News from February 11-15, 2005

House to Take Up Broadcast Decency Enforcement Act

2/15. The House Rules Committee adopted a rule for consideration of HR 310, the "Broadcast Decency Enforcement Act of 2005". It is a structured rule that makes in order only one amendment [PDF], offered by Rep. Fred Upton (R-MI) and Rep. Ed Markey (D-MA).

This is an amendment in the nature of a substitute offered by the sponsors of the bill. It makes several changes to the bill as approved by the House Commerce Committee on February 9, 2005. Several of these changes make it harder for the Federal Communications Commission (FCC) to find individuals, such as performers, liable for violations. For example, it would change the current standard for individuals from "willfully or intentionally made the utterance" to "willfully and intentionally made the utterance, knowing or having reason to know that the utterance would be broadcast".

The amendment in the nature of a substitute would also require the FCC, in proceedings against individuals, to take into consideration "the financial impact of a forfeiture penalty on that individual".

See also, story titled "House Commerce Committee Approves Bill to Increase Broadcast Indecency Fines" in TLJ Daily E-Mail Alert No. 1,074, Feb. 10, 2005.

9th Circuit Issues En Banc Opinion in v. L.L.Bean

2/15. The U.S. Court of Appeals (9thCir) issued it en banc opinion [32 pages in PDF] in v. L.L.Bean, a case involving pop up ads on web sites, and trademarks. The majority held that since the parties just settled all issues in the case, except the dispute over whether the District Court has personal jurisdiction over L.L.Bean, the appeal is moot, and the case must be dismissed.

The parties have settled their dispute. Moreover, opinions regarding application of the Article III case or controversy requirement to appeals in settled declaratory judgment actions may not be important. Nevertheless, this en banc decision is significant to the extent that it leaves unresolved issues regarding when web based activity can serve as the basis for personal jurisdiction over an out of state company that engages in e-commerce.

There is considerable variation among different countries, different federal circuits, and within the 9th Circuit. The District Court and three judge panel reached opposite conclusions. The en banc panel's dissent noted that "We vacated the decision of the three-judge panel when we took the appeal en banc, but the panel decision is in the Federal Reporter for anyone to read."

The dissent added that "The disarray in our case law is patent. How else to explain such dramatically different holdings from our judges -- one judge dismissing for lack of jurisdiction and three judges holding that there is general jurisdiction? It is not only the litigants in this case that would benefit from an en banc opinion in this appeal. All potential litigants in this circuit would benefit."

The U.S. Supreme Court has yet to take a case that involves personal jurisdiction and web based activity. The present case is unlikely to serve as a vehicle for Supreme Court review.

L.L.Bean is a corporation based in the state of Maine that sells clothing and related items to consumers by direct mail and over the internet. Its offices, and manufacturing and distribution facilities, are located in Maine. It has some stores, but none in the state of California. While it sells to customers in California by mail and internet, and mails catalogues to persons in California, it has no presence there., which is now Claria Corporation, is Delaware corporation with its principle place of business in California. It developed and distributed software for use by consumers that, among other things, caused pop up ads to appear over the e-commerce web sites visited by consumers using the software.

L.L.Bean wrote a letter to, in California, demanding that it cease violating its trademark rights.

Gator filed a complaint in U.S. District Court (NDCal) against L.L.Bean seeking declaratory relief that its software does not violate L.L.Bean's state or federal trademark or other rights. L.L.Bean moved to dismiss the complaint for lack of personal jurisdiction over it. The District Court dismissed the complaint. Gator appealed.

A three judge panel of the Appeals Court reversed. On September 2, 2003, it issued its opinion [16 pages in PDF] holding that L.L. Bean has substantial or continuous and systematic contacts with California sufficient to support a finding of general jurisdiction. See, story titled "9th Circuit Rules on Personal Jurisdiction Over Internet Retailers" in TLJ Daily E-Mail Alert No. 731, September 3, 2003.

On April 29, 2004 the Court of Appeals ordered that the case be reheard en banc. After briefing and oral argument before the en banc panel, the parties reached a confidential settlement of the case.

The Court wrote that "Under the terms of the settlement, Gator agreed to place no more than twenty-five pop-up advertisements per month on the L. L. Bean website between August 21, 2004, and November 20, 2004. The agreement further provided that, after this three-month period had elapsed, Gator would permanently discontinue the use of all such advertisements on the L. L. Bean website. Gator also agreed to make a monetary payment to L. L. Bean. In exchange for these concessions, L. L. Bean renounced all claims arising from Gator's use of pop-up advertisements prior to -- or in accordance with -- the agreement."

However, both parties also wrote to the Court of Appeals that this settlement "does not provide for the dismissal of this appeal."

