TLJ News from April 26-30, 2014

House Judiciary Committee Approves Bill to Criminalize Online Sex Advertising

4/30. The House Judiciary Committee (HJC) amended and approved HR 4225 [LOC | WW], the "Stop Advertising Victims of Exploitation Act of 2014" or "SAVE Act". The HJC approved an amendment in the nature of a substitute, and an amendment to that amendment.

Rep. Bob Goodlatte (R-VA), the Chairman of the HJC, stated that there is "criminal epidemic and our children are the target. We've been referring all morning to this epidemic as domestic minor sex trafficking. But let’s call it what it really is -- the forcible rape of children for profit. And the Internet is spurring this epidemic. Criminals can now use websites to advertise, schedule, and purchase sexual encounters with children." See, opening statement.

Rep. Bob GoodlatteRep. Goodlatte (at right) added that "Many trafficking advertisements do not explicitly offer sex with children but rather disguise their illegal services using benign or vague terms. But some advertisements are explicit and it's these advertisements that the government will hopefully more successfully target once this legislation is enacted."

Rep. Goodlatte also noted during debate that over 600 federal statutes ban certain types of advertising.

Rep. James Sensenbrenner (R-WI), a former Chairman of the HJC, stated that the "internet makes it as easy to order up a young girl for the night as it is to order a pizza".

This legislation does not reference, but will impact, web site operators and their employees. The bill leaves great uncertainty regarding what may be the criminal liability of web site operators for carrying sex related ads, for hosting interactive or social networking sites in which users post sex related material, or for providing search results that list web pages that offer sex acts.

A vague and uncertain statute works to the advantage of the government when dealing with internet companies that have reputations to protect. Prosecutors will be able to easily obtain indictments if this bill is enacted. It may be irrelevant that a company could ultimately obtain a dismissal of the case. The threat by a prosecutor to obtain a indictment, to hold a news conference to publicize it, and to associate the company's name with "sex trafficking", may be enough to enable the government to dictate web site management practices.

Currently, 18 U.S.C. § 1591 enables prosecution of a wide range of persons for "participation in a venture" of sex trafficking. There is no dispute in the Congress regarding imposing severe criminal penalties on those engaged in core elements of trafficking for prostitution, such as coercing, transporting and selling women. The statute does not specify, however, as to just how far "participation in a venture" reaches, and how far beyond prostitution the term "sex acts" reaches.

This bill would enable prosecutors to prosecute not only those who coerce, transport and sell for prostitution. It would also enable prosecutors to prosecute certain businesses and employees that operate web sites where advertisements for sex acts are placed, posted, or returned as search results.

Since the bill approved by the HJC does nothing to clean up the existing lack of clarity in the statute, and fails to list, define and prohibit any practices of web site operators, it would increase the uncertainty.

The bill as introduced would have created a new Section 1591A. For a summary of that version, see story titled "House Judiciary Committee to Mark Up Sex Ads Bill" in TLJ Daily E-Mail Alert No. 2,648, April 28, 2014.

The bill as approved by the HJC drops that language, and instead tweaks the existing Section 1591 by adding a reference to advertising.

Section 1591, as amended at the HJC, would provides as follows. The amendments would add the words shown in red.

Commentary: The Politics of Internet Companies

4/30. Rep. Louie Gohmert (R-TX) stated during debate on HR 4225 [LOC | WW] that "I am not the biggest fan of some of the internet companies that spend their incredible wealth on the Democratic party".

This bill is primarily directed at enabling the federal government to regulate the business practices of internet companies.

Representatives and Senators only very rarely make statements of this nature during committee or floor debates. One may safely assume that these thoughts are often on their minds, and sometimes even affect their voting decisions, but they do not express these considerations in official proceedings.

This suggests that there may be a current of thought among Congressional Republicans about the political activities of some of the internet companies.

Moreover, while no Republican spoke up for the interests of internet companies during this mark up, in prior legislative debates, when the Republican leadership has pushed for legislation opposed by some internet companies, there have been Republicans on the HJC who have stood up to their party leadership, and sided with the internet companies.

Recall for example, the spirited opposition of Rep. James Sensenbrenner (R-WI), Rep. Darrell Issa (R-CA), and Rep. Jason Chaffetz (R-UT) to the HR 3261 [LOC | WW], the "Stop Online Piracy Act" or SOPA during the HJC mark up of that bill in the 112th Congress in December of 2011. Recall also the opposition by the same trio to the data retention bill, HR 1981 [LOC | WW], approved by the HJC in the 112th Congress in July and August of 2011. Recall also that Rep. Sensenbrenner is now one of the most vocal members of the House on reigning in the surveillance activities of the National Security Agency (NSA). The NSA is implementing Bush administration statutes.

But, not one Republican spoke up for the principle of protecting internet companies from unreasonable regulation by the federal government at the April 30 mark up. The sponsors' rationale for this bill is fighting sex trafficking. But then, the sponsors' rationale for the data retention bill was fighting sexual abuse of minors, and terrorism. It was titled "Protecting Children From Internet Pornographers Act".

Rep. Issa, Rep. Chaffetz, and Rep. Sensenbrenner all backed HR 4225. Rep. Sensenbrenner did so with vehemence.

The vote on final passage was 24-3, with only Rep. John Conyers (D-MI), Rep. Bobby Scott (D-VA), and Rep. Hank Johnson (D-GA) voting no. See, roll call. However, an earlier vote and the debate broke down along partisan lines. In the vote on Rep. Scott's amendment regarding mandatory minimum sentences, every Republican who voted, voted no, and every Democrat who voted, voted yes. See, roll call.

In short, Republicans unanimously supported this bill. Senior Democrats expressed objections. Junior Democrats largely avoided the mark up.

Rep. Louie GohmertAs Rep. Gohmert (at right) pointed out, internet companies back Democrats. Tech companies and their employees give to Democratic candidates and committees. Silicon Valley has not elected a Republican since Tom Campbell.

Mozilla's and Silicon Valley's treatment of Brendan Eich may also be on the minds of Rep. Gohmert and other Republicans. When internet companies lobby the Congress and regulatory agencies their mantra is usually internet freedom. The understanding of Rep. Gohmert and some other Republicans may be that internet companies did not extend the same freedom to Eich that they ask for themselves and their users. This may be particularly important for Rep. Gohmert and others because they share Eich's views.

Eich was terminated for his support for a state referendum that defined marriage. All but one Republican voted for a bill in 1996, HR 3396, the "Defense of Marriage Act" (DOMA), that took the same position. See, Roll Call. House Republicans then filed an amicus curiae brief with the Supreme Court in defense of the DOMA.

Rep. Gohmert was not yet in the House in 1996. But, has been one of the most vocal supporters of the DOMA. See, YouTube video of his statement after the Supreme Court released its opinion on July 26, 2013, and YouTube video (at 4:05-5:10) of his April 8, 2014 exchange with Attorney General Eric Holder regarding a hypothetical situation similar to that of Eich.

See also, "Commentary: Brendan Eich and Internet Freedom" in TLJ Daily E-Mail Alert No. 2,639, April 7, 2014.

OUSTR Releases 2014 Special 301 Report

4/30. The Office of the U.S. Trade Representative (OUSTR) released a report [63 pages in PDF] titled "2014 Special 301 Report". See also, OUSTR release.

Section 301 is the statutory means by which the U.S. asserts its international trade rights, including its rights under World Trade Organization (WTO) agreements. In particular, under the "Special 301" provisions of the Trade Act of 1974, the OUSTR identifies trading partners that deny adequate and effective protection of intellectual property (IP) or deny fair and equitable market access to U.S. artists and industries that rely upon intellectual property protection. See, 19 U.S.C. § 2242.

The OUSTR issues these reports annually. It also conducts out of cycle reviews for specific countries. It also issues an annual notorious markets report.

The ten countries on the Priority Watch List are the People's Republic of China (PRC), India, Algeria, Argentina, Chile, Indonesia, Pakistan, Russia, Thailand and Venezuela. There are 26 nations on the Watch List, including Brazil, Canada, Finland, and Mexico. The OUSTR removed Italy and the Philippines from the Watch List.

This report devotes the most attention to the PRC and India.

Victoria Espinel, head of the BSA Software Alliance, stated in a release that "While there have been some positive developments on IPR protection globally, this year's Special 301 report shows unlicensed software use remains a serious concern, particularly in some of the world's fastest-growing markets for IT products and services", and especially "in China and India".

She said that "The heightened focus on India in this year’s report shows underscores the software industry’s concerns with the growth of copyright infringement, weak trade secret protection, and the trend toward discriminatory rules that distort the competitive landscape by favoring local IP and locking out international alternatives."

