TLJ News from August 11-15, 2011

2nd Circuit Holds First Sale Doctrine Does Not Apply to Works Made Abroad

8/15. The U.S. Court of Appeals (2ndCir) issued its divided opinion [28 pages in PDF] in John Wiley & Sons v. Kirtsaeng, holding that the first sale doctrine does not apply to works manufactured outside of the United States.

This ruling facilitates business models for copyright based industries that include variation in product features and product prices for the US and non-US markets.

The first sale doctrine, which is codified in the Copyright Act, permits the owner of a lawfully purchased copyrighted work to resell it without limitations imposed by the copyright holder. However, another section of the Copyright Act restricts importation into the U.S. of copies without the authority of the owner of copyright under the Copyright Act.

John Wiley & Sons, the plaintiff, publishes academic, scientific, and educational journals and books, including textbooks, for sale in domestic and international markets. It makes outside of the US those copies for sale outside of the US. It makes in the US those copies for sale inside the US.

Wiley's books for non-US sale include statements such as "Authorized for sale in Europe, Asia, Africa and the Middle East Only" and "This book ... may not be exported."

Supap Kirstsaeng, the defendant, imported into the US Wiley books published outside the US, and sold them on websites such as eBay. His revenues totaled about about one million dollars.

Wiley filed a complaint in the U.S. District Court (SDNY) against Kirtsaeng, alleging copyright infringement, trademark infringement, and violation of the state of New York's unfair competition statute. Later, Wiley dropped all but the copyright claim.

The District Court ruled that the first sale doctrine is not an available defense in the circumstances, and did not give the jury a first sale doctrine instruction.

Kirtsaeng appealed the first sale doctrine ruling. Wiley also appealed on the issue of damages. This article only addresses the first sale doctrine issue.

Statute. 17 U.S.C. § 106 lists the exclusive rights of copyright. Subsection 106(3) is the exclusive right "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending". However, the Copyright Act then provides numerous exceptions to the exclusive rights of copyright.

The first sale doctrine, which is codified at 17 U.S.C. § 109, provides, in part, that "Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord." (Emphasis added.)

However, 17 U.S.C. § 602(a)(1) provides in part that "Importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under section 501."

Court of Appeals. The Court of Appeals wrote that "There is at least some tension between § 602(a)(1), which seemingly seeks to give copyright holders broad control over the circumstances in which their copyrighted material may be imported (directly or indirectly) into the United States, and § 109(a), which limits the extent to which the copyright holder may limit distribution following an initial sale." (Parentheses in original.)

However, it held, based upon its interpretation of the two sections, and dicta in the Supreme Court's 1998 opinion in Quality King Distributors v. L'anza Research International, 523 U.S. 135, that the first sale doctrine does not apply to works manufactured outside of the US.

In Quality King, the defendant purchased copies that had been made in the US by the plaintiff, and sold outside the US by one of the plaintiff's foreign distributors. The defendant purchased and reimported these copies back into the US and resold them. This was profitable for the defendant because the plaintiff sold copies to foreign distributors at lower prices than it charged domestic distributors.

The Supreme Court held that Section 109 imposes a limit on Section 602, and that the defendant's resale of copies in the US is allowed under the first sale doctrine. However, in that case, unlike the present case, the copies were made in the US.

The Supreme Court wrote that "Even in the absence of a market allocation agreement between, for example, a publisher of the United States edition and a publisher of the British edition of the same work, each such publisher could make lawful copies. If the author of the work gave the exclusive United States distribution rights enforceable under the Act-to the publisher of the United States edition and the exclusive British distribution rights to the publisher of the British edition, however, presumably only those made by the publisher of the United States edition would be ‘lawfully made under this title’ within the meaning of § 109(a). The first sale doctrine would not provide the publisher of the British edition who decided to sell in the American market with a defense to an action under § 602(a)".

Also, Justice Ginsburg wrote in her concurring opinion that "This case involves a 'round trip' journey, travel of the copies in question from the United States to places abroad, then back again. I join the Court's opinion recognizing that we do not today resolve cases in which the allegedly infringing imports were manufactured abroad."

In the present case, the Court also interpreted the meaning of the two sections at issue. "Section 602(a)(1) prohibits the importation into the United States of copyrighted works acquired abroad without the authorization of the copyright holder. This provision is obviously intended to allow copyright holders some flexibility to divide or treat differently the international and domestic markets for the particular copyrighted item. If the first sale doctrine codified in § 109(a) only applies to copyrighted copies manufactured domestically, copyright holders would still have a free hand -- subject, of course, to other relevant exceptions enumerated in Title 17, such as those in §§ 107, 108, and 602(a)(3) -- to control the circumstances in which copies manufactured abroad could be legally imported into the United States."

