|News from August
People and Appointments
8/31. Jane Barrett, Katherine Marelich, and Audra Mori
joined the Los Angeles office of the law firm of Piper Rudnick as partners. All three
previously worked in the Los Angeles office of Preston Gates & Ellis. Barrett
focuses on intellectual property and other matters. Marelich focuses on
litigation involving copyright, trademark, trade secret and unfair business
practices. Mori focuses on copyright and trademark. See, release.
NTIA Seeks Comments on Exceptions to ESIGN Act
8/30. The National Telecommunications and
Information Administration (NTIA) announced that it is requesting comments
on two of the nine exceptions to the Electronic Signatures in Global and
National Commerce (ESIGN) Act. The ESIGN Act provides for the acceptance of
electronic signatures in interstate commerce, with certain enumerated
exceptions. The two categories of exempt documents that are the subject of this
request for comments are court records and hazardous materials notices. The Act
tasks the NTIA with studying these exemptions, and providing reports to
Congress. See also, NTIA release.
Comments are due by November 4, 2002. See, notice
in Federal Register, September 3, 2002, Vol. 67, No. 170, at Pages 56277 -
56279, regarding court records, and notice
in Federal Register, September 3, 2002, Vol. 67, No. 170, at Pages 56279 -
56281, regarding hazardous materials notices.
GAO Reports on Technology Issues in Homeland Defense
8/30. The General Accounting Office
(GAO) released a letter
[7 pages in PDF] to Rep. Tom Davis
(R-VA) in which it responds to his questions regarding "National
Preparedness: Technology and Information Sharing Challenges".
The letter addresses agency turf battles, antitrust and FOIA obstacles to
information sharing, the use of shared databases, research and development,
information sharing by government agencies, the use of Extensible Markup
Language (XML), and the use of customer relationship management (CRM) techniques
and technology for homeland defense.
4th Circuit Rules on Pole Attachments Act and Exhaustion of
8/30. The U.S.
Court of Appeals (4thCir) issued its opinion [12
pages in PDF] in Cavalier
Telephone v. Virginia Power, reversing a preliminary injunction
in a pole attachments case, for failure to exhaust administrative remedies
before the FCC.
Cavalier Telephone is a facilities based
competitive local exchange carrier (CLEC) that provides telecommunications
services to residential and business customers in several parts of the state of
Virginia. Virginia Power is an electric
utility that provides power to homes and businesses through a network of
approximately one million poles. Cavalier seeks access to Virginia Power's
Cavalier first filed a complaint with the Federal
Communications Commission (FCC) alleging that Virginia Power denied it
access to its poles in violation of the Pole Attachment Act, which requires
utilities such as Virginia Power to provide "any telecommunications carrier
with nondiscriminatory access to any pole, duct, conduit, or right-of-way owned
or controlled by it." See, 47 U.S.C.A. § 224.
The FCC issued an order compelling Virginia Power to expedite processing of
permits, among other things. The FCC later issued a second order terminating
Virginia Power's annual pole attachment rate of $37.00 per pole, substituting a
rate of $5.12, and ordering Virginia Power to compensate Cavalier for previous
overcharges. Virginia Power then filed an application for review with the FCC.
Without waiting for the FCC's determination on Virginia Power's application for
review, Cavalier filed a complaint with the U.S. District Court (EDVa) against
Virginia Power seeking enforcement of the FCC order. The District Court granted
Cavalier a preliminary injunction.
The Appeals Court reversed and remanded with instructions to dismiss the
complaint. It held that the administrative process before the FCC had not been
completed. Cavalier can not seek judicial enforcement of the Pole Attachments
Act, or an FCC order thereunder, until it has exhausted its administrative
Verizon and Privacy Groups Oppose RIAA Subpoena
8/30. Verizon and a collection of privacy groups have filed briefs with the U.S. District Court (DC) in a proceeding
brought by the RIAA for the purpose enforcing a subpoena of Verizon's Internet
services subsidiary. The RIAA motion states that it seeks the identity of the
user of "a computer connected to the Verizon network that is a hub for
significant music piracy". Verizon argues that the asserted basis for the
subpoena, the DMCA, does not extend to situations such as this, where the
alleged infringing material is stored on the computer of Verizon's customer, as
opposed to Verizon's own system, and Verizon only serves an a communications
conduit for the customer. Amici assert the First Amendment right of anonymous
speech. See, full story.
