Senate Approves 7 Year Extension of Internet Tax Ban

10/25. The Senate amended and approved HR 3678 [LOC | WW], the "Internet Tax Freedom Act Amendments Act of 2007". This version contains a seven year extension. The version approved by the House on October 16, 2007 contains a four year extension. The current ban expires on November 1, 2007.

In the final approval, the Senate acted by unanimous consent, with little discussion. See, amendment in the nature of a substitute approved by the Senate.

The Congress enacted the original Internet Tax Freedom Act (ITFA) in late 1998. It is codified at 47 U.S.C. § 151 note. The original ban was for three years. The Congress has since provided short extensions, further definitions, and added to the exemptions.

See, full story.

House Subcommittee Holds Hearing on Limiting Arbitration of Consumer Disputes

10/25. The House Judiciary Committee's (HJC) Subcommittee on Commercial and Administrative Law held a hearing on HR 3010 [LOC | WW], the "Arbitration Fairness Act of 2007".

The bill would amend the Federal Arbitration Act (FAA), at 9 U.S.C. § 2, to provide that "No predispute arbitration agreement shall be valid or enforceable if it requires arbitration of (1) an employment, consumer, or franchise dispute; or (2) a dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power".

Predispute arbitration agreements are commonly used in consumer contracts in the information and communications technology sectors. This bill would preclude their use. See also, story titled "House Judiciary Committee to Hold Hearing on Arbitration Fairness Act" in TLJ Daily E-Mail Alert No. 1,658, October 19, 2007.

This hearing was stacked with witnesses who attacked the use of predispute arbitration agreements outside of the communications and technology. Witnesses focused on the use of arbitration clauses in credit card, nursing home, and securities industry contracts, as well as in employment and franchise contracts.

HR 3010 would not affect most arbitration clauses in business to business contracts.

Criticism of Arbitration. Laura MacCleary, of Public Citizen, wrote in her prepared testimony [21 pages in PDF] that "Binding mandatory arbitration, or BMA, ... is imposed on consumers in millions of take-it-or-leave contracts of adhesion for routine matters such as cell phones ... cable services" and other things. However, she focused on the credit card industry.

She argued against BMAs "for three main reasons. First, it is imposed on consumers and is mandatory rather than voluntary. Second, proceedings and decisions are shrouded in secrecy. And third, it utterly lacks due process and impartiality."

She condemned the lack of procedure and fairness of arbitration, based on her group's investigation of 34,000 cases of binding mandatory arbitration used by credit card companies and firms that buy credit card debts.

Kenneth Connor testified critically about BMA in the nursing home industry. See, prepared testimony. Deborah Williams testified critically about BMA in franchise contracts. See, prepared testimony. Kathy Monsees testified critically about BMA in employment contracts. See, prepared testimony [PDF]. Theodore Eppenstein testified critically about BMA in the securities industry. See, prepared testimony [PDF].

Defense of Arbitration. Richard Naimark, SVP of the American Arbitration Association (AAA), wrote in his prepared testimony [17 pages in PDF] that "For the vast majority of consumers and employees, arbitration presents the only viable access to justice for their grievances", and that "Mandatory arbitration clauses are the only means by which a consumer or employee can have assurance of meaningful access to justice in most cases."

He argued that the way for the Congress to protect consumers and employees would be to "implement due process safeguards and ensure the availability of arbitration and mediation for resolution of the disputes". Advisory committees of AAA have written proposed protocols for both consumer and employee disputes. Naimark asserted that rather than amend the Federal Arbitration Act (FAA), the Congress should codify the principles in these protocols.

Peter Rutledge, a law professor at Catholic University of America, argued in his written testimony [PDF] that "eliminating predispute arbitration agreements may have significant negative economic effects and, ironically, make worse off the very parties whom defenders of H.R. 3010 are trying to protect".

He continued that "the question is not whether arbitration is perfect; like any system, it is not. Rather, the question is whether Congress should jettison the entire enterprise of predispute arbitration agreements in order to combat these difficulties. I would submit that it should not do so".

He argued that enactment of HR 3010 would "likely would increase the costs of dispute resolution, and a portion of these costs would be passed onto employees (in the form of lower wages), consumers (in the form of higher prices) and investors (in the form of lower share prices). Ironically, then, eliminating predispute arbitration agreements may end up hurting some of the very groups that Congress is trying to protect. The only group who would come out ahead in this scenario is the lawyers, who would reap higher fees engaging in more protracted litigation." (Parentheses in original.)

He concluded that the Congress should await more empirical research on arbitration, and not enact HR 3010.

Copps Wants FCC to Open Proceeding on News Corp. Acquisition of Dow Jones

10/25. FCC Commissioner Michael Copps sent a letter [3 pages in PDF] to FCC Chairman Kevin Martin regarding the News Corporations's proposed acquisition of Dow Jones & Company.

He proposed that the Federal Communications Commission (FCC) "open a proceeding to examine the implications of this proposed acquisition on the national media market".

Copps (at left) is frustrated because the FCC has in the past declined to apply its newspaper broadcast cross ownership ban where the newspaper involved is a national newspaper. Dow Jones & Company owns the Wall Street Journal, which is national.

He argued that "the FCC's obligation to consider the public interest -- which the agency has traditionally defined as localism, diversity and competition -- requires us to consider the implications of a merger between these two media giants."

He added that "the FCC has never had occasion to receive comment or do research on the important public interest issues raised by (1) a national network owner owning one or more newspapers that are read across the nation or (2) a company already operating under waivers of the newspaper-broadcast cross-ownership ban acquiring a second newspaper published in that locality. These are important issues that surely deserve serious consideration ..."

Vonage and Verizon Settle Patent Case

10/25. Vonage announced in a release that it has settled the patent infringement case brought against it by Verizon.

Vonage wrote that the two companies "have agreed to resolve their patent lawsuit. The terms of the resolution depend on how the Court of Appeals decides Vonage's pending petition for rehearing regarding two of the Verizon patents (the '574 and '711). If Vonage wins rehearing on either the '574 or '711 patent or if the injunction is vacated as to the '574 or '711 patent, Vonage will pay Verizon $80 million. If Vonage does not win rehearing on either the '574 or '711 patent, or if the stay is lifted reinstating the injunction, Vonage will pay $120 million, which includes $2.5 million payable to certain charities."

Vonage also stated that this settlement "will be effectively capped at a maximum of $32 million, in addition to the $88 million already accrued and held in escrow. The $88 million includes a $66 million cash-collateralized bond, a $12 million second-quarter escrow payment, and a $10 million third-quarter escrow payment made in the fourth quarter of 2007."

See also, stories titled "Federal Circuit Issues Opinion in Verizon v. Vonage VOIP Patents Case" in TLJ Daily E-Mail Alert No. 1,646, September 26, 2007, and "Federal Circuit Issues Stay of Injunction in Verizon v. Vonage" in TLJ Daily E-Mail Alert No. 1,569, April 24, 2007.

This case is Verizon Services Corp., et al. v. Vonage Holdings Corp. et al., U.S. Court of Appeals for the Federal Circuit, App. Ct. Nos. 2007-1240, 2007-1251, and 2007-1274, appeals from the U.S. District Court for the Eastern District of Virginia, Judge Claude Hilton presiding. Judge Dyk wrote the opinion of the Court of Appeals. Judge Michel and Gajarsa also wrote opinions.

Vonage announced on October 8, 2007, that it settled a similar patent dispute with Sprint Nextel. See, Vonage release.

Meanwhile, AT&T filed a complaint in U.S. District Court (SDNY) against Vonage alleging patent infringement last week.

Also, Vonage has been adversely impacted by determinations in recent years of the Federal Communications Commission (FCC) regarding the regulatory treatment of interconnected voice over internet protocol services.

