FBI Makes Arrest In Connection With Variant of Blaster Worm

8/29. The Federal Bureau of Investigation (FBI) made an arrest in its investigation into the transmission of a variant of the "Blaster" internet worm. The Department of Justice (DOJ) charged Jeffrey Lee Parson by criminal complaint filed in U.S. District Court (WDWash) on August 28.

The criminal complaint alleges that he "knowingly caused and attempted to cause the transmission of a program, information, code, and command, that is, an Internet worm and packets of data sent in the form of a distributed denial of service attack, and as a result of that conduct, intentionally caused and attempted to cause damage, without authorization, to protected computers, that is, computers of Microsoft Corporation and other computers throughout the world that were used in interstate or foreign commerce or communication, causing an aggregate loss to Microsoft Corporation and other persons of at least $5,000", in violation of 18 U.S.C. §§ 1030(a)(5)(A)(i), (a)(5)(B)(i), (b) and (c)(4)(A).

The complaint continues that Parson "is responsible for, among other things, knowingly developing and releasing, and aiding and abetting the development and release of, onto the Internet a variant of the Blaster worm that infected at least 7,000 individual Internet users' computers, turned those computers into drones that attacked or attempted to attack Microsoft and, in particular, its web site www.windowsupdate.com." The complaint elaborates on the nature of worms and viruses, the vulnerability that the Blaster worm exploits, the nature of Blaster worm, the variant released by Parsons, and how the FBI determined that it was released by Parson.

The FBI has also obtained and executed search warrants for, among other locations, the home of Parson in Minneapolis, Minnesota. The FBI also obtained and executed a warrant for the arrest of Parsons.

See also, U.S. Attorneys Office (WDWash) release. Nothing in this release or the criminal complaint charging Parson provides information relating to the identification of the person(s) who released the original Blaster worm.

FBI Assistant Director (Cyber Division) Jana Monroe stated that "The FBI has placed investigating Cyber Crime as one of the top three priorities of the FBI behind counterterrorism and counterintelligence investigations."

On August 29, the Department of Homeland Security (DHS) stated in a release that that it "is actively involved in advancing the Federal government's interaction and partnership with industry and other organizations in the protection of this nation’s critical infrastructure. In June 2002, DHS created the National Cyber Security Division (NCSD) under the Department's Information Analysis and Infrastructure Protection Directorate. The NCSD worked with the FBI and USSS to do the initial technical analysis of the worm, to include breaking down the code to determine its targets. NCSD has continued to support federal agencies and the private sector in their  efforts to recover from the worm's effects."

See also, Microsoft statement and Business Software Alliance (BSA) release.

More Tech Crimes

8/29. A grand jury for the U.S. District Court (EDVa) returned an indictment [6 pages in PDF] of Helen Carr charging her with "conspiracy to possess, with intent to defraud and in a manner affecting interstate and foreign commerce, fifteen or more unauthorized access devices, and engaged in conduct in furtherance of the same", in violation of 18 U.S.C. § 1029(a)(3). The indictment charges that "The object of the conspirators' unlawful agreement was to steal and to obtain by fraudulent means unauthorized access devices, that is, credit card numbers, from persons using AOL as their Internet Service Provider (ISP)." The indictment further alleges that the conspirators sent "false e-mails, purporting to be from AOL’s Security Department, advised that AOL’s last attempt to bill the subscriber’s credit card was declined and that the subscriber needed to supply AOL with updated credit card and account information. To do so, the subscribers were directed to click upon an enclosed link in the e-mail message to visit an AOL web page." This web page was a phony "AOL Billing Center" that "directed the subscribers to input their names, addresses, telephone numbers, screen names, passwords, and current and new credit card account information, in order to avoid having their AOL accounts terminated." See also, USAO release.

8/29. The U.S. District Court (EDVa) sentenced Billy J. Brown to serve 12 months in prison, and pay a $1,000 fine, following his plea of guilty to creating and selling musical compact discs in violation of the criminal copyright laws. See, USAO release [PDF] and CCIPS release.

ILECs File Petitions for Writ of Mandamus Challenging Triennial Review Order

8/29. On August 28, the U.S. Telecom Association (USTA), SBC Communications, BellSouth and Qwest filed a petition for writ of mandamus with the U.S. Court of Appeals (DCCir) seeking a stay of part of the Federal Communications Commission's (FCC) recently released triennial review order [576 pages in PDF]. This petition was filed in the Appeals Court proceeding numbered 00-1012 (consolidated proceedings). These pertain to the petitions for review of the FCC's previous unbundling order. The present petition asserts that the triennial review order flouts and defies the previous opinion of the Court, and seeks a writ of mandamus staying part of the order. Also on August 28, Verizon filed a parallel petition for writ of mandamus with the same court, seeking broader relief.

This is an unusual procedure to follow. While both filings challenge the recently released triennial review order (TRO), neither of these filings is a petition for review of any part of the TRO. Indeed, at the close of business on Friday, August 29, no petition for review of the FCC's TRO had been filed with the Clerk of the U.S. Court of Appeals (DCCir).

Background. The FCC announced its triennial review order [576 pages in PDF] on February 20, 2003, but did not release the text until August 21, 2003. See, TLJ story titled "Summary of FCC Triennial Review Order", also published in TLJ Daily E-Mail Alert No. 725, August 25, 2003. See also, 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.

The TRO addressed many subjects. While much of the coverage of the TRO in TLJ has focused on the broadband related provisions, the petitions for writ of mandamus go to the provisions regarding unbundled network element platform, or UNE-P.

This TRO is the third time that the FCC has promulgated rules regarding UNE-P. The first came shortly after the Congress enacted the Telecom Act of 1996, which created unbundling obligations of incumbent local exchange carriers (ILECs), such as Verizon, SBC, Qwest and BellSouth. Unbundled network elements (UNEs) are those portions of telephone networks that the ILECs must make available to competing carriers, such as AT&T and WorldCom. The 1996 Act provides that ILECs must provide access to certain of their network elements at regulated rates.

47 U.S.C. § 251(c)(3) provides that ILECs have "The duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory in accordance with the terms and conditions of the agreement and the requirements of this section and section 252 of this title. An incumbent local exchange carrier shall provide such unbundled network elements in a manner that allows requesting carriers to combine such elements in order to provide such telecommunications service."

Then, 47 U.S.C. 251(d)(2) provides that "In determining what network elements should be made available for purposes of subsection (c)(3) of this section, the Commission shall consider, at a minimum, whether --
  (A) access to such network elements as are proprietary in nature is necessary; and
  (B) the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer."

The Supreme Court vacated the FCC's first unbundling order in AT&T v. Iowa Utilities Board, 525 U.S. 366 (1999).

The FCC then promulgated its second unbundling order, in its proceeding titled "Implementation of the Local Competition Provisions of the Telecommunications Act of 1996"; see, Third Report and Order and Fourth Further Notice of Proposed Rulemaking, published at 15 FCC Rcd 3696 (1999). But, the U.S. Court of Appeals (DCCir) vacated this order in USTA v. FCC, 290 F.3d 415 (2002). And, the Supreme Court denied certiorari.

