News from August 21-25, 2003

California Supreme Court Rules in DeCSS Case

8/25. The Supreme Court of the State of California issued its opinion [54 pages in PDF] in DVD Copy Control Association v. Bunner, a case regarding California trade secret law, free speech, and the publication of the DeCSS program in web sites. The trial court issued a preliminary injunction based upon its finding of violation of California trade secrets law. The California Court of Appeal (6th) reversed on free speech grounds. It did not examine the question of whether the injunction was valid under trade secrets law. The Supreme Court reversed the Court of Appeal, and held that the preliminary injunction does not violate Bunner's right to free speech under the U.S. or California Constitutions.

The Supreme Court did not decide the merits of the trade secrets claim. Rather, it remanded to the Court of Appeal with instructions to determine the validity of the preliminary injunction under California trade secrets law. Moreover, the Supreme Court suggested that acquisition of trade secrets by reverse engineering (which is what occurred in this case) may not constitute acquisition by improper means.

Hence, this opinion stands as authority for the proposition that injunctive relief barring the dissemination of misappropriated trade secrets does not violate the free speech rights of the misappropriators, or others who acquire the trade secrets from them. This is a victory generally for the proponents of trade secrets protections. However, the case is not authority on the question of protection of trade secrets from appropriation by reverse engineering. The Court did not address this issue. And, while the trade secret holder prevailed in this round, it may ultimately loose, if the Court of Appeal holds that there was no violation of California trade secrets law.

Plaintiff. DVD is sometimes known as Digital Versatile Disc. DVDs are capable of holding full length movies in digital format. CSS is a Content Scrambling System for DVD to protect intellectual property rights by means of encryption. The DVD Copy Control Association (DVDCCA) is a trade association of businesses in the movie industry. It controls the rights to CSS. DVDCCA licenses the CSS decryption technology to manufacturers of hardware and software for playing DVDs.

Defendant. DeCSS is a decryption tool that facilitates infringement of movies on DVD. DeCSS consists of computer source code which describes a method for playing an encrypted DVD on a non CSS equipped DVD player or drive. It was written by Jon Johansen, who is not a defendant in this case. He was able to write the program after acquiring proprietary information embodied in the technology by reverse engineering software created by a licensee of CSS. He did this in violation of the users' license agreement, which specifically prohibits reverse engineering. Johansen also published DeCSS program on the web. Andrew Bunner published a copy of DeCSS on his web site. Bunner refused DVDCCA's request to remove the DeCSS program from his web site.

Complaint. The DVDCCA filed a complaint in 1999 in California Superior Court against Andrew Brunner and others alleging violation of the California Uniform Trade Secrets Act in connection with their publishing copies of DeCSS in web sites, or linking to copies of DeCSS.

Preliminary Injunction. The Superior Court for Santa Clara County, Judge William Elfving presiding, issued an order granting a preliminary injunction in January of 2000.

The Superior Court held that the DVDCCA met the requirements for injunctive relief. It found that the CSS technology contained protectable trade secrets because it derived independent economic value from its secrecy and because the DVDCCA made reasonable efforts to maintain its secrecy; it found that Johansen obtained these trade secrets through reverse engineering in violation of his license agreement, and therefore acquired these secrets by improper means; it found that Bunner and other defendants knew or should have known that Johansen acquired these trade secrets by improper means; it found that the trade secret status of the CSS technology had not been destroyed because it had been published on the web; and, it concluded that the DVDCCA would suffer irreparable harm without an injunction. 

Hence, the Superior Court enjoined Bunner and other defendants from "[p]osting or otherwise disclosing or distributing, on their web sites or elsewhere, the DeCSS program, the master keys or algorithms of the Content Scrambling system (‘CSS’), or any other information derived from this proprietary information." The Superior Court's preliminary injunction did not bar linking to copies of DeCSS elsewhere on the web.

