Tim Wu Paper Advocates Network Neutrality Mandates for Wireless Broadband

2/15. Timothy Wu, a law professor at Columbia University, and leading advocate of network neutrality mandates, wrote a paper titled "Wireless Net Neutrality: Cellular Carterfone and Consumer Choice in Mobile Broadband".

See, summary and full text [30 pages in PDF]. It is published in the web site of the New American Foundation (NAF).

Wu wrote that "The carriers place strong controls over ``foreign attachments,´´ like the AT&T of the 1950s. The FCC’s Carterfone rules, which allow consumers to attach devices of their choice to the wired telephone networks, do not apply to wireless networks. These controls continue to affect innovation and the development of new devices and applications for wireless networks."

Second, he argued that "carriers are in a position to exercise strong control over the design of mobile equipment. They have used that power to force equipment developers to omit or cripple many consumer-friendly features. Carriers have also forced manufacturers to include technologies, like ``walled garden´´ Internet access, that neither equipment developers nor consumers want. Finally, through under-disclosed ``phone-locking,´´ the U.S. carriers disable the ability of phones to work on more than one network."

Third, he argued that "carriers have begun to offer wireless broadband services that compete with Wi-Fi services and may compete with cable and DSL broadband services." (Wu has been less apt to concede that wireless competes with cable or DSL when he advocates imposition of network neutrality mandates on that duopoly.)

He continued that "the services are offered pursuant to undisclosed bandwidth limits and usage restrictions that violate basic network neutrality rules. Most striking is Verizon Wireless, which prominently advertises ``unlimited´´ data services. However, it and other carriers offer broadband service pursuant both to bandwidth limits, and to contractual limits that bar routine uses of the Internet, including downloading music from legitimate sites like iTunes, the use of Voice over IP, and the use of sites like YouTube."

Finally, he argued that "have imposed excessive burdens and conditions on application entry in the wireless application market, stalling what might otherwise be a powerful input into the U.S. economy."

He recommended that extension of the Carterfone "rule for wireless networks would liberate device innovation in the wireless world". He also argued that "Wireless carriers should be subject to the same core network neutrality principles under which the cable and DSL industries currently operate. Consumers have the basic right to use the applications of their choice and view the content of their choice. Wireless carriers who offer broadband services should respect the same basic freedoms."

He also argued that "The industry should re-evaluate its ``walled garden´´ approach to application development, and work together to create clear and unified standards for developers." Finally, he argued that consumer disclosure is a major problem.

Senate and House Hold Hearings on Trade, TPA and IP Theft in PRC

2/15. The Senate Finance Committee (SFC) held a hearing titled "The Administration's 2007 Trade Agenda" on Thursday morning, February 15. U.S. Trade Representative (USTR) Susan Schwab testified, answered questions, and spoke with reporters afterwards.

At the same time, the House Ways and Means Committee's (HWMC) Subcommittee on Trade held a hearing titled "Trade with China". Deputy USTR Karan Bhatia and industry representatives testified. Also, on February 14, the full HWMC held a hearing titled "U.S. Trade Agenda".

The SFC held a long hearing. However, most Senators left early for a series of roll call votes in the Senate, after which they proceeded to party meetings. Much of the hearing consisted of exchanges and debate between Sen. Max Baucus (D-MT), the Chairman of the SFC, and USTR Schwab. It was often confrontational, but civil.

Sen. Baucus (at left) stated that this hearing was about "what should the conditions be under which the Congress" extends trade promotion authority (TPA). He asked Schwab what the Bush administration is doing to help the Congress understand why it should extend TPA. She responded by discussing the benefits of the trade agreements already negotiated, and the likely benefits of future trade agreements.

Sen. Baucus said that she was not answering the question, and that she was just going through agreements. He said that the Congress need to hear more about enforcement and revising trade adjustment assistance.

Sen. Baucus stated that in the future FTAs "must raise labor standards" of other countries. Schwab said that this has been the effect of all FTAs negotiated in the past five years, and that FTAs without labor standards provisions still raise labor standards.

Sen. Baucus suggested that the Congress retain the power to limit the countries with which the USTR could negotiate FTAs. Schwab argued that Congress already has leverage under TPA through its power to reject FTAs. Sen. Baucus differed, arguing that by then "it is way too late".

Schwab came back with the argument that the OUSTR consults "day in and day out" with the Congress on FTAs. Sen. Baucus said that the sense in the Congress is that the cooperation has to be better.

He also stated that there is a sense that the administration only does just enough to squeeze out a one vote win on FTAs. Schwab argued that there is consultation, and that it is two way.

Sen. Baucus argued that the administration was not doing enough on enforcement. He argued that the administration is not using Section 421 safeguards, and is losing Congressional trust as a result. Schwab argued that in each Section 421 case the administration found that enforcement was "not in the national economic interest".

Sen. Baucus also discussed IPR enforcement in the People's Republic of China. Schwab said that "there are serious enforcement problems". Sen. Baucus said that "this has been going on for years and years", and that it is "getting embarrassing".

Schwab said that there is a potential to bring cases before the World Trade Organization (WTO).

Sen. Charles Grassley (R-IA) and Sen. Pat Roberts (R-KS) both raised agricultural issues, particularly with respect to beef and pork exports. The two both raised the subject of Russia's accession to the WTO in light of Putin's recent speeches. Sen. Grassley referred to this as "Putin's re-Sovietization".

Sen. Maria Cantwell (D-WA) asked one question about the necessity of extending TPA.

Sen. Debbie Stabenow (D-MI) expressed concern about the FTA being negotiated with Korea, and how it will address automobiles and appliances. She also expressed concern about counterfeiting of parts.

Sen. Ken Salazar (D-CO) and Sen. Jim Bunning (R-KY) both attended, but did not speak.

Schwab also spoke with reporters after the SFC hearing about whether and when the OUSTR will file an IPR related case with the WTO against China. She said that this is "a frustrating topic because, because the easiest thing that we can do as an administration is file an IP case. I mean, it is easy to file an IP case."

She continued that "we are ready to do that. It is easy to file an IP case. It isn't easy to solve the IP problem. So, we walk a very fine line. We want to give a chance, and the US industry is prepared to let us try to resolve, really resolve, the intellectual property rights, and market access related intellectual property rights, problems that we face in China, before we file, or instead of filing. If we can't do that, we have to file".

She was asked "Is there a deadline on that?"

"There is no formal deadline", she responded. "But at some point you say, we are not getting, we are not getting there by negotiation, we really need to do something."

She concluded that "there are clearly individuals in leadership positions in China who believe that it is in China's own best interest to have effective intellectual property rights protection. There is no question about that. And so, will they win, and will the laws be improved, will the laws be enforced, and a lot of it is an enforcement issue. Or, are we going to continue to see this deterioration in IP protection in China."

She also discussed trade adjustment assistance. She said that President Bush wants to extend it. She also noted that there is a debate regarding shy the government should give special treatment to people who have lost their jobs because of trade, and not because of other causes, such as new technologies.

