on November 3, 2005, and released it on November 18, 2005. It is FCC 05-189 in MB Docket No. 05-311. See, Federal Register, December 14, 2005, Vol. 70, No. 239, at Pages 73973 - 73980. See also, story titled "FCC Adopts NPRM Regarding Local Franchising of Video Services" in TLJ Daily E-Mail Alert No. 1,247, November 4, 2005. Initial comments are due by February 13, 2006. Reply comments are due by March 14, 2006. (Section 621 of the Communications Act of 1934, as amended by the Cable Television Consumer Protection and Competition Act of 1992, is codified at 47 U.S.C. § 541.)

House to Vote On PATRIOT Act Extension Bill

12/13. The House Rules Committee adopted by voice vote a rule for consideration of the conference report on HR 3199, the "USA PATRIOT Improvement and Reauthorization Act of 2005". See, full text of the conference report [219 pages in PDF]. The body of the rule is as follows: "Resolved, That upon adoption of this resolution it shall be in order to consider the conference report to accompany the bill (H.R. 3199) to extend and modify authorities needed to combat terrorism, and for other purposes. All points of order against the conference report and against its consideration are waived."

Consideration of conference reports is also governed by House Rule XXII. The Rules Committee has also published a web page titled "Committees of Conference and Consideration of Conference Reports" that summarizes conference procedure.

Basically, conference reports cannot be amended, debate is limited to one hour, and only points of order and a motion to recommit to the conference committee are in order. However, in this case, the Rules Committee's rule, if approved by the House, waives all points of order.

The House could vote on the conference report as early as Wednesday afternoon, December 14, 2005. One House Judiciary Committee (HJC) told TLJ that consideration would likely begin at about 12:00 NOON on Wednesday.

Rep. James Sensenbrenner (R-WI), the Chairman of the HJC, Rep. Peter King (R-NY), the Chairman of the House Homeland Security Committee, and Attorney General Alberto Gonzales held a news conference on Tuesday afternoon, December 13, to urge approval of the conference report.

The Electronic Privacy Information Center (EPIC) held a news conference on Tuesday morning regarding Department of Justice (DOJ) implementation of the PATRIOT Act. The EPIC has submitted, and litigated, Freedom of Information Act (FOIA) requests for records regarding this topic. It has also commented upon, and published, the records that it has obtained. See, the EPIC's web section titled "Freedom of Information Documents on the USA PATRIOT Act".

The EPIC's Marc Rotenberg argued that some things revealed by recently acquired FBI documents raise new questions about implementation of Section 215 of the PATRIOT Act (regarding access to business records, including library records, under the FISA). He continued that "the Patriot Act should not be renewed until these questions are answered. Some members of the Senate have proposed a temporary extension, not a renewal, to ensure that a bill with better safeguards is adopted. We believe this is a sensible approach and we hope that it is followed." See, prepared statement [5 pages in PDF].

Senate Commerce Committee Holds Hearing on Nominations of Tate and Copps

12/13. The Senate Commerce Committee (SCC) held a hearing on the nominations of Deborah Tate and Michael Copps to be members of the Federal Communications Commission (FCC). Copps is a current members who has been nominated for another term. Tate is a member of the Tennessee Regulatory Authority. No member of the SCC expressed opposition or criticism of either nominee.

Sen. Ted Stevens (R-AK), the Chairman of the SCC, stated at the conclusion that he hoped to have both nominees confirmed by the Senate this year. He stated to reporters after the hearing that "we're going to figure out a way to get them to the floor as quickly as possible".

See, full story.

Copps and Stevens Advocate Less Transparency at FCC

12/13. Federal Communications Commission (FCC) Commissioner Michael Copps testified at a Senate Commerce Committee (SCC) hearing on his renomination to the FCC. He argued that Congressional legislation regarding telecommunications regulation reform should exempt the FCC from the statutory requirement that federal agencies conduct their meetings in public.