Greenspan Addresses Economic Volatility and High Tech
8/30. Federal Reserve Board
Greenspan gave a speech
titled "Economic Volatility". He sought to explain recent economic
activity, with an emphasis on equity premiums and the development of bubbles. He
also discussed the high tech sector.
Greenspan stated that "The consequent reversal in stock prices that has
occurred over the past couple of years has been particularly pronounced in the
high tech sectors of the economy. The investment boom in the late 1990s,
initially spurred by significant advances in information technology, ultimately
produced an overhang of installed capacity. Even though demand for a number of
high tech products was doubling or tripling annually, in many cases new supply
was coming on even faster. Overall, capacity in high tech manufacturing
industries rose more than 40 percent in 2000, well in excess of its rapid rate
of increase over the previous two years. In light of the burgeoning supply, the
pace of increased demand for the newer technologies, though rapid, fell short of
that needed to sustain the elevated real rate of return for the whole of the
high tech capital stock. Returns on the securities of high tech firms ultimately
collapsed, as did capital investment."
He spoke at a conference in Jackson Hole, Wyoming, sponsored by the Federal
Reserve Bank of Kansas City.
Federal Circuit Rules in Patent and Trade Secrets Case
8/30. The U.S.
Court of Appeals (FedCir) issued its split opinion [MS Word] in BBA
Nonwovens v. Superior Nonwovens, a case involving patent
infringement and application of law of the state of South Carolina regarding
trade secret misappropriation.
BBA Nonwovens Simpleville, Fiberweb France, Reemay, and Superior Nonwovens are
commercial manufacturers of spunbond nonwoven fabrics used in the production of
other products, such as dryer sheets, filters, and carpet underlay. Superior was
formed in 1998 by former employees of the plaintiff corporations. It then
proceeded to produce competing products.
BBA and Reemay filed a complaint in U.S. District Court (DSCar) against
Superior. Fiberweb France was later added as a plaintiff. The claims included
patent infringement, and trade secret misappropriation. The jury returned a
verdict in favor of Fiberweb France on its trade secret claim, and in favor of
BBA on its patent infringement claim. It returned a verdict against Reemay on
its trade secret claim. The jury also awarded damages. The court then denied
Superior's motion for JMOL. This appeal followed. The Appeals Court affirmed.
WTO Issues FSC/ETI Countermeasures Decision
8/30. The World Trade Organization (WTO)
issued a Decision
of the Arbitrator [46 pages in PDF] in the FSC/ETI matter. The WTO had
previously held that the United States' Foreign Sales Corporation (FSC) tax
regime, and its replacement, the Extraterritorial Income (ETI) regime,
constitute illegal export subsidies. This decision authorizes the EU to impose
$4 Billion in counter measures.
It the EU were to impose counter measures, they might target, among other
things, exports by U.S. technology companies.
U.S. Trade Representative (USTR) Robert Zoellick
stated in a release
that "I'm disappointed that the arbitrator did not accept the lower figure
put forward by the United States. We believe that $1 billion is much more
accurate, ... Nevertheless, the key point, as the President has said, is that
the Executive branch will work with Congress to fully comply with our WTO
obligations. I believe that today's findings will ultimately be rendered moot by
U.S. compliance with the WTO's recommendations and rulings in this
Similarly, Deputy Secretary of the Treasury Ken Dam stated in an August 30 release that "As
the President has stated, the United States will comply with the WTO decision in
this case. Therefore, I am confident that today's findings regarding damages
will be rendered moot by our coming into compliance. We look forward to working
with the Congress to enact changes to our tax law that will preserve the
competitiveness of U.S. businesses and American workers while honoring our WTO
Rep. Bill Thomas (R-CA), the
Chairman of the House Ways and Means
Committee, introduced HR 5095,
the American Competitiveness and Corporate Accountability Act of 2002, on July
11, 2002, to address the WTO's rulings regarding the FSC and ETI. See also, Rep.
