TLJ News Briefs, March 11-15, 2002.

News from March 11-15, 2002

Sen. Lott Opposes Adelstein Nomination to FCC
3/15. Sen. Trent Lott (R-MS) announced his opposition to the nomination of Jonathan Adelstein to be a Commissioner of the Federal Communications Commission (FCC). Sen. Tom Daschle (D-SD) has recommended that President George Bush nominate Adelstein for the position on the FCC recently vacated by Gloria Tristani. By law, the President must appoint a second Democrat. Adelstein is a staff assistant to Sen. Daschle. President Bush has not yet formally nominated Adelstein.

On March 14, the Senate Judiciary Committee voted to reject the nomination of U.S. District Court Judge Charles Pickering to be a judge on the U.S. Court of Appeals (5thCir), by a straight party line vote of 10 to 9.

Charles Pickering is currently a sitting federal judge in Mississippi. He is also the father of Rep. Chip Pickering (R-MS), who was previously a member of Sen. Lott's staff. He is now a member of the House Commerce Committee, and its Telecom and Internet Subcommittee.

Sen. Lott stated in the Senate that "I think the Senate Judiciary Committee just participated in a miscarriage of justice. I am very much concerned about the effect it is going to have on the Senate, and on our relationship on both sides of the aisle." See, Cong. Rec., March 14, 2002, at Page S1915.

He continued that "Charles Pickering's son worked for me. Chip Pickering is one of the finest young men I have known. He was a missionary behind the Iron Curtain. He was my legislative director, and a great legislator. He not only knew the substance, but he knew the art of the possible. Senator Fritz Hollings can tell you that we got the telecommunications bill passed because of the brilliance of Congressman Chip Pickering, the son of this nominee. This young man has now worked day and night to try to help his dad get through this unfair crucible -- now without success." Cong. Rec., at 1916.

"This political mugging will say a lot more about the perpetrators than about their victim." said Sen. Lott. "I am not going to let go of this."

Sen. Lott cited Adelstein's youth as a reason for opposing him. Two of the current Commissioners, Michael Powell and Kevin Martin, were appointed to the FCC at a younger age -- with the support of Sen. Lott.

FCC Releases DR & NPRM on Cable Internet Access
3/15. The Federal Communications Commission (FCC) released its Declaratory Ruling and Notice of Proposed Rulemaking [PDF] addressing the legal classification and the appropriate regulatory framework for broadband access to the Internet over cable system facilities.

The FCC announced that it had adopted this DR and NPRM at its March 14 meeting. See also, March 14 FCC release. This is GN Docket No. 00-185 and CS Docket No. 02-52.

It states that "we conclude that cable modem service, as it is currently offered, is properly classified as an interstate information service, not as a cable service, and that there is no separate offering of telecommunications service. In addition, we initiate a rulemaking proceeding to determine the scope of the Commission's jurisdiction to regulate cable modem service and whether (and, if so, how) cable modem service should be regulated under the law ..."

The 75 page DR & NPRM reviews the relevant statutory sections, the alternative regulatory classifications, the arguments advanced by commenters, the relevant judicial precedent, and various policy arguments. It states that "The Communications Act does not clearly indicate how cable modem service should be classified or regulated", but nevertheless "conclude[s] that cable modem service as currently provided is an interstate information service, not a cable service, and that there is no separate telecommunications service offering to subscribers or ISPs."

Open Access. The DR & NPRM states that "If we were to require cable operators to unbundle cable modem service merely because they also provide cable telephony service, we would in essence create an open access regime for cable Internet service applicable only to some operators. We believe it is more appropriate to examine the issue of open access on a national basis involving all those Title VI cable systems that choose to offer cable modem service, rather than to divide and treat separately those that also have a common carrier local telephony offering."

It adds that "we believe that many, if not most, such cable operators would stop offering telephony if such an offering triggered a multiple ISP access obligation for the cable modem service. Because many cable operators would likely withdraw from the telephony market, applying Computer II in such circumstances would undermine the long delayed hope of creating facilities based competition in the telephony marketplace and thereby seriously undermine the goal of the 1996 Act to open all telecommunications markets to competition. It would also disserve the goal of Section 706 that we ``encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans ... by utilizing ... measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.ดด "

AT&T v. Portland. The DR & NPRM attempts to explain away the contrary opinion of the U.S. Court of Appeals (9thCir) in AT&T v. City of Portland, which held that cable Internet access is a telecommunications service. The DR & NPRM states that "While we are considering the broad issue of the appropriate national framework for the regulation of cable modem service, the Portland court considered a much narrower issue -- whether a local franchising authority, whose authority was limited to cable service, had the authority to condition its approval of a cable operator’s merger on the operator's grant of multiple ISP access." It also states that "The Ninth Circuit’s decision was based on a record that was less than comprehensive", and that the FCC "was not a party to the case and did not provide its expert opinion on this issue." Finally, it states that "The Ninth Circuit did not have the benefit of briefing by the parties or the Commission on this issue and the developing law in this area."

FEC to Hold Hearing on Campaign Activity on the Internet
3/15. The Federal Election Commission (FEC) will hold a public hearing on its Notice of Proposed Rulemaking (NPRM) [PDF] regarding campaign activity on the Internet on Wednesday, March 20. The witnesses will be Robert Bauer (Perkins Coie), Alex Vogel (National Republican Senatorial Committee), Laurence Gold (AFL-CIO), and James Bopp (James Madison Center for Free Speech). See, FEC notice.

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 NPRM merely proposes to permit certain personal political web sites, and to allow corporations and unions to put certain hyperlinks and press releases in their web sites.

The FEC released this NPRM in September, 2001. See, TLJ story of September 27. On October 3, 2001, the FEC published a notice in the Federal Register (See, October 3, 2001, Vol. 66, No. 192, at Pages 50358 - 50366.)

FTC to Hold Hearings on Merger Review Process
3/15. The Federal Trade Commission's (FTC) Bureau of Competition announced that it plans to conduct a series of hearings in Chicago, Los Angeles, New York, San Francisco, and Washington DC regarding modifications to the FTC's investigations process and its use of specific remedy provisions. See, FTC release.

The FTC describes these hearings as "brown bag" "public workshops". It has not yet announced the dates of these hearings. The FTC stated that seeks "input from a broad range of interest groups including corporate personnel, outside and in-house attorneys, economists, consumer groups, and others who have participated in the FTC's or Department of Justice Antitrust Division's merger review process."

9th Circuit Rules in PSLRA Case
3/15. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in In re: The Vantive Corporation Securities Litigation. This is a securities class action involving construction of the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA).

The Vantive Corporation sold and serviced customer relationship management software, known as front office software, that enabled field personnel to deliver customer service across many channels, including the Internet, a call center, or in person.

Plaintiffs filed a complaint in U.S. District Court (NDCal) against Vantive and some of its officers and directors alleging securities fraud. The plaintiffs, who are represented by the law firm of Milberg Weiss, sought class action status. The District Court found that plaintiffs failed to meet the pleading requirements of the PSLRA, 15 U.S.C. ง 78u-4(b)(1), (2), and dismissed. The Court of Appeals affirmed.

DC Circuit Rules in CA v. NLRB
3/15. The U.S. Court of Appeals (DCCir) issued its opinion in Computer Associates v. NLRB, setting aside an order of the National Labor Relations Board (NLRB) that Computer Associates (CA) had discharged workers in violation of labor law.

The NLRB determined that CA violated งง 8(a)(1) and (3) of the National Labor Relations Act, 29 U.S.C. งง 158(a)(1) and (a)(3), by terminating a subcontract with Cushman & Wakefield of Long Island to provide engineers at CA's Islandia, New York, facility, and thereby discharging the engineers in retaliation for their union activities.

CA filed a petition for review of this order with the Court of Appeals. The Court wrote: "Crucial to the Board's holding was its finding that CA was a ``joint employerดด of the engineers. Because the engineers' union, Local 30 of the International Union of Operating Engineers (Union), had stipulated that Cushman was its sole employer and the Board cited no changed circumstances after the stipulation to support its finding that CA was a joint employer, we conclude the Board's joint employer finding is not supported by substantial evidence and we therefore grant CA's petition for review."

GAO Reports on DLA
3/15. The General Accounting Office (GAO) issued a report [PDF] titled "Information Technology: DLA Needs to Strengthen Its Investment Management Capability". The Defense Logistics Agency (DLA) manages supply items and processes supply distribution actions.

The report concludes that "Because IT investment management has only recently become an area of management focus and commitment at DLA, the agency's capability to effectively manage its IT investments is limited. ... Until DLA fully implements an effective IT investment management process, it will not know whether its mix of investments best meets its mission and business priorities."

