News from January 11-15, 2005

6th Circuit Holds That Disclosure of Social Security Numbers by a City Does Not Violate Privacy Act

1/14. The U.S. Court of Appeals (6thCir) issued its opinion [5 pages in PDF] in Schmitt v. Detroit, a Privacy Act cases involving disclosure of social security numbers by the City of Detroit. The Court of Appeals affirmed the District Court in holding that the Privacy only creates a private right of action against the federal government.

The Privacy Act is a large and complex statute that regulates various privacy practices. It includes language, at Section 7(b), that regulates the use of social security numbers. The statute generally applies to the privacy practices of agencies, which are defined as federal entities. Section 7(b) applies to both federal agencies and any "State or local government agency". The Appeals Court, as a matter of construction of the statute, held that there are two definitions that are in conflict, and that the general definition controls.

The Appeals Court also relied heavily upon a Congressional committee report. Hence, Justice Scalia will not be impressed.

The City of Detroit, in the state of Michigan, hired a vendor to mail out municipal tax notices. Detroit provided social security numbers to the vendor, which printed them on the envelopes containing the tax notices. Daniel Schmidt received one such notice.

Schmitt filed a complaint in U.S. District Court (EDMich) against Detroit, several of its employees, and the vendor, alleging violation of Section 7(b) of the federal Privacy Act. He also plead several state law claims, including negligence, emotional distress, and invasion of privacy. He also sought class action status.

The District Court held that Detroit is not an agency within the meaning of the Privacy Act, and therefore, is not subject to the requirements of Section 7(b). The District Court also declined to exercise supplemental jurisdiction over the state law claims, and dismissed them without prejudice. The District Court opinion is published at 267 F. Supp. 2d 718.

Schmitt appealed. The Court of Appeals affirmed.

Privacy Act of 1974 was S 3418 in the 93rd Congress. It became Public Law 93-579. It provides, at Section 7(a), that "It shall be unlawful for any Federal, State or local government agency to deny to any individual any right, benefit, or privilege provided by law because of such individual’s refusal to disclose his social security account number." Section 7(b) provides that "Any Federal, State, or local government agency which requests an individual to disclose his social security account number shall inform that individual whether that disclosure is mandatory or voluntary, by what statutory or other authority such number is solicited, and what uses will be made of it."

These provisions are codified at 5 U.S.C. § 552a notes, while most of the text of the Act is codified at 5 U.S.C. § 552a.

The Appeals Court wrote that these provisions of Section 7(b) are "at odds with another crucial definition of the Privacy Act" that defines the term "agency" with respect to the federal government.

The Appeals Court concluded that "The fact that the Privacy Act contains a section that defines the term “agency” as including only those agencies that fall under control the federal government, coupled with a legislative history that supports such a reading of its scope, forces us to conclude that -- notwithstanding the codification of § 7(b) -- the Privacy Act applies exclusively to federal agencies. Because plaintiff cannot state a cause of action against the City, we hold that his suit was properly dismissed pursuant to Fed. R. Proc. 12(b)(6)."

This case is Daniel Schmidt v. City of Detroit, et al., App. Ct. No. 03-1884, an appeal from the U.S. District Court for the Eastern District of Michigan, at Detroit, D.C. No. 02-74719, Judge Anna Taylor presiding. Judge Alan Norris wrote the opinion of the Court of Appeals, in which Judges Cook and Beckwith joined.

Powell Announces FCC Investigation Regarding Armstrong Williams

1/14. Federal Communications Commission (FCC) Chairman Michael Powell released a statement [PDF] regarding Armstrong Williams. He wrote, in full, as follows:

"In response to recent reports regarding potential violations of the ``payola´´ and sponsorship identification provisions of the Communications Act, I have instructed the Enforcement Bureau to open two investigations:

One into issues regarding commentator Armstrong Williams; and the other into issues regarding station WKSE (FM), Niagara Falls, New York, licensed to a subsidiary of Entercom Communications Corporation.

These provisions govern disclosure and sponsorship identification regarding payments or other consideration in connection with broadcast programs."

Powell did not reference any specific sections of the Communications Act, or regulations promulgated thereunder.

However, 47 U.S.C. § 317 addresses the "Announcement of payment for broadcast". It provides, in part, that "All matter broadcast by any radio station for which any money, service or other valuable consideration is directly or indirectly paid, or promised to or charged or accepted by, the station so broadcasting, from any person, shall, at the time the same is so broadcast, be announced as paid for or furnished, as the case may be, by such person ..." See also, 47 C.F.R. § 73.1212.

Moreover, 47 U.S.C. § 508 addresses "Disclosure of payments to individuals connected with broadcasts". It provides, in part, that "any employee of a radio station who accepts or agrees to accept from any person (other than such station), or any person (other than such station) who pays or agrees to pay such employee, any money, service or other valuable consideration for the broadcast of any matter over such station shall, in advance of such broadcast, disclose the fact of such acceptance or agreement to such station." (Parentheses in original.)

