TLJ News from April 11-15, 2012

More News

4/15. The US and Columbia announced that their free trade agreement (FTA) will go into effect on May 15, 2012. See especially, this FTA's sections regarding telecommunications, e-commerce and intellectual property. See also, OUSTR release and Sen. Max Baucus's (D-MT) release.

FCC Will Take No Enforcement Action Against Google for WiFi Surveillance

4/13. The Federal Communications Commission's (FCC) Enforcement Bureau (EB) released a heavily redacted Notice of Apparent Liability for Forfeiture [25 pages in PDF] that announces that the FCC "will not take enforcement action" against Google for its Wi-Fi surveillance activities.

However, the FCC fined Google $25,000 for violating FCC orders to produce information for its investigation into Google's Wi-Fi Surveillance activities. The fine is insignificant for Google, a company with a market capitalization on the close of the NASDAQ on April 16 of over $197 Billion. See, Google Finance web page for Google.

The FCC's determination that Google "willfully and repeatedly violated Commission orders to produce certain information and documents that the Commission required for its investigation" is slightly damaging to Google's reputation.

The Notice also discloses that a key Google witness refused to answer questions, invoking his 5th Amendment rights. Moreover, this Notice states that this was a reason for not taking enforcement action against Google.

Status of Legislative Efforts to Require a Court Issued Warrant to Obtain Wireless Device Location Data

4/13. Two bills have been pending in the House and Senate for over ten months that would require law enforcement agencies to get a court warrant based upon probable cause to obtain geolocation data from wireless service providers.

No Committee or Subcommittee has yet held a hearing or a mark up session on either bill. However, there have been hearing in both chambers that have addressed law enforcement access to location data, as well as tracking technologies.

On March 30, 2010, a coalition of companies and groups named Digital Due Process (DDP) announced a set of four principles which they argue should be incorporated into the federal statutes that regulate government searches and seizures of stored communications and data.

One of these is that "The government should obtain a search warrant based on probable cause before it can track, prospectively or retrospectively, the location of a cell phone or other mobile communications device."

The membership of the DDP now includes Adobe, Amazon, eBay, Google, IBM, Intel, HP, LinkedIn, Microsoft,, and other companies.

The DDP web site lists AT&T, Century Link and some other wireless service providers as members.

The membership also includes the Association for Competitive Technology (ACT), Business Software Association (BSA), Center for Democracy and Technology (CDT), Computer and Communications Industry Association (CCIA), Information Technology and Innovation Foundation (ITIF), Software and Information Industry Association (SIIA), Tech America, Tech Freedom, Telecommunications Industry Association (TIA), and other information and communications technology groups.

The membership also includes the ACLU and other groups. See also, story titled "Digital Due Process Coalition Proposes Changes to Federal Surveillance Law" in TLJ Daily E-Mail Alert No. 2,068, March 31, 2010.

In June of 2011 legislators introduced companion bills in the House and Senate that would require law enforcement agencies to get a court warrant to obtain geolocation data for wireless devices.

On June 15, 2011, Sen. Ron Wyden (D-OR) introduced S 1212 [LOC | WW], the "Geolocational Privacy and Surveillance Act". Sen. Mark Kirk (R-IL) became a cosponsor on October 18. He is the only cosponsor.

S 1212 was referred to the Senate Judiciary Committee (SJC), which has taken no action on the bill. Neither Sen. Wyden nor Sen. Kirk are members of the SJC.

On June 14, 2011, Rep. Jason Chaffetz (R-UT) and Rep. Bob Goodlatte (R-VA) introduced HR 2168 [LOC | WW], also titled the "Geolocational Privacy and Surveillance Act". It now has a total of 18 sponsors.

Support for HR 2168 is bipartisan. But then, so is opposition. And, Rep. Lamar Smith (R-TX), the Chairman of the HJC, is worked to expand law enforcement access to data via his data retention mandate bill, HR 1981 [LOC | WW]. See, stories in TLJ Daily E-Mail Alert No. 2,278, August 3, 2011.

HR 2168 was referred to the House Judiciary Committee (HJC), and its Subcommittee on Crime, Terrorism, and Homeland Security, and to the House Intelligence Commitee (HIC).

These bills would add a new Chapter 120 to the criminal code titled "Geolocation Information". (Currently, Chapter 119, which addresses "Wire and Electronic Communications Interception and Interception of Oral Communications", deals with wiretaps, other intercepts, and bugs. Also, currently, Chapter 121 addresses "Stored Wire and Electronic Communications and Transactional Records Access".)

First, the two bills define "geolocation information" as "the location of a wireless communication device or tracking device ... that, in whole or in part, is generated by or derived from the operation of that device and that could be used to determine or infer information regarding the location of the person".

Then, the bills broadly define "intercept" as "the acquisition of geolocation information through the use of any electronic, mechanical, or other device".

Then, the bills prohibit intercepting geolocation information, as well as disclosing or using intercepted geolocation information.

Of course, the bills provide numerous exceptions. The service provider is allowed to intercept, use and disclose geolocation information in the normal course of providing wireless service.

There are also exceptions for interception under the Foreign Intelligence Surveillance Act (FISA), with consent, for emergency purposes, and for law enforcement investigation of fraud or theft of wireless devices.

And, there is an exception for interception, disclosure and use pursuant to a court issued warrant.

