USDC Grants SJ to NSA in EPIC FOIA Case Regarding Google NSA Collaboration

7/8. The U.S. District Court (DC) issued a Memorandum Opinion [10 pages in PDF] in EPIC v. NSA, a federal Freedom of Information Act (FOIA) case regarding the Electronic Privacy Information Center's (EPIC) request for records regarding Google's relationship with the National Security Agency (NSA).

The District Court granted summary judgment to the NSA. The EPIC announced in its web site that it plans to file an appeal.

The EPIC requested "All records concerning an agreement or similar basis for collaboration, final or draft, between the NSA and Google regarding cyber security; ... All records of communication between the NSA and Google concerning Gmail, including but not limited to Google's decision to fail to routinely encrypt Gmail messages prior to January 13, 2010; and ... All records of communications regarding the NSA's role in Google's decision regarding the failure to routinely deploy encryption for cloud-based computing service, such as Google Docs."

The NSA responded that it refused to confirm or deny whether it had a relationship with Google, citing Exemption 3 of FOIA (regarding records "specifically exempted from disclosure by statute") and Section 6 of the National Security Agency Act of 1959 (which prohibits disclose of information about the NSA).

Both the EPIC and NSA filed motions for summary judgment. The District Court held that the records are exempt, and granted summary judgment to the NSA.

This case is Electronic Privacy Information Center v. National Security Agency, U.S. District Court for the District of Columbia, D.C. No. 10-1533 (RJL), Judge Richard Leon presiding.

Upcoming Events in Boulder

7/8. On July 8, 2001, the National Telecommunications and Information Administration (NTIA) announced that it will host a three day event titled "12th Annual International Symposium on Advanced Radio Technologies" or ISART on July 27-29, 2011 in Boulder, Colorado. See, notice.

On July 1, 2011, the National Telecommunications and Information Administration (NTIA) published a notice in the Federal Register announcing that its Commerce Spectrum Management Advisory Committee will meet on July 27, 2011, at 1:00 - 4:00 PM Mountain Time, at the Institute for Telecommunication Sciences, Conference Room 1107, 325 Broadway, Boulder, Colorado. See, Federal Register, Vol. 76, No. 127, Friday, July 1, 2011, at Pages 38638-38639.

On June 7, 2011, the National Coordination Office (NCO) for Networking and Information Technology Research and Development (NITRD) published a notice in the Federal Register that announces that its will host a webcast one day workshop in Boulder, Colorado on July 26, 2011, titled "Toward Innovative Spectrum-Sharing Technologies". The event will be held from 8:30 AM to 5:00 PM Mountain Time, at the Department of Commerce's (DOC) Boulder Labs, 325 Broadway, Building 1 Lobby, Boulder, Colorado. See, Federal Register, Vol. 76, No. 109, Tuesday, June 7, 2011, at Page 32993.

Court Hears Motion to Dismiss Challenge to DHS's Suspicionless Searches of Laptops

7/8. The U.S. District Court (SDNY) heard oral argument on a government motion to dismiss in Abidor v. Napolitano, a Constitutional challenge to the Department of Homeland Security's (DHS) practice of searching, copying and detaining electronic devices at international borders without reasonable suspicion. The Court has yet to rule on the motion.

Catherine Crump of the ACLU, which is representing the plaintiffs, stated in a release that "Allowing government officials to look through Americans' most personal materials -- the things we store on our laptops, cameras and cell phones – without reasonable suspicion is unconstitutional, inconsistent with American values and a waste of limited resources".

She added that "The government has no limits on what it can search at the border, and maintains that a computer or cell phone should be treated just like any other baggage at a border check. But we all know that an electronic device is very different than a suitcase."

See, DHS's January 28, 2011 memorandum [35 pages in PDF] in support of motion to dismiss, ACLU's March 9, 2011, opposition [45 pages in PDF] to the motion to dismiss, and DHS's March 30, 2011, reply brief.

See also, story titled "ACLU Sues DHS Over Suspicionless Searches of Electronic Devices at Borders" in TLJ Daily E-Mail Alert No. 2,129, September 9, 2011, and story titled "Update on Abidor v. DHS" in TLJ Daily E-Mail Alert No. 2,224, April 20, 2011.

This case is Pascal Abidor, et al. v. Janet Napolitano, Alan Bersin and John Morton, U.S. District Court for the Eastern District of New York, D.C. No. 10-CV-4059-ERK, Judge Robert Korman presiding.

DOJ Declines Prosecution of Assistant U.S. Attorney Who Viewed Porn at Work Every Day

7/7. Sen. Charles Grassley (R-IA), the ranking Republican on the Senate Judiciary Committee (SJC), sent a letter to Attorney General Eric Holder regarding the Department of Justice's (DOJ) decision not to prosecute an Assistant U.S. Attorney (AUSA) who was found to have used his work computer to view pornography, including at least one image of child pornography (CP).

Sen. Grassley (at right) quoted from a DOJ Office of the Inspector General (OIG) report that states that "The investigation determined that the AUSA routinely viewed adult content during official duty hours, and that there was at least one image of child pornography recovered on the AUSA's government computer. The AUSA acknowledged that he had spent a significant amount of time each day viewing pornography. The U.S. Attorney's Office declined prosecution."

Sen. Grassley wrote that "This is simply unacceptable".

Sen. Grassley also propounded numerous interrogatories to be answered by the DOJ. For example, he asked if the AUSA still works at the DOJ, what type of cases he handles, who made the decision not to prosecute, and how was the AUSA able to evade the DOJ's porn filters.

Sen. Grassley also issued a release that states that he "learned that 33 employees at the Securities and Exchange Commission who were found to have viewed pornography during work hours were not terminated and were given uneven and light disciplinary action".

House Judiciary Committee Approves Business Activity Tax Bill

7/7. The House Judiciary Committee (HJC) approved HR 1439 [LOC | WW | PDF], the "Business Activity Tax Simplification Act" or BATSA by voice vote without amendment.

