TLJ News from November 1-5, 2011

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11/4. The U.S. District Court (SDCal) sentenced Phillip Andro Jamison to serve 30 months in prison following his plea of guilty to one count of export of defense articles without a license. The U.S. Attorneys Office for the Southern District of California stated in a release that Jamison, who previously served in the U.S. Navy, stole things from the armory of the Naval Amphibious Base Coronado, and then sold them on the eBay auction web site. This included night vision equipment, which he exported to the People's Republic of China (PRC), without an export license from the Department of State (DOS). This case is U.S. v. Jamison, U.S. District Court (SDCal), D.C. No. 10CR3618-H.

ODNI Releases Report on Cyber Espionage

11/3. The Office of the Director of National Intelligence (DNI) released a report [31 pages in PDF] titled "Foreign Spies Stealing US Economic Secrets in Cyberspace: Report to Congress on Foreign Economic Collection and Industrial Espionage, 2009-2011".

It finds that "Chinese actors are the world's most active and persistent perpetrators of economic espionage." It adds that "Russia's intelligence services are conducting a range of activities to collect economic information and technology from US targets."

Rep. Mike Rogers (R-MI), the Chairman of the House Intelligence Committee (HIC), stated in a release that "This report confirms what I have heard time and time again: the Chinese remain the most aggressive and persistent perpetrators of economic and industrial espionage against the United States. Their continued theft of sensitive economic information is a threat to our national security, hurts American businesses and workers, and causes incalculable harm to global economy. This once again underscores the need for America's allies across Asia and Europe to join forces to pressure Beijing to end this illegal behavior."

This DNI report also finds that "the greatest interest" is in "Information and communications technology", "Business information that pertains to supplies of scarce natural resources or that provides foreign actors an edge in negotiations with US businesses or the US Government", and "Military technologies".

This report also warns that "political or social activists may use the tools of economic espionage against US companies, agencies, or other entities, with disgruntled insiders leaking information about corporate trade secrets or critical US technology to ``hacktivist´´ groups like WikiLeaks".

This report explains that "Foreign collectors of sensitive economic information are able to operate in cyberspace with relatively little risk of detection by their private sector targets. The proliferation of malicious software, prevalence of cyber tool sharing, use of hackers as proxies, and routing of operations through third countries make it difficult to attribute responsibility for computer network intrusions."

Also, "the proliferation of portable devices that connect to the Internet and other networks will continue to create new opportunities for malicious actors to conduct espionage. The trend in both commercial and government organizations toward the pooling of information processing and storage will present even greater challenges to preserving the security and integrity of sensitive information."

Senate Judiciary Committee Approves Bill to Undo Leegin RPM Decision

11/3. Senate Judiciary Committee (SJC) approved S 75 [ LOC | WW], the "Discount Pricing Consumer Protection Act", a bill to undo the Supreme Court's 2007 opinion in Leegin Creative Leather Products v. PSKS, regarding resale price maintenance (RPM).

Sen. Herb Kohl (D-WI) introduced this bill on January 25, 2011. There are eight cosponsors -- all Democrats.

This bill states that its purpose is to "correct the Supreme Court's mistaken interpretation of the Sherman Act in the Leegin decision".

It would add one sentence to the end of Section 1 of the Sherman Act: "Any contract, combination, conspiracy or agreement setting a minimum price below which a product or service cannot be sold by a retailer, wholesaler, or distributor shall violate this Act."

Leegin and RPM. RPM exists when a manufacturer agrees with its distributor(s) to set the minimum price that the distributor(s) can charge for the manufacturer's goods. RPM is employed in the tech sector for consumer electronic devices and other products.

The relevant statute, Section 1 of the Sherman Act, which is codified at 15 U.S.C. § 1, provides little guidance. It merely states that "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." Section 1 also contains a criminal prohibition. The rest of the law exists in judicial interpretation and agency enforcement.

Prior to 2007, RPM was subject to the antitrust per se rule, rather than the lighter rule of reason standard. Then the Supreme Court held in Leegin that all vertical price restrains are to be judged by the rule of reason, and that the Supreme Court's 1911 opinion in Dr. Miles Medical Co. v. John D. Park & Sons Co., which is reported at 220 U.S. 373, is overturned.

See also, story titled "SCUS Holds That All Vertical Price Restraints Are Subject to Rule of Reason" in TLJ Daily E-Mail Alert No. 1,603, June 28, 2007.

The Leegin opinion changed the law for vertical RPM. Under the lighter rule of reason standard, plaintiffs must show actual or potential harm to competition. After Leegin, horizontal agreements among competitors to fix prices remain per se violations of the Sherman Act. Group boycotts, and horizontal market division are other examples of per se violations.

