OUSTR Invokes GATS Article XXI in WTO Internet Gambling Dispute

5/4. The Office of the U.S. Trade Representative (OUSTR) issued a release regarding the U.S.'s World Trade Organization (WTO) obligations with respect to trade in internet gambling services.

The nation of Antigua and Barbuda, which is home to internet gambling operations, filed a complaint in 2003 against the U.S. with the WTO. The report of the compliance panel is scheduled to be adopted by the WTO Dispute Settlement Body (DSB) on May 22, 2007.

See also, stories titled "WTO Panel Instructs Congress to Amend Wire Act to Legalize Internet Gambling" in TLJ Daily E-Mail Alert 1,016, November 11, 2004; "WTO Appellate Body Upholds U.S. Laws Affecting Internet Gambling" in TLJ Daily E-Mail Alert No. 1,111, April 8, 2005; and "Allgeier Addresses Trade Agreements and Internet Gambling" in TLJ Daily E-Mail Alert No. 1,118, April 19, 2006.

The OUSTR release states that the U.S. "is invoking procedures under Article XXI of the General Agreement on Trade in Services (GATS) in order to clarify its commitment involving ``recreational services,´´ which was interpreted in the course of WTO dispute settlement as including a U.S. commitment to allow Internet gambling services."

Article XXI of the General Agreement on Trade in Services [35 pages in PDF] provides, in part, that "A Member ... may modify or withdraw any commitment in its Schedule, at any time after three years have elapsed from the date on which that commitment entered into force ..."

It further requires the member to give notice of the modification, and to "enter into negotiations with a view to reaching agreement on any necessary compensatory adjustment" with any affected member of the WTO.

Article XXI also provides that "If agreement is not reached between the modifying Member and any affected Member ... such affected Member may refer the matter to arbitration."

The OUSTR release adds that the U.S. "has decided to make use of the established WTO procedures to correct its schedule in order to reflect the original U.S. intent -- that is, to exclude gambling from the scope of the U.S. commitments under the GATS. The GATS provides that when a Member modifies its services schedule, other Members who allege they will be affected by this action may make a claim for a compensatory adjustment to other areas of the GATS schedule."

The release adds that "since no WTO Member either bargained for or reasonably could have expected the United States to undertake a commitment on gambling, there would be very little, if any, basis for such claims."

John Veroneau, a Deputy United States Trade Representative, stated in this release that “U.S. laws banning interstate gambling have been in place for decades. Most WTO Members have similar laws.  Unfortunately, in the early 1990s, when the United States was drafting its international commitments to open its market to recreational services, we did not make it clear that these commitments did not extend to gambling.  Moreover, back in 1993 no WTO Member could have reasonably thought that the United States was agreeing to commitments in direct conflict with its own laws".

He continued that "Neither the United States nor other WTO Members noticed this oversight in the drafting of U.S. commitments until Antigua and Barbuda initiated a WTO case ten years later.  In its consideration of this matter, the WTO panel acknowledged that the United States did not intend to adopt commitments that were inconsistent with its own laws.  However, under WTO rules, dispute settlement findings must be based on the text of commitments and other international documents, rather than the intent of the party.  The United States strongly supports the rules-based trading system and accepts the dispute settlement findings.  In light of those findings, we will use WTO procedures for clarifying our commitments."

See also, story titled "Rep. Frank Introduces Bill to Facilitate Licensed Internet Gambling" in TLJ Daily E-Mail Alert No. 1,574, May 3, 2007.

9th Circuit Rules on Private RICO Actions in Odom v. Microsoft

5/4. The U.S. Court of Appeals (9thCir) issued its en banc opinion [28 pages in PDF] in Odom v. Microsoft, reversing the judgment of the District Court and remanding.

The Court of Appeals held that a complaint that alleges violation of the federal civil RICO statute based upon the factual allegations that that two companies conspired through a marketing agreement to fraudulently charge for services not ordered by customers survives a motion to dismiss for failure to state a claim.

The plaintiff, James Odom, alleged in his complaint that Microsoft and Best Buy entered into a marketing agreement under which Best Buy would market Microsoft's MSN internet access service. When customers bought certain products at a Best Buy store by credit or debit card, Best Buy would forward their purchase and credit card information to Microsoft. Microsoft would provide them a limited time free MSN internet access account, and thereafter charge the customers' accounts for monthly internet access service, without the customers' knowledge or consent.

Odom alleged that this violated the Racketeer Influenced and Corrupt Organizations Act (RICO), at 18 U.S.C. §§ 1962(c) and (d), and wire fraud (with RICO as the predicate offense) in violation of 18 U.S.C. § 1343. The RICO provides a civil cause of action, with treble damages.

The District Court dismissed for failure to state a claim pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure. It held that Odom had failed to allege associated-in-fact enterprise within the meaning of the RICO under Rule 12(b)(6), and that he failed to plead wire fraud with particularity under Rule 9(b).

Section 1962(c) provides that "It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt."

The Court of Appeals reviewed Supreme Court precedent and concluded that it "should not read the statutory terms of RICO narrowly".

It held that "associated-in-fact enterprise under RICO does not require any particular organizational structure, separate or otherwise."

It concluded that "To establish the existence of such an enterprise, a plaintiff must provide both ``evidence of an ongoing organization, formal or informal,´´ and ``evidence that the various associates function as a continuing unit.´´", citing the Supreme Court's opinion in United States v. Turkette, 452 U.S. 576 (1981). It further concluded that Odom complaint satisfied this test.

The Congress originally enacted the RICO to give federal prosecutors another tool for prosecuting criminal mobsters. The Court of Appeals noted that its "broad definition of an associated-in-fact enterprise would produce undesirably expansive RICO liability", but concluded that it was bound by prior Supreme Court cases.

The Court of Appeals also held that Odom alleged wire fraud with sufficient particularity to satisfy Rule 9(b). It then remanded to the District Court for further proceedings consistent with this opinion.