The Court wrote the the meaning of the phrase "lawfully made under this title" is key. If it were to mean "lawfully made in the US", then Wiley would prevail. The Court noted that the Copyright Act primarily applies only territorially. On the other hand, if it were to mean "any work subject to protection under the Copyright Act", then Kirtsaeng would prevail.

In the end, the Court concluded that "the phrase ``lawfully made under this Title´´ in § 109(a) refers specifically and exclusively to works that are made in territories in which the Copyright Act is law, and not to foreign-manufactured works."

The Court added that "We freely acknowledge that this is a particularly difficult question of statutory construction in light of the ambiguous language of § 109(a), but our holding is supported by the structure of Title 17 as well as the Supreme Court’s opinion in Quality King. If we have misunderstood Congressional purpose in enacting the first sale doctrine, or if our decision leads to policy consequences that were not foreseen by Congress or which Congress now finds unpalatable, Congress is of course able to correct our judgment."

Dissent. Judge Murtha wrote that "I conclude the first sale defense should apply to a copy of a work that enjoys United States copyright protection wherever manufactured."

He reasoned that the phrase "lawfully made under this title" "does not refer to a place of manufacture: It focuses on whether a particular copy was manufactured lawfully under title 17 of the United States Code." And, "regardless of place of manufacture, a copy authorized by the U.S. rightsholder is lawful under U.S. copyright law. Here, Wiley, the U.S. copyright holder, authorized its subsidiary to manufacture the copies abroad, which were purchased and then imported into the United States."

He added that the language of the statute demonstrates that the Congress never intended the phrase "lawfully made under this title" to mean "lawfully manufactured in the US".

He also wrote that "Economic justifications also support applicability of the first sale doctrine to foreign made copies. Granting a copyright holder unlimited power to control all commercial activities involving copies of her work would create high transaction costs and lead to uncertainty in the secondary market. An owner first would have to determine the origin of the copy -- either domestic or foreign -- before she could sell it. If it were foreign made and the first sale doctrine does not apply to such copies, she would need to receive permission from the copyright holder."

"Such a result would provide greater copyright protection to copies manufactured abroad than those manufactured domestically: Once a domestic copy has been sold, no matter where the sale occurred, the copyright holder's right to control its distribution is exhausted. I do not believe Congress intended to provide an incentive for U.S. copyright holders to manufacture copies of their work abroad."

Likelihood of Supreme Court Review. This may be a case in which the Supreme Court would grant certiorari. It heard a similar case 2010, and divided 4 to 4. Omega v. Costco was also a case involving the interplay of Section 109 and 602.

However, the Supreme Court merely issued a one page order stating that the "The judgment is affirmed by an equally divided Court." Justice Kagan had recused herself. See also, story titled "Supreme Court Affirms in Costco v. Omega on 4-4 Vote" in TLJ Daily E-Mail Alert No. 2,178, December 14, 2010.

That order affirmed the September 3, 2008, opinion [17 pages in PDF] of the U.S. Court of Appeals (9thCir), which held that the first sale doctrine does not apply to imported goods manufactured abroad. It applies "only where the disputed copies of a copyrighted work were either made or previously sold in the United States with the authority of the copyright owner".

The present case is John Wiley & Sons, Inc. v. Supap Kirtsaeng, U.S. Court of Appeals for the 2nd Circuit, App. Ct. No. 09-4896-cv, an appeal from the U.S. District Court for the Southern District of News York, Judge Donald Pogue (U.S. Court of International Trade, sitting by designation) presiding. Judge Jose Cabranes wrote the opinion of the Court of Appeals, in which Judge Katzmann joined. Judge Garvan Murtha (USDC/DVermont, sitting by designation) wrote a dissent.

ACLU Sues School District Over Internet Filtering Software

8/15. A collection of gay and lesbian groups, represented by the American Civil Liberties Union (ACLU), filed a complaint in the U.S. District Court (WDMo) against a public school system Missouri alleging violation of 42 U.S.C. § 1983, based upon violation of the First Amendment of the U.S. Constitution, in connection with its use of internet filtering technology.

The complaint alleges that the filtering software at issue blocks access to web sites "advocating on behalf of lesbian, gay, bisexual, and transgender (``LGBT´´) people but permits access to websites that condemn homosexuality or oppose legal protections for LGBT people".

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".

Section 1983 actions are disfavored by many federal judges. Also, school districts may raise Section 230 immunity as a defense.

