TLJ News from April 16-20, 2014

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4/18. The Office of the U.S. Trade Representative (OUSTR) published a notice in the Federal Register that announces that "For the purpose of U.S. Government procurement that is covered by Title III of the Trade Agreements Act of 1979, the effective date of the Protocol Amending the Agreement on Government Procurement, done at Geneva on 30 March 2012, World Trade Organization (WTO), with respect to Japan is April 16, 2014." See, FR, Vol. 79, No. 75, April 18, 2014, at Pages 21991-21992.

FEC to Consider Bitcoin Advisory Opinions

4/17. The Federal Election Commission (FEC) released two draft advisory opinions regarding application of the federal election campaign finance regulatory regime to Bitcoins. The two drafts, released on April 16 and 17, 2014, offer two different sets of conclusions.

The FEC released one draft [23 pages in PDF], labeled Draft A of Advisory Opinion AO 2014-02, on April 16. The FEC released another draft [21 pages in PDF], labeled Draft B, late on April 17.

Draft A would allow committees such as MYL to accept Bitcoins as in-kind contributions under valuation, and to purchase goods and services with Bitcoins that it receives as contributions. Draft B would allow committees such as MYL to accept as contributions only $100 worth of Bitcoins per contributor per election. Otherwise, MYL would not be allowed to accept Bitcoins as in-kind contributions or hold contributed bitcoins in a bitcoin wallet; nor would MYL be allowed to purchase goods or services with Bitcoins.

The FEC has also scheduled this matter for consideration at a meeting at 11:00 AM on April 23, 2014. See, notice in the Federal Register, Vol. 79, No. 76, April 21, 2014, at Page 22132.

The FEC is proceeding quickly, with limited notice, and with limited opportunity for public comment. The FEC has provided only one week's notice, at a time when the Congress and legislative bodies around the country are in recess, and many Americans are observing religious holidays.

Make Your Laws PAC, Inc. , also known as MYL, filed its request [11 pages in PDF] for an advisory opinion (AO) on February 11, 2014.  MYL is, within the meaning of the Federal Election Campaign Act (FECA) and regulations thereunder, a non-connected political committee.

FEC draft A concludes that MYL "may generally accept bitcoins as in-kind contributions under valuation, deposit, and reporting procedures similar to those that the Commission has previously approved for other in-kind contribution".

The FEC further opines that MYL "may purchase goods or services with bitcoins it receives as contributions".

However, Draft A adds "While the requestor may also purchase bitcoins with funds from its campaign depository, it may not make disbursements using those purchased bitcoins, because Commission regulations require such funds to be returned to a campaign depository before they are used to make disbursements".

Draft B concludes that while MYL "may accept bitcoin contributions, these contributions raise similar concerns to cash contributions, which are limited under the Act due to their untraceability and the ease with which they may be used for illegal purposes."

Therefore, Draft B concludes, MYL "may not accept bitcoins as in-kind contributions or hold contributed bitcoins in a bitcoin wallet, as proposed. But the requestor may accept a contribution of up to $100 worth of bitcoins per contributor per election if MYL both liquidates those bitcoins into dollars and deposits the dollars in its campaign depository within 10 days of receipt of the contribution."

FEC Draft B further concludes that MYL "may not purchase goods or services with bitcoins".

Finally, Draft B concludes that MYL "may purchase bitcoins with funds from its campaign depository for investment purposes, but may not make disbursements using those purchased bitcoins because Commission regulations require the committee's funds to be returned to a campaign depository before they are used to make disbursements."

Greg Abbott, the Attorney General of the state of Texas, is running for Governor of Texas. This election is regulated under Texas state law by state regulators, and not under the FECA by the FEC.

His campaign web site published a release on April 17 that announces that "Bitcoin will now be accepted as a form of campaign contribution through Bitcoin, a new and decentralized digital currency, enables instant financial transactions with a new level of safety and security. Texans for Greg Abbott is one of the first major statewide campaigns to accept Bitcoin ..."

Senate Foreign Relations Committee Report Addresses TPP and Other Asia Trade Topics

4/17. The Senate Foreign Relations Committee (SFRC) Democrats released a staff report [33 pages in PDF] titled "Re-Balancing the Rebalance: Resourcing U.S. Diplomatic Strategy in the Asia-Pacific Region".