PRC. This report maintains the PRC on the Special 301 Priority Watch List, and focuses on trade secrets theft, cyber intrusions, compelled transfers of IP (indigenous innovation), counterfeit goods, online piracy, abuse of standards setting processes, abuse of antitrust regulation. See, related story in this issue titled "OUSTR Special 301 Report Details PRC Failures to Protect IPR".

India. The report states that India has a "weak IPR legal framework and enforcement system". It adds that "IP protection and enforcement challenges are growing, and there are serious questions regarding the future of the innovation climate in India across multiple sectors and disciplines". (See, Report, at pages 37-43.)

The report cites movie theater camcorder piracy, online piracy, and lack of copyright enforcement.

The International Intellectual Property Alliance (IIPA) stated in a release that "This year's placement of India on the Priority Watch List with an Out-of-Cycle Review (OCR) highlights the increasing importance of the role of IP in the development of the world’s second most populous country. Indian ingenuity and creativity, from Bollywood to vibrant music, publishing and software businesses, is almost unmatched in the world, but India needs to step up its efforts to ensure IP protection and enforcement in the country supports its own right holders as well as those from abroad."

The IIPA represents copyright focused trade groups -- BSA, ESA, APA, MPAA, RIAA, NMPA, and IFTA.

The report also addresses patents. "Recent actions by the Government of India with respect to patents, however, have raised serious concerns about the innovation climate in India and risk hindering India’s progress towards an innovation-focused economy. In the pharmaceutical sector and increasingly in other sectors, such as the agro-chemicals and green technology sectors, some innovators face serious challenges in securing and enforcing patents in India."

The report elaborated that currently India patent law precludes issuance of a patent to certain pharmaceutical and chemical inventions that are patentable elsewhere. Then, "Even after a product receives a patent, Indian law continues to pose challenges to the enjoyment of that IPR protection."

The PHARMA, which represents companies that research, develop and make bio and pharmaceutical products, stated in a release that "While we continue to believe that the systemic pattern of undermining patented medicines in India warrant its elevation to Priority Foreign Country status, we welcome the announcement that USTR will initiate an Out-of-Cycle Review of India this fall. Such a review provides a needed avenue for constructive engagement with the incoming Indian government on how to resolve the deteriorating IP environment in India."

Russia. The report states that Russia remains on the priority watch list "as a result of continued, significant challenges to IPR protection and enforcement". (See, report at pages 43-44.)

It states that "IPR enforcement continued to decrease overall in 2013, following a dramatic decline in 2012, and remained plagued by a lack of transparency and effectiveness. Stakeholders express concern about the manufacture, transshipment and retail availability of counterfeit goods, including counterfeits of agricultural chemicals, electronics, information technology, auto parts, consumer goods, machinery, and other products."

Moreover, "Counterfeit pharmaceuticals are reportedly manufactured in Russia and made available through online pharmacies."

The Recording Industry Association of America (RIAA) stated in a release that "Many of the countries that feature in today's report have failed to take action against sites identified by USTR as ‘notorious markets,’ or otherwise maintain practices that undermine the ability of creators to earn a living from their craft, threatening global prosperity, economic development and cultural production and diversity. Russia and vKontakte of course immediately come to mind."

Philippines. On April 28 the OUSTR released a separate statement that announces that the USTR has removed the Philippines from the Special 301 Watch List. The OUSTR stated that "The Philippines has appeared on the Watch List or Priority Watch List continuously since 1994, and was first listed in 1989. In recent years, the government has enacted a series of significant legislative and regulatory reforms to enhance the protection and enforcement of intellectual property rights in the Philippines. Philippine authorities have also made laudable civil and administrative enforcement gains. Although significant challenges remain, the commitment of Philippine authorities and the results achieved merit this change in status."

Italy. On April 30 the OUSTR released a separate statement that announces that the OUSTR has removed Italy from the Special 301 Watch List. The OUSTR stated that it took this action "in recognition of the Italian Communications Regulatory Authority’s (AGCOM) adoption, on December 12, 2013, of long-awaited regulations to combat copyright piracy over the Internet, as well as the overall improvement of the climate for IP-intensive industries in Italy."

Chris Dodd, head of the Motion Picture Association of America (MPAA), praised Italy's government in a release for "developing a fast-track online enforcement system for massive infringements. The Italian Communications Authority has addressed the challenge of achieving a balance for the protection of users and creators alike and is to be commended for its work."

OUSTR Special 301 Report Details PRC Failures to Protect IPR

4/30. The Office of the U.S. Trade Representative (OUSTR) released a report [63 pages in PDF] titled "2014 Special 301 Report". It keeps the People's Republic of China (PRC) on the Special 301 Priority Watch List, and addresses the PRC's failure to protect intellectual property at length.

See especially, report at pages 30-37. See also, OUSTR release.

This report states that "a wide range of U.S. stakeholders in China continues to report serious obstacles to effective protection of IPR in all forms, including patents, copyrights, trademarks trade secrets as well as protection against unfair commercial use or unauthorized disclosure of test and other data generated to obtain marketing approval for pharmaceutical products. As a result, sales of IPR-intensive goods and services in China remain disproportionately low when compared to sales in similar, or even less developed, markets that provide a stronger environment for IPR protection and market access."

"Given the size of China's consumer marketplace and its global importance as a producer of a broad range of products, China's protection and enforcement of IPR will continue to be a focus of U.S. trade policy."

Trade Secrets and Cyber Intrusions. The report states that the theft of trade secrets by both "cyber intrusion and hacking" and other means "remains a significant concern. Such thefts are occurring not only inside but also outside China for the competitive advantage of Chinese state-owned and private companies" which "continue to operate with relative impunity".

It adds that trade secret theft also arises "from the misuse of information submitted to government entities for purposes of complying with regulatory obligations".

Then, the report continues, it is difficult to obtain remedies for trade secret theft, "given that civil, administrative, and criminal enforcement against trade secrets theft remains severely constrained. Enforcement obstacles include various deficiencies in China's AUCL; constraints on gathering evidence for use in litigation; difficulties in meeting the criteria for establishing that information constitutes a trade secret; and criminal penalties that do not provide adequate deterrents." (The AUCL is the Anti-Unfair Competition Law.)

For more on PRC based theft of trade secrets by cyber intrusion, see stories titled "Sen. Coons Proposes Private Right of Action for Cyber Theft of Trade Secrets" and "Mandiant Releases Report on Cyber Espionage by People's Liberation Army" in TLJ Daily E-Mail Alert No. 2,532, March 7, 2013, and "AG Holder Addresses Cyber Security and Theft of Trade Secrets", "IPEC Releases Administration Strategy Regarding Theft of Trade Secrets", and "Rep. Rogers and Rep. Ruppersberger Re-Introduce CISPA" in TLJ Daily E-Mail Alert No. 2,525, February 19, 2013.

Indigenous Innovation. The report also addresses coerced transfers of IPR, which the PRC titles "indigenous innovation". The report identifies "Chinese central, provincial, and local government measures and actions that appear to require or pressure rights holders to transfer IPR from foreign to domestic entities."

The report states that "government authorities may deny or delay market access or otherwise condition government procurement, permissions, subsidies, tax treatment, and other actions on IPR being owned or developed in China, or licensed to a Chinese entity."

Also, "Chinese government entities are using regulatory pressure to compel the licensing of important technologies or to dissuade stakeholders from pursuing available legal avenues to enforce their IPR".

Online Piracy. The report states that "online piracy in China persists on a large scale. As of 2013, China had the largest Internet user base in the world, estimated at over 600 million users, including nearly 500 million mobile web users. Despite national campaigns and the leadership of the Leading Group, widespread piracy affects industries involved in the distribution of legitimate music, motion pictures, books and journals, video games, and software."

As evidence of the scale of piracy in the PRC, the report cites revenue data. For example, "in 2013 the revenues from digital music sales in China were $65.4 million, compared to $108.3 million in South Korea, and $32.0 million in Thailand".

The report continues that "Parties in China are also facilitating online infringement, in China and third countries, through media box piracy. Manufactured in China and exported abroad, media boxes can be preloaded with infringing content and plugged directly into televisions. They enable the user to stream and download infringing online audio and visual content. The vast majority of the infringing websites to which media box users connect are reportedly located in China."

Counterfeit Goods. The report states that "problems with counterfeiting in China remain widespread". The report states that enforcement activities have increased, but remain ineffective. One reason is that enforcement is directed at physical markets, while sales are increasingly made via "e-commerce both within China and between China and overseas markets".

