District Court Holds Pennsylvania Internet Statute Unconstitutional

9/10. The U.S. District Court (EDPenn) issued its Order [3 pages in PDF] and memorandum [110 pages in PDF] in Center for Democracy and Technology v. Pappert, holding that the state of Pennsylvania's Internet Child Pormography Act, which is codified at 18 Pa. Cons. Stat. § 7621-7630, is unconstitutional under both the First Amendment and the dormant commerce clause. The Court also enjoined Pennsylvania from enforcing it.

Pennsylvania passed a statute that requires internet service providers (ISP) to remove or disable access to child pormography items "residing on or accessible through its service"´ after notification by the Pennsylvania Attorney General.

The Center for Democracy and Technology (CDT), the ACLU, and PlantageNet, Inc., an ISP, filed a complaint in U.S. District Court against Gerald Pappert, in his capacity as Attorney General of Pennsylvania, challenging the constitutionality of the statute.

The Court concluded that "with the current state of technology, the Act cannot be implemented without excessive blocking of innocent speech in violation of the First Amendment. In addition, the procedures provided by the Act are insufficient to justify the prior restraint of material protected by the First Amendment and, given the current design of the Internet, the Act is unconstitutional under the dormant Commerce Clause because of its effect on interstate commerce."

The Court's ruling on the First Amendment claim was predictable. However, the commerce clause ruling is noteworthy, even though the Court only devoted a few pages in a 110 page opinion to this claim. The holding on the commerce clause might be pertinent to a wider range of state statutes that affect electronic commerce.

Article I, Section 8, of the Constitution provides that "The Congress shall have Power ... to regulate Commerce with foreign Nations, and among the several States ..." The dormant commerce clause is the judicial concept that the Constitution, by delegating certain authority to the Congress to regulate commerce, thereby bars the states from legislating on certain matters that affect interstate commerce, even in the absence of Congressional legislation. It is applied to block states from regulating in a way that materially burdens or discriminates against interstate commerce. See, Gibbons v. Ogden, 22 U.S. 1 (1824), and Cooley v. Board of Wardens, 53 U.S. 299 (1851). More recent treatments of the concept include West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994), Healy v. The Beer Institute, 491 U.S. 324 (1989), and CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69 (1987), and Pike v. Bruce Church, Inc., 397 U.S. 137 (1970).

The District Court wrote that "The Supreme Court has decided that the Commerce Clause has a negative aspect, commonly called ``the dormant Commerce Clause,´´ that limits the states' power to regulate interstate commerce. ``The dormant Commerce Clause prohibits the states from imposing restrictions that benefit in-state economic interests at out-of-state interests’ expense.´´"

The Court, relying on the Supreme Court's analysis in Pike v. Bruce Church, wrote that "The first question the Court must answer in conducting a dormant Commerce Clause analysis is ``whether the state regulation at issue discriminates against interstate commerce 'either on its face or in practical effect.' If so, heightened scrutiny applies.´´ ... ``On the other hand, if the state regulation does not discriminate against interstate commerce, but ‘regulates even-handedly’ and merely 'incidentally' burdens it, the regulation will be upheld unless the burden is 'clearly excessive in relation to the putative local benefits.'´´" (Citations omitted.)

The Court continued that "Plaintiffs do not argue that the Act favors in-state commerce over out-of-state commerce on its face or in practical effect. As a result, the balancing test applied in Pike v. Bruce Church quoted above will be applied." The Court then concluded that "The Act cannot survive the dormant Commerce Clause balancing test set forth" in Pike v. Bruce Church. First, the Court examined the "putative local benefits". It reasoned that the state's goal of reducing sexual abuse had not been effectuated. It found, for example, that people who want to access child porm online can get around the blocking mandated by the statute.

Next, the Court examined the burden on interstate commerce. The Court wrote that "the evidence demonstrates that implementation of the Act has impacted a number of entities involved in the commerce of the Internet – ISPs, web publishers, and users of the Internet. To comply with the Act, ISPs have used two types of filtering – IP filtering and DNS filtering – to disable access to alleged child pornography. This filtering resulted in the suppression of 376 web sites containing child pornography, certainly a local benefit. However, the filtering used by the ISPs also resulted in the suppression of in excess of 1,190,000 web sites not targeted by defendant and, as demonstrated at trial, a number of these web sites, probably most of them, do not contain child pornography. ... The overblocking harms web publishers which seek wide distribution for their web sites and Internet users who want access to the broadest range of content possible." The Court concluded that "the burden imposed by the Act is clearly excessive in relation to the local benefits. Thus, the Act must fail."

The Court also wrote that "Although the Court is not prepared to rule that states can never regulate the Internet, the Act’' extraterritorial effect violates the dormant Commerce Clause."

See also, related cases: PSInet v. Chapman, 362 F.3d 227 (4th Cir. 2004); American Libraries Ass'n v. Pataki, 969 F. Supp. 160, 177 (S.D.N.Y. 1997); and ACLU v. Johnson, 194 F.3d 1149, 1161 (10th Cir. 1999).

This case is Center for Democracy and Technology, American Civil Liberties Union, and Plantagenet, Inc. v. Gerald Pappert, U.S. District Court for the Eastern District of Pennsylvania, D.C. No. 03-5051, Judge Jan DuBois presiding.

DOT Dismisses Privacy Related Complaint Against Northwest Airlines

9/10. The Department of Transportation (DOT) issued its Order Dismissing Complaint [18 page PDF scan] in its proceeding on the third party complaint [11 pages PDF] submitted by the Electronic Privacy Information Center (EPIC).

On January 20, 2004, the EPIC, a Washington DC based interest group, submitted its complaint asserting that Northwest Airlines' (NWA) transfer of a sample of its passenger name record (PNR) data to the National Aeronautics and Space Administration (NASA) violated Northwest's privacy policy, and that this, in turn, constituted an unfair and deceptive trade practice in violation of 49 U.S.C. § 41712. See, story titled "EPIC Complains to DOT About Transfer of Airline Passenger Data to NASA" in TLJ Daily E-Mail Alert No. 820, January 21, 2004.

Section 41712 provides that "On the initiative of the Secretary of Transportation or the complaint of an air carrier, foreign air carrier, or ticket agent, and if the Secretary considers it is in the public interest, the Secretary may investigate and decide whether an air carrier, foreign air carrier, or ticket agent has been or is engaged in an unfair or deceptive practice or an unfair method of competition in air transportation or the sale of air transportation. If the Secretary, after notice and an opportunity for a hearing, finds that an air carrier, foreign air carrier, or ticket agent is engaged in an unfair or deceptive practice or unfair method of competition, the Secretary shall order the air carrier, foreign air carrier, or ticket agent to stop the practice or method."

This was a case of first impression for the DOT. It ruled against the EPIC on several different grounds.

The DOT concluded that "Northwest's privacy policy did not unambiguously preclude it from sharing data with the federal government; that, even if it did, such a promise would be unenforceable as against public policy, as Northwest is required by law to make such records available to the Department and to other agencies ``upon demand´´; and that, in this case, the record contains no evidence of actual or likely harm to those passengers who provided Northwest with the data that it shared."

The DOT emphasized the security needs of the airline industry following the terrorist attacks of September 11, 2001, and Northwest's motive of assisting the government's effort to increase security.

However, the language of this order suggests that the outcome might be different if an airline were to share electronic passenger data with a commercial database company for use unrelated to airline security.

The DOT wrote that "Northwest's release of a small portion of its PNR data to a data analysis laboratory at NASA is far removed from the perceived scourges of the digital age. The risks of identity theft, in the extreme case, or of unsolicited commercial contact or profiling, appear to have been exceedingly remote in this case. Northwest's passenger data scarcely could have been safer if kept within Northwest's own file servers."

Sen. Alexander Wants to Delay Consideration of Internet Tax Ban Until Next Year

9/10. Sen. Lamar Alexander (R-TN), who is one of the leading opponents of extending, or making permanent, the ban contained in the Internet Tax Freedom Act, spoke in the Senate regarding taxes. He proposed delaying further action until the next Congress.

The original moratorium, contained in the Internet Tax Freedom Act (ITFA), was passed in late 1998. It was extended in 2001. The extended moratorium expired on November 1, 2003.

The House passed HR 49, the "Internet Tax Nondiscrimination Act", on September 17, 2003. The key language of HR 49 amends Section 1101(a) of the ITFA to read as follows: "(a) MORATORIUM- No State or political subdivision thereof may impose any of the following taxes: (1) Taxes on Internet access. (2) Multiple or discriminatory taxes on electronic commerce."

This leaves unchanged the taxes that are banned. It continues the moratorium on taxes on internet access, and multiple and discriminatory taxes on e-commerce. However, it deletes the grandfather language (thus eliminating grandfathering of taxes that were "generally imposed and actually enforced" in 1998). It also deletes any reference to a termination of the moratorium (thus making it permanent). It also clarifies that DSL service is covered by the ban on internet access taxes. The Senate has not passed HR 49.

Rather, on April 29, 2004, the Senate passed an amended version of S 150, the "Internet Tax Non-discrimination Act of 2003". See, text of bill as enacted by the Senate. The Senate bill extends the moratorium of the 1998 Internet Tax Freedom Act until November 1, 2007. However, the bill also includes numerous exceptions and qualifications that provide state and local governments a wide range of opportunities to tax internet access. See, story titled "Senate Passes Weakened Version Internet Non-discrimination Act" in TLJ Daily E-Mail Alert No. 889, May 3, 2004.

