|News from February
Federal Circuit Rules on Applicable Law in Patent Appeals
2/15. The U.S.
Court of Appeals (FedCir) issued its opinion in Fiskars
v. Hunt a patent infringement case involving applicable law in
appeals to the Federal Circuit, and motions for relief from judgment pursuant to
Fiskars owns U.S. Patent No. 5,322,001, which is directed to a paper trimmer
with a rotary blade. Fiskars filed a complaint in U.S.
District Court (WDWisc) against Hunt Manufacturing alleging patent
infringement. The trial court jury found Hunt liable for infringement under the
doctrine of equivalents and awarded damages, and the District Court entered
judgment. Hunt filed a motion for relief from judgment pursuant to Federal Rule
of Civil Procedure 60(b), which the District Court denied.
The Appeals Court first addressed what law to apply in its review of the denial
of the Rule 60 motion -- the law of the Federal Circuit, or the regional
circuit. The Appeals Court wrote that "When reviewing non-patent issues,
our general practice is to apply the law of the regional circuit". It
further stated that "Because rulings under Rule 60(b) commonly involve
procedural matters unrelated to patent law issues as such, we often defer to the
law of the regional circuit in reviewing such rulings."
However, the Appeals Court continued that "a procedural issue that is
itself not a substantive patent law issue may be governed by Federal Circuit law
if the issue ``pertain[s] to patent law, ... bears an essential
relationship to matters committed to our exclusive control by statute, ...
or clearly implicates the jurisprudential responsibilities of this court in a
field within its exclusive jurisdiction.´´ ... Consequently, when a district
court’s Rule 60(b) ruling turns on substantive matters that pertain to patent
law, we review the ruling under Federal Circuit law because ``we perceive a
clear need for uniformity and certainty in the way the district courts treat
[the] issue.´´ " (Citations omitted). The Appeals Court applied Federal
Circuit law. The Court then held that the District Court did not abuse its
discretion in denying the Rule 60 motion. Affirmed.
2/15. The World Trade Organization (WTO)
announced the names of chairpersons for WTO bodies. See, list of appointees
by WTO Director General Mike Moore.
Securities Regulation News
2/15. The Consumers Union advocated
rolling back the Private Securities Litigation Reform Act (PSLRA) and the
Securities Litigation Uniform Standards Act (SLUSA). See, CU release.
2/15. Stephen Cutler, Director of the Securities
& Exchange Commission's (SEC) Division of Enforcement, gave a speech in Hallandale,
Florida, regarding SEC enforcement efforts. He stated that "there is a dark
cloud hanging over all of us these days. Practically overnight, a system we'd
all come to believe in has been exposed as plagued with weaknesses." He
added that "there has never been a better time to consider wide ranging and
meaningful policy reform."
Cutler also stated that "many of our investigations flow from complaints or
other submissions by members of the public. ... In 2001, the Enforcement
Complaint Center, our online mailbox, received an average of 365 emails per
business day, up from fewer than 300 per business day during year 2000. In
comparison, during January 2002, the Complaint Center averaged 525 emails per
day, a 45% increase over the 2001 average."
IIPA Submits Special 301 Recommendations to USTR
2/15. Friday, February 15, was the deadline to submit comments to the Office of
the U.S. Trade Representative (USTR)
regarding foreign countries that deny adequate and effective protection of
intellectual property rights or deny fair and equitable market access to U.S.
persons who rely on intellectual property protection. The USTR requested these
comments pursuant to its duties under § 182 of the Trade Act of 1974, 19 U.S.C. § 2242,
which is better known as the "Special 301" provisions.
The International Intellectual Property
Alliance (IIPA) submitted a comment which it summarized in a seven page release [PDF].
IIPA urged the USTR "to maintain Ukraine as a Priority Foreign Country
under Special 301" because it has "failed to adopt and enforce an
adequate law controlling pirate optical media production originating
The IIPA urged the USTR to elevate Brazil, Kuwait, Turkey and Pakistan to the
Priority Watch List. It also asked that Argentina, Costa Rica, Dominican
Republic, Egypt, India, Indonesia, Israel, Korea, Lebanon, Philippines, Russia,
Taiwan, and Uruguay be kept on the Priority Watch List.
The IIPA also urged the USTR "to continue monitoring the compliance of the
People’s Republic of China and Paraguay, under Section 306 of the Trade Act,
with their bilateral commitments to the U.S. on copyright and copyright
enforcement and (for China) on its market access commitments. Under Section 306,
failure to comply with these commitments can result in virtually immediate trade
The Business Software Alliance (BSA), which is
a member of the IIPA, stated in a separate release
that "China still maintains abhorrent end user piracy rates and needs to
step up enforcement efforts." The BSA also singled out Taiwan, Korea and
Italy. "Taiwan needs to adopt a more integrated approach to stem the growth
of corporate end user piracy in 2002". It further stated that "Korea
continues to fall short in curtailing corporate end user piracy" and that
"end user piracy of business application software in Italy remains among
the highest in Europe".
Newspaper Broadcast Cross Ownership Rule
2/15. Friday, February 15, was the extended deadline to file reply comments with
the FCC in its proceeding regarding cross ownership of broadcast stations and
newspapers. (This is MM Docket No. 01-235.) Media companies recommended that the
FCC eliminate this cross ownership rule.
Cox Enterprises submitted a reply
comment [PDF] in which it argued that the daily newspaper broadcast cross
ownership restriction cannot withstand judicial scrutiny under the First
Amendment, and is contrary to the policy embodied in the Telecommunications Act
of 1996 Congress that free markets and competition best promote the public
interest. It therefore argued for abolition of cross ownership rules. Other
media companies submitted similar comments.
The Tribune Company submitted a reply
comment [PDF] in which it argued that "newspaper circulation and
television ratings have suffered significant declines as a result of the
emergence of new media competition, principally from cable/ satellite and the
Internet." It argued that this renders the regulated media vulnerable to
Gannett Company submitted a reply
comment [PDF] stating that the FCC should eliminate the cross ownership rule
because "traditional media outlets have been inundated with new
competitors, sufficient that the cross ownership restriction is no longer
necessary to protect competition or diversity."
The Newspaper Association of America submitted a comment
[PDF] in which it argued that "The media marketplace is more robust than
ever -- there are more broadcast stations, radio stations, cable and other MVPD
households, weekly and alternative newspapers, and Internet subscribers than at
any other time in U.S. history".
The Consumers Union and the AFL-CIO
previously submitted comments arguing for continuation of the restriction.
2/15. Globalstar announced
that it filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court (DDel).
2/15. The U.S. Patent and Trademark Office (USPTO)
published the February
issue of the USPTO Pulse in its web site.
2/15. The U.S.
Court of Appeals (6thCir) issued its opinion
& Fitch v. American Eagle Outfitters, a trademark case.
Abercrombie & Fitch (A&F) filed a complaint in U.S. District Court (SDOhio)
against American Eagle alleging infringement of unregistered trade dress in
violation of Section 43(a) of the Lanham Act. The District Court granted summary
judgment to American Eagle on the grounds that A&F sought protection for
something that was not trade dress. The Court of Appeals affirmed on other
grounds -- that the designs were functional, and therefore, not protectable.
House Crime Subcommittee Postpones Mark Up of Cyber Security
2/14. The House Judiciary Committee's
Crime Subcommittee met to mark up HR 3482,
the "Cyber Security Enhancement Act of 2001", sponsored by Rep. Lamar Smith (R-TX). However, a
quorum was lacking, so the mark up was postponed. Rep. Smith, who is also the
Chairman of the Subcommittee, stated at the hearing that he hoped to mark up the
bill after the House returns from its one week recess next week.
Rep. Smith has prepared an amendment
in the nature of a substitute that contains additional provisions.
However, since the meeting was postponed, this amendment has not yet been
offered or approved.
The amendment includes a new Section 108 regarding emergency use of pen
registers and trap and trace (PRTT) devices. Currently, under 18 U.S.C. §
3125, law enforcement authorities may use PRTT devices for 48 hours in certain
emergency situations, while court authority is being sought. Section 108 would
expand the list of situations to include "an immediate threat to a national
security interest" and "an ongoing attack on a protected computer that
constitutes a crime punishable by a term of imprisonment greater than one
The amendment also contains a new section 109 that would raise penalties for
illegally intercepting cell phone conversations, and increase penalties for
unlawful access to stored communications.
The amendment leaves Section 102 of the bill unchanged. This section would amend
18 U.S.C. §
2702(b), regarding voluntary disclosure of the contents of communications.
Currently, the statute provides that "A person or entity may divulge the
contents of a communication ... (6) to a law enforcement agency ... (C) if the
provider reasonably believes that an emergency involving immediate danger of
death or serious physical injury to any person requires disclosure of the
information without delay." The bill would allow the disclosure "if
the provider, in good faith, believes ..."
Alan Davidson of the Center for Democracy and
Technology (CDT) testified against this language at the Subcommittee's
hearing on February 12. He also spoke with reporters after the February 14
meeting. He stated Section 102 would create a "a loophole that you can
drive a truck through".
Rep. Bob Goodlatte (R-VA) also
spoke with reporters after the meeting. He would like the language of his ISP
immunity bill, HR 3716,
to be added as a further amendment to HR 3482. He stated that he would not have
offered it as an amendment at the February 14 meeting. However, he added that
"we are still discussing that with the committee". Rep. Goodlatte's
bill, titled the "Online Criminal Liability Standardization Act of
2002", would exempt ISPs from criminal liability for third party content
stored on their servers.
It provides that "no interactive computer service provider, or corporate
officer of such provider, shall be liable for an offense against the United
States arising from such provider’s transmitting, storing, distributing, or
otherwise making available, in the ordinary course of its business activities as
an interactive computer service provider, material provided by another
person." The bill further provides that "The liability limitation
created by this section does not apply if the defendant intended that the
service be used in the commission of the offense."
FCC Addresses Classification of Services, Universal Service,
2/14. The The Federal Communications Commission
(FCC) announced that it has adopted several notices of proposed rulemaking (NPRMs)
and an Order at its February 14 meeting. As is the FCC's practice, it announced
its actions, but did not release copies of the NPRMs or orders. Rather, it
issued a series of press releases.
The FCC stated that one NPRM will examine both the regulatory classification of
"telephone based broadband Internet access services", and
"whether facilities based broadband Internet access providers should be
required to contribute to support universal service".
