Bush Signs Internet Tax Nondiscrimination Act

12/3. President Bush signed S 150, the "Internet Tax Nondiscrimination Act". See, White House release. The original moratorium, contained in the Internet Tax Freedom Act (ITFA), was enacted in late 1998. It was extended in 2001. The extended moratorium expired on November 1, 2003. The present bill extends the moratorium through November 1, 2007, but creates many new exceptions to the moratorium.

The original ITFA used short and simple terms. The key language (Section 1101(a) of the ITFA, codified at 47 U.S.C. 151 note) provided as follows:

  "(a) Moratorium.--No State or political subdivision thereof shall impose any of the following taxes during the period beginning on October 1, 1998, and ending 3 years after the date of the enactment of this Act--
    (1) taxes on Internet access, unless such tax was generally imposed and actually enforced prior to October 1, 1998; and
    (2) multiple or discriminatory taxes on electronic commerce."

Thus, it was a moratorium on taxes on internet access, and multiple or discriminatory taxes on e-commerce; it lasted for three years; and it grandfathered existing taxes that were "generally imposed and actually enforced".

The bill just approved by the Congress, and signed by the President, is long and complex. It contains a four year extension. One year has already run; it applies retroactively applies back to November 1, 2003. The extension is until November 1, 2007.

The bill also adds numerous exceptions to the moratorium. For example, it creates exemptions for state and federal universal service programs, 911 and E911 programs, and VOIP services. It expands the grandfather provisions. It also carves out a special exemption for the state of Texas' municipal access line fee.

Background and Legislative History. The 1998 ITFA imposed a temporary ban on taxes on internet access, and multiple or discriminatory taxes on e-commerce, subject to a grandfather clause. It expired in 2001. But, the Congress approved the Internet Non-Discrimination Act (INDA) in late 2001. It extended the ban of the ITFA through November 1, 2003. This extension has expired. There has been no moratorium in effect for over one year.

On September 17, 2003, the House passed HR 49, its version of the "Internet Tax Non-discrimination Act". It was a simple bill. It made the ban of the ITFA permanent. It also eliminated the grandfather clause. Finally, it provided that the moratorium applies to telecommunications services, "to the extent such services are used to provide Internet access".

See, story titled "Rep. Cox and Sen. Wyden Introduce Bill to Make Permanent Net Tax Ban" in TLJ Daily E-Mail Alert No. 580, January 10, 2003; story titled "House Subcommittee Holds Hearing on Bill to Make Internet Tax Moratorium Permanent" in TLJ Daily E-Mail Alert No. 635, April 2, 2003; and story titled "House Judiciary Committee Approves Internet Tax Bill", also published in TLJ Daily E-Mail Alert No. 700, July 17, 2003.

The Senate did not pass the House bill, or any bill, before the expiration of the moratorium. On February 12, 2004, Sen. Lamar Alexander (R-TN) and other defenders of state and local taxing authority, introduced S 2084, the "Internet Tax Ban Extension and Improvement Act". This bill would have nominally extended the ITFA through November 1, 2005. However, it would also have allow a range of new taxes that could be imposed by state and local governments. See, story titled "Sen. Alexander Introduces Bill Regarding Internet Tax Moratorium" in TLJ Daily E-Mail Alert No. 838, February 17, 2004.

Then, on April 29, 2004, the Senate approved an earlier version of S 150, the "Internet Tax Non-discrimination Act of 2003". The version adopted by the Senate in April would have extended the moratorium of the 1998 ITFA until November 1, 2007. However, the bill also included numerous exceptions and qualifications that provide state and local governments a wide range of opportunities to tax internet access. See, story titled "" in TLJ Daily E-Mail Alert No. 889, May 3, 2004.

Then, the House did not approve the Senate bill. That is, each body approved its own version of a bill to extend the moratorium, and neither body would approve the other body's bill.

On November 17, 2004, the Senate approved SConRes 146 by unanimous consent, without debate. This resolution made changes to the enrollment of S 150. Then, on November 19, 2004, the House approved S 150, as changed by SConRes 46. The final version, signed by the President, more closely resembles Sen. Alexander's bill, than the House bill.

Summary of the Bill Signed by Bush. The bill temporarily extends the moratorium of the 1998 ITFA through November 1, 2007. The bill states that is has retroactive effect, back to November 1, 2003, the date that the moratorium expired.

The bill contains an universal service exemption. It provides that "Nothing in this Act shall prevent the imposition or collection of any fees or charges used to preserve and advance Federal universal service or similar State programs".

The bill contains a 911/E911 exemption. It provides that "Nothing in this Act shall prevent the imposition or collection, on a service used for access to 911 or E-911 services, of any fee or charge specifically designated or presented as dedicated by a State or political subdivision thereof for the support of 911 or E-911 services if no portion of the revenue derived from such fee or charge is obligated or expended for any purpose other than support of 911 or E-911 services."

The bill contains a voice over internet protocol (VOIP) exemption. It provides that "Nothing in this Act shall be construed to affect the imposition of tax on a charge for voice or similar service utilizing Internet Protocol or any successor protocol. This section shall not apply to any services that are incidental to Internet access, such as voice-capable e-mail or instant messaging."

The bill provides that "The term `tax on Internet access´ does not include a tax levied upon or measured by net income, capital stock, net worth, or property value." State and local governments can now tax the internet access providers' net income, capital stock, net worth, or property. They may then pass on this cost to their customers through higher prices. The net effect on consumers would be similar to a tax their internet access.