Sen. Ted Stevens (R-AK), the Chairman of the SCC, has on several occasions this year supported this proposal. Sen. Stevens asked Copps for his priorities for items to be included in the "Communications Act of '06".

Copps listed three items, universal service reform, limitations on media ownership concentration, and exempting the FCC from the open meetings requirement. Sen. Stevens responded that "we intend to address that last question".

Copps argued that since the Roman Catholic Church's College of Cardinals in Rome, Italy, is not required to comply an open meetings requirement in its selection of a new Pope, the FCC should not be bound either.

He stated that "We have an Open Meeting Act that precludes more than two Commissioners from ever sitting down and meeting together to decide issues. Nobody else works that way, that I know of. Congress doesn't work that way. The Court doesn't work that way. Even my Catholic Church, the Cardinals get together and select the new Pope. So, if it is good enough for Congress, and good enough for the Courts, and good enough for holy mother church, it ought to be good enough for the Federal Communications Commission."

Commission Copps is incorrect in his statement that there is "an Open Meeting Act that precludes more than two Commissioners from ever sitting down and meeting together to decide issues". The FCC Commissioners are not precluded from holding meetings. They are only precluded from holding secret meetings.

The relevant statute, which is codified at 5 U.S.C. § 552b, requires that federal agencies must hold their meetings in public, and that they must give notice "at least one week before the meeting, of the time, place, and subject matter of the meeting".

The statute further provides that "deliberations of at least the number of individual agency members required to take action on behalf of the agency" constitutes a meeting.

While the FCC Commissioners cannot by law meet in secret, nothing in the statute prohibits them from conducting deliberations through a series of communications relayed through their staff members, or other direct means. The FCC's response to the statute is not to hold public meetings, but rather to conduct little business in public, and use other means to reach decisions. This lessens the transparency of the FCC's activities and operations.

Deborah Tate, who also testified at this hearing, may have disclosed her views about providing the public with information about the activities, proceedings and rules of the FCC. After the hearing had concluded, numerous reporters who write about the FCC introduced themselves to Tate. Most handed her their business card. As she turned to leave, she handed the stack of reporters' business cards to someone from the FCC press office.

Software Pirate Pleads Guilty

12/13. Nathan Peterson pled guilty in U.S. District Court (EDVa) to two counts of criminal copyright infringement in violation of 17 U.S.C. § 506(a)(1) and 18 U.S.C. § 2319(b)(1), in connection with his sale over the internet of pirated software. See, Plea Agreement [15 pages in PDF].

The Statement of Facts [8 pages in PDF], signed by Peterson, states that "Beginning as early as April 2003 and continuing until February 2005, the Defendant operated a website with the domain name The Defendant’s website offered copies of software products for sale that were created and copyrighted by companies such as Microsoft Corporation, Adobe Systems, Inc., Sonic Solutions, Symantec Corporation, and Macromedia Inc. at prices substantially below the suggested retail price." It adds that "The Defendant had total copyrighted software sales of $5,402,448 during the time period of April 2003 to February 2005."

Paul McNulty, the U.S. Attorney for the Eastern District of Virginia, stated in a release [PDF] that "One of the Department's highest priorities is to prosecute those who commit crimes on the Internet. The defendant's website was the largest for-profit software piracy site ever shut down by law enforcement. It clearly demonstrates our resolve to prosecute thieves who sell other people's property on the Internet."

On October 21, 2005, President Bush announced his intent to nominate McNulty to be the Deputy Attorney General. This is the number two position at the Department of Justice (DOJ). See, White House release. See also, story titled "Bush Picks Paul McNulty to Be Deputy Attorney General" in TLJ Daily E-Mail Alert No. 1,238, October 24, 2005.

The Plea Agreement also provides for forfeiture of various items, including computer equipment and software. It also provides for the forfeiture of Peterson's pickup truck, Corvette, Mercedes, and 1949 Mercury Coupe.

