House Delays Consideration of USPTO Fee Bill

2/10. On February 11, the House Majority Leader withdrew from the House calendar consideration of HR 1561, the "United States Patent and Trademark Fee Modernization Act of 2003". This bill, as reported by the House Judiciary Committee, would raise patent and trademark fees, implement the fee related provisions of the U.S. Patent and Trademark Office's (USPTO) 21st Century Strategic Plan, and end the practice of diverting USPTO user fees to subsidize other government programs.

Rep. Lamar Smith (R-TX) and Rep. Howard Berman (D-CA), the Chairman and ranking Democrat on the House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property (CIIP), are sponsors of the bill.

The House had previously been scheduled to consider HR 1561, pursuant to a rule, on February 11.

On February 10, representatives of the Judiciary Committee, which has long opposed the diversion of USPTO fees, and representatives of the House Appropriation Committee, which has long passed appropriations bills that divert USPTO fees, reached an agreement regarding compromise language pertaining to the diversion of fees. However, there remain controversial issues regarding other provisions of the bill.

TLJ has not obtained the draft language implementing this compromise regarding fee diversion. However, Congressional staff have described it, on condition that their statements not be attributed to them. "This agreement would prevent the appropriators from diverting" USPTO user fees. However, it would "let them determine the PTO budget". Then, if the fees collected by the USPTO exceed the budget set by the appropriators, the difference "would be rebated to USPTO users", rather diverted to other government programs.

Currently, funding for the USPTO is set by bills reported by the House and Senate Appropriations Committees. The appropriation is less than the amount of fees collected, with the remainder being used to subsidize other government programs. Some intellectual property owners, groups that represent them, and technophiles in the Congress, oppose the process of fee diversion. Some have called it a tax on innovation.

HR 1561, as reported by the House Judiciary Committee, would amend 35 U.S.C. § 42 pertaining to "Patent and Trademark Office funding". It would amend this section to read as follows: "Fees authorized in this title or any other Act to be charged or established by the Director shall be collected by the Director and shall be available until expended to carry out the activities of the Patent and Trademark Office. All fees available to the Director under section 31 of the Trademark Act of 1946 shall be used only for the processing of trademark registrations and for other activities, services, and materials relating to trademarks and to cover a proportionate share of the administrative costs of the Patent and Trademark Office."

This language would essentially take the USPTO off budget. The compromise agreement, reached on February 10, would keep the USPTO on budget, but deprive the Appropriations Committees of the ability to essentially tax innovators to fund other programs.

The House is in recess next week. Congressional staff predict that HR 1561 will come up for consideration the week after next week. Moreover, it would likely be considered under a rule, rather than under suspension of the rules.

While the fee diversion issue has been addressed, there remain other sources of opposition to the bill as reported by the Judiciary Committee. For example, Rep. Don Manzullo (R-IL), the Chairman of the House Small Business Committee, is concerned about raising user fees for small businesses.

Also, Rep. Marcy Kaptur (D-OH) and Rep. Duncan Hunter (R-CA) have raised the issue of outsourcing of patent searches.

James Rogan, the previous head of the USPTO, testified before the CIIP on April 3, 2003 regarding the USPTO's 21st Century Strategic Plan. He wrote in his prepared testimony that "By outsourcing the search function, we can ensure that the patent examiners of tomorrow will be like the quality review examiners of yesterday in that they will begin with a more complete search and set of information as their starting point. To that end, we will be diligent in selecting and monitoring the contract or foreign searching authorities to ensure that patent searches provided by them are of the highest quality."

Rep. Kaptur and Rep. circulated a letter addressed "Dear colleague" that states that the provision of HR 1561 ending fee diversion "would remove the agency from Congressional oversight. Neither the House nor Senate Appropriations Committees would have oversight. The agency would be free to do whatever it wants."

The House and Senate Judiciary Committees would continue their oversight. But then, Rep. Kaptur sits on the Appropriations Committee, not the Judiciary Committee.

Next, Rep. Kaptur and Rep. Hunter argue in their letter that HR 1561 "proposes to separate the search and examination components of the patent application process to allow outsourcing of searches to private persons or groups -- even overseas." Rep. Kaptur is one of the leading protectionists in the House.

The letter of Rep. Kaptur and Rep. Hunter does not go into detail about the outsourcing of patent searches. However, Ronald Stern, President of the Patent Office Professionals Association (POPA), which opposes the outsourcing of patent searching, addressed this issue in his prepared testimony for the House Judiciary Committee's Subcommittee on CIIP Subcommittee on April 4, 2003.

This is not the first time that Rep. Kaptur and Rep. Hunter have been at the center of a debate over patent legislation. Rep. Kaptur was an opponent of provisions in patent reform legislation that would provide a first to invent, or prior use, defense to patent infringement. Technophiles, like former Silicon Valley Rep. Tom Campbell (R-CA) also opposed a first to invent defense, on the grounds that disclosure of inventions is one of the fundamental goals of the patent laws, but this exception gives inventors an incentive not to disclose.

However, Rep. Kaptur opposed the first to invent defense for protectionist reasons. It was an odd coalition of opposition. The key vote in the House was held on an amendment to HR 400 in the 105th Congress on April 23, 1997. It would have limited the prior use defense. See, Roll Call No. 86. Later, the 106th Congress passed the American Inventors' Protection Act (AIPA) with compromise language on this issue.

It may also be significant that back in 1997, when the House was considering HR 400, the predecessor to the AIPA, Rep. Hunter offered an amendment that would have required that all patent examination and search duties shall be performed within the US by US citizens who are employees of the US government. It failed by a vote of 133-280. See, Roll Call No. 89. On the other hand, some Representatives may view the issue of outsourcing today differently than they did in back in 1997.

Rep. Kaptur addressed outsourcing, but not in the context of the USPTO, in other recent statements. See, Congressional Record, February 10, 2004, at Page H416, and February 11, 2004, at Page H494.

See also, related stories: "House CIIP Subcommittee Holds Hearing on USPTO Fees" in TLJ Daily E-Mail Alert No. 637, April 4, 2003; "House Intellectual Property Caucus Advocates Ending USPTO Fee Diversion" in TLJ Daily E-Mail Alert No. 762, October 21, 2003; and "House to Vote on Bill to End USPTO Fee Diversion" in TLJ Daily E-Mail Alert No. 832, February 9, 2004.

GAO Releases Report on Cable Competition

2/10. The General Accounting Office (GAO) released a report [43 pages in PDF] titled "Telecommunications: Wire-Based Competition Benefited Consumers in Selected Markets".

The report was prepared for Sen. Mike DeWine (R-OH) and Sen. Herb Kohl (D-WI), the Chairman and ranking Democrat on the Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy and Consumer Rights.

The release of the GAO report coincides an Antitrust Subcommittee hearing on cable industry competition to be held on Wednesday morning, February 11. The witnesses will include Michael Willner (VCh/P/CEO of Insight Communications), Robert Sachs (P/CEO of the National Cable and Telecommunications Association), Mark Cooper (Consumer Federation of America), Scott Cleland (CEO of Precursor), Rodger Johnson (CEO of Knology), and Coralie Wilson (National Association of Telecommunications Officers and Advisors).

The report begins with the statement that "In the past few years, a new kind of wire-based provider -- typically known as a broadband service provider (BSP) -- has emerged to provide competition to local incumbent telephone and cable television providers through a bundled offering of subscription television, local telephone, and high-speed (or broadband) Internet services. These BSPs could enhance the competitiveness of these markets, but they also may face certain challenges that make it difficult for them to become fully viable competitors."

The report then explains its nature and methodology: "we developed a matched-pair case-study approach to compare cities, or markets, where a BSP is operating with similar cities that do not have such a competitor. We selected 6 cities in which a BSP had offered three services -- local telephone, subscription television, and high-speed Internet access -- for at least 1 year. We then chose a match for each of the 6 cities by selecting another city in the same state, where possible, which was of a similar size and demographic profile, but that did not have a BSP."

The GAO also conducted interviews.