Karan Bhatia, a Deputy USTR, wrote in his prepared testimony for the HWMC that "Over the past year, we have been working to prepare a WTO case that challenges China’s compliance with its WTO obligations in the area of intellectual property rights enforcement. Last October, we informed China that we would be filing such a case, but then agreed to hold off, with the support of U.S. industry, when China asked for further bilateral discussion. We have been holding those discussions, including late last month in Beijing. We have also been raising with China restrictions on market access. While these are not IPR issues per se, they have a negative impact on the industries depending on intellectual property, such as the copyright industry and, to a certain extent, they exacerbate some of the problems with IPR enforcement."

Bhatia (at right) wrote that "Thus far, no settlement has been reached. We are consulting with Congress and with industry on next steps. If we believe that negotiations offer a reasonable chance of success, we will continue to pursue them -- a successfully negotiated outcome can be more efficient and as successful as a litigated outcome. But if it becomes clear that negotiations will not be successful, then we will proceed with WTO dispute settlement."

He also asserted that "It bears noting that at the highest levels of the Chinese government there is a clearly stated commitment to tackle this problem. In his remarks from the South Lawn of the White House in April, President Hu affirmed that China is committed to ``strengthening the protection of intellectual property rights.´´ China's leadership appears to recognize that the development of a more vigorous and effective IPR enforcement system is critical not only to trade relations with the United States, but also to China’s own economic development."

Dan Glickman, head of the Motion Picture Association of America (MPAA), wrote in his prepared testimony that "China is the most difficult market in the world for the US motion picture industry. It is impossible to travel to one of China’s major cities and not encounter street hawkers pushing pirated versions of the latest US movies. More than 9 of every 10 DVDs in the China market is fake."

However, he added that "fake Olympic-logo materials are impossible to find. The government has made it abundantly clear that it will not tolerate Olympic rip-offs, and it has enforced that edict, effectively. In sum, when the Chinese authorities want to protect intellectual property, they can."

"While you can see virtually any US film you want in China, in pirated form, the legitimate market is one of the world’s most restricted", said Glickman."The Chinese government decides which US films Chinese audiences will see, when they will see them, and dictates the terms of getting those films into China."

China "has met neither its unilaterally announced objectives nor its international obligations", said Glickman.

Patricia Schroeder, head of the Association of American Publishers (AAP), wrote in her prepared testimony that "Book piracy manifests itself in a number of different forms in China. Illegal commercial scale photocopying of academic materials is the industry's most immediate concern. Print piracy (unauthorized reprints approximating the quality and appearance of the original) and illegal translations have profound effects on the market as well." (Parentheses in original.)

She continued that ""Web sites offering free book downloads are thriving. These books in most cases do not originate in electronic form, but are scanned versions of hard cover books. Sites offering pay or free downloads join traditional peer to peer trading sites as serious threats to the book market. Too often, takedown notices are ignored and government action against these operations is slow."

He added that there is "trademark counterfeiting, especially with regard to books produced by university presses, misleads Chinese consumers."

Finally, like the MPAA's Glickman, she testified that government not only allows theft, but blocks access to the market by legitimate publishers. She wrote that "All of this is exacerbated by market access barriers that deny foreign publishers the ability to freely import into the Chinese market, distribute their own materials, obtain local Chinese book publication numbers or print for the local market."

Geralyn Ritter, of the Pharmaceutical Research and Manufacturers Association (PhRMA), said that "China is believed to be the world’s leading exporter of counterfeit drugs"

See also, prepared testimony of Peter Baranay (ABRO Industries), prepared testimony of John Goodish (United States Steel), prepared testimony of Franklin Vargo (National Association of Manufacturers), prepared testimony of John Bassett (Vaughan-Bassett Furniture Company), prepared testimony of James Tyrone (NewPage Corporation), and prepared testimony of Peter Navarro (University of California at Irvine).

On February 14, 2007, the HWMC held a hearing titled "U.S. Trade Agenda". See, prepared testimony of USTR Schwab, which was substantially identical to her prepared testimony for the SFC on February 15.

People and Appointments

2/15. The Senate confirmed Judge Randy Smith to be a Judge of the U.S. Court of Appeals (9thCir) by a vote of 94-0. See, Roll Call No. 49.

2/15. The Senate confirmed Marcia Howard to be a Judge of the U.S. District Court for the Middle District of Florida by a vote of 93-0. See, Roll Call No. 50.

2/15. President Bush nominated Timothy DeGiusti to be a Judge of the U.S. District Court for the Western District of Oklahoma. See, White House release.

2/15. President Bush nominated Richard Sullivan to be a Judge of the U.S. District Court for the Southern District of New York. See, White House release.

More News

2/15. The U.S. Court of Appeals (2ndCir) issued its opinion [PDF] in Starbucks v. Wolfe's Borough, a trademark case. Starbucks Corporation filed a complaint in the U.S. District Court (NYSD) against Wolfe's Borough Coffee, Inc., dba Black Bear Micro Roastery, alleging that its sale of a coffee named "Mr. Charbucks" infringes and dilutes the "Starbucks" trademark for coffee. The District Court entered judgment for Wolfe's Borough on all claims. After the District Court ruled, the Congress amended the Federal Trademark Dilution Act (FTDA) to entitle the owner of a famous distinctive mark to an injunction against the user of a mark that is "likely to cause dilution" of the famous mark. The Congress reacted to the Supreme Court's 2003 opinion [21 pages in PDF] in Moseley v. V Secret Catalogue, Inc., 537 U.S. 418, which construed the FTDA to require a showing of actual dilution, as opposed to a likelihood of dilution. See, story titled "Bush Signs Trademark Dilution Revision Act" in TLJ Daily E-Mail Alert No. 1,464, October 9, 2006. In the present case, the Court of Appeals vacated and remanded. This case is Starbuck Corporation, et al. v. Wolfe's Borough Coffee, Inc., U.S. Court of Appeals for the 2nd Circuit, App. Ct. No. 06-0435-cv, an appeal from the U.S. District Court for the Southern District of New York.

2/15. The Senate Judiciary Committee (SJC) held a business meeting. It began its consideration of S 236, the "Federal Agency Data Mining Reporting Act of 2007". It approved a technical amendment, and held over further consideration until the next business meeting. The SJC also held over consideration of S  378, the "Court Security Improvement Act of 2007", and S 316, the "Preserve Access to Affordable Generics Act", a bill to prohibit brand name drug companies from compensating generic drug companies to delay the entry of a generic drug into the market.

2/15. The House Science Committee (HSC) Subcommittee on Technology and Innovation held a hearing titled "The National Institute of Standards and Technology's Role in Supporting Economic Competitiveness in the 21st Century". See, opening statement of Rep. David Wu (D-OR), the Chairman of the Subcommittee. See, prepared testimony [11 pages in PDF] of William Jeffrey (Director of the National Institute of Standards and Technology), prepared testimony [PDF] of Stan Williams (Hewlett Packard), prepared testimony [12 pages in PDF] of Peter Murray (Welch Allyn), prepared testimony [4 pages in PDF] of Michael Borrus (X/Seed Capital), and prepared testimony [PDF] of Mike Ryan (TUG Technologies).