More News

12/13. The House Judiciary Committee's (HJC) Subcommittee on Commercial and Administrative Law amended and approved, by voice vote, HR 1956, the "Business Activity Tax Simplification Act of 2005". See, story titled "House Subcommittee Holds Hearing on State Business Activity Taxes" in TLJ Daily E-Mail Alert No. 1,223, September 28, 2005.

12/13. The Senate approved HR 4340, the "United States-Bahrain Free Trade Agreement Implementation Act". The House approved the bill on December 7, 2005. President Bush will sign it.

GAO Reports on Trade with PR China

12/12. The Government Accountability Office (GAO) released a report [75 pages in PDF] titled "China Trade: U.S. Exports, Investment, Affiliate Sales Rising, but Export Share Falling".

The report states that "While U.S.-China commercial relations have expanded in recent years, disagreements have also emerged over a wide variety of issues, including the size and growth of the U.S. trade deficit with China, China’s enforcement of intellectual property protection, and concerns over China’s implementation of its WTO obligations. Despite these challenges, China’s vast consumer and labor markets present considerable opportunities for U.S. exporters and investors." (Footnote omitted.)

The report finds that "China is a rapidly growing market for U.S. goods and services. Although still small, accounting for only 4 percent of U.S. goods exports in 2004, U.S. goods exports to China tripled, from $11 billion to $33 billion, and increased across virtually all major categories from 1995 to 2004."

However, it adds that "Despite rapid growth, U.S. goods exports to China have not kept pace with those of other countries, particularly exports from Asia. The U.S. share of world goods exports to China declined from 12 percent to 9 percent, from 1995 to 2004".

USTR Releases Annual Report on PR China's Violations of its WTO Obligations

12/12. The Office of the U.S. Trade Representative (USTR) released its report [101 pages in PDF] titled "2005 Report to Congress on China's WTO Compliance".

The report finds that "China has taken important steps in implementing the numerous commitments that it undertook upon its WTO accession on December 11, 2001", but that "China's implementation work is still incomplete".

The report states that "Many of the shortfalls in China’s WTO compliance efforts seem to stem from China’s incomplete transition from being a state-planned economy." That is, "it continued to use an array of industrial policy tools in 2005 to promote or protect favored sectors and industries, and these tools at times collide with China’s WTO obligations."

The report elaborates that examples of these industrial policies include "the telecommunications regulator’s interference in commercial negotiations over royalty payments to intellectual property rights holders in the area of 3G standards, the pursuit of unique national standards in many areas of high technology that could lead to the extraction of technology or intellectual property from foreign rights-holders, draft government procurement regulations mandating purchases of Chinese-produced software, ..."

Intellectual Property Rights. The report finds that "China has undertaken substantial efforts to implement its commitment to overhaul its legal regime to ensure the protection of intellectual property rights in accordance with the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). While the United States continues to work with China in some problem areas, China has done a relatively good job of overhauling its legal regime. However, China has been much less successful in enforcing its laws and regulations and ensuring the effective IPR enforcement required by the TRIPS Agreement. With most in U.S. industry reporting no significant reduction in IPR infringement levels in 2005, IPR enforcement remains problematic. Counterfeiting and piracy in China remain at epidemic levels and cause serious economic harm to U.S. businesses in virtually every sector of the economy."

The report also states that "In 2005, nearly four years after China’s accession to the WTO, U.S. rights-holders uniformly report that IPR infringement in China remains rampant. Indeed, some trade associations report that the situation confronting U.S. rights-holders in 2005 remains unchanged from 2004. Other trade associations report that the situation has actually worsened. U.S. rights-holders uniformly urge the Chinese government to accelerate its reforms in order to significantly reduce IPR infringement levels."

The report adds that "IPR infringement in China in 2005 continued to affect products, brands and technologies from a wide range of industries, including films, music, publishing, software, pharmaceuticals, chemicals, information technology, consumer goods, industrial goods, food products, medical devices, electrical equipment, automotive parts and clothing, among many others. This situation not only has had an enormous economic impact, but also presents a direct challenge to China’s ability to regulate many products that have health and safety implications for China’s population and, as an increasing amount of counterfeit and pirated products are being exported from China, for others around the world."

