TLJ News from December 26-31, 2012

DOJ Publishes Second Tunney Act Notice in Apple E-Books Antitrust Case

12/31. The Department of Justice's (DOJ) Antitrust Division published a notice in the Federal Register, as required by the Tunney Act, regarding its settlement with Penguin in its Sherman Act action against Apple and five e-book publishers.

This notice states that public comments are due within "60 days" of December 31. This would be Friday, March 1, 2013. See, FR, Vol. 77, No. 250, December 31, 2012, at Pages 77094-77111.

Previously, Apple and others filed comments vigorously opposing the earlier settlement with three other defendant publishers.

The DOJ filed its complaint on April 11, 2012 alleging that Apple and the five publishers violated of Section 1 of the Sherman Act, 15 U.S.C. § 1, by conspiring to increase the prices that consumers pay for e-books. Three publishers (Hachette, HarperCollins, and Simon & Schuster) settled with the DOJ in April, while Apple and two other publishers (Pearson/Penguin and Holtzbrinck/Macmillan) continued to contest the action.

See, "DOJ Sues Apple and Book Publishers Alleging E-Book Price Collusion", "Analysis of DOJ's Sherman Act Claim Against Apple and E-Book Publishers", and related stories in TLJ Daily E-Mail Alert No. 2,368, April 11, 2012.

Under the Tunney Act, 15 U.S.C. § 16, these settlements must be published, open for public comment, and then approved by the District Court. The Tunney Act requires that the District Court determine whether the proposed final judgment (PFJ) is "in the public interest", which includes consideration of the "competitive impact of such judgment".

Apple opposed the settlement with Hachette, HarperCollins, and Simon & Schuster, both in the District Court, and in the court of public opinion. See, story titled "Update on DOJ v. Apple eBooks Case" in TLJ Daily E-Mail Alert No. 2,437, August 25, 2012.

Apple lost in the District Court. On September 6, the U.S. District Court (SDNY) released its Opinion and Order [48 pages in PDF] approving the settlement agreement between the DOJ and the three settling publishers. See, story titled "District Court Approves Settlement in Apple E-Books Case" in TLJ Daily E-Mail Alert No. 2,442, September 6, 2012.

On December 18, 2012, the DOJ settled with another publisher defendant, Penguin. The just published notice seeks public comments on this second settlement. See, story titled "DOJ Settles With Penguin in E-Books Antitrust Action" in TLJ Daily E-Mail Alert No. 2,494, December 19, 2012.

The District Court's opinion in the first Tunney Act proceeding suggests that if Apple were to contest this second settlement, unless it were to present a new theory, its opposition would be rejected by the District Court.

Now, only Apple and Holtzbrinck Publishers (Macmillan) continue to contest the action. Trial may commence in June of 2013.

This case is U.S. v. Apple, et al., U.S. District Court for the Southern District of New York, D.C. 1:12-cv-02826-DLC, Judge Denise Cote presiding.

OUSTR Seeks Special 301 Comments on Countries that Deny Adequate IPR Protection

12/31. The Office of the U.S. Trade Representative (OUSTR) published a notice in the Federal Register (FR) that solicits comments to assist it in making Special 301 identifications of countries that deny adequate and effective protection of intellectual property rights (IPR) or deny fair and equitable market access to U.S. persons who rely on intellectual property protection.

Section 182 of the Trade Act of 1974, which is codified at 19 U.S.C. § 2242, and which is also known as Special 301, requires the OUSTR to make these identifications.

This notice adds that the OUSTR "requests that interested persons identify those countries that deny adequate and effective protection for intellectual property rights or deny fair and equitable market access to U.S. persons who rely on intellectual property protection. USTR further requests that submissions include specific references to laws, regulations, policy statements, executive, presidential or other orders, administrative, court or other determinations, and any other measures relevant to the issues raised in the written submission or hearing testimony."

The OUSTR will also hold a hearing on Wednesday, February 20, 2013 at the OUSTR, 1724 F St., NW.

The deadline for all parties except foreign governments to submit comments, and requests to testify at the February 20, 2013 hearing, is Friday, February 8, 2013.

The deadline for foreign governments to submit comments, and requests to testify, is Friday, February 15, 2013.

See, FR, December 31, 2012, Vol. 77, No. 250, at Pages 77178-77180.

Obama Signs Bill to Extend FISA Outside the US Surveillance Authority

12/30. President Obama signed into law HR 5949 [LOC | WW], the "FISA Amendments Act Reauthorization Act of 2012". See, White House news office release.

This Act extends for five years government authority to conduct surveillance related to persons "outside" the US, without individualized court approval. Surveillance of persons "outside of the United States" is a term of art that also enables surveillance of persons inside of the US who fall within the protection of the 4th Amendment.

This warrantless "outside" of the US surveillance authority was enacted as part of HR 6304 [LOC | WW], the "Foreign Intelligence Surveillance Act of 1978 Amendments Act of 2008". It is Public Law No. 110-261. The 2008 Act provided that this "outside" of the US authority sunsets on December 31, 2012. The just signed Act provides that this authority sunsets on December 31, 2017.