The report makes two recommendations. "The first step toward establishing effective investment management is putting in place foundational, project level control and selection processes. ... The second major step toward effective investment management is to continually assess proposed and ongoing projects as an integrated and competing set of investment options."

GAO Reports on DISA Planning
3/15. The General Accounting Office (GAO) issued a report [PDF] titled "Information Technology: Defense Information Systems Agency Can Improve Investment Planning and Management Controls".

The Defense Information Systems Agency (DISA) provides computing services, telecommunications services, and acquisition services, on a cost reimbursable basis. The DISA also operates and maintains joint warfighting and related mission support command, control, and communications systems funded by direct appropriations.

The report addresses whether the DISA has effectively managed development of its plan titled "A 500 Day Action Plan for Supporting DoD Decision Superiority", released in March of 2001.

People and Appointments
3/15. The Senate confirmed David Bury to be judge of the U.S. District Court Judge (DAriz).

More News
3/15. The U.S. Court of Appeals (7thCir) issued its opinion in Beanstalk Group v. AM General and General Motors, a case regarding construction of a contract regarding the licensing of the "Hummer" trademark. The District Court dismissed the complaint pursuant to Rule 12(b)(6), FRCP. The Appeals Court affirmed, two to one. Posner wrote the opinion. Rovner dissented.

House Subcommittee Holds Hearing on Technology Administration Budget
3/14. The House Science Committee's Subcommittee on Environment, Technology, and Standards held a hearing titled "Technology Administration: Review and Reauthorization". The hearing examined the proposed budget for Fiscal Year 2003 for the Technology Administration (TA).

The TA, which is a part of the Commerce Department, consists of the National Institute of Standards and Technology (NIST), the National Technical Information Service (NTIS), and the Office of Technology Policy (OTP). The NIST budget constitutes more than 98% of the TA's budget.

See, opening statement of Rep. Vernon Ehlers (R-MI), Chairman of the Subcommittee. See also, prepared testimony of Phillip Bond (Under Secretary of Commerce for Technology, and Chief of Staff to the Secretary of Commerce), Arden Bement (Director of the NIST), Christopher Hill (George Mason University), Birgit Klohs (The Right Place Program), and Michael Wojcicki (The Modernization Forum).

CIIP Holds Hearing on OddzOn Products, Collaborative Research, and Patents
3/14. The House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property (CIIP) held a hearing titled "Patent Law and Non-Profit Research Collaboration."

Rep. Howard Coble (R-NC), the Chairman of the Subcommittee, said in his opening statement that "The Subcommittee has been approached by the university community with serious concerns about an issue arising from a recent case interpreting the Patent Act. In the OddzOn Products case, the Court of Appeals for the Federal Circuit held that certain confidential material exchanged in the course of a research collaboration would defeat the patents later developed."

The U.S. Court of Appeals (FedCir) held in OddzOn Products v. Just Toys, 122 F.3d 1396, 43 U.S.P.Q. 2d 1641 (Fed. Cir. 1997), that "subject matter derived from another not only is itself unpatentable to the party who derived it under ง 102(f), but, when combined with other prior art, may make a resulting obvious invention unpatentable to that party under a combination of งง 102(f) and 103."

35 U.S.C. ง 103(c) provides that "Subject matter developed by another person, which qualifies as prior art only under one or more of subsections (e), (f) and (g) of section 102 of this title, shall not preclude patentability under this section where the subject matter and the claimed invention were, at the time the invention was made, owned by the same person or subject to an obligation of assignment to the same person." 35 U.S.C. ง 102(f) provides that "A person shall not be entitled to a patent unless ... (f) he did not himself invent the subject matter sought to be patented".

Rep. Coble added that "I cannot emphasize enough the benefit of university patents in an open society, since patents result in the publication of scientific and technical data for the world to study and build upon."

Rep. Howard Berman (D-CA), the ranking Democrat on the Subcommittee, said in his opening statement that "What makes this particularly troubling is that this affects research universities and non-profit institutions much more than it does private companies. There are ways to maneuver around the threat of 103(c) -- by creating a joint venture, or by assigning intellectual property rights to a single entity. However, many state and federal government organizations cannot assign rights to an outside partner due to their established laws and practices. Public research institutions may not have the means to circumvent the potential problems of 103(c)."

Kevin Rivette, a patent attorney, and author of Rembrandts in the Attic: Unlocking the Hidden Value of Patents, said in his prepared testimony that "I believe that legislation that furthers this special Non-profit research collaboration with private industry is in the best interest of our country ..."

Similarly, Carl Gulbrandsen, who testified on behalf of a University of Wisconsin patent management group, said in his prepared testimony that the Congress should pass legislation to reverse the Oddzon case, and promote university collaboration.

In contrast, Charlie Van Horn, who testified on behalf of the American Intellectual Property Law Association, said in his prepared testimony that "special care needs to be taken with respect to any efforts to amend 35 U.S.C. ง 103(c) to ensure that it would not complicate the operation or implementation of this section and/or create traps for unwary collaborators."

Similarly, Jon Grossman, an attorney with the law firm of Dickstein Shapiro, said in his prepared testimony that the Oddzon case does not threaten universities, and that "broadening the scope or meaning of Section 103(c) may cause unintended problems that negatively impact the U.S. Patent & Trademark Office (“PTO”), complicate patent practice, and harm competition."

Senate Committee Holds Hearing on Copy Protection
3/14. The Senate Judiciary Committee held a hearing titled "Competition, Innovation, and Public Policy in the Digital Age: Is the Marketplace Working to Protect Digital Creative Works?"

Sen. Patrick Leahy (D-VT), Chairman of the Committee, said in his opening statement that "Senator Hatch and I would ask the senior executives at media, information technology, and consumer electronics companies to get more involved in the discussions underway about digital rights management systems, and make sure that the people participating in those talks meet on a regular and frequent basis. ... We know that legislation may be necessary to implement some of the intra- industry agreements that are reached and we want to be in a position to move promptly and thoughtfully when the time is ripe."

Sen. Orrin Hatch (R-UT), the ranking Republican on the Committee, stated in his opening statement that "I want to encourage the parties -- the content community and the information technology community -- to continue and redouble your efforts to find common ground. These are complex issues and with the right resources, I am confident you can resolve these problems." Unlike, Sen. Ernest Hollings (D-SC), the Chairman of the Senate Commerce Committee, neither suggested that the Congress should step in and pass legislation.

Craig Barrett, the CEO of Intel, said that the Congress should not impose regulatory solutions. See, prepared testimony. In contrast, Hillary Rosen, P/CEO of the Recording Industry Association of America (RIAA) submitted a statement [PDF] in which she said that "additional help may be needed, whether in the form of enhanced legal remedies, more active enforcement of the law, or legislation requiring implementation of technical standards to ensure that all technology companies provide the same level of needed protection." However, she was not a witness at the hearing.

See also, prepared testimony of the other hearing witnesses: Richard Parsons (AOL Time Warner), Jonathan Taplin (Intertainer), Joe Kraus, and Justin Hughes (UCLA Law School).

FCC Declares Cable Internet Access an Interstate Information Service
3/14. The Federal Communications Commission (FCC) announced that it has adopted both a Declaratory Ruling (DR) and Notice of Proposed Rulemaking (NPRM) addressing the legal classification and the appropriate regulatory framework for broadband access to the Internet over cable system facilities.

The FCC stated in a release that "In a Declaratory Ruling adopted today, the FCC concluded that cable modem service is properly classified as an interstate information service and is therefore subject to FCC jurisdiction. The FCC determined that cable modem service is not a ``cable serviceดด as defined by the Communications Act. The FCC also said that cable modem service does not contain a separate ``telecommunications serviceดด offering and therefore is not subject to common carrier regulation."

The FCC issued a short release and separate statements of three of the FCC Commissioners. However, it did not release either the DR or the NPRM. The vote was three to one. Michael Copps dissented. This is GN Docket No. 00-185.

The Communications Act of 1934, as amended over the years, establishes separate regulatory frameworks for different industries -- such as plain old fashioned telephone service, cable television service offering one way programming, broadcast television and radio, and information services. When established, the various industries were distinct. Determining which regulatory category applied was obvious. However, with new technologies, and industry convergence, services are offered that do not fit into the old regulatory categories.

How cable Internet access is classified for regulatory purposes has consequences. For example, classification as a telecommunications service could lead to the result that cable operators must provide "open access" to their cable facilities to competing ISPs. Similarly, classification as a cable service could lead to regulation by a multitude of local franchising authorities.

Various regulatory agencies and courts have reached different conclusions regarding the regulatory status of Internet access over cable. Various local cable franchising authorities have asserted that it is a cable service. The U.S. Court of Appeals (9thCir) ruled in AT&T v. City of Portland that it is a telecommunications service. (See, TLJ story, Ninth Circuit Reverses District Court in AT&T v. Portland, June 22, 2000.) In contrast, the U.S. Court of Appeals (4thCir) ducked the issue in MediaOne Group v. County of Henrico, 257 F. 3d 356 (2001). (See, TLJ Daily E-Mail Alert No. 225, July 12, 2001.) Heretofore, the FCC had also avoided taking a position.