The term "payola" originated in the record industry over 40 years ago as a term to describe secret payments made to disc jockeys and others to broadcast and promote rock and roll music recordings. The Communications Act was amended in 1960 to regulate these practices. See, Public Law No. 86-752 [PDF], at Section 8. This statute also prohibited the fixing of broadcast television game show contests.

In contrast, the relevant broadcast related conduct of Armstrong pertains to political speech. Also, his written column published in newspapers is unaffected by the Communications Act.

Williams wrote in a column published in the web site on January 10 that "In 2003, I agreed to run a paid ad on my syndicated television show, promoting the Department of Education's No Child Left Behind Act. I subsequently used my column space to support that legislation. This represents an obvious conflict of interests. People have used this conflict of interests to portray my column as being paid for by the Bush Administration.  Nothing could be further from the truth." He added that "I supported school vouchers long before the Department of Education ran a single ad on my TV Show."

FCC Commissioner Jonathan Adelstein stated at the FCC's meeting on January 13, 2005 that the FCC should investigate Williams.

FTC to Revise COPPA Rule

1/14. The Federal Trade Commission (FTC) published a notice in the Federal Register on January 14 that describes and sets the comments deadline (February 14, 2005) for a notice of proposed rulemaking (NPRM) regarding the Children's Online Privacy Protection Act (COPPA). See, Federal Register, January 14, 2005, Vol. 70, No. 10, at Pages 2580 - 2582.

This NPRM proposes to permanently allow web site operators and online services to obtain verifiable parental consent for the collection of personal information from children for internal use by the web site operator through sending an e-mail message to parents coupled with additional steps.

The FTC published its final COPPA rule in a notice in the Federal Register (November 3, 1999, Vol. 64, No. 212, at Pages 59887-59915); the final rule is also codified at 16 CFR part 312.

The FTC also issued a release regarding this NPRM. It states that "The Rule currently contains a ``sliding scale´´ approach for obtaining parental consent. Operators of Web sites and online services that collect children’s personal information solely for internal use can obtain parental consent through the use of an e-mail plus an additional step to provide assurance that the person providing the consent actually is the parent. Operators that wish to disclose children’s information publicly or to third parties must employ more reliable methods of obtaining parental consent, such as using a print-and-send consent form; a credit card transaction; a toll-free telephone number staffed by trained personnel; a digital certificate using public key technology; or an e-mail with a password or PIN obtained by one of the above methods."

This release also states that "The FTC is seeking comments concerning whether: (1) current or anticipated reliable technology or infomediary services could facilitate obtaining verifiable parental consent at a reasonable cost; (2) eliminating, extending, or making permanent the sliding scale approach would affect the incentive to develop secure technology for the purpose of obtaining parental consent; (3) eliminating the sliding scale approach would have an effect on how Web site operators would use personal information collected from children; and (4) the sliding scale approach should be eliminated, extended, or made permanent."

Also, on January 12, the FTC published a notice in the Federal Register stating that it plans to request public comments on two rules as a part of its systematic review of all of its rules: (1) the COPPA rule, and (2) Deceptive Advertising as to Sizes of Viewable Pictures Shown by Television Receiving Sets Rule, which is codified at 16 CFR part 410. See, Federal Register, January 12, 2005, Vol. 70, No. 8, at Page 2074 - 2075.

People and Appointments

1/14. President Bush announced his intent to appoint William Ryan to be a Member of the Board of Directors of the Rural Telephone Bank as a Department of Agriculture representative. See, White House release.

More News

1/14. The Office of the U.S. Trade Representative (USTR) published a notice in the Federal Register that requests public comments for the USTR's Trade Policy Staff Committee on the scope of the environmental review of the multilateral negotiations of the Doha Development Agenda (DDA) conducted under the auspices of the World Trade Organization (WTO). The deadline to submit comments is March 31, 2005. See, Federal Register, January 14, 2005, Vol. 70, No.10, at Pages 2695 - 2696.

1/14. The U.S. Court of Appeals (DCCir) issued its opinion [PDF] in AT&T v. FCC, a case regarding a Federal Communications Commission (FCC) order interpreting AT&T’s tariff on resales of 800 telephone service. AT&T petitioned for review, and the Court of Appeals granted the petition. This case is AT&T v. FCC, a petition for review of a final order of the FCC, No. 04-1431. Judge Roberts wrote the opinion of the Court, in which Judges Tatel and Ginsburg joined.

5th Circuit Addresses Copyright Infringement, Factual Copying, Independent Creation, and Substantial Similarity

1/13. The U.S. Court of Appeals (5thCir) issued its opinion [48 pages in PDF] in Positive Black Talk v. Cash Money Records, a music copyright case.