The Senate passed this bill on December 28, 2012 by a vote of 73-23. See, Roll Call No 236. See also, story titled "Senate Approves Bill to Extend FISA Outside the US Warrantless Intercept Authority" and related stories in TLJ Daily E-Mail Alert No. 2,499, December 30, 2012.

The House passed this bill on September 12, 2012 by a vote of 301-118. See, Roll Call No. 569.

See also:

People and Appointments

12/30. The Senate confirmed William Baer to be an Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division. See, Congressional Record, December 30, 2012, at Page S8556.

Obama Signs Theft of Trade Secrets Clarification Act

12/28. President Obama signed into law S 3642 [LOC | WW], the "Theft of Trade Secrets Clarification Act of 2012". See, White House news office release.

This Act amends the Economic Espionage Act, which is codified at 18 U.S.C. § 1832, and which criminalizes theft of trade secrets. It is a response to the April 11, 2012 opinion of the U.S. Court of Appeals (2ndCir) in U.S. v. Aleynikov, App. Ct. No. 11-1126. It clarifies that theft of software source code can constitute a violation of Section 1832.

Sen. Patrick Leahy (D-VT) introduced this bill on November 27, 2012. The Senate passed this bill, by unanimous consent, without debate, on the same day. See, story titled "Senate Passes Theft of Trade Secrets Clarification Act" in TLJ Daily E-Mail Alert No. 2,477, November 28, 2012. The House passed this bill on December 18, 2012. See, story titled "House Passes Theft of Trade Secrets Clarification Act" in TLJ Daily E-Mail Alert No. 2,494, December 19, 2012.

SEC to Hold Prehearing Conference in Cases Against PRC Accounting Firms

12/28. On January 9, 2013, the Securities and Exchange Commission (SEC) will hold a prehearing conference in the matters of Deloitte Touche Tohmatsu Certified Public Accountants Ltd. and BDO China Dahua CPA Co., Ltd., et al., Administrative Proceeding Nos. 3-14872 and 3-15116.

On December 3, 2012, the SEC issued an order that initiates an administrative action against the People's Republic of China (PRC) affiliates of five large accounting firms for refusing to produce audit work papers and other documents related to PRC based companies under investigation by the SEC for potential accounting fraud against U.S. investors. The five are:

This is SEC Administrative Proceeding No. 3-15116. See also, story titled "SEC Launches Administrative Action Against PRC Accounting Firms" in TLJ Daily E-Mail Alert No. 2,487, December 10, 2012.

On May 9, 2012, the SEC issued a corrected order that initiates an administrative action against Deloitte Touche Tohmatsu Certified Public Accountants Ltd. That is SEC Administrative Proceeding 3-14872.

SEC Commissioner Luis Aguilar gave a speech on December 3, 2012, in which he addressed this matter. He said that "It is obvious that SEC enforcement staff often need access to audit work papers to investigate possible financial fraud claims. In fact, Section 106 of the Sarbanes-Oxley Act, as amended, requires foreign public accounting firms to provide audit work papers concerning U.S. issuers to the SEC upon request."

Luis AguilarAguilar (at left), continued, "Unfortunately, when we made these requests of audit firms in China, it was an act of futility. As a result, in May of this year, the Commission filed an enforcement action against the Shanghai member firm of a Big Four global accounting network for its refusal to provide the Commission with audit work papers. This particular action related to a China-based company under investigation for potential accounting fraud against U.S. investors."

That action pertains to Deloitte Touche Tohmatsu Certified Public Accountants Ltd. However, the order does not identify the securities issuer being investigated by the SEC. The order references it as "Client A".

The December 3 order does not identify the companies under investigation either. It states that the SEC "has ongoing fraud investigations concerning Clients A, B, C, D, E, F, G, H, and I, each of which is a U.S. issuer whose securities were registered with the Commission and whose principal operations were based in the People's Republic of China."

Aguilar continued that SEC "staff had sought to obtain such documents for more than two years before bringing that action. The Shanghai-based auditor refused to provide the documents, citing Chinese law as the reason for its refusal. Regardless of Chinese law, however, the fact remains that foreign auditors in China and elsewhere have voluntarily registered with the PCAOB and have chosen to perform audit work for U.S.-listed issuers, knowing full well that U.S. investors would be relying on their audit reports and other work product. If these firms are unable or unwilling to comply with U.S. law, the question to ask is whether the companies they audit should be allowed to trade in the U.S. securities markets?"

See also, story titled "SEC Brings Administrative Action Against China Based Software and Consulting Firm" in TLJ Daily E-Mail Alert No. 2,311, November 16, 2011.

Lisa Jackson and the EPA

12/28. Lisa Jackson, Administrator of the Environmental Protection Agency (EPA), announced on December 27 that she will leave the EPA in January. See, EPA release.

Most of the activities of the EPA do not directly impact information and communications technology (ICT). Also, in the past four years, the EPA did not inflict the same regulatory harm upon the consumer electronics manufacturers that it did upon so many other US industry sectors. Thus, Michael Petricone of the Consumer Electronics Association (CEA) stated in a release on December 28 that the "CEA commends Administrator Jackson's public service".