Commission Michael Copps wrote a strenuous dissent. He wrote that "A powerful case has been made that cable modem services should also be subject to Title II", i.e., that it is a cable service.

FCC Chairman Michael Powell wrote a separate statement in support of the announced actions. Commissioner Kathleen Abernathy also wrote a separate statement in support.

FCC Announces NPRM
3/14. The FCC also wrote in its March 14 release that it has adopted a Notice of Proposed Rulemaking (NPRM) that will examine "Certain issues in light of the FCC's recent initiation of the Wireline Broadband NPRM, including whether there are legal or policy reasons why it should reach different conclusions with respect to wireline broadband and cable modem service."

The NPRM will also examine "The scope of the FCC's jurisdiction to regulate cable modem service, including whether there are any constitutional limitations on the exercise of that jurisdiction", "Whether, in light of marketplace developments, it is necessary or appropriate at this time to require multiple ISP access", and "The role of state and local franchising authorities in regulating cable modem service".

Reaction to FCC Announcements
3/14. Many industry groups and regulated companies commented on the Federal Communications Commission's (FCC) announcement that it has adopted both a Declaratory Ruling (DR) that cable Internet access is an information service, and that it has adopted a Notice of Proposed Rulemaking (NPRM) addressing the appropriate regulatory framework for broadband access to the Internet over cable system facilities.

Robert Sachs, P/CEO of the National Cable and Telecommunications Association (NCTA), which will benefit from the deregulatory position adopted by the FCC, praised the actions. He stated in a release that "Today’s FCC decision establishes a needed national policy framework for cable high speed Internet services. The classification of cable modem service as an ‘information service,’ and not a telecommunications service, sends a strong signal that cable Internet services will be able to continue to develop in a business environment that favors competition over regulation, and encourages new investment. The Commission traditionally hasn’t regulated information services. Given the vigorous competition between cable modem, digital subscriber line, and satellite delivered broadband Internet services, a policy of regulatory restraint is particularly appropriate."

Walter McCormick, P/CEO of the U.S. Telecom Association, which represents the regional Bells, stated that the phone companies would like the FCC to also provide regulatory relief for them. He stated in a release that "We are pleased that the Commission has recognized that broadband investment can best be encouraged when its rules are clear and its regulation minimal. Consumers, however, will see little immediate benefit from today's decision, as it does nothing to promote new competition to the local cable monopolies that now dominate the market for high speed Internet access. The important decisions are those that remain, and the challenge for the Commission is to promote intermodal competition by making sure that wireline competitors do not remain handicapped by regulations that disadvantage our offering of functionally equivalent advanced services."

Similarly, Bob Blau, of BellSouth, stated that it "is encouraged and certainly commends the Commission's effort to re-think the type of regulatory framework that should apply to cable modem and DSL services, and more importantly whether these services need to be regulated at all. They don't."

And likewise, Priscilla Ardoin, of SBC, said in a release that "It makes sense that similar services are classified and regulated in the same way. Whether it is DSL, cable modem, satellite or wireless technology, the end product is the same broadband Internet access service. By adopting rules that apply equally to all broadband providers, the FCC has the opportunity to create a unified, nation wide regulatory framework for this country's broadband market."

FCC Issues Release Regarding ง 214 Transfers
3/14. The Federal Communications Commission (FCC) announced that its has "adopted rules to streamline review of applications for section 214 authorization to transfer control of domestic transmission lines." See, 47 U.S.C. ง 214. The FCC issued a short press release, but not a copy of the report and order. This is Docket No. CC 01-150.

FCC Commissioner Michael Copps wrote a dissent. He stated that "the majority has decided to vest the Bureau with the delegated authority to determine if any transaction -- whether or not it falls within the presumptive categories -- merits streamlined treatment or requires further investigation. I do not support such an expansion of the Bureau's delegated authority."

USTR Zoellick Addresses Free Trade and IPR
3/14. U.S. Trade Representative (USTR) Robert Zoellick gave a speech titled "Competing in the Global Economy: Five Ingredients for Success" at the Conference on Productivity and Competitiveness in Santa Marta, Colombia. He addressed free trade generally, and protection of intellectual property rights specifically.

He stated that there are "five key ingredients in the recipe for building stronger economies and stronger countries: open trade; education and innovation; the rule of law, property rights, and effective governance; a modern infrastructure; and an open, deregulated economy."

He stated that "In the modern knowledge based economy, effective property rights must extend to the fruits of intellectual labor. Patents encourage innovation. A climate of innovation encourages research and development, as well as new applications. Since most cutting edge businesses can only prosper through continuous innovation, a failure to protect intellectual property is like putting up a ``Keep Awayดด sign to the investments and businesses that will drive the future."

He continued that "It is certainly worth noting that the 18th century drafters of the U.S. Constitution -- one of the most successful political and economic compacts of all time -- took time to add to that very sparse document a specific federal power: ``To promote the Progress of Science and useful Arts, by securing for Limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.ดด In 1790, the first U.S. government entrusted the administration of its new patent laws to none other than Thomas Jefferson. There is no doubt that from the start the United States recognized the connection between intellectual property and development."

He also addressed deregulation of services. "The capital markets can also take on new vibrance -- and countries can become more competitive -- with the deregulation of financial services connected to telecom and information technology. These services open the way for productivity increases, cost reductions, and customized services as firms learn how to use real-time information effectively. Moreover, this deregulation is a ``force multiplierดด for structural reforms and liberalization. As financial markets deregulate and intermediaries proliferate, the traditional power of banks as the sole channel for intermediation is undermined, and a new agent of change is unleashed: financial asset managers -- whether in the form of pension funds, insurance companies, mutual funds, or others."

Treasury Secretary Testifies Re IRS IT Funding
3/14. Treasury Secretary Paul O'Neill testified before the Senate Appropriations Committee's Subcommittee on Treasury and General Government regarding regarding the Fiscal Year 2003 budget for the Treasury Department. See, O'Neill's prepared testimony.

He testified, among other things, about the Department's efforts to modernize its information technology, and to provide online services, such as for filing of tax returns. He stated that the IRS "continues to work towards the Congressional goal of having 80% of all tax and information returns filed electronically by 2007. As this method of tax filing becomes more popular, the IRS has reduced processing costs significantly per document, with less input errors and reduced handling time and storage costs as well."

He asserted that the IRS "is committed to providing excellent customer service and takes pride in the integrity of their systems. As a result, they are continually making improvements in operations efficiency and performance by adopting best business practices and state of the art technology."

He stated that the IRS "is replacing its antiquated computer system with an information technology capacity that is appropriate for the new century." He continued that "The Department's FY 2003 budget provides $450 million for the continuation of effort in re-engineering business processes and developing new business systems to replace their antiquated and obsolete system. This amount is $58 million above the FY 2002 enacted level of $392 million, and $378 million above the FY 2001 enacted level of $72 million."

People and Appointments
3/14. The Senate Judiciary Committee voted to reject the nomination of U.S. District Court Judge Charles Pickering to be a judge on the U.S. Court of Appeals (5thCir), by a straight party line vote of 10 to 9. President Bush criticized the vote. He said in a statement that "The voice of the entire Senate deserves to be heard." See also, statement of Sen. Patrick Leahy (D-VT), Chairman of the Committee.

House Passes Class Action Reform Bill
3/13. The House amended and passed HR 2341, the Class Action Fairness Act of 2001, on a largely party line vote of 233 to 190. See, Roll Call No. 62.

The House agreed to an amendment [PDF] offered by Rep. Melissa Hart (R-PA) which requires the Judicial Conference of the U.S. to write a report on class action settlements in the federal courts. The House also agreed to an amendment [PDF] offered by Rep. Ric Keller (R-FL) which requires disclosure of the full amount of attorney's fees charged by the plaintiffs' attorneys. All other amendments were rejected.

The bill would add new sections to Title 28 to ensure that class members are treated fairly in settlements. It provides that if a settlement provides that the class members would receive non cash benefits, the court must make "a written finding that, the settlement is fair, reasonable, and adequate for class members".

The bill would also amend 28 U.S.C. ง 1332, regarding diversity of citizenship. It would provide federal jurisdiction in certain class actions where "any member of a class of plaintiffs is a citizen of a State different from any defendant" and the aggregated claims exceed $2 Million. However, it would also provide an exception when "the substantial majority of the members of the proposed plaintiff class and the primary defendants are citizens of the State in which the action was originally filed".

