|TLJ News from July 11-15, 2006|
States File Civil Antitrust Complaint Against DRAM Makers
7/14. The state of California, and a majority of the other states, filed a thirty-two count civil complaint [PDF] in U.S. District Court (NDCal) against Infineon, Hynix, Micron, Mosel Vitelic, Nanya Technology, Elpida Memory, and NEC Electronics alleging violation of Section 1 of the Sherman Act, as well as various state antitrust, consumer protection and unfair competition laws, in connection with the fixing of prices for the sale of dynamic random access memory (DRAM) semiconductors.
Section 1 of the Sherman Act, which is codified at 15 U.S.C. § 1, provides, in part, that "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine ..."
The U.S. Department of Justice (DOJ) has long been investigating and criminally prosecuting individuals and corporations for DRAM price fixing. The just filed state action builds on these earlier actions.
The complaint alleges that "In or around 1998, the defendant DRAM Manufacturers began discussing and coordinating the prices that they charged to the large computer manufacturers, commonly known as OEMs ("Original Equipment Manufacturers"), and to their other customers."
It alleges price fixing, bid rigging, allocation of markets, and production allocation in violation of the Sherman Act.
It continues that the plaintiff states, "as purchasers of electronic products, are among the DRAM cartel's victims, as indeed are the State's end user consumers. Accordingly, the States bring this action on their own behalf, and on behalf of state agencies, political subdivisions, natural persons and/or businesses as warranted by federal and state laws, to recover as damages, restitution, and/or disgorgement of the illegal overcharges that consumers paid as a result of the DRAM manufacturers' price fixing."
California Attorney General Bill Lockyer stated in a release that "The defendants in this case conspired to rig the U.S. market for this essential computer product, working together to keep prices artificially high. In the process, they victimized individual consumers, governmental agencies, schools and taxpayers. This lawsuit seeks compensation for those victims and to ensure the defendants never again violate fundamental tenets that make our economy work properly."
The state of Texas, which is home to Dell, wrote in a release that "As a group, the companies were virtually the sole sources for the acquisition of DRAM chips by computer manufacturers such as Dell Corp., a major supplier of computers for Texas public schools, universities and state agencies. The suit alleges the companies’ deliberate scheme to systematically trim production to inflate chip prices caused computer manufacturers to increase their wholesale prices for units, resulting in an inflationary ripple effect in the marketplace. Worldwide sales of these chips jumped from $14 billion in 2001 to $17 billion in 2003, with the U.S. accounting for a significant slice of the market."
DOJ Criminal Actions. On January 30, 2006, the DOJ charged Elpida (which was formed in 2001 by Hitachi and NEC Corporation) with bid rigging and price fixing. See, story titled "DOJ Brings Another DRAM Price Fixing Action" in TLJ Daily E-Mail Alert No. 1,300, January 31, 2006.
On October 13, 2005, the DOJ charged Samsung with price fixing in the U.S. District Court (NDCal). See, story titled "DOJ Charges Samsung with DRAM Price Fixing" in TLJ Daily E-Mail Alert No. 1,233, October 14, 2005.
On April 21, 2005, the DOJ charged Hynix with price fixing in the U.S. District Court (NDCal). See, story titled "DOJ Charges Hynix with DRAM Price Fixing" in TLJ Daily E-Mail Alert No. 1,121, April 22, 2005.
On December 2, 2004, the DOJ charged four executives of Infineon Technologies AG, and its subsidiary, Infineon Technologies North America Corporation. See, story titled "DOJ Brings More DRAM Price Fixing Charges" in TLJ Daily E-Mail Alert No.1,030, December 3, 2004.
On September 15, 2004, the DOJ filed a criminal information in the U.S. District Court (NDCal) against Infineon Technologies AG. On October 20, 2004, Infineon pled guilty. See also, story titled "DOJ Charges Infineon With Felony Price Fixing; Infineon Pleads Guilty" in TLJ Daily E-Mail Alert No. 978, September 16, 2004.
Also, on December 17, 2003, the DOJ announced that it charged Alfred P. Censullo, a former employee of Micron Technology Inc., with violation of 18 U.S.C. § 1503 in connection with his "altering and concealing documents containing competitor pricing information, which were requested in a federal grand jury subpoena".
