Greenspan Addresses Technology and Consumer Credit

4/8. Alan Greenspan, Chairman of the Federal Reserve Board, gave a speech titled "Consumer Finance", in which he discussed the impact of technology on financial services markets.

He said that "As has every segment of our economy, the financial services sector has been dramatically transformed by technology. Technological advancements have significantly altered the delivery and processing of nearly every consumer financial transaction, from the most basic to the most complex."

However, in this speech, he focused on just one type of transaction, extending credit to consumers. He said that "information processing technology has enabled creditors to achieve significant efficiencies in collecting and assimilating the data necessary to evaluate risk and make corresponding decisions about credit pricing."

This, he said, has led to "reduced the costs of evaluating the creditworthiness of borrowers", and improved access to credit for consumers.

On Wednesday, April 13, the Senate Judiciary Committee will hold a hearing titled "Securing Electronic Personal Data: Striking a Balance Between Privacy and Commercial and Governmental Use". This hearing follows recent disclosures by data aggregators and financial institutions that they have lost data, or sold data to identity thieves. See, for example, story titled "House Subcommittee Holds Hearing on Data Aggregators" in TLJ Daily Alert No. 1,096, March 16, 2005.

People and Appointments

4/8. President Bush announced his intent to appoint Robert Stephan to be Assistant Secretary for Infrastructure Protection, and designate Stephan acting Under Secretary for Information Analysis and Infrastructure Protection, at the Department of Homeland Security. Stephan is currently Special Assistant to the Secretary of Homeland Security, Michael Chertoff. He was previously Senior Director for Critical Infrastructure Protection in the Office of Homeland Security. See, White House release.

4/8. The Senate Commerce Committee issued a release listing several recent additions to the Committee's staff. Harry Wingo was named Counsel on telecommunications issues. He previously worked as a Legal Advisor in the Federal Communications Commission's (FCC) Wireless Telecommunications Bureau, as Special Counsel to the FCC's General Counsel, and as an attorney for the law firm of Skadden Arps. He is also a former Navy SEAL officer. Paul Nagle was named Counsel on telecommunications issues. He previously worked as an Attorney Advisor in the FCC's Office of Legislative Affairs, and as an attorney in the Washington DC office of the law firm of Wilkinson Barker & Knauer. Other recent additions to the Committee's staff include Mark Davis, Aaron Saunders (Deputy Press Secretary), Ken Nahigian, (Senior Counsel for transportation security, consumer and domestic trade, and amateur and professional sports issues), and Floyd DesChamps (Senior Advisor on science, technology, and space policy and legislation).

More News

4/8. The National Institute of Standards and Technology (NIST) released its Special Publication 800-73 [71 pages in PDF], titled "Interfaces for Personal Identity Verification". SP 800-73 provides the specifications for interfacing with the Personal Identity Verification (PIV) Card as specified in Federal Information Processing Standard 201 (FIPS 201). SP 800-73 provides a streamlined, ISO compliant unified card edge independent of the underlying card platform technology. This SP was written by James Dray (NIST), Scott Guthery (Mobile Mind, Inc.), and Teresa Schwarzhoff (NIST).

4/8. The Office of Management and Budget (OMB) published a notice in the Federal Register that describes and sets the comment deadline for its request for public comments on the document [11 pages in PDF] titled "DRAFT HSPD-12 Implementation Guidance for Federal Departments and Agencies". See, Homeland Security Presidential Directive 12 (HSPD-12), dated August 27, 2004, and Federal Register, April 8, 2005, Vol. 70, No. 67, at Pages 18063 - 18064. Comments are due by May 9, 2005.

WTO Appellate Body Upholds U.S. Laws Affecting Internet Gambling

4/7. The World Trade Organization's (WTO) Appellate Body issued its report [146 pages in PDF] titled "United States -- Measures Affecting the Cross-Border Supply of Gambling and Betting Services". This report reverses key parts of a previous WTO decision that determined that U.S. laws affecting internet gambling violate the U.S.'s treaty obligations. See, full story.

6th Circuit Issues Amended Opinion in Cell Tower Case

4/7. The U.S. Court of Appeals (6thCir) issued an amended opinion [PDF] in Wireless Income Properties v. Chattanooga, a case regarding the construction of wireless communications towers and 47 U.S.C. § 332(c)(7).

