Senate Commerce Committee Holds Hearing on Innovation and Competitiveness

3/15. The Senate Commerce Committee (SCC) held a hearing titled "Innovation and Competitiveness Legislation".

Sen. John Ensign (R-NV) presided. Sen. George Allen (R-VA), a member of the SCC, participated. Sen. Gordon Smith (R-OR) attended, but did not speak or ask questions. Sen. Max Baucus (D-MT) testified as a witness; see, prepared testimony [PDF]. Sen. Joe Lieberman (D-CT) also testified as a witness; see, prepared testimony [PDF]. Sen. Daniel Inouye (D-HI), the ranking Democrat on the SCC, did not attend, but submitted a statement for the record.

Sen. Ensign, Sen. Allen, Sen. Smith, Sen. Lieberman, and others, introduced S 2109, the "National Innovation Act of 2005", on December 15, 2005. The bill now has 23 cosponsors. See also, S 2309, the "National Innovation Act -- Commerce Provisions".

See, full story.

USTR Portman Discusses Trade and IPR in China

3/15. U.S. Trade Representative (USTR) Rob Portman gave a speech, and answered questions, at a convention in Washington DC hosted by the Consumer Electronics Association (CEA). See, transcript.

He discussed ongoing World Trade Organization (WTO) trade talks, the FSC-ETI tax regimes dispute with the European Union (EU), recently concluded bilateral and regional trade agreements, and new negotiations with Malaysia and Korea.

With respect to trade negotiations with Malaysia and Korea, he said that "we will look at phasing out tariffs on consumer electronics not covered by ITA", the Information Technology Agreement. He added that "These free trade agreements will also address investment, distribution, telecomm and financial services, and help make consumer electronics companies supply chains more efficient."

He also discussed recent U.S. opposition to foreign investment in U.S. ports. He insisted that "The United States welcomes investment. We are open to investment."

Portman (at right) also discussed trade with the People's Republic of China, the USTR's recent top to bottom review of trade policy, and intellectual property rights (IPR) and piracy in China.

See, story titled "USTR Releases 2005 Trade Report" in TLJ Daily E-Mail Alert No. 1,322, March 3, 2006.

He focused on IPR theft in China. "Here the United States is disproportionately impacted. Why? Because we have a lot of knowledge-based exports, including yours. But think about it. Software. I think China is number two in the world now in terms of computer purchases, hardware, this stuff, and yet about number 25 in terms of software. There’s a reason for that. You can buy whatever we have here, Microsoft is on this computer right now. You can buy it on the street corner for a fraction of the cost that it cost to produce it and do the research and innovation and development. And that’s not fair. That disproportionately impacts US exports. That’s the point. It’s not fair, but it also hurts us. We would have greater exports."

He said that the U.S. also has a comparative advantage in movies. "We may not all be great fans of what comes out of Hollywood these days, but it's a comparative advantage we have. But in China there's very little market. Why? Because you can get it on the street for a fraction of the cost." And, he said that the U.S. has a comparative advantage in music recordings, but cannot take advantage of that.

He also stated that "intellectual property, piracy in China is a huge problem for us. We believe they are not doing enough to make their changes in laws and regulations, but more significantly in enforcement. They’re not enforcing the laws."

He again made the argument that it is in China's best interest to enforce IPR. "When China looks back ten years from now having, I think, made substantial progress in piracy by that time, I certainly hope so, I think they will wish they'd done it sooner, because it’s Chinese entrepreneurs and innovators, Chinese companies, song writers, movie makers, who are being penalized along with US exporters. You cannot have a successful and healthy economy unless you get this under control. So I don’t think it's just a US issue. I think we have to do a better job explaining to our trading partners why it’s also in their interest as these economies mature and modernize, that they have a system of enforcement and intellectual property that allows their economies to prosper."

Portman also responded to critics of free trade. He said that "many people out there seem to think that trade is not a good idea. Increasingly, we see in some of the public discussions, including the public airwaves, this thought that trade is responsible for us losing jobs and that trade is responsible for wages shrinking."

He responded that "facts state otherwise. The United States is enjoying high growth; we had 8.5% growth last year, perhaps bigger growth this year. Unemployment is 4.8% -- a historical low. We’ve created over 2 million jobs in the last year in this country; we're relatively a lead economy, as I said. It's working for us."

