TLJ News: July 16-20, 2002.

News from July 16-20, 2002

People and Appointments
7/20. WorldCom named Nicholas Katzenbach and Dennis Beresford to its Board of Directors. Katzenbach was an Attorney General in the administration of President Lyndon Johnson. Beresford is an accounting professor at the Terry College of Business at the University of Georgia, and a former Chairman of the Financial Accounting Standards Board. See, WorldCom release.

More News
7/20. President Bush addressed several issues, including trade promotion authority, in his Saturday radio address. He stated that "We must also increase economic security for American workers through expanded trade. For over a year now, the United States Congress has debated trade promotion authority. This week, I met with members of the House and Senate to urge them to resolve their differences and approve a bill. If Congress waits, less markets will be open to American goods, and less jobs will be created for American workers."

House Select Committee Approves Homeland Security Act
7/19. The House Select Committee on Homeland Security amended and approved HR 5005, the Homeland Security Act of 2002, by a vote of 5-4 after a day long meeting. The bill is likely to be taken up by the full House on Wednesday, or later in the week. The Senate has yet to act on the proposal.

The bill largely follows President Bush's original proposal for creating a new Department of Homeland Security (DHS). However, it contains several technology related changes. The Select Committee's version includes the House Science Committee's recommendation to keep the NIST Computer Security Division at the NIST. It includes the House Commerce Committee's language creating a new cyber security program. It includes the House Government Reform Committee's language creating a FOIA exemption for certain critical infrastructure information voluntarily shared with the DHS.

The bill approved by the Select Committee also provides for several new positions at the DHS that were not provided for by the President's version of the bill. These include a privacy officer, an Under Secretary for Science and Technology, and a special assistant for private sector liaison. The bill also provides for a Chief Information Officer.

The bill also provides that the federal government will not have the authority to nationalize drivers' licenses and other ID cards.

The House created the Select Committee, pursuant to HRes 449, for the purpose of reporting a bill to the full House creating the DHS. It is a nine member committee made up of party leaders. However, first, each of the standing committees with jurisdiction over various matters addressed in the bill conducted hearings and adopted their own versions of the bill. These served as recommendations for the Select Committee.

The purpose of HR 5005 is to create a new government agency, and to define its responsibilities. However, most of discussion by the Select Committee at the July 19 mark up meeting focused on matters outside of the purpose of the bill. For example, the issue debated the longest had to do with an extension of time for airports to comply with the baggage screening requirements of a statute enacted shortly after September 11. The Select Committee also debated at length a proposal regarding U.S. companies that incorporate subsidiaries in other countries for the purpose of lessening their tax burden.

Also, unlike in many of the standing committees with jurisdiction, the debate and voting in the Select Committee was highly partisan. Many key votes, including the vote on final passage, followed party lines, with the five Republicans on the Committee, Rep. Dick Armey (R-TX), Rep. Tom DeLay (R-TX), Rep. J.C. Watts (R-OK), Rep. Deborah Pryce (R-OH), and Rep. Bob Portman (R-OH), outvoting the four Democrats on the Committee, Rep. Nancy Pelosi (D-CA), Rep. Martin Frost (D-TX), Rep. Bob Menendez (D-NJ), and Rep. Rosa DeLauro (D-CT).

Rep. Frost asserted that "Armey's bill risks taking a bipartisan idea and turning it into a controversial legislative monstrosity -- chock full of unrelated, partisan and ideological side issues." Since the version of the bill offered by Rep Armey, and approved by the Select Committee, included provisions such as a limitation of tort liability, Rep. Frost's characterization was not without basis. However, Rep. Frost and other Democrats proceeded to offer their own "unrelated, partisan and ideological side issues". Much of the debate was directed towards the cable television audience.

Key Provisions of the Select Committee Version of the Homeland Security Act
7/19. The following is a summary of some of the key technology and cyber security related provisions of HR 5005, the Homeland Security Act of 2002, as approved by the House Select Committee on Homeland Security on July 19 by a vote of 5-4.

Cyber Security Entities Transferred. Section 202 of the bill transfers several cyber security related entities to the new Department of Homeland Security (DHS). It provides that "there shall be transferred to the Secretary the functions, personnel, assets, and obligations of the following:
(1) The National Infrastructure Protection Center of the Federal Bureau of Investigation (other than the Computer Investigations and Operations Section), including the functions of the Attorney General relating thereto.
(2) The National Communications System of the Department of Defense, including the functions of the Secretary of Defense relating thereto.
(3) The Critical Infrastructure Assurance Office of the Department of Commerce, including the functions of the Secretary of Commerce relating thereto.
(4) The Energy Security and Assurance Program of the Department of Energy, including the National Infrastructure Simulation and Analysis Center and the functions of the Secretary of Energy relating thereto.
(5) The Federal Computer Incident Response Center of the General Services Administration, including the functions of the Administrator of General Services relating thereto."

Computer Security Division. The bill approved by the Select Committee leaves the CSD at the NIST. President Bush's original proposal provided for the transfer of the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) to the new DHS. On July 10, the House Science Committee (HSC) passed a version of the bill that keeps the CSD at the NIST. However, the House Commerce Committee's bill followed the President's proposal of transferring the CSD to the DHS. The Select Committee followed the recommendation of the Science Committee.

Technology groups, including the Computer & Communications Industry Association (CCIA) and Software and Information Industry Association (SIIA), vehemently opposed transferring the CSD to the DHS. Also, Members of Congress who are active on technology issues, such as Rep. Bob Goodlatte (R-VA) and Rep. Rick Boucher (D-VA), who are Co-Chairs of the Congressional Internet Caucus, and Rep. Zoe Lofgren (D-CA), who is a member of the Science Committee, were active in opposing the transfer. See, for example, July 17 letter to Rep. Armey.

Private Sector Liaison. Rep. J.C. Watts (R-OK) offered an amendment to Section 102 of the bill that creates a "special assistant for private sector liaison". Rep. Bob Portman (R-OH) stated that private sector entities "have had frustration accessing the system." Rep. Nancy Pelosi (D-CA) also spoke in favor of the amendment. This proposal received bipartisan support, and was approved by a unanimous voice vote.

Bruce Josten of the U.S. Chamber of Commerce wrote a letter to the Select Committee on July 19 stating that "The Watts Amendment will create within the proposed organization an office with responsibility for creating and fostering the necessary relationships with the private sector to enhance the primary mission of the Department to protect our homeland ..." See also, Chamber release.

Privacy Officer. Section 205 of the bill approved by the Select Committee creates a privacy officer for the new department. This section is based on language provided by the House Judiciary Committee.

It provides that "The Secretary shall appoint a senior official in the Department to assume primary responsibility for privacy policy, including (1) assuring that the use of information technologies sustain, and do not erode, privacy protections relating to the use, collection, and disclosure of personal information; (2) assuring that personal information contained in Privacy Act systems of records is handled in full compliance with fair information practices as set out in the Privacy Act of 1974; (3) evaluating legislative proposals involving collection, use, and disclosure of personal information by the Federal Government; (4) conducting a privacy impact assessment of proposed rules on the privacy of personal information, including the type of personal information collected and the number of people affected; and (5) preparing a report to Congress on an annual basis on activities of the Department that affect privacy, including complaints of privacy violations, implementation of the Privacy Act of 1974, internal controls, and other matters."

Cyber Security Program. Section 206 of the bill approved by the Select Committee creates a federal cyber security program. This section is based on language included in the House Commerce Committee's version of the bill, approved on July 11. See, Commerce Committee Print [PDF]. It was drafted by Rep. Billy Tauzin (R-LA), the Chairman of the Commerce Committee, Rep. Heather Wilson (R-NM), Rep. Jane Harman (D-CA), and others.

This section provides that "The Secretary, acting through the Under Secretary for Information Analysis and Infrastructure Protection, shall establish and manage a program to improve the security of Federal critical information systems ..."

It further provides that the duties under this section are "(1) to evaluate the increased use by civilian executive agencies of techniques and tools to enhance the security of Federal critical information systems, including, as appropriate, consideration of cryptography; (2) to provide assistance to civilian executive agencies in protecting the security of Federal critical information systems, including identification of significant risks to such systems; and (3) to coordinate research and development for critical information systems relating to supervisory control and data acquisition systems, including, as appropriate, the establishment of a test bed."

This section also provides that "the Secretary shall establish, manage, and support a Federal information system security team whose purpose is to provide technical expertise to civilian executive agencies to assist such agencies in securing Federal critical information systems by conducting information security audits of such systems, including conducting tests of the effectiveness of information security control techniques and performing logical access control tests of interconnected computer systems and networks, and related vulnerability assessment techniques."

