TLJ News from January 21-25, 2006

5th Circuit Addresses Personal Jurisdiction in IPR Cases

1/25. The U.S. Court of Appeals (5thCir) issued its opinion [10 pages in PDF] in Luv N' Care v. Insta Mix, holding that personal jurisdiction over an out of state defendant in copyright, trademark and Lanham Act unfair competition suits may be based upon the stream of commerce theory.

Luv N' Care, Ltd. is a Louisiana corporation based in Louisiana. It designs, manufactures, and sells infant care products.

Insta Mix, Inc. is a small Colorado corporation that makes a two chambered plastic bottle with a freezable core. It holds a related patent. It has no offices or employees in Louisiana. It does not sell outside of Colorado. However, it sells wholesale to Wal-Mart in Colorado, which in turns has retail stores around the U.S., including in Louisiana. Wal-Mart ships some Insta Mix bottles to Louisiana.

This Appeals Court opinion addresses the issue of personal jurisdiction. It discloses little about the underlying claims. It states only that this is a copyright and Lanham act case involving a "bottle cap".

Nor does the opinion state whether or not Luv N' Care filed preemptively in Louisiana in anticipation of being sued in Colorado. However, the Court did write, "If Luv n' care's suit is indeed frivolous, the district court presumably will deal with that deficiency."

Luv N' Care filed a complaint in U.S. District Court in the Western District of Louisiana against Insta Mix and its related entities alleging copyright infringement, and trademark dilution and unfair competition under the Lanham Act, which is codified at 15 U.S.C. §§ 1125.

The District Court dismissed the complaint for lack of personal jurisdiction. The Court of Appeals reversed.

The Court of Appeals first offered this introduction to the law of personal jurisdiction. "The Due Process Clause of the Fourteenth Amendment guarantees that no federal court may assume jurisdiction in personam of a nonresident defendant unless the defendant has meaningful ``contacts, ties, or relations´´ with the forum state." (Citing and quoting from International Shoe Co. v. Washington, 326 U.S. 310 (1945).)

The Court continued that "Jurisdiction may be general or specific. Where a defendant has ``continuous and systematic general business contacts´´ with the forum state" ... "the court may exercise ``general´´ jurisdiction over any action brought against that defendant." Moreover, "Where contacts are less pervasive, the court may still exercise ``specific´´ jurisdiction ``in a suit arising out of or related to the defendant's contacts with the forum.´´" (Citing and quoting from Helicopteros Nacionales de Colombia, S. A. v. Hall, 466 U.S. 408 (1984).)

The Court noted that "This case presents only the question of specific jurisdiction."

The Court added that "A federal court may satisfy the constitutional requirements for specific jurisdiction by a showing that the defendant has ``minimum contacts´´ with the forum state such that imposing a judgment would not ``offend traditional notions of fair play and substantial justice.´´" (Citing International Shoe.)

The Court continued that for Insta Mix to have minimum contacts with the state of Louisiana, it must have engaged in some act whereby it purposely availed itself of the privilege of conducting activities in Louisiana, thus invoking the benefits and protections of its laws. Moreover, the Court wrote, Insta Mix must have reasonably anticipated being haled into court in Louisiana."

The Court of Appeals held that these requirements were satisfied by Insta Mix's placing a product into the stream of commerce, when it knew that some of the product would ultimately reach Louisiana. The Court further rejected the argument that the stream of commerce theory of personal jurisdiction, which is a products liability law concept, is not applicable to disputes involving either copyright, trademark, or Lanham Act unfair competition claims. The Court added in a footnote that "We reserve judgment on whether jurisdiction would lie for other causes of action outside the arena of products liability."

This case is Luv N' Care, Ltd. v. Insta Mix, Inc., et al., U.S. Court of Appeals for the 5th Circuit, App. Ct. No. m 04-31171, an appeal from the U.S. District Court for the Western District of Louisiana.

Microsoft Offers to License Certain Windows Server Source Code

1/25. Microsoft announced its "decision to license all the Windows Server source code for the technologies covered by the European Commission's Decision of March 2004. The company is making this voluntary move in order to address categorically all of the issues raised by the Commission's December 22, 2005 Statement of Objections. That document asserted that Microsoft's prior technical documentation provided insufficient information to enable licensees to implement successfully certain Windows Server communications protocols." See, Microsoft release.

See also, stories titled "EU Seeks More Money and Disclosures from Microsoft" in TLJ Daily E-Mail Alert No. 1,279, December 23, 2006; "European Commission Seeks 497 Million Euros and Code Removal from Microsoft" in TLJ Daily E-Mail Alert No. 863, March 25, 2004, and "European Commission Releases Microsoft Decision" in TLJ Daily E-Mail Alert No. 883, April 23, 2004..

Brad SmithBrad Smith (at right), Microsoft SVP and General Counsel, stated that "we are putting our most valuable intellectual property on the table so we can put technical compliance issues to rest and move forward with a serious discussion about the substance of this case ... The Windows source code is the ultimate documentation of Windows Server technologies. With this step our goal is to resolve all questions about the sufficiency of our technical documentation."

The EU's December Statement of Objections stated that one of the remedies imposed by the 2004 decision "was for Microsoft to disclose complete and accurate interface documentation which would allow non-Microsoft work group servers to achieve full interoperability with Windows PCs and servers. The Statement of Objections indicates that the Commission's preliminary view, supported by two reports from the Monitoring Trustee ..., is that Microsoft has not yet provided complete and accurate specifications for this interoperability information."