FTC Files Civil Complaint Against HP's Outside Pretexters

2/14. The Federal Trade Commission (FTC) filed a civil complaint [9 pages in PDF] in U.S. District Court (MDFl) against Action Research Group, Inc. (ARG) and others alleging violation of Section 5(a) of the FTC Act in connection with their engaging in pretexting practices to obtain confidential phone records from carriers.

ARG and the other defendants were some, but not all, of the participants in Hewlett Packard's (HP) pretexting scandal. However, the complaint does not name as defendants HP or any of its current or former employees or directors. The complaint does not disclose that the named defendants performed work on behalf of HP.

The complaint alleges that the "Defendants have obtained confidential customer phone records pertaining to account holders with telecommunications carriers from those carriers, including lists of calls made as well as the date, time, and duration of such calls, and have made such information available to their clients or others for a fee."

The complaint further alleges that "The account holders have not authorized Defendants to access or sell their confidential customer phone records. Instead, to obtain such information, Defendants have used or have caused others to use, false pretenses, fraudulent statements, fraudulent or stolen documents or other misrepresentations, including posing as an account holder or as an employee of the telecommunications carrier, to induce officers, employees, or agents of telecommunications carriers to disclose confidential customer phone records."

The complaint alleges that this violates Section 5 of the FTCA, which is codified at 15 U.S.C. § 45(a). This section provides, in part, that "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful."

The complaint also states that this practice constitutes an "invasion of privacy", and that it endangers the health and safety of the customers who records are obtained. The complaint alleges injury to consumers.

However, this is not a typical FTC Section 5(a) complaint. The injured consumers are not consumers of the defendants. The injured people have no business or competitive relationship with the defendants. Ultimately, HP was the consumer. There is nothing in the complaint that suggests that this consumer was harmed, or even dissatisfied with the defendants' actions.

The FTC has no general privacy statute to enforce. Hence, it pursues some violators of privacy under the statutory authority that it does possess.

The complaint seeks preliminary and permanent injunctive relief, and "rescission or reformation of contracts, restitution, and the disgorgement of ill-gotten monies".

See also, FTC release.

This case is Federal Trade Commission v. Action Research Group, Inc., Joseph Depante, Matthew Depante, Bryan Wagner, Cassandra Selvage, and Eye in the Sky Investigations, Inc., U.S. District Court for the Middle District of Florida, Orlando Division, D.C. No. 6:07-CV-0227-ORL-22JGG.

FCC Releases Biennial Review Reports

2/14. The Federal Communications Commission (FCC) released its 2006 biennial review reports. The biennial regulatory review process is mandated by Section 11 of the Communications Act of 1934, which is codified at 47 U.S.C. § 161.

This section provides that "In every even-numbered year (beginning with 1998), the Commission (1) shall review all regulations issued under this chapter in effect at the time of the review that apply to the operations or activities of any provider of telecommunications service; and (2) shall determine whether any such regulation is no longer necessary in the public interest as the result of meaningful economic competition between providers of such service." (Parentheses in original.)

The FCC released the following reports:

• Consumer and Government Affairs Bureau (CGAB) report [37 pages in PDF]. This report is DA 07-672 in CG Docket No. 06-152.
• Enforcement Bureau (EB) report [5 pages in PDF]. This report is DA 07-667 in EB Docket No. 06-153.
• International Bureau (IB) report [43 pages in PDF]. This report is DA 07-675 in IB Docket No. 06-154.
• Office of Engineering and Technology (OET) report [26 pages in PDF]. This report is DA 07-668 in ET Docket No. 06-155.
• Wireline Competition Bureau (WCB) report [86 pages in PDF]. This report is DA 07-656 in WC Docket No. 06-157.
• Wireless Telecommunications Bureau (WTB) report [139 pages in PDF]. This report is DA 07-674 in WT Docket No. 06-156.

Senate Judiciary Committee Holds Hearing on Court Security and Judicial Pay

2/14. The Senate Judiciary Committee (SJC) held a hearing titled "Judicial Security and Independence". Sen. Patrick Leahy (D-VT), the Chairman of the SJC, addressed the physical security of courts and judges, and S 378, the "Court Security Improvement Act of 2007", in his opening statement. In contrast, Supreme Court Justice Anthony Kennedy testified about judges' pay.

Justice Kennedy wrote in his prepared testimony that "judges throughout the United States are increasingly concerned about the persisting low salary levels Congress authorizes for judicial service. Members of the federal judiciary consider the problem so acute that it has become a threat to judicial independence."

He continued that "Between 1969 and 2006, the real pay of district judges declined by about 25 percent. In the same period, the real pay of the average American worker increased by eighteen percent. ... If judges' salaries had kept pace with the increase in the wages of the average American worker during this time period, the district judge salary would be $261,000."

Sen. Richard Durbin (D-IL) wrote in his opening statement that "we have heard extreme statements from political ideologues and even attempts by some members of Congress to punish federal judges for their decisions." He referenced an televised interview of former Rep. Tom DeLay (R-TX).

Sen. Durbin added that "It is one thing to criticize a judicial opinion with which we disagree, and another thing to threaten judges with impeachment, to try and strip them of their authority to hear certain types of cases, and to subject them to the whims of a politicized inspector general."

On January 31, 2007, Rep. James Sensenbrenner (R-WI) introduced HR 785, and Sen. Charles Grassley (R-IA) introduced S 461. Both bills are titled "Judicial Transparency and Ethics Enhancement Act of 2007". Both would provide an Inspector General for the judicial branch.

See also, prepared testimony of Judge Brock Hornby (U.S. District Court for the District of Maine) regarding S 378, and prepared testimony of John Clark (Director of the U.S. Marshals Service) regarding court security.

US and Japan Sign MRA on Telecommunications Equipment

2/14. The United States and Japan signed a document [19 pages in PDF] titled "Agreement on Mutual Recognition of the Results of Conformity Assessment Procedures between the United States and Japan".

This mutual recognition agreement (MRA) provides for "conformity assessment procedures for the telecommunications terminal equipment and radio equipment ... and for processes associated with that equipment." It also "applies regardless of the location of the supplier or the country of origin of the equipment, including where the country of origin of the equipment is other than the United States or Japan."

The Office of the U.S. Trade Representative (OUSTR) stated in a release that under this agreement, "Japan will accept the results of conformity assessment procedures (i.e., product testing and certification) performed by approved certification bodies in the United States demonstrating that telecommunications equipment meets Japan’s technical requirements. Japan's agreement to accept certification by recognized U.S. bodies will lower costs and speed up the marketing in Japan of innovative U.S. products. In 2005, total U.S.-Japan trade in telecommunications equipment was approximately $2.6 billion, and Japan was the United States’ fourth largest export market for such products". (Parentheses in original.)

In the U.S., the National Institute of Standards and Technology (NIST) is the designated qualified conformity assessment body to conduct conformity assessment procedures demonstrating products’ conformity with specific Japanese requirements. In Japan, the Ministry of Internal Affairs and Communications or an authority succeeding this ministry is the designated body.

