TLJ News from February 16-20, 2008

Bain Drops Bid to Acquire 3Com in Face of CFIUS Review

2/20. 3Com announced in a release that 3Com, Bain Capital Partners, LLC and Huawei Technologies have withdrawn their joint filing with the Committee on Foreign Investment in the United States (CFIUS).

The CFIUS is the instrument by which the US government blocks foreign investment in, and acquisition of, certain companies, usually for national security purposes, but also sometimes for protectionist purposes. The CFIUS issued no statement.

Edgar Masri, P/CEO of 3Com, stated in this release that "We are very disappointed that we were unable to reach a mitigation agreement with CFIUS for this transaction".

The companies announced their proposed transaction on October 9, 2007. See, 3Com release, Huawei release, and story titled "3Com Huawei Transaction to be Reviewed by CFIUS" in TLJ Daily E-Mail Alert No. 1,652, October 9, 2007. Bain Capital would have acquired 3Com. It is a private investment firm based in Boston, Massachusetts, that also has offices in the People's Republic of China (PRC). The affiliates of Bain include Huawei companies, in the People's Republic of Chain (PRC).

7th Circuit Addresses Meaning of Prevailing Party under Section 505 of Copyright Act

2/20. The U.S. Court of Appeals (7thCir) issued its opinion in Riviera Distributors v. Midwest Electronic Specialties, a software source code copyright infringement action in which the issue is whether the defendant is entitled to recover attorneys fees as the prevailing party pursuant to 17 U.S.C. § 505 when the case is dismissed, but not on the merits.

The Court of Appeals, reversing the District Court, held that the defendant is the prevailing party within the meaning of Section 505 and is entitled to attorneys fees.

Riviera Distributors, Inc. and Larry Hartley filed a complaint in U.S. District Court (CDIll) against Timothy Jones and Midwest Electronic Specialties, Inc. alleging copyright infringement in connection with the source code for a video poker game.

After a long period of inaction, the plaintiffs filed a motion to dismiss their complaint, without prejudice, pursuant to Rule 41(a)(2), Federal Rules of Civil Procedure. The District Court dismissed, but with prejudice. The defendants then sought an award of attorneys fees under Section 505.

The District Court denied the motion, because it "did not in any way pass on the merits of the litigation". The defendants brought the present appeal.

Section 505 provides in full that "In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof. Except as otherwise provided by this title, the court may also award a reasonable attorney’s fee to the prevailing party as part of the costs."

See also, the Supreme Court's 1994 opinion in Fogarty v. Fantasy, which is also reported at 510 U.S. 517.

The Court of Appeals reversed.

It wrote that "Midwest obtained a favorable judgment. That this came about when Riviera threw in the towel does not make Midwest less the victor than it would have been had the judge granted summary judgment or a jury returned a verdict in its favor. Riviera sued; Midwest won; no more is required."

It wrote that the District Court's "approach supposes that the content of a judge's opinion is what makes a litigant a prevailing party", but Supreme Court precedent provides that a litigant prevails for the purpose of a fee shifting statute when it obtains a material alteration of the legal relationship of the parties.

The Court of Appeals also noted that "a consent decree confers prevailing-party status even though everyone denies liability as part of the underlying settlement, and the judge takes no position on the merits."

However, there were facts in this case that might be used to distinguish it from other Section 505 cases involving dismissals without determinations on the merits. The Court of Appeals wrote that "What remains is the question whether this is an appropriate occasion for fee shifting." It held that it is, but in part because this case "was filed in the teeth of an agreement not to sue" that was negotiated after related litigation between the same parties. That agreement provided for an alternative method of dispute resolution.

Hence, the Court of Appeals concluded that "Riviera came to the wrong forum. Agreements such as the one between Riviera and Midwest are designed to reduce the price tag of decision-making. By filing another suit, Riviera forced Midwest to bear the very expenses that the parties had agreed to avoid. The party responsible for creating excessive legal costs must bear them itself in the end."

