House Passes First Spyware Bill

10/5. The House passed HR 2929, the "Securely Protect Yourself Against Cyber Trespass Act", or SPY ACT, on a roll call vote of 399-1. See, Roll Call No. 495. HR 2929 is the House Commerce Committee's spyware bill. The House is scheduled to consider HR 4661, the "Internet Spyware (I-SPY) Prevention Act of 2004", which is the House Judiciary Committee's bill, on Wednesday, October 6.

HR 2929 prohibits certain conduct with respect to spyware, and gives the Federal Trade Commission (FTC) civil enforcement authority. Legislation regarding the consumer protection and the FTC are within the jurisdiction of the House Commerce Committee. See, House Rule X.

HR 4661 amends Title 18 to provide criminal penalties for certain conduct related to spyware. Crime legislation is within the jurisdiction of the House Judiciary Committee. See, full story.

Summary of House Commerce Committee Spyware Bill

10/5. The House approved a manager's amendment to HR 2929, the "Securely Protect Yourself Against Cyber Trespass Act", or SPY ACT. This manager's amendment contains numerous changes to the bill that was reported by the House Commerce Committee.

The bill contains two sets of prohibitions. First, Section 2 prohibits deceptive acts or practices related to spyware. Second, Section 3 prohibits collection of certain information without notice and consent.

Prohibition of Deceptive Acts or Practices. Section 2 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 that involve any of the following conduct with respect to the protected computer:"

Section 2 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, collecting personally identifiable information through keystroke logging, and removing, disabling, or rendering inoperative a security, anti-spyware, or anti-virus technology.

Section 2 also prohibits "Inducing the owner or authorized user to provide personally identifiable, password, or account information to another person -- (A) by misrepresenting the identity of the person seeking the information; or (B) without the authority of the intended recipient of the information." This might be characterized as an anti-phishing, rather than anti-spyware, provision. This language was revised by the manager's amendment.

Prohibition of Collection of Certain Information Without Notice and Consent. Section 3 prohibits the collection of certain information without notice and consent. It provides that "it is unlawful for any person (1) to transmit to a protected computer, which is not owned by such person and for which such person is not an authorized user, any information collection program, unless -- (A) such information collection program provides notice in accordance with subsection (c) before execution of any of the information collection functions of the program; and (B) such information collection program includes the functions required under subsection (d)". It also provides that "it is unlawful for any person ... (2) to execute any information collection program installed on such a protected computer unless -- (A) before execution of any of the information collection functions of the program, the owner or an authorized user of the protected computer has consented to such execution pursuant to notice in accordance with subsection (c); and (B) such information collection program includes the functions required under subsection (d)." This language was revised by the manager's amendment.

Section 3 also requires that "each information collection program" must allow users to easily "remove the program or disable operation of the program".

Section 3 also requires that "each information collection program" must have an "identity function". That is, it requires that "each display of an advertisement directed or displayed using such information when the owner or authorized user is accessing a Web page or online location other than of the provider of the software is accompanied by the name of the information collection program, a logogram or trademark used for the exclusive purpose of identifying the program, or a statement or other information sufficient to clearly identify the program." This language was revised by the manager's amendment.

The manager's amendment also adds a provision that allows for a single notice in the case of bundled software.

Exemptions and Limitations on Liability. Sections 3 and 5 of the bill include exemptions and limitations on liability. The manager's amendment expanded the network security exception in Section 5.

First, Section 3 provides that "A telecommunications carrier, a provider of information service or interactive computer service, a cable operator, or a provider of transmission capability shall not be liable under this section to the extent that the carrier, operator, or provider -- (1) transmits, routes, hosts, stores, or provides connections for an information collection program through a system or network controlled or operated by or for the carrier, operator, or provider; or (2) provides an information location tool, such as a directory, index, reference, pointer, or hypertext link, through which the owner or user of a protected computer locates an information collection program."

Second, Section 5 contains a very broad law enforcement exemption. It provides that "Sections 2 and 3 of this Act shall not apply to (1) any act taken by a law enforcement agent in the performance of official duties".

Third, it contains a network security exemption. Section 5(b) now provides that "(1) any monitoring of, or interaction with, a subscriber's Internet or other network connection or service, or a protected computer, by a telecommunications carrier, cable operator, computer hardware or software provider, or provider of information service or interactive computer service, to the extent that such monitoring or interaction is for network or computer security purposes, diagnostics, technical support, or repair, or for the detection or prevention of fraudulent activities; or (2) a discrete interaction with a protected computer by a provider of computer software solely to determine whether the user of the computer is authorized to use such software, that occurs upon -- (A) initialization of the software; or (B) an affirmative request by the owner or authorized user for an update of, addition to, or technical service for, the software."

Section 5(b)(1) revises the language reported by the Committee. Section 5(b)(2) is new. This is related to security. It also relates to protection of intellectual property and proprietary interests.

Fourth, it contains a limitation on liability for certain providers of software or interactive computer services that attempt to remove programs that violate Sections 2 or 3.

The manager's amendment also modifies the cookies exception found in the definitional section.

