TLJ News from November 16-20, 2011

People and Appointments

11/18. The Senate confirmed Claude Steele to be a member of the National Science Foundation's (NSF) National Science Board for a term expiring on May 10, 2014. See, Congressional Record, November 18, 2011, at Page S7876. He is Dean of the School of Education at Stanford University. He background is in psychology.

11/18. The Senate confirmed Anneila Sargent to be a member of the National Science Foundation's (NSF) National Science Board for a term expiring on May 10, 2016. See, Congressional Record, November 18, 2011, at Page S7876. She works in the administration of California Institute of Technology. Her background is in astronomy.

11/18. The Senate Commerce Committee (SCC) scheduled one confirmation hearing on November 30, 2011, for the two pending nominees for the Federal Communications Commission (FCC) -- Jessica Rosenworcel and Ajit Pai. See, notice.

House Intelligence Committee Launches Investigation of Huawei

11/17. Rep. Mike Rogers (R-MI) and Rep. Dutch Ruppersberger (D-MD), the Chairman and ranking Democrat on the House Intelligence Committee (HIC), announced that the HIC "has launched an investigation into the threat posed by Chinese-owned telecommunications companies working in the United States, and the government's response to that threat".

Rep. Rogers stated in a release that Huawei "happens to be the 800 pound gorilla in the room, but there are other companies that will be included in the investigation as well". He added that "I stand by my caution to the American business community about engaging Huawei technology until we can fully determine their motives".

Dutch RuppersbergerRep. Ruppersberger (at right) stated in this release that "We already know the Chinese are aggressively hacking into our nation’s networks, threatening our critical infrastructure and stealing secrets worth millions of dollars in intellectual property from American companies. This jeopardizes our national security and hurts U.S. competitiveness in the world market, costing our country countless jobs. The same way hacking can be a threat, vulnerabilities can derive from compromised hardware on which our telecommunications industry rely."

He added that "The purpose of this investigation is to determine to what extent Chinese communications companies are exploiting the global supply chain and how we can mitigate this threat to our national and economic security".

The release of Rep. Rogers and Rep. Ruppersberger also identifies ZTE as a threat.

Pozen Addresses Antitrust Law

11/17. Sharis Pozen, acting Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division, gave a speech in Washington DC.

Sharis PozenPozen (at right) said that she is working to make the transition of leadership to her from former AAG Christine Varney "seemless". She did not announce changes in antitrust policy. She reviewed in broad strokes the activities and cases of the Antitrust Division in the past year, and discussed implementation of the revised Horizontal Merger Review Guidelines released by the DOJ and Federal Trade Commission (FTC) one year ago. See, story titled "DOJ and FTC Release Revised Horizontal Merger Guidelines" in TLJ Daily E-Mail Alert No. 2,127, August 20, 2010.

She stated that in merger review matters "in which the parties did not propose remedies that would effectively preserve competition, the division went to court to block the transaction." She added that one example is "our ongoing suit to block AT&T’s proposed acquisition of T-Mobile".

She also stated that the Antitrust Division "has been active internationally, particularly with respect to enhancing case cooperation across jurisdictions; developing new and deeper relationships with emerging economies such as China and India".

She added to this that "agency cooperation in matters being investigated by more than one jurisdiction produces the benefits of shared learning and expertise, and the parties gain from a more efficient review. Unfortunately, not all merging parties have supported our cooperative approach and instead have attempted to leverage one country’s investigation against another's. That is their choice, but these tactics often unnecessarily complicate our investigations and may extend our reviews."

CECC Holds Hearing on Internet Censorship in the PRC

11/17. The Congressional Executive Commission on China (CECC) held a hearing titled "China's Censorship of the Internet and Social Media: The Human Toll and Trade Impact". The hearing addressed the use of internet censorship to restrict individual freedom in the People's Republic of China (PRC), and to protect PRC internet companies from outside competition.

Rep. Chris Smith (R-NJ), Co-Chairman of the CECC, stated that China has strengthened its control over the internet. He stated that "China's internet restrictions and controls not only hurts its citizens, but also hurts countries seeking to better China through international trade".

"China has not only failed to comply with its WTO commitments, it has exploited our expectations to create an unlevel playing field hurting the competitiveness of U.S. businesses and workers alike."

Rep. Smith said that "the promise of information technology cannot be achieved when it is used by repressive governments to find, capture, convict, and so often, torture ordinary citizens for voicing concerns publicly".

"Information technology cannot be advanced when it involves the systematic exclusion of commercial competitors in rampant disregard for transparency and intellectual property. China is one of the most repressive and restrictive countries when it comes to the control of the internet and the impact goes far beyond the commercial losses to U.S. companies that want to participate in that market."