The FCC then promulgated it third unbundling order, contained in the just released TRO.

The FCC voted 3-2 on the UNE-P provisions of the TRO, with Chairman Michael Powell and Commissioner Kathleen Abernathy dissenting. The arguments advanced by the ILECs in their petitions for writ of mandamus parallel those of Powell and Abernathy in their dissents.

Chairman Powell stated on February 20, 2003 that the order "flouts the D.C. Circuit mandate" in USTA v. FCC, and that "The legal errors of today's decision are many to my mind". See, Powell statement [PDF].

Powell continued that "I find a Commission majority for the third time in seven years substituting its preferences for a heavily permissive unbundling regime for Congress's judgment that no element should be provided unless the Commission can affirmatively conclude that a competitor is impaired without it. The Supreme Court admonished that the FCC had to put forth a meaningful limiting principle in making its decisions. The Commission’s second attempt also failed, when the D.C. Circuit vacated our rules last summer. The court emphasized that the Commission could not treat unbundling as an unqualified good and had to consider the social costs as well. It also admonished that the standard employed and applied by the FCC had to demonstrate that a typical entrant was effectively prohibited from entering the market due to barriers associated with the monopoly power of the incumbent and not just typical start up costs or costs naturally associated with entry. Today, the majority flouts the D.C. Circuit mandate."

Powell also wrote that "The legal errors of today’s decision are many to my mind, but I emphasize a few of the most egregious. First, the majority places switching on the list without making an affirmative finding of impairment based on a thorough analysis of sufficiently granular criteria. Cleverly, they state only a presumption that there is impairment that can subsequently be addressed by state commission proceedings to either defeat the presumption and take switching off the list, or affirm it and leave switching on the list. Remarkably, however, the national rule requires the switching element on little more than a presumptive intuition and even fails to really apply the Commission’s own articulated impairment standard. I believe this to be reversible error."

Commissioner Abernathy stated on February 20, 2003 that there is a "significant prospect that the majority’s approach will not survive judicial scrutiny." See, statement [PDF]. She then went on to outline the reasons that it is inconsistent with the statute.

Petitioners' Arguments. The USTA petition argues that "For seven years, incumbent telephone companies have been forced to share all elements of their networks with competitors without ever being subject to a lawful unbundling order."

It asserts that FCC "has gone through extraordinary contortions to preserve what this Court correctly disparaged as ``synthetic competition´´ -- i.e., the use by competitors of an artificial regulatory construct known as the ``Unbundled Network Element Platform´´ (or ``UNE-P´´) to obtain all of the elements necessary to provide telephone service at heavily discounted rates, without any network investment or even maintenance obligations of their own."

It continues that "the FCC is still mandating the same ``blanket access to incumbents' networks´´ that the Supreme Court found untenable in 1999 and this Court rejected in 2002."

The USTA petition requests that the Appeals Court "vacate the FCC's rules governing the unbundling of mass-market switching and high-capacity facilities. It should also direct the Commission, within 45 days, to review the detailed record it has already created and apply an impairment standard for those elements that accords with this Court's mandate. Consistent with the statutory requirement that a lawful finding of impairment must precede unbundling, the FCC should also be directed -- if it is unable to justify continued unbundling under the proper legal standards -- to put a halt to new UNE-P customers and adopt a plan to end existing UNE-P arrangements. The Court should also retain jurisdiction over this matter so that it may promptly address and rectify any further FCC recalcitrance."

The Verizon petition addresses the same issues as the USTA petition. However, while the USTA petition challenges only the TROS's unbundling provisions regarding switching and high-capacity loops, the Verizon petition challenges the TRO's unbundling provisions pertaining to switching, high capacity loops, transport, and dark fiber facilities.

A Petition For Writ of Mandamus?

8/29. On August 28, incumbent local exchange carriers (ILECs), and the U.S. Telecom Association (USTA), a group that represents the ILECs, filed two petitions for writ of mandamus with the U.S. Court of Appeals (DCCir) seeking rapid review of the UNE-P unbundling provisions of the Federal Communications Commission's (FCC) just released triennial review order [576 pages in PDF]. The usual procedure for challenging a final order of the FCC to to file a petition for review. The ILECs' unusual procedure raises several questions, including: What is a petition for writ of mandamus, and, why did the petitioners file them?

What is a Petition for Writ of Mandamus? A petition for writ of mandamus is not a common proceeding. Many readers may have encountered this writ only in reading about the most famous case involving a petition for writ of mandamus -- Marbury v. Madison, 5 U.S. 137, the landmark Supreme Court case that established the concept of judicial review during the Presidency of Thomas Jefferson.

Marbury was a Federalist appointed to office by President John Adams during the closing days of his administration. However, Adams has failed to delivery his commission to him. Thomas Jefferson, a Democrat, was elected President in 1800. The Democrats repealed the statute creating the position to which Marbury was appointed, and Jefferson refused to deliver the commission. Marbury sued James Madison, Jefferson's Secretary of State, seeking a writ of mandamus ordering him to deliver the commission for office. In the end, the Supreme Court ruled that Madison and Jefferson did not have to deliver the commission, because the statute which gave the Supreme Court authority to issue writs of mandamus was unconstitutional.

Justice Marshall wrote the opinion of the Supreme Court. He stated that "Blackstone, in the third volume of his Commentaries, page 110, defines a mandamus to be, ``a command issuing in the king's name from the court of king's bench, and directed to any person, corporation, or inferior court of judicature within the king's dominions, requiring them to do some particular thing therein specified which appertains to their office and duty, and which the court of king's bench has previously determined, or at least supposes, to be consonant to right and justice.´´"

Justice Marshal continued: "Lord Mansfield, in 3 Burrows, 1266, in the case of The King v. Baker et al. states with much precision and explicitness the cases in which this writ may be used."

"``Whenever,´´ says that very able judge, ``there is a right to execute an office, perform a service, or exercise a franchise (more especially if it be in a matter of public concern or attended with profit), and a person is kept out of possession, or dispossessed of such right, and has no other specific legal remedy, this court ought to assist by mandamus, upon reasons of justice, as the writ expresses, and upon reasons of public policy, to preserve peace, order and good government.´´ In the same case he says, ``this writ ought to be used upon all occasions where the law has established no specific remedy, and where in justice and good government there ought to be one.´´"

Marshall added that "Still, to render the mandamus a proper remedy, the officer to whom it is to be directed, must be one to whom, on legal principles, such writ may be directed; and the person applying for it must be without any other specific and legal remedy."

While writs of mandamus have been little used since the days of Blackstone and Marshall, they are addressed in Title 28, the Federal Rules of Appellate Procedure (FRAP), and the Circuit Rules for the District of Columbia. However, each of these provides procedural rules for mandamus, rather than rules regarding when they are available.

The FRAP address writs of mandamus at Rule 21. The DC Circuit Rules also address writs of mandamus, at Rule 21. See, Circuit Rules [194 pages in PDF] with the FRAP

Perhaps it is worth noting that 28 U.S.C. § 1361, which pertains to an "Action to compel an officer of the United States to perform his duty", provides that "The district courts shall have original jurisdiction of any action in the nature of mandamus to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff."