Duster Bhatia Addresses PR China, IPR and Trade

1/25. Karan Bhatia, a new Deputy U.S. Trade Representative (DUSTR), gave a speech [9 pages in PDF] in Washington DC regarding the Peoples Republic of China and trade related issues. He said the PR China must enforce intellectual property rights, play a more active role in the Doha round, and do more to open its markets.

He said that Americans do not "believe that China is competing fairly when rampant piracy, counterfeiting, and copyright infringement cost American businesses billions of dollars each year. It is theft pure and simple, and American businesses are right to insist that it stop. Camcorders have no place in movie theaters, and factories turning out rip-offs of everything from handbags to autos need to be shut down."

He added that "The upshot of these difficulties, not surprisingly, is that support for the bilateral trading relationship is being challenged as never before. Perhaps most troublingly, small and medium-sized manufacturers, in particular, have begun to wonder whether a growing trade relationship is in their best interests. And, absent progress, some in Congress have indicated that they may well act."

He then said that "trade-savvy commentators", none of whom he identified, have been "increasingly disturbed about China's failure to participate in the strengthening of the global trading system. They point, for example, to China's reluctance to open its markets beyond the specific requirements of its accession agreements, or to play a more active and positive role in the Doha Round negotiations. These criticisms are not without merit -- China has not played a role in strengthening the international trading system commensurate with its commercial heft and with the benefit it has obtained from that system."

He continued that "some within China continue to advocate a very guarded approach towards economic liberalization. Their approach favors careful selection of sectors and markets for at best partial opening, continued state control, government collaboration with and protection of local interests, non-transparent decision-making, and even subtle (or not so subtle) threats of intimidation against domestic or foreign companies that buck the system." (Parentheses in original.)

"This approach", said Bhatia, "fosters inefficient allocations of resources, uneven applications of the law, and corruption. In short, advocates of this approach have not yet fully embraced the culture of free enterprise, transparency and the rule of law that is necessary for creativity and entrepreneurship to flourish and sustain long-term economic growth. China must move more fully beyond this approach, recognize the systemic value of an open and free trading system, and on this basis engage as a leading partner in global trade. Multilaterally, China must play a role commensurate with its global economic heft."

Bhatia was confirmed by the Senate as a DUSTR in November 2005. He has also worked in the Bush administration at the Department of Commerce's (DOC) Bureau of Industry and Security, and at the Department of Transportation. Before that, he worked at the law firm of Wilmer Cutler & Pickering, which is now Wilmer Hale.

Bush Nominates Bradbury for OLC

1/25. President Bush nominated Steven Bradbury to be Assistant Attorney General (AAG) in charge of the Office of Legal Counsel (OLC). See, White House release. This is a renomination. The Senate Judiciary Committee (SJC) approved this nomination, by unanimous consent, on November 3, 2005. He is currently the acting AAG for the OLC.

Bradbury is one of the attorneys providing legal advice to AG Alberto Gonzales and President Bush regarding the National Security Agency's (NSA) extrajudicial electronic surveillance of communications where one party in within the U.S. and one party is without.

Previously, he worked in the Washington DC office of the law firm of Kirkland & Ellis. He is also a former law clerk for Supreme Court Justice Clarence Thomas.

Bradbury and Brett Kavanaugh (see following story) both represented GTE Internetworking Inc. (GTEi) in AT&T v. Portland, in the U.S. Court of Appeals for the Ninth Circuit, App. Ct. No. 99-35609. This was a cable access case. See, joint brief of GTE and US West and case summary. GTEi was previously known as BBN. GTE has since merged into the company now known as Verizon.

Bradbury and Kavanaugh also represented GTEi in an antitrust action action against TCI, Comcast, and At Home filed in 1999 alleging that the bundling of high speed cable data transport with ISP service is a violation of the Sherman Antitrust Act. See, complaint and case summary.

Bush Nominates Kavanaugh for DC Circuit

1/25. President Bush nominated Brett Kavanaugh to be a Judge of the U.S. Court of Appeals for the District of Columbia Circuit. See, White House release. This is a renomination. Bush nominated Kavanaugh in the 108th Congress, and again last year. However, Senate Democrats have used the filibuster, or threat of the filibuster, to prevent the Senate from voting on Kavanaugh and many of President Bush's of nominees for various U.S. Courts of Appeals.

Kavanaugh has worked in the Office of White House Counsel. Previously, he worked for the law firm of Kirkland & Ellis. Before that he worked for Ken Starr in the Office of Independent Counsel.

Sen. Hillary Clinton (D-NY), whose husband Kavanaugh previously investigated, is now a member of the Senate.

See also, story titled "Bush to Renominate 20 for Federal Judgeships" in TLJ Daily E-Mail Alert No. 1,044, December 27, 2004.

Bush Nominates Chagares for 3rd Circuit

1/25. President Bush nominated Michael Chagares to be a Judge of the U.S. Court of Appeals for the Third Circuit. This nomination is for the seat vacated by Michael Chertoff when he became Secretary of Homeland Security. See, White House release.

President Bush also nominated Renee Marie Bumb, Noel Lawrence Hillman and Susan Wigenton to be a Judges of the U.S. District Court for the District of New Jersey, which is a part of the 3rd Circuit. See, same White House release.

This set of nominations follows an agreement between President Bush, and Sen. Frank Lautenberg (D-NJ), Sen. Robert Menendez (D-NJ), and former Senator, and now Governor, Jon Corzine. Sen. Lautenberg stated in a release that "I will urge the full Senate to confirm these judges".

Chagares is a partner in the Commercial Litigation Department of the law firm of Cole Schotz Meisel Forman and Leonard in Hackensack, New Jersey. He was previously Chief of the Civil Division of the U.S. Attorney’s Office for the District of New Jersey. See, Cole Schotz bio.