The bill includes an "Accounting Rule" that will facilitate the ability of state and local governments to impose taxes on bundled service offerings that include internet access. The bill provides that "If charges for Internet access are aggregated with and not separately stated from charges for telecommunications services or other charges that are subject to taxation, then the charges for Internet access may be subject to taxation unless the Internet access provider can reasonably identify the charges for Internet access from its books and records kept in the regular course of business."

The bill also expands the range of taxes subject to grandfather protection. The 1998 ITFA provision was simple. It created a moratorium on "taxes on Internet access, unless such tax was generally imposed and actually enforced prior to October 1, 1998".

The bill contains a long section on grandfathered taxes. For example, it grandfathers pre-1998 taxes, even if never collected, if there was some "public proclamation made by the appropriate administrative agency of the State or political subdivision thereof".

The bill contains one significant change to the 1998 ITFA that limits taxation. It adds that "The term `Internet access service´ does not include telecommunications services, except to the extent such services are purchased, used, or sold by a provider of Internet access to provide Internet access." That is, the 1998 ITFA imposed a moratorium on taxes on internet access, but, the ITFA's definition of "internet access" excluded "telecommunications services". This change clarifies that services, such as broadband DSL and wireless internet access services, are covered by the moratorium.

See, November 17, 2004 release of Sen. Ron Wyden (R-OR), a leading proponent of the moratorium, regarding the content of the bill, as amended. See also, November 17, 2004 release of Sen. Alexander.

Reaction to the Signing of the Bill. Sen. Wyden, Sen. George Allen (R-VA), and Rep. Chris Cox (R-CA) issued a joint release praising the President for signing the bill. Sen. Wyden and Rep. Cox have been proponents of the moratorium since sponsoring bills that became the ITFA in 1998. Sen. Allen, who was first elected in 2000, has joined Sen. Wyden and Rep. Cox in backing the moratorium.

Rep. Cox stated that "The U.S. has firmly, consistently, and successfully opposed efforts to impose any special taxes, whether at the national or international level, on the use of the Internet ... What we are doing now is making sure that this policy stays in place, and sending a signal to the world that this powerful instrument of global commerce should not fall victim to the tyranny of the parochial."

Steve Largent, P/CEO of the CTIA, stated in a release that "I applaud President Bush for his unwavering support of the American taxpayer. His action today is further evidence that our federal government recognizes the extreme harm that tax increases can have on the development and deployment of high-tech service offerings. Tax increases -- at any level of government -- can significantly impede the rollout of next generation technologies, thereby placing America at a competitive disadvantage in the world."

Walter McCormick, P/CEO of the U.S. Telecom Association (USTA), stated in a release that "By signing S. 150 into law, President Bush brings the nation one step closer to his ambitious goal of deploying broadband in all communities by 2007. This Administration understands the critical role that communications plays in connecting the world. With forward-looking policies that encourage real competition, like the Internet tax moratorium, consumers and the nation’s economy will benefit from increased investment and innovation in the telecom sector."

Coalition Seeks Passage of Composite Bill Regarding Spectrum, E911 and E-rate

12/3. A coalition of phone companies, information service providers, trade groups, education groups, and library groups wrote a letter to Senators urging the Senate to pass HR 5419 when the Senate meets on December 7, 2004.

The House passed HR 5419 by unanimous consent on November 20, 2004. This is a composite bill that includes the "Commercial Spectrum Enhancement Act" (CSEA), the "ENHANCE Act", and the "Universal Service Antideficiency Temporary Suspension Act". See, story titled "House Approves Bill that Includes the Commercial Spectrum Enhancement Act" in TLJ Daily E-Mail Alert No. 1,025, November 24, 2004.

The letter states that "Each of the three bills that comprise H.R. 5419 stands on its own individual merit. However, with so little time remaining on the 108th Congressional calendar, it is imperative that" they be "considered collectively".

Title II of the bill is the CSEA. It is based upon HR 1320, which is also titled CSEA. The House passed its version of HR 1320 on June 11, 2003. See, story titled "House Passes Commercial Spectrum Enhancement Act" in TLJ Daily E-Mail Alert No. 679, June 12, 2003. The Senate Commerce Committee passed its version of HR 1320 on June 26, 2003. HR 1320 changes the process for reallocating spectrum from federal users to commercial users, such as wireless broadband services. For example, the Department of Defense (DOD) currently uses spectrum in the 1710-1755 MHz band. The National Telecommunications and Information Administration (NTIA) and Federal Communications Commission (FCC) have identified this band for reallocation. The DOD will incur expenses to relocate to other spectrum bands. The bill creates a Spectrum Relocation Fund, funded by auction proceeds, to compensate federal agencies for the cost of relocating. Hence, the bill replaces the current role of the House and Senate Appropriations Committees.

Title I of this bill is the "Ensuring Needed Help Arrives Near Callers Employing 911 Act of 2004" or "ENHANCE 911 Act". The letter states that it will improve the E911 emergency calling system.

Title II of this bill is the "Universal Service Antideficiency Temporary Suspension Act". The letter states that its will prevent "dramatic increases in Universal Service charges to consumers" and provide "critical access to the Internet for our nation's schools and libraries."

Supreme Court Grants Certiorari in Brand X Case

12/3. The Supreme Court issued an order [1 page in PDF] in which it granted petitions for writ of certiorari in NCTA v. Brand X Internet Services, No. 04-277, and FCC v. Brand X Internet Services, No. 04-281. The Court also consolidated the two cases. This decision to hear the case is a victory for Federal Communications Commission (FCC) Chairman Michael Powell, and the majority on the FCC.

