Supreme Court Grants Certiorari in Patent Exhaustion Case

9/25. The Supreme Court of the US (SCUS) granted certiorari in Quanta Computer v. LG Electronics, a patent infringement case involving the issue of patent exhaustion. See, orders List [12 pages in PDF] at page 2. This case is Sup. Ct. No. 06-937. See, SCUS docket.

The District Court granted summary judgment of noninfringement. The U.S. Court of Appeals (FedCir) issued its opinion [31 pages in PDF] on July 7, 2006. It affirmed in part, reversed in part, vacated in part, and remanded to the District Court.

The SCUS requested that the Department of Justice's (DOJ) Office of the Solicitor General (OSG) submit an amicus curiae brief. See, story titled "Supreme Court Requests Solicitor General Brief in Patent Case" in TLJ Daily E-Mail Alert No. 1,566, April 17, 2007.

The OSG filed its amicus brief in August urging the SCUS to grant certiorari. See, story titled "Solicitor General Urges Supreme Court to Take Case Regarding Patent Exhaustion Doctrine" in TLJ Daily E-Mail Alert No. 1,629, August 28, 2007.

The OSG wrote that "The doctrine of patent exhaustion, also known as the first-sale doctrine, implicates fundamental questions concerning the scope of the exclusive rights conferred under the patent laws."

It stated that the SCUS last addressed this doctrine squarely in its 1942 opinion in United States v. Univis Lens Co., 316 U.S. 241.

The OSG continued that "the doctrine has evolved in the Federal Circuit in a manner that appears to conflict with this Court's patent-exhaustion cases, thereby creating uncertainty as to when a patentee may enforce, through federal-court actions for patent infringement (as opposed to state-law contract actions), downstream limitations on purchasers following an authorized sale. Whatever rights a patentee may have to enforce such limitations as a matter of contract, the question whether a patentee may invoke federal patent law to enforce such limitations against authorized purchasers is one of considerable practical importance, and this case presents an adequate vehicle for addressing that question."

Quanta Computer is represented by Maureen Mahoney of the Washington DC office of the law firm of Latham & Watkins.

LG Electronics is represented by Carter Phillips of the Washington DC office of the law firm of Sidley Austin.

This case is Quanta Computers, Inc., et al. v. LG Electronics, Inc., Sup. Ct. No. 06-937, a petition for writ of certiorari to the U.S. Court of Appeals for the Federal Circuit, App. Ct. Nos. 05-1261, 05-1262, 05-1263, 05-1264, 05-1302, 05-1303, and 05-1304. Judge Mayer wrote the opinion of the Court of Appeals, in which Judges Michel and Newman joined. The Court of Appeals heard appeals from the U.S. District Court for the Northern District of California, Judge Claudia Wilkin presiding.

House Judiciary Committee Holds Hearing on Antitrust

9/25. House Judiciary Committee's (HJC) Antitrust Task Force held a hearing titled "Oversight Hearing of the Antitrust Agencies: Department of Justice Antitrust Division and Federal Trade Commission Bureau of Competition" on Tuesday, September 25, 2007.

The topics covered included the EC's actions against Microsoft, FCC e-rate big rigging, the Antitrust Division's filing with the FCC opposing network neutrality mandates, the real estate industry and bid rigging, and the merger review process.

The witnesses were Thomas Barnett, the Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division, and Deborah Majoras, the Chairman of the Federal Trade Commission (FTC). See, prepared testimony of Barnett, prepared testimony [44 pages in PDF] of the FTC, and FTC release summarizing the testimony.

E-Rate Bid Rigging. Barnett wrote in his prepared testimony that the Antitrust Division "actively is pursuing a nationwide investigation of bid rigging and fraud in the E-Rate program".

He continued that the Antitrust Division "has uncovered extensive fraud in this industry by criminals who took advantage of the program to enrich themselves. In total, the Division thus far has charged 12 corporations and 17 individuals with collusion and fraud affecting dozens of schools in 11 states. A total of six companies and ten individuals have pled guilty, agreed to plead guilty, or entered civil settlements, and have paid or agreed to pay criminal fines and restitution totaling approximately $40 million and have been sentenced to more than 4,000 days in prison. In addition, on September 14, 2007, a jury convicted a former sales representative of 22 counts of bid rigging, fraud, collusion, aiding and abetting, and conspiracy for her role in schemes to defraud the E-Rate program.

Telecom Mergers. Barnett wrote in his prepared testimony that "The telecommunications industry has kept the Division busy for many years, and the last few years have been no exception. The Division has recently investigated the mergers of Verizon and MCI, SBC and AT&T, the new AT&T and BellSouth, Sprint and Nextel, and Cingular and AT&T Wireless, among others."

He wrote that "The Division took action to challenge portions of these transactions to protect competition, and decided not to challenge others after concluding that they were not likely to result in a substantial lessening of competition."