Sen. Alexander (at left) stated on September 10 that "I propose that representatives of States, of cities, of counties, and of the telecommunications industry meet together between now and the opening of the 109th Congress in January and develop a framework to assist Congress with how to approach this highly technical but very important set of issues."

This would have the effect of putting off until well into the next Congress any extension of the moratorium.

He explained that "High-speed Internet access is a fine, remarkable, admirable, new technology. But so was television, so was radio, so was electricity, so was the internal combustion engine. It is not the American way to subsidize such new inventions."

See, Congressional Record, September 10, 2004, at Page S9068.

FTC Sues AT&T and Sprint for Violating FCRA

9/10. The Federal Trade Commission (FTC) filed a complaint [PDF] in U.S. District Court (DNJ) against AT&T Corporation alleged violation of the Fair Credit Reporting Act (FCRA). The FTC and AT&T simultaneously filed a Consent Decree [PDF] in which AT&T agreed to pay a civil penalty of $365,000 for violation of the FCRA. The Consent Decree also enjoins AT&T from further violation of the FCRA.

The FTC also filed a complaint [PDF] in U.S. District Court (NDFl) against Sprint alleging violation of the FCRA. The FTC and Sprint simultaneously entered in to a Consent Decree [PDF] in which Sprint agreed to pay a civil penalty of $1,125,000. It also enjoins Sprint from further violation.

The FTC alleged that Sprint used consumers' credit reports to deny service, and that Sprint and AT&T placed conditions or restrictions on service without making the disclosures required by the FCRA, such as the right to obtain a free copy of the credit report and to dispute errors contained in the credit report.

The FCRA is codified at 15 U.S.C. § 1681, et seq. See also, FTC release.

Pate Addresses US Competition Law And Differences With EU

9/10. Hewitt Pate, Assistant Attorney General in charge of the Department of Justice's Antitrust Division gave a speech titled "Securing the Benefits of Global Competition" in Tokyo, Japan. Much of his speech was devoted to a review of U.S. competition law. He covered three topics: cartel enforcement, merger enforcement, and monopolization and other single firm conduct. On the third topic he focused on the Trinko and Microsoft cases.

He discussed differences between competition law in the U.S. and elsewhere, in the area of single firm conduct. He argued that sound economic analysis supports the U.S. position.

First, he argued against the notion of a stand alone essential facilities doctrine. That is, there should be no stand alone duty to assist competitors by assuring them access tangible or intellectual property. Second, he argued that "antitrust enforcers should generally be skeptical about claims that competition has been harmed by the product design choices of a dominant firm".

With respect to unilateral conduct, Pate stated that "Determining whether a competitor is competing aggressively or acting anticompetitively is a significant challenge that is best met by the application of objective, economically based, transparent standards. Under U.S. antitrust doctrine, these standards have evolved over time, and were most recently discussed by our Supreme Court in the Trinko case."

On January 13, 2004 the Supreme Court issued its opinion [22 pages in PDF] in Verizon v. Trinko, reversing the U.S. Court of Appeals (2ndCir). The Supreme Court held that a claim alleging a breach of an ILEC's duty under the 1996 Telecom Act to share its network with competitors does not state a violation of Section 2 of the Sherman Act. See, story titled "Supreme Court Holds That There is No Sherman Act Claim in Verizon v. Trinko" in TLJ Daily E-Mail Alert No. 815, January 14, 2004.

He continued that "In that case, the DOJ and FTC advocated a standard under which a refusal to assist rivals cannot be exclusionary unless it makes no economic sense for the defendant but for its tendency to reduce or eliminate competition. Although the Court did not explicitly adopt this standard, we believe the Court's analysis was consistent with the approach, and provided important guidance on the fundamental principles of U.S. monopolization law."

Pate added that the "Supreme Court in Trinko also clarified that there is no basis in U.S. antitrust law for a stand-alone essential facilities doctrine. The Court expressed profound skepticism that the antitrust laws were intended to create a duty by one competitor to assist its competitors by assuring them access to its tangible or intellectual property. Some antitrust authorities around the world continue to cling to this increasingly discredited approach, placing themselves on a collision course with sound economic thinking and U.S. approaches in this area."

He then discussed cases involving Microsoft. "On the other hand, where an appropriate standard is met, and anticompetitive conduct by a monopolist is found, we will move aggressively to end the conduct and devise an appropriate remedy. The Antitrust Division took such a course in the Microsoft case, where it was clear to the Division, and ultimately to the courts as well, that Microsoft had acted to illegally maintain its monopoly. It did so by engaging in a series of anticompetitive acts that made no economic sense but for their tendency to eliminate or lessen threats to Microsoft's monopoly."

On this topic, without referencing the European Union and its proceeding involving Microsoft's Media Player, he stated that the U.S. approach to remedies differs from that of other nations.

See, stories titled "European Commission Seeks 497 Million Euros and Code Removal from Microsoft" in TLJ Daily E-Mail Alert No. 863, March 25, 2004, and "European Commission Releases Microsoft Decision" in TLJ Daily E-Mail Alert No. 883, April 23, 2004. See also, stories titled "Pate Criticizes EC Decision Regarding Microsoft" in TLJ Daily E-Mail Alert No. 869, April 5, 2004, and "Pate Addresses US EU Differences on Antitrust, Microsoft, and IPR" in TLJ Daily E-Mail Alert No. 913, June 8, 2004.

He said that "Devising a remedy for unilateral antitrust violations requires at least as much care as the initial rooting out of the violations. The potential for causing more harm than good through counterproductive remedies is great in the single firm context, particularly when combined with the practical problems of enforcing conduct remedies. Remedying single firm conduct is also one of the areas of greatest difference among antitrust enforcement bodies around the world. Here again our Microsoft case is illustrative, particularly in the area of product design-based remedies. We believe, and our courts have held, that antitrust enforcers should generally be skeptical about claims that competition has been harmed by the product design choices of a dominant firm. While anticompetitive single firm conduct is both a challenge to identify and a challenge to remedy, combating it is an important part of sound antitrust enforcement."

GAO Again Finds FBI IT Management Lacking

9/10. The General Accounting Office (GAO) released a scathing report [62 pages in PDF] titled "Information Technology: Foundational Steps Being Taken to Make Needed FBI Systems Modernization Management Improvements".

The report finds that the Federal Bureau of Investigation (FBI) "does not have an integrated plan or set of plans for modernizing its IT systems. Instead, the bureau's divisions, offices, and other groups that manage IT projects are responsible for integrated planning of their respective projects. Accordingly, the plans do not provide a common, authoritative, and integrated view of how IT investments will help optimize mission performance, and they do not consistently satisfy the elements expected to be found in effective systems modernization plans."

The report also finds that the FBI's "policies and procedures governing systems acquisition and investment selection and control are not consistent with best practices" followed by leading private and public organizations.

The report recommends "limiting the bureau's near-term investment in new and existing IT systems until it develops, among other things, an integrated systems modernization plan and effective policies and procedures for systems acquisition and investment management." It also recommends that the FBI Director "provide the CIO with the responsibility and authority to effectively manage IT across the bureau."

The report notes that the FBI "is in the midst of investing more than a billion dollars over 3 years to modernize its information technology (IT) systems, including its aging infrastructure (e.g., networks) and its mission operations and supporting administrative systems."

The findings of this report are consistent those of previous reports by the GAO and the Department of Justice's Office of the Inspector General.

People and Appointments

9/10. President Bush nominated Jonathan Dudas to be Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office (USPTO). He already holds this position. However, he currently holds a recess appointment. See, White House release.

9/10. President Bush nominated Deborah Majoras (at left) and Jon Leibowitz to be Commissioners of the Federal Trade Commission (FTC). They both currently hold recess appointments. See, White House release. See also, story titled "Bush Gives Majoras and Liebowitz Recess Appointments to the FTC" in TLJ Daily E-Mail Alert No. 950, August 2, 2004.

9/10. President Bush nominated Sean Cox to be a Judge of the U.S. District Court for the Eastern District of Michigan. See, White House release.

DOJ Loses Oracle Case

9/9. The U.S. District Court (NDCal) issued its Findings of Facts, Conclusions of Law and Order Thereon [164 pages in PDF] in U.S. v. Oracle, in which the government sought to enjoin Oracle Corporation's proposed acquisition of PeopleSoft, Inc., on antitrust grounds. The Court held that the government failed to meet its burden of showing by a preponderance of the evidence that the proposed merger is likely substantially to lessen competition in a relevant product and geographic market. Hence, the Court directed the entry of judgment against the government, and in favor of Oracle.

On February 26, 2004, the U.S. and several states filed a complaint in U.S. District Court (NDCal) against Oracle alleging that its proposed acquisition of PeopleSoft would lessen competition substantially in interstate trade and commerce in violation of Section 7 of the Clayton Act, which is codified at 15 U.S.C. § 18. The plaintiffs sought an injunction of the proposed acquisition.