Powell (at right) stated in a release [PDF] that "High-speed Internet connections are not telephones, and I'm glad the Supreme Court has agreed to review the 9th Circuit’s ruling that they are. The 9th Circuit's decision would have grave consequences for the future and availability of high-speed Internet connections in this country. As the Commission is uniquely charged with the task of promoting the deployment of such advanced services to the public, we look forward to our opportunity to present our case before the high court."

Treating broadband internet access providers, including cable modem service, as an information service is a critical part of Powell's strategy for promoting broadband deployment, competition, innovation, and the digital migration. He is supported in this by Republican Commissioners Kevin Martin and Kathleen Abernathy. If cable modem service were a telecommunications service, then it would be subject to the economic regulatory regime that applies to telecommunications services.

 See, full story.

3rd Circuit Opines on Copyright Originality Requirement and Rules Based Expression

12/3. The U.S. Court of Appeals (3rdCir) issued its divided en banc opinion [40 pages in PDF] in Southco v. Kanebridge, a copyright case that has been before the Third Circuit before. The issue is what constitutes sufficient originality to be protected by copyright. In this case, Southco claims copyright in the serial numbers that is assigns to the parts that it manufacturers.

In Southco's system, each part is assigned a four part number. These numbers not only identify the product, but also convey information about the product. Kanebridge copied Southco's numbering system and numbers.

This case goes to what rules based expression satisfies the originality requirement of the Copyright Act. Ideas, no matter how creative, cannot be protected by copyright. Expression can be protected by copyright. In this case the majority held that all of the creativity came in the creation of the rules (an idea) for assigning numbers. The numbers themselves (expression) are entirely dictated by the rules, and hence involve no creativity, or originality. Thus, they are not entitled to protection. The dissent argued that the majority unreasonably pushes all of the creativity and originality to the ideas side of the idea expression dichotomy, and threatens to remove the incentive to create rules based expression.

Southco filed a complaint in U.S. District Court (EDPenn) against Kanebridge alleging copyright infringement, as well as false advertising under the Lanham Act in violation of 15 U.S.C. § 1125(a), trademark infringement in violation of 15 U.S.C. § 1114(1), and unfair competition in violation of 15 U.S.C. § 1125(a). However, the present opinion only addresses the copyright claim.

On remand, the District Court granted summary judgment to Kanebridge. Southco appealed. A three judge panel of the Appeals Court reversed in an opinion reported at 324 F.3d 190. The Court of Appeals then agreed to rehear the case en banc.

The en banc panel affirmed the judgment of the District Court. The Court of Appeals held that the numbers are not protected by copyright, for two reasons. First, they are not original. Second, the Copyright Office rules provide that short phrases cannot be copyrighted.

The Court reasoned first that the numbering system is not original within the meaning of 17 U.S.C. § 102(a), which provides in part that "Copyright protection subsists ... in original works of authorship fixed in any tangible medium of expression."

The Appeals Court, relying upon the Supreme Court's 1991 opinion in Feist Publications, Inc. v. Rural Telephone Services Co., 499 U.S. 340, wrote that "In this case, the Southco product numbers are not ``original´´ because each number is rigidly dictated by the rules of the Southco system. Because ideas may not be copyrighted, Southco does not assert any claim of copyright in its numbering system, but instead focuses on the part numbers themselves. The numbers, however, do not reflect any creativity." (Emphasis in original.)

Secondly, the Court reasoned that "The Southco part numbers are also excluded from copyright protection because they are analogous to short phrases or the titles of works."

This principle is not codified in the Copyright Act. However, there is a regulation. 37 C.F.R. § 202.1 provides, in part, that "The following are examples of works not subject to copyright and applications for registration of such works cannot be entertained:
  (a) Words and short phrases such as names, titles, and slogans; familiar symbols or designs; mere variations of typographic ornamentation, lettering or coloring; mere listing of ingredients or contents ..." (Emphasis in original.)

The Court concluded that "We believe that the Copyright Office's longstanding practice of denying registration to short phrases merits deference." However, it added in a footnote that "We do not decide what degree of deference is warranted under the circumstances."

On December 8, the Appeals Court issued a correction [2 pages in PDF]. On December 13, the Appeals Court issued a second correction [2 pages in PDF]. Both corrections pertain to identifying which judges joined in which portions of the majority opinion.

Thirteen judges participated in the en banc rehearing. Judge Sam Alito wrote the opinion for the Court. Three judges (Becker, McKee and Smith) concurred. They did not agree with the portion of the majority opinion regarding short phrases. They also offered an additional grounds for affirming the District Court, scenes a faire. Judge Roth wrote a lengthy dissent, in which Judge Chertoff joined.

Judge Roth wrote that "The majority, however, in misapplying the idea/expression dichotomy, has adopted an unduly restrictive understanding of the originality requirement. ... By deciding that the determination of the part number is inherent in the ``idea,´´ the majority has pushed all of Southco's creative work onto the unprotected ``idea´´ side of the idea/expression dichotomy. This over broad definition of the ``idea´´ leads inexorably to the majority's conclusion -- that Southco’s part numbers are undeserving of copyright protection because they lack originality."

"I believe that a more sensible middle ground is available. If one adopts a slightly broader focus, Southco's numbering rules (and the resulting numbers) will be seen as one of many possible expressions of the idea of using a code to convey product specifications", wrote Roth. (Parentheses in original.)