The Court of Appeals issued an earlier opinion [PDF] on February 24, 2005. See, story titled "6th Circuit Rules in Cell Tower Case" in TLJ Daily E-Mail Alert No. 1,084, February 28, 2005.

The Appeals Court held in its February 24 opinion that a violation of § 332 gives rise to an action for violation of 42 U.S.C. § 1983. On March 22, 2005, the Supreme Court issued its opinion [22 pages in PDF] in Rancho Palos Verdes v. Abrams. The Supreme Court held that an individual who brings an action to enforce the limitations on state and local authority to regulate the location, construction, and modification of wireless communications facilities under 47 U.S.C. § 332, cannot also recover damages under 42 U.S.C. § 1983. See also, story titled "Supreme Court Holds That Individuals Who Sue Under §332 Cannot Also Recover Damages Under §1983" in TLJ Daily E-Mail Alert No. 1,101, March 23, 2005.

Hence, the Court of Appeals, in the present amended opinion, amended its holding with respect to Section 1983, to conform to the holding of the Supreme Court.

This case is State of Tennessee ex rel Wireless Income Properties, LLC v. City of Chattanooga and William MacDonald, App. Ct. No. 03-6608, an appeal from the U.S. District Court for the Eastern District of Tennessee at Chattanooga, D.C. No. 02-00372, Judge Allan Edgar presiding. Judge Moore wrote the opinion of the Court of Appeals, in which Judges Siler and Cole joined.

People and Appointments

4/7. President Bush nominated Gordon England to be Deputy Secretary of Defense. If confirmed by the Senate, England will replace Paul Wolfowitz. See, White House release.

More News

4/7. The U.S. Court of Appeals (FedCir) issued its opinion [7 pages in PDF] in VM Tech v. Compaq, affirming the judgment of the District Court dismissing VM Tech's patent infringement action for lack of prosecution. This case is VM Tech Inc. v. Compaq Computer Corporation and Hewlett Packard Company, Inc., U.S. Court of Appeals for the Federal Circuit, No. 04-1436.

4/7. A grand jury of the U.S. District Court (NDCal) returned an indictment that charges six companies and five individuals with fraud, collusion, aiding and abetting, and conspiracy in connection with bid rigging and project allocation schemes related to the Federal Communications Commission's (FCC) e-rate subsidy program. See, Department of Justice release.

4/7. Ruben Moreno plead guilty in U.S. District Court (EDVa) to one count of conspiracy to commit wire fraud in connection with a scheme to defraud his former employer, America Online, of $100,000. He conspired to pay $100,000 to an outside consultant for non-existent work. Another conspirator, Gregory Horton, previously plead guilty. See, plea agreement [15 pages in PDF] and Department of Justice release [PDF].

4/7. The Federal Communications Commission (FCC) announced that "FCC website documents and E-Filing systems will be unavailable from 10:00 PM (EDT) on Sunday April 10 until 6:00 AM (EDT) on Monday April 11 due to scheduled maintenance."

4/7. The Federal Communications Commission (FCC) released a public notice (DA 05-1011) [20 pages in PDF] that describes and contains the recommendations of the World Radiocommunication Conference Advisory Committee (WRC-07 Advisory Committee) on a number of issues that will be considered by the 2007 World Radiocommunication Conference (WRC-07).

4/7. The Senate Judiciary Committee's Subcommittee on Intellectual Property postponed its hearing titled "The Patent System Today and Tomorrow". It had been scheduled for Thursday, April 7. It was postponed because of Pope John Paul's funeral. The hearing has been rescheduled for Thursday, April 21, at 2:30 PM.

4/7. The House International Relations Committee cancelled its hearing titled "Defense Trade: Arms Export Controls in the Post- 9/11 Security Environment". It has been scheduled for Thursday, April 7.

House Judiciary Committee Holds Hearing on PATRIOT Act

4/6. The House Judiciary Committee (HJC) held a hearing on the USA PATRIOT Act. The sole witness was Attorney General Alberto Gonzales.

AG Gonzales stated that he is "open to suggestions for clarifying and strengthening" some of the provisions of the USA PATRIOT Act. Until recently, the Bush administration's position was that it sought extension of all sunsetting provisions of the Act, without modification.

Section 215, which pertains to the Foreign Intelligence Surveillance Act (FISA) and business records (including library records), was the most discussed section of the PATRIOT Act at this hearing.

Committee Democrats criticized the Department of Justice (DOJ) for failing to provide the information to the HJC and its members that would enable them to engage in meaningful oversight.