The complaint alleged that "Unless it is enjoined, Oracle's proposed acquisition of PeopleSoft will substantially increase already high concentration among vendors that sell high function Human Resource Management (HRM) software and high function Financial Management Services (FMS) software purchased by organizations for use in the United States and abroad. More specifically, the proposed transaction will eliminate aggressive head-to-head competition between Oracle and PeopleSoft".

It added that "Such a reduction in competition is likely to result in higher prices, less innovation and decreased support for these high function integrated software applications."

The complaint asserted very narrow definitions of the relevant markets. It alleged that "High function HRM and high function FMS software are lines of commerce and distinct markets under Section 7 of the Clayton Act." It further alleged that there are only three companies that compete in these markets, Oracle, PeopleSoft, and SAP. The complaint thus alleged that this would be a three to two merger.

See, story titled "Antitrust Division Sues Oracle to Enjoin Its Proposed Acquisition of PeopleSoft" in TLJ Daily E-Mail Alert No. 846, March 1, 2004.

The Court concluded that "In order to succeed on their claim, plaintiffs must prove by a preponderance of the evidence (1) the relevant product and geographic market, and within this market (2) the effect of Oracle's acquisition of PeopleSoft may be substantially to diminish competition."

The Court wrote that "Plaintiffs alleged a product market limited to HRM and FMS software licensed by Oracle, PeopleSoft and SAP. Plaintiffs also alleged a geographic market limited to the United States. Plaintiffs have proven that the relevant product market does not include incumbent systems or the integration layer. But plaintiffs failed to prove that outsourcing solutions, best of breed solutions and so-called mid-market vendors should be excluded from the relevant product market. Furthermore, plaintiffs have failed to establish that the area of effective competition is limited to the United States."

"Accordingly, plaintiffs have failed to meet their burden of proving the relevant market for section 7 analysis." And hence, the plaintiffs "are not entitled to a presumption of illegality".

The Court continued that the "Plaintiffs have failed to prove the likelihood that a post-merger Oracle and SAP would tacitly coordinate by allocating customers or markets. Accordingly, the plaintiffs have not met their burden of establishing anticompetitive coordinated effects." Also, they "have failed to prove an area of localized competition between Oracle and PeopleSoft in which a post-merger Oracle could profitably impose" a small but significant and nontransitory price increase (SSNIP). "Accordingly, plaintiffs have not met their burden of establishing the likelihood of anticompetitive unilateral effects."

The Court noted that "Oracle has not proved by a preponderance of the evidence cognizable efficiencies sufficient to rebut any anticompetitive effects of Oracle’s acquisition of PeopleSoft", but since the government has "not shown by a preponderance of the evidence that the merger of Oracle and PeopleSoft is likely substantially to lessen competition in a relevant product and geographic market in violation of 15 USC § 7, the court directs the entry of judgment against plaintiffs and in favor of defendant Oracle Corporation."

Hewitt Pate (at right), Assistant Attorney General in charge of the Antitrust Division, stated in a release that "We are disappointed in the Court's decision. We believe the facts and evidence in this case support our position that Oracle’s proposed acquisition of PeopleSoft would result in a substantial lessening of competition in the markets for high function Human Resources Management and Financial Management Systems software. The Department is considering its options."

One option would be to appeal to the U.S. Court of Appeals for the 9th Circuit.

Oracle Chairman Jeffrey Henley stated after the ruling, in a release, that "This decision puts the onus squarely on the board of PeopleSoft to meet with us and to redeem their poison pill so that the shareholders can accept our offer".

Oracle also wrote an open letter to PeopleSoft customers in which it stated that "We are hopeful that clearance for the acquisition will be obtained in a timely manner from the remaining antitrust authorities currently reviewing the transaction, including the European Commission."

PeopleSoft also issued a release. It wrote that its Board of Directors "has carefully considered and unanimously rejected each of Oracle's offers, including its current offer of $21.00 per share. On May 25, 2004, the Board concluded that the current offer was inadequate and did not reflect PeopleSoft's real value. The Board received the opinions of Citigroup Global Markets Inc. and Goldman, Sachs & Co. that the $21.00 per share offer was inadequate from a financial point of view."

PeopleSoft also stated that it "claims compensatory damages of more than $1 billion plus punitive damages in the Company's lawsuit against Oracle, which is scheduled to go to trial before a jury in Oakland, California, on November 1, 2004. PeopleSoft's complaint alleges that Oracle has engaged in unfair business practices, including a deliberate campaign to mislead PeopleSoft's customers and disrupt its business."

Dodd and Lieberman Introduce Bill to End Double State Taxation of Teleworkers

9/9. Sen. Chris Dodd (D-CT) and Sen. Joe Lieberman (D-CT) introduced S 2785, the "Telecommuter Tax Fairness Act of 2004". This bill would add a new section to Title 4 titled "Prohibition on double taxation of telecommuters and others who work at home".

This is not an amendment to the Internal Revenue Code (Title 26). Rather, this bill limits the ability of states to impose state income taxes upon individuals who are not present in their states.

The issue arises in the context of teleworkers, who reside and work in one state, but are employed by an employer located in another state. Tax collectors in both states may seek to collect state income taxes on such workers, thus subjecting them to double taxation, and providing both workers and employers a disincentive to develop teleworking arrangements.

This bill would provide that "In applying its income tax laws to the salary of a nonresident individual, a State may only deem such nonresident individual to be present in or working in such State for any period of time if such nonresident individual is physically present in such State for such period and such State may not impose nonresident income taxes on such salary with respect to any period of time when such nonresident individual is physically present in another State."

Sen. Dodd (at right) stated that this bill "will put an end to an outdated legal doctrine that unfairly penalizes thousands of workers in Connecticut and in other States throughout the country whose only offense is that they sometimes work from home." See, Congressional Record, September 9, 2004, at pages S9037-8.

He said that "Technology has changed the way business is conducted in America. With the use of cell phones, lap-top computers, email, the Internet, mobile networking, and many other telecommunication advancements of the 21st century, Americans have a greater flexibility in where they can work without compromising productivity. Many citizens now choose to work from home or alternative offices when their physical presence is not necessary at their primary place of work."

Sen. Dodd also addressed the benefits of teleworking. "Telecommuting provides enormous benefits for businesses, families, and communities. It helps businesses lower costs and raise worker productivity. It reduces congestion on our roads and rails, and in so doing it lowers pollution. It helps workers better manage the demands of work and family."

The suburbs of Sen. Dodd's state, Connecticut, lie outside of New York City. Many Connecticut residents telework for companies in New York. The state of New York requires that these workers pay New York income taxes, through its "convenience of the employer" rule.

Sen. Dodd stated that "New York's ``convenience of the employer´´ rule requires that by working for a New York employer, all income earned from that employer must be declared in New York so long as the worker ``could´´ perform his or her duties in New York."

Hence, Sen. Dodd's bill would also provide that "For purposes of determining physical presence, no State may deem a nonresident individual to be present in or working in such State on the grounds that such nonresident individual is present at or working at home for the nonresident individual's convenience."

Sen. Feingold Introduces Bill to Amend PATRIOT Act Provisions Regarding Interception of Computer Trespasser Communications

9/9. Sen. Russ Feingold (D-WI) introduced S 2783, the "Computer Trespass Clarification Act of 2004", a bill to amend 18 U.S.C. §§ 2510(21)(B) and 2511(2)(i). Both of these are new provisions that were added by the PATRIOT Act.

USA PATRIOT Act is an acronym for "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001". It was passed quickly after the terrorist attacks of September 11, 2001 by the 107th Congress as HR 3162. It became Public Law 107-56 on October 26, 2001. § 217 of the PATRIOT Act pertains to "Interception of computer trespasser communications".

§ 217 amended 18 U.S.C. § 2510 by adding § 2510(21), which is a definition of "computer trespasser". It also amended 18 U.S.C. § 2511 by adding § 2511(2)(i), which provides that it is permissible for law enforcement to intercept wire or electronic communications of a computer trespasser transmitted to, through, or from the protected computer, if, among other requirements, the owner or operator of the protected computer authorizes the interception.

It is one of the sections of the PATRIOT Act that the Act provides "shall cease to have effect on December 31, 2005". That is, it is scheduled to sunset.

Sen. Feingold (at right) argues that the underlying purpose of § 217 is good, but that it was drafted too broadly, and needs to be revised. His argument is that while it was intended to enable owners of computer systems to call in law enforcement assistance to help defend against hacking and denial of service attacks, it could also subject people who use computers in libraries, internet cafes, and hotels to government surveillance.

§ 2510 contains definitions. Subsection 21 defines "computer trespasser". Currently, it "(A) means a person who accesses a protected computer without authorization and thus has no reasonable expectation of privacy in any communication transmitted to, through, or from the protected computer; and (B) does not include a person known by the owner or operator of the protected computer to have an existing contractual relationship with the owner or operator of the protected computer for access to all or part of the protected computer."

§ 2511(2)(i) currently provides that "It shall not be unlawful under this chapter for a person acting under color of law to intercept the wire or electronic communications of a computer trespasser transmitted to, through, or from the protected computer, if -- (I) the owner or operator of the protected computer authorizes the interception of the computer trespasser's communications on the protected computer; (II) the person acting under color of law is lawfully engaged in an investigation; (III) the person acting under color of law has reasonable grounds to believe that the contents of the computer trespasser's communications will be relevant to the investigation; and (IV) such interception does not acquire communications other than those transmitted to or from the computer trespasser."