47 U.S.C. § 230 provides in part that "No provider or user of an interactive computer service shall be held liable on account of ... any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected".

The plaintiffs also filed a motion for a preliminary injunction. See, ACLU release.

This case is Parent Families and Friends of Lesbians and Gays, Inc., et al. v. Camdenton R-III School District, et al., U.S. District Court for the Western District of Missouri, D.C. No. 2:11-cv-04212.

Google to Acquire Motorola Mobility

8/15. Google filed a Form 8-K with the Securities and Exchange Commission (SEC) on August 15 that states that "On August 15, 2011, Google Inc. (Google) and Motorola Mobility Holdings, Inc. (Motorola) issued a joint press release announcing that they had entered into a definitive agreement pursuant to which Google will acquire Motorola."

Google stated in this attached release that "Motorola Mobility will remain a licensee of Android and Android will remain open. Google will run Motorola Mobility as a separate business."

Andy Rubin, Senior Vice President of Mobile at Google, stated in this release that "our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community".

This release also states that "Google will acquire Motorola Mobility for $40.00 per share in cash, or a total of about $12.5 billion, a premium of 63% to the closing price of Motorola Mobility shares on Friday, August 12, 2011. The transaction was unanimously approved by the boards of directors of both companies."

This transaction is subject to numerous approvals by regulatory agencies. The release asserts that this transaction "will enhance competition in mobile computing".

Google published a short piece in its web site by CEO Larry Page titled "Supercharging Android: Google to Acquire Motorola". It states that "This acquisition will not change our commitment to run Android as an open platform. Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business. Many hardware partners have contributed to Android’s success and we look forward to continuing to work with all of them to deliver outstanding user experiences."

It adds that "Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies."

Motorola Mobility also supplies equipment to the cable industry. Matthew Polka, head of the American Cable Association (ACA), stated in a release that "We're going to review the deal to understand the impact on the cable set-top box market, which has been a frustrating one for small cable operators long beholden to the Motorola-Cisco duopoly. For many cable operators, the question is whether Google's takeover of Motorola as one of only two major manufacturers will make things better or worse. ACA members will want assurances from Google that it is both committed to the cable business model and won't use its market power to run roughshod over smaller cable operators."

Polka added that "the future holds great promise for rural consumers as small cable operators explore IP- and cloud-based solutions in offering video to subscribers on TVs, PCs and mobile devices. Prior to today's Motorola Mobility announcement, Google has had its own interests in all of these areas, and it will be important that Google's other business interests do not unduly harm the growth of these new competitive market opportunities.

The Free Press's Derek Turner stated in a release that "The current dominance of two companies in the mobile operating system and applications markets already raises concerns about gatekeeper control, and the vertical integration of the Android OS could impact how app developers innovate and reach consumers. On the surface, this deal doesn’t appear to be in the same league as other competition- and job-killing mergers underway in the telecom marketplace. But in order for the potential of mobile broadband to be realized, it’s important to keep markets open and ensure consumers can exercise free choice."

Time Warner Cable to Acquire Insight

8/15. Time Warner Cable (TWC) and Insight Communications announced in a release that "they have entered into a definitive merger agreement under which Time Warner Cable will acquire Insight for $3 billion in cash". See also, identical Insight release, and TWC's Form 8-K filed with the Securities and Exchange Commission (SEC) on August 15.

This release states that Insight serves "approximately 537,000 high-speed data subscribers, 679,000 video subscribers and 297,000 voice subscribers" in the states of Indiana, Ohio and Kentucky.

This transaction is subject to regulatory approvals.

Derek Turner of the Free Press, a Washington DC based interest group that regularly criticizes cable companies, stated in a release that "We are eager to hear from Time Warner Cable exactly how this proposed transaction will benefit consumers, and not just help shareholders looking for a merger to soothe the jitters of a rocky market. Time Warner Cable's broadband network upgrades have not kept pace with some of their peers, and they have a history of trying to squeeze every last penny out of their rate-hike weary customers. In short, they have a long way to go to convince people that this deal is in the public interest."

DHHS Offers Money to Facebook App Developers

8/15. The Department of Health and Human Services (DHHS) published a notice in the Federal Register (FR) that announces an application development contest titled "Lifeline Facebook App Challenge".

This notice states that "Entrants are required to develop an app that enables a Facebook user to invite three Facebook friends to become `Lifelines,' or points of contact who agree to act as a source of support during disasters. Entrants are encouraged to creatively leverage Facebook's existing networking and geo-locating capabilities to enhance the app's ability to increase personal preparedness, locate potential disaster victims, and streamline information sharing among social networks during disasters."