This case is California, et al. v. Infineon Technologies AG, et al., U.S. District Court for the Northern District of California, D.C. No. C 06 4333.
Federal Circuit Applies Foreign Sovereign Immunity Act in Patent Dispute
7/14. The U.S. Court of Appeals (FedCir) issued its opinion [PDF] in Intel v. CSIRO and Microsoft v. CSIRO, two related cases involving 802.11a and 802.11g standards. The District Court denied Australia's CSIRO's motions to dismiss pursuant to the Foreign Sovereign Immunities Act (FSIA). The Court of Appeals affirmed.
The Commonwealth Scientific and Industrial Research Organisation (CSIRO) is Australia's national science agency. It is the assignee of U.S. Patent No. 5,487,069, titled "Wireless LAN". CSIRO asserts that this patent covers the Institute of Electrical and Electronics Engineers (IEEE) standards 802.11a and 802.11g, and attempted to collect license fees from various companies that incorporate wireless networking components in their products. Intel makes such products, and sells them to other companies, such as Dell. The CSIRO negotiated with Dell, but not with Intel.
On February 2, 2005, CSIRO filed a complaint in U.S. District Court (EDTex) against Buffalo Technology alleging infringement of its patent. The Eastern District of Texas is the court of choice of forum shopping plaintiffs in patent cases.
On May 9, 2005, Intel and Dell filed a complaint in U.S. District Court (NDCal) against CSIRO seeking declaratory judgment of non-infringement and invalidity.
On May 9, 2005, Microsoft, Hewlett-Packard, and Netgear filed a complaint in U.S. District Court (NDCal) against CSIRO seeking declaratory judgment of non-infringement and invalidity.
In both the Intel and Microsoft actions, the CSIRO moved to dismiss for lack of subject matter jurisdiction pursuant its claim of immunity under the Foreign Sovereign Immunities Act (FSIA). The District Court denied both motions, holding that by attempting to license and collect royalty revenues the CSIRO had engaged in commercial activity, and therefore was not entitled to sovereign immunity.
The CSIRO filed interlocutory appeals of both denials. The Court of Appeals considered the two appeals together. It affirmed.
The FSIA, which is codified at 28 U.S.C. §§ 1602-1611, provides for immunity of foreign states from suit in state and federal courts in the U.S., subject to certain exceptions.
§ 1604 provides, in full, that "Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter. "
§ 1605 provides, in part, that "(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case ... (2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States".
Moreover, § 1603, the definitional section of the statute, provides, in part, that "commercial activity" means "either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose".
The CSIRO argued that while it had sought to license its patent, and collect revenues, and had engaged in negotiations, it had not engaged in commercial activity because it had not actually entered into licensing agreements with any of the plaintiffs.
The Court of Appeals, citing the Supreme Court's opinion in Republic of Argentina. v. Weltover, Inc., 504 U.S. 607 (1992), wrote that the exception to sovereign immunity applies where the government entity does not "exercise powers peculiar to sovereigns".
The Court of Appeals added that "CSIRO's acts of (1) obtaining a United States patent and then (2) enforcing its patent so it could reap the profits thereof -- whether by threatening litigation or by proffering licenses to putative infringers" falls within the commercial activity exception.
These cases are Intel Corporation and Dell, Inc. v. CSIRO, App. Ct. No. 06-1032 and D.C. No.C-05-1886, and Microsoft Corporation, Hewlitt-Packard Company, and Netgear, Inc. v. CSIRO, App. Ct. No. 06-1040 and D.C. No. C-05-1894. Judge Michel wrote the opinion of the Court of Appeals, in which Judges Bryson and Plager joined. Judge Martin Jenkins presided in both of the District Court cases.
DC Circuit Rules in Case Regarding AT&T's EPCCs
7/14. The U.S. Court of Appeals (DCCir) issued its opinion [9 pages in PDF] in AT&T v. FCC, AT&T's challenge to the Federal Communications Commission's (FCC) order that retroactively applied its determination that AT&T's enhanced prepaid calling cards (EPCCs) are telecommunications, and thus subject to intrastate access charges and universal service taxes.
AT&T previously sold cards that allow purchasers to make long distance telephone calls without subscribing to a long distance service or using a credit card. Rather, it sold prepaid calling cards (PCCs) that provided purchasers with a fixed number of minutes at a fixed price. It sold these PCCs through distributors, such as WalMart. Use of these cards also included audio advertisements for distributors.