The FCC stated that a second universal service fund (USF) related NPRM will
examine whether the FCC should "assess USF contributions based on the
number and capacity of connections, rather than on the interstate revenues they
The FCC also stated that it adopted a "First Report and Order that permits
the marketing and operation of certain types of new products incorporating
FCC to Address Regulatory Classification of Services
2/14. The FCC issued a press
release that is associated with its NPRM regarding classification of
services. This release states that this NPRM "is poised to resolve
outstanding issues regarding the classification of telephone based broadband
Internet access services and the regulatory implications of that
classification". It further states that the "the FCC tentatively
concluded the wireline broadband Internet access services -- whether provided
over a third party's facilities or self-provisioned facilities -- are
information services, with a telecommunications component, rather than
telecommunications services. Information services include such services as voice
mail and e-mail, which ride over telecommunications facilities." This is CC
Chairman Michael Powell
wrote a separate
statement in which he stated, "I vigorously support adoption of this
Notice." However, he provided little clarification of the content of the
NPRM. Commissioner Kathleen
Abernathy also supported the NPRM. Commissioners Michael Copps and Kevin Martin both dissented
in part, for different reasons.
Copps wrote that "I will concur in one section of this Notice, simply to
ensure that the universal service questions have sufficient support to be
raised." However, he objected to the component of the NPRM that would
examine the "statutory classification of telecommunications,
telecommunications services, and information services". He stated that
"This is an enormously far reaching decision and I, for one, am nowhere
near ready to go there, even tentatively."
The Communications Act of 1934, as amended, provides for different regulatory
treatment for different industries, as they existed at the times of enactment of
the various statutory provisions. For example, there are separate regulatory
regimes for telecommunications (old fashioned phone service), cable (one way
programming delivered over cable), and broadcasting (programming delivered via
radio or TV). The Communications Act has no statutory regime for regulating
Internet or information services, and until recently, these have remained
largely untouched by the FCC.
However, the deployment of new services that were not contemplated at the time
when the statutory provisions were written, and the convergence of services,
have raised questions about which regulatory category, if any, should apply to
many new and/or converged services.
Nancy Victory, Director of the National
Telecommunications and Information Administration (NTIA), commended the FCC
for announcing this NPRM. See, NTIA release.
FCC Announces That It May Tax Internet Access
2/14. The Federal Communications Commission's
(FCC) Notice of Proposed Rulemaking (NPRM) regarding regulatory classification
of services also addresses the FCC's universal service programs. Under this NPRM
the FCC will also consider whether broadband Internet access providers should be
taxed to support the FCC's telecommunications subsidy programs.
The FCC stated in its release
the NPRM seeks comment "on whether facilities based broadband Internet
access providers should be required to contribute to support universal
service." The release also states that the FCC seeks comment on
"whether the Computer Inquiry network access requirements should be
modified or eliminated".
The FCC and its subsidiary corporations run a collection of cross subsidization
programs for the purpose of making telecommunications services more available in
high cost and low income areas. Also, the more recently developed e-rate program
provides telecommunications services, computer networking, and Internet services
to schools and libraries under the rubric of universal service. Under the
various universal service programs, business customers subsidize residential
customers, urban customers subsidize rural customers, and all phone customers
Section 254(d) of
the Telecom Act of 1996 defines the obligation to contribute to universal
service programs. It provides that "Every telecommunications carrier that
provides interstate telecommunications services shall contribute, on an
equitable and nondiscriminatory basis, to the specific, predictable, and
sufficient mechanisms established by the Commission to preserve and advance
The statute does not tax other regulated communications industries, such as
cable and broadcasting. Nor is the unregulated Internet industry required by the
statute to pay.
One of the four Commissioners dissented. Kevin Martin wrote in his separate
statement that "I dissent from this item's discussion of universal
service obligations of providers of broadband Internet access. In particular, I
object to its determination that we will consider imposing what is essentially
an Internet access tax, extending universal service contribution obligations to
non-wireline broadband Internet access providers, such as wireless, cable, and
satellite providers. Unlike wireline providers, these providers have not been
required to make universal service contributions on the basis of their broadband
The FCC also announced that it has adopted a second, less controversial, Further
NPRM regarding universal service contributions. The FCC issued a release
that states that it will examine "Whether to assess USF contributions based
on the number and capacity of connections, rather than on the interstate
revenues they earn. Under this proposal, local exchange carriers, interexchange
carriers, and wireless providers would contribute $1 per month for each
connection to a public network for residential users (paging providers would
contribute 25 cents per connection). Business connection assessments would be
based on the maximum available capacity, or bandwidth, of a connection."
FCC Permits Certain Ultrawideband Uses
2/14. The Federal Communication Commission
(FCC) also stated that it adopted a First Report and Order permitting the
marketing and operation of certain types of new products incorporating
ultrawideband (UWB) technology.
UWB devices, which use very narrow pulses with very wide bandwidths, have
potential applications in both radar and communications technologies. Proponents
of its use have argued that UWB devices can use large portions of already
allocated spectrum with minimal or no interference to incumbent users.
Companies, such as Intel, have argued that UWB is a very promising technology
for enabling short distance, high data rate connections that can support new and
innovative applications. Incumbent spectrum users have opposed UWB.
The FCC stated in a release
that "UWB technology holds great promise for a vast array of new
applications that have the potential to provide significant benefits for public
safety, businesses and consumers in a variety of applications such as radar
imaging of objects buried under the ground or behind walls and short-range,
high-speed data transmissions."
The release further states that the FCC's Order "includes standards
designed to ensure that existing and planned radio services, particularly safety
services, are adequately protected. The FCC will act vigorously to enforce the
rules and act quickly on any reports of interference."
The releases also states that the Order "Provides for use of a wide variety
of other UWB devices, such as high speed home and business networking devices
... subject to certain frequency and power limitations. The devices must operate
in the frequency band 3.1-10.6 GHz. The equipment must be designed to ensure
that operation can only occur indoors or it must consist of hand held devices
that may be employed for such activities as peer to peer operation."
FCC Commissioner Kevin Martin
wrote in a separate
statement that "Consumers also stand to benefit from enhanced laptops,
phones, video recorders, and personal digital assistants that can wirelessly
send and receive streams of digital video, audio and data. Most importantly,
ultrawideband challenges the notion that use of particular frequencies or bands
is necessarily mutually exclusive. In defiance of our traditional allocation
paradigm that often forces us to pick “winners and losers” in the face of
competing demands, this technology seems to allow more winners all around."
He added that "I am disappointed that we did not, at this time, adopt more
flexible limits that may have allowed for even more widespread use of this
In contrast, FCC Commissioner Michael
Copps wrote in a separate
statement that "Because the effects of widespread use of UWB are not
yet fully known, and interference could impact critical spectrum users, I will
support, albeit somewhat reluctantly, the ultra-conservative ultra-wideband step
we take today."
Secretary of Commerce Donald Evans
said "I applaud Chairman Powell and today's Federal Communications
Commission action on ultrawideband technology. This balanced approach will
promote innovation, stimulate economic growth, create jobs, and enhance public
safety. To remain the world leader, we must continue to encourage deployment of
important new technologies while protecting those that already exist." See,
Department of Commerce (DOC) release. The
DOC's National Telecommunications and
Information Administration (NTIA) has conducted studies of UWB and
Clarke Addresses Cyber Security on Capitol Hill
2/13-14. Richard Clarke, Special Advisor to the President for Cyberspace
Security, addressed cyber security issues on Capitol Hill. He briefed the Senate Judiciary Committee's
Administrative Oversight and the Courts Subcommittee on February 13. See, opening statement and excerpts from
question and answer session. He also gave a speech at a luncheon hosted by Sen. Jay Rockefeller (D-WV) and Sen. Bill Frist (R-TN) on February 14.
He explained the origin of the cyber security problem at the February 14
luncheon. "We see that something remarkable happened in the course of the
1990s. Something akin to the industrial revolution occurred. ... What did happen
is that every sector of our economy and government moved the operation of
critical functionality onto network systems. ... everybody moved all of their
operations on to these network systems, and are now dependent upon them. ... And
in doing this migration of functionality into these network systems, we did not,
as a nation pay enough attention to designing security in. In effect, we took
systems that were designed to do something very different, and we made them do a
great deal. We made them run our country. That was great for us in terms of
productivity increases. It was great for us in terms of lowering the cost of
doing business. But it was bad for us in the opening up of vulnerability,
because the software, the hardware, the overall architecture was never designed
with the thought that somebody maliciously would attack it. And so, we have
legacy systems proliferated throughout our economy that are very vulnerable to
He also addressed what to do about cyber threats. He stated that "We have
to think of it primarily first as a software and hardware architecture problem,
not as a criminal problem, not as an intelligence problem, not even as a
national security problem, primarily. We have, first, get the government to
serve as an example." He stated that the President's FY 2003 budget request
contains a 64% increase for government IT security.
He continued that the private sector needs to do the same thing. He said that
"we need a partnership between the private sector and the government to
share information, to get over the roadblocks of secret and top secret, to share
information, to share the burden for research and development, and to cooperate
in an effort to secure our infrastructures. And to do all of this, without
heinous regulation. Because, if the government tried to regulate IT security, it
would never achieve it. So, we are going to try to do this in partnership, and
using market forces."
Clarke went into more detail in his longer briefing of the Senate Judiciary
Committee. He was the sole briefer. Sen.
Charles Grassley (R-IA) and Sen. John
Edwards (D-NC) both appeared briefly. Otherwise, the entire proceeding was
conducted by Sen. Charles Schumer
(D-NY). Hence, the proceeding was conducted more like a deposition than a
typical Congressional hearing.
Clarke reviewed the vulnerabilities of networked computer systems, and the
spectrum of threats to them. He stated that to date terrorist groups, such as
"Hamas, Hezbollah, Al Queda", have used the Internet for propaganda
and fund raising, but not for cyber attacks. However, he added, "That may
be about to change, because, ... there is evidence that Al Queda was using the
Internet to do at least reconnaissance of American utilities, and American
facilities, by going to publicly available web sites, where all too often we
have too much information about our facilities."
Sen. Schumer asked Clarke why the U.S. has been spared so far from cyber
attacks. Clarke responded, "You don't know what you don't know. And we
clearly do not know whether or not there have already been successful
penetrations of our networks, that we don't know about. If I were a betting
person, I would bet that many of our key networks have already been penetrated.
The trap doors, or trojan horses, or logic bombs, may already be in many of our
Sen. Schumer asked about the capability of nation states to conduct cyber
attacks. Clarke stated that he could not assess this. He elaborated that
"this is one of the differences between, say, weapons of mass destruction,
and information warfare weapons. As you well know, when we were looking at Iraq,
to see if they had nuclear weapons, or when we look at Iran to see if it has
biological weapons, there are things that we can look for, that our satellites
can take pictures of. You can look for, particularly, types of facilities, and
try to estimate, based upon the things like what they are buying, and what, how
far along they are in the process of weapons development. ... But, on
information warfare, there is nothing for our satellites to take a picture of.