However, no action has been taken on the bill. Also, there is no replacement
legislation pending in the Senate.
EU Trade Commissioner Pascal Lamy said in
a release that
"We need to see compliance in a series of steps. President Bush took a
first important step at the last EU-US Summit by stating that the US
Administration will do everything in its power to comply. Another important step
has been accomplished with the introduction of the Thomas bill in Congress that
is manifestly intended to bring the US into compliance. We call on the US
Congress to act quickly so that legislation will move forward and enable repeal
of the FSC/ETI scheme within a short period of time."
Lamy concluded that "The path is now clear for the EU to adopt sanctions if
the US does not repeal the FSC/ETI scheme expeditiously. We will consult with
our industry and the Member States on a detailed product list of possible
countermeasures to be notified to the WTO. Before any countermeasures are taken,
we will carefully evaluate progress made on US implementation."
Mike Moore, who just stepped down as Director General of the WTO, stated in a release that
"The arbitration ruling marks a further stage of WTO involvement in this
long running and difficult dispute. I have been following the FSC case closely
and I commend both parties for working in a constructive manner throughout the
duration of this dispute. I urge both parties to continue to cooperate and work
toward resolving this dispute and the others between them in an amicable and
constructive fashion. The European Union and the United States are among the
most important members of this organization and both hold a special
responsibility to ensure the continued health and soundness of WTO and global
10th Circuit Disallows R&D Tax Credit for Software
8/30. The U.S.
Court of Appeals (10thCir) issued its opinion
and Accounting Software Corp. v. IRS, a case regarding when
expenses of a software company may qualify for the research and development tax
credit. The Appeals Court reversed a District Court summary judgment in favor of
a small software development company, on the grounds that its expenses were not
for "qualified research". See, full story.
DOJ Files Brief in USA v. Visa
8/30. The Antitrust Division of the U.S.
Department of Justice filed its brief with the U.S.
Court of Appeals (2ndCir) in USA v. VISA, an antitrust case regarding
Visa's Bylaw and MasterCard's Competitive Programs Policy which prohibit member
/ owner banks from issuing general purpose cards on the only networks not
controlled by banks.
In 1998, the United States filed a complaint in U.S. District Court (SDNY)
against Visa USA Inc., Visa International Corp., and MasterCard International
Inc., alleging two violations of Section 1 of the Sherman Act, 15 U.S.C.
§ 1. The District Court, among other things, ordered Visa and MasterCard
to repeal their exclusionary rules. This appeal followed.
More Court Opinions
8/30. The U.S.
District Court (DC) issued an opinion [PDF] in Linda
Tripp v. DOD, denying the DOD's motion to dismiss a Privacy Act
case brought by a former DOD employee alleging wrongful disclosure of
information to The New Yorker Magazine and others.
8/30. The U.S.
Court of Appeals (FedCir) issued its opinion in Guttman
v. Kopykake, a patent infringement case involving cake decoration
technology. The District Court denied Plaintiff's motion for a preliminary
injunction. The Appeals Court vacated and remanded, because of erroneous claim
construction by the District Court.
People and Appointments
8/30. Rep. Greg Walden (R-OR) was
made a member of the House Commerce
Committee's Subcommittee on Telecommunications and the Internet. He has been
a member of the full Committee since 2000. Rep. Billy Tauzin (R-LA), the Chairman
of the Committee, stated in a release that "With his extensive background
in broadcasting, Greg has a world of experience and expertise in
telecommunications issues ... His knowledge of the issues will help the
Subcommittee address digital television, spectrum management, broadband
deployment and other telecommunications matters."
8/30. Amazon announced that Thomas
Szkutak will become its SVP and CFO. He is currently CFO for General
Electric's GE Lighting.