The report goes on to report on the ineffectiveness of administrative, criminal, and civil regimes in China for enforcement of intellectual property rights.

Telecommunications Services. The report states that "In the Services Schedule accompanying its WTO accession agreement, China committed to permit foreign suppliers to provide a broad range of telecommunications services through joint ventures with Chinese companies, including domestic and international wired services, mobile voice and data services, value-added services (such as electronic mail, voice mail and on-line information and database retrieval) and paging services." Also, it "accepted key principles from the WTO Reference Paper on regulatory principles. As a result, China became obligated to separate the regulatory and operating functions of MII (which had been both the telecommunications regulatory agency in China and the operator of China Telecom) upon its accession. China also became obligated to adopt pro competitive regulatory principles, such as cost-based pricing and the right of interconnection, which are necessary for foreign-invested joint ventures to compete with incumbent suppliers ..." (Parentheses in original.)

The report finds that "four years after its accession to the WTO, China has not yet established a truly independent regulator in the telecommunications sector. The current regulator, MII, while nominally separate from the current telecommunications operators, maintains extensive influence and control over their operations and continues to use its regulatory authority to disadvantage foreign firms."

The report also reviews problems associated with the MII's Catalogue of Telecommunications Services. The report states that "MII reclassified several telecommunications services from the value-added category to the basic category" and "placed restrictions on what new services could be classified under the value-added category."

The report finds that "These moves have limited the ability of U.S. firms to access China’s telecommunications market because, under China’s Services Schedule, basic services are on a slower liberalization schedule, and MII subjects them to higher capitalization requirements. Indeed, MII requires suppliers of basic services to satisfy an excessive registered capital requirement of RMB 2 billion ($241 million). A review of capital requirements around the world shows essentially no capital requirements in many WTO member markets, including, for example, Argentina, Australia, Brazil, Chile, the member States of the European Union, Japan and the United States. Where capital-related requirements do exist, they typically take the form of guarantees."

Moreover, the report finds, "MII continues to process applications very slowly for the few foreign-invested telecommunications enterprises that have attempted to satisfy MII’s licensing requirements."

FTC Sues and Settles with Directv for Violation of TSR

12/12. The Department of Justice (DOJ) filed a complaint [PDF] in U.S. District Court (CDCal), on behalf of the Federal Trade Commission (FTC), against Directv, and others who telemarketed on its behalf, alleging violation of the Federal Trade Commission Act (FTCA) and the FTC's telemarketing sales rule (TSR).

The DOJ and Directv simultaneously filed a joint pleading [16 [pages in PDF] titled "Stipulated Judgment and Order for Permanent Injunction Against Directv, Inc." Directv will pay $5,335,000.

The complaint alleges that the defendants "engaged in or caused others to engage in initiating an outbound telephone call to a person’s telephone number on the National Do Not Call Registry in violation of the TSR, 16 C.F.R. § 310.4(b)(1)(iii)".

It also alleges that Directv "abandoned or caused others to abandon an outbound telephone call i.e., to fail to connect the call to a sales representative within two (2) seconds of the completed greeting of the person answering the call, in violation of the TSR, 16 C.F.R. § 310.4(b)(1)(iv) and § 310.4(b)".

Finally, it alleges that Directv provided substantial assistance and support to others that it knew, or consciously avoided knowing, were engaged in violations of § 310.4 of the TSR.

This case is U.S.A. v. Directv, Inc., et al., U.S. District Court for the Central District of California, Western Division, D.C. No. SACV 05 1211. See also, FTC release.