Abuse of Standards Setting Processes and Antitrust Regulation. The report states that "standards development bodies in China often employ opaque and exclusionary practices to the detriment of U.S. and other foreign parties."

"China's standards setting bodies reportedly often deny membership or participation rights to foreign parties, effectively shutting them out of the process. In some cases, such bodies may condition a firm's ability to participate on it acting through a joint venture in which it can only have a minority ownership stake, the licensing of a firm’s IP on concessional terms, or a firm’s transfer of technology."

The report states that "there is also growing concern that Chinese competition authorities may target for investigation foreign firms that hold IPR that may be essential to the implementation of certain technological standards."

"Industry reports of intimidating and non- transparent investigative conduct contribute to these concerns."

It adds that while "uncertainty remains as to how the measures apply to patent holders who are not participants in the particular standards development process to which the measures apply", the US "is concerned by any suggestion that standards-related disclosure and licensing obligations extend to patent holders electing not to participate in standards development".

USTR Froman. USTR Michael Froman commented on the PRC in his prepared testimony for the hearing of the Senate Finance Committee (SFC) on May 1, 2014.

He wrote that "Particular areas of concern include measures impeding U.S. exports of food and agricultural products, information technology and telecommunications equipment, medical devices, and an array of other manufactured products."

"We will also seek to make progress on China's accession to the Government Procurement Agreement, which will require significant engagement on difficult issues such as SOEs and China’s domestic procurement regimes. We will press China through our established bilateral channels, including the current Bilateral Investment Treaty (BIT) negotiations, to more fully open its economy and eliminate preferences for SOEs."

And, Froman wrote, "we will continue to engage in dialogue with China to improve the climate for intellectual property protection and enforcement through a number of avenues, recognizing that a strong rule of law – including assurance that enterprises can make decisions regarding technology transfer without government interference -- is essential to encourage and support continued innovation."

DOJ and eBay Settle Anticompetitive Employment Practices Case

4/30. The Department of Justice's (DOJ) Antitrust Division and eBay filed a joint Stipulation and Proposed Final Judgment in U.S. v. eBay. See also, DOJ release.

William Baer (at right) head of the Antitrust Division spoke at a news conference. He stated that "This is one further step towards closing an unfortunate chapter for Silicon Valley and other companies who unlawfully agreed to deny their employees the opportunity to receive competing job offers. These so-called ``do not poach´´ or anti-solicitation agreements are per se unlawful, and the Antitrust Division takes them very seriously."

Baer continued that "As a result of investigations into recruiting-related antitrust misconduct, a number of companies -- Adobe, Apple, Google, Pixar, Intuit and Lucasfilm are under a court-ordered injunction to stop these illegal practices. As a result of our action today, eBay also will be under a court-ordered injunction–after the closing of the public comment period and entry of the final judgment by the court." See, transcript.

The DOJ filed its complaint against eBay on November 16, 2012, alleging violation of Section 1 of the Sherman Act, which is codified at 15 U.S.C. § 1, in connection with a "no-solicitation and no-hiring agreement between eBay and Intuit" under which "eBay and Intuit agreed not to recruit each other's employees and eBay agreed not to hire Intuit employees".

The complaint alleged that this "harmed employees by lowering the salaries and benefits they might otherwise have commanded, and deprived these employees of better job opportunities at the other company".

The DOJ filed an amended complaint on June 4, 2013.

The proposed judgment provides that eBay "is enjoined from attempting to enter into, entering into, maintaining or enforcing any agreement with any other person to in any way refrain from, requesting that any person in any way refrain from, or pressuring any person in any way to refrain from hiring, soliciting, cold calling, recruiting, or otherwise competing for employees of the other person", subject to certain specified exceptions.

Under the Tunney Act, 15 U.S.C. § 16, these antitrust settlements must be published, open for public comment, and then approved by the District Court. Hence, the DOJ also released an explanation of consent decree procedures and a Competitive Impact Statement.

This case is U.S. v. eBay, U.S. District Court for the Northern District of California, San Jose Division, D.C. No. 12-CV-05869-EJD-PSG.

The DOJ filed a similar complaint on September 24, 2010 in the U.S. District Court (DC) against Adobe Systems, Apple, Google, Intel, Intuit, and Pixar alleging violation of Section 1 of the Sherman Act in connection with their anticompetitive conduct in the hiring of highly skilled technical employees.

The DOJ and the six companies simultaneously submitted a proposed Final Judgment that provided that the companies will refrain "from soliciting, cold calling, recruiting, or otherwise competing for" each others' employees, subject to certain enumerated exceptions.

See, story titled "DOJ Stops Tech Companies' Anticompetitive Hiring Practices" in TLJ Daily E-Mail Alert No. 2,133, September 27, 2010.

That case is U.S.A. v. Adobe Systems, Inc., et al., U.S. District Court for the District of Columbia, D.C. No. 1:10-cv-01629.

Meinrath to Head New America Foundation's X Lab

4/30. The New America Foundation (NAF) announced the formation of a project named "X Lab" that will be headed by Sacha Meinrath, who was previously head of the NAF's Open Technology Institute.

The NAF stated in a release that X Lab will be "an incubator to rethink how technological advances support and curtail our civil rights and fundamental freedoms over time".

The NAF stated that X Lab issues will include "the development of new circumvention technologies". Meinrath and others elaborated at a news conference on April 30 about circumvention of firewalls and communications surveillance technologies.

The NAF stated that X Lab will also focus on "new manufacturing technologies like 3-D printing that are already beginning to disrupt many facets of the traditional manufacturing system". Meinrath stated that 3-D printing has the potential to affect patent protection in manner similar to how file sharing affected copyright protection.

Meinrath also said that X Lab will focus intelligent transportation systems and smart electricity grid policy, which he stated are interrelated with each other and IT policy.

Meinrath also talked about some long running spectrum and broadband issues at the X Lab's launch news conference.

Judicial Appointments

4/30. The Senate confirmed Jon Levy to be a Judge of the U.S. District Court (DMaine) by a vote of 75-20. See, Roll Call No. 123. He was previously an Associate Justice of the Maine Supreme Judicial Court for 12 years.

4/30. The Senate confirmed Sheryl Lipman to be a Judge of the U.S. District Court (WDTenn) by a vote of 95-0. See, Roll Call No. 118. She was previously University Counsel at the University of Memphis.

4/30. The Senate confirmed Stanley Bastian to be a Judge of the U.S. District Court (EDWash) by a vote of 95-0. See, Roll Call No. 119. He was a long time attorney at the law firm of Jeffers Danielson Sonn & Aylward, in Wenatchee, Washington.

4/30. The Senate confirmed Manish Shah to be a Judge of the U.S. District Court (NDIll) by a vote of 95-0. See, Roll Call No. 120. He worked in the Office of the U.S. Attorney (NDIll) from 2001 until this confirmation.

4/30. The Senate confirmed Daniel Crabtree to be a Judge of the U.S. District Court (DKan) by a vote of 94-0. See, Roll Call No. 121. Sen. Jerry Moran (R-KS) spoke in support of Crabtree. He was a long time attorney at the law firm of Stinson Leonard & Street (and before the recent merger, Stinson Morrison & Hecker, and before that Stinson Mag & Fizzell).

4/30. The Senate confirmed Cynthia Bashant to be a Judge of the U.S. District Court (SDCal) by a vote of 94-0. See, Roll Call No. 122. She was previously a California state trial court judge in San Diego.

More News

4/30. The Government Accountability Office (GAO) released a report [50 pages in PDF] titled "Advanced Imaging Technology: TSA Needs Additional Information before Procuring Next-Generation Systems". Advanced Imaging Technology, or AIR, is the Transportation Security Administration's (TSA) term for full body scanners.

Supreme Court Rules in Patent Litigation Fee Shifting Cases

4/29. The Supreme Court released its opinion in Octane Fitness v. Icon Health & Fitness, Sup. Ct. No. 12-1184, reversing the judgment of the U.S. Court of Appeals (FedCir). The Supreme Court also released its opinion in Highmark v. Allcare Health Management System, Sup. Ct. No. 12-1163, vacating the judgment of the Federal Circuit.

35 U.S.C. § 285 provides in full that "The court in exceptional cases may award reasonable attorney fees to the prevailing party."

These two cases will make it easier for the prevailing party to recover an award of attorneys fees. However, legislation pending in the Congress would go still further, by amending Section 285.

Octane Fitness. The question presented in Octane Fitness was "Does the Federal Circuit's promulgation of a rigid and exclusive two-part test for determining whether a case is "exceptional" under 35 U.S.C. § 285 improperly appropriate a district court's discretionary authority to award attorney fees to prevailing accused infringers in contravention of statutory intent and this Court's precedent, thereby raising the standard for accused infringers (but not patentees) to recoup fees and encouraging patent plaintiffs to bring spurious patent cases to cause competitive harm or coerce unwarranted settlements from defendants?"

