TLJ News from April 16-20, 2008

Bush and Lee Urge Congressional Approval of US Korea FTA

4/19. On April 19, President Bush and Korean President Lee Myung-Bak held a joint news conference at Camp David, Maryland. Bush said that the Congress "must reject protectionism."

Bush said that the Congress "must not turn its back on a friend and ally like Korea, and must approve the free trade agreement with Korea this year. So the President was wondering -- he's been reading about the decision by our Speaker that effectively killed the Colombia free trade agreement, unless of course she gives us a date certain of when there will be a vote. He wonders if this protectionist sentiment is such that it will cause me, for example, not to continue to fight for free and fair trade."

Bush continued that "I assured him that the Korea trade agreement is a priority of this administration. And I assured him that we will press hard with the United States Congress. It's in our country's interests that we approve this agreement".

Korean President Lee said that "Both President Bush and I agreed that the passage of the KORUS FTA will benefit not only our two economies, but also act as a catalyst to substantially improve exchange and cooperation in all areas between our two countries. And so we agreed to work closely together for the speedy ratification of the KORUS FTA. And Mr. President, he agreed to work very closely and to convince the United States Congress to pass the KORUS FTA by the end of this year. I would like to thank him for that."

On April 18, the Office of the U.S. Trade Representative (OUSTR) announced in a release [PDF] that the US and Korea "concluded an agreement on April 18, 2008 to fully reopen South Korea's market to all U.S. beef and beef products consistent with international standards and the World Organization for Animal Health (OIE) guidelines."

USTR Susan Schwab stated in a second release that "the major obstacle to Congressional consideration of the United States-Korea Free Trade Agreement (KORUS FTA) is removed. The Administration will now work in earnest with Congress and the U.S. agriculture, manufacturing, and services sectors to pass the KORUS FTA."

This FTA includes technology related provisions. See, text of the FTA, and sections regarding telecommunications [17 pages in PDF], electronic commerce [4 pages in PDF], and intellectual property rights [35 pages in PDF].

SEC Chairman Addresses Marriage of IFRS and Interactive Data

4/18. Securities and Exchange Commission (SEC) Chairman Chris Cox gave a speech on April 18, 2008, in which he discussed Section 404 of the Sarbanes Oxley Act, International Financial Reporting Standards (IFRS), convergence of IFRS and GAAP, and XBRL.

Chris CoxCox (at right) stated that "It's now possible to envision a day in the not-too-distant future when investors worldwide will be able to compare financial statements of companies around the world using globally accepted accounting standards. It's also possible to imagine even more clearly, in our very near future, that investors the world over will be able to exchange financial information at the speed of light -- tagged with computer codes in a globally accepted format that lets them analyze and understand financial information with an economy of effort that's never been possible before."

He continued that "The adoption of a global computer language for financial information goes hand in glove with the concept of a common accounting language. The international movement to employ eXtensible Business Reporting Language for this purpose will let investors easily find and compare business and financial data with the same ease of doing a Google or Yahoo! search today. And it promises to let companies prepare their financial information more quickly, more accurately, and for less cost."

See, the SEC's XBRL web section.

The SEC does not yet mandate that any filings be tagged with XBRL. Cox said that "In the coming weeks, following years of evaluation and experience through the SEC's voluntary XBRL pilot program, the Commission will consider a rule for the use of interactive data by U.S. reporting companies that will parallel efforts already underway in other countries."

See also, story titled "SEC General Counsel Predicts SEC Will Soon Propose Making XBRL Mandatory" in TLJ Daily E-Mail Alert No. 1,746, April 14, 2008.

Cox added that "In Japan, South Korea, China, Singapore, Israel, and the Netherlands today, filing financial statements using interactive data is already mandatory."

Cox also offered a simple explanation of the benefits of XBRL and the "interactive data" that it creates. "Interactive data means using some fairly simple software to apply hidden computer codes to the numbers and the captions on your financial statements. ... Once the identifying tags have been attached to each item of financial information, computer software can search for any of those items simply by looking up the corresponding tag. And if all SEC filings were tagged, your software could do the same thing with hundreds or thousands or even tens of thousands of reports, more or less instantly."

He concluded that "There's simply no question that the objectives for IFRS are significantly advanced by the widening acceptance of a global computer language for presenting and comparing financial information. As IFRS sweeps the world, the ultimate question -- whether it becomes the single set of high-quality, global accounting standards -- will depend on investors' confidence in the reliability, transparency and comparability of the financial information those standards produce. And the marriage of IFRS with interactive data has the potential to enhance all three."

10th Circuit Affirms Dismissal of Class Action Against Qwest

4/18. The U.S. Court of Appeals (10thCir) issued its opinion [12 pages in PDF] in Van Zanen v. Qwest Wireless, affirming the judgment of the District Court, which dismissed the class action complaint for failure to state a claim.

Patrick and Vicki Van Zanen, residents of the state of Arizona, purchased a handset insurance policy from Qwest. The policy was administered and underwritten by a third party insurer, while Qwest retained a portion of the fees. Qwest is not licensed to sell insurance in Arizona, or other states.

The Van Zanens filed a complaint in U.S. District Court (DColo) against various Qwest companies alleging unjust enrichment by the receipt of sales commissions in violation of the licensing statutes of Arizona and other state where its sells handset insurance to wireless customers.

The District Court held that the Arizona licensing statute provides no private right of action, and a violation of a licensing statute, without more, is generally insufficient to support an unjust enrichment claim. It further held that the plaintiffs did not state a claim for unjust enrichment because they received the benefit of the insurance policy. It dismissed the complaint.

The Van Zanens brought the present appeal. The Court of Appeals affirmed.

It wrote that the Arizona statute prohibits selling, soliciting, or negotiating insurance without a license, but that "The only remedy explicitly provided by the statute is administrative recourse: if the director of insurance believes that a violation is occurring or is about to occur, the director may order the violator to cease and desist or may file a complaint to enjoin the violation."

The Court of Appeals wrote that in a claim for unjust enrichment the plaintiff must show "(1) at plaintiff's expense (2) defendant received a benefit (3) under circumstances that would make it unjust for defendant to retain the benefit without paying."

It continued that "even if we assume that contracts in violation of the insurance-licensing statute are unenforceable under Arizona law, the Van Zanens are not entitled to restitution because they have received counterperformance -- namely, the receipt of the insurance." Moreover, if the plaintiffs "were allowed to recover the fees that they paid to Qwest, they would, ... be allowed to retain a benefit without paying for it."

This case is Patrick Van Zanen and Vicki Van Zanen v. Qwest Wireless, LLC, Qwest Services Corporation, and Qwest Communications International, Inc., App. Ct. No. 07-1219, an appeal from the U.S. District Court for the District of Colorado, D.C. No. 06-cv-2546-LTB.

More News

4/18. The U.S. Court of Appeals (DCCir) issued its opinion [PDF] in Draim v. Virtual Geosatellite Holdings, a breach of contract case involving nonpayment of bonuses upon issuance of patents. John Draim was employed by Mobile Communications Holdings, Inc. (MCH) as a consultant from 1992 through 1997 pursuant to a written employment contract. The contract provided that he would assign all patents, and receive a bonus of $2,000 upon the filing of each patent application, and $10,000 upon the issuance of a patent. Draim then worked as an employee of MCH and its affiliate, Virtual Geosatellite Holdings (VGH), but without a written contract. The Court of Appeals wrote that, nevertheless, "the parties continued to operate with the understanding that Draim’s inventions would be assigned to Virtual Geo and that he would be paid" the same bonuses. In 2000, Draim left his employment with MCH and VGH, and went to work for VGS, Inc., which later became known as Space Resources America Corporation. Litigation ensued between his new and old employer. His old employer stopped paying him bonuses when patents issued for inventions that he had assigned. Draim filed a complaint, which was removed to the U.S. District Court (DC), against VGH and MCH, alleging breach of contract. The defendants argued that Draim had been paid, and that he was not entitled to further payment because of his breach of contract. The District Court awarded the bonuses to Draim for all but one patent issued after his resignation. The defendants brought the present appeal. The Court of Appeals wrote that the District Court "never made a finding on this defense to enforcement of the patent bonuses". Hence, the Court of Appeals reversed and remanded. This case is John Draim, et al. v. Virtual Geosatellite Holdings, Inc., et al., U.S. Court of Appeals for the 10th Circuit, App. Ct. No. 07-7065, an appeal from the U.S. District Court for the District of Columbia, D.C. No. 01cv02690. Judge Judith Rogers wrote the opinion of the Court of Appeals, in which Judges Janice Brown and Thomas Griffith joined.

Bush Administration Opposes Pence/Boucher Free Flow of Information Act

4/17. Rep. Mike Pence (R-IN) spoke in the House regarding HR 2102 [LOC | WW], the Free Flow of Information Act", a bill that limits the ability of the federal entities to compel journalists to provide testimony or documents, or disclose sources, related to their work. It also would limit government access to records of carriers, ISPs and other service providers.

The House passed this bill with overwhelming bipartisan support last October, and the Senate Judiciary Committee (SJC) approved S 2035 [LOC | WW], the Senate version of the bill, last fall.

The Bush administration is waging a campaign against it. See, April 2, 2008, letter [PDF] of Michael Mukasey (Attorney General) and Michael McConnell (Director of National Intelligence); March 31, 2008, letter [PDF] of Robert Gates (Secretary of Defense); April 7, 2008, letter [PDF] of Samuel Bodman (Secretary of Energy); and, April 15, 2008, letter [PDF] of Henry Paulson (Secretary of the Treasury).

The Mukasey McConnell letter threatens a veto.

Rep. Pence stated that HR 2102 "is not about protecting reporters, it's about protecting the public's right to know." See, Congressional Record, April 17, 2008, at Page H2454. He also stated that "the only check on government power in real time is a free and independent press".

He continued that "we're at a unique moment in the history of this legislation. The overwhelming bipartisan House passage of the Free Flow of Information Act has now been joined with Senate action that includes the leadership of Senator Richard Lugar, Senator Arlen Specter, Senator Patrick Leahy and others. Senator Barack Obama and Senator Hillary Clinton add themselves as cosponsors of the bill this week, and I heartily welcome the strong endorsement of Senator John McCain of this legislation."

"I believe there's now a bipartisan majority in both the House and the Senate to support this vital legislation and ensure the vitality of a free and independent press for generations to come", said Rep. Pence. "We just need one vote in the other body. And I believe we'll put a stitch in this tear in the first amendment freedom of the press."

These bills would impose judicial checks on the government's power to compel journalists to disclose information. However, these provisions do not significantly implicate information or communications technologies. These bills also require court approval of government seizure of certain records and data held by third parties, including carriers and ISPs. These provisions do directly implicate technology. The Bush administration's objections, while stated with vehemence, lack specificity or clarity. Yet, these objections focus on carriers and ISPs.

The government seeks to be able to both compel journalists to disclose their sources and information, and to obtain information from the companies that provide journalists their communications and internet services.

Legislative History. Earlier versions of these bills were considered, but not enacted into law, prior to the present 110th Congress. In this Congress, Rep. Pence and Rep. Rick Boucher (D-VA) introduced the HR 2102 on May 2, 2007.

The House amended and approved this bill on October 16, 2007. The vote on final approval was 398-21. See, Roll Call No. 973. See also, story titled "House Approves Boucher-Pence Media Shield Bill" in TLJ Daily E-Mail Alert No. 1,656, October 17, 2007. This story contains a summary of the bill as approved by the House.