Finally, the bill exempts programs that are installed as of the effective date of the bill.

Enforcement and Preemption. The bill gives rulemaking and civil enforcement authority to the Federal Trade Commission (FTC). It also allows the FTC to issue advisory opinions, and requires the FTC to submit annual reports to the Congress.

The bill preempts state laws that contain provisions similar to those contains in Sections 2 and 3. However, it does not preempt the applicability of state trespass, contract, or tort laws.

House Approves Bill to Create New Judgeships and Split the 9th Circuit

10/5. The House approved S 878, a bill to create numerous additional federal judgeships.

The House also approved an amendment [10 pages in PDF] offered by Rep. Mike Simpson (R-ID) that would divide the U.S. Court of Appeals for the 9th Circuit. The vote was 205-194. See, Roll Call No. 492. It was a nearly straight party line vote, with Republicans supporting the amendment, and Democrats opposing it.

This amendment would split the 9th Circuit into three circuits. The new 13th Circuit would be comprised of the states of Washington, Oregon and Alaska. The new 12th Circuit would be comprised of the states of Idaho, Nevada, Arizona, and Montana. Hawaii and California would comprise the remaining states of the 9th Circuit. See also, Rep. Simpson's release.

The House also approved an amendment [PDF] offered by Rep. James Sensenbrenner (R-WI) by voice vote.

The Senate Judiciary Committee is scheduled to hold a business meeting on Thursday, October 7. The agenda for the meeting includes S 2396, the "Federal Courts Improvement Act of 2004". Whether the Committee will actually consider the bill at this meeting is another question.

Senate Approves Bill Regarding Privatization of INTELSAT and Inmarsat

10/5. The Senate approved S 2896, an untitled bill to modify and extend certain privatization requirements of the Communications Satellite Act of 1962, as amended by the Open-Market Reorganization for the Betterment of International Telecommunications (ORBIT), which became law in 2000.

Sen. Conrad Burns (R-MT) and Sen. John Breaux (D-LA) introduced S 2896 on October 5, 2004. The Senate approved it without a committee hearing, without debate, by unanimous consent, on the date of its introduction.

It amends 47 U.S.C. § 763(5)(A)(ii) to further extend the deadline for privatizing Inmarsat. This bill extends the ORBIT's statutory deadline for conducting Inmarsat's initial public offering (IPO) from June 30, 2004 to June 30, 2005.

The bill further provides that there need not be an IPO for INTELSAT or Inmarsat. It adds a new subsection that provides that "a successor entity may be deemed a national corporation and may forgo an initial public offering and public securities listing and still achieve the purposes of this section if
   (i) the successor entity certifies to the Commission that (I) the successor entity has achieved substantial dilution of the aggregate amount of signatory or former signatory financial interest in such entity; (II) any signatories and former signatories that retain a financial interest in such successor entity do not possess, together or individually, effective control of such successor entity; and (III) no intergovernmental organization has any ownership interest in a successor entity of INTELSAT or more than a minimal ownership interest in a successor entity of Inmarsat;
   (ii) the successor entity provides such financial and other information to the Commission as the Commission may require to verify such certification; and
   (iii) the Commission determines, after notice and comment, that the successor entity is in compliance with such certification."

S 2896 is related to S 2315, which Sen. Burns introduced on April 8, 2004. S 2315 extended the deadline for INTELSAT's IPO from June 30, 2004 to December 31, 2005. See, story titled "Sen. Burns Introduces Bill to Allow Delay in INTELSAT IPO" in TLJ Daily E-Mail Alert No. 874, April 12, 2004.

The Senate approved S 2315 on April 27, 2004 by unanimous consent. The House approved it on May 5, 2004 by unanimous consent. President Bush signed it on May 18, 2004. It is now Public Law No. 108-228.

The ORBIT Act, which Sen. Burns sponsored, is Public Law No. 106-180. Sen. Burns is the Chairman of the Subcommittee on Communications.

Bureau of Customs and Border Protection Conducts DMCA Rulemaking

10/5. The Department of Homeland Security's (DHS) Bureau of Customs and Border Protection (CBP) published a notice in the Federal Register that describes and sets the comment deadline for its rulemaking proceeding regarding implementation of the Digital Millennium Copyright Act's (DMCA) ban on importation of devices that violate the anti-circumvention provisions of the DMCA.

The CBP also proposes to amend its rules to provide for the recordation, and seizure and forfeiture, of certain movies, sound recordings, and similar works, before completion of the registration process at the U.S. Copyright Office. The CBP also proposes to allow for the recordation of non-U.S. works without requiring registration with the Copyright Office.

The proposed rule provides for the seizure by the CBP, and forfeiture, of certain devices that it reasonably believes constitute violations of the anti-circumvention provisions of the DMCA. These provisions are codified at 17 U.S.C. § 1201.

§ 1201(a)(1)(A), which was added to the Copyright Act in 1998 by the DMCA, provides that "No person shall circumvent a technological measure that effectively controls access to a work protected under this title."