Two rap musicians both recorded a song with the same title. One musician's record company is Positive Black Talk. The other musician's recording company, Cash Money Records, entered into a distribution contract with Universal Records, and that musician's song was made a part of an album that generated revenues of over $40 Million. The first record company, Positive Black Talk, filed a complaint in U.S. District Court (EDLa) against the second record company, Universal, and others, alleging copyright infringement, and a state law claim. The defendants counterclaimed for copyright infringement, and other causes of action.

The District Court, following a jury trial, entered judgment for the defendants on the plaintiff's claims. It also entered judgment for the defendants on their state law counterclaims. However, it entered judgment for the plaintiff on the defendants' infringement counterclaim. It only awarded defendants attorneys fees for a state law claim, but not under 17 U.S.C. § 505.

The opinion addresses the requirement of  17 U.S.C. § 411(a) that a copyright be registered with the Copyright Office before a lawsuit may be filed. The Court held that the Court's jurisdiction was not defeated by a defect in the registration that was cured four days after filing the lawsuit. The opinion also addresses at length the elements of copyright infringement, with a focus on factual copying, independent creation, and substantial similarity. Finally, the opinion addresses the availability of attorneys fees.

This case is Positive Black Talk Inc. v. Cash Money Records Inc., et al., U.S. Court of Appeals for the 5th Circuit, App. Ct. Nos. 03-30625 and 03-30702, appeals from the U.S. District Court for the Eastern District of Louisiana.

Secretary Evans Rips Red Chinese for IPR Theft

1/13. Secretary of Commerce Donald Evans gave a speech in Beijing, People's Republic of China, in which he stated that "It's time for China's leaders to forcefully confront the problem posed by widespread IPR theft, demand that it stop, and apply the resources to solve the problem."

Donald EvansEvans (at right) stated that "It is absolutely essential that we see demonstrated results from China on IPR protection and the other structural issues that are compromising the Chinese economy in order to establish greater balance in our relationship."

While the speech was blunt and critical, Evans discussed mostly intellectual property rights (IPR) in industry sectors other than information technology. He spoke about automobile manufacturing, drugs, and trademarks on clothing. He did not discuss software or semiconductors in the prepared text of his speech. Although, he did mention pirate sales of video games.

Evans said the the U.S. is "holding up our end of the trading relationship", but that in China "We need to see rapid movement toward a rules-based economy that is transparent, predictable and open to U.S. products, services and investments. Progress toward a level playing field has been incomplete, uneven and unacceptable."

He added that "U.S. companies deserve to have their products and proprietary knowledge protected from theft.  Unfortunately, in almost every category of goods capable of being manufactured in China, theft and piracy are costing American companies not only billions in lost sales, but also damage to brand reputation."

He elaborated by providing examples. In one example, a Chinese car maker, that is partly owned by a local government, is making a car that is identical to a car made by GM Daewoo. Evans said that "This incident defies an innocent explanation. The QQ and the Spark are twins because both cars are built from the same DNA -- the proprietary mathematical data and formulas -- that were stolen from GM Daewoo and used to build the QQ."

Evans added, "How can the rule of law take hold when those charged with enforcing the laws are either complicit in or tolerate illegal acts? The key innovations contributed by Chinese companies shouldn't be path-breaking achievements in the art of deception."

A second example is that of Pfizer and a popular drug. Evans said that China's "Patent Review Board later applied a new law retroactively to deny Pfizer's patent", while "phony" and counterfeit drug are available across China.

Third, he cited the example of sale of counterfeit NBA merchandise across the China. Fourth, he cited the example of piracy in the video game industry.

Evans also argued that IPR violations harm China. He said that "Piracy costs the most advanced countries in the world billions. But the fall-out from IPR violations also harms the Chinese economy because a shaky IPR environment discourages additional investment -- in high value industries. As Chinese companies increasingly develop sophisticated products or attempt to build brand names, they face growing vulnerability to IPR crimes."

Evans previously announced his resignation as Secretary of Commerce. President Bush nominated Carlos Gutierrez to replace him. The Senate Commerce Committee held a hearing on his nomination on January 5, 2004. See, story titled "Commerce Committee Holds Hearing on Nomination of Carlos Gutierrez" in TLJ Daily E-Mail Alert No. 1,051, January 6, 2005. The Committee voted to favorably report the nomination the next day. The full Senate is likely to confirm Gutierrez when it meets on January 20, 2005.

Jon Dudas, Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office (USPTO), also traveled to China.

4th Circuit Rules Subcontractor to Contract to Create Computer Records Systems Cannot Sue for Breach

1/13. The U.S. Court of Appeals (4thCir) issued its opinion [10 pages in PDF] in BIS Computer Solutions v. Richmond, a case involving who can sue for breach of a contract to create, install and maintain a computerized records management system. The Court of Appeals held that a subcontractor can not sue for breach of contract because it was not an intended third party beneficiary.

The City of Richmond contracted with Halifax Corporation, which subcontracted with BIS Computer Solutions. BIS was not a party to the contract, and the contract did not identify BIS. However, the contract did provide that Halifax would subcontract, and that Halifax could not change subcontractor without approval of Richmond.

