TLJ News from December 1-5, 2012

FTC Brings Action Against Behavioral Advertising Company for History Sniffing

12/5. The Federal Trade Commission (FTC) filed an administrative complaint against Epic Marketplace, Inc. (an online behavioral advertising company) and Epic Media Group, LLC (its parent company) alleging violation of Section 5 of the FTC Act, in connection with Epic's misrepresentation of the web browsing information that it collected. The FTC and Epic simultaneously settled the matter. See, proposed consent agreement.

Basically, the FTC accused Epic in its complaint of history sniffing for the purpose of facilitating behavioral advertising, and then deceiving consumers about it in its privacy policy.

The FTC complaint did not assert that history sniffing to support behavioral advertising is in and of itself a violation of law. Rather, the FTC asserted that misrepresenting its practices in its privacy policy constituted the violation.

Jonathan LeibowitzHowever, FTC Chairman Jonathan Leibowitz (at right) provided a different narrative in a separate release. He stated that "Consumers searching the Internet shouldn't have to worry about whether someone is going to go sniffing through the sensitive, personal details of their browsing history without their knowledge ... This type of unscrupulous behavior undermines consumers' confidence, and we won't tolerate it."

That is, Leibowitz asserts that history sniffing for behavioral advertising without consumers' knowledge is by itself wrong. Deception is not an element of the offense.

Section 5, which is codified at 15 U.S.C. § 45, provides in part that "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful."

The respondents made no admission of wrongdoing. The settlement imposes no fine or other financial penalty.

The settlement agreement bars future misrepresentations. It also provides that Epic is "prohibited from collecting any data through history sniffing or using any data obtained by history sniffing". It also requires destruction of data.

The deadline to submit comments to the FTC regarding the proposed consent agreement is January 7, 2012. See, notice in the Federal Register, Vol. 77, No. 238, December 11, 2012, at Pages 73655-73657.

Explanation of History Sniffing. The complaint alleges that "Epic is an advertising company that engages in online behavioral advertising, which is the practice of tracking a consumer's online activities in order to deliver advertising targeted to the consumer’s interests." It "acts as an intermediary between website owners who publish advertisements on their website for a fee ... and advertisers who wish to have their advertisements placed on websites."

The complaint continues that "Epic collects data on consumers who visit the websites within the Epic Marketplace Network. When a consumer visits a website within the Epic Marketplace Network, Epic sets a new cookie in the consumer’s browser or automatically receives a cookie it previously set. Cookies are small text files that are commonly used to store information about a consumer's online activities, including information such as the content of advertisements that a consumer views or the pages a consumer visits within a particular website."

In addition, Epic engaged in "history sniffing", or "the practice of determining whether a consumer has previously visited a webpage by checking how a user’s browser styles the display of a hyperlink. For example, if a consumer has previously visited a webpage, the hyperlink to that webpage may appear in purple, and if the consumer has not previously visited a webpage, the hyperlink may appear in blue."

"Based upon its knowledge of which domains a consumer had visited, Epic assigned the consumer an interest segment.' Then, the complaint states,"Epic used this history-sniffing data for behavioral targeting purposes."

The FTC complaint further explains that "History sniffing circumvents the most common and widely known method consumers use to prevent online tracking: deleting cookies. Deleting cookies does not prevent a website from querying a consumer’s browsing history. Consumers could only protect against history sniffing by deleting their browsing history and using private browsing mode, or, with regard to Epic’s history sniffing, opting out of receiving targeted advertisements from Epic. Once major browser vendors began to implement protections against history sniffing in 2010 and 2011, consumers could also avoid having their browser history sniffed by using updated versions of those browsers."

Epic also published a privacy policy. The complaint alleges that Epic "represented, expressly or by implication, that Epic collected information on consumers’ visits to websites only within the Epic Marketplace Network." But, "Epic did not collect only information on consumers’ visits to websites within the Epic Marketplace Network. Epic used history sniffing to collect information on whether consumers had visited websites outside of the Epic Marketplace Network."

For more on history sniffing, see July 19, 2011 piece titled "Tracking the Trackers: to Catch a History Thief", published by Stanford Law School's Center for Internet and Society.

FCC Releases Agenda for December 12 Meeting

12/5. The Federal Communications Commission (FCC) released an agenda for its event on December 12, 2012, titled "open meeting". This agenda adds two spectrum related items that were not on a previously released tentative agenda.