This case is Riviera Distributors, Inc. and Larry Hartley v. Timothy Jones and Midwest Electronic Specialties, Inc., U.S. Court of Appeals for the 7th Circuit, App. Ct. Nos. 06-2043 and 06-3692, appeals from the U.S. District Court for the Central District of Illinois, D.C. No. 04-1430, Judge Michael Mihm presiding. Judge Frank Easterbrook wrote the opinion of the Court of Appeals, in which Judges Ripple and Kanne joined.

Supreme Court Affirms in Rowe v. New Hampshire Motor Transport Association

2/20. The Supreme Court issued its unanimous opinion [17 pages in PDF] in Rowe v. New Hampshire Motor Transport Association affirming the judgment of the Court of Appeals. This opinion will have the effect of limiting state regulation of electronic commerce.

Introduction. This case involves whether certain sections of the Federal Aviation Administration Authorization Act of 1994 (FAAAA), which is sometimes pronounced as "F quad A", preempt sections of a statute of the state of Maine that regulates the activities of air carriers and motor carriers.

Consumers purchase items over the internet by using desktop computers, laptops and other internet connected devices to visit and make purchases at e-commerce web sites. Regulating consumers, and distant web site operators, can be difficult for states.

However, the online purchase of physical items still requires delivery by intermediaries. The Maine statute attempts to regulate e-commerce by regulating these delivery intermediaries. The problem for the state of Maine, and other states that would regulate e-commerce by compelling air and motor carriers to implement their regulations, is that the FAAA preempts state regulation of air and motor carriers.

The New Hampshire Motor Transport Association (NHMTA) and other trade groups that deliver packages challenged the Maine statute. They filed a complaint in U.S. District Court (DMaine) against Steven Rowe, the Attorney General of Maine, seeking declaratory and injunctive relief that the Maine statute is preempted by the FAAAA. The District Court granted summary judgment to the NHMTA.

Maine appealed. The U.S. Court of Appeals (1stCir) issued its opinion on May 19, 2006, 2006, affirming in part the judgment of the District Court. See, story titled "1st Circuit Rules Federal Aviation Statute Preempts Part of Maine's Internet Tobacco Sales Statute" in TLJ Daily E-Mail Alert No. 1,381, May 31, 2006. That opinion is also reported at 448 F.3d 66.

Maine petitioned the Supreme Court for writ of certiorari. The Supreme Court granted certiorari on June 25, 2007. See also, story titled "Supreme Court Grants Cert in Case Regarding State Regulation of E-Commerce" in TLJ Daily E-Mail Alert No. 1,601, June 26, 2007. And now, the Supreme Court has affirmed.

This present case involves Maine's attempt to compel air and motor carriers to enforce its bans on sales of tobacco products to minors. However, the holding in this case will limit a wide range of state attempts to regulate and tax e-commerce.

This opinion is a victory for free and open internet based commerce.

Of course, this opinion does nothing to limit federal regulation of e-commerce. Moreover, one possible consequence is that it might be a causal factor leading the Congress to enact legislation authorizing states to tax and regulate certain e-commerce activities.

See, full story.

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2/20. Susan Schwab, the U.S. Trade Representative, gave a speech [PDF] in Chicago, Illinois, at the U.S. -- India SME Summit. She said that India’s Minister of Commerce and Industry, Kamal Nath, and she "co-chair the US-India Trade Policy Forum, or TPF, the group that is the umbrella for working through our bilateral trade policy. We are addressing concerns on everything from trade in agricultural products to intellectual property rights and from tariff and non-tariff barriers to market access in services and investment." She also said that "Today, protectionism raises its ugly head in both of our countries. It is up to us to help those without faith in the future and power of the markets to understand the importance of multilateral agreements like Doha, and bilateral agreements like our FTAs or Bilateral Investment Treaties."

2/20. The European Commission (EC) released a request for public comments [PDF] regarding private copying levy systems. These are government taxes on blank media, sometimes instituted as a weak substitute for a property rights in music. The EC asks, for example, "How should private copying levy schemes evolve to take into account convergence in consumer electronics?" and "If rightholders decide that their works can be disseminated for free, how should this be taken into account when collecting private copying levies?" Comments are due by April 18, 2008. See also, EC release.