This report recommends, among other things, that the U.S. "aggressively pursue bilateral trade deals, including a Bilateral Investment Treaty (BIT) with China, alongside larger trade agreements such as the Trans-Pacific Partnership (TPP)."

It also recommends involving Taiwan, the Philippines, and Indonesia, and Taiwan in either the TPP or bilateral trade discussions.

It also recommends more funding and personnel for the Office of the U.S. Trade Representative (OUSTR).

It states that "The administration has made the TPP the principal focus of U.S. trade policy in the region and a cornerstone of the rebalance. The TPP aims to create a new high standard of rules-based trade in the region that is open to all members of APEC (and possibly all ASEAN members in the future)." (Parentheses in original.)

It continues that "Given the critical importance to U.S. interests of trade and economic engagement with the region, a high-standard TPP will be necessary to protect U.S. businesses from unfair business practices
and allow them to leverage their competitive advantages. The TPP offers them considerable opportunities, especially with the addition of new members like Japan and the prospect that Korea and other significant economies are seriously contemplating joining the next round. According to the USTR, as currently configured the TPP agreement would cover 37 percent of all U.S. exports and include foreign markets that support 4 million jobs in the United States. A completed and successfully implemented TPP deal could therefore be a boon for U.S. exporters and help the administration achieve its National Export Initiative (NEI) goals of doubling exports and supporting two million American jobs." (Footnote omitted.)

This report states that "While the USTR has a critically important and ever-expanding portfolio in the region, it currently lacks the funding and personnel to meet current demands, much less future challenges and opportunities. Beyond the TPP, USTR is also conducting Trade and Investment Framework Agreement (TIFA) consultations with Taiwan and Bilateral Investment Treaty negotiations with China and India, as well as expanded engagement with ASEAN. As these agreements come online, USTR will require more funding for personnel and travel to protect U.S. economic interests by ensuring proper implementation."

GAO Report Finds Information Security Weaknesses at SEC

4/17. The Government Accountability Office (GAO) released a report [25 pages in PDF] titled "Information Security: SEC Needs to Improve Controls over Financial Systems and Data".

The Securities and Exchange Commission (SEC) is involved in regulating the cyber security related practices of businesses. The SEC issued a guidance regarding the disclosure obligations of publicly traded companies related to cybersecurity risks and incidents in 2011. The SEC adopted identity theft red flag rules in April of 2013. SEC Chairman Mary Jo White asserted "formal jurisdiction over cybersecurity" in a March 26, 2014 speech. The SEC's Office of Compliance Inspections and Examinations (OCIE) announced a "Cybersecurity Initiative" on April 15, 2014. It stated in a notice that the SEC will examine "more than 50 registered broker-dealers and registered investment advisers, focusing on areas related to cybersecurity".

This GAO report calls into question the SEC's competence to regulate in this area.

This report states that the GAO found that the SEC "did not consistently protect its network boundary from possible intrusions; identify and authenticate users; authorize access to resources; ensure that sensitive data are encrypted; audit and monitor actions taken on the commission’s systems and network; and restrict physical access to sensitive asset".

As a result, the SEC "introduced vulnerability to unnecessary and potentially undetectable access at multiple points in the key financial system's network environment".

Also, the report found that the SEC "did not consistently implement strong password controls for identifying and authenticating users to certain servers, network devices, and databases in the key financial system’s environment". Nor did the SEC always "employ the principle of least privilege when authorizing access permissions to a key financial system. Specifically, it did not appropriately restrict access to security-related parameters and users’ rights and privileges for several network devices, databases, and servers supporting key financial applications".

Nor did the "configure settings of the logging and database servers supporting key financial applications to use encryption when transmitting data", or consistently configure " certain servers supporting a key financial system to maintain audit trails for all security-relevant events".

WTO Rare Earths Ruling Under Appeal

4/17. The Wall Street Journal (WSJ) published an article on April 17, 2014 titled "China to Appeal WTO Rare-Earth Ruling". As of publication of this issue of TLJ, the World Trade Organization (WTO) had not yet published any Notification of an Appeal by the People's Republic of China (PRC) in its web site.

The US, EU and Japan filed complaints with the WTO in 2012 regarding the PRC policies with respect to rare earth materials, which are used in many technology products. These proceeding are WTO DS 431, DS 432, and DS 433, respectively.