State tax collectors have incentives to maximize tax collections. Moreover, since out of state businesses, and their employees, cannot vote in state, they are sometimes particularly attractive targets for state tax collectors. These tax collectors sometimes seize upon web based activities, including e-commerce, as a pretext for imposing business activity taxes (BAT) on out of state companies.

This bill covers many types of BATs. However, to the extent that this bill would limit the ability of states to impose BATs on distant business for internet activities, it is a technology related bill.

Rep. Bob Goodlatte (R-VA) and Rep. Bobby Scott (D-VA) introduced this bill on April 8, 2011. The HJC's Subcommittee on Courts, Commercial and Administrative Law held a hearing on April 11, 2011. The full Committee approved it on July 7.

Rep. Goodlatte and Rep. Scott issued a release after the vote that states that some "states assert that having a website on a server in the state creates a sufficient connection to justify imposing these taxes".

Rep. Goodlatte stated in this release that "Just because a website can be accessed by consumers in a certain state, doesn't mean that state should be able to collect taxes from the website owner. This legislation focuses on allowing the Internet and the commerce that it facilitates to expand, by eliminating excessive taxes that harm on-line growth."

He added that "Small businesses will be particularly helped with this bill because they do not have the resources to hire teams of lawyers to fight aggressive state taxation."

Rep. Scott stated in this release that "Businesses should be responsible for paying taxes to states where they do business; however, BATSA would ensure fairness, minimize costly litigation for both state governments and taxpayers, reduce the likelihood of a business being 'double-taxed' on the same income, and create a legally certain and stable business environment. Most importantly, the bill would ensure that businesses continue to pay business activity taxes to states that provide them with direct benefits and protections."

Mark Up. The HJC approved the bill without amendment by voice vote. But first, it considered and rejected several amendments.

The HJC rejected by voice vote an amendment offered by Rep. Judy Chu (D-CA) that would have deleted the bill's definition of "physical presence".

The HJC rejected by a vote of 7-24 an amendment offered by Rep. Chu that would have changed the effective date of the bill from January 2, 2012 to January 1, 2022. Rep. Chu and six other Democrats voted for the amendment. See, roll call.

HJC also rejected by voice vote an amendment offered by Rep. Jerrold Nadler (D-NY) that would have removed Section 3 of the bill.

Bill Summary. Section 2 of HR 1439 amends 15 U.S.C. § 381, regarding "Imposition of net income tax" by states. Section 381(a) currently provides, in part, as follows:

"No State, or political subdivision thereof, shall have power to impose ... a net income tax on the income derived within such State by any person from interstate commerce if the only business activities within such State by or on behalf of such person during such taxable year are either, or both, of the following:
  (1) the solicitation of orders by such person, or his representative, in such State for sales of tangible personal property, which orders are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State; and
  (2) the solicitation of orders by such person, or his representative, in such State in the name of or for the benefit of a prospective customer of such person, if orders by such customer to such person to enable such customer to fill orders resulting from such solicitation are orders described in paragraph (1).

HR 1439 would rewrite this as follows. Deleted language is shown in strikethrough. Added language is shown in red.

"No State, or political subdivision thereof, shall have power to impose ... a net income tax on the income derived within such State by any person from interstate commerce if the only business activities within such State by or on behalf of such person during such taxable year are either, or both, any one or more, of the following:
  (1) the solicitation of orders by such person, or his representative, in such State for sales of tangible personal property, which orders are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State; and (which are sent outside the State for approval or rejection) or customers by such person, or his representative, in such State for sales or transactions, which are--(A) in the case of tangible personal property, filled by shipment or delivery from a point outside the State; and (B) in the case of all other forms of property, services, and other transactions, fulfilled or distributed from a point outside the State;
  (2) the solicitation of orders by such person, or his representative, in such State in the name of or for the benefit of a prospective customer of such person, if orders by such customer to such person to enable such customer to fill orders resulting from such solicitation are orders described in paragraph (1);
  (3) the furnishing of information to customers or affiliates in such State, or the coverage of events or other gathering of information in such State by such person, or his representative, which information is used or disseminated from a point outside the State; and
  (4) those business activities directly related to such person's potential or actual purchase of goods or services within the State if the final decision to purchase is made outside the State." (Parentheses in original.)

HR 1439 would also replace the current 15 U.S.C. § 381(c) with this:

"For purposes of subsection (a) of this section, a person shall not be considered to have engaged in business activities within a State during any taxable year merely--
  (1) by reason of sales or transactions in such State, the solicitation of orders for sales or transactions in such State, the furnishing of information to customers or affiliates in such State, or the coverage of events or other gathering of information in such State, on behalf of such person by one or more independent contractors;
  (2) by reason of the maintenance of an office in such State by one or more independent contractors whose activities on behalf of such person in such State are limited to making sales or fulfilling transactions, soliciting order for sales or transactions, the furnishing of information to customers or affiliates, and/or the coverage of events or other gathering of information; or
  (3) by reason of the furnishing of information to an independent contractor by such person ancillary to the solicitation of orders or transactions by the independent contractor on behalf of such person."

Section 3 of HR 1439 "provides for minimum jurisdictional standards". It states that "No taxing authority of a State shall have power to impose, assess, or collect a net income tax or other business activity tax on any person relating to such person's activities in interstate commerce unless such person has a physical presence in the State during the taxable period with respect to which the tax is imposed."

There are five sections in this bill. Section 1 provides the title. Section 4 addresses group returns. Section 5 contains definitions.

Section 381 was enacted back in 1959. It focused on limiting taxation of businesses solely for their solicitation of sales of tangible personal property in the taxing state. HR 1439 would expand the limitation to encompass a range of intangibles, including gathering and distributing information, and conducting sales or transactions of any kind.

The bill does not expressly list operating a news, informational or e-commerce web site that is accessible to persons within the taxing state, but the bill would have the effect of precluding a state from imposing a BAT on an out of state business solely for operating such a web site.

Also, this bill addresses when a state can impose a BAT on an out of state business, that for example, sells goods of services over the internet, including to persons within the taxing state. This bill does not address when a state can impose a tax on such transactions.

