Cox Discusses Impact of Technology and Mergers in Securities Markets

12/20. Chris Cox, the Chairman of the Securities and Exchange Commission (SEC) gave a speech in New York City in which he addressed the adoption of new technologies by exchanges, the conversion of mutual exchanges into shareholder owned electronic markets, and the consequences for efficiency and costs, competition and acquisition, and globalization of securities markets.

He said that "the same technology that is increasing productivity in every corner of the economy is fundamentally changing the way that exchanges themselves operate. As a result of technological advances over the past decade or so, investors in today's markets enjoy lower costs and more efficient access to liquidity."

Cox stated that the new more flexible shareholder owned electronic markets can use new capital to invest in technology that offers customers faster, more efficient, and lower cost trading.

He also said that "today technology has virtually eliminated the need for face-to-face trading on the NYSE and everywhere else" and that "the trading floor itself is becoming obsolete".

Cox elaborated that "The combination of new technology and new legal structures has been the springboard, first, for dramatic changes in the U.S. capital markets, and, simultaneously, for the new globalization of markets that so clearly characterizes the new century. That's because, in addition to allowing innovation, demutualization has also allowed rapid combinations of exchanges, both internationally and domestically."

He also reviewed the recent history of  mergers of exchange markets, and the consequences, especially for securities regulators.

Bush Condemns Senate Delay on FISA Amendments Bill

12/20. President Bush held a news conference in which he discussed numerous topics, including the Senate's delay of further consideration of S 2248 [LOC | WW], the "Foreign Intelligence Surveillance Act of 1978 Amendments Act of 2007", until after the holiday recess. See, transcript.

He said that "I'm also disappointed that Congress failed to pass legislation to ensure that our intelligence professionals can continue to effectively monitor terrorist communications. Those of us in public office have no greater responsibility than stopping new attacks on our country."

He continued that "this summer, Congress passed a bill that -- called the ``Protect America Act,´´ which strengthened our ability to collect foreign intelligence on terrorists overseas. The bill closed dangerous gaps in our intelligence; it was a good piece of legislation. It wasn't perfect, but it was good. Unfortunately, Congress made this law effective until February 1st of 2008, as if the terrorist threat is going to go away on February the 1st, 2008."

That House bill is S 1927 [LOC | WW].

President Bush said that "The first priority of Congress when it returns in the new year must be to pass a good bill and get it to my desk promptly."

He also addressed pending litigation against telecommunications companies for having providing surveillance assistance that the plaintiffs allege was illegal. Bush said that "The bill should include liability protection for companies that are facing multi-billion-dollar lawsuits, only because they are believed to have assisted in the efforts to defend or nation following the 9/11 attacks."

S 2248 is a bipartisan bill approved by the Senate Intelligence Committee (SIC) in October. The Senate Judiciary Committee (SJC) then approved a different version of S 2248 on November 15, 2007. The full Senate began, but then postponed, consideration of S 2248 on Monday, December 17, 2007.

The House passed its version of FISA reform legislation, HR 3773 [LOC | WW], the "Responsible Electronic Surveillance That is Overseen, Reviewed, and Effective Act of 2007", or "RESTORE Act", on November 15, 2007.

In addition, Sen. Arlen Specter (R-PA), the ranking Republican on the SJC, has introduced a stand alone bill, S 2402 [LOC | WW], the "FISA Intelligence Surveillance Substitution Act of 2007", that would provide for substitution of the federal government for telecommunications carriers as defendants. The SJC approved a substitute version supported by the Bush administration, and then rejected the bill as amended, at its business meeting on December 13, 2007. Sen. Specter has said on several occasions that he will seek to advance his substitution proposal as an amendment during full Senate consideration of S 2248.

The White House press office issued a summary of various bills, and proposed amendments, on December 17, 2007. The Center for Democracy and Technology (CDT), a group that advocates Constitutional and privacy rights in the context of information and communications technologies, published its comparison [3 pages in PDF] of various bills on December 4, 2007.

FTC Will Not Block Google DoubleClick Merger

12/20. The Federal Trade Commission (FTC) announced that it will not seek to block the proposed merger of Google and DoubleClick, or impose any conditions upon the merger.