The bill is opposed by plaintiffs' trial lawyers. It faces stronger opposition in the Senate.

District Court Construes DMCA in Context of USENET Infringement
3/13. The U.S. District Court (CDCal) issued its Order Granting Defendant AOL's Motion for Summary Judgment [PDF] in Harlan Ellison v. Robertson, a copyright infringement case. (This Order is a very long download.)

Highlights. Ellison asserted that AOL was directly, contributorily, and vicariously liable for infringing copies of his works that were posted to a USENET newsgroup, and made available to AOL users by AOL by virtue of AOL being a USENET peer, and by not removing the items when demanded. AOL asserted the defense of immunity under the Digital Millennium Copyright Act (DMCA). Title II of the DMCA added a new language to the Copyright Act, at 17 U.S.C. ง 512, creating four new limitations on liability for copyright infringement by online service providers. The four limitations are transitory communications, system caching, storage of information on systems or networks at direction of users, and information location tools. See also, Copyright Office's summary of the DMCA [18 pages in PDF]. The Court held, among other things, that AOL is immune under the transitory communications provision. In so holding, the Court rejected Ellison's arguments that AOL's involvement in the USENET peering system was analogous to the Napster's peer to peer network. The U.S. Court of Appeals (9thCir) rejected Napter's claim of immunity under the DMCA in A&M Records v. Napster, 239 F.3d 1004 (2001).

Background. Harlan Ellison is the author of, and holder of copyrights in, numerous fictional works. Defendant Stephen Robertson scanned some of Ellison's works and converted them into digital files. Robertson then copied these files onto a USENET newsgroup named alt.binaries.e-book. The Court noted that this newsgroup "seems to have been used used primarily to exchange pirated and unauthorized digital copies of text material, primary works of fiction by famous authors, including Ellison."

Robertson accessed the Internet through an ISP, Tehama County Online. He was not an AOL user. His USENET service was provided by RemarQ Communities, Inc., a subsidiary of Critical Path. While Robertson, RemarQ and Critical Path were all initially named as defendants, the present order only pertains to defendant AOL, whose involvement was as a USENET peer.

USENET. The Court offered this explanation of the User Network, or USENET. "Peers in USENET enter into peer agreements, whereby one peer's servers automatically transmit and receive newsgroup messages from another peer's servers. As most peers are parties to a large number of peer agreements, messages posted on one USENET peer's server are quickly transmitted around the world. The result is a huge informational exchange system whereby millions of users can exchange millions of messages every day."

The Court also stated that "After Robertson uploaded the infringing copies of Ellison's works to the alt.binaries.e-book newsgroup, they were then forwarded and copied throughout USENET onto servers all over the world, including those belonging to AOL. As a result, AOL users had access to the alt.binaries.e-book newsgroup containing the infringing copies of Ellison's works."

The Court wrote that at the time of Robertson's copying, "AOL's retention policy provided for USENET messages containing binary files to remain on the company's servers for fourteen days."

Notice of Infringement. Ellison's attorney sent a notice of copyright infringement to AOL, pursuant to the notice and take down provisions of the Digital Millennium Copyright Act (DMCA), to the e-mail address provided by AOL to the U.S. Copyright Office. AOL did not remove the infringing items. The e-mail address provided by AOL to the Copyright Office was a non functioning address.

Complaint. Ellison filed his original complaint in U.S. District Court (CDCal) against Robertson, AOL and others, in April 2000. A consent judgment was entered against Robertson in June 2000. Ellison filed a second amended complaint in October 2000 alleging direct copyright infringement, contributory copyright infringement, various copyright infringement, unfair competition under Section 43(a) of the Lanham Act, and trademark dilution (against defendants other than AOL). In January 2001 Ellison reached settlements with RemarQ and Critical Path. In November 2000 Ellison dismissed the Lanham Act claims against AOL.

Cross Motions. The present order concerns only Ellison's and AOL's cross motions for summary judgment and summary adjudication, in which Ellison asserted direct, contributory and vicarious infringement by AOL, and AOL argued that Ellison cannot establish the prima facie elements of his infringement claims, and raised defenses arising under the Digital Millennium Copyright Act (DMCA).

The District Court stated that the issue is as follows: "When an overenthusiastic fan uploads his favorite author's novels to a newsgroup on the internet, what is the liability of an internet service provider, such as AOL, for allowing the books to reside for two weeks on their USENET server? The impact of the Digital Millenium Copyright Act on this issue presents a question of first impression in the Ninth Circuit."

The Court first analyzed Ellison's allegations of direct, contributory, and vicarious liability in detail. It ruled that "AOL's role in the infringement as a passive provider of USENET access to AOL users cannot support direct copyright infringement liability." Direct infringement is limited to those who do the actual copying, such as Robertson.

The Court found that Ellison "has presented a triable issue of fact as to whether AOL materially contributed to the direct infringement of Ellison's copyrights by others." The Court noted that Ellison's attorney had notified AOL of the infringing copies at the email address provided by AOL to the Copyright Office.

Finally, the Court granted AOL judgment on the issue of vicarious infringement.

The Court then provided a detailed analysis of the Sections 512 (a) and (c) of the DMCA, and applied them to this case. ง 512(a) provides, in part: "Transitory Digital Network Communications. A service provider shall not be liable for monetary relief, or, except as provided in subsection (j), for injunctive or other equitable relief, for infringement of copyright by reason of the provider's transmitting, routing, or providing connections for, material through a system or network controlled or operated by or for the service provider, or by reason of the intermediate and transient storage of that material in the course of such transmitting, routing, or providing connections, if ... no copy of the material made by the service provider in the course of such intermediate or transient storage is maintained on the system or network in a manner ordinarily accessible to anyone other than anticipated recipients, and no such copy is maintained on the system or network in a manner ordinarily accessible to such anticipated recipients for a longer period than is reasonably necessary for the transmission, routing, or provision of connections ..." and certain other conditions are met.

The Court concluded that "AOL's storage of Robertson's posts on its USENET servers constitutes ``intermediate and transient storageดด that was not ``maintained on the system or network ... for a longer period than is reasonably necessary for the transmission, routing, or provision of connections.ดด " It also found that AOL satisfied the other conditions of ง 512.

Judge Florence Marie Cooper wrote the order. She was appointed to the Court by former President Clinton in 1999. She was previously a Judge of the California Superior Court for Los Angeles County.

PPI Rates States on Laws Affecting Internet
3/13. The Progressive Policy Institute (PPI), a Democratic think tank, released a report [33 pages in PDF] titled "The Best States for E-Commerce". The report measures how state laws, regulations, and administrative actions support or hinder Internet use. It found that the best states are Oregon, Utah, Indiana, Louisiana, and Iowa. It found that the worst states are California, Alabama, New Mexico, and South Carolina.

The report states that "state government policies can have a significant positive or negative impact on the growth of the Internet in their states. Through their regulations on individuals, industry sectors, or professions, states regulate the ease, and in some cases, the ability of Internet users to buy certain goods and services online. States control tax rates on Internet access. Through their own actions to digitize state government, they control how much and how easy it is for Internet users to conduct online transactions with their government. And finally, they determine if state residents can engage in legally binding online transactions by whether the state recognizes the legal validity of digital signatures."

The report scored each state on several criteria, including their laws affecting Internet sales and transactions involving contact lenses, prescription drugs, wine, mortgages auctioneering, insurance, and cars. The report also rated states on access taxes, e-government, telemedicine, and the Uniform Electronic Transactions Act.

The report states that "We hope our findings encourage states to examine carefully their laws, particularly those designed to protect incumbent bricks and mortar companies against e-commerce competitors, with an eye toward giving their citizens more choices and options as Internet users."

The report was written by Robert Atkinson and Thomas Wilhelm. See also, PPI release.

House Commerce Committee Leaders Write Sec. Evans Re ICANN
3/13. Rep. Billy Tauzin (R-LA), Rep. John Dingell (D-MI), Rep. Fred Upton (R-MI), Rep. Ed Markey (D-MA), and Rep. John Shimkus (R-IL) wrote a letter to Secretary of Commerce Donald Evans regarding the Internet Corporation for Assigned Names and Numbers (ICANN).

They wrote: "According to the Memorandum of Understanding between ICANN and the Department for implementing a transition for ICANN's technical management of Internet names and addresses, ICANN was to be founded upon the principles of ``stability, competition, bottom-up coordination, and representation.ดด Since its inception, however, ICANN has increasingly departed from that limited role. Its unchecked growth into general Internet policymaking and regulation of commercial rights and interests is very disturbing."

They also offered several recommendations. For example, "The Department should ensure that ICANN's Board of Directors is fully representative of all stakeholders, including corporate stakeholders and members of the general Internet community".