On March 26, 2014, the WTO Dispute Settlement Body (DSB) released its panel reports [258 pages in PDF]. The WTO panel found that the PRC's export duties on rare earths are inconsistent with its accession protocol, and its export duties are inconsistent with the General Agreement on Tariffs and Trade 1994 (GATT 1994). The panel also faulted the PRC's restrictions on the trading rights of enterprises exporting rare earths.

See also, story titled "WTO Rules Rare Earths Case" in TLJ Daily E-Mail Alert No. 2,639, April 8, 2014, story titled "US, Japan and EU Request WTO DSP for REM Complaint Against PRC" in TLJ Daily E-Mail Alert No. 2,406, July 20, 2012, and stories titled "US, Japan and EU Take Rare Earths Issue to WTO" and "OUSTR Explains Rare Earths Request for Consultations" in TLJ Daily E-Mail Alert No. 2,349, March 14, 2012.

On April 8, 2014, the US filed with the WTO Appellate Body (AB) a Notification of an Appeal of the DSB ruling on the US complaint against the PRC. This notification states that "If China were not to appeal the Panel Report, or if the Appellate Body were not to modify or reverse the legal findings or conclusions of the Panel pursuant to an appeal by China, then the Appellate Body would not need to reach" the issues raised by this notification of an appeal. The issues raised by this notification go to the rejection of exhibits by the DSB offered by the US.

USPTO to Hold Hearing on Subject Matter Eligibility of Claims Reciting Laws of Nature

4/17. The U.S. Patent and Trademark Office (USPTO) will host a public hearing on May 9, 2014 on its memorandum titled "Guidance For Determining Subject Matter Eligibility of Claims Reciting or Involving Laws of Nature, Natural Phenomena, and Natural Products (Laws of Nature/Natural Products Guidance)''. (Parentheses in original.)

The USPTO released this 19 page guidance for its patent examiners on March 4, 2014, in reaction to the Supreme Court's June 13, 2013 opinion in Association for Molecular Pathology v. Myriad Genetics (Sup. Ct. No. 12-398), and its March 20, 2012 opinion in Mayo Collaborative Services v. Prometheus Laboratories (Sup. Ct. No. 10-1150).

35 U.S.C. § 101 provides merely that "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title."

The Supreme Court held in Myriad that "a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated, but that cDNA is patent eligible because it is not naturally occurring".

It held in Mayo, in the context of patent claims directed at methods for giving a drug to a patient, that "underlying laws of nature" are not patentable.

The hearing will be held from 1:00 to 4:00 PM on May 9 in the USPTO's Madison Auditorium, 600 Dulany St., Alexandria, VA. The deadline to submit requests to speak at the hearing is April 25. The USPTO requires registration for both on site attendance, and for its webcast of the hearing.

The USPTO states that "There is no deadline for receipt of written comments."

See, notice in the Federal Register, Vol. 79, No. 74, April 17, 2014, at Pages 21736-21738.

Mathias Dopfner Criticizes Google's Abuse of Market Dominating Position

4/17. Mathias Dopfner (Ch/CEO of Axel Springer) wrote a letter to Eric Schmidt (ExecCh of Google) in which he criticized Google's "abuse of a market-dominating position" and its threats to individual privacy. The letter is long, frank, and open to the public.

Axel Springer is a German publishing company that owns, among other properties, Die Welt. Schmidt is Executive Chairman of Google and Chairman of the New America Foundation (NAF). See, Schmidt's Google bio and NAF bio.

Mathias DopfnerDopfner (at right) wrote that because Google is "super market-dominating" in online search, and it is abusing this position to favor its own content over that of its competitors, there is now a need for a "discussion in the interests of the long-term integrity of the digital economy’s ecosystem", to preserve economic and political competition.

He described Google's market position this way. Online businesses "are dependent on Google. At the moment Google has a 91.2 percent search-engine market share in Germany."

"Google is a prime example of a market-dominating company. With a seventy-percent global market share, Google defines the infrastructure on the Internet. The next largest search engine is Baidu in China with 16.4 per cent -- and that's because China is a dictatorship which prohibits free access to Google. Then there are search engines with market shares of up to 6 percent. These are pseudo-competitors. The market belongs to a single company." He wrote that "Google is not only market-dominating but super market-dominating."