It concluded that "On the basis of 12 markets we examined, it appears that BSPs' entry into a market benefited consumers in the form of lower prices for subscription television, high-speed Internet access, and local telephone services. Incumbent cable operators often responded to BSP entry by lowering prices, enhancing the services that they provide, and improving customer service. Incumbent local telephone providers did not appear to have responded as much to BSP entry as was the case with cable providers; these local telephone providers told us that certain federal and state laws limit their ability to respond to new entrants."

Sen. DeWine and Sen. Kohl (at right) stated in a release that "This report confirms what common sense tells us -- the presence of competition to the dominant cable providers benefits consumers and results in lower prices and higher quality of service. ... The role played by new competitors to the incumbent cable companies is clearly critical in bringing this competition to the marketplace".

In contrast, Randolph May of the Progress and Freedom Foundation (PFF) stated in a release that "Putting aside particular questions relating to the study's methodology, such as the very small sample of markets studied, I wonder about the value of GAO's focus only on `wire-based competition´ for multi-channel video services". He added that "the cable industry faces plenty of competition in the digital multi-channel marketplace from a variety of facilities-based providers using different technologies, not least of which are the still-growing direct-to-home satellite service providers".

Brian Dietz of the National Cable & Telecommunications Association (NCTA) criticized the GAO report in a release. He wrote that "It isn't surprising that new entrants seeking to obtain market share in an already competitive market have set prices below economically sustainable levels. This is all the GAO case study reflects."

Dietz added that "If anything, the GAO report reinforces the fact that overbuild prices are either not economically sustainable or are sustainable only because of artificial cost advantages and subsidies that are not available to incumbent cable operators. As GAO explains, ``the [overbuilders] we interviewed have had difficulties securing continued access to adequate financial resources that are needed to rapidly construct their networks and market their services.´´ GAO further acknowledges, ``We did not evaluate the long-term sustainability of the [overbuilders] in the markets we reviewed.´´"

CATO Essay Criticizes Efforts to Regulate VOIP

2/10. Adam Thierer and Wayne Crews, both of the Cato Institute, wrote an essay titled "The Plot to Stop the Internet Telephone Revolution"

Thierer and Crews wrote that "when the fears over technological change reach a fever pitch, certain interests substitute a political response for a market response. For many, adjusting or abandoning an old business model is just not an option they are willing to consider. Instead, they lobby legislators or regulators for protection from the new competitors or technologies. Steamboat operators feared the rise of railroads; butter makers petitioned against margarine as a substitute; television broadcasters sought to delay competition from cable providers; and some small retailers still fight to keep large chain stores like Wal-Mart out of local communities."

"It should come as no surprise, therefore, that this process is playing itself out today in the debate over Internet phone calls."

They continue that "Because of the haphazard manner in which communications law has developed over the past 70 years, there exist distinct regulatory paradigms for telecom, cable, broadcasting, and wireless service. Internet-based applications do not fit into any of these categories, especially since providers in each of those old sectors can provide online services using different technological platforms or delivery mechanisms. But if VoIP comes to be regulated under one of these archaic classification schemes, especially the ``telecom services´´ paradigm, it could be strangled while still in the cradle by a bewildering batch of federal and state regulations."

This Cato essay asserts that certain interest lobby for protection against new technologies. However, this essay does not name any communications companies or industries that it asserts are using the regulatory process to block competition from disruptive technologies.

The essay does attack the states that seek regulation of VOIP services. It states that "they're just worried about losing some of their regulatory turf and power", and tax revenues.

The essay also attacks the FBI. "Apparently the law enforcement agencies oppose telecommunications deregulation because it means they won't be able to spy on us quite as easily. ... A wiretap-ready Internet that enables the sort of online surveillance that the FBI, DOJ, and DEA desire will be a costly proposition, requiring expensive equipment upgrades and ongoing regulation of this dynamic sector. Moreover, the scheme would likely entail heavy FCC involvement in the regulation of Internet telephony in the future."

Finally, the essay asserts that "In one sense, what all these diverse parties, from the old hidebound state regulators to the FBI, are really saying is that unless VoIP providers can learn to ``play the game´´ exactly the same way old telecom companies did, they should not, effectively, be allowed to provide service at all. Stated differently, this new technology must be pigeonholed into old regulatory classification schemes and regulatory paradigms of the past; it must not be allowed to breathe the free air of an unregulated communications marketplace."

Democratic Representatives Write Bush Re CAPPS II

2/10. Rep. Nancy Pelosi (D-CA), the House Democratic Leader, and 23 other Democrats in the House, wrote a letter to President Bush regarding the Computer Assisted Passenger Pre-Screening System II (CAPPS II).

The body of the letter states, in full:

"Many of our constituents have contacted our Congressional offices concerned that their privacy rights have been violated by airlines turning over personal consumer information to the federal government without their knowledge or consent."

"We certainly understand, that after the horrible attacks of September 11, 2001, heightened security is necessary to ensure safe air travel. However, even with the necessary exchange of liberty for security, consumers have the right to know how their private, personal information will be used."

"Before the Computer-Assisted Passenger Pre-Screening Program (CAPPS II) is implemented, we urge the adoption of a specific policy that makes clear the role of airlines in sharing consumer information with the federal government. Such a policy should articulate what information can be shared by airlines and how such information is to be shared. First, we would anticipate a clear explanation as to the boundaries of any information-sharing between airlines and the federal government. Second, consumers must be clearly informed at the time they purchase their airline tickets as to how their personal information will be used."

"We look forward to working with you in striking the appropriate balance that ensures the protection of our national security and the protection of our civil liberties, and thank you in advance for your prompt attention to this matter."

In addition, to Rep. Pelosi, the signatories include Rep. Jim Turner (D-TX), the ranking Democrat on the House Homeland Security Committee (HHSC), Rep. Ed Markey (D-MA), a senior member of the HHSC. No Republicans signed this letter.

House Subcommittee Approves Defense of Privacy Act

2/10. The House Judiciary Committee's Subcommittee on Commercial and Administrative Law held a hearing titled "Privacy in the Hands of the Government: The Privacy Officer for the Department of Homeland Security". The Subcommittee also amended and approved HR 338, the "Defense of Privacy Act", by a voice vote.

HR 338 was introduced on January 27, 2003 by Rep. Steve Chabot (R-OH). It would require that agencies, in promulgating rules, take into consideration the impact of such rules on the privacy of individuals. See, story titled "Rep. Chabot Introduces Federal Agency Privacy Bill" in TLJ Daily E-Mail Alert No. 596, February 3, 2003.

This bill is a re-introduction of HR 4561 (107th Congress), which passed the House on October 7, 2002. S 2492 (107th Congress) was the companion bill in the Senate. See, story titled "House Subcommittee Holds Hearing on Federal Agency Privacy" in TLJ Daily E-Mail Alert No. 423, May 2, 2002.

Section 222 of the Homeland Security Act, which was enacted by the Congress in 2002 as HR 5005 (107th Congress), creates the position of Privacy Officer at the Department of Homeland Security (DHS). It states that the responsibilities include "(1) assuring that the use of technologies sustain, and do not erode, privacy protections relating to the use, collection, and disclosure of personal information; (2) assuring that personal information contained in Privacy Act systems of records is handled in full compliance with fair information practices as set out in the Privacy Act of 1974; (3) evaluating legislative and regulatory proposals involving collection, use, and disclosure of personal information by the Federal Government; (4) conducting a privacy impact assessment of proposed rules of the Department or that of the Department on the privacy of personal information, including the type of personal information collected and the number of people affected; and (5) preparing a report to Congress ..."

Nuala Kelly (at right), the Chief Privacy Officer of the DHS, testified regarding her work. See, prepared testimony.

James Gilmore is the President of USA Secure, a former Governor of Virginia, and Chairman of the Advisory Panel to Assess Domestic Response Capabilities for Terrorism Involving Weapons of Mass Destruction. He wrote in his prepared testimony that "Through its first Privacy Officer, Nuala O'Connor Kelly, the Department contains an instinct towards the creation of a ``culture of privacy´´ that will allow the personal data of people to remain as confidential as possible with an environment of trying to weed out stealth attacks by anonymous terrorists."

