TLJ News from May 16-20, 2006

Snowe and Dorgan Introduce Net Neutrality Bill

5/19. Sen. Olympia Snowe (R-ME), Sen. Byron Dorgan (D-ND), and others introduced S 2917 [9 pages in PDF], the "Internet Freedom Preservation Act". It would amend Title I of the Communications Act by adding a section titled "Internet Neutrality".

Sen. Snowe described her bill. "The legislation we introduce today keeps the rules where they always have been, until last year. First, the bill bars network operators from blocking, degrading or impairing Internet traffic. Second, the bill ensures that network operators are not allowed to create a two-tiered Internet--an Internet that treats those who can afford to do business with large nationwide broadband providers more favorably than those who do not. Virtually everyone has called for more widespread deployment of broadband facilities: this bill ensures that those high-speed networks are available for all users of the Internet." See, Congressional Record, May 19, 2006, at Page S4840.

She also stated that "If we allow companies to set up tollbooths along the Information Superhighway, we will fundamentally alter every Internet user's experience and stifle the entrepreneurship that flourishes on the world's last remaining frontier. Network operators should not have the power to decide which Web pages load faster, which content their customers can access, and whose data has the highest priority. Network operators already enjoy near-monopolistic privileges in many markets across the country. Should this market power now be extended to messaging services, streaming video, or online shopping, just to name a few?"

Back on March 2, 2006, Sen. Ron Wyden (D-OR), who is also a cosponsor of S 2917, introduced S 2360, the "Internet Non-Discrimination Act of 2006". See, story titled "Sen. Wyden Introduces Net Neutrality Bill" in TLJ Daily E-Mail Alert No. 1,324, Tuesday, March 7, 2006.

Milberg Weiss Indicted for Paying Illegal Kickbacks to Class Action Plaintiffs

5/19. A grand jury of the U.S. District Court (CDCal) returned a superceding indictment [105 pages in PDF] that charges the law firm of Milberg Weiss Bershad & Schulman (MWBS), David J. Bershad (a partner in MWBS), Steven G. Schulman (a partner in MWBS), Seymour M. Lazar (a frequent class action plaintiff), and Paul T. Selzer (an attorney of Lazar) with various crimes associated with the bringing class action cases (including securities cases).

The indictment, which covers the time period of 1981 through 2005, alleges various crimes associated with the payment of kickbacks to named plaintiffs in class action lawsuits filed by MWBS. It alleges that Bershad and Schulman "and others known and unknown to the Grand Jury agreed to and did secretly pay kickbacks to named plaintiffs in class actions and shareholder derivative actions in which MILBERG WEISS served as counsel."

Moreover, the indictment alleges that to conceal these illegal kickbacks, the defendants engaged "in various fraudulent and deceptive acts, practices, and devices".

The indictment alleges the payment of illegal kickbacks in class actions against Infinity Broadcasting,, Sun Microsystems, and numerous other publicly traded companies.

MWBS responded in a release that "The government's allegations of wrongdoing have been categorically denied by the indicted partners, and the firm intends to join with them in vigorously defending against the charges."

It continued that "The government's insistence that the firm waive attorney-client privileges as a condition to avoiding indictment is in derogation of one of the bedrock principles of American law and extended to parties the firm did not control. Governmental insistence on such broad waivers has been criticized by the American Bar Association and the U.S. Chamber of Commerce, and is currently being reviewed by Congress. The prosecutors also insisted that the firm make unfounded statements accusing its own partners of crimes and otherwise become an agent for the government. Unfortunately, the prosecutors insisted on indicting the firm unless it made these impossible concessions."

Lisa Rickard, President of the U.S. Chamber's Institute for Legal Reform (ILR), stated in a release "The Chamber has long been concerned about the questionable practices of Milberg Weiss and has repeatedly sought an investigation into their activities by the Federal Government". However, she continued that "Apparently, the Justice Department based its decision to indict Milberg Weiss, at least in part, on the firm's refusal to waive its attorney-client privilege. The Chamber opposes any attempt to deny the constitutional right to attorney-client privilege to individuals and organizations. While there are many ways to demonstrate cooperation in an investigation, it is fundamentally wrong for anyone to be denied the right to consult freely and confidentially with their attorney."

The indictment alleges violation of 18 U.S.C. § 371 (conspiracy), 18 U.S.C. § 1962(d) (racketeering conspiracy), 18 U.S.C. §§ 1341 & 1346 (mail fraud), 18 U.S.C. § 1956(h) (money laundering conspiracy), 18 U.S.C. § 1956(a)(1)(B)(i) (money laundering), 26 U.S.C. § 7206(1) (subscribing to false tax return), 18 U.S.C. § 1503 (obstruction of justice), 18 U.S.C. § 2 (aiding and abetting and causing an act to be done), 28 U.S.C. § 2461(c), 18 U.S.C. § 981(a)(1)(C) and 21 U.S.C. § 853 (criminal forfeiture), 18 U.S.C. § 1963 (criminal forfeiture), and 18 U.S.C. § 982(a)(1) and 21 U.S.C. § 853 (criminal forfeiture).