He also pointed out that "sometimes it is U.S. companies" that provide the technology of repression. "Cisco has so enabled the secret police to track down people".

Sen. Sherrod Brown (D-OH), the other Co-Chairman, stated the purpose of the hearing is "to shed light on the darkness of China's repressive internet and social media censorship", which is also "unfair to U.S. trade interests, especially for U.S. tech companies".

He also noted that China blocks access to too many websites website of the CECC. "China's internet control forces private companies, including US. companies, to censor the internet on vague and arbitrary standards".

"This policy benefits Chinese domestic companies at the expense of companies like Facebook, Twitter and YouTube.

U.S. companies are "forced to be an arm of the Chinese government". He added that Facebook and Twitter are blocked, while Chinese companies that provide copycat versions and are beholden to the Chinese government, raise money on U.S. capital markets.

Ed Black, head of the Computer & Communications Industry Association (CCIA), wrote in his prepared testimony that "In addition to doing great injury to human rights, actions to restrict the free flow of information online also have serious economic repercussions."

"The Chinese government censors, blocks, and discriminates against foreign-based web services and content, practices which directly or indirectly advantage domestic firms. It has repeatedly blocked sites and services, including Facebook, Flickr, Foursquare, Google and Twitter", said Black. "China has singled out U.S. companies for censorship even when Chinese-owned services carry the same, banned content".

"This double standard strongly suggests that the motivation here is protectionism rather than morals." He added that "Since China gets full access to United States markets in sectors where it has a competitive advantage, such as low-cost manufacturing, it is disconcerting that the United States Government has not done more to ensure that America’s Internet companies get the same liberalized access to the Chinese market".

"Internet censorship is part of a continuing pattern of the Chinese government using trade and regulatory policies that seek to either restrict access to Chinese markets or force foreign companies to acquiesce to Chinese government demands as the price of access. China’s behavior signifies its belief that access to its markets is a coin that enables them to buy their way out of playing by the global trading system rules. From its “Indigenous Innovation” policies to its export quotas for rare earth elements, China has consistently shown a willingness to flaunt international trade rules until confronted by multiple trading partners."

He also criticized two pending bills, S 968 [LOC | WW], the "Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011 ", and HR 3261 [LOC | WW], the "Stop Online Piracy Act". He stated that they "share some disturbing similarities with China's approach to centralized Internet control".

He argued that these bills have "vague standards for liability and ask private companies and Internet intermediaries to police and censor their users. When coupled with blanket immunity provisions for actions taken while attempting to comply with the legislation, this bill would encourage overbroad filtering that will remove both legal and illegal content. Although the purported goal of fighting intellectual property infringement is completely different from Chinese authoritarianism, legitimizing censorship and prior restraints on speech and enforcing it through a draconian system of DNS filtering allows China to point to our own actions to justify theirs and makes the job of our diplomats much harder."

Alex Li, a student in the U.S., testified about his father's imprisonment in the PRC for political speech.

John Zhang, a Christian pastor in the U.S. who was imprisoned in the PRC following the 1989 Tiananmen Square protests, criticized Cisco Systems for its facilitation of surveillance and censorship in the PRC.

Harry Wu, Xiao Qiang (UC Berkeley) and Gil Kaplan (a trade lawyer at King & Spalding) also testified.

People and Appointments

11/17. Federal Communications Commission (FCC) Chairman Julius Genachowski named Greg Guice Director of the FCC's Office of Legislative Affairs (OLA) and Christopher Lewis Deputy Director of the OLA. See, release.

11/17. The Senate Judiciary Committee (SJC) held an executive business meeting at which it held over the nominations of Jacqueline Nguyen (to be a Judge of the U.S. Court of Appeals for the 9th Circuit), Gregg Costa (U.S. District Court for the Southern District of Texas), and David Guaderrama (USDC, Western District of Texas). All three nominations are again on the agenda for the SJC executive business meeting of December 1, 2011. Nguyen has been a California state trial court judge since 2002. Before that, she worked in the U.S. Attorneys Office. See, White House news office release and release.

11/17. President Obama nominated Gershwin Drain to be a Judge of the U.S. District Court for the Eastern District of Michigan. See, White House news office release and release. He is a longtime state court judge in Michigan.