Sen. Arlen Specter (R-PA) introduced S 2035 [LOC | WW], the "Free Flow of Information Act of 2007" on September 10, 2007. It is different from, but similar to, HR 2102.

The SJC approved S 2035 on October 4, 2007. The full Senate has not yet considered either S 2035 or HR 2102.

Service Providers. The House bill also addresses compelled disclosures from a "communications service provider", who may possess call records for the targeted reporter. These call records may disclose a reporter's sources of information.

The bill only limits (that is, provides for court review of) disclosures by service providers of "any record, information, or other communication that relates to a business transaction between a communications service provider and a covered person".

The related clause in the Senate bill references "any document consisting of any record, information, or other communication that relates to a business transaction between a communications service provider and a covered person".

The House bill also nominally requires notice to a "covered person" by the party seeking disclosure from the service provider. It also requires that the covered person be given an opportunity to be heard. There are limitations upon this requirement. For example, the court may delay notice if "notice would pose a substantial threat to the integrity of a criminal investigation". The bill places no limits on the length of the delay.

The Senate bill contains similar language, but places a 45 day limit on delayed notice to the reporter. Although, it authorizes the court to allow an unlimited number of such delays, so long as it issues an order every 45 days.

These bills rely upon the party seeking information from the service provider to notify the covered person. This government party in many cases will have little or no incentive to do so. The bill contains no sanction or penalty for failure to provide the required notice. Also, the court and service provider may not know that the target is a covered person. And, even if the service provider has knowledge that the target is a covered person, it has little or no incentive to assert the privacy or journalistic interests of the target.

The House and Senate bills both define "communications service provider" to include anyone who "transmits information of the customer's choosing by electronic means" and "a telecommunications carrier, an information service provider, an interactive computer service provider, and an information content provider

Administration Objections. The longest and most detailed of the Bush administration public letters regarding this legislation is the Mukasey and McConnell letter [PDF] to Senators of April 2.

First, their strategy is to focus on the Senate. It is has not yet passed a bill. Moreover, there is overwhelming support for the House bill in the House.

They wrote that "if this legislation were presented to the President in its current form, his senior advisors would recommend that he veto the bill."

They argued that the Senate bill would encourage "leaks of classified information", and limit the government's ability to "identify and prosecute leakers".

They also argued that it would "effectively provides a safe haven for foreign spies and terrorists".

However, both the House and Senate bills provide that a "covered person" does not include "any person who is a foreign power or an agent of a foreign power, as such terms are defined in section 101 of the Foreign Intelligence Surveillance Act of 1978", or any "designated terrorist" or "foreign terrorist organization".

The Senate bill also provides that it "shall not apply to any protected information that a Federal court has found by a preponderance of the evidence would assist in preventing ... an act of terrorism; or ... other significant and articulable harm to national security that would outweigh the public interest in newsgathering and maintaining a free flow of information to citizens."

Mukasey and McConnell also argued that the bill would be applied by judges around the country, and that this is "a recipe for confusion and inconsistency".

But then, the same argument could be made for the entire federal judiciary. Only in a few areas, such as the FISA courts, is there a single federal court.

Mukasey and McConnell also objected to the bill on the grounds that it would give authority to judges. "The bill cedes to judges the authority to determine what does and does not constitute" national security.

The two also argued that the bill "implicates authorities under the Foreign Intelligence Surveillance Act".

The letter states that "the bill implicates core national security authorities, including those set forth in the Foreign Intelligence Surveillance Act ("FISA"). While the bill creates a mechanism, discussed below, for the Government to go to court to obtain a subpoena for source information from a journalist protected by the privilege, it includes no such mechanism for the Government to obtain permission to use core investigative tools when the privilege is implicated. This gap would potentially undermine critical tools in the War on Terror, such as FISA and pen register and trade and trace authorities, and in the process deprive the Government of vital information necessary to protect national security."

The letter does not explain its use of the terms "core investigative tools" or "critical tools". Although, the letter does reference pen register and trap and trace (PR&TT) authority. These are old old telephone industry concepts. A pen register recorded the numbers that are dialed or punched into a telephone. Trap and trace referred to the capture of the numbers of incoming calls.

Section 216 of USA PATRIOT Act in 2001 formally extended these concepts from merely capturing phone numbers, to capturing routing and addressing information in any electronic communications, including internet communications. See, story titled "Pen Registers and Trap and Trace Devices" in TLJ Daily E-Mail Alert No. 296, October 29, 2001.

There is a very low standard for issuance of a PR&TT order in criminal investigations. § 216 provides that "the court shall enter an ex parte order authorizing the installation and use of a pen register or trap and trace device anywhere within the United States, if the court finds that the attorney for the Government has certified to the court that the information likely to be obtained by such installation and use is relevant to an ongoing criminal investigation." See also, 18 U.S.C. § 3123. The House and Senate bills would set a higher standard of court review for PR&TT orders directed at covered reporters.

The FISA, at 50 U.S.C. § 1842, also sets a very low standard for issuance of PR&TT orders. But, the House and Senate bills both exclude from the definition of "covered person" "any person who is a foreign power or an agent of a foreign power, as such terms are defined in section 101 of the Foreign Intelligence Surveillance Act of 1978", or any "designated terrorist" or "foreign terrorist organization". So, arguably, the bills would not affect FISA PR&TT authority.

Nevertheless, the Mukasey McConnell letter continues that Section 6 of the bill, which is the section regarding communications service providers, "has the capacity to wreak havoc on national security and other investigations. This section provides that in the event certain potentially broad categories of information are requested from a communications service provider (broadly defined), notice and an opportunity to be heard must be provided to a covered person. This provision could be inadvertently implicated in a wide range of investigations. For instance, the section is fundamentally incompatible with the Foreign Intelligence Surveillance Act (FISA). The requirements contained in section 6 would make it difficult, if not impossible, to obtain a FISA Court order to conduct electronic surveillance on a foreign power or agent of a foreign power. Moreover, although it does allow for notice to be delayed in certain circumstances, the exception does not extend to national security investigations, and the Government may not obtain the information while notice is delayed. It is therefore a realistic probability that certain national security investigations would be unnecessarily derailed by this provision." (Parentheses in original.)

Financial Investigations. Henry Paulson, Secretary of the Treasury, argued in his April 15 letter [PDF] that the Senate bill would  undermine Department of the Treasury's efforts to fight "illicit finance, and jeopardize our ability to review foreign investment for national security concerns".

His concern is leaks to media regarding these programs. For example, he cited the New York Times' reporting on the DOT Terrorist Finance Tracking Program and leaks regarding CFIUS reviews.

He argued that this "chills foreign investment". That is, foreign companies will become less willing to invest in the US if they fear that the US government will leak confidential information to reporters.

Sen. Baucus Introduces Tax Extenders Bill that Includes Extension of R&D Tax Credit

4/17. Sen. Max Baucus (D-MT) and others introduced S 2886 [LOC | WW], the "Alternative Minimum Tax and Extenders Tax Relief Act of 2008". This is a huge bill that would, among other things, extend the research and development tax credit.

The Congress continuously extends this tax credit, which is codified at 26 U.S.C. § 41, without making it permanent. The last extension of this credit expired on December 31, 2007. Section 301 of this bill would extend it through December 31, 2009.

This bill would also revise the alternative incremental credit. It would amend 26 U.S.C. § 41(c)(5)(A) to read as follows:

Sen. Max BaucusSen. Baucus (at right) stated in the Senate that "I am introducing a tax package that would extend relief from the alternative minimum tax and extend other much-needed individual and business provisions.

This bill provides only a one year patch for the AMT.

He continued that "The bill offers an extension of the research and development credit. This credit gives an incentive to businesses to invest in research. It helps to keep America competitive in the global economy."

The initial cosponsors of this bill are Sen. Charles Grassley (R-IA), Sen. Ken Salazar (D-CO), Sen. Charles Schumer (D-NY), Sen. Debbie Stabenow (D-MI), Sen. Gordon Smith (R-OR), Sen. Mike Crapo (R-ID), Sen. Jay Rockefeller (D-WV), Sen. Jon Kyl (R-AZ), and Sen. Olympia Snowe (R-ME).

Sen. Orrin Hatch (R-UT) spoke in the Senate on April 14, 2008. He said that "we see a growing proclivity on the part of Congress to enact tax provisions on a temporary basis rather than permanently. This has mostly been done to satisfy the often perverse demands of our budget rules. But whatever the reasons, the effect of not extending these provisions before they expire has been greatly damaging to the tax system and to taxpayers' ability to understand and rely on the law. The effect has been to weaken this country economically and competitively." See, Congressional Record, April 14, 2008, at Page S2957.

"Here we are, once again, in mid-April and our research credit has been expired since the end of last year. The worst part is, while we all believe it will be extended eventually, everyone knows the credit will not be made permanent, and the likelihood it will be allowed to expire again is very high."

"In the meantime", said Sen. Hatch, "many of our global trading partners have developed stronger and more permanent research incentives in an attempt to lure away research from our shores. They perceive a weakness in our incentive system, and they are moving to capitalize on this very weakness."

Sen. Collins Introduces Bill to Extend R&D Tax Credit for 5 Years

4/17. Sen. Susan Collins (R-ME) and Sen. Orrin Hatch (R-UT) introduced S 2884 [LOC | WW], the "Research and Development Tax Credit Improvement Act of 2008".

This is a stand alone R&D tax credit bill that would extend the credit for five more years, through December 31, 2012, and raise the rate of the Alternative Simplified Credit from 12% to 20% by 2010.

On October 19, 2007, Sen. Hatch and others introduced S 2209 [LOC | WW], the "Research Credit Improvement Act of 2007", a bill that would permanently extend the R&D tax credit.

Sen. Susan CollinsSen. Collins (at right) stated in the Senate that her just introduced bill "shares the framework" of Sen. Hatch's bill.

She continued that "The chief distinction between our two bills is the duration of the credit. The Hatch-Baucus bill proposes a permanent credit, while my bill would extend the R&D tax credit for five years. I certainly share the goal of providing a permanent R&D tax credit, but I fear that the cost of doing so puts it beyond our reach. Yet we simply cannot continue to play ``stop-and-go´´ with this critical research incentive. Since the R&D tax credit was first enacted in 1981, Congress has had to extend it a dozen times, and it expired again at the end of last year. The constant uncertainty about the status of the credit has made it impossible for companies to plan their research investments, and has seriously diminished the credit's role as an incentive for research and development here in the U.S. A 5-year extension would give companies enough time to plan their research investments with the credit in mind, restoring the incentive-effect the R&D credit has always been intended to provide."

She also stated that "The Basic Credit has served its purpose, but it has become hopelessly outmoded. Under the Basic Credit methodology, companies wishing to calculate their R&D credit must measure their current investments against a base that is stuck in the past -- literally the tax years between 1984 and 1988. This period is simply not relevant to today's investment decisions, and because of that, fewer and fewer companies get any benefit at all from the Basic Credit."

"By contrast, the Alternative Simplified Credit methodology allows companies to calculate their credit using a rolling average of their domestic investments over their three most-recent tax years."

Sen. Hatch Discusses R&D Tax Credit and U.S. Competitiveness

4/17. Sen. Orrin Hatch (R-UT) spoke at a lunch hosted by the National Association of Manufacturers (NAM) regarding the research and development tax credit, and promoting research and competitiveness generally.

Sen. Orrin HatchOn October 19, 2007, Sen. Hatch (at right) and others introduced S 2209 [LOC | WW], the "Research Credit Improvement Act of 2007". The Congress first enacted an R&D tax credit in 1981. However, it has always done so on a temporary basis. Sen. Hatch has long been an advocate of the credit, and making it permanent.

