News from June 6-10, 2002
Divided En Banc 5th Circuit Reverses in Veeck v. SBCCI
6/10. The U.S. Court of Appeals (5thCir) issued it en banc opinion in Veeck v. SBCCI, a case involving whether a copyrighted work loses it protection when adopted into law. The court split 9-6.
Background. The Southern Building Code Congress International (SBCCI) is a nonprofit organization that develops, promotes, and promulgates model building codes. Local governments, in turn, enact its codes into law by reference, in whole, or in part. SBCCI asserts a copyright in each of its codes. Peter Veeck, who also uses the name Texoma Regional Web, operates a web site that contains information about North Texas. Several towns in North Texas have adopted SBCCI model codes. Veeck purchased from SBCCI CDs with copies of the building codes. In disregard of the software license and copyright notice, Veeck copied and published these building codes into his web site.
District Court. Veeck filed a complaint in U.S. District Court (EDTex) against SBCCI seeking a declaratory judgment that his actions did not violate the Copyright Act. SBCCI counter claimed for copyright infringement. The Court ruled on cross motions for summary judgment that Veeck had infringed valid copyrights, and permanently enjoined Veeck from further infringement.
Appeals Court - Three Judge Panel. A divided three judge panel affirmed in an opinion issued on February 2, 2001. The majority wrote that "if code writing groups like SBCCI lose their incentives to craft and update model codes and thus cease to publish, the foreseeable outcome is that state and local governments would have to fill the void directly, resulting in increased governmental costs as well as loss of the consistency and quality to which standard codes aspire. A second glance at the names of the amici supporting SBCCI's position in this case provides an idea of the potential sweep of a contrary holding that the authors of model codes could not enforce copyrights in their works once the ultimate reason for their very creation is realized." See also, TLJ story, 5th Circuits Affirms Judgment of Internet Copyright Infringement, February 5, 2001.
Appeals Court - En Banc. A divided en banc panel reversed. Judge Edith Jones wrote the opinion for the majority of nine.
The Court wrote that "As the organizational author of original works, SBCCI indisputably holds a copyright in its model building codes. ... The question before us is whether Peter Veeck infringed SBCCI's copyright on its model codes when he posted them only as what they became -- building codes of Anna and Savoy, Texas -- on his regional website. Put otherwise, does SBCCI retain the right wholly to exclude others from copying the model codes after and only to the extent to which they are adopted as ``the law´´ of various jurisdictions?"
First, the Court held that Supreme Court precedents of Banks v. Manchester, 128 U.S. 244, 9 S.Ct. 36 (1888) and Wheaton v. Peters, 33 U.S. (8 Pet.) 591 (1834) support Veeck. Both cases involved claims by reporters to hold copyrights in their published copies of court opinions. The Supreme Court held in these cases that judges, as public officials, cannot claim to be authors of their official opinions for the purpose of copyright protection. The Supreme Court denied copyright protection to the court reporters.
The Fifth Circuit wrote that it extended this reasoning to the present case. It wrote that "we hold that when Veeck copied only ``the law´´ of Anna and Savoy, Texas, which he obtained from SBCCI's publication, and when he reprinted only ``the law´´ of those municipalities, he did not infringe SBCCI's copyrights in its model building codes."
Second, the Court held that the Copyright Act and the merger doctrine support Veeck. The Court wrote that "The statute excludes from copyright protection ideas, procedures, processes, systems methods of operation, or information in the public domain. See 17 U.S.C. § 102(b) ... If an idea is susceptible to only one form of expression, the merger doctrine applies and § 102(b) excludes the expression from the Copyright Act. ... Veeck copied the building code of the towns of Anna and Savoy, Texas, based on their adoption of a version of the SBCCI model code. The codes are ``facts´´ under copyright law. They are the unique, unalterable expression of the ``idea´´ that constitutes local law."
Third, the Court wrote that judicial precedent from other supports Veeck. In particular, the Court distinguished two cases based on similar facts. In CCC Info. Servs. v. Maclean Hunter Mkt. Reports, Inc., 44 F.3d 61 (2d Cir. 1994), cert. denied, 516 U.S. 817 (1995), the Second Circuit upheld the copyright of a privately prepared listing of automobile values that states required insurance companies to use. In Practice Mgt. Info. Corp. v. American Med. Ass'n, 121 F.3d 516 (9th Cir. 1997), cert. denied, 522 U.S. 933 (1997), opinion amended by 133 F.3d 1140 (9th Cir. 1998), the Ninth Circuit held that the American Medical Association did not lose the right to enforce its copyright when use of its promulgated coding system was required by government regulations. In the present case, the Court distinguished the legislative act of reference from the legislative act of incorporation.