AT&T previously argued that for the purposes of intrastate access charges and universal service taxation these EPCCs were an enhanced service, and therefore an information service, rather than a telecommunications. It argued that this meant that it did not have to pay intrastate access charges and universal service taxes on it sale of EPCCs.
Previously, AT&T petitioned the FCC for a declaratory ruling. The FCC declared that added advertising is merely an adjunct to basic service, and therefore EPCCs are telecommunications. However, the FCC also declared that its determination is retroactive. At issue is the present petition for review is the retroactivity portion of the order.
The Court of Appeals wrote that agency may make their orders retroactive, unless "an agency alters an established rule defining permissible conduct which has been generally recognized and relied on throughout the industry that it regulates". The Court of Appeals continued that in the present case the FCC's "decision in this case did not change settled law; AT&T does not and indeed cannot point us to a settled rule on which it reasonably relied."
See, FCC's Order and Notice of Proposed Rulemaking [30 pages in PDF] adopted on February 16, 2005, and released on February 23, 2005. This order and NPRM is FCC 05-41 in WC Docket No. 03-133 and WC Docket No. 05-68. See also, story titled "FCC Orders AT&T to Pay Access Charges and USF Payments on Some Calling Cards" in TLJ Daily E-Mail Alert No. 1,082, February 24, 2005. And see, brief [45 pages in PDF] of the FCC.
This case is AT&T v. FCC and USA, respondents, and Qwest, et al., intervenors, App. Ct. No. 05-1096, a petition for review of a final order of the FCC. Judge Randolph wrote the opinion of the Court of Appeals, in which Judges Garland and Williams joined.
People and Appointments
7/14. President Bush nominated Nora Fischer to be a Judge of the U.S. District Court for the Western District of Pennsylvania. See, White House release.
7/14. President Bush nominated Sara Lioi to be a Judge of the U.S. District Court for the Northern District of Ohio. See, White House release.
7/14. Joe Brenckle was named Communications Director of the Senate Commerce Committee (SCC). He previously worked for Rep. Rick Renzi (R-AZ). Before that, he worked for former Sen. Frank Murkowski (R-AK). He replaces Melanie Alvord, who was named Assistant Staff Director of the SCC. Brian Eaton was named Press Assistant for the SCC. He just graduated from Penn State University. Aaron Saunders moved to Sen. Ted Stevens' (R-AK) personal staff. Dan Neumann was named Staff Assistant for the SCC. See, SCC release.
7/14. The U.S. Court of Appeals (DCCir) issued its opinion [22 pages in PDF] in Mobile Relay Associates v. FCC, a case regarding the Federal Communications Commission's (FCC) reconfiguration of the 800 MHz band to eliminate interference with public safety communications. The Court of Appeals denied the petition for review. This case is Mobile Relay Associates and Skitronics, LLC v. FCC and USA, U.S. Court of Appeals for the District of Columbia, App. Ct. No. 04-1413.
7/14. The U.S. District Court (WDVa), at Roanoke, sentenced Gregory John Mitchel to 150 years in prison in connection with his operation of child pornography websites.
Senate Appropriations Committee Approves Website Labeling Mandate
7/13. The Senate Appropriations Committee (SCC) amended and approved HR 5672, the appropriations bill for science, the Departments of State, Justice, and Commerce, and related agencies, for the fiscal year ending September 30, 2007.
The SCC added an amendment that criminalizes the operation of a web site that contains "sexually explicit material" (SEM) without warning labels. The Federal Trade Commission (FTC) would write rules for these warning labels; one purpose would be to facilitate web site filtering. The amendment defines SEM as "material that depicts sexually explicit conduct" (SEC).
This amendment also criminalizes the embedding of "words, symbols, or digital images into the source code of a website with the intent to deceive another person into viewing material that is obscene".
The mandatory labeling amendment provides that "It is unlawful for the operator of a website that is primarily operated for commercial purposes knowingly, and with knowledge of the character of the material, to place sexually explicit material on the website unless -- (i) the first page of the website viewable on the Internet does not include any sexually explicit material; and (ii) each page or screen of the website that does contain sexually explicit material also displays the matter prescribed" by the Federal Trade Commission (FTC).