Merger Review Process. Both the FTC and Barnett addressed the Hart-Scott-Rodino (HSR) review process in their prepared testimony.

Members of the HJC also asked questions about the process, such as why do some (such as Google and DoubleClick) take so long, why are there two merger review agencies, and why is there no formal process for allocation of merger reviews between the two agencies.

Majoras (at right) discussed an attempt in 2002 by the FTC and Antitrust Division to formally allocate responsibility for merger reviews by industry sector and to address other related matters. She pointed out that the FTC stood down because of objections from the Congress.

She said that "I am not proud of the process. It embarrasses me."

However, she said that she can take no action, because she so stated at her confirmation hearing. (She did not elaborate that her confirmation hearing was before the Senate Commerce Committee, and it was the threats of former Sen. Ernest Hollings (D-SC) that caused the FTC and Antitrust Division to back down.)

She said, "It would take some action from Congress."

See also, the withdrawn 2002 Memorandum of Understanding, and story titled "DOJ & FTC Abandon Merger Review Agreement Under Threat from Sen. Hollings" in TLJ Daily E-Mail Alert No. 436, May 22, 2002.

Drug Companies and Patents. The FTC testimony states that the FTC "continues to be vigilant in the detection and investigation of agreements between drug companies that delay generic entry, including investigating some patent settlement agreements between pharmaceutical companies that are required to be filed with the Commission under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. In these ``exclusion payment settlements´´ (or, to some, ``reverse payment settlements´´), a brand-name drug firm pays a potential generic competitor to abandon its patent challenge and delay entering the market. Such settlements restrict competition at the expense of consumers, whose access to lower-priced generic drugs is delayed, sometimes for many years. These anticompetitive patent settlement present one of the greatest threats American consumers face today." (Parentheses in original.)

The FTC testimony continues that "Recent court decisions, however, have made it more difficult to bring antitrust cases to stop exclusion payment settlements, and the impact of those court rulings is becoming evident in the marketplace. These developments threaten substantial harm to consumers and others who pay for prescription drugs. For that reason, the Commission supports a legislative solution to prohibit these anticompetitive settlements, while allowing exceptions for those agreements that do not harm competition."

Majoras stated at the hearing that consumers are being harmed. She added that the Hatch Waxman Act created this problem, and that the best remedy would be a legislative amendment to that statute, rather than a change in antitrust law.

Real Estate Industry and Web Listings. The FTC testimony states that "Purchasing or selling a home is one of the most significant financial transactions most consumers will ever make, and anticompetitive industry practices can raise the prices of real estate services. In the past year, the agency has brought eight enforcement actions against associations of competing realtors or brokers. The associations, which control multiple listing services, adopted rules that allegedly discouraged consumers from entering into non-traditional listing contracts with real estate brokers. These actions ensure that consumers who choose to use discount real estate brokers will not be handicapped by rules intended to disadvantage the discount brokers."

It adds that "In July 2006, the Commission charged that the Austin Board of Realtors violated the antitrust laws by preventing consumers with real estate listing agreements for potentially lower-cost unbundled brokerage services from marketing their listings on important public web sites."

Others Issues. The FTC testimony also reviews the FTC's action against Rambus for making misrepresentations or omissions to standard-setting organizations for DRAM standards. Rambus has brought an appeal before the U.S. Court of Appeals (DC). The European Commission recently instituted its own parallel action.

Majoras suggested that the Robinson Patman Act be repealed. She said that it has "seen better days" and is "not protecting consumers".

In response to a question about legislation that might be helpful, Barrett suggested that the Congress consider the Antitrust Modernization Commission's (AMC) recommendation that the Congress re-evaluate the antitrust exemptions. See, AMC report [540 pages in PDF, 2.1 MB] and story titled "Antitrust Modernization Commission Releases Report" and related stories in TLJ Daily E-Mail Alert No. 1,560, April 4, 2007

Rep. Chris Cannon (R-UT) suggested elimination of the common carrier exemption in the Federal Trade Commission Act (FTCA). He raised the subject of cell phone service contracts.

Rep. Zoe Lofgren (D-CA) said that the DOJ has not been as aggressive in antitrust enforcement in the last four years as it was in the last four years of the Clinton administration. Barnett disagreed with this statement. He pointed out that the have been fewer mergers in the last four years.

Much of the hearing focused on issues unrelated to information or communications technologies, such as gas prices.

Rep. Lofgren Criticizes DOJ's Opposition to Network Neutrality

9/25. Rep. Zoe Lofgren (D-CA) criticized the Department of Justice's (DOJ) Antitrust Division for filling a comment with the Federal Communications Commission (FCC) in opposition to network neutrality mandates.