BIS filed a complaint against Richmond alleging various claims, including breach of contract. The U.S. District Court (EDVa) held that BIS was a third party beneficiary of the contract, and allowed the case to go to the jury, which returned a verdict for BIS on the breach of contract claim. The District Court remitted the jury award, added interest, and entered judgment for BIS in the amount of $1,630,451.

Richmond appealed. The Court of Appeals reversed. It held, as a matter of state law and contract law generally, that BIS was merely an incidental third party of the contract, and therefore could not sue under the contract. Only intended third party beneficiaries may sue for breach of contract.

This case is BIS Computer Solutions, Inc. v. Richmond of Richmond, Virginia, U.S. Court of Appeals for the 4th Circuit, App. Ct. Nos. 04-1455 and 04-1466, appeals from the U.S. District Court for the Eastern District of Virginia, at Richmond, Judge Henry Hudson presiding, D.C. No. CA-02-889-3. The Court of Appeals further wrote that its opinion is unpublished, and that "Unpublished opinions are not binding precedent in this circuit. See Local Rule 36(c)."

SEC Issues Cease and Desist Order to Google

1/13. The Securities and Exchange Commission (SEC) issued a cease and desist order in its administrative proceeding titled In the Matter of Google Inc. and David C. Drummond. The order states that the two violated Section 5 of the Securities Act of 1933 by failing to register with the SEC the issuance of certain stock options to employees of Google. It also orders the two not to violate Section 5 again. The SEC imposed no fine or other penalties.

The order states that "Google, a Silicon Valley search engine technology company, issued over $80 million worth of stock options to the company's employees and consultants from 2002 to 2004 without registering the offering and without providing financial information required to be disclosed under the federal securities laws. As a result, Google employees and other persons accepted Google securities as part of their compensation without certain detailed financial information about the company. By issuing the options without registering the offering and without the legally required disclosures, Google violated the securities registration provisions of Section 5 of the Securities Act. As described below, Google's General Counsel, David C. Drummond, caused Google to violate these provisions."

The order provides that Google and Drummond must not violate Section 5 in the future. Google and Drummond cooperated with the SEC, admitted no wrongdoing, and consented to the cease and desist order.

Stephen Cutler, Director of the SEC's Enforcement Division stated in a release that "The securities laws exist to ensure full disclosure to investors, including employees accepting stock options as compensation. Companies cannot freely decide that they don't need to comply with the law."

The order and release both state the Google and Drummond violated the legal requirements regarding registration and disclosure obligations in the offer or sale of securities. However, neither the order nor the release allege that any investors or employees were harmed by the conduct of Google and Drummond.

In addition, the California Department of Corporations settled civil charges against Google for issuing certain stock options to Google's employees and consultants during 2003 without registering the offering and without providing financial information required to be disclosed under state securities laws in violation of Section 25110 of the California Corporations Code.

See also, Google's investor relations web page.

EU and US Tariff Systems Challenged

1/13. The Progressive Policy Institute (PPI), a new Democratic think tank, released a paper [7 pages in PDF] titled "Hoover's Last Legacy: Time to Fix America's Tariff System". The paper finds that the US system is unfair and hopelessly outdated. Also, the Office of the U.S. Trade Representative (USTR) filed a complaint with the World Trade Organization (WTO) regarding the European Union's tariff system. The USTR argues the EU system is inconsistent and complex.

The PPI paper, which was written by Edward Gresser, states that "while American tariffs seem ineffective at protecting U.S. jobs, they are very good at complicating the lives of single mothers. This is because tariffs are low on industrial inputs for factories, luxury goods, and other products bought mainly by businesses and wealthy consumers, but high on cheap clothes, shoes, food, and other products important to poor families. An extreme, but not unrepresentative, case is that of cheap sneakers, which carry the highest tariff rate in the system (48 percent). This tariff then travels through the system to end as a large, hidden sales tax. Bought only by the poor, these shoes have not been made in the United States since at least the 1970s." (Parentheses in original.)

The paper also points out that these tariffs, which are mirrored in other industrialized nations, also prevent poorer nations, particularly Asian and Muslim countries, from exporting products to industrialized nations.

This paper recommends that "An appropriate opportunity to scrap the system exists in the World Trade Organization (WTO)'s Doha Round of trade policy negotiations as part of a general reform of world trade regimes."

Concurrently, the USTR announced that it has requested the World Trade Organization (WTO) to form a dispute settlement panel in the case against the European Union regarding EU customs laws and regulations.

The USTR stated in a release that "Many important aspects of customs administration in the EU are handled differently by different member State customs authorities, resulting in inconsistencies from country to country. Although the EU is a customs union, there is no single EU customs administration. Lack of uniformity, coupled with lack of procedures for prompt EU-wide review, can hinder U.S. exports, particularly for small to mid-size businesses."