Under Secretary for Science and Technology. Section 301 of the bill approved by the Select Committee creates an Under Secretary of Science and Technology. This position will be responsible for numerous tasks, including "establishing and administering the primary research and development activities" and "conducting basic and applied research, development, demonstration, testing, and evaluation activities" of the DHS. It will also be responsible for "establishing Federal priorities for research, development, demonstration, testing, and, as appropriate, procurement and transitional operation of technology and systems ... for interoperability of communications systems for emergency response providers".

FOIA Exemption. The bill approved by the Select Committee also includes a Freedom of Information Act (FOIA) exemption for certain critical infrastructure information voluntarily shared with the federal government. It is much longer in words, but much narrower in scope, than the language contained in Section 204 of the bill as introduced. It is based on the compromise language recommended by the House Government Reform Committee on July 11. See, Sections 721-724 of the bill approved by the Select Committee.

However, while the exemption has bipartisan support, and the concept has been advocated by Rep. Jim Moran (D-VA) since long before September 11, the Select Committee divided on party lines on this issue. Rep. Rosa Delauro (D-CT) offered an amendment to remove the FOIA exemption from the bill. It was rejected by a vote of 4-5, with all of the Republicans voting to keep the exemption, and all of the Democrats voting to remove it.

Rep. DeLauro stated that the FOIA as currently written "already contains sufficient exemptions from disclosure". She said that "my concern is that there is danger in creating new exemptions to FOIA. If important information about health, and safety issues, could be withheld from the public. In fact, this exemption is so broad that it could be used to launder embarrassing information through the new department, thereby preventing public disclosure."

Rep. DeLauro concluded that "What we should not do is sacrifice some of our most basic principles. We need to support principles of open, and of accountable, government."

All of the other Democrats were out of the room at this time. It was already evening. The Republicans knew they had the votes to defeat the DeLauro proposal. They did not respond. Nevertheless, Rep. Delauro asked for a role call vote. The other Democrats returned to the room. The Delauro amendment then failed on a straight party line.

The FOIA exemption contained the bill is strongly supported by technology companies and trade groups that are in a position to share critical infrastructure information with the DHS.

Section 724 of the bill passed by the Select Committee provides, in part, that, notwithstanding the FOIA, "critical infrastructure information (including the identity of the submitting person or entity) that is voluntarily submitted to a covered Federal agency for use by that agency regarding the security of critical infrastructure and protected systems, if analysis, warning, interdependency study, recovery, reconstitution, or other informational purpose, when accompanied by an express statement specified in paragraph (2) -- (A) shall be exempt from disclosure under section 552 of title 5, United States Code (commonly referred to as the Freedom of Information Act); (B) shall not be subject to any agency rules or judicial doctrine regarding ex parte communications with a decision making official; (C) shall not, without the written consent of the person or entity submitting such information, be used directly by such agency, any other Federal, State, or local authority, or any third party, in any civil action arising under Federal or State law if such information is submitted in good faith; (D) shall not, without the written consent of the person or entity submitting such information, be used or disclosed by any officer or employee of the United States for purposes other than the purposes of this subtitle, except" in certain enumerated situation.

EPIC Files Amicus Brief Re Tort Liability for Privacy Violations
7/19. The Electronic Privacy Information Center (EPIC), a Washington DC based group, filed an amicus curiae brief with the Supreme Court of New Hampshire in Estate of Remsburg v. Docusearch, arguing that private investigators and information brokers should be liable in tort for privacy invasions of third parties about whom they are collecting and disseminating information.

The case arises out of the stalking and murder of Amy Boyer by Liam Youens, who located her with information sold by Docusearch. Amy Boyer's parents were Tim and Helen Remsburg.

The EPIC requests that the court hold that "private investigators and information brokers have a legal duty to act with due care toward the subjects of their investigations". It also requests that the Court hold that "a private investigator or information broker may be found liable for intrusion upon seclusion for obtaining and selling a third party's Social Security Number without the consent or knowledge of the third party".

The EPIC also requests that Court the hold that "commercial appropriation is a valid cause of action in New Hampshire, and a private investigator or information broker may be held liable under this cause of action for selling the personal information of a private individual without her knowledge or consent". Finally, the EPIC requests that the Court hold that "a private investigator or information broker may be held liable" either in tort or under New Hampshire statute for engaging in pretexting to obtain personal information.

People and Appointments
7/19. President Bush named Daniel Bartlett Assistant to the President for Communications, and Michael Gerson Assistant to the President for Speechwriting and Policy Advisor. Bartlett was previously the principal deputy to Karen Hughes, who recently left the White House staff. Before that, he worked for the Bush campaign. Gerson has been a speech writer for Bush since 1999. He previously worked for U.S. News and World Report, Jack Kemp, Bob Dole, and former Sen. Dan Coats (R-IN). See, White House release.

More News
7/19. Securities and Exchange Commission (SEC) Chairman Harvey Pitt gave a luncheon speech in which he addressed recent accounting fraud and pending legislation.

House CIIP Subcommittee Holds Hearing on USPTO
7/18. The House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property held an oversight hearing titled "The U.S. Patent and Trademark Office: Fee Schedule Adjustment and Agency Reform".

Rep. Howard Coble (R-NC), the Chairman of the Subcommittee, said in his prepared statement the "We need to pursue strategies that will place the agency in the best possible position to maximize its administrative efficiencies, which ultimately translates into enhancing patent and trademark quality first, and reducing pendency and backlogs second. Only then can we play a stronger hand when requesting more funds on behalf of PTO."

James Rogan, Director of the U.S. Patent and Trademark Office (USPTO), reviewed the USPTO's 21st Century Strategic Plan in his prepared testimony.

Michael Kirk, Executive Director of the American Intellectual Property Law Association (AIPLA), stated in his prepared testimony that the AIPLA opposes the diversion of USPTO fees to fund other government programs, and opposes the USPTO's fee bill. Kathryn Park, EVP of the International Trademark Association (INTA), stated in her prepared testimony that the INTA opposes proposed trademark fee increases. See also, prepared testimony of Charles Baker of the ABA.

Appeals Court Rules for Cellular Company in Antenna Tower Case
7/18. The U.S. Court of Appeals (1stCir) issued its opinion in Omnipoint Communications v. Plainville, a case regarding a local zoning board's refusal to permit construction of a cellular antenna tower. The Appeals Court affirmed the District Court's decision that Plainville's refusal violated the Communications Act.

Plainville is a suburb of Boston. Omnipoint Communications (now VoiceStream) is a provider of wireless telephone services. It sought permission from Plainville to construct an antenna tower to close a gap in its coverage. Plainville denied zoning permits and variances to Omnipoint.

OmniPoint filed a complaint in U.S. District Court (DMass) against the Plainville Zoning Board of Appeals, and its members, alleging violation of 47 U.S.C. � 332(c)(7)(B)(v), and 42 U.S.C. � 1983. The District Court ruled for Omnipoint. Plainville appealed. The Appeals Court ruled that Plainville violated the Communications Act by prohibiting the provision of wireless services.

Senate Judiciary Committee Approves Anti Counterfeiting Bill
7/18. The Senate Judiciary Committee amended and approved S 2395, the Anticounterfeiting Amendments of 2002. The Committee adopted an amendment in the nature of a substitute. The bill, sponsored by Sen. Joe Biden (D-DE), would make it easier for law enforcement agencies, and copyright holders, to shut down software, CD and DVD counterfeiters, by revising existing law regarding labels, authentication features, and packaging.

S 2395 amends 18 U.S.C. � 2318, pertaining to trafficking in counterfeit labels, illicit authentication features, and packaging for copyrighted computer programs, CDs and DVDs. The bill does not affect the underlying interests of copyright holders under Title 17. Rather, it bolsters the provisions of Title 18, the criminal code, for preventing the use of certain tools used by pirates, including counterfeit labels and illicit authentication features. In addition, the bill creates a new private right of action.

Current Law. The current statute reads "Whoever ... knowingly traffics in a counterfeit label affixed or designed to be affixed to a phonorecord, or a copy of a computer program or documentation or packaging for a computer program, or a copy of a motion picture or other audiovisual work, and whoever, in any of the circumstances described in subsection (c) of this section, knowingly traffics in counterfeit documentation or packaging for a computer program, shall be fined under this title or imprisoned for not more than five years, or both."

The statute currently does not address "authentication features". The current statute's prohibition of counterfeit documentation or packaging applies to computer programs, but not records and movies. And, the current statute provides for no private right of action.