Michigan Considers REAL ID Act

10/25. The Michigan House of Representatives' New Economy and Quality of Life Committee held a hearing on Michigan House Resolution 0176 [PDF], which pertains to the federal READ ID Act, which relies upon the states for its implementation.

MHR 176 states that "we memorialize Congress to repeal Title II of the REAL ID Act of 2005, and to support a return to a negotiated rulemaking process with the states, such as called for in S. 117, the Identification Security Enhancement Act of 2006".

This resolution further states that "the Michigan Legislature will not appropriate funds nor enact legislation for the implementation of Title II of the REAL ID Act of 2005".

S 4177 (109th Congress) was the "Identification Security Enhancement Act of 2006".

The "REAL ID Act of 2005" was stand alone bill. However, it was enacted as an appendage to HR 1268 (109th Congress), a huge supplemental appropriations bill, the main purposes of which were defense and anti-terrorism funding, and additional funding for the FBI, DEA, and other agencies. It is now Public Law 109-13. The REAL ID Act was in Division B of HR 1268. Title II, at Sections 201-207 of Title B, is titled "Improved Security for Drivers' Licenses and Personal Identification Cards".

Jim Harper of the Cato Institute testified at the October 25 hearing that "The REAL ID Act is quite nearly a dead letter. States across the country have rejected this unfunded federal surveillance mandate because of its costs, because it is nearly impossible to implement, and because of the damage it would do to the privacy of law-abiding citizens. More and more, people are recognizing that the REAL ID Act would not add to the country's protections against terrorism, and it would not solve the problem of illegal immigration." See, prepared testimony.

See also, story titled "Maine Rejects REAL ID Act" in TLJ Daily E-Mail Alert No. 1,528, January 29, 2007, and story titled "DHS Proposes Rules Implementing REAL ID Act" in TLJ Daily E-Mail Alert No. 1,546, March 5, 2007.

People and Appointments

10/25. President Bush named Brian McCormack Deputy Assistant to the President for Strategic Initiatives and External Affairs. He was Special Assistant to the President and Deputy Director of the Office of Public Liaison. Before that, he was Special Assistant to the Under Secretary for Acquisition, Technology and Logistics at the Department of Defense. See, White House release.

More News

10/25. The House Commerce Committee (HCC) postponed its October 25 meeting to mark up bills. The agenda had included HR 2601 [LOC | WW], the "Do-Not-Call Registry Fee Extension Act of 2007", HR 3541 [LOC | WW], the "Do-Not-Call Improvement Act of 2007", HR 3526 [LOC | WW], a bill to include all banking agencies within the existing regulatory authority under the Federal Trade Commission Act with respect to depository institutions, HR 3403 [LOC | WW], the "911 Modernization and Safety Act of 2007", and HR 3919 [LOC | WW], the "Broadband Census of America Act of 2007".

10/25. The Department of Justice's (DOJ) Antitrust Division announced in a release that "it has closed its investigation of The Hearst Corporation's proposed acquisition of a newly created ``tracking stock´´ of MediaNews Group Inc. (MNG). The acquisition, which was revised in response to antitrust concerns raised by the Department, would give Hearst approximately a 30 percent equity stake in MNG's newspaper businesses outside of the San Francisco Bay Area". MNG owns, among other things, the San Jose Mercury News.

10/25. The National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) released its DRAFT SP 800-39 [60 pages in PDF], titled "Managing Risk from Information Systems: An Organizational Perspective". The deadline to submit comments is Friday, December 14, 2007.

10/25. The U.S. Patent and Trademark Office (USPTO) published a notice in the Federal Register that announces, describes and sets the comment deadline (December 24, 2007) for, it proposal to amend the Rules of Practice in Trademark Cases, at 37 CFR 2.37, to require a description of the mark in all applications to register a mark not in standard characters. The notice states that this "will facilitate greater accuracy and efficiency in design coding and in pseudo-mark data determinations. Therefore, the revised rules will promote more accurate and complete searchability of marks in the USPTO records. The current rule regarding descriptions of marks provides that a description ``may be included in the application and must be included if required by the trademark examining attorney.´´"See, Federal Register, October 25, 2007, Vol. 72, No. 206, at Pages 60609-60611.

10/25. The Government Accountability Office (GAO) released a report [123 pages in PDF] titled "Information Technology: Improvements for Acquisition of Customs Trade Processing System Continue, but Further Efforts Needed to Avoid More Cost and Schedule Shortfalls". This report pertains to the Department of Homeland Security's (DHS) U.S. Customs and Border Protection's (CBP) Automated Commercial Environment (ACE).

4th Circuit Upholds Appropriation Rider in Last Best Beef v. Dudas

10/24. The U.S. Court of Appeals (4thCir) issued its opinion [PDF] in Last Best Beef v. Dudas, reversing the District Court, which had refused to give effect to a substantive provision of trademark law because it was enacted as a rider to an appropriations bill.

The Congress can enact substantive intellectual property law in an appropriations rider, including one directed at one rights holder or applicant.

The Congress has enacted, and from time to time has amended, the Lanham Act. It is codified at 15 U.S.C. § 1051, et seq. More recently, the Congress enacted the Science, State, Justice, Commerce, and Related Agencies Appropriations Act of 2006. Section 206 of this bill provides that no federal funds may be used to "register, issue, transfer, or enforce any trademark of the phrase `The Last Best Place.´"

William Kittredge published a book [Amazon] in 1988 titled "Last Best Place: a Montana Anthology". The book contains 1160 pages, with 230 stories, poems, reminiscences, and reports about the state of Montana. The Court of Appeals wrote that the phrase "last best best" then "became part of the Montana culture".

Starting in 2001, Last Best Beef, LLC (LBB), a Nevada corporation, began the process of registering federal trademarks in the phrase "The Last Best Place" in connection with a variety of different products and services, including cookware, clothing, food products, jewelry, home items, and travel, hotel, and restaurant services. Eight applications were in various stages when Section 206 was enacted.

Former Sen. Conrad Burns (R-MT), who was a member of the Senate Appropriations Committee, secured approval of the rider at issue in this case. More recently, Sen. Max Baucus (D-MT) has taken up the cause.

When Section 206 became law, the U.S. Patent and Trademark Office (USPTO) complied with it. It cancelled four Notices of Allowance, suspended all action pertaining to the applications covered by the Notices of Allowance, suspended proceedings regarding the two applications being opposed by the State of Montana before the TTAB, and cancelled two registrations it had issued and returned those applications to pending status.

LBB then filed a complaint in U.S. District Court (DC) against Jonathan Dudas, the head of the USPTO, seeking declaratory and injunctive relief. The case was transferred to the U.S. District Court (EDVa). The District Court granted summary judgment to LBB, holding Section 206 invalid for improperly circumventing the Lanham Act.

The USPTO brought the present appeal. The Court of Appeals reversed the judgment of the District Court.

It held that the Congress can pass laws, and the Congress can amend those laws. If two statutes conflict on some point, the more recent one controls. Section 206 is the most recent enactment. Therefore, it controls, and the courts must follow it.

The Court of Appeals added that "In the face of such clarity, to declare § 206 ``invalid´´ is to adopt a per se rule that Congress cannot amend or suspend prior legislation through appropriations riders. We decline to take such a step. While the district court expressed the view that it was unwilling to see the Lanham Act punctuated by the types of exceptions that characterize such complex bodies of law as the Internal Revenue Code, the wisdom of tradeoffs between simplicity and complexity is for Congress to decide, not the federal courts."

This case is Last Best Beef, LLC v. Jonathan Dudas, U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 06-2219, an appeal from the U.S. District Court for the Eastern District of Virginia, at Alexandria, D.C. No. 1:06-cv-00399, Judge Gerald Lee presiding.