FCC News

1/13. The Federal Communications Commission (FCC) held a monthly meeting. It received reports from the bureaus and offices of the FCC. See, agenda [PDF] and FCC web page with hyperlinks to PowerPoint and PDF copies of the reports.

1/13. The Federal Communications Commission (FCC) published a notice in the Federal Register stating that it solicits comments regarding the progress made by the states in implementing E911 solutions for multi-line telephone systems (MLTSs). Comments are due by February 28, 2005. Reply comments are due by March 29, 2005. See, Federal Register, January 13, 2005, Vol. 70, No. 9, at Pages 2405 - 2406.

People and Appointments

1/13. John Rogovin, General Counsel of the Federal Communications Commission (FCC) will leave the FCC. He will become a partner at the law firm of Wilmer Cutler Pickering Hale & Dorr. Austin Schlick will become Acting General Counsel. See, FCC release [PDF]. Schlick has been Deputy General Counsel responsible litigation. He only joined the FCC in February of 2004. Before that, he worked in Department of Justice's (DOJ) Office of the Solicitor General. Before that, he was a partner in the Washington DC communications law firm of Kellogg Huber Hansen Todd & Evans. He also previously worked for the law firm of Klein Farr Smith & Taranto.

1/13. Barbara Douglas, Director of the Federal Communications Commission's (FCC) Office of Workplace Diversity, will leave the FCC. See, FCC release [PDF].

1/13. Wendy Wysong was named Deputy Assistant Secretary of Commerce for Export Enforcement in the Department of Commerce's Bureau of Industry and Security (BIS). She will also be the acting Assistant Secretary, pending the nomination and confirmation of a new Assistant Secretary. The BIS stated in a release that she will work on "enforcing the export control and antiboycott provisions of the Export Administration Regulations".

1/13. Brian Dietz was named Vice President, Communications, of the National Cable and Telecommunications Association (NCTA). He was previously the NCTA's Senior Director, Communications. See, NCTA release.

1/13. Amy Banse was named SVP of Content Development at Comcast Corporation, and EVP of Content Development at Comcast Cable. She has worked for Comcast since 1991. See, Comcast release.

1/13. Anne Chasser was named associate vice president for technology transfer and commercialization at the University of Cincinnati. She is a former Commissioner for Trademarks at the U.S. Patent and Trademark Office (USPTO). See also, story titled "Chasser to Leave USPTO" in TLJ Daily E-Mail Alert No. 948, July 29, 2005.

Johanna Shelton to Become Minority Counsel for House Commerce Committee

Joanna Shelton1/12. Johanna Shelton (at right) will become minority counsel to the House Commerce Committee on February 1, 2005. She is well versed in communications, media, intellectual property and technology issues. She is currently a Legal Advisor to Federal Communications Commission (FCC) Commissioner Jonathan Adelstein on media issues.

She previously worked for Rep. Rick Boucher (D-VA), who is a senior member of the House Commerce Committee, and its Telecommunications and the Internet Subcommittee, as well as the House Judiciary Committee, and its Courts, the Internet and Intellectual Property Subcommittee.

She worked for Rep. Boucher during the 107th and early 108th Congresses at the time that he introduced HR 5544 (107th) and HR 107 (108th), the "Digital Media Consumers' Rights Act of 2003", a bill that would provide a fair use exception to the anti-circumvention provisions of the Digital Millennium Copyright Act (DMCA); HR 1066 (108th), the "Benefit Authors without Limiting Advancement or Net Consumer Expectations (BALANCE) Act of 2003"; and, HR 2724 (107th), the "Music Online Competition Act", which is also known as MOCA.

Before working for Rep. Boucher, Shelton worked as an Attorney Advisory in the Policy and Program Planning Division of the FCC's Common Carrier Bureau. The Wireline Competition Bureau was previously known as the Common Carrier Bureau, the Competition Policy Division was previously known as the Policy and Program Planning Division, and Johanna Shelton was previously known as Johanna Mikes.

Before going to work for the FCC's Common Carrier Bureau, she worked for the law firm of Latham & Watkins.

Commissioner Adelstein praised her work in a release [PDF].

FRB Governor Discusses Asset Prices and Economic Performance

1/12. Roger Ferguson, Vice-Chairman of the Federal Reserve Board (FRB), gave a long speech titled "Recessions and Recoveries Associated with Asset-Price Movements: What Do We Know?" to the Stanford Institute for Economic Policy Research in Stanford, California.

Since the recession of 2001 immediately followed a sharp decline in stock prices, Ferguson examined to what extent changes in stock prices affect overall economic output, and how any relationship might inform economic policy. He concluded that "sweeping generalizations regarding asset-price-bust recessions and subsequent recoveries are not easily made. Idiosyncrasies dominate comparisons in the historical data. As such, each recession-and-recovery episode would seem to call for its own tailor-made policy response."