The amendment then requires the FTC to "promulgate regulations establishing clearly identifiable marks or notices to be included in the code, if technologically feasible, or on the pages or screens of a website that contains sexually explicit material to inform any person who accesses that website of the nature of the material and to facilitate the filtering of such pages or screens."
However, this prohibition does not "apply to any website access to which is restricted to a specific set of individuals through a password or other access restriction mechanism".
The amendment also exempts any person or entity that is "a telecommunications carrier", "engaged in the business of providing an Internet access service", or "engaged in the transmission, storage, retrieval, hosting, formatting, or translation of a communication made by another person, without selection or alteration of the content (other than by translation or by lawful selection or deletion of matter)". (Parentheses in original.)
The amendment provides that "sexually explicit material" is "material that depicts sexually explicit conduct (as defined in section 2256(2)(A) of section 2256 of title 18, United States Code), unless that depiction constitutes a small and insignificant part of the whole, the remainder of which is not primarily devoted to sexual matters."
18 U.S.C. § 2256(2)(A) provides that "Except as provided in subparagraph (B), ``sexually explicit conduct´´ means actual or simulated ..." It goes on to enumerate certain activities, which if quoted here, would cause some e-mail filters to block delivery of this issue of the TLJ Daily E-Mail Alert.
The reference to "subparagraph (B)" is significant. § 2256(2)(B) provides a slightly different definition of SEC for the context of child pornography (CP). For the purposes of CP, SEC also must also be "graphic". § 2256(10) then clarifies that a component of "graphic" is visual observation. That is, by using a definition that clarifies that SEC must be visual for the purpose of CP, but not for other purposes, this amendment provides that SEM, for the purposes of the mandatory labeling requirement, includes not only visual media, but also non-visual media, such as text and audio.
In other words, not only pictures and video, but also discussion of sexually explicit conduct in the text of a web site subjects the operator of that web site to the mandatory labeling requirements of this amendment.
Finally, the amendment provides that violation of this mandate is punishable by fine, or "imprisonment for not more than 5 years, or both".
FCC Approves Sales of Adelphia Assets
7/13. The Federal Communications Commission (FCC) adopted, but did not release, a Memorandum Opinion and Order that approves the sale of most of the cable systems and assets of Adelphia Communications Corporation to Time Warner Inc. and Comcast Corporation, subject to conditions.
The FCC issued a short release [PDF] that describes this item, and each of the five Commissioners released statements. This item is FCC 06-105 in MB Docket No. 05-192.
See, FCC Chairman Kevin Martin's statement [PDF], Commissioner Deborah Tate's statement [PDF], and Commissioner Robert McDowell's statement [PDF].
Commissioner Michael Copps dissented on several grounds. He wrote in his statement [5 pages in PDF] that "I also am disappointed that this Order gives such short shrift to network neutrality. It has been our practice to condition recent mergers of this scale on enforcement of the four principles of the Internet Policy Statement that the Commission adopted last year. But here we backtrack and are too timid to even apply them in an enforceable fashion to the transaction at hand."
See, FCC's policy statement [3 pages in PDF], adopted on August 5, 2005, and released on September 23, 2005. See also, story titled "FCC Adopts a Policy Statement Regarding Network Neutrality" in TLJ Daily E-Mail Alert No. 1,190, August 8, 2005, and story titled "FCC Releases Policy Statement Regarding Internet Regulation" in TLJ Daily E-Mail Alert No. 1,221, September 26, 2005.
Copps continued that the FCC "needs to consider the addition of a fifth principle to its Internet Policy Statement. We are entering a world where big and concentrated broadband providers are searching for new business models and sometimes even suggesting that web sites may have to pay additional charges and new tolls for the traffic they generate. This could change the character of the Internet as we know it. To keep our policies current, we need to go beyond the original four principles and commit industry and the FCC to a specific principle of enforceable nondiscrimination, one that allows for reasonable network management but makes clear that broadband network providers will not be allowed to shackle the promise of the Internet in its adolescence."
Similarly, Commissioner Jonathan Adelstein wrote in his statement [PDF] that "I dissent in part from this Order because I am particularly concerned that the Commission fails to adopt explicit, enforceable provisions to preserve and promote the open and interconnected nature of the Internet." He added that "The majority’s decision to backtrack from earlier Commission precedent is particularly troubling given that we should be thinking about how to enhance our consumer protections in the broadband world, not to erode them."