Then, § 1201(a)(2)(A) provides that "No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that --- (A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title;"

Furthermore, § 1201(b)(1)(A) provides that "No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that --- (A) is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof;"

The proposed regulations would implement the DMCA's ban on importation of devices that violate the anti-circumvention provisions.

The proposed rule provides that "Imported articles appearing to constitute violations of 17 U.S.C. 1201(b)(1) may
be detained for a period not to exceed 30 days if CBP reasonably believes that such articles are primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner; have only limited commercially significant purpose or use other than to circumvent such protection; or are marketed by the importer or trafficker, or another acting in concert with the importer or trafficker, for use in circumventing such protection. Upon determination by the IPR Branch, CBP Office of Regulations & Rulings, that such detained articles constitute violations of 17 U.S.C. 1201(b)(1) CBP will seize them and institute forfeiture proceedings in accordance with part 162 of this chapter. Articles that are not determined by the IPR Branch to constitute violations of 17 U.S.C. 1201(b)(1) will be released."

The proposed rule further provides that "Imported articles determined by the IPR Branch, CBP Office of Regulations & Rulings to constitute violations of 17 U.S.C. 1201(b)(1) are subject to seizure regardless of the recordation of any right with CBP. After seizure, such goods are subject to forfeiture proceedings in accordance with part 162 of this chapter. CBP will notify the importer of the seizure in accordance with part 162 of this chapter."

Finally, it provides that "When merchandise is seized under this section, CBP will disclose to the owner of the protected copyrighted work (in the case of copyright piracy) or the producer, or duly authorized agent thereof, of circumvented copyright protection systems (in seizures effected for DMCA violations), the following information, if available, within 30 days, excluding weekends and holidays, of the date of the notice of seizure:
    (1) The date of importation;
    (2) The port of entry;
    (3) A description of the merchandise;
    (4) The quantity involved;
    (5) The name and address of the manufacturer;
    (6) The country of origin of the merchandise, if known;
    (7) The name and address of the exporter;
    (8) The name and address of the importer; and
    (9) Information from available shipping documents (such as manifests, air waybills, and bills of lading), including mode or method of shipping (such as airline carrier and flight number) and the intended final destination of the merchandise."

The proposed rule does not address how the CBP will reach its determination that it "reasonably believes that such articles are primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner". The proposed rules establish no process whereby copyright owners, their trade groups, or the makers of copyright protection systems,  identify devices that they assert constitute violations of the DMCA.

Comments are due by November 4, 2004. See, notice in the Federal Register, October 5, 2004, Vol. 69, No. 192, at Pages 59562 - 59569.

1st Circuit Grants Rehearing En Banc in Councilman Case

10/5. The U.S. Court of Appeals (1stCir) issued an order in U.S. v. Councilman that grants the government's petition for rehearing en banc. This is a criminal case regarding the applicability of the Wiretap Act to e-mail in storage. 

On June 29, 2004 a three judge panel of the U.S. Court of Appeals (1stCir) issued its split opinion. It held that there was no violation of the Wiretap Act when stored e-mail was accessed, because, since it was in storage, there was no interception within the meaning of the statute.

The defendant, Councilman, was an officer of a company that ran an online rare and out of print book listing service. The company also provided e-mail service to some of its book dealer customers. The U.S. Attorney alleged that Councilman used a program to intercept, copy and store e-mail messages from Amazon.com to the book dealer customers, and that Councilman read these messages to gain commercial advantage.

See, story titled "1st Circuit Holds Wiretap Act Does Not Apply to E-Mail in Storage" in TLJ Daily E-Mail Alert No. 930, July 1, 2004.

The October 5 order states that "Although the parties can address other issues in their supplemental submissions, and the en banc court is free to consider all of the issues presented, the court specifically requests that the parties address the following questions:
  1. Whether the conduct at issue in this case could have been additionally, or alternatively, prosecuted under the Stored Communications Act?
  2. Whether the rule of lenity precludes prosecution in this case?"

The Court of Appeals does not have before it an appeal from an conviction for violation of the Stored Communications Act. There are reasons why cases such as Councilman's are not prosecuted under the Stored Communications Act. For example, the Act exempts "the person or entity providing a wire or electronic communications service". See, 18 U.S.C. § 2701. Councilman was an employee of the e-mail service provider.

The order adds that "The court welcomes timely motions to file amicus briefs". The Court is likely to receive many amicus briefs.

The split opinion of the three judge panel was followed by considerable comment and criticism in technology and academic circles. It addition, it prompted Members of Congress to introduce legislation that would revise the statute that was interpreted by the Court.

On July 22, 2004, Rep. Jerrold Nadler (D-NY) and others introduced HR 4977, the "E-mail Privacy Protection Act of 2004". This bill amends the Wiretap Act and the Stored Communications Act, to provide that accessing stored e-mail communications, including by e-mail service providers, can constitute criminal violations. This bill responds to the recent Appeals Court decision in USA v. Councilman, and perhaps also, Google's announcement of its proposed Gmail service. See, story titled "Rep. Nadler Introduces Bill to Criminalize Accessing Stored E-Mail" in TLJ Daily E-Mail Alert No. 950, August 2, 2004.