The majority of the en banc panel disagreed, and on its own motion dismissed the appeal for mootness, based upon the settlement. It wrote that Article III of the U.S. Constitution limits the federal courts' jurisdiction to "cases and controversies", and that "Because the parties’ settlement agreement has wholly eviscerated the dispute that prompted Gator to initiate this suit, Gator’s request for declaratory relief no longer gives rise to a live case or controversy."

However, Judge Fletcher wrote a dissent, in which Judges Graber and Paez joined. He wrote that "The parties continue to dispute whether a federal district court in California has personal jurisdiction over L.L. Bean. They have disputed this since the beginning of this litigation. Both parties had, and still have, an interest in our resolution of that dispute. Depending on how we resolve it, either Gator owes L.L. Bean $10,000 or it does not. Nothing more is required for our continuing jurisdiction."

This case is Corp. v. L.L. Bean Inc., U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 02-15035, an appeal from the U.S. District Court for the Northern District of California, Magistrate Judge Maria-Elena James presiding, D.C. No. CV-01-01126-MEJ.

Panel Discusses Adoption of Info Tech by Government

2/15. The Cato Institute hosted a book forum. William Eggers discussed his book titled Government 2.0: Using Technology to Improve Education, Cut Red Tape, Reduce Gridlock, and Enhance Democracy [Amazon].

Eggers reviewed how information technologies are changing government, with emphasis on education and transportation. For example, he said the new technologies could lead to per mile pricing for road use, and thereby replace the gas tax. He suggested that road could become like utilities.

Robert Atkinson (PPI), Stephen Slivinski (Cato) commented on the book and the use of information technology in government. Jim Harper (Cato) moderated.

Robert Atkinson is VP of the Progressive Policy Institute (PPI), a Democratic think tank based in Washington DC. He is also the Director of its Technology and New Economy Project. He has also just authored a book titled The Past And Future Of America's Economy: Long Waves Of Innovation That Power Cycles Of Growth [Amazon].

Atkinson argues in his book that there have been periodic transformations of the economy that have resulted from new technologies. In the late 1800s electricity and cheap steel led to a factory based economy. In the mid 20th Century, automation, electronics and chemicals led to a mass production economy. And, since the 1990s there has been an information technology revolution. Atkinson argued at the book forum that transformations in the economy cause, on a time lagged basis, transformations in government. Thus, the factory based economy ultimately contributed to the progressive era changes in government. He said that the information technology revolution will, eventually, revolutionize government, and for the better.

Stephen Slivinski, a Cato libertarian, stated that he worries that adoption of information technologies by government may not result in a reduced scope of government. Rather, new technologies may create a "Leviathan with e-mail". See, Encyclopedia Britannica entry on Leviathan, Thomas Hobbes's 1651 book titled Leviathan [Amazon], and Robert Higgs' 1987 book titled Crisis and Leviathan [Amazon].

He also said that adoption of information technology by government agencies may result in cost savings, which in turn, could enable these agencies to expand their programs.

People and Appointments

2/15. The Senate confirmed Michael Chertoff to Secretary of Homeland Security by a vote of 98-0. See, Roll Call No. 10. Harriet Miers promptly administered the oath of office. She is Counsel to the President. She replaced Alberto Gonzales, who is now Attorney General. See, White House release.

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2/15. The House Rules Committee adopted a rule for consideration of S 5, the "Class Action Fairness Act of 2005". It is a structured rule that makes in order only one amendment [27 pages in PDF], offered by Rep. John Conyers (D-MI) and other Democrats. It is an amendment in the nature of a substitute. The Senate approved S 5 by a vote of 72-26 on February 10, 2005. See, Roll Call No. 9 and story titled "Senate Approves Class Action Reform Bill" in TLJ Daily E-Mail Alert No. 1,075, February 11, 2005.

Bush Seeks Extension of Sunsetting Provisions of the PATRIOT Act

2/14. President George Bush spoke at a swearing in ceremony for the new Attorney General, Alberto Gonzales. He renewed his call for the Congress to permanently extent all section of the USA PATRIOT Act that are scheduled to sunset at the end of 2005. See, full story.

Verizon to Acquire MCI WorldCom

2/14. Verizon Communications and MCI WorldCom announced that "Verizon has agreed to acquire MCI for $4.8 billion in equity and $488 million in cash", and that "The Boards of Directors of both companies have approved the agreement". See, Verizon release and substantially identical MCI WorldCom release.

The two companies elaborated that "MCI shareowners will receive 0.4062 shares of Verizon common stock for each common share of MCI. This is worth $4.795 billion and equivalent to $14.75 per MCI share, based on Verizon's closing price on Friday, Feb. 11."

"MCI shareowners will also receive $1.50 per MCI share in cash, worth $488 million. This consideration is subject to adjustment at closing and may be decreased based on MCI's bankruptcy claims-related experience." They added that "MCI will pay its shareowners quarterly and special dividends of $4.50 per share, worth $1.463 billion. This includes a 40-cent-per-share quarterly dividend approved by the MCI Board on Friday, Feb 11."

