TLJ News from July 11-15, 2008

FRB Reports on Economy

7/15. The Senate Banking Committee (SBC) held a hearing titled "The Semiannual Monetary Policy Report to the Congress". The witness was be Ben Bernanke, Chairman of the Federal Reserve Board (FRB). See, prepared testimony and FRB report [48 pages in PDF].

The FRB report states that "Real business outlays for equipment and software were flat in the first quarter. Growth in real spending on high-tech equipment and software slowed to an annual rate of about 10 percent, down from the 13 percent pace recorded in 2007."

The FRB report adds that "High-tech equipment consists of computers and peripheral equipment and communications equipment." The report also notes that "The available indicators suggest that capital spending on equipment and software fell in the second quarter."

Much of Bernanke's testimony and the FRB report are devoted to troubles at financial institutions and tightening credit. Other, the FRB reports "sluggish" recent economic growth, and projects that "the economy is expected to expand slowly over the rest of this year".

The FRB also reports "a further deterioration in the labor market". That is, the unemployment rate rose to 5 1/2 percent, and "Although wages rose in nominal terms, the purchasing power of those nominal gains was eroded by the rapid increases in consumer prices."

The Department of Commerce's (DOC) Bureau of Economic Analysis (BEA) reported on June 26, 2008, that "Real gross domestic product ... increased at an annual rate of 1.0 percent in the first quarter of 2008 (that is, from the fourth quarter to the first quarter) ... In the fourth quarter, real GDP increased 0.6 percent." (Parentheses in original.)

See, latest BEA release. The BEA's next report is due to be released on July 31, 2008.

PFF Releases Media Metrics Report

7/15. The Progress & Freedom Foundation (PFF) released a report [huge PDF file] titled "Media Metrics: The True State of the Modern Media Marketplace". The authors are the PFF's Adam Thierer and Grant Eskelsen.

They write that "much of the criticism leveled at the modern media marketplace is that it is based almost entirely on emotion, not evidence", and that "everybody has an axe to grind with the media for one reason or another".

The bulk of the report is devoted to listing, describing, and quantifying various media.

From this data, the authors conclude that "we live in a world of unprecedented media abundance that, not long ago, was only the stuff of science-fiction novels. We can increasingly obtain and consume whatever media we want, wherever and whenever we want. In this new environment, media -- taken as a whole -- is becoming hyperubiquitous; an all-consuming and tremendously pervasive presence in our daily lives."

"From the perspective of the individual citizen, therefore, things are getting better all the time. We have more media choice, more media competition, and more media diversity. Indeed, after evaluating the metrics and evidence presented in this report, an unmistakable conclusion emerges: To the extent there was ever a ``golden age´´ of media in America, we are living in it today."

They add that "increased competition and technological proliferation are placing an enormous strain on traditional media operations and business models."

But, they argue that part of the problem for many media is that they remain "subject to a wide variety of regulations -- ownership caps, market limitations, ``localism´´ requirements, and other ``public interest´´ mandates. These regulations limit the ability of media operators to respond to the rapidly changing market environment. If all market players were equally hobbled by regulation, perhaps this issue would be less problematic. But these rules are applied in a remarkably arbitrary fashion, with some sectors and firms (over-the-air broadcasters, in particular) being singled out for harsher regulatory treatment than others." (Parentheses in original.)

People and Appointments

7/15. President Bush nominated Timothy Dugan to be a Judge of the U.S. District Court for the Eastern District of Wisconsin. See, White House release.

7/15. President Bush nominated Brian Albritton to be the U.S. Attorney for the Middle District of Florida for the term of four years. See, White House release.

7/15. President Bush nominated Benton Campbell to be the U.S. Attorney for the Eastern District of New York for the term of four years. See, White House release.

7/15. President Bush nominated Michael Considine to be the U.S. Attorney for the District of Connecticut for the term of four years. See, White House release.

7/15. President Bush announced his intent to appoint Edward Gee, Phillip Jenkins, Nancy Ann Starnes, and Hans Van Winkle to be members of the Architectural and Transportation Barriers Compliance Board (ATBC) for four year terms beginning on December 4, 2008. See, White House release. The ATBC also addresses information and communications technologies, and has a committee titled "Telecommunications and Electronic and Information Technology Advisory Committee".