Sen. Max Baucus (D-MT), Sen. Maria Cantwell (D-WA), Sen. Ken Salazar (D-CO), and Sen. John Kerry (D-MA) are among the cosponsors of the bill.

The last extension of the R&D credit expired at the end of 2007. The Congress has allowed the credit to expire in the past, but has then always retroactively extended it.

Sen. Hatch said that "we are probably looking at a two year extension". He added that it may be included as part of another bill, such as a bill of Sen. Baucus and Sen. Charles Grassley (R-IA) to deal with other tax issues, or the agriculture bill.

He also said that the Congress acts like it assumes that the business community expects retroactive extensions. He said that "we are in a thought rut".

John Engler, head of the NAM, also spoke at the lunch. He noted that "Sarbanes Oxley will not let you speculate about a tax credit that is not in the law", so companies have had to remove reference to anticipated R&D credits in financial statements.

Dan Larson of Texas Instruments (TI) also spoke. He said that the R&D tax credit keeps semiconductor industry jobs in the U.S. and creates new jobs. He added that while only 13% of TI's sales are in the U.S., 61% of its plant is in the U.S. He also said that TI spends $2.5 Billion per year on research and development.

On some technology related issues there is only weak correlation between support for an initiative and party affiliation. Some of the major technology initiatives have had bipartisan leaders. For example, in the 1990s Rep. Bob Goodlatte (R-VA) and Rep. Zoe Lofgren (D-CA) teamed up to defend encryption rights, while former Rep. Chris Cox (R-CA) and former Rep. Ron Wyden (D-OR) jointly promoted the original Internet Tax Freedom Act. The just introduced Cell Tax Fairness Act is sponsored by Rep. Lofgren and Rep. Chris Cannon (R-UT). See, story titled "Reps. Lofgren and Cannon Introduce Cell Tax Fairness Act" in TLJ Daily E-Mail Alert No. 1,748, April 16, 2008. Sen. Hatch's bill, S 2209 has bipartisan support.

Some initiatives to promote technology, such as free trade agreements and more H1B visas, have drawn more support from Republicans. Nevertheless, legislators of both parties have worked together.

In contrast, Sen. Hatch's presentation to the NAM was partisan and confrontational. He not only argued the merits of the R&D tax credit; he argued that the problem in obtaining an extension is Democrats. He went on to argue that future Democratic legislation on other will threaten U.S. businesses and U.S. competitiveness.

He said that there is "going to be a partisan showdown" over the R&D credit.

He continued that the R&D tax credit gets "shabby treatment" because the Senate has an "idiotic budget process". He said that the Democrats' "paygo" process means only raising taxes, but not reducing spending.

He added that the R&D tax credit faces a "timing" problem, because the Congress must also address the alternative minimum tax (AMT) patch problem. He elaborated that since the AMT patch will reduce tax collections, and Democrats will not reduce spending, there have to be tax increases, such as through letting the R&D tax credit expire.

Sen. Charles SchumerSen. Hatch praised Sen. Charles Schumer's (D-NY) fundraising prowess as Chairman of the Democratic Senatorial Campaign Committee. Sen. Hatch also noted that some of the companies represented in the luncheon audience were responding to Sen. Schumer's (at right) requests for contributions. He said that these companies "are sowing the seeds of their own destruction".

He began his presentation by emphasizing the importance of not "breaking ranks".

Sen. Hatch also said, with respect to the 2008 elections, "the question is will the Senate continue to be the firewall against the heinous bills that the Democrats bring up".

He said that "the betting is that the Republicans are going to loose a few Senators at minimum". He said Sen. Schumer is predicting a Democratic gain of nine Senators. Sen. Hatch said that for Senate Republicans in 2008, winning means not loosing more than two or three seats. The key number, he said, is sixty. If Democrats control sixty seats, then they can defeat filibusters.

Sen. Hatch also spoke broadly about research and U.S. competitiveness.

He said that "other nations are trying to entice research from our shores", and cited the example of Ireland, which has both a lower corporate tax rate, and an R&D tax credit. He continued that "once research leaves, it is very hard to get it back".

Engler said that Ireland "makes tax policy a selling point" and that "research and development incentives are a very big part of that".

The NAM also distributed a memorandum at the event titled "International R&D Tax Incentives". It argues that even France has a better R&D tax incentive policy than the U.S.

Sen. Hatch also said that the H1B visa issue is related. He explained that the U.S. educates foreigners at U.S. universities all the way through to Ph.D.s, only to then "force them to leave" the U.S.

"We do a lot of things that are really stupid", said Sen. Hatch.

Sen. Hatch also warned that Democrats will be pushing legislation demanded by organized labor in the next Congress.

Sen. Hatch also discussed energy policy at length.

He did not discuss S 1145 [LOC | WW], the "Patent Reform Act of 2007". Companies represented in the luncheon audience have taken different positions on this bill. Nor did he discuss any copyright related bills or issues.

IRS Budget Proposal Decreases Funding for Business Systems Modernization Despite IG's Warning About Data Security and ID Theft

4/17. The Government Accountability Office (GAO) released a report [24 pages in PDF] titled "Internal Revenue Service: Assessment of the Fiscal Year 2009 Budget Request" that summarizes, explains, and comments upon the Internal Revenue Service (IRS) budget proposal for Fiscal Year 2009.

The proposal would increase spending on enforcement, but greatly decrease spending on business systems, which include information technology (IT), e-filing, data security, and human IT resources. Two Treasury Inspector General for Tax Administration (TIGTA) reports released earlier this month summarize IT security weaknesses and identity theft problems at the IRS, and recommend that the IRS do more to address these problems.

The Bush administration proposed a 4.3% increase in the IRS budget for FY 2009. The proposal includes a 7% increase in enforcement spending. In contrast, it contains a 16.6% decrease in funding for the IRS's Business Systems Modernization (BSM) programs.

Funding for the IRS's Modernized e-File (MeF) program would decrease from $55.8 Million in FY 2008 to a proposed $25 Million in FY 2009. The GAO report finds that the MeF "is the project with the largest difference between the requested budget and the FY 2008 enacted amount."

The GAO report notes that "efforts to address human capital challenges continue, but more work remains".

The GAO report does not address funding to deal with the IRS's data security weaknesses. The Treasury Inspector General for Tax Administration (TIGTA) released a report titled "Inadequate Security Controls Over Routers and Switches Jeopardize Sensitive Taxpayer Information", and dated March 26, 2008.

This TIGTA report states that "Because the IRS sends sensitive taxpayer and administrative information across its networks, routers on the networks must have sufficient security controls to deter and detect unauthorized use. Access controls for IRS routers were not adequate, and reviews to monitor security configuration changes were not conducted to identify inappropriate use. A disgruntled employee, contractor or a hacker could reconfigure routers and switches to disrupt computer operations and steal taxpayer information in a number of ways, including diverting information to unauthorized systems."

The TIGTA released a second report titled "Outreach Has Improved, but More Action Is Needed to Effectively Address Employment-Related and Tax Fraud Identity Theft", and dated March 25, 2006. It states that "The IRS has not placed sufficient emphasis on employment-related and tax fraud identity theft strategies. Specifically, its prevention strategy does not include pursuing individuals using another person’s identity, unless their cases directly relate to a substantive tax or conspiracy violation. IRS policy is that the actual crime of identity theft will only be investigated by the Criminal Investigation Division if it is committed in conjunction with other criminal offenses having a large tax effect."

This TIGTA report adds that 'The IRS officials informed us ... the IRS does not have sufficient enforcement resources to address most of these cases."

The TIGTA stated in an April 9 release that "The IRS needs to do more to combat the growing problem of employment-related and tax-fraud identity theft".

In contrast, the IRS's budget proposal suggests that the IRS intends to do less.

The GAO report lists some of the major IRS BSM projects. "Key tax administration projects include CADE, which is intended to provide the modernized database foundation to replace the existing Individual Master File processing system that contains the repository of individual taxpayer information; AMS, which is intended to enhance CADE by providing applications for IRS employees and taxpayers to access, validate, and update accounts on demand; and MeF, which is to provide a single standard for filing electronic tax returns."

The proposed IRS budget contains almost no increase in funding for taxpayer services. The GAO report finds that "Spending on taxpayer service would increase by less than 1 percent, which would result in reduced staffing, but the level of taxpayer service would be maintained by realizing efficiency gains, in part, through increases in electronic filing."

Rep. Eshoo Introduces M2Z Spectrum Bill

4/17. Rep. Anna Eshoo (D-CA), Rep. Chris Cannon (R-UT), and Rep. Ed Markey (D-MA) introduced HR 5846 [LOC | WW], the "Wireless Internet Nationwide for Families Act of 2008" or "WIN Act".

This bill would require the Federal Communications Commission (FCC) to auction 20 MHz of spectrum subject to rules similar to those proposed by M2Z Networks, but rejected by the FCC.

Rep. Anna EshooRep. Eshoo (at right) stated in a release that "The results of the 700 MHz auction disappointed many of us who hoped that a new entrant would emerge. 70% of the spectrum auctioned went to only two carriers. While the auction required under this legislation is open to anyone, it is my hope that the bold conditions of requiring free, family friendly service will encourage the entry of a new kind of national broadband service provider."

Rep. Eshoo's release offered this summary. The bill would require the FCC to "auction certain spectrum that is currently lying fallow. The winner of the auction would be required to build and complete a network within 10 years that must provide coverage to at least 95% of our country. The licensee would also be required to provide service for free to consumers and public safety users. The WIN Act also requires the licensee to deny access to obscene and indecent material on the free service tier."

Rep. Cannon stated in a release that the US "has fallen behind many other advanced nations, including other geographically large and diverse countries like Canada, in terms of broadband deployment and affordability. This means that our workers, entrepreneurs and students are not getting the same access to competitive resources as their counterparts in other nations.  We must ensure that this alarming trend is reversed and that all Americans, including those living in our states in the west, have reliable and affordable high bandwidth broadband Internet connections."

The bill was referred to the House Commerce Committee. Representatives Eshoo and Markey are members.

Bill Summary. This bill would add language to 47 U.S.C. § 309(j) regarding spectrum auctions by the FCC. It would require the FCC to auction the 2155-2180 MHz spectrum band, and another unspecified spectrum band of 20 megahertz somewhere below 3 gigahertz.

The bill would require the FCC to conduct an auction of the 2155-2180 MHz band in a single nationwide license, in an auction commenced within 180 of enactment of this bill.

The bill would require the FCC to promulgate a set of service and auction rules for this first auction, and specify the content of these rules.

First, these rules must require that the licensee "offer, at a minimum, always-on wireless broadband services within 2 years from the date of receipt of the license, and complete the construction of such wireless network with a signal covering at least 95 percent of the population of the United States and its territories within 10 years from the initial operation of the network".

Second, the licensee must "offer a data service that is faster than 200 kilobits per second one way (subject to subparagraph (G)) for free to consumers and authorized public safety users without subscription, airtime, usage, or other charges". (Parentheses in original.) Then, this subparagraph G provides that after five years the FCC evaluate whether the minimum speed of free services should be increased.

Third, the licensee must "consistent with section 230 of this Act, offer such free data service with a technology protection measure or measures that protect underage users from accessing obscene or indecent material through such service".

Fourth, the licensee must "provide such free data services on a wireless network that permits open access to affiliated and unaffiliated consumer devices by providing, publicly and royalty-free, published technical standards for developing and deploying subscriber equipment that can operate on the network subject to this paragraph".