Legislative History. Rep. Goodlatte and former Rep. Rick Boucher (D-VA) tried over many Congresses to pass such a bill. See, for example:

111th Congress: HR 1083 [LOC | WW], the "Business Activity Tax Simplification Act of 2009". Neither the House, nor the HJC, took any action on this bill.

110th Congress: HR 5267 [LOC | WW], the "Business Activity Tax Simplification Act of 2008". Neither the House, nor the HJC, took any action on this bill. See also, story titled "Boucher and Goodlatte Again Introduce BAT Bill" in TLJ Daily E-Mail Alert No. 1,715, February 11, 2011.

109th Congress: HR 1956, the "Business Activity Tax Simplification Act of 2005". The HJC amended and approved this bill on June 28, 2006. It was briefly placed on the House floor calendar, but then withdrawn. See also, story titled "House Subcommittee to Hold Hearing on Goodlatte Boucher BAT Bill" in TLJ Daily E-Mail Alert No. 1,219, September 22, 2005, and "More News" in TLJ Daily E-Mail Alert No. 1,420, July 28, 2006.

108th Congress: HR 3220, the "Business Activity Tax Simplification Act of 2003". The HJC's Subcommittee on Commercial and Administrative Law held a hearing in 2004. However, there was no further action. See also, stories titled "Reps. Goodlatte and Boucher Introduce Bill to Limit Business Activity Taxes" in TLJ Daily E-Mail Alert No. 753, October 6, 2003, and "House Subcommittee Holds Hearing on Business Activity Taxes" in TLJ Daily E-Mail Alert No. 899, May 17, 2004.

107th Congress: HR 2526, the "Internet Tax Fairness Act of 2001". That bill addressed both internet taxes and business activity taxes. The HJC's Subcommittee on Commercial and Administrative Law amended and approved that bill in 2002. However, there was no further action. See also, stories titled "Goodlatte and Boucher Introduce Net Tax Moratorium Bill" in TLJ Daily E-Mail Alert No. 229, July 18, 2001, and "House Subcommittee Approves Bill to Limit Business Activity Taxes" in TLJ Daily E-Mail Alert No. 471, July 17, 2002.

3rd Circuit Issues Opinion Regarding FCC Regulation of Media Ownership

7/7. The U.S. Court of Appeals (3rdCir) issued another opinion [58 pages in PDF] in a long series of challenges to the Federal Communications Commission's (FCC) rules regarding the regulation of ownership of media. This case is Prometheus Radio Project v. FCC, and this opinion is likely to be referred to as "Prometheus II".

Summary. This is another in a long series of federal court opinions pertaining to the FCC's old and obsolete media regulation regime. In this latest opinion, this Court vacated and remanded the FCC's newspaper/broadcast cross-ownership (NBCO) rules, released in early 2008, that reduced government regulation. See, FCC's Report and Order on Reconsideration [124 pages in PDF]. The Court held that the FCC failed to comply with the Administrative Procedure Act (APA).

This Court also concluded that it does not have jurisdiction to hear the challenge of the five permanent waivers of its NBCO rule contained in the 2008 order.

This Court also upheld the 2008 order's local television ownership rule, local radio ownership rule, local radio ownership rule, and dual network rule.

This Court remanded parts of a second FCC order, released later in 2008, termed by this Court as the "Diversity Order". See, FCC's Report and Order and Third Further Notice of Rulemaking [70 pages in PDF].

This Court briefly glossed over the substantial Constitutional issue -- how with a Constitution that bans any law abridging the freedom of speech, or of the press, the FCC can impose a regulatory regime that so minutely manages the affairs of newspapers and other news and entertainment media.

Similarly, this Court was not concerned that it is compelling the FCC to vigorously apply a regulatory regime that now reaches only limited media outlets (newspapers, broadcast TV, and broadcast radio), while leaving untouched a vast and growing array of media based upon new technology platforms.

Finally, this Court premised its holding in part on promoting competition, when there are in place antitrust laws and antitrust regulators with broad authority to address anticompetitive conduct in all media, and not just those over which the FCC has authority.

History. While the Constitution provides that "Congress shall make no law ... abridging the freedom of speech, or of the press", the FCC, which is a created and empowered by Congressional statute, has long regulated media companies, including ownership of such companies.

The following is a cursory summary of the administrative and judicial history of such regulation for just the last ten years.

On April 2, 2002, the U.S. Court of Appeals (DCCir) issued its opinion in Sinclair Broadcast Group v. FCC, 284 F.3d 148, remanding the FCC's 1999 local television ownership rule for further consideration. See, story titled "DC Circuit Remands Local TV Ownership Rule to FCC" in TLJ Daily E-Mail Alert No. 402, April 3, 2002.

On February 19, 2002, the DC Circuit issued its opinion in Fox v. FCC, 280 F.3d 1027. That Court overturned the FCC's national TV station ownership rule (NTSO) and its cable broadcast cross ownership rule (CBCO). See, stories titled "DC Circuit Vacates Cable Broadcast Cross Ownership Rule", TLJ Daily E-Mail Alert No. 372, February 20, 2002, and "FCC Files Petition for Review of Appeals Court Opinion in Fox v. FCC" in TLJ Daily E-Mail Alert No. 415, April 22, 2002.

On June 2, 2003, the FCC announced its Report and Order and Notice of Proposed Rulemaking [257 pages in PDF] amending its media ownership rules. See, story titled "FCC Announces Revisions to Media Ownership Rules" in TLJ Daily E-Mail Alert No. 672, June 3, 2003. The FCC adopted new rules in 2003. These too were challenged in multiple petitions for review.

However, as a result of successful forum shopping efforts by opponents of the FCC's 2003 rule changes, the legal challenge was heard by a different circuit, the 3rd Circuit, and by a three judge panel with different policy preferences regarding regulation of media ownership.

It should be noted when the FCC writes new rules on remand, and the inevitable challenges follow, the same panel of the 3rd Circuit will hear the petitions for review. The just released opinion of this Court states that "This panel retains jurisdiction over the remanded issues."