More News

7/15. The House Judiciary Committee's (HJC) Subcommittee on Commercial and Administrative Law approved HR 3010 [LOC | WW], the "Arbitration Fairness Act of 2007". This bill would affect arbitration clauses in consumer contracts in the information and communications technology sectors. See also, story titled "House Judiciary Committee to Hold Hearing on Arbitration Fairness Act" in TLJ Daily E-Mail Alert No. 1,658, October 19, 2008.

7/15. The Copyright Royalty Judges published a notice in the Federal Register announcing "the commencement of a proceeding to determine the Phase I distribution of 2004 and 2005 royalties collected under the cable statutory license". The deadline to file a Petition to Participate and the accompanying $150 filing fee is August 14, 2008. See, Federal Register, July 15, 2008, Vol. 73, No. 136, at Pages 40623-40624.

7/15. The National Institute of Standards and Technology (NIST) published a notice in the Federal Register requesting nominations of persons to be members of eight NIST federal advisory committees, including the Information Security and Privacy Advisory Board (ISPAB), Technology Innovation Program Advisory Committee (TIPAC), and Visiting Committee on Advanced Technology (VCAT). This notice sets no time deadlines. See, Federal Register, July 15, 2008, Vol. 73, No. 136, at Pages 40502-40507.

Senate Appropriations Committee Approves Bill for Many Tech Related Agencies

7/14. The Senate Appropriations Committee (SAC) approved without amendment S 3260 [LOC | WW], the "Financial Services and General Government Appropriations Act, 2009", on July 10, 2008.

Sen. Richard Durbin (D-IL) introduced the bill on July 14, 2008, and the SAC released the Senate Report No. 110-417 on that date.

Bill Summary. This bill contains appropriations for many agencies, including the Federal Communications Commission (FCC), Federal Trade Commission (FTC), Securities and Exchange Commission (SEC), and Department of the Treasury.

It also includes a one year extension of the exemption for the Universal Service Fund (USF) from the Antideficiency Act (ADA). It also contains a provision regarding the universal service subsidies and "single connection or primary line restrictions on universal service support payments".

It also includes appropriations for some other technology related programs, such as the Internal Revenue Service's (IRS) IT modernization program, the Electronic Government Fund, and the Electronic Records Archives.

It also includes appropriations for the federal judiciary and for Presidential offices.

It also includes a prohibition on federal agency monitoring of individuals' internet use.

FCC and Universal Service. The bill appropriates $341,875,000 for the FCC for FY 2009. However, the key FCC provisions in the bill relate to the Universal Service Antideficiency Temporary Suspension Act (USATSA), and the use of universal service subsidies for other than primary lines.

Section 501 of the bill provides that "Section 302 of the Universal Service Antideficiency Temporary Suspension Act is amended by striking `December 31, 2008´, each place it appears and inserting `December 31, 2009´."

The USATSA was originally enacted as Title III of HR 5419 (108th Congress). It provides that universal service funds collected pursuant to 47 U.S.C. § 254, and the universal service programs established pursuant to this section, are not subject to certain provisions of the Antideficiency Act. See, story titled "Bush Signs Telecom Bill" in TLJ Daily E-Mail Alert No. 1,045, December 28, 2004.

Section 502 of the bill provides that "None of the funds appropriated by this Act may be used by the Federal Communications Commission to modify, amend, or change its rules or regulations for universal service support payments to implement the February 27, 2004 recommendations of the Federal-State Joint Board on Universal Service regarding single connection or primary line restrictions on universal service support payments."

Sen. Ted Stevens (R-AK) stated in a release that "This primary line restriction would adversely affect small businesses and consumers in rural parts of America, including my home state of Alaska ... A second phone line or fax is often critical to the success of small businesses.  I am pleased to see this provision included so that our universal service program will continue to improve the lives of rural Americans."

Section 503 of the bill provides that "Of the funds provided, not less than $3,000,000 shall be available to establish and administer a State Broadband Data and Development matching grants program for State-level broadband demand aggregation activities and creation of geographic inventory maps of broadband service to identify gaps in service and provide a baseline assessment of statewide broadband deployment."