The transaction is also subject to regulatory approvals.

On January 31, 2005, SBC Communications announced that it would acquire AT&T. See, story titled "SBC to Acquire AT&T" in TLJ Daily E-Mail Alert No. 1,067, February 1, 2005.

Critics of telecom industry mergers again criticized the Verizon MCI WorldCom deal. For example, Mark Cooper of the Consumer Federation of America stated in a release that "As a result of these mergers and the push to deregulate markets with feeble competition, it will be harder and more expensive for budget conscious households to get basic local and long distance service."

10th Circuit Rules in Copyright Case Involving Koraoke Sound Recordings

2/14. The U.S. Court of Appeals (10thCir) issued its opinion in Palladium Music v. Eatsleepmusic, a copyright case involving karaoke music tracks. The District Court, and Appeals Court, held that the karaoke producer, which did not obtain license from the owners of the underlying works, has no claim for copyright infringement against a third party that took its recordings and distributed them over the internet. The Court held that the karaoke producer's works are derivative works, and its copyrights in the sound recordings are invalid and unenforceable because it failed to obtain compulsory or consensual licenses from the copyright owners of the underlying musical compositions as required by 17 U.S.C. § 115.

Palladium Music, Inc. produced sound recordings of popular music hits that enable people to sing along with these popular hits. While Palladium produces a sound similar to that of the original artist, it does not incorporate any previously recorded sound components in its productions. Its products are original sound recording of previously copyrighted musical compositions. In the late 1990s Palladium produced and sold these sound recordings without licensing from the copyright owners the underlying musical works. Palladium registered copyrights with the U.S. Copyright Office.

Eatsleepmusic, Inc. (ESM) then delivered Palladium's sound recordings through ESM's online digital delivery services, without license from Palladium.

Palladium filed a complaint in U.S. District Court (WDOkla) against ESM and another entity alleging copyright infringement. The owners of the underlying musical works are not parties to this appeal.

The District Court held that Palladium does not own valid copyrights for its sound recordings, and thus cannot maintain an action for copyright infringement. Palladium appealed.

The Court of Appeals affirmed.

It began with the statement that "To establish copyright infringement, a plaintiff must prove (1) ownership of a valid copyright and (2) unauthorized copying of constituent elements of the work that are original." Moreover, "A plaintiff's presentation of a certificate of registration from the U.S. Copyright Office usually constitutes prima facie evidence of a valid copyright and of the facts stated in the certificate." However, a defendant may rebut this presumption.

The Court next reasoned that Palladium's recordings are derivative works within the meaning of 17 U.S.C. § 101.

This section provides, in part, that "A ``derivative work´´ is a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a ``derivative work´´."

Then, 17 U.S.C. § 106, which identifies the exclusive rights of copyright, enumerates the right "to prepare derivative works based upon the copyrighted work".

The Court continued that the exclusive rights of copyright owners are limited by the compulsory licensing provisions of 17 U.S.C. § 115. But, Palladium did not fulfill the requirements of this section. The Court wrote that "the exclusive rights of copyright owners of previously published musical works are limited only in that they are required (hence the term "compulsory") to license the work to a party who has complied with Section 115. The concept is simple.  In order for a party in Palladium's position to lawfully use preexisting, copyrighted musical works to create and sell its sound recordings, it must first secure the appropriate licensing from the copyright owners of those musical works. ... By failing to comply with Section 115, Palladium has illegally used the preexisting material. See 17 U.S.C. § 103(a). As a result, Palladium's copyrights in the sound recordings at issue are invalid and unenforceable."

This case is Palladium Music, Inc. v. Eatsleepmusic Inc. and Tennessee Production Center, Inc., d/b/a Chartbuster Karaoke, U.S. Court of Appeals for the 10th Circuit, App. Ct. Nos. 04-6061 and 04-6097, appeals from the U.S. District Court for the Western District of Oklahoma, D.C. No. CIV-03-206-A.

Class Action Law Firm Sues Dell Over Sales and Financing Practices

2/14. A class action law firm filed a complaint [PDF scan] in Superior Court for San Francisco County against Dell and others alleging violation of California statutes and common law in connection with an alleged bait and switch scheme, and financing practices.

The class action law firm of Lerach Coughlin Stoia Geller Rudman & Robbins filed the complaint. The two named plaintiffs are Rosemary Weber and Jonathan Holtzman. The complaint seeks class action status. The defendants are Dell Inc., Dell Financial Services L.P., and CIT Bank.

The nine count complaint pleads various state common law claims, statutory claims of unlawful, unfair and fraudulent business practices, and statutory claims of false advertising, both with respect to sales practices and financing practices.