FCC Announces Agenda for October 31 Event

10/24. The Federal Communications Commission (FCC) released the agenda [PDF] for its event scheduled for Wednesday, October 31, 2007, titled "Localism Hearing and Open Commission Meeting".

This event is scheduled for 9:00 AM on Wednesday, October 31, 2007, which is also Halloween. The FCC's recent events titled "Open Commission Meeting" have rarely been held at the time announced by the FCC.

This event is scheduled to be held in the FCC's Commission Meeting Room, Room TW-C305, 445 12th Street, SW, and to be webcast by the FCC. The FCC does not always take up all of the items on its published program. The FCC sometimes adds items to the program without providing the "one week" notice required 5 U.S.C. § 552b. The FCC usually does not release at its events copies of the items that it adopts at its events.

Localism Hearing. The FCC's agenda states that it will hold a "Localism Hearing". It states that "The purpose of the hearing is to gather information from consumers, industry, civic organizations, and others on broadcasters’ role in their local communities and proposed changes to our rules." The agenda does not name any witnesses.

FCC Commissioners Michael Copps and Jonathan Adelstein complained about the short notice for the localism hearing. They wrote in a release [PDF] issued immediately after the FCC released its notice of the hearing that "This is unacceptable and unfair to the public. And it makes putting together an expert panel nearly impossible." The asked, "Is the Commission serious about allowing the public to participate in the agency’s decisionmaking? Or is the goal to be able to claim that hearings have been held, even if the public has not had a chance to fully participate?"

Regulation of Contracts with MDUs. The FCC's agenda states that the FCC will adopt a Report and Order regarding "the use of exclusive contracts for the provision of video services to multiple dwelling units ("MDUs") and other real estate developments".

The FCC adopted its Notice of Proposed Rulemaking (NPRM) on March 22, 2007, and released the text [19 pages in PDF] on March 27. See, stories titled "FCC Adopts MDU Forced Access NPRM" in TLJ Daily E-Mail Alert No. 1,556, March 26, 2007, and "FCC Releases MDU NPRM" in TLJ Daily E-Mail Alert No. 1,557, March 27, 2007. See also, notice in the Federal Register, April 18, 2007, Vol. 72, No. 74, at Pages 19448-19453. This NPRM is FCC 07-33 in MB Docket No. 07-51.

The FCC wrote in its NPRM that "We tentatively conclude that the Commission has authority to regulate exclusive contracts for the provision of video services to MDUs or other real estate developments where we find that such contracts may impede competition and impair deployment of those services."

However, FCC statutory authority in this area is limited. The FCC has no authority to regulate the owners of MDUs. Nor does the Communications Act expressly provide that the FCC can regulate cable companies' contracts with MDUs. But then, the FCC does not always act within its statutory authority.

The FCC might assert authority under Subsection 623(b) of the Communications Act, which is codified at 47 U.S.C. § 548(b). It provides that "It shall be unlawful for a cable operator, a satellite cable programming vendor in which a cable operator has an attributable interest, or a satellite broadcast programming vendor to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to subscribers or consumers." Section 623(c) also gives the FCC authority to write implementing regulations.

The FCC might assert that sole provider clauses in contracts between cable companies and MDUs are "unfair methods of competition". This interpretation would entail construing Section 623 as a parallel Sherman Act, for the cable industry, with the FCC, rather than the DOJ's Antitrust Division and the Federal Trade Commission (FTC) as the antitrust enforcer.

The FCC does have a history of asserting antitrust authority in excess of its statutory authority. The FCC's antitrust merger reviews are without statutory basis.

The FCC might also assert authority under Section 706, which is codified at 47 U.S.C. § 157, note. It states that the FCC and state regulators "shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment." (Parentheses in original.)

The FCC might also assert authority under Section 621, which is codified at  47 U.S.C. § 541. Subsection (a)(1) provides that "A franchising authority may award, in accordance with the provisions of this subchapter, 1 or more franchises within its jurisdiction; except that a franchising authority may not grant an exclusive franchise and may not unreasonably refuse to award an additional competitive franchise. Any applicant whose application for a second franchise has been denied by a final decision of the franchising authority may appeal such final decision pursuant to the provisions of section 555 of this title for failure to comply with this subsection."

That is, the FCC might entertain the legal fiction that MDUs are governmental franchising authorities for the purpose of regulating MDU contracts.

The FCC has a history of creative interpretation of Section 621. For example, the FCC stretched the meaning of Section 621 in its December 2006 video franchising order. See, stories titled "FCC Adopts Order Affecting Local Franchising Authorities" and "Adelstein Opposes Franchising Order" Reaction to FCC Franchising Order" in TLJ Daily E-Mail Alert No. 1,510, December 27, 2007. That Report and Order and Further Notice of Proposed Rulemaking is FCC 06-180 in MB Docket 05-311.

FCC regulation of contracts with MDUs is opposed by cable companies, which have already negotiated contracts with MDUs, and by the National Cable and Telecommunications Association (NCTA).

FCC regulation of contracts with MDUs is supported by telecommunications companies, such as Verizon, which are deploying competing video services, and by the US Telecom. It is also supported by the Consumer Federation of America (CFA), Consumers Union (CU), Public Knowledge, and USPIRG

Verizon wrote last week that the FCC "should adopt a narrowly tailored rule that prohibits video providers from entering into or enforcing exclusive access provisions for a limited period of time to give video competition a chance to take hold, after which time these rules should automatically sunset absent an affirmative finding by the Commission that they should be extended." See, Verizon's notice [PDF] of ex parte communication of October 24.

Verizon's service area includes the densely populated areas of the east coast where a higher percentage of the population lives in MDUs.

On October 24, 2007, Sen. Hillary Clinton (D-NY) sent a letter to the two Democratic Commissioners, Copps and Adelstein. She wrote that "I understand that the Commission is considering whether to limit the ability of cable operators to use exclusive access arrangements with building owners to deny residents in multiple dwelling units (MDUs) a choice of competing video services. As I have heard from many of my constituents in New York about the need for consumer choice in their video and broadband options, I hope that you will support a decision in this proceeding that will bring the benefits of competition in terms of technology, choice, and price to consumers who occupy such units in New York and elsewhere."

If the FCC does provide relief to the telcos that impairs contracts with MDUs, its final order will be vulnerable under judicial review.

Other Items. The FCC's agenda states that the FCC will adopt a Second Report and Order concerning "Section 621(a)(1)'s directive that local franchising authorities not unreasonably refuse to award competitive franchises and the application of the Commission's findings in the First Report and Order to existing franchises." This proceeding is MB Docket No. 05-311.

The FCC's agenda states that the FCC will adopt a Notice of Proposed Rulemaking (NPRM) regarding changes to its implementation of 47 U.S.C. § 224, which provides that the FCC "shall regulate the rates, terms, and conditions for pole attachments". This item is in the FCC's proceedings numbered RM-11293 and RM-11303.

The FCC's agenda states that the FCC will adopt a Report and Order, Declaratory Ruling, Order on Remand, and a NPRM regarding local number portability (LNP) and numbering requirements. This item is in the FCC's proceedings numbers WC Docket No. 04-36 (the FCC's huge omnibus IP-enabled services proceeding), CC Docket No. 95-116 (LNP proceeding), and CC Docket No. 99-200.

Chris Cox Addresses Securities Regulation and Government Owned Entities

10/24. Chris Cox, Chairman of the Securities and Exchange Commission (SEC), gave a speech titled "'The Role of Government in Markets" at Harvard University in Cambridge, Massachusetts. It was a far ranging speech that touched on internet fraud, information transparency, and government surveillance, among other issues.