The fifteen member en banc panel was unanimous as to the decision to reverse. However, there were several concurring opinions. Several Judges would have reversed on grounds other than interpretation of the RICO. Two Judges found "outlandish" the interpretation that the conduct in case could arise to the level of a RICO violation, but voted for reversal because of Supreme Court precedent.

This case is James Odom v. Microsoft Corporation and Best Buy, Co., U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 04-35468, an appeal from the U.S. District Court for the Western District of Washington, D.C. No. CV-03-02976-MJP.

People and Appointments

5/4. Kenneth Melson was named Director of the Department of Justice's (DOJ) Executive Office for United States Attorneys (EOUSA), effective on May 14, 2007. He has worked for the DOJ since 1983. He replaces Michael Battle.

More News

5/4. The Transportation Security Administration (TSA) announced in a release that it lost "An external hard drive containing personnel data (including name, social security number, date of birth, payroll information, bank account and routing information)". (Parentheses in original.)

5/4. The Bureau of Industry and Security (BIS) published a notice in the Federal Register that announces, describes, recites, and sets the effective date (May 4, 2007) for, changes to the Export Administration Rules (EAR). See, Federal Register, May 4, 2007, Vol. 72, No. 86, at Pages 25194-25196.

5/4. The National Institute of Standards and Technology (NIST) published a notice in the Federal Register that requests applications for funding for "basic research in the field of nanoscale electronics focused on
developing the next logic switch beyond complementary metal oxide semiconductor (CMOS)". The deadline to submit applications is 5:00 PM on June 4, 2007. See, Federal Register, May 4, 2007, Vol. 72, No. 86, at Pages 25264-25267.

5/4. The Government Accountability Office (GAO) released a report [81 pages in PDF] titled "Information Technology: Numerous Federal Networks Used to Support Homeland Security Need to Be Better Coordinated with Key State and Local Information-Sharing Initiatives". Most of this report consists of presentation slides for use in briefing the staff of the House Homeland Security Committee (HHSC).

House Passes Authorization Bills for NSF and NIST

5/3. On May 2, 2007, the House amended and approved HR 1867, the "National Science Foundation Authorization Act of 2007", by a vote of 399-17. See, Roll Call No. 295. This bill authorizes funding for the National Science Foundation (NSF) for the next 3 years. On May 3, 2007, the House approved HR 1868, the "Technology Innovation and Manufacturing Stimulation Act of 2007", by a vote of 385-23. See, Roll Call No. 301. This bill authorizes funding for the National Institutes of Standards and Technology (NIST). Both bills are premised on the assumption that the government can increase the amount of technological innovation and creation by increasing government spending on government agencies.

Rep. Brian Baird (D-WA), the sponsor of the HR 1867 (NSF bill), stated on the House floor on May 2 that "H.R. 1867, like H.R. 362 and H.R. 363, two other Science and Technology Committee bills that passed the House just last week, is one more important piece of the House leadership's innovation agenda. It is also consistent with the administration's own American Competitiveness Initiative, which called for a 10-year doubling for three science agencies, the National Science Foundation, the National Institute of Standards and Technology, and the Department of Energy's Office of Science."

Rep. Ralph Hall (R-TX), the ranking Republican on the House Science Committee (HSC), stated in the House that the "NSF is one of three agencies targeted by the President's American Competitiveness Initiative. The ACI aims to double the Federal investment in physical science research over the next 10 years. Appropriate investment in research development technology and math and science education will ensure that our country remains the world leader in competitiveness and innovation."

Rep. David Wu (D-OR), the sponsor of HR 1868 (NIST bill) stated that "This legislation means the robust programs at NIST will continue to support U.S. industry and improve our quality of life ... For over 100 years, NIST has made important contributions to public safety, industrial competitiveness, and economic growth through standards and measurements. This ensures that NIST will continue to be a key part of American innovation in the next 100 years."

All of the votes against these two bills were case by Republicans. One such member, Rep. John Campbell (R-CA), argued that "we have a budget problem here in Washington, the Federal Government. The budget that was recently passed off of this floor has a deficit in it, continues that deficit for the next 4 years. It has a tax increase in it, the largest tax increase in American history, going forward."

Moreover, he complained the NSF is funding silly projects such as "Social Relationships and Reproductive Strategies of Phayre's Leaf Monkeys", "Cognitive Model of Superstitious Belief", and "The Sexual Politics of Waste in Dakar". He offered an amendment that would have precluded funding for these projects. It failed overwhelmingly.

Rep. Jeff Flake (R-AZ) argued for private sector research, rather than government funded research. He stated in the House that "just a fraction of the research going on in the scientific field is funded by government. The private sector funds it gratefully. And unfortunately, one can make the case and the case is often made persuasively that as we increase government funding in this area, it displaces private sector funding because companies can then rely on government rather than their own R&D budgets."

He asked rhetorically if the taxes used to fund these government agencies' research projects were left in the private sector, would it produce more benefit. He answered that "the private sector tends to do things a lot more efficiently than government does."

Phil Bond of the Information Technology Association of America (ITAA) stated in a release that "These bills include important support for American innovation through funding for R&D, math and science education and other key areas ... Funding in these areas is critical for our nation’s ability to compete in a global economy and ultimately for our continued prosperity."

Michael Petricone, of the Consumer Electronics Association (CEA), also praised HR 1867 and HR 1868 in a release. He said that "To maintain our economic competitiveness, we need to ensure that this nation is leading the way in providing the world’s best research and development programs for science, technology, engineering and math.   The Innovation Agenda provides the necessary steps needed to invest in our country’s future innovators and the important work they do to keep us at the forefront of global technology."

Senate Finance Committee Hears Testimony on Use of Information Technologies to Avoid US Taxation

5/3. The Senate Finance Committee (SFC) held a hearing titled "Offshore Tax Evasion: Stashing Cash Overseas". See, SFC web page with hyperlinks to opening statements of Senators and prepared testimony of other witnesses.