The FTC wrote in a brief letter [1 page in PDF] to Google that "Upon further review of this matter, it now appears that no further action is warranted by the Commission at this time. Accordingly, the investigation has been closed. This action is not to be construed as a determination that a violation may not have occurred, just as the pendency of an investigation should not be construed as a determination that a violation has occurred. The Commission reserves the right to take such further action as the public interest may require."

The Commission's vote was 4-1, with Commissioner Pamela Harbour dissenting. Chairman Deborah Majoras, and Commissioners William Kovacic, Thomas Rosch and Jonathan Liebowitz voted to close the investigation. The Commission released a statement [13 pages in PDF], and two Commissioners released individual statements.

The transaction has yet to receive the approval of the European Commission.

Impact of Merger Upon Competition. Section 7 of the Clayton Act, which is codified at 15 U.S.C. § 18, prohibits acquisitions or mergers, the effect of which "may be substantially to lessen competition, or to tend to create a monopoly."

The FTC concluded that "Google's proposed acquisition of DoubleClick is unlikely to substantially lessen competition".

First, it concluded that the merger does not threaten to eliminate direct and substantial competition between Google and DoubleClick. It reasoned that the two companies provide products in different markets.

It wrote that "Google sells advertising on its search engine and through its ad intermediation product, AdSense. It had been developing a third party ad serving solution prior to its agreement to purchase DoubleClick, but it had not released a commercially viable product."

In contrast, "DoubleClick sells two third party ad serving products -- DART for Advertisers (``DFA´´) and DART for Publishers (``DFP´´). It does not buy or sell advertisements or advertising inventory."

Second, it concluded that the merger does not threaten to eliminate potential competition in any relevant market. It concedes that "Google had been attempting to develop a third party ad serving solution at the time of the transaction, and therefore is a potential future competitor of DoubleClick and other third party ad serving firms."

However, it continued that "For the elimination of this potential competition to be a competitive concern, Google must be uniquely positioned to have a substantial competition-enhancing effect on the third party ad serving markets."

It concluded that it does not. It explained that "Google's entry is unlikely to have a significant procompetitive effect because the evidence shows that the third party ad serving markets are competitive despite relatively high levels of concentration in both markets. Although DoubleClick enjoys a significant share of today's third party ad serving markets, it does not appear that DoubleClick has market power in these markets."

Finally, the FTC concluded that the evidence in the record does not support any theory of non-horizontal harm "such as the possibility that Google could leverage DoubleClick’s leading position in third party ad serving to its advantage in the ad intermediation market."

Commissioner Liebowitz wrote in his statement [PDF] that while he concurred in the decision, there are "serious vertical competition issues".

Commissioner Harbour wrote in her dissenting statement [13 pages in PDF] that Section 7 is "inherently forward-looking", and that she makes "alternate predictions about where this market is heading, and the transformative role the combined Google/DoubleClick will play if the proposed acquisition is consummated."

Harbour elaborated that "But for Google's acquisition of DoubleClick, the parties likely would have competed head-to-head in the market for third party ad serving tools. Prior to the announcement of the deal, Google was developing and beta-testing its own third party ad serving solution, Google for Publishers and Google for Advertisers, which would have competed against DoubleClick’s DART for Publishers and DART for Advertisers. Development efforts ceased once the proposed acquisition of DoubleClick was announced."

She argued that "It is difficult to believe that Google -- with a market capitalization of nearly $207 billion, a top-notch engineering team, and a wealth of connections among publishers and advertisers -- would have been unable to refine its beta product and release a highly competitive third party ad serving solution of its own. Third party ad serving customers likely would have benefitted from both price and innovation competition as a result of Google’s entry efforts."

Impact of Merger Upon Privacy. The FTC statement notes that "some have urged the Commission to oppose Google's proposed acquisition of DoubleClick based on the theory that the combination of their respective data sets of consumer information could be exploited in a way that threatens consumers’ privacy."

The FTC wrote that it "has been asked before to intervene in transactions for reasons unrelated to antitrust concerns, such as concerns about environmental quality or impact on employees. Although such issues may present important policy questions for the Nation, the sole purpose of federal antitrust review of mergers and acquisitions is to identify and remedy transactions that harm competition."

It "concluded that privacy considerations, as such, do not provide a basis to challenge this transaction."