On June 24, 2004, the 3rd Circuit issued its opinion [213 pages in PDF] in Prometheus Radio Project v. FCC, or Prometheus I, reported at 373 F.3d 372, overturning some of the FCC's media ownership rules as amended in 2003, and remanded. See, story titled "3rd Circuit Rules in Media Ownership Case" in TLJ Daily E-Mail Alert No. 930, July 1, 2004. The Supreme Court denied certiorari. See, story titled "Supreme Court Denies Certiorari in Media Ownership Rules Case" in TLJ Daily E-Mail Alert No. 1,153, June 14, 2005.

The just released opinion summarizes the holding of the 2004 opinion: "We affirmed the Commission's authority to regulate media ownership but remanded aspects of the Commission's 2003 Order that were not adequately supported by the record, including its numerical limits for local television ownership, local radio ownership rule, rule on cross-ownership of media within local markets, and repeal of the failed station solicitation rule."

On remand, the FCC was slow to act. It adopted new rules on December 18, 2007, in its Report and Order on Reconsideration [124 pages in PDF]. It released these rules on February 4, 2008. It is FCC 07-216.

See, story titled "FCC Releases Text of Media Ownership Order" in TLJ Daily E-Mail Alert No. 1,714, February 8, 2008. See also, story titled "Copps and Adelstein Complain About FCC Media Ownership Agenda Item" in TLJ Daily E-Mail Alert No. 1,688, December 13, 2007, and story titled "Martin Releases Media Ownership Proposal" in TLJ Daily E-Mail Alert No. 1,675, November 13, 2007.

In the 2008 order the FCC revised its newspaper/broadcast cross-ownership (NBCO) rules. It also adopted five permanent waivers of its NBCO rule. One waiver was for Gannett's newspaper/broadcast combination in Phoenix, Arizona. The other four were for Media General's combinations in Myrtle Beach-Florence, South Carolina,Columbus, Georgia, Panama City, Florida, and in the Tri-Cities DMA in Tennessee/Virginia.

The FCC also retained its radio/television cross-ownership (RTCO) rule and local television and radio ownership rules in existence prior to the 2003 order. It also retained its failed station solicitation rule (FSSR).

Also on December 18, 2007, the FCC adopted its Diversity Order regarding enhancing opportunities for minorities and women in broadcast ownership. See, Report and Order and Third Further Notice of Rulemaking [70 pages in PDF]. It is FCC 07-217 in MB Docket No. 07-294. The FCC did not release this order until March 5, 2008.

The Prometheus Radio Project (PRP), a litigation and lobbying group based in the 3rd Circuit, is one of many entities that petitioned for review of the FCC's 2008 order. It states in its web site that it is "freeing the airwaves from corporate control".

Holding. The Court of Appeals wrote that "Today we affirm the 2008 Order with the exception of the newspaper/broadcast cross-ownership rule, for which the Commission failed to meet the notice and comment requirements of the Administrative Procedure Act".

This Court upheld the radio/television cross-ownership rule of the 2008 order. The FCC first adopted this rule in 1999. It dropped it in its 2003 order. But, the 3rd Circuit overturned that portion of the 2003 order in Prometheus I, and the FCC's 2008 order reinstated the 1999 rule. Broadcasters challenged this.

Basically, it provides that a party may own up to two TV stations and up to six radio stations, or one TV station and seven radio stations, in a market where at least 20 independently owned media voices would remain post-merger. Or, a party may own two TV stations and up to four radio stations in a market where 10 independently owned media voices would remain. Or, a party may own two TV stations and one radio station regardless of the number of media voices in the market.

This Court also upheld the local television ownership rule of the 2008 order. Here too, after Prometheus I, the FCC reinstated its 1999 rule. It provides that an an entity may own two television stations in the same DMA if "(1) the Grade B contours of the stations do not overlap; or (2) at least one of the stations in the combination is not ranked among the top four stations in terms of audience share, and at least eight independently owned and operating commercial or non-commercial full-power broadcast television stations would remain in the DMA after the combination."

This Court also upheld the local radio ownership rule of the 2008 order, which allows an entity to own, operate, or control. from five to eight commercial radio stations, only three to five of which may be in the same service (AM/FM), depending on the number of full-power commercial and non-commercial stations in the market.

This Court also upheld the dual network rule of the 2008 order, which permits common ownership of multiple broadcast networks, but prohibits a merger between or among the top four networks. CBS challenged this rule.

Finally, this Court rejected the First Amendment challenges to all of the 2008 order's rules regulating ownership of media . The Court construed the Constitution's "no law" mandate to mean no law of which the Court does not approve. And, in the present case, the Court held that media ownership laws are Constitutional if they are "rationally related to substantial government interests in promoting competition and protecting viewpoint diversity".

This Court also remanded parts of the FCC's Diversity Order.

It wrote that "We also remand those provisions of the Diversity Order that rely on the revenue-based ``eligible entity´´ definition, and the FCC's decision to defer consideration of other proposed definitions (such as for a socially and economically disadvantaged business (``SDB´´), so that it may adequately justify or modify its approach to advancing broadcast ownership by minorities and women."

It also wrote that the FCC "appears yet to have gathered the information required to address these challenges, which it needs to do in the course of its review already underway. As ownership diversity is an important aspect of the overall media ownership regulatory framework ... we re-emphasize that the actions required on remand should be completed within the course of the Commission‘s 2010 Quadrennial Review of its media ownership rules."

Judge Ambro wrote the opinion of the Court of Appeals, in which Judge Fuentes joined. Judge Scirica wrote a separate opinion in which he concurred in part and dissented in part. He concurred in all of the Court's opinion, except as to the NBCO rule, which he would have upheld.

Reaction. FCC Commissioner Michael Copps released a statement. He wrote that he is "pleased" with the opinion.