Senators Introduce Bill to Extend Sunsetted Provisions of Patriot Act for 3 Months

12/12. Sen. Patrick Leahy (D-VT), the ranking Democrat on the Senate Judiciary Committee, introduced S __, a bill that would extend for three months the sunsets on all of the expiring sections of the 2001 USA PATRIOT Act. The bill would also extend for three months the lone wolf FISA surveillance authority, which was enacted in 2004 as part of the Intelligence Reform and Terrorism Prevention Act.

On Thursday, December 8, 2005, Sen. Arlen Specter (R-PA), the Chairman of the Senate Judiciary Committee, and Rep. James Sensenbrenner (R-WI), the Chairman of the House Judiciary Committee, both announced that House and Senate conferees have completed work on a conference report on HR 3199, the "USA PATRIOT Improvement and Reauthorization Act of 2005". See, full text of the conference report [219 pages in PDF].

The cosponsors of Sen. Leahy's bill include several Republicans: Sen. John Sununu (R-NH), Sen. Lisa Murkowski (R-AK), and Sen. Larry Craig (R-ID). The cosponsors also include Sen. John Rockefeller (D-WV), Sen. Edward Kennedy (D-MA), Sen. Carl Levin (D-MI), Sen. Richard Durbin (D-IL), Sen. Debbie Stabenow (D-MI), and Sen. Ken Salazar (D-CO).

In addition, last week, Sen. Russ Feingold (D-WI) stated that he would filibuster the conference report. See, story titled "Senate Opponents Say Conference Report Lacks Support in Senate" in TLJ Daily E-Mail Alert No. 1,269, December 9, 2005.

Sen. Patrick LeahySen. Leahy's (at right) proposal would provide another three months to revise the conference report.

The House is scheduled to vote on the conference report on either Wednesday, December 14, or Thursday, December 15. Sen. Specter stated last week that the Senate would then vote after the House.

Sen. Leahy stated on December 12 that "the Bush Administration and the Republican congressional leadership have squandered key opportunities to improve the PATRIOT Act. The House-Senate conference report filed last week by Republican lawmakers falls short of what the American people expect and deserve from us." He argued that a three month extension would provide time to improve the bill.

GAO Reports on Computer Recycling

12/12. The Government Accountability Office (GAO) released a report [62 pages in PDF] titled "Electronic Wastes: Strengthening the Role of the Federal Government in Encouraging Recycling and Reuse".

The report states that "Available research suggests that the volume of used electronics is large and growing and, if improperly managed, can harm the environment and human health. While data and research are limited, some data suggest that over 100 million computers, monitors, and televisions become obsolete each year and that this amount is growing."

It states that "These obsolete products can be recycled, reused, disposed of in landfills, or stored by users in places such as basements, garages, and company warehouses. Data we reviewed suggest that most used electronics are probably stored, and therefore have the potential to be recycled or reused, disposed of in landfills, or exported overseas."

"If ultimately disposed in landfills, either in the United States or overseas, valuable resources, such as copper, gold, and aluminum, are lost for future use." But, the report adds, "costs associated with recycling and refurbishing outweigh the revenue received from recycled commodities or refurbished units".

The report also states that "some research shows that certain toxic substances with known adverse health effects, such as lead, have the potential to leach into landfills. Although one study suggests that leaching is not a concern in modern U.S. landfills, it appears that many of these products end up in countries without modern landfills or environmental regulations comparable to those in the United States."

The report recommends that the Environmental Protection Agency (EPA) "develop a legislative proposal that addresses some of the economic and regulatory factors discouraging recycling and reuse of used electronics. In addition, we are recommending that the agency take several administrative steps to (1) increase federal agency participation in promising EPA electronics recycling programs and (2) help ensure that used electronics exported overseas are destined for reuse, as intended, and not disposed of improperly."

Court Denies Cert in Case Involving Federal Preemption of State Law Claims Regarding Long Distance Phone Rates

12/12. The Supreme Court denied certiorari, without opinion, in Dreamscape Design v. Affinity Network, No. 05-433. See, Order List [8 pages in PDF], at page 4.