They also recommended that "ICANN should limit its activities to its initial scope of jurisdiction, i.e., coordinating core Internet functions and the technical aspects of naming and address allocation issues". They also suggested that "There should be clear, written procedures for approving new gTLDs, as well as any future technical issues, including an impartial appeals process for those who have process or substantive complaints."

Finally, the group stated that "we want to strongly reiterate our support for continued Department of Commerce control over the so-called ``A-rootดด server. We believe that any assumption of control over that asset by any outside entity would be contrary to the economic and national security interests of the United States."

Reps. Tauzin and Dingell are the Chairman and ranking Democrat of the House Commerce Committee. Reps. Upton and Markey are the Chairman and ranking Democrat of the Telecom and Internet Subcommittee.

Compuware Sues IBM
3/13. Compuware filed a complaint [50 pages in PDF] in U.S. District Court (EDMich) against IBM alleging copyright infringement, violation of federal and state antitrust laws, and other claims.

Compuware is a Michigan corporation with its principle place of business in Farmington Hills, Michigan. It provides software products and services for the testing, development, and management of mainframe computers, distributed computer networks, and Web based systems. In particular, Compuware develops and sells software tools that work with IBM's mainframes and software.

The complaint alleges that "IBM has copied and misappropriated portions of Compuware's mainframe software tools, and wrongfully used Compuware's technology to develop competing products, including, among other things, File Manager."

The complaint further alleges that "IBM is also using its monopoly power in the sale of mainframe computers and related software to subvert competition on the merits. In particular, IBM is (a) denying critical information to Compuware and others in an effort to undermine their development efforts, (b) tying the licensing of its monopoly software to mainframe software tools licensed in competition with Compuware and other ISVs so that customers are forced to obtain mainframe software tools from IBM, and (c) using its position operating the information technology departments of thousands of major corporations to steer their purchases of the mainframe software tools."

Count 1 alleges direct and contributory copyright infringement under 17 U.S.C. ง 101 et seq. Compuware alleges, for example, that "IBM knowingly and willfully copied both the object code and source code of Compuware's mainframe software tools, namely, the File-AID and Abend-AID IMS computer programs in order to develop IBM's new product line. IBM's File Manager program includes several modules that appear to have been literally copied from Compuware's source code or are substantially similar thereto." Compuware adds that IBM even copied its "bugs".

Count 2 alleges misappropriation of trade secrets under Michigan state law. Count 3 alleges intentional interference with contractual relations.

Count 4 alleges unlawful tying in violation of ง 1 of the Sherman Act, 15 U.S.C. ง 1. Count 5 alleges monopoly leveraging in violation of ง 2 of the Sherman Act, 15 U.S.C. ง 2. Count 6 alleges attempts to monopolize in violation of ง 2 of the Sherman Act.

Count 7 alleges tortious interference with business expectancy.

Counts 7 through 15 allege unfair competition under the laws of the states of California, Connecticut, Nebraska, North Carolina, South Carolina, Tennessee, Utah, and Washington.

Compuware is represented by the Palo Alto law firm of Fenwick & West, and by the Detroit law firm of Honigman Miller Schwartz & Cohn. This is D.C. No. Case No. 02-70906. See also, Compuware release.

7th Circuit Comments on Jury Verdict in mySimon Trademark Case
3/13. The U.S. Court of Appeals (7thCir) issued its opinion in Simon Property Group v. mySimon, a Lanham Act case brought by a bricks and mortar real estate manager against a comparison shopping web site. The Appeals Court dismissed an appeal brought by the real estate manager on the grounds that the matter appealed is not yet final. However, the Appeals Court discussed in detail the facts of the case. It referred to the weakness of the plaintiff's case, and the strength of the defendant's case. It added that the plaintiff's lawyer did "a whale of a selling job" to the jury.

Background. Simon Property Group (SPG) is a Delaware corporation based in Indianapolis, Indiana. It is a real estate investment trust that owns and manages retail real estate, primarily shopping malls. mySimon is a California corporation based in San Francisco. It is now owned by CNET Networks. It provides web based comparison shopping.

District Court. SPG filed a complaint in U.S. District Court (SDInd) against mySimon alleging violation of the Lanham Act and various state statutes. SPG alleges that it owns exclusive rights to the "Simon" name, and that "mySimon", mysimon.com, and a cartoon character named "Simon" infringe its rights. SPG initially sought a temporary restraining order (TRO), and preliminary injunction, barring defendant's use of the "Simon" names.

The District Court denied the motion for TRO at the outset, and SPG did not pursue the matter. The Indianapolis jury returned a verdict in favor of the Indianapolis based SPG on liability under the Lanham Act. It also awarded SPG $11.5 Million in profits, $5.3 Million in corrective advertising, and $10 Million in state law punitive damages.

SPG then sought a permanent injunction. mySimon moved for judgment as a matter of law and a new trial. The District Court reduced damages to $10 in nominal damages, and $50,000 in punitive damages. The District Court ordered a new trial on the corrective advertising issue. However, the District Court did not overturn the verdict on liability. The District Court crafted an injunction order that required mySimon, after one year, to transfer its domain name to SPG and to stop using the "Simon" name. However, the District Court also stated that the injunction would not issue until entry of final judgment (which has not taken place, because the new trial has yet to held).

SPG promptly appealed the District Court's non entry of a permanent injunction, and the one year delay regarding the use of the name "Simon".

Appeals Court. A unanimous three judge panel dismissed the appeal on the grounds that there was no final order to appeal. It held that the District Court had merely postponed the relief requested, not denied it. The Appeals Court also noted that SPG had abandoned its motion for a preliminary injunction after it had lost its motion for a TRO, and that therefore, SPG could not show the requisite element of irreparable harm.

However, the Court of Appeals also discussed the facts of the case in some detail, and commented upon the jury verdict. This unusual dicta may portend how the Appeals Court may rule if the case is properly brought before it on all issues.

The Appeals Court noted of SPG, that "Unlike mySimon, it does not offer comparison shopping services on the Internet." It also noted that "no other American property management company had ever attempted to ``brandดด any of its shopping malls", and that SPG did not attempt to brand its name until after mySimon began operations. It also wrote that "SPG's advertising agency reported that brand recognition for the ``Simonดด name was ``almost nonexistentดด before 1999."

The Appeals Court further reviewed the evidence. It wrote that "SPG won a verdict despite presenting relatively weak evidence that its ``Simonดด name had attained secondary meaning or that consumers were likely to confuse SPG with mySimon. For example, the vast majority of SPG's ``consumerดด witnesses who testified that they had heard of SPG were professionals whose jobs required them to be aware of the company. They included employees of SPG's advertising agency, real estate analysts who covered SPG, executives of the National Association of Real Estate Investment Trusts (of which SPG is a member), and members of a law firm that represents SPG. Indeed, because SPG's witnesses were so unrepresentative of the average consumer, the district court termed their testimony regarding secondary meaning ``so slight as to amount to almost nothing.ดด Additionally, the district court noted, ``Simonดด is an extremely common first name and surname, weakening SPG's argument that mySimon's use of the name is likely to confuse consumers. In contrast, mySimon presented substantial survey evidence demonstrating that there was no likelihood of confusion between mySimon and SPG." (Parentheses in original.)

The Appeals Court also wrote that "Despite the relative strength of mySimon's evidence and the relative weakness of SPG's, SPG's lawyer must have done a whale of a selling job as the jury awarded the company $11.5 million in mySimon's ``profitsดด (although mySimon had not yet earned any profits), $5.3 million in corrective advertising (although SPG had not engaged in any corrective advertising) ..." (Parentheses in original.)

The Appeals Court, in conclusion, stated that the matter being appealed was not a definitive disposition of the matter because, "The judge, as the case continues, is free to revise his ruling at any time before entering final judgment." Perhaps, the District Court judge is also free to revise his ruling in light of the Appeals Court's comments.

1st Circuit Rules in Cable Franchising Case
3/13. The U.S. Court of Appeals (1stCir) issued its opinion in Nepsk v. Town of Houlton, a case regarding a cable franchising authority's refusal to renew a cable TV franchise.

Background. Nepsk filed an application to renew its cable television franchise -- late. The Town of Houlton, Maine, decided not to renew the franchise, in part because Nepsk did not plan to offer Internet access services. Rather, Houlton decided to solicit competitive bids. It awarded the franchise to a competitor of Nepsk.

Complaint. Nepsk filed a complaint in U.S. District Court (DMaine) alleging violation of the Cable Communications Policy Act of 1984, as amended by the Cable Television Consumer Protection and Competition Act of 1992 and the Telecommunications Act of 1996.