The basic prohibition provides in part that "it shall be unlawful for any person to ... intentionally intercept, endeavor to intercept, or procure any other person to intercept or endeavor to intercept, geolocation information pertaining to another person ... intentionally disclose, or endeavor to disclose, to any other person geolocation information pertaining to another person, knowing or having reason to know that the information was obtained through the interception of such information in violation of this paragraph ... intentionally use, or endeavor to use, any geolocation information, knowing or having reason to know that the information was obtained through the interception of such information in violation of this paragraph ... intentionally disclose, or endeavor to disclose, to any other person the geolocation information pertaining to another person intercepted by" authorized means".

The warrant exception provides in part that "A governmental entity may intercept geolocation information or require the disclosure by a provider of a covered service of geolocation information only pursuant to a warrant issued using the procedures described in the Federal Rules of Criminal Procedure (or, in the case of a State court, issued using State warrant procedures) by a court of competent jurisdiction ..." (Parentheses in original.)

The bills also create an exclusionary rule for location data. Any location data acquired in violation of the new Chapter 120 is inadmissible as evidence in court.

The bills also create a private right of action for violation.

People and Appointments

4/13. Suzanne Barnett was named Chief Copyright Royalty Judge and head of the Copyright Royalty Board (CRB), effective May 20, 2012. She is currently a state trial court judge in King County, Washington. She will replace James Sledge. This is a three member panel. William Roberts and Stanley Wisniewski are the two other members of the CRB.

More News

4/13. The Department of Justice's (DOJ) Antitrust Division published a notice in the Federal Register (FR) that announces that the Sematech filed a notification of a change in its membership, pursuant to the National Cooperative Research and Production Act of 1993, which pertains to limiting antitrust liability of standard setting consortia. See, FR, Vol. 77, No. 72, Friday, April 13, 2012, at Pages 22347-22348.

4/13. The Department of Justice's (DOJ) Antitrust Division published a notice in the Federal Register (FR) that announces that the Connected Media Experience filed a notification of a change in its membership, pursuant to the National Cooperative Research and Production Act of 1993, which pertains to limiting antitrust liability of standard setting consortia. See, FR, Vol. 77, No. 72, Friday, April 13, 2012, at Page 22348.

4/13. The Federal Trade Commission (FTC) published a notice in the Federal Register (FR) announcing recent Hart Scott Rodino (HSR) grants of early termination of the waiting period provided by law and the premerger notification rules. See, FR, Vol. 77, No. 72, Friday, April 13, 2012, at Pages 22318-22320.

9th Circuit Holds Unconstitutional the Ban on Public Broadcasting of Political and Issues Advertising

4/12. The U.S. Court of Appeals (9thCir) issued its divided opinion [49 pages in PDF] in Minority Television Project v. FCC, holding that the statutory ban on public issues and political candidate advertising by public radio and television violates their 1st Amendment rights.

The relevant statute, 47 U.S.C. § 399b, provides that "No public broadcast station may make its facilities available to any person for the broadcasting of any advertisement". It also defines "advertisement" to mean "any message or other programming material which is broadcast or otherwise transmitted in exchange for any remuneration, and which is intended -- (1) to promote any service, facility, or product offered by any person who is engaged in such offering for profit; (2) to express the views of any person with respect to any matter of public importance or interest; or (3) to support or oppose any candidate for political office."

The 1st Amendment provides that "Congress shall make no law ... abridging the freedom of speech, or of the press ..."

The Supreme Court construes "no law" to mean that the Congress can pass laws that meet the Supreme Court's constantly evolving rules and standards. What part of "no" informs the Courts' understanding is not explained.

Moreover, soon after the deployment of broadcasting, the Supreme Court accorded a lower level of Constitutional protection to broadcast speech than to print or pulpit speech. It based this on its understanding of spectrum scarcity. Whatever merits existed for this distinction during the Roosevelt administration, the advent of cable, satellite, and internet distribution technologies have long since rendered it obsolete.

The Courts have also relied upon "pervasive presence" of broadcasting as an alternative rationale. Nevertheless, the opinions of the Courts, including this just released opinion, continue to allow the Congress and FCC to regulate television content.

The Supreme Court has held that the Congress may pass laws that regulate broadcast speech if they satisfy its intermediate scrutiny standard. That is, they are Constitutional if they are "narrowly tailored to further a substantial government interest".

In the present case, the Court applied intermediate scrutiny, and concluded that, as to the bans on "public importance" ads and "candidate for political office" ads, the government has a substantial interest in noncommercial public broadcasting, and that Section 399b furthers this interest, but that this interest is not sufficiently tailored to survive broadcast scrutiny. Hence, Subsections 399b(a)(2) and (3) are unconstitutional.

The Court of Appeals also held that the ban on products and services advertising satisfies the intermediate scrutiny test.  Hence, Subsections 399b(a)(1) is constitutional

Judge Carlos Bea wrote the opinion of the Court of Appeals.

Judge John Noonan wrote a concurring in judgment opinion. He hinted at the obsolescence of the Courts' interpretation of the 1st Amendment as applied to television. He wrote that "With the rapid flux of technologies transmitting television, there have come new forms of television that do not require use of the narrow spectrum employed by broadcast television. These new forms -- cable, satellite, cell phone, the Internet and the iPad -- have introduced a variety of ways of communicating on television and call at least for a new look at the government's substantial role in licensing and regulating speech on broadcast television."

He also pointed out the obvious. There already are products and services ads on public television. "As a viewer of Jim Lehrer NewsHour and its successor, I have seen announcements that to my mind are ads."