S 2395. The Biden bill provides that "Whoever ... knowingly traffics in (1) a counterfeit label affixed to ... (2) an illicit authentication feature affixed to or embedded in, or designed to be affixed to or embedded in" a phonorecord, copy of a computer program, copy of a movie, or copy of documentation or packaging shall be fined or imprisoned for up to five years, or both. The language regarding illicit authentication features is new.

It also provides for fine or imprisonment of "Whoever ... knowingly traffics in ...counterfeit documentation or packaging". This is no longer limited to computer programs.

Authentication Features. The bill defines "authentication feature" as "any hologram, watermark, certification, symbol, code, image, sequence of numbers or letters, or other feature that either individually or in combination with another feature is used by the respective copyright owner to verify that a phonorecord, a copy of a computer program, a copy of a motion picture or other audiovisual work, or documentation or packaging is not counterfeit or otherwise infringing of any copyright".

Illicit Authentication Features. The bill further elaborates on the meaning of "illicit authentication feature". It includes an authentication feature that is "is genuine in origin, but, without the authorization of the respective copyright owner, has been tampered with or altered for the purpose of inducing a third party to reproduce or accept distribution of" a record, computer program, movie, or documentation or packaging.

It also includes an authentication feature that "is genuine, but has been distributed, or is intended for distribution, without the authorization of the respective copyright owner and not in connection with the lawfully made copy or phonorecord to which such authentication feature was intended to be affixed or embedded by the respective copyright owner". Finally, it includes an authentication feature that "appears to be genuine, but is not".

Private Right of Action. The bill also adds a new subsection providing a civil cause of action in federal court by any copyright owner who is injured by, or threatened with injury by, violation of � 2318. This new subsection provides for both injuctive relief, impoundment, and either statutory or actual damages.

DMCA Anti Circumvention Rights Unaffected. The bill also provides that "Nothing in this section shall enlarge, diminish, or otherwise affect liability under section 1201 or 1202 of title 17".

Select Committee to Mark Up Homeland Security Bill on Friday
7/18. Rep. Dick Armey (R-TX), Chairman of the House Select Committee on Homeland Security, released a brief summary of a revised version of HR 5005, the Homeland Security Act of 2002, that he intends to offer at the Select Committee's mark up of the bill on July 19. This is known as the "Chairman's mark".

The Chairman's mark makes many technology related changes to the President's original proposal. It would keep the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) at the NIST, create the new position of Undersecretary for Science and Technology at the Department of Homeland Security (DHS), create the new position of Privacy Officer at the DHS, provide for a more limited Freedom of Information Act (FOIA) exemption for certain information shared with the DHS than the language in the original bill, and provide that the federal government will not have the authority to nationalize drivers' licenses and other ID cards.

The Select Committee is scheduled to mark up HR 5005 on Friday, July 19, at 9:30 AM. The full House will likely pass the bill next week. The Senate has yet to take up the bill.

Armey Bill Would Keep Computer Security Division at NIST
7/18. Rep. Dick Armey (R-TX), Chairman of the House Select Committee on Homeland Security, announced that his proposed amendments to HR 5005, the Homeland Security Act of 2002, would keep the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) at the NIST, rather than move it to the new Department of Homeland Security (DHS), as proposed by the President.

The House Science Committee reported its version of the bill last week. It deleted the language from the original bill that would move the CSD to the DHS. Rep. Sherwood Boehlert (R-NY), Chairman of the House Science Committee said in a release that "I'm extremely pleased that Chairman Armey's mark is in line with the Science Committee's two major recommendations: the creation of an Undersecretary for Science and Technology and the removal of the proposed transfer of NIST's Computer Security Division".

Ken Wasch, President of the Software & Information Industry Association (SIIA), stated in a release that "Had the transfer occurred, as originally proposed in H.R. 5005, the move would have been counterproductive to the Administration's goals by reducing confidence American technology products both domestically and abroad."

Groups that represent technology companies, and technophiles in the House, had argued against moving the CSD to the DHS.

Armey Bill Includes Limited FOIA Exemption
7/18. Rep. Dick Armey (R-TX), the Chairman of the House Select Committee on Homeland Security, released a short summary of his proposed amendments to HR 5005, the Homeland Security Act of 2002.

He wrote that "Our Founders intended that the operations of our government be open. The Chairman's mark retains this principle, while ensuring that openness does not decrease our security." He also wrote that "FOIA Protections Limited to the Department Only" and "When individuals and businesses provide new information to the Department so that the Secretary can assess vulnerabilities, that information will be protected (not subject to FOIA). This will not erode the oversight protections provided by FOIA in any other government departments."

HR 5005, as introduced, provides, at Section 204, that "Information provided voluntarily by non-Federal entities or individuals that relates to infrastructure vulnerabilities or other vulnerabilities to terrorism and is or has been in the possession of the Department shall not be subject to section 552 of title 5, United States Code."

The House Government Reform Committee reported its version of the bill on July 11 with a new Section 214 that provides detailed language regarding the FOIA exemption.

Senate Passes Tech Guard Bill
7/18. The Senate amended and passed S 2037, the Science and Technology Emergency Mobilization Act, also known as the "Tech Guard" bill.

The bill, sponsored by Sen. Ron Wyden (D-OR) and Sen. George Allen (R-VA), creates a "national emergency technology guard or 'NET Guard' that includes -- (A) rapid response teams of volunteers with technology and science expertise, organized at the local level; and (B) opportunities for NET Guard volunteers to assist with non-emergency tasks related to local preparedness and prevention, including reducing the vulnerability of government information technology systems".

The Senate Commerce Committee's Subcommittee on Science, Technology, and Space held a hearing on the bill on April 24, 2002. See, stories in TLJ Daily E-Mail Alert No. 419, April 26, 2002. The full Committee approved the bill with little discussion on May 17.

Sen. Wyden spoke in the Senate on July 18. He stated that "as America mobilizes to protect itself from terrorism, a key weapon in its defensive arsenal is its great technological prowess. From high tech ``cyber attacks�� to more conventional threats, many of the solutions for reducing America's vulnerabilities at home will be rooted in technology. And much of the country's science and technology expertise resides outside the government in the dynamic arena of private sector entrepreneurship."

"Therefore, it is essential to ensure that America's antiterrorism efforts tap the tremendous science and technology talents of the private sector." Wyden added that the bill "will help forge strong partnerships between the government and private sector science and technology experts, in order to provide the best protection and response for the American people."

Sen. Allen also addressed the bill. He stated that it will "call upon the ideas of the best and the brightest minds in the American technology workforce to act as an all volunteer force to help restore communications and infrastructure operations after a major national disaster."

Sen. Allen added that "This bill will simply add structure to private sector efforts and encourages the participation of the Nation's science and technology experts to respond to national emergencies. Additionally, this bill creates a ``virtual technology reserve�� consisting of a database of private sector expertise and equipment that can be called upon, at any moment, by emergency officials during a crisis situation." See also, Allen release.

Sen. Wyden also reviewed some of the key provisions of the bill. He said that "The legislation provides for the creation of a database of private sector science and technology experts whom government officials may call upon in emergencies. It provides for the creation of National Emergency Technology Guard, NET Guard, teams of volunteers with technology and science expertise, organized in advance and available to be mobilized on short notice, similar to existing urban search and rescue teams. It also calls for the creation of a Center for Civilian Homeland Security Technology Evaluation, modeled on the existing Technical Support Working Group, to serve as a single point of contact and clearinghouse for innovative technologies relating to emergency prevention and response. The center will have an online portal, so that the numerous small businesses that have been struggling to negotiate the maze of bureaucracy will finally have a way to get their bright technology ideas into the right hands. In addition, the legislation provides for pilot projects to improve the interoperability of communications systems used by fire, law enforcement, and emergency preparedness and response agencies."

People and Appointments
7/18. Robert Pittman resigned as Chief Operating Officer of AOL Time Warner. The company announced in a release that "Don Logan, formerly Chairman and Chief Executive Officer of Time Inc., becomes Chairman of the new Media & Communications Group, comprising America Online, Time Inc. and Time Warner Cable, as well as the AOL Time Warner Book Group and Interactive Video unit. Jeff Bewkes, formerly Chairman and CEO of HBO, becomes Chairman of the new Entertainment & Networks Group, comprising HBO, New Line Cinema, The WB, Turner Networks, Warner Bros. and Warner Music." Richard Parsons remains CEO.

7/18. The Senate Banking Committee held a hearing on the nominations of Paul Atkins and Harvey Goldschmid to be Commissioners of the Securities and Exchange Commission (SEC).