The original indictment, which was unsealed last summer, charged only Lazar and Selzer. It did not charge MWBS, or any of its partners or attorneys. See, June 23, 2005, release of the U.S. Attorneys Office.

Debra YangDebra Yang (at right), the U.S. Attorney for the Central District of California, stated in a release that "This case is about protecting the integrity of the justice system in America ... Class-action attorneys and named plaintiffs occupy positions of trust in which they assume responsibility to tell the truth and to disclose relevant information to the court. This indictment alleges a wholesale violation of this responsibility."

This case is USA v. Milberg Weiss Bershad & Schulman, David J. Bershad, Steven G. Schulman, Seymour M. Lazar, and Paul T. Selzer, U.S. District Court for the Central District of Los Angeles, D.C. No. CR 05–587(A)-DDP.

SEC Official Predicts XBRL Based Algorithmic Securities Trading

5/19. The 13th XBRL International Conference was held in Madrid, Spain, on May 15-19. XBRL is an acronym for eXtensible Business Markup Language, which is intended to facilitate the use of interactive data in securities filings. Corey Booth, the U.S. Securities and Exchange Commission's (SEC) Chief Information Officer and Director Office of Information Technology, gave a speech on May 16. Among other things, Booth predicted that XBRL would enable algorithmic securities trading.

SEC Commissioners and officials have been promoting XBRL on the lecture circuit since SEC Chairman Chris Cox made XBRL a high priority at the SEC last year.

See, Cox's speech of November 7, 2005, in Tokyo, Japan, and speech of November 11, 2005, in Boca Raton, Florida. See also, story titled "SEC Chairman Cox Discusses Use of Interactive Data in Corporate Reporting" in TLJ Daily E-Mail Alert No. 1,250, November 9, 2005. And see, the SEC's February 2005 rule changes that initiated the SEC's XBRL Voluntary Program.

The SEC states in a summary of XBRL that "Interactive data relies on standard definitions to ``tag´´ various kinds of information, turning SEC financial reports that have previously been text-only into documents that can be retrieved through computer searches, and analyzed in a variety of spreadsheet programs and analytical software. The data can also be more readily used to compare companies' financial performance, and better identify ``outliers´´ that could represent attractive investment opportunities -- or increased risk of misstatements or fraud."

Booth discussed the possibility of  algorithmic securities trading. "Let me paint what I think is an interesting scenario. Wall Street types have been talking for a couple of years about algorithmic trading -- basically, using computers to process real-time streams of market data and making fast, automated trading decisions. Today, that market data is mostly about stock prices and volumes, since that's what's available in real time. But at some point in the not-distant future, I envision a hedge fund starting to algorithmically trade with XBRL-based balance sheet and P&L data in real-time as it's disclosed by companies. At that point, we will all know that interactive data has won the day."

Booth also discussed some of the barriers to adoption of XBRL. First, he said that "the preparation of XBRL statements is still perceived to be difficult, and I believe there is also reality behind that perception." Second, "we have not yet seen large growth in demand for XBRL information by the investor community". And third, "the taxonomies for representing US companies need to be evolved and refined, and that will likely involve substantially more staff resources than have been applied so far. I am very interested in finding a way to ensure that taxonomy development is adequately funded and effectively overseen, and also making sure that the taxonomy development process is transparent and able to accommodate input from all interested parties".

Participation in the SEC's current XBRL program is voluntary. Booth said that "mandatory requirement ought to happen only after voluntary adoption spreads further".

People and Appointments

5/19. Randy May has founded, and is the President of, the Free State Foundation (FSF). He is currently Director of Communications Policy Studies at the Progress & Freedom Foundation (PFF). The FSF web site states that it is "a non-profit Maryland-based think tank. Its purpose is to promote, through research and educational activities, understanding of free market, limited government, and rule of law principles in Maryland and throughout the United States. FSF focuses on eliminating unnecessary and counterproductive regulatory mandates, reducing overly burdensome taxes, protecting individual and economic liberty, reforming civil liability laws, and making government more effective, efficient, and accountable." See also, PFF release. May will leave the PFF on May 31, 2006. As of June 1, 2006, May's contact information will include 301-299-3182 and rmay at freestatefoundation dot org.

5/19. President Bush announced his intent to designate Steven Aitken to be acting Administrator of the Office of Information and Regulatory Affairs at the Office of Management and Budget, effective June 3, 2006. See, White House release.

5/19. Jarrod Agen was named Deputy Press Secretary at the Department of Homeland Security (DHS).

More News

5/19. President Bush gave a speech at Northern Kentucky University in which he referenced intercepted communications. He stated that "the enemy" is "cold blooded killers", "driven by an ideological fervor", that is "totalitarian in nature", and akin to "fascism and communism". He continued that "After all, they've told us what their ambitions are. It's in intercepted communications and the different ways of finding out information. They have made it clear in their communications with each other that democracies are soft, capitalism is a failed system, and that it's just a matter of time before the United States of America were to lose its nerve." He added that "They want to reestablish roots in a country like they did in Afghanistan so they can help topple moderate governments in the Middle East, as well as launch attacks against the United States of America. That's what they have said."

