Court of Appeals Affirms Zero Arbitration Award in Theis v. Brown & Bain

10/20. The U.S. Court of Appeals (9thCir) issued its opinion in Theis Research v. Brown & Bain, affirming the District Court's confirmation of an arbitration award.

In previous patent related litigation, Brown & Bain represented Theis Research. The litigation did not turn out well. Theis then demanded arbitration of claims against Brown & Bain for legal malpractice, breach of fiduciary duty, fraud and breach of contract. The arbitrator awarded nothing to either party.

Theis then filed a complaint in U.S. District Court (NDCal) against Brown & Bain seeking to vacate the arbitration award, and seeking damages for malpractice, fraud and breach of fiduciary duty. Theis asserted federal jurisdiction based upon diversity of citizenship. Brown & Bain did not contest the subject matter jurisdiction of the District Court.

The District Court did not raise subject matter jurisdiction sua sponte. The District Court denied Theis' motion to vacate the arbitration award, denied Theis' motion for summary judgment, granted Brown & Bain's motion to confirm the arbitration award, and granted summary judgment to Brown & Bain. Theis appealed.

The Court of Appeals raised the jurisdictional issue. That is, the arbitration award was zero, but diversity jurisdiction also requires a minimum amount in controversy of $75,000.

28 U.S.C. § 1332(a) provides, in part, that "The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between -- (1) citizens of different States ..."

However, the Appeals Court held that "the amount at stake in the underlying litigation, not the amount of the arbitration award, is the amount in controversy for purposes of diversity jurisdiction, and thus the district court had jurisdiction under 28 U.S.C. § 1332."

The Appeals Court went on to affirm the District Court judgment. It wrote that "Having submitted the claim to the arbitrator, Theis could seek vacatur of the arbitral result only if it was a manifest disregard of the law, ... an implausible interpretation of the contract, ... the award was procured by corruption, fraud, or undue means, ... or the arbitrator exceeded his powers". And, none of these grounds was supported by the record.

This case is Theis Research, Inc. v. Brown & Bain, U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 02-16839, an appeal from the U.S. District Court for the Northern District of California, D.C. No. CV-99-20645-RMW, Judge Ronald Whyte presiding. Judge David Thompson wrote the opinion of the Court of Appeals, in which Judges Stephen Trott and Charles Weiner joined.

PPI Hosts Panel Discussion of Technology, Due Process, and Privacy

10/20. The Progressive Policy Institute (PPI) hosted a panel discussion titled "Privacy vs. Security: A False Choice?". The speakers were Paul Rosenzweig, a Senior Legal Research Fellow at the Heritage Foundation, David Sobel, the General Counsel of the Electronic Privacy Information Center (EPIC), and Robert Atkinson, Director of the PPI's Technology and New Economy Project.

David Sobel (at right) spoke about the Defense Advanced Research Projects Agency's (DARPA) former Total Information Awareness (TIA) program, and the Department of Homeland Security's (DHS) Transportation Security Administration's (TSA) Computer Assisted Passenger Prescreening System II (CAPPS II) program, and its successor, Secure Flight, all of which involve databasing of information, and analysis of that data to make predictive assessments about individuals.

He argued that databases and information technology can be employed for valid predictive analysis of credit risks by financial institutions. However, he questioned the validity of predictive analysis in the context of anti-terrorism. He said that "predicting terrorist inclinations is problematic".

He also argued these government systems can make false assessments, and hence, individuals should be entitled to certain due process like protections. He cited the examples of Rep. Don Young (R-AK) and Sen. Ted Kennedy (D-MA), who have been questioned by airport security because their names are similar persons on a government list.

He said that without due process like protections, these systems violate the principles of presumption of innocence and probable cause.

Sobel argued that the Privacy Act of 1974 should provide the model. It pertains to government systems of records. It provides a judicially enforceable right to access information that the government maintains about an individual, and the right to seek expungement or correction.

However, Sobel noted that the Privacy Act also allows agencies to exempt their systems, and the DHS's TSA has exempted itself for maintaining the CAPPS II and Secure Flight program.

Paul Rosenzweig responded that there is a change underway from the law enforcement model of reaction to past crimes, to the anti-terrorism model of predicting future acts. He argued that the due process rights that are applied in the context prosecution of crimes cannot be moved into the national security system.

