TLJ News from November 1-5, 2006

FTC Files Administrative Complaint Against Deceptive Adware Distributor

11/3. The Federal Trade Commission (FTC) filed an administrative complaint [5 pages PDF] against Zango, Inc., Keith Smith and Daniel Todd alleging unfair or deceptive trade practices in violation of Section 5 of the FTC Act in connection with their adware distribution practices.

The FTC also entered into a detailed settlement agreement with the respondents which prohibits them from engaging in certain software download related practices.

This case involves the practices of a small, disreputable and unethical adware company. Nevertheless, the settlement agreement may provide guidance for the wide range of businesses that provide software downloads as to what acts, and omissions, the FTC considers to be unfair or deceptive business practices.

There is no adware specific federal statute. However, Section 5 of the FTC Act, which is codified at 15 U.S.C. § 45, provides that "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful".

Lydia Parnes, Director of the FTC's Bureau of Consumer Protection, stated in a release that "it violates federal law to secretly install software that forces consumers to get pop-ups that disrupt their computer use".

In July of 2006, 180solutions, Inc. merged with Hotbar, Inc. and changed the combined company's name to Zango, Inc. The other respondents, Smith and Todd, are named individually, and in their capacity as officers of Zango, Inc.

The complaint alleges that the respondents distributed by internet downloading "adware" that monitors the internet use of computers and displays pop-up advertisements based on that internet use. It states that the respondents distributed their adware through affiliates and sub-affiliates acting on their behalf who bundled their adware with purportedly free software programs, which the complaint describes as "lureware".

The complaint states that "When installing the lureware, consumers often have been unaware that Respondents' adware would also be installed because that fact was not adequately disclosed to them. In some instances, no reference to Respondents’ adware was made on the website offering the lureware or in the install windows. In other instances, information regarding Respondents’ adware was available only by clicking on inconspicuous hyperlinks contained in the install windows or in lengthy terms and conditions regarding the lureware. Because the lureware often was bundled with several different programs, the existence and information about the effects of Respondents' adware could only be ascertained, if at all, by clicking through multiple inconspicuous hyperlinks."

The complaint also states that the respondents, acting through affiliates or sub-affiliates, installed their adware by "drive-by downloads", by "exploiting security vulnerabilities in Internet web browsers", which downloads involve no notice to the consumer.

The complaint alleges that "Respondents knew or should have known that there was widespread failure by their affiliates and sub-affiliates to provide adequate notice of their adware and obtain consumer consent to its installation."

The complaint further alleges that the respondents made "identifying, locating, and removing their adware extremely difficult for consumers".

The FTC entered into an Agreement Containing Consent Order [12 pages in PDF] with the respondents. The respondents admit no wrongdoing or violation of law. However, the respondents agree not to engage in certain adware distribution practices, and make a $3 Million "payment" to the FTC.

The agreement provides that the respondents cannot install software on consumers' computers without obtaining express consent. It also requires respondents to make their adware capable of uninstallation. It also regulates the relationship between the respondents and their affiliates.

The FTC filed its administrative complaint after receiving a complaint [PDF] from the Center for Democracy and Technology (CDT).

The CDT's Ari Schwartz stated in a release that "This is a landmark settlement, and one that sends an important message to companies that have built their businesses on the backs of Internet users without any concern for what those users want ... With this action, the FTC has again made clear that it is prepared to go after companies, regardless of size or market position, that engage in unfair and deceptive practices to distribute their products."

The CDT release adds that "More important than the $3 million payment called for under the settlement, is a requirement that Zango cease communications with Internet users who downloaded the Zango/180solutions software before Jan. 1, 2006. Not only does this provide relief for many unwitting Zango "users," it also sends a message that companies will not be permitted to retain customer bases built on patterns of unfair practices."

This case is In the Matter of Zango, Inc., formerly known as 180Solutions, Inc., Keith Smith and Daniel Todd, FTC file number 052 3130.

Copyright Office Issues Opinion Regarding Meaning of § 114's Preexisting Subscription Services

11/3. The Copyright Office (CO) published a notice in the Federal Register that announces, describes, sets the effective date (October 20, 2006), and attaches a copy of, it Memorandum Opinion (MO) regarding the designation of certain digital subscription music services as preexisting subscription services.

See, Federal Register, November 3, 2006, Vol. 71, No. 213, at Pages 64639-64647.

Background. On September 20, 2006, the Copyright Royalty Board (CRB), at the request of SoundExchange, Inc., referred a question of law to the Register of Copyrights regarding the conditions under which an entity may be a "preexisting subscription service" within the meaning of 17 U.S.C. § 114(j)(11).

17 U.S.C. § 114 provides a statutory license to perform a sound recording publicly by means of a digital audio transmission.

Subsection (d)(2) provides a statutory license for certain performances "of a sound recording publicly by means of a subscription digital audio transmission ... , an eligible nonsubscription transmission, or a transmission ... that is made by a preexisting satellite digital audio radio service". Subsection (d)(2)(B) contains the reference to "preexisting subscription service" that is at issue. Subsection (j)(11) provides a definition of "preexisting subscription service".

Subsection (j)(11) provides that a "preexisting subscription service" means "a service that performs sound recordings by means of noninteractive audio-only subscription digital audio transmissions, which was in existence and was making such transmissions to the public for a fee on or before July 31, 1998, and may include a limited number of sample channels representative of the subscription service that are made available on a nonsubscription basis in order to promote the subscription service."