Sen. Max Baucus (D-MT), the Chairman of the SFC, wrote in his opening statement [3 pages in PDF] that "offshore tax evasion has become a large and growing element of the tax gap, that share of taxes legally owed that is not paid."

One witness, Reuven Avi-Yonah, a professor at the University of Michigan law school, focused on the impact of information technologies and internet and communications technologies upon tax avoidance by U.S. residents.

He wrote in his prepared testimony [7 pages in PDF] that "Since about 1980 there has been a dramatic lowering of both legal and technological barriers to the movement of capital, goods and services, as countries have relaxed their tariffs and capital controls, much of the world economy has shifted from goods to services, and electronic means of delivering services and transferring funds have developed."

"Simply put," said professor Avi-Yonah, "we have the technology which enables people to conduct their affairs without regard to national borders and without transparency, while restricting tax collectors to geographic borders, meaningless in today's world."

He discussed what was revealed in a recent series of cases involving involving the Guardian Bank and Trust Co. Ltd., in the Cayman Islands. "First, in today's world, anyone can open a bank account in the Caymans for a minimal fee over the internet ..."

"Second, the account can be opened in the name of a Caymans corporation, which can likewise be set up long-distance for minimal transaction costs (as evident from any perusal of the back pages of the Economist magazine, where law firms advertising such services abound)." (Parentheses in original.)

"Third, money can be transferred into the account electronically from the US or from abroad, and in most cases there would not be any reporting of such transactions to tax authorities. Finally, the funds in the Caymans account can then be used for investments in the US and in other high tax jurisdictions, and there would generally be no withholding taxes on the resulting investment income, no Caymans taxes, and no information on the true identity of the holder available to the IRS or any other tax authority."

Finally, Avi-Yonah stated that "Significantly, other than the use of the Caymans, both the underlying funds that were deposited in the Guardian accounts, and the investment income, were generally purely domestic transactions, and the tax evaded was US income tax on US source income beneficially owned by US residents."

The Government Accountability Office (GAO) wrote in its prepared testimony [PDF] that the Congress should make an exception to the there year civil statute of limitations period for taxpayers involved in offshore financial activity to give the IRS more time to investigate. John Harrington of the Department of the Treasury focused in his prepared testimony [PDF] on the process of obtaining information about financial activities in other countries.

The hearing focused on financial activities that are foreign and offshore relative to the U.S. The SFC did not examine financial activities, that are foreign or offshore relative to other countries, and that occur in the U.S. That is, the SFC did not examine the extent or consequences of residents' of other countries use of financial institutions in the U.S. to avoid tax, debt, or other laws or practices in their countries of residence.

Sen. Lieberman Advocates Disrupting Terrorist Web Sites

5/3. The Senate Homeland Security and Governmental Affairs Committee (SHSGAC) held a hearing titled "The Internet: A Portal to Violent Islamist Extremism". See, SHSGAC web page with hyperlinks to opening statements of Senators and prepared testimony of other witnesses.

Sen. Joe Lieberman (D-CT) said that the U.S. should "shut down" and "dispute" web sites, arguing that they constitute a "clear and present danger". Others argued that the appropriate response is to counter terrorist speech with a peaceful counter message.

Sen. Lieberman (at right) wrote in his opening statement [PDF] that "the internet ... is now being used to recruit and train the terrorists who plot such lethal attacks against American and other western targets". He added that "Islamist terrorists use the internet to broadcast news, propagandize, and conduct on-line classes in terrorist tactics and ideology."

Sen. Lieberman argued that "They are a clear and present danger."

The words "clear and present danger" were used by former Supreme Court of the U.S. (SCUS) Justice Oliver Holmes in his opinion in Schenck v. U.S., 249 U.S. 47 (1919). These words form part of a test to be applied by the courts in determining whether a government restraint on speech is Constitutionally permissible.

In addition, Tom Clancy wrote a book [Amazon] titled "Clear and Present Danger". Also, Paramount Pictures made a movie [PDF] that was based upon this book.

Sen. Lieberman argued that the U.S. "must take the challenge posed by these internet terrorists very seriously and launch an aggressive coordinated and effective response. We cannot cede cyberspace to the Islamist terrorists. We must do everything we can as quickly as we can to disrupt their websites "

"And we must develop the ability to shut these sites down when danger is imminent", said Sen. Lieberman.

In contrast, Sen. George Voinovich (R-OH) wrote in his opening statement [PDF] that "the U.S. government cannot prevent use of the internet by extremists". He argued that the US should "encourage the development and availability of a peaceful counter-narrative to challenge the extremists’ message".

Sen. Susan Collins (R-ME) wrote in her opening statement [PDF] that "The recruiting and reference materials on the Web for violent extremists are truly disturbing. Our enemies can consult Web sites to learn techniques for shooting down helicopters, to watch videos of hostage beheadings, to read letters left by suicide bombers, or to listen to messages from militant leaders."

Michael Doran, a Deputy Assistant Secretary of Defense, wrote in his prepared testimony [8 pages in PDF] that "Our deep commitment to a free society and the very nature of the web make it virtually impossible to prevent terrorists from using the Internet altogether."

He argued that "The Internet is a tool of a free society, and, as such, it can sometimes be used as a tool to undermine freedom. Nevertheless, the answer to the terrorist message of tyranny, intolerance and violent extremism is to effectively communicate the alternative vision: freedom, tolerance, and mutually-beneficial cooperation."

He also discussed the nature of the technology. He wrote that "The anonymity of the web and the ready availability of a virtual space for posting material in large quantities make it easy for terrorist-related sites to pop up temporarily, publish new material, and then move to another address when necessary. Once the material has been published, it is immediately duplicated on a large number of sites located on servers across the globe."

He added that "the web has created conditions that make it possible for us to imagine a wholly new type of terrorist network -- one that is almost entirely virtual -- composed of individuals who are not personally known to each other but who are animated by the same ideology and willing to coordinate actions in pursuit of it."

Joseph Felter, Director of the U.S. Military Academy's Combating Terrorism Center, wrote in his prepared testimony [PDF] that "It is not possible to capture, kill, or incarcerate ideas."