He said that the sort of access to information that Sobel seeks would lead to disclosures that compromise confidential sources, and would give terrorists knowledge of how to evade detection by these systems.

He also complained that the activities of privacy advocacy groups has had a negative effect. For example, he said that some former government programs have been not been shut down, but have rather merely been moved from the government sector where they are subject to oversight, to the private sector, where they are not. He added that some companies providing national security services to the government are even incorporating offshore.

Rosenzweig advocated "a more calibrated transparency". He cited several possible procedures as substitutes for the due process type rights advocated by Sobel. He listed "prior review by a third party" such as a judge, creation of a civil liberties and privacy board, routine audits by inspectors general, "punishments for those who misuse the system", and experimentation with new legal structures.

Robert Atkinson moderated the discussion. He also discussed a paper [20 pages in PDF] that he co-authored last month titled "Technological Innovation Without Big Brother". It concludes that "with the right rules and safeguards in place, government can increase its use of advanced information technology tools and realize significant benefits for society as a whole without causing unacceptable harms to the privacy of citizens."

10/20. The Government Accountability Office (GAO) released a report [70 pages in PDF] titled "Transportation Security R&D: TSA and DHS Are Researching and Developing Technologies, but Need to Improve R&D Management". This report contains only a one paragraph summary of the CAPPS II program. It states, in part, that "CAPPS II is intended to identify terrorists and other high-risk individuals before they board commercial airplanes. Originally, TSA intended to conduct a risk assessment of each passenger using national security information, commercial databases, and information provided by the passenger during the reservation process -- specifically, the passenger’s name, date of birth, home address, and home telephone number. In our February 2004 report on CAPPS II, we found that TSA was behind schedule in testing and developing initial increments of CAPPS II and had not yet completely addressed other issues, including concerns about privacy and the accuracy of the data used for CAPPS II. In August 2004, a DHS official said that DHS was revising the program with an emphasis on fully protecting passengers’ privacy and civil liberties." (Footnotes omitted.)

10/20. The Department of Justice (DOJ), the Motion Picture Association of America (MPAA) and the Recording Industry Association of America (RIAA), CourTV, and other entities hosted a forum for students on intellectual property theft. See, DOJ release.

Powell Discusses VOIP Regulation

10/19. Federal Communications Commission (FCC) Chairman Michael Powell gave a speech [5 pages in PDF] at the Voice on the Net Conference in Boston, Massachusetts. He said that the FCC needs a "new Constitution for the regulation of services" such as voice over internet protocol (VOIP). But, he did not spell out the contents of this new constitution.

He said that there is a VOIP revolution under way. He compared this revolution to the revolutions in which thirteen American colonies won their independence from the British Empire, and then drafted the Constitution, over two centuries ago.

Powell (at left) proclaimed that "We, too, need a new Constitution for the regulation of services, one befitting that revolution. Many regulators have protested change, saying that VoIP is just a different way to make a phone call. But isn't that the point! It is a different way, and it deserves a different regulatory structure that reflects its unique qualities."

"I support a different way for voice over the Internet," said Powell. "It's wrong, just plain wrong to not recognize the potential of VoIP, or to see it through the lens of the old telephone network regulatory model. VoIP is a data application and as such has all the hallmarks of the Internet itself."

He did not offer his view of what the new regulatory constitution should be. However, he did touch vaguely on some of its elements.

He said that "There is no need to organize the regulatory regime around per minute prices and costs as we have done with common carriers. VoIP service is offered in flat bundles, recognizing the efficiency and small incremental costs of information services. We have seen the great advantages of cell phone buckets of minutes and what that did to increasingly erase the idea of long distance as a distinct service. VoIP will complete the circle and collapse any such geographic distinctions in all voice service."

He also stated that "Like the Internet, IP data communications knows no borders. ... If it were true of the Internet generally, it is unquestionably true of VoIP. This has profound implications for the traditional common carrier regulatory model. And bold action is needed."