SoundExchange collects and distributes royalties from various digital music services on behalf of artists and record companies.

The MO states that the CRB asked this: "Is the universe of preexisting subscription services -- defined in 17 U.S.C. Sec.  114(j)(11) as services which perform sound recordings by means of noninteractive audio -- only subscription digital audio transmissions and which were in existence and making such transmissions to the public for a fee on or before July 31, 1998 -- [limited by] law to only Muzak (provided over the DiSH Network), Music Choice, and DMX?" (Parentheses and brackets in original. Footnotes omitted.)

Arguments of Affected Parties. DMX, Inc. and Sirius Satellite Radio, Inc. argued that the Section 114 term "service" means the use of the music, while SoundExhange argued that it means the business entity operating the service.

DMX argued that it is eligible. It wrote that "any subscription service that has been in existence and making noninteractive audio-only subscription digital audio transmissions to the public for a fee since prior to July 31, 1998 is a ``preexisting subscription service´´ for the purposes of the compulsory license available under Section 114(d)(2)(B) ..." DMX is represented by Bruce Rich of the law firm of Weil Gotshal & Manges.

SoundExchange argued that DMX is not eligible on the grounds that it acquired the entity providing the service out of the bankrupt estate of the previous owner. It argued that only Muzak and Music Choice, which was formerly known as Digital Cable Radio Associates, are eligible. SoundExchange is represented by Thomas Perrelli of the law firm of Jenner & Block.

Sirius argued that "The Sirius audio service, when carried over the DISH Network, is also entitled to treatment as a preexisting subscription service". Sirius is represented by Bruce Joseph of the law firm of Wiley Rein & Fielding.

SoundExchange responded that DISH/Echostar is not eligible, and hence, neither is Sirius.

Opinion of the Register of Copyright. The Copyright Office's Memorandum Opinion (MO) states that Section 114 "is not a model of clarity or consistency".

It states that "In sum, eligibility for a preexisting subscription service license is limited to subscription services that satisfy the definition of 17 U.S.C. Sec.  114(j)(11), which includes being in operation on July 31, 1998 and continuously operating since that time. In 1998, Congress identified those entities which satisfied the definition and were eligible at that time as being DMX, Music Choice and the DiSH Network. Therefore, today, those same services are the only ones that may qualify as being preexisting subscription services, since they are the only ones which can satisfy the requirement of being in operation as of July 31, 1998."

It adds that "Moreover, for purposes of participating in a rate setting proceeding, the term ``preexisting subscription service´´ is best interpreted as meaning the business entity which operates under the statutory license. A determination of whether DMX is the same service that was identified by the legislative history in 1998 and has operated continuously since that time requires a factual analysis that is beyond the scope of the Register's authority for questions presented under 17 U.S.C. Sec.  802(f)(1)(B)."

The MO reasons that "the better reading of the statute is that the preexisting services must be limited to the three named entities in the Conference Report, i.e., DMX (operated by TCI Music), Music Choice (operated by Digital Cable Radio Associates), and the DiSH Network (operated by Muzak) that were in existence and making transmissions of sound recordings by means of noninteractive audio-only subscription digital transmissions on or before July 31, 1998." (Parentheses in original.)

"The question remains, however, whether the designation applies to the type of offerings made by the service or the business entity operating at the relevant time." The MO concludes that "the beneficiary of the grandfather provision should be the business entity that was providing the service at the time. While there is a debate among the parties as to whether DMX today is the same business entity as it was in 1998, the Office declines to reach this question because it would involve the interpretation of facts that go beyond the scope of this inquiry."

The MO continues that "On the other hand, it is appropriate for the Office to consider whether for purposes of Sec. 114 Sirius can provide the same type of music service that Muzak offered in 1998 through DiSH Network. The answer to this inquiry hinges on the status of DiSH Network and whether it or the music service content provider offered over its network is the beneficiary of the grandfather provision. On this point, Sirius concedes that DiSH Network is a satellite television service which, in 1998, sought out a music service provider to supply the audio music channels. It also notes that the Sec. 114 statutory license covers only audio services and that the royalty fees are calculated based on the revenues associated with the provision of the sound recordings and not the revenues generated by DiSH Network. We also note that DiSH Network is the apparent beneficiary of the exemption in Sec. 114(d)(1)(C)(iii) which allows a direct broadcast satellite service provider to retransmit to the listener noninteractive music programming provided by a licensed source. Yet in spite of these facts, Sirius maintains that DiSH Network is the preexisting subscription service because it was specifically named in the legislative history, or alternatively, that Sirius itself is the beneficiary of the designation as a preexisting service through DiSH, because it is the provider of music services over the DiSH Network."

"While it is clear that DiSH is identified in the legislative history as the preexisting service, often without any reference to Muzak as the provider of the audio channels carried over the DiSH network, the DiSH Network standing alone cannot be viewed as the preexisting service, nor does it have a need to be designated as such because of the exemption it enjoys under Sec. 114(d)(1)(C)(iii). Section 114 involves the licensing of the public performance right to make digital transmissions of sound recordings. In 1998, the service making these transmissions over the DiSH Network was Muzak. Thus, it was Muzak that made the transmissions under the Sec. 114 statutory license and it was Muzak that incurred the obligation to pay the royalties. Because DiSH itself did not operate under the Sec. 114 statutory license, it makes no sense for it alone to be considered the preexisting service. Thus, the reference to DiSH Network in the legislative history is best interpreted as including the actual music service that did offer subscription transmissions of sound recordings over the DiSH Network at that time, i.e., Muzak."

