TLJ News from April 21-25, 2007

Senate Commerce Committee Approves Data Breach Notification Bill

4/25.  The Senate Commerce Committee (SCC) approved S 1178, the "Identity Theft Prevention Act of 2007". See, SCC release. This is a data breach notification bill.

Sen. Daniel Inouye (D-HI), the Chairman of the SCC, introduced this bill on April 20, 2007. Sen. Ted Stevens (R-AK), the ranking Republican on the SCC, Sen. Mark Pryor (D-AR), and Sen. Gordon Smith (R-OR) are the original cosponsors.

The bill requires covered entities (any person or entity with certain data that might facilitate identity theft or fraud) to engage in certain data security practices. It also mandates and regulates the disclosure of security breaches to the Federal Trade Commission (FTC), consumer reporting agencies, and affected individuals. It also empowers consumers to place freezes with consumer credit reporting agencies (CCRAs), subject to numerous exceptions.

The bill preempts state law, with an exception for certain state laws that impose security freezes on consumer credit reporting agencies. It gives rule making authority to the FTC. It gives civil enforcement authority to the FTC and state attorneys general. It does not create a private right of action.

See, full story.

People and Appointments

4/25. President Bush announced his intent to nominate James Glassman to be a member of the Broadcasting Board of Governors (BBG) for the remainder of a three year term expiring on August 13, 2007, and an additional three year term expiring on August 13, 2010. President Bush also announced his intent to nominate Glassman to be Chairman of the BBG. See, White House release.

4/25. President Bush announced his intent to appoint six persons to be Members of the Advisory Committee for Trade Policy and Negotiations (ACTPN) for four year terms. The six are former Rep. Jennifer Dunn (R-WA), Terry Growcock (Ch/CEO of The Manitowoc Company), Herbert Fisk Johnson (Ch/CEO of S.C. Johnson & Son), James Owens (Ch/CEO of Caterpillar), Sidney Taurel (Ch/CEO of Eli Lilly and Company), and William Gerald Walter. See, White House release. The ACTPN was created by the Trade Act of 2002; it prepares reports on proposed trade agreements for the administration and Congress. See, USTR web page.

4/25. The Senate Judiciary Committee (SJC) approved the nomination of Frederick Kapala to be a Judge of the U.S. District Court for the Northern District of Illinois.

4/25. The Senate Judiciary Committee (SJC) approved the nomination of  Benjamin Hale Settle to be a Judge of the U.S. District Court for the Western District of Washington.

More Capitol Hill News

4/25. Senate Commerce Committee approved S 428, the "IP-Enabled Voice Communications and Public Safety Act of 2007". See, SCC release.

4/25. The Senate amended and approved S 761, the "America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science Act". The vote on final passage was 88-8. See, Roll Call No. 146.

4/25. The House Science Committee (HSC) amended and approved HR 1867, bill to authorize appropriations for FY 2008, 2009, and 2010 for the National Science Foundation (NSF), and HR 1868, a bill to reauthorize the National Institute of Standards and Technology (NIST). See, HSC release.

More News

4/25. The Progress & Freedom Foundation (PFF) released a paper [9 pages in PDF] titled "The Role of Patents in Venture-Backed Software Start-ups". The author is Ronald Mann of the University of Texas School of Law. He argues that while there is little data on the role of patents in small start-up software firms, the data does suggest that patents provide substantial benefits for the firms that acquire them, with respect to obtaining financing and to appropriating the value of innovation. However, he finds that gauging the net effect of patents on innovation is a more difficult question. The House Judiciary Committee's (HJC) Subcommittee on Courts, the Internet and Intellectual Property will hold a hearing on HR 1908, "The Patent Reform Act of 2007" at 2:00 PM on Thursday, April 26.

Presidents Civil Liberties Oversight Board Releases Annual Report

4/24. The President's Civil Liberties Oversight Board (PCLOB) released a report [49 pages in PDF] titled its "First Annual Report to Congress: March 2006 - March 2007".

The PCLOB was created by Section 1061 of the Intelligence Reform and Terrorism Prevention Act of 2004. This bill was S 2845 in the 108th Congress. It is now Public Law No. 108-458. However, bills approved by the House and Senate earlier this year would make changes to the PCLOB.