He also said that retrospectively identifying bubbles and busts, and overvaluations and underevaluations, is difficult, and "arguably impossible in real time. As a result, although asset-price booms and busts are often linked to recessions, a clear-cut policy response to suspected waves of exuberance cannot be suggested."

Roger FergusonFerguson (at right) reviewed the entire U.S. economy, with comparisons to other major economies, over the last 30 years. However, Ferguson also focused several times on the U.S. technology sector, and the rise and decline of tech stocks in the 1990s.

He stated that "The 1990s will be remembered not only for this remarkably long period of prosperity but also for the excitement of the ``new economy´´ and, less happily, for the sharp decline in equity prices that marked its end. This market correction was most dramatic in sectors of the economy associated with new technologies, the very sectors that had experienced the most pronounced run-up in equity prices."

He also analyzed the effect of rising asset prices on businesses. First, he said that it raises the net worth of companies that own assets, which in turn, raises the business' creditworthiness, and lowers the interest rates that they pay; and these, in turn, increase business investment.

He continued that if asset prices rise in one sector, such as technology, more than others, this could have adverse allocative consequences for the economy.

He continued, "In particular, if asset prices do not accurately reflect the productive potential of the underlying asset, investment will be channeled to the wrong sectors. However, an asset-price boom in a specific sector might simply reflect investor expectations of higher productivity rather than a bubble, a term I will define in a few moments. Investment would still tend to be channeled to that sector, but for good reason in this instance. One example of a sector-specific jump in asset prices and an associated investment increase is the case of the U.S. technology sector in the late 1990s. Over the five years from the end of 1994 to the end of 1999, prices of nontech stocks tripled while those of tech stocks more than quintupled. Correspondingly, the average level of real investment in computers and other high-tech capital goods was more than 100 percent higher over the 1995-99 period than its level during 1994, while spending on other types of fixed capital was only about 15 percent higher than in 1994."

More News

1/12. Secretary of Commerce Don Evans gave a speech in Beijing, China to the AmCham China and the U.S.-China Business Council. He stated that "Ending the climate of loose IPR protections in China is a critically important goal and I'll be speaking further about piracy and counterfeiting at the Ambassador's IPR roundtable tomorrow." See also, DOC release and USPTO release.

1/12. The U.S. Court of Appeals (8thCir) issued its opinion [14 pages in PDF] in USA v. Mugan, an appeal from a criminal conviction for a federal pormography related offense. The Constitutional basis for this statute is the Commerce Clause. In this case, the defendant argued that his conduct did not reach interstate commerce because he had not sold or distributed his photographs. The Appeals Court affirmed the conviction. It held that the interstate commerce element was met solely by Mugan's use of a digital camera that stored images on a memory card. The Court wrote that "By storing the images on this digital card, Mugan placed them on a medium which would permit their immediate and widespread dissemination over the internet. Although locally produced and possessed, Mugan’s images were thus ready to be offered on the national market ..." This case is USA v. Allan C. Mugan, U.S. Court of Appeals for the 8th Circuit, App. Ct. No. 03-4074, an appeal from the U.S. District Court for the Northern District of Iowa.

1/12. The Federal Communications Commission (FCC) released a Notice of Apparent Liability for Forfeiture (NAL) that proposes to fine Univision Radio License Corporation, and its subsidiary, Tichenor License Corporation, $28,000 for the apparent willful broadcast of a telephone conversation between an on-air radio personality and the recipient of the call without first informing the recipient that the call was being broadcast, in violation of 47 C.F.R. § 73.1206. See also, FCC release. The FCC also released a NAL [PDF] that proposes to fine Scripps Howard Broadcasting Company, licensee of Station WEWS-TV, in Cleveland, Ohio, $6,000, and a NAL [PDF] that proposes to fine NOE Corp. LLC, licensee of Station KNOE-TV, in Monroe, Louisiana, $10,000.

1/12. The National Institute of Standards and Technology (NIST) published a notice in the Federal Register requesting comments regarding new or revised requirements for Federal Information Processing Standard (FIPS) 140-3, which pertains to security for cryptographic modules that are utilized by federal agencies. The notice states that the NIST "plans to develop Federal Information Processing Standard (FIPS) 140-3, which will supersede FIPS 140-2, Security Requirements for Cryptographic Modules. FIPS 140-2, approved by the Secretary of Commerce and announced in the Federal Register (June 27, 2001, Volume 66, Number 124, Pages 34154-34155), identifies requirements for four levels of security for cryptographic modules that are utilized by Federal agencies to protect the security of Federal information systems." The deadline to submit comments is February 28, 2005. See, Federal Register, January 12, 2005, Vol. 70, No. 8, at Pages 2122 - 2123.

Bush to Nominate Chertoff to be Secretary of Homeland Security

1/11. President Bush announced his intent to nominate Judge Michael Chertoff to be Secretary of Homeland Security. If confirmed by the Senate, he will replace Tom Ridge as head of the Department of Homeland Security (DHS). Also, at a White House event to introduce Chertoff, Bush mentioned cyberterrorism.