And, it is not possible to take a look at what there procurement records are,
and deduce from that that they have this capability or that capability. So, it
is a little bit tougher to know how far along they are."
Sen Schumer asked about the U.S. policy regarding retaliation for cyber attacks.
Clarke stated that "I think we have had a policy that has not been well
known. But I think that it is a fairly well articulated policy, for the last
several years, which is that anyone that engages information warfare against us,
be they a nation state, or a terrorist group, has to realize that we will
respond in whatever way we think is appropriate. Somehow, people have gotten the
idea in some academic circles that if an information warfare attack is launched
on the United States, the only thing that we can do is respond with information
warfare attacks of our own. That is not true. If we find a terrorist group or a
nation state that is engaged in information warfare against us, we reserve the
right to respond in any way appropriate -- through covert action, through
military action, any one of the tools available to the President."
8th Circuit Rules on Preemption & Abstention Issues in
State Regulation of Cellular Contracts
2/14. The U.S.
Court of Appeals (8thCir) issued its opinion [PDF] in
Rapids Cellular Telephone v. Miller, a case regarding issues of
federal preemption and abstention involved in state statutory prohibitions of
certain terms pertaining to minimum terms, penalties, and arbitration that are
contained in the contracts of wireless phone services providers.
Background. The Attorney General of the state of Iowa notified several
wireless service providers that operated in Iowa that their 12 to 24 month term
service agreements with cancellation fees of $300 and more violate the Iowa
Consumer Credit Code. The Attorney General also objected to the arbitration
provisions in the contracts.
Complaint. The wireless service providers filed a complaint in U.S.
District Court (NDIowa) against the Attorney General of Iowa seeking declaratory
and injunctive relief. The wireless service providers sought declarations that
the federal Communications Act preempts application of the Iowa state law to the
term service agreements, that the federal Arbitration Act preempts application
of the Iowa statute to the arbitration clauses in the term service agreements,
that the Iowa statute interferes with interstate commerce, that the Iowa statute
is void for vagueness under the due process clause of the Fourteenth Amendment,
and that the Iowa Consumer Credit Code does not apply to their cellular
telephone businesses. They also sought to enjoin action against them.
District Court Holding. The District Court held that it lacked
jurisdiction over the preemption claims, on the grounds that that are federal
defenses that cannot form a basis for federal jurisdiction. The District Court
held that it did have jurisdiction over the remaining federal claims arising
under the dormant commerce clause and the due process clause. It also assumed,
without deciding, that it had supplemental jurisdiction over the appellants'
state law claims. However, it still dismissed the case pursuant to several
abstention doctrines. Three wireless service providers then brought this appeal:
Cedar Rapids Cellular Telephone, Davenport Cellular Telephone Company, and WWC
Appeals Court. The Sixth Circuit reversed and remanded. It first held
that the preemption claims provide federal jurisdiction because the wireless
service providers seek injunctive relief. It then held that the District Court
correctly chose to abstain from the claims of two of the wireless service
providers, but should have stayed their claims, rather than dismiss them. As for
the third appellant, the Appeals Court held that District Court should not have
abstained, and on remand, the District Court should consider the federal claims.
Should Tech Companies Be Held Liable for Security Defects?
2/14. Bruce Schneier, founder and CTO of Counterpane
Internet Security, spoke at a luncheon on Capitol Hill on cyber security. He
advocated holding technology companies liable for security defects.
He stated that cyber security "is less a technology problem, and more a
business problem. That, in fact, we have a lot of technologies that can be
brought to bear to solve our security problems, to make our networks more
secure, to make our data more secure. The hard part is getting companies to
implement them, whether it is software companies, their own products, or whether
companies who are spending more on coffee than network security."
He continued that to incent companies to make more secure products, there must
be costs for making insecure products. He said that "right now, having poor
security makes you more cost effective, makes you get your products out faster,
makes your budgets less."
He said that the legal system must "enforce liabilities. I really believe
that we need liabilities in software and networks. The notion that a company can
produce a product that is systemically flawed, and not be liable, only holds
true in software. It doesn't hold true in other industries. It doesn't hold true
in consumer products. And, every software company will scream about this. But, I
think that it is important. We are seeing some changes in that in this past
year. A judge told the Department of the Interior in October to get their
network off of the Internet, because they could not protect the privacy of their
constituents, their customers."
Secondly, Schneier argued that the legal system should "allow parties to
transfer liabilities. This is where the insurance industry comes in. The whole
goal of the insurance industry is to smooth risk, to transfer risk." He
added that "Once the insurance industry gets involved, they will start
mandating certain levels of security, based on actual data, based on actual
Schneier spoke at an event was hosted by the Forum on Technology and Innovation,
which was founded by Sen. Bill Frist
(R-TN), Sen. Jay Rockefeller
(D-WV), and the Council on Competitiveness.
Richard Clarke, Special Advisor to the President for Cyberspace Security, also
spoke at the event. Senators Frist and Rockefeller, and Vint Cert of WorldCom,
FTC Brings COPPA Action
2/14. The Federal Trade Commission (FTC)
announced that it filed a complaint in U.S.
District Court (NDIowa) against American Pop Corn Company (APC) alleging
violation of the Children's Online Privacy Protection Act of 1998 (COPPA), and
the FTC's Children’s Online Privacy Protection Rule, for collecting personal
information from children through its web site, without first obtaining parental
consent. The FTC and APC also settled the case, and filed a proposed consent decree [PDF].
Under the terms of the settlement, APC will pay a $10,000 fine, and be enjoined
from further violations of the COPPA. This is the fifth civil action filed by
the FTC to enforce the COPPA.
FEC to Hold Hearing on Campaign Activity on the Internet
2/14. The Federal Election Commission (FEC)
published a notice
in the Federal Register that it will hold a public hearing on proposed changes
to its regulations regarding the status of campaign related Internet activity
conducted by individuals, and of hyperlinks and endorsement press releases on
Internet Web sites established by corporations and labor organizations. The
hearing will be held at 10:00 AM on Wednesday, March 20, 2002. Requests to
testify must be received on or before March 1, 2002. See, Federal Register,
February 14, 2002, Vol. 67, No 31, at page 6883.
The FEC is the agency charged with enforcing the Federal Election Campaign Act (FECA),
which regulates political contributions and expenditures. While the FEC had
previously considered wide ranging regulation of political speech on the
Internet, this hearing pertains to a Notice of Proposed Rulemaking (NPRM) that
merely proposes to permit certain personal political web sites, and to allow
corporations and unions to put certain hyperlinks and press releases in their
The FEC's NPRM [PDF] proposes three
rule changes. First, it would provide that there would be no contribution or
expenditure within the meaning of the FECA when individual, without receiving
compensation, uses his or her own computer equipment, software, Internet
services or domain names to attempt to influence a federal election. Second, it
would allow corporations and unions to include hyperlinks to the web sites of
candidates and political committees. Third, it would allow corporations and
unions to publish in their web sites copies of press releases endorsing
House Subcommittee Holds Hearing on Federal Trademark Dilution
2/14. The House Judiciary Committee's
Subcommittee on Courts, Internet and Intellectual Property held a hearing on the
Federal Trademark Dilution Act (FTDA), which was enacted over five years ago by
the 104th Congress.
Rep. Howard Coble (R-NC), the Chairman
of the Subcommittee, said in his opening statement that
the FTDA "sought to create a degree of national uniformity to the law and
certainty regarding the protection of trademarks. Dilution refers to that
conduct that lessens the distinctiveness and value of a mark It includes several
types of conduct such as what is known as “tarnishment” and “blurring,”
which may have devastating effects for everyone involved, but most alarmingly,
on consumers and the public."
Rep. Howard Berman (D-CA) said in his prepared statement
that the FTDA "appears to have fallen short of achieving its objective of
providing a uniform, national dilution law. This failure is due to a significant
split among the Circuits over proper interpretation of a key element of the
Dilution Act. This split has lead to the undesirable result that, in effect, a
different Dilution law applies depending on the judicial circuit in which one is
Rep. Berman continued that "the Fourth and Fifth Circuits have interpreted
the Dilution Act to require, among other things, demonstration of actual
dilution to maintain a case under the Act. The First, Second, Third, and Seventh
Circuits, on the other hand, only require demonstration of a likelihood to cause
dilution. The Supreme Court has evidenced no inclination to resolve this
split." He concluded that "The unresolved split among the Circuits
seems to necessitate further legislative clarification."
See also, prepared testimony of Kathryn Park
(International Trademark Association), Michael Kirk (American
Intellectual Property Law Association), Sherry Jetter (Polo
Ralph Lauren), and Ethan
Horwitz (Darby & Darby).
The ITA's Park stated that "Inconsistent standards from circuit to circuit
make it much more difficult for a famous mark owner to conduct business
nationwide. It also leads to forum shopping, something this subcommittee sought
to prevent when it drafted the FTDA. To correct this inconsistency and clarify
Congress’ original intent, INTA recommends that amendments be incorporated
into the Lanham Act that explicitly state that “likelihood of dilution” is
the proper standard."
The AIPLA's Kirk stated that the Lanham Act "should be amended to clarify
the standard for proving dilution of a "famous" mark. ... The AIPLA
supports enactment of a likelihood of dilution standard. In our view, such a
standard is more consistent with the policy objectives of dilution law and more
accurately reflects the intent of Congress when it enacted" the FTDA.
House Commerce Committee Members Write FCC Re Wireless Number
2/14. Rep. Billy Tauzin (R-LA),
Chairman of the House Commerce
Committee, Rep. John Dingell
(D-MI), the ranking Democrat on the Committee, and others, wrote a letter to Federal Communications Commission (FCC) Chairman Michael Powell regarding
wireless number portability.