This lets stand the judgment of the U.S. Court of Appeals (7thCir). On July 5, 2005, the Court of Appeals issued its opinion [18 pages in PDF] holding that federal law preempts state law claims of fraud and breach of contract that were related to rates for long distance telephone service.

Dreamscape Design, Inc. is a class action plaintiff. It filed a complaint in state court in Illinois against Affinity Network, Inc., an interexchange carrier, alleging, among other things, that it violated the Illinois Consumer Fraud Act (ICFA) by making misrepresentations about its rates for long distance telephone service.

Affinity removed the action to the U.S. District Court (CDIll), asserting that the state law claims are preempted by the Communications Act, and in particular, by the ancient filed rate doctrine. Hence, Affinity argued that there is federal question jurisdiction.

The District Court held that most of the claims are preempted by federal law. It also granted Affinity’s motion to compel arbitration in accordance with a clause in Affinity’s tariff mandating arbitration of disputes. The arbitrator dismissed the claims, but with leave to amend the complaint. Dreamscape filed an amended complaint. The Court dismissed, pursuant to Boomer v. AT&T Corp., 309 F.3d 404 (7th Cir. 2002). See, story titled "7th Circuit Upholds Mandatory Arbitration Clause in AT&T Consumer Contract" in TLJ Daily E-Mail Alert No. 531, October 21, 2002.

The Court of Appeals affirmed. It reasoned that "Although it may be tempting to view a filed tariff as simply another contract enforceable under state law, this court and others have recognized that tariffs are something more -- at least the equivalent of federal regulations or law -- so suits to challenge or invalidate tariffs arise under federal law."

"Under the filed tariff doctrine, courts may not award relief (whether in the form of damages or restitution) that would have the effect of imposing any rate other than that reflected in the filed tariff." The Court added that "This is so even if a carrier intentionally misrepresents its rate and a customer relies on the misrepresentation."

"The mandatory aspect of the regulatory scheme came to an end following passage of the Telecommunications Act of 1996. ... Pursuant to the act, the FCC issued a series of orders mandating detariffing, and as of July 31, 2001, the tariff requirement was canceled altogether."

The Court of Appeals then reviewed the claims in the complaint in detail, and concluded, pursuant to these principles, that the claims are preempted by federal law. It affirmed the dismissal.

See also, story titled "7th Circuit Rules on Federal Preemption in Suit Involving Long Distance Telephone Rates" in TLJ Daily E-Mail Alert No. 1,169, July 7, 2005.

This case is Dreamscape Design, Inc. v. Affinity Network, Inc., Sup. Ct. No. 05-433, a petition for writ of certiorari to the U.S. Court of Appeals for the 7th Circuit. The Court of Appeals case is App. Ct. No. 04-3035, an appeal from the U.S. District Court for the Central District District of Illinois, D.C. No. 02 C 2235, Judge Michael McCuskey presiding. Judge Kanne wrote the opinion of the Court of Appeals, in which Judges Rovner and Sykes joined.

Supreme Court Grants Cert, and Vacates, in US v. Matthews

12/12. The Supreme Court denied certiorari, vacated the judgment of the Court of Appeals, and remanded, in US v. Matthews. This is one of several recent cases that involve the issue of the scope of Congressional authority to enact criminal statutes under the power to regulate interstate commerce. The present case goes to whether activity can be criminalized by the Congress, under the Commerce Clause, where the activity involves the use of a computer.

The Supreme Court issued no opinion. It merely wrote in its Order List [8 pages in PDF] of December 12, 2005, at page 1, that "The motion of respondent for leave to proceed in forma pauperis is granted. The petition for a writ of certiorari is granted. The judgment is vacated and the case is remanded to the United States Court of Appeals for the Eleventh Circuit for further consideration in light of Gonzales v. Raich, 545 U.S. ____ (2005)."