The MO adds that "to allow Sirius to step into the shoes of Muzak and offer the same type of subscription transmissions is inconsistent with a narrow construction of the grandfather provision."

FCC Again Delays Approval of AT&T BellSouth Merger

11/3. The Federal Communications Commission (FCC) again postponed consideration of its order approving the merger of AT&T and BellSouth. The FCC had previously announced that this item was on the agenda for its event titled "Open Meeting", scheduled for 9:30 AM on Friday, November 3, 2006. See, FCC's notice [PDF] of deletion of agenda item.

FCC Declares that BPL is an Information Service

11/3. The Federal Communications Commission (FCC) adopted, but did not release, a Memorandum Opinion and Order (MOO) that declares that broadband over power line (BPL) enabled internet access service is an information service.

The FCC adopted this MOO in response to the Petition for Declaratory Ruling [16 pages in PDF] filed with the FCC on December 23, 2005, by the United Power Line Council (UPLC).

In 2002 the FCC ruled that cable modem service is an information service. See, Declaratory Ruling and Notice of Proposed Rulemaking [75 pages in PDF]. In 2005 the FCC ruled that DSL internet access service is an information services. See, story titled "FCC Classifies DSL as Information Service" in TLJ Daily E-Mail Alert No. 1,190, August 8, 2005. The Supreme Court upheld the classification as to cable modem service in its opinion [59 pages in PDF] in NCTA v. Brand X. See, story titled "Supreme Court Rules in Brand X Case" in TLJ Daily E-Mail Alert No. 1,163, June 28, 2005.

The FCC issued a short release [1 page in PDF] describing this MOO, and four of the Commissioners made brief oral statements and released short written statements. Commissioner Robert McDowell did not participate in approving this MOO.

The FCC release states that this MOO "finds that the transmission component underlying BPL-enabled Internet access service is ``telecommunications,´´ and that the provision of this telecommunications transmission component as part of a functionally integrated, finished BPL-enabled Internet access service offering is an information service. This approach is consistent with the framework that the Commission has established for cable modem service and wireline broadband Internet access service, furthering the Commission’s goal of regulating like services in a similar manner."

FCC Chairman Kevin Martin wrote in his statement [PDF] that this decision provides regulatory neutrality, and "the regulatory certainty necessary to foster competition between different broadband platform providers".

Commissioner Deborah Tate wrote in her statement [PDF] that with this decision the FCC is "applying only a light regulatory touch".

Commissioner Jonathan Adelstein wrote in his statement [PDF] that this MOO fails to address consumer privacy, "Truth-in-Billing rules, access for persons with disabilities, and the preservation and advancement of universal service".

He also referenced state regulation. He said that "I appreciate the willingness of Chairman Martin and my colleagues to work with me to ensure that this Order does not unnecessarily limit states’ ability to address important issues related to the oversight of BPL."

Commissioner Michael Copps predicted in his statement [PDF] that "for the foreseeable future, new broadband services are destined to be classified as Title I services".

But, he said that there exists an "indeterminate Title I regulatory limbo". He elaborated that "Just relegating something to Title I doesn't provide the kind of certainty that either business or consumers are entitled to"

He wrote that "we are nowhere near finished defining what being an information service actually means. Yes, we have clarified some questions about E911 and CALEA and decided (unwisely, in my view) that broadband providers need not contribute to universal service." (Parentheses in original.)

He enumerated some of the issues that remain in limbo for BPL service providers, including privacy, disability access, pole attachments, or "cross-subsidization".

Justice Scalia's dissent in the Brand X case may be relevant to FCC's ongoing consideration of how to classify services, and how to regulate information services. He wrote in 2005 that "what the Commission hath given, the Commission may well take away".

The FCC's just adopted decision relieves BPL providers of the common carrier regulatory regime set forth in Title II. However, the FCC asserts ancillary Title I authority to regulate information services, and has done so to reapply components of the old telecommunications regulatory regime, or to apply new regulation for the first time to previously unregulated services.

Moreover, exercise of ancillary authority, unlike exercise of Title II authority, is hardly constrained by statute, and is difficult to challenge in court.

Reaction. The UPLC praised the FCC's MOO in a release.

Walter McCormick, head of the USTelecom, stated in a release that "Today's determination by the FCC is a very good step for consumers. This ruling acknowledges that regardless of how the service is delivered, broadband providers should all have the same opportunities in today's marketplace. It also shows that in an already highly competitive market, there is no need for outdated and unnecessary regulations. This is clearly the right decision to ensure a vibrant market for high-speed Internet service."

This item is FCC 06-165 in WC Docket No. 06-10. This proceeding is titled "United Power Line Council’s Petition for Declaratory Ruling Regarding the Classification of Broadband over Power Line Internet Access Service as an Information Service".

Adelstein Comments on Pretexting and Privacy

11/3. Federal Communications Commission (FCC) Commissioner Jonathan Adelstein commented upon data privacy in his statement regarding the broadband over power line (BPL) Memorandum Opinion and Order. His comments applied to a wide range of communications services other those over power lines.