The Court of Appeals' October 24, 2012 opinion followed its holding in Brooks Furniture v. Dutailier, 393 F. 3d 1378 (2005). The Court of Appeals held in Brooks that a case may be deemed exceptional under Section 285 only in two limited circumstances: "when there has been some material inappropriate conduct," or when the litigation is both "brought in subjective bad faith" and "objectively baseless." Moreover, the Court of Appeals held in Brooks that "the underlying improper conduct and the characterization of the case as exceptional must be established by clear and convincing evidence".

The Supreme Court held that the Brooks "formulation is too rigid". It held that an exceptional case "is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." (Parentheses in original.)

The Supreme Court continued that "District courts may determine whether a case is ``exceptional´´ in the case-by-case exercise of their discretion, considering the totality of the circumstances." There is no precise rule or formula.

The Supreme Court also rejected the Court of Appeals' requirement that patent litigants establish their entitlement to fees under Section 285 by clear and convincing evidence.

This case is Octane Fitness v. Icon Health & Fitness, Supreme Court of the U.S., Sup. Ct. No. 12-1184, a petition for writ of certiorari to the U.S. Court of Appeals for the Federal Circuit, App. Ct. Nos. 2011-1521 and 2011-1636. The Court of Appeals heard an appeal from the U.S. District Court for District of Minnesota, D.C. No. 09-CV-0319. Justice Sotomayor wrote the opinion for a unanimous court. Justice Scalia did not join in a few footnotes.

Highmark. The question presented in Highmark was "Whether a district court's exceptional-case finding under 35 U.S.C. § 285, based on its judgment that a suit is objectively baseless, is entitled to deference.

The Supreme Court held that "an appellate court should review all aspects of a district court’s §285 determination for abuse of discretion".

See also, August 7, 2012 opinion of the U.S. Court of Appeals (FedCir).

This case is Highmark, Inc. v. Allcare Health Management System, Inc., Supreme Court of the U.S., Sup. Ct. No. 12-1163, a petition for writ of certiorari to the U.S. Court of Appeals for the Federal Circuit, App. Ct. 2011-1219. The Court of Appeals heard an appeal from the U.S. District Court for the Northern District of Texas, D.C. No. 03-CV-1384. Justice Sotomayor wrote this short opinion for a unanimous court.

Pending Legislation. Both of these opinion merely construe the existing language of Section 285.

HR 3309 [LOC | WW], the "Innovation Act", the patent bill passed by the House in December 5, 2013, focuses on litigation procedure, including pleading requirements, limitations upon discovery, and fee shifting.

HR 3309 would amend Section 285 to provide that "The court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party in connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust."

Ed Black, head of the Computer and Communications Industry Association (CCIA), stated in a release that "the Supreme Court Justices recognize the burden that abusive patent litigation puts on productive U.S. companies".

Black added that while these cases will "make it easier to shift fees in exceptional cases", "legislation is still needed to more comprehensively address the multiple problems that characterize abusive patent litigation tactics. It's will still be too easy for patent trolls to file nuisance lawsuits and strategically run up the defendant's legal costs in hopes of extracting settlements from them."

The Senate has not passed HR 3309, or any other bill regarding fee shifting in patent cases.

Wheeler Describes Draft Open Internet NPRM

4/29. Federal Communications Commission (FCC) Chairman Tom Wheeler released another public statement regarding the draft NPRM, which he has not yet released to the public, regarding reviving FCC regulation of the business practices of broadband internet access service (BIAS) providers.

The U.S. Court of Appeals (DCCir) overturned most of the key rules in the FCC's December 2010 open internet Report and Order (R&O) in its January 14, 2014 opinion in Verizon v. FCC.

Tom WheelerWheeler (at right) wrote that "all options for protecting and promoting an Open Internet are on the table", including reclassification of BIAS as a Title II service.

Although, notwithstanding this statement, it is highly unlikely that the FCC would reclassify BIAS.

He wrote that "At the heart of the proposed NPRM is the assurance that it won't be possible for an Internet provider to degrade the service available to all. Let me re-emphasize that: the Internet will remain like it is today, an open pathway. If a broadband provider (ISP) acts in a manner that keeps users from effectively taking advantage of that pathway then it should be a violation of the Open Internet rules."

He also said "There has been a great deal of discussion about how our proposal to follow the court’s roadmap will result in a so-called ``fast lane´´ and Internet ``haves´´ and ``have-nots.´´ This misses the point. The proposed rule is built to ensure that everyone has access to an Internet that is sufficiently robust to enable consumers to access the content, services and applications they demand, as well as an Internet that offers innovators and edge providers the ability to offer new products and services."

Commercially Reasonable Standard. Wheeler said that the forthcoming notice of proposed rulemaking (NPRM) "proposes that the best way to accomplish this is by exercising the FCC's authority as delineated by the D.C. Circuit under the ``commercially reasonable´´ standard that the Commission has already implemented (and the court approved) in the Data Roaming Order." (Parentheses in original.)

See, the DC Circuit's December 4, 2012 opinion [30 pages in PDF] in Cellco Partnership v. FCC, and story titled "DC Circuit Upholds FCC's Data Roaming Rules" in TLJ Daily E-Mail Alert No. 2,482, December 4, 2012.)

He also made four statements regarding what might constitute "commercially unreasonable" conduct.

First, "Something that harms consumers is not commercially reasonable. For instance, degrading service in order to create a new “fast lane” would be shut down."

Second, "Something that harms competition is not commercially reasonable. For instance, degrading overall service so as to force consumers and content companies to a higher priced tier would be shut down."

Third, "Providing exclusive, prioritized service to an affiliate is not commercially reasonable. For instance, a broadband provider that also owns a sports network should not be able to give a commercial advantage to that network over another competitive sports network wishing to reach viewers over the Internet."

Fourth, "Something that curbs the free exercise of speech and civic engagement is not commercially reasonable. For instance, if the creators of new Internet content or services had to seek permission from ISPs or pay special fees to be seen online such action should be shut down."

BIAS Transparency. Wheeler wrote that the Court of Appeals January 2014 opinion "affirmed the requirement that ISPs provide information to consumers and edge providers about their service. The proposed NPRM expands that transparency requirement".

The transparency clause in the FCC's 2010 order provides that "A person engaged in the provision of broadband Internet access service shall publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of such services and for content, application, service, and device providers to develop, market, and maintain Internet offering."

Wireless Broadband. Wheeler wrote nothing about wireless or mobile broadband.

The transparency provision of the 2010 order applies to all BIAS providers, both fixed and wireless. The "No Unreasonable Discrimination" provision of the 2010 order only applies to fixed BIAS providers. The "No Blocking" provisions of the 2010 order provide that fixed BIAS providers "shall not block lawful content, applications, services, or non-harmful devices", while wireless BIAS providers "shall not block consumers from accessing lawful website".

Internet Peering. Finally, Wheeler addressed internet peering. The 2010 order did not address this. Wheeler said that the forthcoming NPRM will contain no proposed rules, but will seek comment.

See also, related story in this issue titled "Wheeler Says NPRM Will Seek Comments But Not Propose Rules on Internet Peering".

Wheeler Says NPRM Will Seek Comments But Not Propose Rules on Internet Peering

4/29. Federal Communications Commission (FCC) Chairman Tom Wheeler wrote in his April 29, 2014 statement that "The question of how networks exchange Internet traffic, such as through peering, was outside of the scope of our 2010 Open Internet Order and thus is outside of the proposed scope of the Open Internet NPRM."

However, he added that the NPRM "will seek comment on this question, in order to hear from those who may disagree with this suggested treatment of peering/traffic exchange."

Netflix CEO Reed Hastings argued in a recent piece that "Strong net neutrality additionally prevents ISPs from charging a toll for interconnection to services like Netflix, YouTube, or Skype, or intermediaries such as Cogent, Akamai or Level 3, to deliver the services and data requested by ISP residential subscribers. Instead, they must provide sufficient access to their network without charge."

See, story titled "Netflix's Hastings Complains About Lack of Interconnectivity" in TLJ Daily E-Mail Alert No. 2,635, March 24, 2014.

The New America Foundation (NAF) released a paper by Sarah Morris on March 6, 2014 titled "Peering into the Risks to the Internet's Future". She urged the FCC "not only to revive the Open Internet Rules but also to deal with the Internet as an ecosystem".

She argued that each BIAS provider is a "terminating access monopoly". She suggested that this monopoly allows BIAS providers to charge the movie delivery networks like Netflix "a fee that has no basis in market realities".