The Supreme Court issued its opinion [79 pages in PDF] in Gonzales v. Raich on June 6, 2005. This is another case regarding the authority of the Congress to enact criminal statutes under the Commerce Clause. The Court upheld a section of the Controlled Substances Act as a valid exercise of federal power. See, story titled "Supreme Court Upholds Broad Congressional Power to Enact Criminal Statutes Under Commerce Clause" in TLJ Daily E-Mail Alert No. 1,149, June 7, 2005.

Angel Raich, a California resident, grew rnarijuana at home, for personal use, for medicinal purposes, with a medical doctor's prescription, in a manner permitted under California law, but prohibited under federal law. She was not engaged in buying or selling, or other commercial activity. Nevertheless, the Supreme Court upheld the federal statute as a valid exercise of Commerce Clause authority.

In the present case, US v. Matthews, the U.S. District Court (NDAlab) and the U.S. Court of Appeals (11thCir) both held that the Congress lacked authority to enact the prohibition that is now codified at 18 U.S.C. § 2252A(a)(5)(B).

This section provides, in part, that "(a) Any person who ... (5) ... (B) knowingly possesses any book, magazine, periodical, film, videotape, computer disk, or any other material that contains an image of child pornography that has been mailed, or shipped or transported in interstate or foreign commerce by any means, including by computer, or that was produced using materials that have been mailed, or shipped or transported in interstate or foreign commerce by any means, including by computer, ... shall be punished ..."

The just released order of the Supreme Court is brief, and contains no explanation of legal principles. It merely grants certiorari, vacates, and remands. It instructs the Court of Appeals which opinion is controlling, Gonzales v. Raich. But, it does not instruct the Court of Appeals as to whether Gonzales v. Raich leads to the holding that the statute is a permissible, or impermissible, exercise of Commerce Clause authority.

However, to the extent that Gonzales v. Raich gives the Congress broad and nearly unlimited authority, and that the Courts of Appeals' opinion that is now vacated was issued before the Supreme Court issued its opinion in Gonzales v. Raich, it is likely that the Court of Appeals with now uphold the statute in question.

Raich is basically a throwback to the New Deal era case of Wickard v. Filburn, 317 U. S. 111 (1942). The Court, citing Wickard, wrote that "even if appellee's activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce." The Court added that "Congress can regulate purely intrastate activity that is not itself ``commercial,´´ in that it is not produced for sale, if it concludes that failure to regulate that class of activity would undercut the regulation of the interstate market in that commodity." And, the Supreme Court added that it will not engage in any significant review of the Congress' determination that something substantially affects interstate commerce.

The significance of this case lies not in what will become of Justin Matthews, or similarly situated perverts. This case goes to the authority of the Congress to criminalize individual conduct that involves use of computers, the internet, or communications. Much bad conduct is conducted by individuals sitting at home, who are not selling things in commerce. They are not engaged in interstate commerce in the literal sense of the term.

The plain language, and original understanding, of the Constitution is that the Congress has authority to enact legislation only on those topics enumerated in Article I. There is no general grant of criminal law making authority in the Constitution. Crime was a matter primarily left to state regulation.

There are a few express grants of criminal authority. For example, the Constitution provides that Congress has authority "to provide for the Punishment of counterfeiting the Securities and current coin of the United States".

There are also implied powers to enact certain criminal laws as "necessary and proper for carrying into Execution" other enumerated powers. See, Article I, Section 8, Clause 18. For example, the power "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Inventions" implies the power to criminalize the infringement of such an "exclusive Right".

However, today, there is a trend of enacting federal criminal statutes, including the one at issue in this case, under the authority of the Commerce Clause, even though the defendant's activity may not involve interstate commerce in the literal sense of the term. In cases such as Raich and Matthews the Supreme Court is allowing this trend to continue.

See also, petition for writ of certiorari filed by the Office of the Solicitor General (OSG) on August 12, 2005, and story titled "US Argues Congress Has Commerce Clause Authority to Criminalize Acts Involving Use of Computer" in TLJ Daily E-Mail Alert No. 1,195, August 15, 2005.