7/18. The Senate Commerce Committee held a hearing on the nominations of Kathie Olsen and Richard Russell to be Associate Directors of the Office of Science and Technology Policy.

7/18. The Senate confirmed Richard Clifton to be a Judge of the U.S. Court of Appeal (9thCir).

More News
7/18. Nancy Victory gave a speech to the Media Institute in Washington DC titled "The Quest for a New Golden Age: The Challenges of Building a Digital Mass Media". Victory is Director of the Department of Commerce's National Telecommunications and Information Administration (NTIA). She reviewed the NTIA's DTV related activities in spectrum management, standards development, and promotion.

7/18. Sen. Mike Crapo (R-ID) and Sen. Kent Conrad (D-ND) introduced S 2750, a bill pertaining to the provision of telehealth services. It was referred to the Senate Finance Committee. Sen. Crapo stated that "Our bill would allow a wide variety of health care practitioners to provide telehealth services under Medicare. One of the biggest challenges for rural practitioners is obtaining the resources and infrastructure to provide technologically advanced telehealth services. Our bill would also provide valuable resources for the development of new telehealth networks in rural and underserved areas."

7/18. Rep. Mike Thompson (R-CA) and others introduced HR 5158, the "Computer Hazardous Waste Infrastructure Program Act", a bill to establish a grant and fee program through the Environmental Protection Agency to encourage and promote the recycling of used computers and to promote the development of a national infrastructure for the recycling of used computers.

7/18. The House Commerce Committee's Subcommittee on Commerce, Trade, and Consumer Protection held a hearing titled "Are All Online Travel Sites Good for the Consumer: An Examination of Supplier Owned Online Travel Sites". See, prepared statement of Rep. Billy Tauzin (R-LA), the Chairman of the full Committee, and prepared statement of Rep. Cliff Stearns (R-FL), the Chairman of the Subcommittee. See also, prepared testimony of witnesses: Sam Gilliland (Travelocity), Bruce Wolff (Travelweb), Jonathan Zuck (Association for Competitive Technology), Mark Cooper (Consumer Federation of America), and Paul Ruden (American Society of Travel Agents).

FTC to Host Workshop on State Barriers to E-Commerce
7/17. The Federal Trade Commission (FTC) announced that it will host a three day public workshop on October 8-10 to "explore how certain state regulations and private business practices may be having significantly anticompetitive effects on e-commerce". See, FTC release.

House Technophiles Oppose Moving Computer Security Division to DHS
7/17. Rep. Bob Goodlatte (R-VA), Rep. Rick Boucher (D-VA), and other Members of Congress, wrote a letter to Rep. Dick Armey (R-TX), the Chairman of the House Select Committee on Homeland Security, asking that the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) not be transferred to the new Department of Homeland Security.

The letter states that "While we support the Administration's efforts to make our country more secure in the face of terrorist threats, we are concerned that this provision would unravel years of collaboration between the CSD and the private sector to enhance the level of confidence in computer security practices. We are concerned that this reduced collaboration would be counterproductive to the Administration's goals by reducing confidence in American made IT systems thereby making our critical infrastructure more vulnerable to terrorist attack."

The letter continues that "The credibility and success of the NIST's CSD depends on effective independence from and appropriate collaboration with law enforcement and national security agencies in the U.S. and abroad. We believe that this independence could not be maintained in the new Department of Homeland Security."

It adds that even with the CSD at the NIST, there has been "inappropriate influence of law enforcement and national security in the development of standards".

The letter cites as an example the recent battles over encryption. It states that "the CSD's lack of responsiveness to the IT community led to a proposed encryption standard that was overbroad and unduly burdensome to American companies and completely unworkable. There is a strong national interest in ensuring that strong encryption software is available to protect our critical infrastructure from attack. The widespread use of encryption promotes our national security and prevents crime by ensuring the security, confidentiality and authenticity of electronic networks, information and users."

The letter adds that "Moreover, we are concerned about provisions that would unnecessarily give the new Department authority to impose technical measures, duplicative testing requirements and unproductive certification requirements."

The letter was signed by Representives Bob Goodlatte (R-VA), Rick Boucher (D-VA), Sherwood Boehlert (R-NY), Howard Coble (R-NC), John Conyers (D-MI), Chris Cox (R-CA), Tom Davis (R-VA), Vernon Ehlers (R-MI), Anna Eshoo (D-CA), Bob Etheridge (D-NC), Barney Frank (D-MA), Bart Gordon (D-TN), Gene Green (D-TX), Ralph Hall (D-TX), Mike Honda (D-CA), Steve Horn (R-CA), Sheila Lee (D-TX), Zoe Lofgren (D-CA), Ed Markey (D-MA), Jim Moran (D-VA), Connie Morella (R-MD), Ileana Ros Lehtinen (R-FL), James Sensenbrenner (R-WI), Pete Sessions (R-TX), Adam Smith (D-WA), Lamar Smith (R-TX), Billy Tauzin (R-LA), Mark Udall (D-CO), Gerry Weller (R-IL), and others whose signatures are illegible.

Rep. Goodlatte and Clark Debate Moving CSD to DHS
7/17. Rep. Bob Goodlatte (R-VA) and Richard Clark both spoke at a luncheon in Washington DC for visiting members of the European Parliament. Rep. Goodlatte spoke in opposition to the President's proposal to move the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) to the new Department of Homeland Security (DHS). Clark, who is Special Advisor to the President for Cyberspace Security, defended the proposal.

Rep. Goodlatte, who is a Co-Chair of the Internet Caucus, stated that Clark is "very much involved in the work on the creation of the new Department of Homeland Security, which the Congress is in the process of debating, and which I hope we will soon pass through, so that President Bush can sign into the law. As a part of that process, a number of issues have come up, some of which have had a direct impact on the high tech community, and have been the focus of my, and other Members' of Congress, concern."

Rep. Goodlatte stated that "I did not want to miss the opportunity to ask if there weren't some accommodation that could be made in the creation of this Department that would avoid the transfer of the Computer Security Division of the National Institute of Standards and Technology, from that independent agency to what most of us perceive to be a law enforcement agency, which certainly has a very strong and legitimate technical concerns about those standards, and certainly needs strong support in the area of data analysis which I think the Congress should certainly provide. But, it is my hope that the independence of those who set the standards and who have the opportunity to do so, based upon scientific standards, and not from a law enforcement only perspective, will be able to continue to do that."

Rep. Goodlatte also reviewed the current status of the proposal to move the CSD. He said that "The Science Committee, as many of you well know, has removed that provision from the bill, and on the super committee that is now considering homeland security, the Chairman, Congressman Armey, has committed to keeping that provision at NIST."

Richard Clark responded. He outlined the threats to cyber security, and said that "that is why President Bush has created a cyberspace security advisor. That is why he wants a national strategy to secure cyberspace. And that is why he is taking five organizations from throughout the government, and bringing them together in the Homeland Security Department, creating a national, indeed a global, center of excellence for cyber space security."

He continued, "that is why, in answer to the Congressman's question, we believe that we need technical advisors from the Computer Security Division at NIST as part of that package. The fact of the matter is the Computer Security Division, where it is now, in NIST, is an orphaned child. It has not gotten attention from the leadership in the Department of Commerce over the last several administrations. It has not gotten the funding from the NIST institute. It has not gotten the attention it deserves. It has not been empowered to do the mission it has under law."

Clark asserted that "No one is talking about subordinating the standards process to law enforcement. We have no intentions of changing the standards process. But what we do believe is that we need benchmarks. We need standards, that are timely, and can be used by government agencies. All to often in the past, it has taken NIST a very very long time to develop standards. And by the time they are developed they are out of date, because the Division is too small, it has been an orphaned child, and it has been under funded by the Department of Commerce."

"Putting in this new center of excellence, to cyber space security, in the Homeland Security Department, we believe it will flourish, not as a slave to law enforcement, but as what it was meant to be in the first place. We look forward to the creation of the Department of Homeland Security because it will allow us to focus attention on cyber space, and the other aspects of protecting the critical infrastructure, because in the past these missions have been minor missions in the organizations where they have been put. But, by putting them together, and giving them the central mission of protecting our cyber space, protecting our critical infrastructure, we believe will make great progress," said Clark.

Abernathy Summarizes Pending FCC Broadband Related Proceedings
7/17. Federal Communications Commission (FCC) Commissioner Kathleen Abernathy spoke at a luncheon for visiting members of the European Parliament. She reviewed pending proceedings at the FCC that pertain to regulation of broadband Internet access services. She also outlined the principles that will guide her.