There are five items on this agenda. First, the FCC is scheduled to adopt a Notice of Proposed Rulemaking (NPRM) on small cell use in the 3550-3650 MHz band. This is allocated for federal use, including military radar. Also, this band does not have propagation characteristics suitable for mobile broadband. The concept is to allow shared use by low power small cells, with a range of up to about 200 meters, to provide wireless internet access.

Second, the FCC is scheduled to adopt a Report and Order (R&O) and Further NPRM on expanding the 911, E911 and NG911 regime to text messaging (SMS to 911) and other technologies. This is PS Docket Nos. 11-153 and 10-255.

The FCC adopted a Notice of Inquiry (NOI) [36 pages in PDF] on December 21, 2010. It is FCC 10-200. The FCC adopted a Notice of Proposed Rulemaking (NPRM) [81 pages in PDF] on September 22, 2011. It is FCC 11-134.

Also, the FCC might address patent rights in inventions, the use of which the FCC might mandate. Patent infringement concerns may affect deployment of new services. Hypothetically, the FCC might invoke 28 U.S.C. § 1498, which provides in part that "Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner's remedy shall be by action against the United States" in the U.S. Court of Federal Claims "for the recovery of his reasonable and entire compensation for such use and manufacture." Or, the FCC might assert and exercise authority to mandate licensing on fair, reasonable and nondiscriminatory (FRAND) terms specified by the FCC.

The following day, December 13, at 9:00 AM, the US Telecom and National Emergency Number Association (NENA) will host an on site and webcast event titled "Breakfast Briefing on Next Generation 9-1-1". See, notice and registration page.

Third, the FCC is scheduled to adopt a R&O on expanding the FCC's universal service tax and subsidy regime for health care providers. This is WC Docket No. 02-60.

Fourth, the FCC is scheduled to adopt a R&O and Order of Proposed Modification regarding service rules for several bands. This is WT Docket No. 12-70, ET Docket No. 10-142, and and WT Docket No. 04-356.

Fifth, the FCC is scheduled to adopt a NPRM regarding service rules for the Advanced Wireless Service (AWS) H block.

The Congress enacted HR 3630 [LOC | WW], the "Middle Class Tax Relief and Job Creation Act of 2012" in February of 2012. This bill gave the FCC authority to conduct incentive auctions. Among its many other provisions are an instruction, at subsections 6401(b)(1) and (2)(A)&(B), to auction the 1915-1920 MHz and 1995-2000 MHz bands within three years. This NPRM pertains to this directive.

The meeting is scheduled for 1:00 PM on Wednesday, December 12 in the FCC's Commission Meeting Room, TW-C305, 445 12th Street, SW.

The SEC Strikes Again

12/5. Netflix filed a Form 8-K with the Securities and Exchange Commission (SEC) on December 5, 2012, that discloses that the SEC is investigating Netflix because its CEO, Reed Hastings, posted short items in Facebook last summer announcing that Netflix had reached one "billion hours per month".

The SEC has a history of devoting substantial resources to bringing high publicity cases against famous and wealthy founders of technology and web based companies, such as Mark Cuban, Henry Samueli, Martha Stewart and Sam and Charles Wyly. These actions arguably have done little if anything to increase the integrity of securities markets, and have wasted taxpayer funded resources.

Meanwhile, the SEC also has a history of failing to detect and stop actual instances of large scale long running securities fraud, as for example, in the case of Bernard Madoff.

The SEC's Netflix investigation fits into the former, rather than the latter, category.

The SEC has not filed a complaint, or issued a public statement, regarding this Netflix matter.

Netflix's Form 8-K states this:

The SEC's Regulation FD is outdated. It was drafted before online social media developed.

In this exhibit, Hastings states that "We use blogging and social media, including Facebook, to communicate effectively with the public and our members. In June we posted on our blog that our members were enjoying ``nearly a billion hours per month´´ of Netflix, and people wrote about this. We did not also issue a press release or 8-K filing about this."

Then "In early July, I publicly posted on Facebook to the over 200,000 of you who subscribe to me that our members had enjoyed over 1 billion hours in June, highlighting how strong our content was. There was press coverage as there are many reporters and bloggers among you, my public followers. Some of you re-posted my post.  Again, we did not also issue a press release or file an 8-K about this."

Hastings continued that "SEC staff informed us yesterday that they are recommending that the SEC bring a civil action against us for my July 1 billion hour public post, asserting we violated ``Reg FD´´. This rule is designed to ensure that individual investors have equal access to information as large institutional investors, by prohibiting selective disclosure of material information. The SEC staff believes that I gave you all ``material´´ investor information in my post and that we needed to instead release the June viewing fact “publicly” with an 8-K filing or press release."