Count I of the complaint alleged violation of the renewal procedures set forth at 47 U.S.C. งง 546(a)-(g). Count II alleged that Houlton had conditioned the renewal of Nepsk's franchise on its willingness to provide high speed internet service to its subscribers in violation of 47 U.S.C. ง 541(b)(3)(D), which prohibits franchising authorities from requiring cable operators to provide certain "telecommunication service[s]" as a condition of a franchise award, and 47 U.S.C. ง 544(e), which states that "[n]o State or franchising authority may prohibit, condition, or restrict a cable system's use of any type of ... transmission technology." Count III alleged that Houlton unreasonably refused to award Nepsk's franchise in violation of 47 U.S.C. ง 541(a)(1).

District Court Decisions. The District Court granted judgment on the pleadings to Houlton on Counts I and II. It granted summary judgment to Houlton on Count III. Nepsk appealed.

Court of Appeals. The Court of Appeals affirmed. However, the Appeals Court's opinion, as well as the decisions of the District Court, were based, in part on procedural facts peculiar to this case. Nepsk filed its franchise renewal application late, and failed to file a timely opposition to the motion for judgment on the pleadings.

Greenspan Addresses High Tech Investment
3/13. Federal Reserve Board Chairman Alan Greenspan electronically delivered a speech to the Independent Community Bankers of America in Honolulu, Hawaii, titled "The U.S. Economy". He addressed, among other things, investment in high tech, and its effect on the economy.

He stated that "firms' choices about the types of investments to make matter crucially for how much labor productivity ultimately is boosted. In the late 1990s, for example, businesses allocated much more of their investment dollars toward high tech, higher return capital than they did in earlier years. Businesses made this shift and are continuing to move further in that direction in response to the extremely rapid decline in the prices of high tech assets and the new opportunities that these assets have afforded. According to one set of calculations, of the roughly 2-1/2 percent annual rate of increase in output per hour, or labor productivity, between 1995 and 2001, perhaps a quarter of that growth could be attributed to on-going shifts in the composition, as distinct from the dollar level, of capital."

Greenspan also stated that "Improvements in the quantity and quality of our workforce’s education enhance workers' skills and contribute importantly to the growth of labor productivity. But far more important over the past six years have been the gains in output attributable to technological innovation, especially information technology and improved managerial organization ..."

IRS to Accept Electronic Receipts for Charitable Contributions
3/13. The Internal Revenue Service (IRS) released a revised version [PDF] of its Publication 1771, titled "Charitable Contributions: Substantiation and Disclosure Requirements", which now approves electronic receipts as a method to acknowledge a donation to a public charity.

The Internal Revenue Code, requires, at 26 U.S.C. ง 170(f)(8), that taxpayers obtain a written acknowledgement from a public charity if they claim a tax deduction based on a contribution of $250 or more.

Publication 1771 provides that a "donor is responsible for obtaining a written acknowledgment from a charity for any single contribution of $250 or more before the donor can claim a charitable contribution on his/her federal income tax return". It now also provides that "There are no IRS forms for the acknowledgment. Letters, postcards, or computer generated forms with the above information are acceptable. An organization can provide either a paper copy of the acknowledgment to the donor, or an organization can provide the acknowledgment electronically, such as via an e-mail addressed to the donor."

GAO Reports on IT at Veterans Administration
3/13. The General Accounting Office (GAO) released a report [PDF] titled "VA Information Technology: Progress Made, but Continued Management Attention Is Key to Achieving Results". The report, which was prepared for the House Veterans' Affairs Committee's Subcommittee on Oversight and Investigations, concludes that "many aspects of VA's IT environment remain troublesome".

The report states that "Significant work, nonetheless, is still required before the department will have a functioning enterprise architecture in place for acquiring and utilizing information systems across VA in a cost effective and efficient manner."

The report states further that the Veterans Administration "continues to report pervasive and serious information security weaknesses. Thus far, its actions toward establishing a comprehensive computer security management program have not been sufficient to ensure that the department can protect its computer systems, networks, and sensitive veterans health care and benefits data from unnecessary exposure to vulnerabilities and risks."

Bill Would Extend Normal Trade Relations Status to Ukraine
3/13. Rep. Bob Schaffer (R-CO) and others introduced HR 3953, a bill to authorize normal trade relations treatment to the products of Ukraine. It was referred to the House Ways and Means Committee. See also, Schaffer release.

On January 2, the Office of the United States Trade Representative (USTR) published a notice in the Federal Register that it has determined to impose prohibitive duties on certain imports from the Ukraine in order "to obtain the elimination of the acts, policies, and practices of the Government of Ukraine that result in the inadequate protection of intellectual property rights". This action was taken as a result of the Ukraine's failure "to use existing law enforcement authority to stop the ongoing unauthorized production of optical media products and failure to enact an optical media licensing regime ..." The 100% duties cover fuel oil, fertilizers, cooper, aluminum, and other products. See, Federal Register, January 2, 2002, Vol. 67, No. 1, at Pages 120 - 121. The duties took effect on January 23, 2002. See also, USTR release of January 23, 2002.

In February, the International Intellectual Property Alliance (IIPA) asked the USTR to keep Ukraine as a Special 301 "Priority Foreign Country" until it passes and enforces an acceptable optical media law.

People and Appointments
3/13. Federal Trade Commission (FTC) Commissioner Mozelle Thompson was elected Chair of the OECD's Committee on Consumer Policy. See, FTC release.

3/13. President Bush nominated David Gross for the rank of Ambassador during his tenure of service as Deputy Assistant Secretary for International Communications and Information Policy in the Bureau of Economic and Business Affairs and U.S. coordinator for International Communications and Information Policy. See, White House release.

More News
3/13. Rep. Lindsey Graham (R-SC) and others introduced HR 3957, the Canceling Loans to Allow School Systems to Attract Classroom Teachers Act (CLASS ACT), a bill to increase to $17,500 the amount of student loans that may be forgiven for teachers in mathematics, science, and special education. It was referred to the House Committee on Education and the Workforce. See also, Graham release.

3/13. Rep. Ron Paul (R-TX) stated in the House that "the administration's recent decision to impose a 30 percent tariff on steel imports" is "a step backward toward the protectionist thinking that dominated Washington in decades past." He asked rhetorically: "What happened to the wonderful harmony that the WTO was supposed to bring to the global market? The administration has been roundly criticized since the steel decision was announced last week, especially by our WTO ``partners.ดด The European Union is preparing to impose retaliatory sanctions to protect its own steel industry. EU Trade Commissioner Pascal Lamy has accused the U.S. of setting the stage for a global trade war". See, Cong. Rec., March 13, 2002, at pages H887-8.

House to Consider Class Action Reform Bill
3/12. The House is scheduled to debate and vote on HR 2341, the Class Action Fairness Act of 2001, on Wednesday, March 13. The House Judiciary Committee approved the bill on March 7 by a vote of 16 to 10. See, House Report No. 107-370. The bill is sponsored by Rep. Bob Goodlatte (R-VA), Rep. Rick Boucher (D-VA), and others.

On March 13, the House Rules Committee adopted a rule for consideration of HR 2341, the Class Action Fairness Act of 2001. It allows nine amendments to be offered. See, texts of allowable amendments [in PDF], by offeror: Issa, Nadler/ Delahunt/ Johnson, Waters, Keller, Lofgren/ Schiff, Conyers/ Lee/ Neal, Lee, Frank/ Berman/ Meehan, and Hart.

The bill, as reported by the Judiciary Committee, would add new sections to Title 28 of the U.S. Code pertaining to procedure governing interstate class actions brought pursuant to Rule 23 of the Federal Rules of Civil Procedure to ensure that the class members are treated fairly in settlements. For example, if a settlement provides that the class members would receive non cash benefits, the court must make "a written finding that, the settlement is fair, reasonable, and adequate for class members". This provision is designed to limit the ability of class action lawyers to negotiate settlements that provide the lawyers with attorneys fees in cash, while leaving the class members with no cash recovery.

NCTA's Sachs Addresses Regulatory Issues
3/12. Robert Sachs, P/CEO of the National Cable & Telecommunications Association (NCTA) gave a speech titled "The Broadband Decade" to the Cable Telecommunications Public Affairs Association Forum in Washington DC. He addressed the FCC's classification of broadband cable services, open access, digital rights management, privacy, and demand for broadband services.

Regulatory Classification of Broadband Cable. Sachs stated that "Later this week, the FCC is expected to determine the appropriate regulatory classification for cable modem service. This sounds like an arcane issue but it's one that has been the subject of lengthy debate and litigation, and it has enormous implications for American consumers who benefit by our deployment of broadband services."

On March 8, the Federal Communications Commission (FCC) announced that the agenda for its Thursday, March 14, meeting includes consideration of a Declaratory Ruling and Notice of Proposed Rulemaking (NPRM) addressing the legal classification and the appropriate regulatory framework for broadband access to the Internet over cable system facilities. This is GN Docket No. 00-185.