5/19. The Department of Commerce's (DOC) National Telecommunications and Information Administration (NTIA) announced its intent to award a sole source contract to the Internet Corporation for Assigned Names and Numbers (ICANN) to perform Internet Assigned Numbers Authority (IANA) services. The NTIA stated in a release [PDF] that "These functions include coordination of the assignment for technical protocol parameters, administration of certain responsibilities associated with Internet DNS root zone management; and allocation of Internet Protocol Version (IPv4) and Internet Protocol Version 6 (IPv6) address space".

5/19. The Federal Communications Commission's (FCC) Consumer & Governmental Affairs Bureau (CGB) released its report [PDF] titled "Report on Informal Consumer Inquiries and Complaints: 1st Quarter Calendar Year 2006".

5/19. The U.S. District Court (EDVa) sentenced Derek A. Borchardt, Aaron O. Jones, and George S. Hayes, to short terms of imprisonment and home confinement. Each plead guilty to criminal copyright infringement, or conspiracy to commit criminal copyright infringement. The Department of Justice (DOJ) stated in a release that these are the first sentencings of members of pre-release music piracy groups as a part of its Operation FastLink. The DOJ added that this is an "ongoing federal crackdown against the organized piracy groups responsible for most of the initial illegal distribution of copyrighted movies, software, games and music on the Internet. Operation FastLink has resulted, to date, more than 120 search warrants executed in 12 countries; the confiscation of hundreds of computers and illegal online distribution hubs; and the removal of more than $50 million worth of illegally-copied copyrighted software, games, movies and music from illicit distribution channels. As of today, Operation FastLink has yielded felony convictions for 30 individuals."

Reps. Issa and Schiff Introduce Bill to Create Pilot Program of Specialized Patent Judges

5/18. Rep. Darrell Issa (R-CA) and Rep. Adam Schiff (D-CA) introduced HR 5418, an untitled bill that would establish a ten year pilot program in a least five U.S. District Courts to develop expertise in judges and court staff in patent and plant variety cases. This pilot program would further facilitate, but not require, the assignment of patent and plant variety case to judges participating in the pilot program.

The bill would also authorize the appropriation of $5 Million per year for training judges participating in the pilot program, and for "compensation of law clerks with expertise in technical matters arising in patent and plant variety protection cases, to be appointed by the courts designated under subsection (b) to assist those courts in such cases".

The program is limited. It would not require that patent cases to be assigned to certain judges. Rather, judges in the participating districts would elect whether or not to be in the program. Any participating judge who is randomly assigned a patent case would keep that case. Any non-participating judge who is randomly assigned a patent case would have the option of having that case reassigned to a participating judge.

The bill was assigned to the House Judiciary Committee, of which both Rep. Issa and Rep. Schiff are members.

Rep. Issa and Rep. Schiff issued a joint release. Rep. Issa stated that "Roughly forty percent of all patent case appeals of federal district court decisions are reversed and ultimately decided by the Federal Circuit Court of Appeals ... This legislation is designed to help courts reduce errors that lead to appeals."

Rep. Adam SchiffRep. Schiff (at right) stated that "Patent litigation in the federal court system has become expensive, time-consuming, and uncertain ... By providing our courts with the resources they need to carefully consider patent cases, we will ease the work load for our Federal Appeals Courts, which will ultimately save the American taxpayer money."

Robert Holleyman, P/CEO of the Business Software Alliance (BSA), stated in a release that the "BSA commends the leadership of Representatives Darrell Issa and Adam Schiff for proposing legislation to improve the expertise of district court judges in adjudicating complex patent law cases. In recent years, the tech industry has seen a sharp increase in litigation due to patent trolls and others seeking to abuse the legal system. Given the high stakes of each and every case, we must do everything we can to ensure judges have the tools and resources to decide what can often be very technical and complex legal matters."

Sensenbrenner and Conyers Introduce Net Neutrality Bill

5/18. Rep. James Sensenbrenner (R-WI), Rep. John Conyers (D-MI), Rep. Rick Boucher (D-VA), and Rep. Zoe Lofgren (D-CA) introduced HR 5417 [5 pages in PDF], the "Internet Freedom and Nondiscrimination Act of 2006".

This bill would amend the Clayton Act, which is codified at 15 U.S.C. § 12 et seq., by adding a new Section 28. It would provide that,

"It shall be unlawful for any broadband network provider---
   (1) to fail to provide its broadband network services on reasonable and nondiscriminatory terms and conditions such that any person can offer or provide content, applications, or services to or over the network in a manner that is at least equal to the manner in which the provider or its affiliates offer content, applications, and services, free of any surcharge on the basis of the content, application, or service;
   (2) to refuse to interconnect its facilities with the facilities of another provider of broadband network services on reasonable and nondiscriminatory terms or conditions;
   (3)(A) to block, to impair, to discriminate against, or to interfere with the ability of any person to use a broadband network service to access, to use, to send, to receive, or to offer lawful content, applications or services over the Internet; or (B) to impose an additional charge to avoid any conduct that is prohibited by this subsection;
   (4) to prohibit a user from attaching or using a device on the provider’s network that does not physically damage or materially degrade other users’ utilization of the network; or
   (5) to fail to clearly and conspicuously disclose to users, in plain language, accurate information concerning any terms, conditions, or limitations on the broadband network service."