There is now no statutory regime affecting the negotiation of peering or interconnection agreements. Thus, if the FCC did decide to regulate peering, the manner most likely to survive judicial review would be via reclassification of BIAS as a Title I service.

In telecommunications, interconnection is a government mandate, enforced by government agencies. Moreover, once the government has removed interconnection from the market, and mandated interconnection, it follows that it will necessarily become involved in mandating the terms and prices of interconnection transactions. Governments are good at mandating interconnection, but incapable of efficiently handling the regulation of prices.

The originators of the internet developed interconnection of networks without any statutory mandate or heavy handed regulatory regime. It was accomplished by cooperation and free markets. The internet is made up of networks, with different owners, which exchange traffic pursuant to peering and transit agreements. In a peering agreement the parties agree to exchange traffic at no charge. A telecommunications lawyer might call this "bill and keep". Some refer to this as "settlement free peering". Companies like Netflix would be better off if they had a settlement free peering agreements with companies like Comcast and Verizon. But, they do not. Instead, there are transit agreements in which the BIAS provider sells access to its network.

Netflix sells its customers streaming of movies, which is bandwidth intensive, and puts a considerable strain on Comcast's network. Moreover, this is one way traffic. That is, Comcast does not stream movies to the BIAS subscribers of Netflix, because Netflix does not provide BIAS. Hence, BIAS providers like Comcast charge companies like Netflix for interconnection.

Sen. Coons Introduces Bill to Create Federal Private Right of Action for Misappropriation of Trade Secrets

4/29. Sen. Chris Coons (D-DE) and Sen. Orrin Hatch (R-UT) introduced S 2267 [LOC | WW], the "Defend Trade Secrets Act of 2014", a bill that would create a federal private right of action for misappropriation of trade secrets, similar to the uniform state act, and without preempting any state law.

This bill was referred to the Senate Judiciary Committee (SJC). Both Sen. Coons and Sen. Hatch are members. There is not yet a companion bill in the House.

Summary of the Article.

Introduction. Currently, trade secret law is largely a matter of state law. While there are two federal criminal prohibitions of trade secret theft (18 U.S.C. § 1831 and 18 U.S.C. § 1832), neither also creates a private right of action, and there is no stand alone federal private right of action, as there is infringement of patents and copyrights. Victims now file suit in state courts under state laws, and/or report violations to federal prosecutors, which might criminally prosecute violators.

Trade secret law initially developed in state common law. The Uniform Trade Secrets Act (UTSA), written by the Uniform Law Commission (ULC), has now been adopted in some form by 47 states and the District of Columbia. Notably, New York has not enacted it, although there is a common law right of action in New York. (See, the ULC's 1985 UTSA, with comments, and the Texas UTSA, enacted in April of 2013, which took effect in September of 2013.)

S 2267 states that it does nothing to preempt any state law.

S 2267 is a slightly revised version of a bill which Sen. Coons cosponsored in the 112th Congress, S 3389 [LOC | WW], the "Protecting American Trade Secrets and Innovation Act of 2012".

Also, S 2267 and S 3389 borrow from the UTSA. The drafters have cut and pasted much from the UTSA, such as the definitions of "misappropriation" and "improper means". Also, where the language is not identical, it is often similar.

S 2267 is a simple bill -- at least, as simple as statement of a cause of action for misappropriation of trade secrets can be. It does not expand much upon existing state law regarding the right of action, or remedies. Also, there are many other things that might be included in a bill to help protect companies located in the U.S. that are targeted by capable, resourced, and persistent cyber thieves in the other countries intent on stealing trade secrets. But, this bill does not contain any other such provisions.

Proponents of this bill site the "patchwork" of state laws. There are 50 sovereign states. But this is an area of uniformity. Proponents also site the problem of sophisticated cyber intrusions originating in the People's Republic of China (PRC). However, this is a limited and narrow bill that would not place the targeted companies in a position to deal with PRC based thieves.

It does not expressly provide for exclusion orders banning imports of goods made by defendants engaged in or benefiting from cyber theft. It does not amend 18 U.S.C. § 1030 to allow investigators for the victimized companies to hack back into the servers of the hackers. It does nothing to enable federal law enforcement agencies to deputize and authorize such investigators. It does nothing to incent companies to share cyber threat or security information with each other, or with the federal government. It provides no additional financial or manpower resources for federal agencies involved in investigating cyber theft. It does not provide for federal imposition of sanctions (such as bans on doing business with) upon foreign actors that engage in cyber theft. It does not provide for federal leverage of visa powers (such as denying visas to people at companies or universities that engage in or benefit from cyber theft).

This bill would do one thing. It would enable companies that have long been able to bring trade secret misappropriation suits in state courts to bring those suits in federal court.

APT1 and its clients have little to fear from this bill. (See, Madiant's February 19, 2013 report [76 pages in PDF] titled "APT1: Exposing One of China's Cyber Espionage Units", and story titled "Mandiant Releases Report on Cyber Espionage by People's Liberation Army" in TLJ Daily E-Mail Alert No. 2,525, February 19, 2013.)

Current Federal Law. One important federal statute relevant to cyber theft of trade secrets is the Computer Fraud and Abuse Act (CFAA), which is codified at 18 U.S.C. § 1030. It bans unauthorized access to protected computer systems. Hackers located in other countries who access the systems of U.S. based companies to steal trade secrets routinely violate this statute. But, they are beyond the reach of federal prosecutors, and generally work in (and sometimes for) foreign governments who will neither prosecute them nor assist U.S. authorities.

Section 1030 contains a private right of action. However, this has many limitations. First, the foreign actor is often beyond the reach of the U.S. courts.

Second, it only provides a right of action against the "violator" who gained or exceeded authorized access to a protected computer system. So for example, if an economic espionage unit of the military of a foreign government stole trade secrets by cyber intrusion, and then transferred those secrets to a company within that country, there would be no private right of action under Section 1030 against that company.

Third, Section 1030 inhibits important investigations by the investigators for U.S. based businesses. That is, if foreign hackers are gaining access to the systems of their target, gaining privileges, seizing control of servers, and extracting trade secrets, then the target company's investigators want to find out who is doing this, how they are doing this, and what they have stolen. So long as the thieves are accessing things that the company owns, the investigators have authorization. But, if their investigation leads them to servers beyond the ownership or control of the company, they do not have authorization within the meaning of Section 1030 to access that server. S 2267 does nothing to give them that access. (Although, this bill would enable the target company to file an action and obtain a "Civil ex parte order for preservation of evidence and seizure". Of course, the company might not know whom to sue until it has first hacked into and seized information from those servers.)

Another important statute is the Economic Espionage Act. It has two key sections. The domestic section, which is codified at 18 U.S.C. § 1832, criminalizes theft of trade secrets. However, it does not contain a private right of action. S 2267 does create a private right of action for violation of Section 1832.

The other section is government espionage provision, which criminalizes theft of trade secrets by any "foreign government, foreign instrumentality, or foreign agent", and which is codified at 18 U.S.C. § 1831. It contains no private right of action. S 2267 does create a private right of action for violation of Section 1831.

Next, there is the Tariff Act of 1930 as amended. Section 337, provides a private right of action by rights holders before the U.S. International Trade Commission (USITC) for orders that exclude importation of articles that infringe patents or trademarks, or violate certain other intellectual property rights.

However, Section 337 does not reference trade secrets -- either articles that practice stolen trade secrets, or that are made by processes that practice stolen trade secrets. See, 19 U.S.C. § 1337.

S 2267 does not amend Section 337. Nor does it create any analogous remedy in the U.S. District Court for trade secrets.

Finally, two other section are of note. First, 18 U.S.C. § 1836 provides that the DOJ may obtain a civil injunction. This is a brief section. The substantive language of S 2267 would become the new Section 1836. Section, 18 U.S.C. § 1839 contains definitions. It currently provides the definition of "trade secret" that applies to the existing Sections 1831 and 1832. It would also apply to the new right of action that would be created by S 2267. The UTSA contains a different, though similar, definition of "trade secret".

Sen. Chris CoonsStatements by Sen. Coons and Sen. Hatch. Sen. Coons (at right) stated in a release that "American companies are losing jobs because of the theft of trade secrets every day. This bipartisan bill will empower American companies to protect their jobs by legally confronting those who steal their trade secrets. It will finally give trade secrets the same legal protections that other forms of critical intellectual property already enjoy."

This release states that "In today's electronic age, trade secrets can be stolen with a few keystrokes, and increasingly, they are stolen at the direction of a foreign government or for the benefit of a foreign competitor. These losses put U.S. jobs at risk and threaten incentives for continued investment in research and development."