He argued that "posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers." He also argued that the billion hours statement was not material.

He concluded "We remain optimistic this can be cleared up quickly through the SEC's review process."

FTC Files Amicus Brief Re Availability of Injunctive Relief in SEP FRAND Case

12/5. The Federal Trade Commission (FTC) filed an amicus curiae brief [25 pages in PDF] with the U.S. Court of Appeals (FedCir) in Apple v. Motorola, regarding the availability of injunctive relief for infringement of a SEP when the patent holder has made FRAND committments.

Richard PosnerThis is the appeal and cross appeal from the judgment of the U.S. District Court (NDIll) in the case involving claims of patent infringement by plaintiffs Apple and NeXT Software and defendants Motorola and Motorola Mobility (now Google) against each other. Court of Appeals Judge Richard Posner (at left), sitting by designation as the trial court judge, dismissed all of the claims. These appeals followed. See, his June 22, 2012, opinion [38 pages in PDF].

The FTC argues in this brief that the District Court properly applied the holding of the Supreme Court in eBay v. MercExchange in determining that Motorola was not entitled to an injunction, where Motorola had committed to license that patent to anyone willing to accept fair, reasonable, and nondiscriminatory (FRAND) terms, and hence implicitly acknowledged that a royalty is adequate compensation for a license to use that patent.

The Supreme Court's 2006 opinion in eBay v. MercExchange is also reported at 547 U.S. 388. See also, story titled "Supreme Court Rules on Availability of Injunctive Relief in Patent Cases" in TLJ Daily E-Mail Alert No. 1,371, May 16, 2006.

The FTC argues that the hold up, or threat of hold up, of standards essential patents (SEPs) can create problems. It can deter innovation, deter investment, harm consumers, and reduce the value of standard setting. However, these risks are mitigated by fair, reasonable and nondiscriminatory (FRAND) commitments.

"However, a royalty negotiation that occurs under the threat of an injunction may be heavily weighted in favor of the patentee in a way that is in tension with the RAND commitment." The FTC brief continues that "the threat of an injunction may allow the holder of a RAND-encumbered SEP to realize royalty rates that reflect the investments firms make to implement the standard, rather than the competitive value of the patented technology, which could raise prices to consumers while undermining the standard-setting process."

The FTC continued that the District Court correctly concluded that "the first two eBay factors militate against injunctive relief against Apple because Motorola could not establish that it would be irreparably harmed or that monetary relief (an ongoing royalty) would be inadequate where Motorola had committed" to FRAND terms. (Footnote omitted. Parentheses in original.)

The FTC added that "The other eBay factors (balance of hardships and public interest) also can be expected to militate against injunctive relief in the case of standard-essential patents." (Parentheses in original.)

The FTC concludes that "Injunctive relief should not be permitted to allow the owner of standard-essential patent subject to a RAND obligation to appropriate for itself the value created by numerous other innovators that build on or contribute to the standard at issue. Insofar as Motorola seeks an injunction not for the purpose of excluding Apple’s products from the market, but to bring Apple to the table to negotiate a favorable royalty, its argument does not support an injunction against a willing licensee. On the contrary, the use of such leverage is the essence of hold-up."

The FTC stated in a release that Commissioner Maureen Ohlhausen vote against approval of this brief. The brief adds in a footnote that Commissioner Thomas Rosch "concurs in the submission of this brief. He is of the view that the issuance of injunctive relief is inappropriate where the patent holder has made a FRAND commitment for a standard essential patent, even if the patentee contends that it has met its FRAND obligation. In his view, a FRAND pledge appears to be, by its very nature, a commitment to license; if so, seeking injunctive relief would be inconsistent with that commitment. Commissioner Rosch thus submits that if a court concludes that a party, or its predecessor in interest, made a FRAND commitment with respect to a SEP, an injunction should be denied for that patent. In his view, the only exception to this is when the licensee refuses to comply with the decision of a federal court or some other neutral arbitrator defining the FRAND terms."

The FTC's Richard Brunell signed the brief.

This case is Apple, Inc. et al. v. Motorola, Inc., et al., U.S. Court of Appeals for the Federal Circuit, App. Ct. Nos. 2012-1548 and 2012-1549, appeals from the U.S. District Court for the Northern District of Illinois, D.C. No. 1:11-cv-08540, Judge Richard Posner presiding.

DOJ's Morton Addresses SEPs, FRAND, Non-SEPS and Hold Ups

12/5. Fiona Morton, Deputy Assistant Attorney General For Economic Analysis in the Department of Justice's (DOJ) Antitrust Division, gave a speech [11 pages in PDF] in Brussels, Belgium titled "The Role of Standards in the Current Patent Wars".