They wrote that "wireless carriers are in the process of making hardware
and software changes to their networks so that these networks will be in
compliance with the Commission's rules regarding E-911 service, the
Communications Assistance for Law Enforcement Act (CALEA), and thousand block
number pooling. Implementation of these core Commission priorities should occur
as quickly as possible. The Commission is currently faced with a decision
concerning whether wireless carriers should also be required to implement
wireless number portability by the same deadline that carriers are required to
begin thousand block pooling. We believe that it is not prudent for the
Commission to require wireless carriers to comply with thousand block pooling
and number portability simultaneously. A requirement that pooling and local
number portability be deployed simultaneously raises significant network
reliability and integrity issues. The local number portability mandate for
wireless carriers should be delayed while number pooling implementation occurs
The letter was also signed by Rep. Fred
Upton (R-MI), Chairman of the Subcommittee on Telecommunications and the
Internet, and Rep. Rick Boucher
(D-VA), the ranking Democrat on the Subcommittee, and by 28 other members of the
BellSouth Refiles Section 271 Application for Georgia and
2/14. BellSouth again submitted an
application to the Federal Communications
Commission (FCC), pursuant to Section 271 of the
Telecom Act, requesting permission to provide in region interLATA services in
the states of Louisiana and Georgia. BellSouth withdrew its last request to
provide long distance service in these states on December 20, 2001. See, BS
People and Appointments
2/14. The Senate confirmed David Bunning to be a U.S. District Court
judge for the Eastern District of Kentucky. It also confirmed James Gritzner
to be a U.S. District Court judge in Iowa. Bunning is 35 years old, and the son
of a Sen. Jim Bunning (R-KY).
2/14. Frank Cavaliere joined the staff of Sen. George Allen (R-VA) as legislative
assistant for technology policy. He will focus on broadband, telecommunications
and privacy issues. He previously worked for CapNet.
2/14. The Securities and Exchange Commission's
(SEC) Office of the Chief Accountant named four Professional Accounting Fellows
for two year terms beginning in June 2002. They four are Douglas Alkema
(Deloitte & Touche, Seattle office), Gregory Faucette (Ernst &
Young, New York office), Randolph Green (Andersen, Atlanta office), and Eric
Schuppenhauer (KPMG, New York office). They will join the current
Professional Accounting Fellows, Michael Thompson and Carina Canedo, and will
replace outgoing Professional Accounting Fellows Scott Blackley, Travis Gilmer,
David Kane, and Michael Pierce. They will be involved in the study and
development of rule proposals, liaison with the professional accounting and
auditing standards setting bodies, and consultation with registrants on
accounting and reporting matters. See, SEC release.
2/14. Trey Smith was named EVP of Operations for AT&T Broadband. See,
2/14. David Szady was named Assistant Director for Counterintelligence at
the Federal Bureau of Investigation (FBI). Grant
Ashley was named Assistant Director for Criminal Investigations. See, FBI release.
2/14. Anthony Thornley was named P/COO of Qualcomm. William Keitel was named
SVP/CFO. See, Qualcomm
2/14. The Securities and Exchange Commission
(SEC) announced that it filed a civil complaint
District Court (DSCar) against Clif Goldstein and others alleging violation
of federal securities laws. The complaint states that the "defendants
engaged in a fraudulent scheme through which they raised not less than $1.1
million from twenty five investors in twelve states and three foreign countries
by marketing fictitious high yield investment contracts promising as much as
100% profit per week. This common but sophisticated fraud is known as a prime
bank scam." The defendants used the Internet, and other means, to promote
this scheme. The complaint alleges violations of Sections 17(a)(1) and 17(a)(2)
of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b5
thereunder. It seeks injunctive relief, disgorgement of ill gotten gains, and
civil penalties. (This is D.C. No. 302048517.)
2/14. Rep. Ken Bentsen (D-TX)
introduced HR 3769,
a bill to require disclosure, in electronic form, to the Securities and Exchange Commission (SEC), and to
the public, of the sale of securities by an officer, director, affiliate, or
principal shareholder of an issuer of the securities. The bill was referred to
the House Committee on
2/14. The United States filed a submission with the World Trade Organization (WTO) challenging the
amount of trade sanctions claimed by the European Union in the Foreign Sales
Corporation (FSC) tax regime dispute. The EU wants $4 Billion; the U.S.
asserts that sanctions should not exceed $956 million. See, USTR release.
2/14. The FBI's National Infrastructure
Protection Center (NIPC) published the February 11
issue of Cybernotes [PDF] in its web site.
Netscape v. Microsoft Brouhaha
2/13. The U.S.
Court of Appeals (7thCir) issued its opinion
Parallel North v. E Street Denim, an antitrust case. The Appeals
Court affirmed the dismissal of a private antitrust action brought by one local
retailer against another. In so doing, the Appeals Court referenced the
antitrust complaint filed by Netscape against Microsoft last month.
"The Microsoft/ Netscape (Netscape's corporate parent is AOL Time Warner)
brouhaha is the sort of battle one thinks about when considering lawsuits under
federal antitrust laws. One does not ordinarily conjure up the same sort of
images when thinking about two little retail stores in suburban Chicago duking
it out over blue jeans and T-shirts. But that's what we've got before us on this
appeal. The district judge thought that the tussle didn't measure up as an
antitrust suit and he dismissed it. As we see it, the district judge got it
right, and his dismissal of the suit is affirmed."
Administration Supports Cyber Security Exception to FOIA
2/13. Richard Clarke, Special Advisor to the President for Cyberspace
Security, stated that the administration supports a narrowly crafted amendment
to the Freedom of Information Act (FOIA) to provide incentives to the private
sector to provide information to the government regarding cyber security.
Clarke briefed the Senate Judiciary
Committee's Administrative Oversight and the Courts Subcommittee on February
13. Sen. Charles Grassley (R-IA), who
initiated the discussion, stated that "the government's vitally important
work to protect critical infrastructure can only be done in partnership with
private industry. For that to happen, I think we all know there has to be trust.
But the private sector can be hesitant to report information, especially if it's
proprietary, and they don't want their competitors to know about it.
Corporations are even more hesitant to give this type of information to a law
Clarke responded, "you are absolutely right, there is a problem right now.
Companies don't tell the government when they have been hit. The nimda virus in
November of last year attacked many household name companies in the banking
industry, the finance industry, and elsewhere, and yet, we don't know that
officially. And, I can't tell you officially the names of these banks and
companies that were hit because the only way we know is through the rumor
Clarke continued: "Well, why won't they tell us? The real block seems to be
the Freedom of Information Act. The Freedom of Information Act, justifiable, or
unjustifiably, scares corporate counsel. And, I have been told by numerous
companies across the country, ``Our lawyers tell us not to share information
with you in the government because it could then be requested by any citizen
through a Freedom of Information Act request´´. I think that is an inaccurate
reading of the law. I think that information could be exempt under the existing
law. But, what I think isn't what counts. What counts is what the corporate
lawyers are telling the companies. And so I support, and the President supports,
a very narrowly, very narrowly, crafted amendment to the Freedom of Information
Act that would remove that barrier ..." See, transcript of Clarke's opening statement and excerpts from
question and answer session.
Sen. Robert Bennett (R-UT), who is not
a member of the Senate Judiciary Committee, is the sponsor of a bill that would
provide such an exemption. S 1456,
the Critical Infrastructure Information Security Act of 2001, would provide a
FOIA exemption for certain cyber security information provided to certain
federal agencies, including the NIPC, FCC,
Justice Department, Defense Department, and Commerce Department. The bill would
also provide an antitrust exemption for certain collaboration on cyber security
Administration Opposes Cyber Security Tax Incentives and
2/13. Richard Clarke, Special Advisor to the President for Cyberspace Security,
stated that the administration opposes both tax incentives and regulatory
mandates to incent the private sector to increase cyber security.
Clarke briefed the Senate Judiciary
Committee's Administrative Oversight and the Courts Subcommittee on February
13. In response to questions from Sen. John
Edwards (D-NC), he stated: "Senator, you talk about inducements and
mandates to the private sector. And, we decided not to do either. We don't think
that a tax credit is the way to go."
Clarke also stated that "We don't think that the government mandating IT
security practices is the way to go. By the time the government issued a
regulation, it would be out of date, and it would probably be wrong. What we
think has to be done is that the private sector has to realize the importance of
this issue, and they have to organize themselves to deal with this issue. That
means that the average company needs to ask, ``Why don't I have a secure
product? Why was I have by code red in July? Why was I hacked by nimda in
November?´´ " See, transcript of Clarke's opening statement and excerpts from
question and answer session.
Senate Committee Holds Hearing on Privacy
2/13. The Senate Judiciary Committee's
Technology, Terrorism, and Government Information Subcommittee held a hearing on
privacy, identity theft, and protection of personal information. Sen. Dianne Feinstein (D-CA), who
presided at the hearing, stated that "there are ominous signs that we are
losing control over our personal information", and that legislation must be
passed to protect personal privacy.
Sen. Judd Gregg (R-NH) testified as as
witness to advocate passage of S 848, the
Social Security Number Misuse Prevention Act of 2001, which would prohibit the
display, sale, or purchase of social security numbers. This bill is sponsored by
Sen. Feinstein, and cosponsored by Sen. Gregg.
Sen. Feinstein advocated passage of S 1055,
which contains the ban on sale of social security numbers of S 848, but
also includes many other provisions. It would require that individuals' consent
be obtained before a wide range of types of data could be sold. She is the
sponsor of this bill also.
See also, prepared testimony of Richard Stana
Fisher (Doris Tate Crime Victims Bureau), Doug Comer
Avila (Walt Disney Company), and Frank Torres
Securities Related Bills Introduced in Congress
2/12-13. Members of Congress introduced several new securities related bills
following Congressional hearings on the bankruptcy of Enron.
Sen. Richard Shelby (R-AL) introduced S 1933,
the "Investor Protection Act of 2002", on February 12. This bill would
amend the Securities Exchange Act of 1934 and the Securities Act of 1933, to
address liability standards in connection with violations of the Federal
securities laws. It was referred to the Senate Banking Committee.
Rep. Gary Ackerman (D-NY)
introduced HR 3736 on February 13. This bill would amend the Securities
Exchange Act of 1934 to require the Securities and
Exchange Commission (SEC) to strengthen its auditor independence standards.
It was referred to the House
Financial Services Committee.
Sen. Carl Levin (D-MI) introduced S 1940,
the "Ending the Double Standard for Stock Options Act", on February
13. This bill is cosponsored by Sen. John
McCain (R-AZ), Sen. Peter Fitzgerald
(R-IL), Sen. Richard Durbin (D-IL), and Sen. Mark Dayton (R-MN).
Sen McCain addressed the bill in the Senate. He stated that this bill
"requires companies to treat stock options for employees as an expense for
bookkeeping purposes if they want to claim this expense as a deduction for tax
purposes. We introduced similar legislation in 1997 during the 105h Congress but
unfortunately, the special interest with a vested stake in the status quo
prevented this legislation from seeing the light of day. Currently, corporations
can hide these multimillion dollar compensation plans from their stockholders or
other investors because these plans are not counted as an expense when
calculating company earnings. Even the Federal Accounting Standards Board, FASB,
recognized that stock options should be treated as an expense for accounting
purposes." Cong. Rec., Feb. 13, 2002, at S740-1.