More FCC News
7/13. The Federal Communications Commission (FCC) removed from the agenda for its meeting of July 13 its previously announced item regarding digital audio broadcasting. The FCC's agenda had stated that the title of this was "Digital Audio Broadcasting Systems and Their Impact on the Terrestrial Radio Broadcast Service". Neither the FCC's agenda, nor the notice of deletion [PDF] provide further details. The FCC issued its Further NPRM and NOI back on April 15, 2004. See, story titled "FCC Announces FNPRM and NOI Regarding Digital Audio Broadcasting" in TLJ Daily E-Mail Alert No. 878, April 16, 2004. This FNPRM/NOI is FCC 04-99 in MB Docket No. 99-325. The FCC adopted its First Report and Order [27 pages in PDF] on October 10, 2002.
7/13. The Federal Communications Commission (FCC) adopted, but did not release, Notice of Proposed Rulemaking, Notice of Inquiry, and Order regarding the establishment of a new service for medical radio communication devices in the 401-406 MHz band. This item is FCC 06-103 in ET Docket Nos. 06-135, 05-213, 03-92, and RM-11271. See, FCC release [PDF].
7/13. The Federal Communications Commission (FCC) adopted and released a Notice of Apparent Liability for Forfeiture [PDF] that proposes to fine 1st Source Information Specialists, Inc. dba LocateCell $97,500 for failure to comply with a subpoena issued by the FCC's Enforcement Bureau in its investigation of data brokers regarding violations of the customer proprietary network information (CPNI) provisions of 47 U.S.C. § 222. See also, FCC release.
9th Circuit Affirms in FTC v. Cyberspace.com
7/13. The U.S. Court of Appeals (9thCir) issued its opinion [11 pages in PDF] in FTC v. Cyberspace.com, affirming the judgment of the District Court in favor of the Federal Trade Commission (FTC). This is a FTC Act deceptive practices action involving deception of consumers regarding internet access service.
The Court of Appeals construed the meaning of Section 5 of the FTCA, which serves as the basis for many of the FTC's actions to enjoin fraudulent internet based commercial operations.
There are numerous defendants. There are two individuals (Ian Eisenberg and Chris Hebard), a company that they formed (Electronic Publishing Ventures, LLC), four of its subsidiaries (Cyberspace.com, LLC, Essex Enterprises, LLC, Surfnet Services, LLC, and Splashnet.net, LLC), and two foreign entities owned or controlled by Eisenberg and Hebard for the purpose of owning EPV.
While the defendants' ownership and control structure may have been complex, the activities that are the subject of this litigation are simple. The defendants mailed out 4.4 Million checks in the amount of $3.50 each. Small print on the back of the checks stated that by depositing the checks the recipients agreed to have charges added to their monthly phone bills charging them $19.95 or $29.95 for dial internet access service. Other material suggested that the check was a refund.
At least 225,000 recipients deposited these checks. However, less than one percent logged on for service.
The FTC filed a civil complaint [7 pages in PDF], on October 20, 2000, in U.S. District Court (WDWash) against the defendants alleging that this scheme violates Section 5 of the FTCA, which is codified at 15 U.S.C. § 45(a).
This section, which serves as the basis for many FTC actions, provides, in part, that "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful."
The District Court held that the defendants violated Section 5, and that the proper amount of consumer redress was $17,676,897.
See also, the FTC's web page for this case.
Defendants appealed. The Court of Appeals affirmed.
The Court of Appeals wrote that "a practice falls within this prohibition (1) if it is likely to mislead consumers acting reasonably under the circumstances (2) in a way that is material."
It added that "A solicitation may be likely to mislead by virtue of the net impression it creates even though the solicitation also contains truthful disclosures." Hence, the addition of the fine print disclosure does not save the defendants in this case.
The Court of Appeals elaborated that "Hebard and EFO's mailing created the deceptive impression that the $3.50 check was simply a refund or rebate rather than an offer for services. The check was made out to the individual or small business to whom it was sent, with the consumer's phone number in the ``re´´ line. The portion of the document that resembled an invoice included columns labeled ``invoice number,´´ ``account number,´´ and ``discount taken,´´ implying a preexisting business relationship for which a refund check was being offered. The front of the check and invoice lacked any indication that by cashing the check, the consumer was contracting to pay a monthly fee."