DC Circuit Vacates FCC Order Regarding Birds and Towers

2/19. The U.S. Court of Appeals (DCCir) issued its divided per curiam opinion [17 pages in PDF] in American Bird Conservancy v. FCC, a petition for review of a Federal Communications Commission (FCC) order denying in part and dismissing in part the petition of the American Bird Conservancy and Forest Conservation Council regarding birds and communications towers in the gulf coast region.

On April 11, 2006, the FCC released its Memorandum Opinion and Order [11 pages in PDF] in its proceeding titled "In the Matter of Petition by Forest Conservation Council, American Bird Conservancy and Friends of the Earth for National Environmental Policy Act Compliance". This item, numbered FCC 06-44, addressed whether the construction of communication towers in the Gulf Coast region violates various environmental statutes.

The opinion of the Court of Appeals (joined by Judges Rogers and Garland) vacates the order of the FCC.

Judge Kavanaugh wrote in his dissent that "Here, they challenge an FCC order that addressed the requirements of federal environmental laws for communications towers in the Gulf Coast region of the United States. I would dismiss their lawsuit as unripe because the FCC, in a separate rulemaking proceeding, is re-examining these environmental issues and considering the effects of communications towers on birds nationwide, including in the Gulf Coast region. The Commission has gathered considerable factual information and input from interested parties -- including from the petitioners in this case -- and the FCC’s counsel represented to the Court that the Commission expects to act soon.

This case is American Bird Conservancy, et al. v. FCC, U.S. Court of Appeals for the District of Columbia, App. Ct. No. 06-1165.

DOJ Permits Thomson's Acquisition of Reuters Subject to Divestiture of Financial Datasets

2/19. The Department of Justice (DOJ) filed a complaint in U.S. District Court (DC) against Thomson Corporation and Reuters Group PLC alleging violation of federal antitrust laws in connection with Thomson's proposed acquisition of Reuters. The DOJ simultaneously agreed to allow the acquisition, subject to divestitures and licensing of intellectual property.

The complaint alleges that the relevant markets are fundamentals data, earnings estimates data, and aftermarket research. It further asserts that the proposed transaction would likely have resulted in higher prices to purchasers of data used by investment managers, investment bankers, traders, corporate managers, and other institutional customers.

The complaint alleges that the acquisition would substantially lessen competition in interstate trade and commerce in violation of Section 7 of the Clayton Act, which is codified at 15 U.S.C. § 18. The complaint requests that the District Court block the transaction.

The DOJ, Thomson and Reuters simultaneously submitted a proposed Final Judgment [redacted] that permits the acquisition subject to divestitures of datasets, and licensing of related intellectual property.

The DOJ's Antitrust Division also stated in a release the "remedies contained in the proposed settlement with respect to three financial data markets are consistent with those obtained as a result of an antitrust investigation by the European Commission and also announced today".

Thomas Barnett, Assistant Attorney General in charge of the Antitrust Division, "This resolution by the Antitrust Division, the European Commission, and the Canadian Competition Bureau is an example of effective cooperation in global competition enforcement".

Reuters is a UK company based in London. The US and EU regulators do not always cooperate effectively, or reach similar conclusions, regarding competition in markets, particularly when the companies involved are all US companies.

This case is U.S.A. v. The Thomson Corporation and Reuters Group PLC, U.S. District Court for the District of Columbia, D.C. No. 1:08-cv-00262, Judge Thomas Hogan presiding.

6th Circuit Addresses Constitutionality of Surveillance Cameras in Public School Locker Rooms

2/19. The U.S. Court of Appeals (6thCir) issued its opinion [9 pages in PDF] in Brannum v. Overton County School Board, a case regarding the constitutionality of electronic video surveillance of locker rooms in public middle schools, and retention and storage in electronic databases of the products of this surveillance.

The District Court merely denied a motion for summary judgment based upon qualified immunity. The Court of Appeals reversed in part, holding that some defendants have immunity, while others do not. The case will proceed in the District Court against the remaining defendants. However, to reach its decision, the Court of Appeals reached the conclusion that the students had a reasonable expectation of privacy in the locker room against video surveillance.