He said that the Al-Qa`ida movement "would not be possible without the pervasiveness of Internet accessibility". But, he continued that "We cannot prevent all of these relationships from forming or stop the generation of these ideas, but we can do a better job of understanding how the Internet facilitates these processes so we can monitor and thwart those who join the Jihadi Movement."

He argued that "Attempts to shut down websites have proven as fruitless as a game of whack-a-mole. An open society in the information age offers opportunities for asymmetric warfare that cannot be taken away, only countered."

He noted that use of the internet also exposes weaknesses that the U.S. can exploit. He wrote that "We can monitor them to follow the networks and assess their operational capacity. We can sabotage them by infiltrating their networks and flooding the web with bogus information. And we can anticipate their attacks by reading their strategic literature and following trends on their web forums and discussion boards."

People and Appointments

5/3. The Senate Judiciary Committee (SJC) approved the nomination of Debra Ann Livingston to be a Judge of the U.S. Court of Appeals for the Second Circuit. See, Congressional Record, May 3, 2007, at Page S5531.

5/3. The Senate Judiciary Committee (SJC) approved the nomination of Richard Sullivan to be a Judge of the U.S. District Court for the Southern District of New York. See, Congressional Record, May 3, 2007, at Page S5531.

5/3. The Senate Judiciary Committee (SJC) approved the nomination of Joseph Van Bokkelen to be a Judge of the U.S. District Court for the Northern District of Indiana. See, Congressional Record, May 3, 2007, at Page S5531.

More News

5/3. The Copyright Office (CO) published a notice in the Federal Register that announces that it received on April 2, 2007, from SoundExchange, a notice of intent to audit 2005 statements of account concerning the eligible nonsubscription transmissions of sound recordings made by Microsoft under statutory license of 17 U.S.C. § 114. See, Federal Register, May 3, 2007, Vol. 72, No. 85, at Pages 24623-24624.

5/3. The House Judiciary Committee (HJC) announced, then postponed, a hearing by its Judiciary Committee Task Force on Antitrust titled "The findings and recommendations of the Antitrust Modernization Commission". The hearing was briefly scheduled for May 3 at 1:30 PM. It has not been rescheduled. The Antitrust Modernization Commission (AMC) has completed its work. It issued its report [540 pages in PDF, 2.1 MB] on April 3, 2007. See, story titled "Antitrust Modernization Commission Releases Report", story titled "AMC Addresses Innovation" and story titled "AMC Seeks End to Duplicative FCC Antitrust Merger Reviews" in TLJ Daily E-Mail Alert No. 1,560, April 4, 2007.

5/3. The U.S. Patent and Trademark Office (USPTO) published a notice in the Federal Register announcing that it seeks public comments "to obtain the views of the public on international efforts to harmonize substantive requirements of patent laws, and any potential subsequent changes to United States law and practice." The USPTO seeks comments on various priority of invention issues, the prior art effective date of a published application or granted patent, the scope of prior art effect of published patent applications, the one year grace period, geographical restrictions that limit the definition of prior art, the public use or on sale bar, the experimental use exception to prior art, prior user rights, assignee filing of applications, and the 18 month publication of patent applications. See, Federal Register, May 3, 2007, Vol. 72, No. 85, at Pages 24566-24569. The deadline to submit comments is June 22, 2007.

Rep. Boucher and Rep. Pence Again Introduce Reporter Shield Bill

5/2. Rep. Rick Boucher (D-VA) and others introduced HR 2102, the "Free Flow of Information Act of 2007". Also on May 2, Sen. Richard Lugar (R-IN) introduced S  1267, the companion bill in the Senate.

These bills provide some protection to journalists, their sources of information, and their communications service providers from abusive seizure of documents by, and compelled testimony for, federal government entities. It is directed at both protecting the confidentiality of reporters' sources, and preventing government efforts to repress reporting by forcing disclosure of these sources.

Rep. Boucher wrote in a statement [MS Word] that this bill would create a "statutory privilege". Although, the bill only addresses compelled disclosure to, or seizure by, federal entities. It does not, for example, address pre-trial discovery by non-federal entities. Nor does it address admissibility of evidence. This bill would not amend the Federal Rules of Evidence (FRE). It is silent as to preemption of state laws.

The bill would provide some protection to reporters' and sources' interests in confidentiality. It would also offer some protection against government agencies that lack the ability or resources to conduct their own investigations, and rely upon compulsion of journalists as a substitute. The bill would do little else to protect the proprietary interests of publishers or data aggregators.

Sponsors' Explanations. Sen. Richard Lugar (R-IN), the sponsor of the Senate bill, stated that "The free flow of information is an essential element of democracy". See, Congressional Record, May 2, 2007, at Page S5504.

But, he said that the free flow of information is under threat. "More than 30 reporters have recently been served subpoenas or questioned in at least four different Federal jurisdictions about their confidential sources. From 1991 to September 6, 2001, the Department of Justice issued 88 subpoenas to the media, 17 of which sought information leading to the identification of confidential sources. In fact, three journalists have been imprisoned at the request of the Department of Justice, U.S. attorneys under its supervision, or special prosecutors since 2000. As a result, the press is hobbled in performing the public service of reporting news."

Sen. Chris Dodd (D-CT), a cosponsor of the Senate bill stated that "I hardly have to read the litany of grave wrongs that have been exposed because journalists called the powerful to account. And I don't have to remind you how many of those exposures relied on confidential sources. Without confidential sources, would we still be ignorant about abuse of power in the Watergate era?"

"But today, we find this cornerstone of self-government facing a new threat", said Sen. Dodd. "In a spate of recent cases, prosecutors have used subpoenas, fines, and jail time to compel journalists to reveal their anonymous sources."

Rep. Boucher stated that "the best information about corruption in government or misdeeds in a private organization will come from someone on the inside who feels a responsibility to bring the information to light. But that person has a lot to lose if his or her identity becomes known. In many cases, the person responsible for the corruption or the misdeeds can punish the source through dismissal or more subtle forms of punitive action if the source’s identity becomes known. And so it is only by assuring anonymity to the source that a reporter can gain access to the information in order to bring it to public scrutiny.