Also on July 22, Rep. Jay Inslee (D-WA) and others introduced HR 4956, the "E-mail Privacy Act of 2004". Like Rep. Nadler's bill, HR 4977, this bill responds to the opinion in USA v. Councilman, and provides increased legal protection under the Criminal Code for stored e-mail communications. However, Rep. Inslee's bill would provide less onerous limitations upon the activities of e-mail service providers. See, story titled "Rep. Inslee Introduces E-mail Privacy Act" in TLJ Daily E-Mail Alert No. 950, August 2, 2004.

Oral argument is scheduled for 3:00 PM on December 8, 2004, in the en banc courtroom of the John Joseph Moakley Courthouse in Boston, Massachusetts.

5th Circuit Rules on Copyright, Fair Use, Attorneys Fees, and Alter Egos

10/5. The U.S. Court of Appeals (5thCir) issued its opinion [PDF] in Compaq v. Ergonome, a copyright infringement case involving the defense of fair use. The Court of Appeals affirmed the District Court's finding that the copying was fair use. There is also much in this opinion regarding alter ego claims, and awards of attorneys fees, in copyright cases.

Ergonome holds the copyright to a 100 page publication titled "Preventing Computer Injury: The HAND BOOK". Ergonome sought to license its work to computer manufacturers, including Compaq Computer Corporation. Compaq obtained, but did not license Ergonome's work. However, it subsequently published and distributed with its computers an item titled "Safety and Comfort Guide", which copied seven phrases and four illustrations from Ergonome's work, without authorization.

Ergonome did not initiate this action. Rather, Compaq filed a complaint in U.S. District Court (SDTex) against Ergonome seeking declaratory judgment that its work did not infringe Ergonome's work. Ergonome then filed a complaint in New York, and a contest over venue followed, which Compaq won. The District Court in Texas denied motions for summary judgment and for judgment as a matter of law. Following a seven day jury trial the District Court concluded that the copying was de minimis, and constituted fair use within the meaning of 17 U.S.C. § 107.

The District Court also held that the doctrines of laches and equitable estoppel barred Ergonome's claims.

The District Court also awarded Compaq $2,765,026.90 attorneys fees.

And, the District Court held that the two shareholders of Ergonome, a corporation, are also liable as alter egos. The two shareholders are husband and wife; both were involved in the affairs of the company. Notably, this holding was a Court imposed discovery sanction that was added to the final judgment.

Fair Use. Ergonome raised various issues on appeal, including the denial of its motion for judgment as a matter of law on the fair use issue.

The Court of Appeals affirmed. It went through the four prong analysis provided in Section 107, one prong at a time. It concluded that "viewed through the lens of the statutory fair use factors" the copying was fair use. The Court's lens focused generously on Compaq's arguments, from the point of view of copiers.

The Court wrote, with respect to the first factor, "the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes", that Compaq's use "was commercial". And, it wrote that a finding of "commerciality generally weighs against finding fair use". But, the Court did actually concede that this factor weighs in favor of Engonome in this case.

The Court concluded that the second factor, "the nature of the copyrighted work", weighs in favor of Compaq because Ergonome's publication is a "factual work, as opposed to a highly creative fictional work". However, the Court did not address any of the other elements that Courts have considered when applying the "nature of the copyrighted work" factor.

For example, the Court did not discuss Harper & Row Publishers v. Nation Enterprises, 471 U.S. 539, in its discussion of this factor. In that case, the Supreme Court held that copying 300 words out of 200,000 did not constitute fair use because of the nature of the copyrighted work.

In Ergonome's case, a significant part of the prospective market for its work was the original equipment manufacturers (OEMs), for inclusion with new computers. There are only a small number of OEMs.

The Court concluded that the third factor, "the amount and substantiality of the portion used in relation to the copyrighted work as a whole", weighs in favor of Compaq because it copied seven phrases and four illustrations out of a 100 page publication.

The Court concluded that the fourth factor, "the effect of the use on the potential market for or value of the copyrighted work", weighs in favor of Compaq, because Ergonome could not show that distribution of Compaq's competing work deprived Ergonome of any sales.

Since the Court of Appeals found fair use, it did not rule on the laches and equitable estoppel issues.

Attorneys Fees. 17 U.S.C. § 505 provides that "In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof. Except as otherwise provided by this title, the court may also award a reasonable attorney’s fee to the prevailing party as part of the costs."

Compaq was the prevailing party. The Court noted the 5th Circuit precedent supports the proposition that the award of attorneys' fees in copyright cases is the rule rather than the exception, and should be awarded routinely. The Court did not discuss whether $2.7 Million for a case culminating in a seven day trial is "reasonable" within the meaning of Section 505.

Alter Egos. Finally, the Court reversed the alter ego finding, as to one spouse, but not the other. This is an Edith Jones opinion.