Commissioner Harbour did not dissent from this conclusion, but nevertheless wrote in her statement that "The parties claim to place a high value on protecting consumer privacy. In various fora, both public and private, senior corporate officials have offered assurances that the combined firm will not use consumer data inappropriately. But charged as I am with protecting the interests of consumers, I am uncomfortable accepting the merging parties' nonbinding representations at face value. The truth is, we really do not know what Google/DoubleClick can or will do with its trove of information about consumers' Internet habits. The merger creates a firm with vast knowledge of consumer preferences, subject to very little accountability."

Commissioner Leibowitz wrote in his statement that "we still need to address the fundamental issues of consumer privacy and data security raised by online behavioral advertising, which go well beyond the two companies involved in this acquisition. As the Internet has evolved, online tracking and ad targeting have become more sophisticated, more pervasive, and more granular."

The Electronic Privacy Information Center (EPIC) released a statement [3 pages in PDF] in which it asserted that the FTC legally could, and should, have blocked or imposed conditions upon this merger because of its impact upon consumers' privacy.

The EPIC offered the explanation that "unlike typical merger reviews where the Commission may assume that the market analysis of suppliers and consumers captures all of the relevant parties, the market for Internet-based advertising is different. These companies target individual consumers based on their interests, their activities, even their personal behaviors. The ``consumers´´ for Internet advertisers are web-based publishers. Assuming there is healthy competition, they make choices among competitors for advertising services. But for the consumer whose data is gathered, there is no choice. The market relationship exists between the advertiser and the publisher. It does not include the consumer."

Hence, it concluded that there is a "market failure", and that the FTC "has a responsibility to address the problem".

Jones Day and Mr. and Mrs. Majoras. The EPIC previously requested that FTC Chairman Majoras be recused. See, story titled "EPIC Seeks Recusal of Majoras in Google Doubleclick Merger Review" in TLJ Daily E-Mail Alert No. 1,688, December 13, 2007.

She participated in this decision.

The EPIC wrote in a December 12 filing [PDF] with the FTC that DoubleClick "has retained the Washington law firm of Jones Day to represent the company before the Federal Trade Commission in the pending merger review." It added that Deborah Majoras "is a former equity partner of the law firm Jones Day" and that her husband, John Majoras, "is currently an equity partner with the law firm Jones Day".

The EPIC's just released statement adds that "We remain troubled by the role of the Jones Day law firm in this proceeding. The ties between the Federal Trade Commission and the Washington office of Jones Day are everywhere apparent, even leading up to the recent hiring by Jones Day of key Commission staff while the merger review was taking place. This should be investigated."

More Reaction. Ed Black, head of the Computer & Communications Industry Association (CCIA), stated in a release that "This merger will likely spur innovation and enhance competition in the online advertising arena. The recent high-profile acquisitions involving Doubleclick competitors and other innovative Internet companies demonstrate that the online advertising space is a highly competitive, rapidly changing segment of the advertisement marketplace, with many options for customers."

The Competitive Enterprise Institute (CEI) stated in a release that "The political controversy surrounding the merger highlights the inadequacies of antitrust law in a 21st century economy. Smoke-stack era laws do not foster entrepreneurship or protect consumers -- they stifle competition and drive away innovators.

Leslie Harris, head of the Center for Democracy and Technology (CDT), stated in a release that "It is now important for Google to step up and make a clear, public statement about its plans for proactively protecting consumer privacy. Such a move on Google's part would send a strong message to consumers and an industry that continues to struggle with privacy issues as online advertising evolves."

FTC Proposes and Seeks Comments on Voluntary Principles for Online Behavioral Advertising

12/20. The Federal Trade Commission (FTC) released a staff document [7 pages in PDF] titled "Online Behavioral Advertising: Moving the Discussion Forward to Possible Self-Regulatory Principles".

This is not a notice of proposed rule making within the meaning of the Administrative Procedure Act (APA). Nevertheless, this document proposes "some governing principles for behavioral advertising" and seeks comments on them.

The document states it uses the term "behavioral advertising" to mean "the tracking of a consumer’s activities online including the searches the consumer has conducted, the web pages visited, and the content viewed in order to deliver advertising targeted to the individual consumer’s interests."