"Today there is a global network monopoly. This is why it is of paramount importance that there be transparent and fair criteria for Google’s search results. However," Dopfner wrote, "these fair criteria are not in place. Google lists its own products, from e-commerce to pages from its own Google+ network, higher than those of its competitors, even if these are sometimes of less value for consumers and should not be displayed in accordance with the Google algorithm. It is not even clearly pointed out to the user that these search results are the result of self-advertising. Even when a Google service has fewer visitors than that of a competitor, it appears higher up the page until it eventually also receives more visitors. This is called the abuse of a market-dominating position."

European publishers and internet companies have complained to antitrust regulators at the European Commission (EC). Dopfner commented on this proceeding.

However, he did not comment on the parallel action at the U.S. Federal Trade Commission (FTC). See, story titled "FTC Concludes its Investigation of Google" in TLJ Daily E-Mail Alert No. 2,504, January 7, 2013.

The FTC concluded that "the evidence presented at this time does not support the allegation that Google's display of its own vertical content at or near the top of its search results page was a product design change undertaken without a legitimate business justification. Rather, we conclude that Google's display of its own content could plausibly be viewed as an improvement in the overall quality of Google’s search product. Similarly, we have not found sufficient evidence that Google manipulates its search algorithms to unfairly disadvantage vertical websites that compete with Google-owned vertical properties. Although at points in time various vertical websites have experienced demotions, we find that this was a consequence of algorithm changes that also could plausibly be viewed as an improvement in the overall quality of Google's search results."

Dopfner wrote that the EC's disposition of its case "has left anyone with any understanding of the issue speechless". See, EC February 5, 2014 release regarding its Google investigation.

He wrote that the EC "is seriously proposing that the infrastructure-dominating search engine Google be allowed to continue to discriminate against its competitors in the placement of search results critical to success. As ``compensation,´´ however, a new advertising window will be set up at the beginning of the search list, in which those companies who are discriminated against will be able to buy a place on the list. This is not a compromise. This is an officially EU-sanctioned introduction of the business model that in less honorable circles is referred to as protection money -- i.e. if you don't want me to kill you, you have to pay me."

Joachim AlmuniaDopfner suggested the EC Competition Commission Joachim Almunia (at right) "ought to reflect once again on whether it is wise, as a kind of final official act, to create a situation that will go down in history as a nail in the coffin of the already sclerotic European Internet economy. But it would above all be a betrayal of the consumer, who will no longer be able to find what is most important and best for him but what is most profitable for Google".

Data and Privacy. Dopfner also addressed the impact of Google's operations on individual privacy.

"Ever since Snowden triggered the NSA affair, ever since the close relations between major American online companies and the American secret services became public, the social climate -- at least in Europe -- has fundamentally changed. People have become more sensitive about what happens to their user data. Nobody knows as much about its customers as Google. Even private or business emails are read by Gmail and, if necessary, can be evaluated."

"Google searches more than half a billion web addresses. Google knows more about every digitally active citizen than George Orwell dared to imagine in his wildest dreams in 1984." And, said Dopfner, statements by Eric Schmidt and Facebook's Mark Zuckerberg regarding data collection reflect "a state of mind and an image of humanity that is typically cultivated in totalitarian regimes -- not in liberal societies. Such a statement could also have come from the head of East Germany's Stasi or other secret police in service of a dictatorship."

He added that with Google's plan to develop driverless cars, "Google will then not only know where we drive our cars but how we are occupying ourselves when we are in the car. Forget Big Brother -- Google is better!"

He also said that Google is involved with "a number of planned enormous ships and floating working environments that can cruise and operate in the open ocean", which would fulfill "dreams of a place without data-protection laws and without democratic accountability".

He asked, "Does this mean that Google is planning to operate in a legal vacuum, without troublesome antitrust authorities and data protection? A kind of superstate that can navigate its floating kingdom undisturbed by any and all nation-states and their laws?"

And, "What will happen if Google continues to expand its absolutely dominant market power? Will there be even less competition? Will the European digital economy be thrown back even further compared to the few American super corporations? Will consumers become even more transparent, more heteronomous and further manipulated by third parties -- be it for economic or political interests? And what impact do these factors have on our society?

DHS Announces Petition for Review Process for Critical Infrastructure Classifications

4/17. The Department of Homeland Security's (DHS) National Protection and Programs Directorate published a notice in the Federal Register (FR) that announces that it has made determinations that contain classifications of critical infrastructure in which "a cybersecurity incident could reasonably result in catastrophic regional or national effects", and sets the process challenging such determinations.

See, full story.