Sen. Feingold stated in the Senate that § 217 of the PATRIOT Act "was designed to permit law enforcement to assist computer owners who are subject to denial of service attacks or other episodes of hacking."

He said that "I strongly supported the goal of giving computer system owners the ability to call in law enforcement to help defend themselves against hacking. Including such a provision in the PATRIOT Act made a lot of sense. Unfortunately, the drafters of the provision made it much broader than necessary, and refused to amend it at the time we debated the bill in 2001. As a result, the law now gives the government the authority to intercept communications by people using computers owned by others as long as they have allegedly engaged in some unauthorized activity on the computer, and the owner gives permission for the computer to be monitored."

First, Sen. Feingold's bill would revise § 2510(21)(B) to read as follows: "(B) does not include a person known by the owner or operator of the protected computer to have an existing contractual or other relationship with the owner or operator of the protected computer for access permitting access to all or part of the protected computer." (Words highlighted in bold red are added by S 2783, while the crossed out words are deleted by S 2783.)

Sen. Feingold explained that "Only people who have a ``contractual relationship´´ with the owner allowing the use of a computer are exempt from the definition of a computer trespasser under section 217 of the PATRIOT Act. Many people -- for example, college students, patrons of libraries, Internet cafes or airport business lounges, and guests at hotels -- use computers owned by others with permission, but without a contractual relationship. They could end up being the subject of government snooping if the owner of the computer gives permission to law enforcement."

"My bill would clarify that someone who has been given permission to use a computer by the owner or operator of that computer is not a computer trespasser." § 217, said Sen. Feingold, "was not intended to give the government the opportunity to engage in widespread surveillance of computer users without a warrant."

Sen. Feingold also conceded that "We don't know, of course, whether such surveillance is taking place."

Sen. Feingold's bill would also amend § 2511(2)(i) to provide as follows: "It shall not be unlawful under this chapter for a person acting under color of law to intercept the wire or electronic communications of a computer trespasser transmitted to, through, or from the protected computer, if -- (I) the owner or operator of the protected computer is attempting to respond to communications activity that threatens the integrity or operation of such computer and requests assistance to protect rights and property of the owner or operator, and authorizes the interception of the computer trespasser's communications on the protected computer; (II) the person acting under color of law is lawfully engaged in an investigation; (III) the person acting under color of law has reasonable grounds to believe that the contents of the computer trespasser's communications will be relevant to the investigation; and (IV) such interception ceases as soon as the communications sought are obtained or after 96 hours, whichever is earlier, unless an interception order is obtained under this chapter, and does not acquire communications other than those transmitted to or from the computer trespasser." (Words highlighted in bold red are added by S 2783.)

Sen. Feingold explained that his bill "would modify the computer trespass provision to protect against abuse, while still maintaining its usefulness in cases of denial of service attacks and other forms of hacking. First, it would require that the owner or operator of the protected computer authorizing the interception has been subject to ``communications activity that threatens the integrity or operation of such computer.´´ In other words, the owner has to be the target of some kind of hacking. Second, the bill would clarify that to be excluded from the definition of computer trespasser, a person who has permission to use a computer does not need to have a contractual relationship granting that permission. Third, the bill limits the length of warrant-less surveillance to 96 hours."

Finally, the bill contains a section requiring the DOJ to submit annual reports to the Congress regarding the use of § 217.

This bill was referred to the Senate Judiciary Committee. Sen. Feingold is a member.

FCC Adopts Item Making Additional 20 MHz of Spectrum Available for AWS

9/9. The Federal Communications Commission (FCC) announced, but did not release, items at its September 9, 2004 meeting pertaining to making more spectrum available for advanced wireless services (AWS), such as third generation wireless (3G) services. The FCC issued only a brief release [PDF] describing these items. Also, four Commissioners wrote separate statements.

The FCC release states that the FCC "redesignated the 1915-1920 MHz band for AWS from Unlicensed Personal Communications Services (UPCS) and pairs this five-megahertz block of spectrum with the five-megahertz block at 1995-2000 MHz (which was previously allocated for the Mobile Satellite Service (MSS)). An additional ten megahertz of spectrum at 2020-2025 MHz and 2175-2180 MHz – previously allocated for MSS – is to be made available as paired five-megahertz spectrum blocks." (Parentheses in original.)

This item is FCC 04-219 in ET Docket Nos. 00-258 and 95-18. This is a Sixth Report and Order, Third Memorandum Opinion and Order (in ET Docket No. 00-258) and Fifth Memorandum Opinion and Order (in ET Docket No. 95-18).

The FCC release also states that the FCC issued a NPRM that asks for public comment on licensing, technical, and operational rules to govern the use of these four bands. This NPRM is FCC 04-218 in WT Docket Nos. 02-353 and 04-356.

Recently, the FCC and National Telecommunications and Information Administration (NTIA) made available 90 MHz for non-governmental AWS in the 1710-1755 MHz and 2110-2155 MHz bands. This latest action adds another 20 MHz. See, story titled "FCC Adopts 3G Order and NRPM" in TLJ Daily E-Mail Alert No. 546, November 11, 2002.

The FCC release also states that the FCC "adopted a reimbursement plan to compensate UTAM, Inc. for relocation expenses it will incur to relocate incumbents from the 1915-1920 MHz band. The relocation and reimbursement obligations of new AWS entrants with respect to incumbent Broadcast Auxiliary Service (BAS) and Fixed Service (FS) licensees and other new entrants in the 1995-2000 MHz, 2020-2025 MHz, and 2175-2180 MHz bands are addressed as well."

The release also states that the FCC "modified Part 15 of its rules with respect to unlicensed PCS operations in the 1920-1930 MHz band to provide additional flexibility for users of the band to offer both voice and data services using a wider variety of technologies."

Finally, the FCC release states that the FCC "denied petitions for reconsideration related to the reallocation to AWS of ninety megahertz of spectrum from Federal Government and non-Federal Government operations in the 1710-1755 MHz and 2110-2155 MHz bands; and of thirty megahertz of spectrum from the MSS in the 1990-2000 MHz, 2020-2025 MHz, and 2165-2180 MHz bands. The Commission also clarified the rules governing the relocation of FS licensees in the 2110-2150 MHz and 2180-2200 MHz bands."

FCC Chairman Michael Powell wrote in a separate statement [PDF] that the additional 20 MHz "will help expedite the delivery of licensed broadband Internet wireless service".

See also, separate statement [PDF] of Kathleen Abernathy, separate statement [PDF] of Michael Copps, and separate statement [PDF] of Jonathan Adelstein.

FCC Adopts Report and Order Re Children's Programming Obligations of DTV Broadcasters

9/9. The Federal Communications Commission (FCC) announced, but did not release, a Report and Order and Further Notice of Proposed Rulemaking (FNPRM) regarding the children's programming obligations of digital television broadcasters. The FCC issued a short release [PDF] that describes this item, and all five FCC Commissioners wrote separate statements.

The FCC's release states that "The Order addresses how the current three-hour children's core educational programming processing guideline should apply to a DTV broadcaster that chooses to multicast. The Order increases the amount of the core programming guideline proportionally to the increase in free video programming offered by the broadcaster on multicast channels. The revised guideline provides flexibility to broadcasters that multicast by permitting them the choice whether to air core programming on a single or multiple channels provided that at least three hours per week are shown on their main channel. The Order finds that only programming aired on non-subscription channels qualifies as core programming. The new guidelines will become effective after a one-year phase-in period."

The release also states that "The second major area addressed in the Order is how the existing children’s commercial limitations of the Children’s Television Act of 1990 (“CTA”) should be applied in the digital environment. The Order concludes that the commercial limits apply to all digital programming directed to children ages 12 and under, whether that programming is aired on a free or pay stream."

The FNPRM portion of this item addresses interactivity. The FCC release states that "With respect to the appearance of direct, interactive, links to commercial Internet sites in children’s programming, the Order does not prohibit such links at this stage in the digital transition as this technology is not yet in use in children’s programming. The Order states, however, that the Commission is concerned about the possible use of such direct website links for commercial purposes and warns that broadcasters may not use interactivity or other technological developments in children’s programming to circumvent the commercial limits and policies. The item also includes a Further Notice of Proposed Rule Making seeking comment on the use of interactivity in children's programming and on how commercial interactivity should be treated for purposes of the commercial limits and policies."

FCC Chairman Michael Powell wrote in a separate statement [PDF] that "We substantially increase the children’s educational and informational programming obligations for digital multicast broadcasters. We also put in place significant restrictions on worrisome trends of increasing commercialization of children’s programming on both analog and digital broadcast and cable systems."

FCC Commissioner Michael Copps praised this item in a separate statement [PDF] and added that "I hope we will get a broad and far-reaching NPRM issued in the next few weeks so that we can address the full range of public interest issues, including, among others, how the digital transition can enhance political discourse, improve access to the media for those with disabilities, and increase localism, diversity, and competition on the people’s airwaves."

See also, separate statement [PDF] of Kathleen Abernathy, separate statement [PDF] of Kevin Martin, and separate statement [PDF] of Jonathan Adelstein.