The PCLOB members were sworn in on March 14, 2006. The report covers its activities during its first year of operation.

The statute assigns several functions to the board. First, it requires to board to provide advice to the President and heads of departments and agencies. It provides, in part, that "For the purpose of providing advice to the President or to the head of any department or agency of the executive branch, the Board shall -- (A) review proposed regulations and executive branch policies related to efforts to protect the Nation from terrorism ... (B) review the implementation of laws, regulations, and executive branch policies related to efforts to protect the Nation from terrorism ... (C) advise the President and the head of any department or agency of the executive branch to ensure that privacy and civil liberties are appropriately considered in the development and implementation of such regulations and executive branch policies ..."

Second, the statute requires the board to conduct oversight. It provides, in part, that "The Board shall continually review (A) regulations, executive branch policies, and procedures (including the implementation of such regulations, policies, and procedures), related laws pertaining to efforts to protect the Nation from terrorism, and other actions by the executive branch related to efforts to protect the Nation from terrorism to ensure that privacy and civil liberties are protected; and (B) the information sharing practices of the departments, agencies, and elements of the executive branch to determine whether or not such practices appropriately protect privacy and civil liberties and adhere to the information sharing guidelines ..."

Third, the statute requires the board to "ensure that concerns with respect to privacy and civil liberties are appropriately considered in the implementation of laws, regulations, and executive branch policies related to efforts to protect the Nation against terrorism".

Notably, the statute does not task the board with providing information or reports to the Congress or public regarding the impact upon privacy or civil liberties of the implementation of laws, regulations, and executive branch policies related terrorism.

However, the statute does require an annual report to the Congress, but only as to the "the Board's major activities".

Hence, this report first addresses the statutory authority, formation, and staffing of the PCLOB. It also summarizes the board's activities in obtaining information from the various departments and agencies involved in fighting terrorism, including the Department of Justice (DOJ), Department of Homeland Security (DHS), Department of the Treasury (DOT), National Security Agency (NSA), Department of the Treasury (DOT), Department of State (DOS), and other departments and agencies. It also summarizes the boards meetings and communications with the public, advocacy groups, and academics.

The report states that the board is working with "homeland security professionals within the Executive Branch specifically dedicated to consideration of privacy and civil liberties". The report adds that the board is "fostering a sense of community among, and helping empower, these new professional privacy and civil liberties officers, as well as attorneys, inspectors general, and other relevant agency program officials. The Board intends to provide the necessary support at the appropriate level so that all are better able to fulfill their own responsibilities."

The report continues that it has only been in recent months that it has "begun to engage in a substantive review of existing anti-terrorism programs and policies." It elaborates that it is examining the NSA's surveillance programs, the DOT's Terrorist Finance Tracking Program, the DOD's Defense Counterintelligence Field Activities, the DOS's e-Passport Initiative, and the National Counterterrorism Center's National Implementation Plan.

Finally, the cover letter to the report, but not the report itself, addresses the DOJ Inspector General's (IG) report on the Federal Bureau of Investigation's (FBI) use of national security letters (NSLs).

This cover letter states that "The IG identified serious problems in the FBI's use of NSLs. The Board believes that such problems cannot be tolerated and must not be repeated." It adds that the board "was particularly troubled" by the FBI's use of "exigent letters". It also states that the board has met with the FBI Director, the IG, and others at the DOJ regarding this matter.

The just released report is not a report on the impact upon privacy or civil liberties of various government programs or policies. Nevertheless, the Electronic Privacy Information Center (EPIC) wrote in its web site that this report "provides little insight as to the Board's position on such key issues as the President's domestic surveillance program, government watch lists, or the terrorist scoring that the Department of Homeland Security assigns to US citizens".

The Chairman of the PCLOB is Carol Dinkens. The Vice Chairman is Alan Charles Raul. The three other members are Lanny Davis, Ted Olson, and Francis Taylor.

SEC Charges Former Apple Officers with Stock Option Backdating

4/24. The Securities and Exchange Commission (SEC) filed a civil complaint [20 pages in PDF] in U.S. District Court (NDCal) against Nancy R. Heinen, former General Counsel of Apple, and Fred D. Anderson, former Chief Financial Officer of Apple, alleging violation of federal securities laws in connection with their alleged backdating of stock options in 2001.