The proposed principles are as follows:

1. "Every website where data is collected for behavioral advertising should provide a clear, concise, consumer-friendly, and prominent statement that (1) data about consumers’ activities online is being collected at the site for use in providing advertising about products and services tailored to individual consumers’ interests, and (2) consumers can choose whether or not to have their information collected for such purpose. The website should also provide consumers with a clear, easy-to-use, and accessible method for exercising this option."

2. "Any company that collects and/or stores consumer data for behavioral advertising should provide reasonable security for that data. Consistent with the data security laws and the FTC’s data security enforcement actions, such protections should be based on the sensitivity of the data, the nature of a company's business operations, the types of risks a company faces, and the reasonable protections available to a company."

3. "Companies should retain data only as long as is necessary to fulfill a legitimate business or law enforcement need. FTC staff commends recent efforts by some industry members to reduce the time period for which they are retaining data. However, FTC staff seeks comment on whether companies can and should reduce their retention periods further."

4. "As the FTC has made clear in its enforcement and outreach efforts, a company must keep any promises that it makes with respect to how it will handle or protect consumer data, even if it decides to change its policies at a later date. Therefore, before a company can use data in a manner materially different from promises the company made when it collected the data, it should obtain affirmative express consent from affected consumers. This principle would apply in a corporate merger situation to the extent that the merger creates material changes in the way the companies collect, use, and share data."

5. "Companies should only collect sensitive data for behavioral advertising if they obtain affirmative express consent from the consumer to receive such advertising. FTC staff seeks specific input on (1) what classes of information should be considered sensitive, and (2) whether using sensitive data for behavioral targeting should not be permitted, rather than subject to consumer choice."

The deadline to submit comments is Friday, February 22, 2008.

Ari Schwartz, Deputy Director of the Center for Democracy and Technology (CDT), stated in a release that "The release of these new principles is a clear sign that the Commission does not believe that the industry's current self-regulation framework is sufficient to protect consumers today".

The CDT's Leslie Harris added that "Self-regulation is part of the solution for protecting consumer privacy, but clearly self-regulation hasn't lived up to its promises. At the end of the day, we'll need a rigorous mix of self-regulation backed by regulatory enforcement."

DOJ Announces $1.1 HSR Act Fine

12/20. The Department of Justice (DOJ) filed a complaint in U.S. District Court (DC) against ValueAct Capital Partners L.P. alleging violation of the premerger notification and waiting period requirements of the Hart Scott Rodino Act (HSRA) of 1976 in connection with several recent transactions, including its acquisition in 2005 of more than ten percent of the stock of Acxiom Corporation, a data aggregator.

The DOJ simultaneously announced that it has reached a settlement with ValueAct, under which it will pay $1.1 Million. The DOJ also stated that it has filed a proposed consent decree with the District Court. See, DOJ release.

The HSRA's premerger notification and waiting period requirements are codified at 15 U.S.C. § 18a.

People and Appointments

12/20. Bret Swanson joined the Progress & Freedom Foundation as a Senior Fellow and Director of PFF's new Center for Global Innovation. The PFF is a free market oriented think tank that focuses on many issues that involve information and communications technologies. The PFF stated in a release that Swanson will work on issues that "address the global nature of the digital economy and will advocate openness and innovation through free trade, stable monetary policy and limited international regulation". Swanson previously worked for the Discovery Institute's Technology and Democracy Project. He has also been Executive Editor of the Gilder Technology Report, and an aide to Sen. Richard Lugar (R-IN).

DOJ Fines Microsoft, Google, and Yahoo $31.5 Million for Advertising of Internet Gambling

12/19. The Department of Justice's (DOJ) Office of the U.S. Attorney for the Eastern District of Missouri released a settlement agreement [7 pages in PDF] with Microsoft that provides for payments by Microsoft totaling $21 Million in return for settlement of government claims that Microsoft violated laws related to internet gambling.

The DOJ released a similar settlement agreement [6 page in PDF] with Google, and another similar settlement agreement [7 pages in PDF] with Yahoo and related companies.

See, full story.

Sen. Kyl and State AGs Address Rep. Frank's Internet Gambling Bill and WTO

12/18. Sen. Jon Kyl (R-AZ) spoke in the Senate opposing HR 2046 [LOC | WW], the "Internet Gambling Regulation and Enforcement Act", sponsored by Rep. Barney Frank (D-MA), "or any similar proposals that would create a permissive Federal licensing scheme for Internet gambling".