Cox expressed concerns about both government owned or controlled corporations (GOCCs) and sovereign wealth funds (SWFs). He said that the GOCC are proliferating because of "semi-privatization of government enterprises in areas such as banking, oil and gas, infrastructure, transportation, and real estate".

Cox said that two recent development are challenging securities regulation. "First, the number of government-owned or controlled corporations in our public markets, as well as their size, is growing. Second, the number and size of government-owned commercial investment funds is on the rise." He termed that later as "sovereign wealth funds". And, with the globalization of investment that results from new information and communications technologies, this may create problems for national securities regulators.

Cox offered no conclusions, and made no policy recommendations. Rather, he raised a number of issues, some of which are technology related, such as:

• What is the ability of the SEC and foreign securities regulators to stop internet based securities fraud that harms US investors when the perpetrators are within a GOCC located abroad? Will the foreign securities regulator be impartial?
• What is the ability of the SEC and foreign securities regulators to ensure information transparency with respect to the publicly traded securities of government owned entities? Will foreign regulators enforce transparency at their own entities?
• What is the interplay of the conduct of foreign intelligence surveillance, the performance of companies in the market, and the regulation of securities markets? Will governments conduct and provide the fruits of surveillance to their own entities?

The SEC regulates securities markets, to protect investors from fraud, and to facilitate investment, among other things. The SEC also attempts to promote transparency, which Cox described as "full and fair disclosure to all market participants", so that ordinary investors are not "at an information disadvantage". The SEC also has authority with respect to enforcement of the Foreign Corrupt Practices Act. His comments focused on the possible impact of GOCCs and SWFs on these areas of regulation.

He did not address the possible impact of GOCCs and SWFs on areas of government regulation assigned to other government agencies. Other agencies may have concerns. For example, the SEC is not responsible for threats to national security posed by acquisition of interests in US companies by foreign government or companies. This is primarily the responsibility of the Committee on Foreign Investments in the US (CFIUS).

Nor is the SEC is not responsible for policy based export controls. This is primarily the responsibility of the Department of Commerce's (DOC) Bureau of Industry and Security (BIS). Although, GOCCs and SWFs may invest in strategic US companies for the purpose unrelated to maximizing returns to investors, such as acquiring technologies and expertise.

Nor is the SEC responsible for electronic or other surveillance, in the US or abroad, by the US or by other nations. However, Cox did discuss the interplay of governments' surveillance and government owned entities.

Nor is the SEC responsible for trade policy. For example, it would be the responsibility of the Office of the US Trade Representative (OUSTR) and other agencies to address foreign SWFs that invest in US financial services or telecommunications companies, while at the same prohibiting or limiting investment in their own financial services or telecommunications industries. However, Cox did state that SWFs might provoke protectionist responses.

Which Nations? Cox did not mention any nations in his speech, other than the US. He did not mention any government owned businesses. Nor did he mention any SWF, other than the US Social Security Trust Fund, which he said would become a SWF, if it were to invest in capital markets.

For example, he did not mention the state of Alaska's Alaska Permanent Fund Corporation, the Canadian province of Alberta's Alberta Heritage Savings Trust Fund, or Norway's Government Pension Fund of Norway. These are all government owned investors that take government revenues from the sale and export of oil and invest it in capital markets to maximize long term return for the citizens of their states. Perhaps Cox is not too concerned about these SWFs.

Perhaps he is more concerned about other oil revenue funded SWFs, such as the United Arab Emirates' Abu Dhabi Investment Authority (ADIA), Kuwait's Kuwait Investment Authority, or those of Kazakhstan.

Perhaps he is even more concerned about SWFs of the People's Republic of China (PRC). However, he did not say.

Pursuit of Internet Based Fraud. Cox addressed a problem that may arise with the proliferation of publicly traded government owned or controlled corporations.

He said that "Today, Internet fraud is on the rise, and the only way that our government or any other can protect its citizens is to cooperate with other nations. The perpetrators of fraud on the Internet aren't restrained by national boundaries."

He asked rhetorically, "Will the high level of cooperation that we know from experience is required in international cases be forthcoming if the foreign government or an entity it controls is itself under suspicion?"

He also stated that "When the regulator and the regulated are one and the same, deference to the government-owned industry can all too easily trump vigorous and neutral enforcement."

Government Surveillance. Cox also addressed a number of issues that may arise with the proliferation and growth of government owned commercial investment funds, which he referred to as "sovereign wealth funds".

One of these pertains to surveillance and intelligence operations. Cox (at left) said that "unlike private investors and businesses, the world's governments have at their disposal the vast amounts of covert information collection that are available through their national intelligence services."

He continued that "Current legal restrictions in some countries on the domestic collection and use of such information might serve to protect the civil liberties of that nation's citizens. But there are normally no concommitant protections for foreign nationals, or for intelligence collection activities conducted in other countries."

"Unchecked, this would be the ultimate insider trading tool", said Cox.

The SEC has authority with respect to securities fraud, and insider trading a form of fraud. Cox did not discuss other uses of government surveillance, such as theft of trade secrets, to benefit GOCCs or companies in which SWFs hold an interest.

Cox did not discuss the extent to which government surveillance and intelligence agencies might assist their domestic companies and investment funds in which they own no interest.

Before his appointment to the SEC, Cox was a senior member of the House Commerce Committee (HCC) and its Subcommittee on Telecommunications and the Internet, where he developed expertise in policy areas related to information and communications technologies.

Information Transparency. Cox said that "If ordinary investors -- an estimated 100 million retail customers who own more than $10 trillion in equities and stock funds in U.S. markets -- come to believe that they are at an information disadvantage, confidence in our capital markets could collapse, and along with it, the market itself. That’s why so much of our effort is focused on full and fair disclosure to all market participants."

He continued that "Government ownership potentially threatens transparency, as well. In many industrial countries today, the ability of journalists and citizens to inquire into government affairs, or to criticize the conduct of government, is severely limited. In some countries, criticism of government policies lands you in jail, or worse. Is it reasonable to expect that these same governments will be magically forthcoming with investors?

"The fact that minority shareholders in state-owned companies will be dependent on the full disclosure of governments that are not subject to independent regulation raises significant questions for regulators such as the SEC, whose mission includes investor protection. And when it comes to transparency, the track record to date of most sovereign wealth funds does not inspire confidence."

Enforcement Problems. Cox said that the SEC has authority to pursue GOCCs and SWFs for violating US securities laws. The problem, he explained, would be in the lack of cooperation from the foreign governments.

He said that "Neither international law nor the Foreign Sovereign Immunities Act renders these funds immune from the jurisdiction of U.S. courts in connection with their commercial activity conducted in the United States."

"But a discussion between the SEC and a foreign government might be quite different if, instead of seeking cooperation in an enforcement matter in which we were mutually interested, the SEC were pressing claims of insider trading against that very government", said Cox.

"When a foreign private issuer is suspected of violating U.S. securities laws, our experience working with our overseas regulatory counterparts indicates that we could almost always expect the full support of the foreign government in investigating the matter. But if the same government from whom we sought assistance were also the controlling person behind the entity under investigation, a considerable conflict of interest would arise."

Protectionist Responses. Cox stated that "The rise of sovereign wealth funds and state-owned public companies could even provoke a new round of protectionism, in which various national governments erect barriers to foreign investment in what they consider to be strategic sectors of their economies -- and in which the lines between restrictions on foreign government ownership and foreign private ownership are dangerously blurred."

People and Appointments

10/24. The Senate approved the nomination of Leslie Southwick to be a Judge of the U.S. Court of Appeals (5thCir) by a vote of 59-38. See, Roll Call No. 393.

