Senate Judiciary Committee Releases Another Draft of the Inducing Infringement of Copyrights Act

9/24. The Senate Judiciary Committee released a draft version of S 2560, the "Inducing Infringement of Copyrights Act of 2004". The Committee could mark up the bill at its weekly business meeting on Thursday, September 30. However, this bill was on the Committee's agenda last week, but was held over. It could be further delayed.

This version provides that "Whoever intentionally induces, by manufacturing, offering to the public, providing, or otherwise trafficking in any product or service, any violation identified in subsection (a) shall be liable as an infringer."

All of the versions of this bill would add a new subsection (g) to Section 501 of the Copyright Act. Currently, 17 U.S.C. § 501 defines infringement of copyrights. For example, subsection (a) provides, in part, that "Anyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 121 or of the author as provided in section 106A(a), or who imports copies or phonorecords into the United States in violation of section 602, is an infringer of the copyright or right of the author, as the case may be."

Section 106, in turn, enumerates the exclusive rights in copyrighted works. These are (1) the right to reproduce, (2) the right to prepare derivative works, (3) the right to distribute copies, (4) the right to perform publicly, (5) the right to display publicly, and (6) for sound recordings, the right to perform by digital audio transmission.

The just released version further provides that "For inducement to be intentional the actor must have engaged in conscious and deliberate affirmative acts which a reasonable person would expect to result in widespread violations of subsection (a) taking into consideration a totality of the circumstances."

It then enumerates numerous limitations to actions for inducement that take into consideration concerns raised by opponents of the bill. For example, it provides that "intentional inducement does not include merely: (i) providing venture capital, financial assistance, payment services, or financial services; (ii) advertising, marketing or promoting a device, service or software when doing so does not encourage the use of that device, service or software for infringing purposes;"

It further provides that "Nothing in this subsection shall enlarge or diminish the doctrines of direct, vicarious, or contributory liability for copyright infringement, nor to alter or diminish the authority of the courts of appropriate jurisdiction to adapt or evolve those doctrines, including any defenses thereto or any limitations on rights or remedies for infringement and including those articulated in Sony Corp. v. Universal City Studios, Inc."

In Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984), which is also know as the Betamax case, the Supreme Court held that Sony was not vicariously liable for infringement by Betamax users because the Betamax was capable of commercially significant noninfringing uses, because consumers used it for time shifting, which is a fair use.

While the bill does much to address objections raised to the original bill, there remains intense opposition to the latest version. For example, Gigi Sohn of Public Knowledge stated that "Although this new draft may appear on the surface to be more friendly to technology and innovation than were past drafts, in fact it is not. It nullifies the 1984 Betamax decision, the fundamental Supreme Court decision that helped to create new choices and experiences for consumers, and will create a litigation nightmare. We urge the Senate Judiciary Committee not to consider this legislation until the issue is more thoroughly vetted and balanced."

Legislative History. Sen. Orrin Hatch (R-UT), Sen. Patrick Leahy (D-VT), and others introduced the original version in the Senate on June 22, 2004. See, story titled "Senators Introduce Bill to Amend Copyright Act to Ban Inducement of Infringement", in TLJ Daily E-Mail Alert No. 925, June 24, 2004.

The bill was referred to the Senate Judiciary Committee (SJC). Sen. Hatch and Sen. Leahy are the Chairman and ranking Democrat. On July 22, the SJC held a hearing on the bill. Sen. Hatch and Sen. Leahy asked that opponents submit their proposal for how an inducement bill should be drafted. See, story titled "Senate Judiciary Committee Holds Hearing on Inducement Bill" in TLJ Daily E-Mail Alert No. 963, August 20, 2004.

On August 24, a group of opponents of the bill sent a proposed alternative version of the bill to the SJC. See, stories titled "Opponents of the Inducing Infringement of Copyrights Act Submit Alternative Proposal" and "Comparison of Hatch Leahy Inducement Bill and Opponents' Proposal", in TLJ Daily E-Mail Alert No. 966, August 25, 2004.

In addition, the staff of the Copyright Office (CO) has been meeting with representatives of interested groups and companies regarding revisions to the bill. On September 2 the CO released its 9/2 discussion draft. See, story titled "Copyright Office Releases Draft Version of Inducement Bill" in TLJ Daily E-Mail Alert No. 970, September 6, 2004.

On September 9, after further meetings and public debate, the CO released its 9/9 discussion draft with explanatory memorandum. See, story titled "Senate Judiciary Committee May Consider Inducement Bill" in TLJ Daily E-Mail Alert No. 980, September 21, 2004.

9th Circuit Grants Rehearing in SEC v. Yuen

9/24. The U.S. Court of Appeals (9thCir) issued an order [PDF] granting a rehearing en banc in SEC v. Yuen, a case regarding involuntary retention of extraordinary payments to corporate officials, pursuant to Section 1103 of the Sarbanes Oxley Act of 2002, which is codified at 15 U.S.C. § 78u-3. The District Court ordered that certain large payments from Gemstar-TV Guide to executives Henry Yuen and Elsie Leung be placed in escrow. A three judge panel of the Court of Appeals issued its split opinion [42 pages in PDF] on May 12, 2004 reversing the District Court.

The Securities and Exchange Commission (SEC) filed a civil complaint [36 pages in PDF] in U.S. District Court (CDCal) on June 19, 2003, against Yuen and Leung alleging that they fraudulently inflated Gemstar's revenue reports by $223 Million, in violation of federal securities laws. (This case is D.C. No. 03-4376.) The SEC also filed an application under Section 1103 for the escrow of payments that Gemstar-TV Guide had agreed to make to Yuen and Leung totaling nearly $38 Million. See, SEC release. (Yuen and Leung had previously filed a complaint in the District Court seeking declaratory and injunctive relief on the Section 1103 issue.)

15 U.S.C. § 78u-3(c)(3)(A)(i) provides that "Whenever, during the course of a lawful investigation involving possible violations of the Federal securities laws by an issuer of publicly traded securities or any of its directors, officers, partners, controlling persons, agents, or employees, it shall appear to the Commission that it is likely that the issuer will make extraordinary payments (whether compensation or otherwise) to any of the foregoing persons, the Commission may petition a Federal district court for a temporary order requiring the issuer to escrow, subject to court supervision, those payments in an interest-bearing account for 45 days." (Parentheses in original.)

The District Court entered an order directing the escrow of payments for the duration of the litigation. Yuen and Leung then brought the present interlocutory appeal.

The Court of Appeals reversed. Judge Carlos Bea wrote the opinion of the majority, in which Judge Johnnie Rawlinson joined, that "Because there was no evidence as to what would be an ordinary payment under comparable circumstances, we conclude that the district court erroneously determined certain payments proposed to be made by Defendant Gemstar-TV Guide International Inc. (“Gemstar”) to Intervenors-Appellants Yuen and Leung (hereafter Appellants) were “extraordinary payments” within the meaning of section 1103 of Sarbanes-Oxley. We vacate the district court’s order and remand for further proceedings consistent with this opinion."

The majority did not reach the issues of whether Section 1103 is unconstitutionally vague, or operates in an unconstitutionally retroactive manner.

Judge Stephen Trott wrote a lengthy dissent. He argued that the majority opinion "deals an unwarranted blow to the public interest and to the Commission's ability adequately to protect that broad interest against the flood of corporate scandals of which Congress and the public has become all too painfully aware in the past few years."