It concluded that "no reasonable factfinder could conclude that the solicitation was not likely to deceive consumers acting reasonably under the circumstances."
The Court of Appeals added that this conclusion is also supported by consumers' reactions. Over 99 percent of those who deposited the checks did not use the service, indicating that they had been deceived.
The Court of Appeals concluded that "the district court properly granted summary judgment to the FTC on the FTCA § 5 violation because no reasonable factfinder could conclude that the solicitation was not likely to mislead consumers acting reasonably under the circumstances in a way that is material."
The Court of Appeals also affirmed the District Court with respect to the personal liability of of Eisenberg. It wrote that "An individual is personally liable for a corporation's FTCA § 5 violations if he ``participated directly in the acts or practices or had authority to control them´´ and `` `had actual knowledge of material misrepresentations, was recklessly indifferent to the truth or falsity of a misrepresentation, or had an awareness of a high probability of fraud along with an intentional avoidance of the truth.´ ´´" (Citing 9th Circuit precedent.)
This case is Federal Trade Commission v. Cyberspace.com, LLC, et al., U.S. Court of Appeals for the 9th Circuit, App. Ct. Nos. 04-35428 and 04-35431, appeals from the U.S. District Court for the Western District of Washington.
People and Appointments
7/13. President Bush announced his intent to nominate Christopher Padilla to be Assistant Secretary of Commerce (Export Administration). He is currently Chief of Staff to Deputy Secretary of State Robert Zoellick, who was previously the U.S. Trade Representative. Padilla was previously Assistant USTR for Intergovernmental Affairs and Public Liaison. He has also worked for Eastman Kodak Company, Lucent Technologies, and AT&T. See, White House release.
7/13. President Bush nominated Henry Paulson, who is the new Secretary of the Treasury, to also be United States Governor of the International Monetary Fund for a term of five years, United States Governor of the International Bank for Reconstruction and Development for a term of five years, United States Governor of the Inter-American Development Bank for a term of five years, United States Governor of the African Development Bank for a term of five years, United States Governor of the Asian Development Bank, United States Governor of the African Development Fund, and United States Governor of the European Bank for Reconstruction and Development. See, White House release.
7/13. Robert Cresanti was named Chief Privacy Officer at the Department of Commerce (DOC). He also remains the DOC's Under Secretary for Technology.
7/13. The Markle Foundation's (MF) Task Force on National Security released a report [100 pages in PDF] titled "Mobilizing Information to Prevent Terrorism: Accelerating Development of a Trusted Information Sharing Environment". See also, MF release.
7/13. The U.S. Court of Appeals (FedCir) issued its opinion [PDF] in Flex-Rest v. Steelcase, a patent case involving computer keyboard technology. The Court of Appeals affirmed the judgment of the District Court. This case is Flex-Rest, LLC v. Steelcase, Inc., U.S. Court of Appeals for the Federal Circuit, App. Ct. Nos. 05-1354 and 05-1367, appeals from the U.S. District Court for the Western District of Michigan, Judge David McKeague presiding. Judge McKeague has since been elevated to the U.S. Court of Appeals (6thCir). Judge Linn wrote the opinion of the Court of Appeals, in which Judges Bryson and Prost joined.
7/13. The Department of Commerce's (DOC) Bureau of Industry and Security (BIS) published a notice in the Federal Register announcing that has withdrawn its proposed rule that would have made use of the Simplified Network Application Process (SNAP) mandatory and that would have revised the provisions of the Export Administration Regulations (EAR) that govern electronic filing. See, Federal Register, July 13, 2006, Vol. 71, No. 134, at Page 39603.
9th Circuit Holds that Operation of Passive Website Is Insufficient to Create Personal Jurisdiction in Trademark Case
7/12. The U.S. Court of Appeals (9thCir) issued its opinion [16 pages in PDF] in Peable Beach v. Caddy, holding that the U.S. District Court lacks personal jurisdiction over a citizen and resident of the United Kingdom (UK) who operates a web site that a U.S. plaintiff alleges infringes and dilutes its trademark rights. See, full story.