Jonathan AdelsteinAdelstein (at right) wrote that "the widespread and unauthorized proliferation of consumer telephone call records has been a sharp reminder that this Commission has an obligation to ensure that consumers' privacy expectations are met. But that privacy concern is not limited to the narrowband world. Consumers don't care whether their sensitive information is transferred by copper wire, fiber optic cable, or over a power line connection. They merely want us to implement and enforce the legal protections afforded by Congress."

He added that "We should act immediately to make sure that we have adequate safeguards in place to protect the consumers' sensitive information."

The FCC has an open rule making proceeding. On February 10, 2006, the FCC adopted a Notice of Proposed Rulemaking (NPRM). This is FCC 06-10 in Docket No. 96-115 and RM-11277. See, story titled "FCC Adopts NPRM Regarding Privacy of Consumer Phone Records" in TLJ Daily E-Mail Alert No. 1,308, February 13, 2006, and story titled "FCC Rulemaking Proceeding on CPNI May Extend to Internet Protocol Services" in TLJ Daily E-Mail Alert No. 1,310, February 15, 2006.

However, while Adelstein referenced "the widespread and unauthorized proliferation of consumer telephone call records", which involves pretexting, such as that involved in the HP scandal, he made no reference to the impact of NSA and law enforcement activities on consumer privacy.

More FCC News

11/3. The Federal Communications Commission (FCC) adopted, but did not release, a Report and Order (R&O) in its proceeding titled "Revision of Procedures Governing Amendments to FM Table of Allotments and Changes of Community of License in the Radio Broadcast Services". This R&O is FCC 06-163 in MB Docket No. 05-210. The FCC issued a short news release [2 pages in PDF] that describes this item.

11/3. The Federal Communications Commission (FCC) adopted, but did not release, Notice of Proposed Rulemaking (NPRM) in its proceeding titled "In the Matter of the Effects of Communications Towers on Migratory Birds". This NPRM is FCC 03-187 in WT Docket No. 03-187. The FCC issued a short news release [2 pages in PDF] that describes this item.

People and Appointments

11/3. Alexander Cohen was named Deputy General Counsel for Legal Policy and Administrative Practice at the Securities and Exchange Commission (SEC), effective "mid-November". He is currently a partner in the Hong Kong office of the law firm of Latham & Watkins. See, SEC release.

11/3. The U.S. District Court (EDNY) sentenced Sanjay Kumar to serve 12 years in prison, and pay an $8 Million fine, following his previous pleas of guilty to securities fraud and other offenses related to his fraudulently inflating the quarterly revenue and earnings of Computer Associates (CA). Kumar was previously Ch/CEO of CA. See, SEC release.

11/3. The Department of Commerce announced the membership of its Commerce Spectrum Advisory Committee. It will report to John Kneuer, the acting head of the National Telecommunications and Information Administration (NTIA). The members are:

More News

11/3. The U.S. Patent and Trademark Office (USPTO) published a notice in the Federal Register that announces that, effective February 1, 2007, it is eliminating the Disclosure Document Program. The USPTO wrote that this program was implemented in 1969 "in order to provide an alternative form of evidence of conception of an invention", but that "few, if any, inventors obtain any actual benefit from a disclosure document". It added that "a provisional application for patent affords better benefits and protection to inventors than a disclosure document". See, Federal Register, November 3, 2006, Vol. 71, No. 213, at Pages 64636-64639.

Internet Governance Forum Discusses IDNs

11/2. The Internet Governance Forum (IGF) met in Athens, Greece, on October 30 through November 2, 2006. The topics discussed included internationalized domain names (IDNs), access to the internet, interoperability, the conversion to IPv6, security, and freedom of expression on the internet.

See also, the IGF's web page with hyperlinks to transcripts of speeches and panel discussions.

Vint Cerf, the Chairman of the Internet Corporation for Assigned Names and Numbers (ICANN), gave a speech on October 30.

He stated that "As increasing amounts of information find their ways into the Internet’s archives, it is vital that we preserve their accessibility, renderability and interpretability. Digital documents often need to be interpreted by specific software packages to be rendered in understandable form."

Cerf said that "We will need to assure that the bits we preserve on digital media can also be read and understood not only by people but by computers programmed to help us manage this ocean of information. Steps are needed to assure that the information we accumulate today will be usable not merely decades but centuries and even millennia into the future. We need to preserve access to application software, operating systems and perhaps even hardware or simulators so as to retain the ability to make effective use of our digital archives."

Cerf also discussed IDNs, and urged preservation of global interoperability. He said that there is a strong interest in "the ability to register domain names written in the characters used in their preferred languages and therein lies a huge technical challenge. Such domain names are sometimes called ``International Domain Names´´ or IDNs for short."

He stated that "One of the most important aspects of the Internet is the ability for every user to make unambiguous references to every registered domain name. Historically, this global feature has been achieved in part by restricting host domain names to be expressed in a small subset of the Latin characters A-Z, the digits 0-9 and the hyphen ``-´´. It is well understood that this will not suffice for users whose native languages use characters other than these. At the same time, it is vital to preserve the global ability to refer to and use every domain name. This global interoperability needs to be preserved especially as new languages are supported by the UNICODE system through the addition of new characters needed to express them."

He emphasized that domain names are simply unique identifiers, and are not general natural language expressions. He reiterated that they "must be unique, and names registered today must continue to work into the distant future, no matter what new characters are added to UNICODE to support the expression of additional written languages."