FTC. The bill provides, in part, "For necessary expenses of the Federal Trade Commission ... $256,200,000, to remain available until expended ... Provided further, That, notwithstanding any other provision of law, not to exceed $168,000,000 of offsetting collections derived from fees collected for premerger notification filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. 18a), regardless of the year of collection, shall be retained and used for necessary expenses in this appropriation: Provided further, That, notwithstanding any other provision of law, not to exceed $19,300,000 in offsetting collections derived from fees sufficient to implement and enforce the Telemarketing Sales Rule, promulgated under the Telemarketing and Consumer Fraud and Abuse Prevention Act (15 U.S.C. 6101 et seq.), shall be credited to this account, and be retained and used for necessary expenses in this appropriation: Provided further, That the sum herein appropriated from the general fund shall be reduced as such offsetting collections are received during fiscal year 2009, so as to result in a final fiscal year 2009 appropriation from the general fund estimated at not more than $68,900,000 ..."

SEC. The bill appropriates $938,000,000 for the SEC.

IRS Business Systems Modernization. The bill provides appropriations for the IRS, including its Business Systems Modernization program. For this program, the bill appropriates "$282,175,000, to remain available until September 30, 2011, for the capital asset acquisition of information technology systems, including management and related contractual costs of said acquisitions, including related Internal Revenue Service labor costs, and contractual costs associated with operations authorized by 5 U.S.C. 3109". The bill also places further restrictions on these funds.

See also, story titled "IRS Budget Proposal Decreases Funding for Business Systems Modernization Despite IG's Warning About Data Security and ID Theft" in TLJ Daily E-Mail Alert No. 1,749, April 17, 2008.

Electronic Government Fund. The bill provides "For necessary expenses in support of interagency projects that enable the Federal Government to expand its ability to conduct activities electronically, through the development and implementation of innovative uses of the Internet and other electronic methods, $1,000,000, to remain available until expended".

Electronic Records Archives. The bill provides "For necessary expenses in connection with the development of the electronic records archives, to include all direct project costs associated with research, analysis, design, development, and program management, $67,008,000, of which $45,795,000 shall remain available until September 30, 2010".

The bill further provides that "none of the multi-year funds may be obligated until the National Archives and Records Administration submits to the Committees on Appropriations, and such Committees approve, a plan for expenditure that: (1) meets the capital planning and investment control review requirements established by the Office of Management and Budget, including Circular A-11; (2) complies with the National Archives and Records Administration's enterprise architecture; (3) conforms with the National Archives and Records Administration's enterprise life cycle methodology; (4) is approved by the National Archives and Records Administration and the Office of Management and Budget; (5) has been reviewed by the Government Accountability Office; and (6) complies with the acquisition rules, requirements, guidelines, and systems acquisition management practices of the Federal Government."

Internet Use Monitoring. Section 727 of the bill prohibits federal agencies from using appropriated funds to monitor certain internet use.

It provides, subject to enumerated exceptions, that "None of the funds made available in this or any other Act may be used by any Federal agency -- (1) to collect, review, or create any aggregation of data, derived from any means, that includes any personally identifiable information relating to an individual's access to or use of any Federal Government Internet site of the agency; or (2) to enter into any agreement with a third party (including another government agency) to collect, review, or obtain any aggregation of data, derived from any means, that includes any personally identifiable information relating to an individual's access to or use of any nongovernmental Internet site."

4th Circuit Affirms Summary Judgment for New York Times in Hatfill's Libel Action

7/14. The U.S. Court of Appeals (4thCir) issued its opinion [22 pages in PDF] in Hatfill v. New York Times, a libel action. The Court of Appeals affirmed the District Court's summary judgment for the New York Times, and its writer, Nicholas Kristof.

The Court of Appeals held that, pursuant to the Supreme Court's 1964 opinion in N.Y. Times Co. v. Sullivan, 376 U.S. 254, and its progeny, that Steven Hatfill was a "limited-purpose public figure" because he "voluntarily thrust himself into the controversy surrounding the threat of bioterrorism and the nation's lack of preparedness for a bioterrorism attack".

Hence, he would have to show "actual malice" -- that is, a subjective awareness of probable falsity of the publication. And, since Hatfill could not prove actual malice, the defendants are entitled to summary judgment.

This case is Steven Hatfill v. New York Times Company and Nicholas Kristof, U.S. Court of Appeals for the 4th Circuit, App. Ct. Nos. 07-1124 07-1162, appeals from the U.S. District Court for the Eastern District of Virginia, at Alexandria, D.C. No. 1:04-cv-00807, Judge Claude Hilton presiding.Judge Niemeyer wrote the opinion of the Court of Appeals, in which Judges Michael and Arlen Beam, sitting by designation, joined.