The bill would also provide that "If a broadband network provider prioritizes or offers enhanced quality of service to data of a particular type, it must prioritize or offer enhanced quality of service to all data of that type (regardless of the origin or ownership of such data) without imposing a surcharge or other consideration for such prioritization or enhanced quality of service." (Parentheses in original.)

The bill would also provide exceptions "to protect the security of such network", "to give priority to emergency communications", and "to prevent a violation of a Federal or State law, or to comply with an order of a court to enforce such law".

The bill would also define the term "broadband network provider" broadly. It would mean "means a person engaged in commerce that owns, controls, operates, or resells any facility used to provide broadband network service to the public, by whatever technology and without regard to whether provided for a fee, in exchange for an explicit benefit, or for free".

The bill would also define "broadband network service" broadly. It would mean any "2-way transmission service that connects to the Internet and transmits information at an average rate of at least 200 kilobits per second in at least one direction, irrespective of whether such transmission is provided separately or as a component of another service".

Rep. Rick BoucherRep. Boucher (at left) stated in a release that "The measure which we are introducing will assure that the status quo is preserved and that the market power broadband providers now exercise over transmission is not extended to control of content". He added that "This measure is particularly important and timely because H.R. 5252, the Energy and Commerce Committee video franchising measure, is insufficient to ensure that broadband network providers do not abuse their market power to discriminate against competitive Internet content or services."

Rep. Zoe Lofgren (D-CA) stated in the same release that "The Internet has revolutionized the way Americans communicate with one another and do business. It's just common sense to keep that revolution where it belongs--in the hands of ordinary individuals instead of a handful of big corporations. Our bill will prevent an Information Superhighway Hijacking."

This bill was referred to the House Judiciary Committee. It would amend antitrust law.

There is also a House Commerce Committee network neutrality bill, HR 5273, the "Network Neutrality Act of 2006 ", introduced by Rep. Ed Markey (D-MA) and others on May 2, 2006. See, story titled "Rep. Markey Introduces Network Neutrality Bill" in TLJ Daily E-Mail Alert No. 1,363, May 3, 2006.

Herschell Abbott, of BellSouth, stated in a release that "This bill proposes to fix a problem that does not exist. It proposes to regulate the internet that has developed in an atmosphere of freedom devoid of regulation. That is a bad idea. Consumers are poorly served by this legislation. The end result of this legislation is that consumers will be forced to bear the entire cost of the internet. Moreover, if network service providers cannot offer customers a quality product, something the details of this legislation would all but prohibit, then the opportunity for a bigger, better, faster broadband will be something available only in other countries. We oppose this legislation."

Earl Comstock, of Comptel, stated in a release that "Chairman Sensenbrenner and Congressman Conyers have always been staunch advocates for consumers and a competitive communications industry. This bill demonstrates that members of the House Judiciary understand the dangers posed by the reconsolidation of Ma Bell and the adverse impact that it could have on the open Internet. This bill is a great step in the right direction toward establishing much needed safeguards, especially in light of the FCC's complete capitulation to those who would restrict access to the Internet."

The Free Press, Consumers Union, Consumer Federation of America, Media Access Project and U.S. PIRG released a joint statement in support of the bill. They wrote that the bill is an "important step toward preserving a free and open Internet. From its inception, the Internet has prospered on a foundation of equality and neutrality, open to all and protected from discrimination by unnecessary gatekeepers. Network Neutrality is about preserving the Internet as truly free market that encourages competition and innovation."

Bush Nominates Kimberly Moore for Federal Circuit

5/18. President Bush nominated Kimberly Moore to be a Judge of the U.S. Court of Appeals (FedCir). See, White House release.

She has undergraduate and masters decrees from the Massachusetts Institute of Technology (MIT). Her undergraduate major was electrical engineering. She previously worked at a Naval Surface Warfare Center. She later worked for the law firm of Kirkland & Ellis. She now teaches patent law, patent litigation and strategy, and intellectual property at George Mason University's law school.

She is a co-author, with Paul Michel and Raphael Lupo, of the book titled Patent Litigation and Strategy [$92.50 from Amazon].

On October 6, 2005, she testified at a hearing of the House Judiciary Committee's (HJC) Subcommittee on Courts, the Internet, and Intellectual Property's (CIIP) titled "Improving Federal Court Adjudication of Patent Cases". See, prepared testimony. She testified that the patent venue statute results in forum shopping. Basically, she argued that since cases can be filed in any district, and the districts vary in their win rates, "patentees are gaining an unfair advantage in litigation by forum shopping".

She also advocated a specialized patent trial court. She wrote that "I propose that a single judge or a small number of judges in each judicial district be designated to adjudicate all the patent cases filed there. To the extent possible, the docket of the designated judge should not be limited to patent cases. Ideally, the judge who is appointed to this role would be technically educated or trained and/or have a patent background. This proposal would considerably limit the number of potential judges who would preside over patent cases and increase predictability without loosing the percolation and considered development of the law."