However, 28 U.S.C. § 1651, which pertains to "Writs", provides that "The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." Not surprisingly, the USTA petition cites Section 1651, but not Section 1361. Moreover, there is precedent for the Court of Appeals issuing a writ of mandamus to the FCC.

The Court of Appeals recently issued a writ of mandamus to the FCC in another long running proceeding. On October 11, 2000, the Court issued its opinion and order in Radio Television News Directors Association v. FCC, which contains a writ of mandamus directing the FCC "immediately to repeal the personal attack and political editorial rules."

However, while the unbundling issue has been ongoing for seven years, the FCC had been delaying on the personal attack and political editorial rules for twenty years. Also, in that case, the Court found that the FCC had "ignored" the Court's last remand order by doing nothing, while in the present case the FCC continues to churn out lengthy unbundling orders. The just released TRO is 576 pages. The 1999 unbundling order was 262 pages. The 1996 order was 737 pages.

Moreover, the FCC added insult to delay in the RTNDA case. Just days before the DC Circuit was to rule in 2000, the FCC issued an order that suspended the personal attack and political editorial rules for 60 days, and then asserted to the Appeals Court, with comic audacity, that the whole issue was mooted. See also, coverage of RTNDA v. FCC in TLJ Daily E-Mail Alert No. 41, October 13, 2000.

Why File a Petition for Writ of Mandamus? The petitioners stated their reasons for filing a petitions for writs of mandamus. The USTA brief states that "The consequences of this extraordinary abdication of responsibility (and evasion of this Court's mandate) are devastating for petitions, for the industry, and ultimately for consumers. Since the FCC first adopted it unlawful unbundling regulations, the three incumbent petitioners have lost more than nine million customers to the wholly synthetic competition of the UNE-P." (Parentheses in original.)

The USTA brief argues that "This case fits squarely within this Court's precedents defining the conditions for mandamus. The FCC's blatant disregard of this Court's mandate and of the FCC's statutory obligations -- a disregard that the FCC's own Chairman has pointedly exposed -- threatens immense, immediate, and irreparable harm to petitioners and to the competitive market that Congress sought to create. It is simply intolerable to require the incumbent telephone companies to petition for review a third time to obtain the relief to which they are entitled under this Court's decision, the Supreme Court's 1999 decision, and the 1996 Act itself."

Verizon states in its petition that "The remedy of mandamus exists for cases like this." It adds that "The FCC has perpetuated an unlawful unbundling regime for seven year through regulatory manipulation and exploitation of the time lag inherent in judicial review. The intervention of this Court is essential to put an end to these machinations."

There are several significant differences between a petition for review and petition for writ of mandamus.

First, if granted, a writ of mandamus would likely issue within a much shorter time frame than an opinion in a proceeding on a petition for review. Hence, by pursuing a petition for writ of mandamus, the ILECs may obtain quicker relief.

For example, FRAP 21 provides that "The proceeding must be given preference over ordinary civil cases." Similarly, Circuit Rule 21 provides that "No responsive pleading to a petition for an extraordinary writ to the district court or an administrative agency, including a petition seeking relief from unreasonable agency delay, is permitted unless requested by the court."

Second, if the petitioners succeed in obtaining review by the Court of Appeals under their petition for writ of mandamus, they are likely to obtain review by the same three judge panel that issued the opinion in USTA v. FCC. This opinion demonstrates that these three judges are already favorably disposed to the ILECs on the UNE-P issue. In contrast, a new petition for review would be assigned randomly to a new three judge panel. Its members might not be so favorably disposed to the position of the ILECs.

Third, the FCC's TRO is likely, both in the coming weeks, and for years, to generate numerous legal challenges. Some will be brought in Courts less favorable disposed to the position of the ILECs than the DC Circuit. Moreover, multiple petitions for review of the same order, brought in different circuits, may be consolidated into one proceeding, which may be a circuit other than the District of Columbia. The present petitions for writ of mandamus are not petitions for review. Thus, by using the procedure of petition for writ of mandamus, the ILECs may increase the likelihood that their arguments will be heard by their chosen circuit.

With respect to obtaining the same three judge panel, and obtaining review in the District of Columbia, it might be argued that there are elements of both judge shopping and forum shopping in this procedure. And indeed, supporters of the UNE-P provisions of the TRO have already argued this.

For example, Russell Frisby, President of CompTel, stated in a release [PDF] that "The USTA petition ignores both the facts and the law. USTA is simply engaged in a blatant attempt at forum shopping. The petition should be summarily rejected."

Michigan Commissioner Robert Nelson, the Chair of National Association of Regulatory Utility Commissioners's (NARUC) Telecommunications Committee, stated that "Whatever your opinion of the FCC's Order, it is certainly not an appropriate target for the extraordinary remedy of a mandamus petition. The FCC certainly did not flatly ignore or ``defy´´ the D.C. Circuit's mandate or the text of the statute. Indeed, the text of the Order goes to great lengths to explain precisely how it is complying with both the statutory constraints and the D.C. Circuit's mandate specifically providing for the granular analysis that was the most prominent feature of the Court's decision. Stripped to essentials, this petition is simply an appeal conveyed to the Court in an inappropriate procedural envelope." Nelson added that "We will oppose the motion." See, NARUC release [PDF].

More Intellectual Property Rights News

8/29. The Recording Industry Association of America (RIAA) stated in a release that "Shipments of music products to retail outlets declined nearly 10 percent in the first half of 2003, representing a nine percent drop in dollar value compared with the first six months of 2002 ..." RIAA President Cary Sherman stated that "While there are other factors contributing to the decline of music shipments in 2003, including the fact that there are significantly fewer music retail locations, illegal file ‘sharing’ continues to adversely impact the sale of physical CDs ... We believe the use of these illegal peer-to-peer services is hurting the music industry’s efforts to distribute music online in the way consumers demand."

8/29. The International Intellectual Property Alliance (IIPA) submitted a paper [5 pages in PDF] to the Americas Business Forum (ABF), Workshop on Intellectual Property Rights. The paper argues that the Free Trade of the Americas Agreement (FTAA) should include a chapter on intellectual property rights.

OMB Proposes Peer Review of Scientific Findings of Regulatory Agencies

8/29. The Office of Management and Budget (OMB) released a document [14 pages in PDF] titled "Peer Review and Information Quality". It states that the OMB, in coordination with the Office of Science and Technology Policy (OSTP), propose "to issue new guidance to realize the benefits of meaningful peer review of the most important science disseminated by the federal government regarding regulatory topics."

This document states that for "decades, the American academic and scientific communities have withheld acknowledgement of scientific studies that have not been subject to rigorous independent peer review", and that scientific research conducted by or for federal regulatory agencies could benefit from the same process.