She stated that "the issues that we are facing at the FCC are somewhat similar to what you yourself are facing in your own countries. We all want to see this new service. We want consumers to have it at prices that they can afford. We want the applications that enrich our lives. And we all want this, oh, tomorrow, maybe the next day."

"First, and foremost, the Commission is taking steps to resolve what is the appropriate statutory classification of broadband Internet access services under the Communications Act." She pointed out the the Act does not mention "broadband Internet access services".

"In March we issued a Declaratory Ruling establishing that cable modem services, at least from our perspective, looking at the Act under which we operate, is an information service, rather than a cable service," said Abernathy. "And we said it also doesn't seem to be, according to the statutory language we have, a telecommunications service. You know, if it is not telecommunications, and that means that it is not subject to the common carrier provisions that we have in Title 2 of the Act -- very specific regulations governing the telecom companies. Nor, is it subject to the cable regulations that we have under Title 6 of the Act. So, our job now is to say what kind of regulatory framework should we create for this new kind of service."

She added that "We also issued a Notice of Proposed Rulemaking in conjunction with this Declaratory Ruling on cable modem services. We seek comment on the regulatory implications of that information service classification. Again, what sort of regulations should apply? So, the Act -- whether the FCC should regulate access arrangements between the cable operators and the unaffiliated ISPs who provide the content. We also sought comment on the scope of local franchising authorities' jurisdiction over these interstate information services, because, again, the states, cable franchise authority, when you are providing pure cable, comes from the local jurisdiction. It is not an FCC role."

She then addressed wireline broadband. She stated that "we adopted a tentative conclusion that wireline broadband Internet access services, like DSL services, are also an information service. And, the Commission is currently reviewing comments on the appropriate classification of this proposal, as well as the regulatory interpretations. Again, what bells and whistles do we hang on to this classification. For example, we are considering whether to modify the access and non discrimination requirements that we now have in place for Title 1".

She also addressed the affect on universal service. "All of a sudden, we are taking a lot of units out of Title 2, telephony, contributes to our universal service fund, and we are moving them over into this new classification, Title 1. And so we have to ask ourselves what will be the impact for universal service, and how do we deal with the net result."

She also stated that "what I want to emphasize to you is that the cable modem declaratory ruling, and the wireline broadband NRPM that is looking at it from the wireline perspective, have have almost identical interpretations of the statute. And why do we do it? This is because after years of placing services in buckets based on legacy classifications, I am pleased that we are now starting down the path of focusing on the nature of the service that is being provided, rather than the identity of the provider. We don't really care what you call yourself. We want to look to the core service, what it looks like, and how it should be regulated under the Act."

She added that the FCC has not "figured out every piece of this puzzle yet. And there is lots of implications to this approach that we need to really think through before we come up with our final rules and regulations. But, I do believe that classifying all broadband Internet access services under Title 1 of the Act, that it represents not only the best reading of the statute, but it should also lead to increased harmonization of our regulatory approach to each of these services."

After she finished her summary of "regulatory classification land", she shifted to a discussion of the FCC's "separate proceeding that we have started that is called the dominant non-dominant proceeding." She elaborated that "we are looking at -- considering whether broadband transition services, that are provided by our incumbent telephone companies, are distinguished from Internet access services. Whatever is in Internet access -- if there is any other broadband services that the telephone companies provide under Title 2. We are looking at whether or not we should regulate them either as dominant in the provision of that particular service, or as non-dominant."

She also said that "this proceeding came out before our other two. And, in some respects, it has been overtaken by this whole broadband classification proceeding over -- we are talking about Title 1." However, she added that "we are still keeping that proceeding on tap".

Finally, she addressed the FCC's "triennial review of our unbundled network elements, which we affectionately call UNEs. This raises a number of important regulatory issues concerning broadband."

Abernathy said that "The NPRM focuses generally on the incumbent LECs' network facilities" and seeks "comment on the appropriate regulatory approach to facilities that are used to provide broadband services, because we still have all of the Title 2 unbundling obligations, that are associated with telecommunications services." For example, "should new entrants have access to newly constructed fiber links and packet switching equipment at TELRIC rates"? She also commented that the FCC's proceeding "has been very complicated by the recent DC Circuit decision that remanded the previous Commission unbundling order."

Commissioner Abernathy then reviewed the principles that will guide her in these proceedings. This is a subject which she has addressed in prior speeches. First, she said that she seeks to "promote regulatory certainty", which she said is necessary to facilitate business planning, and to incent investment. Second, she said that the FCC's primary duty is to follow the principles set forth in the Communications Act, and not the personal preferences of individual Commissioners. She also said that the FCC should rely on market forces to the extent possible.

House Judiciary Committee Passes Distance Learning Bill
7/17. The House Judiciary Committee approved S 487, the Technology, Education, and Copyright Harmonization Act of 2001 (TEACH Act), without amendment, by a unanimous voice vote. The Senate passed the bill on June 7, 2001. This bill amends copyright law to extend the exemption for distance learning to cover the Internet and other digital delivery media.

The bill may benefit rural schools with dispersed students bodies, colleges that are offering online courses to distant students, and busy adults who cannot attend their brick and mortar classroom sessions. The bill may also facilitate a shift from face to face classroom based models of education to online teaching models.

Congress amended copyright law in 1976 to create the distance learning exemption. At that time, the new technology at issue was analog closed circuit TV. That statute did not reference the Internet. Also, the 1976 law did not address the copying of files from one computer to another that is an inherent part of the operation of the Internet. S 487 addresses these concerns.

The TEACH Act has had a long history. First, the Congress recognized the possible need to update the distance learning exemption when it passed the Digital Millennium Copyright Act (DMCA) in 1998. Section 403 of the DMCA directed the Copyright Office to conduct a study on distance education. It issued a report that recommended that the Congress pass legislation. The first version of S 487, introduced by Sen. Patrick Leahy (D-VT) and Sen. Orrin Hatch (R-OR) on March 7, 2001, was an embodiment of these recommendations.

However, copyright holders were concerned that the original version of the bill would facilitate theft of intellectual property. Hatch and Leahy then instructed interested groups to negotiate compromise language that would address the concerns of property owners. Various groups did just that, and Leahy and Hatch amended the bill to reflect this agreement.

The bill just passed by the House Judiciary Committee is the same bill that passed the Senate. Rep. Howard Coble (R-NC), the Chairman of Subcommittee on Courts, the Internet, and Intellectual Property, has not sought to tinker with the compromise language worked out in the Senate.

Rep. Coble spoke in favor of the bill at the July 17 mark up session. He stated that "the Copyright Act contains provisions outlining permissible uses of copyrighted materials for educational purposes, such as fair use and other educational exemptions from copyright infringement. These provisions were written more than two decades ago, however, prior to the advent of digital technologies. Accordingly, the purpose of S 487 is to update the Copyright Act, by appropriately striking a balance between the rights of copyright owners and the ability of users to access copyrighted material via the Internet, and other medium, for educational purposes.

Rep. Coble continued that "the legislation makes three basic changes to current law. First, the bill eliminates the current eligibility requirements for distance learning exemption that the instruction occur in physical classroom, or to special circumstances that prevent the attendance of students in the classroom. Second, the bill clarifies that the distance learning exemption covers the transient or temporary copies that may occur through the automatic technical process of transmitting material over the Internet. Third, and finally, S 487 amends the Copyright Act to allow educators to show reasonable and limited portions of providing literature and musical works, audio visual works, and sound recordings, in addition to the complete versions of nondramatic literary and musical works, which are currently exempted.

Rep. Coble concluded that the bill "will greatly assist the education community without compromising the rights of copyright holders." Rep. John Conyers (D-MI), the ranking Democrat on the Committee, then expressed his agreement with Rep. Coble. No other Committee members spoke.

Rep. Rick Boucher (D-VA) introduced his own bill on this topic, HR 2100, the Twenty First Century Distance Learning Enhancement Act, on June 7, 2001. His bill would have added nonprofit libraries to the set of exempted entities.

Tech Law Journal spoke with Rep. Boucher on July 17. He stated that had preferred language to "confirm the rights of libraries". However, he added, "I am content with this. So, we will let it go."

Summary of the TEACH Act Changes to Copyright Law
7/17. S 487, the Technology, Education, and Copyright Harmonization Act of 2001 (TEACH Act), amends Title 17. Section 106 of Title 17 contains the basic protection of copyrighted works. It provides that "the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies ..." Section 110 of Title 17 provides exemptions relevant to education. First, there is the exemption for face to face instruction. Second, there is the distance learning exemption.