Anderson simultaneously settled with the SEC. Heinen did not. Anderson agreed to an injunction, disgorgement of $2,953,125, interest of $528,107.86, and a fine of $150,000, See also, SEC release and release.

The complaint alleges that "This matter involves improper stock option backdating at Apple Computer ... which resulted in the Company's issuance of false financial statements that concealed millions of dollars in executive compensation. On two occasions in 2001, Apple issued huge option grants to top executives, but used false grant dates to avoid reporting nearly $40 million in expenses to the public. Defendant Nancy R. Heinen, Apple's then-General Counsel, caused the options to be backdated and altered company records to conceal the fraud. Defendant Fred D. Anderson, Apple's then-Chief Financial Officer, should have noticed Heinen's efforts to backdate the first grant but failed to take steps to ensure that Apple's financial statements were correct. The two defendants personally benefited from the backdating, receiving several million dollars in unreported compensation as a result of the backdated options."

The complaint adds that this included a "7.5 million-share grant to Chief Executive Officer Steven Jobs".

As a result, the complaint alleges, "Heinen's and Anderson's actions caused Apple to materially understate its expenses, overstate its income, and falsely represent in certain filings that Apple had incurred no expense for options grants."

The complaint charges Heinen with violation of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(b)(5), and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, 13b2-2, and 16a-3 thereunder. It also charges her with aiding and abetting various violations. The SEC seeks an injunction, disgorgement, a fine, and an order barring her from serving as an officer or director of a public company.

The complaint charges Anderson with violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Section 16(a) of the Securities Exchange Act of 1934 and Rules 13b2-2 and 16a-3 thereunder. It also charges him with aiding and abetting various violations. He settled with the SEC without admitting wrongdoing.

Linda Thomsen, Director of the SEC's Division of Enforcement, stated in a release that "The Apple case demonstrates the Commission's ongoing commitment to take action against stock options backdating and other executive compensation abuses. When corporate officers enrich themselves at the expense of a company's shareholders, the Commission will hold the responsible individuals accountable, particularly where, as here, the responsible individuals are among those obligated to ensure that the company complies with all applicable securities laws and that its financial statements are accurate."

This case is Securities and Exchange Commission v. Nancy R. Heinen and Fred D. Anderson, U.S. District Court for the Northern District of California, D.C. No. 07-2214-HRL, Judge Lloyd presiding.

Federal Circuit Issues Stay of Injunction in Verizon v. Vonage

4/24. The U.S. Court of Appeals (FedCir) issued an order [2 pages in PDF] in Verizon v. Vonage granting Vonage's motion for a stay pending appeal.

The U.S. District Court (EDVa) previously entered judgment of patent infringement against Vonage, and awarded $58 Million in damages. On April 6, 2007, the District Court issued a permanent injunction barring Vonage from signing up new customers with certain VOIP technology. The just issued order stays this injunction.

The Court of Appeals also provided for expedited briefing and oral argument. It ordered that "Vonage's opening brief is due May 9, 2007. Verizon's opening brief is due May 23, 2007. Vonage's reply brief and the joint appendix are due May 30, 2007" and that "The appeal is scheduled for oral argument before the same panel at 10 a.m. on June 25, 2007".

Vonage Chairman Jeffrey Citron stated in a release that "We thank the appellate court for its thoughtful consideration of the merits of our case ... It's business as usual for us. We will continue providing reliable, quality digital phone service at the best value in the market and connecting thousands of phone calls every day. We remain focused on growing and strengthening our business and driving toward profitability. ... We continue to believe we have not infringed on any of Verizon's technology and remain optimistic that we will ultimately prevail in this litigation."

Sharon O'Leary, Vonage's Chief Legal Officer, stated in this release that "We believe the original verdict was based on an erroneous claim construction -- meaning the patents in this case were defined in an overly broad and legally unprecedented way ... We believe the district court's decisions repeatedly neglected well-established law on claim construction and, as a result, artificially expanded the coverage of Verizon's patents well beyond what was intended by the patent trademark process. ... We are confident this error will be rectified by the appeals court ... As a result, we remain highly confident Vonage will prevail on appeal."