It continues that "Independent peer review is especially important for information that is relevant to regulatory policies. Agencies often develop or fund the science that underlies their regulations, and then oversee the peer review of those studies. Unless the peer review is conducted with genuine independence and objectivity, this can create at least the appearance of a conflict-of-interest. For example, it might be thought that scientists employed or funded by an agency could feel pressured to support what they perceive to be the agency’s regulatory position, first in developing the science, and then in peer reviewing it. Scientists with a financial interest in the subject matter of a study (e.g., ties to a regulated business) face a similar issue."

Both the OMB and the OSTP are a part of the Executive Office of the President (EOP). The document states that the deadline for public comment on this matter is October 28, 2003.

More FCC News

8/29. The Federal Communications Commission (FCC) released its Notice of Proposed Rulemaking (NPRM) [63 pages in PDF] in its proceeding titled "In the Matter of Amendment of Parts 73 and 74 of the Commission’s Rules to Establish Rules for Digital Low Power Television, Television Translator, and Television Booster Stations and to Amend Rules for Digital Class A Television Stations". The FCC announced, but did not release, this NPRM at its August 6, 2003 meeting. See, August 6 FCC release [PDF]. This is MB Docket No. 03-185. The FCC has not yet published a notice of the NPRM in the Federal Register. However, comments will be due within 60 after publication in the Federal Register, and reply comments will be due within 90 after publication in the Federal Register. For more information, contact Keith Larson at klarson@fcc.gov or 202 418-2607.

8/29. AT&T Wireless, Cingular Wireless, and AllTel filed a petition for writ of mandamus to the Federal Communications Commission (FCC) with the U.S. Court of Appeals (DCCir). They seek a writ staying or enjoining the November 24, 2003 deadline for wireless carriers to provide number portability pursuant to 47 C.F.R. 52.31.

People and Appointments

8/29. MCI WorldCom appointed five new members to its Board of Directors: Eric Holder, Laurence Harris, Grant Gregory, Judith Haberkorn, and David Matlin. Holder is a partner in the law firm of Covington & Burling. He was Deputy Attorney General, and before that, U.S. Attorney for the District of Columbia, during the Clinton administration. Harris has been a partner in the law and lobbying firm of Patton Boggs since 2001. Before that, he was SVP and General Counsel of Teligent. He also previously worked for MCI. Gregory is a former Touche Ross Chairman. Haberkorn is a retired Bell Atlantic executive. Matlin is CEO of MatlinPatterson Global Advisers. See, release.

9th Circuit Holds That An Unlawful Subpoena to ISP for E-Mail Can Violate the Stored Communications Act

8/28. The U.S. Court of Appeals (9thCir) issued its opinion [15 pages in PDF] in Theofel v. Farey-Jones, a case regarding Rule 45 subpoenas (which are essentially issued by the litigants' attorneys) which are directed to internet service providers. The Appeals Court held that overbroad subpoenas for e-mail messages may give rise to a private right of action under the Stored Communications Act or the Computer Fraud and Abuse Act (but not the Wiretap Act). This opinion should serve as a cautionary warning to attorneys who serve rule 45 subpoenas on ISPs, or other non-party entities that hold stored electronic records. The opinion does not address subpoenas obtained under Section 512(h) of the Digital Millennium Copyright Act (DMCA); but the the analysis of the Court could be extended to these subpoenas as well.

Background. This case arose out of earlier civil litigation in New York between two officers of Integrated Capital Associates (ICA), Douglas Wolf and Richard Buckingham, and Alwyn Farey-Jones. Farey-Jones' lawyer in the New York litigation was Iryna Kwasny.

Farey-Jones told Kwasny to subpoena ICA's internet service provider (ISP), NetGate, for e-mail. Kwasny served a subpoena, pursuant to FRCP 45, on NetGate that ordered production of "[a]ll copies of emails sent or received by anyone" at ICA, without limitation as to time or scope. Kwasny provided no notice to ICA. NetGate, which was not represented by counsel, partially complied by producing a sample of such e-mail. Much of it was unrelated to the litigation, and personal or privileged.

Federal Rules of Civil Procedure (FRCP) 45(a) provides that "The clerk shall issue a subpoena, signed but otherwise in blank, to a party requesting it, who shall complete it before service. An attorney as officer of the court may also issue and sign a subpoena on behalf of (A) a court in which the attorney is authorized to practice ..."

Rule 45(c) provides that "A party or an attorney responsible for the issuance and service of a subpoena shall take reasonable steps to avoid imposing undue burden or expense on a person subject to that subpoena."

When Wolf and Buckingham learned of the subpoena, and production, they moved to quash the subpoena, and for sanctions. The District Court in New York found that "the subpoena, on its face, was massively overbroad" and "patently unlawful," that it "transparently and egregiously" violated the FRCP. The District Court also found "bad faith" and "at least gross negligence in the crafting of the subpoena." The Court quashed the subpoena, and sanctioned Kwasny and Farey-Jones over $9000. Then, the present litigation began.

District Court. George Theofel, who was one of the persons whose e-mail was given to Kwasny and Farey-Jones, and other employees and officers of ICA, whose e-mail was produced, filed a complaint in U.S. District Court (NDCal) against Farey-Jones and Kwasny alleging violation of the Stored Communications Act, 18 U.S.C. § 2701 et seq., the Wiretap Act, 18 U.S.C. § 2511 et seq., the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, and various state laws. The District Court dismissed the federal claims, and then declined to exercise jurisdiction over the the state law claims.

Appeals Court. Judge Alex Kozinski wrote the opinion for the unanimous three judge panel, reversing in part, affirming in part, and remanding. The Court reversed the dismissal of the Stored Communications Act (SCA) claim, affirmed the dismissal of the Wiretap Act claim, affirmed the dismissal of the Computer Fraud and Abuse Act (CFAA) claim, but allowed plaintiffs leave to amend, and instructed the District Court that since some of the federal claims are restored, it should also exercise jurisdiction over the related state law claims.

Stored Communications Act. First, the Court of Appeals addressed the Stored Communications Act. It provides, at 18 U.S.C. § 2701, that whoever "intentionally accesses without authorization a facility through which an electronic communication service is provided ... and thereby obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage", violates the Act. 18 U.S.C. § 2707 gives a private civil right of action to "any provider of electronic communication service, subscriber, or other person aggrieved by any violation".

The subpoenaing defendants defended on the grounds that the ISP, NetGate, had "authorized" the access to the e-mail. It had voluntarily provided them to the defendants.

While the District Court was persuaded by this argument, Judge Kozinski and his colleagues were not. He reasoned that the private right of action under the Stored Communications Act is in the nature of a tort action for trespass. Therefore, the Court will turn to definitions of terms found in the common law of tort.

The Court wrote that "Like the tort of trespass, the Stored Communications Act protects individuals' privacy and proprietary interests. The Act reflects Congress’s judgment that users have a legitimate interest in the confidentiality of communications in electronic storage at a communications facility. Just as trespass protects those who rent space from a commercial storage facility to hold sensitive documents, ... the Act protects users whose electronic communications are in electronic storage with an ISP or other electronic communications facility." (Citation omitted.)