He wrote that "It is clear from this decision that those previous Commissions abdicated their responsibility to consider diversity of ownership and diversity of viewpoint when they wrote their flawed rules. The Third Circuit underlines the need for better process and analysis in the forthcoming but overdue 2010 Quadrennial Review. I only hope that Report will be based upon the kind of specific, accurate, hard data the Court is looking for and that it will be inspired by an awakened appreciation of the need for the FCC to get serious -- after all these years -- about diversity and justice for America’s minorities and women. That's why I have been pushing so hard for the completion of in-depth studies that are needed to better inform our decisions and to help new diversity rules survive any court challenges they may face."

FCC Commissioner Mignon Clyburn (at right) also released a statement. She wrote that the decision to vacate and remand the Diversity Order "sends the important message that ownership diversity remains an important aspect of the overall media ownership regulatory framework. As the Court noted, the current Commission has taken steps towards gathering updated studies on ownership diversity as part of its 2010 Quadrennial Review proceeding."

She added that "I hope this Court decision will serve to encourage all of us at the Commission to take a laser like focus on the necessary and long awaited need for robust ownership studies and thoughtful recommendations to advance diverse voices in America's media market place."

The National Association of Broadcasters' Dennis Wharton stated in a release that "There have been sweeping changes in the media landscape since most of the broadcast ownership rules were adopted decades ago. NAB believes that modest reform of rules to allow free and local broadcasters to compete successfully in a universe of national pay TV and radio platforms is warranted."

Andrew Schwartzman of the Media Access Project (MAP), counsel for the PRP, stated in a release that "We won on almost every point. This decision is a vindication of the public's right to have a diverse media environment. The FCC majority knew that its effort to allow more media concentration was  politically and legally unworkable, so it tried to end-run the procedural protections that are designed to give the public the right to participate in agency proceedings. It was disapointing that FCC Chairman Genachowski chose to defend his predecessor's erroneous action, but now that the Court has directed the FCC to make sure the public is not ignored, we can look forward to having a right to meaningful participation as the FCC looks at these questions again."

Cory Wright of the Free Press stated in a release that "In rejecting the arguments of the industry and exposing the FCC's failures, the court wisely concluded that competition in the media -- not more concentration -- will provide Americans with the local news and information they need and want."

DOJ Files Motion to Enter Final Judgment in USA v. Google and ITA

7/7. The Department of Justice's (DOJ) Antitrust Division filed a motion to enter final judgment [PDF] with the U.S. District Court (DC) in USA v. Google and ITA.

On April 8, 2011, the DOJ filed a complaint [16 pages in PDF] in the U.S. District Court (DC) against Google, Inc. and ITA Software, Inc.

The complaint alleges that Google's proposed acquisition of ITA, "provider of the leading independent airfare pricing and shopping system", named QPX, would "substantially lessen competition in interstate trade and commerce", and therefore, must be blocked.

However, the DOJ, Google and ITA simultaneously entered into a stipulation [5 pages in PDF] that provides for entry of a proposed final judgment [33 pages in PDF] that allows the acquisition, but requires Google to continue to license ITA's QPX.

The just filed motion states that the requirements of the Tunney Act have been satisfied, no one has requested a hearing, and final judgment may now be entered.

See also, story titled "DOJ Imposes Conditions on Google's Acquisition of ITA" in TLJ Daily E-Mail Alert No. 2,220, April 11, 2011.

This case is U.S.A. v. Google, Inc. and ITA Software, Inc., U.S. District Court for the District of Columbia, D.C. No. 1:11-cv-00688, Judge Ellen Huvelle presiding.

BIAS Providers and Content Industries Announce Copyright Alert System

7/7. Broadband internet access service (BIAS) providers, major movie and record industry companies, and their trade groups announced an agreement that establishes a detailed set of procedures for notifying alleged online peer to peer infringers of their infringing activity, and affording alleged infringers of an opportunity for a non-judicial review. The agreement references, but does not require, suspension or termination of internet access.

Summary of the Agreement. This agreement [36 pages in PDF] is titled Memorandum of Understanding". It is an enforceable contract between certain content providers and certain BIAS providers.

They agree to create, incorporate, and run a Center for Copyright Information (CCI) to educate the public on copyright infringement. The content parties to the agreement will develop "methodologies" for identifying P2P online infringement. The CCI will retain an expert with power to review and recommend changes to these methodologies.

The BIAS providers (which the agreement terms "ISPs") will then develop "methodologies" for matching IP addresses identified by the content side with subscriber accounts, keep a record of repeat alleged infringement, and apply "Mitigation Measures". Under this process, the content side, which has IP numbers for alleged infringers, does not obtain their identities, which the BIAS side possesses.

The content providers' representatives (that is, the RIAA and MPAA, but not member companies, or others) will write notices of alleged infringement, and send them to the BIAS providers. The agreement sets the required content of these notices, and establishes limitations upon the issuance of such notices. The BIAS providers will then send notices to subscribers.

The agreement sets minimum requirements for the BIAS providers' terms of service (TOS). These must provide, among other things, that copyright infringement violates the TOS.

The agreement requires BIAS providers to establish a "Copyright Alert Program". This program shall consist of sending six notices, spaced at least seven days apart. The agreement sets the substance of each alert, which are to contain "escalating warning language".

The body of the agreement sets out in detail the procedure for these escalating notices. The agreement also provides for a review process for subscribers who have received notices, set out in even greater detail in an attachment to the agreement.

This non-judicial review process allows for only seven grounds for review: misidentification of the account, unauthorized use of the account, authorization by the copyright owner, fair use, misidentification of the file, and publication before 1923.

While this process allows the defense of fair use, which is codified at 17 U.S.C. § 107, it does not recognize other defenses or limitations upon the exclusive rights of copyright, such as reproduction for blind or other people with disabilities (17 U.S.C. § 121) or reproduction by libraries and archives (17 U.S.C. § 108).

Nor does it recognize as a defense that the complaining content company is not the owner or licensee of the copyright for the work at issue.

The substantially identical NCTA release, RIAA release, MPAA release, and CCI release state that this agreement provides for "a series of early alerts -- up to six -- in electronic form, notifying the subscriber that his or her account may have been misused for online content theft of film, TV shows or music".

These releases add that "The system will also provide subscribers the opportunity for an independent review to determine whether a consumer’s online activity in question is lawful or if their account was identified in error. There are no new laws or regulations established as a part of this voluntary agreement."