"The first step in getting policy pointed in the right direction is for the Commission to step forward and affirmatively establish jurisdiction over these services. That is why I will present to my colleagues for a decision the question of whether VoIP services -- like Vonage -- should be subject to exclusive federal jurisdiction. We cannot avoid this question any longer. To hold that packets flying across national and indeed international digital networks should be subject to state commission economic regulatory authority is to dumb down the Internet to match the limited vision of government officials. That would be a tragedy", said Powell.

He added that "I look forward to working with my state and federal colleagues -- indeed my international colleagues -- to ensure that a minimal, well-harmonized regulatory environment is applied to VoIP services."

Powell said nothing in his prepared text about most of the regulatory issues pertaining to VOIP that are currently being debated. For example, he said nothing about specific issues, such as CALEA, universal service, E911, consumer protection, disability access, state and local taxation, numbering, or voice spam. Nor did he address what a new regulatory paradigm might be.

Nor did he discuss whether the FCC should mandate network neutrality. However, he again outlined what he calls "Internet Consumer Freedoms". He said that these are "(1) Freedom to Access Content: Consumers should have access to their choice of legal content; (2) Freedom to Use Applications: Consumers should be able to run applications of their choice; (3) Freedom to Attach Personal Devices: Consumers should be permitted to attach any devices they choose to the connection in their homes; and (4) Freedom to Obtain Service Plan Information: Consumers should receive meaningful information regarding their service plans." But again, he stopped short of saying that any of these should be mandated by the government.

7th Circuit Rules on Class Certification in Railroad Rights of Way Case

10/19. The U.S. Court of Appeals (7thCir) issued its split opinion [11 pages in PDF] in Smith v. Sprint, a class action lawsuit involving claims of wrongful installation of fiber optic cable across plaintiffs' lands. This opinion pertains to class certification.

The plaintiffs are landowners whose property is subject to railroad rights of way, along which defendant telecommunications companies installed fiber optic cables without the landowners' permission. They filed a complaint in the U.S. District Court (NDIll), also seeking nationwide class certification. However, other related actions brought by similarly situated plaintiffs have been brought in state courts in Tennessee and Kansas. State courts have certified those classes.

The state plaintiffs, who intervened in this federal action, oppose federal nationwide certification, as it would preclude their separate lawsuits, and hence, decrease their awards.

The District Court certified a nationwide class, for settlement only, and enjoined all competing class actions.

A three judge panel of the Court of Appeals vacated the District Court's nationwide class certification and injunction, and remanded. The Appeals Court reasoned that the plaintiffs in the state actions are inadequately represented by the nationwide plaintiffs, and hence, the requirements of Rule 23, Federal Rules of Civil Procedure, are not met. The majority further stated that the nationwide certification could result in unfairness to the state plaintiffs.

Judge Cudahy wrote a strenuous dissent. He argued that the state plaintiffs are adequately represented by the nationwide class. He wrote that "there are no disparate personal injuries. Plaintiffs' and all class members’ claims arise from defendant’s installation and maintenance of fiber-optic cable on railroad rights of way. Any harm rising from that installation has occurred and is capable of being ascertained. All class members also raise the same legal claims. Therefore, the class has sufficient unity for settlement class certification purposes."

Judge Cudahy also considered national communications policy. He wrote that "The development involved here is the laying of a 36,000-mile network of transcontinental fiber-optic cables crossing many states to provide a national telecommunications grid. This installation of fiber-optic cables becomes part of the national communications infrastructure, having an important value for the national economy as well as for national security."

"The state-by-state treatment favored by the majority is likely to produce a nightmare of complexity, the inequitable treatment of landowners in different states and increased charges to telephone users everywhere", wrote Cudahy.

The Judges also engaged in a little hyperbole. Judge Cudahy claimed that "If a similar approach had been applied to the construction of the first transcontinental railroad, the Pony Express might still be galloping along." To which Judge Evans replied, "the Pony Express might well be still galloping along if class-action lawyers were on the prowl in the 1830's."

Judge Cudahy also mocked the majority's assertion that the nationwide settlement might be unfair to the Tennessee and Kansas plaintiffs. He wrote that "these landowners were not going to build a retirement cottage lying three feet below the railroad tracks on their property -- and, if they were, it is unlikely that this settlement agreement will prevent them from doing so."