He also reported that the "ICANN is already conducting tests to determine the readiness of the root zone file and its associated root servers and resolvers to house or work with internationalized top level domains. Adding IDNs at all levels in the domain names system potentially affects every application that makes use of domain names."

He elaborated that "The mechanisms of the domain name system make demands on the normalization and matching of domain name strings that far exceed the simpler requirement that natural language strings be renderable using UNICODE. A misstep in the specifications of the IDN rules could easily and permanently break the Internet into non-interoperable components. New work in the Internet Engineering Task Force and in the ICANN committee on IDNs, among others, is pointing the way towards specific solutions."

See also, ICANN report titled "Towards a Multilingual Global Internet: Avoiding the Risk of Fragmentation".

Viviane Reding, the European Commissioner for Information Society, gave a speech at the IGF on October 30 in which she addressed IDNs. She said that IDNs "are sometimes wrongly seen as a mere technical issue".

She said that "Notwithstanding the important considerations on stability that need to be addressed, there is above all a legitimate political imperative for the Internet to offer different language scripts. Apart from users who want to be able to use, for example, Chinese ideograms or Arabic scripts, there is the real danger that prolonged delay in the introduction of IDNs could lead to a fragmentation of the Internet."

She added that "we should also think about multilingualism in Internet governance mechanisms themselves. The Internet that we know and value today has much of its roots in the developed world, in particular in Europe and in the USA. English has been, and will continue to be, a very important and very useful ``lingua franca´´ that facilitates cross-border and inter-cultural cooperation between worldwide communities, such as scientists, engineers and academics, or in the economic sectors."

Reding also discussed freedom of expression on the internet. She said that the "flow of information that it facilitates strengthens democratic processes, stimulates economic growth and allows for cross-fertilizing exchanges of knowledge in a way never seen before. Too often however, this very freedom is under attack from those that do not value freedom of expression or disregard the economic and social benefits of allowing a free flow of information within and across borders."

"Freedom is too often seen as a threat by those who do not value human rights or want to impose their vision of the world or their religious beliefs. A key objective for the European Commission is therefore to keep the Internet as an open and censorship-free zone where all the world's citizens can communicate freely with each other without needing to seek the permission of anyone else, not least their governments, to do so, in line with internationally recognised fundamental rights", said Reding.

FTC Releases Report on Noerr Pennington Doctrine

11/2. The Federal Trade Commission (FTC) released a report [41 pages in PDF] titled "Enforcement Perspectives on the Noerr-Pennington Doctrine". This is an doctrine that particularly affects antitrust liability. It is applied or asserted in some patent related antitrust matters.

The Noerr-Pennington doctrine is based on the Supreme Court's opinions in Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) and United Mine Workers v. Pennington, 381 U.S. 657 (1965).

This doctrine allows businesses to combine and lobby to influence the legislative, executive, or judicial branches of government or administrative agencies without antitrust liability, because the First Amendment’s right of petition protects such activities.

Maureen Oldhausen, Director of the FTC's OPP stated in a release that "When properly applied, the Noerr doctrine serves important purposes in our representative democracy ... Unnecessarily broad interpretations of the doctrine, however, can protect abuses of government processes and impose significant costs on consumers."

The FTC report states that "A fundamental goal of the Commission’s antitrust enforcement program is to prevent parties, acting either unilaterally or in concert, from improperly acquiring and exercising market power to the detriment of consumers. One of the most effective ways for parties to acquire or maintain market power is through the abuse of government processes. The cost to the party engaging in such abuse typically is minimal, while the anticompetitive effects resulting from such abuse often are significant and durable. Thus, the reach of the antitrust laws to conduct that abuses government processes for anticompetitive ends is of particular importance to the Commission’s enforcement program."

The report addresses "three types of conduct that can use government processes to seek anticompetitive rewards: 1) requests for ministerial government acts; 2) misrepresentations to a government decision maker in a non-political context; and 3) repetitive requests for government action filed regardless of merit solely to use the government process to suppress competition."

The second of these three includes making misleading statements to the U.S. Patent and Trademark Office (USPTO) to obtain unwarranted patent protection.

It also includes patent ambush practices. For example, a company may misrepresent to a regulatory authority that certain information is non-proprietary and in the public domain, while at the same time pursuing patents, in order to induce the regulator to adopt regulations to require use of the some to be patented technology. The FTC addressed this practice in it proceeding titled "In the Matter of Union Oil Company of California".

The report recommends that the FTC should "Clarify that conduct protected by Noerr does not extend to filings, outside of the political arena, that seek no more than a ministerial government act."

Second, the report recommends that the FTC should "Clarify that conduct protected by Noerr does not extend to misrepresentations, outside of the political arena, that meet the standards set forth in the Commission’s Unocal decision."

See also, the FTC's July 2004 opinion [56 pages in PDF] in its Unocal proceeding, and story titled "FTC Rules Noerr-Pennington Doctrine Does Not Block Antitrust Action for False Representations Regarding Patents During Standards Setting Process" in TLJ Daily E-Mail Alert No. 933, July 8, 2004.

Finally, the report recommends that the FTC should "Clarify that conduct protected by Noerr does not extend to patterns of repetitive petitioning, outside of the political arena, filed without regard to merit that employ government processes, rather than the outcome of those processes, to harm competitors in an attempt to suppress competition."

The report was written by staff of the FTC's Office of Policy Planning (OPP) and Bureau of Competition (BOC).