The surveillance system was authorized by the school board. It delegated authority to the Director of Schools, who delegated authority to the Principal, Melinda Beatty, who delegated authority to the Assistant Principal, Robert Jolley. A private contractor installed the system. Cameras were located throughout the school, including the boys' and girls' locker rooms. The cameras captured images of both Overton and visiting students dressing in the locker rooms.

The captured video was stored in a computer database in Jolley's office. Moreover, the Court of Appeals wrote that stored video was "accessible via remote internet connection. Any person with access to the software username, password, and Internet Protocol (IP) address could access the stored images." The Court of Appeals also noted that "the system was accessed ninety-eight different times", included via ISPs in other locations.

Larry and Necole Brannum, as guardians for a student, and others filed a complaint in U.S. District Court (MDTenn) against the Overton County School Board, school board members, Beatty, Jolley, and others alleging violation of 42 U.S.C. § 1983.

Section 1983 provides a civil action for damages for deprivation of federal rights by states. In this case, the students allege deprivation of their federal constitutional right to privacy.

Section 1983 provides in part that "Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress ..."

The 4th Amendment provides that "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

The school defendants moved for summary judgment based upon qualified immunity. The District Court denied the motion. The school defendants brought the present appeal.

The Court of Appeals reversed in part, affirmed in part, and remanded.

It wrote that the student plaintiffs "adequately alleged a Fourth Amendment violation of their constitutional right to privacy because the students had a reasonable expectation of privacy and the invasion of the students' privacy in this case was not justified by the school’s need to assure security."

It also concluded that "this constitutional violation is actionable because this particular right was clearly established at the time of the videotaping, such that a reasonable person who knew or ought to have known of the videotaping would be aware that what he or she was doing violated the Fourth Amendment. Therefore, the school officials directly involved in the decision to install the cameras and responsible for determining their locations, that is, defendants Beaty and Jolley, are not entitled to qualified immunity. Whether they are shown to have any personal liability to the plaintiffs is a question for determination by the fact finder, not this court."

It added that "There is no indication in the record that the defendant school board members or Director Needham authorized or were aware of the locker room videotaping."

The Court of Appeals held that the Beatty and Jolley are not entitled to qualified immunity, but that the school board members and director are. The case is remanded to the District Court for further proceedings.

This opinion does not address the liability, if any, of third party contractors who install surveillance systems, or third parties who access stored video.

This case is Larry Brannum, et al. v. Overton County School Board, et al., U.S. Court of Appeals for the 6th Circuit, App. Ct. No. 06-5931, an appeal from the U.S. District Court for the Middle District of Tennessee at Cookeville, D.C. No. 03-00065, Judge William Haynes presiding. Judge Ryan wrote the opinion of the Court of Appeals, in which Judges Griffen and Joseph Hood joined.

Supreme Court Denies Cert in ACLU v. NSA

2/19. The Supreme Court denied certiorari in ACLU v. NSA, a case regarding warrantless surveillance. See, Orders List [36 pages in PDF] at page 5. This lets stand the July 6, 2007, opinion of the U.S. Court of Appeals (6thCir).

The plaintiffs are the American Civil Liberties Union (ACLU) and journalists, academics, and lawyers who communicate with individuals located overseas. They believe that they might be subject to National Security Agency (NSA) surveillance under a program titled by the NSA as "Terrorist Surveillance Program" or "TSP".

See, full story.

More Supreme Court News

2/19. The Supreme Court issued an order in Quanta Computer v. LG Electronics. It wrote that "The motion of petitioners to unseal the reply brief is granted." See, Orders List [36 pages in PDF] at page 4. This case involves the patent exhaustion doctrine. The Supreme Court heard oral argument on January 16, 2008. See, transcript [69 pages in PDF]. See also, stories titled "Supreme Court Requests Solicitor General Brief in Patent Case" in TLJ Daily E-Mail Alert No. 1,566, April 17, 2007, "Solicitor General Urges Supreme Court to Take Case Regarding Patent Exhaustion Doctrine" in TLJ Daily E-Mail Alert No. 1,629, August 28, 2007, and "Supreme Court Grants Certiorari in Patent Exhaustion Case" in TLJ Daily E-Mail Alert No. 1,647, September 27, 2007. 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. See also, SCUS docket.