The Court of Appeal. The Court of Appeal issued its opinion reversing the Superior Court on November 1, 2001. It reasoned that the DeCSS source code is speech entitled to First Amendment protection. It also noted that unlike copyright, trade secret protection is not secured by the Constitution. The Court of Appeal further reasoned that the Superior Court order constituted a prior restraint of pure speech.

The Court of Appeal opinion was narrow. It did not review the Superior Court's findings in support of the preliminary injunction. It assumed for the purpose of the appeal that the DVDCCA was entitled to injunctive relief under California trade secret law. It addressed only the issue of whether an injunction based on trade secret law would violate freedom of speech.

See, story titled "Cal App Overturns Injunction in DeCSS Case" in TLJ Daily E-Mail Alert No. 300, November 2, 2001.

Supreme Court. On February 20, 2002, the Supreme Court ordered review of the Court of Appeal. See, story titled "California Supreme Court To Review DeCSS Case" in TLJ Daily E-Mail Alert No. 374, February 22, 2002.

The Supreme Court's review in this case is limited. The Supreme Court wrote that "the narrow question before us is whether the preliminary injunction violates Bunner's right to free speech under the United States and California Constitutions even though DVD CCA is likely to prevail on its trade secret claim against Bunner."

The Court first reasoned that computer code is expression, and is therefore protected by the First Amendment of the U.S. Constitution. However, the level of scrutiny to be accorded depends upon whether the injunction is content neutral or content based. In the present case, the Court held that the injunction is content neutral, and thus, entitled to a lower level of scrutiny.

The Court elaborated on content neutrality. It wrote that "the injunction singled out Bunner's communications because of DVD CCA's efforts to maintain the secrecy of the CSS technology and the competitive advantage it enjoyed from those efforts -- and not because of the communications' subject matter or any disagreement with Bunner’s message or viewpoint.  In other words, the trial court issued the injunction to protect DVD CCA's statutorily created property interest in information -- and not to suppress the content of Bunner's communications." The Court added, "Indeed, the governmental purpose behind protecting trade secrets like the CSS technology through injunctive relief is wholly unrelated to their content."

The Court also wrote that "The fact that the preliminary injunction identifies the prohibited speech by its content does not make it content based. ... any injunction remedying this deprivation must refer to the content of that information in order to identify the property interest to be protected. Such an injunction remains content neutral so long as it serves significant governmental purposes unrelated to the content of the proprietary information."

The Court then applied the content neutral test, as articulated by the Supreme Court of the U.S. in Madsen v. Women’s Health Center, 512 U.S. 753 (1994). That is, "when evaluating a content-neutral injunction ... [w]e must ask ... whether the challenged provisions of the injunction burden no more speech than necessary to serve a significant government interest."

The California Supreme Court held that the injunction satisfies this test. It held that "California's trade secret law undoubtedly serves significant government interests." First, the government has an interest in incenting investment in innovation, and trade secret protection, like patent and copyright protection, serve this interest.

 In addition, the Court held that trade secret law furthers the government interest in promoting business ethics. It wrote that "By prohibiting Bunner from exploiting and destroying DVD CCA's trade secrets because of his actual or constructive knowledge of its illegal acquisition, the preliminary injunction merely applies this venerable standard of commercial ethics to a constitutionally recognized property interest in information. Because a person who knowingly exploits the illegal acquisition of property owned by another should be in ``no better position than´´ the illegal acquirer himself ... the injunction burdens no more speech than necessary to serve the government’s important interest in maintaining commercial ethics."

The Court also wrote that "In this case, the content of the trade secrets neither involves a matter of public concern nor implicates the core purpose of the First Amendment.  ... Bunner posted these secrets in the form of DeCSS on the Internet so Linux users could enjoy and use DVD’s and so others could improve the functional capabilities of DeCSS.  He did not post them to comment on any public issue or to participate in any public debate.  Indeed, only computer encryption enthusiasts are likely to have an interest in the expressive content—rather than the uses—of DVD CCA’s trade secrets."