James Dempsey of the Center for Democracy and Technology (CDT) wrote in his prepared testimony [PDF] that "it is clear that a statutory Privacy Officer, participating in senior level policy deliberations and using the tools of Privacy Act notices and Privacy Impact Assessments, can be an important mechanism for raising and mitigating privacy concerns surrounding the government’s use of personal information. Certainly, the DHS Privacy Officer legislation is a model for other agencies, including the Department of Justice."

Sally Katzen, a law professor at the University of Michigan, wrote in her prepared testimony that "the existence of a Privacy Officer at DHS, especially someone who comes to the position with extensive knowledge of the issues and practical experience with the federal government, is highly beneficial. We know that some attention is now being paid to privacy concerns and that steps are being taken to advance this important value that might otherwise not have occurred." She also urged the Congress to establish "at OMB a statutory office headed by a Chief Counselor for Privacy".

GAO Reports on How USTR Picks FTA Partners

2/10. The General Accounting Office (GAO) released a report [43 pages in PDF] titled "International Trade: Intensifying Free Trade Negotiating Agenda Calls for Better Allocation of Staff and Resources".

This report was prepared for Sen. Max Baucus (D-MT) and Rep. Cal Dooley (D-CA).

The report begins by noting that "The passage of trade promotion authority legislation in 2002 has positioned the United States to pursue more FTAs, because this authority has streamlined the agreement approval process through the U.S. Congress", and that "The recent collapse of the World Trade Organization (WTO) trade talks at a September 2003 meeting in Cancun, Mexico, is expected to make FTAs a more important vehicle for accomplishing U.S. trade goals."

The report found that "Various factors influence FTA partner selections. Four FTA partners were selected in 2002, primarily on the basis of the Trade Representative's own evaluation of 13 factors related to U.S. political, economic, and trade strategy goals. After the four selections in 2002, the key trade agencies decided to use six broad factors to guide their future discussions on potential FTA partners. These factors are (1) country readiness, (2) economic and commercial benefits, (3) benefits to the broader trade liberalization strategy, (4) compatibility with U.S. interests, (5) congressional and private-sector support, and (6) U.S. government resource constraints."

However, the report also found that "decisions to pursue FTAs have been made with little systematic planning regarding trade-offs with other trade priorities, even though FTAs are resource intensive", and that "decisions to pursue FTAs still come without systematic data or planning for the actual resources that USTR or other agencies require."

The report recommends that "that USTR work with other key trade agencies to develop more systematic data and plans for allocating staff and resources across the full U.S. trade agenda, including FTAs and other negotiating priorities."

Appeals Court Rules Contributory Infringement Claim Against AOL Must Go to Jury

2/10. The U.S. Court of Appeals (9thCir) issued its opinion [18 pages in PDF] in Ellison v. Robertson and AOL, reversing the District Court, and allowing a claim for contributory copyright infringement against AOL to go to a jury, notwithstanding the safe harbor provisions of the Digital Millennium Copyright Act (DMCA).

Introduction. Harlan Ellison is an author. Stephen Robertson is a digital thief. But, this case is not about Robertson; he does not have deep pockets. It is about Ellison's attempt to recover from an internet service provider (ISP), America Online (AOL), for Robertson's infringing activities, under the theories of vicarious and contributory infringement, based upon AOL's providing its subscribers access to the USENET news-group that Robertson used.

This case does not overturn, or provide a tortured construction of, the DMCA safe harbor language. Rather, during the relevant time period, AOL bungled its efforts to qualify for DMCA immunity. The DMCA does not provide ISPs absolute immunity from suit for copyright infringement. Rather, it provides a series of safe harbors, contingent upon the ISP's compliance with the requirements set forth in the DMCA. The Appeals Court merely held that there is a factual dispute in this case, to be decided by the jury, as to whether AOL complied with the safe harbor requirements.

Parties. Ellison is a long time author of short stories, books, screen plays, and other works, with an emphasis on science fiction. See, Ellison's bibliography and Amazon search for "Harlan Ellison". He holds and enforces copyrights.

Robertson scanned, converted into digital files, and published online some of Ellison's written copyrighted works, without license. He published them on a peer-to-peer file sharing network, USENET, in the news-group, alt.binaries.e-book.

America Online (AOL) is an ISP that provided its subscribers with access to this news-group.

In April of 2000 Ellison learned of the infringement. Ellison asserts that his counsel sent an e-mail message to AOL to notifying it of the infringing activity. AOL denies receipt.

But, the Appeals Court wrote that "AOL changed its contact e-mail address from ``copyright@aol.com´´ to ``aolcopyright@aol.com´´ in the fall of 1999, but waited until April 2000 to register the change with the U.S. Copyright Office. Moreover, AOL failed to configure the old e-mail address so that it would either forward messages to the new address or return new messages to their senders. In the meantime, complaints such as Ellison's went unheeded, and complainants were not notified that their messages had not been delivered."

The Appeals Court also wrote that an AOL subscriber telephoned AOL with information about the infringing activity. But, AOL took no action to terminate its subscribers' access to the news-group until after it had been served with Ellison's summons and complaint.

Statute. Section 512 of the Digital Millennium Copyright Act (DMCA), which is codified at 17 U.S.C. § 512, is also known as the Online Copyright Infringement Liability Limitation Act (OCILLA). It provides a set of safe harbors from liability for infringement.

Subsection 512(a) provides the safe harbor that is claimed by AOL in this case. It provides, in part, that "A service provider shall not be liable ... for infringement of copyright by reason of the provider's transmitting, routing, or providing connections for, material through a system or network controlled or operated by or for the service provider, or by reason of the intermediate and transient storage of that material in the course of such transmitting, routing, or providing connections, if (1) the transmission of the material was initiated by or at the direction of a person other than the service provider; (2) the transmission, routing, provision of connections, or storage is carried out through an automatic technical process without selection of the material by the service provider; (3) the service provider does not select the recipients of the material except as an automatic response to the request of another person; (4)  no copy of the material made by the service provider in the course of such intermediate or transient storage is maintained on the system or network in a manner ordinarily accessible to anyone other than anticipated recipients, and no such copy is maintained on the system or network in a manner ordinarily accessible to such anticipated recipients for a longer period than is reasonably necessary for the transmission, routing, or provision of connections; and (5) the material is transmitted through the system or network without modification of its content."

However, to qualify for protection under Section 512(a), or the other safe harbor provisions, the claimant must also satisfy the requirements of Subsection 512(i). This subsection provides that "The limitations on liability established by this section shall apply to a service provider only if the service provider--
  (A) has adopted and reasonably implemented, and informs subscribers and account holders of the service provider's system or network of, a policy that provides for the termination in appropriate circumstances of subscribers and account holders of the service provider's system or network who are repeat infringers; and
  (B) accommodates and does not interfere with standard technical measures."

District Court. Ellison filed a complaint in U.S. District Court (CDCal) against Robertson and AOL alleging infringement by Robertson and vicarious and contributory infringement by AOL. AOL moved for summary judgment, asserting, among other things, that it qualified for one of the four safe harbor limitations of DMCA.

The District Court held, on summary judgment, that AOL is not vicariously liable, and that while there are triable issues of material fact on the contributory infringement claim, AOL qualifies under the DMCA for immunity. Ellison appealed.

Appeals Court. The Appeals Court reversed in part. It agreed that there is no vicarious liability, and that there are triable issues of material fact on the contributory infringement claim. But, it also held that there are material issues of fact as to whether AOL qualifies for DMCA immunity. Ellison's contributory infringement claim against AOL therefore goes to the jury.

First, as to vicarious liability, the Appeals Court wrote that there are two elements. Ellison must show "that AOL derived a direct financial benefit from the infringement and had the right and ability to supervise the infringing activity."

The Court reasoned that "the central question of the ``direct financial benefit´´ inquiry in this case is whether the infringing activity constitutes a draw for subscribers, not just an added benefit." The Court concluded that "The record lacks evidence that AOL attracted or retained subscriptions because of the infringement or lost subscriptions because of AOL’s eventual obstruction of the infringement. Accordingly, no jury could reasonably conclude that AOL received a direct financial benefit from providing access to the infringing material. Therefore, Ellison's claim of vicarious copyright infringement fails."

Second, as to contributory liability, the Appeals Court wrote that there are two elements, knowledge and material contribution.