The Court noted too that, just as the SCA provides that there is no liability if the access was "authorized", "A defendant is not liable for trespass if the plaintiff authorized his entry." But, the Court wrote that in the law of trespass, there is no authorization, despite an overt manifestation of consent, "if the defendant knew, or probably if he ought to have known in the exercise of reasonable care, that the plaintiff was mistaken as to the nature and quality of the invasion intended." That is, deceit can sometimes invalidate consent. (The Court's cited authorities on tort law were primarily Prosser and Keeton and the Restatement (Second) of Torts.)

The Court concluded that "Permission to access a stored communication does not constitute valid authorization if it would not defeat a trespass claim in analogous circumstances. Section 2701(c)(1) therefore provides no refuge for a defendant who procures consent by exploiting a known mistake that relates to the essential nature of his access."

The Court also offered a final word of caution to attorneys who use Rule 45 subpoenas. "The subpoena power is a substantial delegation of authority to private parties, and those who invoke it have a grave responsibility to ensure it is not abused. Informing the person served of his right to object is a good start, see Fed. R. Civ. P. 45(a)(1)(D), but it is no substitute for the exercise of independent judgment about the subpoena’s reasonableness. Fighting a subpoena in court is not cheap, and many may be cowed into compliance with even overbroad subpoenas, especially if they are not represented by counsel or have no personal interest at stake."

Wiretap Act. Next, the Court affirmed the dismissal of the Wiretap Act claim. 18 U.S.C. § 2511 provides that whoever "intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept, any wire, oral, or electronic communication" violates the Act. 18 U.S.C. § 2520 provides a private right of action.

The Court held that its 2002 opinion [39 pages in PDF] in Konop v. Hawaiian Airlines, published at 302 F.3d 868, is controlling. In that case the Court held that the Wiretap Act only applies to "acquisition contemporaneous with transmission", not to acquisition of stored communications. The defendants in the present case only acquired stored e-mail.

See also, TLJ story titled "9th Circuit Rules on Application of Wiretap Act and Stored Communications Act to Secure Web Sites", August 23, 2002, also published in TLJ Daily E-Mail Alert No. 498, August 26, 2002.

Computer Fraud and Abuse Act. Finally, the Court affirmed the dismissal of the CFAA claim, but reversed that portion of the District Court's order that denied the plaintiffs leave to amend.

The CFAA provides a private cause of action against whoever "intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains ... information from any protected computer if the conduct involved an interstate or foreign communication." See, 18 U.S.C. § 1030.

The District Court dismissed without leave to amend on the theory that the CFAA does not apply to unauthorized access of a third party's computer, and for failure to allege damages or loss. The Appeals Court held that "The district court erred by reading an ownership or control requirement into the Act."

It elaborated that "Nothing in the provision's language supports the district court’s restriction. Individuals other than the computer’s owner may be proximately harmed by unauthorized access, particularly if they have rights to data stored on it."

The defendants also argued that there was no violation of the CFAA because the ISP had authorized the access. The Appeals Court rejected this argument for the same reason that it rejected the same argument under the SCA claim.

Hence, the plaintiffs might ultimately amend, and prevail in, their CFAA claim.

Noerr-Pennington Doctrine. Finally, the defendants argued that they are immune from liability under the SCA, the Wiretap Act, and the CFAA, because they are protected by the Noerr Pennington doctrine, which, the Appeals Court stated, "exempts petitioning of public authorities from civil liability on First Amendment grounds".

The Court wrote that "We are skeptical that Noerr-Pennington applies at all to the type of conduct at issue. Subpoenaing private parties in connection with private commercial litigation bears little resemblance to the sort of governmental petitioning the doctrine is designed to protect. Nevertheless, assuming arguendo the defense is available, it fails. Noerr-Pennington does not protect ``objectively baseless´´ sham litigation."

Commentary: DMCA Subpoenas. This case is not about the DMCA. The Appeals Court opinion does not even reference the DMCA.

Nevertheless, it should be noted that 17 U.S.C. § 512(h) provides, in part, that "A copyright owner or a person authorized to act on the owner's behalf may request the clerk of any United States district court to issue a subpoena to a service provider for identification of an alleged infringer in accordance with this subsection." Subsection 512(h)(5) then provides, in part, that "Upon receipt of the issued subpoena, ... the service provider shall expeditiously disclose to the copyright owner or person authorized by the copyright owner the information required by the subpoena, notwithstanding any other provision of law and regardless of whether the service provider responds to the notification."

Section 512 subpoenas are issued by a court clerk, and must be supported by a sworn declaration. However, the clerk's role is largely ministerial. Subsection 512(h)(4) provides that "If the notification filed satisfies the provisions of subsection (c)(3)(A), the proposed subpoena is in proper form, and the accompanying declaration is properly executed, the clerk shall expeditiously issue and sign the proposed subpoena ...". Moreover, there is no requirement that notice be given to the alleged infringer, or anyone other than the clerk of the court, and the service provider.

Rule 45 subpoenas, like subpoenas issued by the District Court under Section 512, are both essentially drafted by the litigating attorneys, served upon non-party service providers, and seek information about subscribers (who may not be a party to any proceeding). While the ISPs are usually large entities, like Verizon, that are well represented by legal counsel, some ISPs are small, unrepresented, and like NetGate, apt to comply with an illegal subpoena because they are, as Judge Kozinski noted, "cowed into compliance with even overbroad subpoenas".

Hence, the reasoning of the Appeals Court in the Theofel case might also be extended to Section 512 subpoenas. And so, a subscriber of an ISP that provided stored communications information about that subscriber to the copyright holder, pursuant to a Section 512 subpoena that was egregiously overbroad, might assert a claim against the copyright holder for violation of the Stored Communications Act or the Computer Fraud and Abuse Act.

Of course, Section 512(f) already provides a private cause of action against copyright holders who "knowingly materially misrepresents ... that material or activity is infringing". But, the two remedies are different. Also, the SCA and CFAA remedies are broader. For example, the Section 512 requires knowledge, while the mental state in the Theofel case was "bad faith" and "at least gross negligence".

For more information on Section 512 subpoenas, see TLJ stories about the dispute between Verizon and the Recording Industry Association of America (RIAA). See, stories titled "RIAA Seeks to Enforce Subpoena to Identify Anonymous Infringer" in TLJ Daily E-Mail Alert No. 499, August 27, 2002; "Verizon and Privacy Groups Oppose RIAA Subpoena" in TLJ Daily E-Mail Alert No. 501, September 4, 2002; "District Court Rules DMCA Subpoenas Available for P2P Infringers" in TLJ Daily E-Mail Alert No. 588, January 22, 2003; "Law Professor Submits Apocalyptic Declaration in RIAA v. Verizon" in TLJ Daily E-Mail Alert No. 596, February 3, 2003; "DOJ Files Brief in Support of RIAA in Verizon Subpoena Matter" in TLJ Daily E-Mail Alert No. 646, April 22, 2002; "District Court Rules That A DMCA § 512(h) Subpoena for the Identity of an P2P Infringer Does not Violate the Constitution" in TLJ Daily E-Mail Alert No. 649, April 25, 2003; and "Court of Appeals Denies Stay in RIAA v. Verizon" in TLJ Daily E-Mail Alert No. 674, June 5, 2003. See also, TLJ story titled "Pacific Bell Internet Services Sues RIAA Over Infringer Subpoenas", July 30, 2003.