Portman concluded his speech with this comment. "But there's more to come: there's more innovation, there's more creativity, and we must be sure that we have our minds on creativity as the opportunity through markets and free trade to be able to achieve the benefits for your workers, for our economy, and indeed for the global economy."

FCC Releases Indecency Orders

3/15. The Federal Communications Commission (FCC) released three orders (that were adopted but not announced last month) fining various television broadcasters for indecent content.

First, the FCC released an order [76 pages in PDF] regarding numerous different television programs. It finds some to be not indecent. It finds others indecent. It fines some licensees who broadcast indecent programs, but not others. This item is titled "Notices of Apparent Liability  and Memorandum Opinion and Order" and numbered FCC 06-17.

Second, the FCC released a notice of apparent liability for forfeiture [28 pages in PDF] that finds that CBS Television Network affiliated stations and CBS broadcast an indecent episode of the program titled "Without a Trace". It states that this episode depicted "teenage boys and girls participating in a sexual orgy". The total of these fines is over $3.6 Million. This item is FCC 06-18.

Third, the FCC released a forfeiture order [30 pages in PDF] that fines CBS $550,000 in connection with the exposure of the breasts of a singer named Janet Jackson in a broadcast music performance. This is FCC 06-19.

See also, FCC release [PDF] summarizing its orders.

FCC Chairman Kevin Martin wrote in a separate statement that "Congress has long prohibited the broadcasting of indecent and profane material and the courts have upheld challenges to these standards. But the number of complaints received by the Commission has risen year after year. They have grown from hundreds, to hundreds of thousands. And the number of programs that trigger these complaints continues to increase as well. I share the concerns of the public -- and of parents, in particular -- that are voiced in these complaints."

Commissioner Michael Copps suggested that indecency is related to increased concentration of broadcast media ownership. He wrote that "If heightened media consolidation is indeed a source for the violence and indecency that upset so many parents, shouldn’t the Commission be cranking that into its decisions on further Federal Communications Commission FCC loosening of the ownership rules? I hope the Commission, before voting again on loosening its media concentration protections, will finally take a serious look at this link and amass a credible body of evidence and not act again without the facts, as it did in 2003."

Commissioner Jonathan Adelstein concurred in part and dissented in part. He wrote that "It is certain to strike fear in the hearts of news and documentary makers, and broadcasters that air them, which could chill the future expression of constitutionally protected speech."

"I find that today's decision, while reaching some appropriate conclusions both in identifying indecent material and in dismissing complaints, is in some ways dangerously off the mark. I cannot agree that it offers a coherent, principled long-term framework that is rooted in common sense. In fact, it may put at risk the very authority to protect children that it exercises so vigorously."

New Commissioner Deborah Tate wrote that "Not only is this the law, but it also is the right thing to do."

The FCC's statutory authority for these actions is 18 U.S.C. § 1464. It provides in full that "Whoever utters any obscene, indecent, or profane language by means of radio communication shall be fined under this title or imprisoned not more than two years, or both."

The judicial precedent upon which the FCC primarily relies is the Supreme Court's opinion in the involving comedian George Carlin's use of "filthy words", FCC v. Pacifica Foundation, 438 U.S. 726 (1978). This was a 5-4 opinion. Justice Stevens wrote the opinion of the Court. None of the others members of that Court remain on the Court.

In the just released orders, the FCC citing Pacifica, wrote that "The federal courts have consistently upheld Congress's authority to regulate the broadcast of indecent material, as well as the Commission's interpretation and implementation of the governing statute. In 1978, the U.S. Supreme Court, in upholding the constitutionality of the prohibition against the broadcast of indecent material, concluded that ``special treatment of indecent broadcasting´´ was appropriate."

In Pacifica, the Court upheld the FCC's order regarding a radio broadcast of Carlin's monologue. It wrote that "We have long recognized that each medium of expression presents special First Amendment problems. ... And of all forms of communication, it is broadcasting that has received the most limited First Amendment protection. Thus, although other speakers cannot be licensed except under laws that carefully define and narrow official discretion, a broadcaster may be deprived of his license and his forum if the Commission decides that such an action would serve ``the public interest, convenience, and necessity.´´"

The Supreme Court has offered various rationales for regulation of broadcast speech, including scarcity of spectrum. However, in Pacifica, the Court cited the rationale that "the broadcast media have established a uniquely pervasive presence in the lives of all Americans".