See also, Rep. Pence's statement.

Bill Summary. Section 2 of the bill provides that "a Federal entity may not compel a covered person to provide testimony or produce any document related to information possessed by such covered person as part of engaging in journalism, unless a court determines by a preponderance of the evidence, after providing notice and an opportunity to be heard to such covered person".

The bill provides that for a federal entity to compel a covered person "to provide testimony or produce any document related to information possessed by such covered person" it must first obtain a court authorization. The court must make certain determinations, by a preponderance of the evidence, after providing notice and an opportunity to be heard.

First, the court must determine "that the party seeking to compel production of such testimony or document has exhausted all reasonable alternative sources".

Second, the court must determine, "in a criminal investigation or prosecution" that "there are reasonable grounds to believe that a crime has occurred" and that "the testimony or document sought is essential to the investigation or prosecution or to the defense against the prosecution". If the request does not pertain to a criminal proceeding, then the court must determine that "the testimony or document sought is essential to the successful completion of the matter".

Third, the court must determine that "nondisclosure of the information would be contrary to the public interest, taking into account both the public interest in compelling disclosure and the public interest in gathering news and maintaining the free flow of information".

The bill further provides that "in the case that the testimony or document sought could reveal the identity of a source of information" the court must determine that disclosure is either necessary "to prevent imminent and actual harm to national security with the objective to prevent such harm", "to prevent imminent death or significant bodily harm with the objective to prevent such death or harm", or "to identify a person who has disclosed ... a trade secret of significant value in violation of a State or Federal law ... individually identifiable health information ... nonpublic personal information ... or ... of any consumer".

Section 3 provides that the same level of protection applies to a "communications service provider". Moreover, in such requests, the covered person must be given prior notice, and opportunity to be heard.

The bill provides that "With respect to testimony or any document consisting of any record, information, or other communication that relates to a business transaction between a communications service provider and a covered person, section 2 shall apply to such testimony or document if sought from the communications service provider in the same manner that such section applies to any testimony or document sought from a covered person.

The bill defines "covered person" as "a person engaged in journalism and includes a supervisor, employer, parent, subsidiary, or affiliate of such covered person."

Then, the bill defines the term "journalism" as "the gathering, preparing, collecting, photographing, recording, writing, editing, reporting, or publishing of news or information that concerns local, national, or international events or other matters of public interest for dissemination to the public."

The term "document" is defined as "writings, recordings, and photographs" as defined by the Federal Rules of Evidence (FRE).

Rule 1001, FRE, provides that "``Writings´´ and ``recordings´´ consist of letters, words, or numbers, or their equivalent, set down by handwriting, typewriting, printing, photostating, photographing, magnetic impulse, mechanical or electronic recording, or other form of data compilation."

The FRE also provide that "``Photographs´´ include still photographs, X-ray films, video tapes, and motion pictures."

The bill does not expressly preempt any related state laws. However, it does not state that it is not intended to preempt any state laws.

See also, Rep. Boucher's section by section summary [12 pages in PDF].

Bloggers. The bills' broad definition of journalism would appear to cover anyone engaged in just one information function. The definition uses the word "or" rather than "and". Moreover, there is no incorporation or commercial purpose requirement.

Thus, the bill, on its face, would cover some bloggers, web publishers, and others who publish on an amateur basis.

Sen. Dodd said that this bill extends protection to "citizen-journalists". Rep. Boucher's summary states that the bill "would apply to web logs (``blogs´´) that engage in journalism." (Parentheses in original.)

However, whether federal judges would extend the protections of the bill to bloggers and citizen journalists would likely prove to be another matter.

Also, the bill's "trade secret" exception would diminish bloggers' ability to obtain information to report on corporations' product information, or forthcoming product offerings.

Data Aggregators. Whether the bill would protect aggregators of data, which data is not published, is not clear.

Some data aggregators likely would not meet the "matters of public interest" requirement. Some data aggregators likely would not meet the "journalism" requirement.

However, some would meet these requirements. Some data aggregators collect, at great expense, and under promises of confidentiality, data which is then used to generate summary data which is then published or disseminated.

For example, there is the confidential collection of commercial transaction data for the purpose of producing price indices. If government entities were to seize all or part of the raw data, then the contributors might no longer provide data to the aggregator. It is not clear whether the bill would protect the raw data in such electronic databases.

Legislative Process. The original cosponsors of the House bill are Rep. Mike Pence (R-IN), Rep. John Conyers (D-MI), Rep. Howard Coble (R-NC), Rep. John Yarmuth (D-KY), and Rep. Greg Walden (R-OR). Rep. Walden is a broadcaster. Rep. Yarmouth is former news publisher, and television commentator.

It was referred to the House Judiciary Committee (HJC).

The original cosponsors of the Senate bill are Sen. Chris Dodd (D-CT), Sen. Lindsey Graham (R-SC), Sen. Pete Domenici (R-NM), and Sen. Mary Landrieu (D-LA).

It was referred to the Senate Judiciary Committee (SJC).

These bills are revised versions of bills introduced in the 109th Congress. See, S 2831 (109th), the "Free Flow of Information Act of 2006", and HR 3323 (109th), the "Free Flow of Information Act of 2005".

More News

5/2. The House Judiciary Committee (HJC) approved HR 1525, the "Internet Spyware (I-SPY) Prevention Act of 2007", by voice vote without amendment. See, HJC release. One of its cosponsors, Rep. Bob Goodlatte (R-VA), stated in a release that "By imposing criminal penalties on these bad actors, this legislation will help deter the use of spyware, and will thus help protect consumers from these aggressive attacks. At the same time, the legislation leaves the door open for innovative technology developments to continue to combat spyware programs." His release adds that "The legislation will now be sent to the full House of Representatives for consideration." See also, story titled "House Crime Subcommittee Approves Spyware Bill" in TLJ Daily E-Mail Alert No. 1,573, May 2, 2007.