He further argued that "the majority's decision to divide Southco’s numbering rules from the numbers themselves for purposes of evaluating Southco’s copyright claim may suggest and certainly creates an unjustified and unexplained bias against copyright protection for all rule-based expression. Systematic or rule-driven thought will usually “precede” expression, as it does here. That is, Southco's original work had to be completed before its numbers were actually expressed, and the rules governing that expression may be readily conceptualized apart from the numbers themselves. In contrast, original artistic or literary thought is usually bound up inextricably in its expression. Southco's numbering scheme is no less creative or original simply because it is governed by rules rather than the more ``indeterminate ideas´´ typically associated with art or literature. ... However, if the majority's division of Southco's rules from their expression were applied generally, large swaths of rule-based original works would be denied protection."

He noted also that "many compilations that would seem to pass Feist’s low creativity threshold would be denied protection if they happen to be the product of predetermined rules."

Judge Roth also wrote that deference to the Copyright Office on the short phrases argument "is inappropriate".

This case is Southco, Inc. v. Kanebridge Corporation, U.S. Court of Appeals for the 3rd Circuit, App. Ct. No. 02-1243, an appeal from the U.S. District Court for the Eastern District of Pennsylvania, D.C. No. 99-cv-04337, Judge Norma Shapiro presiding.

People and Appointments

12/3. President Bush announced his intent to nominate Bernard Kerik to be Secretary of Homeland Security. If confirmed by the Senate, he will replace Tom Ridge. Kerik is a former New York City Police Commissioner. See, transcript of White House event.

12/3. The President Bush announced his intent to appoint Rebecca Denlinger, Gregory Peters, and Bruce Rohde to the Department of Homeland Security's (DHS) National Infrastructure Advisory Council (NIAC). The NIAC provides advice on the security of information systems for critical infrastructure supporting other sectors of the economy, including banking and finance, transportation, energy, manufacturing, and emergency government services. Denlinger is a career fireman, and Chief of the Georgia Association of Fire Chiefs. Peters is P/CEO of Internap, an internet protocol network services provider based in Atlanta, Georgia. Rohde is Ch/CEO of ConAgra Foods, a packaged food company based in Omaha, Nebraska.

12/3. President Bush announced his intent to appoint Randall Stephenson to the President's National Security Telecommunications Advisory Committee (NSTAC). See, White House release. He is the Chief Operating Officer of SBC Communications.

12/3. President Bush announced his intent to nominate Harry Robinson, to be a Member of the Museum and Library Services Board for a five year term. See, White House release. He is P/CEO of the African American Museum in Dallas, Texas.

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12/3. President Bush signed HR 1047, the "Miscellaneous Trade and Technical Corrections Act of 2004". See, White House release. This is a huge and varied bill. See especially, Section 2201 of the bill, titled "USTR determinations in TRIPS Agreement investigations". It amends Section 304(a)(2)(A) of the Trade Act of 1974, which is codified at 19 U.S.C. § 2414(a)(2)(A), with respect to rights under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

12/3. The U.S. Patent and Trademark Office (USPTO) released a notice regarding increased and new patent fees, and the impending passage of HR 4818, the omnibus appropriations bill. This notice "advises the public to remain vigilant as to the effective date of the Consolidated Appropriations Act and to consider paying maintenance fees early or taking other appropriate steps to ensure that their patents remain in force." The USPTO released a similar notice with respect to increased trademark fees. See also, story titled "Congress Approves Omnibus Appropriations Bill", and story titled "Appropriations Bill Provides $1.54 Billion for USPTO, Temporary Fee Increases, But No End to Diversion", in TLJ Daily E-Mail Alert No. 1,023, November 22, 2004.

12/3. The U.S. Court of Appeals (2ndCir) issued an errata opinion [42 pages in PDF] in Motorola v. Uzan. See also, story titled "2nd Circuit Rules in Motorola v. Uzan" in TLJ Daily E-Mail Alert No. 1,008, November 1, 2004, and story titled "Judge Awards Motorola $4,265,793,811.32 From Turkish Telecom Deadbeats" in TLJ Daily E-Mail Alert No. 709, August 1, 2003.

12/3. The Executive Committee of the Association for Local Telecommunications Services (ALTS) and Board of Directors of the CompTel/ASCENT announced in a release that the "have entered into a memorandum of understanding (MOU) to explore the merger of the two trade groups". CompTel/ASCENT was formed in November of 2003 by the merger of the Competitive Telecommunications Association (CompTel) and the Association of Communications Enterprises (ASCENT). Also, Russell Frisbee, the CEO of CompTel/ASCENT, and before that, President of CompTel, announced on November 23, 2004 that he will step down in 2005.

12/3. Chester Spatt of the Securities and Exchange Commission (SEC) presented a paper titled "Executive Compensation and Contracting" at a conference in Columbus, Ohio. He wrote at the outset that "the income and wealth levels of senior executives are very large compared to those of most of the population. Furthermore, these have grown in relative terms over the last several decades." He suggested that "This change in relative income and wealth is part of a broader change in the distribution of income and wealth over the last several decades, which may reflect the increasing importance of technology in the modern economy." He did not further elaborate on the connection between technology and executive compensation.

DOJ Brings More DRAM Price Fixing Charges

12/2. The Department of Justice (DOJ) filed a criminal complaint in U.S. District Court (NDCal) against Heinrich Florian, Günter Hefner, Peter Schaefer, and T. Rudd Corwin alleging violation of Section 1 of the Sherman Antitrust Act in connection with their alleged conspiracy to fix the prices of dynamic random access memory (DRAM).

The four are executives of Infineon Technologies AG, and its subsidiary, Infineon Technologies North America Corporation.