Challenges to the just issued orders may present the Court with an occasion to revisit its application of First Amendment principles to broadcast speech. The Court could conclude that the deployment of new media and new technologies for video, and other media, have affected previously articulated rationales for regulation of broadcast speech.

A narrowly written opinion might only revisit Pacifica's analysis of regulation of indecency. A broader opinion might also comment on the analyses that underlie NBC v. US, 319 U.S. 190 (1943), and Red Lion v. FCC, 395 U.S. 367 (1969).

The Parents Television Council (PTC) praised the FCC's orders. Tim Winter, its Executive Director, stated in a release that "The broadcast airwaves are public property and belong to the American people, and as such the broadcast industry must abide by community standards of decency while using the public airwaves between 6:00 am and 10:00 pm. This is not a proposal; this is law -- well-settled law that was affirmed by the Supreme Court three decades ago."

Adam Thierer of the Progress and Freedom Foundation (PFF) stated in a release that the FCC's orders "represent a significant expansion of its content control regime. The agency is testing the limits of its own powers to regulate speech. The silver-lining here might be these fines provoking a court challenge, and the courts finally revisiting the scope of the First Amendment in an age of convergence and media abundance."

"The courts have grown less tolerant of government restrictions on media in recent years, especially for new technologies like the Internet. With broadcasters now being challenged by a staggering array of multi-media competitors and devices, the courts will be less likely to support tradition 'scarcity-based' rationales for broadcast industry content regulation. The fact that the fines were this steep could make the court's job even easier in that regard."

House Financial Services Committee Approves Internet Gambling Bill

3/15. The House Financial Services Committee amended and approved, by voice votes, HR 4411, the "Unlawful Internet Gambling Enforcement Act of 2006".

Rep. Jim Leach (R-IA) offered an amendment in the nature of a substitute [25 pages in PDF]. It was approved by a voice vote. The bill, as amended, was then approved by voice vote, without further amendment.

HR 4411 is targeted at the financial transactions that fund what already constitutes unlawful internet gambling. It provides that no one engaged in the "business of betting or wagering" may knowingly accept certain financial transactions, including checks, electronic fund transfers, and credit card debt, in connection with "unlawful Internet gambling". The bill then requires the Department of the Treasury (DOT) and the Federal Reserve Board (FRB) to write regulations that require each "designated payment system" to identify and block these restricted transactions through the establishment of policies and procedures. The bill requires each "financial transaction provider" to comply with these DOT/FRB regulations. The bill contains numerous exemptions and limitations.

See, full story.

House Judiciary Committee Creates Task Force on Telecom and Antitrust

3/15. The House Judiciary Committee (HJC) approved a resolution by voice vote without amendment that creates a HJC temporary task force on telecommunications and antitrust.

The resolution, titled the "Telecommunications and Antitrust Task Force Resolution of 2006, provides that "There is hereby established in the House Committee on the Judiciary ... a task force to be known as the House Committee on the Judiciary Telecommunications and Antitrust Task Force of 2006 ..."

The term of the task force will be April 1 through September 1, 2006.

The Chairman and ranking Democrat on the HJC will be the Chairman and ranking Democrat on the task force. All HJC members will be members of the task force.

There was little discussion of this resolution. Rep. James Sensenbrenner (R-WI), the Chairman of the HJC, and Rep. John Conyers (D-MI), the ranking Democrat, both spoke in support.

Rep. Conyers expressed concern over the recently announced merger of AT&T and BellSouth.

The resolution states that the task force "shall conduct such hearings and investigations relating to the Committee's jurisdiction under clause 1(l)(16) of House Rule X and other matters as directed by the Chairman of the Committee."

House Rule X provides that the HJC has jurisdiction over "Protection of trade and commerce against unlawful restraints and monopolies".

However, this rule also provides that the House Commerce Committee has jurisdiction over "Regulation of interstate and foreign communications" as well as "consumer protection".

House Judiciary Committee Approves Bayh-Dole Resolution

3/15. The House Judiciary Committee (HJC) approved HConRes 319 by voice vote without amendment. This resolution expresses the sense of the Congress that the Bayh-Dole Act has made substantial contributions to innovation and the economy.