In contrast, Hatfill prevailed in his suit against the US government, which provided journalists with false information about him.

On June 27 the Department of Justice (DOJ) announced that it settled with Hatfill, and that the terms of the settlement provide for the US to pay Hatfill and his attorneys $2.825 Million and purchase for Hatfill an annual annuity of $150,000. See, story titled "US to Pay Hatfill in Anthrax Case" in TLJ Daily E-Mail Alert No. 1,788, July 1, 2008.

9th Circuit Affirms DMCA Criminal Conviction

7/14. The U.S. Court of Appeals (9thCir) issued its opinion [15 pages in PDF] in USA v. Whitehead, a DMCA circumvention case involving counterfeit DirecTV access cards. The Court of Appeals affirmed the District Court's conviction, and its no jail time sentence.

Thomas Whitehead sold over $1 Million (measured by lost profits) in counterfeit access cards that enabled purchasers to access DirecTV's digital satellite feed without paying for it.

The jury returned a verdict of guilty to circumvention in violation of the Digital Millennium Copyright Act (DMCA). The District Court sentenced Whitehead to community service and restitution, but no incarceration.

Statute. 17 U.S.C. § 1201(a)(1) provides, in part, that "No person shall circumvent a technological measure that effectively controls access to a work protected under this title."

Notably, subsection 1201(a)(1) conspicuously omits any requirement that the party employing the technological measures have authority from the copyright holder(s) either to employ the technological measures, or to copy the copyright holders' works.

The statute adds that the words "this title" refer to Title 17 of the U.S. Code, which codifies copyright law. Thus, the protected works must be subject to copyright. But, the plain meaning of the statute is that the party employing the protection measures need not be the copyright holder.

Subsection 1201(a)(3)(B) provides definitions. It provides that "a technological measure ``effectively controls access to a work´´ if the measure, in the ordinary course of its operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work."

Subsection 1201(a)(2)(A) provides that "No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that ... is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title".

17 U.S.C. § 1204 provides criminal penalties for "Any person who violates section 1201 or 1202 willfully and for purposes of commercial advantage or private financial gain".

Court of Appeals. The Court of Appeals heard cross appeals. Whitehead appealed his conviction. The government appealed the District Court's decision not to impose any time in prison.

The Court of Appeals affirmed the judgment of the District Court on both issues.

Whitehead argued that it was error that both the indictment and the jury instructions omitted one element of the offense -- that the technological measures circumvented by the defendant were put in place with the authority of the copyright owner.

This element is not included in the relevant sections of the statute. Hence, the Court of Appeals affirmed. Unfortunately, while the entire opinion and dissent run to 15 pages, the Court devoted only one vaguely worded paragraph to this subject. It wrote, in full, as follows:

"Whitehead argues that his conviction under 17 U.S.C. § 1201 must be reversed because the indictment and jury instructions omitted an element of the offense, namely, that the technological measures he circumvented were put in place ``with the authority of the copyright owner.´´ See 17 U.S.C. § 1201(a)(3)(B) (defining when a technological measure ``effectively controls access to a work´´). But the indictment quoted and cited section 1201(a)(2)(A), and thereby ``adequately apprised the defendant of the charge[ ]´´; any mistake here was ``minor or technical´´ and doesn't require reversal. United States v. Severino, 316 F.3d 939, 943 (9th Cir. 2003) (internal quotation marks and citation omitted). And the jury instructions defined ``technological measure´´ using section 1201(a)(3)(B)'s exact language. Neither the indictment nor the instructions were erroneous." (Parentheses and brackets in original.)

Thus, the Court held that in a criminal prosecution for violation of the DMCA anti-circumvention provisions, the government need not allege or prove that the party whose technological measures were circumvented had authority from the copyright holder to use those technological measures. This is consistent with both the plain meaning and drafters' understanding of the statute.

TLJ Analysis. Consider the ramifications of such a holding for civil actions to enforce copyrights. The logical extension of this opinion would be that in civil actions brought by aggregators/distributors of content, such as DirecTV, record companies, and movie studios, against circumventors/counterfeiters, the plaintiffs need not prove authority from the copyright holders to use technological measures to protect the content. This too would be consistent with the plain meaning and drafters' understanding of the statute.