Sachs continued that "We hope the Commission adopts a course that allows our industry to continue to roll out rapidly high speed Internet services in the most cost effective manner. And should the FCC determine that cable modem service is an ``information serviceดด, then we hope that the Commission will make clear what this means and also make clear that such services are inter-state in nature and not subject to a myriad of conflicting state and local regulations. The Internet is global in reach and a clear national policy statement concerning the regulatory status of cable modem service will provide much needed guidance to the courts, local governments, and the capital markets."

Open Access. Sachs stated that "The government’s ``hand's offดด policy has been a vital spur to the remarkable pace of cable's broadband development. And industry leaders like AOL Time Warner and Comcast have begun to offer consumers a choice of ISP's, establishing models for other MSO's. As a result of a deregulatory environment, cable's broadband infrastructure and services have evolved rapidly. Had government imposed common carrier type regulation as some of the Bell companies advocated, cable modem service would still be in the starting blocks."

He added that "The ``hands offดด the Internet policy stands in contrast to the close regulatory scrutiny to which cable’s services were subjected not so long ago. Compare the capital investment by this industry from 1992 to 1996 -- in the wake of regulation imposed by the Cable Act of 1992 -- to the capital investment made since 1996 -- following the de-regulation fostered by the Telecommunications Act that same year -- and, consider the related consumer benefits."

Bills Introduced
3/12. Rep. Tom Davis (R-VA) and Rep. Dan Burton (R-IN) introduced HR 3924, a bill to authorize telecommuting for federal contractors. It was referred to the House Government Reform Committee, of which Rep. Burton is the Chairman.

3/12. Rep. Tom Davis (R-VA) and Rep. Dan Burton (R-IN) introduced HR 3925, a bill to establish an exchange program between the federal government and the private sector in order to promote the development of expertise in information technology management. It was referred to the House Government Reform Committee.

People and Appointments
3/12. The Senate confirmed Ralph Beistline to be a U.S. District Judge for the District of Alaska.

More News
3/12. The Department of Justice (DOJ) announced that it "approved the National Consumer Telecommunications Data Exchange's (NCTDE) proposal to expand its credit data exchange service to include other utility industries. The approval allows NCTDE, currently providing credit histories to telecommunications carriers, to open its membership to the electric power, gas and water industries." See, DOJ release.

3/12. President Bush gave a speech at a fund raiser in Washington DC in which he advocated passage of trade promotion authority legislation. He stated that "we passed a good trade bill out of the House of Representatives. It's a bill that has got confidence in the productivity of American farmers and American workers. It says that if you're confident, you open up markets. If you're confident, you encourage trade as opposed to protectionism. And thanks to the Speaker's leadership, we got trade promotion authority out of the House of Representatives."

3/12. PayPal announced that it has received an advisory opinion from the Federal Deposit Insurance Corporation (FDIC). See, PayPal release.

3/12. The Federal Trade Commission (FTC) announced that it will hold its two day public workshop on issues relating to the security of consumers' computers and the personal information stored in them or in company databases on May 20 and 21. See, notice to be published in the Federal Register. The FTC had previously announced that this event would be held on May 16 and 17. See, notice in Federal Register, March 6, 2002, Vol. 67, No. 44, at Pages 10213 - 10215.

House Crime Subcommittee Approves Internet Gambling Bill
3/11. The House Judiciary Committee's Subcommittee on Crime amended and approved HR 3215, the "Combating Illegal Gambling Reform and Modernization Act", by unanimous voice votes.

The bill was introduced on November 1, 2001. See, bill as introduced [PDF]. It is sponsored by Rep. Bob Goodlatte (R-VA), and 156 other Members of Congress, including Rep. Lamar Smith (R-TX), the Chairman of the Crime Subcommittee.

Expansion of the Wire Act. The bill would amend 18 U.S.C. งง 1081 and 1084, which contain the definitions and prohibition, respectively, of the Wire Act. The Wire Act currently criminalizes the use of "wire communications facilities" in interstate commerce for gambling. The Wire Act does not ban gambling. This is a matter of state law. HR 3215 expands the prohibition to cover all communications between states or with other foreign countries. It maintains the principle that gambling is otherwise a matter of state law. Hence, under HR 3215, use of the Internet for gambling purposes would become illegal (if interstate or foreign).

The criminal prohibition of the Wire Act, 18 U.S.C. งง 1084 currently provides that "Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers ... shall be fined under this title or imprisoned not more than two years, or both." Since the current statute affects only wire communication facilities, and some Internet communications do not involve wires, it leaves open the possibility that some Internet gambling may not be illegal under the Wire Act.

HR 3215 provides that "whoever, being engaged in a gambling business, knowingly (1) for the transmission in interstate or foreign commerce ..." or between the U.S. and abroad "... of bets or wagers ... shall be fined under this title or imprisoned not more than five years, or both." Hence, it pertains to all communications, not just wire communications. Moreover, the maximum penalty for violation is increased from 2 to 5 years.

Also, HR 3215 would amend 18 U.S.C. ง 1081, which currently defines ''wire communication facility'' as "any and all instrumentalities, personnel, and services (among other things, the receipt, forwarding, or delivery of communications) used or useful in the transmission of writings, signs, pictures, and sounds of all kinds by aid of wire, cable, or other like connection between the points of origin and reception of such transmission." As amended, it would provide that "communications facility" means "any and all instrumentalities, personnel, and services (among other things, the receipt, forwarding, or delivery of communications) used or useful in the transmission of writings, signs, pictures, and sounds of all kinds by aid of wire, cable, satellite, microwave, or other like connection (whether fixed or mobile) between the points of origin and reception of such transmission."

Skill Versus Chance. On March 12, the Crime Subcommittee adopted an amendment in the nature of a substitute offered by Rep. Goodlatte. The substitute includes several significant changes to the bill as introduced. One of these changes involves the definitions in 18 U.S.C. ง 1081. The substitute defines of "bets or wagers" as "the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game predominantly subject to chance, not skill, upon an agreement or understanding that the person or another person will receive something of greater value than the amount staked or risked in the event of a certain outcome". (Emphasis added.) The words "not skill" have been added to the language of the bill as introduced. (See, page 2, lines 16-23, of bill as introduced.)

Rep. Goodlatte stated at the mark up meeting that games based on skill, such as fantasy sports leagues, would thus not be covered by the Wire Act. Rep. Robert Scott (D-VA), the ranking Democrat on the Subcommittee, asked Rep. Goodlatte if poker would be covered by the Act. Rep. Goodlatte stated that while some poker players might think it a game of skill, it remains a game of chance, and would be covered by the Act.

Illegal Gambling Funding. HR 3215 also criminalizes "the transmission of a communication in interstate or foreign commerce ... which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers". Also, like HR 556, the Unlawful Internet Gambling Funding Prohibition Act, sponsored by Rep. James Leach (R-IA), HR 3215 would prohibit the use of credit, electronic funds transfers, and checks in connection with illegal gambling.

Rep. Goodlatte stated to reporters after the March 12 meeting that HR 556 puts the burden on financial services companies to monitor transactions, while HR 3215 puts the burden on law enforcement entities to prove that illegal gambling is taking place, and requires law enforcement entities to obtain a court order. Rep. Goodlatte added that he would not characterize the financial services industry as supporting his bill; however, he stated that it would prefer HR 3215 to HR 556.

Enforcement. In addition to criminal penalties, HR 3215 would allow federal, state, local, and tribal law enforcement agencies to obtain injunctions against violation of the act. It also provides that "any common carrier, subject to the jurisdiction of the Federal Communications Commission" may enjoined from providing service to entities in violation of the act, and gives such carriers immunity from suit for discontinuing such service.

Rep. Goodlatte stated the federal prosecutors would likely enforce the Wire Act against illegal Internet gambling operations because states which run lotteries, and anti gambling groups, will push them to enforce the law. He stated that HR 3215 is supported by an "unusual coalition"; state lotteries do not want competition from Internet gambling operations, while anti gambling groups are opposed to all gambling.

Internet Service Providers. The amendment in the nature of a substitute adopted on March 12 changes the bill as introduced on the matter of ISPs. The new language is as follows: "Relief granted under paragraph (1) against an interactive computer service (as defined in section 230(f) of the Communications Act of 1934) shall be limited to the removal of, or disabling of access to, an online site violating this section, or a hypertext link to an online site violating this section, that resides on a computer server that such service controls or operates; except this limitation shall not apply if the service is violating this section or is in active concert with a person who is violating this section and receives actual notice of the relief." Rep. Goodlatte stated at the mark up meeting that this is a "notice and take down" provision, which enables law enforcement authorities to obtain a court order compelling an ISP to take down a gambling web site.