Finally, the Court considered the "prior restraint doctrine". It wrote that "Although the preliminary injunction issued by the trial court survives the Madsen test, we must still determine whether the prior restraint doctrine bars it. Because the injunction is content neutral and was issued because of Bunner’s prior unlawful conduct, we conclude it is not a prior restraint and therefore does not violate the First Amendment." It held that the preliminary injunction in this case is not a prior restraint. Rather, it is based upon "prior unlawful conduct".

So, the Court concluded that "we find that the preliminary injunction at issue here is not a prior restraint. The injunction is content neutral ... , and the trial court found that Bunner had previously disclosed DVD CCA’s trade secrets in violation of California law.  The court therefore issued the content-neutral injunction because of Bunner’s ``prior unlawful conduct.´´"

The Court also briefly disposed of the parallel argument that the Superior Court's preliminary injunction violated the free speech clause of the California Constitution.

Then, the Supreme Court remanded to the Court of Appeal, with instructions. It wrote that "We merely hold that the preliminary injunction does not violate the free speech clauses of the United States and California Constitutions, assuming the trial court properly issued the injunction under California’s trade secret law. On remand, the Court of Appeal should determine the validity of this assumption."

It added that "On remand, the Court of Appeal must therefore ``make an independent examination of the entire record´´  ..., and determine whether the evidence in the record supports the factual findings necessary to establish that the preliminary injunction was warranted under California’s trade secret law ..." (Citations omitted.)

The Supreme Court, in its review California trade secret law earlier in its opinion, hinted as to what the outcome of this review should be. It wrote that the California statute protects holders of trade secrets from misappropriation. Misappropriation occurs when a person acquires a trade secret by improper means. This includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, and espionage; however, the statute provides that "Reverse engineering or independent derivation alone" (citing the California statute).

Jon Johansen originally obtained the DVDCCA's trade secrets by reverse engineering.

Justice Janice Brown wrote the opinion of the Supreme Court. She was joined by Ronald George, Marvin Baxter, Rivera, and Robie.

Other Opinions. There were two other opinions, which both essentially concurred in part and dissented in part. Justice Carlos Moreno wrote a lengthy opinion. He wrote that "I concur in the majority's narrow holding, which, as I understand it, is that the First Amendment does not categorically prohibit preliminary injunctions to enjoin the publication of trade secrets. I further agree that the First Amendment requires independent appellate review of such preliminary injunctions, rather than the deferential review usually accorded such injunctions. I write separately for two reasons. First, I believe there is a need to clarify how the prior restraint doctrine under the First Amendment applies to the publication of alleged trade secrets. Second, I would forgo further proceedings in the Court of Appeal and simply affirm that court's judgment. In my view, the DVD Copy Control Association's (DVD CCA) trade secret claim against Bunner is patently without merit for the reasons explained below."

Justice Kathryn Werdegar wrote a one page opinion. She wrote, "I agree with the majority’s conclusion that the First Amendment to the United States Constitution does not necessarily preclude injunctive relief in trade secret cases. I find in Justice Moreno's concurring opinion, however, a more satisfying reconciliation of that conclusion with the constitutional rules governing prior restraints and content-based restrictions of speech."

Related Cases.

Pavlovich v. Superior Court. In this case, the DVDCCA filed a complaint in the Superior Court for Santa Clara County California against Matthew Pavlovich and others alleging misappropriation of trade secrets and other claims. Pavlovich published the DeCSS program in a web site which he owned and operated. He is not a resident of California. However, he is the President of a technology start up company, and a leader of the open source movement. He also testified that he knew that the movie industry was based in California, and that DeCSS would harm that industry. He sought to quash the summons.

On August 7, 2001, the Court of Appeal of California (6th Appellate District) issued its opinion in Pavlovich v. Superior Court, holding that California's long-arm jurisdiction statute reaches owners, publishers, and operators of web sites when, in violation of California law, they make available for copying or distribution trade secrets or copyrighted material of California companies. See, story titled "California Has Personal Jurisdiction over Non Resident DeCSS Poster" in TLJ Daily E-Mail Alert No. 244, August 8, 2001.