It concluded that "Because there is evidence indicating that AOL changed its e-mail address in an unreasonable manner and that AOL should have been on notice of infringing activity we conclude that a reasonable trier of fact could find that AOL had reason to know of potentially infringing activity occurring within its USENET network."

And, "Because a reasonable trier of fact could conclude that AOL materially contributed to the copyright infringement by storing infringing copies of Ellison's works on its USENET groups and providing the groups' users with access to those copies, we agree with the district court’s finding that this constituted a triable issue."

Third, the Court addressed whether the DMCA provides AOL immunity from the contributory infringement claim.

The Appeals Court wrote that "It is difficult to conclude as a matter of law, as the district court did, that AOL had ``reasonably implemented´´ a policy against repeat infringers. There is ample evidence in the record that suggests that AOL did not have an effective notification procedure in place at the time the alleged infringing activities were taking place. Although AOL did notify the Copyright Office of its correct e-mail address before Ellison's attorney attempted to contact AOL and did post its correct email address on the AOL website with a brief summary of its policy as to repeat infringers, AOL also: (1) changed the email address to which infringement notifications were supposed to have been sent; and (2) failed to provide for forwarding of messages sent to the old address or notification that the e-mail address was inactive."

Hence, the Appeals Court concluded that Ellison's vicarious infringement claim fails, and will not go to the jury. It held that there are factual issues in dispute regarding both contributory infringement, and whether AOL qualifies for DMCA immunity in this case. So, these issues go to the jury.

This case is Harlan Ellison v. Stephen Robertson and America Online, U.S. Court of Appeals for the 9th Circuit, No. 02-55797, an appeal from the U.S. District Court for the Central District of California, D.C. No. CV-00-04321-FMC, Judge Florence Cooper presiding.

District Court Lets Stand $19,725,270.00 Infringement Verdict for Copying Newsletter onto Corporate Intranet

2/10. The U.S. District Court (DMd) issued a Memorandum Opinion [16 pages in PDF] in Lowry's Reports v. Legg Mason, letting stand a jury award of nearly $20 Million for copyright infringement and breach of contract for copying the Lowry's Reports financial newsletter onto its corporate intranet.

While individual P2P infringers may copy with little fear of legal consequences, and ISPs are usually shielded by the safe harbor provisions of Section 512 of the DMCA, this opinion demonstrates that deep pocket corporations that willfully copy newsletters in house may be held liable and assessed damages under a strict mathematical application of the statutory damages provisions of the Copyright Act. In the present case, purely in house copying led to a $19,725,270.00 award.

Lowry's Reports, Inc. publishes the financial newsletter named "Lowry's New York Stock Exchange Market Trend Analysis". Legg Mason (LM) is a global financial services company that is involved in asset management, securities brokerage, and investment banking. LM republished issues of Lowry's newsletters on its corporate intranet, without license.

Lowry's filed a complaint in U.S. District Court (DMd) against LM alleging copyright infringement, common-law unfair competition, and breach of contract. LM moved for summary judgment.

On July 10, 2003, the District Court issued a Memorandum Opinion [42 pages in PDF] in which it granted the motion in part, and denied it in part. It granted summary judgment to LM on the unfair competition claim, but denied the motion as to the infringement and contract claims. The Court also ruled on various issues relating to the calculation of damages. This opinion is also reported as Lowry’s Reports, Inc. v. Legg Mason, Inc., 271 F. Supp. 2d 737 (2003).

On October 3, 2003, a trial jury of the District Court returned its verdict in favor of Lowry's on both the infringement and contract claims. The jury awarded damages of $19,725,270.00. See also, Lowry's release and Wiley Rein & Fielding (counsel for Lowry's) release. LM also issued a release.

LM then moved for judgment as a matter of law, and for a new trial, arguing that the jury award was excessive, that is was based on erroneous instructions, and that it was contrary to the evidence.

On February 10, 2004, the District Court ruled that "Legg Mason's motion for a new trial will be denied and the jury's award will not be modified."

The Court wrote that there was evidence of bad faith conduct and willful infringement. It also wrote that the "statutory damages award was within the limits set by Congress in the Copyright Act."

It added that "the evidence indicated that Legg Mason was a sophisticated entity that repeatedly infringed Lowry's copyrights, even when asked to stop. In light of this evidence, the Court will not modify the jury's award or order a new trial because of its size."

The Court also rejected LM's argument that statutory damages should be limited to four times the actual damages. The Court held that "there has never been a requirement that statutory damages must be strictly related to actual injury."

And, the District Court found nothing wrong with the instructions that it had given to the jury.

However, the Court denied Lowry's motion for attorneys fees. The Court found that one factor weighed in favor of granting attorneys fees. Lowry's "provided evidence that Legg Mason obstructed discovery, made material misrepresentations to the Court, and destroyed evidence". However, Court also found that the consideration of "deterrence and compensation, was adequately provided for by the jury’s award".

This case is Lowry's Reports, Inc. v. Legg Mason, Inc., et al., U.S. District Court for the District of Maryland, D.C. No. WDQ-01-3898.

District Court Addresses Personal Jurisdiction in Patent Litigation

2/10. The U.S. District Court (DMass) issued its Memorandum Opinion and Order [16 pages in PDF] in Measurement Computing Corp. v. General Patent Corp., a patent and antitrust case involving computer boards. However, the main issue in this opinion is personal jurisdiction, and in particular, what contacts with the forum state are sufficient to confer personal jurisdiction in patent litigation. The District Court found that it lacked personal jurisdiction over the out of state defendant, and dismissed.

Measurement Computing (MC) is a Massachusetts corporation that makes circuit boards used to connect personal computers to external devices. General Patent Corporation (GPC) is a New York corporation that acquires interests in patents and licenses or litigates those interests on a contingency basis.

GPC wrote to MC alleging patent infringement.

MC did not wait to be sued (in New York) for patent infringement. Rather, it filed a complaint in U.S. District Court in Massachusetts seeking a declaratory judgment of patent non-infringement, invalidity and unenforcability, as well as violation of federal antitrust law. GPC filed a motion to dismiss alleging, among other things, lack of personal jurisdiction. Both sides want home court advantage.

The District Court held that MC "has failed to establish that General Patent's contacts, however purposefully directed toward Massachusetts, are sufficiently related to the present claims to support an exercise of personal jurisdiction. Because the Court thus finds personal jurisdiction lacking, it does not address General Patent’s additional grounds for dismissal."

This case is Measurement Computing Corpration v. General Patent Corporation International and Acticon Technologies, LLC, U.S. District Court for the District of Massachusetts, D.C. No. 03-11047-WGY, Judge William Young presiding.

People and Appointments

2/10. The CompTel/ASCENT Alliance elected its 2004 Board of Directors. See, release.

More News

2/10. The Department of Commerce's (DOC) Bureau of Industry and Security (BIS) released a report titled "Foreign Policy Report -- Year 2004". Chapter 9 addresses "High Performance Computers". Chapter 10 addresses "Encryption".

2/10. The Senate Finance Committee held a hearing on the nomination of Samuel Bodman to be Deputy Secretary of the Treasury. See, opening statement [PDF] of Sen. Max Baucus (D-MT) praising Bodman, and prepared testimony of Bodman.

2/10. The Department of Justice's (DOJ) Antitrust Division published a notice in the Federal Register regarding its settlement in US v. First Data and Concord EFS. See, Federal Register, February 10, 2004, Vol. 69, No. 27, at Pages 6325 - 6339. This notice publishes the Competitive Impact Statement, proposed Final Judgment, and Amended Hold Separate Stipulation and Order. There is a 60 day deadline on submitting comments. See also, stories titled "DOJ Sues to Stop Merger of PIN Debit Networks" in TLJ Daily E-Mail Alert No. 765, October 24, 2003; and "DOJ Settles With First Data and Concord EFS" in TLJ Daily E-Mail Alert No. 800, December 16, 2003. This case is USA v. First Data & Concord EFS, Inc., U.S. District Court for the District of Columbia, D.C. No. No. 03-2169 (RMC).