Wigenton is a federal Magistrate Judge in Newark, New Jersey.

Hillman is Chief of the Public Integrity Section in the Criminal Division of the Department of Justice.

Bumb is head of the Camden office of the U.S. Attorney's Office for the District of New Jersey.

More People and Appointments

1/25. President Bush nominated Andrew Guilford to be a Judge of the U.S. District Court for the Central District of California. See, White House release. Guilford is an attorney in the Orange County office of the law firm of Sheppard Mullin Richter & Hampton. He has experience in intellectual property related litigation.

1/25. President Bush nominated Vanessa Bryant to be a Judge of the U.S. District Court for the District of Connecticut. See, White House release. She is currently a state court judge.

1/25. President Bush nominated Brian Cogan to be a Judge of the U.S. District Court for the Eastern District of New York. See, White House release.

1/25. President Bush nominated Thomas Golden to be a Judge of the U.S. District Court for the Eastern District of Pennsylvania. See, White House release.

1/25. President Bush nominated Gray Miller to be a Judge of the U.S. District Court for the Southern District of Texas. See, White House release. He is a partner in the Houston office of the law firm of Fulbright Jaworski.

More Privacy News

1/24. The U.S. Court of Appeals (2ndCir) issued its opinion [4 pages in PDF] in Cassano v. Carb, affirming the District Court's dismissal of the plaintiff's complaint for failure to state a claim upon which relief can be granted. Defendants fired Dianne Cassano because she refused to give them her Social Security Number. She asserted that she feared identity theft. The Court of Appeals discussed, and rejected, claims based upon 42 U.S.C. §§ 1981, 1983, 1985, and 1986, and a right to privacy under the Fourth Amendment and the Equal Protection Clause of the Fourteenth Amendment. This case is Dianne Cassano v. Allen Carb, et al., U.S. Court of Appeals for the 2nd Circuit, App. Ct. No. 04-6712-cv, an appeal from the U.S. District Court for the Eastern District of New York, Judge Joanna Seybert.

1/24. The U.S. Court of Appeals (4thCir) issued another opinion [PDF] in Doe v. Chao. The Privacy Act of 1974, which is codified at 5 U.S.C. § 552a, provides that people can sue the federal government for the wrongful disclosure of their Social Security Numbers (SSN) and recover statutory damages. In this case, the Department of Labor wrongfully disclosed SSNs. Doe and others sued. The Court of Appeals previously held that plaintiffs must also show actual damages in order to recover statutory damages. The Supreme Court affirmed. However, it remanded the issue of attorneys fees and costs. The District Court then held that Doe's attorneys are entitled to recover attorneys fees and costs. In the just issued opinion, the Court of Appeals affirmed this holding, but rejected the District Court's calculation. This case is Buck Doe, et al. v. Elaine Chao, U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 05-1068, an appeal from the U.S. District Court for the Eastern District of Virginia, at Big Stone Gap, CA-97-43-2, Judge Glen Williams presiding. In 2003, the Electronic Privacy Information Center (EPIC) and other groups and individuals filed an amicus curiae brief [37 pages in PDF] with the Supreme Court in this case.

More News

1/25. President Bush gave a speech at the National Security Agency (NSA) in Fort Meade, Maryland, regarding the NSA's extrajudicial electronic surveillance of communications where one party is within the U.S. and one party is without. He again argued that the program is both important and legal.


AG Gonzales Defends Legality of NSA E-Surveillance Program

1/24. Attorney General Alberto Gonzales gave a speech in Washington DC regarding the National Security Agency's (NSA) extrajudicial electronic surveillance of communications where one party is within the U.S. and the other is without the U.S.

Alberto GonzalesGonzales (at right) began by stating that the terrorist attacks of September 11, 2001 form the "backdrop to the current debate about the National Security Agency's terrorist surveillance program."

He described this NSA program as "focused on international communications where experienced intelligence experts have reason to believe that at least one party to the communication is a member or agent of al Qaeda or a terrorist organization affiliated with al Qaeda."

He also said that "This remains a highly classified program. It remains an important tool in protecting America. So my remarks today speak only to those activities confirmed publicly by the President, and not to other purported activities described in press reports. These press accounts are in almost every case, in one way or another, misinformed, confusing, or wrong."

Thus, instead of discussing the nature of the program, Gonzales focused on the legal authority to run this program.

Constitutional Powers of the President. First, he argued briefly that it "is firmly grounded in the President's constitutional authorities".

He elaborated that "It has long been recognized that the President's constitutional powers include the authority to conduct warrantless surveillance aimed at detecting and preventing armed attacks on the United States. Presidents have uniformly relied on their inherent power to gather foreign intelligence for reasons both diplomatic and military, and the federal courts have consistently upheld this longstanding practice."

Although, he cited no judicial precedent for this in this speech.

Congressional War Resolution. Second, he argued that authority "comes directly from Congress as well", from the September 2001 Congressional joint resolution titled "Authorization for Use of Military Force". See, SJRes 23 (107th Congress), and President Bush's September 18, 2001 signing statement.

He continued that "Congress did two important things. First, it expressly recognized the President's ``authority under the Constitution to take action to deter and prevent acts of international terrorism against the United States.´´ Second, it supplemented that authority by authorizing the President to, quote, ``use all necessary and appropriate force against those nations, organizations, or persons he determines planned, authorized, committed, or aided the terrorist attacks´´ in order to prevent further attacks on the United States. The Resolution means that the President’s authority to use military force against those terrorist groups is at its maximum because he is acting with the express authorization of Congress."