The EPA, both during Jackson's tenure and before, has provided a useful point of comparison for assessing US regulatory agencies' adherence to statutory mandates, procedural fairness to affected parties, openness, and transparency, and decision making based upon empirical evidence and scientific and technological expertise. On all procedural criteria, the EPA makes other agency processes appear sound in comparison.

While some in the IT sector complain that the Federal Trade Commission (FTC) is creating out of thin air new antitrust powers to regulate the dynamic tech sector, while some complain that the Securities and Exchange Commission (SEC) fails to implement the statute passed to facilitate capital formation for start ups in the tech sector, and while many perceive all manner of procedural mischief at the Federal Communications Commission (FCC), Lisa Jackson's presence in Washington has provided a constant reminder of just how arbitrary and unfair administrative processes can become in the US.

Senate Approves Bill to Extend FISA Outside the US Warrantless Intercept Authority

12/28. The Senate passed HR 5949 [LOC | WW], the "FISA Amendments Act Reauthorization Act of 2012", by a vote of 73-23. See, Roll Call No 236.

The House passed this bill on September 12, 2012. It is now ready for President Obama's signature. He announced his support for this bill back in September. See, story titled "Obama Backs FISA Bill" in TLJ Daily E-Mail Alert No. 2,446, September 12, 2012.

See also, related stories in this issue:

Introduction. This short bill merely extends for five years government authority to conduct surveillance related to persons "outside" the US, without individualized court approval. Surveillance of persons "outside of the United States" is a term of art that also enables surveillance of persons inside of the US who fall within the protection of the 4th Amendment.

This warrantless "outside" of the US surveillance authority was enacted as part of HR 6304 [LOC | WW], the "Foreign Intelligence Surveillance Act of 1978 Amendments Act of 2008". It is Public Law No. 110-261. The 2008 Act provides that this "outside" of the US authority sunsets on December 31, 2012.

The Senate rejected four amendments on roll call votes on December 27 and 28.

See, full story.

Senate Debate: Case for the FISA Extension Bill

12/28. The Senate debated HR 5949 [LOC | WW], the "FISA Amendments Act Reauthorization Act of 2012", on December 27 and 28, 2012. It passed the bill, without amendment, on December 28.

Sen. Dianne Feinstein (D-CA), the Chairman of the Senate Intelligence Committee (SIC), and Sen. Saxby Chambliss (R-GA), the ranking Republican on the SIC, were the primary proponents of the bill, and the primary opponents to the proposed amendments to the bill.

Sen. Saxbe ChamblissSen. Chambliss (at right) said that "More than 5 years ago, after an adverse ruling from the Foreign Intelligence Surveillance Act Court, the Director of National Intelligence requested that Congress act immediately to stem the sudden and significant reduction in the intelligence community's capability to collect foreign intelligence information on overseas targets. So Congress responded -- first with the Protect America Act of 2007 and then with the FISA Amendments Act of 2008. By providing a statutory framework for acquiring foreign intelligence information from overseas targets, the FAA has enabled the intelligence community to identify and neutralize terror networks before they harm us either at home or abroad. While I cannot get into specific examples, I can say definitively that these authorities work extremely well." See, Congressional Record, December 27, 2012, at Page S8412.

"Under section 702, the government may target persons reasonably believed to be outside the United States for the purpose of acquiring foreign intelligence information. However, there are a number of important limitations on this authority that are designed to ensure that this section 702 collection cannot be used to intentionally target a U.S. person under what we call reverse-targeting within the community."

He said that "The plain language and legislative history of section 702 makes clear that Congress understood there would be incidental collection of one-end domestic and U.S. person communications. There has to be. If we impose an upfront ban on the collection of such communications, we could never do the acquisition in the first place because it is often impossible to determine in advance whether an unknown target overseas is, in fact, a U.S. person."

Sen. Feinstein asked rhetorically, "Can the government use section 702 of FISA to target a U.S. person? The answer to that is no. The law specifically prohibits the use of section 702 authorities to direct collection against -- that means target -- U.S. persons. So no one should think the targets are U.S. persons."

Sen. Dianne FeinsteinSen. Feinstein (at right) said that "This prohibition is codified in section 702(b), which states that surveillance authorities may not be used -- and let me quote the law -- ``to intentionally target any person known at the time of acquisition to be located in the United States or to intentionally target a United States person reasonably believed to be located outside the United States.'' (At Page S8391.)

She continued that "it is simply not possible to collect intelligence on the communications of a person of interest without also collecting information about the people with whom and about whom that person communicates, including, in some cases, non-targeted U.S. persons. The concern was addressed when the FAA was originally drafted. Specifically, in order to protect the privacy and civil liberty of U.S. persons, Congress mandated that for collection conducted under 702, the Attorney General adopt and the FISA Court review and approve procedures that minimize the acquisition, retention, and dissemination of nonpublic information concerning unconsenting U.S. persons."