Sen. Kyl discussed, and introduced into the record, a letter from numerous state attorneys general. He said that they "note that the recently enacted Unlawful Internet Gambling Enforcement Act of 2006 has ``effectively driven many illicit gambling operators from the American marketplace.'' The Frank bill ``proposes to do the opposite, by replacing state regulations with a federal licensing program that would permit Internet gambling companies to do business with U.S. customers.´´" See, Congressional Record, December 18, 2007, at Page S15896.

HR 2046 would provide for the licensing of operators of internet gambling facilities by the Department of the Treasury's (DOT) Financial Crimes Enforcement Network (FinCEN). The bill affect, but not not repeal, the Unlawful Internet Gambling Enforcement Act (UIGEA), the statute enacted in 2006 that targets the financial transactions associated with internet gambling.

Last year the Congress enacted the UIGEA. Ultimately, it was not approved as a stand alone bill, but rather a one component of the unrelated port security bill, which both the House and Senate approved on September 29, 2006. The larger bill was HR 4954 (109th Congress), the "Port Security Improvement Act of 2006". It is now Public Law No. 109-347. Title VIII of this bill is the UIGEA. See, story titled "House and Senate Approve Port Security Bill With Tech Provisions" in TLJ Daily E-Mail Alert No. 1,461, October 4, 2006.

The Frank bill would exempt from the provisions of the UIGEA financial transactions with licensed operators of internet gambling facilities.

Rep. Frank's bill does not expressly repeal or amend the federal Wire Act, or preempt any state laws banning any types of gambling or internet gambling. However, the bill provides that "It shall be a defense against any prosecution or enforcement action under any Federal or State law against any person possessing a valid license under this subchapter that the activity is authorized under and has been carried out lawfully under the terms of this subchapter".

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.

The state AGs wrote that "A federal license would supersede any state enforcement action, because §5387 in H.R. 2046 would grant an affirmative defense against any prosecution or enforcement action under any Federal or State law to any person who possesses a valid license and complies with the requirements of H.R. 2046. This divestment of state gambling enforcement power is sweeping and unprecedented."

They also wrote that "the opt-outs may prove illusory", because they "will likely be challenged" before the World Trade Organization (WTO). The AG's add that the WTO "has already shown itself to be hostile to U.S. restrictions on Internet gambling. If it strikes down state opt-outs as unduly restrictive of trade, the way will be open to the greatest expansion of legalized gambling in American history and near total preemption of State laws restricting Internet gambling."

Bills Introduced in House and Senate to End Terrestrial Broadcasters' Performance Right

12/18. Rep. Howard Berman (D-CA) and others introduced HR 4789 [PDF | LOC | WW], the "Performance Rights Act of 2007". Sen. Patrick Leahy (D-VT) and others introduced S 2500, the companion bill in the Senate. These bills would end terrestrial broadcasters' exemption from paying copyright royalties when they play copyrighted songs.

Introduction. Section 106 of the Copyright Act, which is codified at 17 U.S.C. § 106, enumerates the exclusive rights of owners of copyrights. Section 106(6) currently provides that "the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: ... (6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission". 17 U.S.C. § 114 then elaborates on what is an exclusive right under Section 106(6), and what is exempt.

That is, performances by AM and FM radio broadcasters are exempted from the exclusive rights of copyright holders. These broadcasters do not need to obtain permission, or pay royalties, for playing copyrighted songs in the U.S.

Broadcasters, who are represented by the National Association of Broadcasters (NAB), are happy with this arrangement, and therefore oppose this bill. In contrast, various copyright groups support ending this broadcast performance exception.

Also, various other platforms for music delivery that compete with radio, including webcasting, satellite radio, and cable, must pay to play.

Rep. Berman (at right), the sponsor of the bill, is the Chairman of the House Judiciary Committee's (HJC) Subcommittee on Courts, the Internet and Intellectual Property. He wrote in his statement introducing this bill that "This legislation is a first step at ensuring that all radio platforms are treated in a similar manner and that those who perform music are paid for their work. This narrowly tailored bill amends a glaring inequity in America’s copyright law -- the provision in Section 114 that exempts over-the-air broadcasters from paying those who perform the music that we listen to on AM and FM radio."