The Bayh-Dole Act was enacted into law in 1980. It is Public Law 96-517. It is codified at Chapter 18 of Title 35 of the U.S. Code. See, 35 U.S.C. §§ 200-212.

The resolution recites numerous findings, including that "federally-funded research at universities and Government laboratories and the partnerships between such nonprofit institutions and the private sector play a critical role in developing the technologies".

The resolution concludes that the Bayh-Dole Act "has made substantial contributions to the advancement of scientific and technological knowledge, fostered dramatic improvements in public health and safety, strengthened the higher education system in the United States, served as a catalyst for the development of new domestic industries that have created tens of thousands of new jobs for American citizens, strengthened States and local communities across the country, and benefitted the economic and trade policies of the United States".

Rep. Lamar Smith (R-TX), Rep. John Conyers (D-MI), and Rep. Maxine Waters (D-CA) all spoke in support of the resolution. The resolution was approved by a voice vote. While there was voting quorum present for the vote, almost all members did not voice a vote. Rep. James Sensenbrenner (R-WI), the Chairman of the HJC, declared after the vote that "the aye appears to have it".

HJC Approves Bill to Allow USPTO to Waive Statutory Requirements After Disasters

3/15. The House Judiciary Committee (HJC) approved HR 4742, by voice vote without amendment. This is an untitled bill to amend the Title 35 to allow the USPTO to waive certain statutory provisions in the aftermath of disasters.

Rep. Lamar Smith (R-TX), the Chairman of the HJC's Subcommittee on Courts, the Internet and Intellectual Property spoke in support of the bill. He said that it will enable people to maintain their intellectual property rights in the aftermath of hurricanes and other natural disasters, such as by extending filing deadlines.

Rep. John Conyers (D-MI), the ranking Democrat on the HJC, also spoke in support of the bill.

This bill provides that the Director of the U.S. Patent and Trademark Office (USPTO) "may waive statutory provisions governing the filing, processing, renewal, and maintenance of patents, trademark registrations, and applications therefor to the extent that the Director deems necessary in order to protect the rights and privileges of applicants and other persons affected by an emergency or a major disaster ..."

The bill adds that "A decision not to exercise, or failure to exercise, the waiver authority provided by this subsection shall not be subject to judicial review."

Sen. Snowe Introduces Bill to Protect Terrestrial Radio Broadcasters

3/15. Sen. Olympia Snowe (R-ME), Sen. Max Baucus (D-MT), and Sen. Trent Lott (R-MS) introduced S 2418, the "Local Emergency Radio Service Preservation Act", a bill to restrict competition in radio broadcasting. The bill seeks to protect terrestrial radio broadcasters from competition from satellite broadcasters by imposing a prior restraint on the content on satellite programming. It would prohibit local programming.

On March 1, 2006, Rep. Chip Pickering (R-MS), introduced, HR 998, the "Local Emergency Radio Service Preservation Act of 2005".

Sen. Snowe summarized the content of her bill. "First the bill prohibits the use of satellite terrestrial repeaters to insert local content into specific local markets. Second, this legislation clarifies that future technologies cannot be used to distribute local satellite programming. Lastly, the act requires the Federal Communications Commission, FCC, to conduct a rulemaking on the distribution of region-specific content on a nationwide basis."  See, Congressional Record, March 15, 2006, at Pages S2205-6.

Sen. Snowe stated that this bill "will preserve an important resource needed during times of an emergency -- free, local, over-the-air radio broadcasting", and will ensure that "terrestrial radio service does not suffer from the entry of subscription-based satellite services into local markets".

She said that "The most reliable form of communication today is radio. Oftentimes during natural disasters and other emergencies, many forms of communications become unavailable to the public. Wireless systems can be overloaded with calls. Satellite television service is interrupted by extreme weather conditions. Internet service connections are frequently disconnected. In contrast, over-the-air radio is an ubiquitous form of mass media that is available to nearly every car and household in the nation. The system cannot be overloaded and operates well under extreme weather conditions."

She added that "For many families, satellite radio is not an option. Instead, these people must rely on traditional over-the-air radio for weather, traffic, news and local information."