5/2. The U.S. Court of Appeals (FedCir) issued an opinion [PDF] in E-Pass v. Microsoft, a patent infringement case in which the Court of Appeals affirmed the summary judgment of noninfringement of the District Court. This disposition is nonprecedential. This case is E-Pass Technologies, Inc. v. Microsoft Corporation and Compaq Computer Corporation, U.S. Court of Appeals for the Federal Circuit, App. Ct. No. 2006-1604, an appeal from the U.S. District Court for the Southern District of Texas, D.C. No. 4:02-00439.

Bernanke Advocates Free Trade, Globalization, Offshoring, and IPR Protection

5/1. Ben Bernanke, Chairman of the Federal Reserve Board (FRB), gave a speech in Butte, Montana, titled "Embracing the Challenge of Free Trade: Competing and Prospering in a Global Economy".

He argued that while new information and communications technologies are facilitating the offshore outsourcing of many services, businesses in other countries are outsourcing services to the U.S. Moreover, the U.S. "runs a significant trade surplus in services", and is offshoring "less sophisticated" work, while retaining "high-value jobs" in the U.S.

Bernanke (at right) spoke at the Montana Economic Development Summit 2007 regarding the "crucial economic benefits we receive from the ongoing expansion of international trade".

He argued that "a retreat into protectionism and isolationism ... would be self-defeating and, in the long run, probably not even feasible".

He offered the frequently cited benefits of a system of free trade. He said that "it allows people to specialize in the goods and services they produce best and most efficiently". He said that "By creating a global market, trade enhances competition, which weeds out the most inefficient firms and induces others to improve their products and to produce more efficiently." He said that free trade "permits economies of scale, and increases the potential returns to innovation". He said that it leads to higher per capita income, and lifts people in poor nations out of poverty. And, he said that there exists "a consensus among economists".

He identified leading U.S. exporters. He said that "a number of U.S. high-tech companies, including software developers and online service providers, are world leaders in their fields. American films and music attract large worldwide audiences."

He also offered an explanation for resistance to free trade in the U.S. and in other countries. He said that "although trade increases overall prosperity, the benefits for some people may not exceed the costs, at least not in the short run. Clearly, the expansion of trade helps exporting firms and their workers. As consumers, nearly all of us benefit from trade by gaining access to a broader range of goods and services. But some of us, such as workers in industries facing new competition from imports, are made at least temporarily worse off when trade expands. Because the benefits of trade are widely diffused and often indirect, those who lose from trade are often easier to identify than those who gain, a visibility that may influence public perceptions and the political process."

He said that the U.S. should "find ways to minimize the pain of dislocation without standing in the way of economic growth and change". He discussed education and training.

He argued that trade policy is irrelevant to employment levels. He said that "If trade both destroys and creates jobs, what is its overall effect on employment? The answer is, essentially none. In the long run, the workings of a competitive labor market ensure that the number of jobs created will be commensurate with the size of the labor force and with the mix of skills that workers bring. Thus, in the long run, factors such as population growth, labor force participation rates, education and training, and labor market institutions determine the level and composition of aggregate employment."

He also discussed outsourcing to other nations, or offshoring. He said "Offshoring has been driven by several factors, including improvements in international communication, the computerization and digitization of some business services, and the existence of educated, often English-speaking workers abroad who will perform the same services for less pay."

He said that "advancing technology will continue to increase the feasibility of providing services from remote locations". However, he argued that "most high-value work will require creative interaction among employees, interaction which is facilitated by physical proximity and personal contact". Hence, "outsourcing abroad will be uneconomical for many types of jobs, particularly high-value jobs".

Moreover, he argued that businesses in other nations offshore services to the U.S. In addition, the U.S. "runs a significant trade surplus in services -- particularly in business, professional, and technical services. This country provides many high-value services to users abroad, including financial, legal, engineering, architectural, and software development services". In contrast, the U.S. businesses tend to offshore services that "are less sophisticated and hence of lower value".

He also argued that "the uneven protection of intellectual property rights, are both unfair and economically counterproductive". He did not mention the People's Republic of China, or any other nations. He added that "We should also work to ensure that both we and our trading partners live up to existing agreements under the World Trade Organization. When trading partners do not meet their obligations, we should vigorously press our case."

En Banc Panel of DC Circuit Affirms Judgment that Rep. McDermott Violated the Wiretap Act

5/1. The en banc panel of the U.S. Court of Appeals (DCCir) issued its divided opinion [32 pages in PDF] in Boehner v. McDermott. It affirmed the judgment of the District Court, as did a divided three judge panel. The District Court ruled on summary judgment that Rep. Jim McDermott (D-WA) violated the wiretap statute,18 U.S.C. § 2511, and can be held civilly liable for damages.

In the en banc opinion, there was a correlation between the party of the President who appointed the judges, and how they voted in this en banc opinion. All five members of the majority were appointed by Republican Presidents: Randolph (Bush 1) Ginsburg (Reagan), Henderson (Bush 1), Brown (Bush 2), and Griffith (Bush 2). Moreover, the majority opinion supports the position of the appellee, Rep. John Boehner, who is a Republican.

Three of the four judges who dissented were appointed by Democratic President Clinton: Sentelle (Reagan), Rogers (Clinton), Tatel (Clinton), and Garland (Clinton). The minority opinion supports the position of the appellant, Rep. Jim McDermott, who is a Democrat.

Judge Kavanagh (Bush 2) did not participate. Senior judges do not participate in en banc panels.

On March 28, 2006, a three judge panel reached the same conclusion in its divided opinion [23 pages in PDF]. Judge Randolph wrote for the majority in both opinions. Judge Sentelle wrote the dissent in both opinions.

Statute. The Wiretap Act, which was enacted as Title III of the Omnibus Crime Control and Safe Streets Act of 1968, is the principal federal wiretapping statute. It is codified at 18 U.S.C. § 2510 et seq. It prohibits the interception of wire, oral, and electronic communications, without a court order.