Dissents. Both Judges Patrick Higginbotham and Weiner wrote dissents. Higginbotham criticized the opinion of the Court as "federal common law". He added that "the Congress is best suited" to reach conclusions such as that of the majority.
He also wrote that the majority misinterpreted the Supreme Court's holding in Banks: "Banks holds that judges, as public employees, cannot have a financial interest in the fruits of their judicial labors. It is a case about authorship, about the acquiring of copyrights by public officials, not a case invalidating the copyrights held by private actors when their work is licensed by lawmakers." He also rejected the merger argument as mere "word play".
Weiner wrote a voluminous and adamant dissent joined by five other judges. He differed with the majority on nearly everything, except its statement of the facts, which he nevertheless amply amended. He wrote that the majority misinterpreted Supreme Court precedent, misinterpreted cases from other Circuits, and misapplied the doctrine of merger. He also wrote at length about the policy implications.
He wrote that "Today, the trend toward adoption of privately promulgated codes is widespread and growing, and the social benefit from this trend cannot be seriously questioned. The necessary balancing of the countervailing policy concerns presented by this case should have led us to hold that, on these facts, the copyright protection of SBCCI's privately authored model codes did not simply evanesce ipso facto, when the codes were adopted by local governments; rather, they remain enforceable, even as to non-commercial copying, as long as the citizenry has reasonable access to such publications cum law -- and subject, of course, to exceptions for implied or express waiver or consent, fair use, or other recognized exceptions, when applicable. For these reasons, I cannot join in the majority's inflexible reasoning and unnecessarily overbroad holding."
Certiorari. This case may be a likely candidate for review by the Supreme Court. The Fifth Circuit divided nearly evenly. This opinion arguably creates a conflict between the Fifth Circuit, and the First, Second and Ninth Circuits. Finally, the Supreme Court recently demonstrated an interest in the copyright clause by granting certiorari in Eldred v. Ashcroft.
Supreme Court Denies Certiorari in Trans Union v. FTC
6/10. The Supreme Court denied certiorari in Trans Union v. FTC, a case regarding the sale of consumer reports by credit reporting agencies for marketing purposes, the Fair Credit Reporting Act (FRCA), and the application of the First Amendment to commercial speech.
Trans Union (TU) is one of the three large credit reporting agencies. It compiles credit reports about individuals from credit information that it collects from banks, credit card companies, and other lenders. Its databases contain information on 190 Million people. It then sells these credit reports to lenders, employers, and insurance companies. This practice was not at issue. However, TU also sells target marketing products to direct marketers. These consist of lists of names and addresses of individuals who meet specific criteria, such as possession of an auto loan, a department store credit card, or two or more mortgages. This practice was at issue.
The Federal Trade Commission (FTC) has responsibility for enforcing the FCRA. This statute protects the privacy of credit information by prohibiting credit reporting agencies from selling "consumer reports", except under the circumstances enumerated in the Act. The FRCA lists whether to approve an application for credit, employment, or insurance -- but not direct marketing. The FRCA defines a "consumer report" as any information provided "by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for (A) credit ..."
The FTC instituted a proceeding against TU in 1992. The FTC first issued a cease and desist order in 1994. However, the Court of Appeals granted TU's petition for review, on the grounds that the FTC had failed to provide evidence that TU's target marketing products were used by marketers in the issuance of credit. See, Trans Union Corp. v. FTC, 81 F.3d 228 (DCCir 1996). So, the FTC conducted extensive discovery, held a month long administrative trial, and documented this contention. It again ordered TU to stop.
TU again filed a petition for review with the U.S. Court of Appeals (DCCir). On April 13, 2001, the Appeals Court issued its opinion upholding the FTC's order that TU must stop selling target marketing lists for purposes not listed in the Fair Credit Reporting Act (FRCA). The Appeals Court also upheld the constitutionality of the FRCA.
First, TU argued, among other things, that the FRCA is unconstitutionally vague under the due process clause of the Fifth Amendment, and that it is an unconstitutional restraint on free speech. TU sought application of the strict scrutiny standard. The Appeals Court upheld the FRCA's constitutionality, applying the reduced constitutional protection standard for commercial speech articulated by the Supreme Court in Dun & Bradstreet v. Greenmoss, 472 U.S. 749 (1985).
TU filed a petition for writ of certiorari with the Supreme Court. The Court denied certiorari. However, two justices, Kennedy and O'Connor, wrote an opinion [PDF] dissenting from the denial of certiorari. They wrote that "this case meets the standards for review by this Court. The plurality opinion in Dun & Bradstreet concluded that a false statement in a credit report was not speech on a matter of public concern, as that term is used in the context of defamation law. It is questionable, however, whether this precedent has any place in the context of truthful, nondefamatory speech. Indeed, Dun & Bradstreet rejected in specific terms the view that its holding ``eaves all credit reporting subject to reduced First Amendment protection.´´ ... The Court of Appeals, nonetheless, relied on Dun & Bradstreet to denigrate the importance of this speech. A grant of certiorari is warranted to weigh the validity of this new principle."