"There are procedures and requirements in place under current law that provide protection for the privacy and civil liberties of U.S. persons. Those entrusted with the responsibility to collect the oversight, the committees of jurisdiction, the FISA Court, and the executive branch agencies together remain vigilant and continue to review the operations of these agencies."

Sen. Feinstein and Sen. Chambliss issued a joint statement after passage. They wrote that "This necessary legislation will continue to keep America safe by enabling our intelligence community to identify and neutralize terror networks before they harm us either at home or abroad. In addition, this legislation includes strong privacy protections. The Senate Intelligence Committee will continue to conduct intensive oversight of this program in the 113th Congress."

Senate Debate: Case Against the FISA Extension Bill

12/28. The Senate debated HR 5949 [LOC | WW], the "FISA Amendments Act Reauthorization Act of 2012", on December 27 and 28, 2012. It passed the bill, without amendment, on December 28.

The leading opponents of the bill during debate were Sen. Ron Wyden (D-OR), Sen. Jeff Merkley (D-OR), Sen. Mike Lee (R-UT), Sen. Patrick Leahy (D-VT), and Sen. Rand Paul (R-KY).

Sen. Lee, who voted for all four failed amendments, and against the bill, spoke at length in the Senate on December 27. See, text, video [13:47 on YouTube], and Congressional Record, December 27, 2012, at Pages S8423-4.

Sen. Mike LeeSen. Lee (at right) said that "I am concerned about the government's ability -- without a warrant -- to search through FISA materials for communications involving individual American citizens. I worry that this authority is inconsistent with and diminishes the essential constitutional right that each of us has ``to be secure ... against unreasonable searches and seizures.´´"

He said that "I believe we must enforce meaningful protections for circumstances when the government searches through its database of captured communications looking for information on individual American citizens; otherwise, by means of these so-called backdoor searches, the government may conduct significant warrantless surveillance of American persons. I believe this current practice is inconsistent with core fourth amendment privacy protections and needs to be reformed."

Sen. Ron Wyden (D-OR) described the outside the US authority created by the 2008 act as "the successor to the warrantless wiretapping program that operated under the Bush administration". See, Congressional Record, December 27, 2012, at Page S8385.

He proceeded with a long speech on the historical origins of the 4th Amendment. He concluded that the founding fathers drafted the 4th Amendment to prohibit the sort of warrantless searches that the British had practiced and that caused the American colonies to rebel. And, he said, that the the authority created by Section 702 allows practices similar to those of the British.

Sen. Ron WydenSen. Wyden (at left) said that "section 702 of the FISA Amendments Act does not involve obtaining individual warrants. Instead, it allows the government to get what is called a programmatic warrant. It lasts for an entire year and authorizes the government to collect a potentially large number of phone calls and e-mails, with no requirement that the senders or recipients be connected to terrorism, espionage -- the threats we are concerned about. If that sounds familiar, it certainly should. General warrants that allowed government officials to decide whose privacy to invade were the exact sort of abuse that the American colonists protested over and led the Founding Fathers to adopt the fourth amendment in the first place." (At page S8387.)

Sen. Wyden also reviewed the efforts of Senators to get a "rough estimate" from the intelligence community of "how many Americans' communications have been swept up in this way. Is it hundreds? Is it hundreds of thousands? Is it millions?" He said that the Director of National Intelligence will not publicly provide an estimate, state whether any estimate have been made, or "whether any wholly domestic communications had been collected".

He continued that "once the government has this pile of communications, which contains an unknown but potentially very large number of Americans' phone calls and e-mails, there are surprisingly few rules about what can be done with it. For example, there is nothing in the law that prevents government officials from going to that pile of communications and deliberately searching for the phone calls or e-mails of a specific American, even if they do not have any actual evidence that the American is involved in some kind of wrongdoing, some kind of nefarious activity." (At page S8388.)

"Again, if it sounds familiar, it ought to because that is how I began this discussion, talking about these sorts of general warrants that so upset the colonists. General warrants allowing government officials to deliberately intrude on the privacy of individual Americans at their discretion was, as I have outlined this morning, the abuse that led America's Founding Fathers to rise up against the British. They are exactly what the fourth amendment was written to prevent."

Senate Rejects Amendments to FISA Extension Bill

12/28. The Senate considered and passed HR 5949 [LOC | WW], the "FISA Amendments Act Reauthorization Act of 2012", on December 27 and 28, 2012. It voted on four amendments, all of which it rejected on roll call votes.

First, the Senate rejected an amendment offered by Sen. Patrick Leahy (D-VT) and others that would have shortened the extension, and provided for more oversight by the Inspector General of the Intelligence Community.

Second, the Senate rejected an amendment offered by Sen. Jeff Merkley (D-OR), Sen. Mike Lee (R-UT) and others that would have required the Department of Justice (DOJ) to release certain significant opinions, or summaries of opinions, of the FISA body.

Third, the Senate rejected an amendment offered by Sen. Rand Paul (R-KY) also known as the 4th Amendment Protection Act.

Fourth, the Senate rejected an amendment offered by Sen. Ron Wyden (D-OR) that would have imposed addition reporting requirements.