The winner of this contest will receive $10,000. The second place contestant will receive $5,000. The third place contestant will receive $1,000.

The deadline to submit entries is November 4, 2011. (The DHHS stated in its original notice in the FR that the deadline is 11:59 PM on September 15, 2011. It then published a correction notice in the FR that changes the deadline to November 4, 2011.)

The statutory authority for this contest is Section 105 of HR 5116 [LOC | WW] (111th Congress), the "America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science Reauthorization Act of 2010", a huge spending authorization bill enacted late last year. It is now Public Law No. 111-358.

This section merely provides that "Each head of an agency, or the heads of multiple agencies in cooperation, may carry out a program to award prizes competitively to stimulate innovation that has the potential to advance the mission of the respective agency." It makes no references to social networking web sites. It does not require technology or service provider neutrality.

See, original notice in the FR, Vol. 76, No. 154, Wednesday, August 10, 2011, at Pages 49485-49486. See also, correction notice in the FR, Volume 76, No. 157, Monday, August 15, 2011, at Page 50481.

See also, story titled "Obama Signs COMPETES Reauthorization Bill" in TLJ Daily E-Mail Alert No. 2,193, January 5, 2011, and "House and Senate Pass COMPETES Reauthorization Bill" in TLJ Daily E-Mail Alert No. 2,187, December 23, 2010.

FTC Issues Staff Advisory Opinion On CBBB Online Behavioral Advertising Compliance Program

8/15. The Federal Trade Commission (FTC) sent a letter [8 pages in PDF] to Alan Cohen, General Counsel of the Council of Better Business Bureaus (CBBB) that contains a staff advisory opinion regarding the CBBB's accountability program for enforcing compliance with the "Self-Regulatory Principles for Online Behavioral Advertising".

The CBBB sought a staff advisory opinion regarding whether the FTC would bring an enforcement action challenging this online behavioral advertising (OBA) accountability program as an anti-competitive restraint of trade. The FTC letter states that the "FTC staff has no present intention of recommending that the Commission bring any such enforcement action".

A coalition of industry groups, including the CBBB, Interactive Advertising Bureau (IAB), Direct Marketing Association (DMA) and others, released a document [48 pages in PDF] titled "Self-Regulatory Principles for Online Behavioral Advertising" on July 1, 2009.

It followed the FTC's February 12, 2009 release of a report [PDF] titled "Self-Regulatory Principles For Online Behavioral Advertising". See also, story titled "FTC Releases Report on Online Behavioral Advertising" in TLJ Daily E-Mail Alert No. 1,899, February 13, 2009.

The just released FTC letter states that "The proposed CBBB accountability program appears similar to industry self-regulation to establish and seek industry-member compliance with an ethical code. The antitrust laws do not prohibit professional or trade associations from adopting reasonable ethical codes to protect consumers."

"In some instances, however, particular ethical restrictions or compliance mechanisms can unreasonably restrain competition and harm consumers, thereby violating the antitrust laws. Accordingly, we consider the purpose and effects of the proposed accountability program."

The letter continues that "As a general matter, industry self-regulation to provide consumers with more useful information and increased choice promotes consumer welfare with little or no risk of diminishing competition among complying businesses. But industry self-regulatory programs can be designed or misused by competitors to limit competition among them, resulting in increased prices, reduced consumer choice, lesser innovation, and other consumer harms. In addition, industry self-regulatory programs can operate as agreements to exclude non-compliant products or companies from the market. Thus, an agreement among competitors to impose on non-complying companies sanctions that limit their ability to compete effectively would be of concern to antitrust enforcement authorities." (Footnotes omitted.)

This letter then concludes, based upon this analysis, that "the program has little potential for competitive harm", for five reasons.

First, "the accountability program is intended to enhance consumers' understanding and control of OBA".

Second, "the accountability program will impose only relatively minor burdens on companies participating in OBA".

Third, the FTC applies the rule or reason to this program, and "the sanctions for non-compliance with the Principles contemplated under and in conjunction with the accountability program do not appear unreasonable".

Fourth, "the self-regulatory system envisioned by the Principles and the accountability program is broadly applicable across product categories, advertisers, and web site operators. Accordingly, its impacts are not focused on any specific market for goods or services. As a result, the potential for adverse competitive impact in any specific market for goods or services is further attenuated."

Fifth, this accountability program poses little risk of "crowding out" other systems for protecting consumers with respect to OBA.