However, on November 25, 2002, the Supreme Court of California issued its 4-3 opinion [53 pages in PDF] in Pavlovich v. Superior Court, reversing the Court of Appeal. The Supreme Court held that the California courts do not have personal jurisdiction over a nonresident individual who had published the DeCSS program his web site. See, story titled "California Has No Personal Jurisdiction Over Non Resident DeCSS Poster", in TLJ Daily E-Mail Alert No. 557, November 26, 2002.

Universal City Studios v. Reimerdes/Corley. This is another DeCSS related case. Although, this case involved copyright law, and specifically, the anti-trafficking provision of the Digital Millennium Copyright Act (DMCA). University City Studios, and other movie studios, filed a complaint in U.S. District Court (SDNY) against persons who had published copies of DeCSS in web sites, or hyperlinked to copies in other web sites.

On August 17, 2000, the District Court issued its opinion (published at 111 F.Supp.2d 294) in Universal City Studios v. Reimerdes. The Court held that posting DeCSS violated the DMCA's provision banning trafficking in technology that circumvents measures controlling access to copyrighted works, that hyperlinking also violates the DMCA, that the DMCA does not violate the First Amendment as applied to decryption software, that the defendants did not engage in protected fair use, that the movie studios are entitled to injunctive relief.

On November 28, 2001, the U.S. Court of Appeals (2ndCir) issued its opinion (published at 273 F.3d 429) in Universal City Studios v. Corley affirming the District Court. See also, story titled "Second Circuit Upholds DMCA and Corley Injunction" in TLJ Daily E-Mail Alert No. 319, December 3, 2001.

9th Circuit Holds No Private Right of Action for Violation of Payphone Compensation Rules

8/25. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Greene v. Sprint, affirming the District Court's dismissal of a complaint brought by PSPs against an IXC alleging violation of Section 276 of the Communications Act, on the grounds that there is no private right of action for violation of Section 276.

Zane Greene and other payphone service providers (PSPs) filed a complaint in U.S. District Court (CDCal) against Sprint Communications, and several of its facilities based resellers, alleging violation of regulations promulgated by the Federal Communications Commission (FCC) pursuant to 47 U.S.C. § 276, which requires interexchange carriers (IXCs) to compensate payphone service providers for dial around calls made from their payphones.

Section 276(b) provides, in part, that "In order to promote competition among payphone service providers and promote the widespread deployment of payphone services to the benefit of the general public ... the Commission shall take all actions necessary (including any reconsideration) to prescribe regulations that (A) establish a per call compensation plan to ensure that all payphone service providers are fairly compensated for each and every completed intrastate and interstate call using their payphone ..."

The FCC promulgated regulations that require carriers and facilities-based resellers to compensate PSPs for all completed coinless calls where the caller uses a carrier other than the payphone's presubscribed carrier. The regulations also requires carriers to track or arrange for tracking of each compensable coinless call carried over its network.

The District Court dismissed the action. The Appeals Court affirmed. Both courts held that there is no private right of action for the alleged violations of Section 276, and the implementing regulations.

The Appeals Court reasoned that a private right of action must be created by the Congress. The Congress, in passing the Telecom Act of 1996, did not include a private right of action in Section 276. Moreover, while Section 206 does make a carrier liable for any violation of "this chapter", which includes Section 276, and Section 207 creates a right of action in U.S. District Court, Section 276 does not create a right of PSPs to be paid by carriers.

The Court wrote that "there is no language in § 276 expressly conferring upon PSPs a right to fair compensation from IXCs. For this reason, there is no violation of the Act to be remedied through the private right of action afforded by §§ 206 and 207. Neither does § 276 itself, or through §§ 206 and 207, provide a private right of action to enforce regulations promulgated pursuant to § 276."