Vonage added in a second release that "Verizon has pursued litigation against Vonage in an effort to achieve in court what it cannot achieve in the marketplace."

Citron added in this release that "We think this issue warrants national attention because when competition is stifled, consumers literally pay the price. Vonage is the target today, but what other innovative companies might be next?"

This case is Verizon Services Corp., Verizon Laboratories, Inc., and Verizon Communications, Inc. v. Vonage Holding Corp. and Vonage America, Inc., U.S. Court of Appeals for the Federal Circuit, App. Ct. Nos. 2007-1240, 2007-1251, and 2007-1274, appeals from the U.S. District Court for the Eastern District of Virginia.

Orphan Works Bill to Be Introduced

4/24. The DC Bar Association hosted a panel discussion titled "The Orphan Works Dilemma: What is it and can it be fixed?".

Maria Pallante, Deputy General Counsel of the Copyright Office, stated that Sen. Patrick Leahy (D-VT), the Chairman of the Senate Judiciary Committee (SJC), had wanted to introduce the patent reform bill before he focused on the orphan works bill. However, now that Sen. Leahy and others have introduced the Patent Reform Act of 2007, Sen. Leahy and his staff are now focusing on the orphan works bill.

Pallante stated that the bill would likely be introduced in coming months. She also said that it would have "no major substantive changes" from the versions of the bill introduced in the 109th Congress.

See also, stories titled "Patent Reform Act of 2007 Introduced", "Summary of Patent Reform Act of 2007" and "Reaction to the Patent Reform Act of 2007" in TLJ Daily E-Mail Alert No. 1,567, April 19, 2007.

The orphan works bill would substantially reduce the remedies available to copyright holders whose copyrights have been infringed when the infringer demonstrates that he was not able to locate the copyright holder after a "reasonably diligent search".

The bill would particularly degrade the protection afforded to creators of visual works, including photographers, illustrators, sculptors, native American artists, and designers of jewelry, carpets, wallpaper, textiles, and ceramics. It would have a lesser impact on authors of software code and text.

The other speakers on the panel were Allan Adler of the Association of American Publishers and Victor Perlman of the American Society of Media Photographers. Adler advocated enactment of the legislation, and argued that it has broad support from across the copyright based sectors.

Perlman opposed enactment of the legislation on the basis that it would encourage a "wild west" mentality regarding infringement of visual works, and leave photographers and other visual artists unable to enforce their copyrights.

He said that "the notion that there is peace in the valley is just not quite right", and that "I don't think they are going to get it."

For a legislative history of orphans works legislation in the 109th Congress, see the Copyright Office's report [133 pages in PDF] titled "Report on Orphan Works", released on January 31, 2006; HR 5439 IH [PDF] and HR 5439 [LOC], the "Orphan Works Act of 2006", introduced by Rep. Lamar Smith (R-TX) on May 22, 2006; and HR 6052 the "Copyright Modernization Act of 2006 ", which included a revised version of the "Orphan Works Act of 2006".

No bill pertaining to orphan works was approved by either the House of Senate in the 109th Congress.

See also, TLJ stories regarding orphan works:

More News

4/24. The House approved HR 362, the "10,000 Teachers, 10 Million Minds Science and Math Scholarship Act", by a vote of 389-22. See, Roll Call No. 254.

4/24. The House approved HR 363, the "Sowing the Seeds Through Science and Engineering Research Act", by a vote of 397-20. See, Roll Call No. 257.

4/24. The Copyright Office (CO) published a notice in the Federal Register with a minor correction to its previous notice in the Federal Register regarding its Notice of Inquiry (NOI) regarding the operation of, and continued necessity for, the cable and satellite statutory licenses under the Copyright Act. The April 24, 2007, correction notice makes clear that the deadline to submit initial comments is July 2, 2007, and that the deadline to submit reply comments is September 13, 2007. See, original notice in the Federal Register, April 16, 2007, Vol. 72, No. 72, at Pages 19039-19055, and correction notice in the Federal Register, April 24, 2007, Vol. 72, No. 78, at Page 20374.