Also, while many of the sections of the PATRIOT Act affect governmental powers to conduct searches and seizures of electronic records, and to conduct electronic surveillance, and several sections extend existing powers to new information technologies, there was very little discussion at the House hearing about new information and communications technologies. However, several Democrats discussed data mining.

Hearing Schedules. Rep. James Sensenbrenner (R-WI), the Chairman of the HJC, presided. He announced that the HJC, and its subcommittees, will hold a series of eight follow-up hearings on the PATRIOT Act in the months of April and May.

The HJC's Subcommittee on Crime, Terrorism, and Homeland Security will hold a hearing titled "Oversight Hearing of the Department of Justice to Examine the Use of Section 218 of the USA PATRIOT Act" on Thursday, April 14 at 10:00 AM. This is the section that changed the standard for issuance of a FISA order.

Also, on April 5, the Senate Judiciary Committee held a hearing on the USA PATRIOT Act at which AG Gonzales and FBI Director Robert Mueller testified. Sen. Arlen Specter (R-PA), the Chairman of the SJC, announced that the SJC will hold two follow-up hearings. The SJC will hold a closed hearing titled "Oversight of the USA PATRIOT Act" on Tuesday, April 12. It will also hold a public hearing for academic witnesses in May.  See, story titled "Senate Judiciary Committee Holds Hearing on PATRIOT Act" in TLJ Daily E-Mail Alert No. 1,110, April 6, 2005.

The House and Senate must act in the present session because sixteen sections of Title II of the PATRIOT Act are scheduled to expire on December 31, 2005.

Data Mining. Several Democrats raised the subject of data mining at the House hearing. Rep. John Conyers (D-MI), the ranking Democrat on the Committee, faulted the DOJ for "excessive collection of personal data" during his long recitation of grievances.

Rep. Howard Berman (D-CA) too raised the subject of "mining data from non-public databases".

Rep. William Delahunt (D-MA) complained about government mining of "a broad stretch of both public and non-public databases, without a particularized need being articulated to discern whether" any terrorist threats are implicated.

He advocated requiring executive branch departments and agencies to "report to Congress about their initiatives regarding data mining. The American people are concerned for privacy."

Section 218. The HJC's Crime Subcommittee will hold a hearing titled "Oversight Hearing of the Department of Justice to Examine the Use of Section 218 of the USA PATRIOT Act" on April 14.

Section 218 of the PATRIOT Act provides, in full that "Sections 104(a)(7)(B) and section 303(a)(7)(B) (50 U.S.C. 1804(a)(7)(B) and 1823(a)(7)(B)) of the Foreign Intelligence Surveillance Act of 1978 are each amended by striking `the purpose´ and inserting `a significant purpose´."

The FISA is codified at 50 U.S.C. §§ 1801-1862. It sets out rules for the collection of information categorized as foreign intelligence surveillance. Foreign intelligence now includes any person who the government contends is aiding, abetting, or conspiring with others in international terrorism. The FISA regime is distinct from the "Title III" regime for the issuance of warrants in criminal proceedings. The FISA was enacted in 1978, and has been amended several times since.

One notable change enacted in the PATRIOT Act pertained to the purpose of surveillance. Prior to passage of the PATRIOT Act, the government had to certify that "the purpose" of  the surveillance was to obtain foreign intelligence information. The PATRIOT Act merely required that foreign intelligence information be a "significant purpose".

At the time the PATRIOT Act was being considered, and since, critics of Section 218 have argued that it can be abused. That is, FISA orders will be used to collect information in criminal cases, but without the procedural safeguards that are associated with Title III.

AG Gonzales wrote in his prepared testimony for the House hearing that section 218 "removed what was perceived at the time as the primary impediment to robust information sharing between intelligence and law enforcement personnel" and "provided the necessary impetus for the removal of the formal administrative restrictions as well as the informal cultural restrictions on information sharing".

Section 218 is one of the provisions of the PATRIOT Act that is scheduled to sunset at the end of this year.

Section 215. Section 215 of the PATRIOT Act was the most discussed, and most controversial, issue at both the House and Senate hearings.

This section is titled "Access to records and other items under the Foreign Intelligence Surveillance Act". It does not reference libraries or library records. However, most of the debate focused on library records.