Michael ChertoffChertoff (at left) is currently a Judge of the U.S. Court of Appeals (3rdCir). Before that, he was Assistant Attorney General (AAG) in charge of the Department of Justice's (DOJ) Criminal Division. In 1995 and 1996, he was Special Counsel to the Senate committee conducting the Whitewater investigation. He has also held many federal prosecutorial positions.

He worked at the law firm of Latham & Watkins after his work for the Whitewater committee, and before his appointment to the DOJ in the Spring of 2001.

President Bush stated at a White House event that "Under the direction of Secretary Tom Ridge, the Department of Homeland Security has improved airline security, enhanced the protection of our borders and ports of entry, and taken vital steps to safeguard the nation's critical infrastructure."

Bush added that "The Department of Homeland Security will also continue working to reduce the nation's vulnerabilities to weapons of mass destruction and cyberterrorism. We are engaged in a daily mission to prepare effective responses to any future attack and to closely coordinate homeland security efforts with state and local officials." See, transcript.

Sen. Susan Collins (R-ME), the Chairman of the Homeland Security and Governmental Affairs Committee, stated in a release that "Michael Chertoff is a strong candidate for this important post. Since his time as Chief of the Criminal Division at the Justice Department, prior to his appointment to the federal bench, Judge Chertoff has been a key figure in the nation's legal efforts to fight terrorism." She added that "The Committee will begin its review of his nomination and hold a confirmation hearing as soon as possible."

Sen. Joe Lieberman (D-CT), the ranking Democrat on the Committee, stated in a release that the DHS "is still struggling to integrate its many component parts into a well-organized machine. It has not yet articulated a clear homeland security strategy. And it is behind in its work to catalog and assess threats to the nation’s core energy, telecommunications, water, transportation, and financial networks. High turnover and scarce resources are partially to blame. But, ultimately, the Department will succeed only with muscular leadership from the top."

Chertoff was AAG in the DOJ at the time of the terrorists attacks of September 11, 2001. He was one of the drafters of the USA PATRIOT Act. He testified, and accompanied Attorney General John Ashcroft when he testified, regarding the USA PATRIOT Act on several occasions.

For example, he testified before the House Judiciary Committee (HJC) on September 24, 2001. See, story titled "Electronic Surveillance Debated" in TLJ Daily E-Mail Alert No. 272, September 25, 2001. He also testified before the Senate Judiciary Committee on November 28, 2001. See, stories titled "Chertoff Discusses Electronic Surveillance Under USA PATRIOT Act" and "Senate Judiciary Committee Holds Hearing on Anti Terrorist Measures" in TLJ Daily E-Mail Alert No. 317, November 29, 2001.

Chertoff also testified before the HJC's Subcommittee on Crime on June 12, 2001 regarding cybercrime. See, prepared testimony.

Chertoff also submitted prepared testimony for, but did not appear at, a Subcommittee on Crime hearing on HR 556, the "Unlawful Internet Gambling Funding Prohibition Act", and HR 3215, the "Combating Illegal Gambling Reform and Modernization Act" on November 29, 2001. See, story titled "House Committee Holds Hearing on Internet Gambling Bills" in TLJ Daily E-Mail Alert No. 318, November 30, 2001.

Liscouski to Leave DHS

1/11. Robert Liscouski, Assistant Secretary for Infrastructure Protection at the Department of Homeland Security (DHS), announced that he will leave in early February. See, DHS release.

Most of the top leaders of the DHS have either left, or announced their imminent departures. In the areas of critical infrastructure protection, and cyber security, all of the political appointees responsible for policy are either gone or going.

Amit Yoran was the Director of the National Cyber Security Division (NCSD) of the Information Analysis and Infrastructure Protection Directorate (IAIP) at the DHS. He resigned on October 1, 2004. Yoran came to the DHS with an extensive background in information security. He has not been replaced.

See, stories titled "Amit Yoran Named Head of Cyber Security Division" in TLJ Daily E-Mail Alert No. 740, September 16, 2003; and "Cyber Security Chief Yoran Resigns" in TLJ Daily E-Mail Alert No. 989, October 4, 2004.

Liscouski, who has a background in technology, was Yoran's superior. And, he is now leaving. Liscouski's superior is Frank Libutti, the Under Secretary for Information Analysis and Infrastructure Protection. Libutti, a former Marine General, announced on December 23 that he will soon leave the DHS. See, DHS release.

Moreover, Secretary of Homeland Security Tom Ridge announced at the end of November that he would resign. See, story titled "Tom Ridge Resigns" in TLJ Daily E-Mail Alert No. 1,028, December 1, 2004. And, on December 20, James Loy, Deputy Secretary at the Department of Homeland Security, announced that he will remain at the DHS until March 1, 2005, or until a successor is confirmed.