She spoke at a hearing of the House Judiciary Committee's (HJC) Antitrust Task Force titled "Oversight Hearing of the Antitrust Agencies: Department of Justice Antitrust Division and Federal Trade Commission Bureau of Competition" on Tuesday, September 25, 2007.

Rep. Lofgren (at right) asked Thomas Barnett, the Assistant Attorney General in charge of the Antitrust Division, why the DOJ filed comments with the FCC on September 6, 2007.

Barnett responded that "I was the one who made the decision to file those comments."

Rep. Lofgren stated that for 96% of consumers there are only two broadband service providers. She asked Barnett how he could consider a market characterized by duopoly as competitive.

She also asked for a list, in writing, from the DOJ, of who met with the DOJ regarding this comment.

See, related story in this issue titled "Antitrust Division Opposes Network Neutrality".

People and Appointments

9/25. President Bush announced his intent to designate Christopher Padilla to be the acting Under Secretary for International Trade at the Department of Commerce (DOC). See, White House release.

9/25. President Bush withdrew his nomination of John Rizzo to be General Counsel of the Central Intelligence Agency (CIA). See, White House release.

More News

9/25. The Securities and Exchange Commission (SEC) announced that it has completed "all work on developing data tags for the entire system of U.S. generally accepted accounting principles". The SEC program for filing of financial reports in interactive data format remains voluntary. The SEC added that "The work that was completed today has mapped every element of the entire system of U.S. Generally Accepted Accounting Principles, administered by the Financial Accounting Standards Board in Norwalk, CT, to a unique data tag. The achievement of this milestone means that public companies can more easily tag their financials. And it brings automated financial reporting to the SEC -- as well as increased usability of financial statement for investors -- one step closer to reality." See, SEC release.

9/25. A trial jury of the U.S. District Court (DKan) returned a verdict of willful patent infringement in Sprint v. Vonage. The jury also awarded Sprint $69.5 Million in damages. Vonage announced in a release that "it will ask the court to set aside the verdict, and if it is not granted, will vigorously pursue an appeal of the decision, including the underlying issue of liability and the willfulness aspect. Vonage believes any damages awarded are inappropriate. In addition, we will seek to develop technological workarounds that don't infringe on Sprint's patents."

9/25. The Supreme Court of the US (SCUS) issued an order in Stoneridge Investment v. Scientific Atlanta. It states that "The motion of the Solicitor General for leave to participate in oral argument as amicus curiae and for divided argument is granted. Justice Breyer took no part in the consideration or decision of this motion." See, Orders List [12 pages in PDF] at page 1. The SCUS will hear oral argument on October 9, 2009. See also, story titled "story titled "Supreme Court to Consider 10b Liability of Stock Issuers' Vendors" in TLJ Daily E-Mail Alert No. 1,625, August 21, 2007. This case is Sup. Ct. No. 06-43.

9/25. Sen. Russ Feingold (D-WI) and others introduced S 2088 [LOC | WW], the "National Security Reform Act of 2007", a bill pertaining to National Security Letters (NSLs).

9/25. Rep. Pete Hoekstra (R-MI) and Rep. Heather Wilson (R-NM) engaged in a lengthy colloquy in the House late on Tuesday night, September 25, 2007, regarding terrorism, intelligence gathering, and the Foreign Intelligence Surveillance Act (FISA). See, Congressional Record, September 25, 2007, at Pages H10891-96.

Chamber of Commerce Report Argues that PR China Policies Fail to Protect IPR or Promote Innovation

9/24. The U.S. Chamber of Commerce released a report [72 pages in PDF] titled "Issues of Importance to American Business in the U.S.-China Commercial Relationship". Much of the report relates to the People's Republic of China's failure to protect intellectual property rights (IPR), and the PRC's innovation and investment stifling access barriers, discriminatory practices, regulations, and standards.

This report states that in 2007 "Chinese enterprises and some in government became increasingly sophisticated at developing and wielding industrial policies -- discriminatory investment practices, government procurement preferences, mandatory national standards -- and other tools of competitive advantage."

It also states that "Inadequate transparency and the lack of domestic legal and political accountability throughout the Chinese polity remains a high obstacle for American consumer groups, business organizations, and government policymakers".

However, the Chamber adds, the US has its own defects, including an "overly restrictive" visa policy for foreign business people, "export control regulations that are often out of step with global realities", and "excessive mistrust of Chinese investment" in the US.

The report states that while China has instituted some reforms related to intellectual property, it is still not in "full compliance with its TRIPS commitments", and its reforms "remain toothless without effective implementation and enforcement mechanisms".

"Counterfeiting and piracy constitute a fundamental blight on China's economic progress that will lead political leaders in the United States and other countries to call into question China's status as a responsible global power", the Chamber asserts.

Moreover, the report states that "China is considering or has implemented several laws and regulations that discriminate against foreign suppliers, technologies, and IP owners by extending legal benefits solely to their domestic competitors. These rules will limit market access, prevent the lawful exercise of IP rights, and deter foreign trade and investment -- and, in the end, undermine China's own efforts to develop into a full-fledged Innovation Society."