David Rehr, head of the National Association of Broadcasters (NAB), praise the bill in a release. He said that "both XM and Sirius -- with nearly $1 billion in combined losses last year and having failed as a national programming service -- are skirting the intent of their original FCC licenses. This bill holds satellite radio accountable to those licenses. With introduction of today's legislation -- coupled with a companion bill in the House -- NAB looks forward to educating lawmakers on the invaluable role played by free, local radio every day in communities all across America."

Adelstein Addresses DTV Transition

3/15. Federal Communications Commission (FCC) Commissioner Jonathan Adelstein gave a speech [5 pages in PDF] in Washington DC titled "I Want My DTV: Building a National DTV Consumer Education Campaign".

He said that "Few Americans know that last month, President Bush signed legislation setting a hard date to complete the transition on February 17, 2009. The establishment of this hard deadline marked the completion of many years of hard work, negotiations and, ultimately, compromise. ... now that a firm deadline has been signed into law, the need to refine and get the message out has never been more critical."

He said that "As of March 1 of this year, all TVs with screens 25 inches or larger are required to have digital tuners. To advance the transition and improve the quality of consumer choice, the FCC also required manufacturers to install digital tuners in smaller TV sets by this time next year -- March 1, 2007."

But, Adelstein (at left) lamented, "One of the biggest obstacles in carrying out the transition is the fact that consumers continue to purchase analog televisions at bargain bin prices. These consumers revel in purchasing what they deem to be high-end, big screen televisions at discount rates, not understanding that those televisions are soon to be obsolete."

While the recently enacted Digital Television Transition and Public Safety Act provides that the National Telecommunications and Information Administration (NTIA) shall administer the digital to analog converter box program, Adelstein stated that since the "FCC's Consumer and Governmental Affairs Bureau has developed in-house expertise in DTV education, there's a strong argument to support the FCC as the principal agency in charge of educating the American public about the transition."

He also argued that the FCC and the NTIA should form "an interagency Federal DTV Task Force to develop a unified federal message and approach to inform consumers about the transition deadline and the options".

People and Appointments

3/15. President Bush nominated John Rizzo to be General Counsel of the Central Intelligence Agency (CIA). He is currently Senior Deputy General Counsel at the CIA. See, White House release and release.

More News

3/15. National Telecommunications and Information Administration (NTIA) released a report titled "Spectrum Management for the 21st Century: Plan to Implement Recommendations of the President's Spectrum Policy Initiative".

3/15. Earl Comstock, head of Comptel, praised the House Judiciary Committee's creation of a task force on telecom and antitrust. See, story titled "House Judiciary Committee Creates Task Force on Telecom and Antitrust" in TLJ Daily E-Mail Alert No. 1,330, March 16, 2006. Comstock stated in a release that "The growing consolidation of the Bell companies and the FCC's refusal to continue to apply common carrier rules to the transmission networks that make up the Internet pose grave threats to competition and consumers. Absent intervention and proper oversight by Congress, the current policies will result in the re-establishment of a Bell monopoly in business services and, at best, a duopoly in the provision of residential services." He added that "COMPTEL also appreciates the letter that Chairman Sensenbrenner and Ranking Member Conyers sent to the Federal Trade Commission today asking the agency to take a more active role in protecting consumers and competition with respect to broadband Internet access services. Unless competitive safeguards are imposed by either FCC regulation or the application of antitrust laws, the Bell monopolies and cable operators will become the gatekeepers on the Internet ..."

3/15. Rep. Alcee Hastings (D-FL), Rep. Jane Harman (D-CA), and seven other Democrats, introduced HR 4966, a bill pertaining to the Privacy and Civil Liberties Oversight Board (PCLOB), which was created by the Intelligence Reform and Terrorism Prevention Act of 2004, which is now Public Law No. 108-458. This bill requires a line item in the budget for the PCLOB. First, the bill would amend 31 U.S.C. § 1105(a) by adding the following: "(35) a separate statement of the proposed budget authority and budget outlays for the Privacy and Civil Liberties Oversight Board." Second, the bill would authorize the appropriation of $3,000,000 for fiscal year 2007 and each subsequent fiscal year for the PCLOB. The bill was referred to the House Budget Committee, House Government Reform Committee, and House Judiciary Committee.