This case is Securities and Exchange Commission, plaintiff, Henry C. Yuen and Elsie M. Leung, intervenors and appellants v. Gemstar-TV Guide International, defendant, U.S. Court of Appeals for the Ninth Circuit, App. Ct. No. 03-56129, an appeal from the U.S. District Court for the Central District of California, D.C. No. CV-03-03124-MRP.

People and Appointments

9/24. Michelle Carey was named Deputy Chief of the Federal Communications Commission's (FCC) Wireline Competition Bureau. She will oversee the Competition Policy Division (CPD) and the Industry Analysis and Technology Division (IATD). She has been Chief of the CPD since January 2000. Before that, she was Deputy Chief. Before that, she was a staff attorney in the Policy and Enforcement Divisions of the former Common Carrier Bureau. Tom Navin was named Chief of the CPD, replacing Carey. He will be responsible for the triennial review of the rules governing interconnection between telephone companies, wireline broadband policy, and internet telephony matters. He has worked for the FCC since 1999. Before that he was an attorney at the law firm of McDermott Will & Emery. Julie Veach was named Deputy Chief of the CPD. She will work on FCC regulation of internet protocol services, including voice over internet protocol. She will also work on state and federal regulatory jurisdiction, broadband policy, and forbearance petitions. She has previously worked as an attorney at the law firm of Wilmer Cutler & Pickering. Narda Jones was named Chief of the Telecommunications Access Policy Division (TAPD). She will oversee universal service subsidies, the Telecommunications Relay Service (TRS), and telephone numbering resources. Before going to work for the FCC in 2001, she worked for the Minnesota Public Utilities Commission.

More News

9/24. The U.S. Patent and Trademark Office (USPTO) announced the relocation of the USPTO public search room. It stated in a release that "The patent public search facilities and the trademark search library will open on Monday, September 27. The new public search facility will occupy the first two floors of the Madison East Building located at 600 Dulany Street. It will consolidate current patent and trademark information sources and staff and focus on electronic delivery of information. The state-of-the-art facility will offer 300 computer workstations providing access to the full complement of USPTO patent and trademark automated search systems, in addition to other electronic, microfilm and print resources."

9/24. The Department of Commerce's (DOC) National Telecommunications and Information Administration (NTIA) announced the award of Public Telecommunications Facilities Program (PTFP) grants for FY 2004 totaling $20.2 Million. See, NTIA release.

9/24. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Sullivan v. CBS, a trademark case. Frank Sullivan is a little remembered rock musician from the 1980s. He holds the trademark "Survivor" for his rock band. The song, "Eye of the Tiger", which was also used in one of the movies named "Rocky", is perhaps the best known of the Survivor songs. CBS produced a television program in 2000 titled "Survivor". Sullivan filed a complaint in U.S. District Court (NDIll) against CBS alleging trademark infringement, federal and common law trademark dilution, unfair competition, and deceptive trade practices. The District Court ruled in favor of CBS. The Court of Appeals affirmed, on a straightforward analysis that Sullivan could no show a likelihood of confusion. This case is Frank Sullivan v. CBS Corporation, App. Ct. No. 02-2058, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 00 C 5060, Judge William Hibbler presiding.

FCC Sets Comments Deadlines in Broadband, VOIP and CALEA Proceeding

9/23. The Federal Communications Commission (FCC) published a notice in the Federal Register that summarizes and sets comment deadlines for its 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). Comments are due by November 8, 2004. Reply comments are due by December 7, 2004.

This NPRM is FCC 04-187 in ET Docket No. 04-295. The FCC adopted this NPRM at its August 4, 2004 meeting, and released it on August 9. See, story titled "Summary of the FCC's CALEA NPRM" in TLJ Daily E-Mail Alert No. 960, August 17, 2004.

See, Federal Register, September 23, 2004, Vol. 69, No. 184, Pages 56976 - 56987.

The FCC also published a notice in the Federal Register that describes and sets the effective date (September 23) of the declaratory ruling portion of the NPRM & DR, pertaining to push to talk services. See, Federal Register, September 23, 2004,  Vol. 69, No. 184, at Pages 56956 - 56957.

Interested parties have already begun to lobby the FCC in response to this NPRM. See, for example, notice of ex parte meeting [PDF] of EDUCAUSE and Internet2, and notice of ex parte meeting [PDF] and attachment [PDF] of Mediametrix Global Services and M5T.

House Government Reform Committee Holds Hearing on IPR

9/23. The House Government Reform Committee held a hearing titled "Intellectual Property Piracy: Are We Doing Enough to Protect U.S. Innovation Abroad?"

This Committee does not have jurisdiction over general intellectual property legislation. It does, however, have jurisdiction, under House Rule X, over "management of government operations and activities".

Rep. Tom Davis (R-VA), the Chairman of the Committee, wrote in his opening statement [PDF] that "Federal law charges a number of different U.S. Government agencies with responsibility for securing more comprehensive and effective protection of U.S. intellectual property rights abroad." He said that "Counterfeiting and piracy of U.S. intellectual property in foreign countries is rampant", and that "we need to focus on enhancing foreign governments’ enforcement efforts".

The Government Accountability Office (GAO) prepared a report [92 pages in PDF] titled "Intellectual Property: U.S. Efforts Have Contributed to Strengthened Laws Overseas, but Challenges Remain" for this hearing.

It finds that "U.S. efforts have contributed to strengthened foreign IPR laws and international IPR obligations, and, while enforcement overseas remains weak, U.S. industry groups are generally supportive of U.S. efforts. These efforts are viewed as aggressive, and the Special 301 review has been cited repeatedly by government and industry sources as a useful tool in encouraging improvements."

It continues that, "However, the precise impact of many specific U.S. government activities, such as diplomatic efforts and training activities, can be difficult to measure. Further, enforcement of intellectual property rights in many countries remains weak, despite U.S. efforts. Nonetheless, U.S. industries recognize the many actions taken by the U.S. government, and industry groups that we contacted both in the United States and overseas were generally supportive of the efforts of U.S. agencies to pursue improved intellectual property protection overseas."

The report also notes that "U.S. efforts to improve intellectual property protection overseas face challenges. Competing U.S. policy objectives may take priority over protecting intellectual property in certain countries. In addition, the impact of U.S. activities overseas is affected by countries’ domestic policy objectives and economic interests, which may complement or conflict with U.S. objectives. U.S. efforts are more likely to achieve their intended impacts if intellectual property protection has domestic support in foreign countries".

See also, prepared testimony [17 pages in PDF] of the GAO's Loren Yager. See also, prepared testimony of other witnesses: Rep. Rob Simmons (R-CT), Joseph Papovich (Recording Industry Association of America), John Malcolm (Motion Picture Association of America), and Robert Cresanti (Business Software Alliance).

Rep. Lofgren Introduces Bill to Repeal AMT Treatment of Incentive Stock Options

9/23. Rep. Zoe Lofgren (D-CA) introduced HR 5141, an untitled bill to amend the Internal Revenue Code of 1986 to repeal the alternative minimum tax treatment of incentive stock options.

This bill would amend 26 U.S.C. § 56, which pertains to the alternative minimum tax (AMT). Rep. Lofgren represents a Silicon Valley district where many of her constituents received incentive stock options from tech company employers, and exercised their options before the tech bust. The price of these stocks dropped. However, under the AMT, in some cases, they have nevertheless had to pay large tax assessments.

The bill provides that "Subsection (b) of section 56 of the Internal Revenue Code of 1986 (relating to adjustments applicable to individuals) is amended by striking paragraph (3)." (Parentheses in original.)