The DOJ also announced that it has entered into plea agreements with the four defendants. These agreements provide that the four will plead guilty, pay a $250,000 criminal fine, serve prison terms ranging from four to six months, and assist the government in its ongoing DRAM investigation.

Scott Hammond, Director of Criminal Enforcement in the DOJ's Antitrust Division, stated in a release that "These four executives are the first to plead guilty to a charge of fixing prices in what is still a very active and far-reaching investigation into antitrust violations in the DRAM industry ... We will continue in our efforts to bring to justice other domestic and foreign-based executives who were involved with fixing DRAM prices."

On September 15, 2004, the DOJ filed a criminal information in the U.S. District Court (NDCal) against Infineon Technologies AG, charging price fixing in violation of 15 U.S.C. § 1. Simultaneous, Infineon agreed to plead guilty and to pay a $160 Million fine. See also, DOJ release and Infineon release. On October 20, 2004, Infineon plead guilty. See also, story titled "DOJ Charges Infineon With Felony Price Fixing; Infineon Pleads Guilty" in TLJ Daily E-Mail Alert No. 978, September 16, 2004.

Also, on December 17, 2003, the DOJ announced that it charged Alfred P. Censullo, a former employee of Micron Technology Inc., with violation of 18 U.S.C. § 1503 in connection with his "altering and concealing documents containing competitor pricing information, which were requested in a federal grand jury subpoena". See, DOJ release. The DOJ also stated that he "has agreed to plead guilty to obstructing the grand jury investigation of a suspected conspiracy to fix the price of dynamic random access memory (DRAM) products sold in the United States".

Micron Ch/CEO Steve Appleton stated then in a release that "The charges against Mr. Censullo relate to his personal actions in the course of the Department of Justice investigation and do not pertain to Micron. Micron takes compliance with the law very seriously and requires all employees to follow instructions with respect to legal proceedings. Mr. Censullo's actions were contrary to the company's instructions. We have fully and actively cooperated with the Department of Justice since the inception of their investigation and will continue to do so."

On January 21, 2004, Censullo plead guilty in U.S. District Court (NDCal).

Section 1 of the Sherman Act, which is codified at 15 U.S.C. § 1, now provides, that "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court".

WTO Director General Mentions PR China's Counterfeiting and Piracy

12/2. Supachai Panitchpakdi, Director General of the World Trade Organization (WTO), gave a speech in Shanghai, People's Republic of China, titled "China and the WTO: Challenges and Opportunies for the Future".

He discussed the WTO's Doha Development Agenda. He said that "following the setback at our Ministerial Conference in Cancún, the negotiations are back on track and moving forwards. In July this year, we succeeded in making significant progress in some of the areas that had been most divisive among Members in the past, most notably agriculture."

He then discussed the PR China. He said that "Three years ago when China joined the WTO, it gave an important signal of its commitment and willingness to bring its economy into harmony with the rules of the WTO. To China's credit it did not waver in its resolve. The task was not always easy but throughout this period we have seen China, in implementing the terms of its accession to the WTO, progressively lower its tariffs, phase-out non-tariff measures and reduce restrictions on trade in services. In trade in goods, China's simple average tariff rate dropped from 42.9 per cent in 1992 to 10.4 percent at the beginning of 2004. Overall, China's performance has been very good."

However, he continued that "China has not settled all the issues and concerns of other WTO Members relating to bringing its trade regime into strict conformity with its terms of accession. For instance, I have been informed that the level of counterfeiting and piracy remains of concern to many WTO Members."

He also said that "China will have to strengthen its efforts in terms of transparency and information on relevant laws and procedures."

Panitchpakdi also discussed agriculture, textiles and anti-dumping.

7th Circuit Rules on Removal of WorldCom Related Securities Case

12/2. The U.S. Court of Appeals (7thCir) issued its opinion [14 pages in PDF] in Illinois Municipal Retirement Fund v. Citigroup, affirming the District Court's remand of a 1933 Securities Act case to the state court.

The defendants in the trial courts, and appellants on appeal, were underwriters of debt securities issued by WorldCom. In 2002, WorldCom, which is not a party to this action, announced that it had improperly treated $3.8 Billion in ordinary costs as capital expenditures and that it would have to restate its financial statements. This led to the filing of numerous individual and class action lawsuits in state and federal courts. The Judicial Panel on Multidistrict Litigation (JPML), pursuant to 28 U.S.C. § 1407, the multidistrict litigation statute, ordered that actions pending in federal courts be centralized in the U.S. District Court for the Southern District of New York (SDNY)

WorldCom went on to file for bankruptcy protection in U.S. Bankruptcy Court.

The plaintiff and appellee in this action, the Illinois Municipal Retirement Fund (IMRF), filed a complaint in state court in Illinois on June 18, 2003, alleging violation of the Securities Act of 1933 only (not the Securities and Exchange Act of 1934). The 1934 Act provides for exclusive federal jurisdiction, while the 1933 Act allows for concurrent federal and state jurisdiction and has an anti-removal provision.

The Securities Act of 1933 provides in Section 22(a), which is codified at 15 U.S.C. § 77v(a), that "no case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States."

On July 16, 2003, the defendants removed this action to federal District Court in Illinois on the grounds that this action is related to the bankruptcy action. The Bankruptcy Code provides, at 28 U.S.C. § 1452(a), that claims that are "related to" a bankruptcy case may be removed to the Bankruptcy Court. The defendants also requested that the case be transferred to the SDNY.

The JPML issued a conditional transfer order on September 3, 2003.