3/15. The Federal Trade Commission (FTC) published a notice in the Federal Register that states that it has completed its review of the Children's Online Privacy Protection Rule, and that the FTC "concludes that the Rule continues to be valuable to children, their parents, and Web site operators, and has determined to retain the Rule in its current form." See, Federal Register, March 15, 2006, Vol. 71, No. 50, at Pages 13247-13258.

More News

3/14. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Suevel v. Connell, an 11th Amendment immunity case involving the state of California's confiscation of individuals' stock under a wrongful escheat scheme. This case builds on the 9th Circuit's March 29, 2005, opinion [22 pages in PDF] in Taylor v. Westly. See, story titled "9th Circuit Rejects California's 11th Amendment Defense of Bogus Escheat of Intel Stock" in TLJ Daily E-Mail Alert No. 1,106, March 30, 2005. Taylor is a former Intel employee who had not died intestate, or abandoned his stock. Nevertheless, California seized his stock, and then attempted to hide behind 11th Amendment immunity when he sued. The present case is a class action brought on behalf of persons whose stock was confiscated by California. The District Court granted judgment to California. The Court of Appeals vacated and remanded. In both cases, the Court of Appeals drew a distinction between claims for money (which are barred by the 11th Amendment) and claims for prospective injunctive relief (which are not). The Court of Appeals wrote that "The district court erred because it overlooked that part of what the class requests is the return of its own property, not compensation from state funds for property permanently taken from it. In a case related to the present one, this court recently held that the Eleventh Amendment does not bar a request for the return of a plaintiff’s property if the complaint alleges that state officials acted either ultra vires or unconstitutionally", citing Taylor v. Westly. The Court of Appeals continued that "Because, like the complaint in Taylor, the complaint here alleges that state officials seized and retained the class's property through ultra vires and unconstitutional acts, the Eleventh Amendment does not bar the class from suing to obtain its property back from the Controller." The 11th Amendment also shields states from suits for monetary damages for infringement of copyrights and patents, and other violations of intellectual property rights. This case is Agnes Suevel, et al. v. Kathleen Connell, et al.,U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 04-15555, an appeal from the U.S. District Court for the Northern District of California, D.C. No. CV-03.00156-RS. Judge Carlos Bea wrote the opinion of the Court of Appeals, in which Judges Betty Fletcher and Michael Daly Hawkins joined.

Pulver Asks FCC to Require Greater Number Porting in Emergencies

3/13. Jeff Pulver and Tom Evslin filed a petition [18 pages in PDF] with the Federal Communications Commission (FCC) requesting that it initiate a rulemaking making proceeding regarding post-disaster communications. They want the FCC to require service providers to make available in disaster situations two hour number porting, including out of area porting, and porting to IP based services.

The petition states that it was filed by "Evslin Consulting and pulver.com".

The petition states that the FCC's number porting rules undermine communications after a disaster. It argues that people with wireless or VOIP service can take take their service with them when hurricanes or other disasters strike. However, people without wireless, VOIP, or voicemail service, can not be reached when their basic landline PSTN service becomes inoperable, or they can not access it. The petition asserts that one problem is that the FCC's rules do not require portability outside of a geographic area or rate center.

The petition recommends that the FCC "require any provider obligated to provide E911 services to establish an alternate communications service for affected customers via either: (1) activating for each customer a voicemail service that would be accessed by incoming callers dialing the customer's phone number, or (2) providing expedited local number porting to an alternate service provider selected by the customer, including the porting to a number outside of the geographic area and/or rate center."

The petition continues that if providers choose not to offer temporary emergency voicemail service, then they "should be required to provide expedited local number portability to customers affected by a long-term outage, to allow those customers to quickly port their numbers to an alternative provider ... including an IP-based provider or provider outside of the affected rate center, that then could request expedited porting from the customer's primary provider to be completed within 2 hours."

House Financial Services Committee to Mark Up Internet Gambling Bill

3/13. The House Financial Services Committee (HFSC) has scheduled a meeting to mark up several items on Wednesday, March 15, 2006. The agenda includes consideration of HR 4411, the "Unlawful Internet Gambling Enforcement Act of 2006".

Rep. James Leach (R-IA) introduced this bill on November 18, 2005. There are currently 32 cosponsors.

This is a narrowly targeted bill. It contains no provisions that prohibit any form of gambling. Rather, it pertains to the the payments systems that persons use when gambling online. It is an attempt to limit illegal internet gambling by limiting the access of gambling businesses to the financial services system.