§ 501 of the Foreign Intelligence Surveillance Act (FISA) enables the FBI to obtain from a judge or magistrate an order requiring the production business records. While the statute does not expressly include library records, it is not disputed that library records could be obtained.

AG Gonzales stated at both the House and Senate hearings that no Section 215 orders have been obtained for library records. However, he added that libraries have voluntarily provided records.

§ 215 of the PATRIOT Act rewrote § 501 of the FISA, which is codified in Title 50 as § 1861. It pertains to "Access to Certain Business Records for Foreign Intelligence and International Terrorism Investigations". § 215 (of the PATRIOT Act) replaced §§ 501-503 (of the FISA) with new language designated as §§ 501 and 502.

Currently, § 501 (as amended by § 215) requires that an application to a judge or magistrate "shall specify that the records concerned are sought for an authorized investigation conducted in accordance with subsection (a)(2) to obtain foreign intelligence information not concerning a United States person or to protect against international terrorism or clandestine intelligence activities." Allowing § 215 to sunset would raise the standards for obtaining a FISA order for business records.

The American Library Association (ALA) has been the most vocal opponent of § 215. Other groups, such as the American Publishers Association (APA), have joined in the criticism. TLJ spoke with former Rep. Pat Schroeder (D-CO), who is now the head of the APA. She said that publishers are concerned that Section 215 orders might be used to compel publishers to give book drafts to intelligence agents, and that the availability of Section 215 for library records could lead libraries not to purchase certain books from publishers.

Rep. Zoe Lofgren (D-CA) stated at the hearing that "I don't think any of us had in mind libraries and booksellers" when the Congress passed the PATRIOT Act. She asked Gonzales if he would accept an amendment to Section 215 that would exclude "personally identifiable information" from libraries and booksellers.

AG Gonzales said that he could not accept such an amendment. He explained that people use libraries to plot terrorist attacks. He said that "we should not allow libraries to become safe harbors for terrorists".

FBI Director Mueller addressed Section 215 in his prepared testimony. He wrote that "Section 215 changed the standard to compel production of business records under FISA to simple relevance ... and expands this authority from a limited enumerated list of certain types of business records (i.e. hotels, motels, car and truck rentals) to include “any tangible things (including books, records, papers, documents, and other items) for an investigation to protect against international terrorism or clandestine intelligence activities, provided that such investigation of a United States person is not conducted solely upon the basis of activities protected by the first amendment to the Constitution.”" (Parentheses in original.)

Mueller continued that "Obtaining business records is a longstanding law enforcement tool. Ordinary grand juries for years have issued subpoenas to all manner of businesses for records relevant to criminal investigations. Section 215 authorized the FISA Court to issue similar orders in national security investigations. It contains a number of safeguards that protect civil liberties. Section 215 requires FBI Agents to get a court order. Agents cannot use this authority unilaterally to compel any entity to turn over its records. In addition Section 215 has a narrow scope. It can only be used to obtain foreign intelligence information not concerning a United States person or to protect against international terrorism or clandestine intelligence activities. It cannot be used to investigate ordinary crimes, or even domestic terrorism."

Many Republicans argued that Section 215 has been misunderstood, or has been the subject of media hype.

Sen. Jeff Sessions (R-AL) provided the most colorful defense of Section 215 during the Senate's hearing on April 5.

At one point, when FBI Director Mueller referenced the "sanctity" of libraries, Sen. Sessions interrupted. He yelled, "Why does a library have sanctity"? He questioned why library records should be accorded any more sanctity than medical records. Mueller responded that some librarians think that library records have "sanctity".

Sen. Sessions said that the criticism of Section 215 is coming from the American Library Association. He called their allegations "amusing".

He also called these criticisms "mists out of Woodstock".

Abuses of the PATRIOT Act. Another topic of debate, both at the House hearing on April 6 and at the Senate hearing on April 5, was whether there have been any abuses of the PATRIOT Act.

AG Gonzales said that there have been no abuses of the PATRIOT Act.

Several Republican Representatives and Senators said that there have been no abuses of the PATRIOT Act. For example, Rep. Sensenbrenner said that "To date, the Inspector General has issued 6 reports and not found a single example of a civil liberties violation relating to the authority granted under the PATRIOT Act."