Microsoft and Novell Announce Linux Agreement

11/2. Microsoft and Novell announced a set of agreements to collaborate with respect to Linux. See, Microsoft release (and documents hyperlinked therein), transcript of joint news conference, and Joint letter to the Open Source Community.

The letter states that "Microsoft is coming to terms with Linux". It adds that "Today, for the first time, Microsoft is collaborating directly with a Linux and Open Source software vendor. With this news, Microsoft is saying that Linux is an important part of the IT infrastructure. More importantly, Microsoft announced today that it will not assert its patents against individual, non-commercial developers. Novell has secured an irrevocable promise from Microsoft to allow individual and non-commercial contributors the freedom to continue open source development, free from any concern of Microsoft patent lawsuits."

See also, Patent Cooperation Agreement (PCA). The PCA provides that Microsoft "covenants not to sue Novell's Customers and Novell's Subsidiaries' Customers for infringement under Covered Patents of Microsoft on account of a such Customers' use of specific copies of a Covered Product as distributed by Novell or its Subsidiaries ... for which Novell has received Revenue (directly or indirectly) for such specific copies; provided the foregoing covenant is limited to use by a Customer of Novell (i) of such specific copies that are authorized by Novell in consideration for such Revenue, and (ii) within the scope authorized by Novell in consideration for such Revenue."

This agreement only covers Novell's Linux products.

More News

11/2. Federal Reserve Board (FRB) Governor Susan Bies gave a speech at Drake University in Des Moines, Iowa, titled "The Economic Outlook". She stated that "Spending on equipment and software, which grew quite rapidly from mid-2004 to early 2006, has advanced at a more moderate pace lately. The recent slowdown in the growth of business sales would be expected, all else equal, to have a damping influence on capital spending, and in fact business confidence has moved down since the start of the year." However, she added that "the demand for information technology equipment is also likely to be well maintained, in part because of the recent introduction of a new generation of microprocessing chips and more-efficient large servers."

11/2. Sen. Charles Grassley (R-IA), the Chairman of the Senate Finance Committee (SFC), and Sen. Max Baucus (D-MT), the ranking Democrat on the SFC, wrote a letter [PDF] to Mark Everson, Commissioner of the Internal Revenue Service (IRS) regarding its Free File program for electronic filing of tax returns. The wrote that "the IRS has been putting the taxpayer second in line behind the tax preparation industry and the result is negatively affecting participation in the Free File Program and the overall growth of electronic filing." They also wrote that "The IRS needs to provide better oversight of the Free File Program this coming filing season and should encourage the members of the Free File Alliance to provide services to taxpayers that are truly free. If the tax preparation industry cannot provide free basic filing services without hidden costs and traps, perhaps it is time to consider having the IRS provide a direct filing portal to enable all taxpayers to file electronically without cost." See also, the Treasury Inspector General for Tax Administration's (TIGTA) September 29, 2006, report titled "Use of the Free File Program Declined After Income Restrictions Were Applied".

FCC Rules Boston Airport Cannot Regulate WiFi

11/1. The Federal Communications Commission (FCC) issued a Memorandum Opinion and Order [25 pages in PDF] concluding that "Massport's restrictions on Continental's use of its Wi-Fi antenna are pre-empted by the OTARD rules and we therefore grant Continental's petition."

This proceeding is titled "In the matter of Continental Airlines Petition for Declaratory Ruling Regarding the Over-the-Air Reception Devices (OTARD) Rules" and numbered ET Docket No. 05-247. This order is numbered FCC 06-157.

Background. On July 8, 2005, Continental Airlines filed a Petition for a Declaratory Ruling [16 pages in PDF] and supplement [PDF] regarding the Massachusetts Port Authority's (MassPort or MPA) attempt to regulate and extract revenues from airport WiFi hotspots.

Continental installed a WiFi hotspot in its frequent flyer lounge at the Boston Logan International Airport, in Boston, Massachusetts. It provides WiFi access to its customers at no additional charge.

The MPA demanded removal of the antenna. The MPA asserted in a letter to Continental (which is attached to the petition) that there is a "potential threat to public safety caused by Continental’s unauthorized and unlawful wireless communications". The MPA asserts that Continental's service creates an interference problem.

However, the correspondence attached to the petition suggests that the MPA's real concern is not with radio frequency interference. Rather, Continental's free service is interfering with the MPA's extraction of monopoly rents from WiFi users, most of whom are not Boston residents.

See also, story titled "FCC Delays Proceeding on State Regulation of Airport WiFi Hotspots" in TLJ Daily E-Mail Alert No. 1,201, August 25, 2005, and story titled "FCC Seeks Comments of Massachusetts Port Authority's Attempt to Regulate Airport WiFi Hotspots" in TLJ Daily E-Mail Alert No. 1,186, August 2, 2005.

Summary of Opinion. The FCC preempted the MPA restrictions.

Had the FCC not ruled that the MPA's restrictions are preempted by its OTARD rules, other airports, and perhaps other municipal, state and local government entities, may have followed the MPA's example, and instituted regulation and of the provision of WiFi service.

FCC Commissioner Michael Copps wrote in a statement [PDF] that "American consumers and businesses are free to install Wi-Fi antennas under our OTARD rules -- meaning without seeking approval from their landlords".

He added that "while I certainly support strong licensing regulation in some contexts, I think it is equally important that we leave other portions of the spectrum open to unlicensed uses."