Judge Richard Paez dissented. He wrote that "For almost sixty years, noncommercial public broadcasters have been effectively insulated from the lure of paid advertising. The court's judgment will disrupt this policy and could jeopardize the future of public broadcasting. I am not persuaded that the First Amendment mandates such an outcome."

He wrote that the statute regulates broadcast media, that intermediate scrutiny applies, but that Section 399b satisfies this test.

Craig Aaron, head of the Free Press, stated in a release that "Polluting public broadcasting with misleading and negative political ads is not in keeping with the original vision of noncommercial broadcasting. And it’s certainly not the solution to funding public media. At a time when people are turning to public broadcasting to get away from the flood of nasty attack ads, viewers don’t want to see Sesame Street being brought to them by shadowy Super PACs."

This case is Minority Television Project v. FCC, U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 09-17311, an appeal from the U.S. District Court for the Northern District of California, D.C. No. 3:06-cv-02699-EDL, Judge Elizabeth Laporte presiding. Judge Carlos Bea wrote the opinion of the Court of Appeals.

Scott Turow Criticizes DOJ E-Books Action

4/12. Scott Turow, President of the Authors Guild, a group that advocates the interests of writers, criticized the Department of Justice's (DOJ) antitrust action against Apple and e-book publishers.

See, story titled "DOJ Sues Apple and Book Publishers Alleging E-Book Price Collusion", and related stories, in TLJ Daily E-Mail Alert No. 2,368, April 11, 2012.

Turow stated in a release that "The proposed settlement is a shocking trip through the looking-glass." Charles Dodgson, also known as Lewis Carroll, wrote the book titled Alice's Adventures in Wonderland [Amazon | Apple | Google] and a sequel titled Through the Looking Glass, and What Alice Found There [Amazon | Apple | Google].

Turow is a lawyer and writer. He worked long ago as a federal prosecutor. His first book, One L, was an autobiographical account of his first year in law school. He then wrote a series of widely read legal thriller novels, including The Burden of Proof, Presumed Innocent, Pleading Guilty, and Personal Injuries.

Turow argued that "By allowing Amazon to resume selling most titles at a loss, the Department of Justice will basically prevent traditional bookstores from trying to enter the e-book market, at the same time it drives trade out of those stores and into the proprietary world of the Kindle."

"The settlement provides a gigantic obstacle to Amazon's competitors in the e-book business by allowing Amazon to function without making a profit, something that leaves that market forbidding to anyone else who might think of entering, and a bad business for those already there."

Turow added that "Today's low Kindle book prices will last only as long as it takes Amazon to re-establish its monopoly. It is hard to believe that the Justice Department has somehow persuaded itself that this solution fosters competition or is good for readers in the long run."

The Association for Competitive Technology (ACT) made a similar argument against the DOJ's antitrust action.

It stated in a release that "Many of our small business members are concerned", and that the DOJ's action "may have a profoundly negative impact on smaller retailers."

"The wrong result from DOJ action could harm small businesses on the iTunes store significantly. The convergence of app makers and publishers at iTunes and the App Store has allowed for the distribution of innovative interactive content that can only succeed when its creators have flexibility in choosing how to bring their works to market."

"Unfortunately", the ACT concluded, the DOJ's "latest step reprises the old story of the small developer/publisher becoming the collateral damage in the battle of the giants."

The Authors Guild is also one plaintiff in the copyright infringement actions against Google arising out of its Google Books program. The Author's Guild filed a class action complaint against Google in the U.S. District Court (SDNY) on September 20, 2005. See, story titled "Author's Guild Sues Google for Copyright Infringement" in TLJ Daily E-Mail Alert No. 1,218, September 21, 2005. Book publishers and photographers have also filed lawsuits against Google. The Authors Guild and book publishers reached a class settlement, which is legislative in scope, that the DOJ opposed. See, story titled "DOJ Files Pleading in Google Books Case" in TLJ Daily E-Mail Alert No. 1,985, September 21, 2009, and story titled "DOJ Criticizes Amended Google Books Settlement" in TLJ Daily E-Mail Alert No. 2,043, February 12, 2010. The District Court rejected the proposed settlement. See, story titled "District Court Rejects Google Books Class Action Settlement" in TLJ Daily E-Mail Alert No. 2,206, March 22, 2011. Negotiations continue.

Google's Larry Page Is Excited About Tablets

4/12. Google's CEO Larry Page stated in a conference call regarding Google's 2012 first quarter earnings that Google is "very excited about tablets", and in particular, lower priced Android based devices. See, transcript published by Seeking Alpha.

Page, without mentioning Amazon, Amazon's Kindle Fire, or e-books, implied that Google might soon offer a product line that competes with Amazon.

He said that "I think that we're very excited about tablets. I think there's a number of Android tablets out there and obviously, we have strong competition there as well. I think you've seen us really invest substantially also in things like Google Play, which really give you great access to entertainment, media, books and videos and so on, and as well as the apps. And we think that's an important component of what we're doing."

Google Play is Google's online platform for selling movies, music, apps, games and books. See, its e-books store.

Page continued that "I think there's also -- obviously, there's been a lot of success on some lower-priced tablets that run Android, maybe not the full Google version of Android."

He did not elaborate that Amazon's Kindle Fire runs on a forked version of Android, and that it is lower priced than Apple's iPad. The starting price of the Fire is $199. The starting price of the new 4G LTE iPad is $499. Page did not state what the starting price of a Google Android tablet might be.

Page concluded, "But we definitely believe that there's going to be a lot of success at the lower end of the market as well with lower-priced products that will be very significant. And it's definitely an area we think is important and we're quite focused on."