On September 9, 2003, the District Court in Illinois nevertheless remanded this action to Illinois state court.

The Court of Appeals affirmed. It wrote that the issue is "whether 28 U.S.C. § 1407, the multidistrict litigation statute, prohibits a district court from issuing a remand order in contravention of a potential transferee court’s earlier jurisdictional ruling." It held that it does not.

The Appeals Court wrote that "In this case, the district court remanded after the JPML issued a conditional transfer order but before transmittal of a final transfer order to the previously designated transferee, Judge Cote in the Southern District of New York. Therefore, the transfer had not become effective and the conditional order did not “in any way limit the pretrial jurisdiction” of the district court.". (The quote is from JPML Rule 1.5, which the Court of Appeals declined to invalidate.)

The Court concluded that "We will not require a district court that believes that it lacks subject matter jurisdiction over a case to facilitate a transfer under § 1407, a statute that does not itself confer jurisdiction. Rule 1.5, as applied in this case, does not conflict with the text, structure, or purpose of § 1407, and the district court did not exceed its authority in issuing a remand order."

It should be noted that on May 11, 2004, the U.S. Court of Appeals (2ndCir) issued its opinion [32 pages in PDF] in CalPERS v. WorldCom, a securities case involving the conflict between the removal provisions of the Bankruptcy Code and the Securities Act of 1933. The 2nd Circuit held that the bankruptcy removal provision controls. See also, story titled "2nd Circuit Affirms in CalPERS v. WorldCom" in TLJ Daily E-Mail Alert No. 896, May 12, 2004.

This case is Illinois Municipal Retirement Fund v. Citigroup, Inc., J.P. Morgan Securities, Inc., and Banc of America Securities, LLC, App. Ct. No. 03-3703, an appeal from the U.S. District Court for the Southern District of Illinois, D.C. No. 03 C 465, Judge Patrick Murphy presiding. Judge Flaum wrote the opinion of the Court of Appeals, in which Judges Cudahy and Posner joined.

People and Appointments

12/2. President George Bush announced his intent to nominate Mike Johanns, the Governor of the state of Nebraska, to be Secretary of Agriculture. See, White House release and transcript of White House event. Bush stated that "We'll enforce trade laws to make sure other countries play by the rules." Neither discussed the Department of Agriculture's (USDA) Rural Utilities Services (RUS) or rural broadband issues.

12/2. Liam Weston was elected Chairman of the U.S. Chamber of Commerce's Space Enterprise Council for  2005. He also works for Ball Aerospace on space remote sensing radar, electro-optical systems and international business. Matthew Jones was elected Vice Chairman of the Space Enterprise Council. He also works for Boeing on GPS and weather programs.

12/2. John Harker was elected Chairman of the Board of Directors of the American Electronics Association (AeA). Harker is the Chairman of InFocus Corporation. See, AeA release and InFocus release.

12/2. Patrick Pohlen was named Co-Chair of the law firm of Latham & Watkins' Venture & Technology Practice Group in the firm's Silicon Valley office. He will replace Ora Fisher, who is now Managing Partner of the firm's Silicon Valley office. See, release.

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12/2. Microsoft announced that it filed seven complaints in Superior Court in King County in the state of Washington against unnamed defendants alleging violation of the federal Controlling the Assault of Non-Solicited Pormography and Marketing (CAN-SPAM) Act, the Federal Trade Commission's (FTC) rules thereunder, and Washington's Commercial Electronic Mail Act, in connection with their bulk unsolicited e-mail practices. The complaint alleges that the defendants failed to label sexually explicit messages, failed to include an unsubscribe option, and failed to provide a physical address. See, Microsoft release.

12/2. Federal Communications Commission (FCC) Commissioners Michael Copps and Jonathan Adelstein issued a release [2 pages in PDF] on forum that they will conduct on media concentration. It will be held from 7:00 - 11:00 PM on Thursday, December 9, 2004, at the Sundin Music Hall, Hamline University, St. Paul, Minnesota. Copps and Adelstein will give opening remarks at 7:00 PM. There will be a panel discussion titled "Local News and Information" at 7:30 PM. There will be a panel discussion titled "Media Diversity" at 8:15 PM. Public comments will begin at 9:15 PM.

Appeals Court Finds MPAA Not Liable for Good Faith Exercise of DMCA Notice and Takedown Procedure

12/1. The U.S. Court of Appeals (9thCir) issued its opinion [13 pages in PDF] in Rossi v. MPAA, a state tort case in which a web site operator (Rossi) alleged that a copyright holder (MPAA) wrongfully served a DMCA notice and take down letter upon his internet service provider. The District Court granted summary judgment to the MPAA. The Court of Appeals affirmed. In particular, it held that the notice and take down provisions require only a subjective good faith belief on the part of the copyright holder, and good faith can be present even where the copyright holder is mistaken. See, full story.

7th Circuit Affirms Judgment for New York Times in Defamation Case

12/1. The U.S. Court of Appeals (7thCir) issued its opinion [32 pages in PDF] in Globa1 Relief Foundation v. New York Times, a defamation case. The Appeals Court affirmed the District Court's summary judgment for the New York Times (NYT) and other defendants.

Background. The Globa1 Relief Foundation, Inc. (GRF) states that it was an Islamic charity. Following the terrorist attacks of September 11, 2001, the NYT, the Boston Globe, the Daily News, ABC, the Associated Press, and Hearst all reported that the U.S. government was investigating the GRF for links to terrorism, and was considering freezing its assets. Contributions to the GRF immediately decreased.