She addressed standards essential patents (SEPs), patent holders' commitments to license SEPs on fair, reasonable and nondiscriminatory (FRAND) terms, non-SEPs, and hold ups.

Fiona MortonMorton (at left) said that the DOJ's concern is that "a patent holder may demand licensing terms that are not consistent with this F/RAND promise, and couple that demand with a threat of an injunction or other exclusionary relief.This would have the ultimate effect of undermining competition and the procompetitive benefits of the standard setting process." (Footnote omitted.)

She noted that the historic practice of cross licensing by competitors, without recourse to litigation, does not hold in some sectors today. She said that "we are seeing litigation among competitors, as well as by firms that do not compete. There are some underlying technical reasons for this (e.g. software patents and the rise of Patent Assertion Entities (PAEs)) but there are two interesting product market reasons for the patent wars and the inefficient litigation we see today." (Parentheses in original.)

"The first is the rise of the smart mobile phone or tablet as a very popular type of consumer electronic device. These devices combine a number of capabilities: telecommunications, computer communications (such as wi-fi), computer hardware (such as screens), operating systems, and software applications. With so much going on in one little device, the device could end up implementing hundreds of standards and reading on many thousands of patents." (Parentheses in original. Footnote omitted.)

"Second, we are in an era of platform competition, where the owner or sponsor of the platform owns or creates only one piece of the ecosystem, and many complementary products are required for the platform to be popular with consumers."

She continued that "Platforms become successful due to scale-generating network effects; the more users of a platform there are, the more complementary products are created, which in turn attracts more users. Furthermore, many platforms create or simply have "lock-in," such as when a consumer’s music collection purchased on one platform cannot be transferred to another. Platforms can also feature "tipping." If the platform doesn’t have enough scale to generate applications or other valuable content, it may not attract more consumers, which will mean that fewer applications developers write for it, fewer consumers buy devices, and the platform dwindles."

"The explosion in the popularity of smart mobile devices is arguably creating a moment where the forces of lock-in and tipping may play a big role. Symmetry and long-run cooperation aren’t relevant in this game the way they may have been in years past. It is therefore critical for players in this marketplace to use every possible tool at their disposal to gain a competitive advantage for their platforms while they have a chance of tipping a platform in their favor or stopping tipping against themselves. OEMs become involved because, as the actual manufacturers of the hardware, they are often the defendants in patent lawsuits. Often involved in this fight are allegations of patent infringement, including, occasionally, SEPs."

She said that "We believe declared SEPs can be a powerful weapon, perhaps enhanced by over declaration, and can be used to harm competition through holdup."

She also reiterated the DOJ's recommendations for processes to be followed by standard setting organizations (SSOs). See also, speech [12 pages in PDF] by Renatta Hesse titled "Six Small Proposals for SSOs Before Lunch", and story titled "DOJ's Hesse Addresses Patents and Standard Setting Organizations" in TLJ Daily E-Mail Alert No. 2,466, October 12, 2012.

Non-SEPS and Commercially Essential Patents. She also said that "non-SEPs can also be used to hold up licensees". She noted that with these patents, the holder has not via FRAND commitments "voluntarily given up the right to exclude in most circumstances as part of the bargain for having its technology included in the standard".

Moreover, "Patents that are not essential to practice a standard are numerous and vary greatly in strength. Those with market power can be used in anticompetitive ways, and acquisitions of patents can violate the antitrust laws.

She continued that "Non-standardized technologies differentiate devices, create competition and drive innovation in the marketplace."

"There is also a key difference in business strategy between the two types of patents: when the SEP owner makes a F/RAND commitment, it is explicitly agreeing that users of its IP may compensate the owner with money. With a differentiating patent, by contrast, the strategy of the firm may be to exclude other producers from using the IP in order to drive sales of its own product."

She next tackled the concept of "commercially essential patents". She said first that "it is not clear to me what it means to be commercially essential".

But, she added, "Is the innovation something that consumers just love and that is thought to be essential to marketing a product? If so, exclusion might be an important driver of innovation. If, as a rule, truly innovative features that build on a standard need to be shared with competitors, incentives to innovate could be dulled."

Senate Democratic Leadership Will Not Allow Vote on House Passed STEM Bill

12/5. Sen. Charles Grassley (R-IA) gave a speech in the Senate in which he urged the Senate Democratic leadership to bring up for a vote HR 6429 [LOC | WW], the "STEM Jobs Act of 2012".