He added that "were we to employ the three-part framework of Justice Jackson's concurring opinion in the Youngstown Steel Seizure case, the President's authority falls within Category One, and is at its highest. He is acting ``pursuant to an express or implied authorization of Congress,´´ and the President's authority ``includes all that he possesses in his own right [under the Constitution] plus all that Congress can´´ confer on him." (Brackets in original.)

This is the 1952 case Youngstown Sheet & Tube, Co. v. Sawyer, which is reported at 343 U.S. 579. This was not a surveillance case. It pertained to seizure of steel mills by the President. It involved a draconic form of economic regulation, undertaken on the pretext that fighting a war in Korea enhanced the President's authority with respect to domestic economic activity. The Supreme Court held that the President lacks this authority. It was a 6-3 split, with a fractured majority. Justice Hugo Black wrote the opinion of the Court. Justice Robert Jackson, whose concurring opinion Gonzales now cites, was joined by no other Justice.

Jackson also wrote that "There are indications that the Constitution did not contemplate that the title Commander in Chief of the Army and Navy will constitute him also Commander in Chief of the country, its industries and its inhabitants." (See, 343 U.S. 643-4.)

Former Chief Justice William Rehnquist was a law clerk of Justice Jackson at the time. Rehnquist wrote 58 pages on this case in his book titled The Supreme Court: How It Was: How It Is [Amazon]. See, Chapter 2, titled "The Steel Seizure Case in the Lower Courts" and Chapter 3, titled "The Steel Seizure Case in the Supreme Court".

Gonzales also cited the 2004 opinion of the Supreme Court in Hamdi v. Rumsfeld, which is reported 542 U.S. 507. The case involved the President's authority to detain an American citizen as an enemy combatant.

Gonzales stated that the Supreme Court "confirmed that the expansive language of the Resolution -- ``all necessary and appropriate force´´ -- ensures that the congressional authorization extends to traditional incidents of waging war. And, just like the detention of enemy combatants approved in Hamdi, the use of communications intelligence to prevent enemy attacks is a fundamental and well-accepted incident of military force."

History of Surveillance. Third, Gonzales argued that history supports the NSA program. Basically, he argued communications between parties within and without the U.S. have been intercepted, without court orders, since the war for independence from Britain.

He said that "This Nation has a long tradition of wartime enemy surveillance -- a tradition that can be traced to George Washington, who made frequent and effective use of secret intelligence, including the interception of mail between the British and Americans. And for as long as electronic communications have existed, the United States has conducted surveillance of those communications during wartime -- all without judicial warrant. In the Civil War, for example, telegraph wiretapping was common, and provided important intelligence for both sides. In World War I, President Wilson ordered the interception of all cable communications between the United States and Europe; he inferred the authority to do so from the Constitution and from a general congressional authorization to use military force that did not mention anything about such surveillance. So too in World War II; the day after the attack on Pearl Harbor, President Roosevelt authorized the interception of all communications traffic into and out of the United States."

Gonzales conceded that the war resolution "does not expressly mention surveillance", but argued that "Congress made no attempt to catalog every aspect of the use of force it was authorizing". Instead, Gonzales argued that "following the model of past military force authorizations, Congress -- in general, but broad, terms -- confirmed the President’s authority to use all traditional and legitimate incidents of military force to identify and defeat the enemy. In doing so, Congress must be understood to have intended that the use of electronic surveillance against the enemy is a fundamental component of military operations."

FISA and Title III. Gonzales next rejected the argument that the 1978 Foreign Intelligence Surveillance Act (FISA), as amended, precludes operation of this NSA program.

He mentioned first that "I'm going to assume here that intercepts of al Qaeda communications under the terrorist surveillance program fall within the definition of ``electronic surveillance´´ in FISA."

He also stated that in 1978 "there were concerns among Members of Congress about the constitutionality of FISA itself".

However, he did not assert its unconstitutionality in this speech. Rather, he said that "We do not have to decide whether, when we are at war and there is a vital need for the terrorist surveillance program, FISA unconstitutionally encroaches -- or places an unconstitutional constraint upon -- the President's Article II powers. We can avoid that tough question because Congress gave the President the Force Resolution, and that statute removes any possible tension between what Congress said in 1978 in FISA and the President's constitutional authority today."

Gonzales also rejected the argument that Title III and FISA together are the sole means for conducting electronic surveillance. He said that "It is true that the law says that Title III and FISA are ``the exclusive means by which electronic surveillance . . . may be conducted.´´ But, as I have said before, FISA itself says elsewhere that the government cannot engage in electronic surveillance ``except as authorized by statute." It is noteworthy that, FISA did not say ``the government cannot engage in electronic surveillance `except as authorized by FISA and Title III.´ ´´ No, it said, except as authorized by statute -- any statute. And, in this case, that other statute is the Force Resolution."

Title III is a reference to wiretap authority under Title III of the Omnibus Crime Control and Safe Streets Act of 1968.

He also argued that the provisions in the FISA that provide for emergency authorizations, as a practical matter, are inadequate, because they too involve time consuming preparations and procedures.

4th Amendment. Finally, Gonzales argued that the 4th Amendment does not preclude the NSA program.

It provides that "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

He said that "The Fourth Amendment has never been understood to require warrants in all circumstances. For instance, before you get on an airplane, or enter most government buildings, you and your belongings may be searched without a warrant. There are also searches at the border or when you’ve been pulled over at a checkpoint designed to identify folks driving while under the influence. Those searches do not violate the Fourth Amendment because they involve ``special needs´´ beyond routine law enforcement. The Supreme Court has repeatedly held that these circumstances make such a search reasonable even without a warrant. The terrorist surveillance program is subject to the checks of the Fourth Amendment, and it clearly fits within this ``special needs´´ category."