This case is Wayne Smith, et al. v. Sprint Communications Company, et al., App. Ct. Nos. 03-3087, 03-3140, 03-3659 & 03-3660, appeals from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 99 C 3844, Judge Wayne Andersen presiding. Judge Evans wrote the opinion of the Court, in which Judge Kanne joined. Judge Cudahy wrote a dissent.

8th Circuit Addresses Derivative Works and Fair Use

10/19. The U.S. Court of Appeals (8thCir) issued its opinion [10 pages in PDF] in Mulcahy v. Cheetah, a copyright case involving the issues of derivative works and fair use.

Rita Mulcahy authored, and holds the copyright for, a work titled "PMP Exam Prep." It is used by students in her course to prepare for the Project Management Professional (PMP) Exam given by the Project Management Institute (PMI).

The PMI published a copyrighted work titled "Guide to the Project Management Body of Knowledge". Its exams test knowledge of the contents of this work. Mulcahy's work, in turn, is based upon this work.

Cheetah Learning is a competitor of Mulcahy. Its course materials contain material copied from Mulcahy's work.

Mulcahy filed a complaint in U.S. District Court (DMinn) alleging copyright infringement and unfair competition. The District Court granted partial summary judgment on the copyright claim, and an injunction, to Mulcahy.

The Court of Appeals reversed. It held that there are questions of fact on two issues: first, whether Mulcahy's work was an unauthorized derivative work of PMI's work, and second, whether Cheetah's copying from Mulcahy's work was fair use.

This case is Rita Mulcahy v. Cheetah Learning LLC and Jeff Schurrer, App. Ct. No. 03-3112, an appeal from the U.S. District Court for the District of Minnesota.

GAO Reports on Federal Networks that Support Homeland Security

10/19. The Government Accountability Office (GAO) released a report [66 pages in PDF] titled "Information Technology: Major Federal Networks That Support Homeland Security Functions".

The report states that "we identified 34 major networks that support homeland security functions -- 32 operational and 2 in development. Twenty-one of the 34 are single-agency networks, indicating that they are used only for internal agency communications. Further, 6 of the 34 networks share information with state and local governments; 4 share information with the private sector. One of the 2 networks under development  -- the Department of Homeland Security’s (DHS) Homeland Secure Data Network -- is intended to become a significant vehicle for future sharing of homeland security information with state and local governments and classified information among civilian agencies. The other network in development, the Department of Justice’s JUTNet (Justice United Telecommunications Network), is to replace the department’s existing network and transport information among departmental components."

The report adds that "Agencies also identified the Internet as a major network for supporting homeland security functions. Cost data were not available for all networks, but of the networks for which data were available, estimates totaled about $1 billion per year for fiscal years 2003 and 2004."

The report also states that "agencies provided descriptions of over 100 applications as examples of those that use existing networks, including the Internet, to share information in support of homeland security. For example, DHS’s United States Visitor and Immigrant Status Indicator Technology (US-VISIT) collects, maintains, and shares information on foreign nationals with the Departments of Commerce, Justice, State, and Transportation using its ICENet (Immigration and Customs Enforcement Network). And, the Department of Defense’s Modernized Intelligence Data Base supports anti-terrorist activities through near-real-time, synchronized dissemination of military intelligence using its JWICS (Joint Worldwide Intelligence Communications System) network." (Parentheses in original.)

10/19. Lisa Gelb was named Deputy Bureau Chief of the Federal Communications Commission's (FCC) Wireline Competition Bureau (WCB). She will oversee the WCB's Telecommunications Access Policy Division (TAPD) and the Pricing Policy Division (PPD). She previously worked for three years in the Office of the City Attorney in San Francisco. Before that, she worked at the FCC. See, FCC release.

10/19. The Board of Directors of Comcast Corporation elected Joseph Collins to be an independent director. From 1989 through 2001 he was Ch/CEO of Time Warner Cable. He was then Ch/CEO of AOL Time Warner Interactive Video. He has retired from Time Warner, but currently is the Chairman of Aegis, LLC. See, Comcast release.

10/19. The Fiber to the Home Council announced that its Executive Director, Dan Tatarka, resigned to take a position with Optical Cable Corporation. Mike DiMauro, President of the Council’s Board of Directors, will be interim Executive Director. See, release.