GAO Reports Info Security Weaknesses at Corps of Engineers
6/10. The General Accounting Office (GAO) released a report [PDF] titled "Information Security: Corps of Engineers Making Improvements, But Weaknesses Continue".
The report concludes that "continuing and newly identified vulnerabilities involving general and application computer controls continue to impair the Corps' ability to ensure the reliability, confidentiality, and availability of financial and sensitive data. These vulnerabilities warrant management’s attention to decrease the risk of inappropriate disclosure and modification of data and programs, misuse of or damage to computer resources, or disruption of critical operations. Such vulnerabilities also increase risks to other Department of Defense (DOD) networks and systems to which the Corps' network is linked."
BIS/BXA Announces NOI Re TSR MTOPS
6/10. The Bureau of Industry and Security (BIS), formerly known as the Bureau of Export Administration (BXA), published a notice in the Federal Register regarding a notice of inquiry (NOI) regarding "the current limit for use of License Exception TSR for exports and reexports of technology and software on the Commerce Control List (CCL) of the Export Administration Regulations (EAR) under Export Classification Control Numbers (ECCNs) 4D001 and 4E001".
The notice further states that "These ECCNs control technology and software that can be used for the development, production, or use of computers. The goal of this notice of inquiry is to collect information from industry that will assist BIS in evaluating whether the current TSR eligibility level of 33,000 Millions of Theoretical Operations per Second (MTOPS) for exports and reexports to most countries should be adjusted, taking into consideration the control level for the export of computer equipment and the control policies of other member countries of the Wassenaar Arrangement."
Public comments are due by July 10, 2002. See, Federal Register, June 10, 2002, Vol. 67, No. 111, at Pages 39675 - 39676.
SEC Files Suit for Misstatement of Financial Results
6/10. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (DC) against Kenneth Kurtzman and Brian Bergeron alleging violation of federal securities laws in connection with the misstatement of Ashford.com's financial results, by improperly deferred $1.5 Million in expenses under a contract with Amazon.com.
The complaint alleges violation of §§ 10(b), 13(a), 13(b)(2)(A) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder. The complaint seeks civil penalties.
The SEC also announced that "Kurtzman and Bergeron consented, without admitting or denying the allegations in the Commission's complaint, to pay civil penalties of $60,000 and $25,000, respectively." See, SEC release.
The SEC also instituted and settled an administrative proceeding against Kurtzman, Ashford.com, and Amazon.com. See, Order Instituting Proceedings. The Order alleges that "The Amazon.com employees ... should have known that the purpose of splitting the settlement into two letters was to allow Ashford.com to delay the recognition of expenses. Amazon.com's acquiescence in a settlement documented with two letters facilitated Ashford.com's improper deferral of expenses." The SEC did not allege a Section 10 violation by Amazon.
PPI Releases 2002 State New Economy Index
6/10. The Progressive Policy Institute (PPI) released a report titled "The 2002 State New Economy Index:
Benchmarking Economic Transformation in the States". This is another in a series of reports by the PPI on the extent to which each state has embraced the New Economy. See also, PPI summary.
The report ranks each state according to 21 economic indicators, and provides a cumulative ranking. This report updates data from the last such report in 1999, and includes several new indicators, including a measure of broadband Internet access.
The top five states, in order, are Massachusetts, Washington, California, Colorado and Maryland. Virginia ranks 8th. New York ranks 10th. Texas ranks 14th. Illinois ranks 17th. The bottom five states are West Virginia, Mississippi, Arkansas, Alabama and Wyoming. Most of the states in the bottom half of the ranking are in the south, plains and mountain states.
The index is based upon 21 indicators. Several pertain to the knowledge jobs: employment of IT professionals; jobs held by managers, professionals, and technicians; the educational attainment of the entire workforce; and the education level of the manufacturing workforce. Several indicators pertain to economic dynamism, including the number of fast growing companies (20% or more for four straight years), the rate of economic churn, and the value of IPOs.
Other indicators measure digital transformation, including the percentage of the population online, the number of .com domain name registrations, technology in schools, the degree to which state and local governments use information technologies to deliver services, Internet and computer use by farmers, Internet use by manufacturers, and access by residents and businesses to broadband telecommunications.
The index also includes measures of the number of jobs in technology producing industries, the number of scientists and engineers in the workforce, the number of patents issued; industry R&D, and venture capital activity.
The report was written by Robert Atkinson, with research assistance by Rick Coduri.
People and Appointments
6/10. Mary Snapp was named Microsoft's Vice President of Law and Corporate Affairs, reporting to incoming General Counsel Brad Smith. See, MSFT release.