In this case, the amount of copying was small -- seven phrases and four illustrations. Moreover, as the Court's opinion sets forth in detail, Ergonome was a difficult litigant, especially with respect to its non-compliance with discovery orders related to the alter ego issue, and its filing of petitions for writ of mandamus on the alter ego issue. On the other hand, there was a work of authorship, it was registered with the Copyright Office, Ergonome held the copyright, the work was shown to Compaq, Compaq copied from it with authorization, and Compaq distributed its competing work in mass in commerce.

Judge Pickering (a temporary recess appointment) wrote in a concurring opinion that Ergonome engaged in a "trial strategy of extortion", and that "they attempted to make the litigation so unpleasant and so costly that the defendants would be forced to settle." The Judge did not find it pertinent that it was Compaq that sued Ergonome, and not vice versa, that Compaq brought suit in a forum that was distant and inconvenient for Ergonome, and that much of the litigation revolved around Compaq's alter ego claim, which is unrelated to the copyright issues.

While the litigation was unpleasant, the Court's opinion reflects that much of the unpleasantness occurred in the context Compaq's litigation of the alter ego issue. An alter ego finding would enable Compaq to collect damages from the shareholders as well as the corporation, if it stood to win an award of damages. But, Compaq did not, and could not, seek damages for infringement, because it was the copier. Alternatively, an alter ego finding would enable Compaq to collect attorneys fees from the shareholders. Compaq aggressively litigated the alter ego issue, for the purpose of being able to collect attorneys fees from the shareholders, which attorneys fees it drove up by aggressively litigating the alter ego issue. The point is that all parties engaged in unpleasant litigation strategies.

Perhaps this opinion stands as further guidance for authors, copyright holders, and their attorneys that they should not litigate infringement cases in Texas or the 5th Circuit, and where possible, include choice of forum clauses in contracts.

This case is Compaq Computer Corporation v. Ergonome, Inc, App. Ct. No. 01-20861, an appeal from the U.S. District Court for the Southern District of Texas, Judge Edith Jones wrote the opinion of the Court of Appeals, in which Judges Dennis and Pickering joined.

More News

10/5. The U.S. Department of Justice (DOJ) and other federal and Canadian agencies held a press conference to publicize recent actions taken against telemarketing fraud schemes. See, DOJ release.

10/5. The Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) published a notice in the Federal Register that describes and sets the comment deadline for its notice of proposed rulemaking regarding telecommuting by federal contractors. The deadline for comments is December 6, 2004. See, Federal Register, October 5, 2004, Vol. 69, No.192, at Pages 59701 - 59702.

Juster Addresses Computer and Software Technology

10/4. Kenneth Juster, the Under Secretary of Commerce for Industry and Security, gave a speech in Washington DC regarding, among other topics, the Bureau of Industry and Security's (BIS/BXA) regulation of the technology sector.

He stated that the BIS/BXA "has prepared a draft rule that would allow U.S. companies to release higher levels of computer technology and software to eligible foreign nationals working in the United States. We expect to publish this rule soon. Moreover, if the Wassenaar Expert Group agrees to raise the threshold for actual exports of computer technology, the Bureau is prepared to publish a second rule covering such exports."

Juster (at left) also stated that the BIS has "drafted a rule to raise the current microprocessor technology license requirement threshold level for foreign nationals working in the United States on the design, development, and production of general purpose microprocessors. Because microprocessor technology accounts for well over 20 percent of all deemed export licenses annually, increasing this threshold level will provide a measure of relief from licensing requirements. Again, if the Wassenaar Expert Group agrees to raise the threshold for actual exports of microprocessor technology, the Bureau is prepared to publish a rule covering such exports."

Also, he said that the BIS has "obtained interagency agreement for our proposal to implement a number of process improvements for deemed export licensing renewals. We are now granting automatic six-month extensions for existing deemed export licenses if an exporter has submitted both a renewal license application and a written request for extension of the existing license. We have also reached agreement for expediting requests for technology upgrades of existing deemed export licenses by having the agencies agree to make their best efforts to process such applications in 20 days."

Supreme Court Denies Certiorari in Do Not Call Registry Case

10/4. The Supreme Court denied certiorari, without opinion, in Mainstream Marketing v. FTC, No. 03-1552. See, Order List [70 pages in PDF] at page 8. This case pertains to the national do not call registry.

Mainstream Marketing, a group that represents telemarketers, and other telemarketing groups, have sought to stop the do not call registry. They filed complaints in U.S. District Courts challenging the registry on First Amendment grounds.

On September 25, 2003, the U.S. District Court (DColo) issued its Memorandum Opinion and Order [34 pages PDF scan] holding that the FTC's do not call registry violates the First Amendment free speech rights of telemarketers. The District Court's decision was based upon its analysis that the FTC's do not call registry is content based regulation that covers commercial, but not non-profit, solicitations. See, story titled "Colorado District Court Holds That Do Not Call Registry Violates 1st Amendment" in TLJ Daily E-Mail Alert No. 747, September 26, 2003.