Sen. Levin stated in the Senate that "As another lesson learned from the
Enron debacle, this bill addresses a costly and dangerous double standard that
allows a company to take a tax deduction for stock option compensation as a
business expense while not showing it as a business expense on its financial
statement." Cong. Rec., Feb. 13, 2002, at S735.
AEA Opposes Levin McCain Bill
2/13. The American Electronics Association
(AEA) announced its opposition to S 1940,
the "Ending the Double Standard for Stock Options Act". The bill,
which is sponsored by Sen. Carl Levin
(D-MI), Sen. John McCain (R-AZ), Sen. Peter Fitzgerald (R-IL), Sen. Richard Durbin (D-IL), and Sen. Mark Dayton (R-MN), would require
companies to treat stock options for employees as an expense on financial
statements if they take a tax deduction for stock option compensation.
William Archey, P/CEO of the AEA, stated in a release
that "The high tech industry was the first in the US economy to distribute
stock options to its entire workforce, from top executives down to entry level
positions. As it stands, stock options help employers attract and retain
qualified workers by giving them a financial stake in the future of the company.
Many companies would find the tax and accounting regime of the Levin McCain bill
so onerous that they would discontinue offering options to all but the most
Archey added that "The current rules governing accounting and tax treatment
of stock options are transparent and consistent and require no added
complications. The Levin McCain bill would frustrate investors and impose
unnecessary costs on broad based employee stock option plans. The high tech
industry successfully defeated this bill in 1997. We will mount a similar effort
this time as well."
U.S. Files Complaint with WTO Re Telecommunications in Mexico
2/13. The Office of the U.S. Trade Representative
(USTR) announced that the U.S. asked the World
Trade Organization (WTO) for a dispute settlement panel to rule on a U.S.
complaint that Mexico has failed to open its cross border telecommunications
market as required under WTO rules.
USTR Robert Zoellick stated in a release that
"Mexico's international telecommunications market remains dominated by a
single company with a government mandate to set high wholesale prices for calls
to Mexico and prevent competitive alternatives".
AT&T General Counsel James Ciconni stated in a release that
"The U.S. government is serving notice to Mexico -- and other trading
partners -- that ignoring pro-competitive trade commitments won't be tolerated.
That's just what Mexico has been doing for many years now: ignoring its WTO
telecom commitments and hoping its trading partners would go away. For instance,
despite its 1998 commitment, Mexico still charges unreasonably high fees for
sending traffic between the U.S. and Mexico, causing U.S. carriers to pay rates
that are five times more than those for completing calls into Canada and other
competitive countries. The high Mexican rates are an outrage, costing U.S.
consumers and businesses well over half a billion dollars per year."
Rep. Crane Addresses Trade, FSC and Taxes
2/13. The Cato Institute hosted a panel
discussion titled "Trade War or Tax Reform? The WTO Ruling on Tax Breaks
for U.S. Exporters". Rep. Phil Crane
(R-IL), Chairman of the Trade Subcommittee of the House Ways and Means Committee, spoke
at the event. The solution, said Rep. Crane, is for the U.S. to abolish the
corporate income tax altogether.
The U.S.'s Foreign Sales Corporation (FSC) tax scheme,
which the World Trade Organization (WTO) has
held to be an illegal export subsidy, allows a portion of a U.S. taxpaying
firm's foreign source income to be exempt from U.S. income tax. This benefits
major software companies, such as Microsoft, and equipment makers, such as Cisco
Most nations have a territorial tax regime, by which they tax the income of
corporations within their territory. The U.S., in contrast, has a global tax
regime dating back to the 19th Century. American corporations are taxed by the
United States government for their domestic and foreign income. That is, under
the basic rules, if an American corporation sells its products in France, the
U.S. taxes the income. However, if a French corporation sells its products in
the U.S., France does not the income of the corporation operating in the U.S.
U.S. exporters, and their many supporters in Congress and the administration,
argue that this is simply leveling the playing field between U.S. and European
companies. The EU contends that by giving tax breaks to U.S. exporters, the U.S.
is, in effect, subsidizing exports, in violation of its trade agreements.
Rep. Crane stated that abolishing the corporate income tax would eliminate the
U.S.'s WTO FSC problems. It would also provide an economic stimulus. He stated
that many European corporations would relocate in the U.S., to take advantage of
the U.S. tax laws. However, he also stated that abolishing the corporate income
tax may not be political viable. He suggested as an alternate switching to a
territorial tax system.
The other speakers at the event were William Reinsch (National Foreign Trade
Council), John Meagher (Price Waterhouse
Coopers), and Chris Edwards (Cato Institute).
SEC to Require Publication of SEC Filings in Company Web Sites
2/13. The Securities and Exchange Commission
(SEC) announced that it intends to propose changes in corporate disclosure rules
to improve the financial reporting and disclosure system. The SEC listed several
changes, including requiring public companies to publish their SEC filings in
their web sites.
The SEC stated in a release
that "The Commission believes that mandated public company disclosure
should be more readily available to investors in a variety of locations. To
further this goal, the Commission intends to propose amendments that would
require public companies to make their Exchange Act reports available on their
Internet web sites, if available, at the same time as they are filed. This
requirement would not in any way replace or reduce a company’s obligation to
file with the Commission."
House Science Committee Holds Hearing on R&D Budget
2/13. The House Science Committee
held a hearing titled "R&D Budget for Fiscal Year 2003: An
Rep. Sherwood Boehlert (R-NY), the
Chairman of the Committee, said in his opening statement
that "Even a casual glance at the budget makes clear what the R&D
priorities are -- biomedical research and the fight against terrorism at home
and abroad. These are reasonable -- even self-evident -- priorities and they
deserve to be funded more generously than are other programs. That's what it
means to be a budget priority. But I'm concerned that the proposed budget treats
these items not just as priorities, but as panaceas. And that, I fear, is a
See also, prepared statement of witnesses: John Marburger
(Director, Office of Science and Technology Policy), Rita Colwell
(Director, National Science Foundation), Samuel Bodman
(Deputy Secretary, Department of Commerce), and Bruce Carnes
(Department of Energy).
2/13. The Electronic Privacy Information Center
(EPIC) submitted a series of Freedom of Information Act (FOIA) requests to the
FBI, Department of Defense, other federal agencies and the District of Columbia
requesting records pertaining to video surveillance in Washington DC. See, EPIC release.
2/13. The Electronic Privacy Information Center
(EPIC) released a report [PDF]
titled "Your Papers, Please: From the State Drivers License to a National
Identification System." The report opposes "recommendations that would
turn the state driver license into a de facto national ID card." See also,
American Association of Motor Vehicle Administrators release
of January 14, 2002.
2/13. The National Telecommunications and
Information Administration (NTIA) published in its web site a copy of Amendment
1 to the contract with NeuStar for management of the .us ccTLD.
2/13. World Trade Organization (WTO) Director
General Mike Moore submitted a progress report
to the WTO's General Council regarding implementation of the Doha Development
2/13. The Kentucky Public Service
Commission approved Alltel's
application to purchase about 600,000 local telephone lines in Kentucky from Verizon. See, Alltel
2/13. David Thatcher plead guilty in U.S.
District Court (NDCal) to securities fraud in violation of 18 U.S.C. § 371, in
connection with his participation in transactions in which Critical Path improperly recognized revenue during
the 3rd and 4th quarters of 2000. See, Plea
Agreement [PDF] and USAO release.
House Committee Holds Hearing on Cyber Security
2/12. The House Judiciary Committee's
Crime Subcommittee held a hearing on HR 3482, the
"Cyber Security Enhancement Act of 2001", sponsored by Rep. Lamar Smith (R-TX). Members of
the subcommittee and witnesses offered support for the bill. The Subcommittee
has also scheduled a meeting to mark up the bill on Thursday, February 14, at
Rep. Smith stated that "as we increase individuals' physical safety at our
airports, borders and even sporting events, we should not forget to strengthen
cyber security as well." He continued that HR 3482 "increases
penalties to better reflect the seriousness of cyber crime; enhances Federal,
state and local law enforcement efforts through better coordination, and assists
state and local law enforcement through better grant management, accountability
and dissemination of technical advice and information."
The bill contains provisions relating to sentencing guidelines for computer
hacking crimes, authority of Internet service providers (ISPs) and others to
voluntarily disclosure the content of information to law enforcement
authorities, and other topics. The bill further amends several sections of the
criminal code that were just recently amended by the USA PATRIOT Act, which is
also known as the anti terrorism bill.
Section 101 of the bill would require the U.S.
Sentencing Commission to amend the federal sentencing guidelines with
respect of violations of 18 U.S.C. § 1030,
which pertains to crimes involving intentionally accessing a computer without
authorization, or in excess of authorized access. For example, the bill would
require the guidelines to include "whether or not the defendant acted with
malicious intent to cause harm in committing the offense".
Section 102 of the bill would amend 18 U.S.C. § 2702(b),
regarding disclosure of the contents of communications. Currently, the statute
provides that "A person or entity may divulge the contents of a
communication ... (6) to a law enforcement agency ... (C) if the provider
reasonably believes that an emergency involving immediate danger of death or
serious physical injury to any person requires disclosure of the information
without delay." The bill would allow the disclosure "if the provider,
in good faith, believes ..."
Section 104 of the bill would authorize the appropriation of $57,500,000 for the
FBI's National Infrastructure Protection Center
(NIPC) for fiscal year 2003.
Section 105 of the bill would amend 18 U.S. § 2512,
which pertains to the advertising of certain illegal devices. The statute
prohibits the advertising of "any electronic, mechanical, or other device,
knowing or having reason to know that the design of such device renders it
primarily useful for the purpose of the surreptitious interception of wire,
oral, or electronic communications." Section 105 of the bill would
specifically include advertising on the Internet.
Section 106 of the bill would amend 18 U.S.C. §
1030(c), which pertains to punishment of crimes involving intentionally
accessing a computer without authorization or in excess of authorized access.
The bill would increase the maximum penalty to life imprisonment for crimes
where the "offender knowingly causes or attempts to cause death or serious
Rep. Bobby Scott (D-VA), the ranking
Democrat on the Subcommittee, offered qualified support for the bill. He stated
that unlike some previous bills, this bill "contains no such heavy handed
law enforcement approaches". However, expressed concern over the
"further loosening" of the voluntary disclosure standard from
"reasonably believes" to "good faith".
John Malcolm, who is the Deputy Assistant Attorney General in charge of the Computer Crimes and
Intellectual Property Section (CCIPS), testified in support of the bill. He
stated in his prepared
testimony the bill "strengthens the deterrent effect of current laws by
increasing penalties and closing loopholes. The Department strongly supports
these amendments." The CCIPS is a section of the Criminal Division of the
Department of Justice (DOJ).