She added that "Through experience these judges would develop more expertise at resolving patent cases. It would, of course, be important, that the designated judge remain the designated judge. In short, this position should not be rotated among the judges or the benefits of experience and predictability would be entirely eviscerated. Limiting the number of judges who adjudicate patent cases will decrease forum shopping and with experience these judges will develop greater expertise."

More People and Appointments

Donald Kohn5/18. President Bush nominated Donald Kohn (at right) to be Vice Chairman of the Board of Governors of the Federal Reserve System for a term of four years. He is currently an FRB Governor. He will replace Roger Ferguson, who resigned. See, White House release and release. See also, TLJ stories regarding four of Kohn's speeches: "FRB Governor Kohn Addresses Role of Technological Change in Global Economy" in TLJ Daily E-Mail Alert No. 811, January 8, 2004; "FRB Governor Addresses Effects of Info Tech on Financial Markets" in TLJ Daily E-Mail Alert No. 1,156, June 17, 2005; "Greenspan Discusses Innovation and Free Trade" in TLJ Daily E-Mail Alert No. 1,204, August 30, 2005; and "FRB Governor Discusses Information, Governments and Transparency" in TLJ Daily E-Mail Alert No. 1,085, January 18, 2005.

5/18. President Bush nominated Bobby Shepherd to be a Judge of the U.S. Court of Appeals (8thCir). See, White House release.

5/18. President Bush nominated Kathleen Casey to be a member of the Securities and Exchange Commission (SEC) for a term expiring on June 5, 2011. She is currently Staff Director and Counsel for the Senate Banking Committee. Before that, she was Chief of Staff and Legislative Director for Sen. Richard Shelby (R-AL). If confirmed by the Senate, she will replace Cynthia Glassman, who resigned. See, White House release and release.

More News

5/18. Symantec filed a complaint in U.S. District Court (WDWash) against Microsoft alleging patent infringement. Microsoft responded in a release that the claims are "unfounded". It wrote that "Today's filing stems from a very narrow disagreement over the terms of a 1996 contract with Veritas to license volume management technology. ... We believe the facts will show that Microsoft's actions were proper and are fully consistent with the contract between Veritas and Microsoft. These claims are unfounded because Microsoft actually purchased intellectual property rights for all relevant technologies from Veritas in 2004. Microsoft first entered into a contract with Veritas in 1996 to license volume management technology. The contract ultimately gave Microsoft the option to buyout the rights to Veritas' code and intellectual property rights. In 2004, Microsoft exercised that right and purchased the IP rights."

5/18. The U.S. Court of Appeals (8thCir) issued its opinion [7 pages in PDF] in Thomas v. St. Louis Board of Police Commissioners, reversing the judgment of the District Court. The facts of this case are not technology related. It is a routine suit for damages arising out of an alleged false arrest and other misconduct by police officers. However, the issue on appeal is whether the St. Louis Board of Police Commissioners is an arm of the state for the purposes of 11th amendment immunity. The Court of Appeals held that it is not. The opinion addresses the question of which state entities can hide behind 11th Amendment immunity. State immunity is sometimes an issue in tech related cases against state entities. This case is Yvonne Thomas v. St. Louis Board of Police Commissioners, et al., App. Ct. No. 05-2655, an appeal from the U.S. District Court for the Eastern District of Missouri.

5/18. The Progress and Freedom Foundation (PFF) released a paper [30 pages in PDF] titled "Canadian Quandary: Digital Rights Management, Access Protection, and Free Markets". The author is Michael Einhorn. See also, PFF release. In 1997 Canada agreed to ratify the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. These treaties require the signatories to provide "adequate legal protection and effective legal remedies against the circumvention of effective technological measures" used by copyright holders to protect their works. Canada has not adopted enacting legislation. However, there is little in this paper about Canada. Rather, it is a review of digital rights management (DRM), anti-circumvention laws, peer to peer (P2P) music file sharing, and broadband deployment. It is a cross national study of developed nations. For example, it finds a statistical correlation between broadband deployment in these nations, and decreases in music CD sales. This paper is a defense of DRM and enforcement of property rights in digital works.

Rep. Wexler Introduces Resolution Requesting DOJ to Provide Records Regarding NSA and Phone Records

5/17. Rep. Robert Wexler (D-FL) introduced HRes  819, a two paragraph resolution regarding the National Security Agency's (NSA) access to records of communications companies.

It provides as follows. "Requesting the President and directing the Attorney General to submit to the House of Representatives all documents in the possession of the President and the Attorney General relating to requests made by the National Security Agency and other Federal agencies to telephone service providers requesting access to telephone communications records of persons in the United States and communications originating and terminating within the United States without a warrant."

"Resolved, That the President is requested and the Attorney General is directed to submit to the House of Representatives, not later than 14 days after the date of the adoption of this resolution, all documents in the possession of the President and the Attorney General, including all legal opinions, relating to requests made without a warrant by the National Security Agency or other Federal departments and agencies to telephone service providers, including wireless telephone service providers, for access to telephone communications records of persons in the United States (other than as authorized under title I of the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1801 et seq.) or chapter 119 or 121 of title 18, United States Code), subject to necessary redactions or requirements for handling classified documents."