The FTC's rules, at 16 CFR §§ 1.1-1.4, address advisory opinions generally. Also, on June 23, 2011, the FTC's (FTC) Bureau of Competition (BOC) released a document [10 pages in PDF] that provides information on requesting an advisory opinion involving a competition issue. It is titled "Guidance From the Bureau of Competition on Requesting and Obtaining an Advisory Opinion". See also, story titled "FTC Releases Guidance on Requesting Advisory Opinions on Competition Issues" in TLJ Daily E-Mail Alert No. 2,252, June 30, 2011.

People and Appointments

8/15. Jorge Amigo Castaneda was named Vice Chairman of the International Intellectual Property Institute (IIPI). Bruce Lehman remains the Chairman of the IIPA. Castaneda is a former Director General of the Instituto Mexicano de la Propiedad Industrial (IMPI), or Mexican Institute of Intellectual Property. The IMPI is Mexico's counterpart to the U.S. Patent and Trademark Office (USPTO).

More News

8/15. The U.S. District Court (EDMich) sentenced Jacinda Jones to serve two years in prison and three years of supervised release following her plea of guilty to criminal copyright infringement. The Department of Justice (DOJ) stated in a release that "Jones grossed more than $400,000 between July 2008 and January 2010 by selling more than 7,000 copies of pirated business software at discounted prices" on the web. The DOJ added that "The software had a retail value of more than $2 million and was owned by several companies, including Microsoft, Adobe, Intuit and Symantec".

8/15. The Department of Justice's (DOJ) Antitrust Division charged Nautilus Hyosung Holdings Inc., an automated teller machine (ATM) manufacturer, in the U.S. District Court (DC) with obstruction of justice in connection with submitting false Hart Scott Rodino premerger filings with the DOJ. The DOJ also announced in a release that the defendant "has agreed to plead guilty and pay a $200,000 criminal fine for obstruction of justice. It added that the defendant "is a wholly-owned subsidiary of Korea-based Nautilus Hyosung Inc. (NHI). The false documents were submitted to the government by NHI on behalf of Nautilus Hyosung Holdings in contemplation of the acquisition of Triton Systems of Delaware Inc., a competing manufacturer of ATM systems. The department said that the parties abandoned the proposed acquisition of Triton before the Antitrust Division reached a decision whether to challenge the transaction."

BART Cuts Off Cell Phone Service

8/12. The Bay Area Rapid Transit (BART) in the San Francisco, California area, announced that it cut off electrical power for cellular telephone sites along some of its lines on August 11, 2011.

It explained in an August 12 release that it "temporarily interrupted service at select BART stations" because of planned protests in BART stations.

It elaborated that "Organizers planning to disrupt BART service on August 11, 2011 stated they would use mobile devices to coordinate their disruptive activities and communicate about the location and number of BART Police. A civil disturbance during commute times at busy downtown San Francisco stations could lead to platform overcrowding and unsafe conditions for BART customers, employees and demonstrators."

The BART added that "Cell phone service was not interrupted outside BART stations. In addition, numerous BART Police officers and other BART personnel with radios were present during the planned protest, and train intercoms and white courtesy telephones remained available for customers seeking assistance or reporting suspicious activity."

The BART may or may not have violated one or more state or federal statutory prohibitions.

First, California Penal Code, Section 591, provides that "A person who unlawfully and maliciously takes down, removes, injures, or obstructs any line of telegraph, telephone, or cable television, or any other line used to conduct electricity, or any part thereof, or appurtenances or apparatus connected therewith, or severs any wire thereof, or makes any unauthorized connection with any line, other than a telegraph, telephone, or cable television line, used to conduct electricity, or any part thereof, or appurtenances or apparatus connected therewith, is punishable by imprisonment in the state prison, or by a fine not exceeding five hundred dollars ($500), or imprisonment in the county jail not exceeding one year."

The California courts have upheld the application of this statute for an act as minor as removing a battery from a hand held phone. See, People v. Michael Tafoya, Court of Appeal of California, Fourth District, Division Two, App. Ct. No. E029271, an appeal from the Superior Court of San Bernardino County, Super. Ct. No. MBA008176. See also, story titled "California Upholds Conviction for Removing Battery from Cordless Phone" in TLJ Daily E-Mail Alert No. 267, September 13, 2001.

There are also federal statutes. First, 47 U.S.C. § 333 provides in full that "No person shall willfully or maliciously interfere with or cause interference to any radio communications of any station licensed or authorized by or under this chapter or operated by the United States Government."