2/10. The Federal Communications Commission (FCC) published a notice in the Federal Register that describes, and sets deadlines for public comments on, its Third Report and Order and Second Further Notice of Proposed Rulemaking pertaining to the administration of the FCC's e-rate subsidy program for schools and libraries. See, Federal Register, February 10, 2004, Vol. 69, No. 27, at Pages 6229 - 6238. This item is FCC 03-323 in Docket No. 02-6. The FCC adopted this item at its December 17, 2003 meeting. See, FCC release [PDF] describing this item. The FCC released the text of this item on December 23, 2003. Comments are due by March 11, 2004. Reply comments are due by April 12, 2004.

2/10. The House Rules Committee met to adopt a rule for consideration of HR 1561, the "United States Patent and Trademark Fee Modernization Act of 2003". This bill as reported by the House Judiciary Committee would end the diversion of USPTO fees. However, the Committee did not adopt a rule. The bill is not now on the calendar of the House Majority Leader for consideration by the House on Wednesday, February 11. Representatives of the House Judiciary Committee, which has long opposed the diversion of USPTO fees, and representatives of the House Appropriation Committee, which has long passed appropriations bills that divert USPTO fees, met on February 10 and drafted compromise language for the bill.

2/10. Microsoft and Disney announced "a multiyear agreement to cooperate on" digital rights management (DRM) technology utilizing Microsoft Windows operating system and Microsoft Windows Media. Microsoft stated in a release that "Disney and Microsoft have identified three areas of joint focus that utilize effective rights management:
 • The creation and secure delivery of compelling high-resolution digital content
 • The overall acceleration of digital content flow to consumers -- over networks, on optical media and on devices
 • Ensuring the seamless flow of secure content between devices, whether in the home or on portable devices".

2/10. Sen. Charles Grassley (R-IA) and others introduced S 2062, a bill to amend the procedures that apply to consideration of interstate class action lawsuits.

2/10. Federal Communications Commission (FCC) Commissioner Kathleen Abernathy gave a speech [PDF] titled "Public Safety and Sound Spectrum Management Go Hand in Hand" at a National Telecommunications and Information Administration (NTIA) conference.

2/10. Albert Foer, President of the American Antitrust Institute (AAI), released a paper [9 pages in PDF] titled "Horizontal Merger Analysis and the Role of Concentration in the Merger Guidelines".

US and Australia Conclude FTA with Extensive Info Tech Provisions

2/9. The Office of the U.S. Trade Representative (USTR) issued a release [4 pages in PDF] that states that the US and Australia "concluded" a free trade agreement (FTA). The USTR did not release the text of this FTA. However, the USTR's summary of the FTA enumerates numerous provisions relating to information technologies, electronic commerce and intellectual property rights protection.

The FTA still requires approval. In the US, under trade promotion authority, the House and Senate must pass legislation approving the FTA. However, the Congress cannot amend the FTA.

USTR Robert Zoellick (at right) stated in the USTR release that "This is the most significant immediate cut in industrial tariffs ever achieved in a U.S. free trade agreement, and manufacturers are the big winners."

This release states in summary that "U.S. and Australian authors, performers, inventors, and other producers of creative material will benefit from the higher and extended standards the FTA requires for protecting intellectual property rights such as copyrights, patents, trademarks, and trade secrets and enhanced means for enforcing those rights. The agreement calls for each government to adopt state-of-the-art protection for digital products such as software, music, text, and videos, and encourages adoption of measures to promote trade through electronic commerce."

The USTR also released a more detailed summary [8 pages in PDF] of the FTA. It states that "More than 99 percent of U.S. exports of manufactured goods to Australia will become duty-free immediately upon entry into force of the Agreement."

But, the FTA also contains numerous provisions relating to electronic commerce and intellectual property protections, particularly in the context of digital and online works.

E-Commerce. The USTR's summary states that "Digital products will receive non-discriminatory treatment and will not be subject to customs duties." It also states that "First-time commitments will facilitate the ability of businesses to use electronic means to authenticate a business transaction (e.g., digital signatures) in both markets." (Parentheses in original.)

It also states that "The United States and Australia will be cooperating on other e-commerce issues including on work towards mutual recognition of digital certificates used for electronic transactions with each other’s government (e.g., in government procurement)." (Parentheses in original.)

Trademarks. The summary states that the FTA "Requires a system to resolve disputes about trademarks used in Internet domain names, which is important to prevent ``cyber-squatting´´ with respect to high-value domain names."

It adds that the FTA "Applies principle of ``first-in-time, first-in-right´´ to trademarks and geographical indications, so that the first person who acquires a right to a trademark or geographical indication is the person who has the right to use it."

Copyright. The summary states that under this FTA, "Copyright owners maintain rights over temporary copies of their works on computers, which is important in protecting music, videos, software and text from widespread unauthorized sharing via the Internet."

It further states that the FTA "Establishes that only authors, composers and other copyright owners have the right to make their work available on-line."

The FTA "Ensures extended terms of protection (e.g., life of the author plus seventy years) for copyrighted works, including phonograms, consistent with emerging international trends." (Parentheses in original.)

It also "Establishes strong anti-circumvention provisions to prohibit tampering with technologies (like embedded codes on discs) that are designed to prevent piracy and unauthorized distribution over the Internet." (Parentheses in original.)

The summary also states that the FTA "Requires rules to prohibit the unauthorized receipt or distribution of encrypted satellite signals, thus preventing piracy of satellite television programming", and "Provides rules for the liability of Internet Service Providers (ISPs) for copyright infringement, reflecting the balance struck in the U.S. Millennium Copyright Act between legitimate ISP activity and the infringement of copyrights."

Patents & Trade Secrets. The USTR's summary of the FTA states that it "Provides for the extension of patent terms to compensate for delays in granting the original patent, consistent with U.S. practice", and "Limits the grounds for revoking a patent, thus protecting against arbitrary revocation."

It also states that the FTA "Clarifies that test data and trade secrets submitted to a government for the purpose of product approval will be protected against unfair commercial use for a period of 5 years for pharmaceuticals and 10 years for agricultural chemicals. Closes potential loopholes to these provisions."

Piracy and Counterfeiting. The FTA also "Criminalizes end-user piracy, providing strong deterrence against piracy and counterfeiting."

It also "Requires both Parties to authorize the seizure, forfeiture, and destruction of counterfeit and pirated goods and the equipment used to produce them. Also provides for enforcement against goods-in-transit, to deter violators from using ports or free trade zones to traffic in pirated products. Ex officio action may be taken in border and criminal cases, thus providing more effective enforcement."

Broadcasting. The USTR summary also states that "In the area of broadcasting and audiovisual services, the FTA contains important and unprecedented provisions to improve market access for U.S. films and television programs over a variety of media including cable, satellite, and the Internet."

Reaction. Sen. Charles Grassley (R-IA), the Chairman of the Senate Finance Committee, stated in a release that "I'm pleased that we were able to conclude a trade agreement with Australia."

However, he added that he is "disappointed by several aspects of the agreement. First, the agreement could establish a dangerous precedent because it completely excludes a product from the agreement."

The agreement exempts sugar. The American Sugar Alliance "applauded" the FTA.

"Second", wrote Sen. Grassley, "the agreement doesn't include an investor-state dispute resolution mechanism. That seems inconsistent with the negotiating objectives spelled out under Trade Promotion Authority. And third, I was surprised to learn the agreement contains an apparent ban on the reimportation of pharmaceuticals. This is an important issue that Congress is currently debating. Given the importance of this issue, I don't understand why it wasn't raised earlier in the negotiations. I'll be reviewing the effect of this provision closely over the next few weeks."

On January 28, 2004, Rep. Bill Thomas (R-CA), the Chairman of the House Ways and Means Committee, wrote a letter to President Bush about this FTA. He wrote that "I expect that all future agreements that we will consider, including the U.S.-Australia Free Trade Agreement, will reflect your established practice of completely liberalizing all sectors and products and that you will resist any pressure to exclude any sector or product from liberalization."

Rep. Thomas argued that "If we exclude one industry, we will be under enormous pressure to exclude others." He also argued that "if we shelter particular industries by taking products off the table, we signal to our negotiating partners that they are free to do the same. Many U.S. export oriented sectors are sensitive for our prospective trading partners, who will seek to exclude these sectors if we exclude our sensitive products. Ultimately, negotiations will unravel ..."