This Report and Order is FCC 04-221 in MM Docket 00-167.

FCC Adopts Report and Order Re FCC Licensing and the National Historic Preservation Act

9/9. The Federal Communications Commission (FCC) announced, but did not release, a Report and Order regarding the FCC license review process and the National Historic Preservation Act (NHPA), which is codified at 16 U.S.C. § 470, et seq. The FCC issued a short release [PDF] describing this item, and four of the FCC Commissioners wrote separate statements.

Kathleen Abernathy dissented in part. She wrote in a separate statement [PDF] that "I do not believe that the Commission has the legal authority under the terms of the National Historic Preservation Act to adopt this Agreement, except with regard to site-based licensed facilities, such as broadcast facilities." Kevin Martin also dissented in part.

Section 106 of the NHPA, 16 U.S.C. § 470f, provides that "The head of any Federal agency having direct or indirect jurisdiction over a proposed Federal or federally assisted undertaking in any State and the head of any Federal department or independent agency having authority to license any undertaking shall, prior to the approval of the expenditure of any Federal funds on the undertaking or prior to the issuance of any license, as the case may be, take into account the effect of the undertaking on any district, site, building, structure, or object that is included in or eligible for inclusion in the National Register. The head of any such Federal agency shall afford the Advisory Council on Historic Preservation established under part B of this subchapter a reasonable opportunity to comment with regard to such undertaking".

She elaborated that "I cannot agree that the construction of all communications antenna facilities invariably constitutes a federal undertaking for the purposes of NHPA. As a result, I believe the Commission is exceeding its statutory authority in regulating antenna facilities where the FCC does not issue a construction permit. To the extent there is no license grant for the construction of an antenna facility it does not appear to me that there is any federal undertaking."

See also, joint statement [PDF] of Michael Powell and Jonathan Adelstein and statement [PDF] of Michael Copps, in support of this item.

This Report and Order is FCC 04-222 in WT Docket No. 03-128.

FCC Releases Report on Availability of Broadband

9/9. The Federal Communications Commission (FCC) released its Fourth Report [60 pages in PDF] to the Congress on the availability of advanced telecommunications capability in the United States. (The FCC published this in a graphics intensive document, presuming that its readers have broadband connections.)

The report finds that "that the overall goal of section 706 is being met, and that advanced telecommunications capability is indeed being deployed on a reasonable and timely basis to all Americans."

This annual report is required by Section 706 of the Telecommunications Act of 1996, which is codified at 47 U.S.C. § 157 notes. It provides, in part, that the FCC shall regularly "initiate a notice of inquiry concerning the availability of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) ... In the inquiry, the Commission shall determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. If the Commission's determination is negative, it shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market." (Parentheses in original.)

While Section 706 addresses "availability", the report focuses on "subscribership". The report states that "Specifically, subscribership to high-speed lines -- defined as 200 kilobits per second (kbps) or greater transmission speed in at least one direction -- has almost tripled from 9.6 million in June 2001 to 28.2 million in December 2003, and subscribership to advanced services (200 kbps or greater transmission speed in both directions) more than tripled in this same period, from 5.9 million lines to 20.3 million lines."

FCC Chairman Michael Powell wrote in a separate statement [PDF] that "Innovative entrepreneurs are replacing yesterday’s single-purpose networks with different types of high-speed, full-service digital networks, using such technologies as Wi-Fi, fiber-to-the-home, broadband over power lines, and satellite. By making licensed and unlicensed spectrum available for wireless broadband uses, we have seen an explosion of wireless access points using technologies (such as EvDO and WiMax) that allow unfettered Internet access around the country."

Powell stated that other FCC actions have also contributed to the growth in broadband subscriptions. He said that the FCC "has taken key steps to promote broadband deployment. We removed unbundling requirements on newly deployed fiber-to-the-home, where there is competition from cable, which clears the way for telephone companies to deploy infrastructure to serve the broadband and video needs of the 21st century. On my travels across the country, I continue to be amazed by the new services designed for rural Americans. Our efforts to unlock the potential of the rural healthcare program by expanding the Commission's eligibility criteria are generating results. In the past year, I witnessed the transformative potential of telemedicine. Since the issuance of our last Report, the Commission has adopted a variety of measures to introduce regulatory flexibility for rural licenses to increase wireless access to consumers. The Commission also has proposed amendments to make efficient use of the 3650 MHz band, which may effectively support telemedicine in rural or underserved areas as well as on Native American Tribal Lands. We will continue our ongoing program of on-site forums for exploring how best to make affordable broadband access available to rural America."

Commissioner Michael Copps disagreed. He wrote in a separate statement [PDF] that "Countries like Japan, Korea, and Canada have left us far behind. This is unacceptable." He continued that "the United States is ranked eleventh in the world in broadband penetration! This Report somehow finds that this is acceptable, and that our efforts are resulting in timely deployment. I think our efforts are insufficient and that broadband deployment is insufficient, so I dissent to this Report."

Copps did not identify what actions the FCC should take to promote broadband. He advocated "study". He also said that "We should look at what universal service means in the IP age."

Jonathan Adelstein also wrote a dissenting statement [PDF]. Like Copps, he focused on the U.S. position relative to some other countries, rather than on the growth within the U.S.

See also, separate statement [PDF] of Kathleen Abernathy and separate statement [PDF] of Kevin Martin. See, also FCC release [PDF]. This report is FCC No. 04-208 in GN Docket No. 04-54.

FCC Adopts Report to Congress on Competition in the Commercial Wireless Industry

9/9. The Federal Communications Commission (FCC) announced, but did not release, its Ninth Annual Report to Congress on the state of competition in Commercial Mobile Radio Services (CMRS). The FCC issued a release [2 pages in PDF] describing this item, and presentation slides [6 pages in PDF].

The FCC release states that the report concludes that "there is effective competition in the CMRS marketplace, based on the analysis of several measures of competition, including: the number of carriers competing in an area, the extent of service deployment, prices, technological improvements and product innovations, subscriber growth, usage patterns, churn, and investment."

The FCC release states that "97 percent of the total U.S. population lives in a county with access to 3 or more different operators offering mobile telephone service, up from 95 percent in the previous year, and up from 88 percent in 2000".

The release also states that the report finds that "competitive pressures continue to compel carriers to introduce innovative pricing plans and service offerings, and to match the pricing and service innovations introduced by rival carriers."

Commissioner Michael Copps wrote in a separate statement [PDF] that "just about every consumer I meet complains that wireless bills are bewilderingly confusing; that hidden and expensive line items magically appear on their bills that they weren’t told about when comparing prices; and that the service maps that carriers provide don’t allow them to determine where they will get service and where they won’t. I also hear from small and rural carriers that the state of the roaming market is hardly as competitive as described in the Report, with large carriers allegedly imposing upon them unreasonable prices and also instituting new call blocking technologies that deny consumers the ability to roam in order to avoid compensating other carriers."

"We need to be monitoring and studying these developments vigilantly, especially as consolidation creeps into the industry," said Copps.

Steve Largent, P/CEO of the Cellular Telecommunications and Internet Association (CTIA), stated in a release that "The industry will continue to operate successfully in this competitive market in order to serve consumers well, as long as regulators continue to recognize our success is based on market forces, not costly government regulations. Burdensome government regulations not only curtail competition and choice for consumers but also can drain necessary funds away from other, more pressing consumer priorities such as improved coverage and fewer dropped calls. Wireless has proven time and time again that market competition is the best regulator for the industry."

See also, statement [PDF] of Chairman Michael Powell. This item is FCC 04-216 in WT Docket No. 04-111.

More FCC News

9/9. The Federal Communications Commission (FCC) announced, but did not release, a Second Further Notice of Proposed Rulemaking (FNPRM) regarding reducing the time interval for intermodal number porting (porting numbers between wireline and wireless carriers). The FCC issued a short release [PDF]. See also, separate statement [PDF] of Michael Powell, separate statement [PDF] of Michael Copps, and separate statement [PDF] of Jonathan Adelstein. This item is FCC 04-217 in CC Docket No. 95-116.

9/9. The Federal Communications Commission (FCC) announced, but did not release, a Report and Order to allow for the digital conversion of low power TV (LPTV) and TV translator stations. The FCC issued a short release [PDF] describing this item. See also, separate statement [PDF] by Michael Powell, separate statement [PDF] of Michael Copps, and separate statement [PDF] of Jonathan Adelstein. This Report and Order is FCC 04-220 in MB Docket 03-185.

9/9. The Federal Communications Commission (FCC) now maintains a web site titled "Kids Zone". See, FCC release [PDF].

9/9. The Federal Communications Commission (FCC) published a notice in the Federal Register that describes and sets the effective date of its rule changes pertaining to the Section 251 unbundling obligations associated with fiber networks serving multiple dwelling units (MDU). The FCC adopted the order containing these rule changes at its August 4, 2004 meeting; the FCC released the text of its order on August 9, 2004. This order is FCC 04-191 in CC Docket Nos. 01-338, CC 96-98, and CC 98-147. See, Federal Register, September 9, 2004, Vol. 69, No. 174, at Pages 54589 - 54591. See also, story titled "FCC Adopts Order on Reconsideration Re Unbundling Requirements of ILECs for FTTH to MDUs" in TLJ Daily E-Mail Alert No. 954, August 6, 2004.