More News

10/24. Microsoft announced in a release that it "will take a $240 million equity stake in Facebook's next round of financing at a $15 billion valuation, and the companies will expand their existing advertising partnership. Under the expanded strategic alliance, Microsoft will be the exclusive third-party advertising platform partner for Facebook, and will begin to sell advertising for Facebook internationally in addition to the United States."

USTR Schwab Urges PRC to Adhere to Its WTO Obligations

10/23. Susan Schwab, the U.S. Trade Representative (USTR), gave a speech at a conference in Washington DC titled the "George Bush China -- U.S. Relations Economic Dialogue". She urged the People's Republic of China (PRC) to adhere to its World Trade Organization (WTO) obligations.

She said that "Another serious matter is intellectual property rights protection. Last year, 81 percent of infringing items seized at the US border were from China, up from 69 percent the year before that. China can -- and must -- do better. The problem is one of enforcement, which we are attempting to address by working with China and by asserting our rights within the WTO."

She continued that "Yet another area of contention is government subsidies prohibited by the WTO. This creates an uneven playing field for U.S. producers in China, the U.S. and third country markets. We have taken an important first step by challenging a number of China’s prohibited subsidies at the WTO."

She urged both the US and PRC to "steer clear of economic retrenchment". She elaborated that "Recent actions by the Chinese government, taken together, provide reason to worry that China will use its regulatory and other policies to develop so-called "national champions" and tilt the playing field against foreign competitors." She added that "We see this reflected in the promotion of homegrown technology through biased national standards, the emergence of regulators as competitors, the requirement to disclose proprietary information, the use of government procurement to favor Chinese companies, and recent draft amendments to the patent laws."

She also stated that in the US there is a "drumbeat for legislation to ``get tough´´ with China -- often with little regard for the consequences or WTO-consistency of that legislation."

"It is likely that both Houses of Congress will grapple with bills related to currency, trade remedies, product safety, and enforcement procedures. Some of the bills would slap on new retaliatory tariffs. They are crude tools for a complex task. They focus on the wrong issues and are likely to do nothing to help or, even worse, to hurt the American workers, farmers, and entrepreneurs they purport to help", said Schwab.

House Committee Approves Global Online Freedom Act

10/23. The House Foreign Affairs Committee (HFAC) amended and approved HR 275 [LOC | WW], the "Global Online Freedom Act of 2007" by voice vote. The HFAC approved an amendment in the nature of a substitute [29 pages in PDF] offered by the sponsor, Rep. Chris Smith (R-NJ).

Introduction. This bill provides that US internet companies can be sued or criminally prosecuted in the US for providing foreign governments that restrict internet freedom with "personally identifiable information" (PII) of their users for purposes other than "legitimate foreign law enforcement purposes".

For example, Yahoo could be sued for damages, and punitive damages, in a US District Court by a citizen of the People's Republic of China (PRC) for providing the PRC government with identifying information about a Yahoo user who the PRC considers to be engaged in illegal online dissident activity.

More specifically, the bill:

• prohibits covered internet companies from locating "personally identifiable information" (PII) in a country designated by the President as an "Internet-restricting country" (IRC).
• prohibits covered internet companies from disclosing PII to any IRC, except for "legitimate foreign law enforcement purposes", as determined by the Department of Justice (DOJ), and additionally creates a private right of action for violation
• mandates disclosure by covered internet companies regarding IRC requested manipulation of search engine results
• mandates disclosure by covered internet companies regarding IRC requested removal or blocking of content
• prohibits covered internet companies from "Internet jamming of a United States-supported Web site", including those supported by the Broadcasting Board of Governors (BBG)
• imposes criminal penalties for violation of any of the above.

This bill promotes freedom of expression on the internet.

If this bill were enacted into law, then the US would be asserting extraterritorial authority over activity that takes place in other countries. That is, a company could be sued or prosecuted in the US for activity that takes place entirely within another country, and is not only legal, but mandated by the laws of that other country.

The US does not view with favor statutes of other countries prohibit conduct in the US that is legal in the US.

This bill reflects a triumph of US conceptions freedom of expression and privacy over principles of national sovereignty and international comity.

Rep. Smith (at right) stated in a release, referring to Yahoo's role in the Shi Tao case in the PRC, that "It is bad enough that U.S. technology firms may have helped a ruthless regime intimidate, arrest and persecute pro-democracy advocates, but now it appears that some in the industry are attempting to cover-up those despicable acts so they can continue their business dealings in China. Congress must pass the Global Online Freedom Act to end shameful practice of American IT companies doing the Chinese Government's dirty work".

He added that "History shows that US companies have at times in the past provided the technology to crush human rights. For instance, IBM were good soldiers with the Gestapo. Now, US companies, that originally thought they were helping bring freedom have found themselves -- wittingly or unwittingly -- part of a regime ... Dictatorships need two pillars to survive -- propaganda and secret police. The Internet -- if misused -- gives them both in spades".

February 2006 Hearing. On February 15, 2006, the HFAC, which was then named the House International Relations Committee, held a hearing titled "The Internet in China: A Tool for Freedom or Suppression?" See, transcript [HTML | PDF] and Yahoo's written responses [PDF] to HFAC questions.

Yahoo described its responses to requests  from the PRC government for information about its users. It wrote that it "provided information as legally required to comply with government demands".

It added that "Yahoo! China responded only to officers authorized by their respective law enforcement agencies to submit a law enforcement demand. Yahoo! China required the information demand to be in writing on official law enforcement letterhead with official agency seal. Yahoo! China only provided information as legally required to comply with government demands and construed demands in the narrowest way possible to avoid revealing any unnecessary information about our users while still complying with the legal demand. Unfortunately, to our knowledge, there is no process for appealing such a demand in China. PRC law gives law enforcement authorities the right to demand and receive user information in the exercise of their investigative powers."

Rep. Smith wrote in his release that "representatives from major tech Internet firms Microsoft, Google, Yahoo! and Cisco Systems testified under oath that they have complied with Chinese censorship laws and/or provided personally identifiable information about Internet users to repressive regimes in countries where they do business."

He also addressed the case of Shi Tao in his release. He stated that "Shi Tao is unjustly serving time in prison as a result of information Yahoo provided to Chinese authorities. Moreover, Yahoo officials who came before my committee -- during a hearing I chaired -- in sworn testimony said they knew nothing ‘about the nature of the investigation’ into Shi Tao. The Global Online Freedom Act will prohibit US technology companies from cooperating with repressive regimes so that others do not meet Shi Tao’s fate".

Findings and Policy. The bill begins with a finding that "Freedom of speech and freedom of the press are fundamental human rights".

The bill does not note in its findings that the US is largely alone in the world in the extent to which it protects freedom of speech, or of the press. Even democratic nations whose constitutions embody many principles of classical liberalism, such as Canada and the United Kingdom, afford less protection that the US. Other nations, such as the PRC offer significantly less.

The bill further finds that "Authoritarian foreign governments", including the "People's Republic of China", routinely block access to news and information over the internet.

It states that "This censorship by the Chinese Government allows that Government to promote a xenophobic—and at times particularly anti-American -- Chinese nationalism, the long-term effect of which will be deleterious to United States efforts to improve the relationship between the United States and China."

It also states that "Technology companies in the United States have succumbed to pressure by authoritarian foreign governments to provide such governments with information about Internet users that has led to the arrest and imprisonment of ``cyber dissidents´´, in violation of the corporate responsibility of such companies to protect and uphold human rights."

It also states that US tech companies "have provided technology and training to authoritarian foreign governments which have been used by such governments in filtering and blocking information that promotes democracy and freedom", and that these companies "should develop standards by which they can conduct business with authoritarian foreign governments while protecting human rights to freedom of speech and freedom of expression."

The bill states that it is the policy of the US to "to deter any United States business from cooperating with officials of Internet-restricting countries in effecting the political censorship of online content."