6/10. Elias Cortez resigned from his position as Director of the California Department of Information Technology (DOIT). See, resignation letter [Word].
More News
6/10. The Supreme Court denied certiorari in Visa USA v. Wal-Mart Stores, No. 01-1464, without opinion. See, Order List [PDF], at page 9. See also, October 17, 2001, opinion of the U.S. Court of Appeals (2ndCir).
6/10. The Business Software Alliance (BSA) stated in a release that it commissioned a study of international software piracy rates that concluded that global piracy grew to 40% last year.
6/10. The U.S. Court of Appeals (5thCir) issued its opinion in Tubos De Acero De Mexico v. American International Investment Corp., a case arising out of a lease of ultrasonic testing pipe inspection equipment used in the offshore oil industry. There were numerous commercial law issues on appeal, including application of the Louisiana Uniform Trade Secrets Act (LUTSA).
6/10. Federal Trade Commission (FTC) Chairman Timothy Muris gave a speech titled "On the Occasion of the
Celebration of the Twentieth Anniversary of the 1982 Merger Guidelines" at the Department of Justice in Washington DC.
9th Circuit Interprets Contract to Publish Legal Treatise
6/7. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Chodos v. West Publishing Company, a dispute regarding a contract to publish a legal treatise. The Appeals Court reversed the District Court's summary judgment for West.
Background. Rafael Chodos is a software engineer turned attorney who wrote a lengthy book on the law of fiduciary duty in electronic format. In 1995 Bancroft Whitney Corporation and Chodos entered into an standard Author Agreement, which provided for no payments to Chodos prior to publication, and a 15% share of the gross revenues from sales of the work. The Agreement gave Bancroft "the right in its discretion to terminate" the publishing relationship after receiving the manuscript and determining that it is unacceptable.
In 1996 West Publishing Group purchased Bancroft. West's editors continued to work with Chodos. In 1999 West notified Chodos that it had decided not to publish the book because it did not "fit within [West's] current product mix" and because of concerns about its "market potential." West admitted that the manuscript was of "high quality" and that its decision was not due to any literary shortcomings. Chodos's product for West was 1247 pages long. He spent three years and over 3,000 hours working on it.
Proceedings Below. Chodos filed a complaint in California state court (Los Angeles Superior Court). West removed the action to the U.S. District Court (CDCal) based upon diversity of citizenship. Chodos sought recovery in quantum meruit. The District Court granted summary judgment to West. Chodos appealed.
Appeals Court. The Appeals Court stated that the issue is whether "a publisher retains the right to reject an author's manuscript written pursuant to a standard industry agreement, even though the manuscript is of the quality contemplated by both parties." The Court held that a publisher does not.
Chodos raised two alternative theories. First, he argued that the contract was illusory, on the grounds that it violated the doctrine of mutual obligation. Second, he argued in the alternative, that if the contract is valid, West breached it.
The Court held that the contract was not illusory. Applying California law (pursuant to choice of law clause in the agreement), the Court stated that "a covenant of good faith and fair dealing is an implied term in every contract", and that "a court will not find a contract to be illusory if the implied covenant of good faith and fair dealing can be read to impose an obligation on each party". The Court held that "because the standard Author Agreement obligates the publisher to make a judgment as to the quality or literary merit of the author's work -- to determine whether the work is ``acceptable´´ or ``unacceptable´´ -- it must make that judgment in good faith, and cannot reject a manuscript for other, unrelated reasons."
Having held the contract to be valid, the Court further held that West breached it. The Court articulated that Chodos "was induced by an agreement that permitted rejection of the completed manuscript only for deficiencies in ``form and content.´´ Chodos thus labored to complete a work of high quality with the expectation that, if he did so, it would be published. He devoted thousands of hours of labor to the venture, and passed up substantial professional opportunities, only for West to decide that due to the vagaries of its internal reorganizations and changes in its business strategies or in the national economy or the market for legal treatises, his work, albeit admittedly of high quality, was for naught. It would be inequitable, if not unconscionable, for an author to be forced to bear this considerable burden solely because of his publisher's change in management, its poor planning, or its inadequate financial analyses at the time it entered into the contract, or even because of an unexpected change in the market place."
And, the Court held that "to allow a publisher to escape its contractual obligations for these reasons would be directly contrary to both the language and the spirit of the standard Author Agreement."
Hence, the Appeals Court reversed, and remanded to the District Court with instructions to allow Chodos to proceed in quantum meruit if damages are not determinable under the contract.
Epilogue. Chodos's book, The Law of Fiduciary Duty, has been published, but not by a major legal book publisher.