Finally, the licensee must "provide such free data services using advanced and spectrally efficient wireless technologies that provide services to the largest feasible number of users and encourages broadband competition making broadband services more available and affordable."

As for the second auction, the bill states that these above quoted rules would not apply, unless the FCC "finds it is in the public interest to do so pursuant to a rulemaking".

This bill would also require the FCC and National Telecommunications and Information Administration (NTIA) to conduct a joint biannual reviews, beginning in 2009, of "competitive market conditions with respect to availability and affordability of broadband as well as the state of utilization of spectrum under the Commission's and the Administration's respective jurisdictions".

More on M2Z. This bill would mandate by legislation an auction that bears many of the attributes of an auction that M2Z Networks has unsuccessfully sought from the FCC. For a more detailed description of M2Z's applications, see stories titled "FCC Accepts for Filing M2Z's Application for Free Spectrum" in TLJ Daily E-Mail Alert No. 1,532, February 5, 2007, and "Panel Debates M2Z Proposal" in TLJ Daily E-Mail Alert No. 1,541, February 21, 2007.

The FCC has rejected M2Z's application. See, story titled "FCC Dismisses M2Z's and NetfreeUS's Requests for 2155-2175 MHz Band Spectrum Licenses" in TLJ Daily E-Mail Alert No. 1,633, September 4, 2007.

Judicial review of the FCC's rejections of M2Z's applications is pending in the U.S. Court of Appeals (DCCir). See, Notice of Appeal [PDF].

District Court Sends AOL Pricing Plan Action Back to State Court

4/17. The U.S. District Court (DC) issued a memorandum opinion [18 pages in PDF] in Breakman v. AOL, remanding the case back to the Superior Court for the District of Columbia.

Paul Breakman filed a complaint in the Superior Court alleging unlawful trade practices in violation of the District of Columbia Consumer Protection Procedures Act by failing to disclose material facts regarding pricing plans. He brought the action on behalf of similarly situated consumers.

AOL removed the action to the federal court, asserting the removal of class actions provision of the federal Class Action Fairness Act (CAFA), as well as diversity of citizenship.

The District Court remanded the case back to the Superior Court. It reasoned that since the DC Act authorizes a private attorney general suit, and this is distinct from a class action within the meaning of the CAFA, federal jurisdiction cannot rest on the CAFA. It also concluded that since the most that a consumer can recover under the DC Act is $1,628.63, the minimum amount in controversy threshold for diversity jurisdiction ($75,000) is not met.

This case is Paul Breakman v. AOL LLC, U.S. District Court for the District of Columbia, D.C. No. 08-246 (JDB), Judge Paul Bates presiding.

More News

4/17. The National Telecommunications and Information Administration (NTIA) released a report [28 pages in PDF] titled "1710-1755 MHz Spectrum Band Relocation: First Annual Progress Report". The report provides table summaries, by departments and systems, of the first year of relocation activity. The Congress provided for relocation of government users of spectrum in the 1710-1755 MHz band in the Commercial Spectrum Enhancement Act (CSEA). It was enacted as part of HR 5419 (108th Congress). It is Title II of Public Law No. 108-494. See, story titled "Congress Approves Telecom Bill" in TLJ Daily E-Mail Alert No. 1,035, December 10, 2004. In September of 2006, the Federal Communications Commission (FCC) concluded its Auction No. 66, the AWS-1 auction of this spectrum. See, story titled "FCC Completes First Advanced Wireless Services Spectrum Auction" in TLJ Daily E-Mail Alert No. 1,454, September 21, 2006.

Rep. King Introduces Free Speech Protection Act

4/16. Rep. Peter King (R-NY) introduced HR 5814 [LOC | WW], the "Free Speech Protection Act of 2008".

This bill would provide relief to speakers and publishers in the US who find themselves subjected to libel litigation in foreign countries for speech that is protected by the First Amendment in the US.

Introduction. Expression on the internet is available anywhere in the world that there is internet access. Many nations' courts assert jurisdiction in libel actions on the basis that the speech to be suppressed is accessible over the internet in that country.

See for example, December 10, 2002, opinion of the High Court of Australia in Dow Jones v. Gutnick, and story titled "High Court Rules Australia Has Jurisdiction Over Dow Jones Based on Web Publication" in TLJ Daily E-Mail Alert No. 564, December 10, 2002.

Also, printed books, even if published in one location, and not distributed elsewhere by the publisher, are sold over the internet in secondary sales, thereby subjecting authors and publishers to lawsuits anywhere in the world.

The US has standards of free speech that are not respected or followed in other nations. Thus, US speakers and publishers who engage in expression in the US are sometimes sued in other nations that aggressively assert jurisdiction over US persons, and reject US First Amendment jurisprudence.

HR 5814 is an attempt to create a legal framework that would protect US persons from abusive speech suppressing litigation abroad. It would create a federal cause of action for a US person subjected to a foreign forum shopping libel action that suppresses speech that is protected by the First Amendment in the US.

Under this bill, the US plaintiff could obtain a declaratory judgment that the foreign judgment is unenforceable in the US, as well as damages based on the amount of the foreign judgment, the costs and attorneys fees of defending the foreign action, consequential damages, and treble damages.

The bill has no cosponsors. It was referred to the House Judiciary Committee (HJC). Rep. King is not a member.

Rep. Peter KingRep. King (at right) may have as a motivation for introducing this bill a case in the state of New York involving a New York author, Rachel Ehrenfeld, and related legislation in New York.

Ehrenfeld wrote a book [Amazon] titled "Funding Evil: How Terrorism Is Financed -- and How to Stop It" in which she alleged that Khalid Salim Bin Mahfouz financially supported terrorism. He sued her in England, and obtained a default judgment. She filed a complaint in U.S. District Court (SDNY) against Mahfouz seeking a declaratory judgment under the Declaratory Judgment Act, which is codified at 28 U.S.C. § 2201, that the foreign judgment is not enforceable in the U.S. for violating the First Amendment. The District Court dismissed for lack of jurisdiction over Mahfouz, and the Court of Appeals affirmed. See, story titled "2nd Circuit Affirms in Ehrenfeld v. Mahfouz" in TLJ Daily E-Mail Alert No. 1,725, March 3, 2008.

Also, the New York legislature responded to the Mahfouz affair by passing its Libel Terrorism Protection Act. That bill now waits the signature of the Governor. See, story titled "New York Senate Passes Libel Terrorism Protection Act", also in TLJ Daily E-Mail Alert No. 1,725, March 3, 2008.

Patricia Schroeder, a former member of the HJC, and now head of the American Association of Publishers (AAP), sent a letter to New York Governor David Paterson urging him to sign the Libel Terrorism Protection Act.

She wrote that "The sale of books over the Internet exposes New York authors and publishers to the danger of being sued almost anywhere in the world, and libel tourist litigation remains a threat in any country where our strong constitutional protections for speech are absent."

Much has been written in the US about Mahfouz. See for example, story in Human Events titled "The Libel Tourist: Silencing Free Speech", dated November 21, 2007, by Ericka Andersen, and story in the Chicago Tribune titled "Saudi wields British law against U.S. author: Billionaire leverages harsher libel rules to suppress unflattering book", dated March 17, 2008, by James Oliphant. However, Mahfouz is not the only person to avail himself of the libel litigation friendly English courts. See for example, story in the Financial Times titled "English courts in the dock on libel tourism", dated April 1, 2008, by Michael Peel and Megan Murphy.

Summary of HR 5814. Section 1 of the bill provides its title.

Section 2 recites detailed findings. It finds that "Some persons are obstructing the free expression rights of Americans, and the vital interest of the American people in receiving information on matters of public importance, by first seeking out foreign jurisdictions that do not provide the full extent of free-speech protection that is fundamental in the United States and then suing Americans in such jurisdictions in defamation actions based on speech uttered or published in the United States -- speech that is fully protected under First Amendment jurisprudence".

The bill also finds that "Some of these actions are intended not only to suppress the free speech rights of journalists, academics, commentators, experts, and other individuals but to intimidate publishers and other organizations that might otherwise disseminate or support the work of those individuals with the threat of prohibitive foreign lawsuits, litigation expenses, and judgments that provide for money damages and other speech-suppressing relief".

Also, it finds that some foreign countries permit "lawsuits filed by persons who are often not citizens of those countries, under circumstances where there is often little or no basis for jurisdiction over the Americans against whom such suits are brought".

Section 3 of the bill creates a new cause of action, asserts and defines federal jurisdiction, provides for declaratory relief and monetary damages, allows expedited discovery, establishes venue, and sets a limitation.

Subsection 3(a) of the bill provides the cause of action: "Any United States person against whom a lawsuit is brought in a foreign country for defamation on the basis of the content of any writing, utterance, or other speech by that person that has been published, uttered, or otherwise disseminated in the United States may bring an action in a United States district court specified in subsection (f) against any person who, or entity which, brought the foreign suit if the writing, utterance, or other speech at issue in the foreign lawsuit does not constitute defamation under United States law."

The bill later defines US person not only to include US citizens, but also "a business entity lawfully doing business in the United States".

Subsection 3(b) asserts jurisdiction over foreign forum shopping libel plaintiffs: "It shall be sufficient to establish jurisdiction over the person or entity bringing a foreign lawsuit described in subsection (a) that such person or entity has filed the lawsuit against a United States person, or that such United States person has assets in the United States against which the claimant in the foreign action could execute if a judgment in the foreign lawsuit were awarded."

In the US there is a constitutional due process component to the exercise of personal jurisdiction. The Constitution is superior to a federal statute. Hence, if this bill were enacted into law, foreign libel plaintiffs such as Mahfouz would likely assert that exercise of jurisdiction over them by a US court under this statute would violate their due process rights.

Subsections 3(c) and 3(d) address remedies. First, "the district court shall order that any foreign judgment in the foreign lawsuit in question may not be enforced in the United States, including by any Federal, State, or local court".

Second, "damages may be awarded ... based on the ... amount of the foreign judgment  ..." That is, the US judgment against the foreign plaintiff might offset the foreign judgment against the US speaker.

The bill also provides for recovery of costs and attorneys fees of defending the foreign action. It also provides for the award of damages for "harm caused to the United States person due to decreased opportunities to publish, conduct research, or generate funding".

Finally, the bill allows the "factfinder" to award "treble damages" if it finds a "scheme to suppress First Amendment rights". The consequence of all these remedies is that foreign libel plaintiffs could face judgments in US courts that far exceed whatever judgment they obtained from the foreign court.

It should also be noted that HR 5814 provides that the "factfinder" determines whether or not to award treble damages. In a jury trial this would be the jury rather than the judge. A jury is more likely to award treble damages, especially against foreign billionaires.

Senate Judiciary Committee Holds Hearing on Child Exploitation Via the Internet

4/16. The Senate Judiciary Committee's (SJC) Subcommittee on Crime held a hearing titled "Challenges and Solutions for Protecting our Children from Violence and Exploitation in the 21st Century".

See, statement by Sen. Patrick Leahy (D-VT), Chairman of the SJC. See also, prepared testimony of McGregor Scott (U.S. Attorney for the Eastern District of California), prepared testimony [PDF] of Flint Waters (Office of the Attorney General of the State of Wyoming), prepared testimony of Robert Moses (High Technology Crimes Unit, Delaware State Police), prepared testimony of Randall Hillman (Alabama District Attorneys Association), prepared testimony of Michelle Collins (National Center for Missing and Exploited Children), and prepared testimony of Grier Weeks (National Association to Protect Children).