Arguments For and Against the Bill. Senators briefly debated this bill. Sen. Patrick Leahy (D-VT), the Chairman of the SJC, stated at the meeting that the Leegin opinion is "harmful to consumers".

Sen. Kohl, the Chairman of the Subcommittee on Antitrust, Competition and Consumer Rights, referenced the importance of discount pricing of electronics. He also said that the Supreme Court "incorrectly interpreted the Sherman Act". He argued that minimum retail pricing "threatens the very existence of discounting and discount stores".

Sen. Mike Lee (R-UT), the ranking Republican on the Subcommittee, spoke in opposition to the bill. He referenced economic analysis in support of applying the rule of reason to RPM, and added that rule of reason analysis does not sanction anticompetitive behavior.

The rationale for not having a per se rule against RPM was not discussed. However, for electronic and IT devices, it is this. Manufacturers of these devices sometimes offer products that include numerous new and complicated features and services. But, many consumers do not know what the features are, or how to use them. In order to promote adoption of new technologies, and sales of their products, manufacturers have an interest in distributors disseminating information about the new devices through advertising, in store demonstrations, training of employees, and customer support. But, these services impose costs on the distributors who provide them. This can create a free riding situation, when some distributors go to the trouble to provide such information and support, but others do not. The presence of free riders, offering the products at lower prices, disincents other distributors from educating consumers. This, in turn, disincents manufacturers from offering complex devices that require consumer education. And this inhibits innovation in the IT sector, and the benefits that flow to consumers from such innovation.

The SJC approved the bill by voice vote. Sen. Leahy noted that Sen. Lee voted no. In addition, Sen. Orrin Hatch (R-UT) and Sen. Jon Kyl (R-AZ) asked to be recorded as no votes.

Legislative History. There were similar bills in the 110th and 111th Congress. There is support for these bills among Democrats who sit on the Judiciary Committees. However, none of these bills have been approved by the full House or Senate.

In the 111th Congress, see HR 3190 [LOC | WW], the "Discount Pricing Consumer Protection Act". It was approved by the House Judiciary Committee (HJC), but not by the full House. See also, story titled "House Judiciary Committee to Mark Up Bill to Undo Leegin" in TLJ Daily E-Mail Alert No. 2,020, December 3, 2009.

See also, S 148 [LOC | WW], also titled the "Discount Pricing Consumer Protection Act". It was approved by the Senate Judiciary Committee (SJC), but not by the full Senate. See, story titled "Senate Judiciary Committee Approves Antitrust Bill to Undo Leegin" in TLJ Daily E-Mail Alert No. 2,060, March 20, 2010.

In the 110th, see S 2261, also titled the "Discount Pricing Consumer Protection Act". Neither the SJC nor the full Senate took any action on that bill.

People and Appointments

11/3. President Obama nominated Alan Krueger to be a member of the Executive Office of the President's (EOP) Council of Economic Advisors. See, Congressional Record, November 3, at Page S7144.

11/3. The Senate Judiciary Committee (SJC) approved four judicial nominations in one unanimous voice vote: Stephanie Thacker (to be a Judge of the U.S. Court of Appeals for the 4th Circuit), Michael Fitzgerald (U.S. District Court for the Central District of California), Ronnie Abrams (U.S. District Court for the Southern District of New York), and Rudolph Contreras (U.S. District Court for the District of Columbia). The SJC also approved the nomination of Miranda Du to be a Judge of the U.S. District Judge for the District of Nevada on a straight party line vote of 10-8. Republicans voted against.

11/3. The Senate confirmed Scott Skavdahl to be a Judge of the U.S. District Court for the District of Wyoming by a vote of 96-0. See, Roll Call No. 197.

11/3. The Senate confirmed Richard Andrews to be a Judge of the U.S. District Court for the District of Delaware.

11/3. President Obama nominated Kristine Baker to be a Judge of the U.S. District Court for the Eastern District of Arkansas. See, White House news office release.

More News

11/3. John Kenneth Calderon Basto pled guilty in the U.S. District Court (WDOkla) to distribution of child pornography (CP). CP related crime is most frequently prosecuted category of technology related federal crime. Most prosecutions are based upon the defendants' use of computing devices to view internet based CP. A much smaller proportion involve production of CP for distribution via the internet. The Basto case has an atypical origin. The Federal Bureau of Investigation (FBI) explained in a release that Basto, who lived in California, and a ten year old boy in Oklahoma played the video game Call of Duty: Modern Warfare 2 on their Xbox LIVE gaming stations. The Xbox LIVE enables simultaneous voice communication. The FBI stated that "Basto and the boy talked online, and he eventually invited the boy into a private chat room, where they exchanged cell phone numbers. Through phone calls and text messages, Basto asked the boy for pictures", who complied, in exchange for cheat codes.