This case is Zane Greene, et al. v. Sprint Communications Company, et al., No. 02-56339, an appeal from the U.S. District Court for the Central District of California, D.C. No. CV-02-03841-LGB, Judge Lourdes Baird presiding.

5th Circuit Affirms Dismissal in Goldstein v. MCI WorldCom

8/25. The U.S. Court of Appeals (5thCir) issued its opinion [42 pages in PDF] in Goldstein v. MCI WorldCom, a class action securities fraud case.

Harriet Goldstein and others filed a complaint in U.S. District Court (SDMiss) against MCI WorldCom, Bernie Ebbers and Scott Sullivan alleging violation of federal securities laws. The District Court dismissed for failure to plead scienter in conformity with the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA). The Appeals Court affirmed.

The Court released its original opinion on July 28. The Court released this revised opinion on August 25.

This case is Harriet Goldstein, et al. v. MCI WorldCom, Bernard Ebbers and Scott Sullivan, Nos. 02-60322 and 03-60248, appeals from the U.S. District Court for the Southern District of Mississippi.

More News

8/25. U.S. Trade and Development Agency (USTDA) announced in a release that it will "provide funding to develop a regulatory framework in Kosovo designed to attract the private sector to the telecommunications industry in that country. The technical assistance (TA) will be provided by a U.S. firm under the auspices of the European Bank for Reconstruction and Development (EBRD) and is expected to contribute to sector loans by the EBRD to benefit the telecommunications sector in Kosovo."

8/25. The ACLU released a memorandum regarding the Computer Assisted Passenger Pre-screening System (CAPPS II). It is titled "The Five Problems With CAPPS II: Why the Airline Passenger Profiling Proposal Should Be Abandoned". See also, ACLU release.

8/25. The Electronic Privacy Information Center (EPIC) and other groups and individuals filed an amicus curiae brief [37 pages in PDF] with the Supreme Court in Doe v. Chao. The brief states that "At issue in this case is whether a plaintiff suing under the Privacy Act of 1974, 5 U.S.C. § 552a, for the wrongful disclosure of the Social Security Number must show actual damages in order to recover the statutory damages of $1,000." The brief argues that "The willful and intentional disclosure of Social Security Numbers constitutes a substantial invasion of privacy, as Congress and the courts have recognized. Congress created a liquidated damages provision in the Privacy Act to discourage wrongful disclosures of the SSN. ... At a time when identity theft, facilitated by the misuse of the SSN, is on the rise, the Court should ensure that this critical purpose in the Privacy Act is not lost. Requiring high thresholds of proof of actual damages for SSN misuse would undermine public safety and the very purpose of the Act."

8/22. The Department of Justice (DOJ) charged Walter Wiggs by criminal complaint filed in the U.S. District Court (CDCal) with gaining unauthorized access to protected computers, including those of the Orange County District Attorney's Office. He was arrested on August 22. The DOJ stated in a release that "Wiggs was previously employed as a computer technician for Technology for Business Corporation (TFBC)", but was laid off in June. "TFBC specializes in developing customized software including an interactive voice response system for telephone call centers." The DOJ release adds that after his termination, he used his home computer "to gain unauthorized access to approximately 13 computers that used TFBC's interactive voice response software including systems used by the Los Angeles County Department of Children and Family Services, City of San Diego, City of Modesto and the Orange County District Attorney's Office."

People and Appointments

Gordon England8/22. President Bush announced his intent to nominate Gordon England (at right) to be Secretary of the Navy. He is currently Deputy Secretary of the Department of Homeland Security. Before that, he was Secretary of the Navy. Before that, he was EVP of General Dynamics, where he was responsible for information systems. And before that, he was EVP of the Combat Systems Group at General Dynamics. His undergraduate degree is in electrical engineering. See, White House release. Tom Ridge, the Secretary of Homeland Security, stated in a release that England's "experiences with mergers and the establishment of complex management and organizational systems have been critical to the effective start of the new department. One of his legacies of service will be his effort to lay the foundation for this new department."