Sen. Orrin HatchSen. Hatch (at left) stated in the same release that "American companies utilizing technology to grow and create more jobs increasingly face threats to the trade secrets that help drive their success ... The legislation we're introducing today takes a big step towards confronting bad actors seeking to steal intellectual property, and provides victims of trade secret theft with the legal protections they need."

Sen. Coons and Sen. Hatch have done little to explain this bill. Neither made statements in the Senate, or submitted statements for the Congressional Record. Neither released a summary of the bill.

Legislative History. In the 112th Congress, former Sen. Herb Kohl (D-WI), Sen. Coons, and Sen. Sheldon Whitehouse (D-RI) introduced S 3389 [LOC | WW], the "Protecting American Trade Secrets and Innovation Act of 2012", a bill to amend Section 1836 to create private rights of action under both Sections 1831 and 1832.

former Sen. Herb KohlSen. Kohl (at right) explained why a federal right of action is better than a state right of action. "While State courts may be a suitable venue in some cases, major trade secret cases will often require tools available more readily in Federal court, such as nationwide service of process for subpoenas, discovery and witness depositions. In addition, for trade secret holders operating nationwide, a single Federal statute can be more efficient than navigating 50 different State laws. Finally, our bill permits judges to issue seizure orders to prevent defendants from destroying evidence."

They introduced that bill on July 17, 2012. It was referred to the SJC. Neither the SJC nor the full Senate took any further action on that bill.

They introduced that bill just as Sen. Harry Reid (D-NV), the Senate Majority Leader, was launching a strategy to push just one bill related to cyber security, without any committee markup, without any amendments on the Senate floor, and without enough votes. He failed twice, which may have been his intention. President Obama then proceeded to regulate cyber security by executive fiat.

The Obama administration released its far reaching executive order on cyber security regulation in February of 2013 (EO 13636). That EO is focused on protecting critical infrastructure from cyber attacks, but not on protecting the full range of U.S. based business from trade secrets theft.

The administration also released, on February 20, 2013, a document titled "Administration Strategy on Mitigating the Theft of U.S. Trade Secrets". It contained no legislative proposals. It did not mention S 3389. While superficially it touted a wide ranging set of activities, it disclosed that the administration actually had little in the way of a trade secrets strategy. See also, stories titled "IPEC Releases Administration Strategy Regarding Theft of Trade Secrets" and "AG Holder Addresses Cyber Security and Theft of Trade Secrets" in TLJ Daily E-Mail Alert No. 2,525, February 19, 2013.

Sen. Coons discussed possible legislation with AG Eric Holder at a SJC hearing on March 6, 2013. See, story titled "Sen. Coons Proposes Private Right of Action for Cyber Theft of Trade Secrets" in TLJ Daily E-Mail Alert No. 2,532, March 7, 2013.

The SJC held a hearing on May 8, 2013 titled "Cyber Threats: Law Enforcement and Private Sector Responses". Government and private sector witnesses discussed the threats, including cyber theft of trade secrets by People's Republic of China (PRC) actors.

Witnesses also offered a wide variety of suggestions for things that could or should be done to limit cyber theft. Notably, none of the prepared statements of the witnesses point to the creation of a federal private right of action.

The SJC scheduled a hearing titled "Economic Espionage and Trade Secret Theft: Are Our Laws Adequate for Today’s Threats?" for March 25, 2014. But, the SJC then cancelled it.

Congressional Powers. This bill does not state which of the Constitutional powers of the Congress it invokes. The intellectual property clause references only "Authors and Inventors" and "Writings and Discoveries", which is now understood to encompass copyright and patent, but not trade secrets, trademarks, or other forms of intellectual property.

This bill would place the new right of action in Title 18, the criminal code. But, the Constitutional gives no general authority to prohibit crimes to the Congress. Moreover, this bill is civil, and not criminal, in nature.

The most likely authority for this bill is the commerce clause, which provides that "The Congress shall have the Power ... To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes".

When the Congress exercising its authority under the Commerce Clause, the question arises to what extend it preempts state laws on the same subject. S 2267 states that "Nothing in the amendments made by this section shall be construed ... to preempt any other provision of law."

Support for the Bill. The National Association of Manufacturers (NAM) stated in a release that this bill "would help to address this challenge by providing access to federal civil enforcement for trade secrets theft. Right now, businesses must go state-by-state to defend their rights."

The NAM added that it would also "provide a critical foundation for essential trade secrets commitments in U.S. trade agreements, including those under negotiation with Europe and 11 Pacific Rim nations." The NAM refers to the Transatlantic Trade and Investment Partnership (TTIP) and Trans Pacific Partnership Agreement (TPPA).

Victoria Espinel, head of the Business Software Alliance (BSA) stated in a release that "There is a clear need for legislative action: trade secret theft costs the United States hundreds of billions of dollars a year".

She added that "Current federal law is insufficient. There needs to be a uniform federal standard with a well-balanced private right of action that allows trade secret owners to sue when their intellectual property is misappropriated."

Espinel was, until recently, the Intellectual Property Enforcement Coordinator in the Executive Office of the President. It was her office that released the February 2013 administration policy on trade secret protection. It was 121 pages, but did not advocate any legislation.

Summary of S 2267, the Defend Trade Secrets Act

4/29. Sen. Chris Coons (D-DE) and Sen. Orrin Hatch (R-UT) introduced S 2267 [LOC | WW], the "Defend Trade Secrets Act of 2014", a bill that would create a federal private right of action for misappropriation of trade secrets, similar to the uniform state act, and without preempting any state law.

This bill would amend Chapter 90, titled "Protection of Trade Secrets", of Title 18, the criminal code. Chapter 90 is codified at 18 U.S.C. §§ 1831-1839.

This bill would create a new private right of action, codified at 18 U.S.C. § 1836, which currently is a short section allowing the Department of Justice (DOJ) to obtain civil injunctions

The bill provides that "An owner of a trade secret may bring a civil action under this subsection if the person is aggrieved by (A) a violation of section 1831(a) or 1832(a); or (B) a misappropriation of a trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce."

18 U.S.C. § 1832 criminalizes theft of trade secrets. 18 U.S.C. § 1831 criminalizes theft of trade secrets by any "foreign government, foreign instrumentality, or foreign agent".

The new federal right of action under the above quoted subsection (B) is brief. Much of the meaning of this right of action lies in the definitions.

First, the bill defines "misappropriation" as acquisition or disclosure. Misappropriation by acquisition means "acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means".

Misappropriation by disclosure means:

Both use the term "improper means". The bill defines this term as "(A) includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and (B) does not include reverse engineering or independent derivation".

Both the definitions for "misappropriation" and "improper means" are take from the Uniform Trade Secrets Act (UTSA).

The key definition of "trade secret" is already in Chapter 90. 18 U.S.C. § 1839 provides that it means "all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if -- (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public".

The bill does not contain any special pleading requirements. It does specify special procedure for obtaining a "Civil ex parte order for preservation of evidence and seizure".

The bill provides for injunctive relief "to prevent any actual or threatened violation", "requiring affirmative actions to be taken to protect a trade secret", and "in exceptional circumstances that render an injunction inequitable, that conditions future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited".

The bill provides for the award of damages "for actual loss caused by the misappropriation", and "for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss". Alternatively, it provides, "in lieu of damages measured by any other methods, the damages caused by misappropriation measured by imposition of liability for a reasonable royalty for a misappropriator's unauthorized disclosure or use of a trade secret".

Also, the bill provides for the award of treble damages, and reasonable attorneys fees, for willful or malicious misappropriation.

The bill provides a five year statute of limitations. It also provides that "Nothing in the amendments made by this section shall be construed to ... preempt any other provision of law."

House Ways and Means Committee Approves Bill to Make R&D Tax Credit Permanent

4/29. The House Ways and Means Committee (HWMC) held a mark up session at which it amended and approved HR 4438 [LOC | WW], the "American Research and Competitiveness Act of 2014", a bill to revise and make permanent the research and development tax credit.

The vote was 22-12, with all of the Republicans who voted voting yes, and all but one of the Democrats who voted voting no. Rep. Earl Blumenauer (D-OR) was the only Democrat to vote yes. See, roll call.

Rep. Richard Neal (D-MA), who is a co-sponsor of the bill, did not vote. Rep. John Larson (D-CT) and Rep. Linda Sanchez (D-CA), who are also cosponsors, both voted no.

The HWMC approved an amendment in the nature of a substitute.