Current Statute. Section 110(2), the distance learning exemption, currently exempts a "performance of a nondramatic literary or musical work or display of a work, by or in the course of a transmission, if (A) the performance or display is a regular part of the systematic instructional activities of a governmental body or a nonprofit educational institution; and (B) the performance or display is directly related and of material assistance to the teaching content of the transmission; and (C) the transmission is made primarily for (i) reception in classrooms or similar places normally devoted to instruction, or (ii) reception by persons to whom the transmission is directed because their disabilities or other special circumstances prevent their attendance in classrooms or similar places normally devoted to instruction ..."

S 487. S 487 rewrites this section 110(2). The new, longer version of the subsection contains several new provisions. It removes that requirement that the instruction occur in a classroom. However, the new language requires that the instruction be "under the actual supervision of an instructor as an integral part of a class session offered as a regular part of the systematic mediated instructional activities of a governmental body or an accredited nonprofit educational institution".

Transient or Temporary Storage. S 487 amends Section 110 to provide an exemption for temporary storage of digital files. It provides that "no governmental body or accredited nonprofit educational institution shall be liable for infringement by reason of the transient or temporary storage of material carried out through the automatic technical process of a digital transmission of the performance or display of that material as authorized under paragraph (2). No such material stored on the system or network controlled or operated by the transmitting body or institution under this paragraph shall be maintained on such system or network in a manner ordinarily accessible to anyone other than anticipated recipients. No such copy shall be maintained on the system or network in a manner ordinarily accessible to such anticipated recipients for a longer period than is reasonably necessary to facilitate the transmissions for which it was made."

Ephemeral Recordings. S 487 also amends Section 112, which deals with ephemeral recordings. S 487 provides that "it is not an infringement of copyright for a governmental body or other nonprofit educational institution entitled under section 110(2) to transmit a performance or display to make copies or phonorecords of a work that is in digital form and, solely to the extent permitted in paragraph (2), of a work that is in analog form, embodying the performance or display to be used for making transmissions authorized under section 110(2), if (A) such copies or phonorecords are retained and used solely by the body or institution that made them, and no further copies or phonorecords are reproduced from them, except as authorized under section 110(2); and (B) such copies or phonorecords are used solely for transmissions authorized under section 110(2)."

The bill further provides that "This subsection does not authorize the conversion of print or other analog versions of works into digital formats, except that such conversion is permitted hereunder, only with respect to the amount of such works authorized to be performed or displayed under section 110(2), if (A) no digital version of the work is available to the institution; or (B) the digital version of the work that is available to the institution is subject to technological protection measures that prevent its use for section 110(2)."

Prevention of Abuse. The new version of section 110(2) also contains several provisions intended to limit abuse. First, it maintains the requirement that "the performance or display is directly related and of material assistance to the teaching content of the transmission." Second, it requires that "the transmission is made solely for, and, to the extent technologically feasible, the reception of such transmission is limited to ... students officially enrolled in the course for which the transmission is made ..." Third, it requires that "the transmitting body or institution" must take steps to prevent further copying or retention. It must apply "technological measures that, in the ordinary course of their operations, prevent ... retention of the work in accessible form by recipients of the transmission ... for longer than the class session; and ... unauthorized further dissemination of the work in accessible form by such recipients to others." The educational institution must also not "interfere with technological measures used by copyright owners to prevent such retention or unauthorized further dissemination".

USPTO Study of Technological Protection Systems. The bill also requires the U.S. Patent and Trademark Office (not the Copyright Office) to write "a report describing technological protection systems that have been implemented, are available for implementation, or are proposed to be developed to protect digitized copyrighted works and prevent infringement, including upgradeable and self-repairing systems, and systems that have been developed, are being developed, or are proposed to be developed in private voluntary industry-led entities through an open broad based consensus process."

Correction
7/17. Yesterday's edition of the TLJ Daily E-Mail Alert stated this: "7/16. The Senate Commerce Committee approved the nomination of Jonathan Adelstein to be a Commissioner of the Federal Communications Commission (FCC)." In fact, the Committee held a hearing on the nomination, but has not yet voted. Andy Davis, Communications Director for the Committee, stated on July 17 that "A quorum was not present at yesterday's session. Nonetheless, Sen. Hollings hopes to move Mr. Adelstein's nomination very quickly".

Reps. Tauzin and Boehlert Discuss Cyber Security with Select Committee
7/17. The House Select Committee on Homeland Security held another hearing on HR 5005, the Homeland Security Act, which would create a new Department of Homeland Security. The Committee heard from the Chairmen and ranking Democrats of the Committees with jurisdiction.

Rep. Billy Tauzin (R-LA), the Chairman of the House Commerce Committee, addressed the cyber security related changes to the bill made by his Committee. He stated in his prepared testimony that "with respect to the protection of our Nation's critical physical and cyber infrastructures -- such as those that run our telecommunications and electric power systems -- the President's efforts at consolidation and increased coordination are right on the mark. The key to success in this area is to recognize that many of the most important critical infrastructures are privately owned and operated, and may not be subject to Federal security mandates or requirements. Thus, the only way to succeed in ensuring their protection is through a strong and effective public private partnership for national security."

He stated that "The original language of H.R. 5005 could have been construed to give this new Secretary regulatory authority over the security of critical infrastructures that are not currently regulated by the Federal government, or that are regulated now by other Federal agencies. Based on testimony before our Committee by Governor Ridge, it is clear that such an interpretation was not intended by the Administration. Thus, the Committee Print makes an important clarification to ensure that the new Secretary's authority to assess vulnerabilities and support protective measures with respect to private sector critical infrastructures does not include new regulatory powers for the Secretary to directly compel security improvements through regulations or mandates. Rather, the Secretary will work with the other Federal, State or local agencies that have jurisdiction over such sectors to enhance security, and would work directly with the private sector in a collaborative fashion."

Rep. Tauzin then stated that "The Committee Print also recommends that the emphasis on cyber security within the new Department be greatly enhanced. Over the past four years, our Committee has conducted extensive oversight of the cyber security practices of many of the agencies within our jurisdiction, including the Departments of Health and Human Services, Commerce, and Energy, as well as the Environmental Protection Agency. With the help of expert computer teams, sometimes known as ``red teams,�� from the General Accounting Office, we found that, without exception, the computer systems of these agencies were riddled with pervasive weaknesses. Our homeland security depends on building improved defenses to cyber attacks, which are occurring every day."

"As a result, our Committee Print proposes the establishment of a Federal cyber security program that will provide computer security expertise to other Federal civilian agencies to help improve protection of their critical information systems. This program will include a Federal computer security ``red team�� to test, and provide recommendations on, the security of key Federal information systems. It also will promote R&D on security enhancements for critical information systems, particularly the command and control systems that our Nation's critical infrastructures depend upon -- called SCADAs," said Rep. Tauzin.

Rep. Sherwood Boehlert (R-NY), Chairman of the House Science Committee, discussed the President's proposal to move the CSD to the DHS in his prepared testimony.

HR 5005, as introduced would move the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) to the new Department of Homeland Security (DHS). Many technology industry companies and groups oppose the move.

Rep. Boehlert stated that "The basic problem is that while cybersecurity is one of our nation�s greatest vulnerabilities, H.R. 5005 never deals with it explicitly. So we added a new section 205 to make the Title II under secretary�s cyber duties explicit, and those include improving the security of federal computers and working with private, state and local officials to improve the security of their systems. We also create a volunteer corps to respond if and when security fails."

"For federal computers, we drew on the approach in current law and in Mrs. Morella�s H.R. 1259, which the House has already passed. Under this approach, the National Institute of Standards and Technology, or NIST, a federal laboratory that is trusted by industry as an honest broker, will develop standards for federal computers, which the new Department will then promulgate and oversee. This is a sensible division of labor, endorsed by the high tech community."

"With that division of labor in mind, the Science Committee rejected the proposal in H.R. 5005 to move NIST�s Computer Security Division to the new Department. We believe the move would be counter productive in two ways. First, the move would sever the very useful links between the Computer Security Division and the rest of NIST's researchers, on whose work the Division depends. Second, the move would undermine the Division�s relationships with the private sector, which trusts NIST as a neutral, scientific agency with no direct regulatory authority or national security responsibilities."

He concluded that "I know that both a group of House Members led by Mr. Goodlatte and high tech industry are in the process of sending letters to the Committee -- if they haven't arrived already -- backing the Science Committee position on this matter."

Financial Regulators Propose Rules Implementing Section 326 of USA PATRIOT Act
7/17. The Department of the Treasury and seven federal financial regulators issued proposed rules that would require certain financial institutions to establish minimum procedures for identifying and verifying the identity of customers seeking to open new financial accounts. These rules implement Section 326 of the USA PATRIOT Act.