Federal Reserve Reports on ICT and State of the Economy

2/14. The Board of Governors of the Federal Reserve System (FRB) released its annual report [31 pages in PDF] titled "Monetary Policy Report to the Congress". Among other topics, it details economic developments in 2006 regarding information and communications technologies (ICT).

Federal Reserve Board Chairman Ben Benanke is also testifying before House and Senate committees regarding this report this week. Bernanke also gave a speech last week in which he discussed ICT, productivity growth, the consequences for income inequalities, and how government policy makers should or should not react.

ICT Purchases. This FRB report states that "Real investment in high-technology equipment rose 9 percent in 2006, about the same average annual pace as in the preceding two years. Further decreases in the prices of high-technology equipment continued to reduce the user cost of this type of equipment. Real business spending for computing equipment increased 14½ percent, and software spending posted an 8 percent gain, both roughly comparable to their average rates of increase in the previous two years."

It adds that "Business outlays for communications equipment rose almost 7 percent in 2006. Spending for communications equipment was particularly robust in the early part of the year and was likely boosted in part by spending to replace equipment damaged by the hurricanes in the autumn of 2005. Investment in communications equipment last year continued to be supported by demand from telecommunications service providers that were expanding their broadband networks."

ICT Exports. The FRB report also addresses tech exports. "Export growth was spread fairly evenly across all major end-use categories, though exports of computers and semiconductors expanded noticeably more slowly than in 2005."

It also states that "By destination, exports to China and other emerging Asian economies grew very rapidly, as did those to South America. Exports to Mexico and western Europe rose at a more modest pace. Real exports of services were up a solid 6¾ percent for the year, double the pace of 2005."

ICT and Productivity. The report also addresses productivity growth. Numerous prior FRB reports, papers and speeches have argued that overall productivity has been affected by the adoption and use of new information technologies.

This report states that "The growth rate of labor productivity in the nonfarm business sector, which had slowed in 2004 and 2005 from an exceptionally rapid pace earlier in the decade, remained relatively subdued in 2006. Over the four quarters of 2006, output per hour of work in the nonfarm business sector increased 2 percent, compared with about a 3 percent average annual rate of increase during the first half of this decade and the second half of the 1990s."

It continues that "During that earlier period, productivity gains were spurred by the rapid pace of technological change, the growing ability of firms to use information and other technology to improve the efficiency of their operations, and increases in the amount of capital per worker. Despite the recent slowing in productivity growth, these underlying factors do not appear to have waned. Accordingly, the recent slowdown in labor productivity may be at least in part a temporary cyclical response to the moderation in the pace of economic activity in 2006 rather than a meaningful downshift in the longer-run trend."

Bernanke (at left) also expanded on nature and consequences of ICT related productivity growth in a speech on February 8, 2007 in Omaha, Nebraska.

He stated that "Economists have hypothesized that technological advances, such as improvements in information and communications technologies, have raised the productivity of high-skilled workers much more than that of low-skilled workers. High-skilled workers may have enjoyed this advantage because, for example, they may have been better able to make more effective use of computer applications, to operate sophisticated machinery, or to adapt to changes in workplace organization driven by new technologies."

He continued that "If new technologies tend to increase the productivity of highly skilled workers relatively more than that of less-skilled workers -- a phenomenon that economists have dubbed ``skill-biased technical change´´ -- then market forces will tend to cause the real wages of skilled workers to increase relatively faster. Considerable evidence supports the view that worker skills and advanced technology are complementary."

However, he added that this hypothesis does not explain everything. For example, it leaves unanswered the question of "why the sharp rise in investment in information technology in the 1990s was not accompanied by a higher rate of increase in wage inequality."

Nor, said Bernanke, "can it explain why the wages of workers in the middle of the distribution have grown more slowly in recent years than those of workers at the lower end of the distribution".

Bernanke also discussed the large wage gains at the top of the distribution, even in such non-ICT related jobs as professional baseball players. He speculated that the huge growth in sports salaries may be related to "increases in broadcast and merchandising revenues he might generate as a result of the confluence of new distribution channels (such as Internet-based broadcasts of games) and a larger and wealthier potential global audience".

He also suggested that ICT enables a wide range of "superstars", including "entertainers, investment bankers, lawyers, and various other professionals", to "apply their talents in what has increasingly become a global marketplace", and thus obtain higher incomes.

Policy Recommendations. After further discussion of trade, immigration, and globalization, Bernanke offered a few policy recommendations in his Omaha speech.

He opposed policy approaches "that would inhibit the dynamism and flexibility of our labor and capital markets or erect barriers to international trade and investment."

He added that "the advent of new technologies and increased international trade can lead to painful dislocations as some workers lose their jobs or see the demand for their particular skills decline. But hindering the adoption of new technologies or inhibiting trade flows would do far more harm than good, as technology and trade are critical sources of overall economic growth and of increases in the standard of living."

People and Appointments

2/14. The Senate confirmed Nora Fischer to be a Judge of the U.S. District Court for the Western District of Pennsylvania by a vote of 96-0. See, Roll Call No. 47.

More News

2/14. The U.S. Patent and Trademark Office (USPTO) published a notice in the Federal Register that announces and describes its proposal to amend 37 C.F.R. § 2.64 to require a request for reconsideration of an examining attorney's final refusal or requirement to be filed through the Trademark Electronic Application System (TEAS) within three months of the mailing date of the final action. See, Federal Register, February 14, 2007, Vol. 72, No. 30, at Pages 6984-6986. The deadline to submit comments to the USPTO is April 16, 2007.

People and Appointments

2/13. Rep. Charlie Norwood (R-GA) died. He was a member of the House Commerce Committee. See also, statement by President Bush.

2/13. Alan Holmer was named Special Envoy for China and the Strategic Economic Dialogue. He will lead the Bush administration's team managing the bilateral economic relationship with the People's Republic of China. From 1996 through 2005 he was head of the Pharmaceutical Research and Manufacturers of America (PhRMA). Former Rep. Billy Tauzin is now head of the PhRMA. Before that, Holmer was a partner in the law firm of Sidley Austin. And before that, during the Reagan administration, he worked at the Department of Commerce and at the Office of the U.S. Trade Representative as General Counsel and Deputy USTR. See, Treasury release and biography [PDF].

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2/13. The U.S. Court of Appeals (2ndCir) issued an opinion in Ross v. American Express, an antitrust case in which class action plaintiffs allege that Amex conspired with Visa and MasterCard to fix fees for transactions in foreign currencies. There is a separate action against Visa and MasterCard in which the District Court granted a motion to compel arbitration. Visa and MasterCard have agreements with cardholders that include arbitration clauses. Amex, which has no applicable arbitration agreement with the plaintiffs, moved the District Court for an order compelling arbitration, based upon the Visa and MasterCard agreements. The District Court found that the claims against Amex are inextricably intertwined with the Visa and MasterCard cardholder agreements, but refused to stay the District Court proceeding, or compel arbitration. Amex brought the present interlocutory appeal. The class action plaintiffs moved to dismiss the appeal. The just issued opinion merely explains the Court of Appeals' denial of this motion to dismiss. The Court of Appeals only addressed its jurisdiction. It added that "we make no determination as to whether the district court was correct in holding that appellants are entitled to arbitration via equitable estoppel -- a determination that will only be made following full briefing and argument on appeal." This case is Robert Ross, et al. v. American Express Company, et al., U.S. Court of Appeals for the 2nd Circuit, App. Ct. Nos. 06-4598-cv(L) and 06-4759-cv(XAP), appeals from the U.S. District Court for the Southern District of New York, D.C. No. 04 Civ. 5723.