On February 17, 2004, the U.S. Court of Appeals (10thCir) issued its opinion [51 pages in PDF] reversing the District Court. The Appeals Court wrote that "The four cases consolidated in this appeal involve challenges to the national do-not-call registry, which allows individuals to register their phone numbers on a national ``do-not-call list´´ and prohibits most commercial telemarketers from calling the numbers on that list. The primary issue in this case is whether the First Amendment prevents the government from establishing an opt-in telemarketing regulation that provides a mechanism for consumers to restrict commercial sales calls but does not provide a similar mechanism to limit charitable or political calls."

The Appeals Court held that "the do-not-call registry is a valid commercial speech regulation because it directly advances the government’s important interests in safeguarding personal privacy and reducing the danger of telemarketing abuse without burdening an excessive amount of speech. In other words, there is a reasonable fit between the do-not-call regulations and the government’s reasons for enacting them."

See also, story titled "10th Circuit Upholds Constitutionality of Do Not Call Registry" in TLJ Daily E-Mail Alert No. 839, February 18, 2004.

The Supreme Court's denial of certiorari lets stand the decision of the Court of Appeals.

Supreme Court Denies Certiorari in Reverse Passing Off Case

10/4. The Supreme Court denied certiorari, without opinion, in Ty v. Peaceable Planet, No. 04-17. See, Order List [70 pages in PDF] at page 37. This is another in Judge Richard Posner's series of beanie baby cases. This is a trademark infringement case involving a claim of reverse passing off.

Ty Inc., a maker of bean filed bags, is located in the 7th Circuit. Its creativity in making bean bags that look like animals is exceeded by its creativity in using intellectual property laws to further its business interests. Its many legal disputes end up in federal court in Chicago. Judge Posner has tended to find fault in Ty's practices and legal analyses.

In the present case, Peaceable Planet, a very small competitor of Ty, made a bean bag toy that resembles a camel. It named the camel "Niles", a allusion to the river that flows through Egypt. Subsequently, Ty produced a bean bag toy that resembles a camel. It named its product "Niles".

Peaceable Planet filed a complaint in U.S. District Court (NDIll) against Ty alleging trademark infringement, false advertising under the Lanham Act, and various state law claims. The District Court granted summary judgment to Ty on all claims. Peaceable Planet appealed.

A three judge panel of the Court of Appeals reversed. Judge Posner wrote the opinion [15 pages in PDF]. Following an intricate analysis of trademark infringement, descriptive marks, and reverse passing off, Posner concluded that " Peaceable Planet has a valid trademark in the name “Niles” as applied to its camel, and so the case must be returned to the district court, where Peaceable Planet, to prove infringement of its trademark (“reverse confusion”), will have to show that a substantial number of consumers think that its camel is actually Ty's."

The Supreme Court's denial of certiorari lets stand the 7th Circuit's decision.

See also, Judge Posner's May 30, 2002 opinion in Ty v. Publications International. For a discussion of this case, see story titled "Posner Addresses Copyright Misuse" in TLJ Daily E-Mail Alert No. 788, November 28, 2003. The Supreme Court denied certiorari in that case also.

More Supreme Court News

10/4. The Supreme Court denied certiorari in Mult-Tech Systems v. Microsoft, No. 03-1719. See, Order List [70 pages in PDF] at page 13. This is a patent infringement case involving personal computer based systems and methods for simultaneously transmitting voice and/or data to a remote site over a telephone line. The holder of the patents in suit, Multi-Tech, filed a complaint in U.S. District Court (DMinn) against Microsoft alleging patent infringement. The District Court entered judgment of non-infringement. The Court of Appeals affirmed. See, February 3, 2004 opinion of the U.S. Court of Appeals (FedCir).

10/4. The Supreme Court denied certiorari in Durruthy v. Pastor, No. 03-1522. See, Order List [70 pages in PDF] at page 61. Albert Durruthy, a photo journalist, was arrested by Miami Police Officer Jennifer Pastor for lawful news gathering activity. He filed a complaint in U.S. District Court (SDFla) against Pastor and the City of Miami. The District Court held that Durruthy's Fourth Amendment rights were violated and that he could sue for damages. The U.S. Court of Appeals (11thCir) reversed. The National Press Photographers Association, Radio-Television News Directors Association, Society of Professional Journalists, and Reporters Committee for Freedom of the Press supported Durruthy's petition for writ of certiorari as amici curiae. The Supreme Court order lets stand the 11th Circuit decision.

10/4. The Supreme Court's October 4, 2004 Order List [70 pages in PDF] references a case numbered "04M4" and titled "DOE, JOHN V. UNITED STATES". The Order List, at page 3, states "The motion for leave to file a petition for a writ of certiorari under seal with redacted copies for the public record is granted."

10/4. The Supreme Court denied certiorari in DeCarlo v. Archie Comic Publications, No. 03-1577. See, Order List [70 pages in PDF] at page 9. This case pertains to ownership of comic book characters.