See, 326 Bank Proposed Rule [PDF], 326 Broker Dealer Proposed Rule [PDF], 326 FCMIB Proposed Rule [PDF], 326 Mutual Fund Proposed Rule [PDF], 326 State Regulated Bank Proposed Rule [PDF], and Sec 326 Fact [PDF]. See also, Treasury release and SEC release.

The proposed rules were written by the Treasury Department, Board of Governors of the Federal Reserve System, Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), Office of the Comptroller of the Currency, Office of Thrift Supervision, and Securities and Exchange Commission (SEC).

Public comment on the proposed rules will be due within 45 days of their publication in the Federal Register, which has not yet occurred.

Chairman Powell Responds to Rep. Oxley
7/17. Federal Communications Commission (FCC) Chairman Michael Powell wrote a letter [17 pages in PDF] to Rep. Mike Oxley (R-OH), the Chairman of the House Financial Services Committee, in which he responded to Rep. Oxley's letter [PDF] of July 11 regarding the FCC's practices and procedures pertaining to WorldCom and corporate oversight.

People and Appointments
7/17. President Bush announced his intent to nominate Pamela Olson to be Assistant Secretary of the Treasury for Tax Policy. She is currently Deputy Assistant Secretary of the Treasury for Tax Policy since 2001. Prior to that she was an attorney in the Washington DC office of the law firm of Skadden Arps Slate Meagher & Flom. See, White House release.

7/17. President Bush formally nominated Roel Campos to be a Commissioner of the Securities and Exchange Commission (SEC) for a term expiring on June 5, 2005. Bush announced that he would nominate Campos, a radio company owner and former assistant U.S. Attorney, back in May. See, White House release.

More News
7/17. The Senate Commerce Committee held a hearing on legislation to authorize funding for the Federal Trade Commission (FTC). See, prepared testimony of FTC Commissioners: Timothy Muris, Sheila Anthony, Mozelle Thompson, Orson Swindle, and Thomas Leary. See also, prepared testimony of outside witnesses: Charlie Mendoza (AARP), Lawrence Sarjeant (U.S. Telecom Association), Ari Schwartz (Center for Democracy and Technology), Dennis Alldridge (Special Olympics), and Lou Cannon (D.C. Lodge of the Fraternal Order of Police).

District Court Issues Injunction Order in Washington Post v. Gator
7/16. The U.S. District Court (EDVa) issued its Order in Washington Post v. Gator granting plaintiffs' motion for a preliminary injunction. The order bars the Gator Corporation from causing it pop-up ads to be displayed on any web site owned by or affiliated with the plaintiffs, including the Washington Post, New York Times, Boston Globe, Chicago Tribune, LA Times, and Wall Street Journal.

The Washington Post, and other major news publishers with web sites, allege web based trademark infringement, copyright infringement, and related claims in their complaint [99 pages in PDF] and motion for preliminary injunction. (See, Memorandum in Support of Plaintiffs' Motion for Preliminary Injunction [35 pages in PDF]). The Court heard oral argument on the motion on Friday, July 12.

The Court enjoined Gator from the following acts:
"1. Causing it pop-up advertisements to be displayed on any website owned by or affiliated with the Plaintiffs without the express consent of the Plaintiffs;
2. Altering or modifying, or causing any other entity to alter or modify, any part of a any website owned by or affiliated with the Plaintiffs, in any way, including its appearance or how it is displayed;
3. Infringing, or causing any other entity to infringe Plaintiffs' copyrights;
4. Making any designations of origin, descriptions, representations or suggestions that Plaintiffs are the source, sponsor or in any way affiliated with Defendant's advertisers on their web sites, services and products, and;
5. Infringing, or causing any other entity to infringe, Plaintiffs' trademark and/or other service mark rights"

The complaint states that Gator is "a parasite on the Web that free rides on the hard work and investments of Plaintiffs and other website owners. Gator makes money by placing advertisements for third parties on the Plaintiffs' websites without Plaintiffs' authorization."

House Subcommittee Approves Bill to Limit Business Activity Taxes
7/16. The House Judiciary Committee's Subcommittee on Commercial and Administrative Law amended and approved HR 2526, the Internet Tax Fairness Act of 2001. The Subcommittee first approved by a unanimous voice vote an amendment offered by Rep. Bob Barr (R-GA), the Chairman of the Subcommittee. It then approved by voice vote the bill as amended.

The bill is sponsored by Rep. Bob Goodlatte (R-VA), Rep. Rick Boucher (D-VA), and Rep. Chris Cox (R-CA). As introduced, the bill contained a short section permanently extending the Internet Tax Freedom Act (ITFA). The rest of the 11 page bill dealt with state and local business activity taxes (BATs).

Rep. Barr's amendment changes the title of the bill from the "Internet Tax Fairness Act of 2001" to the "Business Activity Modernization Act of 2002", and deletes Section 2 of the bill as introduced, which provided for a permanent extension of the Internet Tax Freedom Act (ITFA). The original ITFA was passed in 1998. It created a three year moratorium on multiple and discriminatory Internet taxes, and taxes on Internet access. The ITFA was temporarily extended last fall.

The remainder of the bill as introduced is unaffected by the amendment. The bill would limit the imposition of business activity taxes (BATs) on electronic and other interstate commerce by state and local taxing authorities. However, the bill does not address sales taxes.

The bill would prohibit several Internet related BATs, including taxes on "The use of the Internet to create or maintain a World Wide Web site accessible by persons" in the taxing jurisdiction. The bill would also prohibit BATs on the use of an ISP, on-line service provider, internetwork communication service provider, or other Internet access service provider, or web hosting service. It would also prohibit BATs on the "use of any service provider for transmission of communications, whether by cable, satellite, radio, telecommunications, or other similar system." Also, the bill would prohibit BATs based on the "presence or use of intangible personal property ... including patents, copyrights, trademarks, logos, ... electronic or digital signals, and web pages ..."

The bill provides that no state or local taxing authority may impose a BAT unless the taxed entity "has a substantial physical presence" in the jurisdiction. The bill further prohibits BATs on the leasing or owning of property in the jurisdiction for less than 30 days, and on the assigning of employees, representatives or agents in the jurisdiction for less than 30 days. Finally, the bill prohibits BATs based on contracts, licenses, permits, loans, deposits, and securities.

Rep. Barr stated at the hearing that the bill "would provide much needed clarity". He elaborated that "while the Supreme Court has established a physical presence threshold for the collection of sales taxes, it has not fully articulated a fully coherent basis for determining when a non resident business enterprise has a sufficient economic presence to justify the imposition of business activity taxes."

He added that "Some states have aggressively used this uncertainty to aggressively assess and collect taxes on multi state corporations that have virtually no contact or connection with the taxing state." Moreover, said Rep. Barr, "While large corporations are often prepared to defend themselves against these sometimes spurious claims, small businesses, particularly those which use the Internet to reach out to the national market place, sometimes accept tenuous tax claims simply to avoid costly litigation expenses."

He concluded that "HR 2526 would reduce this vulnerability by establishing a bright line physical presence requirement for states and localities as a prerequisite to collect business activity taxes on interstate enterprises."

Finally, he said that the "extension of the Internet tax moratorium last year obviates the need for revisiting the Internet tax question at this time."

Rep. Darrell Issa (R-CA) also spoke in favor of the bill. He stated that "often the Internet -- we act like it is something new -- and every problem we face is something new. The fact is, the Internet is facing the same problem that small multi state businesses have faced for a long time. This legislation is a good start at looking at problems of operations in one state, relatively small presence in another state, one in which they have few, if any employees, no substantial capital investments of any sort, and yet the taxing authorities would like to have them and their accountants spend tens of thousands of dollars on paperwork in the hopes that they will get a piece of whatever profit that company has."

Rep. Mel Watt (D-NC) spoke in opposition to the bill. He said that "I think the impact of this bill is going to be substantial. I think this is going to present real problems for state and local governments and taxing authorities." He said that many state and local governments face revenue shortfalls, and "this bill will increase those shortfalls".

The Software and Information Industry Association (SIIA) supports the bill. SIIA President Ken Wasch stated in a release that "We are pleased to see this critical step today towards establishing 'bright line' nexus standards for business activity taxes. Such clarification is extremely necessary in our digital economy to eliminate the potential for double taxation and uncertainty among businesses."