Sen. Joe Biden (D-DE) introduced S 1738 [LOC | WW], the "Combating Child Exploitation Act of 2007" on June 28, 2007.

Sen. Leahy wrote that "I hope that this legislation will provide another chance for the Judiciary Committee to show that, by working together and incorporating new technology, we can make important strides to protect America's children from exploitation."

This bill provides that "There is established within the Office of Justice Programs in the Department of Justice, under the general authority of the Attorney General, an Internet Crimes Against Children Task Force".

This bill also provides that "The Attorney shall establish additional computer forensic capacity to address the current backlog for computer forensics, including for child exploitation investigations", and authorizes appropriations.

This bill also amends 18 U.S.C. § 2516 regarding "Authorization for interception of wire, oral, or electronic communications". Section 2516 already contains a huge list of offenses that may serve as a predicate offense for the issuance of a wiretap order by a federal judge at the request of the Department of Justice (DOJ). This statutory list contains numerous federal crimes relating to sex and pornography.

S 1738 would add to the list of predicate offenses for the issuance of a wiretap order by state court judges to state prosecutors. It would add "crimes against children, including child exploitation, child obscenity, or other crimes dangerous to the life, limb, and well-being of minor children".

McGregor Scott, the U.S. Attorney for the Eastern District of California, offered a bleak and sinister description of the internet in his testimony. He wrote that "the Internet and other communications technologies are increasingly used by sexual predators and abusers as tools for exploiting and victimizing our children. These technologies have contributed to a significant increase in the proliferation and severity of child pornography."

As the Internet and related technologies have grown, children have become increasingly at risk of being" solicited online. He said that "Law enforcement is uncovering an escalating number of enticement cases, where perpetrators contact children through the Internet or other technologies and arrange to meet ..."

"The Internet", wrote Scott, "has become a tool for evil in the hands of those who seek to exploit and abuse our children."

7th Circuit Applies FCRA to Wireless Communications

4/16. The U.S. Court of Appeals (7thCir) issued its opinion in Thomas Murray v. New Cingular Wireless Services. The Court of Appeals held that the offering of a free phone, when one must also enter into a service contract to use that phone, is an offer of credit within the meaning of the Fair Credit Reporting Act (FCRA). It also held that carriers' disclosures that are in black 6 point type are not "conspicuous" within the meaning of the FCRA.

The Court of Appeals issued one opinion for three unrelated cases. The Court's reason was that all three cases involved different issues arising under the federal FCRA, which is codified at 15 U.S.C. § 1681, et seq.

In this unusual format for an appellate court opinion, the Court of Appeals did not commence with a recitation of the facts of the case, or a summary of the proceedings below. It merely listed a series of issues raised by these three cases, and provided answers.

However, the District Court's opinion discloses that Thomas Murray alleges that Cingular accessed his credit report prior to sending him a written promotion for wireless service.

Thomas Murray filed a complaint in 2004 in U.S. District Court (NDIll) against New Cingular Wireless Services, which is now AT&T, alleging violation of the FRCA, and seeking class action status, and recovery of statutory damages for that class.

The Court of Appeals opinion addresses two legal issues raised by the Cingular case.

First, the Court of Appeals opinion addressed the question, "Does a promise of ``free´´ merchandise mean that an offer is not one ``of credit´´" within the meaning of 15 U.S.C. § 1681a(r)(5).

That is, Cingular accessed Murray's credit report, and those of others, before sending him a written offer for a free phone. But, the phone was tied to entering into a contract for the associated phone service, and hence, the offer of a phone was also an offer of phone service.

The Court of Appeals wrote that "True, phone service is neither ``credit´´ nor ``insurance,´´ but the circular offers phone service on credit, because the service is provided before payment is due. Deferred payment is ``credit´´ as the statute uses that word."

It added that "A ``free´´ phone is anything but free, as it can't be had apart from the service plan; payments for service include the cost of the phone, which is amortized over the length of the contract. So payment for the phone is deferred no less than payment for the phone service; the entire offer therefore is one of credit ..."

This offer of credit only applied to Cingular's wireless phone and service plan. That is, Murray could not use Cingular's offer of credit to make purchases from other companies. The Court of Appeals added that "The offer need not be fully portable to be ``credit´´ within the statutory definition: ``The term 'credit' means the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.´´"

Second, the Court of Appeals addressed the question, "Is six-point type ``conspicuous´´" within the meaning of 15 U.S.C. § 1681m(d)?

That is, if someone accesses credit information in a transaction that was not initiated by the consumer, that person must provide a written statement to the consumer that makes certain disclosures "in a clear and conspicuous" manner.

The Court of Appeals engaged in a lengthy discussion of just how small and obscure these disclosures can be, and yet still meet the statutory requirement of "conspicuous". The opinion addresses type size, color, font, capitalization, and relation to other material in the solicitation.

Cingular used 6 point type for "conspicuous" disclosures. The Court of Appeals wrote that "6-point type is tiny".

It held that "Six-point type in black ink is not ``conspicuous´´ when the bulk of the page contains much larger type. Whether 6-point type in color might suffice is a question we need not address, since Cingular used color only for the picture and its promotional text."

Also, the Court of Appeals added that since Murray seeks damages under a provision that also requires a showing of recklessness, and the state of the law on conspicuousness was less settled at the time that Cingular made the solicitation, its action was not reckless within the meaning of the damages provision.

However, the Court of Appeals added that "It would be reckless today to use the same notice".

This case is Thomas Murray v. New Cingular Wireless Services, Inc., U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 06-2477, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 04 C 7666, Judge Ruben Castillo presiding. Judge Frank Easterbrook wrote the opinion of the Court of Appeals, in which Judges Flaum and Wood joined.

More News

4/16. Sen. David Vitter (R-LA) introduced S 2869 [LOC | WW], a bill to amend the Criminal Code. This bill would amend 18 U.S.C. § 2252 and 18 U.S.C. § 2252A. These are long statutory sections that criminalize many activities related to "material involving the sexual exploitation of minors". Various actions are referenced, including "sells", "distributes", "transports", and "ships". Some subsections criminalize the act of  "possesses". This bill would redefine "possesses" to include "accessing by computer with the intent to view". That is, under this bill, merely viewing something on the internet would be treated as criminal possession of illegal material. Sen. Vitter has cause to posture on issues of internet sexual morality, following disclosure last summer of his association with a prostitute. See, July 10, 2007, story in the Washington Post titled "Senator's Number on Madam Phone List". The bill was referred to the Senate Judiciary Committee (SJC). Neither Sen. Vitter is not a member of the SJC.

Reps. Lofgren and Cannon Introduce Cell Tax Fairness Act

4/15. Rep. Zoe Lofgren (D-CA), Rep. Chris Cannon (R-UT) and others introduced HR 5793 [LOC | WW], the "Cell Tax Fairness Act".

The other original cosponsors of the bill are Rep. Steve Chabot (R-OH), Rep. Steve Cohen (D-TN), Rep. Greg Meeks (D-NY), and Rep. James Sensenbrenner (R-WI). It was referred to the House Judiciary Committee (HJC). Rep. Lofgren, Cannon, Chabot, Cohen, and Sensenbrenner are members.

This bill is similar to previous legislation known as the Internet Tax Freedom Act (ITFA).

The just introduced bill would impose a five year moratorium on new and discriminatory state and local taxes on mobile services.

It provides that "No State or local jurisdiction shall impose a new discriminatory tax on or with respect to mobile services, mobile service providers, or mobile service property, during the 5-year period beginning on the date of enactment of this Act."

See, full story.

House Passes Tax Bill with Cell Phone Tax Provision

4/15. The House passed HR 5719 [LOC | WW], the "Taxpayer Assistance and Simplification Act of 2008". The is a large tax bill. Section 3 pertains to federal taxation of cell phones and other communications devices. Very little of the debate focused on cell phone taxes. Enactment of this bill into law is doubtful.

The Internal Revenue Service (IRS) is now asserting that it can compel taxpayers to treat the acquisition and use of cell phones and other devices paid for by employers as income to employees. This bill would, among other things, remove the clause "any cellular telephone (or other similar telecommunications equipment)" from the enumeration of "listed property" in Section 280F of the Internal Revenue Code, the provision relied upon by the IRS.

See, story titled "IRS Initiative Taxes Employees for Use of Work Cell Phones and Other Devices" and story "Bills Introduced to Stop IRS from Taxing Employees for Work Cell Phones and Other Devices" in TLJ Daily E-Mail Alert No. 1,745, April 11, 2008.

The House passage of this bill is likely an exercise in political posturing. However, whether the Congress will enact stand alone legislation regarding federal cell phone taxation is another question.

Rep. Tom Reynolds (R-NY), stated during floor debate on April 15 that "we know that this legislation will face a steep consideration of some saying ``dead on arrival´´ in the other body. We've seen the administration have its advisers threaten veto."

He described this bill as "another one-House bill".

He said that "It gets tough, as we move towards November of an election year, to explain that we didn't get much done, but boy did we have a lot of action on one-House bills."

Most of this bill deals with tax topics other than cell phones. During debate over the rule, and then the bill itself, only four members mentioned cell phones. Each of these was only a brief reference. Nevertheless, all four expressed support for Section 3.

Rep. Dave Camp (R-MI) criticized the bill as a whole, but said that "I support the provision that no longer requires employees to keep track of the cell phone calls they make on their office cell phones".

Rep. Earl PomeroyRep. Earl Pomeroy (D-ND) (at right) stated that "right now we have an onerous paperwork requirement on employers providing cell phones to employees for business purposes. I commend my Republican colleague on Ways and Means, Sam Johnson, for bringing this to our attention. I was pleased to cosponsor legislation with him now included in the bill that makes this paperwork requirement go away."

Later he added that "small businesses that right now are subject to IRS audit exposure if they are not keeping detailed call records on cell phones that they give their employees."

Rep. Bruce Braley (D-IA) said that "I am supportive of the provision in this bill that eliminates the requirement for individuals and small businesses to keep onerous records of calls made on cell phones to substantiate business use of such devices. I have heard from employers in Iowa's First District about the administrative burden that this creates, and I am glad Congress is reducing this burden."

Rep. Mark Udall (D-CO) said that "To help small businesses, the bill will eliminate the outdated requirement to maintain and submit detailed call records to substantiate business use of employer-provided cell phones."

Rep. Sam Johnson (R-TX) is the sponsor of HR 5450 [LOC | WW], the "Modernize Our Bookkeeping In the Law for Employee's Cell Phone Act of 2008" or "MOBILE Cell Phone Act of 2008". The substantive language of HR 5450 was incorporated into HR 5719 as Section 3.

Rep. Johnson voted against HR 5719. He then issued a release that states that "Because Democrats loaded up the tax simplification bill with unrelated items, Johnson voted against".

He wrote that his bill "would update the tax treatment of cell phones and Blackberries used for business and repeal the requirement that employers and employees maintain detailed logs of cell phone use."

Rep. Johnson added that "A constituent concern generated the concept for Johnson's legislation. In February, a lawyer from North Texas contacted the Congressman on behalf of a client. The IRS wanted the client to keep records on employee cell phone and Blackberry use or forfeit the deduction. Given the tremendous advances in this technology, Johnson thought the IRS should modernize the tax code as quickly as possible."

A motion to recommit failed by a vote of 210-210. See, Roll Call No. 189. Democrats voted 21-207. Republicans voted 189-3. The bill then passed by a vote of 238-179. See, Roll Call No. 190. Democrats voted 224-2. Republicans voted 14-177.