IRCs. The prohibitions and mandates of this bill only apply with respect to an "Internet-restricting country" or IRC. The bill establishes an administrative process for designation of IRCs.

The bill would create at the Department of State (DOS) an "Office of Global Internet Freedom" or OGIF.

Although, its powers would be limited. It would serve as "the focal point for interagency efforts to protect and promote freedom of electronic information abroad".

The OGIF would also "establish a regularized consultative process" to "develop a voluntary code of minimum corporate standards related to Internet freedom"

It would also "advise the appropriate congressional committees of legislative action". The bill defines these committees to be the foreign affairs committees and the commerce committees.

The bill then requires the President to annually "designate Internet-restricting countries" and submit a report regarding such designations to the Congress.

Ban on Locating PII in IRC. The bill then provides, at Section 201(a), that "A United States business may not locate, within a designated Internet-restricting country, any electronic communication that contains any personally identifiable information."

Ban on Giving PII to IRC. The bill provides, at Section 202(a), that "If a United States business collects or obtains personally identifiable information through the provision of products or services on the Internet, such business may not provide such information to any foreign official of an Internet-restricting country, except for legitimate foreign law enforcement purposes as determined by the Department of Justice."

The bill defines "legitimate foreign law enforcement purposes" as "for purposes of enforcement, investigation, or prosecution by a foreign official based on a publicly promulgated law of reasonable specificity that proximately relates to the protection or promotion of the health, safety, or morals of the citizens of that jurisdiction."

What is "legitimate" law enforcement is subjective, and based on values that vary by culture. Some US criminal prohibitions are arguably not legitimate protections of health, safety or morals, even by US standards.

Private Right of Action. The bill provides, at Section 202(c), that "Any person aggrieved by a violation of this section may bring an action for damages, including punitive damages, or other appropriate relief in the appropriate district court of the United States, without regard to the amount in controversy, and without regard to the citizenship of the parties."

The reference to "this section" likely means Section 202, which prohibits covered internet companies from disclosing PII to any IRC, except for "legitimate foreign law enforcement purposes" as determined by the DOJ. If this is the correct interpretation, then there would be no private right of action for violating the ban on locating PII in an IRC, or for violation of the requirements to disclose IRC requested manipulation of search engine results and removal or blocking of content.

The bill's references to "action for damages" and "other appropriate relief" omits any reference to injunctive and other equitable relief. Defendants would likely assert that equitable relief is not available in any private right of action.

The bill does not define the term "person aggrieved". While this would likely cover any individual whose speech was suppressed, or who was arrested or incarcerated, its scope is not defined.

The bill is not clear as to what persons would be "aggrieved". For example, it does not clarify whether a dependent of a person incarcerated as a result of a prohibited disclosure, a reader of an internet speaker whose speech has been suppressed, or a human rights group, would have a cause of action.

The bill does not define the term "person". Thus, any defendant would likely assert in an action brought by an online news and information business whose web site has been blocked that it has no cause of action.

The bill is also silent as to class representation.

As a practical matter, it is possible that this bill, if enacted, would result in few significant private actions. First, the President must designate a country as an IRC. Department of State officials, as well as internet companies, would likely lobby the President against designating strategically important countries such as the PRC as IRCs.

Second, there is the matter of the DOJ's designation of "legitimate foreign law enforcement purposes". The bill not specify whether such a determination is a condition precedent for the filing a private action, whether such a determination is a condition precedent for entry of judgment against an IRC, whether a District Court would stay a proceeding pending a determination from the DOJ, or whether other procedure would apply. The bill provides guidance to the DOJ as to what "legitimate foreign law enforcement purposes" are. However, it provides no procedural guidance.

Whatever the procedural implications, the DOJ routinely seeks the assistance and cooperation of law enforcement authorities in the PRC. It would be reluctant to make any determination that PRC authorities are engaging in activity that is not "legitimate".

Mandatory Disclosures. The bill requires several disclosure by internet companies regarding foreign government requested manipulation of search engine results, and removal or blocking of content.

The bill provides, at Section 203, that "Any United States business that creates, provides, or hosts an Internet search engine shall provide the Office of Global Internet Freedom ... with all terms and parameters used to filter, limit, or otherwise affect the results provided by the search engine that are implemented -- (1) at the request of ... an Internet-restricting country; or (2) to comply with a policy or practice of restrictions on Internet freedom in an Internet-restricting country."

The bill provides, at Section 204, that "Any United States business that maintains an Internet content hosting service shall provide the Office of Global Internet Freedom ... with the Uniform Resource Locators (URLs) of all data and content that such business has", at the request of an Internet-restricting county, "(1) removed from the content hosting service of such business; (2) blocked from availability on the Internet; or (3) blocked from transmission via the Internet into or within an Internet-restricting country."

Prohibition of Jamming US Supported Web Sites. The bill provides, at Section 205, that "A United States business that maintains an Internet content hosting service may not conduct Internet jamming of a United States-supported Web site or United States supported content in an Internet-restricting country."

Civil and Criminal Prosecution. The bill then provides, at Section 206, for civil penalties in DOJ brought actions, and criminal penalties, for violation of Section 201-205 of the bill.

Violation of the ban on giving PII to IRCs would carry the highest penalties -- up to $2 Million for the company, and up to $100,000 for officers, directors and others. Maximum penalties for other violations would be small -- $10,000.

Other Provisions. The bill provides, at Section 207, for Presidential authority to waive application of any provision of Sections 201-205 of the bill.

The bill would impose no export controls. However, it would require that a study be conducted.

The bill provides, in Section 301, for a "feasibility study regarding the development of export controls and export license requirements regarding the export of any item subject to sections 730 through 774 of title 15, Code of Federal Regulations (commonly known as the ‘‘Export Administration Regulations’’) to an end user in an Internet-restricting country for the purpose, in whole or in part, of facilitating substantial restrictions on Internet freedom."

The bill would require that reports prepared pursuant to Section 116 of the Foreign Assistance Act of 1961, which is codified at 22 U.S.C. § 2151n, shall "include an assessment of the freedom of electronic information in each foreign country."

Committee Jurisdiction. While this bill infringes upon the sovereignty of other nations, its prospects for passage in its current form may be affected more by its impact upon the jurisdiction of the House Commerce Committee (HCC). This bill is not fundamentally about US relations with other countries. Rather, it pertains to regulation of the commercial practices of US companies.

Moreover, its crime component involves the jurisdiction of the House Judiciary Committee (HJC). The bill has also been referred to the HCC, but not the HJC. (Additionally, the bill applies to "any issuer of a security registered pursuant to section 12 of the Securities Exchange Act of 1934", but has not been referred to the House Financial Services Committee (HFSC).)

From the HCC members' perspective, this bill may constitute an exercise of authority over commercial activity by US companies by a competing committee. Moreover, it gives primary administrative authority to the Department of State, which is overseen by the competing committee.

The HCC zealously guards, and jealously seeks to expand, its authority over the regulation of commercial activity. In recent years it has particularly focused on consolidating its authority over internet commerce. For a decade it has sparred with the HJC, which has authority of intellectual property and crime. With this bill, the HFAC seeks a major role. To the extent that the internet is global in nature, and communications is increasing global in nature, the HFAC's legislative activity could hypothetically be expanded into other areas historically handled by the HCC.

Finally, it should be noted that the bill does not state where or how it would be codified in the U.S. Code. It does not designate Title 22 (regarding foreign relations), Title 15 (regarding regulation of commerce), or Title 18 (regarding criminal activity).

Cosponsors. The bill is cosponsored by Rep. Tom Lantos (D-CA), the Chairman of the HFAC, Rep. Dana Rohrabacher (R-CA), Rep. Frank Wolf (R-VA), Rep. Dan Burton (R-IN), Rep. Tim Ryan (D-OH), Rep. David Wu (D-OR), and Rep. Thaddeus McCotter (R-MI).