Leahy: Substitute Bill. First, the Senate rejected on December 27 the amendment in the nature of a substitute offered by Sen. Leahy by a vote of 38-52. See, Roll Call No. 232.

This is Senate Amendment No. 3437, also printed in the Congressional Record, December 27, 2012, at Page S8453. The cosponsors were Sen. Richard Durbin (D-IL), Sen. Al Franken (D-MN), Sen. Jeanne Shaheen (D-NH), Sen. Daniel Akaka (D-HI), and Sen. Christopher Coons (D-DE).

First, instead of providing or a five year extension, it would have provided a shorter extension -- until June 1, 2015. Second, it would have broadened the powers and duties of the Inspector General of the Intelligence Community to review and report on "targeting and minimization procedures".

Sen. Leahy stated that "While there is no question that the surveillance powers established in the FISA Amendments Act have proven to be extraordinarily important for our national security, it is equally clear to me that those broad powers must continue to come with rigorous oversight and strong privacy protections."

"Based on my review of information provided by the Government, and after a series of classified briefings, I have not seen evidence that the law has been abused, or that the communications of U.S. persons are being intentionally targeted. But let's be absolutely clear, my conclusion is based on the information I have seen to date, and current compliance does not guarantee future compliance."

"Even more troubling is the fact that we still have not received a report from the NSA Inspector General that fully assesses the NSA's compliance with its targeting and minimization procedures, or the limitations we put in place to protect the privacy of Americans."

The only Republicans to vote yes were Sen. Lee and Sen. Paul.

36 Democrats voted yes. 12 Democrats  voted no. The Democrats who voted no were Sen. Dianne Feinstein (D-CA), Sen. Kay Hagan (D-NC), Sen. John Kerry (D-MA), Sen. Herb Kohl (D-WI), Sen. Mary Landrieu (D-LA), Sen. Joe Lieberman (D-CT), Sen. Claire McCaskill (D-MO), Sen. Barbara Mikulski (D-MD), Sen. Bill Nelson (D-FL), Sen. Mark Pryor (D-AR), Sen. John Rockefeller (D-WV), and Sen. Mark Warner (D-VA).

Merkley: Disclosure of FISA Body Opinions. Second, the Senate rejected an amendment offered by Sen. Merkley by a vote of 37-54. See, Roll Call No. 233.

This is Senate Amendment No. 3435, also printed in the Congressional Record, December 27, 2012, at Page S8452. The cosponsors were Sen. Lee, Sen. Coons, Sen. Wyden, Sen. Franken, Sen. Shaheen, Sen. Durbin., and Sen. Jon Tester (D-MT).

It would have required the Attorney General to disclose each decision, order, or opinion of the body (titled "Foreign Intelligence Surveillance Court" by the FISA) that includes significant legal interpretation of Section 501 or 702 of the FISA unless such disclosure is not in the national security interest.

Section 702 is the outside the US surveillance authority of the 2008 act. The controversy surrounding Section 501 dates back to the passage of the 2001 surveillance act, which was Title II of the USA PATRIOT Act.

Section 215 of the 2001 act rewrote Section 501 of the FISA, which is codified at 50 U.S.C. § 1861. This is the section of the FISA that provides for "Access to Certain Business Records for Foreign Intelligence and International Terrorism Investigations". This 215/501/1861 authority enables the FBI to obtain from a judge or magistrate an order requiring the production business records. While the statute does not expressly include library or bookseller records, it is not disputed that they are covered. This section further provides that if the government submits an application to the court that states that there are "reasonable grounds to believe that the tangible things sought are relevant to an authorized investigation", then the "judge shall enter an ex parte order as requested". This is a very low standard, and the judge is left with no discretion.

This amendment provides that "Attorney General shall declassify and make available to the public" each decision, or if protecting national security so warrants, "an unclassified summary of such decision".

This amendment recited in its findings that "Secret law is inconsistent with democratic governance. In order for the rule of law to prevail, the requirements of the law must be publicly discoverable", and that the "practice of withholding decisions" of the FISA body "is at odds with the United States tradition of open publication of law".

Sen. Lee argued that "a bedrock principle upon which our Nation is founded is that the requirements of law must be made publicly available -- available for review, available for the scrutiny of the average American."

Sen. Jeff MerkleySen. Merkley (at right) stated that "If the court reaches an interpretation with which Congress is uncomfortable, we should be able to change that, but of course we cannot change it, not knowing what the interpretation is because the interpretation is secret. So we are certainly constrained from having the type of debate that our Nation was founded on -- an open discussion of issues."

He explained that the amendment would require "the Attorney General to declassify the FISA report in court of review opinions that include significant legal interpretations. If the Attorney General makes a decision, however, that it cannot be declassified -- those decisions -- in a way that does not jeopardize national security, then the amendment requires the administration to declassify summaries of their opinions." And, "If the Attorney General decides that not even a summary can be declassified without compromising national security, then the amendment requires the administration to report to Congress regarding the status of its process for declassifying these opinions".