More News

10/19. The U.S. Patent and Trademark Office (USPTO) announced that it has established a nanotechnology cross-reference digest. It is designated Class 977/Dig.1, and titled "Nanotechnology". See, USPTO release.

10/19. Alan Greenspan, Chairman of the Federal Reserve Board, gave a speech titled "The mortgage market and consumer debt" in which he stated that "improvements in lending practices driven by information technology have enabled lenders to reach out to households with previously unrecognized borrowing capacities. This extension of lending has increased overall household debt but has probably not meaningfully increased the number of households with already overextended debt."

10/19. The Department of Commerce (DOC) announced that it will award $399,500 for the establishment of an office in Beijing for China Standards and Conformity Assessment (CSCA). This is an initiative of The American Society of Mechanical Engineers (ASME), The American Petroleum Institute (API), ASTM International, and CSA America. See, DOC release.

FCC Releases Fiber to the Curb Order

10/18. The Federal Communications Commission (FCC) released the text [28 pages in PDF] of its Order on Reconsideration that relieves incumbents LECs from Section 251 unbundling requirements for fiber to the curb (FTTC) loops, where fiber is extended within 500 feet of a customer's premises.

This Order states that "we conclude that the record here demonstrates that the same unbundling relief as provided for FTTH loops in the Triennial Review Order and MDU Reconsideration Order is warranted for FTTC loops provided certain architectural requirements are met as discussed below.28 In arriving at this conclusion, we are persuaded that making such a change in our rules is necessary to ensure that regulatory disincentives for broadband deployment are removed for carriers seeking to provide advanced services to mass market customers using FTTC technology."

The order defines FTTC loops as "a fiber transmission facility connecting to copper distribution plant that is not more than 500 feet from the customer’s premise". The order further specifies that "the fiber transmission facility in a FTTC loop must connect to copper distribution plant at a serving area interface from which every other copper distribution subloop also is not more than 500 feet from the respective customer’s premise."

This order states that "when fiber is brought within 500 feet of a subscriber's premise, carriers can provide broadband services comparable to that provided by FTTH architecture, including data speeds of 10 megabits per second (Mbps) in addition to high definition multi-channel video services."

The FCC order offers this rationale. "First, we conclude that requesting carriers are not impaired in greenfield areas and face only limited impairment without access to FTTC loops where FTTC loops replace pre-existing loops. Second, as with FTTH loops, competitive LECs deploying FTTC loops have increased revenue opportunities through the ability to offer voice, multi-channel video, and high-speed data services." (Footnotes removed from quotations.)

The FCC adopted this item at its October 14, 2004 meeting. See, story titled "FCC Rules ILECs Have No § 251 Unbundling Obligations for FTTC" in TLJ Daily E-Mail Alert No. 997, October 15, 2004. This item is FCC 04-248 in CC Docket No. 01-338, CC Docket No. 96-98, and CC Docket No. 98-147.

2nd Circuit Reverses Injunction In WorldCom Multidistrict Securities Litigation

10/18. The U.S. Court of Appeals (2ndCir) issued its opinion [21 pages in PDF] in Retirement Systems of Alabama v. J.P. Morgan Chase & Co., reversing the judgment of the U.S. District Court (SDNY), which is the venue for the multidistrict securities litigation arising from the collapse of WorldCom, enjoining respondents from pursuing a related action in the Alabama Circuit Court for Montgomery County.

The respondents are not plaintiffs in the action in the U.S. District Court. The District Court concluded that a trial date of October 18, 2004 in the Alabama action would disrupt the District Court trial date of January 10, 2005, and that an injunction postponing the Alabama action was therefore "necessary in aid of its jurisdiction."

The Court of Appeals reversed and remanded. It held that the District Court’s injunction was barred by the Anti-Injunction Act, 28 U.S.C. § 2283, which permits a federal court to enjoin a state court proceeding only where "expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments."

This case is Retirement Systems of Alabama v. J.P. Morgan Chase & Co., App. Ct. No. 04-2275-cv. Judge Jose Cabranes wrote the opinion for the Court of Appeals.

More News

10/18. The Progress and Freedom Foundation (PFF) released a paper [7 pages in PDF] titled "Universal Service: Is It Still Relevant?". It was written by Ray Gifford of the PFF.

Go to News from October 11-15, 2004.