Bill Summary. This bill amends Section 106(6) to provide an exclusive right "in the case of sound recordings, to perform the copyrighted work publicly by means of an audio transmission." It also makes several revisions to Section 114.

Also, the bill provides for special treatment for small, non-commercial, educational, and religious broadcasters.

For example, the bill provides that "each individual terrestrial broadcast station that has gross revenues in any calendar year of less than $1,250,000 may elect to pay for its over-the-air nonsubscription broadcast transmissions a royalty fee of $5,000 per year, ...", while a "public broadcasting entity ... may elect to pay for its over-the-air nonsubscription broadcast transmissions a royalty fee of $1,000 per year ..."

The bill also provides that the performance of a sound recording publicly by means of an audio transmission is not an infringement of Section 106(6) if the performance is part of an eligible nonsubscription transmission of either "services at a place of worship or other religious assembly" or "an incidental use of a musical sound recording".

That is, no royalties must be paid for the broadcast of a religious service that includes performance of a copyrighted song.

Rep. Berman stated that "incidental use" would include "brief musical transitions in and out of commercials or program segments, or brief performances during news, talk and sports programming". Although, neither this bill, Section 114, Section 106, nor Section 101 (the definitions section of the Copyright Act), define the term "incidental use".

The bill then amends Section 114 to provide that "Such rates and terms shall include a per program license option for terrestrial broadcast stations that make limited feature uses of sound recordings."

Rep. Berman explained that "This section allows terrestrial radio stations to obtain program licenses for sound recordings (at separately set rates), in lieu of blanket licenses. In some cases, a radio station may not make many featured uses of music, for example a mixed-format station. In such cases, rather than requiring a station to pay a general blanket license fee in the same amount paid by a station that primarily makes featured uses of music, this section requires the Copyright Royalty Board to establish a ``per program license´´ so that such stations can choose only to pay for the music they use, which may be less costly than the general blanket license. This parallels the licenses offered by the performance rights organizations for performing the underlying musical copyright." (Parentheses and internal quotations in original.)

The bill also provides that "Nothing in this Act shall adversely affect in any respect the public performance rights of or royalties payable to songwriters or copyright owners of musical works."

Sponsors' Statements. The original cosponsors of the bill in the House are Rep. John Conyers (D-MI), Rep. John Shadegg (R-AZ), Rep. Darrell Issa (R-CA), Rep. Marsha Blackburn (R-TN), and Rep. Jane Harman (D-CA). The Senate cosponsors Sen. Orrin Hatch (R-UT), Sen. Dianne Feinstein (D-CA), and Sen. Bob Corker (R-TN).

Sen. Leahy, the Chairman of the Senate Judiciary Committee (SJC), wrote in his introduction statement that "artists should be compensated fairly for the use of their work". See, Sen. Leahy's statement, bill summary, and release.

He elaborated that "When radio stations broadcast music, listeners are enjoying the intellectual property of two creative artists – the songwriter and the performer.  The success, and the artistic quality, of any recorded song depends on both.  Radio stations pay songwriters for a license to broadcast the music they have composed.  That is proper, and that is fair.  The songwriters’ work is promoted by the air play, but no one seriously questions that the songwriter should be paid for the use of his or her work. But the performing artist is not paid by the radio station. The time has come to end this inequity."

Rep. Conyers, the Chairman of the HJC, stated that "Today we take the first step toward finally giving artists and musicians their fair due ... They are the people who bring the music to life and should no longer be overlooked. My decision to take a leading role to remedy this inequity in no way alters my commitment to working with the songwriters to ensure that their rights and compensation are protected.”

More Reaction to Bill. Sen. Arlen Specter (R-PA), the ranking Republican on the SJC is not a cosponsor. He stated in a release that "I welcome Senator Leahy and Hatch's introduction of the Performance Rights Act, and I commend their efforts to tackle perceived inequities in the treatment of music within the Copyright Code."

He added that "I am very interested in the issues involved in the performance rights debate, and I will continue to analyze the Performance Rights Act to ensure it achieves a proper balance amongst the recording artists, songwriters and broadcasters."

He concluded that "This legislation is a positive step in the dialogue between the Congress and interested industries regarding performance rights. I agree that some changes in the existing law are necessary, but I would like to give interested parties an opportunity to give me the benefit of their thinking before I make a final decision on this important matter."