6th Circuit Upholds Choice of Forum Clause in Contract for Lease of Telecom Equipment
7/12. The U.S. Court of Appeals (6thCir) issued its opinion [6 pages in PDF] in Preferred Capital v. Associates in Urology, reversing the judgment of the District Court. The Court of Appeals held that a forum selection clause in a commercial telecommunications equipment lease agreement is enforceable.
Associates in Urology (AIU) is a medical practice group with its principal place of business in Ridley Park, Pennsylvania, near Philadelphia. Preferred Capital, Inc. (PCI) is an Ohio company. NorVergence, Inc., is a New Jersey company.
AIU leased telecommunications equipment from NorVergence. The lease agreements included a choice of law and forum selection clause. These agreements provided that "This agreement shall be governed by, construed and enforced in accordance with the laws of the State in which Rentor’s principal offices are located or, if this Lease is assigned by Rentor, the State in which the assignee’s principal offices are located, without regard to such State’s choice of law considerations and all legal actions relating to this Lease shall be venued exclusively in a state or federal court located within that State".
At the time that AIU signed these agreements, in February of 2004, NorVergence had already assigned these agreements to PCI, without informing AIU. Nor did NorVergence disclose that it was operating a fraudulent business.
NorVergence is a company with record of fraud. On November 3, 2004, the Federal Trade Commission (FTC) filed a complaint [12 pages in PDF] in U.S. District Court (DNJ) against NorVergence alleging unfair and deceptive acts or practices in violation of Section 5(a) of the FTC Act in connection with its selling and financing of telecommunications products and services. See also, FTC release.
On June 29, 2005, the District Court issued its Default Judgment and Order of Permanent Injunction and Monetary Relief [11 pages in PDF]. See also, FTC release. Also, last month the District Court issued a permanent injunction [PDF] against Thomas N. Salzano and Peter J. Salzano, individually and as officers of NorVergence.
The FTC wrote in its June 26, 2006, release that "NorVergence rental contracts contained clauses that purportedly required customers to pay even if NorVergence failed to provide any services and allowed the finance companies to seek collections in any forum they chose, making it very difficult for customers to dispute the monthly rental fees. Ultimately, consumers were burdened with long-term equipment rental payments for which they received no telecommunications services."
The District Court wrote in its default judgment that "The telecommunications services NorVergence promised to consumers have not been provided at least since August 2004, and, in some cases, have never been provided. At the same time, various finance companies who took assignments from NorVergence of the majority of the rental agreements have insisted that consumers continue to pay on those agreements."
In October of 2004, one of these finance companies, PCI, filed a complaint in state court in Ohio against AIU, alleging non-payment, and requesting damages of over $76,000. AIU denies the debt. AIU removed the action to the U.S. District Court (NDOhio). It also asserted lack of jurisdiction, improper venue, and forum non conveniens.
The District Court dismissed the complaint for lack of personal jurisdiction over AIU. In doing so, it held that the forum selection clause is unenforceable for being unjust.
PCI appealed. The Court of Appeals reversed.
It held that "A forum selection clause contained in an agreement in connection with an arm's length commercial transaction between two business entities is valid and enforceable."
In continued that "In determining the validity of a particular forum selection clause, we thus consider the following factors: (1) the commercial nature of the contract; (2) the absence of fraud or overreaching; and (3) whether enforcement of the forum selection clause would otherwise be unreasonable or unjust."
First, the Court of Appeals held that AIU is commercial, and that the forum selection clause is commercial in nature.
Second, the Court of Appeals held that while there was fraud by NorVergence (and perhaps fraud by PCI) in other activities, there was no fraud in the inducement to enter into the forum selection clause.
That is, the Court of Appeals concluded that fraud in inducing a company to enter into a contract does not imply fraud in inducing a company to enter into a particular clause in that contract.
Third, the Court of Appeals held that the enforcement of the forum selection clause would not be unreasonable or unjust. It pointed out that AIU is a business, and that the court in Ohio is only "a few hours" away.
Hence, it concluded that all three parts of this three part test weigh in favor of validity of the forum selection clause.
The Court of Appeals reversed and remanded to the District Court. However, AIU may yet prevail on the merits at trial.
Also, the case may include yet another twist. The same lease agreements include a jury trial waiver.