He also stated that there are additional changes to current law that the DOJ
would like to see included in the bill. He advocated changing the language in
Section 106 to also include anyone who with "reckless disregard"
causes or attempts to cause death or serious bodily injury. He gave a
hypothetical: "suppose a hacker shuts down a town's phone service. While
phone technicians race to restore service, no emergency 9-1-1 calls can go
through. It is easy to envision in such a situation that somebody might die or
suffer serious injury as a result of this conduct. Although the hacker might not
have known that his conduct would cause death or serious bodily injury, such
reckless conduct would seem to merit punishment greater than the ten years
permitted by the current statute." Malcolm also advocated further changes
to the sentencing guidelines.
Clint Smith, of WorldCom and the U.S. Internet Service Providers Association,
also testified in support of the bill. He said in his prepared testimony
that the "USISPA collectively supports HR 3482 for three reasons: It
increases funding for law enforcement, It strengthens penalties for cybercrime,
and It reduces potential impediments to ISP cooperation with law enforcement.
However, he suggested changing Section 105. He stated that this section of the
bill "leaves it unclear whether the modifications to 18 USC § 2512(c)
would make ISPs, portals, third party transactions sites, online directory
companies or other Internet advertisers liable when illegal monitoring and
wiretapping devices are advertised on their networks or through their services.
While we recognize that this may not be the intent of the legislation, USISPA
urges this committee to clarify that Section 105 neither requires our members,
in any way, to monitor traffic or to screen or filter content nor restricts our
members from doing so."
Alan Davidson, of the Center for Democracy and
Technology (CDT), was the only witness to offer any criticism of the bill.
He stated in his prepared
testimony that voluntary disclosure provision of Section 102 of the bill is
"overly broad" and "would substantially expand the ability to
reveal private communications without any judicial authority or oversight."
Rep. Bob Goodlatte (R-VA) stated
at this hearing that he introduced a separate bill on February 12 that would
establish a uniform standard for criminal liability against ISPs by providing
that an ISP cannot be held liable under federal criminal law for the actions of
third party users. He suggested that it be added to HR 3482, which is
scheduled for subcommittee mark up on February 14. Rep. Smith, the subcommittee
Chairman, and sponsor of HR 3482, did not respond or comment.
Susan Koeppen of Microsoft also testified in support of the bill. See, prepared testimony. Rep. Howard Coble (R-NC) and Rep. Steve Chabot (R-IN) also
participated in the hearing. Rep. Chabot questioned witnesses about the
upgrading of private networks to reduce cyber crime.
Rep. Goodlatte Introduces Bill to Exempt ISPs from Criminal
2/12. Rep. Bob Goodlatte (R-VA)
introduced HR 3716,
the "Online Criminal Liability Standardization Act of 2002", a bill
that would exempt ISPs from criminal liability for third party content stored on
The bill provides that "no interactive computer service provider, or
corporate officer of such provider, shall be liable for an offense against the
United States arising from such provider’s transmitting, storing,
distributing, or otherwise making available, in the ordinary course of its
business activities as an interactive computer service provider, material
provided by another person." The bill further provides that "The
liability limitation created by this section does not apply if the defendant
intended that the service be used in the commission of the offense."
Rep. Goodlatte also issued a release which stated that "Currently, Internet
Service Providers are generally protected from civil liability under
federal and state law for content on the Internet posted by a third party."
See, 47 U.S.C. § 230,
which 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."
Rep. Goodlatte continued: "However, ISPs may face criminal charges
in a number of instances if one of their employees has knowledge or reason to
know of illegal activities occurring across the service provider's system,
regardless of whether the service provider has criminal intent and can prevent
the illegal activity. In some cases, criminal liability can occur even if
the employee is simply aware that an activity is occurring on the system,
without being aware that the activity is illegal."
He cited the example of BuffNET, an ISP in
New York, that was investigated and charged in connection with pormographic
content posted to a bulletin board by third parties.
Rep. Goodlatte addressed his bill at the February 12 hearing of the House Judiciary Committee's Crime
Subcommittee on HR 3482,
the "Cyber Security Enhancement Act of 2001". He suggested that HR 3716
be made a part of HR 3482, which is scheduled for subcommittee mark up on
At that hearing, Clint Smith, who testified on behalf of the U.S. Internet Service Providers Association,
said that Rep. Goodlatte's bill "would appear to be a great benefit to the
ISP community." Smith added that it would also enhance cyber security by
fostering greater cooperation among law enforcement agencies and ISPs. Smith
stated that "an impediment to cooperation is ISP concern about
liability", and that "clarity in the legal framework will enhance
Senate Committee Holds Hearing on IP Theft Abroad
2/12. The Senate Foreign Relations
Committee held a hearing on the theft of American intellectual property. All
of the Senators, government officials, and industry representatives who spoke
agreed that piracy of intellectual property is a serious problem, and that more
needs to be done to deter theft abroad.
Sen. Joe Biden (D-DE), the Chairman of
the Committee, presided. He stated that "when an American owns property,
the government has a responsibility to protect that property from theft. When
that property is an idea, it deserves our protection no less than if it were
land, or a personal object." He added that "if we want to protect
American innovation, and by extension American jobs, we need to maintain a
vigilant stand against intellectual property theft." He also released his
own 46 page report titled "Theft of American Intellectual Property:
Fighting Crime Abroad and at Home".
Sen. George Allen (R-VA) and Sen. Barbara Boxer (D-CA) both offered
strong words of criticism for piracy.
The Committee heard testimony from three government witnesses, Alan Larson,
Under Secretary of State, Peter Allgeier, Deputy U.S. Trade Representative
(USTR), and John Gordon, U.S. Attorney for the Central District of California.
Larson addressed efforts by the State Department to persuade other nations to
ratify WIPO treaties, and to pass and enforce anti piracy legislation. He also
stated that the U.S. is insisting upon intellectual property protection
provisions, with dispute resolution procedures, when it negotiates new bilateral
and regional trade agreements. See, prepared
Allgeier reviewed the Related Aspects of Intellectual Property Rights (TRIPS)
agreement, the USTR's use of the Special 301 process, and trade agreements.
Gordon testified about efforts by U.S. Attorneys to prosecute intellectual
property crimes, and the involvement of foreign gangs in piracy.
The Committee also heard testimony from three industry representatives: Jack
Valenti (P/CEO of the Motion Picture Association
of America), Hilary Rosen (P/CEO of the Recording
Industry Association of America), and Jeff Raikes (Microsoft). See, Rosen testimony
NTIA Director Addresses Broadband and Rights of Way
2/12. NTIA Chief Nancy Victory gave a speech
titled "Together on the Right Track: Managing Access to Public Roads and
Rights of Way" to the National Association
of Regulatory Utility Commissioner's (NARUC) Committee on Telecommunications
in Washington DC. She stated that "we are concerned that constraints on
accessing public rights of way might be inhibiting broadband network
She reviewed the content of comments that
the NTIA received recently in its broadband proceeding. She stated that
"While most of the concerns were voiced about municipality and county
activities in this area, federal agencies that own public lands were also
identified as posing potential roadblocks to rights of way access. Due to the
nature of networks, only a few ``difficult´´ jurisdictions can have a
disproportionately adverse effect on the roll out of uninterrupted statewide or
regional advanced services networks, which ultimately can impair national
broadband coverage. These commenters suggest four impediments that errant
rights of way administration can impose on broadband deployment: delay,
unreasonable fees, a third tier of regulation, and discriminatory
However, she also pointed out that "city and municipal interests argue that
as trustees of the public's roads and rights of way, their fiduciary duty
demands that they recover the fair value of private use of the public's
property. Therefore, they contend that local governments should have the
flexibility to use market pricing, including revenue based mechanisms, for
efficient allocation of rights to use scarce public resources. These commenters
maintain that prohibiting localities from charging market rates for rights of
way access unfairly subsidizes telecom carriers at the expense of the
community." She was speaking to representatives of these local government
Sen. Baucus Addresses Trade Promotion Authority
2/12. Sen. Max Baucus (D-MT) gave a speech
titled "A New Trade Policy for New Democrats" to the Democratic Leadership Council.
He advocated passage the Senate
Finance Committee's version of the trade promotion authority (TPA) bill,
which was approved by a vote of 18 to 3 on December 12, 2001. The House passed
its version of the bill, HR 3005,
on December 6, 2001. TPA, which is also know as fast track, would give the
President authority to negotiate trade agreements which the Congress can then
approve or reject, but not amend. Sen. Baucus is Chairman of the Senate Finance
Sen. Baucus stated that "We may pass fast track this year, but fast track
alone doesn't bring the benefits of expanded trade. Trade agreements do. And if
this Administration wants to pass agreements, it needs to build a record of
trust -- handling trade in a way that advances the interests of all Americans.
They can start with TAA." Trade Adjustment Assistance, or TAA, said Baucus,
"is a program for workers who are adversely affected by trade."
He also stated that "fast track is necessary to complete the negotiations
in the World Trade Organization. We have
started those negotiations without it -- but fast track will be critical when an
agreement is reached several years from now."
Baucus stated that "The Senate bill also recognizes the importance of new
industries -- where U.S. ingenuity leads the world biotechnology, environmental
technology, e-commerce, and services, just to name a few. And we include a
negotiating objective to level the playing field in the area of international
tax. This is an issue where the Administration should be working hard to find a
negotiated solution, and this legislation reaffirms that message."
He also addressed the labor and environment provisions in the bill.
FTC Sues Senders of Deceptive Spam
2/12. The Federal Trade Commission (FTC)
announced that it filed seven complaints in various U.S. District Courts
alleging deceptive acts or practices in violation of Section 5(a) of the Federal
Trade Commission Act, 15
U.S.C. § 45(a), in connection with the sending of unsolicited commercial
e-mail, or spam. The FTC also simultaneously settled the actions. See, FTC release, with
hyperlinks to copies of the complaints and stipulated final judgments.
FCC Names Info Warrior to Lead Spectrum Task Force
2/12. The Federal Communications Commission
(FCC) picked Paul Kolodzy to be Senior Spectrum Policy Advisor in the FCC's Office of Engineering and Technology (OET).
Kolodzy will also chair a newly created FCC task force addressing issues related
to spectrum policy. Kolodzy comes to the FCC from the Advanced Technology Office (ATO) at the Defense Advanced Research Projects Agency
(DARPA) at the Department of Defense (DOD).
Before going to work at DARPA, he worked for defense contractor Sanders, which
was a Lockheed Martin company, but
is now a part of BAE Systems.