More Court Opinions

9/9. The U.S. Court of Appeals (3rdCir) issued its opinion [28 pages in PDF] in Citizens Financial Group v. Citizens National Bank of Evans City, a trademark dispute between financial institutions using the name "Citizens". This case is Citizens Financial Group, Inc. v. Citizens National Bank of Evans City and Citizens National Bank of Southern Pennsylvania, U.S. Court of Appeals for the 3rd Circuit, App. Ct. No. 03-2868 and 03-3175, an appeal from the U.S. District Court for the Western District of Pennsylvania, D.C. No.: 01-cv-01524. Judge Rosenn wrote the opinion of the Court of Appeals, in which Judges Scirica and Greenberg joined.

9/9. The U.S. Court of Appeals (9thCir) issued its opinion [14 pages in PDF] in Jerry's Famous Deli v. Papanicolaou, a trademark case involving two restaurants that employ similar themes. The District Court found Papanicolaou in civil contempt for violation of a stipulated injunction governing trademark use. The Court of Appeals affirmed this finding, but vacated and remanded a disgorgement of profits sanction. This case is Jerry's Famous Deli, Inc. v. Constantino Papanicolaou, U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 03-56019, an appeal from the U.S. District Court for the Central District of California, D.C. No. CV-97-01765-RMT, Judge Robert Takasugi presiding. Judge Margaret McKeown wrote the opinion of the Appeals Court, in which Judges Jay Bybee and Charles Breyer joined.

More News

9/9. The Federal Trade Commission (FTC) published a notice in the Federal Register that describes and sets the deadline for public comments on its consent agreement with its Bonzi Software, Inc., it owners and officers, Joe Bonzi and Jay Bonzi. On September 1, 2004, the FTC filed an administrative complaint [6 pages in PDF], and simultaneously entered into an Agreement Containing Consent Decree [7 pages in PDF]. The FTC alleges violation of Section 5(a) of the FTC Act, which is codified at 15 U.S.C. § 45, in connection with the deceptive marketing and sale of software named "InternetALERT". Comments are due by October 1, 2004. See, Federal Register, September 9, 2004, Vol. 69, No. 174, at Pages 54667 - 54668. See also, story titled "FTC Stops Deceptive Claims by Security Software Maker" in TLJ Daily E-Mail Alert No. 970, September 6, 2004.

9/9. Neal Cotton plead guilty in U.S. District Court (SDNY) to computer intrusion. He was previously employed as a network administrator at Cyber City, Inc., a network consulting firm. The company fired him. The next day, using passwords and user codes that he had obtained during his employment, he remotely accessed the company's servers, and destroyed files and data. See, DOJ release.

9/9. The Department of Justice (DOJ) filed a complaint in U.S. District Court against Jonathan D. Luman seeking injunctive relief. The DOJ stated in a release that he is involved in a "tax scam via the Internet". The DOJ alleges that he "operates websites that sell bogus documents", namely, forms to submit to the Internal Revenue Service (IRS). The DOJ seeks to compel Luman to provide the DOJ "any records that identify his customers, including their names, street and e-mail addresses, and Social Security numbers".

House Judiciary Committee Approves Spyware Bill

9/8. The House Judiciary Committee amended and approved HR 4661, the "Internet Spyware (I-SPY) Prevention Act of 2004" by voice votes. See, bill as introduced, and as bill as amended.

Rep. Bob Goodlatte (R-VA), Rep. Zoe Lofgren (D-CA), and Rep. Lamar Smith (R-TX), who are all members of the House Judiciary Committee, and its Subcommittee on Courts, the Internet and Intellectual Property, introduced this bill on June 23, 2004. See, story titled "Judiciary Committee Members Introduce Spyware Bill" in TLJ Daily E-Mail Alert No. 928, June 29, 2004.

The House Commerce Committee has already approved its spyware bill, HR 2929, the "Safeguard Against Privacy Invasions Act" or "SPY Act", sponsored by Rep. Mary Bono (R-CA). See, story titled "House Commerce Committee Approves Spyware Bill" in TLJ Daily E-Mail Alert No. 926, June 25, 2004.

HR 4661 (Judiciary bill) would add a new Section 1030A to the Criminal Code titled "Illicit indirect use of protected computers" to create two criminal prohibitions related to some of the more egregious forms of spyware.

First, it provides that "Whoever intentionally accesses a protected computer without authorization, or exceeds authorized access to a protected computer, by causing a computer program or code to be copied onto the protected computer, and intentionally uses that program or code in furtherance of another Federal criminal offense shall be fined under this title or imprisoned not more than 5 years, or both."

Second, it provides that "Whoever intentionally accesses a protected computer without authorization, or exceeds authorized access to a protected computer, by causing a computer program or code to be copied onto the protected computer, and by means of that program or code---
   (1) intentionally obtains, or transmits to another, personal information with the intent to defraud or injure a person or cause damage to a protected computer; or
   (2) intentionally impairs the security protection of the protected computer;
shall be fined under this title or imprisoned not more than 2 years, or both."

HR 2929 (Commerce bill) contains two sets of prohibitions. First, it prohibits deceptive acts or practices related to spyware. It provides that "It is unlawful for any person, who is not the owner or authorized user of a protected computer, to engage in deceptive acts or practices in connection with any of the following conduct with respect to the protected computer". It then enumerates nine categories of such deceptive acts or practices, including taking control of a computer, modifying settings related to a computer's access to the internet, and collecting personally identifiable information through keystroke logging. Second, HR 2929 prohibits the collection of certain information without notice and consent.

Rep. Lofgren (at right) stated that the Judiciary Committee bill is better because it "goes after wrongdoing" and criminal activity, while the Commerce Committee bill limits technology.

The Committee approved an amendment in the nature of a substitute offered by Rep. Goodlatte, and then the bill, as amended. The amendment made one minor technical change to the prohibitions section.

The amendment also added two new sections. First, it added an authorization for the appropriation of $10 Million per year "for prosecutions needed to discourage the use of spyware and the practice commonly called phishing".

Second, it added a section that states the findings and sense of the Congress with respect to spyware and phishing.

The Committee rejected an amendment offered by Rep. Bobby Scott (D-VA). It would have repealed the provision in the bill precluding a private right of action based upon the criminal provisions created by the bill. That is, it would have removed the language that provided that "No person may bring a civil action under the law of any State if such action is premised in whole or in part upon the defendant's violating this section."

Rep. Scott's amendment was rejected on a voice vote. The Committee then approved the amendment in the nature of a substitute on a voice vote. Finally, the Committee voted to report the bill, as amended, in a unanimous voice vote.

House Judiciary Committee Approves Intellectual Property Bills

9/8. The House Judiciary Committee amended and approved HR 4077, the "Piracy Deterrence and Education Act of 2004" by voice votes. The Committee approved an amendment in the nature of a substitute offered by Rep. Lamar Smith (R-TX) that added the language of HR 4586, the "Family Movie Act of 2004", which is also known as the ClearPlay bill. HR 4077 was already an amalgamation of many amendments to copyright law. The addition of HR 4586 expands its scope further. See, full story.

House Subcommittee Holds Hearing on CALEA and the Internet

9/8. The House Commerce Committee's Subcommittee on Telecommunications and the Internet held a hearing titled "Law Enforcement Access to Communications Systems in a Digital Age".

On August 9, 2004 the Federal Communications Commission (FCC) released a Notice of Proposed Rulemaking and Declaratory Ruling (NPRM & DR) [100 pages in PDF] regarding imposing Communications Assistance for Law Enforcement Act (CALEA) obligations upon broadband internet access services and voice over internet protocol (VOIP) services. See, story titled "Summary of the FCC's CALEA NPRM" in TLJ Daily E-Mail Alert No. 960, August 17, 2004.

The Subcommittee heard from government witnesses who spoke in support of the FCC's NPRM -- Laura Parsky (a Deputy Assistant Attorney General in the DOJ's Criminal Division) and Marcus Thomas (Deputy Assistant Director of the FBI in charge of its Investigative Technology Division). Julius Knapp, the Deputy Chief of the FCC's Office of Engineering and Technology (OET), also defended the FCC's NPRM.

Two witnesses criticized the FCC's NPRM, as well as the DOJ's March 10, 2004 petition for rulemaking [83 pages in PDF] -- Jim Dempsey of the Center for Democracy and Technology (CDT), and Stewart Baker, who testified on behalf of the Telecommunications Industry Association.

Jim Dempsey wrote in his prepared testimony that the DOJ and FCC "are trying to force the Internet into a 20th century mold. In terms of innovation, cost, privacy, network security, and national security, this is the wrong approach. Instead of making the Internet look like the telephone system of the past, the FBI and other law enforcement agencies need to acquire in-house capabilities to analyze digital communications. They should use the Internet, not try to control it. Keeping pace with technology should not require slowing it down."

He also argued at the hearing that the CALEA is not the right statute for addressing law enforcement access to the internet, and that the FBI, which is becoming a telecommunications regulation authority, is not the right agency for this task.

Both Dempsey and Stewart Baker argued that the CALEA statute does not support the proposals contained in the NPRM. Baker added that to "slip it in through the back door at the FCC is not the way to go".