Sen. Wyden stated that "in 2009 when the Obama administration wrote to Senator Rockefeller and myself to inform us that they would be setting up a process for redacting and releasing those FISA Court opinions that contained significant interpretations of law. Unfortunately, over 3 years later, this process has produced literally zero results. Not a single redacted opinion or summary of FISA Court rulings has been released." (At page S8389.)

Only three Republicans voted yes: Sen. Lee, Sen. Heller, and Sen. Paul.

34 Democrats also voted yes. The Democrats who voted no were Sen. Dianne Feinstein (D-CA), Sen. Robert Casey (D-PA), Sen. Kay Hagan (D-NC), Sen. Tim Johnson (D-SD), Sen. John Kerry (D-MA), Sen. Herb Kohl (D-WI), Sen. Mary Landrieu (D-LA), Sen. Joe Lieberman (D-CT), Sen. Claire McCaskill (D-MO), Sen. Barbara Mikulski (D-MD), Sen. Ben Nelson (D-NE), Sen. John Rockefeller (D-WV), Sen. Mark Warner (D-VA), and Sen. Sheldon Whitehouse (D-RI).

Paul: 4th Amendment Preservation Act. The Senate rejected an amendment offered by Sen. Paul by a vote of 12-79. See, Roll Call No. 234.

This is Senate Amendment No. 3436, also printed in the Congressional Record, December 27, 2012, at Page S8453. The only cosponsor was Sen. Lee.

This amendment, also known as the 4th Amendment Preservation Act, is not essentially about FISA outside the US surveillance authority. It goes to a broad range of government surveillance and searches and seizures.

The 4th Amendment to the Constitution provides, in full, that "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

The 4th Amendment references "persons, houses, papers and effects". However, items that were once stored in houses and in filing cabinets are now stored online in servers owned by third party service providers. The Department of Justice (DOJ) and state law enforcement agencies have attempted, with considerable success, to treat information stored with third party services as beyond the reach of the 4th Amendment warrant requirement. Also, much confidential information about individuals is now held by banks and other third parties. The Department of Justice (DOJ) and state law enforcement agencies successfully assert that this information belongs to the service provider.

Sen. Paul's amendment seeks to undo these effects upon 4th Amendment protections.

The amendment provides that "the Federal Government and a State or local government is prohibited from obtaining or seeking to obtain information relating to an individual or group of individuals held by a third-party in a system of records, and no such information shall be admissible in a criminal prosecution in a court of law."

However, the amendment then provides exceptions in cases where there is consent from the individual, or a warrant from a court. "The Federal Government or a State or local government may obtain, and a court may admit, information relating to an individual held by a third-party in a system of records if -- (A) the individual whose name or identification information the Federal Government or State or local government is using to access the information provides express and informed consent to the search; or (B) the Federal Government or State or local government obtains a warrant, upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

Sen. Paul stated in the Senate that "We have allowed Congress and the courts to diminish our fourth amendment protections, particularly when we give our papers to a third party--once information is given to an Internet provider or to a bank. Once we allowed our papers to be held by third parties, such as telephone companies or Internet providers, the courts determined we no longer had a legally recognized expectation of privacy."

He said that "This amendment would restore the fourth amendment protection to third-party records. This amendment would simply apply the fourth amendment to modern means of communications. E-mailing and text messaging would be given the same protections we currently give to telephone conversations."

Only three Republicans voted yes: Sen. Lee, Sen. Paul and Sen. Heller.

Only nine Democrats voted yes: Sen. Merkley, Sen. Wyden, Sen. Max Baucus (D-MT), Sen. John Tester (D-MT), Sen. Mark Begich (D-AK), Sen. Maria Cantwell (D-WA), Sen. Debbie Stabenow (D-MI), Sen. Tom Udall (D-NM), and Sen. Jim Webb (D-VA).

Wyden: Reporting Requirement. Fourth, the Senate rejected an amendment on December 28 offered by Sen. Wyden by a vote of 43-52. See, Roll Call No. 235. This is Senate Amendment No. 3439.  There were 14 cosponsors.

This amendment would require the government to provide an estimate of how many Americans have been surveilled under the FISA's outside the US authority.

He stated that "For purposes of the FISA Amendments Act, I think we ought to know, generally, how many Americans are being swept up under the legislation. Oversight essentially would be toothless without this kind of information."

He continued that "When the distinguished chair of the committee says Senators should go over to the committee's offices and look at the documents which state that the intelligence community cannot do a new estimate, I want Senators to know the language of my amendment does not ask for a new estimate. In no way does it ask for a new estimate. It simply says: If an estimate has been done, that estimate ought to be furnished. If no estimate has been done, the answer to that is simply no."

He added that "also requires the intelligence community to state whether any wholly domestic communications have been collected. That again can be answered with a yes or no. Finally, it requires a response as to whether the National Security Agency has collected personal information on millions of Americans, and that too is a very straightforward answer.

Only six Republicans voted yes: Sen. Lee, Sen. Paul, Sen. Heller, Sen. Charles Grassley (R-IA), Sen. Lisa Murkowski (R-AK), and Sen. Pat Toomey (R-PA).