8/30. The Copyright Office published
in the Federal Register that "directs all claimants to royalty fees
collected for calendar year 2000 under the section 111 cable statutory license
to submit comments as to whether a Phase I or Phase II controversy exists as to
the distribution of those fees, and a Notice of Intention to Participate in a
royalty distribution proceeding." Both comments and Notices of Intention to
Participate are due by September 30, 2002. See, Federal Register, August 30,
2002, Vol. 67, No. 169, at Pages 55885 - 55886.
8/30. The General Accounting Office (GAO)
released a report [4
pages in PDF] regarding "Federal Reserve Banks: Areas for Improvement in
8/30. The Securities and Exchange Commission
(SEC) initiated and simultaneous settled an administrative proceeding against
SCB Computer Technology, Inc. See, SEC release.
FCC Comments on Electioneering Communications
8/29. The Federal Communications Commission
(FCC) submitted a comment
[4 pages in PDF] to the Federal Election
Commission (FEC) in response to the FEC's Notice
of Proposed Rulemaking (NPRM) regarding electioneering communications. The
McCain Feingold bill requires the FCC to carry in its web site data relevant to
§ 201(b) of the McCain Feingold campaign finance bill (Bipartisan Campaign
Reform Act of 2002, or BCRA), provides, in part, that the FCC "shall
compile and maintain any information the Federal Election Commission may require
to carry out section 304(f) of the Federal Election Campaign Act of 1971 ["FECA"]
(as added by subsection (a)), and shall make such information available to the
public on the Federal Communications Commission's website." (Parentheses
and brackets in original.)
§ 304(f) of the FECA, as amended by § 201(a) of the BCRA, defines
electioneering communications as "any broadcast, cable or satellite
communication which ... is targeted to the relevant electorate." In
addition, a communication "targeted to the relevant electorate" is
defined as a communication that "can be received by 50,000 or more
persons" in the district or state that a candidate, who is referred to in
the communication, seeks to represent.
The FCC's comment notes that "this project will require substantial
resources in terms of time, money and personnel. At minimum, it will involve the
integration of population information, congressional and state boundary
geographic information, and service area data for broadcast stations, cable
systems, and satellite systems. It could potentially also involve more detailed
information relating to the specific programming services transmitted or carried
by each broadcast station, cable system, and satellite system in the
The FCC also notes that while it possesses considerable data, and can purchase
data, it may be "required to collect data from its regulatees", and
"will likely have to adopt new information collection forms".
The FCC also points out that whatever it does, its information will not be
accurate, because, for example, "some people within a broadcast station's
service contour cannot actually receive its signal, and some outside it
The FCC also references a constitutional issue. It states that "in order
that the definition of electioneering communication not be deemed
unconstitutionally overbroad, the rules should not result in overcounting the
number of persons reached."
The FEC has published in its website 35 comments which it has received in
response to this NPRM. See, list of
comments, with hyperlinks. See, especially, comment
[11 pages in PDF] submitted by the National
Association of Broadcasters (NAB), which is also challenging the
constitutionality of the BCRA in federal court. The NAB argues that the
definition of electioneering communications should be limited to paid
advertisements, and that broadcasters should not be responsible for enforcing
the mandates of the BCRA.
President Bush signed the BCRA on March 27; it takes effect on November 6. The
FEC held a public hearing on this NPRM on August 27 and 28. This is FEC No.
2nd Circuit Rules on Copyrightable Subject Matter
8/29. The U.S.
Court of Appeals (2ndCir) issued its opinion in Sparaco
v. LMS, a copyright case. This appeal involves whether a site
plan for a building construction project is protectable under copyright law.
However, the Court's review of the history and current state of the law
regarding what constitutes copyrightable subject matter may be of interest to
persons in the technology sector.
Background. Albert Sparaco is a land surveyor and planner. He was
retained to prepare a site plan for an assisted living facility Rockland County,
New York. He completed the site plan, which included "(1) the location and
contour of the building footprint; (2) location and contour of parking lots; (3)
placement and design of curbs, driveways, and walkways; (4) placement of
utilities and provision for sediment and erosion control; (5) landscape design,
including the location for plants, trees, and lights; and (6) proposed changes
to the contours and elevation of the terrain". He obtained a certificate of
copyright for the site plan, having registered it as a "map" and
"technical drawing." Sparaco was then replaced, and his site plan was
copied, and used, with only minor modifications.