But, consider also the implications of this opinion in the context of allocation of rights and remedies between creators/copyright holders and aggregators/distributors.

Just as the statute does not require that an aggregator whose product is protected by technological measures allege or prove that it had authority from the copyright holder to use those technological measures, the statute does not require that the aggregator prove that it either holds copyrights in the works wrapped in technological measures, or has license from the copyright holders.

For example, if an aggregator distributes infringing copies, that are wrapped in technological measures, not only can a subsequent circumventer/infringer not defend on the basis of lack of authority to copy and protect, the copyright holder who circumvents (to access his own unlicensed work) cannot defend on the basis that he gave no authority.

As another example, if HR 5889 [LOC | WW], the "Orphan Works Act of 2008", were to become law, then the works of some creators may be aggregated into larger digital works or collections, without license from the creators, that are then distributed with technological measures, under circumstances in which the creators will have no effective injunctive remedy against the infringer. Yet the distributor would have effective remedies against those who circumvent.

The Orphan Works Act would limit remedies for infringement of copyright, but not remedies available under the anti-circumvention provisions of the DMCA.

If the DMCA's Section 1201 is to be construed literally, as the Court of Appeals appears to have done in the present case, and if the Congress proceeds to limit remedies for infringement, but maintain remedies for circumvention, then one consequence may be that for certain types of works, the ability of creators to exclude will be diminished, while the ability of distributors who utilize technological measures to protect the same works, whether with or without license, will be increased.

Copyright ownership would remain unchanged. But the extent to which such ownership is real, rather than nominal, would be lessened.

Property rights subsist in their attributes. The fundamental attribute of property rights in both patent and copyright is the right to exclude. In the case of copyright, remedies that provide the power to exclude may in some cases shift, away from creators, and in favor of commercial enterprises that exploit creative works.

In conclusion, this analysis, if it has any merit, suggests there may be a trend underway, for certain types of works, and certain circumstances, of transferring the power to exclude, and in effect, copyright-like rights, from creators to exploiters who utilize technological measures.

This article offers no analysis here of the policy merits of such a development.

Dissent. Judge Bybee dissented, but only on the sentencing issue. He noted first that under the sentencing guidelines, Whitehead would have received a sentence of from 41 to 51 months.

He wrote that "This was not an exercise of discretion so much as an abdication of responsibility." He concluded that Whitehead deserved 33 months in prison.

Bybee did not dissent on the affirmance of the conviction.

Case Information. This case is USA v. Thomas Michael Whitehead, U.S. Court of Appeals for the 9th Circuit, App. Ct. Nos. 05-50458 and 05-50506, appeals from the U.S. District Court for the Central District of California, Judge Christina Snyder presiding, D.C. No. CR-03-00053-CAS-1.

A three judge panel of the Court of Appeals issued this per curiam opinion. One judge, Jay Bybee dissented. The two judges who joined in the per curiam opinion are Diarmuid O'Scannlain and Alex Kozinski.

Judge Kozinski. The Court of Appeals decided an appeal regarding Whitehead's misconduct on the internet. One of the two judges who affirmed the no jail time sentence for Whitehead is currently under investigation himself for internet based judicial misconduct.

Judge Kozinski published pornographic pictures on the web. See, story by Scott Glover titled "9th Circuit’s chief judge posted sexually explicit matter on his website" published in the Los Angeles Times on June 11, 2008. Attempts to access Judge Kozinski's web site ( now produce an error message. Although, the Los Angeles Times story describes the content of some of the pictures.

See also, 9th Circuit order requesting the Chief Justice to reassign this proceeding, and letter of the Chief Justice transferring this judicial misconduct proceeding from the 9th Circuit to the 3rd Circuit.

Perhaps it should also be noted that Judge Kozinski wrote the April 3, 2008, en banc opinion [54 pages in PDF] of the Court of Appeals in FHCSFV v., a Section 230 immunity case. He also wrote the May 15, 2007, three judge panel opinion [23 pages in PDF]. Both opinions have been widely criticized in information technology communities. See also, story titled "9th Circuit Holds May be Liable for Speech of Users" in TLJ Daily E-Mail Alert No. 1,581, May 15, 2007; story titled "9th Circuit to Rehear Section 230 Case En Banc" in TLJ Daily E-Mail Alert No. 1,657, September 18, 2007; and story titled "En Banc 9th Circuit Panel Rejects Section 230 Immunity in Case" in TLJ Daily E-Mail Alert No. 1,741, April 2, 2008.