The bill provides that "No person engaged in the business of betting or wagering may knowingly accept, in connection with the participation of another person in unlawful Internet gambling -- (1) credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card); (2) an electronic fund transfer, or funds transmitted by or through a money transmitting business, or the proceeds of an electronic fund transfer or money transmitting service, from or on behalf of such other person; (3) any check, draft, or similar instrument which is drawn by or on behalf of such other person and is drawn on or payable at or through any financial institution; or (4) the proceeds of any other form of financial transaction, as the Secretary may prescribe by regulation, which involves a financial institution as a payor or financial intermediary on behalf of or for the benefit of such other person."

The bill then requires the Department of the Treasury to write regulations "requiring each designated payment system, and all participants therein, to identify and prevent restricted transactions through the establishment of policies and procedures reasonably designed to identify and prevent restricted transactions in any of the following ways:
  (1) The establishment of policies and procedures that -- (A) allow the payment system and any person involved in the payment system to identify restricted transactions by means of codes in authorization messages or by other means; and (B) block restricted transactions identified as a result of the policies and procedures developed pursuant to subparagraph (A).
  (2) The establishment of policies and procedures that prevent the acceptance of the products or services of the payment system in connection with a restricted transaction."

Rep. Leach and other members of the HFSC have long sought to enact related legislation, without success.

Also, Rep. Bob Goodlatte (R-VA), Rep. Rick Boucher (D-VA), and others, introduced HR 4777, the "Internet Gambling Prohibition Act" on February 16, 2006. This bill would amend federal criminal law pertaining to gambling, and hence, falls within the jurisdiction of the House Judiciary Committee. Rep. Goodlatte has been working unsuccessfully for nearly a decade to pass anti-internet gambling legislation. The HJC has not yet taken any action on this bill.

The HFSC is also scheduled to mark up HR 3997, the "Financial Data Protection Act", at is March 15 meeting.

Texas Sues to Shut Down Unlicensed Online Payment Service

3/13. The Office of the Attorney General of the State of Texas filed a complaint [13 pages in PDF] in state court in Texas against EMO Corporation, and several of its officers and directors, alleging violation of the Texas Finance Code in connection with their alleged operation of an unlicensed internet payment service.

18 U.S.C. § 1960 criminalizes the operation of "an unlicensed money transmitting business".

This federal statute further provides, in part, that the term "unlicensed money transmitting business" means a money transmitting business which affects interstate or foreign commerce in any manner or degree and -- (A) is operated without an appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony under State law, ..."

However, this action is brought by the State of Texas for the alleged violation of the Section 151.708 of the Texas Finance Code.

Section 151.002 defines "Money services" as "money transmission or currency exchange."

Section 151.301 then defines "Money transmission" as follows:

"the receipt of money or monetary value by any means in exchange for a promise to make the
money or monetary value available at a later time or different location.  The term:
  (A) includes:
    (i) selling or issuing stored value or payment instruments, including checks, money orders, and traveler's checks;
    (ii) receiving money or monetary value for transmission, including by payment instrument, wire, facsimile, electronic transfer, or ACH debit;
    (iii) providing third-party bill paying services; or
    (iv) receiving currency or an instrument payable in currency to physically transport the currency or its equivalent from one location to another by motor vehicle or other means of transportation or through the use of the mail or a shipping, courier, or other delivery service;  and
  (B) does not include the provision solely of online or telecommunication services or connection services to the Internet."

Section 151.708 then criminalizes operating a money services business without a state license.

The complaint states that EMO is a Texas corporation based in Austin, Texas. It further alleges that EMO has a federal, but not a state license. Although, it has applied for a state license.

The complaint also states that EMO "is insolvent by approximately $2,000,000".

The complaint requests a temporary restraining order, a preliminary injunction, and a permanent injunction, enjoining the defendants from continuing to operate a money services business, from accepting money from the public, and from wasting, secreting, and otherwise dissipating its customers' funds. The complaint also seeks the appointment of a receiver, and an order freezing assets.

See also, Texas' application for injunctive relief [PDF].

Texas Attorney General Greg Abbott stated in a release that "These officers must account for their outrageous mismanagement of consumers' money, which they promised would be secure ... The court's appointment of a receiver to seize control of this company’s assets will provide an opportunity to determine where this money has gone."