Currently, 26 U.S.C. § 56(b)(3) provides that "Section 421 shall not apply to the transfer of stock acquired pursuant to the exercise of an incentive stock option (as defined in section 422). Section 422 (c)(2) shall apply in any case where the disposition and the inclusion for purposes of this part are within the same taxable year and such section shall not apply in any other case. The adjusted basis of any stock so acquired shall be determined on the basis of the treatment prescribed by this paragraph." (26 U.S.C. §§ 421-424 pertain to stock options. § 422 pertains to incentive stock options.)

The bill further provides that "The amendment made by subsection (a) shall apply with respect to incentive stock options exercised in 2000 or thereafter regardless of when such options were granted."

It also provides that "If refund or credit of any overpayment of tax resulting from the application of the amendment made by subsection (a) is prevented at any time before the close of the 1-year period beginning on the date of the enactment of this Act by the operation of any law or rule of law (including res judicata), such refund or credit may nevertheless be made or allowed if claim therefor is filed before the close of such period." (Parentheses in original.)

The bill was referred to the House Ways and Means Committee. Rep. Lofgren is not a member.

Rep. Lofgren, and others, have introduced similar legislation in the past. See for example, HR 1487 in the 107th Congress.

SEC Official Addresses Regulation NMS and Electronic Markets

9/23. Annette Nazareth, Director of the Division of Market Regulation at the Securities and Exchange Commission (SEC), gave a speech to the ICI Equity Markets Conference in New York, New York.

She stated that the SEC "is in the thick of a rulemaking process that could ultimately result in some of the most important refinements to the U.S. equity market structure since the Exchange Act was amended in 1975. In Regulation NMS, the Commission has proposed a number of discrete rules designed to address the dramatic changes our markets have undergone in the past several years."

She continued that "These changes have been brought about by major developments in trading technologies and the rapid rise of alternative trading venues. While this innovation has been extremely beneficial for our markets overall, it has also exposed the fundamental tension that exists when electronic trading models interact with the floor-based trading models of traditional exchanges within our national market system."

She added that "While there was not clear consensus on solutions, the areas ripe for review were clear: the ITS trade through rule, intermarket access requirements (including the fees charged by market centers to access their quotes), subpenny quoting, and the allocation of revenues produced by the consolidated data networks."

People and Appointments

9/23. The Senate confirmed Rep. Porter Goss (R-FL) to be Director of the Central Intelligence Agency (CIA) by a vote of 77-17. See, Roll Call No. 187.

9/23. President Bush nominated eight people to be Members of the National Science Board, for the remainder of a six year term expiring May 10, 2010: Dan Arvizu, Steven Beering, Wayne Clough, Kelvin Kay Droegemeier, Louis Lanzerotti, Alan Leshner, Jon Strauss, and Kathryn Sullivan. Clough is the President of Georgia Tech University. He is already a member of the President's Council of Advisors on Science and Technology Policy (PCAST). Lanzerotti is a consulting physicist at Lucent Technologies' Bell Laboratories. Strauss is the President of Harvey Mudd College, in Claremont, California. He is also a former professor of electrical engineering and computer science. Sullivan is a former space shuttle astronaut. See, White House release and release.

More News

9/23. Federal Trade Commission (FTC) Chairman Deborah Majoras gave a speech at the FTC's conference titled "90th Anniversary Symposium". She said that "effectively meeting future policy challenges depends on our willingness to invest great effort at improving our base of knowledge and then having the courage to put it into practice. From the time of its creation to the present, the FTC has lived in a highly dynamic policy environment. Each decade, we have encountered important changes in economic and legal theory, economic phenomena including technology that changes the complexion of commercial transactions, political conditions, and institutional arrangements for economic policymaking at home and abroad."

9/23. The Government Accountability Office (GAO) released a report [56 pages in PDF] titled "Records Management: Planning for the Electronic Records Archives Has Improved". It finds that the National Archives and Records Administration (NARA), which is responsible for the oversight of government records management and archiving, has made progress in developing its Electronic Records Archives (ERA) system. However, the GAO report adds that the NARA is making less progress in addressing the GAO's recommendation "to revise acquisition policies and plans to meet relevant industry standards. Such policies and plans are essential for managing the acquisition and providing critical guidance to the contractors who will be designing the system."

9/23. Comcast announced in a release that "A consortium led by Sony Corporation of America and its equity partners Providence Equity Partners, Texas Pacific Group, Comcast Corporation and DLJ Merchant Banking Partners, together with Metro-Goldwyn-Mayer Inc. (NYSE: MGM), announced today that they have entered into a definitive agreement under which the investor group will acquire MGM for $12.00 in cash per MGM share, plus the assumption of MGM's approximately $2.0 billion in debt." It added that "The investor group has committed a total of $1.6 billion in equity financing to acquire MGM as follows: Providence Equity Partners -- $525 million, Texas Pacific Group -- $350 million, Sony Corporation of America -- $300 million, Comcast Corporation -- $300 million, and DLJ Merchant Banking Partners -- $125 million. JP Morgan Chase has committed to lead a bank syndicate to provide up to $4.25 billion in senior debt financing together with Credit Suisse First Boston."

FCC Fines Viacom $550,000 for Super Bowl Indecency

9/22. The Federal Communications Commission (FCC) issued a Notice of Apparent Liability for Forefeiture (NAL) [33 pages in PDF] fining Viacom owned CBS affiliates $550,000 for airing indecent material in violation of 18 U.S.C. § 1464 and § 73.3999 of the FCC's rules. The FCC did not fine non Viacom owned CBS affiliates that also aired the indecent material.

This NAL states that the FCC finds that a CBS broadcast on February 1, 2004 "apparently violates the federal restrictions regarding the broadcast of indecent material". The programming at issue, which occurred at 8:30 PM EST, included the display of a woman's breast. The programming was musical entertainment during the half time break of sports event titled "National Football League's Super Bowl XXXVIII".

The NAL states that Viacom, "as the licensee or ultimate parent of the licensees of the Viacom Stations, is apparently liable for a monetary forfeiture in the aggregate amount of Five Hundred Fifty Thousand Dollars ($550,000.00), which represents the statutory maximum of $27,500 for each Viacom Station that broadcast the material."

This NAL also states that "Although we conclude that the non-Viacom-owned CBS Affiliate stations also aired this programming, ... we decline to propose a monetary forfeiture or other sanction against the licensees of those stations."

FCC Chairman Michael Powell wrote in a separate statement [PDF] that CBS's halftime show exposure was a "stunt more fitting of a burlesque show". He wrote that "The U.S. Constitution is generous in its protection of free expression, but it is not a license to thrill."

He added that "although individual licensees are indeed responsible for what is broadcast over the airwaves to their individual communities, fundamental fairness dictates that in this instance we not sanction those affiliates not owned by Viacom. ... In contrast, Viacom was not so passively involved. Viacom is the parent company of not only the CBS network, which aired the program, but also of MTV, which developed, rehearsed and produced the program. The Viacom organization knew, or surely should have known, what was to come."

FCC Commissioner Kevin Martin wrote in a separate statement [PDF] that "we need to affirm local broadcasters’ ability -- and responsibility -- to reject inappropriate programming. This obligation is critical to local broadcasters’ ability to keep coarser network programming off the air in their communities. The network affiliates asked us to clarify that this right over three years ago. We still have not acted, and thus I concur in the decision not to fine the affiliates in this instance."