Also on January 24, the White House press office issued a release titled "Setting the Record Straight: Charges Of ``Domestic Spying´´".

ACLU Reaction. Anthony Romero, the ACLU's Executive Director, responded in a release that "President Bush and Attorney General Gonzales can manufacture all of the legal justifications they want, but the facts and laws show that this warrantless surveillance violates the First and Fourth Amendment and the Foreign Intelligence Surveillance Act."

He added that "Any opinion coming from the Justice Department has to be viewed with a healthy dose of skepticism, given Attorney General Gonzales’ involvement in the warrantless spying as White House counsel. The fox may now be guarding the henhouse, which is why we need an independent special counsel."

Romero also called for Congressional hearings.

The Senate Judiciary Committee (SJC) has scheduled a hearing for February 6 titled "Wartime Executive Power and the NSA’s Surveillance Authority". Gonzales is scheduled to testify.

People and Appointments

1/24. Maureen Grewe was named the Department of the Treasury's (DOT) Financial Attaché in Tokyo, Japan, effective August 2006. In addition, Barbara Matthews was named Financial Attaché in Brussels, Belgium. See, DOT release.

1/24. The U.S. States Chamber of Commerce's Space Enterprise Council name Matthew Jones as its new Chairman and Earl Madison as Vice chairman for 2006. Jones is Manager of Air Force Space Systems for Boeing. Madison works for Lockheed Martin.

1/24. John Gibbs was named VP of State Government Affairs at Comcast Corporation. See, release.


Supreme Court Denies Certiorari in Blackberry Patent Case

1/23. The Supreme Court denied certiorari in Research in Motion v. NTP, a patent infringement case involving Research in Motion's (RIM) BlackBerry series of mobile communications and computing devices. See, Order List [9 pages in PDF] at page 8. This lets stand the judgment of the U.S. Court of Appeals (FedCir).

See, August 2, 2005, opinion [75 pages in PDF] of the Court of Appeals, and story titled "Federal Circuit Issues New Opinion in NTP v. RIM" in TLJ Daily E-Mail Alert No. 1,197, August 17, 2005. This affirmed the judgment of the District Court that RIM has infringed some claims of NTP patents.

This case is Research in Motion, Ltd. v. NTP, Inc., a petition for writ of certiorari to the U.S. Court of Appeals for the Federal Circuit, Sup. Ct. No. 05-763. The Court of Appeals number is 03-1615. The Court of Appeals heard an appeal from the U.S. District Court for the Eastern District of Virginia, D.C. No. 3:01CV767.

The Supreme Court also granted the motions of Intel, Canadian Chamber of Commerce, and the Government of Canada to file amicus curiae briefs.

NTP was represented by Bert Rein of the Washington DC law firm of Wiley Rein & Fielding. RIM was represented by Herbert Fenster of the law firm of McKenna Long & Aldridge.

Supreme Court Rules in State Sovereign Immunity Case

1/23. The Supreme Court issued its 5-4 opinion [60 pages in PDF] in Central Virginia Community College v. Katz, a bankruptcy case regarding state sovereign immunity. The Supreme Court affirmed the judgment of the U.S. Court of Appeals (6thCir). That Supreme Court upheld a Congressional abrogation of state sovereign immunity. Previously, the Supreme Court has overturned Congress attempts to abrogate state sovereign immunity in the context of intellectual property law. See, full story.

GAO Releases Report on Impact of Internet Tax Moratorium

1/23. The Government Accountability Office (GAO) released a report [55 pages in PDF] titled "Internet Access Tax Moratorium: Revenue Impacts Will Vary by State".

The Congress enacted the original moratorium in late 1998. It extended the moratorium in 2001. In late 2004 the Congress again extended the moratorium, to November 1, 2007. On December 3, 2004, President Bush signed S 150 (108th Congress), the "Internet Tax Nondiscrimination Act". See, White House release. It is now Public Law No. 108-435. This bill created many new exceptions to the moratorium, and required this GAO report. See, story titled "Bush Signs Internet Tax Nondiscrimination Act" in TLJ Daily E-Mail Alert No. 1,031, December 6, 2004.

The original moratorium provided that "(a) Moratorium.--No State or political subdivision thereof shall impose any of the following taxes during the period beginning on October 1, 1998, and ending 3 years after the date of the enactment of this Act -- (1) taxes on Internet access, unless such tax was generally imposed and actually enforced prior to October 1, 1998; and (2) multiple or discriminatory taxes on electronic commerce."

S 150 added the following: "The term `Internet access service´ does not include telecommunications services, except to the extent such services are purchased, used, or sold by a provider of Internet access to provide Internet access." That is, the 1998 act imposed a moratorium on taxes on internet access, but, the act's definition of "internet access" excluded "telecommunications services". This change clarifies that services, such as broadband DSL and wireless internet access services, are covered by the moratorium.

S 150 also created numerous exceptions to this moratorium. For example, it creates exemptions for state and federal universal service programs, 911 and E911 programs, and VOIP services. It expands the grandfather provisions. It also carves out a special exemption for the state of Texas' municipal access line fee.

The GAO's just released report states that "The Internet tax moratorium bars taxes on Internet access, meaning taxes on the service of providing Internet access. In this way, it prevents services that are reasonably bundled as part of an Internet access package, such as electronic mail and instant messaging, from being subject to taxes when sold to end users. These tax-exempt services also include DSL services bundled as part of an Internet access package."