Supreme Court Rules on State Taxation of Lexis/Nexis Sale Capital Gain

4/15. The Supreme Court issued its opinion [21 pages in PDF] in MeadWestvaco v. Illinois Department of Revenue, vacating the judgment of the Appellate Court of Illinois on Constitutional grounds.

Justice Clarence Thomas wrote a concurring opinion. He labeled it a concurring opinion because he concluded that the Supreme Court's precedent warranted reversal. However, he advocated abandonment of precedent.

Mead Corporation, the predecessor in interest of MeadWestvaco Coporporation, acquired Data Corporation in 1968 for $6 Million. One of Data's assets was an information retrieval system that Mead developed into what became known as Lexis/Nexis. Mead made additional capital contributions. Mead is an Ohio corporation. However, Lexis/Nexis was managed from offices in Illinois, and had offices in Ohio and elsewhere. Mead incorporated Lexis/Nexis as a wholly owned subsidiary in 1990. It sold Lexis/Nexis in 1994 for about $1.5 Billion to Reed Elsevier. It thereby realized a capital gain of over $1 Billion.

This case concerns who can collect taxes on this gain.

Mead did not report any of this gain as income to the state of Illinois. Illinois claimed that Mead must apportion this income, and pay taxes to Illinois on its apportioned share. The Appellate Court of Illinois held Illinois can collect this tax.

Justice Sam Alito wrote the opinion of the Court, vacating the judgment of the Illinois court.

The Supreme Court held, relying on prior cases, that both the 14th Amendment due process clause and the commerce forbid the states to tax "extraterritorial values". It added that "A State may, however, tax an apportioned share of the value generated by the intrastate and extrastate activities of a multistate enterprise if those activities form part of a ``‘unitary business.’´´"

The Court wrote that "We have been asked in this case to decide whether the State of Illinois constitutionally taxed an apportioned share of the capital gain realized by an out-of-state corporation on the sale of one of its business divisions." It also wrote that "Because we conclude that the state courts misapprehended the principles that we have developed for determining whether a multistate business is unitary, we vacate the decision of the Appellate Court of Illinois."

The Court held that there must be a rational relationship between the tax and the values connected with the taxing state.

Justice Thomas also wrote an opinion.

Regarding the commerce clause, he wrote that "To the extent that our decisions addressing state taxation of multistate enterprises rely on the negative Commerce Clause, I would overrule them." He added, citing one of his previous concurring opinions, that "this Court’s negative Commerce Clause jurisprudence ``has no basis in the Constitution and has proved unworkable in practice.´´"

Regarding the 14th Amendment, he wrote that "I agree that the Due Process Clause requires a jurisdictional nexus ... But apart from that requirement, I am concerned that further constraints -- particularly those limiting the degree to which a State may tax a multistate enterprise -- require us to read into the Due Process Clause yet another unenumerated, substantive right."

Thomas argued that the recourse of taxpayers is to go to the Congress and seek legislation. He wrote that "the Court’s involvement in this area is wholly unnecessary given Congress' undisputed authority to resolve income apportionment issues by virtue of its power to regulate commerce ``among the several States.´´"

Thomas's view, if it were adopted by the Supreme Court, would likely have a substantial detrimental impact upon internet based businesses and e-commerce.

Many states seek to impose a variety of types of taxes on out of state businesses, and their employees, even when they have only slight contacts with the taxing state. Use of the internet, teleworking, and e-commerce often provide the states' pretexts for aggressive taxation. Also, many states seek to protect in state businesses from out of state competitors -- particularly e-commerce based companies. Also, some states seek to operate as national regulators of interstate commerce.

Often, the only effective restrictions upon such abusive taxation, protectionism, or regulation by states affecting internet based commerce are the Constitutional limitations that Justice Thomas now seeks to terminate.

Justice Clarence Thomas is a states rights enthusiast, as is Justice Antonin Scalia. However, no other Justices joined in Justice Thomas's concurrence.

Presidential Candidates, Political Parties and Free Trade

4/15. The Cato Institute released a paper [PDF] titled "Race to the Bottom? The Presidential Candidates' Positions on Trade". The author is the Cato's Sallie James.

She wrote that "Sen. John McCain has largely stuck to his free-trade principles" while "Sens. Hillary Clinton and Barack Obama have entered into a seemingly escalating war of words over the alleged damage done by trade liberalization."

James wrote that based upon Congressional records and campaign statements, "Voters could expect a President Mc-Cain to promote freer trade and cuts in market-distorting subsidies, and a President Clinton or a President Obama to view free trade between voluntary actors as something to be restrained, loaded with conditions, or counterbalanced by an expansion of the welfare state."

Ed Black, head of the Computer and Communications Industry Association (CCIA), offered another take on partisanship and support for free trade in a recent speech, and an opinion piece published in the Mercury News.

He wrote that free trade is good policy, and that the "high-tech sector is a strong supporter of free trade and open markets". He argued that "trade policy is too important to be subjected to political whims", and suggested that Democratic support is lacking because Republicans have used trade as a "wedge issue".

Black wrote that "This nation began to go off track in the late 1990s. A Republican Congress, seeking to preserve and expand its majority, started to use trade as a wedge issue. Votes on trade agreements were structured and exploited to expose vulnerable Democratic members and make some moderates choose between unions and industry. These political tactics were designed to change the balance of power on Capitol Hill, but they undercut broad support for trade and weakened the United States' ability to negotiate favorable trade deals, which ultimately affects the economy."

Oxford and Cambridge Sue Georgia State for Online Infringement of Scholarly Works

4/15. The Oxford University Press (OUP), Cambridge University Press (CUP) and SAGE Publications filed a complaint [57 pages in PDF] in U.S. District Court (NDGa) against Carl Patton and others, in their capacities as officers of Georgia State Universities (GSU), alleging direct, contributory, and vicarious copyright infringement in connection with online copying and distribution of academic and scholarly works as course materials for students, without authorization.

Summary of the Complaint. The complaint states that this action "arises from Georgia State's systematic, widespread, and unauthorized copying and distribution of a vast amount of copyrighted works, including those owned or controlled by Plaintiffs, through a variety of online systems and outlets utilized and hosted by the University for the digital distribution of course reading material. Georgia state has facilitated, enabled, encouraged, and induced Georgia State professors to upload and post to these systems -- and Georgia State students simultaneously to download, view, print, copy, and distribute -- many, if not all, of the assigned readings for a particular course without limitation, without oversight, and without the requisite authorization and appropriate compensation to the copyright owners of such materials."

It complaint alleges that "The unauthorized digital distribution of copyrighted course readings at Georgia State is pervasive, flagrant, and ongoing." It continues that GSU "continues to offer digitized course offerings through the Georgia State Library electronic course reserves service, through Georgia State's Blackboard/WebCT Vista electronic course management system, and through Georgia State departmental web pages and hyperlinked online syllabi available on websites and computer servers controlled by Georgia State."

It elaborates that GSU distributes "course reading materials online in compilations of digital excerpts containing an entire semester's worth of reading". This provides students "the ability to view, download, and print without authorization a number and range of copyrighted works".

The complaint states that the scope "vastly exceeds the amount and type of copying that might credibly be justified as fair use in an educational setting."

It also asserts that "Unless George State's infringing digital distribution practices are enjoined, Plaintiffs, authors, and the publishing community at large will continue to face a certain, substantial, and continuing threat of loss of revenue, which will in turn threaten Plaintiff's incentive to continue supporting and publishing the cutting-edge scholarship upon which the academic enterprise depends."

The complaint pleads direct copyright infringement in violation of 17 U.S.C. § 106, contributory copyright infringement, and vicarious copyright infringement.

It seeks injunctive relief, and the award of costs and attorneys fees under 17 U.S.C. § 505.

The complaint does not request damages.

The complaint does not name GSU as a defendant.

This case is Oxford University Press, et al. v. Carl Patton, Ron Henry, Charlene Hurt, and J.L. Albert, U.S. District Court for the Northern District of Georgia, Atlanta Division.

Reaction. Patricia Schroeder, head of the American Association of Publishers (AAP), stated in a release that "Respect for copyright law is integral to the higher education process ... It provides the basis for publishing operations of university presses and scholarly societies, and makes possible the contributions of innumerable other authors and publishers to the educational process. Georgia State University's disregard for basic copyright protections undermines this very premise."

Schroeder, who was previously a Member of Congress, and a member of the House Judiciary Committee (HJC), and its Subcommittee on Courts and Intellectual Property, added that "AAP members and the publishing industry recognize the advantages of making course content available electronically for students, and offer licensing and permissions processes designed to allow such uses on a cost-effective basis ... We are simply asking Georgia State University to take the necessary measures to respect the law."

Patrick Ross, head of the Copyright Alliance, stated in a release that "Whether a work is on paper or a download service, creativity, labor and money went into its production, and the US Constitution ensured that the creator behind it would have rights over its use. If Cambridge, Oxford and other publishers are to continue to produce works worthy of being taught at institutions of higher learning such as GSU, they must have the ability to use their rights as copyright owners to create a market for their works."

Substantive Law. Oxford and Cambridge have stated claims under the Copyright Act. Given the online, and previously open to the public, nature of GSU's theft, Oxford and Cambridge have access to the evidence necessary to prove their claims. Finally, the language of the Copyright Act, and federal case law, support their position.

In particular, the U.S. District Court (SNDY) issued an opinion in 1991 in favor of the book publisher based on substantially similar facts. See, Basic Books v. Kinko's Graphics Corp., 758 F. Supp. 1522 (SDNY, 1991). That case involved unauthorized course packs, for students, comprised of excerpts from copyrighted works. Although, that case involved photocopying, while the present case involves the internet.

Oxford and Cambridge's larger problem is with the doctrine of state sovereign immunity.

Sovereign Immunity. Oxford and Cambridge face a huge obstacle in state sovereign immunity, and particularly as recently implemented by the Supreme Court in Seminole Tribe and its intellectual property progeny.

The 11th Amendment of the U.S. Constitution states that "The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." This is an ancient provision, the underlying purposes of which have long since faded. Nevertheless, it remains in the Constitution.

The Supreme Court has long limited the application of 11th Amendment immunity by the doctrine announced in Ex Parte Young, 209 U.S. 123 (1908). That case held that the 11th Amendment bars a suit for money damages, but not a claim for prospective injunctive relief.

The Supreme Court breathed new life into the 11th Amendment in a series of cases in the late 1990s. First, it held in Seminole Tribe v. Florida, 517 U.S. 44 (1996), that the Congress lacks authority under Article I of the Constitution to abrogate the States' 11th Amendment immunity from suit in federal courts. It then held in Florida Prepaid v. College Savings Bank, 527 U.S. 627 (1999), that the holding of Seminole Tribe extends to patent suits. And, in College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 527 U.S. 666 (1999), it extended this to the Trademark Remedy Clarification Act.

That is, the Supreme Court has opined that the Congress cannot (even though it is authorized to do so by the Constitution, at Article I, Section 8) enact a copyright or patent statute that allows a patent or copyright action against an infringing state.

Copyright and patent holders cannot get around the 11th Amendment ban on suits in federal court by bringing their infringement actions in state court because the federal courts have exclusive jurisdiction over copyright and patent actions.

Some states, included California and Georgia, are aware of this immunity, and abuse it.

The complaint states that GSU "has continued unabated in the face of notice and repeated attempts by Plaintiffs to reach an amicable and mutually acceptable solution without the need for litigation. All such efforts have been flatly rebuffed".