Google is competing with Apple and Amazon, and others, in selling e-books. Apple and Amazon, and others, are already competing in the market for devices that can be used to purchase, download, and read e-books. Page's statements on April 12 suggest that Google too may soon be an additional competitor in the reader market.

Tech media reports predict that Google will soon offer a tablet computer that will compete with Amazon's Kindle. See, April 13, 2012 story in Digital Spy by Mark Langshaw titled "Google to take on Amazon with Kindle rival?", and April 13 story in PC World by Daniel Ionescu titled "Google Targets Budget Tablets, CEO Says", and April 13 story in Time by Jared Newman titled "Google’s Larry Page: We’re Focused On Cheap Android Tablets".

NAF Writer Condemns Amazon and DOJ E-Books Antitrust Action

4/12. The New America Foundation (NAF) released a polemic essay on April 12 titled "The Real Bad Guy in the E-Book Price Fixing Case: Amazon's continued domination of the publishing industry will hurt the book market". The author is the NAF's Barry Lynn.

Eric Schmidt (at right) is the Chairman of the Board of Directors of the NAF. Schmidt is also the Executive Chairman of Google. The policy advocacy of the NAF, on issues such as spectrum, network neutrality, and intellectual property, often parallels the economic interests of Google.

Schmidt is also a former Director of Apple.

According to the Department of Justice's (DOJ) complaint [36 pages in PDF], Apple and e-book publishers conspired to raise e-book prices, in part by colluding to eliminate lower prices offered by Amazon under the wholesale model of books distribution, and imposing industry wide an agency model. Under the DOJ's theory, consumers are harmed by higher prices, while the e-book publishers and Apple benefit.

However, applying the DOJ's reasoning to Google Play's e-book sales, and the likely offering by Google of a low priced Android tablet, Google, like Apple, has reason to condemn the DOJ's antitrust action. Google would be better off with the state of the e-book distribution market as it existed just prior to the DOJ's action.

Moreover, it should be noted that Amazon used Google's Android operating system for its Kindle Fire, but forked it, thus eliminating the Google app store and media services.

Barry Lynn criticized the DOJ for this action. He also denigrated and maligned Amazon. He hyperbolized that Amazon is "gouging all writers", and "has a direct interest in suppressing any work of reporting that questions its power".

He also argued that higher prices are not necessarily a bad thing, and pined nostalgically for an earlier era when government agencies could set prices, or at least limit the role of market participants, in certain key industries. He also argued that the DOJ should have examined the longer term consequences of its antitrust action.

He wrote that "Lower prices enable horizontal predation; when a fatly capitalized retailer (like Amazon) wants to bankrupt its less-wealthy direct competitors, it simply undersells them day after day after day. Furthermore, lower prices can be used in vertical predation, against producers; when a powerful retailer (like Amazon) wants to extract more wealth from its now-captive suppliers, it can set prices to promote those firms who accept its terms and to punish those who resist." (Parentheses in original.)

He argued that "the best way to lower prices over the long run" is "to allow producers to set higher prices today. That’s because doing so forces producers to compete with producers rather than retailers. And it forces retailers to compete with retailers rather than with producers. The result being that we end up with both producers and retailers doing a better job of serving the consumer."

He argued too that "We need to re-empower producers to set a minimum price for their goods, just as the book publishers attempted to do with their ``Agency´´ model -- the one the DOJ found so objectionable. Doing so would help to prevent Amazon (and other goliath trading companies) from continuing to use its immense and unfair pricing power to bankrupt other retailers, to loot the profits of and capture control over their suppliers, and to manipulate the content of the product itself." (Parentheses in original.)

People and Appointments

4/12. Secretary of Commerce John Bryson appointed seven persons to the Manufacturing Council, including Mark Chandler, SVP and General Counsel of Cisco Systems, Peter Dorsman, EVP of NCR, and Albert Green, CEO of Kent Displays and Improv Electronics. This body advises the Department of Commerce (DOC) regarding improving manufacturing competitiveness. See, DOC release.

4/12. Matthew Solomon was named Deputy Chief Litigation Counsel of the Securities and Exchange Commission's (SEC) Division of Enforcement. See, SEC release. He was previously an Assistant U.S. Attorney in the District of Columbia, and Chief of its Fraud Unit. Before that, he briefly worked for the Senate Judiciary Committee (SJC). And before that, he worked in the Department of Justice's (DOJ) ethically challenged Public Integrity Section (PIS).

More News

4/12. The Motion Picture Association of America (MPAA) announced in a release a joint effort of the online video industry in the People's Republic of China (PRC) and representatives of foreign governments and industry groups to promote respect for intellectual property in videos.

4/12. The Federal Trade Commission (FTC) announced the agenda and speakers for its April 26, 2012, event titled "Paper, Plastic ... or Mobile? An FTC Workshop on Mobile Payments". See, notice.

RIAA, NMPA and DMA Announce Settlement in CRB Rate Proceeding

4/11. The Recording Industry Association of America (RIAA), National Music Publishers Association (NMPA) and Digital Media Association (DMA) announced that they have negotiated an agreement to be filed with the Copyright Royalty Board (CRB) in settlement of the CRB's rate proceeding under Section 115 of the Copyright Act.

These groups stated that this agreement creates five new categories, including paid locker services and purchased content lockers, and sets rates and terms. See, RIAA release and substantially similar DMA release and NMPA release.