It continues that "Some states and providers have construed the moratorium as also barring taxation of what we call acquired services, such as high-speed communications capacity over fiber, acquired by Internet service providers and used by them to deliver access to the Internet to their customers. Because they believed that taxes on acquired services are prohibited by the 2004 amendments, some state officials told us their states would stop collecting them as early as November 1, 2005, the date they assumed that taxes on acquired services would lose their grandfathered protection. However, according to our reading of the law, the moratorium does not apply to acquired services since, among other things, a tax on acquired services is not a tax on ``Internet access.´´ Nontaxable ``Internet access´´ is defined in the law as the service of providing Internet access to an end user; it does not extend to a provider's acquisition of capacity to provide such service. Purchases of acquired services are subject to taxation, depending on state law."

This GAO report concludes that "the moratorium's total revenue impact has been unclear and any future impact would vary by state."

It elaborates that the Congressional Budget Office (CBO) reported in 2003 "that states and localities would lose from more than $160 million to more than $200 million annually by 2008 if all grandfathered taxes on dial-up and DSL services were eliminated, although part of this loss reflected acquired services. It also identified other potential revenue losses, although unquantified, that could have grown in the future but that now seem to pose less of a threat."

See, November 5, 2003 letter from the CBO to Sen. Lamar Alexander (R-TN).

The GAO report continues that "CBO's estimated annual losses by 2007 for states that had grandfathered taxes in 1998 were about 0.1 percent of the total 2004 tax revenues for those states. Because it is difficult to know what states would have done to tax Internet access services if no moratorium had existed, the total revenue implications of the moratorium are unclear. The 1998 moratorium was considered before connections to the Internet were as widespread as they later became, limiting the window of opportunity for states to adopt new taxes on access services. Although some states had already chosen not to tax access services and others stopped taxing them, other states might have been inclined to tax access services if no moratorium were in place."

It concludes that "In general, any future impact related to the moratorium will differ from state to state. The details of state tax law as well as applicable tax rates varied from one state to another. For instance, North Dakota taxed access service delivered to retail consumers. Kansas taxed communications services acquired by Internet service providers to support their customers. Rhode Island taxed both access service offerings and the acquisition of communications services. California officials said their state did not tax these areas at all."

See also, CBO report titled "Economic Issues in Taxing Internet and Mail-Order Sales".

House Commerce Committee Leaders Request Information from FCC Re CPNI Compliance

1/23. Rep. Joe Barton (R-TX), Rep. John Dingell (D-MI), Rep. Fred Upton (R-MI), and Rep. Ed Markey (D-MA) sent a short letter [PDF] to Federal Communications Commission (FCC) Chairman Kevin Martin regarding the sale and disclosure of consumer phone records. They requested copies of the annual certifications of the five largest wireline carriers and five largest wireless carriers regarding compliance with the FCC's customer proprietary network information (CPNI) rules.

The four are the Chairmen and ranking Democrats of the House Commerce Committee and its Subcommittee on Telecommunications and the Internet.

The body of the letter contains four paragraphs, which are quoted in full below.

"We write with respect to the disclosure of consumer phone records. The protection of consumer privacy in an age where an increasing amount of personal information and transactions are contained in electronic form is more vital than ever. Consumers are rightly concerned when they learn that their personal information has been compromised. In the recent cases involving the online sale of telephone records the apparent ease with which such personal information has been compromised, obtained, and then sole, is shocking and unacceptable."

"In your January 13th response to Representative Markey's November 7th letter, you note that the Federal Communications Commission (the Commission) has before it a petition from the Electronic Privacy Information Center, which was filed last year and for which the public record is now closed. We are eager to know when the Commission will complete its review of the record and determine what actions should be taken in response to the petition."

"In addition, in your response, you also note that each telecommunications carrier, under existing customer proprietary network information rules, "must certify annually that it has established operating procedures that are adequate to ensure compliance with these rules, and must provide a statement explaining how its operating procedures ensure such compliance." As part of our ongoing investigation of this issue, as well as the Commission's response to consumer privacy concerns, we request that you forward to us the last annual certifications the Commission has received from the 5 largest wireline telecommunications carriers and the 5 largest wireless telecommunications carriers, along with the accompanying statements from each company explaining how their internal procedures protect the confidentiality of consumer information."

"Please provide our office the requested documents by January 30, 2006. Thank you in advance for your time and attention in responding to this request."

(The italics are from the original. The hyperlinks were added by TLJ.)

In addition, Rep. Markey stated in a release that "Every day that we wait we leave the public exposed to these information attacks -- we must shut down this black market of consumer information immediately".

The EPIC petition was filed on August 30, 2005, in CC Docket No. 96-115, by Chris Hoofnagle.

Bush Defends NSA Electronic Surveillance Program

1/23. President Bush gave a speech at Kansas State University in Manhattan, Kansas, in which he discussed, among other topics, the war on terrorism, extending the expiring provisions of the USA PATRIOT Act, and electronic surveillance by the National Security Agency (NSA).

PATRIOT Act Extension. He said that "Interestingly enough, the Patriot Act, some of its provisions are set to expire. I like to remind people the Patriot Act may be set to expire, but the threats to the United States haven't expired. And exactly what has changed, I asked out loud, after the attack of September the 11th and today? Those tools are still needed for our law enforcement officers. I want you to know that this Patriot Act is under constant review, and there has been no documented abuses under the Patriot Act."

The 2001 USA PATRIOT Act provided that 16 of its sections would expire on December 31, 2005. In late December the Congress approved S 2167, a short untitled bill that merely extends the sunset date to February 3, 2006.

The House, but not the Senate, has approved the huge conference report [PDF] on HR 3199, the "USA PATRIOT Improvement and Reauthorization Act of 2005".