The House passed this bill on November 30, 2012. See, story titled "House Passes STEM Visas Bill" in TLJ Daily E-Mail Alert No. 2,480, December 1, 2012.

Rep. Lamar Smith (R-TX), sponsor of the bill, issued a release that states that Senate Democrats decided not to consider the bill.

Rep. Smith stated in this release that "I am disappointed that President Obama and Senate Democrats oppose the STEM Jobs Act. This important bill will help us create jobs, increase our competitiveness, spur our innovation, and keep families together. ... The sooner we start to keep these talented foreign graduates, the sooner they can bolster U.S. competitiveness and help create jobs for America’s unemployed. Unfortunately, President Obama and Senate Democrats seem to value their partisan agenda more than job creation and economic growth. Their decision to oppose the STEM Jobs Act forces us to send the best and brightest foreign graduates back home to work for our global competitors."

Sen. Grassley stated that "This bill would make available up to 55,000 green cards each year for foreign students who have received doctorates or masters degrees in science, technology, engineering or math (also known as STEM) from a U.S. university. The bill wouldn't increase overall immigration levels, but rather, would move our immigration system toward one in which we reward the best and brightest of the world with the chance to remain, live and work in this country."

House Passes Internet Governance Resolution

12/5. The House passed SConRes 50 by a vote of 397-0. See, Roll Call No. 617. This is a resolution "Expressing the sense of Congress regarding actions to preserve and advance the multistakeholder governance model under which the Internet has thrived".

The Senate passed it on September 22. See also, story titled "Senate Foreign Relations Committee Approves Internet Governance Resolution" in TLJ Daily E-Mail Alert No. 2,452, September 20, 2012.

Previously, the House passed the related HConRes 127 on August 2, 2012. See, stories titled "House Approves Resolution Opposing International Internet Regulation" and "Ambassador Kramer Addresses Upcoming WCIT" in TLJ Daily E-Mail Alert No. 2,420, August 4, 2012.

These resolutions are directed at proposals being considered at the World Conference on International Telecommunications (WCIT), which commenced in Dubai, United Arab Emirates, on December 3. See, event web site.

EC Announces Processes for Studying Copyright Reforms

12/5. The European Commission (EC) released a memorandum titled "Commission agrees way forward for modernising copyright in the digital economy". It describes pre-legislative processes.

It states that the EC's "objective is to ensure that copyright stays fit for purpose in this new digital context." The EC will "work for a modern copyright framework that guarantees effective recognition and remuneration of rights holders in order to provide sustainable incentives for creativity, cultural diversity and innovation; opens up greater access and a wider choice of legal offers to end users; allows new business models to emerge; and contributes to combating illegal offers and piracy".

It then states that there will be two study processes. First, "A structured stakeholder dialogue will be launched at the start of 2013 to work to address six issues where rapid progress is needed: cross-border portability of content, user-generated content, data- and text-mining, private copy levies, access to audiovisual works and cultural heritage. The discussions will explore the potential and limits of innovative licensing and technological solutions in making EU copyright law and practice fit for the digital age."

This process will "take stock" by December 2013, but will "not prejudge the possible need for public policy action, including legislative reform".

There will be second process, "with a view to a decision in 2014", that will study four issues: "mitigating the effects of territoriality in the Internal Market; agreeing appropriate levels of harmonisation, limitations and exceptions to copyright in the digital age; how best to reduce the fragmentation of the EU copyright market; and how to improve the legitimacy of enforcement in the context of wider copyright reform."

People and Appointments

12/5. The Senate confirmed Michael Shea to be a Judge of the U.S. District Court (DConn).

12/5. The Washington Examiner published a story on December 5, 2012, titled "GOP Sides with Mickey Mouse on Copyright Reform" in which it stated that Derek Khanna "was fired" from his position on the staff of the House Republican Study Committee, and that the "main reason" was his short polemic titled "Three Myths About Copyright Law and Where to Start to Fix It", dated November 16, 2012.

12/5. The Securities and Exchange Commission (SEC) announced in a release that Mark Cahn, its General Counsel, "will leave the agency at the end of the year to return to the private sector". Before joining the SEC in 2009 he worked in the law firm of Wilmer Hale.