More News

11/17. Fu-Tain Lu pled guilty in the U.S. District Court (NDCal) to violation of federal export control regulations in connection with his export of microwave amplifiers to a company located in the People's Republic of China (PRC) without obtaining a license or license exemption from the Department of Commerce (DOC). The U.S. Attorneys Office for the Northern District of California stated in a release that Lu was the owner and founder of Fushine Technology, Inc., and that he acquired the equipment at issue from Miteq Components. Microwave amplifiers have applications in both commercial and military satellite communications. Lu was charged by indictment in 2009. See, Department of Homeland Security (DHS) release. This case is U.S. v. Fu-Tain Lu, U.S. District Court for the Northern District of California, D.C. No. CR 09-0341 RMW.

Sen. Rockefeller Announces Intent to Hold Hearing on Facebook and User Tracking

11/16. Sen. John Rockefeller (D-WV), Chairman of the Senate Commerce Committee (SCC), stated in a release that he intends to hold a hearing on online tracking. He wrote in response to a USA Today story on November 15, 2011, by Byron Acohido, titled "How Facebook tracks you across the Web".

That story states that "Facebook officials are now acknowledging that the social media giant has been able to create a running log of the web pages that each of its 800 million or so members has visited during the previous 90 days. Facebook also keeps close track of where millions more non-members of the social network go on the Web, after they visit a Facebook web page for any reason."

Sen. Rockefeller stated that "The USA Today story is disturbing. No company should track customers without their knowledge or consent, especially a company with 800 million users and a trove of unique personal data on its users."

Sen. John RockefellerSen. Rockefeller (at left) continued that "If Facebook or any other company is falsely leading people to believe that they can log out of the site and not be tracked, that is alarming. I take a hard line on protecting consumer privacy and intend to have a hearing on this subject where we will invite Facebook and others to explain how they are using personal information."

On November 10, Rep. Joe Barton (R-TX) and Rep. Ed Markey (D-MA) sent letter to Facebook in which they inquired about Facebook's patent application filed on February 8, 2011 for a method of "tracking information about activities of users of social networking system while on another domain".

They asked Facebook to explain "why it applied for this patent". They also asked "Is it the intention of Facebook to track users on other websites regardless of login status?" and "What actions is Facebook currently taking to ensure that its users are not tracked when the visit other websites?".

The two asked for answers by December 1, 2011.

Rep. Ed MarkeyRep. Markey (at right) also stated in a release that "Tracking users' online behavior without their permission is wrong".

Also, on October 28, 2011, Rep. Barton, Rep. Markey, Rep. Carolyn Maloney (D-NY) and Rep. Marsha Blackburn (R-TN) sent a letter to Facebook in which they expressed their concern about Facebook's "consumer data collection and storage practices". They also propounded numerous interrogatories, and requested answers by November 21, 2011.

US China Commission Releases Annual Report

11/16. The U.S. China Economic and Security Review Commission released its 2011 annual report [414 pages in PDF] to the Congress.

This report finds that the People's Republic of China (PRC) fails to live up to its World Trade Organization (WTO) commitments to protect intellectual property, and that its set of policies named "indigenous innovation" continues to seek to force U.S. companies to transfer technology to PRC firms despite President Hu Jintao's assurances earlier this year to the contrary.

The report also finds that the PRC government has expanded restrictions on internet freedom, and supported network exploitations to facilitate industrial espionage.

Indigenous Innovation and IP Rights. William Reinsch, Chairman of the Commission, stated at an event for the release of this report that "China has yet to create a system that effectively protects intellectual property; something that is required of all WTO members. But U.S. business software companies still report that China is the world's largest source of pirated software. About 8 of 10 computers in China still run counterfeit operating system software."

William ReinschReinsch (at left) continued that "Even more disturbing, China has stepped backward from its original promise to lower trade barriers and to treat foreign products and services fairly. In 2009, China began adopting a series of policies to ban foreign goods and services from government procurement contracts. These policies, known as ``indigenous innovation,´´ are intended to discriminate against foreign goods and services and to substitute domestic goods, apparently as a device to force the transfer of technology to Chinese firms. These policies, along with China’s failure to provide adequate IP protection, strike at the heart of America’s greatest economic strength -- its ability to innovate."

"In addition", said Reinsch, "the Chinese government in the past several years has returned to relying on a system of state ownership and control of major sectors of its economy. The government directs a vast array of subsidies to favored industries and seeks to nurture particular technologies behind protective barriers. This is contrary to the spirit, and in many cases the letter, of China's WTO commitments."

This report addresses the status PRC indigenous innovation and intellectual property policies in detail. It states that "China's indigenous innovation plans that limit government procurement to Chinese companies and China's continuing lack of enforcement of intellectual property rights are both problematic. In addition, China maintains policies of forced technology transfer in violation of international trade agreements and requires the creation of joint venture companies as a condition of obtaining access to the Chinese market."