FCC Commissioner Michael Copps wrote in a separate statement [PDF] that "I am concerned by the precedent we establish in failing to assess a penalty against non-Viacom-owned affiliates that aired the Super Bowl. I recognize that the affiliates likely did not expect that this national event would include such indecency. Yet, many stations air programming that they do not produce themselves. The Commission must be careful not to signal that we would excuse indecent broadcasts merely because a station did not control the production of the content."

Copps (at right) added, "let's not kid ourselves that this fine will serve as a disincentive to multi-billion dollar conglomerates broadcasting indecency. This fine needs to be seen in the context of a broadcast in which each 30-second commercial cost more than $2 million. In other words, this fine represents less than 10 seconds of ad time on the Super Bowl and will be easily absorbed as a cost of doing business."

FCC Commissioner Jonathan Adelstein wrote in a separate statement [PDF] that "I find today's remedy totally inadequate." He elaborated, "Most troubling, this decision sets a puzzling precedent by failing to hold all licensees responsible for the material broadcast over their stations. Why announce such a thorough investigation if we just let some of the stations that broadcast this material completely off the hook?"

This NAL is FCC 04-209. The FCC adopted this item on August 31, 2004, but did not release it until September 22, 2004.

Former Computer Associates CEO Sanjay Kumar Indicted

9/22. A grand jury of the U.S. District Court (EDNY) returned an indictment [45 pages in PDF] on September 17, 2004, that charges Sanjay Kumar and Stephen Richards with violation of various federal criminal laws in connection with their involvement in an accounting fraud scheme and subsequent efforts to obstruct the federal government's investigation.

Kumar is a former CEO and Chairman of the Board of Computer Associates International, Inc. (CA). Richards is a former head of worldwide sales of CA. On September 22 the District Court unsealed the indictment.

CA is a publicly traded company based in Islandia, New York, that provides management software.

Department of Justice (DOJ) officials announced these actions at an event in Washington DC. James Comey (at right), the Deputy Attorney General, stated that "The defendants are accused of perpetrating a massive accounting fraud that cost public investors hundreds of millions of dollars when it collapsed. Then they allegedly tried to cover up their crimes by lying".

Roslynn Mauskopf, the U.S. Attorney for the Eastern District of New York, stated that "For more than two years, former CA executives are allegedly obstructed the government's investigation ... However, they failed to prevent the government from getting to the truth. In fact, all they accomplished was getting themselves charged with the additional obstruction of justice crimes, which now carry stiff penalties under Sarbanes-Oxley."

The indictment charges both Kumar and Richards with:
 • one count of conspiracy to commit securities fraud and wire fraud in violation of 18 U.S.C. §§ 371 and 3551, et seq.,
 • one count of securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff and 18U.S.C. §§ 2 and 3551, et seq.,
 • four counts of false SEC filings in violation of 15 §§ 78m(a) and 78ff, 17 CFR § 240.13a-1, and 18 U.S.C. §§ 2 and 3551, et seq.,
 • one count of conspiracy to obstruct justice in violation of 18 U.S.C. §§ 1512(k) and 3551, et seq., and
 • one count of obstruction of justice in violation of 18 U.S.C. §§ 1512(c)(2), 2, and 3551, et seq.

The indictment also charges Richards only with one count of perjury in violation of 18 U.S.C. §§ 1621(1) and 3551, et seq.

The indictment also charges Kumar only with one count of making false statements to the FBI in violation 18 U.S.C. §§ 1001(a)(1), 1001(a)(2) and 3551, et seq.

The DOJ also charged Steven Woghin, an attorney who was employed in CAI's legal department, by criminal information with conspiracy to commit securities fraud and obstruction of justice.

See also, DOJ release.

DOJ Charges CA With Securities Fraud and Obstruction of Justice

9/22. The Department of Justice (DOJ) charged Computer Associates International, Inc. (CA) by criminal information with securities fraud and obstruction of justice. In addition, the DOJ announced that CA has agreed to plead guilty, and has entered into a deferred prosecution agreement.

In this agreement CA:
 • acknowledges its violations of law,
 • agrees to continue to cooperate in any investigation, criminal prosecution or civil proceeding relating to or arising out of its conduct and that of its officers and employees,
 • agrees to pay an additional $225 Million in restitution to current and former CA shareholders who suffered losses,
 • agrees to institute certain enumerated corporate reforms, and
 • agrees to retain and compensate an independent individual or entity to examine CA's compliance with this agreement

Lewis Ranieri, the current Chairman of CA, stated in a release that "On behalf of the Company and all its employees, we tender our sincere apologies to our shareholders and customers."

Ranieri said that "Some former members of CA's management engaged in illegal activity ... Violations of law and ethical standards, including securities fraud, obstructing a government investigation, and lying to CA's Board of Directors and CA's lawyers cannot be condoned. We fully support the government’s efforts to bring all responsible parties to justice. In addition, we will do everything in our power to help the government recover unjust enrichments. The Restitution Fund, the numerous changes we have made over the past year, and the changes we will make in the future will help rebuild confidence in our Company."

SEC Brings Civil Actions Against Computer Associates, Kumar, and Others

9/22. The Securities and Exchange Commission (SEC) filed a civil complaint [18 pages in PDF] in U.S. District Court (EDNY) against Computer Associates International, Inc. (CA), alleging violation of federal securities laws in connection with its premature recognition of revenue. The SEC also filed a separate civil complaint [35 pages in PDF] against Sanjay Kumar and Stephen Richards. And, the SEC filed a civil complaint [25 pages in PDF] against Steven Woghin.

The complaint against CA alleges that "CA, through various former senior executives and other employees, engaged in a widespread practice that resulted in the improper recognition of revenue by CA, one of the world’s largest software companies."

The complaint against CA alleges violation of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.

The SEC announced also that "Computer Associates has agreed to settlements with the SEC and the Justice Department in which the company will pay $225 million in restitution to shareholders and will make reforms to its corporate governance and financial accounting controls. Woghin has agreed in a partial settlement to a permanent injunction and officer and director bar with monetary sanctions to be decided at a later point." See, SEC release.

The complaint against Kumar and Richards alleges that from the fourth quarter of 1998 through the second quarter of 2001, "CA prematurely recognized revenue from software contracts that had not yet been executed by both CA and its customer, in violation of Generally Accepted Accounting Principles ("GAAP"). Through the conduct of various senior executives and other employees, including Kumar and Richards, CA held its books open for several days after the end of each quarter to prematurely record in that quarter revenue from contracts that were not executed by customers or CA until several days or more after the expiration of the quarter (the "Extended Quarters Practice"). CA often concealed this practice by using licensing contracts that falsely bore preprinted signature dates for the last day of the quarter that had just expired, rather than the subsequent dates on which the contracts actually were executed."

It adds that "Kumar, as CA’s President and COO, helped orchestrate and further CA’s improper revenue recognition by (1) deciding with other CA executives to extend CA’s fiscal quarters until CA had reached a predetermined revenue target based on Wall Street estimates; (2) in at least FY2000, helping CA obtain various contracts after quarter end, including backdated contracts, while knowing, or recklessly disregarding the fact that, CA would prematurely recognize the revenue from those contracts; and (3) signing false Forms 10-K and 10-Q filed with the Commission while knowing, or recklessly disregarding the fact that, those filings were materially false and misleading."

This complaint alleges violation of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, Rules 10(b)-5 and 13b2-1 thereunder, and Section 20(e) of the Exchange Act.

GAO Reports on Offshoring of Services

9/22. The Government Accountability Office (GAO) released a report [80 pages in PDF] titled "International Trade: Current Government Data Provide Limited Insight into Offshoring of Services".