2/19. The Supreme Court denied certiorari in All Computers v. Intel, a patent case involving microprocessor clocking technology. This lets stand the judgment of the U.S. Court of Appeals (4thCir), which affirmed the U.S. District Court's (EDVa) summary judgment of non-infringement. This case is All Computers, Inc. v. Intel Corporation, Sup. Ct. No. 07-815, a petition for write of certiorari to the U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 2007-1016. Neither Chief Justice John Roberts nor Justice Sam Alito participated. See, Orders List [36 pages in PDF] at page 29. See also, Supreme Court docket.

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2/19. The U.S. Court of Appeals (7thCir) issued its opinion in Northeast Communications of Wisconsin v. CenturyTel and Alltel, a diversity jurisdiction case to which the law of the state of Wisconsin applies. This case involves the question of whether a corporate merger involving the parent of one member of a limited partnership activated a right of first refusal. The underlying limited partnership, involving cell phone service in Wisconsin, was formed in 1989. The District Court held that the merger did not activate a right of first refusal. The Court of Appeals affirmed. This case is Northeast Communications of Wisconsin, Inc. v. CenturyTel, Inc. and Alltel, Corp., U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 06-2891, an appeal from the U.S. District Court for the Eastern District of Wisconsin, D.C. No. 05-C-690, Judge William Griesbach presiding. Judge Frank Easterbrook wrote the opinion of the Court of Appeals, in which Judges Cudahy and Sykes joined.

Protect America Act Expires

2/16. S 1927 [LOC | WW], the "Protect America Act", the temporary act enacted in August of 2007 to revise and expand federal wiretap, surveillance, and related authorities, expired on Saturday, February 16, 2008.

President Bush stated in his Saturday radio address that "At the stroke of midnight tonight, a vital intelligence law that is helping protect our nation will expire. Congress had the power to prevent this from happening, but chose not to."

He continued that "The Senate passed a good bill that would have given our intelligence professionals the tools they need to keep us safe. But leaders in the House of Representatives blocked a House vote on the Senate bill, and then left on a 10-day recess."

Bush also said that "Some congressional leaders claim that this will not affect our security. They are wrong. Because Congress failed to act, it will be harder for our government to keep you safe from terrorist attack. At midnight, the Attorney General and the Director of National Intelligence will be stripped of their power to authorize new surveillance against terrorist threats abroad. This means that as terrorists change their tactics to avoid our surveillance, we may not have the tools we need to continue tracking them -- and we may lose a vital lead that could prevent an attack on America."

He also addressed immunity for companies that have assisted the government. "Congress has created a question about whether private sector companies who assist in our efforts to defend you from the terrorists could be sued for doing the right thing. Now, these companies will be increasingly reluctant to provide this vital cooperation, because of their uncertainty about the law and fear of being sued by class-action trial lawyers."

Bush concluded that "House leaders chose politics over protecting the country -- and our country is at greater risk as a result."

The White House news office also issued a document on Friday, February 15, titled "Myth/Fact: Five Myths About the House's Failure to Give Our Intelligence Professionals the Tools They Need to Monitor Terrorists Effectively"

Rep. Steny Hoyer (D-MD), the House Majority Leader, also addressed the expiration of the PAA. "I met with the chairmen of the House Intelligence and Judiciary Committees and the Senate Intelligence Committee to discuss legislation modernizing the Foreign Intelligence Surveillance Act. There is complete agreement that we will act without delay to resolve the differences between the House bill passed in November and the Senate bill sent to us two days ago."

Rep. Hoyer added that "While we work to craft strong, bipartisan legislation, intelligence experts have made it clear that the intelligence community has all the tools it needs to keep America safe. Statements by the President and Republicans that when the Protect America Act expires our nation will be in danger is wrong, divisive, and meant to press the House into simply rubber-stamping the Senate bill. This is an important issue, and deserves our full consideration. We will use this district work period to work with Republicans and the Administration to reach agreement and pass a long-term surveillance law as quickly as possible."

Go to News from February 11-15, 2008.