Also, on October 3, 2005, the Supreme Court granted certiorari, vacated, and remanded, in US v. Maxwell, another case involving 18 U.S.C. § 2252A(a)(5)(B) and the Commerce Clause. See, story titled "Supreme Court Vacates in US v. Maxwell" in TLJ Daily E-Mail Alert No. 1,227, October 5, 2005. This is Sup. Ct. No. 04-1382.

This case is US v. Justin Wayne Matthews, Sup. Ct. No. 05-59, a petition for writ of certiorari to the U.S. Court of Appeals for the 11th Circuit. The Court of Appeals number is 04-11052. The U.S. District Court for the Northern District of Alabama number is 02-00549 CR-S-M.

More Supreme Court News

12/12. The Supreme Court issued an order in Texaco v. Dagher and Shell v. Dagher. The Court wrote that "The motion of the Solicitor General for leave to participate in oral argument as amicus curiae and for divided argument is granted. The motion of respondents for divided argument is denied." See, Order List [8 pages in PDF], at page 2. This case involves the application of antitrust law to lawful joint ventures. Oral argument is scheduled for Tuesday, January 10, 2005. See, story titled "Supreme Court Grants Certiorari in Dagher" in TLJ Daily E-Mail Alert No. 1,163, June 28, 2005, and story titled "Verizon Seeks Reversal in Texaco v. Dagher" in TLJ Daily E-Mail Alert No. 1,232, October 12, 2005. See also, Supreme Court docket. This case is Texaco, Inc. v. Fouad N. Dagher, et al., Sup. Ct. No. 04-805, and Shell Oil Company v. Fouad N. Dagher, et al., No. 04-814, petitions for writ of certiorari to the U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 02-56509. The Court of Appeals heard an appeal from the U.S. District Court (CDCal), D.C. No. CV-99-06114-GHK.

12/12. The Supreme Court denied certiorari in Memorex Products v. SanDisk. See, Order List [8 pages in PDF], at page 4. This lets stand judgment of the U.S. Court of Appeals (FedCir). The Court of Appeals issued its opinion [27 pages in PDF] on July 8, 2005. This is a patent infringement case involving flash EEprom technology. SanDisk is the holder of U.S. Patent No. 5,602,987. SanDisk filed a complaint in U.S. District Court (NDCal) against Memorex and others alleging patent infringement. The District Court granted summary judgment of non-infringement. The Court of Appeals vacated and remanded. It concluded that the District Court "misread the claims at issue, and erred in finding a prosecution disclaimer in support of its reading". It also rejected the contention that judicial estoppel forecloses SanDisk's claim construction arguments on appeal. This case is Memorex Products v. SanDisk, Sup. Ct. No. 05-456, a petition for writ of certiorari to the U.S. Court of Appeals for the Federal Circuit. The Court of Appeals case is App. Ct. Nos. 04-1422 and 04-1610, appeals from the U.S. District Court for the Northern District of California, Judge Vaughn Walker presiding.

People and Appointments

12/12. Gail MacKinnon was named SVP, Government Relations, for the National Cable & Telecommunications Association (NCTA), effective January 1, 2006. She is currently SVP, Washington, for CBS Corporation. She will replace Steve Berry. See, NCTA release.

12/12. David Drinkwater was named Chief Legal Officer of Nortel Networks, effective December 19, 2005. See, Nortel release.

More News

12/12. The U.S. District Court (DNJ) entered final judgments against John Bratten and Charles Elliott in the civil action, SEC v. Lucent Technologies Inc., et al. Bratten and Elliott are employees of Lucent Technologies. The Securities and Exchange Commission (SEC) states that Bratten and Elliott committed securities fraud in violation of Section 10b of the Securities Exchange Act of 1934, and Rule 10b5 thereunder, and other violations, in connection with violation of GAAP by improperly recording revenue and operating income. See, SEC release. This case is D.C. No. 04-2315 (WFW) (MF).

Go to News from December 6-10, 2005.