The report states that "The Department of Commerce’s trade data show that imports of services associated with offshoring are growing. For example, U.S. imports of services associated with offshoring -- business, professional, and technical (BPT) services -- grew from $21.2 billion in 1997 to about $37.5 billion in 2002, an increase of 76.9 percent. During the same period, U.S. exports of BPT services increased 48.6 percent, with the United States maintaining a trade surplus in this category."

The report found that for the government sector, "the total dollar value of the federal government’s services contracts with offshore performance or manufacturing locations has increased over the past 5 years; however, relative to all federal contracts for services, the trend in the dollar value of offshoring shows little change."

The GAO report also found that "U.S. government data provide some insight into the trends in offshoring of services by the private sector, but they do not provide a complete picture of the business transactions that the term offshoring can encompass. In particular, they do not identify U.S. imports of services previously produced by U.S. employees." Also, "Federal statistics provide limited information about the effects of offshoring IT and other services on the U.S. labor force and the economy overall."

Senate Commerce Committee Marks Up Bills

9/22. The Senate Commerce Committee approved four technology and communications related bills at its business meeting on September 22, 2004.

The Committee amended and approved S 1963, the "Wireless 411 Privacy Act", a bill to require that "A provider of commercial mobile services ... may not include the wireless telephone number information of any subscriber in any wireless directory assistance service database unless" it "obtains express prior authorization" from the subscriber. The Committee approved an amendment in the nature of a substitute offered by Sen. Barbara Boxer (D-CA) on a roll call vote of 12-10. It then approved the bill as amended by voice vote.

The Committee amended and approved S 2145, the "Software Principles Yielding Better Levels of Consumer Knowledge Act", or "Spy Block Act", a bill to address spyware. See, story titled "Senators Introduce Anti-Spyware Bill" in TLJ Daily E-Mail Alert No. 847, March 2, 2004. The Committee approved an amendment in the nature of a substitute offered by Sen. Conrad Burns (R-MT), the sponsor of the bill. The Committee also approved a amendment offered by Sen. George Allen (R-VA) that would add a new § 1030A to the criminal code. It is similar to HR 4661 the "Internet Spyware (I-SPY) Prevention Act of 2004", which the House Judiciary Committee approved on September 8, 2004. See, story titled "Judiciary Committee Members Introduce Spyware Bill" in TLJ Daily E-Mail Alert No. 928, June 29, 2004, and story titled "House Judiciary Committee Approves Spyware Bill" in TLJ Daily E-Mail Alert No. 973, September 9, 2004.

The Committee approved S 1380, the "Rural Universal Service Equity Act of 2003", a bill to amend 47 U.S.C. § 254 to provide for a broader distribution of rural universal service support subsidies, on a roll call vote of 13-9.

The Committee amended and approved S 2820, the "Spectrum Availability for Emergency-Response and Law-Enforcement to Improve Vital Emergency Services (SAVE LIVES) Act". This bill, which is sponsored by Sen. John McCain (R-AZ), pertains to the digital television (DTV) transition, and making spectrum available for public safety users. Section 3 pertains to setting a specific date for the availability of spectrum for public safety organizations, and creating a deadline for the transition to DTV. The Committee approved an amendment in the nature of a substitute offered by Sen. McCain. But first, the Committee approved a second degree amendment offered by Sen. Burns that replaces Section 3. Notably, it contains the provision, "The FCC may waive the requirements ... to the extent necessary to avoid consumer disruption". Sen. McCain called this the "NAB amendment" and a "big loophole". Sen. Boxer said that it "nullifies" the date certain. The Committee approved the Burns amendment on a roll call vote of 13-9.

TLJ will publish more detailed coverage of this mark up in the next issue.

Senate Commerce Committee Approves Wireless Privacy Bill

9/22. The Senate Commerce Committee amended and approved S 1963, the "Wireless 411 Privacy Act".

This bill, as amended, would provide that "A provider of commercial mobile services ... may not include the wireless telephone number information of any subscriber in any wireless directory assistance service database unless" it "obtains express prior authorization" from the subscriber.

The bill is sponsored by Sen. Arlen Specter (R-PA), who is not a member of the Commerce Committee. It is cosponsored by Sen. Barbara Boxer (D-CA), and others. Sen. Boxer, who is a member of the Commerce, was the most active proponent of this bill during the debate.

See, full story.

Senate Commerce Committee Approves Spyware Bill

9/22. The Senate Commerce Committee amended and approved S 2145, "The Spy Block Act", following a brief discussion, with unanimity. The title of this bill is an acronym for "Software Principles Yielding Better Levels of Consumer Knowledge Act".

Sen. Conrad Burns (R-MT), Sen. Ron Wyden (D-OR), and Sen. Barbara Boxer (D-CA) introduced this bill on February 27, 2004. See, story titled "Senators Introduce Anti-Spyware Bill" in TLJ Daily E-Mail Alert No. 847, March 2, 2004. The Subcommittee on Communications, which Sen. Burns chairs, held a hearing on March 23, 2004.

Sen. Burns offered an amendment in the nature of a substitute, which was approved. The Committee also approved an amendment, offered by Sen. George Allen (R-VA) that would create a new class of criminal prohibitions. This amendment contains the language of HR 4661 the "Internet Spyware (I-SPY) Prevention Act of 2004", which the House Judiciary Committee approved on September 8, 2004. See, story titled "Judiciary Committee Members Introduce Spyware Bill" in TLJ Daily E-Mail Alert No. 928, June 29, 2004, and story titled "House Judiciary Committee Approves Spyware Bill" in TLJ Daily E-Mail Alert No. 973, September 9, 2004.

The House Commerce Committee has approved a much different 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.

Sen Wyden (at right) stated at the mark up that the Senate bill "establishes the principle" that people own their computers. He said that this bill prohibits software that "sneaks on their machine, and lodges there like a parasite".

Sen. John Ensign (R-NV) said that this bill is a priority of the Senate Republican High Tech Task Force, which he chairs. However, he added that he has concerns about how this bill has been drafted, and would like to see changes made before the bill goes to the floor of the Senate.

Sen. John McCain (R-AZ), the Chairman of the Committee, stated that "I have concerns in general about whether this legislation will be effective."

See also, Senate Commerce Committee release.

Senate Commerce Committee Approves Rural Universal Service Reform Bill

9/22. The Senate Commerce Committee approved S 1380, the "Rural Universal Service Equity Act of 2003", a bill to amend 47 U.S.C. § 254 to provide for a broader distribution of rural universal service support subsidies, on a roll call vote of 13-9.

Sen. Gordon Smith (R-OR) introduced this bill on July 9, 2003. See, story titled "Sen. Smith Introduces Universal Service Reform Bill" in TLJ Daily E-Mail Alert No. 697, July 14, 2003.

Sen. John McCain (R-AZ), the Chairman of the Committee, stated that under the current system, most of the funds go to a few states. Sen. Smith (at right) said that this "is a gross inequity".

Sen. Trent Lott (R-MS), whose state of Mississippi is one of the beneficiaries of the current distribution system, asserted that this bill is "punitive". He said that under this bill, his state's subsidy level would drop from $133 Million to $33 Million. He lamented that this bill would harm "a few small poor rural states".

Many members of the Committee stated that this bill only addresses one small part of the system of universal service subsidies, and that the Committee needs to address the whole system. Sen. Byron Dorgan (D-ND) called for "comprehensive universal service reform". The problem he said, is that the base is eroding.