18 U.S.C. § 2511 provides, in relevant part, that "(1) Except as otherwise specifically provided in this chapter any person who ... (c) provides that "intentionally discloses, or endeavors to disclose, to any other person the contents of any wire, oral, or electronic communication, knowing or having reason to know that the information was obtained through the interception of a wire, oral, or electronic communication in violation of this subsection ... shall be subject to suit as provided in subsection (5)."

Facts. The plaintiff is Rep. John Boehner (R-OH). He is the House Republican Leader. The defendant is Rep. McDermott. He is a member of the House Ways and Means Committee. Moreover, at the relevant time, he was a member of the House ethics committee.

Rep. Boehner participated in a telephone conference call, by cell phone, with several House Republican leaders in December of 1996. He was in the state of Florida at the time.

John and Alice Martin, residents of Florida, used a radio scanner to intercept the conversation. They also made an audio recording of the conversation. They delivered a copy of the recording to Rep. Karen Thurman (D-FL), who advised them to delivery it to Rep. McDermott. The Martins then traveled to Washington DC, and delivered the recording to Rep. McDermott, along with a cover letter that stated that the recording contained "a conference call heard over a scanner", and that they understand that they "will be granted immunity."

Rep. McDermott disclosed the contents of the recording to the New York Times (NYT), and the Atlanta Constitution Journal. The NYT then published a news story based upon the contents of the recorded telephone conversation.

The Martins were promptly charged with, and pled guilty to, criminal violation of the Wiretap Act, and in particular, 18 U.S.C. § 2511.

Litigation History. Rep. Boehner filed a complaint in U.S. District Court (DC) against Rep. McDermott alleging violation of 18 U.S.C. § 2511, as well as violation of similar provisions of Florida and District of Columbia law.

Rep. McDermott moved to dismiss on First Amendment grounds. In a previous ruling, the District Court granted the motion to dismiss. The U.S. Court of Appeals (DCCir) reversed in an opinion published at 191 F.3d 463 (1999). The Supreme Court of the U.S. (SCUS) granted a petition for writ of certiorari, and vacated the judgment of the Court of Appeals, and remanded the case to the Court of Appeals in light of its decision in Bartnicki v. Vopper, 532 U.S. 514 (2001). The Court of Appeals then remanded the case to the District Court.

On May 21, 2001, the SCUS issued its opinion in Bartnicki v. Vopper, holding that a radio host (Vopper) cannot be sued under 18 U.S.C. § 2511 for playing an audio recording of a cellular telephone conversation, despite the federal statute that makes illegal both the interception of the conversation, and its disclosure. The majority reasoned that the case pitted statutes banning disclosure of illegally obtained electronic communications against the First Amendment freedom of speech claims of persons with illegally obtained recordings to disclose them if their content pertains to a public issue.

The SCUS wrote that the recording violated federal wiretapping law, that Vopper knew this, but that he did not make the illegal intercept. It reasoned that the statute's application in this situation would violate Vopper's free speech rights under the First Amendment. See also, story titled "Supreme Court Diminishes Electronic Privacy" in TLJ Daily E-Mail Alert No. 192, May 22, 2001.

The District Court held on remand that the facts of this case are distinguishable from those in Bartnicki. In particular, Rep. McDermott's receipt of the tape from the Martins was so closely tied by knowledge and action to the Martins' illegal disclosure that he obtained the information unlawfully. And, since he obtained the illegal recording unlawfully, unlike the defendants in Bartnicki, who received an anonymous package in a mailbox, Rep. McDermott is not shielded by the holding in Bartnicki.

The District Court awarded Rep. Boehner $10,000 in statutory damages, $50,000 in punitive damages, and reasonable attorney fees and costs.

See also, story titled "The District Court District Court Holds Rep. McDermott Violated Wiretap Act" in TLJ Daily E-Mail Alert No. 964, August 23, 2004.

Rep. McDermott appealed. A three judge panel of Court of Appeals issued its divided opinion [23 pages in PDF] on March 28, 2006, affirming the judgment of the District Court. Judge Randolph wrote the opinion of the Court of Appeals, in which Judge Ginsburg joined. Judge Sentelle dissented.

See also, story titled "Court of Appeals Holds that Rep. McDermott Violated Wiretap Act" in TLJ Daily E-Mail Alert No. 1,339, March 30, 2006.

En Banc Opinion. The divided en banc panel, which released its opinion on May 1, 2007, also affirmed the judgment of the District Court. Judge Randolph again wrote the opinion. Judges Ginsburg, Henderson, Brown, and Griffith joined. Judge Sentelle again wrote a dissent. Judges Rogers, Tatel, and Garland joined.

Judge Randolph wrote in the majority opinion that the question is "whether Representative McDermott had a First Amendment right to disclose to the media this particular tape at this particular time given the circumstances of his receipt of the tape, the ongoing proceedings before the Ethics Committee, and his position as a member of the Committee." He concluded that he did not.

Judge Randolph wrote that the Bartnicki opinion "does not stand for the proposition that anyone who has lawfully obtained truthful information of public importance has a First Amendment right to disclose that information."

He elaborated that "There are many federal provisions that forbid individuals from disclosing information they have lawfully obtained." He cited the Privacy Act (which prohibits government employees from disclosing certain records), the Espionage Age, the Intelligence Identities Protection Act, and the federal tax laws (which prohibit IRS employees from disclosing the contents of tax returns).

He continued that "All members of the Ethics Committee, including Representative McDermott, were subject to Committee Rule 9, which stated that ``Committee members and staff shall not disclose any evidence relating to an investigation to any person or organization outside the Committee unless authorized by the Committee.´´"

He also wrote that "When Representative McDermott became a member of the Ethics Committee, he voluntarily accepted a duty of confidentiality that covered his receipt and handling of the Martins’ illegal recording. He therefore had no First Amendment right to disclose the tape to the media."