On December 14, 2001, the Department of the Treasury's (DOT) Office of Foreign Assets Control (OFAC) blocked the assets of the GRF pending investigation. See, OFAC notice. On October 18, 2002, the DOT designated the GRF a Specially Designated Global Terrorist (SDGT). The SDGT list also includes Osama bin Laden, al Qaeda and Hamas.

The defendants reported the government's investigation of the GRF before the government publicly announced the investigation.

The GRF, which was based in Illinois, filed a complaint on November 15, 2001 in U.S. District Court (NDIll) against the NYT, the other news reporting entities, and the individual reporters involved, alleging defamation. The GRF sought a large award of damages. Federal jurisdiction was based upon diversity of citizenship.

(The GRF also filed a separate lawsuit against the government.)

The District Court concluded that the GRF offered only blanket denials. The District Court granted summary judgment to the defendants on the basis that their reports were true or substantially true. The GRF appealed.

Court of Appeals. The Court of Appeals affirmed. It concluded that everything that the defendants published was true or substantially true. It held that "Truth is an absolute bar to recovery for defamation".

The Appeals Court wrote that "To prove a claim of defamation, a plaintiff must show that a defendant made a false statement concerning the plaintiff, that there was an unprivileged publication of the defamatory statement to a third party by the defendant, and that the plaintiff was damaged."

It concluded that the "GRF has raised a genuine issue of material fact related to damages by showing that donations to the organization diminished after the publication of these statements. A statement is considered defamatory if it tends to cause such harm to the reputation of another that it lowers that person in the eyes of the community or deters third persons from associating with that person. ... Again, there is no real argument about whether the statements at issue tended to harm the reputation of GRF in a way that deterred third parties from dealing with the group."

The Appeals Court thus concluded that the issues are "are whether the statements were false, whether the defendants had some privilege to publish them, and whether the defendants had any other defense that would entitle them to judgment as a matter of law."

The Court continued that "Ultimately, all of the reports were either true or substantially true recitations of the government’s suspicions about and actions against GRF. ``When determining the `gist´ or `sting´ of allegedly defamatory material, a trial court must look at the highlight of the article, the pertinent angle of it, and not to items of secondary importance which are inoffensive details, immaterial to the truth of the defamatory statement.´´" (Citation omitted.)

"Any inaccuracies which do no incremental damage to the plaintiff’s reputation do not injure the only interest that the law of defamation protects", the Court wrote. "We will thus ignore inaccuracies that do no more harm to GRF than do the true statements in the articles. The gist or sting of each article was that the President had issued a blocking order on September 24, 2001 against a number of organizations suspected of providing financial assistance to terrorist groups, and the government was now contemplating adding other charities and non-governmental organizations to the list of blocked entities. Each article named GRF as one of the charities being investigated by the government, and a few noted that GRF had appeared on a list of organizations with suspected ties to terrorism years earlier. Many of the articles included GRF’s denials and none of the articles concluded that GRF was actually guilty of the conduct for which it was being investigated."

The Appeals Court concluded that "The only inaccuracy in the articles is the timing of the government's official actions against GRF and this inaccuracy does no more harm to GRF than the true statements in the articles. Recall, too, that GRF had already appeared two years earlier on the Clinton-era list of thirty organizations with suspected ties to terrorism. Moreover, for a number of the reports, GRF has no evidence demonstrating the falsity of the report and thus fails to make out an essential element of its claim. For the remainder of the cases, where something in the report was not technically true (such as the timing of the government’s accusations and actions), the defendants are entitled to judgment on the defense of substantial truth." (Parentheses in original.)

The Court also held that the plaintiff bears the burden of proof on the issue of falsity. But, once falsity is established, the defendant bears the burden of proving substantial truth. It wrote that "The Supreme Court has held that when a private-figure plaintiff seeks damages against a media defendant for speech on matters of public concern, the plaintiff must bear the burden of showing that the speech at issue is false before recovering damages". It added that "To establish the defense of substantial truth, the defendant need only show the truth of the “gist” or “sting” of the defamatory material."

The Appeals Court also rejected the GRF's argument that the defendants had to be able to prove the truth of their reports before publication. This is significant, because the defendants reported the investigation of the GRF before the government announced the investigation, placed the GRF on a block list, placed the GRF on the SDGT list, or raided the GRF's offices.

The Appeals Court opinion does not discuss each of the defendants' sources of information. However, this was confidential communications with government officials. The Appeals Court affirmed the District Court on the basis that the published reports were later proven to be true by the public actions of the government.

Had the Court followed the GRF's argument, it would have provided news reporting entities a huge disincentive to publish reports based on confidential sources.

On the other hand, by not accepting the GRF's argument, the Court facilitated the government's ability to destroy organizations without any formal action, let alone due process of law. But then, the government was not a party to this case.

9-11 Commission Report. The National Commission on Terrorist Attacks Upon the United States (9-11 Commission) commented on terrorist financing in its report. It wrote that "Vigorous efforts to track terrorist financing must remain front and center in U.S. counterterrorism efforts. The government has recognized that information about terrorist money helps us to understand their networks, search them out, and disrupt their operations. Intelligence and law enforcement have targeted the relatively small number of financial facilitators -- individuals al Qaeda relied on for their ability to raise and deliver money -- at the core of al Qaeda's revenue stream. These efforts have worked. The death or capture of several important facilitators has decreased the amount of money available to al Qaeda and has increased its costs and difficulty in raising and moving that money. Captures have additionally provided a windfall of intelligence that can be used to continue the cycle of disruption."