Termination of Subscriber Accounts. These releases state that "Termination of a subscriber's account is not part of this agreement."

The agreement, which is subject to revision, does not require BIAS providers to suspend or terminate service following the required notice and review processes.

It does however contain several references to suspension or termination, and adds that "All references in this Agreement to the possibility of termination of a subscriber account are intended solely as an informational element of the Copyright Alerts required by the Copyright Alert program."

Parties to the Agreement. The content parties are the MPAA and member companies -- Walt Disney Studios Motion Pictures, Paramount Pictures Corporation, Sony Pictures Entertainment Inc., Twentieth Century Fox Film Corporation, Universal City Studios LLC, and Warner Bros. Entertainment -- and the RIAA and member companies -- UMG Recordings, Inc., Warner Music Group, Sony Music Entertainment, and EMI Music North America.

The BIAS parties are AT&T subsidiaries, Verizon subsidiaries, Comcast, Time Warner and CSC's Cablevision systems. Numerous other and smaller BIAS providers are not original parties to the agreement, but may become parties.

The recitation of facts at the beginning of the agreement mentions the American Association of Independent Music (AAIM) and the Independent Film and Television Alliance (IFTA), which represent independent record labels and film production companies. However, there are no signature lines for either group.

The recitation of facts at the beginning of the agreement also states that peer to peer infringement is a problem for "computer software, gaming software, e-books and the like". However, neither the Business Software Alliance (BSA), its members, the Entertainment Software Association (ESA), its members, the Association of American Publishers (AAP), nor its members are parties.

The agreement provides that parties may withdraw for any of several enumerated reasons.

Broadband/Dial-up and Wired/Wireless. The agreement covers broadband internet access service (BIAS) providers, but not dial-up access service. It also applies to both wired and wireless service, and residential and non-residential service.

However, there is a paragraph in the recitation of facts that states that the AAIM and IFTA, who are not original signatories, "seek to establish a consumer-focused process for identifying and notifying residential wired Internet access service customers".

Center for Copyright Information. The agreement provides for the creation of a Center for Copyright Information (CCI), to be governed by a six member "Executive Committee", with three representatives each from the content and BIAS industries.

It also provides that a three member "Advisory Board shall be drawn from relevant subject matter expert and consumer interest communities". However, it would be picked by the parties to the agreement. The agreement provides for the CCI to be incorporated in the state of Delaware.

It then provides that the "CCI shall develop an educational program to inform the public about laws prohibiting Online Infringement and lawful means available to obtain digital works online and through other legitimate means".

Choice of Law and Fora. The agreement includes a choice of law clause (state of New York) which would control in matters to which state law applies, such as breach of contract.

It also contains a choice of forum clause (Manhattan, New York).

Other Persons and Entities. This agreement creates rights and obligations for parties to the agreement only. It creates no third party beneficiaries.

Only certain content companies, service providers, and their trade groups can become parties. Customers of BIAS providers, other companies, and other groups, are not eligible to become parties to the agreement.

Hence, for example, neither customers nor affected device makers or service providers could be sued, or bring suit, under the agreement.

Reaction. Sandra Aistars, head of the Copyright Alliance, stated in a release that "This is a great example of private industry coming together to recognize the harm caused to creators the world over by content theft and working toward practicable solutions. We applaud the leadership of these companies and trade groups. This is a tremendously positive step and we support its goals of consumer education, and preservation of creativity and innovation. We would welcome the dialogue expanding in the future to address other kinds of copyrighted works that also suffer from overwhelming digital theft."

Ed Black, head of the Computer and Communications Industry Association (CCIA), stated in a release that "This shows that the private sector can credibly address problems without government interference in Internet architecture, such as the PROTECTIP Act (formerly COICA). At the very least, policy makers should wait and see how this and other private sector solutions work before irrevocably committing us to government regulation of the Internet." He continued that "This industry based solution comes as the Senate proposes plans for the government to keep blacklists and mandate that thousands of tech and telecommunications companies patrol the Internet and even erase search results and links to content. These government regulations would have unprecedented collateral damage on the infrastructure of the Internet." Rob Atkinson, head of the Information Technology and Innovation Foundation (ITIF), praised the agreement in a release. He stated that "digital piracy is a serious and widespread problem negatively affecting the Internet ecosystem. ISP warning programs like the one announced today can have a significant impact on reducing illegal digital content piracy and as such, can better enable the continued robust production of high quality digital content."

The Center for Democracy and Technology (CDT) and Public Knowledge (PK) wrote in a joint statement that "Today's agreement has the potential to be an important educational vehicle that will help reduce online copyright infringement. A voluntary, notification-centric approach can sidestep many of the serious concerns that would be raised by government mandates, the adoption of new snooping or filtering technologies, or a draconian 'three strikes' approach centered on disconnecting Internet users."

The CDT and PK added that "we are particularly disappointed that the agreement lists Internet account suspension among the possible remedies. We believe it would be wrong for any ISP to cut off subscribers, even temporarily, based on allegations that have not been tested in court."

The PK's Sherwin Siy wrote in a separate piece that "the program could be a reasonable effort to reduce P2P infringement and reduce the need for expensive and inefficient litigation. But it clearly has lots of kinks to be worked out and devils to be cleared in the details."

He also noted that "It's important, though, to consider that this agreement still sits within a larger framework of actions and consequences for the individual accused user. The ISP, independently of this system, could still kick a user off for a terms of service violation without any of this process. Content companies can still subpoena ISPs for user information at any time and proceed in a civil suit against the individual. And the DMCA requires ISPs to terminate "repeat infringers."

Commentary: Authors v. Aggregators. This agreement will likely contribute to the ongoing trend in copyright enforcement, away from the authorial system required by the Constitution, and towards an aggregator system.

There is a trend away from reliance upon rights holders' actions brought under 17 U.S.C. § 501 for direct infringement under 17 U.S.C. § 106, in which the rights holder obtains damages. This remedy has historically been the cornerstone of the authorial system, but is of little use in the face of new information technologies.