Green and Pickering Reintroduce Bill to Protect Terrestrial Radio from Satellite Radio Competition

2/12. Rep. Gene Green (D-TX) and Rep. Chip Pickering (R-MS) introduced HR 983, the "Local Emergency Radio Service Preservation Act of 2007".

The bill was referred to the House Commerce Committee (HCC). Both Rep. Green and Rep. Pickering are members.

This is a reintroduction of HR 998 from the 109th Congress. Rep. Pickering and Rep. Green introduced that bill on March 1, 2005. That bill eventually had 140 sponsors. However, neither the HCC nor the House took any action on that bill.

There was also a companion bill, S 2418 (109th), introduced by Sen. Olympia Snowe (R-ME) on March 15, 2006. It was referred to the Senate Commerce Committee (SCC), which took no action.

The just introduced HR 983 would protect companies that provide free terrestrial radio broadcasts from competition from satellite radio broadcasters. The bill recites in its findings that satellite radio broadcasters "have announced plans to offer local traffic and weather channels through the use of their satellites", and that the advertising revenues of terrestrial broadcasters "could be jeopardized by a diversion of the listening audience away from local radio programming".

Hence, the bill proposes to protect terrestrial broadcasters from competition from satellite broadcasters by precluding satellite broadcasters from offering local content.

The bill would require the Federal Communications Commission (FCC) to amend its rules to provide that "digital audio radio satellite service licensees shall not, using any capability either on a satellite or in a radio receiver, provide services that are locally differentiated or that result in programming being delivered to consumers in one geographic market that is different from the programming that is delivered to consumers in any other geographic market".

The bill would further require the FCC to amend its rules to provide that "digital audio radio satellite service repeaters shall be restricted to simultaneously retransmitting the programming transmitted by satellite directly to digital audio radio satellite service subscribers' receivers, and may not be used to distribute any information not also transmitted to all subscribers' receivers".

The bill further requires that the FCC conduct a rulemaking proceeding "to determine whether digital audio radio satellite service licensees should be permitted to provide locally oriented services on nationally distributed channels, taking into account -- (1) the impact of locally oriented satellite radio services on the viability of local radio broadcast stations and their ability to provide news and other services to the public; (2) the ability of digital audio radio satellite service licensees to afford listeners the same emergency and other information as is afforded listeners of local broadcast radio stations; (3) whether digital audio radio satellite service licensees committed to providing only national services in order to obtain authorization for their service; and (4) whether the same level and quality of emergency communications services could be provided to consumers by digital audio radio satellite service licensees as by local broadcast radio stations."

Mel Karmazin (CEO of Sirius) stated in the conference call on February 20, 2007 that "we are not using our local repeaters for any local programming". However, he also said that satellite radio providers should be able to broadcast New York Yankee baseball games nationally.

House Approves Patent Judges Bill

2/12. The House approved HR 34, an untitled bill to establish a pilot program in certain U.S. District Courts to encourage enhancement of expertise in patent cases among judges and clerks. This bill is sponsored by Rep. Darrel Issa (R-CA) and Rep. Adam Schiff (D-CA). The House approved this bill by voice vote.

Neither the House Judiciary Committee (HJC), nor its Subcommittee on Courts, the Internet and Intellectual Property (SCIIP), held a hearing or a mark up in this Congress. However, this bill is a reintroduction of HR 5418 from the 109th Congress, which the House approved on September 28, 2006. See also, story titled "Reps. Issa and Schiff Reintroduce Patent Judges Bill" in TLJ Daily E-Mail Alert No. 1,526, January 25, 2007.

Rep. Howard Berman (D-CA), the Chairman of the SCIIP, explained the bill during the floor debate. He said that this bill authorizes the Administrative Office of the United States Courts to "establish pilot programs in the United States district courts where the most patent cases are filed. At minimum, five courts, spread over at least three circuits, will take part. To qualify, a court must have at least 10 judges, and at least three judges must request to take part in that program in each of the districts."

He continued that "The chief judge randomly assigns the patent cases. Should that judge, who is assigned the case, decline that assignment, one of the several judges who has opted to take part in the pilot program receives the case. Further, H.R. 34 requires the Director of the Administrative Office of the United States Courts to report to Congress on the pilot program's success in developing judicial expertise in patent law and authorizes funds to increase both judges' familiarity with patent law and provide additional funding for clerks."

Rep. Lamar Smith (R-TX), the ranking Republican on the HJC, stated in the House that "The need for such a program becomes apparent when one considers that fewer than 1 percent of all cases in U.S. district courts, on average, are patent cases and that a district court judge typically has a patent case proceed through trial only once every 7 years. These cases require a disproportionate share of attention and judicial resources, and the rate of reversal remains unacceptably high."

He added that "The premise underlying H.R. 34 is simple. Practice makes perfect, or at least better. Judges who focus more attention on patent cases can be expected to be better prepared and make decisions that will hold up under appeal."

Rep. Issa (at right) stated that "Under the Markman decision, a Federal judge must decide what the patent means. It is incredibly technical often to decide what 5,000 claims, sometimes looking thicker than the Bible and the Koran put together, really mean; and yet that is an obligation of the judge. Those obligations may be in the areas of mechanical engineering, electrical engineering. It could be chemical. It could be bio. It could be so technical as to require outside experts just to decipher some of the language. And yet we ask a Federal judge, most often the one who has just ascended to the bench, to take on these patent cases. This bill is designed to reduce the times in which the most complex cases get before the least prepared and sometimes even the least willing Federal judges."

See also, Rep. Issa's release.

The Senate has taken no action on this bill, or any companion bill.

11th Circuit Rules on Privacy, DPPA and § 1983 Suits Against DMV Officials

2/12. The U.S. Court of Appeals (11thCir) issued an opinion [13 pages in PDF] in Collier v. Dickenson, an action against the Florida Department of Highway Safety & Motor Vehicles and some of its officials regarding the sale to marketers of personal information that is collected by the state in connection with its licensing of drivers and registration of motor vehicles.

The plaintiffs allege that the practice violates the federal Driver Privacy Protection Act (DPPA), which is codified at 18 U.S.C. § 2721-2725, as well as 42 U.S.C. § 1983, which imposes liability on anyone who, under color of state law, deprives any person of any rights, privileges, or immunities secured by the federal constitution or statutes. The plaintiffs assert violation of their their constitutional right to privacy, and their rights under the DPPA.

18 U.S.C. § 2721 provides, in part, that "A State department of motor vehicles, and any officer, employee, or contractor thereof, shall not knowingly disclose or otherwise make available to any person or entity ... personal information ... about any individual obtained by the department in connection with a motor vehicle record",  subject to certain enumerated exceptions.