A law breaking state, such as Georgia, has little incentive to come into compliance with copyright law, under the Seminole Tribe regime.

The complaint may have been drafted with sovereign immunity in mind. For example, in apparent reliance on Ex Parte Young, the publishers seek prospective injunctive relief, but not actual or statutory damages. Also, the complaint names as defendants only individuals, and not the state, or any political subdivision of the state.

It should also be noted that some federal Judges have been creative with Ex Parte Young's injunction versus damages dichotomy. See for example, opinion [11 pages in PDF] of the U.S. Court of Appeals (7thCir) in Ameritech v. McCann, ordering the issuance of a declaratory judgment compelling a state District Attorney to pay money to a phone company, rather than awarding damages.

Comparison to Peer to Peer Infringement. Record companies, music publishers, and recording artists have long faced a problem on university campuses with peer to peer infringement by students using university networks.

One attribute of the problem is that there is no deep pocket defendant who is organizing the infringing activity to sue to stop the infringement. Peer to peer networks are wholly decentralized. Record companies, after years of pursuing other courses of action, starting tracking down and suing individual peer to peer infringers.

Academic book publishers face an increasing problem with infringement of their works through online activities such as those described in the present complaint. Publishers may find that, given state sovereign immunity, litigation against state universities is an ineffective deterrent to continued infringement.

If this turns out to be the case, academic publishers may face the decision of whether to protect their rights by  bringing actions against individual student infringers, who lack sovereign immunity.

Federal Reserve Paper Advocates Benefits of Free Trade in Services

4/15. The Federal Reserve Bank of Dallas released a paper [22 pages in PDF] titled "Opportunity Knocks: Selling Our Services to the World".

It argues that new information and communications technologies (ICT) have facilitated trade in services, that service sectors jobs in the U.S. are not all low paid dead end jobs, and that the U.S. leads the world in providing high end exportable services in finance, law, education, information management, and other areas. In contrast, call centers, back office operations, and other low end ICT based services tend to be performed in nations like India and the People's Republic of China. Hence, the paper argues that it is in the best interest of the U.S. to embrace globalization, and reject protectionism.

This paper states that "An increasingly integrated world economy promotes efficient production, lowers costs, speeds growth and fosters better economic policies. It gives U.S. consumers more access to foreign products and U.S. producers more access to foreign consumers. Therein lies one of the dangers in the downbeat view: It ignores the opportunity globalization offers America to sell our services to the world."

"We're world-class providers of financial, legal, medical, construction and industrial engineering services. We excel in supplying entertainment, education and information management. We lead in telecommunications, management and consulting, travel services and tourism."

It continues that "Thanks to fundamental shifts in the global marketplace, America’s services expertise can now exert itself worldwide. The Internet, satellites and fiber-optic transmission lines have bound economies together by making it cheaper and easier to collect, process and distribute information, a key component in supplying sophisticated services. Many services, once limited to domestic markets, now trade internationally."

It states that while "We hear a lot about American businesses and workers facing growing competition from low-cost rivals around the world -- call center operators in the Philippines, computer programmers in China ... We hear little about U.S. service companies that create jobs and grow profits by expanding their businesses overseas.

It cites some examples of U.S. services exporters. "Foreign audiences accounted for almost 60 percent of Hollywood’s box-office revenues from movies released in 2007. ... A quarter of the lawyers at the 15 largest U.S.-based firms work in foreign outposts. ... Our programmers create video games, our professors teach classes, our financial advisors manage money -- for both foreign and domestic customers."

Moreover, the paper argues, "Many of our service workers are well-educated, commanding high pay because of their ability to add value to what they produce. Our economy's transition to services has brought higher incomes and better jobs, making this sector our best hope for prospering in the era of globalization."

"While it might be wise to mitigate globalization's unwanted side effects, a protectionist backlash risks squandering the benefits and opportunities globalization offers." The paper concludes that "We need to embrace globalization and recognize the bright prospects for selling our services to the world. It’s time to seize the opportunity."

This paper was written by Michael Cox and Richard Alm, members of the Research Department of the Federal Reserve Bank of Dallas (FRBD).

Disclosure. David Carney, publisher of the Tech Law Journal, long ago worked in the Research Department of the FRBD.

Comcast and Pando Networks to Create P2P Bill of Rights and Responsibilities

4/15. Comcast and Pando Networks announced in a joint release that "they will lead an industry-wide effort to create a ``P2P Bill of Rights and Responsibilities´´ (BRR) for peer-to-peer (P2P) users and Internet Service Providers (ISPs)."

The two companies added that they "plan to collaborate and engage with industry experts, other ISPs and P2P companies, content providers and others to set a framework for the BRR that can serve as a best practice. The purpose would be to clarify what choices and controls consumers should have when using P2P applications as well as what processes and practices ISPs should use to manage P2P applications running on their networks.  For example, P2P users should have the right to control their computers’ resources when using P2P applications."

The Federal Communications Commission's (FCC) Robert Kenny stated in a release that "Establishing a specific and clearly defined P2P Bill of Rights is an interesting idea with potentially important implications for all Internet users. In order to learn more about this newly announced joint effort, we have invited Robert Levitan, CEO of Pando Networks and Tony Werner, Comcast's Chief Technology Officer, or their representatives to participate in the Commission's En Banc hearing on broadband network management practices this Thursday at Stanford University. We look forward to more fully understanding the goals, scope and time frame of this industry effort."

Kyle McSlarrow, head of the National Cable & Telecommunications Association (NCTA), stated in a release that "We applaud today's announcement by Comcast and Pando Networks, which is further evidence that private sector collaboration, not government intervention, is the most appropriate way to address complicated technological issues. NCTA stands ready to support this important effort and we encourage the participation of other industry participants." Comcast is a member of the NCTA.

Gigi Sohn, head of the Public Knowledge, sniffed in a release that "This so-called agreement is simply another way for Comcast to try to evade punishment for its blocking and degrading of peer-to-peer services for its customers. As with the 'agreement' with BitTorrent, today's announcement is long on rhetoric and short on detail."

Sohn asserted "The fact that Comcast is trying to come up with a Bill of Rights for customers is ludicrous."

On November 1, 2007, the Public Knowledge and Free Press (FP) filed with the FCC a document [48 pages in PDF] captioned "Formal Complaint of Free Press and Public Knowledge Against Comcast Corporation For Secretly Degrading Peer-to-Peer Applications". The FCC has not yet reached a disposition of this complaint.

The complaint alleges that Comcast is "degrading peer-to-peer protocols" by inserting forged reset packets into communications between peers in peer to peer (P2P) communications that terminate those communications. This, the complaint alleges, interferes with Comcast's subscribers use of applications like BitTorrent. See, story titled "Free Press Files Complaint with FCC Alleging that Comcast Is Violating 2005 Policy Statement" in TLJ Daily E-Mail Alert No. 1,669, November 5, 2007.

However, Comcast recently reached an agreement with BitTorrent. Both companies also agreed that there is no need for government intervention. See, story titled "Comcast and BitTorrent Reach Accord on Network Management Practices" in TLJ Daily E-Mail Alert No. 1,738, March 27, 2008.

Prior to the Comcast BitTorrent accord, FCC Chairman Kevin Martin spoke harsh words about Comcast. See, story titled "Martin Discusses Complaints Against Comcast and Verizon Wireless" in TLJ Daily E-Mail Alert No. 1,728, March 10, 2008.

IRS Commissioner Shulman Testifies Regarding Electronic Filing

4/15. The House Appropriations Committee's (HAC) Subcommittee on Financial Services held a hearing on the Internal Revenue Service (IRS). IRS Commissioner Douglas Shulman was the only witness.

Online tax preparation software, including Intuit's TurboTax and H&R Block's TaxCut, enable many individual taxpayers to file electronically, without paying a fee, under the Free File [PDF] program.

Douglas ShulmanShulman (at right) wrote in his prepared testimony that "Over 3.6 million people have utilized Free File as of April 5, 2008, an increase of 19.7 percent compared to the number of taxpayers that used Free File during the same period a year ago."

He added that "This year anyone with adjusted gross income of $54,000 or less is eligible for Free File, which includes 97 million taxpayers."

He did not address the proposed I-File program in his written or oral testimony. Members of the Subcommittee asked him numerous questions about other topics, including IRS use of private contractors to collect debts, movie actor Wesley Snipes, "stimulus checks", and IRS investigation of the tax exempt status of churches as a result of their political or policy activities.

After the hearing, Shulman and other IRS officials declined to answer questions from TLJ.

On April 14, 2008, the Computer and Communications Industry Association (CCIA) released a report [PDF] titled "The Benefits and Costs of I-File".

The report describes I-File as a proposal that the IRS "develop and operate an online tax filing system that would allow individuals to prepare their returns online and submit their returns directly to the IRS".

The CCIA report finds that "the benefits of an IRS-operated I-File system would be at most de minimis, and more likely non-existent. Taxpayers already have the ability to file their returns electronically; as a result of the Free File program, most taxpayers have the ability to do so for free. Firms in the highly competitive tax preparation software business have strong incentives to increase the rate at which taxpayers file electronically, as well as to continue to innovate and improve the usability of their products. There is little reason to believe that an IRS-operated system would represent an improvement over the products already available in the market -- and many reasons to believe it would not."

The report also finds that "the costs of attempting to develop an I-File system would be large".

The report adds that "the history of IRS information technology initiatives ... calls into question whether the agency is capable of implementing an I-File system within any reasonable set of time and budget constraints".

Finally, the report concludes that "the net present value of attempting to implement an I-File program is negative. Simply put, there are no plausible assumptions under which an I-File system could produce sufficient savings to pay back its development, implementation and operating costs" and that therefore, "I-File proposals do not represent a viable approach to increasing electronic filing, improving the efficiency of the IRS, or reducing the costs to taxpayers of filing tax returns".

The CCIA report was written by Robert Litan (Brookings Institution), Jeffrey Eisenach (Chairman of Criterion Economics), and Kevin Caves (Criterion).

Shulman also addressed the IRS's Modernized e-File (MeF) program in his written testimony. He wrote that MeF is the "IRS designated e-File platform (electronic filing system) for the future and provides e-Filing capability for large corporations, small businesses, partnerships, and non-profit associations. As of April 5, MeF has accepted 1.82 million corporate, partnership, and tax exempt tax returns, a 45-percent increase from this same period a year ago. MeF went into production as planned in January 2008 and provides the ability to file electronically Form 1120F (tax returns for foreign corporations) and Form 990N (so called electronic postcard for small tax-exempt organizations to meet their filing requirement)." (Parentheses in original.)

Shulman did not address, and the Subcommittee members did not raise, the subject of Section 280F of the Internal Revenue Code, and the IRS's initiative to tax employees for employer provided cell phones and other devices, and access to networks.

At the Subcommittee hearing Rep. Ralph Regula (R-OH) raised the subjects of identity theft and data security. Shulman responded in vague and general terms. He asserted that the IRS is "focused" on protecting taxpayer information. He also said that the IRS has encrypted all laptops, centralized administration of taxpayer data, and is currently reviewing everyone who has access to data.

Shulman said that "data protection is as much about a culture" as it is about firewalls and other technologies.

President Bush and Senate Democrats Reach Compromise on 6th Circuit Nominees

4/15. President Bush and several Senate Democrats reached a compromise on appointments to the U.S. Court of Appeals (6thCir). There are two vacancies on the 6th Circuit. Bush previously nominated Stephen Murphy and Raymond Kethledge for these two seats. Senate Democrats have been delaying confirmation of both.