There is a trend towards reliance upon other mechanisms, which do little for authors and other creators, such as (1) actions and threats of actions for indirect, vicarious, contributory, or inducement of, infringement, (2) limiting access to protected works technologically, (3) assertion of violation of the anti-circumvention provisions of Digital Millennium Copyright Act, and now (4) enforcement of contracts between BIAS providers and large content aggregators.

The Congress would further this trend by enacting orphan works legislation, or bills such as S 968 [LOC | WW], the "Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011", or "PROTECT IP Act".

People and Appointments

7/7. The Software & Information Industry Association (SIIA) announced the election of its Board of Directors for 2011-2012. See, SIIA release.

More News

7/7. The Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC) announced in a release that they have revised the form to be used to seek antitrust clearance of proposed mergers and acquisitions under the Hart-Scott-Rodino (HSR) Act and the Premerger Notification Rules.

Varney to Leave Antitrust Division

7/6. Christine Varney, Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division will leave the DOJ, effective August 5, 2011. See, DOJ release.

She has served in that position since April of 2009. She worked for the law firm of Hogan & Hartson before her appointment. She will go to work for Cravath Swain. President Obama has not yet nominated a replacement.

She is a revolving door attorney, as are many senior officials at the DOJ, Federal Communications Commission (FCC), and Federal Trade Commission (FTC), where she was a Commissioner during the Clinton administration. She has also worked for Presidential campaigns and transitions. In the private sector, she has represented large technology companies.

Varney (at right) will give a speech titled "Reinvigorating Antitrust Enforcement" on Tuesday, July 12, 2011, in Washington DC at the offices of the Center for American Progress (CAP).

She may be remembered as an AAG who reinvigorated antitrust enforcement after eight years enforcement informed by free market economics during the Bush administration. On the other hand, a review of her record suggests that her reputation and speeches have been more vigorous than her actions.

She did promptly withdraw the entirety of the DOJ's 2008 report on single firm conduct. But, during her tenure the DOJ did not attempt to block any information or communications technology (ICT) related mergers, or bring any major ICT single firm conduct cases.

The following is a review of her actions, and the actions of the Antitrust Division, during her brief tenure.

Section 1 Actions. On October 4, 2010, the DOJ and several states filed a complaint [35 pages in PDF] in the U.S. District Court (EDNY) against American Express, MasterCard and Visa alleging violation of Section 1 of the Sherman Act, which is codified at 15 U.S.C. § 1, in connection with their alleged restraints on competition at the point of sale. See, story titled "DOJ and States Bring Antitrust Action Against Credit Card Companies" in TLJ Daily E-Mail Alert No. 2,139, October 5, 2010.

In addition, the DOJ continued during the tenure of Varney to criminally prosecute makers of dynamic random access memory (DRAM) chips who conspired to fix prices in violation of Section 1. However, these investigations and prosecutions began long before the Obama administration.

Section 1 of the Sherman Act, which is codified at 15 U.S.C. § 1, provides, in part, that "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine ..."

Resale Price Maintenance. On June 28, 2007, before Varney's appointment, the Supreme Court issued its opinion [55 pages in PDF] in Leegin Creative Leather Products v. PSKS. See, story titled "SCUS Holds That All Vertical Price Restraints Are Subject to Rule of Reason" in TLJ Daily E-Mail Alert No. 1,603, June 28, 2007.

The Bush DOJ advocated the position taken by the Court. Varney could do nothing to change the Court's holding, but nevertheless criticized it.

For example, on October 7, 2009, she gave a speech titled "Antitrust Federalism: Enhancing the Federal/State Relationship" in New York City to the National Association of Attorneys General in which she stated that "I am not ruling out the possibility that Leegin's dissenters were right".

She also encouraged states, in applying state law, not to follow the Supreme Court. See, story titled "Varney Discusses Antitrust, States AGs, RPM and the Rule of Reason" in TLJ Daily E-Mail Alert No. 1,999, October 8, 2009.

Merger Reviews. The DOJ has conducted several major technology related antitrust merger reviews during Varney's tenure.

The DOJ imposed conditions upon the LiveNation TicketMaster transaction. On January 25, 2010, the DOJ and numerous states filed, and simultaneously settled, a complaint [PDF] in the U.S. District Court (DC) against Ticketmaster and Live Nation alleging violation of Section 7 of the Clayton Act, which is codified at 15 U.S.C. § 18, in connection with their proposed merger.

The DOJ required that Ticketmaster license ticket software, and divest ticketing assets to two different companies. See, story titled "DOJ Requires Ticketmaster Live Nation to License Ticket Software and Divest Ticketing Assets" in TLJ Daily E-Mail Alert No. 2,038, January 25, 2010.

The DOJ also approved, with conditions, the merger of Comcast and NBCU. On January 18, 2011, the DOJ and several states filed, and simultaneously settled, a complaint in the District Court. See also, proposed final judgment.

On April 8, 2011, the DOJ filed, and simultaneously settled a complaint [16 pages in PDF] in the U.S. District Court (DC) against Google, Inc. and ITA Software, Inc. See, story titled "DOJ Imposes Conditions on Google's Acquisition of ITA" in TLJ Daily E-Mail Alert No. 2,220, April 11, 2011.

On November 9, 2009, the DOJ announced that it would take no action to block Oracle's acquisition of Sun Microsystems. In contrast, the DOJ during the Bush administration attempted to block Oracle's acquisition of PeopleSoft. Oracle fought back, and the DOJ's case crashed and burned in the District Court.

During Varney's tenure, the DOJ did not block outright any major technology related mergers.

It may be recalled that Google and Yahoo abandoned their proposed advertising agreement, due to DOJ objections, but just prior to the Obama administration and Varney's appointment. See, story titled "Google and Yahoo Announce Search and Advertising Agreement" in TLJ Daily E-Mail Alert No. 1,779, June 13, 2008, and story titled "Google and Yahoo Abandon Advertising Agreement Because of DOJ Objection" in TLJ Daily E-Mail Alert No. 1,852, November 4, 2008. Google and Yahoo announced this agreement on June 12, 2008.