6th Circuit Holds Unconstitutional Record Keeping Requirement for Pornographers

10/23. The U.S. Court of Appeals (6thCir) issued its opinion [27 pages in PDF] in Connection Distributing v. Keisler, holding that 18 U.S.C. § 2257 is unconstitutional for violating the 1st Amendment.

All three judges wrote opinions. However, all three agreed that the statute is unconstitutional under the 1st Amendment for overbreadth. Moreover, two of the three judges on the panel were appointed by President Bush.

Section 2257 regulates anyone who "produces" any "visual depictions" of "actual sexually explicit conduct", provided that there is an interstate commerce component. (Publication on the internet is such a component.).

The statute defines "produces" to mean "produce, manufacture, or publish ... computer generated image, digital image, or picture". The cross referenced definitional section defines "sexually explicit conduct" to include many things, including "lascivious exhibition of the genitals or pubic area of any person".

The statute criminalizes failure to "create and maintain" certain written records enumerated by the statute. That is, people who publish porn on the internet must keep certain written records.

Connection Distributing Co. publishes porn magazines. It filed a complaint back in 1995 in U.S. District Court (NDOhio) against the Attorney General of the US seeking a declaratory judgment that Section 2257 is unconstitutional. The District Court granted summary judgment to the Attorney General. This appeal followed.

The Court of Appeals reversed, and remanded to the District Court with instructions to find Section 2257 unconstitutionally overbroad, and to enter summary judgment for the plaintiffs.

All three agreed that preventing the sexual exploitation of minors in child pornography is a significant and a compelling government interest. They all agreed that the statute's record keeping requirements are not narrowly tailored to this interest.

That is, requiring producers and publishers of adult porn that is not obscene to keep records, imposes a burden on those who are engaged in constitutionally protected conduct.

All three members of the three judge panel wrote detailed opinions. They disagreed on matters other than the conclusion that Section 2257 suffers from unconstitutional overbreadth.

Both Kennedy and Moore agreed that Section 2257 is facially unconstitutional for overbreadth. The Court of Appeals declined to severe any part of Section 2257 in order to save its constitutionality. In contrast, Judge McKeague, who agreed that the statute is overbroad, also argued for severance of part of Section 2257, and the consequent salvaging of the rest.

The opinion writers also agreed as to standards to apply to the analysis of overbreadth.

The Court of Appeals did not reach the issue of whether the statute also violates the 5th Amendment's prohibition of compelled self-incrimination.

This case is Connection Distributing Co., et al. v. Peter Keisler, U.S. Court of Appeals for the 6th Circuit, App. Ct. No. 06-3822, an appeal from the U.S. District Court for the Northern District of Ohio at Cleveland, D.C. No. 95-01993, Judge John Manos presiding.

Judge Cornelia Kennedy wrote the opinion of the Court of Appeals. Judge Karen Moore wrote an opinion in which she concurred in part and dissented in part. Judge David McKeague wrote an opinion in which he concurred in part and dissented in part.

Judge Kennedy is a senior status judge who was appointed by former President Carter. Judges Moore and McKeague were both appointed to the Court of Appeals by President Bush.

Rep. Hoyer Criticizes Bush Record on Surveillance

10/23. House Majority Leader, Rep. Steny Hoyer (D-MD), gave a speech at Georgetown University's law school in Washington DC in which he attacked the Bush administration's history of surveillance in the US.

Rep. Hoyer (at right) began that "We have seen the mass violation of Americans' privacy rights through National Security Letters, the Administration’s data-mining program and the terrorist surveillance program -- about which we still know little."

He commented on the March 2007 report [34 MB in PDF, redacted version] of the Department of Justice's (DOJ) Office of the Inspector General (OIG) regarding the DOJ's use of National Security Letters (NSLs). See, story titled "DOJ IG Releases Reports on Use of NSLs and Section 215 Authority" in TLJ Daily E-Mail Alert No. 1,551, March 13, 2007.

Rep. Hoyer said that the OIG "reported many instances when National Security Letters -- which allow the FBI to obtain records from telephone companies, internet service providers, banks, credit card companies, and other businesses, without a judge’s approval -- were improperly and sometimes illegally used."

Glenn Fine, the DOJ/OIG Inspector General, testified before the Senate Judiciary Committee (SJC) on March 21, 2007. Rep. Hoyer related that "Fine called the FBI’s conduct `the product of mistakes, carelessness, sloppiness, lack of training, lack of adequate guidance, and lack of adequate oversight.´"

See also, Fine's prepared testimony before SJC on March 21, 2007, and prepared testimony before House Judiciary Committee (HJC), March 20, 2007. The DOJ/OIG report and Fine's testimony also covered misuse of requests for business records under Section 215 of the PATRIOT Act. Rep. Hoyer did not address business records in the prepared text of this speech.

The SJC held a further hearing on the DOJ's use of NSLs on April 11, 2007. See, prepared testimony of Peter Swire (Ohio State University law school), prepared testimony of former Rep. Bob Barr (R-GA), prepared testimony of George Christian (American Library Association), and prepared testimony of Suzanne Spaulding.

Rep. Hoyer continued that "the apparent lack of malicious intent does not undo the seriousness of these privacy breaches. This data has gone into massive government databases, including one that reportedly contains more than 560 million separate records, and another with more than 30,000 authorized users."

"Barely two weeks ago, Verizon -- one of our nation's largest telecommunications companies -- admitted to the House Energy and Commerce Committee that from January 2005 to September 2007 the company provided data to federal authorities on an emergency basis -- without a subpoena or court order -- 720 times", said Rep. Hoyer.

See, Verizon's letter [4.5 MB in PDF] to the House Commerce Committee (HCC) of October 12, 2007.

He also criticized the interrogation and treatment of terrorists held in custody, and the rendition of some to other nations.

"It is long past time for effective Congressional oversight and Judicial review of this Administration’s actions." He added that "The Administration’s unchecked violation of Americans' civil liberties and accepted international norms of behavior do not serve our nation well. Indeed, they not only do violence to our values and constitutional principles, but also sully our reputation throughout the world and threaten to undermine the rule of law."

He then focused on ongoing efforts to write legislation that would reform the Foreign Intelligence Surveillance Act (FISA).

The Congress enacted a FISA reform bill in August that contains a six month sunset. This bill is S 1927 [LOC | WW], the "Protect America Act" or "PAA". It is now Public Law No. 110-55. See also, story titled "Summary of Protect America Act" in TLJ Daily E-Mail Alert No. 1,638, September 11, 2007.

On October 9, 2007, Rep. John Conyers (D-MI) and Rep. Sylvestre Reyes (D-TX) introduced HR 3773 [LOC | WW], the "Responsible Electronic Surveillance That is Overseen, Reviewed, and Effective Act of 2007" or RESTORE Act. See, story titled "Reps. Conyers and Reyes Introduce FISA Reform Bill" in TLJ Daily E-Mail Alert No. 1,653, October 10, 2007. The HJC amended and approved this bill on October 12, 2007. The full House has debated, but not passed, this bill. See, story titled "House Delays Consideration of RESTORE Act" in TLJ Daily E-Mail Alert No. 1,657, October 18, 2007.

Rep. Hoyer said that "Today, in Congress, Democrats in both the House and Senate are committed to revisiting the Foreign Intelligence Surveillance Act, which was amended by the Protect America Act in August. The Protect America Act provides sweeping new powers to the government to engage in warrantless surveillance of international calls to and from the United States -- and potentially much more."