Yahoo Rejects Latest Microsoft Proposal

7/14. Yahoo announced in a release on July 12, 2008, that "it has rejected a joint proposal from Microsoft Corporation and Carl Icahn for a complex restructuring of Yahoo! that would include the acquisition of Yahoo!'s search business by Microsoft."

Yahoo stated that the proposal was made on Friday, July 11, and that it "is not in the best interests" of Yahoo stockholders.

See also, Schedule 14A (Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934) filed with the Securities and Exchange Commission (SEC) by Carl Icahn and others on  July 14, 2008.

Icahn and others seek to elect a board of directors at Yahoo's 2008 Annual Meeting Stockholders to be held on August 1, 2008.

This filing states that these directors would, if elected, "Hire a talented and experienced CEO to replace Jerry Yang and return Jerry to his role as ``Chief Yahoo´´".

This filing also states that these directors would "Inform Microsoft that unless we believe any ``alternative transaction´´ will result in a $33 or higher stock price, all talks of alternative transactions are over", and "Offer publicly to sell Yahoo to Microsoft in a friendly and cooperative transaction".

Roy Bostock, the current Chairman of Yahoo, stated that "Microsoft, having failed to advance in search, is aligning with the short-term objectives of Mr. Icahn to coerce Yahoo! into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo! stockholders."

He added that "Microsoft and Mr. Icahn are trying to dismantle the Company and deliver our search business to Microsoft on terms that would be disadvantageous to Yahoo! stockholders. We are prepared to let our stockholders, not Microsoft and Carl Icahn, decide what is in their best interests and we look forward to the upcoming vote."

People and Appointments

7/14. Arthur Brooks was selected by the American Enterprise Institute's (AEI) Board of Trustees to be its next President. He is currently a professor at Syracuse University and a visiting scholar at the AEI. He will replace Christopher DeMuth, who has been President of the AEI since 1986, on January 1, 2009.

7/14. Meridith Mitchell was named Deputy General Counsel for Legal Policy and Administrative Practice at the Securities and Exchange Commission (SEC). She replaces Alexander Cohen, who is now the SEC's Deputy Chief of Staff. See, SEC release.

More News

7/14. The Copyright Office (CO) published a notice in the Federal Register announcing that it has extended the deadlines to submit comments in response to its Notice of Proposed Rulemaking (NPRM) regarding the retransmission of digital television broadcast signals by cable operators under 17 U.S.C. § 111. The new deadline to submit initial comments is July 31, 2008. The new deadline to submit reply comments is September 16, 2008. See, Federal Register, July 14, 2008, Vol. 73, No. 135, at Page 40203. The previous deadlines were July 14 and September 2. See, old notice in the Federal Register, June 2, 2008, Vol. 73, No. 106, at Pages 31399-31415. The reason for this extension is the recent release by the CO of its Section 109 Report to Congress. See, report [274 pages in PDF] titled "Satellite Home Viewer Extension and Reauthorization Act Section 109 Report", and story titled "Copyright Office Releases Section 109 Report" in TLJ Daily E-Mail Alert No. 1,789, July 7, 2008. The National Cable and Telecommunications Association (NCTA) requested this extension.

7/14. The Copyright Office (CO) published a notice in the Federal Register that announces the receipt of six notices of intent to audit various eligible nonsubscription and new subscription services that transmit sound recordings under statutory licenses. SoundExchange submitted the notices. They pertain to Yahoo, Real Networks, AOL, MTV Networks, Susquehanna Radio Corp., and See, Federal Register, July 14, 2008, Vol. 73, No. 135, at Page 40392.

7/14. The Federal Trade Commission (FTC) published in its web site a section titled "FTC Guide to the Antitrust Laws".