He also wrote that "multiple Wi-Fi operators in the airport will cause no interference to the safety-of-life communications that the airport authority conducts on its dedicated, separate, and licensed public safety channels."

FCC Commissioner Jonathan Adelstein wrote in a statement [PDF] that "Today we strike a victory for the WiFi revolution in the cradle of the American Revolution. The WiFi movement embodies the spirit of American freedom, and in our action we say ``don’t tread on me.´´ The movement has been one of the great telecommunications success stories because it enables American consumers and businesses to offer and receive broadband services at the most local levels -- at any time, in any place."

The FCC's OTARD rules make no distinction between radio devices using licensed technologies and those using unlicensed technologies under Part 15 of the FCC's rules. However, the just released MOO is the first time that the FCC has ruled in a proceeding regarding application of the OTARD to unlicensed devices that operate under Part 15.

Jonathan AdelsteinAdelstein (at right) commented that "I support the application of our OTARD rules to unlicensed devices under Part 15 of our rules because these devices transmit and receive fixed wireless signals as is required by OTARD. That Part 15 services are ``unlicensed´´ does not mean that they should be treated differently than ``unlicensed´´ ones for purposes of our OTARD rules."

FCC Analysis. The FCC's OTARD rule is codified at 47 C.F.R. § 1.4000. See also, the FCC's OTARD web page.

Subsection (a)(1) provides, in parts relevant to the FCC's analysis, that "Any restriction ... on property within the exclusive use or control of the antenna user ... that impairs the installation, maintenance, or use of ... An antenna that is ... Used ... to receive or transmit fixed wireless signals ... is prohibited to the extent it so impairs ..."

Subsection (a)(1) provides in full that,

"(a)(1) Any restriction, including but not limited to any state or local law or regulation, including zoning, land-use, or building regulations, or any private covenant, contract provision, lease provision, homeowners' association rule or similar restriction, on property within the exclusive use or control of the antenna user where the user has a direct or indirect ownership or leasehold interest in the property that impairs the installation, maintenance, or use of:
  (i) An antenna that is:
    (A) Used to receive direct broadcast satellite service, including direct-to-home satellite service, or to receive or transmit fixed wireless signals via satellite, and
    (B) One meter or less in diameter or is located in Alaska;
  (ii) An antenna that is:
    (A) Used to receive video programming services via multipoint distribution services, including multichannel multipoint distribution services, instructional television fixed services, and local multipoint distribution services, or to receive or transmit fixed wireless signals other than via satellite, and
    (B) That is one meter or less in diameter or diagonal measurement;
  (iii) An antenna that is used to receive television broadcast signals; or
  (iv) A mast supporting an antenna described in paragraphs (a)(1)(i), (a)(1)(ii), or (a)(1)(iii) of this section;
is prohibited to the extent it so impairs, subject to paragraph (b) of this section." (Emphasis added.)

Section 1.4000 goes on to define "fixed wireless signals", impairment, and other terms. Subsection (a)(2) provides that "fixed wireless service" includes "any commercial non-broadcast communications signals transmitted via wireless technology to and/or from a fixed customer location".

This section provides that certain state or local government restrictions are prohibited. The FCC analyzed each element that is prerequisite to a finding of preemption in light of the nature of Continental's WiFi service, and the MPA restriction, and concluded the Continental is entitled to a determination that the MPA's restriction is preempted by the rule.

The FCC wrote that Continental's antenna is of a size covered by the rule.

It also found that the antenna is located on property within the exclusive use and control of Continental. The FCC held that Continental's leasehold interest, and control over who has access to its lounge, suffice to meet this requirement. The FCC also rejected the MPA's argument that lease provisions allowing it to access to the premises for maintenance, security, construction work, or to place utilities, defeats the exclusive use and control requirement.

The FCC rejected the argument advanced by the MPA that Continental is not the "antenna user" under this rule.

The FCC also found that Continental's antenna is used to receive or transmit fixed wireless signals. The FCC rejected the MPA's argument that since Continental did not charge is customers extra for WiFi, this service was not commercial within the meaning of Subsection (a)(2). The FCC reasoned that this subsection requires only that the "signal", but not the service, be "commercial".

Section 1,4000 does not expressly reference "WiFi" by name, or reference it by its specific technical characteristics. The MPA noted several technical characteristics of WiFi service, and argued that the rule does not cover these. The FCC rejected all such arguments.

The FCC next found that the MPA's restrictions meet the impairment requirement of the rule.

The FCC next concluded that the MPA does not meet the public safety exception. The MPA argued that public safety personnel might use WiFi in the future, and that Continental's WiFi could interfere with that.

Subsection (b)(1) provides in part that "(b) Any restriction otherwise prohibited by paragraph (a) of this section is permitted if: (1) It is necessary to accomplish a clearly defined, legitimate safety objective ..."

The FCC wrote that "Even if the OTARD safety exception did apply to RF interference issues, the safety exception would still not apply here because the Wi-Fi device that Continental is using in the President’s Club operates as permitted under Part 15 of our rules. Part 15 specifies power levels, frequency bands, and conditions under which devices may transmit RF signals without requiring a license. Part 15 devices do not receive interference protection from other Part 15 devices. Therefore, because Massport’s airport Wi-Fi backbone is composed of Part 15 devices, Massport has no right to operate the airport Wi-Fi backbone free from interference from other Part 15 devices, including Continental’s Wi-Fi device." (Footnotes omitted.)