This case is George Theofel, et al. v. Alwyn Farey-Jones and Iryna Kwasny, Nos. 02-15742 and 03-1530, appeals from the U.S. District Court for the Northern District of California, D.C. No. CV-01-04166-MMC, Judge Maxine Chesney presiding.

6th Circuit Holds That Doctrine of Laches, Not Statute of Limitations, Applies in Cybersquatting Cases

8/28. The U.S. Court of Appeals (6thCir) issued its opinion in Ford v. Catalanotte, a cybersquatting case. The Appeals Court affirmed the District Court judgment that the Catalanotte must transfer the domain name, fordworld.com to the Ford Motor Company. The Appeals Court also held that the ACPA applies retroactively, and that the doctrine of laches, rather than any fixed statute of limitations, applies to whether suit under the ACPA should be barred for delay in filing.

Background. Peter Catalanotte registered the domain name fordworld.com in January 1997. Catalanotte, an employee of Ford Motor Company, was aware that Ford published a magazine titled Ford World. Catalanotte made no use of the domain name. In October 2000 he wrote to Ford in an attempt to sell the domain name.

District Court. Ford filed a complaint in November 2000 in U.S. District Court (EDMich) against Catalanotte alleging violation of the Anticybersquatting Consumer Protection Act (ACPA), trademark dilution, trademark infringement, and false designation of origin.

Appeals Court. The Appeals Court, with few words, found that Ford had demonstrated that Catalanotte violated the ACPA. He registered and trafficked in a domain name that is identical or confusingly similar to a distinctive mark, and he did so with bad faith intent to profit. See, 15 U.S.C. § 1125(d). The bulk of the opinion then addressed other issues raised by Catalanottte, including retroactivity and whether a statute of limitations applies.

The Appeals Court held, as other courts have held, that the ACPA applies retroactively to domain name registrations that occurred prior to the effective date of the statute. The Appeals Court cited, for example, the opinion of the U.S. Court of Appeals (4thCir) in PETA v. Doughney, published at 263 F.3d 359. See also, story titled "4th Circuit Affirms Judgment Against Parody Web Site Operator" in TLJ Daily E-Mail Alert No. 256, August 24, 2001. The Appeals Court further held that Ford may recover damages under the ACPA that occurred prior to the effective date of the statute.

The Appeals Court also rejected Catalanotte's statute of limitations defense. The complaint was filed over three years after the registration, but one month after Ford was notified of the registration. The ACPA contains no statute of limitations. Catalanotte argued that a state three year statute of limitations on federal claims should apply. The Appeals Court rejected this argument. The Court held that for Lanham Act claims, the doctrine of laches applies. This doctrine requires that the party asserting it show a lack of diligence by the party against whom the defense is asserted, and prejudice to the party asserting it. The Court found that Catalanotte could not show either element. Hence, Ford's action is not barred.

This case is Ford Motor Company v. Peter Catalanotte, No. 02-1237, an appeal from the U.S. District Court for the Eastern District of Michigan, at Detroit, Judge Robert Cleland presiding, D.C. No. 00-75260.

FCC Speeds LPFM Licensing

8/28. The Federal Communications Commission's (FCC) Media Bureau (MB) announced a settlement period for the mutually exclusive Low Power FM (LPFM) new station applicants. The MB stated that "This universal settlement period is designed to facilitate the rapid licensing of new LPFM stations." See, FCC release [3 pages in PDF]. This settlement period applies to applications listed on Attachment A [6 pages in PDF].

On August 20, FCC Chairman Michael Powell announced a "Localism in Broadcasting Initiative". This speeding of licensing of LPFM stations is a part of that initiative. See, story titled "Powell Announces Localism in Broadcasting Initiative" in TLJ Daily E-Mail Alert No. 722, August 20, 2003. See also, FCC release on this initiative.

The FCC elaborated that "During this filing period, the Commission will waive Section 73.871 to permit settling applicants to file major change amendments specifying new FM channels. This limited waiver policy will allow settling applicants to use all available FM channels to resolve technical conflicts and obtain construction permits."

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8/28. The U.S. District Court (DC) issued an order [2 pages in PDF] in In Re Verizon Internet Services striking Doe's Motion to Expedite Hearing on Jane Doe's Motion to Stay. The Court summarized the proceeding. "On July 9, 2003, a subpoena was issued to Verizon Internet Services, Inc. by this Court. On August 7, 2003, Recording Industry Association of America ("RIAA") moved to enforce the subpoena. On August 21, 2003, intervenor applicant, Jane Doe ("Doe"), moved for leave to intervene, to stay the motion to enforce, and to expedite the hearing on her motion to stay." The Court noted that, in violation of the local rules, "Doe's motion to expedite the hearing was not accompanied by a proposed order nor any indication that RIAA was consulted."

8/28. The Boards of Directors of the Competitive Telecommunications Association (CompTel) and the Association for Communications Enterprises (ASCENT) announced that they have approved the proposed merger of the two groups. The merger still requires approval of the memberships. See, CompTel release.

8/28. The Department of Justice's Antitrust Division published a short document titled "An Antitrust Primer for Federal Law Enforcement Personnel". This document provides "federal law enforcement personnel with a quick overview of antitrust conspiracies that constitute felony violations of federal law".

8/28. The Federal Communications Commission (FCC) announced that it is seeking nominations for membership on its Intergovernmental Advisory Committee (IAC), which was previously known as the Local and State Government Advisory Committee. The FCC stated that this Committee provides "ongoing advice and information to the Commission on a broad range of telecommunications issues of interest to state, local and tribal governments, including cable and local franchising, public rights-of-way, facilities siting, universal service, broadband access, barriers to competitive entry, and public safety communications, for which the Commission explicitly or inherently shares responsibility or administration with local, county, state, or tribal governments." The deadline to submit nominations is September 29, 2003. See, FCC release [1 page in PDF] and FCC notice [3 pages in PDF].

8/28. Sinclair Broadcast Group filed with the U.S. Court of Appeals (DCCir) a petition for review of the Federal Communications Commission's (FCC) revisions to its broadcast ownership rules, released on July 2, 2003. The petition states that "Petitioner seeks review on the grounds that the Media Ownership Order is inconsistent with this Court's remand in Sinclair Broadcast Group v. FCC, 284 F.3d 148 (2002) ..." This is numbered 03-1255. Numerous other petitions for review of the FCC's July 2, 2003 order have been filed. (See, for example, NBC v. FCC, No. 03-1242; Viacom v. FCC, No. 03-1241, Fox v. FCC, No. 03-1240; NAB v. FCC, No. 03-1232; and Media General v. FCC, No. 03-1231.)