More News
6/7. The Customs Service published a notice in the Federal Register regarding a notice of proposed rulemaking (NPRM) to amend the Customs Regulations pertaining to the importation of merchandise bearing a counterfeit mark to clarify the limit on the amount of a civil fine which may be assessed. Comments are due by August 6, 2002. See, Federal Register, June 7, 2002, Vol. 67, No. 110, at Pages 39321 - 39322.
6/7. The Federal Communications Commission (FCC) released its Order on Reconsideration [PDF] in its preceding titled "In the Matter of Preemption of Local Zoning Regulation of Satellite Earth Stations", dismissing nine petitions for reconsideration of the FCC's 1996 Antenna Report and Order. This order amended FCC rules to create a rebuttable presumption that local regulations that impose restrictions affecting the installation, use and maintenance of satellite earth station antennas one meter or less in any area or two meters or less in commercial or industrial areas, were unreasonable and would be preempted. Subsequently, the FCC's OTARD Order eliminated provisions regarding satellite antennas that are one meter or smaller and used to receive video programming. This is IB Docket No. 95-59.
Commission Holds Hearing on China's Compliance with WTO Obligations
6/6. The Congressional Executive Commission on China held a hearing titled "WTO: Will China Keep its Promises? Can it?" Participants addressed, among other things, China's compliance with intellectual property rights (IPR) related obligations associated with membership in the World Trade Organization (WTO).
Chris Murck, Chairman of the American Chamber of Commerce in Beijing, addressed intellectual property rights at length in his prepared statement. He stated "We thus see a mixed picture: progress with respect to IPR law and policy, but continued failure to make enforcement effective. AmCham China is convinced that this problem will eventually be brought under control, because there are strong local interests in doing so. Chinese companies are damaged more than foreign companies by IPR violations and they know it. The Chinese government finds its economic ambitions hindered by its IPR environment and it is trying to change it."
He explained that "Intellectual property rights were not recognized in Chinese law in 1979, and a pattern of rampant violations of copyrights, trademarks and patents soon became a problem for foreign investors. Pressure from the United States, the European Union and others had some effect in changing Chinese policy statements, but these were somewhat grudging and were not reflected in changes on the ground. In the last three years, however, the policy debate on this question has been won. A study by the Ministry of Information Industry identified copyright violations as the single biggest obstacle to the development of a Chinese software industry. This was followed by State Council regulations in 1999 requiring all government offices to use legal software and again in 2000 requiring all entities, including enterprises, to do the same and demanding enhanced, coordinated enforcement of the law."
"Substantial revisions have been made in copyright, trademark and patent laws. While further improvements could be suggested, in general the legal framework is close to international standards and capacity building continues, often with foreign assistance," wrote Murck.
He continued that "There have been recent court victories in copyright cases as well, such as a case involving an internet domain name squatter where the rights of the foreign company were firmly upheld."
He cautioned, however, that "these positive examples do not reflect the general situation. China is not a single economy; it is a group of large, disparate regional economies. Although the central government can be described as authoritarian, its ability to control what happens in local areas is limited." And, he added, "In response, our member companies are shifting their focus from the content of the laws to problems of enforcement."
Murck also stated that "One of the unanticipated consequences of WTO accession is likely to be an increase in the export of counterfeit goods manufactured in China to the rest of the world."
Donald Clarke, a Professor of Law, University of Washington, pointed out in his prepared statement that "the requirements of the WTO agreements for fairness and transparency are in fact surprisingly limited." However, he added that "The only WTO agreement that comes close to a general requirement of fairness in the operation of the legal system is the TRIPS Agreement. This agreement does indeed set forth in Part III (``Enforcement of Intellectual Property Rights´´) a number of requirements for fair judicial proceedings for the protection of intellectual property rights."
He also stated that "The area of the Chinese legal system that will probably cause the most difficulty is its present inability to provide, at least on a consistent basis, truly independent review of administrative actions. The financial dependence of courts on local government is compounded first by the lower political status of judges relative to many of the officials whose actions they will be called upon to judge, and second simply by the tradition of judicial deference to administration."
Sen. Max Baucus (D-MT), Chairman of the Commission, said in his prepared statement that "We are at an early stage in China's process of WTO adherence and commercial law transformation. Clearly, senior Chinese leaders are committed. National bodies have begun to reform and adjust thousands of laws, regulations, and judicial decisions that are not WTO compliant."
However, Sen Baucus added that "there have been mixed signals as to whether the Chinese government is willing, or able, to adhere to all of the commitments it has made. For example, while tariffs have been reduced and quotas have been eliminated in some industries, there are reports that equally protective non-tariff barriers have been erected in their place. Sanitary and phyto sanitary standards have still been used in some areas with no scientific basis. Regulations that were supposed to be in effect at accession have not been promulgated."