Before joining the FCC, Kolodzy was one of 16 program managers at DARPA's ATO.
He headed the ATO's neXt
Generation Communications (XG) program, which seeks to develop both the
system concepts and the enabling technology to dynamically assign spectrum in
the battlefield environment. He also managed the ATO's Small Unit Situational
Awareness System program, which is developing mobile, ad hoc networking to
provide position and navigation in GPS denied areas.
The FCC has spectrum management responsibilities with respect to spectrum bands
assigned for commercial use. The NTIA has
responsibility for management of spectrum assigned to the DOD.
Kolodzy has experience with developing advanced mobile wireless communications
systems. However, unlike current commercial 2G networks or forthcoming 3G
systems, these military systems do not involve cellular networks. Saddam
Hussein, and other evil telecom regulators, are likely to grant the U.S.
military licenses, building permits, and access to rights of way, for
constructing a network of base stations and relay towers within their
jurisdictions. Hence, the military is developing a radio system for soldiers
that uses low power, high bandwidth, self configuring, mobile, peer to peer
networks. The system would also incorporate spectrum hopping, in part, to avoid
interception, and location identification, for situational awareness.
Kolodzy also has experience with interference, that is, maximizing interference.
The Advanced Technology Office's WolfPack program is
intended to deprive the battlefield competitors of the use of radio
communications from 20 MHz through 2.5 GHz through the use of distributed,
autonomous, ground level, low power battlefield jammers. The goal of this
program, of course, is to completely disrupt enemy communications, without
affecting U.S. military communications in the same battlespace and spectrum
Kolodzy also worked at the MIT Lincoln Laboratory for 11 years as senior systems
analyst. He has a PhD in Chemical Engineering from Case Western Reserve
University. See also, FCC release,
DOD biography and
picture, Kolodzy speech
[PDF] on WolfPack, and DARPA solicitation of proposals
[MS Word] regarding WolfPack.
USTR Announces Out of Cycle 301 Reviews
2/12. The Office of the U.S. Trade Representative
(USTR) announced the outcome of "out-of-cycle" reviews for the
adequacy and effectiveness of intellectual property protection in the Bahamas
and Slovenia. It placed The Bahamas on the Watch List for its failure to improve
its laws protecting copyrighted material. However, it kept Slovenia off of the
Watch List. See, USTR
2/12. The U.S. Patent and Trademark Office
(USPTO) published a notice
in the Federal Register stating that it is "considering whether the paper
copies of selected subclasses of U.S. patents to be removed from the examiners'
search rooms should be disposed of as wastepaper or donated to a non-profit
organization." Any interested non-profit organization should contact the
USPTO on or before March 14, 2002. See, Federal Register, February 12, 2002,
Vol. 67, No. 29, at Pages 6505 - 6506.
2/12. FCC Chairman Michael
Powell wrote a letter
[PDF] to David Clark, Chairman of the Computer
Science and Telecommunications Board (CSTB), regarding the CSTB report
titled "Broadband: Bringing Home the Bits".
2/12. The Department of Justice's Antitrust
Division filed its reply
comments [28 pages in PDF] with the Federal
Communications Commission (FCC) in its proceeding titled "In the Matter
of Performance Measurements and Standards for Unbundled Network Elements and
Interconnection". It wrote that "The adoption of a national model for
performance measurement has potential benefits. If the Commission decides to
adopt a national model, however, it should take care to build on the continuing
state efforts and ensure that it does not undermine the progress already made in
developing and enforcing performance measures and standards. A national model
should not preempt existing state measurement schemes or remedy plans. In
addition, the list of performance measures in a model must be broad enough to
include all measures that are necessary and appropriate to ensure the continued
availability of data needed to promote the opening of local telecommunications
markets, to maintain its openness once achieved, and thus to secure the benefits
of local competition for all consumers." This is CC Docket No. 01-318.
Congressional Report Suggests Taxing Internet Services to
Subsidize Phone Service
2/11. The General Accounting Office (GAO)
released a report [PDF]
titled "Telecommunications: Federal and State Universal Service Programs
and Challenges to Funding". The report provides an in depth review of
existing universal service programs. It also offers the suggestion that
providers of various Internet services be taxed to subsidize the government's
universal service programs.
The report states that "The last decade has seen a rapid increase in the
use of digital technologies and Internet Protocol (IP) networks for
communications. Applications now exist to convert traditional analog voice
services to digital, to break the digital voice into ``packets,´´ and to send
the voice packets over the Internet or other IP networks. However, under the
current regulatory structure, providers of these IP voice services do not have
to contribute to the Universal Service Fund for the IP voice services.
Therefore, as these new voice services gain popularity, concerns exist of
whether federal funding levels for universal service might eventually decline.
In addition, there is much debate about whether the current federal regulatory
framework for funding universal service -- with its reliance on interstate
telecommunications revenues -- is appropriate for digital communications, where
voice, video, and data are carried in the same manner over networks that lack
intrastate/ interstate designations."
The report also states that "funding for federal universal service
generally comes from providers of interstate ``telecommunications services,´´
but may also be assessed upon other providers of interstate telecommunications
if the public interest so requires. IP telephony is an application that has, to
date, been treated in effect as an ``information service.´´ Therefore,
companies offering IP telephony are not currently required to make contributions
to the universal service fund from revenues for IP telephony services. As the
deployment of IP telephony technologies moves forward, and more businesses and
consumers begin to substitute IP telephony for traditional telephone service,
the question arises as to whether a decline in the funding for universal service
The report continues that "Whether Congress and FCC should continue to rely
largely on providers of interstate telecommunications services for the funding
of federal universal service is an increasingly important debate as the world
continues to migrate to digital communications technologies and IP
The report concedes that "the Communications Act was originally structured
and remains a ``stovepiped,´´ or compartmentalized, law in which particular
communications services are governed under particular provisions of the law. The
resulting regulatory structure holds different types of networks to different
rules -- even when they are used to provide similar services. Fundamentally,
universal service funding has been carried out under laws and regulations
pertaining to "telecommunications services." "
The report asserts that "It is unclear what rules should apply for voice
applications that could be defined as ``information services,´´ or more
importantly, whether such service distinctions should remain. We previously
noted that policymakers may face challenges in deciding how, under the present
structure of communications law, functionally similar services are governed over
different networks. IP telephony and its effect on universal service funding is
another example of this increasing dilemma."
The report was prepared at the request of Rep.
Ed Markey (D-MA), the ranking Democrat on the House Commerce Committee's Telecom
Subcommittee, which oversees the FCC. The report's lead author is Peter
Guerrero. Rep. Markey is a liberal Democrat who often favors a regulatory
approach to telecommunications issues. However, many other members of the House
Commerce Committee would likely oppose any efforts to tax Internet services for
universal service purposes. In contrast, the Senate, which over represents
sparsely populated plains and western states, has a much larger concentration of
universal service enthusiasts.
GAO Report Reopens Debate Over IP Telephony and Phone
2/11. The just released GAO
report [PDF] reopens a debate over the future of the FCC's universal service
programs. Various Congressional and other fora discussed this issue often in the
late 1990s. However, Internet Protocol (IP) telephony and universal service have
been little debated in recent years. At issue is whether or not, and if so, to
what extent, communications services provided by new Internet based
technologies, such as IP telephony, will be subjected to the cross subsidization
and regulation model now applied to telecommunications services provided by the
old analog phone technologies.
The Federal Communications Commission (FCC)
and its subsidiary corporations run a collection of cross subsidization programs
for the purpose of making telecommunications services more available in high
cost and low income areas. Economists have long debated the effectiveness of
these programs. However, they are strongly backed by legislators from rural
states and districts. Also, the more recently developed e-rate program provides
telecommunications services, computer networking, and Internet services to
schools and libraries under the rubric of universal service. Under the various
universal service programs, business customers subsidize residential customers,
urban customers subsidize rural customers, and all phone customers subsidize
Section 254(d) of
the Telecom Act of 1996 defines the obligation to contribute to universal
service programs. It provides that "Every telecommunications carrier that
provides interstate telecommunications services shall contribute, on an
equitable and nondiscriminatory basis, to the specific, predictable, and
sufficient mechanisms established by the Commission to preserve and advance
The statute does not require other regulated communications industries, such as
cable and broadcasting, to contribute. Nor is the unregulated Internet industry
required to contribute. Recently, both the FCC and some courts have been
reluctant to identify the regulatory category (telecommunications, cable,
broadcast, or information) of the services which are the subject of FCC
proceedings or court cases.
Administering the universal service system was complex when there was just one
giant Bell monopoly. It became a vastly more difficult task for the FCC, and
various corporations and boards following divestiture, with the emergence
multiple regulated telecommunications companies. Now, it is becoming increasing
impossible in a open competitive environment in which a variety of competing
technologies are used by people to communicate with each other.
Congressional backers of universal service cross subsidies have argued that
unregulated and untaxed IP telephony services might replace the old fashioned
analog public switched telephone network. Hence, they fear that their revenue
pool might dry up. To make universal service programs work, the FCC needs a huge
pool of revenue to tap. If businesses and consumers switch to IP telephony
services, and the FCC and Congress still want to subsidize communications
services, then the FCC would need to obtain revenues from some other source,
such as IP telephony, other Internet services, or the general fund.
Privacy Advocates Oppose Standardization of State Driver
2/11. A collection of groups sent a letter
to President Bush to "urge the Administration to oppose the attempts of
state motor vehicle officials to create a national identification system
(national ID) through the bureaucratic back door of state drivers'
The signatories to the letter include the American Civil Liberties Union (ACLU),
Center for Democracy and Technology (CDT), Electronic Privacy Information Center (EPIC), Free Congress Foundation (FCF), Privacilla.org, and other groups.
The letter continues that "Once government databases are integrated through
a uniform ID, access to and uses of sensitive personal information would
inevitably expand. Law enforcement, tax collectors, and other government
agencies would want use of the data. Employers, landlords, insurers, credit
agencies, mortgage brokers, direct mailers, private investigators, civil
litigants, and a long list of other private parties would also begin using the
ID and even the database, further eroding the privacy that Americans rightly
expect in their personal lives. It would take us even further toward a
surveillance society that would significantly diminish the freedom and privacy
On February 7, the Progressive Policy
Institute (PPI), a Democratic think tank, released a report [PDF]
titled "Modernizing the State Identification System: An Action
Agenda". It concludes that "our identification system is broken"
and that Congress should require states to modernize, through such technologies
as smart ID cards.