7/14. The U.S. District Court (WDPenn) unsealed a redacted Consent Order for Permanent Injunction [27 pages in PDF], signed by the Court on July 8, in FTC v. Davison & Associates. This is a long running civil action against a fraudulent invention promotion service. This order contains injunctive relief, requires the payment of $10 Million by defendants, appoints a liquidating receiver, and imposes compliance reporting and record keeping requirements. This case is FTC v. Davison & Associates, et al., U.S. District Court for the Western District of Pennsylvania, D.C. No. 97-1278. See also, FTC release.

6th Circuit En Banc Panel Holds Warshak Case Lacks Ripeness

7/11. The U.S. Court of Appeals (6thCir) issued its 9-5 en banc opinion [15 pages in PDF] in Warshak v. US, a case regarding the 4th Amendment, the Stored Communications Act (SCA), and government access to e-mail held by internet service providers (ISPs).

A three judge panel issued its opinion [20 pages in PDF] on June 18, 2007. That opinion was a major victory for proponents of privacy rights online, and a major defeat for those who oppose extending privacy rights that have long existed in the offline world to equivalents in the online space.

That opinion was the first Court of Appeals opinion to address the application of the 4th Amendment to personal e-mail accounts in the possession of an ISP. It was the first Court of Appeals opinion to sustain a facial 4th Amendment challenge to the SCA.

The government obtained orders under obsolete provisions of the SCA that enabled it to obtain from two ISPs e-mail from the personal accounts of Steven Warshak, Cincinnati, Ohio, seller of "natural supplements". The government obtained the orders under a mere relevance standard, and provided no notice to Warshak until one year latter.

He then sued the government. The District Court awarded him injunctive relief.

The three judge panel of the Court of Appeals affirmed. It held, among other things, that "individuals maintain a reasonable expectation of privacy in e-mails that are stored with, or sent or received through, a commercial ISP".

Hence, the 4th Amendment's requirement that the government must obtain a warrant based upon probable cause applies to certain stored e-mail. The Court of Appeals added that alternatively the government can give prior notice to the targeted individual. The government cannot merely rely upon the statutory procedure set out in the SCA to seize stored e-mail.

The just released en banc opinion of Court of Appeals undoes the three judge panel opinion. However, the majority opinion of the en banc opinion merely concludes in a long and tenuous argument that Warshak's claim is not ripe for judicial resolution.

Yet, this is a significant victory for the government. A central strategy of the Department of Justice in search and seizure matters involving new information and communications technologies has been to seek to avoid the establishment of judicial precedent construing obsolete and/or vague provisions in statutes.

For example, when federal magistrates or judges in one district have refused to issue orders sought by the government, or issued ruling against the government, the government has sometimes shifted the locus of its investigations or applications to other districts, rather than appeal the adverse rulings. This manner of forum shopping has been facilitated by provisions in the 2001 USAPATRIOT Act and subsequent legislation. It also hampers the development of judicial precedent that would clarify the law.

The majority's conclusion that this case lacks ripeness is hard to reconcile with the law of injunction. The facts of the case regarding the government's prior searches of Warshak's e-mail are established. The complained of acts did in fact occur. The District Court's injunction, in part, enjoins the government from committing the same acts again.

The majority reasoned that "we have no idea whether the government will conduct an ex parte search of Warshak’s e-mail account in the future and plenty of reason to doubt that it will".

But then, injunctions always enjoin future actions that have not yet occurred. The Court never knows whether a future event will take place.

Judge Boyce Martin wrote in his dissent that "In its zeal to uphold the power of the government to intrude into the privacy of citizens, the majority has forgotten where this case lies procedurally. We are merely at the preliminary injunction stage. Every day in civil litigation across this country, private parties seek preliminary injunctions against other private parties relying on past relevant wrongful conduct and the threat of future wrongful conduct. The factual record necessary to support a preliminary injunction does not have to be complete."

He added that this opinion "is but another step in the ongoing degradation of civil rights in the courts of this country."

He concluded with this: "History tells us that it is not the fact that a constitutional right is at issue that portends the outcome of a case, but rather what specific right we are talking about. If it is free speech, freedom of religion, or the right to bear arms, we are quick to strike down laws that curtail those freedoms. But if we are discussing the Fourth Amendment’s right to be free from unreasonable searches and seizures, heaven forbid that we should intrude on the government’s investigatory province and actually require it to abide by the mandates of the Bill of Rights. I can only imagine what our founding fathers would think of this decision. If I were to tell James Otis and John Adams that a citizen’s private correspondence is now potentially subject to ex parte and unannounced searches by the government without a warrant supported by probable cause, what would they say? Probably nothing, they would be left speechless."