In contrast, Sen. Leahy wrote in his opening statement that "We have heard over and over again that there have been no abuses as a result of the PATRIOT Act. But it is difficult, if not impossible, to verify that claim when some of the most controversial surveillance powers in the PATRIOT Act operate under a cloak of secrecy. We know the government is using its surveillance powers under the Foreign Intelligence Surveillance Act more than ever, but everything else about FISA is secret. This difficulty in assessing PATRIOT’s impact on civil liberties has been exacerbated greatly by the Administration’s obstruction of legitimate oversight efforts."

The day before the Senate hearing the ACLU wrote a letter to Sen. Dianne Feinstein (D-CA), a member of the Committee, it which it asserted that "the government has abused and misused the Patriot Act repeatedly".

Gonzales discussed this letter and related allegations at the hearings. He suggested, with references to this letter, and other claims, that the allegations of abuse either do not pertain to the PATRIOT Act, or do not amount to abuses.

Secrecy and Oversight. Several Democrats raised the subject of government secrecy at the House hearing. Rep. Adam Schiff (D-CA) complained to Gonzales that on some issues the most information that he had obtained came, not from the DOJ to the HJC, but from a speech by Gonzales to the ABA.

Although, Rep. Schiff also criticized the Committee, and by implication, its Republican leadership, for failing to engage in sufficient oversight.

Rep. Howard Berman (D-CA) noted that Gonzales appears to listen to and understand the questions of the Committee members. Rep. Berman said that "that is already an improvement over your predecessor", who was John Ashcroft.

However, while Berman complained about the previous Attorney General, one Republican used this hearing to attack an earlier administration. He asked Gonzales if the information that DOJ collects will go to the White House. Gonzales said "certainly not".

Rep. Gorman then referenced an earlier "corrupt" administration that acquired FBI files from the FBI, which is a part of the Department of Justice.

In the Senate hearing on April 5, Republicans joined in raising the oversight issue. For example, Sen. Charles Grassley (R-IA), senior member of the Committee, did not attend, but submitted a statement for the record. He wrote that "the Act has been instrumental in helping Federal authorities thwart terrorist activities since September 11, 2001". However, he also said that "any bill regarding the PATRIOT Act" should "include adequate oversight and reporting measures".

Terrorism and Intellectual Property Piracy. Several of the House Judiciary Committee's members take a keen interest in technology related issues. One of these, Rep. Rick Boucher (D-VA), did not participate in the hearing. Another, Rep. Bob Goodlatte (R-VA), attended, but did not raise any of the technology related issues associated with the PATRIOT Act.

However, Rep. Goodlatte expressed his concerns regarding the piracy of intellectual property by terrorists to fund their operations. He also commended the Department of Justice for establishing an anti-piracy task force, and praised the DOJ's operation Fastlink.

He also asked Gonzales whether this leadership with respect to intellectual property crime is going to continue.

"Absolutely", said Gonzales. "We realize that it remains a problem", and that it is a vehicle "to finance potential terrorism".

Representatives of industry sectors whose intellectual property has been pirated, as well as many Members of Congress and law enforcement officials, have asserted that there is a connection between terrorism and intellectual property piracy.

However, Asa Hutchison testified at a House hearing in 2003 on this subject. He is a former member of the House Judiciary Committee, and a former Under Secretary at the Department of Homeland Security (DHS). He testified in July of 2003 that neither the DHS's Bureau of Immigration and Customs Enforcement (BICE) nor the Bureau of Customs and Border Protection (BCBP) "have established a direct link between profits from the sale of counterfeit merchandise and specific terrorist acts". See, story titled "House Committee Holds Hearing on IP Piracy and Terrorism" in TLJ Daily E-Mail Alert No. 701, July 18, 2003.

Attendance. The hearings held in the House of April 6 and in the Senate on April 5 did not attract large audiences.

The House hearing was held in the HJC's hearing room. Many seats were empty throughout the hearing. In contrast, many hearings and markup sessions of the HJC fill up the room, and many persons are unable to gain access.

The Senate held its hearing in Room 216 of the Hart Senate Office Building, rather than in the Senate Judiciary Committee's usual hearing room in the Dirksen Building. The Hart hearing room is larger.

The audience section was divided into three parts -- a reserved section, primarily for interested administration personnel, a section with tables for reporters, and a public seating section. The majority of the seats in the reserved section and in the reporters section were empty. The public section did not come close to filling.

Frequently, the Senate Judiciary Committee holds hearings that attract more public interest. Spectators line up outside the doors long before the hearing. Many never gain admittance. Those who do often have to stand.