4/24. The Bureau of Industry and Security (BIS), the export regulation agency, published a notice in the Federal Register that contains changes to several previously announced rule changes. One of these pertains to the export of "Devices primarily useful for the surreptitious interception of wire, oral, or electronic communications; and parts and accessories therefor". See, Federal Register, April 24, 2007, Vol. 72, No. 78, at Pages 20221-20223.

4/24. The Department of Commerce's (DOC) National Institute of Standards and Technology (NIST) published a notice in the Federal Register in which it stated that it "is considering developing protocol implementation profiles for VoIP communications between public safety personnel". In addition, the NIST and the Department of Homeland Security's (DHS) Office of Interoperability and Compatibility (DHS/OIC) will host an event titled "Roundtable for Organizations Interested in Utilization of VoIP for Communication Between Public Safety Personnel" in Boulder, Colorado, on May 31, 2007. This roundtable will be held at the National Telecommunications and Information Administration's (NTIA) Institute for Telecommunication Sciences (ITS). See, Federal Register, April 24, 2007, Vol. 72, No. 78, at Page 20324.

Identity Theft Task Force Releases Report

4/23. The President's Identity Theft Task Force (PITTF) released a report [120 pages in PDF] titled "Strategic Plan".

The report recommends "that federal agencies should reduce the unnecessary use of Social Security numbers (SSNs), the most valuable commodity for an identity thief; that national standards should be established to require private sector entities to safeguard the personal data they compile and maintain and to provide notice to consumers when a breach occurs that poses a significant risk of identity theft; that federal agencies should implement a broad, sustained awareness campaign to educate consumers, the private sector, and the public sector on deterring, detecting, and defending against identity theft; and that a National Identity Theft Law Enforcement Center should be created to allow law enforcement agencies to coordinate their efforts and information more efficiently, and investigate and prosecute identity thieves more effectively." (See, page 14.)

The report also calls for increased prosecution of identity theft, increased sentences for identity thieves, increased restitution to victims, and more victim recovery activities.

The report also makes several recommendations for amendment of federal criminal law. (See, page 19.) It recommends amending "the identity theft and aggravated identity theft statutes to ensure that identity thieves who misappropriate information belonging to corporations and organizations can be prosecuted".

It recommends adding "new crimes to the list of predicate offenses for aggravated identity theft offenses".

It recommends amending "the statute that criminalizes the theft of electronic data by eliminating the current requirement that the information must have been stolen through interstate communications".

It recommends penalizing "creators and distributors of malicious spyware and keyloggers".

Finally, it recommends amending "the cyber-extortion statute to cover additional, alternate types of cyber-extortion".

President Bush created the PITTF by executive order on May 10, 2006. It is co-chaired by Attorney General Alberto Gonzales and Deborah Majoras, Chairman of the Federal Trade Commission (FTC). It also includes the heads of 17 federal agencies and departments, including the Department of the Treasury (DOT), Securities and Exchange Commission (SEC), Federal Reserve System (FRS), Department of Commerce (DOC), and Department of Homeland Security (DHS)

See also, FTC release, SEC release, and DOT release.

People and Appointments

4/23. Todd Cranford joined the law firm of Patton Boggs as Of Counsel. He was previously Democratic Senior Counsel to the House Financial Services Committee. Before that, he worked for the Securities and Exchange Commission's (SEC) Enforcement Division.

More News

4/23. The Supreme Court of the United States (SCUS) granted certiorari, vacated the judgment of the U.S. Court of Appeals (DCCir), and remanded to the Court of Appeals in APC Services v. Sprint Communications. See, Orders List [10 pages in PDF] at page 1. The SCUS issued its opinion [40 pages in PDF] in a related case, Global Crossing Telecommunications v. Metrophones Telecommunications, on April 17, 2007. See, story titled "Supreme Court Rules in Global Crossing v. Metrophones" in TLJ Daily E-Mail Alert No. 1,566, April 17, 2007. The SCUS remanded the present case to the Court of Appeals for further consideration in light of its opinion in Global Crossing. This case is Sup. Ct. No. 05-766. See also, Supreme Court docket.

Go to News from April 16-20, 2007.