Neither Section 333, nor 47 U.S.C. § 153, provide a definition of "interference". The BART may rely on the interpretation that "interference" means only radio frequency jamming, and does not include sabotage or disabling of wireless communications by power shutdown.

In addition, 18 U.S.C. § 1362 provides in part that "Whoever willfully or maliciously injures or destroys any of the works, property, or material of any radio, telegraph, telephone or cable, line, station, or system, or other means of communication, operated or controlled by the United States, or used or intended to be used for military or civil defense functions of the United States, whether constructed or in process of construction, or willfully or maliciously interferes in any way with the working or use of any such line, or system, or willfully or maliciously obstructs, hinders, or delays the transmission of any communication over any such line, or system, or attempts or conspires to do such an act, shall be fined under this title or imprisoned not more than ten years, or both."

The BART may rely on the interpretation that this statute is inapplicable because the disabled cell sites were not operated or controlled by the federal government, or used for military purposes.

FTC Brings and Settles COPPA Action Against Mobile App Developer

8/12. The Federal Trade Commission (FTC) filed a civil complaint [9 pages in PDF] in the U.S. District Court (NDCal) against W3 Innovations LLC and Justin Maples alleging violation of the Children's Online Privacy Protection Act of 1998 (COPPA) and various sections of the FTC Act in connection with their soliciting personal information online from little girls without notice to, or consent from, their parents.

The COPPA, which is codified at 15 U.S.C. §§ 6501-6506, required the FTC to promulgate regulations that "require that the operator of any website or online service that collects personal information from children or the operator of a website or online service that has actual knowledge that it is collecting personal information from a child --- (i) provide notice on the website of what information is collected from children by the operator, how the operator uses such information, and the operator's disclosure practice for such information; and (ii) to obtain verifiable parental consent for the collection, use, or disclosure of personal information from children".

W3 Innovations, which also does business as Broken Thumbs Apps, makes, markets and sells software applications for mobile devices, some of which are directed to female children. In addition, W3 asked girls to post comments to web sites, and in so doing solicited the names and e-mail addresses of girls under 13 without first obtaining parental consent.

The FTC and defendants simultaneously signed a proposed consent decree [15 pages in PDF] that provides for a penalty of $50,000, an injunction against future violation of the COPPA, deletion of personal information, compliance monitoring and reporting requirements, and record keeping requirements.

The defendants admitted no wrongdoing.

The FTC stated in a release that this is its first COPPA case involving mobile applications.

Sen. John Rockefeller (D-WV) stated in a release that "As I have made clear at a number of online privacy hearings held by this Committee, consumers may not realize that their personal information is being collected by third party companies for marketing or profiling purposes".

He continued that "Congress passed COPPA over a decade ago precisely to prohibit the type of information collection practices in which W3 was engaged. The FTC's enforcement action sets a legal precedent that mobile applications targeting children must abide by the protections established by the law."

He added that "while I am pleased with the FTC’s recent action, I also believe it is crucial that the FTC completes its revision of the COPPA Rule to account for changing technology and give consumers the regulatory protections they need for the future."

This case is FTC v. W3 Innovations LLC and Justin Maples, U.S. District Court of the Northern District of California, San Jose Division, D.C. No. 11cv-03958-PSG.

OUSTR Seeks Comments for Report on Foreign Trade Barriers

8/12. The Office of the U.S. Trade Representative (OUSTR) published a notice in the Federal Register (FR) requesting comments to assist it in preparing its annual report titled "National Trade Estimate Report on Foreign Trade Barriers".

The OUSTR seeks comments, by October 4, 2011, regarding "significant barriers to U.S. exports of goods, services, and U.S. foreign direct investment", including lack of intellectual property protection, technology transfer requirements, limitations on cross-national data flows, and e-commerce restrictions.

This notice requests comments on "Lack of intellectual property protection (e.g., inadequate patent, copyright, and trademark regimes)". (Parentheses in original.)

It also requests comments regarding "Investment barriers (e.g., limitations on foreign equity participation and on access to foreign government-funded R&D consortia, local content, technology transfer and export performance requirements, and restrictions on repatriation of earnings, capital, fees, and royalties." (Parentheses in original.)

It also seeks comments on "Services barriers", including "regulation of international data flows, restrictions on the use of data processing, quotas on imports of foreign films", and on "Trade restrictions affecting electronic commerce".

See, FR, Vol. 76, No. 156, Friday, August 12, 2011, at Pages 50287-50289.

The OUSTR released its 2011 report [391 pages in PDF] on March 30, 2011. See, stories titled "OUSTR Release Annual Report of Foreign Barriers to Trade" and "OUSTR Reports on PRC's Rare Earths Export Restraints" in TLJ Daily E-Mail Alert No. 2,216, April 4, 2011.