"While the publication of national indigenous innovation product catalogues that favor procurement of Chinese goods over foreign competitors appears to have slowed, local level catalogues are still in circulation."

The report elaborates that "China's program for encouraging ``indigenous innovation´´ has its origin in the central government’s decades-old policy of favoring domestic goods and services over imports. A new element was added to the policy with the publication in 2009 of government procurement catalogues at the national, provincial, and local levels. The catalogues were written to exclude the services and products of foreign-based corporations, including those with foreign affiliates operating in China that have not transferred their technology. The move represented an escalation in China’s longstanding efforts to substitute domestic goods and services for imports."

The report also states that "Despite such assurances by President Hu Jintao during his trip to Washington in January 2011, there are few signs that China intends to rescind its overall indigenous innovation policy and only inconclusive signs that the use of procurement catalogues will be abandoned."

The January 19, 2011, document titled "U.S. China Joint Statement" provides that "China will continue to strengthen its efforts to protect IPR, including by conducting audits to ensure that government agencies at all levels use legitimate software and by publishing the auditing results as required by China’s law.  China will not link its innovation policies to the provision of government procurement preferences.  The United States welcomed China’s agreement to submit a robust, second revised offer to the WTO Government Procurement Committee before the Committee’s final meeting in 2011, which will include sub-central entities."

The just released report states that "China has a history of making promises and delivering little, particularly when doing as little as possible benefits the Chinese economy, as has been the case with China’s promises to bring its intellectual property protections up to international standards and to cease requiring technology transfers from foreign firms."

The report continues that "Foreign-invested enterprises seeking to be considered for government procurement contracts or public works projects are expected to file for patents and copyrights within China in order to qualify for preferential treatment in government contracting. Foreign affiliates risk the unintended transfer of their technology to Chinese firms if they do so, because of the nature of the Chinese intellectual property system and the lax enforcement of intellectual property laws and regulations in China."

The report also finds that "China continues to be one of the largest sources of counterfeit and pirated goods in the world. The Chinese government itself estimates that counterfeits constitute between 15 and 20 percent of all products made in China and are equivalent to about 8 percent of China's gross domestic product (GDP). Chinese goods accounted for 53 percent of seizures of counterfeits at U.S. ports of entry in 2010, and the U.S. International Trade Commission estimates that employment in the United States would increase by up to 2.1 million jobs if China were to adopt an intellectual property system equivalent to that of the United States."

Internet Freedom. The report states that in 2011 "The Chinese government expanded restrictions on online information and access to communication services, reported government propaganda in domestic news outlets, restricted the freedom of foreign journalists, and arrested dissidents with little or no cause."

It explains that "China's central government has reacted strongly to perceived challenges to its authority. It detains and imprisons dissidents. It censors the news and punishes journalists for infractions of its unwritten and arbitrary rules. China also attempts to control and censor the Internet and has had more success than most other authoritarian regimes in suppressing the flow of information among the public."

The Congressional Executive Commission on China will hold a hearing on Capitol Hill on Thursday, November 17, 2011, titled "China's Censorship of the Internet and Social Media: The Human Toll and Trade Impact". See, notice.

Cyber Espionage and Attacks. The report addresses both cyber industrial espionage, and military related cyber strategies.

It states that "In continuation of previous practice, China in 2011 conducted and supported a range of malicious cyber activities. These included network exploitations to facilitate industrial espionage and the compromise of U.S. and foreign government computer systems. Evidence also surfaced that suggests Chinese state-level involvement in targeted cyber attacks."

It also states that "China's government or military appeared to sponsor numerous computer network intrusions throughout 2011. Additional evidence also surfaced over the past year that the Chinese military engages in computer network attacks. "

Moreover, "China's military strategy envisions the use of computer network exploitation and attack against adversaries, including the United States. These efforts are likely to focus on operational systems, such as command, control, communications, computers, intelligence, surveillance, and reconnaissance assets. This could critically disrupt the U.S. military’s ability to deploy and operate during a military contingency. Chinese cyber attacks against strategic targets, such as critical infrastructure, are also possible."

More News

11/16. Jamie Lynn Snyder pled guilty in the U.S. District Court (DDel) to one count of criminal copyright infringement in connection with her operation of a web site that sold unlicensed copies of programs of Microsoft, Adobe, and other software companies. The Federal Bureau of Investigation (FBI) stated in a release that Sydner advertised on the websites on Facebook, MySpace, Google, and Yahoo, and that her "websites processed $971,935.10 in unlawful software transactions between February 26, 2008 and March 3, 2010."

Go to News from November 11-15, 2011.