Also, the federal administrative action against Intel was brought by the Federal Trade Commission (FTC), not the DOJ. And, there is a major review that is still pending at the DOJ involving AT&T and T-Mobile USA.

EC Antitrust Regulators. Unlike her predecessors in the Bush administration, Varney did not stand up to heavy handed and extraterritorial antitrust enforcement by the European Commission (EC) in disputes between U.S. companies. Rather, she urged the U.S. to converge and cooperate with EC regulators.

On February 15, 2010, Varney gave a speech in Paris, France, titled "Coordinated Remedies: Convergence, Cooperation, and the Role of Transparency" in which she advocated greater convergence and cooperation See, story titled "Varney Addresses Extraterritorial Effects and Divergent Outcomes in Antitrust" in TLJ Daily E-Mail Alert No. 2,046, February 17, 2010.

Similarly, on September 24, 2009, Varney gave a speech in New York City titled "Our Progress Towards International Convergence".

However, a key action in relations with the EC was her withdrawal of the Antitrust Division's report on single firm conduct.

Section 2 and Withdrawal of Single Firm Conduct Report. Section 2 of the Sherman Act, which is codified at 15 U.S.C. § 2, provides that "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court."

This section provides little guidance as to what conduct is prohibited. Nevertheless, it is the section that the Antitrust Division uses to address single firm conduct.

Single firm conduct does not include anti-competitive acts that involve multiple firms, such as price fixing, market allocation, and anti-competitive mergers and acquisitions. It does include actions such as tying, bundled discounts, refusals to deal, and predatory pricing. These are all issues of particular importance in the technology sector.

The DOJ, after a lengthy process that included wide input from economists, released a report on September, 8, 2008, titled "Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act". See, PDF version [215 pages].

For a summary of the report, and an explanation of the differences between the US and EC, see stories titled "Antitrust Division Releases Report on Single Firm Conduct", "Summary of Single Firm Conduct Report", "Three FTC Commissioners Criticize Single Firm Conduct Report", and "Select TLJ Articles Related to the US-EC Divergence on Single Firm Conduct" in TLJ Daily E-Mail Alert No. 1,827, September 17, 2008.

One of the most significant acts of the Antitrust Division during Varney's tenure has been the withdrawal of the 2008 single firm conduct report.

On May 12, 2009, Varney announced the withdrawal of that report, without any replacement report, guidelines, or rules. See, story titled "Varney Reverses DOJ Policy Regarding Single Firm Conduct" in TLJ Daily E-Mail Alert No. 1,937, May 12, 2009.

Review of the Horizontal Merger Guidelines (HMG). On August 19, 2010, the DOJ and Federal Trade Commission (FTC) jointly released revised Horizontal Merger Guidelines. See, story titled "Antitrust Division and FTC May Amend Horizontal Merger Guidelines" in TLJ Daily E-Mail Alert No. 1,987, September 23, 2009, and story titled "DOJ and FTC Release Revised Horizontal Merger Guidelines" in TLJ Daily E-Mail Alert No. 2,127, August 20, 2010.

Business Review Letters. The DOJ also issued significant technology related business review letters during Varney's tenure.

On March 31, 2010, Varney signed a business review letter to The Associated Press (AP) in which she stated that the DOJ has "no present intention to challenge the development or operation" of "a voluntary news registry ... to facilitate the licensing and Internet distribution of news content created by the AP, its members, and other news originators". See, story titled "DOJ Will Not Challenge AP's Internet News Registry" in TLJ Daily E-Mail Alert No. 2,070, April 2, 2010.

On February 24, 2010, Varney signed a business review letter to MyWire's counsel, Charles Biggio, of the law firm of Wilson Sonsini Goodrich & Rosati, stating that the DOJ will not challenge a proposal by MyWire to form the Global News Service, an online subscription news aggregation service. See, story titled "DOJ Will Not Challenge MyWire Online News Aggregation Service" in TLJ Daily E-Mail Alert No. 2,053, March 2, 2010.

AAI Urges DOJ to Investigate Acquisition of Nortel Patent Portfolio

7/6. The American Antitrust Institute (AAI) sent a letter to the Department of Justice's (DOJ) Antitrust Division regarding acquisition of Nortel's patent portfolio.

The AAI urged the DOJ "to commence an in-depth investigation of the proposed purchase of Nortel’s portfolio of more than 6,000 patents and patent applications, many of which may be vital to the future of mobile communications and computing devices, to Rockstar Bidco LP, a consortium consisting of Apple, Microsoft, Research in Motion, EMC, Sony and Ericsson".

The AAI added that it is "troubled by the Department's Early Termination of the HSR waiting period on this transaction two weeks ago".

The AAI elaborated that "Rockstar’s reported $4.5 billion purchase price is five times the reported stalking horse bid from Google at the outset of the auction process. How could shared ownership of the Nortel portfolio be worth so much more to the Rockstar group than sole ownership of it would be worth to Google? This in itself raises questions about the concerted intentions and objectives of the six consortium members that could not be achieved through independent bidding and eventual individual ownership or licensing of some or all parts of the patent portfolio at stake."

The AAI also noted that "The consortium membership includes three leading mobile device operating system competitors -- Apple, Microsoft and Research in Motion. They are the three main commercial rivals to Android, Google's open-source mobile operating system."

The AAI also suggested that "patents within the Nortel portfolio cover technologies that are either already incorporated into industry standards or prime candidates to become incorporated into next-generation industry standards".

People and Appointments

7/6. Federal Communications Commission (FCC) Chairman Julius Genachowski named Mindel De La Torre to the FCC's Performance Review Board (PRB). She is Chief of the FCC's International Bureau (IB). See, notice in the Federal Register, Vol. 76, No. 129, Wednesday, July 6, 2011, Pages 39401-39402.

More News

7/6. The U.S. China Economic and Security Review Commission released a transcript of it May 4, 2011, hearing titled "China's Intellectual Property Rights and Indigenous Innovation Policy".

Go to News from July 1-5, 2011.