8/22. President Bush made recess appointments of Charlotte Lane and Daniel Pearson to be a members of the U.S. International Trade Commission (USITC). President Bush nominated Lane on June 7, 2002 and again on January 9, 2003. President Bush nominated Pearson on November 14, 2002 and again on January 9, 2003. See, White House release. The Congress is currently in recess. These appointments avoid the Senate confirmation process. The Constitution provides that "The President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session." The USITC has authority under Section 337 (19 U.S.C. § 1337) to investigate unfair practices in import trade involving infringement of patents, copyrights, trademarks, and other intellectual property rights.

8/22. Federal Communications Commission (FCC) Chairman Michael Powell commented on President Bush's announcement on August 21 that he intends to nominate Michael Gallagher to be the head of the National Telecommunications and Information Administration (NTIA). The NTIA and FCC share spectrum management responsibilities. Powell stated that "As NTIA Deputy, Mike made significant contributions to a number of important initiatives and proceedings where the FCC and NTIA were coordinating efforts and resources. He is a highly knowledgeable and dedicated public servant and will continue be a great asset to the Department of Commerce. I have enjoyed a close working relationship with Nancy Victory in her years as head of NTIA, and look forward to continuing this spirit of cooperation with Mike Gallagher at the helm." See, FCC release [PDF].

Summary of FCC Triennial Review Order

8/21. The Federal Communications Commission (FCC) released its triennial review order [576 pages in PDF]. The order is consistent with the FCC's announcements made on February 20, 2003, but adds considerable detail. See, full story.

FCC Releases Triennial Review Order

8/21. The Federal Communications Commission (FCC) released its triennial review order [576 pages in PDF]. This is titled "Report and Order and Order on Remand and Further Notice of Proposed Rulemaking". See especially, Appendix B [HTML], which contains the final rules.

This is the proceedings titled "In the Matter of Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, and Deployment of Wireline Services Offering Advanced Telecommunications Capability", and numbered CC Docket No. 01-338, CC Docket No. 96-98, and CC Docket No. 98-147.

The FCC announced, but did not release, this order six months ago, on February 20, 2003.

See, stories titled "FCC Announces UNE Report and Order", "FCC Order Offers Broadband Regulatory Relief", "FCC Announces Decision on Switching", "Commentary: Republicans Split On FCC UNE Order", and "Congressional Reaction To FCC UNE Order" in TLJ Daily E-Mail Alert No. 609, February 21, 2003.

Editor's Note: The FCC published this order in the FCC website late on Thursday, August 21. Further coverage of this order will be published in the Monday, August 25 issue of the TLJ Daily E-Mail Alert.

Abernathy Praises FCC Broadcast Localism Initiative

8/21. Federal Communications Commission (FCC) Commissioner Kathleen Abernathy released a statement in which she expressed support for the FCC's broadcast localism initiative. On August 20, FCC Chairman Michael Powell announced the initiative, which includes creating a localism task force, issuing a notice of inquiry on localism, and speeding the activation of low power FM stations.

Kathleen AbernathyAbernathy (at right) stated that "I applaud Chairman Powell for taking positive and substantive steps to ensure that broadcasters continue to further the goal of localism in their communities. Regardless of who owns a station -- a local ``mom and pop´´ or a large media company -- each licensee has an obligation to serve its local community. Recently, concerns have been raised about whether certain practices do indeed serve local interests, and whether the Commission can do more to promote localism in television and radio. Thus, I am pleased that the Commission will consider whether changes in our rules, consistent with First Amendment principles, are appropriate and needed. I look forward to working with the Localism Task Force, my colleagues, public interest groups, and the industry to see how we can together advance this important goal."

See also, FCC release [3 pages in PDF], story titled "Powell Announces Localism in Broadcasting Initiative" in TLJ Daily E-Mail Alert No. 722, August 20, 2003, and story titled "Copps Criticizes Powell's Localism in Broadcasting Initiative" in TLJ Daily E-Mail Alert No. 723, August 21, 2003.