6th Circuit Rules on Federal Question Jurisdiction, Copyright Act Preemption, and Complete Preemption Doctrine

1/11. The U.S. Court of Appeals (6thCir) issued its opinion [7 pages in PDF] in Ritchie v. Williams, a case regarding 17 U.S.C. § 301 and the doctrine of complete preemption.

Basically, state courts can hear suits involving either state or federal claims. Federal courts can hear only claims arising under federal laws, and diversity suits. Under the well pleaded complaint rule, whether a case is one arising under the Constitution or a law or treaty of the United States is determined from what appears in the plaintiff’s complaint. For example, federal defenses or counterclaims cannot serve as the basis for federal question jurisdiction.

In the present case, one party filed a complaint in state court that stated only state law claims. Nevertheless, the other party removed the case to federal court, and the District Court and Court of Appeals both found that there is federal jurisdiction. The courts applied the Copyright Act's preemption section, and the doctrine of complete preemption.

See, full story.

IBM Releases Statement Regarding Software Patents and Open Source Software

1/11. IBM released a document [20 pages in PDF] titled "IBM Statement of Non-Assertion of Named Patents Against OSS". It lists the numbers and titles of 500 U.S. patents held by IBM. This document, and associated releases, state that others may use the inventions disclosed in these patents, without license or payment of royalties, subject to certain conditions and exceptions. This statement applies only to open source software use. And, this statement is revoked as to anyone who asserts an intellectual property claim against open source software.

These 500 patents constitute about 5% of IBM's 10,000 software patents. One can retrieve the full text of each of these patents by entering the patent number in the U.S. Patent and Trademark Office's (USPTO) patent search page.

IBM stated in its announcement that "It is our intent that this pledge be legally binding and enforceable by any open source software developer, distributor, or user who uses one or more of the 500 listed U.S. patents and/or the counterparts of these patents issued in other countries."

The document states that "IBM hereby commits not to assert any of the 500 U.S. patents listed below, as well as all counterparts of these patents issued in other countries, against the development, use or distribution of Open Source Software."

IBM defines the key term "Open Source Software" as "any computer software program whose source code is published and available for inspection and use by anyone, and is made available under a license agreement that permits recipients to copy, modify and distribute the program’s source code without payment of fees or royalties. All licenses certified by and listed on their website as of 01/11/2005 are Open Source Software licenses for the purpose of this pledge."

There is another huge exception stated at the end of the document. IBM retains the option of suing anyone for infringement of any of these 500 patents if they "assert patents or other intellectual property rights of its own against Open Source Software". The document does not define "other intellectual property".

IBM states that "the commitment not to assert any of these 500 U.S. patents and all counterparts of these patents issued in other countries is irrevocable except that IBM reserves the right to terminate this patent pledge and commitment only with regard to any party who files a lawsuit asserting patents or other intellectual property rights against Open Source Software".

Open Source Software, as defined here by IBM, hypothetically, could infringe the intellectual property rights of others. Thus, anyone who uses Open Source Software that uses any of the claims in any of IBM 500 patents would be subject to a lawsuit by IBM, if that user were to defend its legitimate intellectual property rights.

People and Appointments

1/11. Nicholas Godici, the Commissioner for Patents at the U.S. Patent and Trademark Office (USPTO), will not seek reappointment as Commissioner for Patents. His term expires on March 29, 2005. See, USPTO release.

1/11. John Connors, the Chief Financial Officer of Microsoft, will leave to become a partner at a Seattle area venture capital firm. See, Microsoft release.

1/11. Geoff Tate was named Chairman of the Board of Rambus, Inc. He will replace Bill Davidow, who will remain as a member of the Board. Harold Hughes was named to replace Tate as Chief Executive Officer. See, Rambus release.

More News

1/11. The U.S. Patent and Trademark Office (USPTO) published a notice in the Federal Register stating that February 10, 2004 is the deadline to submit comments to the USPTO regarding revisions to the rules of practice in patent cases to implement the Cooperative Research and Technology Enhancement Act of 2004 (CREATE Act). See, Federal Register, January 11, 2005, Vol. 70, No. 7, at Pages 1818-1824. This bill was S 2192 in the 108th Congress. President Bush signed it on December 10, 2004. See, story titled "President Signs CREATE Act" in TLJ Daily E-Mail Alert No. 1,037, December 14, 2004.

1/11. The U.S. Court of Appeals (DCCir) issued its opinion [11 pages in PDF] in Kay v. FCC, an appeal from a final order of the Federal Communications Commission (FCC) denying James Kay's application for review of the decision of the FCC's Wireless Telecommunications Bureau finding untimely the "finder's preference" request Kay filed involving specialized mobile radio systems (SMR) station WNPA325. The Court of Appeals affirmed the FCC. This case is James Kay v. FCC, App. Ct. No. 04-1014. Judge Henderson wrote the opinion of the Court.

Go to News from January 6-10, 2005.