"China has also continued to support and promote homegrown technology through the use of national standards and technical regulations", with its Enhanced Versatile Disc (EVD) technology, its 3G mobile phone standard, and its encryption regulations.

The report also complains about the possibility that China will impose compulsory licensing of patents in a manner inconsistent with its WTO obligations.

The report states that the film, music and software industries face both IPR infringement and access barriers. It states that China is particularly bleak for the music and movies industries, but that China has shown "the beginnings of improvement" for the software industry. That is, estimated software piracy is down to 80%.

Bernanke Discusses Education, Tech and R&D

9/24. Ben Bernanke, the Chairman of the Federal Reserve Board (FRB), gave a speech titled "Education and Economic Competitiveness" in Washington DC. He discussed the importance of technology to productivity growth, and the role of education in promoting advances in technology. However, he made no plea for more funding for science, technology, engineering, or math education (STEM).

He began that "as an investment, education provides excellent returns, both for individuals and for society". Also, he said that education means not only classrooms, but also "early childhood programs", "mentoring on the job", and "mid-career retraining".

Bernanke (at right) said that "education is important because it is so directly linked to productivity, which, in turn, is the critical determinant of the overall standard of living". He added that "advance of technology" also contributes to productivity growth, but that worker skills contribute to advances in technology.

He elaborated that "the state of technology is affected both by the creativity and knowledge of scientists and engineers engaged in formal research and development as well as by the efforts of skilled workers on the shop floor who find more efficient ways to accomplish a given task. Managers who develop a new business plan or find new ways to use evolving technologies can also be thought of as adding to the ``intangible,´´ or knowledge-based, capital of the firm, which by some estimates is comparable in importance to physical capital such as factories and equipment".

"The demand for more-educated workers has been increasing rapidly, partly because the much more widespread use of computers and other sophisticated information and communication technologies in the workplace has increased the reward for technical skills."

He made no recommendation for more STEM education. He offered little specific policy advice of any kind. He explained that existing studies provide little guidance for policy makers trying to "raise academic achievement". He said that this makes it difficult to decide "what and how to teach students from kindergarten through high school". Hence, he argued that "we should encourage experimentation and innovation" in education.

He also focused on higher education, which he said is "the strongest part of the U.S. educational system".

He continued that "More than half our basic research -- the foundation for breakthroughs that create new industries--is conducted at universities. Additionally, higher education has embraced the broader mission of translating research into new products and enterprises; our colleges and universities account for 15 percent of applied research and development ... The innovations that begin on campuses are diffused to businesses through patents, start-up companies, and consulting arrangements between faculty and industry."

People and Appointments

9/24. Michael Jackson, Deputy Secretary for the Department of Homeland Security (DHS), announced his resignation, effective October 26, 2007. See also, statement by Secretary Michael Chertoff.

9/24. Thomas Lenard resigned from his position as acting President of the Progress & Freedom Foundation (PFF), and Garland McCoy resigned from his position as PFF VP for Development. The PFF stated in a release that it has "initiated a formal search process for its next president".

9/24. The Senate Intelligence Committee (SIC) approved the nomination of Donald Kerr to be Principal Deputy Director of National Intelligence. See, Congressional Record, September 24, 2007, at Page S12002.

FCC Fines Comcast for Cablecasting Unattributed Information

9/21. The Federal Communications Commission (FCC) issued a Notice of Apparent Liability [MS Word] to Comcast for cablecasting part of a "video new release" (VNR) without "sponsorship identification announcements". Comcast received no payment or other consideration. This, concluded the FCC, violates 47 C.F.R. 76.1615(a).

FCC Commissioner Jonathan Adelstein, who has long advocated FCC regulation of both the ownership and news content of media companies, praised this NAL in a release. He stated that this is the first time that the FCC has fined a media company for a cablecasting a VNR without identifying its source.

The fine is only $4,000. Nevertheless, this NAL may be significant for several reasons. First, it demonstrates that the FCC will take enforcement action against broadcasters and cablecasters for use of VNRs without source attribution and payment disclosure.

Second, it reads out of the rule the payment or consideration requirement for certain VNRs. The rule on its face is a disclosure of pay for play rule. That is, cablecasters must disclose payments received to play anything. This NAL announces an unattributed source rule. That is, cablecasters must disclose the source of information that they receive without payment, and that they cablecast, if it might be considered promotional.

Third, it reflects the FCC's confidence in the ability of government lawyers to improve the quality of broadcast and cable speech through rules, regulation and enforcement.

One element of a Section 76.1615(a) violation is that "money, service, or other valuable consideration is either directly or indirectly paid" to the cable company for the cablecast of the VNR or other information. However, the FCC's NAL states that there was no payment or other consideration in this case.