They stated that "The 25-page proposed agreement will be submitted to the CRB by the various parties and resolves the pending mechanical royalty rate proceedings without litigation.  The agreement covers 2013-2017 and must be formally be approved by the CRB.  It establishes a royalty rate category for these new business models and rolls forward, with limited changes, all existing rates and terms for CDs and downloads."

ITIF Recommends Focusing STEM Education on Most Interested and Capable Students

4/11. The Information Technology and Innovation Foundation (ITIF) released a paper [8pages in PDF] titled "Why the Current Education Reform Strategy Won't Work". The author is Robert Atkinson, head of the ITIF.

He urges a policy shift for science, technology, engineering and math (STEM) secondary education in the U.S. He recommends moving from a STEM for all to a STEM for some approach.

He wrote that "it is time to introduce a new framework based on an ``All STEM for Some´´ approach, where the purpose of driving STEM education is not principally to create economic opportunity for individuals but to provide the ``fuel´´ needed to power a science- and technology-driven U.S. economy."

He added that "The framework will require working actively to recruit those students who are most interested in, and capable of doing well in, STEM and providing them with the kind of educational experience they need to make it all the way through the educational pipeline and come out ready, willing, and able to contribute to growing the U.S. innovation economy."

SEC Files Complaint Against PRC Company that Used Online Accounts to Inflate Its NASDAQ Trading Volume

4/11. The U.S. Securities and Exchange Commission (FCC) filed a civil complaint [30 pages in PDF] in the U.S. District Court (DMass) against AutoChina International Limited and several of its directors and employees alleging violation of US securities laws in connection with their opening brokerage accounts at E*Trade and artificially boosting the trading volume of AutoChina.

The complaint states that AutoChina is a company that is based in the People's Republic of China (PRC) and listed on the NASDAQ Stock Market, and that is a foreign private issuer that files Forms 20-F with the SEC.

The complaint alleges that the defendants opened online accounts and proceeded to trade among themselves with matched orders, wash trades, and other non-economic transactions that raised trading volume. The scheme was not to raise the stock price and make fraudulent profits, but rather merely to create the appearance that the stock was more heavily traded as part of an effort to obtain loan financing for the company.

The complaint states that "Many of the trades in different Defendants' accounts were made from the same computer network, or even the same computer".

The complaint alleges securities fraud in violation of Section 10(b) of the Exchange Act, violation of Section 17(a) of the Securities Act, and other violations.

This case is SEC v. AutoChina International Limited, et al., U.S. District Court for the District of Massachusetts, D.C. No. 1:12-cv-10643-GAO.

USPTO Reports on IP Industries' Contribution to the Economy

4/11. The U.S. Patent and Trademark Office (USPTO) and the Economics and Statistics Administration (ESA) released a report [76 pages in PDF] titled "Intellectual Property and the U.S. Economy: Industries in Focus".

This report states that "Direct employment in the subset of most IP-intensive industries identified in this report amounted to 27.1 million jobs in 2010, while indirect activities associated with these industries provided an additional 12.9 million jobs throughout the economy in 2010, for a total of 40.0 million jobs, or 27.7 percent of all jobs in the economy."

It also states that IP-intensive industries contributed $5.06 Trillion to the US economy, or 34.8 percent of GDP in 2010.

David KapposDavid Kappos (at right), head of the USPTO, stated in a release that announces and summarizes this report, that "America needs to continue investing in a high quality and appropriately balanced intellectual property system that will promote innovative, open, and competitive markets while helping to ensure that the U.S. private sector remains America's innovation engine."

This report also states that "Innovation -- the process through which new ideas are generated and successfully introduced in the marketplace -- is a primary driver of U.S. economic growth and national competitiveness.Likewise, U.S. companies’ use of trademarks to distinguish their goods and services from those of competitors represents an additional support for innovation, enabling firms to capture market share, which contributes to growth in our economy. The granting and protection of intellectual property rights is vital to promoting innovation and creativity and is an essential element of our free-enterprise, market-based system." (Footnote omitted.)

This report is not mandated by statute.

Previously, the International Intellectual Property Association (IIPA) released similar reports that addressed the contribution of the copyright industries, but not patent industries, to the U.S. economy. See for example, report [29 pages in PDF] titled "Copyright Industries in the U.S. Economy: The 2003-2007 Report", released in July 2009, and story titled "IIPA Report Estimates Contribution of Copyright Industries to US Economy" in TLJ Daily E-Mail Alert No. 1,972, July 20, 2009. The author of those reports is Stephen Siwek of Economists Incorporated.

The just released USPTO/ESA report acknowledges and thanks many persons in government, and Stephen Siwek.

The IIPA stated in a release that the just released report "confirms and expands on the conclusions of a series of economic studies released by the" IIPA.

In addition, the Computer and Communications Industry Association (CCIA) has commissioned countervailing studies on the contribution of fair use to the U.S. economy. See for example, 2011 CCIA report [36 pages in PDF] titled "Economic Contribution of Industries Relying on Fair Use", and story titled "CCIA Releases Report on Importance of Fair Use to U.S. Economy" in TLJ Daily E-Mail Alert No. 2,259, July 15, 2011.

DOJ Sues Apple and Book Publishers Alleging E-Book Price Collusion

4/11. The Department of Justice's (DOJ) Antitrust Division filed a complaint [36 pages in PDF] in the U.S. District Court (SDNY) against Apple and five book publishers alleging violation of Section 1 of the Sherman Act in connection their alleged conspiring to increase the prices that consumers pay for e-books.