OUSTR to Hold Hearing on PRC Compliance with WTO Commitments

8/12. The Office of the U.S. Trade Representative (OUSTR) published a notice in the Federal Register (FR) that announces a hearing, and requests public comments, to assist it in preparing its annual report to the Congress on the People's Republic of China's (PRC) compliance with the commitments made in connection with its accession to the World Trade Organization (WTO).

The OUSTR seeks comments on "intellectual property rights (including intellectual property rights enforcement)", "standards and technical regulations", and "trade-related investment measures", among other topics.

The hearing will be held in Room 1, 1724 F Street, NW, on October 5, 2011.

The deadline to submit notifications of intent to testify, and prepared testimony, is 12:00 NOON on September 21, 2011.

The deadline to submit comments is 12:00 NOON on September 26, 2011.

 See, FR, Vol. 76, No. 156, Friday, August 12, 2011, at Pages 50286-50287.

Court Holds that Importing Cell Phone Intercept Devices That Do Not Work Is Not a Crime

8/12. The U.S. Court of Appeals (2ndCir) issued its opinion [28 pages in PDF] in USA v. Robert Simels, a criminal case in which the Court of Appeals held that importing and possessing electronic surveillance devices, such as equipment for intercepting cell phone conversations, does not violate 18 U.S.C. § 2512(1)(a)&(b) if the equipment is "inoperable" in the US.

Simels, a criminal defense attorney, was charged and convicted of numerous counts of conspiracy to obstruct justice, attempted obstruction of justice, and bribery in connection with his plans to bribe and intimidate trial witnesses against his client. His client was a citizen of Guyana who was accused of being the leader of a criminal enterprise that imported large amounts of cocaine into the US. The client subsequently pled guilty.

This article focuses on just two counts -- importing and possessing electronic surveillance devices. The devices were laptops and other equipment used for intercepting cell phone communications. Simels imported them into the US from Guyana in connection with his defense of his client.

The equipment was capable of intercepting analog phone conversations in Guyana before digital service replaced analog. The devices were not capable of intercepting cell phone conversations in the US. Simels asserted that he imported them in connection with presenting evidence of conversations intercepted in Guyana.

Nevertheless, Simels was charged and convicted under Section 2512, which provides, in relevant part, as follows:

The Court of Appeals affirmed the judgment of the District Court in all things except the Section 2512 counts.

"The issue is whether importation and possession of an inoperable device violates section 2512." The Court of Appeals concluded that, "with respect to electronic devices, Congress covered only those ``which can be used´´ to intercept communications and added, as a mens rea requirement, that the device be known to have been designed for the purpose of surreptitious interception."

This case is USA v. Robert Simels, U.S. Court of Appeals for the 2nd Circuit, App. Ct. No. 09-5117-cr, an appeal from the U.S. District Court for the Eastern District of New York, Judge Gleeson presiding. Judge Jon Newman wrote the opinion of the Court of Appeals, in which Judges Calabresi and Hall joined.

President Issues Another Routine Emergency Declaration to Continue Export Regulation Regime

8/12. President Obama signed and released another notice -- the eleventh in a series of notices -- titled "Continuation of Emergency Regarding Export Control Regulations".

President Obama, and before him, President Bush, have routinely issued an emergency notice every year at about this time that maintains in effect the export regulation regime.

The "Export Administration Act" expired in 2001. Some members of the House and Senate worked on enacting replacement legislation in 2001 and 2002. However, no replacement bill was enacted, and there has been little legislative activity since on this subject.

Meanwhile, the Department of Commerce's (DOC) Bureau of Industry and Security (BIS), which was formerly named the Bureau of Export Administration (BXA), continues to revise and enforce implementing regulations for dual use items, which include many information and communications technology products. These regulations pertain to, among other things, exports and "deemed exports" of computers, software, and encryption products. These regulations also regulate employment in some situations.

The export control regime is outdated, complex, burdensome, and harms the competitiveness of some US companies. Moreover, the Obama administration is working towards reforming the system, administratively rather than legislatively. See, story titled "Obama Addresses Export Control Reform Process" in TLJ Daily E-Mail Alert No. 2,185, December 21, 2011.