District Court. Sparaco filed a complaint in U.S.
District Court (SDNY) against various defendants alleging, among other
things, creation of a derivative work in violation of the Copyright Act. The
District Court eventually dismissed this claim. This appeal followed.
Appeals Court. The Court of Appeals vacated and remanded. The Appeals
Court first addressed the physical characteristics of the site. It wrote that
"Sparaco's argument would have had considerable force at an earlier time in
the development of the copyright law. Since the eighteenth century, the
copyright statutes have explicitly named maps as falling within their
protection. ... Copyright's early protection of factual information found
justification in the author's labor or ``sweat of the brow´´ in assembling and
creating a work. In 1845, Justice Story explained that the maker of a map was
protected against copying; another was free to map the same region but was not
free to copy information set forth on the first map; he needed to rely on his
own labor, skill, and expense to make a second independently conceived
"However, in its twentieth century development, copyright law turned away
from that view. Courts began to repudiate the earlier notion that an author's
labor in discovering facts justified giving the author protection against the
copying of those facts."
The Appeals Court continued that "In Feist
Publications, Inc. v. Rural Telephone Service Company, 499 U.S. 340, 347-48
(1991), the Supreme Court further explained that copyright protection can extend
only to original authorship, and that the publication of facts, regardless how
much effort was expended in discovering them, is not original authorship. The
facts set forth in an author's writing were not created by an author's act of
authorship, and are therefore not protected by copyright. ... To the extent that
the site plan sets forth the existing physical characteristics of the site,
including its shape and dimensions, the grade contours, and the location of
existing elements, it sets forth facts; copyright does not bar the copying of
In discussing Sparaco's proposals for improvements to the site, the Appeals
Court wrote that "It is a fundamental principle of copyright law that ``[i]n
no case does copyright protection for an original work of authorship extend to
any idea, procedure, process, system, method of operation [or] concept.´´ ...
It is only if the copier has taken the author's expression or realization of the
idea that infringement results. Where copying has occurred, the question whether
there has been infringement can thus turn on whether the copying was only of the
author's generalized ideas and concepts or of the author's more precisely
detailed realization of those ideas." (Citations omitted.)
FTC Opposes State Restraint on Internet Casket Sales
8/29. The Federal Trade Commission (FTC) filed
an amicus curiae brief
[17 pages in PDF] with the U.S. District
Court (WDOkla) in Powers
v. Harris, a case regarding state regulation that affects the
sale of caskets over the Internet.
The plaintiffs sell caskets over the Internet. They filed a complaint in the
District Court against the Oklahoma State Board of Embalmers and Funeral
Directors and others alleging that Oklahoma's Funeral Services Licensing Act (FSLA),
which requires sellers of funeral goods to be licensed funeral directors,
violates the Commerce Clause.
The FTC's amicus brief states that "While the Commission does not take a
position on whether the FSLA ultimately violates the Commerce Clause, it is
filing this amicus brief because defendant's characterization of the
Funeral Rule conflicts with the actual purpose of the Rule and has the
unfortunate effect of turning the Rule against its objective of enhanced
competition and consumer welfare."
The FTC brief states that "The fundamental purpose of the Rule is to
protect consumers by giving them full information in order to promote greater
competition." However, "Rather than promote competition, the FSLA
prohibits it. Rather than protect consumers by exposing funeral directors to
meaningful competition, the FSLA protects funeral directors from facing any
competition from third party casket sellers. Rather than promote consumer
choice, the FSLA forces consumers to purchase caskets from funeral
California Governor Signs Community Technology Programs Bill
8/28. California Gov. Gray Davis signed SB
1863, sponsored by Sen.
Debra Bowen (D - Marina del Rey). It would require the California Public Utilities Commission to
provide a nonprofit community technology program with discounts comparable to
those that are provided to schools and libraries to address inequality of access
to advanced telecommunications services.