Similarly, on February 4, Thomas Donohue, P/CEO of the U.S. Chamber of Commerce, stated in a release that "We should aim for a comprehensive agreement with Australia and resist demands for special treatment for certain industries or products ... Let's not lose sight of the significant benefits of the agreement by listening to the narrow demands of special interest groups."

The Australian Information Industry Association (AIIA) issued a release praising the agreement.

Sen. Brownback Introduces Bill to Increase Maximum Fine for Broadcast Indecency

2/9. Sen. Sam Brownback (R-KS) and Sen. Lindsey Graham (R-SC) introduced S 2056, the "Broadcast Decency Enforcement Act of 2004".

The bill was referred to the Senate Commerce Committee. Sen. Brownback is a member. The Committee will hold a hearing titled "Protecting Children from Violent and Indecent Programming" on Wednesday, February 11, at 9:30 AM. The Commissioners of the Federal Communications Commission (FCC) will testify.

This bill would increase to $275,000 the maximum fine that may be imposed by the FCC upon television and radio broadcasters for transmission of obscene, indecent or profane language.

This bill is very similar to HR 3717, which is also titled the "Broadcast Decency Enforcement Act of 2004". The House Commerce Committee's Subcommittee on Telecommunications and the Internet will hold a hearing on the bill at 9:30 AM on Wednesday, February 11, and a markup session at 9:30 AM on Thursday, February 12.

CFA and CU Release Report Critical of Cable Industry

2/9. The Consumer Federation of America (CFA) and Consumers Union (CU) published a report [39 pages in PDF] titled "The Continuing Abuse of Market Power by the Cable Industry: Rising Prices, Denial of Consumer Choice, and Discriminatory Access to Content".

It follows the report [146 pages in PDF] to Congress on the status of competition in the market for the delivery of video programming released by the Federal Communications Commission (FCC) on January 28, 2004.

The FCC found that "Overall, due, in part, to Congressional efforts made over the past decade, technological advances and investment in new platforms for delivering video programming, the vast majority of Americans enjoy more choice, more programming and more services than any time in history. In addition to an increase in the number of video channels, cable operators and other MVPDs also now offer advanced video services and many non-video advanced services. Cable television, however, remains the predominant technology for the delivery of video programming. Ten years ago, cable operators served almost 100% of the nation’s subscribers. Today, cable’s share has fallen to approximately 75% of all MVPD subscribers."

The CFA/CU, which are perennial critics of the cable industry, asserted that "cable operators still possess market power in the multichannel video market. The result is price increases that far exceed the rate of inflation -- almost three times faster than inflation in recent years -- and the continued restriction of consumer choice to a small number of ever larger, ever more expensive bundles."

They added that "Direct Broadcast Satellite does not have a significant or substantial ability to discipline cable pricing abuse."

In the area of broadband service, the CFA/CU wrote that "Satellite lacks the ability to offer a bundle of video and high-speed Internet to compete effectively with cable. Cable recognizes this and is aggressively bundling high-speed Internet with basic cable service -- offering a 25 percent discount on a bundle of basic cable and Internet compared to stand alone Internet service."

The report states that "Cable operators discriminate against unaffiliated service providers in both the video and the high-speed Internet product space."

The CFA/CU report also complains that "Cable has foreclosed competition for Internet access service over its platform", and that "Discrimination was even more brutal in the Internet space as cable operators applied their business model to high-speed Internet access."

Brian Dietz of the National Cable and Telecommunications Association (NCTA) responded in a release that "The Consumer Federation continues to show its lack of understanding of the competitive video marketplace that exists today and the fact that most consumers have the choice of at least three multi-channel video providers, including their local cable operator. The FCC's recent video competition report on video competition highlighted the sweeping competitive changes that have taken place in the video marketplace over the past ten years, including the emergence of two nationwide DBS competitors who now serve more than 21 percent of multichannel video households, leading to the FCC to conclude that, ``the vast majority of Americans enjoy more choice, more programming and more services than any time in history.´´"

Powell Opposes Regulations to Impose Broadband Network Neutrality

2/8. Federal Communications Commission (FCC) Chairman Michael Powell gave a speech [PDF] titled "Preserving Internet Freedom: Guiding Principles for the Industry" at the Silicon Flatirons Symposium at the University of Colorado School of Law in Boulder, Colorado.

He argued for a concept that he called "Net Freedom" -- the concept that consumers should be able to use their broadband connections to "use the content, applications and devices they want", without restrictions imposed by their broadband service providers.

Powell (at right) argued that at this time "the case for government imposed regulations regarding the use or provision of broadband content, applications and devices is unconvincing and speculative". However, he outlined a voluntary "road map" of rules to be followed by broadband service providers.

Powell argued that this "Net Freedom" includes the principles that "consumers should have access to their choice of legal content", "consumers should be able to run applications of their choice", and "consumers should be permitted to attach any devices they choose to the connection in their homes".

Powell's speech responded to, but did not cite, the various comments that have been submitted to the FCC, and published in other fora, urging the FCC to write rules that impose "network neutrality" or "nondiscrimination" upon broadband service provides.

For example, the Coalition of Broadband Users and Innovators (CBUI) has filed numerous comments with the FCC urging that it write a nondiscrimination rule. See especially, comment [3 pages in PDF] filed on November 18, 2002, and comment [23 pages in PDF] filed on July 17, 2003. See also comment [17 pages in PDF] submitted by law professors Lawrence Lessig (Stanford) and Timothy Wu (University of Virginia) on August 22, 2003 urging that the FCC adopt a network neutrality rule. See also, story on this subject titled "Cato Study Opposes FCC Imposition of Network Neutrality", January 12, 2004, also published in TLJ Daily E-Mail Alert No. 816, January 15, 2004.

Powell stated in his Silicon Flatirons speech that "We must ensure that the various capabilities of these technologies are not used in a way that could stunt the growth of the economy, innovation and consumer empowerment. Thus, we must expand our focus beyond broadband networks -- the so-called ``physical layer´´ of the Internet’s layered architecture."

"Personal computing devices are at the leading edge of this revolution in consumer empowerment", said Powell. "But the possibilities for consumer empowerment extend beyond devices. These possibilities arise from the Internet's open architecture, which allows consumers to freely interact with anyone around the globe."

"Companies are eager to feed consumer hunger for these Internet-related goodies. Many are racing to develop content, applications and devices they hope will entice more and more consumers to abandon dial-up and slower broadband Internet access in favor of faster broadband. But first, these companies must be able to reach broadband consumers", said Powell.

"This is why ensuring that consumers can obtain and use the content, applications and devices they want -- is critical to unlocking the vast potential of the broadband Internet. Today, broadband consumers generally enjoy such internet freedom. They can access and use the content, applications and devices of their choice."

He added that "we must keep a sharp eye on market practices that will continue to evolve rapidly. And we must do so while safeguarding Congress' intent that the Internet remains free of unnecessary regulation that might distort or slow its growth."

Powell discussed a study by professors Joseph Farrell and Philip Weiser. He stated that they "acknowledge the strong incentives that network owners have to ensure that broadband platforms remain open", but also concluded that "a network owner might face incentives to begin restricting some uses of their platforms in certain cases: if regulators set prices for using the platform too low, if bargaining among networks owners and other companies breaks down, or if companies are just unable to recognize their own self-interest in maintaining the freedom broadband consumers want and expect."

See, paper [56 pages in PDF] titled "Modularity, Vertical Integration, and Open Access Policies: Towards a Convergence of Antitrust and Regulation in the Internet Age".

Powell noted that "This may not be mere academic speculation. A few troubling restrictions have appeared in broadband service plan agreements."

But, Powell concluded that regulation is not appropriate at this time. He said that "Based on what we currently know, the case for government imposed regulations regarding the use or provision of broadband content, applications and devices is unconvincing and speculative. Government regulation of the terms and conditions of private contracts is the most fundamental intrusion on free markets and potentially destructive, particularly where innovation and experimentation are hallmarks of an emerging market. Such interference should be undertaken only where there is weighty and extensive evidence of abuse."