The NAL concludes that consideration was not required in this case because the cablecast "contains extensive images and mentions of the product". This conclusion does not follow from the language of the rule. Nevertheless, it is now the interpretation of the rule by the FCC.

76.1615(a) provides that "When a cable television system operator engaged in origination cablecasting presents any matter for which money, service, or other valuable consideration is either directly or indirectly paid or promised to, or charged or accepted by such cable television system operator, the cable television system operator, at the time of the cablecast, shall announce that such matter is sponsored, paid for, or furnished, either in whole or in part, and by whom or on whose behalf such consideration was supplied: Provided, however, that ``service or other valuable consideration´´ shall not include any service or property furnished without or at a nominal charge for use on, or in connection with, a cablecast unless it is so furnished in consideration for an identification of any person, product, service, trademark, or brand name beyond an identification reasonably related to the use of such service or property on the broadcast."

The second sentence contains a qualification of the meaning of "consideration". This qualification then adds a further qualification, beginning with the word "unless". The FCC's interpretation is based upon the second part of the second sentence.

It wrote that while "the rule exempts service or property furnished without charge from the duty to announce the sponsor or source of such material, the exception to that proviso reinstates the duty when there is too much focus on a product or brand name in the programming." The FCC added that "We do not believe that this type of promotional material, furnished by a product manufacturer, can or should be considered within the scope of the proviso, which is directed to material that contains only fleeting or transient references to products or brand names."

The basic rule (sentence one) requires "consideration" for the disclosure requirement to apply. The qualification (first part of sentence two) provides that "consideration" does not include certain things. Then, the qualification to the qualification (second part of sentence two) provides that these things can constitute "consideration" if "furnished in consideration ..." The rule does not dispense with the consideration requirement in any fact scenario. The FCC's NAL identifies no consideration.

The rule requires that cable companies disclose in their cablecasts that they have received payment for cablecasting "any matter". The FCC's interpretation reads out of the rule the payment or other consideration requirement, whenever the information that is cablecast "contains extensive images and mentions of the product" and constitutes "promotional material, furnished by a product manufacturer".

The FCC relies upon 47 U.S.C. § 503 as statutory authority for Section 76.1615(a). The FCC rejected Comcast's argument that this statute applies to broadcast, but not cable.

Adelstein stated in a release that "I applaud the Media Bureau's decision to enforce our sponsorship identification rules, and to propose, for the first time, a forfeiture for the failure to disclose the sponsor of a video news release. Commission rules are clear: viewers have a right to know who is trying to persuade them so they can make up their own minds about what they are presented. I applaud Chairman Martin’s leadership, and look forward to quick action on the many other pending video news release complaints."

Adelstein stated in a speech [PDF] back on May 25, 2005, that compelling "disclosure of the source or sponsor of the information does not amount to government compelled speech, nor does it infringe First Amendment rights". See also, story titled "Adelstein Angles for More FCC Regulation of Speech" in TLJ Daily E-Mail Alert No. 1,143, May 26, 2007.

Center for Media and Democracy (CMD) and the Free Press filed a complaint [PDF] with the FCC on November 14, 2006. It alleged that "The widespread and undisclosed use of VNRs represents a serious, ongoing crisis in our broadcast news media."

The CMD stated in its web site after the FCC released its NAL that "The FCC's action against Comcast is precedent setting. It firmly rejects the public relations industry's argument that no disclosure is needed if television stations are not paid to air VNRs. Hopefully, the FCC will soon address" the many other "undisclosed VNR broadcasts".

DHS Computers Compromised by Hackers

9/21. Rep. Bernie Thompson (D-MS), the Chairman of the House Homeland Security Committee (HHSC), and Rep. James Langevin (D-RI), Chairman of the HHSC's Subcommittee on Emerging Threats, Cybersecurity, and Science and Technology, sent a letter [3 pages in PDF] and attachment [27 pages in PDF] to Richard Skinner, Inspector General of the Department of Homeland Security (DHS) regarding cyber security at the DHS.

Rep. Thompson and Rep. Langevin (at right) wrote that "The results of our investigation suggest that the Department is the victim not only of cyber attacks initiated by foreign entities, but of incompetent and possibly illegal activity by the contractor charged with maintaining security on its networks. We ask you to immediately commence an inquiry in to these matters, and, if necessary, refer this matter for criminal investigation."

"The infiltration of Federal Government networks by unauthorized users is one of the most critical issues confronting our nation, but is is hardly a new threat". They elaborated on recent intrusions of Department of Defense (DOD), Department of State (DOS), and Department of Commerce (DOC) intrusions, which they suggested were "Chinese in origin".