Sen. Jay Rockefeller (D-WV) blamed wireless communications, the internet and blackberries for the erosion of the base for universal service.

Several members of the Committee said that this bill will not be approved by the full Senate. Sen. Lott said that this is "just a show vote". Sen. Dorgan said that this bill "will go nowhere".

BellSouth issued a statement. "As discussion of this universal service legislation continues, it is important to recognize that the problem with universal service is funding coming in. You cannot avoid a universal service train wreck by rearranging some of the disbursement baggage in the overhead racks. We are gratified that nine Senators recognized this during today's markup session. This problem -- indeed the entire telecommunications regulatory regime -- needs a comprehensive solution not a piecemeal approach."

BellSouth does business in the states of Mississippi and Alabama, and Puerto Rico, which are beneficiaries of the current system.

See also, Senate Commerce Committee release.

More Capitol Hill News

9/22. The House approved HR 5025, the "Transportation, Treasury, and Independent Agencies Appropriations Act, 2005", by a vote of 397-12. See, Roll Call No. 465.

9/22. The Senate Commerce Committee approved the nominations of Deborah Majoras and Jonathan Liebowitz to be Commissioners of the Federal Trade Commission (FTC). Liebowitz was approved by unanimous voice vote. Majoras was approved on a voice vote. Sen. Ron Wyden (D-OR) cast the one vote against her.

More News

9/22. The Federal Communications Commission (FCC) released the text [63 pages in PDF] of its 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). This item (FCC 04-219) pertains to making more spectrum available for advanced wireless services (AWS), such as third generation wireless (3G) services. The FCC adopted, but did not release, this item at its September 9, 2004 meeting. See, story titled "FCC Makes Additional 20 MHz of Spectrum Available for Advanced Wireless Services" in TLJ Daily E-Mail Alert No. 975, September 13, 2004.

9/22. The Department of Commerce's (DOC) Bureau of Industry and Security (BIS/BXA) published a notice in the Federal Register that describes, recites, and sets the effective date for its rule changes pertaining to exports to India. See, Federal Register, September 22, 2004, Vol. 69, No. 183, at Pages 56693 - 56695.

Senate Judiciary Committee Approves Copyright Royalty and Distribution Reform Act

9/21. The Senate Judiciary Committee approved, without amendment or discussion, by unanimous consent, HR 1417, the "Copyright Royalty and Distribution Reform Act of 2004".

This bill replaces copyright arbitration royalty panels (CARPs) with Copyright Royalty Judges (CRJs). The purpose of these CARPs and CRJs is to set and adjust copyright royalty rates and distribute of royalties under various compulsory licenses.

These compulsory licenses involve cable television signals, satellite television signals, digital audio recording technology, and other technologies. This bill gives CRJs authority to set and adjust reasonable terms and rates of royalty payments under 17 U.S.C. § 112(e) (ephemeral recordings), § 114 (limited performance rights under the Digital Performance in Sound Recording Act of 1995), § 115 (mechanical compulsory license for certain uses of copyrighted musical compositions), § 116 (public performance of musical works embodied in coin operated phonorecord players), § 118 (published nondramatic musical works and published pictorial, graphic, and sculptural works in connection with noncommercial broadcasting), § 119 (retransmission of tv broadcast signals by satellite carriers), and § 1004 (devices set forth under the Audio Home Recordings Act) licenses.

The bill also sets criteria and factors to be applied by the CRJs in setting and adjusting royalty rates. The bill also addresses procedure to be followed in CRJ proceedings. The bill also addresses the appointment, tenure, compensation, staffs and independence of these CRJs.

Proponents of this bill argue that the current CARP system is too expensive, and since CARP members often lack expertise, its decisions are unpredictable and inconsistent.

The bill was introduced on March 25, 2003 by Rep. Lamar Smith (R-TX), Rep. Howard Berman (D-CA), and Rep. John Conyers (D-MI). The House Judiciary Committee approved the bill on September 24, 2003. See, Report No. 108-408.

On March 3, 2004, the full House passed HR 1417 by a vote of 406-0. See, Roll Call No. 37.

Senate Judiciary Committee Holds Over Tech and IP Bills

9/21. The Senate Judiciary Committee held a business meeting on Tuesday, September 21. The meeting agenda included numerous bills and judicial nominees. However, the Committee took up only two bills, S 1700, the "Advancing Justice through DNA Technology Act of 2003", and HR 1417, the "Copyright Royalty and Distribution Reform Act of 2004". See, above story.

Inducement Bill. The Committee's agenda included S 2560, the "Inducing Infringement of Copyrights Act of 2004". However, the Committee did not debate, discuss or mark up this bill.

Sen. Orrin Hatch (R-VT), the Chairman of the Committee, and lead sponsor of the bill, stated briefly that the Committee "held over" this bill. He referenced the ongoing consultations and discussions conducted by the Copyright Office, and the latest draft version of this bill. See, September 9 draft and explanatory memorandum.

Sen. Hatch concluded by stating that "I plan to expedite consideration of this bill".

L1 Visa Bill. The agenda also included S 1635 the "L-1 Visa (Intracompany Transferee) Reform Act of 2003". The Committee held over consideration of this bill, without debate or discussion. This bill has been placed on the Committee's agenda many times in the past, only to be held over every time.

Trademarks. The agenda also included S 2373, a bill to modify the prohibition on recognition by U.S. courts of certain rights relating to certain marks, trade names, or commercial names. This bill, which is sponsored by Sen. Pete Domenici (R-NM), pertains to trademarks confiscated by the communist government of Cuba.

In 1998, the 105th Congress passed, and the President signed, HR 4328; it became Public Law No. 105-277. Section 211 of this act prohibits enforcement of U.S. rights to trademarks confiscated by the Cuban government, except with the consent of the legitimate owner. The EU challenged this act before the World Trade Organization (WTO), which ultimately found in favor of the U.S. on most, but not all points. S 2373 would modify Section 211 to address the WTO's ruling.

Other Matters Held Over. The Committee also held over consideration of S 2396, the "Federal Courts Improvement Act of 2004", and S 2204, the "Stop Terrorist and Military Hoaxes Act of 2004". The Committee also held over consideration of the nomination of Claude Allen to be a Judge of the U.S. Court of Appeals for the 4th Circuit.

The Committee has scheduled another business meeting for Thursday, September 23, 2004, at 9:00 AM. This will not likely be a long meeting, since the House and Senate are holding a joint session at 10:00 AM to receive Ayad Allawi, the Interim Prime Minister of Iraq. Also, the Committee may not attain a voting quorum. At its 10:00 AM meeting on Tuesday, September 21, it was nearly 11:00 AM before the Committee attained a voting quorum.

House Approves Anti-counterfeiting Amendments of 2003 and Fraudulent Online Identity Sanctions Act

9/21. The House amended and approved HR 3632, the "Anti-counterfeiting Amendments of 2003" by a voice vote. This bill has become the vehicle for numerous provisions, some of which are not related to counterfeiting. The bill, as amended by the full House, also includes the language of HR 3754, the "Fraudulent Online Identity Sanctions Act", as well as two bills to provide for additional meeting places of federal courts. The bill has been renamed the "Intellectual Property Protection and Courts Improvements Act of 2004".  See, full story.

House Approves Video Voyeurism Prevention Act

9/21. The House approved S 1301, the "Video Voyeurism Prevention Act", by a voice vote. It criminalizes conduct such as surreptitious use of small digital cameras to capture and publish via the internet privacy invasive images and video.