There are no cosponsors. This resolution was referred to the House Judiciary Committee, of which Rep. Wexler is a member.

Rep. Robert WexlerRep. Wexler (at left) also issued a release in which he wrote that on May 12, 2006, he "sent letters to executives at AT&T, BellSouth and Verizon requesting that they immediately stop providing their customers' phone records to the National Security Agency (NSA), until an independent investigation has been conducted to determine the full scope and legality of the Bush Administration’s domestic spying program."

Rep. Wexler's resolution, and his letters, follow the article published on May 11, 2006, by the USA Today that states that "The National Security Agency has been secretly collecting the phone call records of tens of millions of Americans, using data provided by AT&T, Verizon and BellSouth". See also, story titled "Bush Responds to USA Today Story Regarding NSA Database of Phone Calls" in TLJ Daily E-Mail Alert No. 1,369, May 12, 2006, and story titled "BellSouth and Verizon Attack USA Today Story" in TLJ Daily E-Mail Alert No. 1,372, May 17, 2006.

In addition, Rep. Wexler is a cosponsor of HR 5371, the "Lawful Intelligence and Surveillance of Terrorists in an Emergency by NSA Act", or "LISTEN Act". Rep. Jane Harman (D-CA) introduced HR 5371 on May 11, 2006.

HR 5371 provides, in part, that "Notwithstanding any other provision of law, chapters 119 and 121 of title 18, United States Code, and the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1801 et seq.) shall be the exclusive means by which electronic surveillance may be conducted."

9th Circuit Addresses Fair Use and Essential Step Defenses in Software Infringement Case

5/17. The U.S. Court of Appeals (9thCir) issued its opinion [29 pages in PDF] in Wall Data v. LA County Sheriffs, a software copyright infringement case. The Court of Appeals affirmed the judgment of the District Court for the software company.

In this case a governmental agency licensed a commercial software product. It over installed the software, in the sense that it put the software on more computers than allowed by the licenses. However, it argued that it did not over use the software. The Court of Appeals held that both the fair use and essential step defenses fail.

Background. Wall Data makes software that allows personal computers that use one operating system to access data stored on computers that use different operating systems. It holds the copyright on this software. It sells through third party vendors. It uses shrink wrap licenses, click through licenses, and distributes license booklets. The name of this line of software products is RUMBA.

The Los Angeles County Sheriff’s Department (LA Sheriffs) purchased a total of 3,663 licenses to Wall Data's software. However, it installed Wall Data's software on 6,007 of its computers.

The LA Sheriffs' computers were configured using a password based security system so that the number of users who could access Wall Data's software was limited to the number of licenses. It argued that installing the software on all of its computers, and then limiting access, was more efficient than installing the software on the computers that would actually use the software.

District Court. Wall Data filed a complaint in U.S. District Court (CDCal) against the LA Sheriffs alleging, among other things, copyright infringement. It alleged that the LA Sheriffs overinstallation violated the terms of the shrink wrap license, click through license, and volume license booklets. The only claim that survived to trial was violation of its exclusive rights under 17 U.S.C. § 106.

The LA Sheriffs asserted the affirmative defense of fair use under 17 U.S.C. § 107, and the essential step defense under 17 U.S.C. § 117(a)(1).

The District Court granted summary judgment to Wall Data on the fair use defense. The jury returned a verdict for Wall Data as to infringement, rejecting the essential step defense, and awarding $210,000 in damages. The Court entered judgment upon the verdict, adding a award of $516,271 in attorneys' fees and approximately $38,000 in costs.

The LA Sheriffs appealed the grant of summary judgment on the fair use issue, evidentiary rulings, jury instructions on the essential step defense, and the award of attorneys fees and costs. The Court of Appeals affirmed in full.

Fair Use Defense. The Court of Appeals rejected the fair use defense. It followed the four prong test of Section 107, prong by prong.

Section 107 provides, in part, that "In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include -- (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work."

The Court determined that the first prong ("the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes") weighs in Wall Data's favor because the LA Sheriffs use was not transformative, did not promote the advancement of arts or science, was commercial in nature, and violated the license.

The Court determined that the second prong ("the nature of the copyrighted work") weighs in Wall Data's favor because the "software products were developed over several years, and required a multi-million dollar investment on Wall Data's part."

The Court determined that the third prong ("the amount and substantiality of the portion used in relation to the copyrighted work as a whole") weighs in Wall Data's favor because the LA Sheriffs copied Wall Data's software verbatim, in its entirety.

Finally, the Court determined that the fourth prong ("the effect of the use upon the potential market for or value of the copyrighted work") weighs in Wall Data's favor. The Court wrote that it was not persuaded by the LA Sheriffs argument regarding efficiency in installation. It wrote that "The Sheriff’s Department could have bargained for the flexibility it desired, but it did not. Whenever a user puts copyrighted software to uses beyond the uses it bargained for, it affects the legitimate market for the product. Thus, although hard drive imaging might be an efficient and effective way to install computer software, ..."