Susan Westin, of the General Accounting Office (GAO), provided a report [PDF] titled "World Trade Organization: Observations on China's Rule of Law Reforms". The GAO has conducted a survey of U.S. businesses. The report states that "According to the preliminary results of our survey, U.S. businesses in China consider rule of law related WTO commitments to be important to them, especially the consistent application of laws, regulations, and practices in China, and enforcement of intellectual property rights. However, a majority of businesses answering our survey anticipated that these rule of law commitments would be difficult for the Chinese to implement, and they identified some concerns over specific implementation issues. U.S. businesses told us in interviews that they expected WTO reforms, including those related to the rule of law, to be part of a long term process. Nevertheless, they believe the Chinese leadership is dedicated to living up to their WTO commitments."
Jon Huntsman, Deputy U.S. Trade Representative (USTR), said in his prepared testimony that "we have seen China take a good faith approach to its WTO membership and make significant efforts to implement its commitments. China has made substantial tariff reductions on industrial and agricultural goods of importance to U.S. businesses and farmers. It has begun to take concrete steps to remove non-tariff trade barriers in virtually every product sector. It has begun to implement far reaching services commitments that should substantially increase market access for U.S. services suppliers. It has also repealed hundreds of trade related laws, regulations and other measures and modified or adopted numerous other ones in an effort to become WTO compliant in areas such as import and export administration, standards and intellectual property rights, among many others." However, he added that "There have also been some bumps in the road", such as biotechnology regulations.
Grant Aldonas, Under Secretary of Commerce for International Trade, said in his prepared statement, "Yes, I believe that China can and will seek to keep its promises, and we should do whatever we can to help." He also provided an IPR anecdote. He said that "We met with representatives of the Shanghai Film Studio, where we were told that piracy of optical disks was hurting their sales in China. It was fascinating to discover that we have a new ally in our work to enhance enforcement of intellectual property rights (IPR) protection in China and elsewhere. We saw the Shanghai Model Port Project -- an APEC initiative that demonstrates how Customs officials can use technology to facilitate trade and protect IPR."
See also, prepared statements of Jeff Fiedler (Food and Allied Service Trades Department, AFL-CIO), and Rep. Marcy Kaptur (D-OH).
Senate Committee Holds Hearing on Export Controls in Russia and China
6/6. The Senate Governmental Affairs Committee's Subcommittee on International Security, Proliferation, and Federal Services held a hearing titled "Russia and China -- Non-proliferation Concerns and Exports Controls". The hearing addressed how well Russia and China comply with nonproliferation agreements and enforce export controls, particularly with respect to weapons of mass destruction.
See, prepared statements in PDF of witnesses: James Wolf (Assistant Secretary, Bureau of Non-proliferation
Department of State), Matthew Borman (Deputy Administrator, Bureau of Industry and Security, Department of Commerce), Leonard Spector (Monterey Institute for International Studies), David Albright (Institute for Science and International Security), and Gary Milholin (Wisconsin Project for Nuclear Arms Control). See also, opening statement [PDF] and closing statement of Sen. Daniel Akaka (D-HI).
Borman stated that "Russia enacted an export control law in 1999. This law authorizes control over the export of all items (commodities, software, and technology) on the lists of the four multilateral export control regimes and chemicals covered by the Chemical Weapons Convention." However, he said that "Russia's most significant weakness is its ability to enforce its export control system."
Senate Judiciary Committee To Hold Hearing on FBI
6/6. The Senate Judiciary Committee will hold an oversight hearing on counter terrorism issues on Thursday morning, June 6. The scheduled witnesses include Federal Bureau of Investigation (FBI) Director Robert Mueller, Department of Justice (DOJ) Inspector General Glenn Fine, and FBI Special Agent Colleen Rowley. See, notice.
The hearing will focus on FBI investigation of terrorism prior to September 11, 2001, including the criticisms contained in Rowley's May 21 letter to Mueller. However, the hearing may also cover the DOJ's recently released guidelines for conducting investigations into terrorist, and other, matters. These guidelines cover many topics, including information systems, data mining, and Internet searching.
On May 30, the DOJ released a memorandum [PDF] titled "Attorney General's Guidelines: Detecting and Preventing Terrorist Attacks", and a memorandum [PDF] titled "Shifting from Prosecution to Prevention: Redesigning the Justice Department to Prevent Future Acts of Terrorism". See also, Attorney General John Ashcroft's statement.
On June 4, the Electronic Privacy Information Center (EPIC), Center for Democracy and Technology (CDT), and other groups, wrote a letter [PDF] to Sen. Patrick Leahy (D-VT) and Sen. Orrin Hatch (R-UT), the Chairman and ranking Republican on the Senate Judiciary Committee. They wrote that "Your hearing this week provides a critical opportunity to assess the impact of the Attorney General's new guidelines."
They elaborated that "We are particularly concerned about elements of the guidelines that appear to give the FBI the authority to search through electronic databases without satisfying any legal standard or requiring any judicial review."