Baker argued that the DOJ and FCC proposals would harm innovation. He said the now innovators simply devise new business models and then deploy them. But, if the proposals of the DOJ and FCC are implemented, the FBI would become a regulatory agency, and innovators would have to go to the FBI first. He argued that at the FBI "all of the incentives are to say no" to new technologies.

Richard Green, President and Chief Executive Officer of Cable Television Laboratories, Inc. wrote in his prepared testimony [8 pages in PDF] that "The cable industry has a history of providing law enforcement with the assistance it needs" and that "The cable industry has met all of the FBI’s needs with regard to VoIP."

Subcommittee members offered comments, and asked questions.

Rep. John Dingell (D-MI), the ranking Democrat on the full Committee, did not attend the hearing, but submitted a vaguely worded statement for the record. He wrote that "It is imperative that the Bush Administration and the Federal Communications Commission (FCC) fully implement CALEA", but did not comment on the content of the DOJ's petition, or the FCC's NPRM. He wrote that the "CALEA provides the Commission authority to bring within the scope of CALEA new services that act as a replacement for a substantial portion of local exchange service", but did not state whether the substantial replacement analysis contained in the FCC's NPRM is correct.

He also wrote that "Although CALEA was written ten years ago in a mostly analog world, Congress understood that new digital communications technologies were on the horizon. Accordingly, CALEA was written with sufficient flexibility to preserve the government's ability to access many communications among users of advanced digital networks."

Rep. Joe Barton (R-TX), the Chairman of the full Committee, attended part of the hearing. He did not speak, but submitted a statement for the record. He too was vague. He wrote that "First, we must not permit broadband or voice over Internet protocol (VOIP) services to become the communications medium of choice for terrorists because of the absence of electronic surveillance capabilities for law enforcement. Second, however, we must not stifle new technologies by burdening them with unachievable rules. And, third, we must protect consumer privacy."

Rep. Fred Upton (R-MI), the Chairman of the Subcommittee on Telecommunications and the Internet, presided. He read an opening statement. He said that "we must ensure that law enforcement has adequate access to digital communications, like broadband and VoIP."

He added that "the technological standards for providing such access are driven by industry, which is in a better position than the government to find workable ways to build the proverbial ``mouse trap´´ without stifling innovation in this relatively nascent and dynamic marketplace."

Rep. Greg Walden (R-OR) and Rep. John Shimkus (R-IL), both of whom represent districts with rural regions, expressed concerns about how new FCC rules might impact small rural carriers. Rep. Walden noted that the FCC proposes to impose new requirements on a carrier in his district that has not received a wiretap request in thirty years.

The FCC's Julius Knapp responded that the FCC has authority to grant carriers delays in coming into compliance. He also suggested that third party intercept management providers may be helpful.

Rep. Al Wynn (D-MD) raised the subject of the factual record. That is, the DOJ seeks new FCC rules expanding the scope of the CALEA without laying a factual record in support. The DOJ and FBI witnesses stated that they object to laying out a factual record in support of their requests. They cited two reasons. First, laying out a factual record would take time. Second, laying a factual record would have the effect of making information available to criminals and terrorists. However, they said that they would be willing to provide information to the Congress in some classified form.

At other points in the hearing the DOJ and FBI witness offered non-responsive or evasive answers to factual questions. For example, neither the DOJ petition, nor the prepared testimony of the DOJ and FBI witnesses, identified either non-compliant service providers, or non-cooperative providers. Rep. Upton asked them who is not compliant or not helpful. He received no responsive information. Parsky suggested that she could not answer because the DOJ needs to work with these companies.

Reps. Upton, Barton, Stearns, Walden, Buyer, Terry, Cox, Pickering, Shimkus were the Republican members who attended. Reps. Wynn, Stupak, and McCarthy were the Democratic members who attended.

Rep. Pickering Suggests Relationship Between the DOJ's Brand X Cert Petition and the FCC's CALEA NPRM

9/8. Rep. Chip Pickering (R-MS), the Vice-Chairman of the House Commerce Committee, discussed the relationship between the Department of Justice's (DOJ) decision last month to petition the Supreme Court for writ of certiorari in the Brand X case, and the Federal Communications Commission's (FCC) decision last month to issue its Notice of Proposed Rulemaking and Declaratory Ruling (NPRM & DR) [100 pages in PDF] imposing Communications Assistance for Law Enforcement Act (CALEA) obligations upon broadband internet access services and voice over internet protocol (VOIP).

He suggested at a hearing held by the Subcommittee on Telecommunications and the Internet on September 8 that the DOJ leveraged its power in the Supreme Court certiorari process to obtain from the FCC the NPRM pertaining to CALEA. In this arrangement, the DOJ got the CALEA interpretation and rule making proceeding that it wanted, while the FCC majority got the petition for writ of certiorari in the Brand X case that it wanted.

A witness from the Federal Bureau of Investigation (FBI) denied at the hearing that there was a quid pro quo. See, full story.

House Committee Holds Hearing on Cyber and Other Threats to Financial Infrastructure

9/8. The House Financial Services Committee (HFSC) held a hearing titled "Protecting our Financial Infrastructure: Preparation and Vigilance".

Wayne Abernathy of the Department of the Treasury wrote in his prepared testimony [6 pages in PDF] that "Our nation's financial institutions are under assault virtually every day. Most of these assaults are in the nature of electronic or cyber attacks, such as computer viruses, Trojans, worms, and various forms of financial fraud, including phishing and spoofing. These assaults have progressed from computer hackers and pranksters, into theft, and now we believe on to schemes to disrupt the operations of our financial systems. Some of these attacks have their sources in organized crime. We believe that, increasingly, still more sinister actors are involved. I do not say this to be alarmist but rather to make the point that our financial institutions have for some time now been operating in a dangerous environment and are becoming increasingly adept at doing so successfully."

See also, prepared testimony [7 pages in PDF] of Robert Liscouski (Department of Homeland Security) which addresses, among other topics, the "trustworthiness of cyber systems and the software which drives the financial services and other critical infrastructures of our nation", and prepared testimony of Mark Olson (Federal Reserve) which addresses the efforts of the Federal Reserve and others to strengthen the resilience of the communications networks and information technology operations that support the financial system to terrorist attacks, power outages and cyber attacks.

See also, HFSC web pages with hyperlinks to opening statements of members and prepared testimony of witnesses.

9th Circuit Rules State Claim for Breach of Implied in Fact Contract Is Not Preempted by Copyright Act

9/8. The U.S. Court of Appeals (9thCir) issued its opinion [5 pages in PDF] in Grosso v. Miramax, a case involving preemption of state claims by the federal Copyright Act.

Jeff Grosso wrote a screenplay titled "The Shell Game", which he disclosed to Miramax. Miramax did not purchase rights in his work, but made a move titled "Rounders". Grosso claims that Miramax used his ideas and themes, without compensating him.

Grosso filed a complaint in U.S. District Court (CDCal) against Miramax and others alleging breach of contract under California law, and violation of his copyright in his screenplay. The District Court granted Miramax summary judgment on the copyright claim, and dismissed the state contract claim as preempted by the federal Copyright Act.

The Court of Appeals affirmed the summary judgment on the copyright claim with little discussion. It held that the two works simply were "not substantially similar". However, it reversed the dismissal of the contract claim.

The Court wrote that under California law, to establish a claim for breach of implied-in-fact contract, "the plaintiff must show that the plaintiff prepared the work, disclosed the work to the offeree for sale, and did so under circumstances from which it could be concluded that the offeree voluntarily accepted the disclosure knowing the conditions on which it was tendered and the reasonable value of the work." And, the Court concluded that under California law, Grosso adequately plead a state law claim for breach of implied contract.

The question on appeal then was whether this claim is preempted the relevant section of the Copyright Act, which is codified at 17 U.S.C. § 301. The Court reasoned that this section "establishes a two-part test. Claims under state law are preempted where: (1) the work at issue comes within the subject matter of copyright, and (2) the state law rights are ``equivalent to any of the exclusive rights within the general scope of copyright.´´"

The question is thus whether the rights protected by the California law of implied-in-fact contract "are equivalent to the rights protected by copyright. To survive preemption, the state cause of action must protect rights that are qualitatively different from the rights protected by copyright: the complaint must allege an ``extra element´´ that changes the nature of the action."

The Court concluded that the implied promise to pay required in the state cause of action is an extra element for preemption purposes. Thus, the state claim survives the preemption motion, and that claim is remanded to the District Court. Of course, whether Grosso can prove that state claim is another matter.

This case is Jeff Grosso v. Miramax Film Corp., et al., U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 01-57255, an appeal from the U.S. District Court for the Central District of California, Judge Audrey Collins presiding. Judge Mary Schroeder wrote the opinion of the Court of Appeals, in which Judges David Thompson and Susan Graber.

OMB Directs Federal Agencies to Adopt Personal Use Policies to Control Improper P2P File Sharing

9/8. The Office of Management and Budget (OMB) issued a memorandum to the chief information officers of executive branch agencies titled "Personal Use Policies and “File Sharing” Technology". It directs all agencies to adopt personal use policies by December 1, 2004, to train all employees on these personal use policies and improper uses of file sharing, and to implement security controls to prevent and detect improper file sharing.