The 6th Circuit is a regional circuit that includes the states of Michigan, Ohio, Kentucky, and Tennessee.

Bush withdrew the nomination of Murphy for the 6th Circuit, and instead nominated him for the U.S. District Court (EDMich), which includes the city of Detroit and the eastern portion of the state. Bush also nominated for an empty seat on the 6th Circuit Helene White, a Democrat previously nominated by former President Clinton for a seat on the 6th Circuit. The two Democratic Senators from Michigan, Sen. Debbie Stabenow (D-MI) and Sen. Carl Levin (D-MI) will support the nomination of the other Republican nominee, Kethledge.

See, White House release.

Stephen Murphy is the U.S. Attorney (USA) for the Eastern District of Michigan. See, DOJ biography and USA biography. His DOJ biography states that he was previously an adjunct professor at the Ave Maria School of Law.

White is an elected member of the Michigan Court of Appeals. She was related to Sen. Levin by marriage to his cousin.

Kethledge is now an attorney in private practice. He is a partner in the law firm of Bush Seyferth Kethledge & Paige. See, DOJ biography and law firm bigraphy. He was previously a staff assistant to former Sen. Spencer Abraham (R-MI), who was a member of the SJC who opposed the nomination of White. Sen. Abraham lost in the 2000 election to Sen. Stabenow.

Sen. Patrick Leahy (D-VT), the Chairman of the Senate Judiciary Committee (SJC), released a statement regarding negotiations between members of the Senate and Bush administration regarding 6th Circuit judges.

He wrote that "The White House today withdrew the nomination of Steven Joseph Murphy to fill a Michigan seat on the Sixth Circuit Court of Appeals, and instead nominated Judge Helene White, a former nominee to the Sixth Circuit during the Clinton administration. Judge White’s nomination was stalled by the Republican-led Senate, which didn’t consider a single nomination to the Sixth Circuit Court of Appeals in the last three years of the Clinton administration."

Sen. Leahy continued that "President Clinton's nominations of Judge Helene White and Kathleen McCree Lewis of Michigan, along with that of Kent Markus of Ohio, were blocked by Senate Republicans. President Bush has tried to take advantage of that situation. I urged him to work with the Michigan Senators. After seven years he finally has, and we have a significant development that can lead to filling the last two vacancies on the Sixth Circuit before this year ends."

Finally, he stated that "Levin and Stabenow are expected to support the nominations along with the Sixth Circuit nomination of Raymond Kethledge, and the Committee is likely to schedule hearings for them once the necessary paper work has been received by the Senate."

Sen. Specter Questions Presidential Candidates on Keisler Nomination

Peter Keisler4/15. Sen. Arlen Specter (R-PA) sent substantially identical letters [PDF] to three Presidential candidates, Sen. John McCain (R-AZ), Sen. Hillary Clinton (D-NY), and Sen. Barrack Obama (D-IL), to ask their positions on the nominations of Peter Keisler (at right) to be a Judge of the U.S. Court of Appeals (DCCir), Robert Conrad to be a Judge of the U.S. Court of Appeals (4thCir), and Steve Matthews to be a Judge of the 4th Circuit.

Sen. Specter stated in a release that he also "sent copies of the letters to ABC News, suggesting questioning Senators Clinton and Obama on the failure of the Senate to vote on judicial nominees during the debate scheduled in Philadelphia, PA at the Constitution Center on April 16, 2008."

Keisler rejoined the law firm of Sidley Austin in last month. Sidley announced in a release that he is "global coordinator of the firm's appellate practice". Before that, he held several positions at the Department of Justice (DOJ). For several years he was Assistant Attorney General in charge of the DOJ's huge Civil Division.

Among other things, he oversaw litigation arising out of the various government wiretap, electronic surveillance, and data collection programs. He also argued, and lost, the Hamdan case in the Court of Appeals.

Before joining the DOJ he was a long time associate and partner at Sidley Austin. He worked on, among other things, telecommunications related litigation and regulatory proceedings. He was also a law clerk to Justice Anthony Kennedy of the Supreme Court and former Judge Robert Bork of the DC Circuit. See also, White House press office biography.

The DC Circuit hears many petitions for review and appeals from orders of federal regulatory agencies, including the Federal Communications Commission (FCC).

See also, stories titled "Keisler to Resign from DOJ" in TLJ Daily E-Mail Alert No. 1,638, September 11, 2007, "Bush Names Peter Keisler Acting Attorney General" in TLJ Daily E-Mail Alert No. 1,640, September 17, 2007, and "Bush Signs Bill Regarding Court Security and Federal Judgeships" in TLJ Daily E-Mail Alert No. 1,697, January 8, 2008.

Rep. DeFazio Introduces Bill to Ban Use of Cell Phones on Scheduled Flights

4/15. Rep. Peter DeFazio (D-OR) and others introduced HR 5788 [LOC | WW], the "Halting Airplane Noise to Give Us Peace Act of 2008" or "HANG UP Act". It would ban the use of cell phones on scheduled airline flights.

It would provide that "An individual may not engage in voice communications using a mobile communications device in an aircraft during a flight in scheduled passenger interstate air transportation or scheduled passenger intrastate air transportation." The bill would also cover voice services that utilize internet protocol.

Rep. DeFazio stated in a release that "The public doesn't want to be subjected to people talking on their cell phones on an already over-packed airplane". He added that the bill "would ensure that financially strapped airlines don't drive us towards this noisome disruption in search of further revenue."

This bill would add a new section to Title 49, which pertains to transportation, not Title 47, which pertains to communications. Hence, this bill was referred to the House Transportation Committee (HTC). Rep. DeFazio and all of its original cosponsors are members of the HTC. None are members of the House Commerce Committee (HCC).

Reps. Rush and Upton Introduce Bill to Allow E-Rate Subsidies to be Used for Emergency Notification Services

4/15. Rep. Bobby Rush (D-IL) and Rep. Fred Upton (R-MI) introduced HR 5806 [LOC | WW], the "School Emergency Notification Deployment Act".

Rep. Fred UptonRep. Upton (at right) issued a release that states that "In the wake of last year's Virginia Tech tragedy many colleges and universities have upgraded emergency notification systems, but it is also essential that K-12 schools have the resources to implement similar life-saving alert systems."

This release adds that Rep. Upton "seeks to build upon an existing federal program to empower schools to create their own emergency notification service for students, personnel and parents through mobile text messages, e-mail and other telecommunications and information services."

This bill would amend 47 U.S.C. § 254, which pertains to the Federal Communications Commission's (FCC) universal service tax and subsidy programs.

Subsection 254(h) is the statutory authority relied upon by the FCC for its schools and libraries program, which is also known as the e-rate program.

This bill would amend Subsection 254(h) by expanding the scope of the e-rate program to permit subsidies to "public and nonprofit elementary and secondary schools to be used for enhanced emergency notification services".

The bill would also amend the definitional subsection to provide that "enhanced emergency notification service" means "a communications service or system that ... meets or exceeds prevailing industry practices, as periodically determined by the" FCC, and "can be utilized by school administrators and other public officials to deliver emergency messages to members of the school community (including students and their parents, faculty, and staff), and their designated emergency contacts, via messages carried over telecommunications and information services, including those transmitted by providers of commercial mobile service". (Parentheses in original.)

This bill was referred to the House Commerce Committee (HCC). Both Rep. Rush and Rep. Upton are both senior members of the HCC and its Subcommittee on Telecommunications and the Internet.

More New Bills

4/15. Sen. Charles Schumer (D-NY) and Sen. Daniel Akaka (D-AK) introduced S 2861 [LOC | WW], an untitled bill that would prohibit tax return preparers from charging a separate fee for electronic filing of tax returns and statements for individuals. This bill would provide that "No person authorized to originate the electronic submission of a return or statement relating to any tax imposed by subchapter A of chapter 1 on individuals may charge a separate fee for such electronic submission." (Subchapter A pertains to the determination of tax liability of individuals and corporations.) The bill would provide a fine of $50 per incident. It was referred to the Senate Finance Committee. Sen. Schumer is a member.

4/15. Rep. Nick Lampson (D-TX) introduced HR 5801 [LOC | WW], the "Free Internet Filing Act". This bill would require the Internal Revenue Service (IRS) to "provide individual taxpayers with the ability to electronically file their Federal income tax returns through the Internal Revenue Service website without the use of an intermediary or with the use of an intermediary which is contracted by the Internal Revenue Service to provide free universal access for such filing". The bill refers to this as a "direct e-file program". The bill was referred to theHouse Ways and Means Committee. The original cosponsors of the bill are Rep. Leonard Boswell (D-IA), Rep. Zach Space (D-OH), Rep. Baron Hill (D-IN), Rep. John Barrow (D-GA), and Rep. Charlie Melancon (D-LA). On April 14, 2008, the Computer and Communications Industry Association (CCIA) released a report [PDF] titled "The Benefits and Costs of I-File". It finds that the benefits this sort of proposal "would be at most de minimis, and more likely non-existent. Taxpayers already have the ability to file their returns electronically; as a result of the Free File program, most taxpayers have the ability to do so for free. Firms in the highly competitive tax preparation software business have strong incentives to increase the rate at which taxpayers file electronically, as well as to continue to innovate and improve the usability of their products. There is little reason to believe that an IRS-operated system would represent an improvement over the products already available in the market -- and many reasons to believe it would not."

4/15. Rep. Henry Waxman (D-CA), Rep. Lacy Clay (D-MO), and Rep. Paul Hodes (D-NH) introduced HR 5811 [LOC | WW], the "Electronic Communications Preservation Act". This bill would require the preservation of certain electronic communications of federal agencies and the office of the President. It was referred to the House Oversight and Government Reform Committee (HOGRC), which held a hearing on the bill on April 23, 2008. See, HOGRC web page with hyperlinks to prepared testimony.

People and Appointments

4/15. Sen. Arlen Specter (R-PA), the ranking Republican on the Senate Judiciary Committee (SJC), announced in a release that he has "been diagnosed with an early recurrence of Hodgkin’s disease" and that he "will now receive the Stanford V protocol of chemotherapy weekly over the next 12 weeks". He added that he expects to "continue to perform all the duties of his office as well as his activities associated with his candidacy for re-election".

4/15. April 17, 2008, will be Alisha Prather's last day as Communications Director for the House Science Committee (HSC). She will go to work for the University of Texas Medical Branch's Galveston National Laboratory in Galveston, Texas.

More News

4/15. The U.S. Court of Appeals (9thCir) issued its opinion [20 pages in PDF] in Warner Brothers v. Golden Channels, a contract dispute between a U.S. licensor of television programming and an Israeli cable television company. The District Court entered judgment for Warner Brothers (WB), and awarded damages of $19,315,960 for past amounts due and future benefit of the bargain damages for future sales. The District Court reversed and remanded on the issue of damages. WB is entitled to "whatever was due for the performance it had rendered through December 9, 2002", when WB notified Golden that it was terminating the contract. The opinion contains a lengthy discussion of the contract, relevant cable TV program licensing terms, and negotiations, as well as competition between cable and satellite television. This case is Warner Brothers International Television Distribution v. Golden Channels & Co., U.S. Court of Appeals for the 9th Circuit, App. Ct. Nos. No. 05-55374 and No. 05-55421, appeals from the U.S. District Court for the Central District of California, Judge Margaret Morrow presiding, D.C. No. CV-02-09326-MMM. Judge Andrew Kleinfeld wrote the opinion of the Court of Appeals, in which Judges John Noonan and Richard Paez joined.

Go to News from April 11-15, 2008.