Oklahoma Files Criminal Charges Against MCI WorldCom

8/27. The State of Oklahoma charged WorldCom, Bernie Ebbers, Scott Sullivan, and other former employees of WorldCom by complaint [PDF] with felony violations of the Oklahoma Securities Act.

Oklahoma Attorney General Drew Edmondson stated in a release that "It is rare that we name a company in a criminal complaint, but in this case it is justified ... The decision to commit this fraud was a company decision. This is not some rogue employee trying to line his own pockets. This was a conscious decision made for the benefit of the company."

Stasia Kelly, the recently named General Counsel of MCI WorldCom, stated in a release that "We intend to fully cooperate with the Oklahoma state Attorney General, but we do not believe this action will impact the bankruptcy process. MCI remains on track for its confirmation hearing before the federal Bankruptcy Court, which is scheduled to begin on September 8, 2003."

Kelly added that "Today's action against the company would only punish our 20 million customers and 55,000 employees -- 2,000 of which work in Oklahoma. MCI has made tremendous progress over the past year and we are working hard to put our house in order. MCI has, and continues to, cooperate with all investigations while implementing sweeping internal reforms. Our new management team and board of directors -- under the oversight of Corporate Monitor and former SEC Chairman Richard Breeden -- are committed to doing all the right things to ensure what happened in the past can never happen again."

SEC Criticizes Oklahoma Prosecution of WorldCom

8/27. The Securities and Exchange Commission (SEC) criticized the state of Oklahoma for bringing criminal charges against MCI WorldCom. On August 27, Oklahoma charged WorldCom, Bernie Ebbers, Scott Sullivan, and other former employees of WorldCom by complaint [PDF] with felony violations of the Oklahoma Securities Act.

The SEC stated in a release that "Our goal and our hope is to coordinate federal and state enforcement actions in a manner that results in the most effective and efficient enforcement possible for violators of our securities laws. As such, we were disappointed that the SEC was not contacted by the Oklahoma Attorney General about the actions he announced today."

The SEC added that "We have closely coordinated our efforts with those of the United States Attorney's Office for the Southern District of New York, which has criminally charged five of WorldCom's former employees. We hope that the Oklahoma Attorney General's actions will not jeopardize the criminal cases being prosecuted by the U.S. Attorney's Office or the ongoing investigations."

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8/27. The General Accounting Office (GAO) released a report [59 pages in PDF] titled "Homeland Security: Efforts to Improve Information Sharing Need to Be Strengthened". The report found that "no level of government perceived the process as effective, particularly when sharing information with federal agencies. Information on threats, methods, and techniques of terrorists is not routinely shared; and the information that is shared is not perceived as timely, accurate, or relevant. Moreover, federal officials have not yet established comprehensive processes and procedures to promote sharing. Federal respondents cited the inability of state and city officials to secure and protect classified information, the lack of federal security clearances, and a lack of integrated databases as restricting their ability to share information."

8/27. The National Institute of Standards and Technology (NIST) published a notice in the Federal Register inviting public and private organizations to submit their information security practices for inclusion in the NIST's Computer Security Resource Center's (CSRC) Federal Agency Security Practices (FASP) web site. That notice states that this is an information sharing program intended to "enhance the overall security of the nation". There is no deadline for submissions. See, Federal Register, August 27, 2003, Vol. 68, No. 166, at Pages 51558 - 51559.

8/27. Ed Black, P/CEO of the Computer & Communications Industry Association (CCIA), wrote a letter [PDF] to Tom Ridge, Secretary of Homeland Security, to complain about the Department of Homeland Security's selection of Microsoft desktop and server software. Black asserted that Microsoft makes a "flawed software platform" that is "riddled with obvious and easily exploited vulnerabilities". The CCIA has also long been a leading antagonist of Microsoft in government antitrust proceedings against Microsoft.

8/27. Deputy U.S. Trade Representative (USTR) Peter Allgeier spoke and answered questions regarding the World Trade Organization (WTO) talks in Geneva Switzerland leading up to the the Cancun ministerial. See, transcript.

8/27. California Governor Gray Davis signed SB 1, a bill that provides for the regulation of the use of information by financial institutions by the California Department of Financial Institutions and by certain federal agencies. It is sponsored by state Senator Jackie Speier (D-San Francisco). See also, Consumers Union release praising the bill, and Privacilla.org release criticizing the bill.

8/27. A collection of groups wrote a letter to Secretary of Homeland Security Tom Ridge requesting that the Department of Homeland Security (DHS) give the public an opportunity to comment on procedures implementing the Homeland Security Information Sharing Act (HSISA), which was enacted as Section VIII of the Homeland Security Act of 2002. The letter states that these procedures "may restrict the public dissemination of ``homeland security information,´´ including information that is ``sensitive but unclassified.´´" The signatories include the Center for Democracy and Technology (CDT), the Electronic Privacy Information Center (EPIC), and library and journalism groups.

3rd Circuit Addresses Fair Use and Copyright Misuse

8/26. The U.S. Court of Appeals (3rdCir) issued its opinion [23 pages in PDF] in Video Pipeline v. Buena Vista Home Entertainment, a copyright case involving the affirmative defenses of fair use and copyright misuse. Video Pipeline published in a web site a collection of two minute long clip previews of copyrighted movies, without authorization. The District Court rejected Video Pipleline's arguments that it is protected by the doctrines of fair use and copyright misuse, and granted a preliminary injunction. The Appeals Court affirmed.

The Appeals Court's application of the four prong fair use analysis of 17 U.S.C. § 107 is noteworthy, and constitutes the bulk of the Appeals Court's analysis. However, the case is particularly significant because the Appeals Court also recognized the defense of copyright misuse, recognized that it might apply in situations beyond the traditional anti-competitive context, and recognized that licensing terms that prohibit criticism may serve as the basis of a copyright misuse defense. However, the Court held that on the facts of this case, the defense of copyright misuse fails.

Copyright misuse is potentially an emerging area of copyright law, and one that could find application in a variety of digital copyright situations. See, related story, titled "3rd Circuit Breaks New Ground on Copyright Misuse".

Background. The Appeals Court opinion distinguishes between "movie trailers", which are approximately two minute long pieces, composed by the movie studios, and used to market movies, from "clip previews", which are also about two minute pieces, but are composed with segments from the full movie by Video Pipeline, and which do not seek to market the movies.

Video Pipeline first displayed movie trailers, under license from Disney, on its web site. It later composed and displayed clip previews, without license. It charges for its streaming clip previews.

Buena Vista Home Entertainment (which is a party to this case) holds an exclusive license to distribute Miramax (another party) and Walt Disney Pictures and Television (not a party) home videos. Buena Vista, Miramax, and Walt Disney Pictures and Television are subsidiaries of The Walt Disney Co. (not a party). Nevertheless, the Appeals Court referred to Buena Vista and Miramax as "Disney".

Disney also makes its movie trailers available on the internet. It displays them on its own web sites in order to attract and to keep users there and then takes advantage of the users' presence to advertise and sell other products. It also licenses them to others.