Meanwhile, the Media Access Project (MAP), stated in a release [PDF] that "Chairman Powell couldn't ignore the public outcry any longer. As a result, he is taking some very welcome steps, none of which offer the slightest reason to change our complete opposition to his June 2 decision decimating the FCC’s media ownership policies."

The MAP stated that "We certainly applaud the Chairman's efforts to expedite the creation of more low power FM stations. Now that the Congressionally mandated engineering study has vindicated what low power advocates have said for years, it is high time for the Commission to break up the logjam of existing applications and start the process of expanding the low power service." See also, MAP statement [PDF] on LPFM.

The MAP added that "The idea that ownership rules are unrelated to localism is absurd. Companies like Clear Channel and Sinclair Broadcasting have already exploited prior rule changes to eliminate locally originated news programming in favor of fake local newscasts beamed from thousands of miles away."

9th Circuit Issues Another Opinion in LANS v. Reuters

8/21. The U.S. Court of Appeals (9thCir) issued its split opinion [PDF] in Los Angeles News Service v. Reuters Television, another in the series of opinions arising out of the Los Angeles News Service's (LANS) enforcement of its copyrights in video of the 1992 Los Angeles riots. This opinion, Reuters IV, addresses "whether a news organization may recover actual damages under the Copyright Act for acts of infringement that mostly occurred outside the United States."

LANS made and copyrighted video of the riots, including the beating of Reginald Denny. It sold licenses to rebroadcast to others, including NBC, which used them on its television program named the Today Show. Visnews International (USA) is a joint venture of NBC, Reuters Television, and BBC. NBC transmitted the Today Show broadcast by fiber link to Visnews in New York. Visnews made a videotape copy, which it transmitted via satellite to its subscribers in Europe and Africa, and via fiber link to the New York office of the European Broadcast Union, a joint venture of Visnews and Reuters. The EBU made another copy of the works, and transmitted it to Reuters in London, which in turn distributed the copyrighted works to its own subscribers.

LANS filed a complaint against Reuters Television International, Inc., Reuters America Holdings, Inc., Reuters America, Inc. and Visnews in U.S. District Court (CDCal) alleging copyright infringement.

Judge O'Scannlain, writing for the majority, concluded that "the Copyright Act does not provide LANS recovery for actual damages resulting from Reuters's and Visnews's infringement.

Judge Silverman wrote a sarcastic dissent. He wrote that "In our previous decision, L.A. News Serv. v. Reuters Television Int’l, Ltd. (Reuters III), 149 F.3d 987 (9th Cir. 1998), we decided the very issue the majority now re-decides the other way. At that time, we identified the issue as whether ``a plaintiff may recover actual damages accruing from the unauthorized exploitation abroad of copyrighted work infringed in the United States.´´ Id. at 989. We held that it could."

He continued that "There are any number of ways to compute actual damages. Neither the Copyright Act, nor our prior decision in this case, nor any other case, limits the calculation of actual damages to only the infringer's ill-gotten profits. LANS should have been allowed to put on its proof of its actual damages, as we previously held it could. I would remand for a trial on actual damages (just as we did last time) except this time, I would add that we really, really mean it."

This case is Los Angeles News Service v. Reuters Television International, Ltd., No. 02-56956, an appeal from the U.S. District Court for the Central District of California, Judge Consuelo Marshall presiding, D.C. No. CV-95-01073-CBM.

Shumaker Pleads Guilty to Criminal Copyright Infringement

8/21. Mark Shumaker plead guilty in U.S. District Court (EDVa) to one count of criminal copyright infringement, in violation of 17 U.S.C. §506(a)(1) and 18 U.S.C. §2319 (b)(1), in connection with his distribution over the internet of copyrighted music, movies, software and games. See, Plea Agreement [13 pages in PDF].