The NAB's Dennis Wharton stated in a release that "After decades of Ebenezer Scrooge-like exploitation of countless artists, RIAA and the foreign-owned record labels are singing a new holiday jingle to offset their failing business model".

He added that the "NAB will aggressively oppose this brazen attempt to force America's hometown radio stations to subsidize companies that have profited enormously through the free promotion provided by radio airplay."

Related Congressional Activity. On October 31, 2007, Rep. Gene Green (D-TX) and others introduced HConRes 244. It states that the "Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station for broadcasting sound recordings over-the-air, or on any business for such public performance of sound recordings."

As of December 18, 2007, this resolution had 122 cosponsors.

Also, the HJC's SCIIP held a hearing on July 31, 2007, titled "Ensuring Artists Fair Compensation: Updating the Performance Right and Platform Parity for the 21st Century". See, prepared testimony [1 page in PDF] of Rep. Paul Hodes (D-NH), prepared testimony [16 pages in PDF] of Marybeth Peters (Register of Copyright), prepared testimony [6 pages in PDF] of Judy Collins (recording artist), prepared testimony [20 pages in PDF] of Charles Warfield (ICBC Broadcast Holding, Inc.), and prepared testimony [6 pages in PDF] of Sam Moore (recording artist).

Peters wrote that "Congress has repeatedly recognized the emergence of technological threats to the creators of sound recordings."

"What is needed is a change to ensure that performers and record companies can continue to make a viable living from their craft." She suggested that "an expansion of the performance right for sound recordings would I believe provide fair compensation to the creators and serve as a significant stimulus to ensure that creators continue to develop new works throughout the 21st Century."

Warfield, who testified for the NAB, wrote that the radio and music industries have a relationship of "mutual collaboration" which is embodied in the broadcast performance right. He argued that radio stations advertise the music that they play. He said that ending this exemption would be a "tax".

He said that "The recording industry’s pursuit of a performance tax at this time appears directly linked to the loss of revenues from the sale of music. This should not be a basis for the imposition of such a tax and radio should not be responsible for the loss of revenue from physical sales in the recording industry. A performance tax would harm the beneficial relationship that exists between the recording industry and the radio industry."

Chertoff Addresses Terrorism and Identification

12/18. Michael Chertoff, the Secretary of Homeland Security, gave a speech in Dublin, Ireland. He addressed threats posed by terrorists, including uses of new technologies, and things that governments are doing in response, including collection and sharing of identification information.

He stated that "I would say this threat is particularly exacerbated because we live in a world in which technology has given even the individual terrorist much more leverage than was true 20, 50 or 75 years ago: the ability to use the Internet to communicate and create networks; the ability to use technology to develop biological, chemical, even radiological and nuclear weapons. What this has created is the threat that even a small group getting control of a small portion of a state could build laboratories and other facilities that would allow them to put together capabilities that would enable the waging of war on a scale that a hundred years ago required a powerful nation-state."

He also discussed the US-EU passenger name record agreement, and other intelligence and identification efforts. He said that "there is a perception that somehow America is an outlier, that America is Big Brother looking to collect information in a way that is at odds with the general trend in Europe and in other free parts of the world."

He asserted that "that perception is clearly at odds with reality, for it is precisely in those nations that share our commitment to democratic values and freedom that we see a similar movement to what I would consider to be a reasonable and balanced approach to identifying people who are threats to security."

"What we're seeing, then, in Japan, in Southeast Asia, in Europe, is that many countries around the world are beginning to take a converging approach to the management of intelligence and information to identify those who are a threat to all of our free societies", said Chertoff.

People and Appointments

12/18. President Bush announced his intent to nominate Deanna Okun to be a Deputy USTR in the Office of the U.S. Trade Representative (OUSTR). See, White House release and OUSTR release. She is currently a Commissioner of the U.S. International Trade Commission (USITC). Before that, she worked for former Sen. Frank Murkowski (R-AK).

12/18. Daniel Hesse was named P/CEO of Sprint Nextel. See, release. He previously was Ch/P/CEO of Embarq Corporation.