The, 18 U.S.C. § 2724 provides, in part, that "A person who knowingly obtains, discloses or uses personal information, from a motor vehicle record, for a purpose not permitted under this chapter shall be liable to the individual to whom the information pertains, who may bring a civil action in a United States district court."

The District Court dismissed the complaint as to the officials on the grounds that they are entitled to qualified immunity from suit.

The Court of Appeals affirmed the dismissal as to the Section 1983 claim based upon alleged violation of the constitutional right to privacy, but reversed the dismissal of the Section 1983 based upon alleged violation of the DPPA, and reversed the dismissal of the direct claim of DPPA violation.

The Court of Appeals wrote that "the plain language of the DPPA clearly, unambiguously, and expressly creates a statutory right which may be enforced by enabling aggrieved individuals to sue persons who disclose their personal information in violation of the DPPA. Accordingly, if the acts alleged by Plaintiffs are taken to be true -- that Defendants sold personal information without their consent -- then Count II of the complaint states a cause of action under the DPPA."

The Court of Appeals also held that the DPPA is also enforceable under the DPPA.

This case is Mary Ann Collier, et al. v. Fred O. Dickenson III, et al., U.S. Court of Appeals for the 11th Circuit, App. Ct. No. 06-12614, an appeal from the U.S. District Court for the Southern District of Florida, D.C. No. 04-21351-CV-JEM. Judge Barkett wrote the opinion of the Court of Appeals, in which Judges Black and Kravitch joined.

4th Circuit Applies eBay v. MercExchange in Copyright Injunction Case

2/12. The U.S. Court of Appeals (4thCir) issued its opinion [28 pages in PDF] in Christopher Phelps & Associates v. Wayne Galloway, a copyright infringement case involving, among other issues, the availability of injunctive relief. The Court of Appeals extended Supreme Court's patent opinion in eBay v. MercExchange to copyrights. The underlying copyright in this case is an architectural design for a house.

Copyright is a form of property right. The most fundamental attribute of most types of property is the right of the owner to exclude. The primary method by which owners enforce this right of exclusion is judicial injunction. In eBay v. MercExchange, the Supreme Court overturned the general rule that injunctive relief is generally available once infringement has been proved. It extended general principles of equity that apply to the grant of injunctions in non-property cases to patent cases.

In the just issued opinion, the Court of Appeals extended the holding of eBay v. MercExchange to copyright cases. This case weakens the property right of copyright owners. Copyright owners, especially owners of design copyrights, should take note.

In addition, the Court of Appeals, in an unusual concoction injunction principles, the first sale doctrine, and the concept of compulsory licensing, concluded that the owner of a house design copyright could not obtain an injunction against the sale of a house built with an infringing copy of that design, because of the first sale doctrine, which allows for the sale of lawfully acquired copies of copyrighted works. The work was not lawfully acquired by the purchase of the copy or license. Rather, the Court of Appeals reasoned that, by bringing an infringement action, the copyright holder "essentially sold him its interest in the house in exchange for the appropriate remedies under the Copyright Act", which the court concluded, was only what the licensing fee would have been, had the infringer lawfully acquired a license.

The opinion also contains extensive discussions of the availability of damages and profits for copyright infringement, and the meaning of derivative works.

Background. Christopher Phelps & Associates LLC is an architectural firm based in Charlotte, North Carolina. It creates custom architectural designs for upscale houses. Wayne Galloway infringed Phelps' copyright by obtaining a copy of a house design, without authorization, from a homeowner whose house had been built according to a Phelps architectural design. That homeowner had purchased from Phelps for $20,000 a license to use the unique plans for that house. These plans contained Phelps' copyright notices.

Galloway, who acted as his own general contractor, hired subcontractors, who in turn warned him of the copyright violation. The Court of Appeals wrote in its opinion that he responded to one subcontractor by stating "They’ve got to find me, catch me first".

An unidentified subcontractor reported him. Phelps sent Galloway a cease and desist letter.

Christopher Phelps testified at trial that had Galloway requested a license, his firm would have revised the plans, because it only designs unique homes, and then licensed the design to him for $20,000.

District Court. Phelps filed a complaint in U.S. District Court (WDNC) against Galloway alleging copyright infringement. It sought actual damages, Galloway's profits (the difference between the market value of the completed house and the costs of building it) and injunctive relief.

The legal issues were tried by a jury. During trial, the District Court admitted evidence offered by Galloway regarding the county's assessed value of the house for property tax purposes in support of his argument that there were no profits. However, the District Court refused to admit Phelps' expert testimony that the county's assessment did not reflect the actual property value. The District Court also instructed the jury that the copyright at issue was a derivative work only. Then, the jury found that there were no profits. It awarded only $20,000 as damages.

The District Court decided the equitable issue of issuance of an injunction. It refused to issue any injunction.

Notably, despite the plain language of 17 U.S.C. § 503 (regarding destruction of copies) and 17 U.S.C. § 504 (regarding injunctions), and Galloway's demonstrated disrespect for copyright law and copyright owners, the District Court did not even order Galloway to destroy or return the infringing copies of the design.

Statutes. The Copyright Act's injunction remedy, which is codified at 17 U.S.C. § 502, provides in part that "(a) Any court having jurisdiction of a civil action arising under this title may, subject to the provisions of section 1498 of title 28, grant temporary and final injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a copyright." (28 U.S.C. § 1498(b) pertains to actions for copyright infringement against the federal government. It states the general rule that injunctive relief in not available.)

17 U.S.C. § 504 provides for the recovery of damages and profits. Subsection 502(b) provides that "The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages. In establishing the infringer’s profits, the copyright owner is required to present proof only of the infringer’s gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work."

17 U.S.C. § 503 provides, in part, that "As part of a final judgment or decree, the court may order the destruction or other reasonable disposition of all copies ... found to have been made or used in violation of the copyright owner’s exclusive rights, and ... other articles by means of which such copies ... may be reproduced."

17 U.S.C. § 109 contains the first sale doctrine. Subsection (a) provides, in part, that "Notwithstanding the provisions of section 106(3), the owner of a particular copy ... lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy .."

The Patent Act's injunction remedy, which is codified at 35 U.S.C. § 283, provides in full that "The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable."

eBay v. MercExchange. On May 15, 2006, the Supreme Court issued its opinion [12 pages in PDF] in eBay v. MercExchange, holding that the traditional four factor framework that guides a court's decision whether to grant an injunction applies in patent cases.

U.S. Court of Appeals (FedCir) had previously held in its opinion in this case, and other cases, that because the right to exclude recognized in a patent is but the essence of the concept of property, the general rule is that a permanent injunction will issue once infringement and validity have been adjudged.

The Supreme Court held otherwise. It wrote that, even in a patent case, "a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction."

eBay v. MercExchange is a patent case that construed 35 U.S.C. § 283. In the present case, the Court of Appeals construed 17 U.S.C. § 502, the Copyright Act's injunction remedy. However, the Supreme Court wrote in dicta in eBay v. MercExchange that the four party equitable analysis also applies in copyright infringement cases.