See also, stories titled "House and Senate Approve Five Week Extension of Sunsetted Sections of PATRIOT Act" in TLJ Daily E-Mail Alert 1,279, December 23, 2005; "Senate Approves Six Month Extension of Sunsetted Provisions of the PATRIOT Act" in TLJ Daily E-Mail Alert No. 1,278, December 22, 2005, "Cloture Motion on PATRIOT Act Extension Bill Defeated in Senate" in TLJ Daily E-Mail Alert No. 1,275, December 19, 2005, and "House Approves Conference Report on PATRIOT Act Extension Bill" in TLJ Daily E-Mail Alert No. 1,273, December 15, 2005.

NSA Domestic Surveillance. Bush said of the NSA surveillance program, "It's what I would call a terrorist surveillance program."

See also, story titled "President Bush Discloses Interception of Communications Without Court Approval" in TLJ Daily E-Mail Alert No. 1,275, December 19, 2005; story titled "Bush, Gonzales & Hayden Discuss Presidential Intercepts and PATRIOT Act" in TLJ Daily E-Mail Alert No. 1,276, December 20, 2005; story titled "Law Professors Assert That NSA Electronic Surveillance Program Violates Law" in TLJ Daily E-Mail Alert No. 1,287, January 11, 2006; and story titled "Bush Discusses NSA Surveillance and PATRIOT Act" in TLJ Daily E-Mail Alert No. 1,288, January 12, 2006.

The Senate Judiciary Committee will hold a hearing on Monday, February 6, at 9:30 AM, titled "Wartime Executive Power and the NSA’s Surveillance Authority". The witnesses will include Attorney General Alberto Gonzales.

Bush continued that "I made the decision to do the following things because there's an enemy that still wants to harm the American people. What I'm talking about is the intercept of certain communications emanating between somebody inside the United States and outside the United States; and one of the numbers would be reasonably suspected to be an al Qaeda link or affiliate. In other words, we have ways to determine whether or not someone can be an al Qaeda affiliate or al Qaeda. And if they're making a phone call in the United States, it seems like to me we want to know why."

"This is a -- I repeat to you, even though you hear words, ``domestic spying,´´ these are not phone calls within the United States. It's a phone call of an al Qaeda, known al Qaeda suspect, making a phone call into the United States", said Bush.

"I'm mindful of your civil liberties, and so I had all kinds of lawyers review the process. We briefed members of the United States Congress", said Bush. "You know, it's amazing, when people say to me, well, he was just breaking the law -- if I wanted to break the law, why was I briefing Congress?"

He also argued that "Federal courts have consistently ruled that a President has authority under the Constitution to conduct foreign intelligence surveillance against our enemies. Predecessors of mine have used that same constitutional authority. Recently there was a Supreme Court case called the Hamdi case. It ruled the authorization for the use of military force passed by the Congress in 2001 -- in other words, Congress passed this piece of legislation. And the Court ruled, the Supreme Court ruled that it gave the President additional authority to use what it called "the fundamental incidents of waging war" against al Qaeda."

See, the June 28, 2004, Supreme Court opinion in Hamdi v. Rumsfeld, 542 U.S. 507.

Bush concluded, "I'm not a lawyer, but I can tell you what it means. It means Congress gave me the authority to use necessary force to protect the American people, but it didn't prescribe the tactics. It's an -- you've got the power to protect us, but we're not going to tell you how. And one of the ways to protect the American people is to understand the intentions of the enemy. I told you it's a different kind of war with a different kind of enemy. If they're making phone calls into the United States, we need to know why -- to protect you."

Gen. Hayden Defends NSA E-Surveillance Program

1/23. General Michael Hayden gave a speech [21 pages in PDF] and answered questions in Washington DC, regarding the National Security Agency's (NSA) domestic terrorism related electronic surveillance program that was publicly disclosed by President Bush in December.

He said that "Had this program been in effect prior to 9/11, it is my professional judgment that we would have detected some of the 9/11 al Qaeda operatives in the United States, and we would have identified them as such."

 He added that "this program's been successful", and that "this program has given us information that we would not otherwise had been able to get". But, he said, "It's impossible for me to talk about this".

And, he said, "we're not violating the law".

Michael HaydenHayden (at right) is currently the the Principal Deputy Director for National Intelligence. Before that he was Director of the National Security Agency.

He often spoke in vague terms. For example, he was asked "Are you looking at individuals or are you looking at phone numbers, websites, e-mail addresses?" He responded that it is "Hard for me to get into the specifics. I would just say that what it is we do is that we use our art form -- we use our science and our art to -- as best as we can, okay? -- specifically target communications we have reason to believe are associated with al Qaeda, and we use all of the tools ... available to us to do that."

He said that "NSA intercepts communications, and it does so for only one purpose -- to protect the lives, the liberties and the well-being of the citizens of the United States from those who would do us harm. By the late 1990s, that job was becoming increasingly more difficult. The explosion of modern communications in terms of volume, variety, velocity threatened to overwhelm us."

He did not elaborate on what communications and information technologies cause the NSA difficulty.

Nor did he identify any new technologies that present the government with new and increased opportunities for obtaining information.

He also addressed the authority for the NSA's program. He said that "prior to September 11th certain communications weren't considered valuable intelligence, it became immediately clear after September 11th that intercepting and reporting these same communications were in fact critical to defending the homeland. Now let me make this point. These decisions were easily within my authorities as the director of NSA under and executive order; known as Executive Order 12333, that was signed in 1981, an executive order that has governed NSA for nearly a quarter century."