More News

12/5. The House passed S 3642 [LOC | WW], the "Theft of Trade Secrets Clarification Act of 2012". The Senate passed this bill on November 27, 2012. It is now ready for President Obama's signature. This is a short amendment to the Economic Espionage Act (EEA), which is codified at 18 U.S.C. § 1832, and which criminalizes theft of trade secrets. This bill is a response to the April 11, 2012 opinion of the U.S. Court of Appeals (2ndCir) in U.S. v. Aleynikov, App. Ct. No. 11-1126. The bill clarifies that the EEA covers theft of software source code. For a more detailed explanation of this bill, see story titled "Senate Passes Theft of Trade Secrets Clarification Act" in TLJ Daily E-Mail Alert No. 2,477, November 28, 2012.

12/5. The U.S. Court of Appeals (9thCir) issued an amended opinion [22 pages in PDF] in Al-Haramain Islamic Foundation v. Obama, a case involving electronic surveillance under the Foreign Intelligence Surveillance Act (FISA) and the state secrets privilege. This case is Al-Haramain Islamic Foundation, Inc., et al.  v. Barack Obama, et al., U.S. Court of Appeals for the 9th Circuit, App. Ct. Nos. 11-15468 and 11-15535, appeals from the U.S. District Court for the Northern District of California. Judge Margaret McKeown wrote the opinion of the Court of Appeals, in which Judges Harry Pregerson and Michael Hawkins joined.

12/5. The U.S. Department of State released a memorandum titled "Five Myths Regarding Privacy and Law Enforcement Access to Personal Information in the European Union and the United States".

12/5. Rep. John Lewis (D-GA), and other Democratic Representatives, sent a letter to Federal Communications Commission (FCC) Chairman Julius Genachowski urging inaction on media ownership rules. The letter urges that the FCC "not proceed with its proposed rule changes at this time, and that it seeks further analysis and comment on its recently released data before it acts on its media ownership rules." See also, story titled "Sen. Sanders and Others Urge FCC to Continue Ancient Newspaper Broadcast Cross Ownership Rule" in TLJ Daily E-Mail Alert No. 2,484, December 6, 2012.

DC Circuit Upholds FCC's Data Roaming Rules

12/4. The U.S. Court of Appeals (DCCir) issued its opinion [30 pages in PDF] in Cellco Partnership v. FCC, rejecting a challenge to the Federal Communications Commission's (FCC) data roaming rules.

The Court of Appeals explained that "Roaming occurs when wireless subscribers travel outside the range of their own carrier’s network and use another carrier’s network infrastructure to make a call. Until the issuance of the rule challenged in this case, mobile carriers' obligation to permit roaming extended only to voice-telephone services."

This is a defeat for Verizon and AT&T.

FCC Chairman Julius Genachowski asserted over broadly in a release that "This unanimous decision confirms the FCC's authority to promote broadband competition and protect broadband consumers."

See, full story.

Obama Signs Bill to Extend Sunset on SAFE WEB Act

12/4. President Obama signed HR 6131 [LOC | WW], a bill to extend the SAFE WEB Act. See, White House news office release.

The Congress enacted the original SAFE WEB Act in late 2006, with a seven year sunset. HR 6131 extends the sunset until September 20, 2020. The House passed this bill on September 11, 2012. The Senate passed it on November 14.

See also, stories titled "House Passes Bill to Extend SAFE WEB Act" in TLJ Daily E-Mail Alert No. 2,446, September 12, 2012, and "House and Senate Commerce Committees Pass Bills to Extend SAFE WEB Act" in TLJ Daily E-Mail Alert No. 2,418, August 2, 2012.

The SAFE WEB Act is a misleading title. The Act gives the Federal Trade Commission (FTC) some broad investigatory powers, such as the power to compel third party service providers to disclose the contents of stored wire and electronic communications, without notice to the owner of the communications, and with a gag order imposed upon the service provider. The Act also gives the FTC broad authority to share information with other nations.

Such powers are subject to abuse. Sunsets make it easier for members of Congress to oversee agency implementation of statutory authority, and if necessary, terminate such authority.

Rep. Mary Mack (R-CA), sponsor of the bill, stated in a release that this is "the right thing to do for our nation and our friends around the world. With nearly 1.5 billion credit cards in use in the United States, nearly everyone in America has a stake in making certain that the FTC has the powers it needs to fight online fraud."

Sen. Leahy Introduces a Bill to Make USPTO Acceleration Certificates Alienable

12/4. Sen. Patrick Leahy (D-VT) introduced S 3652 [LOC | WW], the "Patents for Humanity Program Improvement Act of 2012", a bill to make U.S. Patent and Trademark Office (USPTO) acceleration certificates alienable.

Patent applications and other proceedings take time. The USPTO created a program in February of 2012 under which it grants "acceleration certificates" to patent applicants, owners and licensees, based upon value judgments regarding USPTO policy goals, who have used patented technologies to "address humanitarian needs".