More News

12/18. The Department of Justice (DOJ) announced in release that a federal grand jury in Puerto Rico returned indictments that charge 26 individuals with violations to 17 U.S.C. §§ 506(a)(1) & (b) and 18 U.S.C. § 2319 (b)(1) in connection with reproducing and distributing music CDs and DVDs for the purpose of commercial advantage or private financial gain. The DOJ also stated that this follows the seizure in Puerto Rico by various federal government agencies, working with the Motion Picture Association of America (MPAA) and the Recording Industry of Association of America (RIAA), of more than 53,000 counterfeit music CDs and DVDs in flea markets in Puerto Rico.

12/18. The U.S. Court of Appeals (9thCir) issued its opinion [6 pages in PDF] in K and N Engineering v. Bulat, a case regarding remedies for trademark counterfeiting. The Court of Appeals held that an election to receive statutory damages under 15 U.S.C. § 1117(c) precludes an award of attorney’s fees under 15 U.S.C. § 1117(b). Hence, it reversed the judgment of the District Court. This case is K and N Engineering, Inc. v. Sarah Bulat, et al., U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 06-55393, an appeal from the U.S. District Court for the Central District of California, D.C. No. CV-04-09707-AHM, Judge Howard Matz presiding. Judge Sandra Ikuta wrote the opinion of the Court of Appeals, in which Judges Thomas Nelson and Randy Smith joined.

Senate Delays Consideration of FISA Amendments Bill

12/17. The Senate began consideration of S 2248 [LOC | WW], the "Foreign Intelligence Surveillance Act of 1978 Amendments Act of 2007". However, the Senate Democratic leadership ended consideration. The Senate may again take up the bill in January of 2008, after the year end recess. This legislation also addresses immunity of carriers. The current amendments to the FISA, which were enacted in August of this year in S 1927 [LOC | WW], the "Protect America Act", expire in February of 2008.

People and Appointments

12/17. Lance Kotschwar was named Republican General Counsel for the House Commerce Committee (HCC). He replaces David Cavicke, who was named Republican Chief of Staff in August. Kotschwar previously worked for the law firm of Foley & Lardner. Before that, he worked for the House Agriculture Committee, and for the Department of Agriculture. He does not have a background in communications or information technology issues.

More News

12/17. The Supreme Court released no orders list on Monday, December 17, 2007. It held no weekly conference on Friday, December 14. Its next scheduled conference is on Friday, January 4, 2007.

12/17. The U.S. Court of Appeals (11thCir) issued its opinion [18 pages in PDF] in Welding Services v. Foreman, affirming the summary judgment of the District Court of infringement of service marks in violation of the Lanham Act, 15 U.S.C. § 1125(a). This case is Welding Services, Inc. v. Terry Forman, Welding Technologies, Inc., et al., U.S. Court of Appeals for the 11th Circuit, App. Ct. No. No. 06-13174, an appeal from the U.S. District Court for the Northern District of Georgia, D.C. Docket No. 05-00096-CV-WCO-2.

12/17. The U.S. Court of Appeals (5thCir) issued its opinion [37 pages in PDF] in Navigant Consulting v. Wilkinson, affirming in part the judgment of the District Court in this case regarding fiduciary duty, breach of contract, and misappropriation of trade secrets. The defendants, Wilkinson and Taulman, were employees of the plaintiff, Navigant Consulting, Inc. The two managed the claims administration practice in Navigant's Dallas office, specializing in complex class action settlements. They also were bound by noncompete, nonsolicitation, and confidentiality agreements. Nevertheless, they engaged in a brazen attempt to sell Navigant's claims administration practice to its competitors. They provided competitors with confidential information about Navigant's practice, without notifying Navigant, in an effort to sell the practice (including their services, other employees, and the clients). Payment was to be made to a company owned by the two defendants. Navigant learned of the scheme when a computer technician in the Dallas office alerted corporate headquarters that he had been instructed to transfer data to a non-Navigant server. Navigant prevailed in the District Court. The Court of Appeals affirmed as to liability and damages, but reversed as to attorneys fees. This is a diversity case to which Texas law was applied. This case is Navigant Consulting, Inc. v. John Wilkinson and Sharon Taulman, U.S. Court of Appeals for the 5th Circuit, App. Ct. No. 06-11071, an appeal from the U.S. District Court for the Northern District of Texas.

Go to News from December 11-15, 2007.