Instead, he urged voluntary compliance with certain principles by industry, and consumers' assertion of their interests.

Powell elaborated that "it is time to give the private sector a clear road map by which it can avoid future regulation on this issue by embracing unparalleled openness and consumer choice."

He said, "I challenge the broadband network industry to preserve the following ``Internet Freedoms:´´ ... "First, consumers should have access to their choice of legal content. ... Second, consumers should be able to run applications of their choice. ... Third, consumers should be permitted to attach any devices they choose to the connection in their homes." However, Powell added the caveat, "so long as the devices operate within service plan limitations and do not harm the provider’s network or enable theft of service." And finally, he said that "consumers should receive meaningful information regarding their service plans."

House to Vote on Bill to End USPTO Fee Diversion

2/6. The House is scheduled to take up HR 1561, the "United States Patent and Trademark Fee Modernization Act of 2003" on Wednesday, February 11. See, Republican Whip notice. The bill would raise fees collected by the U.S. Patent and Trademark Office (USPTO), but end the practice of diversion of fees to subsidize other government programs.

Currently, funding for the USPTO is set by bills reported by the House and Senate Appropriations Committees. The appropriation is less than the amount of fees collected, with the remainder being used to subsidize other government programs. Some intellectual property owners, groups that represent them, and technophiles in the Congress, oppose the process of fee diversion.

There have been many attempts to end the diversion of USPTO fees over the years. All have failed. These proposals have been strongly supported by the members of the House Judiciary Committee, and its Subcommittee on Courts, the Internet and Intellectual Property (CIIP), as well as by many members of the Senate Judiciary Committee.

However, the House Appropriations Committee and the Senate Appropriations Committee have continued to pass annual appropriations bills for the Departments of Commerce, Justice and State (CJS) that continue the practice of fee diversion.

HR 1561, as amended by the House Judiciary Committee, would amend 35 U.S.C. § 42 pertaining to "Patent and Trademark Office funding".

The key language provides that "Section 42 of title 35, United States Code, is amended--
  (1) in subsection (b), by striking `Appropriation´; and
  (2) in subsection (c), in the first sentence--
    (A) by striking `To the extent´ and all that follows through `fees´ and inserting `Fees´; and
    (B) by striking `shall be collected by and shall be available to the Director´ and inserting `shall be collected by the Director and shall be available until expended´."

The following paragraph illustrates how the bill marks up Section 42(c). The words with the strikethrough are deleted, while the words in red are added. (Subscribers with e-mail filters that remove HTML formatting may not see the strikethroughs or red text.)

To the extent and in the amounts provided in advance in appropriations Acts, fees Fees authorized in this title or any other Act to be charged or established by the Director shall be collected by and shall be available to the Director shall be collected by the Director and shall be available until expended to carry out the activities of the Patent and Trademark Office. All fees available to the Director under section 31 of the Trademark Act of 1946 shall be used only for the processing of trademark registrations and for other activities, services, and materials relating to trademarks and to cover a proportionate share of the administrative costs of the Patent and Trademark Office.

Rep. Lamar Smith (R-TX) and Rep. Howard Berman (D-CA) introduced the bill on April 2, 2003. On April 3, 2003, the Subcommittee on Courts, the Internet and Intellectual Property (CIIP) held a hearing on the bill. See, story titled "House CIIP Subcommittee Holds Hearing on USPTO Fees" in TLJ Daily E-Mail Alert No. 637, April 4, 2003.

The House Judiciary Committee amended and approved the bill on July 9, 2003. See, story titled "House Judiciary Committee Approves USPTO Fee Bill" in TLJ Daily E-Mail Alert No. 695, July 10, 2003.

See also, story titled "House Intellectual Property Caucus Advocates Ending USPTO Fee Diversion" in TLJ Daily E-Mail Alert No. 762, October 21, 2003.

HR 1561 will be considered subject to a rule. The House Rules Committee has not yet adopted this rule. It will likely limit the time allowed for debate, and enumerate the amendments that may be offered. A simple majority will be required for passage. The Rules Committee is likely to meet at around 5:30 PM on Tuesday, February 10 to adopt a rule. It has set a deadline of 2:00 PM on February 10 for submitting proposed amendments. See, Rules Committee notice.

There has been one other recent vote in the full House on this issue. In June of 2000, Rep. Howard Coble (R-NC), who was then the Chairman of the CIIP Subcommittee, offered an amendment to the CJS appropriations bill that would have reduced the size of the diversion. It failed on a role call vote of 145-223. See, TLJ story titled "House Rejects Coble Amendment on USPTO Funding", June 25, 2000.

The Judiciary Committee members voted 20-6 in favor. The Appropriations Committee members voted 8-41 against. There was also disproportionate support for the Coble amendment from Representatives from California and other western states. See, TLJ story titled "Analysis of House Vote on Coble Amendment", June 25, 2003.

Many House members are reluctant to vote against the determinations of the Appropriations Committee. However, the present bill is not an amendment to an appropriations bill. Also, when President Bush released his budget proposals for fiscal year 2005 on February 2, it included no diversion of fees for FY 2005. See, story titled "Bush Budget Proposes No USPTO Fee Diversion in FY 05", also published in TLJ Daily E-Mail Alert No. 829, February 4, 2004.

Commerce Committees Schedule More Meetings Regarding Broadcast Indecency

2/6. The Senate Commerce Committee announced that it will hold a hearing titled "Protecting Children from Violent and Indecent Programming" on Wednesday, February 11 at 9:30 AM.

The House Commerce Committee announced that on Wednesday, February 11, at 9:30 AM, its Subcommittee on Telecommunications and the Internet will hold a hearing on HR 3717, the "Broadcast Decency Enforcement Act of 2004". Then, on Thursday, February 12, the Telecom Subcommittee will meet to mark up HR 3717.

Rep. Fred Upton (R-MI), Rep. Ed Markey (D-MA), Rep. Billy Tauzin (R-LA), Rep. John Dingell (D-MI), and others, introduced HR 3717 on January 21, 2004. These are the Chairmen and ranking Democrats on the Telecom Subcommittee and the full House Commerce Committee.

This bill would amend 47 U.S.C. § 503(b)(2) to increase the maximum monetary penalties that the FCC can impose upon broadcasters for broadcasting obscene, indecent, or profane language. The bill would allow the FCC to impose a fine of up to $275,000 per violation, or each day of a continuing violation.

The bill provides, in part, that "if the violator is (i) a broadcast station licensee or permittee, or (ii) an applicant for any broadcast license, permit, certificate, or other instrument or authorization issued by the Commission, and the violator is determined by the Commission under paragraph (1) to have broadcast obscene, indecent, or profane language, the amount of any forfeiture penalty determined under this section shall not exceed $275,000 for each violation or each day of a continuing violation, except that the amount assessed for any continuing violation shall not exceed a total of $3,000,000 for any single act or failure to act."

Also on January 21, Rep. Chip Pickering (R-MS) and others introduced HRes 500, a related resolution. HRes 500 expresses the sense of the House that the FCC "should vigorously enforce indecency and profanity laws pursuant to the intent of Congress in order to protect children in the United States from indecent and profane programming on broadcast television and radio." SRes 283, introduced on December 9, 2003 by Sen. Jeff Sessions (R-AL) and others, is very similar, but not identical, to HRes 500.

See also, story titled "House Commerce Committee Takes Up Broadcast Indecency" in TLJ Daily E-Mail Alert No. 824, January 27, 2004.

The House Commerce Committee's Telecom Subcommittee has already held one hearing. On January 28 it held a hearing titled "Can you say that on TV?': An Examination of the FCC's Enforcement with Respect to Broadcast Indecency".

The witnesses were David Solomon (Chief of the FCC's Enforcement Bureau), Brent Bozell (President of Parents Television Council), Robert Corn-Revere (attorney with the law firm of Davis Wright & Tremaine), and William Wertz (EVP of Fairfield Broadcasting Company).

Solomon (at right) wrote in his prepared testimony that the FCC "has taken indecency enforcement very seriously". He added that "Chairman Powell has supported increasing by a factor of 10 the maximum statutory forfeiture amounts specified in the Communications Act for indecency and we hope Congress will enact such legislation."