Capitol Hill News

10/4. The Senate Judiciary Committee held a business meeting at 5:00 PM on Monday, October 4. The Committee neither considered nor discussed S 2560, the "Inducing Infringement of Copyrights Act of 2004". However, Committee staff and representatives met again on Monday afternoon to discuss possible revisions to the bill. The Committee cancelled its business meeting scheduled for Tuesday morning, October 5. The Committee has scheduled another business meeting for Thursday morning, October 7. The Committee could mark up the bill at that meeting.

10/4. The Senate Judiciary Committee held a business meeting at 5:00 PM on Monday, October 4. The Committee neither considered nor discussed HR 2391, the "Cooperative Research and Technology Enhancement (CREATE) Act of 2004". It had been on the agenda.

10/4. The Senate Judiciary Committee held a business meeting at 5:00 PM on Monday, October 4. The Committee neither considered nor discussed S 2396, the "Federal Courts Improvement Act of 2004". It had been on the agenda.

10/4. The House Rules Committee adopted a rule for consideration of S 878, a bill to create numerous new federal judgeships. The House is scheduled to take up this bill on Tuesday, October 5. See, Republican Whip Notice. This rule makes in order two amendments. First, there is an amendment [8 page PDF scan] offered by Rep. James Sensenbrenner (R-WI). Second, there is an amendment [10 page PDF scan] offered by Rep. Mike Simpson (R-ID) to split the U.S. Court of Appeals for the Ninth Circuit into two separate circuits.

People and Appointments

10/4. PeopleSoft announced its Board of Directors' "decision to terminate Craig Conway as President and CEO of the Company, effective immediately". PeopleSoft issued a lengthy release that included no kind words for Conway. It added that the "decision resulted from a loss of confidence in Mr. Conway's ability to continue to lead the Company". PeopleSoft also announced that Dave Duffield, the company's founder and Chairman, has been named CEO. Kevin Parker and Phil Wilmington have been named Co-Presidents. Aneel Bhusri has been named Vice Chairman of the Board.

10/4. The Senate Judiciary Committee approved the nomination of Susan Neilson to be a Judge of the U.S. Court of Appeals for the 6th Circuit on a roll call vote of 10-8. It was a straight party line vote.

10/4. The Senate Judiciary Committee approved the nomination of Christopher Boyko to be a Judge of the U.S. District Court for the Northern District of Ohio, without objection.

More News

10/4. The Federal Communications Commission (FCC) hosted an event in connection with its efforts to plan consumer preferences regarding television and digital television (DTV). FCC Chairman Michael Powell spoke. The FCC hosted two panel discussions. And, the FCC initiated a web site -- www.dtv.gov. The FCC announced that this exercise is titled "DTV -- Get it!" See, FCC release [PDF] and release [PDF]. See also, Consumer Electronics Association (CEA) release.

10/4. The Office of the U.S. Trade Representative (USTR), the Department of Homeland Security (DHS) and other federal government agencies announced an initiative pertaining to violation of intellectual property rights titled "Strategy Targeting Organized Piracy (STOP)". See, USTR release.

10/4. The National Telecommunications and Information Administration (NTIA) announced the award of $14.4 Million in Technology Opportunities Program (TOP) grants. See, NTIA release.

7th Circuit Vacates in Chicago v. Comcast

10/1. The U.S. Court of Appeals (7thCir) issued its opinion [7 pages in PDF] in Chicago v. Comcast, a case regarding the ability of local governments, which have authority to license cable operators, to extract rents from cable companies for providing internet access services. The District Court held that 47 U.S.C. § 542 preempts state and local law, and provides that cable operators do not have to make 5% payments on revenues from cable modem service. The Court of Appeals vacated, but not on its interpretation of the substantive law. Rather, it held that there is no federal question jurisdiction. It vacated the District Court opinion, and instructed the District Court to remand to the state court.

Section 542(b) provides, in part, that "For any twelve-month period, the franchise fees paid by a cable operator with respect to any cable system shall not exceed 5 percent of such cable operator’s gross revenues derived in such period from the operation of the cable system to provide cable services."

The City of Chicago and Comcast entered into a contract that provides that Comcast must pay 5% of their gross revenues from any service, including cable modem service.

Then, on March 14, 2002, the Federal Communications Commission (FCC) adopted a Declaratory Ruling and Notice of Proposed Rulemaking [75 pages in PDF]. The Declaratory Ruling (DR) component of this item states that "we conclude that cable modem service, as it is currently offered, is properly classified as an interstate information service, not as a cable service, and that there is no separate offering of telecommunications service." This is FCC 02-77 in Docket No. 00-185 and Docket No. 02-52.

Also, on October 6, 2003. The U.S. Court of Appeals (9thCir) issued its opinion [39 pages in PDF] in Brand X Internet Services v. FCC, vacating the FCC's declaratory ruling. See, story titled "9th Circuit Vacates FCC Declaratory Ruling That Cable Modem Service is an Information Service Without a Separate Offering of a Telecommunications Service" in TLJ Daily E-Mail Alert No. 754, October 7, 2003

Following the FCC's 2002 declaratory ruling, Comcast stopped making payments to Chicago for revenues based upon cable modem service.