The two wrote that as a result of the HHSC's investigation, it finds that "Dozens of Department of Homeland Security computers were compromised by hackers. These incidents were not noticed until months after the initial attacks. These computers may still be compromised dud to insufficient mitigation efforts by the contractor responsible for information technology services at the Department."

The HHSC also found that "Hackers exfiltrated information out of Department of Homeland Security systems to a web hosting service that connects to Chinese websites."

The HHSC also found that "Information was exfiltrated from the Office of Procurement Operations (OPO) and transferred to unauthorized individuals, despite the Department of Homeland Security's assertions to the contrary."

More News

9/21. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Kay v. Ranchos Palos Verdes, a case regarding local regulation of wireless operations, and 47 U.S.C. § 332. James Kay operated antennas inside his home, and on the roof of his house, for commercial purposes, against the government of the city in which he resides. This case is James Kay, et al. v. City of Ranchos Palos Verdes, et al., U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 05-56149, an appeal from the U.S. District Court for the Central District of California, D.C. No. CV-02-03922-DSF, Judge Dale Fischer presiding.

9/21. The Securities and Exchange Commission (SEC) announced in a release on September 20, 2007, that participation in its voluntary interactive data filing program is up to 40 companies. The SEC began the program in April of 2005. See also, the SEC's interactive data web page. The SEC also announced in a release on September 21, 2007, that it has made available for free download the source code for the Interactive Financial Report Viewer, which enables investors to analyze companies' interactive data filings. The License Agreement provides that the SEC grants a "world-wide, royalty-free, non-exclusive license to use, reproduce, modify, create derivative works from, display, perform, sublicense, distribute, make, have made, use, practice, modify, sell, offer for sale, or otherwise dispose of all or any part of the Viewer Source Code". It further provides that "Any modifications that Licensee may make to the Viewer Source Code shall be subject to this License Agreement". The SEC added that it will participate in a news conference in New York City with XBRL US and others on Tuesday, September 25, 2007, to announce "a major breakthrough". Also, XBRL International will hold a conference on December 3-6, 2007, in Vancouver, British Columbia, Canada. SEC Chairman Chris Cox will be a speaker. See, notice.

9/21. The Government Accountability Office (GAO) wrote a letter [7 pages in PDF] to Sen. Joe Lieberman (D-CT) and Sen. Susan Collins (R-ME), the Chairman and ranking Republican on the Senate Homeland Security and Governmental Affairs Committee, regarding sale by government agencies of their used magnetic tapes. The letter states that the National Institute of Standards and Technology (NIST) "has issued guidelines that instruct agencies to properly sanitize magnetic tapes with certain kinds of sensitive data before they leave agency control." The letter also states that GAO acquired and tested some tapes sold by government agencies, and that the GAO "could not find any comprehensible data on any of the tapes using standard commercially available equipment and data recovery techniques, specialized diagnostic equipment, custom programming, or forensic analysis".

House Leadership Pulls Technophobic Voting System Bill

9/21. The House Democratic leadership had previously scheduled HR 811 [LOC | WW], the "Voter Confidence and Increased Accessibility Act of 2007", for consideration by the full House during the week of September 17, 2007. However, the House did not take up the bill, and it is not on the schedule for the week of September 24.

This bill would mandate an "individual, durable, voter-verified paper ballot of the voter's vote that shall be created by or made available for inspection and verification by the voter before the voter's vote is cast and counted". That is, it seeks to circumvent the adoption of information technology based voting.

Rep. Rush Holt (D-NJ) (at right) is the sponsor of HR 811. It has 216 cosponsors, most of whom are Democrats. See also, Rep. Holt's summary [PDF] of the bill.

The Information Technology and Innovation Foundation (ITIF) stated in a release and a report [19 pages in PDF] on September 17, 2007, that "Americans trust computers to run critical applications in fields such as banking, medicine, and aviation, but a growing technophobic movement believes that no computer can be trusted for electronic voting."

The report argues that paper balloting systems are less secure than advanced cryptographic voting systems.

The report offers several recommendations. First, "Congress and the states should allow the use of fully electronic ballots, not restrict electronic voting systems to those that create paper ballots."

Second, "Congress and the states should require that future voting machines have verifiable audit trails, not require machines with verifiable paper audit trails."

Third, "Congress should provide funding for the U.S. Election Assistance Commission to issue grants for developing secure cryptographic voting protocols and for pilot testing of new voting technology."

The ITIF report is titled "Stop the Presses: How Paper Trails Fail to Secure e-Voting". Its author is Daniel Castro of the ITIF.

Senate Commerce Committee Will Mark Up ITFA Extension Bill

9/21. The Senate Commerce Committee (SCC) is scheduled to meet on Thursday, September 27, 2007, to mark up several bills, including S 1453 [LOC | WW], the "Internet Tax Freedom Act (ITFA) Extension Act of 2007". See, notice.

The bill would extend the ITFA for four more years, through 2011. It is set to expire on November 1, 2007.