This bill amends the California Public Utilities Code to provide that "It
is the intent of the Legislature that any program administered by the commission
that addresses the inequality of access to advanced telecommunications services
by providing those services to schools and libraries at a discounted price
should also provide comparable discounts to a nonprofit community technology
Appeals Court Vacates Restitution Order for Computer Hacker
8/28. The U.S.
Court of Appeals (2ndCir) issued its opinion in USA
v. Harris. The Appeals Court wrote that Melissa Harris
"gained access to her employer's computer without authorization in order to
obtain the Social Security numbers of individuals who were the targets of a
credit card fraud scheme." She plead guilty to one count of violating 18 U.S.C. §
1030(a)(2)(B). The District Court sentenced her to three months in prison,
three months of home detention, ordered her to pay restitution in the amount of
$435,895.15. She appealed.
The Appeals Court vacated and remanded for resentencing. It wrote that the
record did not show that the District Court had considered her ability to pay,
which is one of the factors to be considered by the court in ordering
restitution, pursuant to 18 U.S.C. § 3664(f)(2).
10th Circuit Construes Contract to Locate Venture Capital
8/28. The U.S.
Court of Appeals (10thCir) issued its opinion,
titled "Order and Judgment", in Fonix v. Perpetual
Growth Fund Advisors, a case involving an agreement to locate
venture capital for a technology company in return for a commission.
Background. Fonix Corporation makes
speech recognition software. Perpetual Growth Funds Advisors locates investors
to provide venture capital for start up technology companies. Fonix and
Perpetual entered into a written contract whereby Fonix agreed to pay Perpetual
a commission for locating an investor. Perpetual drafted a document that
provided for a "fee of 5% paid at closing of a financing between Fonix Corp
and an investor that is a result of an introduction by Perpetual".
Perpetual located an investment advisor. Five funds advised by this advisor
bought $10 Million in Fonix stock. Fonix wired $500,000 to Perpetual. Perpetual
also wrote to Fonix that "This wire will indicate there are no outstanding
obligations between Fonix Corporation and Perpetual Growth Adivsors." Fonix
later obtained $56 Million in financing from other investors. Perpetual
requested 5% of this amount as "trailing fees". Fonix refused.
District Court. Fonix filed a complaint in U.S. District Court (DUtah)
against Perpetual based upon diversity of citizenship seeking declaratory
judgment that it owed nothing to Perpetual. Perpetual counterclaimed for payment
under the contract. The District Court held that both the agreement and the
evidence as to the parties' intent were ambiguous, and hence, resolved the
ambiguity against the drafter of the contract, Perpetual. That is, it held that
Fonix does not have to pay trailing fees. Perpetual appealed.
Appeals Court. The appeals court affirmed. It found that the contract was
ambiguous as to whether trailing fees would be paid. It wrote that the expert
witnesses disagreed regarding standard industry practice regarding the payment
of trailing fees. Finally, it wrote that the parties presented conflicting
evidence regarding their discussions.
The Appeals Court concluded, "Having appropriately concluded that the
extrinsic evidence failed to clarify the terms of the agreement, the district
court properly interpreted the agreement against the drafter".
However, the Appeals Court also wrote that "This order and judgment is not
binding precedent" beyond the parties to the case.
8/28. Thomas Gillett was named SVP of corporate development and strategy
at Qwest Communications. See, Qwest
SBA Comments on FCC Classification of Wireline Broadband
Access to the Internet
8/27. The Small Business Administration (SBA)
wrote a letter
to the Federal Communications Commission (FCC)
regarding the FCC's Notice of Proposed Rulemaking (NPRM) regarding
classification of services in its proceeding titled "In the Matter of
Appropriate Framework for Broadband Access to the Internet over Wireline
Facilities". This is CC Docket 02-33. The FCC proposed that wireline
broadband Internet access services -- whether provided over a third party's
facilities or self-provisioned facilities -- are information services, with a
telecommunications component, rather than telecommunications services.
The SBA wrote that "Classifying broadband access service as an information
service would remove the requirements set forth in the Commission's Computer II
and Computer III rulemakings that provide carriage to ISPs. Such an action will
severely hamper the ability of small ISPs to provide broadband service, stifling
competition and slowing down deployment." (Footnotes omitted.)