This bill would make these certificates alienable, and thereby create a market for preferential treatment at the USPTO.

There is only one original cosponsor, Sen. Chris Coons (D-DE). There is no House version of this bill. This bill was referred to the Senate Judiciary Committee (SJC), which Sen. Leahy chairs.

USPTO Acceleration Certificates Program. In February the USPTO created a twelve month pilot program titled "Humanitarian Awards Pilot Program". See, notice in the Federal Register, Vol. 77, No. 26, February 8, 2012, at Pages 6544-6548.

The USPTO published this description of its program. "The pilot program will be run as an awards competition. Participating patent applicants, patent owners, and licensees will submit program applications describing what actions they have taken with their patented technology to address humanitarian needs among an impoverished population or further research by others on humanitarian technologies. Applications will be considered in four categories: Medical Technology, Food & Nutrition, Clean Technology, and Information Technology."

The USPTO continued that "Independent judges will review the program applications, and a selection committee will recommend awardees based on these reviews. Awardees will receive a certificate redeemable to accelerate select matters before the USPTO and public recognition for their efforts, including an award ceremony at the USPTO."

Then, "The certificate can be redeemed to accelerate one of the following matters: an ex parte reexamination proceeding, including one appeal to the Board of Patent Appeals and Interferences (BPAI) from that proceeding; a patent application, including one appeal to the BPAI from that application; or an appeal to the BPAI of a claim twice rejected in a patent application or reissue application or finally rejected in an ex parte reexamination, without accelerating the underlying matter which generated the appeal. Inter partes reexaminations and interference proceedings are not eligible for acceleration, nor are the forthcoming post grant reviews, inter partes reviews, derivation proceedings, or supplemental examinations."

Bill Summary. Sen. Leahy's bill provides, in part, that "A holder of an acceleration certificate issued pursuant to the Patents for Humanity Program ...  or any successor thereto ... may transfer (including by sale) the entitlement to such acceleration certificate to another person." (Parentheses in original.)

Sen. Leahy stated in the Senate that "Following a Judiciary Committee hearing in June, I asked Director Kappos whether the program would be more effective, and more attractive to patent owners, if the acceleration certificate were transferable to a third party. He responded that it would, particularly for small businesses."

Sen. Leahy continued that "The Patents for Humanity Program Improvement Act of 2012 simply makes these acceleration certificates transferable. Director Kappos described the Patents for Humanity Program as one that provides business incentives for humanitarian endeavors." See, Congressional Record, December 4, 2012, at Page S7403.

Commentary. This USPTO program, and the proposal in Sen. Leahy's bill, lie outside of the mission of the Constitutionally ordained patent system, which is to secure for limited times to inventors the exclusive right to their discoveries.

The patent system, run by the USPTO, reviews and acts upon patent applications. It grants patents to inventors, who have disclosed something new, useful, novel and non-obvious. Impartial patent examiners apply technical and objective criteria. Rewards to the inventor, if any, come only through the operation of a free market, and not from financial valuable grants from the USPTO. This new USPTO program, in contrast, puts the USPTO into the new position of giving rewards (financially valuable if Sen. Leahy's proposal is adopted) based upon subjective application of policy goals.

The government does many things to try to bring about invention and innovation, including many that involve giving out rewards. And just last week Rep. Mike Honda (D-CA) introduced a bill proposing yet another innovation awards program -- $10 Million prizes for developing disruptive health IT innovation. See, HR 6626 [LOC | WW].

But, giving out policy based financial awards is not the function of the patent system. Moreover, under this program, and Sen. Leahy's proposal, the patent system itself is involved in the rewards program.

Under this new USPTO program, those who further the USPTO's enumerated policy goals are awarded acceleration certificates. These can be of value to the awardee. Now, Sen. Leahy proposes to make these certificates alienable. That is, the awardee would be allowed to sell a certificate to another participant in the patent process.

Patent processes can take a long time. Many have an interest in faster processing, and hence, would be willing to pay for quicker determinations. But, by accelerating some, the USPTO is delaying and thereby harming others. Moreover, some will be able to afford to pay for acceleration certificates, while others will not. Well capitalized businesses will benefit from this, while small businesses and individual inventors likely will not.

This program, and Sen. Leahy's proposal, not only put the USPTO in the new role of granting policy based rewards, but also depart from the principle that all applicants are treated alike.

This is not the first time that the USPTO has been involved in granting awards. The Congress created the non-financial National Medal of Technology and Innovation (NMTI) program over three decades ago. And, several years ago the USPTO was tasked with running this program. However, unlike the acceleration certificates program, the NMTI program is run separately from the USPTO's patent system.