(In 1761 James Otis appeared before a British court in Boston to challenge writs of assistance. See, 1962 essay by Richard Morris titled "Then and There the Child Independence Was Born". John Adams was present, and latter wrote about the proceeding.)

TLJ published an 86 paragraph story on the opinion of the three judge panel that includes, among other things, a summary of the facts of the case, reviews of the relevant statutes and precedents, and a more detailed statement of the issues involved.

See, story titled "6th Circuit Holds That People Have a Reasonable Expectation of Privacy in E-Mail Stored With, or Sent or Received Through, an ISP" in TLJ Daily E-Mail Alert No. 1,597, June 19, 2007.

This case is Steven Warshak v. United States of America, U.S. Court of Appeals for the 6th Circuit, App. Ct. No. 06-4092, an appeal from the U.S. District Court for the Southern District of Ohio, at Cincinnati, D.C. No. 06-00357, Judge Susan Dlott presiding.

GAO Reports on FCC's High Cost Subsidy Program

7/11. The Government Accountability Office (GAO) released a report [68 pages in PDF] titled "Telecommunications: FCC Needs to Improve Performance Management and Strengthen Oversight of the High-Cost Program".

Universal service is a name for a collection of programs administered by the Federal Communications Commission (FCC) and its Universal Service Administrative Corporation (USAC) that taxes certain consumers of phone and other services to subsidize certain entities.

The report states that "The high-cost program’s structure has contributed to inconsistent distribution of support and availability of services across rural America."

That is, "two carriers serving similar customers in similar environs can receive different levels of support, which can lead to different levels of telecommunications service across rural areas."

The report also finds that although this program only supports basic telephone service, "the program also indirectly supports broadband service in some rural areas, particularly those areas served by rural carriers. Since rural carriers receive high levels of support, these carriers can upgrade their networks with new technologies, which often facilitate broadband service, in addition to basic telephone service."

And since different carriers are treated differently, the high cost program's effect on broadband service in the rural areas varies.

The report also finds that "the program provides support to both incumbent and competitive carriers; as a result, it creates an incentive for competition to exist in areas where it might not occur otherwise. For the most part, wireless carriers have used this incentive, which has contributed to recent growth in the program."

Also, the report states that although over $30 Billion has been spent on the high cost program since passage of the Telecommunications Act of 1996, the "FCC has not established long-term or intermediate performance goals and measures."

The GAO prepared this report for the House Commerce Committee (HCC).

Rep. John Dingell (D-MI), the Chairman of the HCC, stated in a release that "Universal service is a fundamentally American value: every consumer should have access to affordable communications, regardless of where they live ... Proper management of the Universal Service Fund is critical and apparently has been sorely lacking."

Rep. Joe Barton (R-TX), the ranking Republican on the HCC, repeated his opposition to the program. He said in the same release that "I'd be happy to abolish the fund and leave several billion dollars a year in the pockets of telephone users who earned it, but until that glorious day arrives, it seems reasonable to reform the offender if we can."

Former Hewlett Packard VP Pleads Guilty to Theft of Trade Secrets

7/11. Atul Malhotra, a former VP at Hewlett Packard (HP), pled guilty in U.S. District Court (NDCal) to one count of theft of trade secrets of IBM.

The Department of Justice (DOJ) stated in a release that Malhotra was until 2006 director of sales and business development in output management services for IBM Global Services. HP then hired him as VP for imaging and printing services.

Malhotra copied documents of IBM that he knew contained trade secrets, took them with him to his new job with HP, and shared them with his superiors.

Sentencing is scheduled for October 29, 2008.

This case is USA v. Atul Malhotra, U.S. District Court for the Northern District of California, San Jose Division, D.C. No. CR 08-00423 JF, Judge Jeremy Fogel presiding.

People and Appointments

7/11. President Bush named Ashok Pinto to be Associate Counsel to the President. See, White House release.

7/11. President Bush named Ryan Bounds to be Special Assistant to the President for Domestic Policy. Previously, he worked in the U.S. Attorney's Office for the District of Columbia, and in the Department of Justice's (DOJ) Office of Legal Policy (OLP). See, White House release.

Go to News from July 6-10, 2008.