Rep. Dave Camp (R-MI), Chairman of the HWMC, stated in a release that "Short-term tax policy is bad for business and bad for economic growth and jobs. The United States is the only country in the world that allows such important pieces of its tax code to expire on a regular basis. Worse yet, this type of tax policy disadvantages U.S. companies, hurting their ability to remain globally competitive. By making these six bipartisan policies permanent, businesses small and large will have the ability to plan for the future, invest in the economy, hire new workers, and invent new technologies and products. We need to make the U.S. a more attractive place to invest and hire. These permanent polices are an important first step to achieve that goal and put us on a path towards comprehensive reform that lowers rates and makes the code simpler and fairer."

The House Rules Committee (HRC) is scheduled to meet at 5:00 PM on Tuesday, May 6 to adopt a rule for consideration by the full House. See, HRC notice. The full House is scheduled to consider the bill on Wednesday, Thursday, or Friday, May 7 through 9. See, Rep. Cantor's schedule.

See also, story titled "Ways and Means Committee to Mark Up Bill to Make R&D Tax Credit Permanent" in TLJ Daily E-Mail Alert No. 2,647, April 25, 2014.

People and Appointments

4/29. Nokia announced the appointment of Rajeev Suri as P/CEO, effective May 1, 2014. On April 25, Nokia completed the sale of its devices and services business to Microsoft. Nokia stated in a release that it will now focus on its other businesses -- Networks, Here, and Technologies. Its Networks business is products and services for telecom operators to manage the increase in wireless data traffic. Its Here business involves providing location data across different operating systems, platforms and screens. Its Technologies business includes its intellectual property licensing program, and further innovation. Suri has worked for Nokia since 1995. He was previously head of its Networks business.

More News

4/29. The Federal Communications Commission (FCC) announced that it host an event titled "E-Rate Modernization Workshop" on Tuesday, May 6, from 9:30 AM - 3:00 PM in the FCC's Commission Meeting Room. See, Public Notice (DA 14-563 in WC Docket No. 13-184) with agenda.

4/29. The Federal Communications Commission (FCC) fined one Jason Humphreys, a distracted driver vigilante, $48,000 for operating a radio communications jamming device in his motor vehicle during his daily commutes in the Tampa, Florida area. FCC agents tracked him down using "directional finding techniques". Although, the FCC waited before acting. It disclosed that Humphreys has been using the jammer on the same route every work day for 16 to 24 months. The FCC document adds that "Humphreys stated that he had been operating the jammer to keep people from talking on their cell phones while driving". See, Notice of Apparent Liability for Forfeiture (FCC 14-55.)

Comcast to Divest 3.9 Million Customers in Effort to Win Merger Approval

4/28. Comcast announced in a release that "we will divest approximately 3.9 million residential video customers following the close of the Comcast-Time Warner Cable merger, which will reduce our post-transaction managed residential customer total to less than 30 percent of the total number of MVPD customers in the United States, while maintaining the compelling strategic and financial rationale of the merger with Time Warner Cable."

Comcast and Time Warner Cable announced merger plans on February 13, 2014. They filed their Applications and Public Interest Statement with the Federal Communications Commission (FCC) on April 8, 2014.

The FCC released its Protective Order on April 4, 2014.

This proceeding is described by the FCC as a license transfer proceeding. However, it bears many attributes of an antitrust merger review proceeding. It is styled "In the Matter of Applications of Comcast Corp. and Time Warner Cable Inc. For Consent To Transfer Control of Licenses and Authorizations". It is MB Docket No. 14-57.

Comcast wrote in its April 28 release that "We believe today's announcement will facilitate the regulatory review process, as there is now a firm commitment regarding divestitures, relatively early in the process, and the divestiture transactions can be reviewed at the same time as our merger with Time Warner Cable."

"We understand that whenever big mergers are presented they raise questions. We of course will continue to work with regulators and legislators to address their questions and we expect a thorough review of all of these transactions. We continue to believe the Comcast-Time Warner Cable transaction is, and will be determined to be, pro-consumer, pro-competitive, and strongly in the public interest."

House Passes DATA Act

4/28. The House passed S 994 [LOC | WW], the "The Digital Accountability and Transparency Act", or DATA Act, by a voice vote. The Senate passed this bill on April 10, 2014. It is ready for President Obama's signature.

Sen. Mark Warner (D-VA) introduced this bill on May 21, 2013. However, the House and Senate have been considering other versions for several years.

Rep. Darrell Issa (R-CA) stated in the House that "The DATA Act is but a first shot of a technological revolution that will transform the way we govern. ... The DATA Act is more than just better tools to fight waste and fraud. It requires agencies to report their financial information in standard formats program by program. The DATA Act also gives policymakers in Congress and in the executive branch better information to make better decisions. More importantly, we give the American people better information to evaluate our performance."

The bill recites that its purposes include expanding the Federal Funding Accountability and Transparency Act of 2006, which is codified at 31 U.S.C. § 6101 note, "by disclosing direct Federal agency expenditures and linking Federal contract, loan, and grant spending information to programs of Federal agencies to enable taxpayers and policy makers to track Federal spending more effectively" and establishing "Government-wide data standards for financial data and provide consistent, reliable, and searchable Government-wide spending data that is displayed accurately for taxpayers and policy makers on (or a successor system that displays the data)". (Parentheses in original.)

House Judiciary Committee to Mark Up Sex Ads Bill

4/28. The House Judiciary Committee (HJC) announced that it will meet to mark up several bills on Wednesday, April 30, 2014. The agenda includes HR 4225 [LOC | WW], the "Stop Advertising Victims of Exploitation Act of 2014" or "SAVE Act". The HJC is scheduled to consider an amendment in the nature of a substitute. This legislation does not reference, but would likely impact, interactive web sites.

This bill relates to sex trafficking, which the federal government has long been involved in combatting, both domestically and abroad.

See, for example, the "Victims of Trafficking and Violence Protection Act of 2000", "Prosecutorial Remedies and Other Tools to End the Exploitation of Children Today Act of 2003", "Adam Walsh Child Protection and Safety Act of 2006", and "William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008".

One component of the federal regime is a criminal prohibition of sex trafficking. 18 U.S.C. § 1591 enables prosecution of a wide range of persons for "participation in a venture" of sex trafficking.

This bill targets, not the sex traffickers, but advertising and platforms for advertising. This could include operators of interactive web sites, including social networking sites, where users post sex related content. One issue is whether new legislation will enable federal prosecutors to prosecute web site operators when their sites have been used by others to offer sex acts.

Web site operators could be  compelled to monitor, edit and censor statements of third parties. 47 U.S.C. § 230, the interactive computer service immunity provision, was enacted to protect web sites from such obligations and threats of liability, and the costs and burdens that this would impose.

Section 230 provides in part that "No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider."

The underlying criminal prohibition, Section 1591, is complex and awkwardly worded. Most international sex traffickers probably cannot understand it. Although, no one in the Congress or law enforcement is shedding any due process tears over that. Prosecutors and judges can decipher its meaning.

The new prohibition contained in HR 4225 as introduced bears attributes of either a hasty or inexpert drafting. Its meaning is not clear. Courts would not know how to construe it. The amended version of the bill, in contrast, would merely add the word "advertises" to Section 1591. It is less confusing.

Moreover, unlike the Victims of Trafficking and Violence Protection Act of 2000, which contains an extensive set of findings, this bill contains none. This bill does not contain a finding, for example, that social networking sites are being used to advertise sex services, and the site operators must therefore be compelled to monitor their sites, and delete content. Indeed, neither the bill as introduced, nor the amendment, even mention web sites.

The bill, as introduced, would add a new section to the Criminal Code that imposes criminal liability on interactive web sites for third party postings that offer a "commercial sex act". In contrast, the amendment would merely amend the existing 18 U.S.C. § 1591, which currently criminalizes sex trafficking. Under the statute, for something to rise to the level of sex trafficking, the persons trafficked must either be under 18 years old, or be the subject of force, fraud or coercion.

Rep. Ann Wagner (R-MO) (at right) introduced this bill on March 13, 2014. There are now 56 co-sponsors -- almost all of whom are Republicans.

Rep. Ann WagnerRep. Wagner (at right) is in her first term. She has a background in business and politics, and served as Ambassador to Luxemburg during the Bush administration. However, she lacks experience in either law and law enforcement. She is a member of the House Financial Services Committee (HFSC), but not the HJC.

This bill was referred to the HJC's Subcommittee on Crime, Terrorism, Homeland Security, and Investigations. However, neither the HJC nor this Subcommittee have held a hearing on this bill.

Rep. Karen Bass (D-CA), who is a member of the HJC, and Rep. Joyce Beatty (D-OH) are cosponsors.