Commentary: Analysis of Senate Votes on the FISA Extension Bill

12/28. The Senate passed HR 5949 [LOC | WW], the "FISA Amendments Act Reauthorization Act of 2012", by a vote of 73-23. See, Roll Call No 236. The Senate first rejected four amendments on roll call votes.

Voting on amendments, and for final passage, correlated with party affiliation. Senate Democrats were more likely to vote for the amendments, and against the bill, than Republicans.

This is observable by reviewing the roll call votes. In addition, one can quantify this. For example, the Pearson's Correlation Coefficient for the two dichotomous variables of party affiliation (being a Democrat) and voting for the Leahy amendment was .70. Similarly, the coefficients for party affiliation and voting for the Merkley, Paul and Wyden amendments were .64, .18 and .63, respectively. The coefficient for party and voting against final passage was .39.

Party affiliation does not, however, explain all votes. Moreover, turning to data on party affiliation of registered voters in each state does not help. Nor do the ideological ratings of Senators.

One can also sometimes explain voting on the basis of how a particular bill disparately burdens or benefits different states. However, that method of analysis is not useful for this bill because this bill affects all states equally.

This article offers a hypothesis regarding another possible causal factor in Senators' voting decisions on bills of this nature. Senators are also influenced by businesses based in their states, and their contractors, affiliates, and trade associations. The primary businesses involved with electronic surveillance are the communications service providers.

Senators represent geographic territories. To certain extent, communications service providers are geographic too. Consider the 1982 Modification of Final Judgment (MFJ) in US v. AT&T that created seven separate geographically defined Regional Bell Operating Companies (RBOCs). The MFJ did not includes a few states in an RBOC. Over the years six of the seven have been consolidated into Verizon and AT&T.

This article suggests that there was a pattern in voting on the FISA extension bill based upon whether the Senator represents a state that had an RBOC that became part of either Verizon or AT&T, or whether the Senator represents one of the USWest states, or Alaska, Hawaii or Nevada. USWest, of course, became Qwest, which is now part of CenturyLink. For the sake of brevity, this article refers to a dichotomous breakdown of states - USWest Plus states and Verizon/AT&T states.

See, full story.

Senate Amends and Passes Rep. Smith's Patent Bill

12/28. The Senate amended and passed HR 6621 [LOC | WW], an untitled bill that would make numerous changes to patent law. The Senate passed a substitute amendment offered by Sen. Patrick Leahy (D-VT) and Sen. Charles Grassley (R-IA), by unanimous consent, with little discussion.

Rep. Lamar Smith (R-TX) introduced this bill on November 30, 2012. See, story titled "Rep. Smith Introduces Patent Bill" in TLJ Daily E-Mail Alert No. 2,487, December 10, 2012. The House passed this bill on December 18, 2012. See, story titled "House Passes Rep. Smith's Patent Bill" in TLJ Daily E-Mail Alert No. 4,494, December 19, 2012.

The just passed Senate version deletes from the House bill the provision regarding pending pre-GATT applications. While Rep. Smith, Sen. Leahy, and other proponents have described this bill as a technical corrections bill, the pre-GATT issue involves some controversy. The bill as introduced in the House would have would have eliminated several hundred long pending patent applications after one year. The bill as passed by the House provided for the U.S. Patent and Trademark Office (USPTO) to prepare a report about, and disclose, these applications. The bill as passed in the Senate does not address this issue.

Neither the House Judiciary Committee (HJC) nor the Senate Judiciary Committee (SJC) held any hearings or mark up sessions. Only Sen. Leahy discussed this bill on the Senate floor on December 28.

Sen. Leahy stated in the Senate that he regrets that the bill does not address the post-grant estoppel provision of the America Invents Act (AIA). He said that "I hope we will soon address this issue so that the law accurately reflects Congress's intent." See, Congressional Record, December 28, 2012, at Page S8517.

Sen. Leahy also stated that "The assertion of patents is still too often used by patent trolls to extract payment even where there is not infringement of a valid patent, and the ``tech patent wars´´ among the large mobile phone companies show the perils to competition that can come when companies do not reach business-to-business resolutions of their patent disputes. But the important reforms made by the Leahy-Smith America Invents Act go a long way toward improving the patent system. This legislation will help streamline those reforms, helping inventors, businesses, and the countless American workers employed in industries that produce and rely on intellectual property."

The House met on Sunday, December 30. Rep. Smith moved to suspend the rules and concur in the Senate version. He and Rep. Bobby Scott (D-VA) spoke in support of concurring in the Senate version.

10th Circuit Addresses Behavioral Advertising and Unlawful Intercepts

12/28. The U.S. Court of Appeals (10thCir) issued its opinion [15 pages in PDF] in Kirch v. Embarq, a civil action regarding whether certain activities related to behavioral adverting violate the ECPA's prohibition of intercepts of electronic communications, which is codified at 18 U.S.C. § 2510, et seq. The Court of Appeals affirmed the District Court's judgment for Embarq.

Embarq, a defendant below and appellee in the Court of Appeals, is an internet access service provider. The Court of Appeals calls it an ISP. NebuAd, which is not a party, was an online advertising company. Kathleen Kirch, a plaintiff below and appellant, is a customer of Embarq. (In 2009 CenturyTel acquired Embarq, and changed its name to CenturyLink.)