11/3. Agents of the Federal Bureau of Investigation (FBI) arrested Glendon Swift for making voicemail threats of violence to Rep. Eric Cantor (R-VA) and his family. See, FBI release.

People and Appointments

11/2. The Department of Homeland Security (DHS) published a notice in the Federal Register (FR) in which it announced the renewal of the charter of its Homeland Security Information Network Advisory Committee, and requested that persons interested in becoming members submit applications to the DHS. The deadline is November 18, 2011. See, FR, Vol. 76, No. 212, Wednesday, November 2, 2011, at Pages 67750-67751.

11/2. President Obama nominated Andrew Hurwitz to be a Judge of the U.S. Court of Appeals for the 9th Circuit. See, White House news office release and release. He has been a Justice of the Supreme Court of Arizona since 2003.

Obama Nominates Pai and Rosenworcel to Be FCC Commissioners

11/1. President Obama nominated Ajit Pai and Jessica Rosenworcel to be members of the Federal Communications Commission (FCC). See, White House news office release. The President announced his intent to nominate Pai and Rosenworcel on October 31. See, release and release.

Pai is nominated for a term of five years from July 1, 2011. This is the Republican position previously held by Meredith Baker.

Rosenworcel is nominated for a term of five years from July 1, 2010. This is the Democratic position held by Michael Copps.

Pai is a partner in the Washington DC office of the law firm of Jenner & Block. He previously worked in the FCC's Office of General Counsel, which handles antitrust merger reviews, at the Department of Justice's (DOJ) Antitrust Division's Telecommunications Task Force, and for the Senate Judiciary Committee (SJC). He has also worked for Verizon Communications.

Jessicaa RosenworcelRosenworcel (at right) has been Democratic communications counsel to the Senate Commerce Committee (SCC) since 2007. Before that she was a legal advisor to FCC Commissioner Michael Copps. Before that she held other positions at the FCC. And before that, she worked in the Washington DC office of the law firm of Drinker Biddle & Reath.

Sen. Charles Grassley (R-IA) announced in a statement in the Congressional Record that he will place holds on both nominations. Sen. Grassley has a history of placing holds on nominees for reasons unrelated to the nominees' qualifications for holding office.

Sen. Grassley wrote that "I will object to proceeding to the nomination because the FCC continues to stonewall a document request I submitted to the FCC over six months ago on April 27, 2011, regarding their actions related to LightSquared and Harbinger Capital. Since then, I have repeated my request to the FCC through letters I sent on July 5th and September 8th and the FCC continues to deny my request for documents."

He continued that "During the course of my correspondence with the FCC, the FCC has made it clear that it will not voluntarily turn over documents to the 99.6 percent of the Members of Congress and Senators who do not chair a committee with direct jurisdiction over the FCC. As I said in my September 8, 2011, letter, their actions are misguided and unsupportable."

"It not only sets a dangerous precedent for a federal agency to unilaterally set the rules on how it engages with Congress -- it also prevents any meaningful ability for the vast majority of Congress to inform themselves of how an agency works", wrote Sen. Grassley.

Sen. John Rockefeller (D-WV), Chairman of the Senate Commerce Committee (SCC), Rosenworcel's boss, praised her in a release. He said that she "will be an effective advocate by working to close the digital divide and bring expanded access". Michael Copps, her former boss, praised both Rosenworcel and Pai in a statement.

Julius Genachowski, Chairman of the FCC, said that the two are "outstanding choices". See, statement. See also, praise from FCC Commissioner Robert McDowell and praise from FCC Commissioner Mignon Clyburn.

Gary Shapiro, head of the Consumer Electronics Association (CEA), stated in a release that the two nominees "have a deep understanding of technology issues and will be valuable assets to the Commission, the industry and the public". Gordon Smith, head of the National Association of Broadcasters (NAB), stated in a release that they are "two talented individuals with a commitment to public service".

Michael Powell, head of the National Cable & Telecommunications Association (NCTA), stated in a release that they "share extensive telecommunications policy experience, a deep understanding of the agency that is informed by their prior service, and a profound appreciation for the continuing investment needed to promote innovation and sustain today’s dynamic and competitive telecommunications marketplace."

Walter McCormick, head of the US Telecom, stated in a release that "Their breadth of knowledge of the evolving communications industry, its legal challenges and rapid technological changes will help inform the already seasoned leadership at the commission."

Berin Szoka, head of the Tech Freedom, stated in a release that his group looks forward to working with the two "to ensure that FCC regulations serve consumers by advancing competition and innovation while respecting free speech rights".

Go to News from October 26-31, 2011.