State Lotteries. The amendment in the nature of a substitute adopted on March 12 also changes the bill as introduced on the subject of state lotteries. It includes a technical amendment which allows states to operate intrastate Internet lotteries with servers out of state. The new language is as follows: "Nothing in this section prohibits ... the interstate transmission of information relating to a State-specific lottery between a State or foreign country where such betting or wagering is permitted under Federal, State, tribal, or local law and an out-of-state data center for the purposes of assisting in the operation of such State-specific lottery."

Nine members of the Crime Subcommittee -- eight Republicans and one Democrat -- were present at the March 12 mark up. Rep. Goodlatte stated that no date has been set for a full committee mark up. However, he predicted that the committee would approve the bill. In the 106th Congress, the Judiciary Committee approved another Internet gambling bill sponsored by Rep. Goodlatte. The full House then considered it under a suspension of the rules, meaning that it could not be amended, and required a 2/3 majority for passage. It fell just short of a 2/3 majority. Rep. Goodlatte stated that he will seek a rule this time around.

Sen. Burns Seeks Hearing on ICANN
3/11. Sen. Conrad Burns (R-MT) wrote a letter to Sen. Ernest Hollings (D-SC) requesting that the Senate Commerce Committee hold an oversight hearing regarding the Internet Corporation for Assigned Names and Numbers (ICANN) and the future of Internet governance. Sen. Hollings is the Chairman of the Committee.

Sen. Burns wrote that "ICANN is currently a fundamentally flawed and ineffective governing entity". He also wrote that "more fundamental questions also need to be addressed, such as whether ICANN is even the most appropriate organization to be tasked with such a critical mission, which is central to our national security."

House Crime Subcommittee to Mark Up Internet Gambling Bill
3/11. The House Judiciary Committee's Subcommittee on Crime will meet to mark up HR 3215, the "Combating Illegal Gambling Reform and Modernization Act", at 4:00 PM on March 12. The bill is sponsored by Rep. Bob Goodlatte (R-VA), and 156 other Members of Congress, including Rep. Lamar Smith (R-TX), the Chairman of the Crime Subcommittee.

The bill would amend 18 U.S.C. งง 1081 and 1084, which contain the definitions and prohibition, respectively, of the Wire Act. The Wire Act currently criminalizes the use of "wire communications facilities" in interstate commerce for gambling. The Wire Act does not ban gambling. This is a matter of state law. The Goodlatte bill expands the prohibition to cover all communications between states or with other foreign countries. It maintains the principle that gambling is otherwise a matter of state law. Hence, under the Goodlatte bill, use of the Internet for gambling purposes would become illegal (if interstate or foreign).

It was introduced on November 1, 2001. The Crime Subcommittee held a hearing on November 29, 2001. Rep. Goodlatte has been trying to pass legislation banning Internet gambling for several Congresses. See also, "Rep. Goodlatte Introduces Gambling Bill", TLJ Daily E-Mail Alert No. 300, Nov. 2, 2001.

Distance Learning and Telemedicine Grants and Loans
3/11. The U.S. Department of Agriculture's (USDA) Rural Utilities Service (RUS) published two notices in the Federal Register regarding its Distance Learning and Telemedicine Loan and Grant Program. Last year, the RUS provided 22 distance education grants totaling $5.1 Million, and 23 telemedicine grants totaling $6.3 million.

The RUS published a notice in the Federal Register on March 11 that covers application deadlines. It states that "For FY 2002, $27 million in grants and $300 million in loans will be made available for distance learning and telemedicine projects serving rural America. The funding will be provided in three categories: (1) $17 million will be available for grants; (2) $200 million will be available for loans; and (3) $110 million will be available for combination grants and loans ($100 million in loans paired with $10 million in grants, i.e., $10 loan: $1 grant ratio)."

This notice further states that "Applications for grants must be postmarked no later than May 13, 2002. Applications for FY 2002 loans or combination loans and grants may be submitted at anytime up to August 31, 2002, and will be processed on a first come, first serve basis." See, Federal Register, March 11, 2002, Vol. 67, No. 47, at Page 10890.

The RUS published a second notice in the Federal Register on March 11 stating that the amendments to its rules, announced in a notice in the Federal Register on January 23, are now in effect. The March 11 notice states the RUS "hereby gives notice that no adverse comments were received regarding the direct final rule amending its regulations for the Distance Learning and Telemedicine (DLT) Loan and Grant Program, and confirms the effective date of the direct final rule. ... The direct final rule published in the Federal Register on January 23, 2002 (67 FR 3039) is effective March 11, 2002."

The amendments clarify eligibility, change the grant minimum matching contribution, clarify that only loan funds will be used to finance transmission facilities, modify financial information requirements, adjust the leveraging of resources scoring criterion, and revise financial information to be submitted. See, Federal Register, March 11, 2002, Vol. 67, No. 47, at Pages 10830 - 10831, and Federal Register, January 23, 2002, Vol. 67, No. 15, at Pages 3039 - 3041.

SEC Requests Documents from WorldCom and Qwest
3/11. WorldCom stated in a release that "it has received a confidential request from the Securities and Exchange Commission for voluntary production of documents and information." See, March 7 letter [1MB in PDF] from SEC to WorldCom.

Similarly, Qwest stated in a release that "it received an informal inquiry from the Denver regional office of the Securities and Exchange Commission (SEC) requesting voluntary production of documents. Qwest intends to respond fully to this request, which was received in a letter Friday, March 8, 2002."

SEC Chairman Addresses Regulation of Accounting
3/11. Securities and Exchange Commission (SEC) Chairman Harvey Pitt gave a speech to the Securities Industry Association (SIA) Compliance and Legal Division Seminar in Palm Desert, California.

He stated that "An impressive facet of the securities industry is its foundation on private sector regulation. Congress long ago wisely realized it isn't enough to have vigorous laws. The highest ethical standards and the most demanding competence requirements also must be imposed. Government can focus on illegality. But, the highest ethical standards and the best standards of competence must come from, and be enforced vigorously by, the affected industry or profession."

He continued: "We seek to utilize that base for the accounting profession. Rather than self regulation, however, we espouse private sector regulation. Our thought is that persons unaffiliated with accounting firms should govern the new private sector regulator we envision. The new regulatory board should also have the ability to tap into the expertise of a small number of accountants to ensure that the new regulatory body has all the technical expertise it requires. The system we envision will subject the profession to affirmative ethical requirements, and compel auditors to be well grounded in appropriate ethical and crisis management techniques, and to achieve a high level of competence. We are seeking to ensure that accountants not only comply with the law, but also exceed it by conforming to the highest ethical and competence standards."

GAO Reports on OMB Information Resource Management
3/11. The General Accounting Office (GAO) released a report [PDF] titled "Information Resource Management: Comprehensive Strategic Plan Needed to Address Mounting Challenges".

The report notes that "As agencies have struggled with issues involving intelligence gathering, information sharing and dissemination, security, and information technology (IT), it has become increasingly apparent that our government needs to better assess -- from a strategic standpoint -- all aspects of how it handles information."

The report specifically addresses the performance of the Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget (OMB), and its information resources management (IRM) plan. The GAO report concludes that "OIRA has not established an effective governmentwide strategic IRM plan".

The report recommends, among other things, that "the administrator, OIRA, develop and implement a governmentwide strategic IRM plan that articulates a comprehensive federal vision and plan for all aspects of government information. In addition, recognizing the new emphasis that OMB has placed on e-government, it will be important that the administrator work in conjunction with the associate director for technology and e-government in developing this plan."

The report was written at the request of Sen. Joe Lieberman (D-CT), Chairman of the Senate Governmental Affairs Committee.

People and Appointments
3/11. The Federal Bureau of Investigation (FBI) announced that it has hired Sherry Higgins and Kenneth Ritchhart to support the FBI's efforts to rebuild its information infrastructure, and to support its recruiting efforts. Higgins previously worked for 30 years at AT&T, and later, Lucent. The FBI stated that Ritchhart "brings twenty years of project and information technology management experience, including expertise in database systems and structures to the Bureau. Mr. Ritchhart is well known with the Intelligence Community as a result of his prior government service where he was active in information sharing initiatives. Most recently Mr. Ritchhart served as Program Manager, Joint Intelligence Virtual Architecture, Defense Intelligence Agency". See, FBI release.

3/11. Broadcom appointed George Farinsky to its Board of Directors. See, release.

More News
3/11. President Bush signed into law HR 2998, the "Radio Free Afghanistan Act," which authorizes the establishment of and appropriations for Radio Free Afghanistan. See, White House release.

3/11. The U.S. Patent and Trademark Office (USPTO) published the March issue of the USPTO Pulse in its web site.

3/11. Sen. Richard Lugar (R-IN) introduced S 2005, a bill to authorize the negotiation of free trade agreement with the Republic of the Philippines. It was referred to the Senate Finance Committee.

Go to News Briefs for March 6-10, 2002.