"Now, beyond the authorities that I exercised under the standing executive order, as the war on terror has moved forward, we have aggressively used FISA warrants. The act and the court have provided us with important tools, and we make full use of them. Published numbers show us using the court at record rates, and the results have been outstanding. But the revolution in telecommunications technology has extended the actual impact of the FISA regime far beyond what Congress could ever have anticipated in 1978. And I don't think that anyone can make the claim that the FISA statute is optimized to deal with or prevent a 9/11 or to deal with a lethal enemy who likely already had combatants inside the United States."

Hayden also compared FISA procedure to the quicker procedure of the program that is currently the subject of debate. He said that "The president's authorization allows us to track this kind of call more comprehensively and more efficiently. The trigger is quicker and a bit softer than it is for a FISA warrant, but the intrusion into privacy is also limited: only international calls and only those we have a reasonable basis to believe involve al Qaeda or one of its affiliates. The purpose of all this is not to collect reams of intelligence, but to detect and prevent attacks." He added that "These are communications that we have reason to believe are al Qaeda communications, a judgment made by American intelligence professionals, not folks like me or political appointees, a judgment made by the American intelligence professionals most trained to understand al Qaeda tactics, al Qaeda communications and al Qaeda aims."

He also said that "It is not a driftnet over Dearborn or Lackawanna or Freemont grabbing conversations that we then sort out by these alleged keyword searches or data-mining tools or other devices that so-called experts keep talking about." Moreover, "This is not about intercepting conversations between people in the United States. This is hot pursuit of communications entering or leaving America involving someone we believe is associated with al Qaeda. We bring to bear all the technology we can to ensure that this is so. And if there were ever an anomaly, and we discovered that there had been an inadvertent intercept of a domestic-to-domestic call, that intercept would be destroyed and not reported. But the incident, what we call inadvertent collection, would be recorded and reported."

He said the it is not accurate to describe this program as "domestic spying", in part, because "One end of any call targeted under this program is always outside the United States". He quipped that "if NSA had intercepted al Qaeda Ops Chief Khalid Shaikh Mohammed in Karachi talking to Mohamed Atta in Laurel, Maryland, in say, July of 2001 -- if NSA had done that, and the results had been made public, I'm convinced that the crawler on all the 7 by 24 news networks would not have been ``NSA domestic spying.´´"

Hayden also said that there have been no whistleblowers at the NSA who have complained about this program. In response to a question about such complaints, he responded that "not a single employee of the National Security Agency has addressed a concern about this program to the NSA IG. I should also add that no member of the NSA workforce who has been asked to be included in this program has responded to that request with anything except enthusiasm. I don't know what you're talking about."

Hayden also said that reports back in 2000 that the the Echelon program was used to advance American corporate interests were false and a "great urban legend".

People and Appointments

1/23. The National Music Publishers' Association (NMPA) and its subsidiary, The Harry Fox Agency (HFA), announced a reorganization of their legal departments. David Israelite remains P/CEO of the the NMPA, and Gary Churgin remains P/CEO of HFA. The two announced in a release that "Jacqueline Charlesworth, who had been Senior Vice President and General Counsel of HFA, will become Senior Vice President and General Counsel of the NMPA. Charlesworth will remain based in HFA's New York offices and will report to David Israelite. Michael Simon, currently HFA Senior Vice President of Licensing and Chief of Strategic Development and Marketing, will assume HFA's General Counsel position in addition to his other responsibilities. His title will be Senior Vice President Business Affairs, General Counsel and Chief Strategic Officer. HFA's Legal Department will now report to him, in addition to the Business Development, Communications, and Licensing Departments. He will continue to report to Gary Churgin." (Emphasis added.)

More News

1/23. The U.S. Court of Appeals (9thCir) issue an order [PDF] in NCTA v. Brand X. The entire substantive language of the order is as follows: "In accordance with the Supreme Court’s decision in National Cable & Telecomms. Ass’n v. Brand X Internet Servs., 125 S. Ct. 2688 (2005), the Federal Communications Commission’s declaratory ruling is AFFIRMED." On June 27, 2005, the Supreme Court issued its opinion [59 pages in PDF] upholding the Federal Communications Commission's (FCC) determination that cable broadband internet access service is an information service, and reversing the judgment of the U.S. Court of Appeals (9thCir). The Supreme Court overturned the 2003 opinion [39 pages in PDF] of the 9th Circuit, which vacated the FCC's 2002 Declaratory Ruling (DR) that cable modem service is an information service, and that there is no separate offering as a telecommunications service. See, stories titled "Supreme Court Rules in Brand X Case" and "Reaction to the Supreme Court's Opinion in the Brand X Case" in TLJ Daily E-Mail Alert No. 1,163, June 28, 2005.

1/23. The Center for Democracy and Technology (CDT) filed a complaint [huge PDF file] with the Federal Trade Commission (FTC) requesting that it investigate 180solutions Inc. for violation of the the Federal Trade Commission Act in connection with its alleged deceptive installation of spyware on consumers' computers. Ari Schwartz of the CDT stated in a release [PDF] that "180solutions and its affiliates have caused immeasurable harm, not just to individual Internet users, but to the Internet itself ... This company’s brazen distribution practices saddle innocent Internet users with intrusive software that they neither want nor need and contribute to a general sense of wariness and distrust that threatens to stifle the growth of the medium. We are urging the FTC to use all the tools at its disposal to bring these practices to a halt, since 180solutions has repeatedly failed to adequately police its own distribution network."

1/23. The Department of Justice's (DOJ) Antitrust Division and state plaintiffs filed a pleading titled "Plaintiffs' Response to Microsoft's Supplement Status Report on Microsoft's Compliance with the Final Judgments" with the U.S. District Court (DC) in U.S. v. Microsoft, D.C. No. 98-1232 (CKK).


Go to News from January 16-20, 2006.