The publisher defendants are Hachette (which includes Little Brown), Harper Collins, Simon & Shuster, Holtzbrink (which includes Macmillan), and Penguin.

See, full story.

Commentary on DOJ's Sherman Act Claim Against Apple and E-Book Publishers

4/11. The Department of Justice's (DOJ) complaint against Apple and e-book publishers alleges violation of Section 1 of the Sherman Act, which is codified at 15 U.S.C. § 1.

This section provides, in relevant part, 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. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine ..."

The language of this section provides very little guidance for the Court. The outcome of this case will turn on the recent court interpretation of the statute, and economic analysis, as applied to the facts of the case.

The defendants contesting this action have not released statements that contest the DOJ's factual allegations, present their factual allegations, or assert their defenses and legal analysis.

The DOJ complaint is long at 36 pages. It often employs vague wording. It is full of cursory allegations, such as conspiracy. However, it is often short on substantiating factual allegations. For example, there is no allegation that representatives of Apple and the defendant publishers got together in one place at one time and agreed upon the terms that the DOJ now seeks to undo.

The complaint is also full of derogatory accusations, such as that publishers wanted prices to be higher, that they wanted consumers to expect to pay more for books, and that they did not like Amazon's business practices. But, these do not constitute violations of antitrust law.

Also, while the complaint contains many allegations of communications and meetings (such as at posh Manhattan restaurants) between publishers to develop a conspiracy among these horizontal competitors, these allegations make no mention of Apple.

Also, it should be noted, Apple is not a horizontal competitor of the publishers. Apple makes the iPad, and is a retailer of e-books.

Apple's role, the complaint asserts, was to efficiently implement the publishers' agreement to raise e-book prices across all retailers. It had a new platform for retailing e-books, and it wanted to sell e-books and capture market share from Amazon, but it did not want to compete on price with Amazon. Moreover, the complaint continues, Apple was willing to implement the publishers' agreement to raise e-book prices, in return for a 30% commission, and a most favored nation provision. So, Apple negotiated agency contracts with each of the publishers, one on one, but simultaneously, and keeping all publishers informed of all negotiations, and assuring all publishers that its contracts with each would be the same.

So, the DOJ theory goes, while Apple was not party to the original meetings and conspiracy, it was "a critical conspiracy participant by allowing the Publisher Defendants to signal one another" that they could collectively achieve through this process the goal of the conspiracy of raising prices by all signing identical agency contracts with Apple.

The complaint is replete with factual allegations of communications, cooperation, information sharing among horizontal competitors, with the object of raising prices.

However, the actual mechanism that raised prices was numerous agency agreements signed by publishers with all retailers. But, under the DOJ theory, this was made possible by the publishers having signed substantially identical agency agreements with Apple with MFN provisions. And each of these agreements was the product of a one on one negotiation between Apple and one publisher.

If there is an antitrust violation, the publishers and Apple have gone to great lengths to handle the transition in a manner designed to frustrate antitrust enforcement action.

In response to this DOJ action, some of Apple's defenders have pointed to Amazon as the monopolist, or company with market power, and Apple as the new entrant, and technological innovator. However, the DOJ complaint alleges that the publishers were clear that their concern was that Amazon was the lower priced retailer, and was putting pressure on others to lower prices. Under basis monopoly theory, monopolies are harmful because they lead to higher prices. Yet, the publishers concern was that this alleged monopolist was driving prices down.

In the DOJ's antitrust case against Microsoft filed in 1998 Microsoft did not benefit from the circumstance that while the DOJ alleged that Microsoft had an operating system monopoly, Microsoft did not engage in monopoly pricing of its operating system.

Also, the Supreme Court does not taken the view that all price increases or price fixing are inherently bad or per se unlawful.

It held that certain vertical retail price maintenance is not per se unlawful, but is rather subject to the rule of reason. On June 28, 2007, the Supreme Court issued its opinion in Leegin Creative Leather Products v. PSKS. See, 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. Of course, that was vertical case, not a horizontal collusion case. Also, Pozen's predecessor as head of the Antitrust Division, Christine Varney, publicly criticized that opinion. See, story titled "Varney Discusses Antitrust, States AGs, RPM and the Rule of Reason" in TLJ Daily E-Mail Alert No. 1,999, October 8, 2009.

Also, the Supreme Court held in its 1979 opinion in Broadcast Music Inc. v. CBS, 441 U.S. 1, that ASCAP and BMI blanket licenses to copyrighted musical compositions at fees negotiated by them is not price fixing per se unlawful under the antitrust laws.

Outside Reaction to DOJ E-Books Antitrust Action

4/11. Gary Shapiro (at right), head of the Consumer Electronics Association (CEA), stated in a release that "The decision by the U.S. government to sue Apple and book publishers for alleged antitrust violations over the price of electronic books marks another sad milestone in our government's war on American companies. Apple is an American crown jewel that other nations covet, yet our own government leads an attack on its entry into electronic books."

Gary Shapiro

Shapiro (at right) stated that "the legal theory of attacking a new market entrant for anti-competitive pricing is surprising. Apple's iPad hardware and iBooks software have an estimated 10 to 15 percent of the market share in e-books. Our ambiguous antitrust laws are now being used to take on a new market entrant of just over two years as if they have the market power to set prices."

He continued that "This lawsuit combined with the action costing AT&T a $4 billion break-up fee in its attempted merger with T-Mobile, reflects on how our political leadership has ignored the reality that our nation, its businesses and our economy face serious economic challenges. Our government should be defending our leading companies from foreign attack, rather than attacking these companies so foreign governments will follow. Our government's actions are catnip to the European Union and other governments seeking to extract money from successful American companies."