Disney's license agreement with some other entities includes the following language, as recited in the Appeals Court opinion: "The Website in which the Trailers are used may not be derogatory to or critical of the entertainment industry or of [Disney] (and its officers, directors, agents, employees, affiliates, divisions and subsidiaries) or of any motion picture produced or distributed by [Disney] ... [or] of the materials from which the Trailers were taken or of any person involved with the production of the Underlying Works. Any breach of this paragraph will render this license null and void and Licensee will be liable to all parties concerned for defamation and copyright infringement, as well as breach of contract."

District Court. Video Pipeline began the litigation. It filed a complaint in the U.S. District Court (NJ) seeking a declaratory judgment that its online use of the clip previews does not violate federal copyright law. Disney counterclaimed for copyright infringement. The District Court entered a preliminary injunction prohibiting Video Pipeline from displaying clip previews of Disney films on the internet. (See, opinion published at 192 F. Supp. 2d 321.) Video Pipeline then brought this interlocutory appeal.

Appeals Court Holding on Fair Use. The Appeals Court addressed the four factors of Section 107 in order.

The Court held that the first factor ("the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes") weighs in favor of Disney. The Court found that since Video Pipeline charges for streaming videos, its purpose is commercial. However, it added that this finding is not necessarily dispositive on this factor. It also considered whether the clip reviews were "transformative". It concluded that they were not. They were copied verbatim from the original movies. Moreover, the clip reviews share the same purpose and character of the movie trailers made by Disney.

The Court held that the second factor ("the nature of the copyrighted work") weighs in favor of Disney. It wrote that fair use is more difficult to establish when the works are "creative, non-factual expression", such as with Disney movies.

The Court held that the third factor ("the amount and substantiality of the portion used in relation to the copyrighted work as a whole") weighs in favor of Video Pipeline because it copied only about two minutes out of each hour and a half to two hour movie.

The Court held that the fourth factor ("the effect of the use upon the potential market for or value of the copyrighted work") weighs in favor of Disney. The Court wrote that this analysis takes into consideration not only harm to the market for original works (the movies), but also harm to the market for derivative works (Disney's movie trailers). And, Video Pipeline's clip reviews harmed the market for Disney's movie trailers.

So, the Appeals Court concluded that "Three of the four statutory factors indicate that Video Pipeline’s internet display of the clip previews will not qualify as a fair use. From our consideration of each of those factors, we cannot conclude that Video Pipeline's online display of its clip previews does anything but ``infringe[ ] a work for personal profit.´´ Harper & Row, 471 U.S. at 563. The District Court therefore correctly held that Video Pipeline has failed to show that it will likely prevail on its fair use defense."

This case is Video Pipeline v. Buena Vista Home Entertainment, Inc. and Miramax Film Corp., No. 02-2497, an appeal from the U.S. District Court for the District of New Jersey, D.C. No. 00-cv-05236, Judge Jerome Simandle presiding. Judge Thomas Ambro wrote the unanimous opinion for the three judge panel of the Court of Appeals.

3rd Circuit Breaks New Ground on Copyright Misuse

8/26. The U.S. Court of Appeals (3rdCir) issued its opinion [23 pages in PDF] in Video Pipeline v. Buena Vista Home Entertainment, affirming the District Court's preliminary injunction of Video Pipeline's online distribution of short clip previews of Disney movies, and rejecting Video Pipeline's affirmative defenses of fair use and copyright misuse. However, while the Appeals Court ultimately held that the copyright misuse defense fails in this case, it made new law by extending its applicability. See, full story.

DOJ Submits Its Evaluation of SBC Long Distance Application for Four States

8/26. The Department of Justice's (DOJ) Antitrust Division submitted its evaluation [PDF] to the Federal Communications Commission (FCC) regarding SBC's Section 271 application to provide in region interLATA services in the states of Illinois, Indiana, Ohio, and Wisconsin.

The DOJ concluded that "Because serious issues remain concerning SBC's ability to render accurate wholesale bills, the Department is not in a position to support SBC's application based on the current record. The Department does not, however, foreclose the possibility that the Commission may be able to satisfy itself regarding these issues prior to the conclusion of its review."

The evaluation also addresses "line splitting". The FCC defined this term in it just released triennial review order [576 pages in PDF]. It is "the process in which one competitive LEC provides narrowband voice service over the low frequency portion of a copper loop and a second competitive LEC provides digital subscriber line service over the high frequency portion of that same loop."

The evaluation states that "As the Department observed in its Michigan III Evaluation, line-splitting service to CLECs could provide an important platform for future broadband competition. The Department, after reviewing SBC's line-splitting services, expressed concern about SBC's processes for reconverting a customer from line-splitting back to UNE-platform service, concluding that the inability of SBC to allow CLECs to re-use loops may place CLECs at a competitive disadvantage as against SBC when they seek to sell DSL service. SBC's policy is the same in each of the four states for which SBC has submitted the application pending before the Commission, and CLECs continue to raise these concerns. Therefore, for the same reasons discussed in its Michigan III Evaluation, the Department believes that the Commission should determine whether SBC's processes provide non-discriminatory access to line-splitting and UNE-platform services."

See also, DOJ release. This is FCC WC Docket No. 03-167.

Breeden Releases Report on Restoring Trust at MCI WorldCom

8/26. Richard Breeden, the Corporate Monitor in the MCI WorldCom bankruptcy proceeding, released his report [156 pages in PDF] to the U.S. District Court (SDNY) on corporate governance.

The report is titled "Restoring Trust: Report to The Hon. Jed S. Rakoff The United States District Court For the Southern District of New York On Corporate Governance For The Future of MCI, Inc."

Breeden begins with the observation that "As CEO, Ebbers was allowed nearly imperial reign over the affairs of the Company, without the board of directors exercising any apparent restraint on his actions, even though he did not appear to possess the experience or training to be remotely qualified for his position. One cannot say that the checks and balances against excessive power within the old WorldCom didn’t work adequately. Rather, the sad fact is that there were no checks and balances."

The report contains 78 recommendations pertaining to "selection of directors, qualification, conflicts and independence standards for board members, the functioning of the board and its committees, establishment of the position of non-executive chairman, specific limits on compensation practices, equity compensation programs, accounting and disclosure issues, ethics and legal compliance programs and other areas."

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8/26. Computer Associates International announced in a release "plans to settle all outstanding litigation related to claims about past accounting issues. Included are shareholder and ERISA class-action suits and related derivative litigation. As part of the settlement, CA plans to issue to the shareholder classes up to 5.7 million shares of CA common stock."

8/26. The Office of the U.S. Trade Representative (USTR) released a document [9 pages in PDF] titled "U.S. Comments on Chairman's Cancun Ministerial Text: General Council Discussion". The 5th World Trade Organization (WTO) Ministerial Conference will be held in Cancún, Mexico on September 10-14, 2003, to discuss the Doha Development Agenda. See, WTO's Cancun web site.

8/26. The U.S. Court of Appeals (FedCir) issued its opinion [MS Word] in Nitro Leisure Products v. Acushnet Company, a trademark case involving the sale of recycled and refurbished Titleist golf balls.

Go to News from August 21-25, 2003.