It states that "A type of file sharing known as Peer-to-Peer (P2P) refers to any software or system allowing individual users of the Internet to connect to each other and trade files. These systems are usually highly decentralized and are designed to facilitate connections between persons who are looking for certain types of files. While there are many appropriate uses of this technology, a number of studies show, the vast majority of files traded on P2P networks are copyrighted music files and pormography. Data also suggests P2P is a common avenue for the spread of computer viruses within IT systems."

It continues that "Federal computer systems or networks (as well as those operated by contractors on the government's behalf) must not be used for the downloading of illegal and/or unauthorized copyrighted content." (Parentheses in original.)

The memorandum was signed by Karen Evans, the OMB's Administrator for IT and E-Gov. The OMB is a part of the Executive Office of the President (EOP).

People and Appointments

9/8. John Bruton (at right) was named head of the European Commission's Washington DC office. He is a former Prime Minister of Ireland. See, EU release.

9/8. Mark Wigfield was named Wireline Liaison Specialist for the Federal Communications Commission's (FCC) Wireline Competition Bureau (WCB). The FCC stated in a release that he "will manage public affairs for WCB, and will be the primary contact for press inquiries regarding WCB’s activities on conventional wireline telephony, emerging Internet telephony and other broadband services, universal service subsidies and other matters affecting the telecommunications industry and its users." He was previously a reporter in the Washington Bureau of Dow Jones Newswires. He covered communications, technology, and antitrust. His number at the FCC is 202 418-0253.

More News

9/8. The Information Technology Association of America (ITAA) has offered for sale a report titled "Adding Value ... Growing Careers: The Employment Outlook in Today's Increasingly Competitive IT Job Market". See, release summarizing report.

9/8. The Department of Commerce's Technology Administration (TA) released a report titled "Science and Technology Policy Infrastructure Guidelines and References, Version 1.0, August 2004". See, Section I [PDF] and Section II [PDF].

9/8. The Department of Homeland Security's (DHS) Transportation Security Administration (TSA) published a notice in the Federal Register that describes, and sets the deadline for comments on, its notice of proposed rulemaking (NPRM) in which its proposes to exempt the Registered Traveler Operations Files from several provisions of the Privacy Act. The deadline for comments is October 8, 2004. See, Federal Register, September 8, 2004, Vol. 69, No. 173, at Pages 54256 - 54258.

Senate Judiciary Committee Announces Agenda for September 9 Meeting

9/7. The Senate Judiciary Committee announced an ambitious agenda for its executive business meeting of Thursday, September 9. It includes Sen. Chambliss's L-1 visa bill, the House bill to replace copyright arbitration royalty panels, and judicial nominees.

The agenda includes consideration of S 1635, the "L-1 Visa (Intracompany Transferee) Reform Act of 2003", sponsored by Sen. Saxbe Chambliss (R-GA). This bill has been placed on the Committee's agenda many times in the past, only to be held over.

The agenda also includes HR 1417, the "Copyright Royalty and Distribution Reform Act of 2004", a bill to amend the Copyright Act to replace copyright arbitration royalty panels with Copyright Royalty Judges. It is sponsored by Rep. Lamar Smith (R-TX), Rep. Howard Berman (D-CA), and Rep. John Conyers (D-MI). The House passed HR 1417 on March 3, 2004 by a vote of 406-0. See, Roll Call No. 37. See also, story titled "House Passes Copyright Royalty and Distribution Act" in TLJ Daily E-Mail Alert No. 849, March 4, 2004.

The agenda also includes S 2204, the "Stop Terrorist and Military Hoaxes Act of 2004", a bill to provide criminal penalties for false information and hoaxes relating to terrorism. The Senate bill is sponsored by Sen. Orrin Hatch (R-UT), Sen. Charles Schumer (D-NY), Sen. John Cornyn (R-TX), and Sen. Dianne Feinstein (D-CA). The House Judiciary Committee approved its version of this bill, HR 1678, on May 12, 2004.

The agenda also includes consideration of numerous judicial nominees, including Claude Allen (to be a Judge of the U.S. Court of Appeals for the 4th Circuit), and David Nahmias (Northern District of Georgia).

The Senate Judiciary Committee typically does not actually take up all of the items on its executive business meeting agendas.

Also, several bills that fall within the jurisdiction of the Senate Judiciary Committee are notably not on the agenda for the September 9 meeting.

S 2560, the "Inducing Infringement of Copyrights Act of 2004 " is not on the agenda. Although, Sen. Hatch, Sen. Patrick Leahy (D-VT), their staffs, the Copyright Office, and interested parties have been working on revised language since the Committee's July 22, 2004 hearing.

Bush Nominates Verizon's Crotty for Federal Judgeship

9/7. President Bush nominated Paul Crotty to be a Judge of the U.S. District Court (SDNY). See, White House release. He currently works for Verizon. He has also worked as New York City Corporation Counsel.

This nomination comes very late in the 108th Congress, just before a Presidential election. However, Crotty is a consensus nominee. His nomination is also supported by Sen. Charles Schumer (D-NY). The Southern District of New York lies within the state that he represents. Moreover, Sen. Schumer is a member of the Senate Judiciary Committee. Crotty's nomination is also supported by New York Governor George Pataki, a Republican. See, Sen. Schumer release.

Crotty testified on March 6, 2002 before the Senate Commerce Committee's Subcommittee on Communications regarding wireless communications infrastructure.

Ridge Addresses Identification Technology, National ID Cards, and Drivers Licences

9/7. Secretary of Homeland Security Tom Ridge gave a speech, and answered questions, at the National Press Club in Washington DC. See, transcript.

He was asked, "Do we need a national ID card and should it include biometrics?"

Ridge (at right) responded that "The legislation that created the department specifically prohibited a national ID card, but I must tell you that there are areas where identification, and cards including biometrics, are needed and part of our mission in homeland security to get done."

He continued that "We are obliged to come up with transportation worker identification cards. We literally have hundreds of thousands of people who not only have access to potential points of vulnerability, but are driving trucks with hazardous material and the like. We're in the process of doing that. One of the things we're looking -- we are doing, looking at within the administration is a set of basic requirements for federal employees and contractors that work here. We're in discussion with the National Governors' Association to see if we can come to some agreement where at least on the driver's license there is an agreement among -- and this is tough to do. It's a federal system. You don't mandate this, and it's a challenge we have. But the National Governors' Association wanted to take it on."

He also addressed driver's licenses. "Are there certain pieces of information that all states would require to be included as part of their driver's license? Because that is the most commonly referred to piece of identification that people are more often than not inclined to use. So no national ID, but what we have an opportunity to use biometrics, and particularly to identify people who have access to certain areas -- nuclear power plants and airports and the like, or the driver's license -- we're working toward a little more regularity and a certain standard that we would be able to use across the board."

People and Appointments

9/7. President Bush nominated Rep. Porter Goss (R-FL) to be Director of Central Intelligence. President Bush previously announced that he would make this appointment. If confirmed, he would replace George Tenet, who previously resigned. See, White House release.

9/7. President Bush announced his intent to appoint the following people to the President's National Security Telecommunications Advisory Committee: Lawrence Babbio (Vice Chairman and President of Verizon), Gregory Brown (EVP of Motorola), Ken Dahlberg (P/CEO of Science Applications International Corporation), William Hannigan (President of AT&T), Stan Sigman (P/CEO of Cingular), and Joseph Wright (PanAmSat). See, White House release.

9/7. The Senate confirmed Michael Schneider to be a Judge of the U.S. District Court for the Eastern District of Texas by a vote of 92-1. See, Roll Call No. 165.

9/7. The Senate confirmed Virginia Covington to be a Judge of the U.S. District Court for the Middle District of Florida by a vote of 91-0. See, Roll Call No. 164.

More News

9/7. The U.S. District Court (DMd) issued its opinion [5 pages in PDF] in Verizon Maryland, Inc. v. Mobile Dredging and Pumping Company, a case regarding liability for damage to underwater cables during a dredging operation. Verizon's predecessor laid underwater (but not buried) cable under the Byrd River in Maryland in 1971. The Corps or Engineers issued it a permit that provides that "That the permittee shall assume full responsibility for any and all damage which may be caused by or to navigation by reason of placing the cable loosely on the bottom." Mobile Dredging, while dredging the river, damages two cables. Verizon filed a complaint in U.S. District Court against Mobile Dredging seeking damages. Jurisdiction is based upon diversity of citizenship. Mobile Dredging filed a motion for summary judgment, arguing that the above quoted language constitutes an assumption of the risk of damage to unburied cable by Verizon. The District Court denied the motion.

9/7. The Federal Communications Commission (FCC) published a notice in the Federal Register that describes, and the sets the effective date of, the rules changes for unlicensed radiofrequency devices contained in the order adopted at its July 8, 2004 meeting, and released on July 12, 2004. This order is FCC 04-165 in ET Docket 03-201. The effective date is October 7, 2004. See, Federal Register, September 7, 2004, Vol. 69, No. 172, at Pages 54027 - 54037. See also, story titled "FCC Adopts Report and Order Regarding Unlicensed Devices" in TLJ Daily E-Mail Alert No. 934, July 9, 2004.

Go to News from September 1-5, 2004.