"Sadly, we've seen this before with absurd legal U.S. government challenges to Google, Intel, Microsoft and Qualcomm -- world-class American innovators. Each time, no real harm was found, but our government's attacks enabled others to extract billions in fines or foolish remedies."

Ryan Young of the Competitive Enterprise Institute (CEI) stated in a release that "Given Amazon's much larger share of the e-book market, Apple is hardly in a position to price its products uncompetitively. If consumers feel overcharged, they can easily give their business to Amazon or Barnes & Noble instead -- possibly by using Apple’s own products!"

"This lawsuit is further evidence of how poorly smokestack-era antitrust policies fit our information age economy. E-book manufacturers and publishers are trying and discarding different business models at a fast rate as they figure out what works and what doesn't. By the time the wheels of justice slowly creak to a verdict, Apple, Penguin, Simon & Schuster, and the other defendants will have long since moved on to some other pricing policy. The Justice Department should admit its mistake and drop the lawsuit."

Bert Foer, head of the American Antitrust Institute (AAI), stated in a release that "The collusion of competitors to impose a business model on a retailer would be an unacceptable form of price-fixing,".

He added that "The practical result of a failure to prosecute this case would be to acquiesce in this scheme to increase the price of e-books. Even though the agency model sought by Apple and the publishers may not in itself be illegal or unethical, to allow manufacturers to collude in the manner alleged would be to undermine the consumer's best protection against the evils of monopolies and cartels".

States Sues Apple and E-Book Publishers

4/11. The state of Texas, 14 other states, and Puerto Rico filed a complaint [redacted, 56 pages in PDF] in the U.S. District Court (WDTex) against Apple, Simon & Schuster, Macmillan and Penguin alleging violation of state and federal antitrust laws in connection with their alleged conspiracy to restrain trade and raise the retail price of electronic books.

The complaint contains three counts that allege violation of Section 1 of the Sherman Act. First, it alleges violation by book publishers via a horizontal agreement among competing publishers to raise e-book prices. Second, it alleges violation by publishers by agreeing to window (delay publication of) their frontlist e-books. Third, it alleges violation by both publishers and Apple by their agreement to use the agency model as a mechanism to raise retail prices of frontlist e-books.

The fourth and final count alleges that these acts also constitute violations of various state antitrust laws.

This complaint seeks declarations that the defendants have violated state and federal antitrust laws. It seeks injunctive relief enjoining and restraining defendants from continuing the alleged anticompetitve practices.

The complaint seeks treble damages under the federal Clayton Act. The complaint alleges that "As a result of the conspiracy, consumers nationwide, in aggregate, paid substantially more than one hundred million dollars in overcharges on e-books", and that "these overcharges are ongoing".

The complaint also seeks fines, penalties, damages, disgorgements and other monetary relief under various state laws.

Greg AbbottGreg Abbott (at right), Attorney General of Texas, stated in a release that "Colluding to fix prices violates antitrust laws and raises costs for customers. In this case, three of the nation’s largest publishing companies worked together to gain control of retail prices and raise the price of e-books. The defendants colluded to use the agency distribution model to effectively eliminate free market competition and allow publishers -- rather than the marketplace -- to set the price of e-books."

This release states that "For years, retailers sold e-books through a traditional wholesale distribution model, under which retailers -- not publishers -- set e-books' sales prices. However, the investigation revealed that Penguin, Simon & Schuster and Macmillan conspired with other publishers and Apple to artificially raise prices by imposing a distribution model in which the publishers set the prices for bestsellers at $12.99 and $14.99."

Then, "When Apple prepared to enter the e-book market, the publishers and Apple agreed to adopt an agency distribution model as a mechanism to allow them to fix prices. To enforce their price-fixing scheme, the publishers and Apple relied on contract terms that forced all e-book outlets to sell their products at the same price. Because the publishers agreed to use the same prices, retail price competition was eliminated."

The plaintiffs in this action are Texas, Alaska, Arizona, Connecticut, Colorado, Illinois, Iowa, Maryland, Missouri, Ohio, Pennsylvania, Puerto Rico, South Dakota, Tennessee, Vermont and West Virginia.

California (home to Apple) and New York (home to many book publishers) are not plaintiffs. For example, the corporate headquarters of Simon & Schuster, Inc. and Penguin Group USA, Inc., are in Manhattan, New York. Macmillan also has operations in Manhattan, blocks from the U.S. District Court for the Southern District of New York, where the DOJ filed its complaint.

Commentary: Forum Selection in Antitrust Cases

4/11. Venue matters. It is particularly important in high profile federal cases against well known persons and companies. On April 11, 2012, the federal government and states filed similar lawsuits, advancing similar Section 1 Sherman Act allegations, against many of the same defendants. However, the federal government filed in the Manhattan, in New York City, while the states filed in Austin, the capitol of the state of Texas.

Litigation in Manhattan works to the advantage of the e-book publishers, and indirectly, Apple. Litigation in Austin works to the disadvantage of e-book publishers. Apple's most preferred forum would be the Northern District of California, San Jose Division, but neither action was filed there.

Manhattan is a publishing center. It is home to many hard copy and e-book publishers. Executives at Penguin and Macmillan will be able to walk to the courthouse. Simon & Schuster executives can take a limo.