The ITFA now provides that, with numerous exceptions, "No State or political subdivision thereof may impose any of the following taxes during the period beginning November 1, 2003, and ending November 1, 2007: (1) Taxes on Internet access. (2) Multiple or discriminatory taxes on electronic commerce."

The bill would also extend the grandfathering of certain state taxes for four years.

This bill would amend the definition of "Internet access". It is currently defined as "a service that enables users to access content, information, electronic mail, or other services offered over the Internet, and may also include access to proprietary content, information, and other services as part of a package of services offered to users. The term ‘Internet access’ does not include telecommunications services, except to the extent such services are purchased, used, or sold by a provider of Internet access to provide Internet access."

The bill would provide that the term "Internet access":

  "(A) means a service that enables users to connect to the Internet to access content, information, or other services offered over the Internet;
   (B) may include incidental services directly related to the provision of the service described in subparagraph (A), such as electronic mail or instant messaging; and
   (C) does not include--
      (i) telecommunications services (as defined in section 3(46) of the Communications Act of 1934 (47 U.S.C. 153(46))), except to the extent such services are purchased, used, or sold by a provider of Internet access to provide Internet access described in subparagraph (A) or (B); or
      (ii) voice service or any other good or service utilizing Internet protocol or any successor protocol, except services described in subparagraph (A) or (B)."

The bill is sponsored by Sen. Tom Carper (D-DE).

Senate Commerce Committee Will Mark up Child Online Protection Bill

9/21. The Senate Commerce Committee (SCC) is scheduled to meet on Thursday, September 27, 2007, to mark up several bills, including S 1965 [LOC | WW], the "Protecting Children in the 21st Century Act", a bill pertaining to child pornography and online predation. See, notice.

This bill would place no new burdens on internet service providers, electronic communication service providers, or remote computing service providers. There is no data retention requirement. There is no labeling, blocking, age control, monitoring, or surveillance requirement. However, the bill would require the Department of Commerce's National Telecommunications and Information Administration (NTIA) to form a working group to study these subjects and issue a report and recommendations.

It would require the Federal Trade Commission (FTC) to "carry out a nationwide program to increase public awareness and provide education regarding strategies to promote the safe use of the Internet by children."

It would require the NTIA to "establish an Online Safety and Technology working group comprised of representatives of relevant sectors of the business community, public interest groups, and other appropriate groups and Federal agencies to review and evaluate ... the status of industry efforts to promote online safety through educational efforts, parental control technology, blocking and filtering software, age-appropriate labels for content or other technologies or initiatives designed to promote a safe online environment for children".

The bill provides that this "working group" would not be an "advisory committee" within the meaning of the Federal Advisory Committee Act. Thus, it would be able to operate in greater secrecy than an advisory committee.

The bill would require this working group to review and evaluate "the status of industry efforts to promote online safety among providers of electronic communications services and remote computing services by reporting apparent child pornography" under 47 U.S.C. § 13032.

Section 13032 requires any provider of a "electronic communication service" or provider of a "remote computing service" who "obtains knowledge of facts or circumstances from which a violation" of any of several child pornography related crimes "is apparent", shall make a report of such information to the National Center for Missing and Exploited Children (NCMEC). The bill would not impose any new requirements upon these service providers. However, it would increase the penalties for failure to comply with Section 13032.

Currently, Section 13032 requires the NCMEC to forward information a law enforcement agency, or agencies, designated by the Department of Justice (DOJ). This bill would also require reporting by the NCMEC to "foreign law enforcement agencies". The bill would also define what information the service provider must include in its reports to the NCMEC.

The bill would also require the new NTIA working group to review and evaluate "the practices of electronic communications service providers and remote computing service providers related to record retention in connection with crimes against children".

Finally, it would require this group to study "the development of technologies to help parents shield their children from inappropriate material on the Internet".

Then, the working group would have one year to write a report, including its recommendations

Sen. Ted Stevens (R-AK) introduced this bill on August 2, 2007. The original cosponsors are Sen. Daniel Inouye (D-HI), Sen. Kay Hutchison (R-TX), Sen. Mark Pryor (D-AR), and Sen. Bill Nelson (D-FL). All are members of the SCC.

7th Circuit Narrowly Construes Foreign Commerce Clause

9/21. The U.S. Court of Appeals (7thCir) issued its opinion in Cavel v. Madigan, affirming the judgment of the District Court, which upheld an Illinois state statute that regulates horses against a foreign commerce clause challenge.

The facts giving rise to this case involve the treatment, and consumption, of horses. There are lots of horses in the US. Some Europeans like to eat them. Illinois is home to the only US slaughterhouse that slaughters horses for export to Europe. Illinois enacted a statute to prevent the slaughter or export of horses for culinary purposes.