The report also states that "Public designation of terrorist financiers and organizations is still part of the fight, but it is not the primary weapon. Designations are instead a form of diplomacy, as governments join together to identify named individuals and groups as terrorists. They also prevent open fundraising. Some charities that have been identified as likely avenues for terrorist financing have seen their donations diminish and their activities come under more scrutiny, and others have been put out of business, although controlling overseas branches of Gulf-area charities remains a challenge."

Comment on Jurisdiction and Selection of Forum. The Court of Appeals opinion does not address personal jurisdiction. However, the defendants brought a FRCP 12(b)(2) motion in the District Court, which the District Court denied.

It is perhaps notable that the GRF brought this action in the U.S. in the first place. Since the complaint was filed in the U.S., it floundered under U.S. defamation law, which accords protection to speech, and especially speech regarding public affairs and the activities and operations of the government.

On the other hand, had the GRF prevailed, it would have been able to avail itself of the U.S. judicial system's generous awards in tort cases. Moreover, the GRF would have been able to collect on its judgment, since the corporate defendants have substantial assets in the U.S. that are subject to execution.

The GRF would have been more likely to obtain a judgment for defamation by suing in another country that accords lesser protection to speech, and is less concerned about fighting terrorism, such as France. The NYT and other defendants also publish online. Courts in several countries, including France, have taken the position that an online publisher can be sued anywhere in the world where there is a web connection.

Had the GRF sued in France, or any one of many other countries, it likely would have overcome a motion to dismiss for lack of personal jurisdiction, and would have stood a better chance of obtaining a judgment of defamation.

Three recent court opinions from foreign courts illustrate this. First, two French organizations, LICRA and UEJF, sued Yahoo in a French court, and obtained a judgment ordering Yahoo to stop publishing certain material in its web site located in the U.S. Yahoo has also filed an action in the U.S. against the LICRA and UEJF seeking a declaratory judgment that the French judgment is unenforceable in the U.S. because it violates the First Amendment. The LICRA and UEJF asserted in the French action that a French court can exercise jurisdiction over the California based Yahoo, but that the District Court in California cannot exercise jurisdiction over the LICRA and UEJF. The U.S. Court of Appeals (9thCir) issued its opinion [34 pages in PDF] on August 23, 2004 holding that the U.S. court lacks jurisdiction. See, story titled "9th Circuit Reverses in Yahoo v. LICRA" in TLJ Daily E-Mail Alert No. 965, August 24, 2004.

Second, on December 10, 2003, the High Court of Australia issued its opinion in Dow Jones v. Gutnick, a tort action brought in Australia for an allegedly defamatory news story published on the internet by Dow Jones, a U.S. publisher. The Court held that because of publication on the internet, the Australian courts have jurisdiction, that Australian law applies, and that the case should proceed in the trial court in the Australian state of Victoria. See also, story titled "High Court Rules Australia Has Jurisdiction Over Dow Jones Based on Web Publication" in TLJ Daily E-Mail Alert No. 564, December 10, 2002.

Third, on January 27, 2004, the Superior Court of Justice in the province of Ontario, in the nation of Canada, released an opinion in Bangoura v. Washington Post, in which it denied the Washington Post's motion to dismiss for lack of personal jurisdiction. The Canadian Court held that there was personal jurisdiction because someone in Ontario could read the Washington Post in Ontario. See also, story titled "Canadian Court Rules It Has Jurisdiction Over Washington Post Based on Web Publication" in TLJ Daily E-Mail Alert No. 856, March 1, 2004. This case is Cheickh Bangoura v. The Washington Post, William Branigin, James Rupert, Steven Buckley, the United Nations and Fred Eckhard, Case No. 03-CV-247461CM1.

Parties who wish to restrain speech by U.S. news reporting entities that they find offensive, or who seek damages for its publication, can sue in the U.S. If they do, they face the possibility of failing to obtain a judgment because of the U.S. legal traditions of freedom of speech. Alternatively, they can sue abroad, if the publisher also puts its stories in its web site. If they do this, they are more likely to prevail on the substantive issues. However, they face the possibility of being unable to collect on any judgment, or enforce any injunctive remedy.

The present case is Global Relief Foundation, Inc. v. New York Times Company, et al., App. Ct. No. 03-1767, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 01 C 8821, Judge David Coar presiding. Judge Rovner wrote the opinion of the Court of Appeals, in which Judge Evans and Judge Williams joined.

Michael Conway of the Chicago office of the law firm of Foley & Lardner has represented the NYT and some other defendants in this action.

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12/1. Michael Gallagher, head of the Department of Commerce's National Telecommunications and Information Administration (NTIA) commented on President Bush's November 30, 2004 memorandum for the heads of executive departments and agencies titled "Improving Spectrum Management for the 21st Century". Gallagher stated that Bush "has institutionalized innovation excellence". Gallagher also used his statement to praise outgoing Secretary of Commerce Donald Evans. He said that "Under his leadership, we paved the way for the deployment of ultrawideband and broadband over power lines; identified 90 MHZ of spectrum for advanced wireless services; doubled the spectrum available for unlicensed WiFi connections; and supported the President's efforts to design a spectrum policy for the 21st Century and to make broadband accessible to every American." Steve Largent, P/CEO of the CTIA, also praised the President's memorandum, stating in a release that he "took the next crucial step in developing a sound spectrum policy not only for today’s information age, but for years to come." See also, story titled "Bush Issues Memorandum Regarding Spectrum Management" in TLJ Daily E-Mail Alert No. 1,028, December 1, 2004.

Go to News from November 26-30, 2004.