The Supreme Court wrote that both copyright and patent owners possess "the right to exclude others from using his property". It continued that "Like the Patent Act, the Copyright Act provides that courts "may" grant injunctive relief "on such terms as it may deem reasonable to prevent or restrain infringement of a copyright." 17 U. S. C. §502(a). And as in our decision today, this Court has consistently rejected invitations to replace traditional equitable considerations with a rule that an injunction automatically follows a determination that a copyright has been infringed."

See, story titled "Supreme Court Rules on Availability of Injunctive Relief in Patent Cases" in TLJ Daily E-Mail Alert No. 1,371, May 16, 2006.

Court of Appeals. In the present case, the Court of Appeals extended the holding of eBay v. MercExchange to copyright cases.

It rejected the argument that injunctive relief is automatically or generally available following a determination that a copyright has been infringed. It held that the four prong analysis of eBay v. MercExchange must be applied.

The Court of Appeals did not proceed through a strict prong by prong analysis. It held that Phelps' request to enjoin construction of the house is moot because Galloway proceeded to complete the house in the absence of any District Court injunction. Also, in a lengthy discussion, the Court of Appeals concluded that Phelps is not entitled to an injunction against further lease or sale of the property.

In the process, the District Court also considered the first sale doctrine, which provides that "the owner of a particular copy ... lawfully made under this title" can , "sell or otherwise dispose of the possession of that copy ...". The Court of Appeals read the phrase "lawfully made" out of the statute.

The analysis of the Court of Appeals is that Phelps was made whole by the award of $20,000, and that Galloway now stands in the position of lawfully licensed holder of a copy. The Court of Appeals here describes something in the nature of a compulsory license.

The Court of Appeals wrote that "By bringing an infringement action against Galloway, Phelps & Associates essentially sold him its interest in the house in exchange for the appropriate remedies under the Copyright Act. Once those remedies have been sought and a judgment has been rendered, the copyright holder loses his right to sell that particular manifestation of his copyright."

The Court of Appeals asserted that this is not a "judicially created compulsory license".

The Court of Appeals wrote too that "The remedies under the Copyright Act do not resemble a license because the Copyright Act remedies are far broader than simply requiring a defendant to make license payments." Yet, the District Court and the Court of Appeals only allowed Phelps a "license payment", and deprived Phelps of these broader remedies by not allowing him an injunction of the construction of the house, not allowing him an injunction of the sale of the house, not awarding him profits from the construction of the house, and not ordering the destruction or return of the house designs.

The Court of Appeals vacated only one part of the District Court judgment. The Court of Appeals did not hold that is was error not to order the return or destruction of the infringing designs. It did however concede, given the possibility of further copying, distribution, and publication by Galloway, that the District Court should apply the four part eBay v. MercExchange test to the facts of this case to determine whether or not to order the return or destruction of the copies.

Other Issues. There is also a long discussion of the meaning of derivative works in this opinion. The Court of Appeals concluded that while the District Court erred in instructing the jury that Phelps only held a copyright in a derivative work, the error was harmless.

The Court of Appeals glossed over the evidentiary issues with little discussion. It noted that District Courts have wide discretion in the area of expert testimony.

The Court of Appeals opinion is silent on the issue of attorney's fees.

4th Circuit's Homestead Exemption to 17 U.S.C. § 106. Perhaps the Court of Appeals intends that its opinion to be read in light of the circumstances that the defendant is an old retired man, and that this case involves the house in which he lives. Other areas of law, such as real property, debt collection, bankruptcy, and law enforcement procedure, offer individuals enhanced possessory and privacy rights in the homes in which they reside.

In contrast, the Copyright Act contains no homestead exemption to the exclusive rights of copyright, which are codified at 17 U.S.C. § 106. Perhaps the Court of Appeals has engaged in strained legal analysis for the purpose of extending this defendant protection in the nature of a homestead right, without actually acknowledging as much, and would not do so in all future copyright cases not involving a homestead.

However, nothing in the opinion even hints at this interpretation. Nothing in the opinion limits its reach to architectural designs for houses. The opinion is written in entirely general language. It is now the law of the 4th Circuit for all copyright injunction cases, and precedent to be cited in other circuits.

This case on its face allows owners of architectural design copyrights with little recourse, and would be infringers with little incentive not to infringe. A would be infringer can either purchase a license, or use an infringing copy. If caught and sued, the infringer is then liable only for the licensing fee, and faces little risk of injunction, or the award of other damages. This provides little incentive not follow the infringing option.

Also, infringers of copyrights other than architectural designs will likely argue that this case precludes the award of various types of injunctive relief against them.

This case is Christopher Phelps & Associates, LLC v. R. Wayne Galloway, et al., U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 05-2266, an appeal from the U.S. District Court for the Western District of North Carolina, at Charlotte, D.C. No. CA-03-429-3, Judge Graham Mullen presiding. Judge Niemeyer wrote the opinion, in which Judge Motz and Judge Traxler joined.

People and Appointments

2/12. The Senate confirmed John Negroponte to be Deputy Secretary of State. See, Congressional Record, February 12, 2007, at Page S1878.

More News

2/12. Susan Schwab, the U.S. Trade Representative (USTR), gave a speech [10 pages in PDF] in which she advocated extension of trade promotion authority (TPA), which expires this summer. She said that the US "and its trading partners in the World Trade Organization continue to work toward a successful conclusion of the Doha Development Round", and that "TPA will be needed to enact the provisions of a Doha Round agreement. Failure to renew TPA would signal to the world that the United States has lost faith in Doha." She also said that trade agreements "strengthen intellectual property rights". President Bush gave a speech on January 31, 2007, in which he advocated extending TPA. See, story titled "Bush Calls for Reform of Sarbox 404 Implementation and Extension of TPA" in TLJ Daily E-Mail Alert No. 1,531, February 1, 2007.

2nd Circuit Rules in Dormant Commerce Clause Case

2/9. The U.S. Court of Appeals (2ndCir) issued its opinion [28 pages in PDF] in Southold v. East Hampton, a dormant commerce clause case. The dispute giving rise to this case does not involve technology. It is about an interstate ferry service. However, the legal analysis applied by the Court of Appeals may be applied in future dormant commerce clause cases involving state attempts to regulate electronic commerce or internet services.

The opinion does not cite Gibbons v. Ogden., the mother of all dormant commerce cases, even though the facts are similar. Back in 1824 the Supreme Court held in Gibbons v. Ogden, 22 U.S. 1, that an attempt by the state of New York to regulate ferries that operated between the states of New York and New Jersey was unconstitutional. In the present case, the Court of Appeals sent back to the District Court a case regarding an attempt by a political subdivision of the state of New York, the Town of East Hampton, to regulate ferries that operate between eastern Long Island, New York, and New London, Connecticut.

However, the Court of Appeals did cite and rely upon Supreme Court's 2005, opinion [73 pages in PDF] in Granholm v. Heald, which held unconstitutional the attempts by states, including New York, to regulate internet wine sales. See, story titled "Supreme Court Rules in Internet Wine Sales Case" in TLJ Daily E-Mail Alert No. 1,137, May 17, 2005.