The majority opinion of the three judge panel, also written by Judge Randolph, stated that "The difference between this case and Bartnicki is plain to see. It is the difference between someone who discovers a bag containing a diamond ring on the sidewalk and someone who accepts the same bag from a thief, knowing the ring inside to have been stolen. The former has committed no offense; the latter is guilty of receiving stolen property, even if the ring was intended only as a gift." (Footnotes omitted.) However, this language is not present in Judge Randolph's en banc opinion.

The District Court and the majority of the three judge panel concluded that Rep. McDermott did not obtain the tape lawfully. Four of the five members of the en banc majority concluded that Rep. McDermott did not obtain the tape lawfully. However, they assumed for the sake of argument that he did obtain it lawfully. (See, footnote 1, at page 8.) The dissent concludes that he obtained it lawfully.

Judge Griffith also wrote a concurring opinion. He wrote that "Although I agree that Representative McDermott’s actions were not protected by the First Amendment and for that reason join Judge Randolph’s opinion, I write separately to explain that I would have found the disclosure of the tape recording protected by the First Amendment under Bartnicki v. Vopper, 532 U.S. 514 (2001), had it not also been a violation of House Ethics Committee Rule 9, which imposed on Representative McDermott a duty not to ``disclose any evidence relating to an investigation to any person or organization outside the Committee unless authorized by the Committee.´´"

That is, to reach a majority of five, the Court of Appeals jettisoned the argument that Rep. Boehner lacked a First Amendment right under the Bartnicki opinion because he unlawfully obtained the tape, and instead relied upon the argument that he lacked a First Amendment right because of his ethics committee obligation.

Judge Sentelle wrote in his dissent that the question is "Where the punished publisher of information has obtained the information in question in a manner lawful in itself but from a source who has obtained it unlawfully, may the government punish the ensuing publication of that information based on the defect in a chain?". He responded that the government may not.

He concluded that "There is no distinction of legal, let alone constitutional, significance between our facts and those before the Court in Bartnicki." He argued that the majority's basis for distinguishing Bartnicki from the present case, the communicator's knowledge that the interception was illegal, is constitutionally insignificant.

This case is Boehner v. McDermott, U.S. Court of Appeals for the District of Columbia, App. Ct. No. 04-7203, an appeal from the U.S. District Court for the District of Columbia, D.C. No. 98cv00594.

House Crime Subcommittee Approves Spyware Bill

5/1. The House Judiciary Committee's (HJC) Subcommittee on Crime, Terrorism, and Homeland Security held a hearing on HR 1525, the "Internet Spyware (I-SPY) Prevention Act of 2007". The Subcommittee then approved the bill by unanimous voice vote without amendment.

The full HJC is scheduled to hold a mark up session on Wednesday, May 2, at 10:15 AM. HR 1525 is the third of four bills on the agenda.

Rep. Zoe Lofgren (D-CA) introduced this bill on March 14, 2007. The original cosponsors are Rep. Bob Goodlatte (R-VA), Rep. Linda Sanchez (D-CA), Rep. Lamar Smith (R-TX), and Rep. Sheila Lee (D-TX).

See, full story.

Senate Judiciary Committee Holds Hearing on Process Patents

5/1. The Senate Judiciary Committee (SJC) held a hearing titled "Process Patents". The issue concerns whether the exceptions contained in § 271(g) should apply to proceedings under § 337. See, full story.

More Intellectual Property News

5/1. The U.S. Patent and Trademark Office (USPTO) issued a release regarding the status of its EFS-Web, its web based filing system for patent applications. This release states that "more new patent applications are being filed electronically each week than through the traditional paper application process".

5/1. The World Intellectual Property Organization (WIPO) published in its web site its latest draft [10 pages in PDF] of its broadcast treaty. This is titled "Non-paper on the WIPO Treaty on the Protection of Broadcasting Organizations". See also, story titled "Copyright Office and USPTO to Hold Roundtable on Draft WIPO Broadcast Treaty" in TLJ Daily E-Mail Alert No. 1,564, April 11, 2007. The Copyright Office (CO) and the U.S. Patent and Trademark Office (USPTO) will hold a public roundtable on May 9, 2007. See, notice in the Federal Register, April 12, 2007, Vol. 72, No. 70, at Pages 18493-18494.

People and Appointments

5/1. Sen. Charles Grassley (R-IA), the ranking Republican on the Senate Finance Committee (SFC) announced four appointments to the Republican staff of the SFC. David Ross was named International Trade Counsel. He will handle issues involving Europe and China, services, financial services, investment, intellectual property, and World Trade Organization (WTO) dispute settlement issues. He was previously an Associate General Counsel at the Office of the U.S. Trade Representative (OUSTR), where he worked on WTO cases. Christopher Armstrong will be Investigator and Counsel working on investigative and oversight projects. He previously worked for the Office of Special Counsel. Paul Thacker will be an Investigator working investigative and oversight projects. He previously worked for the Public Education Center. Chris Condeluci will be Tax and Benefits Counsel. He previously worked for the Groom Law Group.

5/1. Greg Nojeim will join the Center for Democracy & Technology (CDT) as Senior Counsel and Director of CDT's Project on Freedom, Security and Technology, effective May 7. He previously worked for the ACLU. Nojeim has testified often before Congressional committees and other bodies regarding information technologies, government surveillance, federal law, and privacy and civil liberties. See, for example:
  • April 19, 2005, testimony before the Senate Intelligence Committee on the PATRIOT Act.
  • April 28, 2005 testimony before the House Judiciary Committee's (HJC) Subcommittee on Crime, and story titled "House Crime Subcommittee Holds Hearing on Library and ISP Records and § 215 of the Patriot Act and National Security Letters" in TLJ Daily E-Mail Alert No. 1,125, April 29, 2005.
  • May 26, 2005, testimony before the House Judiciary Committee's (HJC) Subcommittee on Crime regarding National Security Letters.
  • March 9, 2007, testimony before the U.S. Civil Rights Commission on domestic wiretapping.

Go to News from April 26-30, 2007.