Finally, the FCC rejected arguments of the MPA that the FCC should recognize exemptions not included in the rule, such as a government buildings exemption.

Reaction. Gary Shapiro, head of the Consumer Electronics Association (CEA), praised the FCC decision in a release. He said that "making Wi-Fi available serves the traveling public, allowing anytime, anywhere connectivity. The availability of Wi-Fi devices and service is needed to encourage broadband deployment, which will provide enormous benefits to consumers and our economy."

The FCC took almost 16 months to issue its opinion in this factually and legally uncomplicated proceeding. However, the issue was more complicated politically. The Boston airport, and airport authorities generally, opposed OTARD preemption. The MPA is located in the state of Massachusetts. Sen. John Kerry (D-MA) represents Massachusetts, and is a senior member of the Senate Commerce Committee, which oversees the FCC. The FCC's release of this MOO coincides with Sen. Kerry's speech in which he commented on the intelligence of U.S. armed forces personnel.

Copyright Office Publishes Notice of Ringtones Opinion

11/1. The Copyright Office (CO) published a notice in the Federal Register that announces, describes, and attaches a copy of, its Memorandum Opinion [34 pages in PDF] to the Copyright Royalty Board stating, with certain caveats, that the statutory license for making and distributing phonorecords under the Copyright Act applies to ringtones.

See also, 17 U.S.C. § 115 and story titled "Copyright Office Opines that Cellphone Ringtones are Digital Phonorecord Deliveries Under Section 115" in TLJ Daily E-Mail Alert No. 1,477, October 27, 2006.

The Recording Industry Association of America's (RIAA) requested the ruling. Its General Counsel, Steven Marks, stated in a release that "In an ever-transforming digital marketplace, ringtones also represent an important new way for the industry to recognize a return on its investment in music. This decision injects clarity into the marketplace -- clarity that will help satisfy fans' hunger for the latest hits from today's best artists by affording record companies and ringtone providers the ability to move new offerings quickly and easily to consumers. Ultimately, we're all seeking a vibrant mobile business. This decision helps us further that goal."

The CO notice states that the Memorandum Opinion's effective date is October 16, 2006. See, Federal Register, November 1, 2006, Vol. 71, No. 211, at Pages 64303-64317.

People and Appointments

11/1. Scott Wallsten will join the Progress & Freedom Foundation (PFF) on November 13, 2006, as a Senior Fellow and Director of Communications Policy Studies. He previously worked for the AEI-Brookings Joint Center for Regulatory Studies and the American Enterprise Institute (AEI). He has also worked as economist at The World Bank, as a scholar at the Stanford Institute for Economic Policy Research, and as a staff economist at the President's Council of Economic Advisers.

More News

11/1. The Federal Communications Commission (FCC) published a notice in the Federal Register that announces, describes, and sets the effective date of (January 2, 2007), its final rule amending its regulations that impose obligations on broadcasters with respect to children's broadcasting. See, Federal Register, November 1, 2006, Vol. 71, No. 211, at Pages 64154-64165. The FCC adopted its Second Order on Reconsideration and Second Report and Order on September 26, 2006, and released its on September 29, 2006. It is FCC 06-143 in MM Docket No. 00-167.

11/1. Vice President Dick Cheney gave a political campaign speech in Kallispell, Montana, for Sen. Conrad Burns (R-MT), and Rep. Denny Rehberg (R-MT), and others. He discussed, among other things, HR 5825, the "Electronic Surveillance Modernization Act". The House approved this bill on September 28, 2006, by a vote of 232-191. Republicans voted 214-13. Democrats voted 18-177. See, Roll Call No. 502. The Senate has not voted on this bill. Cheney said that "To win this war, America also needs the Terrorist Surveillance Program -- this is a program the President set up right after 9/11, which allows the National Security Agency to monitor international communications, one end of which we have reason to believe is related to al Qaeda, or terrorist networks. The purpose is obvious: If people inside the United States are communicating with al Qaeda, they are talking to the enemy, and we need to know about it. Yet many leading Democrats have denounced the President for this program. Recently, when a bill to authorize the program came to a vote on the House floor, 177 Democrats -- 88 percent of the House Democratic members voted no." VP Cheney argued that "the key question before the voters on November 7th is whether or not this nation is serious about fighting the war on terror. And there can be no doubt that George W. Bush, Conrad Burns, and Denny Rehberg are serious about fighting and winning it."

11/1. The Copyright Office (CO) published a notice in the Federal Register announcing its "receipt of a notice of intent to audit 2005 statements of account concerning the eligible nonsubscription and subscription transmissions of sound recordings made by Live365, Inc. (``Live365´´) under statutory licenses." See, Federal Register, November 1, 2006, Vol. 71, No. 211, at Pages 64317-64318.

11/1. Federal Reserve Board (FRB) Chairman Ben Bernanke gave a speech in Washington DC titled "Community Development Financial Institutions: Promoting Economic Growth and Opportunity". One of the points that he made was that technology has led to a democratization of credit. He said that "In recent years, advances in information and communication technologies, improved methods of risk measurement and risk assessment, the availability of more-comprehensive information about individuals' credit histories, and an increased ability of retail lenders to obtain funds from capital markets have led to what has been called the ``democratization´´ of credit."

Go to News from October 26-31, 2006.