This bill amends Title 18, the Criminal Code, to provide that "Whoever, in the special maritime and territorial jurisdiction of the United States, has the intent to capture an image of a private area of an individual without their consent, and knowingly does so under circumstances in which the individual has a reasonable expectation of privacy, shall be fined under this title or imprisoned not more than one year, or both."

Rep. James Sensenbrenner (R-WI) stated that "With the development of smaller cameras and the instantaneous distribution capability of the Internet, the issue of 'video voyeurism' is a huge privacy concern. Unsuspecting adults, as well as high school students and children have been targeted in school locker rooms, department store dressing rooms, and even in their homes."

The bill is sponsored by Sen. Mike DeWine (R-OH). The Senate approved the bill September 25, 2003.

This is a largely symbolic measure. It only applies in "the special maritime and territorial jurisdiction of the United States". That is, it only applies on federal property, and within federal jurisdiction. However, many states already have enacted similar or related laws. This bill may provide model language for states to follow.

Senate Commerce Committee Holds Hearing on Wireless Privacy

9/21. The Senate Commerce Committee held a hearing on S 1963, the "Wireless 411 Privacy Act". The Committee is scheduled to mark up this bill on Wednesday, September 23.

Steve Largent, P/CEO of the Cellular Telecommunications & Internet Association, wrote in his prepared testimony that "I sincerely believe that this bill is a solution in search of a problem and that S. 1963 is unnecessary. The wireless industry has a proven track record of protecting our customers’ privacy, and we have made a concerted effort while developing this directory assistance service to safeguard our subscribers’ personal information. Moreover, the service is still in the planning stages. It is extremely premature for Congress to issue a government mandate on a service that has yet to be made available to our customers. If there are wireless customers who have serious reservations about this service or who just do not want to be bothered with the choice of opting-in, they have the option to switch to a carrier that is not participating in the wireless 411 service."

Marc Rotenberg, Executive Director of the Electronic Privacy Information Center (EPIC), wrote in his prepared testimony that "The modern history of privacy protection is one where Congress acts in advance to safeguard privacy while allowing emerging technologies to develop. Enacting privacy protections for the wireless directories is both consistent with Congress' prior actions on privacy issues, and necessary in this case to ensure that consumers have substantive rights in their personal information. The “Wireless 411 Privacy Act,” S. 1963, is a first step toward addressing privacy issues presented by wireless directories. However, we believe this Committee should strengthen the Wireless Privacy Act in several aspects before it is presented to the full Senate. In particular, we believe that the standard for enrollment should be a consumer friendly, opt-in system that ensures adequate notice and requires affirmative consent."

Dennis Strigl, P/CEO of Verizon Wireless, wrote in his prepared testimony that "we do not, and will not publish or make available our customers' wireless phone numbers for a paper directory or a directory database".

He elaborated that "We at Verizon Wireless think a Wireless Telephone Directory would be a terrible idea, and we will not publish our customers cell phone numbers or otherwise participate in the plan you have heard about today. Here's why we will not participate in a directory assistance program: Since we started this business, we have not published our customers’ wireless phone numbers. We did this consciously, for the sake of preserving customers' privacy and control over their bill and discouraging interruptions from unwanted calls. We do not believe those basic reasons have changed. In fact, we see more reason today than ever to protect customers' privacy. The floodgates are open to spam, viruses, telemarketing and other unwanted, unsolicited messages on landline phones, computers and in mailboxes. We think our customers view their cell phones as one place where they don't face these intrusions, where they have control over their communications."

Patrick Cox, CEO of Qsent, Inc., wrote in his prepared testimony that his company "was selected by 6 of the nation’s leading wireless carriers to facilitate the delivery of wireless directory assistance information through the existing 411 providers". He further stated that wireless customers numbers would only be accessible if they opt in to the service. See also, prepared testimony of Kathleen Pierz of the The Pierz Group, consultants to phone companies and directory assistance providers.

House Bill Would Create Position of Assistant USTR for IPR

9/21. Rep. Adam Schiff (D-CA), Rep. Bob Goodlatte (R-VA), Rep. Xavier Becerra (D-CA), and Rep. Mark Foley (R-FL) introduced HR 5117, the "Fortifying America's Intellectual Property Rights (FAIR) Act", a bill to create the position of Assistant USTR for Intellectual Property Rights.

This bill amends Section 141(c) of the Trade Act of 1974, which is codified at 19 U.S.C. § 2171(c), to provide that "There shall be in the Office the position of Assistant United States Trade Representative for Intellectual Property Rights. The Assistant United States Trade Representative for Intellectual Property Rights shall be appointed by the United States Trade Representative."

The bill also defines the responsibilities of this Assistant USTR, and requires that at least six staff members be assigned to this Assistant USTR.

Rep. Schiff (at right) stated in a release that "The protection of our intellectual property rights abroad is vital to promoting America's competitive advantages in world commerce ... As our trade deficit continues to soar, Congress must step in now to ensure that we aggressively protect our intellectual property rights at home and abroad."

The bill recites in its findings that "The Office of the USTR has more than 20 offices dedicated to specific areas of expertise, but does not include an office solely dedicated to the protection abroad of the intellectual property rights of United States persons. ... The USTR's ability to meet its mandate to protect abroad the intellectual property rights of United States persons should be enhanced by establishing a separate office dedicated exclusively to intellectual property matters ..."

The bill was referred to the House Ways and Means Committee.Rep. Schiff is a Co-Chair of the Congressional International Anti-Piracy Caucus, and a member of the House Judiciary Committee, and its Subcommittee on Courts, the Internet and Intellectual Property. He is not a members of the Ways and Means Committee. However, Rep. Becerra and Rep. Foley are members.

Rep. Dreier Proposes National Identification Card and Database

9/21. Rep. David Dreier (R-CA), Rep. Silvester Reyes (D-TX), and Rep. Darrell Issa (R-CA) introduced HR 5111, the "Illegal Immigration Enforcement and Social Security Protection Act of 2004".

This is a broad bill that contains provisions related to increased funding for border patrols, the creation of an employment eligibility database, employer access to this database, and integration of the Department of Homeland Security's (DHS) border patrol fingerprinting identification system with the fingerprint database maintained by the Federal Bureau of Investigation (FBI). In addition, to implement the employment eligibility provisions, the bill also provides for converting the Social Security identification system, and Social Security cards, into a universal, electronically based, database connected, national, identification system.

This article does not address all aspects of this bill. Rather, this article only summarizes the provisions related to a national identification system.

This bill requires that "Each Social Security card issued under this subparagraph shall include an encrypted electronic identification strip which shall be unique to the individual to whom the card is issued. The Commissioner shall develop such electronic identification strip in consultation with the Secretary of Homeland Security ..."

The bill does not state either what information shall be included in this "encrypted electronic identification strip", or what information shall not be included. Nor does the bill establish the procedure for determining the content of this identification strip.

The bill also requires that these cards be made of plastic, and include "a recent photograph of the individual to whom the card is issued".

The bill requires that these cards be used for new issuances, and reissuances. However, as a practical matter, the bill would require most adults to obtain reissued cards. The bill provides that "No employer may hire for employment an individual in the United States in any capacity unless such employer verifies under this subsection that such individual has in his or her possession a Social Security card issued to such individual pursuant to" the requirements of this bill "which bears a photograph of such individual and that such individual is authorized to work in the United States in such capacity." Moreover, the bill provides that "No individual may commence employment with an employer in the United States unless" he or she obtains one of these new cards. Thus, the bill would compel all persons who plan to obtain or change jobs to obtain one of these new cards.