Senate Subcommittee Holds Hearing on FBI's Antiquated Computers
7/16. The Senate Judiciary Committee's Subcommittee on Administrative Oversight and the Courts held a hearing to examine the Federal Bureau of Investigation's (FBI) computer problems. Sen. Charles Schumer (D-NY), the Chairman of the Subcommittee, presided. The only witness was Sherry Higgins, Project Management Executive in the Office of the Director of the FBI. She testified that the FBI has a three year plan to update its equipment, networking and database access.

Higgins, who went to work for the FBI four months ago, stated in her prepared testimony that the FBI has "antiquated computer workstations". For example, she stated that in the case of the FBI's investigative information system, "users navigate with the function keys instead of the point and click method common to web based applications. Simple tasks, such as storing an electronic version of a document today, require a user to perform twelve separate functions ..."

Sen. Schumer also pointed out that the FBI has five major investigative databases, but that they are not connected. He added that "If an agency cannot coordinate information and make it easily accessible, the entire house of cards will fall. We all felt the effects of this scenario on September 11. I pray to God we never feel it again, but if we don't fix our communications and technological woes, we could."

Sen. Jeff Sessions (R-AL) expressed concerns about the costs of the upgrade, and the security of the FBI's computer systems in light of the Robert Hanssen case.

Higgins testified that the FBI has a plan. It intends to acquire new workstation computers. It will also obtain printers and scanners. The FBI will upgrade to a point and click graphical unit interface. Moreover, its computers will have "Microsoft Office applications". They will also be networked. Moreover, the FBI plans to enable the searching of its multiple investigative databases with a single query.

Higgins stated that the upgrade will take 36 months. She described this as "our aggressive deployment schedule".

Sen. Schumer described the FBI's deployment schedule as "unacceptable". Furthermore, he stated that "I'd like to propose the idea of forming an advisory group made up of representatives from the private sector to work with the FBI on their technology development."

Sen. Schumer also discussed appropriations. He said that Congress appropriated $223 Million for FY01 for the FBI's Information Management, Automation and Telecommunications (IMAT). It appropriated $507 Million for FY02. He also said that the Senate Appropriations Committee has recommended a supplemental appropriation of $30 Million for FY02. Moreover, he said, the FBI has requested an increase of $48 Million for FY03, to $555 Million.

The President's proposed budget [PDF] for FY03 for the Department of Justice for FY03 estimates that there will be 25,464 full time equivalent employees at the FBI. $555 Million, divided by 25,464 employees, comes to $21,795 per employee per year for information technology.

Appeals Court Rules Iowa Communications Network Eligible for Universal Service
7/16. The U.S. Court of Appeals (DCCir) issued its opinion in USTA v. FCC, denying a petition for review of a Federal Communications Commission (FCC) order finding that the Iowa Communications Network (ICN) is a common carrier eligible for universal service subsidies.

The petitioner is the U.S. Telecom Association (USTA), a group that represents local exchange carriers, which are traditional recipients of universal services subsidies pursuant to 47 U.S.C. � 254. The ICN is a state agency that provides subsidized high speed telecommunications services in the state of Iowa, especially in areas inadequately covered by local exchange carriers. It administers a statewide fiber optics network.

The Court of Appeals first examined at length whether the USTA has standing to challenge this order. It concluded that it does. The Court then addressed the FCC's determination that the ICN is a common carrier eligible for universal service subsidies. It concluded that it is.

Appeals Court Upholds GLB Rules in Trans Union v. FTC
7/16. The U.S. Court of Appeals (DCCir) issued its opinion in Trans Union v. FTC, rejecting a challenge to the Federal Trade Commission's (FTC) rules implementing the privacy provisions of the Gramm Leach Bliley (GLB) Act.

Trans Union is a credit reporting agency (CRA) within the meaning of the Fair Credit Reporting Act (FCRA), 15 U.S.C. �� 1681, et seq. It filed a complaint in the U.S. District Court (DC) against the FTC challenging the regulations promulgated by the FTC and other federal agencies to implement the privacy provisions of the GLB Act, 12 U.S.C. �� 6801, et seq. The District Court upheld the FTC's regulations. Trans Union appealed.

The Court of Appeals wrote that Trans Union argued that "the regulations unlawfully restrict a CRA's ability to disclose and reuse certain consumer information because (1) a CRA is not a "financial institution" subject to the FTC's rulemaking authority under the GLBA; (2) the regulations' definition of the statutory term ``personally identifiable financial information�� (PIFI) is overbroad; (3) the regulations' restrictions on reuse of information are inconsistent with the GLBA; and (4) the challenged regulations infringe Trans Union's right of free speech under the First Amendment to the United States Constitution." The Appeals Court rejected these arguments, and affirmed the District Court.

Greenspan Addresses Tech Sector
7/16. Federal Reserve Board Chairman Alan Greenspan appeared before the Senate Banking Committee to present the Federal Reserve's Monetary Policy Report to the Congress. Both the report, and his prepared testimony address the technology sector.

He first addressed the general economic situation in his prepared testimony. He stated that "Over the four and one half months since I last testified before this Committee on monetary policy, the economy has continued to expand, largely along the broad contours we had anticipated at that time. Although the uncertainties of earlier this year are as yet not fully resolved, the U.S. economy appears to have withstood a set of blows -- major declines in equity markets, a sharp retrenchment in investment spending, and the tragic terrorist attacks of last September -- that in previous business cycles almost surely would have induced a severe contraction. The mildness and brevity of the downturn, as I indicated earlier this year, are a testament to the notable improvement in the resilience and flexibility of the U.S. economy."

He also focused on technology. He said that "business spending has been depressed. The recent economic downturn was driven, in large measure, by the sharp falloff in the demand for capital goods that occurred when firms suddenly realized that stocks of such goods -- both those already in place as well as those in inventory -- were excessive. The resulting declines in the production of capital goods were particularly sizable in the high tech sector. Monthly shipments of computers and peripherals, for example, fell by about 40 percent from their peak in 1999 through their trough in 2001. Sales by communications equipment producers slumped just as sharply.

He added that "The collapse of many Internet firms and the difficulties of the high tech sector more generally led to a significant drop in the demand for office space that was exacerbated as the economic slowdown widened beyond the tech sector."

The Monetary Policy Report states that "Real business spending on equipment and software (E&S) was little changed in the first quarter after having dropped sharply last year. In the high tech category, real expenditures moved up in the first quarter after a double digit decline in 2001. Outlays for computers posted large gains in inflation adjusted terms in both the fourth and first quarters; many businesses apparently postponed computer replacement over much of last year but now seem to be taking advantage of ongoing technological progress and the associated large declines in prices. In contrast, real expenditures for communications equipment were little changed in the first quarter after having plunged by one third during 2001. Excess capacity in the provision of telecom services is continuing to weigh heavily on the demand for communications equipment. Business outlays for software edged down in real terms in the first quarter."

The report also states that "While exports of computers continued to fall, exports of semiconductors rose for the first time in nearly two years." Finally, it states that "Business outlays for software edged down in real terms in the first quarter."

People and Appointments
7/16. The Senate Commerce Committee approved the nomination of Jonathan Adelstein to be a Commissioner of the Federal Communications Commission (FCC).

7/16. Christopher Libertelli was named Legal Advisor to Federal Communications Commission (FCC) Chairman Michael Powell for wireline competition related matters. He went to work for the FCC in 1999. Before that, he was an associate with the law firm of Dow Lohnes & Albertson. See, FCC release [PDF].

7/16. Kyle Dixon was named Deputy Bureau Chief of the Federal Communications Commission's (FCC) Media Bureau, and Special Counsel to FCC Chairman Michael Powell for broadband policy. He was previously Legal Advisor to Powell on common carrier and broadband issues. Before he went to work for the FCC he worked for the law firm of Hogan & Hartson. See, FCC release [PDF].

7/16. Simon Wilkie was named Chief Economist of the Federal Communications Commission (FCC). He replaces David Sappington, who returned to the Department of Economics at the University of Florida. Wilkie is an economics professor at the California Institute of Technology. He has also taught at Columbia and the University of Rochester, where he received his doctorate. He also worked as a post doctoral fellow at Bell Communications Research (BellCore). He applies game theory to telecommunications. See, FCC release. [PDF].

More News
7/16. The Copyright Office published a notice in the Federal Register directing "all claimants to royalty fees collected in 1999, 2000 and 2001 for the distribution of digital audio recording devices and media to submit comments as to whether a controversy exists as to the distribution of the royalty fees in the 1999, 2000 and 2001 Musical Works Funds." Comments and notices of intention to participate are due by September 16, 2002. See, Federal Register, July 16, 2002, Vol. 67, No. 136, at Pages 46698 - 46699.

Go to News from July 11-15, 2002.