After the hearing, Jerry Berman, Executive Director of the CDT, will hold a press teleconference to discuss the hearing, and the new guidelines for FBI investigations. See, calendar.
9th Circuit Rules on Discovery in U.S. to Support EC Antitrust Proceeding
6/6. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in AMD v. Intel, holding that discovery is available in the U.S. pursuant to 28 U.S.C. § 1782 for a complainant in an Article 82 antitrust matter before the European Commission.
Advanced Micro Devices (AMD) filed a complaint with the Directorate General - Competition of the European Commission alleging that Intel violated Article 82 of the EC Treaty, which prohibits "abuse by one or more undertakings of a dominant position within the common market." AMD then sought discovery from Intel under 28 U.S.C. § 1782, which provides that "The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal ..."
AMD sought documents from Intel pertaining to another antitrust action in the U.S. against Intel (Intergraph case). Intel objected. AMD sought to compel discovery in the U.S. District Court (NDCal). The District Court held that the EC action was not a proceeding within the meaning of Section 1782. AMD appealed.
The Court of Appeals stated that Section 1782 is broad and inclusive and includes quasi judicial and administrative bodies, and preliminary investigations leading to judicial proceedings. It held that "the EC is an administrative body and that the investigation being conducted by its Directorate is related to a quasi- judicial or judicial proceeding. AMD has the right to petition the EC to stop what it believes is conduct that violates the EC Treaty, to present evidence it believes supports its allegations, to have the EC evaluate what it presents and to have the resulting action (or inaction) reviewed by the European courts. Although preliminary, the process qualifies as a ``proceeding before a tribunal´´ within the meaning of 28 U.S.C. § 1782."
Moreover, the Appeals Court held that Section 1782 does not "require a threshold showing on the party seeking discovery that what is sought be discoverable in the foreign proceeding." The Appeals Court reversed and remanded to the District Court.
SEC Official Addresses Internet Advisers Proposal
6/6. Paul Roye, Director of the Securities and Exchange Commission's (SEC) Division of Investment Management gave a speech in New York City in which he addressed many topics related to investment management, including the SEC's Internet advisers proposal.
He stated that "on April 12th, in response to an increasing number of investment advisers providing advice primarily through the Internet, the Commission proposed rule amendments under the Advisers Act that would permit an adviser that conducts substantially all of its advisory business through an interactive Internet website, to register with the Commission rather than registering with all of the states. As you may be aware, under the National Securities Markets Improvement Act's amendments to the Advisers Act, advisers that have $25 million or more in assets under management generally register with the Commission, and advisers that have less than $25 million generally register with the states."
See, SEC's notice of this proposed rule. June 6 was the close of the public comment period. See, electronically filed comments.
Roye continued that, "However, so-called Internet advisers typically do not have ``assets under management´´ because they provide intermittent securities advice rather than ``continuous and regular supervisory or management services.´´ Therefore, most Internet advisers currently do not qualify to register with the Commission. Instead, they potentially must register with all states because, unlike a ``bricks and mortar´´ adviser, Internet advisers cannot predict from which geographic location their clients will come."
"The Commission's proposal was driven in part by the development of Internet technology that was not prevalent in 1997 when the NSMIA split between federal and state registration was implemented. As part of the Chairman's modernization effort, I believe that we should revise our rules, as necessary, in the wake of technological developments in the marketplace," said Roye.
Commerce Department Amends Encryption Export Rules
6/6. The Department of Commerce's (DOC) Bureau of Industry and Security (BIS), formerly known as the Bureau of Export Administration (BXA), published a notice in the Federal Register of an interim final rule that contains numerous amendments to the Export Administration Regulations (EAR) pertaining to encryption export controls.
The BIS stated that "As a result of the revisions made by this rule, mass market encryption commodities and software with symmetric key lengths exceeding 64 bits may be exported and reexported to most destinations without a license, following a 30-day review by the Bureau of Industry and Security. In addition, this rule expands License Exception ENC eligibility to authorize exports and reexports of information security test, inspection, and production equipment controlled under ECCN 5B002. Finally, this rule updates and clarifies the notification, review, licensing, and post-export reporting requirements that apply to certain encryption items."
The text of the rule changes are contained in the notice. See, Federal Register, June 6, 2002, Vol. 67, No. 109, at Pages 38855 - 38869.
Agenda of June 13 FCC Meeting
6/6. The Federal Communications Commission (FCC) released the agenda for its Thursday, June 13, open meeting. The FCC will consider the following:
(1) a Report and Order concerning the possible sunset of Section 628(c)(2)(D). (This is the matter titled Implementation of the Cable Television Consumer Protection and Competition Act of 1992; Development of Competition and Diversity in Video Programming and Distribution: Section 628(c) of the Communications Act; Sunset of the Exclusive Contract Prohibition. CS Docket No. 01-290.)