This case is State of Texas v. EMO Corporation, Todd L. Tredeau, Tracey L. Jones, and Nancy C. Humphries.

DOJ and FCC to Create National Security Units

3/13. Attorney General Alberto Gonzales announced the creation of a new division at the Department of Justice (DOJ) named the National Security Division at a DOJ event on Monday morning, March 13, 2006.

HR 3199, the "USA PATRIOT Improvement and Reauthorization Act of 2005", which President Bush signed into law on March 9, 2006, provides for this new Division.

Gonzales said that this new Division "will bring under one umbrella the Department's primary national security elements, fulfilling a key recommendation of the WMD Commission. We will bring together attorneys from the Counterterrorism and Counterespionage Sections of the Criminal Division, as well as those from the Office of Intelligence Policy and Review who specialize in the Foreign Surveillance Intelligence Act."

He continued that "the President has announced that he intends to nominate Kenneth Wainstein to serve as Assistant Attorney General for National Security. In addition, the Justice Department has requested reprogramming funds from Congress to move forward in standing up the National Security Division - that's in addition to the 67 million we've requested for the next fiscal year. I am respectfully requesting that Congress move quickly -- both on Ken's confirmation and on our reprogramming request -- so that we can establish this important new Division as soon as possible."

In a related action, the Federal Communications Commission (FCC) announced on March 10 that the agenda for its March 17 meeting includes consideration of an order creating a Public Safety and Homeland Security Bureau at the FCC.

Reorganizations of departments and commissions can have policy consequences. Units within bureaucratic entities sometimes come to represent, respond to, or be captured by, their constituent groups. The main constituent groups of the new DOJ Division and FCC Bureau may include law enforcement agencies, national security agencies, their contractors, data aggregators, and the companies that support service providers and others in complying with surveillance and production directives. Forthcoming technology related policy debates may pertain to spectrum management, electronic surveillance, government access to electronic data and records, privacy and civil liberties, and government technology mandates regarding the design of communications networks and equipment and information technology to make communications and data more easily susceptible to surveillance, intercepts and access.

Bush Picks Wainstein to be AAG for New National Security Division

3/13. President Bush announced his intent to nominate Kenneth Wainstein to be an Assistant Attorney General in charge of the new National Security Division at the Department of Justice (DOJ).

Wainstein is currently the U.S. Attorney for the District of Columbia. He has also been Chief of Staff at the Federal Bureau of Investigation (FBI), and Director of the DOJ's Executive Office for United States Attorneys.

Wainstein testified before the House Judiciary Committee's (HJC) Subcommittee on Crime on April 28, 2005, during that Subcommittee's series of hearings on extending the sunsetted provisions of the USA PATRIOT Act. He testified in favor of extending Section 206 of the Act, regarding roving wiretap and surveillance authority, and Section 215, regarding access to business records under the Foreign Intelligence Surveillance Act (FISA). See, the HJC's report [146 pages in PDF] on the hearings held on April 26 and 28, 2005.

He was also, at this hearing, the first government official to announce that some of the terrorists who hijacked airplanes on September 11, 2001, had previously used internet connected computers at a public library.

He was also one of the attorneys who represented the FBI in CALEA related litigation. See, USTA v. FBI, U.S. Court of Appeals for the District of Columbia, App. Ct. No. 00-5386.

People and Appointments

3/13. The Senate confirmed Leo Maury Gordon to be a Judge of the U.S. Court of International Trade. See, Congressional Record, March 13, 2006, at Page S2051.

3/13. The Senate confirmed Terrance Flynn to be the U.S. Attorney for the Western District of New York for the term of four years. See, Congressional Record, March 13, 2006, at Page S2051.

3/13. The Senate confirmed Donald Degarielle to be the U.S. Attorney for the Southern District of Texas for the term of four years. See, Congressional Record, March 13, 2006, at Page S2051.

3/13. The Senate confirmed John Charles Richter to be the U.S. Attorney for the Western District of Oklahoma for the term of four years. See, Congressional Record, March 13, 2006, at Page S2051.

3/13. The Senate confirmed Amul Thapar to be the U.S. Attorney for the Eastern District of Kentucky for the term of four years. See, Congressional Record, March 13, 2006, at Page S2051.

Go to News from March 6-10, 2006.