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4/17. The U.S. International Trade Commission (USITC) published a notice of proposed rulemaking in the Federal Register (FR) that proposes to amend its Rules of Practice and Procedure with respect to classified information and mandatory declassification reviews. The deadline to submit comments is 5:15 PM on June 16, 2014. See, FR, Vol. 79, No. 74, April 17, 2014, at Pages 21658-21661.

4/17. The People's Republic of China's (PRC) Ministry of Commerce, also known as MOFCOM, issued a release regarding intellectual property rights (IPR). It states that "the General Office of the State Council printed and issued the National Work Planning of Cracking down on IPR Infringement and Counterfeit and Shoddy Goods in 2014". This release states that this plan will "Strike illegal conductions including publishing false and illegal advertisements and selling counterfeit and shoddy goods through internet, as well as infringement and pirate; ban according to the law illegal audio-visual program websites, strengthen the improvement and rectification of illegal goods trade on the internet, and intensify the supervision over operations including network access, domain name registration, and information services; carry out special action on cracking down counterfeit and shoddy naphtha and diesel oil; reinforce commercial secret protection, and judge and publicize typical cases of infringing commercial secret according to the law."

4/17. The Public Knowledge (PK) released a paper titled "A Five Part Plan For Patent Reform".

UK MP Condemns Snowden and Award of Pulitzer Prizes

4/16. Liam Fox, a Member of Parliament in the United Kingdom, and a former Secretary of State for Defense, spoke about Edward Snowden in Washington DC at an event hosted by American Enterprise Institute (AEI) on April 16, 2014.

Liam FoxFox (at right) stated that "we know that 58,000 pieces of very confidential and secret parts of British information was leaked by Snowden. That is damaging to our security interests". See, transcript.

He continued that "I think it was also calculated to damage America's standing with its allies and damage the American diplomatic process, which I think is in line with what I described as the virulently anti-American and anti-Western views of both Glenn Greenwald and Snowden himself."

Fox also said that "if you tell the enemies of your country how you go about listening to their communications, the first thing they’re going to do is to find a different way. And, very interestingly, it’s not just terrorist groups. And I think this is a point that’s been very much missed in the American debate. This is also about the ability of economic enemies to steal our intellectual property, and, in the long term, damage our national prosperity. But it’s also things like dealing with pedophile rings and being able to break them up."

And, he asked rhetorically, "in what sort of world do we live in when that gets a Pulitzer Prize for public service?" He said that "an award for public service for possibly the greatest betrayal of our national secrets of all time strikes me as quite bizarre. And I do think that there’s a real danger of a very cozy media world patting itself on the back without fully understanding the consequences for the dangers that we face in a very dangerous world".

DOC Internet Policy Task Force to Hold Hearings on Copyright Policy

4/16. The U.S. Patent and Trademark Office (USPTO) and the National Telecommunications and Information Administration (NTIA) published a notice in the Federal Register (FR) that announces four public hearings on the Department of Commerce's (DOC) Internet Policy Task Force's July 2013 paper titled "Copyright Policy, Creativity, and Innovation in the Digital Economy".

The four hearings will be held in Nashville, Boston, Los Angeles and San Francisco areas in May, June and July. These hearings are free, and open to the public. However, one must request and receive permission to attend in person, and to make a presentation. The hearings will also be webcast.

The USPTO and NTIA also refer to this 122 page paper as the "Green Paper".

The first hearing will be in the Flynn Auditorium, Vanderbilt University Law School, 131 21st. Ave. S., in Nashville, Tennessee on May 21 from 8:30 AM to 5:00 PM. The deadline to request to participate or observe is 5:00 PM EST on April 30.

The second hearing will be in Wasserstein Hall, Harvard University Law School, 1585 Massachusetts Ave., in Cambridge, Masschusetts on June 25 from 8:30 AM to 5:00 PM. The deadline to request to participate or observe is 5:00 PM EST on June 4.

The third hearing will be in Los Angeles, California on July 29 from 8:30 AM to 5:00 PM. The deadline to request to participate or observe is 5:00 PM EST on July 8.

The fourth hearing will be at the Bancroft Hotel, 2680 Bancroft Way, in Berkeley, California, on July 30 from 8:30 AM to 5:00 PM. The deadline to request to participate or observe is 5:00 PM EST on July 9.

See, FR, Vol. 79, No. 73, April 16, 2014, at Pages 21439-21440.