The U.S. Attorneys Office (USAO), the Department of Justice's (DOJ) Computer Crimes and Intellectual Property Section (CCIPS), and Shumaker also submitted to the Court a Statement of Facts [6 pages in PDF] which states that Shumaker participated "in the so-called ``warez scene,´´ in particular his membership in the warez group Apocalypse Crew (``APC´´) and his support of the warez group Drink Or Die. APC was a warez organization that specialized in the unauthorized distribution of copyrighted music over the Internet. Among other things, APC sought to acquire digital copies of songs and albums before their commercial release in the United States; these songs or albums would then be distributed by APC members, in MP3 format, to Internet sites worldwide. The supply of such prerelease music was most often provided by music industry insiders, such as radio DJs or employees of music magazine publishers, who frequently receive advance copies of songs prior to their commercial release."

The Statement of Facts also recites that Shumaker "performed a number of important functions for APC and was among its core leadership. He operated the group's closed, invite-only IRC channel where members discussed group business and other warez scene activities; he served as a ``site op´´ for several FTP sites, where he and the other APC members had the administrative authority to add and remove authorized users of the site; and he acted as a ``courier´´ for APC, uploading and downloading pirated music, games, software, and movies to and from private warez FTP sites throughout the Internet."

Sentencing is scheduled for November 7, 2003.

John Malcolm, the Deputy Assistant Attorney General in charge of the CCIPS, stated in a USAO release [PDF] that "The conviction of Mark Shumaker is another example of the Department of Justice's aggressive attack against high-level Internet piracy groups that initiate the illegal distribution of copyrighted works over the Internet ... Music piracy, no less than software or movie piracy, is a crime and its victims are real; musicians deserve to be paid for their creativity and work."

Cary Sherman, President of the Recording Industry Association of America (RIAA), stated in a release that "We applaud Attorney General Ashcroft and the Department of Justice's enforcement against Mark Shumaker. The theft of music on the Internet is a serious crime, and this action shows that the Justice Department means business. Those who egregiously distribute music on the Internet should take note -- federal prosecution and jail time are real possibilities."

People and Appointments

Michael Gallagher8/21. President Bush announced his intent to nominate Michael Gallagher (at left) to be Assistant Secretary of Commerce for Communications and Information. This is the title of the person who heads the Department of Commerce's (DOC) National Telecommunications and Information Administration (NTIA). Nancy Victory resigned from this position on August 15, 2003. Frederick Wentland was named the Acting Assistant Secretary for Communications and Information. Gallagher is currently Deputy Chief of Staff at the DOC. Before that, he was Deputy Assistant Secretary for the NTIA. He has also worked for AirTouch Communications, former Rep. Rick White (R-WA) (who is now CEO of TechNet), and the law firm of Perkins Coie. See, White House release.

More News

8/21. The Copyright Office (CO) published a notice in the Federal Register describing, and requesting comments on, its proposed rules regarding rates and terms for the use of sound recordings in eligible nonsubscription transmissions made by noncommercial licensees, and for the making of related ephemeral recordings. Comments are due by September 22, 2003. See, Federal Register, August 21, 2003, Vol. 68, No. 162, at Pages 50493 - 50495.

8/21. The Bureau of Industry and Security (BIS), which is also still known as the Bureau of Export Administration (BXA), published a notice in the Federal Register that describes and recites a final rule amending the Export Administration Regulations (EAR). The notice states that this rule amends the EAR "to to add references to the Automated Export System (AES) and to conform the EAR to certain provisions of the Foreign Trade Statistics Regulations (FTSR) including provisions related to AES promulgated on July 17, 2003. It also conforms some terminology in part 758 to that found elsewhere in the EAR and updates references to another government agency to reflect a name change." This rule takes effect on September 22, 2003. See, Federal Register, August 21, 2003, Vol. 68, No. 162, at Pages 50470 - 50474.

Go to News from August 16-20, 2003.