The USA PATRIOT Act is the "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001". It was enacted after the terrorist attacks of September 11, 2001 by the 107th Congress as HR 3162. It became Public Law 107-56 on October 26, 2001.

8th Circuit Affirms in Case Involving Leasing of Railroad Property for Fiber Optic Communications

4/6. The U.S. Court of Appeals (8thCir) issued its opinion [7 pages in PDF] in Bockelman v. MCI WorldCom, a dispute regarding use of railroad land for fiber optics communications. The District Court, and the Court of Appeals, held that the railroad held the land in fee sample, rather than a mere easement for railroad lines, and therefore could lease the land to MCI WorldCom for fiber optic communications, over the objections of adjacent landowners.

MCI WorldCom leased, from Union Pacific Railroad Company's predecessor, rights to install fiber optic cable underneath a strip of land, and to construct an above-ground fiber optic regeneration station on the strip of land.

A distant predecessor of Union Pacific Railroad Company acquired title to the 100 foot wide strip of land back in 1902 by deed. The grantor, for the consideration of $350, conveyed title to a 100 wide strip of land to give the railroad title to the land upon which it build its railroad line. There is no longer any railroad traffic over this strip of land. MCI WorldCom now uses this land for fiber optic communications.

The deed provided that the grantors "grant, bargain and sell, convey and confirm ... strip of land one hundred (100) feet wide ... TO HAVE AND TO HOLD the same together with all the rights, immunities, privileges and appurtenances. The deed further warrants "title to the premises".

Martin Mockelman and others now own land adjacent to this 100 foot wide strip. They assert that the 1902 deed only gave the railroad, and its successors, title to use the land for building a railroad. They assert that the title conveyed a mere easement.

Bockelman and others filed a complaint in state court in Missouri against MCI WorldCom and Union Pacific seeking declaratory judgment that the deed only created an easement for building a railroad.

MCI WorldCom and Union Pacific removed the case to the U.S. District Court (WDMo), based upon diversity of citizenship.

The District Court held that the deed conveyed fee simple interest in the strip of land. The grantee, and its successors in title, can do what they want with it. The Court of Appeals, construing the deed according to property law of the state of Missouri, affirmed.

This case is Martin Bockelman v. MCI WorldCom, Inc. and Union Pacific Railroad Company, U.S. Court of Appeals for the 8th Circuit, App. Ct. No. 02-2075, an appeal from the U.S. District Court for the Western District of Missouri, Judge Howard Sachs presiding. Judge Wollman wrote the opinion of the Court of Appeals, in which Judges McMillian and Benton joined.

House CIIP Subcommittee Holds Hearing on Digital Music Interoperability

4/6. The House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property (CIIP) held a hearing titled "Digital Music Interoperability and Availability".

Rep. Lamar Smith (R-TX), the Chairman of the Subcommittee, wrote in his opening statement that "Legitimate questions have been raised regarding the impact of digital interoperability on consumers." For example, "music purchased from the iTunes Music Store will only work on Apple's iPod music player."

He explained that "Music purchased from Real cannot be accessed on the iPod. Last year, both companies became involved in a dispute over Real’s attempt to offer software called Harmony that would have allowed legal copies of music purchased from Real's online music store to be playable on Apple’s iPod music player. Apple objected to this effort, calling it “hacker like” and invoking the DMCA. Apple blocked Real’s software from working a short time afterwards."

See also, story titled "Apple and RealNetworks Dispute Legality of Harmony Technology" in TLJ Daily E-Mail Alert No. 950, August 2, 2004.

Rep. Smith (at right) added that "As a result of disputes like the one between Apple and Real, some have suggested that efforts to boost digital music interoperability should be encouraged by regulation or legislation."

William Pence, Chief Technology Officer of Napster, wrote in his prepared testimony that "each digital song file has two essential components -- the audio format software and the digital rights management software -- that can each be a source of incompatibility".

He said that audio format softwares, or codecs, have historically been incompatible. However, now "only two or three codecs are relevant in the online music industry today, and interoperability is considered essential and is made possible by licenses that are easily available and economically reasonable".

He continued that "DRM interoperability has emerged recently as the center of debate in the online music industry. In the last several years high-quality DRM technologies have been developed and offered by dozens of companies, including Liquid Audio, AT&T Labs, Universal Music, RealNetworks, IBM, Microsoft, Contentguard, Intertrust, Verance and Macrovision."