Rather, the SBA "recommends that the Commission revisit its conclusion that
broadband Internet access service is an information service. In fact, we urge
the Commission to classify the transmission of broadband signals as a
telecommunications service, and the provision of Internet access service as an
information service, as originally determined in Computer II and Computer III.
By deciding that broadband Internet service consists of two distinct services,
the Commission will minimize the disproportionate impact on small ISPs and will
encourage competition in the broadband market, which will in turn encourage
deployment of broadband as discussed above." (Footnote omitted.)
July 1, 2002, was the deadline to submit reply comments in this proceeding. See
also, article in TLJ
Daily E-Mail Alert No. 463, titled "FCC Receives Comments on Broadband
Internet Access", July 2, 2002.
WorldCom Accountants Indicted
8/27. A grand jury of the U.S. District
Court (SDNY) returned an indictment
[24 pages in PDF] of Scott Sullivan and Buford Yates charging one count of
conspiracy to commit securities fraud, one count of securities fraud, and five
counts of false filings with the Securities and
Exchange Commission (SEC). Until June of this year Sullivan was CFO of WorldCom. Yates was WorldCom's Director of
The indictment also identifies several "co-conspirators not named as
defendants" -- Betty Vinson, Troy Normand, and David Myers.
The indictment alleges that "from in or about October 2000 through in or
about June 2002, SCOTT D. SULLIVAN and BUFORD YATES, JR., the defendants, and
their co-conspirators, engaged in an illegal scheme to inflate artificially
WorldCom's publicly reported earnings by falsely and fraudulently reducing
reported line cost expenses. To effect this illegal scheme, SULLIVAN, YATES, and
their co-conspirators made entries in WorldCom's general ledger, crediting line
costs and debiting, among other accounts, various reserve and capital accounts.
As SULLIVAN, YATES, and their co-conspirators well knew, there was no
justification in fact, or under Generally Accepted Accounting Principles (``GAAP´´),
for these entries. SULLIVAN, YATES, and their co-conspirators made these false
and fraudulent journal entries in WorldCom's general ledger knowing, and
intending (1) that such journal entries would ultimately be reflected in
WorldCom's financial statements and public filings with the SEC; (2) that
WorldCom's financial statements and public filings would falsely overstate
WorldCom's earnings; and (3) that the investing public would rely upon such
Attorney General John Ashcroft wrote in a statement that
"With each arrest, indictment and prosecution, we send this clear message:
corrupt corporate executives will be punished. The Department of Justice is
committed to ensuring that corporate executives never profit by victimizing
their own employees and investors."
8/27. The U.S. Attorneys Office (NDCal) filed insider trading charges against
Jonathan Beck and Kevin Clark, former sales vice presidents of Critical Path, a
San Francisco based e-mail outsourcing firm. The Criminal Information charges
violation of 15 U.S.C. § 78j(b), 15 U.S.C. § 78ff(a) and 17 CFR
240.10b-5. See, USAO
release. Simultaneously, the Securities and
Exchange Commission (SEC) filed a civil complaint
in U.S. District Court (NDCal)
against Beck, Clark, and William Rinehart, a former head of Critical Path's
North and Latin America sales forces. See also, SEC release.
8/27. The Bureau of Industry and Security
(BIS), formerly known as the Bureau of Export Administration (BXA), published a notice
in the Federal Register that it has adopted a final rule that removes references
in the Export Administration Regulations (EAR) to the "Denied Persons
List". The rule change is effective as of August 26, 2002. See, Federal
Register, August 27, 2002, Vol. 67, No. 166, at Pages 54952 - 54953.
6th Circuit Expands Public Right of Access to Quasi Judicial
8/26. The U.S. Court of Appeals
(6thCir) issued its opinion
Free Press v. Ashcroft, holding that the First Amendment confers
a public right of access to deportation hearings. In 1980 the Supreme Court held
Newspapers Inc., v. Virginia, 448 U.S. 555, that there is a right of access
to judicial proceedings. The Sixth Circuit, relying upon Richmond Newspapers,
held that there is a right of access to a post September 11 deportation hearing,
which is a quasi judicial administrative proceeding.