In contrast, Austin is an educated, literate, university town -- site of the huge University of Texas at Austin. It is the home of hundreds of thousands of e-book purchasers. It is also the location of the Texas government, including its Attorney General, the lead plaintiff in this action. Moreover, "New York City" is a pejorative in Austin.

Statutes. The general civil venue provision, codified at 28 U.S.C. § 1391, provides in part that "A civil action may be brought in ... a judicial district in which any defendant resides ... a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred ..."

However, there is also an antitrust venue provision, codified at 15 U.S.C. § 22. It provides, in full, that "Any suit, action, or proceeding under the antitrust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found."

That is, the DOJ, and the Texas AG, can sue corporate e-book publishers and Apple under the federal antitrust laws wherever they want.

DOJ Forum Selection. The DOJ has a history of aggressive forum shopping to obtain the judges, juries and circuit law most favorable to its objectives, and to inflict the greatest inconvenience upon defendants.

For example, it sued, prevailed, and inflicted harm upon Microsoft in its 1998 antitrust action. The DOJ filed that action in Washington DC, even though that district had no connection to the proceeding, other than that consumers there owned computers with Microsoft software.

In contrast, the DOJ filed its antitrust action against Oracle in 2004 in its home court -- the Northern District of California. That forum had the most connection to the action, and judges with the best experience. The DOJ suffered a fast and humiliating defeat. See, stories titled "Antitrust Division Sues Oracle to Enjoin Its Proposed Acquisition of PeopleSoft" in TLJ Daily E-Mail Alert No. 846, March 1, 2004, and "DOJ Loses Oracle Case" in TLJ Daily E-Mail Alert No. 974, September 10, 2004.

When the SEC decided to bring its 2008 securities action against Henry Samueli, it choose the most fair and logical forum, the Central District of California. That court dismissed the case and questioned the conduct of the DOJ attorneys. See, story titled "SEC Drops Case Against Samueli" in TLJ Daily E-Mail Alert No. 2,047, February 17, 2010.

When the DOJ targeted former Sen. Ted Stevens, it filed in Washington DC, rather than the district in which the case arose. The DOJ then made misrepresentations to the court to keep the case in its chosen forum. The DOJ won a conviction (temporarily) and unseated the Senator.

In the just filed e-book antitrust case, the DOJ filed in the District in which many of the events giving rise to the action occurred, and in which many parties and witnesses are now located. It is the most fair and convenient forum for the publisher defendants. Yet, the DOJ has opted not to follow its frequent tactic of forum shopping.

Nevertheless, there is a pattern. The DOJ is more like to loose when it follows principles of fairness and convenience to the defendants than when it forum shops to a district that is unfriendly and inconvenient to the defendants.

The states have wisely and rationally chosen Texas as their lead plaintiff, and Austin as their forum.

However, with substantially similar claims brought in widely divergent districts, located in different appellate circuits, there is the possibility of inconsistent judgments.

People and Appointments

4/11. The Motion Picture Association of America (MPAA) announced changes to its legal team. Linda Kinney was named SVP and Associate General Counsel in the MPAA's Washington office. She has worked at the MPAA for two years. Before that, she was VP of Law and Regulation for DISH Network. Before that, she held positions at the FCC, including Deputy General Counsel and Legal Advisor to former Commissioner Susan Ness. Dan Robbins was named SVP and Associate General Counsel in the MPAA’s Los Angeles (LA) office. He has worked for the MPAA for 16 years. Karen Thorland was named SVP and Global Content Protection Counsel, in the LA office, responsible for overseeing worldwide content protection litigation. She has worked for the MPAA for two years. Kelly McMahon was named VP and Corporate Counsel, in the LA office. Ben Sheffner was namd VP, Legal Affairs, and will relocate from LA to Washington DC. Sheffner will report to Kinney. Thorland and McMahon will report to Robbins. Last fall the MPAA named Henry Hoberman Senior Executive Vice President and Global General Counsel to oversee all legal, content enforcement and rights management programs within the MPAA. See, MPAA release.

4/11. President Obama announced his intent to appoint Carol Greider to be a member of the President's Committee on the National Medal of Science. See, White House news office release. She is a biology professor at Johns Hopkins University School of Medicine.

More News

4/11. Joaquin Alumnia, the European Commission's (EC) Competition Commissioner, released a statement about the US Department of Justice's (DOJ) Sherman Act lawsuit against Apple and e-book publishers, and the EC's ongoing investigation. He stated that "We are currently engaged in fruitful discussions with them", and that "I am happy that the very close and productive cooperation between the DOJ and the Commission has benefitted the investigations on both sides of the Atlantic".

4/11. Larry Strickling, head of the National Telecommunications and Information Administration (NTIA), gave a speech at the Hudson Institute regarding the "Obama Administration’s blueprint to protect consumer data privacy".

4/11. The U.S. Court of Appeals (9thCir) issued its en banc opinion [PDF] in U.S. v. Nosal, construing the meaning of the term "exceeds authorized access" in the Computer Fraud and Abuse Act (CFAA).

4/11. FCC Commissioner Mignon Clyburn gave a speech at Catholic University's 2012 Telecommunications Symposium

4/11. FCC Chairman Julius Genachowski and Sen. Frank Lautenberg (D-NJ) traveled to Hoboken, New Jersey, on April 11, to talk about mobile apps, and spurring high tech job growth, as if their brief presence could create jobs in Hoboken. See, Sen. Lautenberg's release, FCC's release, and Genachowski's speech.

Go to News from April 6-10, 2012.