This case is Preferred Capital, Inc. v. Associates in Urology, U.S. Court of Appeals for the 6th Circuit, App. Ct. No. 05-3584, an appeal from the U.S. District Court for the Northern District of Ohio, at Cleveland, D.C. No. 04-02359, Judge James Gwin presiding. Judge Clay wrote the opinion of the Court of Appeals, in which Judge Siler and McKeague joined.
European Commission Takes Another 280.5 Million Euros From Microsoft
7/12. The European Commission (EC) announced that it will take another 280.5 Million Euros from Microsoft. This confiscation, like the previous ones, are associated with the EC's order of March 24, 2004. See, EC release.
The EC announced its original Commission Decision [302 pages in PDF] on March 24, 2004, and released it on April 22, 2004. In 2004, the EC took from Microsoft 497,196,304 Euros, and ordered it to sell Windows without Media Player and make certain intellectual property available to competitors. See also, story titled "European Commission Seeks 497 Million Euros and Code Removal from Microsoft" in TLJ Daily E-Mail Alert No. 863, March 25, 2004; and story titled "European Commission Releases Microsoft Decision" in TLJ Daily E-Mail Alert No. 883, April 23, 2004.
Hewitt Pate, who was the chief U.S. antitrust enforcer at the time that the EC made issued its original order, frequently criticized the EC's action. See for example, stories titled "US Antitrust Chief Says EU's Microsoft Decision Could Harm Innovation and Consumers" in TLJ Daily E-Mail Alert No. 863, March 25, 2004; "Pate Criticizes EC Decision Regarding Microsoft" in TLJ Daily E-Mail Alert No. 869, April 5, 2004; and "Pate Addresses US EU Differences on Antitrust, Microsoft, and IPR" in TLJ Daily E-Mail Alert No. 913, June 8, 2004.
See also, story titled "EU Seeks More Money and Disclosures from Microsoft" in TLJ Daily E-Mail Alert No. 1,279, December 23, 2006
The EC asserted in its just announced action that Microsoft is not in compliance with the 2004 order, and that the 2004 order is based upon principles of competition law.
Microsoft General Counsel Brad Smith asserted in a release that "We have great respect for the Commission and this process".
He elaborated that Microsoft disputes the legality of this latest EC action, and will "ask the European courts to determine whether our compliance efforts have been sufficient and whether the Commission's unprecedented fine is justified".
7/12. The House Commerce Committee (HCC) amended and approved HR 5337, the "Reform of National Security Reviews of Foreign Direct Investments Act". See, HCC release and statement by Rep. John Dingell (D-MI), the ranking Democrat on the HCC.
7/12. The National Telecommunications and Information Administration (NTIA) published in its web site comments that it received in response to its notice of inquiry (NOI) regarding "implementation of the Spectrum Sharing Innovation Test-Bed (Test-Bed) where Federal and non-Federal users can study the feasibility of increasing the efficient use of the spectrum". See, notice in the Federal Register, June 8, 2006, Vol. 71, No. 110, at Pages 33282-33284, and NTIA web page with hyperlinks to comments. July 10, 2006, was the deadline to submit comments.
House Approves Unlawful Internet Gambling Enforcement Act
7/11. The House approved HR 4411, the "Unlawful Internet Gambling Enforcement Act of 2006" by a vote of 317-93. See, Roll Call No. 363. Republicans voted 201-17. Democrats voted 115-76.
Rep. James Leach (R-IA) introduced HR 4411 on November 18, 2005. However, Rep. Leach has been introducing related bills for many years. For a summary of the bill, and the history of related legislation, see story titled "House Financial Services Committee Approves Internet Gambling Bill" in TLJ Daily E-Mail Alert No. 1,330, March 16, 2006.
HR 4411 is an attempt to stop internet gambling by regulating the financial transactions that fund what already constitutes unlawful internet gambling. See, full story.
7/11. The House approved HR 5646 by a vote of 417-4. See, Roll Call No. 369. This bill requires the Environmental Protection Agency (EPA) to conduct a "study analyzing the rapid growth and energy consumption of computer data centers by the Federal Government and private enterprise". It also provides that "It is the sense of Congress that it is in the best interest of the United States for purchasers of computer servers to give high priority to energy efficiency as a factor in determining best value and performance for purchases of computer servers".
Go to News from July 6-10, 2006.