He added that "some FISA experts testified in Congress in September that the PAA authorizes searches of Americans’ homes, offices, and computer usage, as long as the government is collecting foreign intelligence about communications that 'concern' persons abroad." See also, story titled "House Judiciary Committee Holds Hearing on Surveillance and FISA" in TLJ Daily E-Mail Alert No. 1,638, September 11, 2007.

Rep. Hoyer asserted that "The PAA also effectively cuts the FISA Court out of any meaningful role in overseeing surveillance of Americans."

He said that in contrast the RESTORE Act "is a carefully crafted measure that gives our intelligence community the tools it needs to listen in on those who seek to harm us, while addressing concerns that the bill passed in August could authorize warrantless surveillance of Americans."

He offered his take on the contents of the RESTORE Act. "This legislation addresses the intelligence gap asserted by the Director of National Intelligence, and restores a checks-and-balances role for the FISA Court.

"It does not require a warrant for listening in on suspected and known terrorists. In fact, it clarifies that no court order is required for surveillance of conversations where both parties are foreign citizens."

"It does not extend constitutional rights to suspected or known terrorists. Nor does it delay the collection of intelligence information. It grants the Attorney General and DNI authority to apply to the FISA Court for a block order to conduct surveillance on large groups of foreign targets for up to one year."

And finally, he said that the RESTORE Act "is silent on the issue of retroactive immunity for telecommunications companies that possibly violated privacy laws in turning over consumer information -- because Congress does not have full access to information about what the companies did."

He argued that "it would be grossly irresponsible for Congress to grant blanket immunity for companies without even knowing whether their conduct was legal or not. ... Until we understand what legal authorities were used to justify the terrorist surveillance program, there does not appear to be any practicable way to include retroactive immunity in this bill."

US, EU, Japan and Others to Negotiate Anti-Counterfeiting Trade Agreement

10/23. The Office of the U.S. Trade Representative (OUSTR) issued a release that states that "the United States and some of its key trading partners will seek to negotiate an Anti-Counterfeiting Trade Agreement (ACTA)."

The OUSTR added that "Trading partners engaged in discussions so far include Canada, the European Union (with its 27 Member States), Japan, Korea, Mexico, New Zealand, and Switzerland." (Parentheses in original.)

This list does not include many of the nations that have high levels of counterfeiting, such as the People's Republic of China.

USTR Susan Schwab stated in this release that "Global counterfeiting and piracy steal billions of dollars from workers, artists and entrepreneurs each year and jeopardize the health and safety of citizens across the world ... The United States looks forward to partnering with many of our key trading partners to combat this global problem. Today launches our joint efforts to confront counterfeiters and pirates across the global marketplace."

Eric Smith, head of the International Intellectual Property Alliance (IIPA), stated in a release [PDF] that "The IIPA and its members strongly support the leadership of the U.S. government, along with Japan, in commencing work on an agreement among like-minded countries seeking to improve potential signatory countries' practical enforcement of their laws to deal with IPR infringements and crimes. Effective enforcement is a critical element of forging an effective IPR regime and piracy remains a key problem globally, causing significant revenue and job losses to the U.S. economy. The copyright owners IIPA represent particularly applaud the potential Agreement’s focus on Internet piracy, practical mechanisms for effective enforcement, and training and capacity building".

Patrick Ross, head of the Copyright Alliance, stated in a release that "In today's digital age, intellectual property theft literally knows no borders ... International cooperation is absolutely essential in ensuring our global ideas-driven economy thrives."

Caroline Joiner of the U.S. Chamber of Commerce also praised the announcement in a release.

More News

10/23. The Copyright Office (CO) published a notice in the Federal Register that contains a final list of stations listed in affidavits sent to the CO in which the owner or licensee of the station attests that the station qualifies as a specialty station. The notice states that this list "shall be used to verify the specialty station status of those stations identified as such by cable systems on their semi-annual statements of account". The effective date of this notice is January 1, 2008. See, Federal Register, October 23, 2007, Vol. 72, No. 204, at Pages 60029-60030, and 17 U.S.C. § 111.

Microsoft Capitulates to EC

10/22. Microsoft announced in a release that it is capitulating to the European Commission regarding its 2004 demands that Microsoft remove certain code from its products sold in the Europe, and that it license certain proprietary technology and intellectual property rights to other companies, and that it give money to the EC.

See, stories titled "European Commission Seeks 497 Million Euros and Code Removal from Microsoft" in TLJ Daily E-Mail Alert No. 863, March 25, 2004, and "European Commission Releases Microsoft Decision" in TLJ Daily E-Mail Alert No. 883, April 23, 2004. See also, Microsoft web page for this EC proceeding.

In September, the European Court of First Instance (CFI) released its opinion [PDF] upholding much of the European Commission's (EC) 2004 decision regarding Microsoft. See, story titled "European Court of First Instance Rejects Key Parts of Microsoft's Appeal" in TLJ Daily E-Mail Alert No. 1,639, September 14, 2007.

Microsoft stated in its just issued release that "At the time the Court of First Instance issued its judgment in September, Microsoft committed to taking any further steps necessary to achieve full compliance with the Commission’s decision. We have undertaken a constructive discussion with the Commission and have now agreed on those additional steps. We will not appeal the CFI’s decision to the European Court of Justice and will continue to work closely with the Commission and the industry to ensure a flourishing and competitive environment for information technology in Europe and around the world."

In July the EC initiated action against Intel. See, story titled "European Commission Initiates Proceeding Against Intel Alleging Anticompetitive Behavior" in TLJ Daily E-Mail Alert No. 1,617, July 26, 2007. The EC's asserted basis for these action is competition law. But see, story titled "DOJ Antitrust Chief Criticizes European Court's Microsoft Ruling" in TLJ Daily E-Mail Alert No. 1,640, September 17, 2007.

Other US companies that might be targeted by the EC include Google, Qualcomm and Apple.

Reps. Dingell and Markey Introduce Bill to End Deemed Granting of FCC Forbearance Petitions

10/22. Rep. John Dingell (D-MI) and Rep. Ed Markey (D-MA) introduced HR 3914 [LOC | WW], the "Proper Forbearance Procedures Act of 2007", a bill to remove the "deemed granted" clause from the forbearance petition section of the Communications Act. See, full story.

More Capitol Hill News

10/22. Rep. John Dingell (D-MI), the Chairman of the House Commerce Committee (HCC) released a statement regarding the Federal Communications Commission's (FCC) consideration of regulation of ownership of media. He wrote that "I urge the Commission not to rush to judgment in its media ownership proceeding. Issues of this magnitude and importance deserve nothing less than the full and measured consideration of the Chairman and Commissioners. The Commission’s last attempt to craft ownership rules was largely invalidated by an appellate court, and the Commission should avoid that outcome in this instance. It is my sincere hope that the Commission will allow reasonable time for evaluation of the public input received on its media ownership studies and at all of its public hearings before finalizing rules. It is also important that the Commission release proposed rules and then allow sufficient time for comment on them before taking final action."

People and Appointments

10/22. The National Telecommunications and Information Administration (NTIA) published a notice in the Federal Register that announces the new and existing members of its National Telecommunications and Information Administration's Performance Review Board. The members are Daniel Hurley (Director of the NTIA's Communications and Information Infrastructure Assurance Program), Bernadette Rivera (NTIA Associate Administrator for Telecommunications and Information Applications), Renee Macklin (Chief Information Officer of the International Trade Administration), Alan Vincent (Associate Administrator for Telecommunications Sciences and Director at the Institute for Telecommunication Sciences), Michael Crison (National Oceanic and Atmospheric Administration), and Karl Nebbia (Associate Administrator for Spectrum Management at the NTIA). Macklin and Nebbia are new members. See, Federal Register, October 22, 2007, Vol. 72, No. 203, at Page 59514.

Go to News from October 16-20, 2007.