The just released notice states in full that "On August 17, 2001, consistent with the authority provided to the President under the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.), the President issued Executive Order 13222. In that order, he declared a national emergency with respect to the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States in light of the expiration of the Export Administration Act of 1979, as amended (50 U.S.C. App. 2401 et seq.). Because the Export Administration Act has not been renewed by the Congress, the national emergency declared on August 17, 2001, must continue in effect beyond August 17, 2011. Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency declared in Executive Order 13222. This notice shall be published in the Federal Register and transmitted to the Congress."

More News

8/12. The Government Accountability Office (GAO) released a report titled "Information Security: Federal Deposit Insurance Corporation Has Made Progress, but Further Actions Are Needed to Protect Financial Data".

11th Circuit Affirms Conviction of Keylogging Grade Changer

8/11. The U.S. Court of Appeals (11thCir) issued its opinion [53 pages in PDF] in USA v. Marcus Barrington, affirming a conviction and sentence for unauthorized access to a protected computer system (18 U.S.C. § 1030), aggravated identity theft (18 U.S.C. § 1028A), and conspiracy (18 U.S.C. § 371) to commit wire fraud (18 U.S.C. § 1343).

Barrington and his codefendants, Christopher Jacquette and Lawrence Secrease, were students at Florida A&M University (FAMU), which maintains an internet based grading systems. They installed keylogger programs on computers used by FAMU Registrar personnel.

For example, conspirators went to the Registrar's Office where some distracted employees while others installed keylogger programs using flash drive devices.

These keylogger programs covertly recorded the keystrokes made by Registrar employees as they signed onto their computers, including their usernames and passwords, and automatically sent this data to e-mail accounts, including Barrington's.

The defendants then used internet connected computers, and these usernames and passwords, to access the FAMU computers. The made over 650 unauthorized grade changes at least 90 students. They also made residency changes, thereby depriving FAMU of $137,000 in out of state tuition.

The Court of Appeals affirmed Barrington's conviction and 84 month sentence.

This case is USA v. Marcus Barrington, U.S. Court of Appeals for the 11th Circuit, App. Ct. No. 09-15295, an appeal from the U.S. District Court for the Northern District of Florida, D.C. No. 08-00050-CR-4-SPM-WCS. Judge James Whittemore (USDC/MDFl, sitting by designation) wrote the opinion of the Court of Appeals, in which Judges Hull and Marcus joined.

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8/11. Grant Sieffert, head of the Telecommunications Industry Association (TIA), sent a letter to the Federal Communications Commission (FCC) regarding its review of the merger of AT&T and T-Mobile USA. Seiffert wrote that "Expanded broadband deployment, more efficient use of scarce wireless spectrum, and enhanced investment in the information and communications technology (``ICT´´) sector are of critical importance to the nation’s future, and should be given substantial weight in the Commission’s review of the transaction."

8/11. The Federal Communications Commission (FCC) filed its brief [139 pages in PDF] with the U.S. Court of Appeals (DCCir) in Rural Cellular Association v. FCC, a petition for review of the FCC's order [18 pages in PDF] amending FCC rules to reclaim high cost universal service support surrendered by a competitive eligible telecommunications carrier (ETC) when it relinquishes ETC status in a particular state. The FCC adopted and released this order on December 30, 2010. This order is FCC 10-205 in WC Docket No. 05-337 and CC Docket No. 96-45. See also, story titled "FCC Releases High Cost USF Order" in TLJ Daily E-Mail Alert No. 2,191, January 3, 2011. This case is Rural Cellular Association and Universal Service for America Coalition v. FCC and USA, U.S. Court of Appeals for the District of Columbia, App. Ct. No. 11-1094.

8/11. The U.S. Court of Appeals (1stCir) issued its opinion in Contour Design v. Chance Mold Steel Company, a trade secrets case involving computer mice. The Court of Appeals affirmed the District Court's grant of Contour Design motion for a preliminary injunction. This case is Contour Design Inc. v. Chance Mold Steel Company Ltd. and EKTouch Company Ltd., U.S. Court of Appeals for the 1st Circuit, App. Ct. No. 10-2415, an appeal from the U.S. District Court for the District of New Hampshire, Judge Joseph Laplante presiding. Judge Boudin wrote the opinion of the Court of Appeals, in which Judges Lynch and Howard joined.

8/11. The National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) released its draft SP 800-38 F [31 pages in PDF] titled "Recommendation for Block Cipher Modes of Operation: Methods for Key Wrapping". The deadline to submit comments is October 1, 2011.

8/11. AT&T announced in a release that it is "investing in a new mobile security platform" that "will allow customers to better protect their devices against security threats." AT&T elaborated that it "has executed an agreement with Juniper Networks to deliver this security capability and additional services based on the platform in the future."

Go to News from August 6-10, 2011.