There is also the general tendency that when government agencies give awards based upon value judgments of the reviewers, politics, ideologies, political campaigns, and lobbying play a role. Heretofore the USPTO has distinguished itself among federal agencies by being free of these influences.

For example, TLJ has written before that politics and campaign contributions have influenced awards of the NMTI (before the USPTO was given responsibility for administering the program). See, for example, story titled "Commentary: National Medal of Technology Program" and related stories in TLJ Daily E-Mail Alert No. 1,312, February 17, 2006.

People and Appointments

12/4. The Securities and Exchange Commission (SEC) announced in a release that Meredith Cross, Director of the SEC's Division of Corporate Finance, "will leave the SEC at the end of the year to return to the private sector". Before joining the SEC in 2009 she worked in the law firm of Wilmer Hale.

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12/4. Sen. Patrick Leahy (D-VT) and Sen. Chris Coons (D-DE) introduced S 3652 [LOC | WW], the "Patents for Humanity Program Improvement Act of 2012". Patent applications and other proceedings take time. The USPTO created a program in February under which it grants "acceleration certificates", based upon value judgments, to patent applicants, owners and licensees who have used patented technologies to "address humanitarian needs". This bill would make these certificates negotiable instruments, and create a market for preferential treatment. The bill was referred to the Senate Judiciary Committee (SJC), which Sen. Leahy chairs.

12/4. The Federal Communications Commission (FCC) released the text [119 pages in PDF] of its Fifth Order on Reconsideration and Sixth Report and Order regarding approval of pending FM translator radio applications and implementation of the Local Community Radio Act (LCRA). See, story titled "FCC Announces Another LPFM Order" in TLJ Daily E-Mail Alert No. 2,480, December 1, 2012. This item is FCC 12-144 in MM Docket Nos. 99-25 and 07-172.

Sen. Sanders and Others Urge FCC to Continue Ancient Newspaper Broadcast Cross Ownership Rule

12/3. Six Democratic Senators sent a letter [PDF] on November 30 to the Federal Communications Commission (FCC) urging perpetuation of the FCC's ancient regulatory regime for ownership of media. On December 3 the FCC solicited further comments, thus effectively postponing its adoption of new rules.

The focus of the letter is "large media companies" and their "mass consolidation" of media. However, they also lament the "extremely low levels of female and minority ownership".

They also wrote that "we understand that the FCC is again considering relaxation of its cross-ownership rules, which include limits on ownership of television stations and newspapers in the same market". Also, "It is our understanding that a vote on this latest round of proposed ownership rules can be expected before the end of the year."

They requested "that the FCC not proceed with its proposed rule changes without providing a clear, evidence based response" to their concerns.

See, full story.

SEC Launches Administrative Action Against PRC Accounting Firms

12/3. The Securities and Exchange Commission (SEC) issued an order that initiates an administrative action against the Peoples Republic of China (PRC) affiliates of five large accounting firms for refusing to produce audit work papers and other documents related to PRC based companies under investigation by the SEC for potential accounting fraud against U.S. investors. The five are:

Robert Khuzami, Director of the SEC's Division of Enforcement, stated in a release that "Only with access to work papers of foreign public accounting firms can the SEC test the quality of the underlying audits and protect investors from the dangers of accounting fraud".

People and Appointments

12/3. The Senate confirmed Paul Grimm to be a Judge of the U.S. District Court (DMd) by a vote of 92-1. See, Roll Call No. 217.

12/3. The Federal Communications Commission (FCC) published a notice that it seeks to employ a person for the position of "Chief Information Officer". The deadline to apply is January 3, 2013. The FCC adds, "Drug Testing Required".

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12/3. The Federal Communications Commission (FCC) released an Order [17 pages in PDF] regarding intercarrier compensation reform. The FCC adopted this item on November 30, and released the text on December 3. It is FCC 12-147 in WC Docket No. 12-233.

12/3. Rep. Mike Honda (D-CA) introduced HR 6626 [LOC | WW], the "Health Care Innovation and Marketplace Technologies Act of 2012". This is a money bill. It would create a deduction from taxable income for certain health information technology (HIT) expenses. It would create new government loan guarantee and grant programs related to HIT. It would create a new government program to award $10 Million prizes for developing HIT. It would create an "Office of Wireless Health Technology", and authorize the appropriation of $1 Million per year. It would also authorize the appropriation of $10 Million per year for training health care workers in HIT.

Go to News from November 26-30, 2012.