While the PPI report opposes a national ID card, it proposes "Modernizing
the current system, in which the primary form of identification is issued by the
Department of Motor Vehicles in each state". Specifically, the PPI report
recommends that Congress "require states to issue ``smart ID cards´´
containing a standardized hologram and digitally encoded biometric data specific
to each holder; set standards for initial identity verification; accelerate the
linking of state DMV databases; provide grants and loans for additional state
smart card applications; upgrade the system for foreign visitors to incorporate
a similar ``smart visa´´ program; and create strict controls to protect
privacy and prevent abuses." See also, PPI
Rep. James Moran (D-VA) will likely
soon introduce legislation that incorporates some of the recommendations
contained in the PPI report.
7th Circuit Rules on Ownership of Software
2/11. The U.S.
Court of Appeals (7thCir) issued its opinion
Automation v. Richards, a contract dispute involving ownership of
a software program. The Appeals Court addressed what constitutes a development
of an existing program, and what constitutes a new product. The Appeals Court
also commented on the economics of software ownership.
Background. Anthony Richards is a software developer who wrote a computer
program called RIMS to help police and fire departments with records management
and vehicle dispatch. He copyrighted the program. Richards and his wife formed a
corporation named Dispatch Automation, Inc., with Gary Hagar and his wife for
the purpose of licensing the software to police and fire departments. Each
couple took a 50% interest. The articles of incorporation provided further that
Richards retained ownership of the program, and that Richards agreed to license
it to Dispatch Automation for $1 per year. It also stated that the corporation
may continue to develop the product, but all ownership rights remain with
Richards. The two couples had a falling out, Richards resigned from the company,
and cancelled Dispatch Automation's license to market the program.
District Court. Dispatch Automation filed a complaint in U.S. District Court (WDWisc) against
Richards alleging breach of contract. Federal jurisdiction in this case is based
upon diversity of citizenship. Wisconsin law applies. The parties agreed that
Richards owned products that were "developments" of the products that
he had licensed to the corporation when it was formed, but not new products.
Dispatch Automation argued that "developments" are small, incremental
changes and that the latest version of the product was so different from the
earlier versions that it was a new product. Richards argued that a
"new" product is one that is not encompassed by the contractual term
"RIMS group of computer aided dispatch and records management software
products." The District Court granted summary judgment to Richards.
Appeals Court. The Appeals Court affirmed. Judge Richard Posner,
writing for the three judge panel, noted that "It would have been cockeyed
-- it would have been contrary to Dispatch Automation's own interests as they
then appeared -- for the parties to have agreed that Richards would own
successive versions provided they made only incremental improvements over their
predecessors but that he would have no rights to a successive version that made
a real breakthrough. That would have given him an incentive to pull his punches,
or to quit the company if he thought he was on the brink of a breakthrough;
neither the articles of incorporation nor, so far as we are aware, any other
contractual provision binds Richards to Dispatch Automation. Since the
corporation received the entire income (minus $1 a year) from the sale of
programs licensed to it by Richards, it had every reason to encourage him to
Posner then reasoned that "When a contractual interpretation makes no
economic sense, that's an admissible and, in the limit, a compelling reason for
rejecting it." Hence, Posner, the author of Economic
Analysis of Law, and countless other works applying economics to law,
rejected Dispatch Automation's interpretation.
Judge Posner also commented that this corporate arrangement was unusual. He
wrote that "Ordinarily an employer insists on owning all the software
developed by its employees (unless created wholly on the employee's own time and
at his sole expense), whether it is derivative of pre-employment work or
completely new, precisely to avoid the kind of dispute that has arisen here. For
an employee to own rights to part of the employer's output is bound to create
difficult and contentious issues of managing and tracking who owns what, and
there is also a danger that the employee will quit and take his technology with
him. Then too software development is a risky undertaking and the employer is
likely to be the superior risk bearer, and ownership of the software shifts the
risk, both upside and downside, from the developer to the firm."
9th Circuit Reverses in Trademark Case
2/11. The U.S.
Court of Appeals (9thCir) issued its opinion
Media v. Smith, a trademark and unfair competition case involving
the use of the trademark "Entrepreneur" on the cover of a print
publication, in a domain name, and in other contexts. The Appeals Court largely
reversed the District Court's summary judgment for the trademark holder, and
remanded for trial.
Background. Entrepreneur Media, Inc. (EMI) publishes magazines, books,
computer software, and audio and video. It publishes a magazine for small
businesses named "Entrepreneur". It has registered the mark
"Entrepreneur" with the USPTO. It has also registered the domain www.entrepreneur.com. Scott Smith has a
public relations business. He did business as EntrepreneurPR, and produced a
publication by titled "Entrepreneur Illustrated". He also registered
the domain www.entrepreneurpr.com.
District Court. EMI filed a complaint in U.S. District Court (CDCal) against
Smith alleging trademark infringement, unfair competition, and counterfeiting
under the Lanham Act, 15
U.S.C. § 1125, and unfair competition under the California Business and
Professions Code § 17200. The District Court granted summary judgment to EMI on
the trademark infringement and unfair competition claims, awarded damages, and
enjoined Smith from using any marks confusingly similar to
Appeals Court. The Appeals Court affirmed in part and reversed in part.
It applied the eight factor test announced in AMF,
Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979). That is, it
considered "1. The strength of EMI's trademark; 2. The similarity of the
marks; 3. The proximity or relatedness of the goods or services; 4. Smith's
intent in selecting the marks; 5. Evidence of actual confusion; 6. The marketing
channels used; 7. The likelihood of expansion of product lines; and, 8. The
degree of care consumers are likely to exercise."
On the first factor, the Appeals Court held that "Entrepreneur" is a
weak mark, and thus deserving less protection, because it is a common and
necessarily used word.
On the second factor, regarding the domain name, the Court wrote that
entrepreneurpr.com is different from entrepreneur.com, and that consumers
attempting to reach the EMI web site are unlikely to enter the former by a
typographical error. It concluded that a "juror could reasonably find
Smith's entrepreneurpr.com domain name dissimilar from EMI's ENTREPRENEUR
After weighing all eight factors, the Appeals Court concluded that "the way
Smith has used the mark "Entrepreneur Illustrated" on the covers of
EntrepreneurPR's printed publication, as it appears in the record, would likely
confuse an appreciable number of reasonably prudent consumers, and thus
infringed EMI's trademark "ENTREPRENEUR."" However, "As to
all other allegations of trademark infringement, EMI has not demonstrated on
this record that Smith has infringed its trademark as a matter of law. A trier
of fact could reasonably conclude that none of the eight Sleekcraft factors
weighs strongly in favor of a finding of likely confusion as to these
allegations." The Appeals Court also reversed the summary judgment as to
the unfair competition claim.
People and Appointments
2/11. The Senate confirmed Michael Melloy to be a Judge on the U.S. Court of Appeals (8thCir) by a vote
of 91 to 0.
2/11. The Internet Corporation for Assigned
Names and Numbers (ICANN) announced the appointment of Stephen Crocker
as chair of its newly formed Standing Committee on Security and Stability, which
will focus on the security of the Internet's naming and address allocation
systems. See, ICANN release.
2/11. Terry Hungle, Chief Financial Officer of Nortel Networks, resigned. Nortel
stated in a release
that "The U.S. Securities and Exchange Commission and the Ontario
Securities Commission have been voluntarily notified of the circumstances
surrounding certain personal investment transactions carried out in 2001 by
Hungle in the Nortel Networks U.S. Long-Term Investment (401k) Plan. These
transactions occurred outside the trading windows imposed by the Corporation
upon certain employees, including Hungle, and prior to news releases issued by
the Corporation on March 27, 2001 and December 21, 2001." Frank Dunn,
P/CEO of Nortel, was appointed acting CFO. Dunn stated in the Nortel release
that "this matter solely relates to the personal investment transactions
made by Terry Hungle and does not relate to the business, operations or
financials of Nortel Networks."
2/11. Michael Kinsley resigned as editor of Slate magazine.
2/11. Mark Itri joined
the Orange County office of the law firm of McDermott
Will & Emery as a partner. He focuses on patent and trademark
prosecution and litigation, and client counseling and opinion work. He
concentrates on electronic and computer software arts, the internet,
photocopiers, printers, facsimile devices, mechanical devices and instruments,
pattern and speech recognition, and server and network systems. He was
previously a partner at Fitzpatrick Cella Harper
& Scinto. See, MWE
2/11. Andreas Weitbrecht, John Kallaugher, Marc Hansen and Jean
Paul Poitras joined the Brussels office of the law firm of Latham & Watkins as partners. All four are
antitrust lawyers who previously worked at the law firm of Wilmer Cutler & Pickering. Poitras focuses
on trade, customs and EU competition law. He has advised on a dispute concerning
the WTO compatibility of the EC 3G UMTS mobile telephone standard; he also has
represented coalitions of computer and telecommunications companies in opposing
EC trade protection measures against semiconductors and computer equipment.
Kallaugher focuses on EU competition law, aviation and general transactional
matters. He has represented international airlines, computer reservation systems
and airline associations. Hansen focuses on EU competition, technology, and
trade regulatory law; he represents clients in the communications, IT and online
services and media sectors regarding content licensing and new digital delivery
formats, and related digital rights management issues. Weitbrecht focuses on
European and German antitrust law. See, LW release.
2/11. Qwest Communications issued a release
in which it stated that it "has received a subpoena for documents
concerning Global Crossing
Ltd. from the Securities and Exchange
Commission (SEC) in connection with the SEC's investigation of Global
Crossing. The company intends to cooperate fully with the SEC."
2/11. Sen. Paul Wellstone (D-MN)
introduced S 1928, a bill that wuld amend 47 U.S.C. § 222 to
require affirmative written consent by a customer to the release of customer
proprietary network information. The bill was referred to the Senate Commerce Committee.
2/11. Immersion Corporation filed a
complaint in U.S. District Court (NDCal) against
Microsoft and Sony alleging patent infringement. Immersion alleges that
Microsoft's Xbox and the Sony's PlayStation use its haptic technology. See, Immersion
release. This is case number 02-00710 CW, filed in the Oakland Division. CW
references Judge Claudia Wilken.
2/11. The General Accounting Office (GAO)
released a report [PDF]
titled "Tax Administration: Electronic Filing's Past and Future Impact on
Processing Costs Dependent on Several Factors". The report found that
"From fiscal years 1997 through 2000, the number of individual and business
tax returns filed electronically increased from almost 23 million to almost 41
million." However, over the same time period, the total amount spent by the
IRS processing all returns -- both paper and electronic -- still increased 16%.
The report was prepared at the request of Rep. Amo Houghton (R-NY), the Chairman
of the House Ways and Means
Committee's Subcommittee on Oversight.
Go to News Briefs from February 6-10,