The bill also requires the DHS to "establish and maintain an Employment Eligibility Database". It further provides for the use of "a card-reader device" to query this database "to verify the identity of the card holder and the card holder's authorization to work".

The bill also authorizes the appropriation of up to $100 Million per year to the DHS for enforcement of this act. It further authorizes the appropriation of unspecified amounts to the Social Security Administration for implementation of the identification card program.

This bill requires each individual to obtain a card, that serves to identify that individual, and that is national in scope. Moreover, each unique identifier would be associated with further data stored in a database maintained by the DHS. And, any employer would be able to access certain information ("relating to the citizenship, residency, and work eligibility") in that database. This card bears the attributes of a national identification card, which in turn, is tied to a national identification database.

Nevertheless, the bill also recites in its findings that "The Social Security card should not become a national identification card". Also, it states that "Nothing in this Act shall be construed to establish a national identification card, and it is the policy of the United States that the Social Security card shall not be used as a national identification card."

The bill asserts that the only purpose of this new identity card would be "to determine employment eligibility", and hence, deter illegal immigration.

The bill does not require individuals to carry this card. However, nothing in the bill prohibits a person or entity other than an employer from requiring individuals to produce one of these identification cards for purposes that are unrelated to determining employment eligibility.

Also, while the bill limits access to the database by government officials, nothing in the bill prohibits any federal or state government agency from requiring use of the card, or its contents, for identification, or other, purposes.

Rep. Dreier (at right) stated in a release that "This legislation gets to the root of that problem by adding tougher enforcement penalties to current law, which already prohibits American businesses from employing illegal immigrants, and implementing new technology within the Social Security system that will make identity fraud far more difficult to perpetrate."

Rep. Dreier's release also offers an explanation for why his proposal does not constitute a national identification card. "U.S. citizens and legal immigrants will be required to furnish the card only when seeking new employment in the United States. They are not in any way required to carry the card at all times, as would be required by a national identification card."

See also, Rep. Dreier's summary of the bill.

This bill reflects a proposal advanced by T.J. Bonner, President of the National Border Patrol Council (NBPC).

The bill was referred to the House Ways and Means Committee, the House Education and Workforce Committee, and the House Judiciary Committee.

TSA Requires Airlines to Provide Customer Data

9/21. The Department of Homeland Security's (DHS) Transportation Security Administration (TSA) released several documents in which it states that domestic airlines will be required to submit historic passenger name record (PNR) about individuals who completed domestic flight segments during the month of June, 2004.

PNR data includes full name, contact phone number, mailing address and travel itinerary. These documents state that the TSA will compile this data in an electronic database to test a new program, named Secure Flight, for screening domestic airline passengers.

Background. Before the terrorist attacks of September 11, 2001, the airlines conducted passenger screening, and administered the Computer Assisted Passenger Prescreening System (CAPPS), subject to federal guidelines. In late 2001, the Congress passed the Aviation and Transportation Security Act, which created the TSA as a unit of the Department of Transportation (DOT). This Act gave the TSA responsibility for airport passenger screening. In late 2002, the Congress passed the Homeland Security Act, which, among other things, created the Department of Homeland Security (DHS), and transferred the TSA from the DOT to the new DHS.

The TSA then embarked on developing a new passenger screening program, which it named CAPPS II. The TSA states that this program no longer exists. It further states that it now operates a "successor program" that it has named "Secure Flight".

9-11 Commission Recommendations. David Stone (at right), Assistant Secretary of Homeland Security for the TSA, stated in a  release that "This is an important moment in aviation security; we are advancing a vital tool to combat terrorism and checking off another recommendation from the 9-11 Commission".

The National Commission on Terrorist Attacks Upon the United States (9-11 Commission) released its report in late July. Several of the recommendations of the 9-11 Commission involve the use computer databases in airline passenger screening.

The report recommended that "Improved use of ``no-fly´´ and ``automatic selectee´´ lists should not be delayed while the argument about a successor to CAPPS continues. This screening function should be performed by the TSA, and it should utilize the larger set of watchlists maintained by the federal government. Air carriers should be required to supply the information needed to test and implement this new system."

The report also recommended a broader network of screening. It states that "The U.S. border security system should be integrated into a larger network of screening points that includes our transportation system and access to vital facilities, such as nuclear reactors." It also recommends "Extending those standards among other governments".

Documents Released by TSA. First, the TSA released a document [14 pages in PDF] titled "Privacy Impact Assessment; Secure Flight Test Phase".

This privacy impact assessment (PIA) states that Secure Flight is a "new program for screening domestic airline passengers in order to enhance the security and safety of domestic airline travel". It further states that the collected "historic PNR data also will be used to conduct a limited test to determine if the use of commercial data is effective in identifying passengers' information that is incorrect or inaccurate. This test will involve commercial data aggregators who currently provide services to the banking, home mortgage and credit industries."

This PIA states that the purpose of the Secure Flight program is to compare PNR data to "watch lists held in the Terrorist Screening Database (TSDB) maintained by the Terrorist Screening Center (TSC) to identify known or suspected terrorists who would use the airways to inflict catastrophic damage on the United States."

This PIA concedes that airline passengers are not afforded the opportunity to consent to the collection of personal information by the government. However, it states that "airline passengers are aware that by engaging in air travel they have consented to certain screening protocols since passenger prescreening is already in place".

This PIA further states that "by focusing solely on potential terrorism and not other law enforcement purposes, Secure Flight addresses concerns raised by privacy groups and others about the potential for ``mission creep´´ by TSA." It adds that the "TSA envisions that carriers may be required to collect full passenger name and possibly one other element of information under a fully implemented operational Secure Flight program."

The TSA also released a draft privacy act notice [15 pages in PDF] titled "Privacy Act of 1974: System of Records; Secure Flight Test Records".

The TSA also released a notice of emergency clearance request [11 pages in PDF].

These documents will be published in the Federal Register. As of the September 22, 2004 issue, the DHS/TSA had not yet published these items in the Federal Register.

More News

9/21. The U.S. Court of Appeals (7thCir) issued its opinion [11 pages in PDF] in Toney v. L'Oreal, a case regarding preemption of state causes of action by the Copyright Act. June Toney, a model, filed a complaint in state court in Illinois against L'Oreal and others alleging that they used her likeness beyond the authorized time, in violation of the Illinois Right of Publicity Act (IRPA) and the Lanham Act, 15 U.S.C. § 1125, et seq. L'Oreal removed the action to the U.S. District Court (NDIll). The District Court held that the IRPA claim is preempted by the federal Copyright Act, 17 U.S.C. § 101, et seq. The Court of Appeals affirmed. This case is June Toney v. L'Oreal, U.S.A., Inc., et al., U.S. Court of Appeals for the Seventh Circuit, App. Ct. No. 03-2184, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 02 C 3002. Judge Ronald Guzman presiding.

9/21. A trial jury of the U.S. District Court (NDCal) returned a verdict in Immersion v. Sony, a patent infringement case involving Sony Playstations. The jury found that Sony Computer Entertainment, Inc. and Sony Computer Entertainment of America, Inc. infringed Immersion Inc.'s U.S. Patent No. 6,275,213 and U.S. Patent No. 6,424,333, both of which are titled "tactile feedback man-machine interface device". The jury also awarded Immersion damages of $82 Million. See, Immersion release.

Go to News from September 16-20, 2004.