The Court also wrote that "The Sheriff’s Department thus created its own ``sub-licensing´´ system where it granted users permission to use the software and, in essence, asked Wall Data to “trust” that it was not using RUMBA in excess of its authorization under the license. We recognize that computer licensing is generally an ``honor system,´´ in that there is little to stop a person with physical possession of software from installing it on multiple computers. But in this case, the Sheriff’s Department’s system made tracking infringement almost impossible, because Wall Data could not independently verify which of the computers had been used to access RUMBA and which ones had not -- it had to trust the Sheriff’s Department that its system was not allowing over-use."

It might be noted that under the analysis applied by the Court of Appeals in this case the fair use defense would fail in almost all situations where commercial software products are copied in their entirety.

Essential Step Defense. The Court of Appeals rejected the essential step defense.

Section 117(a)(1) provides that "Notwithstanding the provisions of section 106, it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided: (1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner".

The Court explained this section. "This section permits the owner of a copy of a copyrighted computer program to make (or authorize the making of) another copy of the program, if the copy is created as an ``essential step in the utilization of the computer program in connection with the [computer, and] is used in no other manner.´´ Id. The ``essential step´´ defense also ensures that a software user does not infringe when the user ``copies´´ the software from the computer’s permanent storage (the hard drive, for example) onto its active memory (the random access memory, for example). Section 117 also allows the owner to make a copy of the computer program if the copy is ``for archival purposes only and ... all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.´´" (Parentheses, brackets and emphasis in original.)

The Court noted that Section 117 allows "the owner of a copy" to take certain actions, but that the LA Sheriffs was merely a "licensee" of the software. The Court explained that "if the copyright owner makes it clear that she or he is granting only a license to the copy of software and imposes significant restrictions on the purchaser’s ability to redistribute or transfer that copy, the purchaser is considered a licensee, not an owner, of the software."

It continued that "the licensing agreement imposed severe restrictions on the Sheriff’s Department’s rights with respect to the software. Such restrictions would not be imposed on a party who owned the software. The Sheriff’s Department’s use of and rights to the RUMBA software products were restricted under the terms of the click-through and volume booklet licenses. These restrictions were sufficient to classify the transaction as a grant of license to Wall Data's software, and not a sale of Wall Data's software. For these reasons, under MAI, the Sheriff’s Department is not the ``owner´´ of copies of Wall Data’s software for purposes of § 117."

And since the LA Sheriffs was not an "owner", it cannot avail itself of the essential step defense.

The Court also concluded, in the alternative, that even if the LA Sheriffs were an owner of a copy, the essential step defense would fail because copying Wall Data's software onto every computer was not essential to making it available on some computers. The Court wrote that it "was not an essential step, but a matter of convenience".

This case is Wall Data v. Los Angeles County Sheriffs Department, App Ct. No. 03-56559, an appeal from the U.S. District Court for the Central District of California, D.C. No. CV-02-00301-RGK, Judge Gary Klausner presiding. Judge Harry Pregerson wrote the opinion of the Court of Appeals, in which Judges Mary Schroeder and Stephen Trott joined.

People and Appointments

5/17. Denise Michel was named Vice President - Policy Development at the Internet Corporation for Assigned Names and Numbers (ICANN). See, ICANN release.

Bush Addresses Government Surveillance

5/16. President Bush and Australian President John Howard held a news conference at the White House at which the President was asked about phone records, the National Security Agency (NSA), and privacy. See, transcript.

Bush was asked this: "Mr. President, you've said that the government is not trolling through the lives of innocent Americans, but why shouldn't ordinary people feel that their privacy is invaded by the NSA compiling a list of their telephone calls?"

Bush said that "we do not listen to domestic phone calls without court approval". This does not refute any thing in the USA Today article. The article stated that "This program does not involve the NSA listening to or recording conversations"

Bush did not use this occasion to defend, or deny, the databasing by the NSA of phone call records, as reported USA Today in its May 11 article titled "NSA has massive database of Americans' phone calls".

Bush's response to the question, in full, was this: "What I have told the American people is, we'll protect them against an al Qaeda attack, and we'll do so within the law. I've been very clear about the principles and guidelines of any program that has been designed to protect the American people."

"I've also been clear about the fact that we do not listen to domestic phone calls without court approval, and that this government will continue to guard the privacy of the American people. But if al Qaeda is calling into the United States, we want to know, and we want to know why."

"For the Australian press friends here, we got accused of not connecting dots prior to September the 11th, and we're going to connect dots to protect the American people, within the law. The program he's asking about is one that has been fully briefed to members of the United States Congress, in both political parties. They are very aware of what is taking place. The American people expect their government to protect them, within the laws of this country, and I'm going to continue to do just that."

BellSouth and Verizon Attack USA Today Story

5/16. BellSouth and Verizon released written statements that attack the accuracy of the May 11 article in USA Today titled "NSA has massive database of Americans' phone calls". BellSouth and Verizon both released carefully worded but vague statements that if read literally could be construed as not denying the key assertion of fact contained in the USA Today article -- that they provided phone call records to the NSA.

For example, BellSouth denies providing "customer calling records", while USA Today wrote that it provided "phone call records".

However, Jeff Batcher, a spokesman for BellSouth, told TLJ that "we have never been asked by the NSA, and never provided the NSA, any information whatsoever, period."