There is, of course, no dormant commerce clause in the Constitution. There is only a commerce clause. Article I, Section 8, of the Constitution provides that "The Congress shall have Power ... to regulate Commerce with foreign Nations, and among the several States ..."

The dormant commerce clause is the judicially created principle that the Constitution, by delegating certain authority to the Congress to regulate commerce, thereby bars the states from legislating on certain matters that affect interstate commerce, even in the absence of Congressional legislation.

Unlike many dormant commerce clause cases, there is no attempt by East Hampton to favor a local service provider to the detriment of an outside service provider. Rather, East Hampton seeks to prevent all ferry service. It is a posh community at the far end of Long Island where rich people maintain second homes. East Hampton's ordinance does not seek to prohibit huge private yachts. Rather, it is designed to keep ordinary people off of the roads to the ferry docks and out of this exclusive community.

The Supreme Court has also created a considerable body of law around its dormant commerce clause. It has created different standards of review for different types of state regulation of interstate commerce. State attempts to discriminate against out of state competitors, for the purpose of assisting in state competitors, are subject to a high level of scrutiny review, under which almost all such regulation is held unconstitutional. In Granholm v. Heald New York discriminated against out of state direct sellers of wine, while exempting in state direct sellers. That is, under the statute, one could buy wine on the internet from a New York winery, but from not a California winery. The Supreme Court applied the higher level of scrutiny. Most other types of state regulation of interstate commerce are subject to a lower standard of review. The leading case setting forth this complex and vaguely articulated standard is Pike v. Bruce Church, Inc., 397 U.S. 137 (1970).

The Town of Southhold and the Town of Shelter Island are other political subdivisions of New York located on eastern Long Island. Cross Sound Ferry Service, Inc., is a Connecticut based company that wants to provide ferry service made infeasible by East Hampton's ordinance.

Southold, Shelter Island, and Cross Sound filed a complaint in U.S. District Court (EDNY) against East Hampton seeking a declaratory judgment that the ordinance violates the dormant commerce clause and equal protection clause of the federal Constitution, as well as related state law claims.

The District Court granted summary judgment to East Hampton, prior to pretrial discovery.

Cross Sound brought the present appeal. The Court of Appeals reversed the grant of summary judgment to East Hampton on the dormant commerce clause claim.

The Court of Appeals held that since the ordinance does not discriminate against an out of state ferry service provider to provide an advantage to a local ferry service provider, the lower Pike v. Bruce Church standard applies.

The Supreme Court wrote in Pike v. Bruce Church that "Where the statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities."

The Court of Appeals concluded in the present case that there are genuine issues of material fact in dispute with respect to applying this standard. Hence, it held that the grant of summary judgment was in error. It reversed and remanded to the District Court. However, East Hampton may yet prevail.

This case illustrates that under court precedent, it is not the extent of the burden on interstate commerce, or the harm to interstate commerce, or even a purpose to benefit local citizens at the expense of distant citizens, that makes a regulation more likely to be held unconstitutional. Rather, it is discriminating against distant businesses for the purpose of advantaging local providers of a fungible goods or services that invokes the higher level of scrutiny.

This is significant because many attempts to regulate internet commerce fall into the latter category, where legislators regulate distant internet companies for the purpose of providing some local social benefit, such as decency.

More Internet Related Cases. The courts have issued other opinions regarding the application of the dormant commerce clause to internet commerce.

See for example, September 10, 2004, Order [3 pages in PDF] and memorandum [110 pages in PDF] of the U.S. District Court (EDPenn) in Center for Democracy and Technology v. Pappert, holding that the state of Pennsylvania's Internet Child Pornography Act, which is codified at 18 Pa. Cons. Stat. § 7621-7630, is unconstitutional under both the First Amendment and the dormant commerce clause. See also, story titled "District Court Holds Pennsylvania Internet Statute Unconstitutional" in TLJ Daily E-Mail Alert No. 975, September 13, 2004.

See also, March 25, 2004, opinion [PDF] of the U.S. Court of Appeals (4thCir) in PSInet v. Chapman, 362 F.3d 227, and story titled "Divided 4th Circuit Affirms in Internet Smut Case, PSINet v. Chapman" in TLJ Daily E-Mail Alert No. 864, March 26, 2004, and story titled "4th Circuit Denies Rehearing En Banc in PSINet v. Chapman Following Procedural Flukes" in TLJ Daily E-Mail Alert No. 926, June 25, 2004.

And see, American Library Association v. Pataki, 969 F. Supp. 160 (S.D.N.Y. 1997); American Booksellers Foundation v. Dean, 342 F.3d 96 (2d Cir. 2003); ACLU v. Johnson, 194 F.3d 1149 (10th Cir. 1999); and Southeast Booksellers Ass’n v. McMaster, 282 F. Supp. 2d 389 (D.S.C. 2003).

The present case is Town of Southhold, Town of Shelter Island, and Cross Sound Ferry Service, Inc. v. Town of East Hampton, U.S. Court of Appeals for the 2nd Circuit, App. Ct. No. 06-0335-cv, an appeal from the U.S. District Court for the Eastern District of New York.

More Court Opinions

2/12. The U.S. Court of Appeals (6thCir) issued its opinion [10 pages in PDF] in Roger Miller Music v. Sony/ATV Publishing, a case involving ownership of renewal copyrights in songs of the late great Roger Miller, who wrote and recorded King of the Road, Dang Me [audio] and other songs. The Court of Appeals affirmed the judgment of the District Court that the claims are not untimely, and that Sony/ATV owns certain of the renewal copyrights at issue (1958-1963 songs). However, the Court of Appeals remanded back to the District Court the issue of ownership of other copyrights (1964 songs). This case is Roger Miller Music, Inc. and Mary A. Miller v. Sony/ATV Publishing, LLC, U.S. Court of Appeals for the 6th Circuit, App. Ct. Nos. Nos. 05-6824 and 05-6880, appeals from the U.S. District Court for the Middle District of Tennessee at Nashville, D.C. No. 04-01132, Judge William Haynes presiding.

2/12. The U.S. Court of Appeals (FedCir) issued its opinion [PDF] in Dippin Dots v. Mosey, a case regarding patent and antitrust law. The patent in suit, U.S. Patent No. 5,126,156, involves ice cream technology. The District Court granted summary of noninfringement and judgment following jury trial that all claims of that patent are obvious, that the patent is unenforceable due to inequitable conduct during prosecution, and that Dippin Dots violated antitrust law by asserting a patent that had been procured through fraud on the Patent Office. The Court of Appeals affirmed the judgments of noninfringement, obviousness, and unenforceability, but reversed the antitrust judgment. This case is Dippin' Dots, Inc. and Curt D. Jones v. Thomas R. Mosey, et al., U.S. Court of Appeals for the Federal Circuit, App. Ct. Nos. 2005-1330 and 2005-1582, appeals from the U.S. District Court for the Northern District of Texas, Judge Thomas Thrash presiding.

People and Appointments

2/12. Joseph Ucuzoglu was named Senior Advisor in the Securities and Exchange Commission's SEC) Office of the Chief Accountant. Conrad Hewitt remains the SEC's Chief Accountant. See, SEC release.

Go to News from February 6-10, 2007.