Several senior Republicans on the HJC are cosponsors, including Rep. James Sensenbrenner (R-WI) and Rep. Ted Poe (R-TX).

Summary and Analysis of Section 1591 and HR 4225. Section 1591, as amended by the amendment in the nature of a substitute, would provides as follows. The amendment would merely add the word "advertises", which is shown in red.

The bill as introduced would instead add a new Section 1591A that provides as follows:

Neither the bill as introduced, nor the amendment, provide a definition of "commercial sex act". The bill as introduced provides that "the terms have the meanings given those terms in section 1591". Section 1591 provides that "commercial sex act" means "any sex act, on account of which anything of value is given to or received by any person". (The same definition also appears in 22 U.S.C. § 7102, regarding protection of trafficking victims.)

Thus, what constitutes a "sex act" remains undefined. However, whatever this term might be construed to mean, there is no requirement that the act be illegal under federal or state law.

The clause "in a manner prohibited under section 1591" in the bill as introduced would create much uncertainty. This clause cannot modify "commercial sex", because Section 1591 does not prohibit any sex acts. It cannot modify "offers", because Section 1591 does not prohibit offering sex acts. It cannot modify "advertising", because Section 1591 does not prohibit any advertising. It cannot modify "knowingly ...", because if that were already prohibited by Section 1591, then this new Section 1591A would be redundant.

The bill as introduced also raises due process issues. A criminal prohibition generally must identify both an act (committed by the defendant) and a mental state (possessed by the defendant leading up to the commission of that act). The bill as introduced criminalizes benefiting financially. But, in the context of operating an interactive web site in which users post content, the act is committed by the user. Benefiting financially (for example, from legitimate ads paid for by sellers of things other than sex acts) is a consequence of the user's act, not an act of the web site operator. Also, the bill's mental state ("knowingly benefits") occurs after the commission of the act. Thus, the bill as introduced might be interpreted to impose strict liability upon web site operators for the acts of third parties. This would be inconsistent with fundamental principles of criminal liability. (On the other hand, it would also be a class action tort litigator's dream.)

The bill as introduced might be construed by prosecutors and courts to mean that an interactive web site operator can be held criminally liable because it sells legitimate ads, and because its users post offers of sex acts. It need not have any knowledge that there is a sex trafficking venture behind the postings, or that anyone involved is a minor, or has been coerced.

The amendment would have a more modest impact on web sites. Section 1591(a)(1) would cover anyone who "advertises ... a person", while Section 1591(a)(2) would extend this to cover anyone who "benefits, financially" from advertising a person. Interactive web sites might fall within the meaning of those who benefit financially.

However, (a)(2) goes on to reference "from participation in a venture". (The bill as introduced contains no such limitation.) The web site operator might argue that providing an interactive venue falls short of "participation in a venture" of its users. A zealous prosecutor might argue otherwise.

Also, under the amended version of the bill, for the web site to be criminally liable, it must operate its web site "knowing, or in reckless disregard of the fact" that either the person is a minor, or was subjected to "force, threats of force, fraud, coercion". (This is far more that is required by the bill as introduced to impose criminal liability on the web site operator.)

It should also be noted that this legislation would enable prosecutorial forum shopping. For example, if a person in Silicon Valley offered a commercial sex act in an interactive web site, then any resulting sex act would likely occur in or near Silicon Valley. However, the web site is published to the world, and jurisdiction would lie in any U.S. District Court. Hence, the operator of that web site could be prosecuted in federal court in the state of Florida, or any other jurisdiction, in which the values of the prosecutors, judges and jurors are most opposed to such activity. Thus, internet companies around the country might be judged by the standards prevailing in the most morally austere community in the country.

Conclusion. This bill is pregnant with implications for web site operators. Yet, the bill makes no reference to this, and the HJC has held no hearing to explore the meaning and implications of this bill.

If the Congress were following an open and transparent process, and providing fair notice to web site operators regarding how they might be impacted by this legislation, it would draft legislation that contains finding regarding what is the advertising problem to be addressed, and what should be the legal obligations of web site operators. The legislation would also set forth how it applies web site operators. The Congress would also hold public hearings that would enable affected interests to testify and submit comments, and inform others that they may wish to contact their Representatives and Senators.

Rather, the Congress is considering a bill under a title, the "Stop Advertising Victims of Exploitation Act", and with language, that fails to disclose that the main consequence of passage would be to enable prosecutors to regulate the web site management practices of interactive web site operators.

No one in the Congress is opposed to prosecuting sex traffickers. But, that is not what this bill is about.

People and Appointments

4/28. The American Library Association (ALA) announced in a release that Adam Eisgrau has joined the ALA to work on surveillance and cybersecurity matters. He began his career in law and on Congressional staffs. He has since lobbied and consulted on a wide range of intellectual property, surveillance and other technology related issues. He previously lobbied on behalf of the Electronic Frontier Foundation (EFF) in opposition to the legislation that granted immunity from civil suits to service providers that assisted the federal government in warrantless wiretaps. See, story titled "EFF Hires Lobbyists to Oppose Surveillance Immunity" in TLJ Daily E-Mail Alert No. 1,651, October 8, 2007.

4/28. The U.S. District Court (EDNY) unsealed an indictment that charges second term Rep. Michael Grimm (R-NY) with mail fraud, wire fraud, aiding and assisting in the preparation of false federal tax returns, conspiring to defraud the United States, impeding the Internal Revenue Service, health care fraud, engaging in a pattern or practice of hiring and continuing to employ unauthorized aliens, perjury and obstructing an official proceeding. The Office of the U.S. Attorney for the Eastern District of New York stated in a release that prior to his election to the House of Representatives he was one of the owners of a restaurant in New York City, that the restaurant hired illegal aliens, that it paid some employees in cash, and then under reported wages paid for the purpose of calculating payroll taxes, and that the restaurant under reported cash revenues for income tax purposes. This case is U.S. v. Grimm, U.S. District Court for the Eastern District of New York, D.C. No. 14-248. Rep. Grimm is a member of the House Financial Services Committee (HFSC).

4/28. The Senate confirmed Michelle Friedland to be a Judge of the U.S. Court of Appeals (9thCir) by a vote of 51-40. See, Roll Call No. 108. It was a nearly straight party line vote. All but one of the yes votes were cast by Democrats. All of the no votes were cast by Republicans. Sen. Susan Collins (R-ME) voted yes. See also, stories titled "Obama Nominates Pharmaceutical Attorney for 9th Circuit" in TLJ Daily E-Mail Alert No. 2,587, August 6, 2013, and "Court of Appeals Appointments" in TLJ Daily E-Mail Alert No. 2,643, April 21, 2014.

More News

4/28. The Department of Homeland Security's (DHS) National Protection and Programs Directorate's (NPPD) Office of Cybersecurity and Communications' (OCC) US CERT released a notice on April 28, 2014 regarding a vulnerability in Microsoft's Internet Explorer. The notice states that "US-CERT is aware of active exploitation of a use-after-free vulnerability in Microsoft Internet Explorer. This vulnerability affects IE versions 6 through 11 and could lead to the complete compromise of an affected system." The US CERT also released a more detailed vulnerability note which states that "By convincing a user to view a specially crafted HTML document (e.g., a web page or an HTML email message or attachment), an attacker may be able to execute arbitrary code." (Parentheses in original.) It adds that "We are currently unaware of a practical solution to this problem." On April 26 Microsoft released a security advisory titled "Vulnerability in Internet Explorer Could Allow Remote Code Execution".

4/28. The National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) released its SP 800-52 Rev. 1 [67 pages in PDF] titled "Guidelines for the Selection, Configuration, and Use of Transport Layer Security (TLS) Implementations". This updates previous versions of this Special Publication (SP), which was first released in 2005. This SP states that TLS "provides mechanisms to protect sensitive data during electronic dissemination across the Internet. This Special Publication provides guidance to the selection and configuration of TLS protocol implementations while making effective use of Federal Information Processing Stand ards (FIPS) and NIST-recommended cryptographic algorithms, and requires that TLS 1.1 configured with FIPS-based cipher suites as the minimum appropriate secure transport protocol and recommends that agencies develop migration plans to TLS 1.2 by January 1, 2015. This Special Publication also identifies TLS extensions for which mandatory support must be provided and other recommended extensions." See also, NIST release.

4/28. The Federal Trade Commission (FTC) announced in a release that it has relocated its Premerger Notification Office (PNO) from the FTC headquarters building on Pennsylvania Avenue NW to the Constitution Center building on the corner of 7th and D Streets SW. The FTC also released a notice, to be published in the Federal Register, that announces changes to its Hart Scott Rodino (HSR) rules.