Brent Bozell disagreed. He wrote in his prepared testimony that "looking at the FCC's track record on indecency enforcement, it becomes painfully apparent that the FCC could care less about community standards of decency or about protecting the innocence of young children."

William Wertz, a broadcaster, wrote in his prepared testimony [13 pages in PDF] that "It’s my hope that the Government would permit NAB to establish voluntary guidelines and allow it to create a self-enforcement division to administer obscenity/decency on Radio and TV and also that NAB would accept this responsibility."

Robert Corn-Revere, the devil's advocate, raised "some of the constitutional issues that arise from the FCC’s regulation of broadcast content" in his prepared testimony.

Since the Telecom Subcommittee's January 28 hearing, the FCC has opened another television broadcast indecency matter. On February 2 the FCC opened an investigation into the display of a woman's breast during the half time musical performance that was a part of the TV broadcast of a football game.

Chairman Powell stated that "I am outraged at what I saw during the halftime show of the Super Bowl. Like millions of Americans, my family and I gathered around the television for a celebration. Instead, that celebration was tainted by a classless, crass and deplorable stunt. Our nation’s children, parents and citizens deserve better." See, statement.

The other Commissions all issued statements supporting the opening of an investigation. See, Kathleen Abernathy's statement [PDF]; Commissioner Kevin Martin's statement [PDF], Commissioner Michael Copps' statement [PDF], and Commissioner Jonathan Adelstein's statement [PDF].

PPI Proposes Replacing Agriculture Subsidies with Investment in Rural Communities

2/6. The Progressive Policy Institute (PPI), a new Democrat think tank based in Washington DC, released a report [23 pages in PDF] titled "Reversing Rural America's Economic Decline: The Case for a National Balanced Growth Strategy".

The report, written by the PPI's Robert Atkinson, proposes replacing crop subsidies with a program of government investment in rural communities that includes increasing broadband deployment, establishing more points of presence to access fiber backbone in rural areas, and funding rural technology research and development.

The report opens with the assessment that "Fundamental structural changes in technology, markets, and organizations are redrawing our nation’s economic map and leaving many rural areas behind. Yet our de-facto federal rural policy -- providing massive subsidies to a shrinking number of farmers -- does little to help develop competitive rural economies or boost opportunity for rural residents."

It proposes that the US "should press for serious negotiations with other developed nations and the World Trade Organization to mutually agree to phase down farm subsidies. Second, here at home we should gradually shift agricultural subsidies toward a 15-year effort to help rural America develop a new competitive economic base and to help the nation as a whole develop a better balance between its metropolitan and rural economies. The savings from reduced crop subsidies should be reinvested in a new Rural Prosperity Corporation that co-invests with states to boost the long-term competitive position of targeted rural economies." The report adds that "we do not propose unilaterally disarming when it comes to farm subsidies."

The report addressed the relationship between new information technologies and rural economies. It states that "As more of the economy processes information digitally, more firms are able to locate anywhere with skilled workers and advanced telecom infrastructures." However, "rural areas are not just competing with urban areas for these jobs. IT is sending these jobs not just to rural areas, but also overseas to low-cost places like India and China. Still, not all these IT-enabled service jobs will go offshore, and rural areas are in a position to capture some of this market, especially if rural areas focus on growth centers".

The report continues that "While the digital economy makes activities more footloose, it doesn’t liberate them from all locational constraints. First, and most obviously, digital economic activities can't locate in a place unless it has access to advanced telecommunications infrastructure." It adds that a pool of skilled workers is necessary, and airport access is important."

It recommends that "Access to high-speed ``broadband´´ telecommunications is critical if a region wants to grow and attract a wide variety of businesses. While advanced telecommunication services are not the single factor required for growth, they are necessary." Hence, the report recommends the the US establish a Rural Prosperity Corporation (RPC) that "should work with states to help them make concerted efforts ensuring most regions have high-speed broadband connections, particularly businesses in designated growth poles."

The report adds that "States can do several things to help facilitate the rollout of broadband, including reducing rights-of-way charges and the taxes they levy on providers."

It also states that "another way to gain access to high-speed telecommunications is to help rural areas access an interstate fiber backbone" by providing more points of presense, or POPs. And finally, the RPC "should fund a rural technology R&D program."

People and Appointments

2/6. President Bush nominated Judge Charles Pickering to be a Judge of the U.S. Court of Appeals for the Fifth Circuit. Bush gave Pickering a recess appointment last month during the recess between the first and second sessions of the 108th Congress. Senate Democrats will likely oppose and filibuster this nomination. See, White House release.

2/6. Nokia announced that John Thornton withdrew his candidacy elected to the Nokia Board of Directors "due to personal reasons". See, February 6 release. Nokia stated on January 22 that the Corporate Governance and Nomination Committee proposed that Thornton be elected to the Board. See, January 22 release.

2/6. Robert Morse, Brian Higgins and Mary O'Connor were elected partners in the Washington DC law firm of Wilkinson Barker & Knauer. All three focus on communications law.

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2/6. The Bureau of Industry and Security (BIS) published a notice in the Federal Register announcing various amendments to the Export Administration Regulations (EAR). The notice describes these rule changes as "certain corrections and clarifications, including insertion of material inadvertently omitted from previous rules." Although, there are several changes to the rules affecting the export of software. See, changes to §§ 732.3, 740.6, 740.13(a)(1), 746.2(a)(1)(ii), and 746.4(b)(2)(ii)(B). These changes are effective February 6, 2004. The BIS made these rule changes without a notice of proposed rulemaking, or the opportunity for public participation, because it is the BIS. The Administrative Procedure Act, at 5 U.S.C. § 553(a)(1), provides an exemption for "a military or foreign affairs function of the United States". This notice is published at Federal Register, February 6, 2004, Vol. 69, No. 25, at Pages 5686 - 5691.

2/6. The European Union (EU) issued a release regarding the status of negotiations between the US and the EU regarding the Global Positioning System (GPS) and Galileo.

2/6. The Copyright Office (CO) published a notice in the Federal Register announcing "final regulations that set rates and terms for the public performance of a sound recording made pursuant to a statutory license by means of certain eligible nonsubscription transmissions and digital transmissions made by a new type of subscription service. The final rule also announces rates and terms for the making of related ephemeral recordings. The rates and terms are for the 2003 and 2004 statutory licensing period, except in the case of a new subscription service, in which case the license period runs from 1998 through 2004." This is effective March 8, 2004. See, Federal Register, February 6, 2004, Vol. 69, No. 25, at Pages 5693 - 5702.

2/6. The Federal Communications Commission (FCC) published a notice in the Federal Register announcing and summarizing its final rule regarding service rules for Advanced Wireless Services in the 1710-1755 MHZ and 2110-2155 MHz bands, including provisions for application, licensing, operating and technical rules, and for competitive bidding. The FCC adopted its Notice of Proposed Rulemaking (NPRM) on June 13, 2002, and released the text of this NPRM on June 28, 2002. The FCC adopted its Report and Order on October 16, 2003. See, story titled "FCC Announces Rules for Licensing 71-76 GHz, 81-86 GHz, and 92-95 GHz Bands" in TLJ Daily E-Mail Alert No. 761, October 20, 2003. The FCC released the text of its R&O on November 25, 2003. It is FCC 03-251 in WT Docket No. 02-353.

2/6. The Federal Communications Commission (FCC) issued a release [PDF] that states that "The FCC has received more than 200,000 complaints" regarding the Janet Jackson's half time performance during the television broadcast of the Superbowl on February 1, 2004. The FCC release further advertises a toll free number and e-mail address for submitting further complaints.

2/6. The California Court of Appeal (6th) issued its opinion [MS Word] in Abramson v. Juniper Networks, a case regarding the enforceability of an arbitration clause in an employment contract between Juniper Networks and an employee, when that employee subsequently filed a complaint in state court alleging wrongful termination, breach of contract, and other claims. The Court of Appeal held the arbitration clause unenforceable. This case is David Abramson v. Juniper Networks, Inc., California Court of Appeal, Sixth Appellate District, No. H025840, an appeal from the Santa Clara County Superior Court, No. CV788020.

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