(2) a Notice of Proposed Rulemaking and Order concerning cable television rate regulations.
(3) a Notice of Inquiry seeking information and comment for the Ninth Annual Report to Congress on the status of competition in the market for the delivery of video programming.
(4) a Seventh Report concerning the status of competition with respect to Commercial Mobile Services.
(5) a Notice of Proposed Rulemaking concerning service rules for the 71-76 GHz, 81-86 GHz and 92-95 GHz.
(6) an Order modifying section 54.507(a) of FCC rules pertaining to unused funding. (This is titled Schools and Libraries Universal Service Support Mechanism. CC Docket No. 02-6.)
Finally, the Wireline Competition Bureau and Office of Engineering & Technology and the National Communications System will report on the Telecommunications Service Priority program and related outreach efforts.
FCC Creates a 271 Compliance Review Program
6/6. The Federal Communications Commission's (FCC) Enforcement Bureau announced the establishment of a "Section 271 Compliance Review Program" for the Regional Bell Operating Companies (RBOCs) whose Section 271 applications to provide in region interLATA services have been approved by the FCC.
The FCC stated in a FCC release [PDF] that a new "Section 271 Compliance Review Team will now monitor on a more structured and systematic basis the companies' compliance with the market opening conditions of section 271 of the Telecommunications Act of 1996.
The FCC further stated that this team "will scrutinize BOC performance data and other pertinent information to determine whether such documentation indicates that a BOC is continuing to meet its section 271 obligations. This process will include regular compliance reviews six and 12 months after approval ... The Team members will also serve as a point of contact for state commissions, competitive carriers, and other interested persons who may wish to report informally any perceived instances of noncompliance with section 271. Finally, if the Team determines a BOC may not be in compliance, it will initiate an investigation and, if warranted, take or recommend appropriate enforcement action."
FCC Chairman Michael Powell stated in a release [PDF] that "Through this program, the Commission continues to demonstrate its commitment to ensuring that the Bell Operating Companies do not abuse their local market dominance once they receive long distance authority."
Powell Creates Task Force to Conduct Spectrum Inquiry
6/6. The Federal Communications Commission (FCC) released a document [7 pages in PDF] titled "Public Notice" which states that "Chairman Powell has formed a Spectrum Policy Task Force charged with conducting a systemic evaluation of existing spectrum policies and with making recommendations as to possible improvements."
The Public Notice requests public comments in response to 28 spectrum related questions. Many questions are compound and/or contain subparts. It posses questions regarding moving towards market oriented allocations of spectrum, such as "What specific policy and rule changes are needed to migrate from current spectrum allocations to more market oriented allocations?" Other questions pertain to interference, efficiency use of spectrum, public safety communications, and international issues.
Public comments are due by July 8. Reply comments are due by July 23. The Public Notice also states that the task force will conduct public workshops in July and August. Finally, the Public Notice states that it will issue a report in October of 2002.
Chairman Michael Powell announced in this Public Notice that Paul Kolodzy, Senior Spectrum Policy Advisor in the Office of Engineering and Technology (OET), will be in charge of the task force. Lauren Van Wazer, Special Counsel to the Chief of the OET will be the Deputy Director. Michael Marcus, Associate Chief for Technology of the OET, will be Senior Technical Advisor. Maureen McLaughlin, Senior Counsel in the Office of General Counsel, will be Special Counsel.
The Public Notice solicits public comments in response to questions, sets deadlines for original and reply comments, and states that the task force will then issue a report. It describes a proceeding that bears a strong resemblance to a Notice of Inquiry (NOI) proceeding. However, unlike a NOI proceeding, it is noticed by the Chairman, rather than by the full Commission, and the report will be prepared by a task force appointed by the Chairman, and not approved by the full Commission.
Two Commissioners are not pleased with this procedure. Kevin Martin and Michael Copps released a joint statement [PDF]. They wrote that "Spectrum management is one of the Commission's most important functions. It requires full Commission attention every step of the way. Instead, in this proceeding, a newly created task force is seeking comment on formulating policy on fundamental spectrum management issues without direct input or oversight by the Commission. Task forces ... must always be responsible to the full Commission as their work proceeds. These are critically important issues, and we believe they would be better addressed in a Notice of Inquiry issued by the Commission."
People and Appointments
6/6. David Krone will join the National Cable & Telecommunications Association (NCTA) as Executive Vice President, effective July 1. See, NCTA release.
6/6. Dan Moloney, Motorola's SVP and General Manager of the IP Systems Group for the Broadband Communications Sector (BCS), will become EVP and President of BCS. He will replace Dave Robinson. See, Motorola release.

Go to News from June 1-5, 2002.