He wrote that "the market's immaturity is driven by the technology's immaturity, as DRM technology is still in a stage of rapid innovation ... and I encourage Congress to welcome and promote this innovation and the improved music offerings that result. It is my belief, and the essential point of my participation today, that marketplace forces will continue to drive innovation in the DRM arena with attendant consumer benefits -- new ways to enjoy digital music at a variety of different price points -- while also gradually ‘solving’ the interoperability problem."

Napster's Napster to Go, a $15 per month service, allows consumers to download or stream an unlimited quantity of music. In contrast, Apple's iTunes service charges on a per song basis. Napster uses DRM10 technology from Microsoft.

No representative of Apple testified at this hearing. Rep. Smith stated that "Apple was invited to testify today."

Pence also said that Apple has "chosen not to license their technology platform under any terms to services and manufacturers eager to offer innovative business models to consumers. Perhaps Apple is confident that its market-leading position is best maintained by promoting a closed environment, and that is a legitimate business decision that some endorse and others may question. Napster believes that allowing the iPod to work with multiple service offerings would benefit consumers. Nevertheless, I do not see Government intervention as the solution, as it would stifle competition and innovation that will benefit consumers and copyright owners at a very early stage of the market’s development."

However, Pence added that "Congress has a critical role to play in facilitating the legitimate online music marketplace, by modernizing the Copyright Act -- in particular, Sections 115 and 112 as they relate to music publishing rights and royalties. Napster and our legitimate online music competitors compete with pirate services, and it is critical to creators and all who support them that royalty-paying services win the day."

Ray Gifford, President of the Progress and Freedom Foundation (PFF), wrote in his prepared testimony that "Standards and interoperability can be achieved through a variety of institutions: within single firms, within private consortia, with government blessing and with government mandate. Standards can be open and non-propriety, or closed and proprietary, and gradations in between these extremes. In digital music markets we see all of these models, to varying degrees."

He continued that "standard setting is hard. We do not know ex ante the optimal method for standard setting, or the optimal model. Are open standards preferable? In some cases, yes; in others, no -- you are making a trade-off. Are proprietary or non-proprietary standards going to give the greatest amount of innovation? We cannot be sure. Do we prefer competition for a standard or competition within a standard? Depends ..."

Hence, he recommended that "Because there are undeniable trade-offs from any standard-setting decision, governments should be: a) wary of thinking they have sufficient foresight to make proper standard-setting decisions; and b) deferential to private attempts at standard setting."

He said that Congress should not "give into platform envy and mandate some sort of interoperability. Antitrust law and the common law-like doctrines of intellectual property law are adequately suited to address the challenges from new digital music platforms." And, "the best course would be to resist calls for mandates or technology limitations in this dynamic space."

He also argued that "A final value for public policy should be to ratify the acceptability and use of digital rights management or DRM technologies." Thus, he criticized HR 1201, the "Digital Media Consumers' Rights Act of 2005", sponsored by Rep. Rick Boucher (D-VA). He said that this bill "would in effect remove DRM as a marketplace option. By permitting consumers to circumvent copy-protection mechanisms, currently a violation of the Digital Millennium Copyright Act, any contract between a consumer and a content provider involving a fixed payment for a fixed set of rights could be unilaterally voided by the consumer."

See also, story titled "Reps. Boucher, Doolittle and Barton Reintroduce Digital Media Consumers' Rights Act" in TLJ Daily E-Mail Alert No. 1,111, April 8, 2005.

Michael Bracy, Policy Director of the Future of Music Coalition, raised a number of issues in his prepared testimony that were not directly related to the subject of the hearing. He asked "Will Congress listen to the concerns of the music community by addressing consolidation of the commercial radio industry and accusations of structural payola that limit the songs that appear on the public airwaves? Will the FCC be permitted by Congress to expand the wildly popular non-commercial Low Power Radio licenses to urban markets? Will Digital Audio Broadcasting be implemented in a way that addresses the fundamental concerns about localism, competition and diversity in the radio marketplace? And will digital radio be brought in line with other non-interactive digital transmission platforms that are required to pay an additional performance royalty to performers? Most importantly, will Congress be able to defend the ability of musicians and songwriters to compete in the marketplace by ensuring access to high speed networks?"

People and Appointments

4/6. President Bush nominated Timothy Adams to be An Under Secretary of The Treasury. If confirmed by the Senate, he will replace John Taylor. See, White House release.

Go to News from April 1-5, 2005.