The Detroit Free Press and other newspapers,
Rabih Haddad, who is a person subject to deportation, and Rep. John Conyers (D-MI), the ranking
Democrat on the House Judiciary
Committee, filed complaints in U.S.
District Court (EDMich) seeking declaratory and injunctive relief pertaining
to a directive from the Chief Immigration Judge directing U.S. Immigration
Judges to close special interest cases.
The District Court granted the newspaper plaintiffs' motion for preliminary
injunction. It held that the newspaper plaintiffs have a First Amendment right
of access to the proceedings under Richmond Newspapers.
The Appeals Court affirmed. The Appeals Court also relied upon Richmond
Newspapers. The Court thus expanded the principle to apply to quasi judicial
administrative proceeding, such as the deportation case at issue. The Appeals
Court, however, did not find that there is a right held by the press that is
distinct from the public's right of access.
INTA Files Amicus Brief in Trademark Dilution Case
8/26. The International Trademark Association
(INTA) filed an amicus
curiae brief [39 pages in PDF] with the Supreme Court in Moseley
v. V. Secret Catalogue, a trademark case. At issue is whether the
plaintiff in a lawsuit for violation of the Federal Trademark Dilution Act (FTDA)
must show actual economic loss.
Background. Victoria's Secret
filed a complaint in U.S. District Court (WDKent)
against Victor Moseley alleging trademark infringement and violation of the FTDA,
15 U.S.C. § 1125(c),
in connection with his use of the name "Victor's Little Secret" for a
lingerie and adult toy business. The District Court granted summary judgment to
Moseley on the federal trademark infringement claims, finding that Victoria's
Secret had not provided sufficient evidence to establish a likelihood of
confusion between the two marks. The District Court also found that the Victor's
Little Secret mark both blurred and tarnished the Victoria's Secret mark under
the FTDA and enjoined Moseley from making further use of the Victor's Little
Moseley appealed the District Court's FTDA ruling. The U.S. Court of Appeals (6thCir) issued
on July 30, 2001, affirming the District Court. It held that economic harm may
be inferred in trademark dilution claims. The Supreme Court granted certiorari
on April 15, 2002.
The Supreme Court's review will resolve the differences between various circuits
on this issue. See, for example, Nabisco
v. PF Brands, 191 F.3d 208 (2d Cir. 1999) and Ringling Bros.
Barnum & Bailey v. Utah, 170 F.3d 449 (4th Cir. 1999).
INTA Brief. The INTA supports the interpretation contained in the Sixth
Circuit opinion under review, and opposes that of the Fourth Circuit (which
requires actual harm).
The INTA wrote that "Section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c)
(2000), provides that the ``[t]he owner of a famous mark shall be entitled …
to an injunction against another person’s commercial use of a mark … [that]
causes dilution of the distinctive quality of the famous mark.´´ The Court of
Appeals for the Fourth Circuit reads the section to require ``actual harm to …
economic value´´: i.e., "an actual lessening of the [famous] mark's
selling power, expressed as ‘its capacity to identify and distinguish goods or
services.’´´" (Citing Ringling Bros. v. Utah.)
However, INTA argues that "section 43(c) does not refer to ``actual harm´´
or to an ``actual lessening´´ of selling power -- and none of the principles
of statutory construction that petitioners espouse mandate adding those words to
give plain meaning to the law."
See also, INTA release.
8/26. The National Telecommunications and
Information Administration (NTIA) published a notice
[PDF] in the Federal Register that its has approved FIPS 180–2, Secure Hash
Standard, and has determined that the standard is compulsory and binding on
Federal agencies for the protection of sensitive, unclassified information. See,
Federal Register, Vol. 67, No. 165, August 26, 2002, at pages 54786 - 54787.
8/26. The U.S. District Court (DC)
published in its web site a copy of the May 17, 2002, opinion [34 pages in PDF]
of the U.S. Foreign Intelligence Surveillance Court criticizing the FBI and
Department of Justice.
Go to News for August 21-25, 2002.