AT&T, the third company mentioned in the article, has issued no statement. President Bush was asked about the NSA program at a news conference on May 16. He did not deny any thing in the USA Today article.

See, full story.

House Judiciary Committee to Consider Data Retention Mandate

5/16. The House Judiciary Committee's (HJC) announced that its Subcommittee on Crime will hold a hearing on May 23, 2006, on HR __, a yet to be introduced bill to be titled the "Internet Stopping Adults Facilitating the Exploitation of Today's Youth (SAFETY) Act of 2006."

A HJC staff member told TLJ that this bill will contain an data retention mandate for internet service providers.

There have been several recent developments that relate to data retention mandates.

On April 20, 2006, Attorney General Alberto Gonzales gave a speech in which he advocated a data retention mandate for internet service providers. See, story titled "Gonzales Proposes Data Retention Mandate, Web Site Labeling, and Ban on Deceptive Source Code" in TLJ Daily E-Mail Alert No. 1,357, April 25, 2006.

On April 26, 2006, Rep. Diana DeGette (D-CO) offered and withdrew an amendment to mandate data retention at the House Commerce Committee's (HCC) mark up of the COPE Act. Chairman Joe Barton (R-TX) stated at that mark up that he supports the concept, and wants to amend the bill when it goes to the House floor. See, story titled "House Commerce Committee Considers Data Retention Mandate" in TLJ Daily E-Mail Alert No. 1,365, May 8, 2006.

There may be a jurisdictional battle under way between the HJC and the HCC as which Committee should write data retention legislation. Thus, the HJC may be acting out of a desire to protect its historic role as the drafter of bills relating to searches, seizures, and surveillance, including access to stored records. It may be significant that Rep. DeGette's proposal would not only impose a mandate, but delegate to the Federal Communications Commission (FCC), an entity that the HCC oversees, sweeping authority to write implementing regulations. Any such FCC delegation would further erode HJC authority in this field.

On April 28, 2006, the Department of Justice (DOJ) and other government agencies filed a comment [17 pages in PDF] with the FCC in its customer proprietary network information (CPNI) proceeding (Docket No. 96-115 and RM-11277).

This comment contains an argument for imposing a data retention mandate. It states that "many modern communications service providers maintain sensitive records about their customers' private communications, yet these new carriers have not been made subject to the rules that have traditionally governed CPNI. In addition, as carriers covered by the Commission's existing rules have increasingly moved away from classic billing models, in which charges are itemized and billed by type of service, to non-measured, bundled, and flat-rate service plans, some carriers have claimed that call records under such new plans are not covered by Section 42.6 because they are not ``toll records.´´ Therefore, these carriers have argued that no records need be retained. This has significantly diminished the availability of call records that were historically made available to law enforcement, pursuant to lawful process, as traditional ``billing records´´ under the Commission's rules."

The CPNI statute and rules apply only to a "telecommunication carrier". The DOJ argues that the reach of the FCC's rules should be expanded. Moreover, the DOJ now frequently uses the term "carrier" to include many types of information services.

See, HJC notice of the hearing. It will be held in Room 2141 of the Rayburn Building on Wednesday, May 23.

People and Appointments

5/16. The Senate confirmed Milan Smith to be a Judge of the U.S. Court of Appeals (9thCir) by a vote of 93-0. See, Roll Call No. 120.

5/16. Paul Berger, the Securities and Exchange Commission's (SEC) Associate Director of Enforcement, will leave the SEC to become a partner in the Washington DC office of the law firm Debevoise & Plimpton. See, SEC release.

More News

5/16. The U.S. Patent and Trademark Office (USPTO) published a notice in the Federal Register in which it requests public comments on patent search templates. These define the field of search, search tools, and search methodologies that should be considered each time a patent application is examined in a particular classification. The USPTO set no deadline for comments. See, Federal Register, May 16, 2006, Vol. 71, No. 94, Page 28309-28310.

5/16. The Federal Bureau of Investigation (FBI) published a notice in the Federal Register that states that it intends to publish a Request For Proposal (RFP) regarding outsourcing to private sector entities the management of national electronic fingerprint databases, and criminal history records checks. See, Federal Register, May 16, 2006, Vol. 71, No. 94, at Pages 28388-28389.

5/16. The state of Texas filed a civil complaint [21 pages in PDF] in state court in El Paso, Texas, against JAGJRTX, and its principal, John A. Gill, alleging violation of the Texas Deceptive Trade Practices -- Consumer Protection Act, and the Texas Credit Title, in connection with their sale of internet access services. The complaint alleges that the defendants, doing business as "Advance Internet" and "Texas Advance Internet", "purport to sell internet access services to the public. As a ``rebate´´ to consumers who buy internet access, the offices of JAGJRTX, L.L.C., a/k/a JAG TX L.L.C. offer cash advances which are in fact usurious loans." The Office of the Attorney General wrote in a release that "a consumer would receive an instant $100 cash ``rebate´´ for signing up for ``Internet access,´´ but the company would withdraw $30 from the consumer's bank account every two weeks for up to a year until the $100 is repaid."

Go to News from May 11-15, 2006.