The complaint states that "Although Dell promotes itself as a high-tech company with award winning customer service, in reality, Dell uses it high-tech advertising and sophisticated inventory control system to perpetrate unlawful bait and switches on unsuspecting customers. Dell's bait and switch is simply a technology-aided variant of an illegal practice in existence for generations. Dell baits consumers with advertisements for computers and computer products at rock-bottom prices. Then, when the consumer contacts Dell to purchase a Dell product via the internet or telephone, Dell makes the switch, substituting lesser quality components, increasing the purchase price without notice, canceling orders Dell is unwilling to honor, or steering the unsophisticated consumers to other higher priced computer systems which Dell wants to unload, based on inventory control considerations ..."

The complaint adds that "since every consumer purchasing a Dell computer cannot negotiate Dell's terms, Dell also unlawfully and unfairly restricts the consumers' avenues to challenge the bait and switch, if they happen to discover it. Indeed, in order to do business with Dell, a consumer cannot negotiate Dell's terms and conditions of sale, including provisions such as ``[p]ayment terms are within Dell's sole discretion, and, unless otherwise agreed to by Dell, payment must be made at the time of purchase ... Your order is subject to cancellation by Dell, at Dell's sole discretion.´´ Dell's unconscionable contract terms violate California law and are not enforceable against consumers."

The complaint alleges violation of the Consumers Legal Remedies Act (Civil Code § 1750, et seq.), fraud and deceit, and breach of contract. It also alleges violation of Business & Professions Code § 17200, both with respect to sales and advertising.

It also alleges violation of the Business & Professions Code § 17500, et seq., violation of the Unruh Act (Civil Code § 1801 et seq.), violation of the Consumer Legal Remedies Act (Civil Code§ 1750 et seq.), and false advertising in violation of the Business & Professions Code § 17500.

See also, Lerach release. This case is Rosemary Weber and Jonathan Holtzman v. Dell Inc., Dell Financial Services L.P., CIT Bank, and Does 1-100, Superior Court for the State of California, San Francisco County, Sup. Ct. No. CGC 05 438648.

People and Appointments

2/14. President Bush renominated twelve persons to be Judges of various U.S. Courts of Appeals. He announced that he would make these twelve nominations back on December 23, 2004. These are all persons whose previous nominations were delayed or obstructed by Senate Democrats in the 108th Congress. The twelve are as follows:
Terrence Boyle (4th Circuit)
William Haynes (4th Circuit)
Priscilla Owen (5th Circuit)
David McKeague (6th Circuit)
Susan Neilson (6th Circuit)
Henry Saad (6th Circuit)
Richard Griffin (6th Circuit)
William Myers (9th Circuit)
William Pryor (11th Circuit)
Janice Brown (DC Circuit)
Brett Kavanaugh (DC Circuit)
Thomas Griffith (DC Circuit).
Bush also renominated eight persons to be U.S. District Court Judges. Each of these had been nominated in the 108th Congress. The eight are as follows:
Paul Crotty (S.D. New York)
James Dever (E.D. North Carolina)
Robert Conrad (W.D. North Carolina)
Judge Thomas Ludington (E.D. Michigan)
Judge Daniel Ryan (E.D. Michigan)
Judge Sean Cox (E.D. Michigan)
Michael Seabright (District of Hawaii)
Peter Sheridan (District of New Jersey).
See, White House release. See also, story titled "Bush to Renominate 20 for Federal Judgeships" in TLJ Daily E-Mail Alert No. 1,044, December 27, 2004.

2/14. President Bush nominated John Bellinger to be Legal Adviser of the Department of State, Nicholas Burns to be an Under Secretary of State (Political Affairs), and David Welch to be an Assistant Secretary of State (Near Eastern Affairs). See, White House release.

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2/14. The Federal Election Commission (FEC) adopted an advisory opinion [PDF] in response to a request for an advisory opinion from the Missouri Broadcasters Association (MBA). The FEC concluded that the MBA did not make an in-kind contribution, within the meaning of the Federal Election Campaign Act (FEC), and the regulations thereunder, to Sen. Kit Bond (R-MO) by charging his campaign the Lowest Unit Charge (LUC) for advertising time, when he may not have been entitled to the LUC under the Communications Act. This opinion is number AO 2004-43.

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2/11. The Copyright Office (CO) published a notice in the Federal Register that announces technical corrections to the CO's final rule, announced on December 28, 2004, permitting copyright applicants to request reconsideration of decisions to refuse registration. See, Federal Register, February 11, 2005, Vol. 70, No. 28, at Page 7177.

2/11. Clay Johnson, the Deputy Director for Management at the Office of Management and Budget (OMB), wrote a letter [PDF] to the heads of executive departments and agencies asking them "to identify to OMB the senior official who has the overall agency-wide responsibility for information privacy issues.

Go to News from February 6-10, 2005.