Chicago filed a complaint in Circuit Court of Cook County against Comcast seeking a declaratory judgment, based upon a contract between Chicago and Comcast, and Chicago municipal ordinances. Comcast removed the action to U.S. District Court (NDIll), asserting federal question jurisdiction. Comcast asserts that this action arises under 47 U.S.C. § 542.

The District Court found that it had jurisdiction, and ruled in favor of Comcast. Chicago brought this appeal.

Judge Frank Easterbrook wrote the opinion, in which Judges Manion and Wood joined. He did not construe Section 542(b). Nor did he address the issues discussed in the FCC's declaratory ruling, or the Ninth Circuit's opinion in the Brand X case. He vacated on jurisdictional grounds. This is a

Easterbrook wrote that this contract dispute, which is a matter of state law. He explained that under the well pleaded complaint doctrine, whether a case is one arising under the Constitution or a law or treaty of the United States is to be determined from what appears in the plaintiff’s complaint, and not from defenses that the defendant may raise; Section 542 is a defense to a contract claim.

The case will thus be remanded to the circuit court in Cook County -- to decide national internet and communications law and policy.

This case is City of Chicago v. Comcast Cable Holdings, LLC, U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 03-3815, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 02 C 7517, Judge David Coar presiding.

DOJ Will Not Appeal Oracle Antitrust Case

10/1. The Department of Justice (DOJ) announced that it will appeal the decision of the U.S. District Court (NDCal) in U.S. v. Oracle.

On February 26, 2004, the U.S. and several states filed a complaint against Oracle Corporation alleging that its proposed acquisition of PeopleSoft, Inc. 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. 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.

On September 9, 2004, following trial, the District Court issued its Findings of Facts, Conclusions of Law and Order Thereon [164 pages in PDF]. It 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. See, story titled "DOJ Loses Oracle Case" in TLJ Daily E-Mail Alert No. 974, September 10, 2004.

Hewitt Pate (at right), the Assistant Attorney General in charge of the DOJ's Antitrust Division stated in a release that "We have decided not to appeal the district court's decision. The evidence, including the testimony of numerous customers, strongly supported our case against this proposed transaction."

Pate continued that "While we disagree with the district court's disappointing decision, we respect the role of the courts in the United States merger review process. Similarly, while we disagree with some of the legal observations in the district court's opinion, the ultimate outcome rested on detailed factual findings that would appropriately receive great deference in the appellate process. I commend the efforts of the fine Antitrust Division lawyers and economists who worked so hard to protect competition in this case, as well as the efforts of the 10 state attorneys general who joined us in this effort."

This case is United States of America, State of Texas, et al. v. Oracle Corporation, U.S. Court of Appeals for the Northern District of California, D.C. No. C 04 0807, Judge Vaughn Walker presiding.

Cyber Security Chief Yoran Resigns

10/1. Amit Yoran, the Director of the Department of Homeland Security's (DHS) National Cyber Security Division, resigned.

Yoran (at right) had held the position for just over one year. See, story titled "Amit Yoran Named Head of Cyber Security Division" in TLJ Daily E-Mail Alert No. 740, September 16, 2003.

Rep. Zoe Lofgren (D-CA) stated in a release that "I am very disappointed to learn of the departure of Amit Yoran from the Department of Homeland Security. Mr. Yoran brought years of solid Silicon Valley experience to the DHS. This is yet another setback in the effort to protect our nation's cyber infrastructure. Last year, the Bush Administration eliminated the position of Senior Advisor to the President on Cybersecurity, and demoted the job to a mid-level position within the Department of Homeland Security. Now, the Administration finds itself without a person to lead the National Cyber Security Division at the DHS."

She added that "This development only reinforces the need to elevate the position of Director of the NCSD to an assistant secretary within the DHS. Congressman Thornberry and I introduced the Cybersecurity Enhancement Act (HR 5068) to do just that." See, HR 5068 and story titled "Representatives Introduce Bill to Increase Authority of DHS's Top Cyber Security Officer" in TLJ Daily E-Mail Alert No. 977, September 15, 2004.

Rep. Lofgren alleged that "The Bush Administration is failing to provide the leadership necessary to secure cyberspace. Their cybersecurity efforts are in complete disarray, much like the rest of the DHS.  The record is abysmal. We cannot afford to sit back and do nothing."

Harris Miller, President of the Information Technology Association of America (ITAA), stated that Yoran earned the "respect and enthusiasm of many in the private sector, who were seeing the prospect for substantial progress in a number of cyber security areas." Miller added that the DHS should elevate the cyber security position and move quickly to appoint a successor.

More Capitol Hill News

10/1. Senate Judiciary Committee staff, Copyright Office staff, and representatives of supporters and opponents of S 2560, the "Inducing Infringement of Copyrights Act of 2004", met on Friday, October 1 regarding revisions to the bill. Friday's session lasted until about 8:15 PM. Negotiations are scheduled to resume on Monday afternoon, October 4. The Committee has scheduled a business meeting for Tuesday, October 5, at which the bill could be considered.

Go to News from September 26-30, 2004.