There is no law of the horse, or law of cyberspace. There is only law. Legal principals regarding regulation of interstate and foreign commerce apply to both the regulation of horses and cyberspace. Indeed, many of the Supreme Court cases cited as precedent in this opinion are also cited in cases involving interstate and foreign commerce clause challenges to state statutes regulating cyberspace. (The Court did not cite the leading commerce clause cases from the Courts of Appeals involving the internet. However, it did cite the Third Circuit's 1994 opinion in Instructional Systems, Inc. v. Computer Curriculum Corp., 35 F.3d 813.)

The legal analysis applied to Illinois's regulation of the export of horse meat might also be applied, for example, to an Illinois statute that were to regulate the foreign outsourcing by companies in Illinois of certain internet based tasks or services.

Judge Richard Posner wrote the opinion of the Court of Appeals. Judge Frank Easterbrook joined. Easterbrook gave a speech [PDF] in 1996 titled "Cyberspace and the Law of the Horse". His speech is also published at 1996 U. CHI. LEGAL F. 207. See also, 1999 article [46 pages in PDF] by Laurence Lessig titled "Law of the Horse: What Cyberlaw Might Teach".

The state of Illinois enacted a statute that makes it unlawful for a person "to slaughter a horse if that person knows or should know that any of the horse meat will be used for human consumption", or to export horse meat for human consumption.

Cavel International owns and operates the only facility in the US for slaughtering horses. Its facility is located in Illinois. It is a subsidiary of a Belgian corporation. All of its product is exported.

The Constitution, at Article I, Section 8, provides that "The Congress shall have Power To ... regulate Commerce with foreign Nations, and among the several States ..."

There is a difference between regulation of interstate commerce and regulation of foreign commerce for the purposes of Constitutional analysis. Many of the prior cases, especially those involving internet commerce, involve interstate commerce clause analysis. That is, many state legislatures enact statutes that regulate internet commerce for the purpose of discriminating against out of state businesses, and benefiting in state businesses.

The statute at issue in the present case has no interstate discrimination component. It does regulate commerce with foreign nations.

The Court of Appeals wrote that the literal language of the commerce clause "merely empowers Congress to regulate interstate and foreign commerce but that has been interpreted to limit the power of states to regulate interstate and foreign commerce even in the absence of federal legislation inconsistent with the state regulation."

It later added that regulation of foreign commerce is different because "an interference by a state with foreign commerce can complicate the nation's foreign relations, which are a monopoly of the federal government; states are not permitted to have their own foreign policy, their own embassies and consuls and ambassadors, and so forth."

The Court of Appeals opinion provides a result. The District Court's judgment is affirmed. Cavel must shut down its Illinois plant. However, it left unanswered many questions.

It held that the statute is "nondiscriminatory". (There is only one producer.) It held that the statute does not distort interstate markets. (There is no interstate market in the US for human consumption of horses.) It held, without elaboration, that the statute "interferes minimally with the nation's foreign commerce". And, it held that federal involvement in this area via the federal Meat Inspection Act does not preclude Illinois from enacting its statute.

It also held that Illinois's statute is "supported if somewhat tenuously by a legitimate state interest", that is, protecting horses. But, the Court of Appeals noted that euthanization of horses remains legal, and slaughtering of horses for sale to the zoo market remains legal. Hence, it suggested that the statute is based more on a sense of distaste than logic.

The Court of Appeals also wrote that "we are not entirely happy about having to uphold the Illinois statute. That the company is foreign-owned and its entire output exported means that the shareholders and consumers harmed by the amendment have no influence in Illinois politic".

However, it did not note that if it were to hold that the Congress has exclusive authority, the European shareholders and consumers would have no influence in the Congress either.

The Court of Appeals did not issue any precedential guidance on the role of federal actors in this process. For example, it noted the Congress had considered, but not enacted, bills on this subject. It wrote that the District Court "ruled that Congress's lengthy consideration, followed by inaction, was an implicit authorization that defeated the commerce-clause challenge." The Court of Appeals did not opine on the legal consequences of Congressional inaction.

Similarly, the Court of Appeals noted the lack of involvement, by amicus curiae brief or otherwise, of either the US Department of State or foreign governments. However, it did not articulate how this should affect a judge's analysis in a foreign commerce clause challenge.

Perhaps this case illustrates a reluctance on the part of the Court of Appeals to overturn state statutes that regulate foreign commerce. But, it provides little black letter law to apply in future foreign commerce clause cases in any area of commerce -- horse, cyber, or other.

This case is Cavel International, Inc., et al. v. Lisa Madigan, U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 07-2658, an appeal from the U.S. District Court for the Northern District of Illinois, Western Division, 07 C 50100, Judge Judge Frederick Kapala presiding. Judge Posner wrote the opinion of the Court of Appeals, in which Judges Easterbrook and Rovner joined.

Go to News from September 16-20, 2007.