Behavioral Advertising. The Court of Appeals wrote that from December 2007 through March 2008 Embarq authorized NebuAd "to conduct a technology test for directing online advertising to the users most likely to be interested in the ads". The Court of Appeals did not elaborate in detail on NebuAd. And, the opinion does not use the words "behavioral advertising". However, this case concerns the application of intercept law to the technology that underlies behavioral advertising.

Back in 2008, several Washington DC based groups argued that arrangements between ISPs and ad networks to mine customer data streams for behavioral advertising purposes could violate federal intercept laws. NebuAd's activities were the targets of their criticism. See for example, Public Knowledge (PK) and Free Press (FP) paper titled "NebuAd and Partner ISPs: Wiretapping, Forgery and Browser Hijacking" and story titled "Free Press and Public Knowledge Allege More ISP Bad Behavior" in TLJ Daily E-Mail Alert No. 1,782, June 18, 2008.

NebuAd also attracted Congressional attention. For example, Rep. Joe Barton (R-TX) and Rep. Ed Markey (D-MA) sent a letter on May 16, 2008, to Neil Smit, P/CEO of Charter Communications, requesting that "you do not move forward on Charter Communications' proposed venture with NebuAd until we have an opportunity to discuss with you issues raised by this proposed venture."

In part because of such criticism, NebuAd lost contracts with service providers, and went out of business. And, it is not a party to the present action. However, the plaintiffs argue that Embarq is liable as an aider and abettor of NebuAd's alleged illegal intercepts.

NebuAd Technology. The Court of Appeals described the actions that gave rise to this case. "The physical components of the system were an Ultra Transparent Appliance (UTA) and remote servers ... hosted by NebuAd. The system's purported purpose was to ``allow[] for placement of optimized advertisement on Trial customers' internet browser screens.´´ ... the UTA was installed in Embarq’s network in Gardner, Kansas, where the Kirches were customers of Embarq. Embarq’s Gardner users were connected to the UTA, which was connected to the rest of Embarq’s network. According to the Kirches, the Internet traffic that passed through the UTA was sent to the NebuAd servers in its system. NebuAd used the UTA to track what websites an Embarq user visited, and to deliver online advertising thought likely to interest users who visited those websites."

The Court of Appeals added that "Embarq asserts that the NebuAd System collected only information about customer requests for highly trafficked commercial websites, and obtained only three pieces of information about such requests: the requested Uniform Resource Locator (URL, known in common parlance as a web page's ``address´´), the ``referer URL´´ (the last URL visited before the request), and an advertising network cookie. Because cookies are typically encrypted, the NebuAd System did not extract any information from them. Users' computers were assigned identification numbers based on these cookies, and the information about past Internet usage was associated with a user's computer only through this number." (Parentheses in original. Footnote omitted.)

Proceedings Below. Kathleen Kirch filed a complaint in the U.S. District Court (DKan) in 2010 against Embarq and United Telephone Company of Eastern Kansas alleging illegal interception of electronic communications, unauthorized access to a protected computer system (18 U.S.C. § 1030), and violation of Kansas state laws regarding invasion of privacy and trespass to chattels.

The District Court dismissed all of the claims except the ECPA interception claim pursuant to stipulation of the parties. In addition, Kirch sought class action status to represent Embarq customers.

The District Court granted summary judgment to defendants on the ECPA claim on several grounds. It held that Embarq had not intercepted in violation of the ECPA because it did not acquire the content of communications, that Embarq could not be held liable for the conduct of NebuAd, and that Embarq's customers had consented.

The present appeal followed.

Statute. The Electronic Communications Privacy Act (ECPA), at 18 U.S.C. § 2511, prohibits interception of electronic communications. 18 U.S.C. § 2520 provides a private right of action. 18 U.S.C. § 2510 provides definitions.

Section 2511 provides that "any person who ... intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept, any wire, oral, or electronic communication ... shall be punished ..."

Section 2520 provides that subject to exceptions, "any person whose wire, oral or electronic communication is intercepted, disclosed, or intentionally used in violation of this chapter may in a civil action recover from the person or entity, other than the United States, which engaged in that violation such relief as may be appropriate".

Section 2511(2)(d) provides an exception for intercepts based upon consent. "It shall not be unlawful under this chapter for a person ... to intercept a wire, oral, or electronic communication where such person is a party to the communication or where one of the parties to the communication has given prior consent to such interception unless such communication is intercepted for the purpose of committing any criminal or tortious act in violation of the Constitution or laws of the United States or of any State". (Emphasis added.)

Section 2510's definition creates a service provider "ordinary course of its business" exception. First, Section 2510 defines "intercept" as "the aural or other acquisition of the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical, or other device". Then, it provides that "electronic, mechanical, or other device" means "any device or apparatus which can be used to intercept a wire, oral, or electronic communication other than ... any telephone or telegraph instrument, equipment or facility, or any component thereof ... being used by a provider of wire or electronic communication service in the ordinary course of its business". (Emphasis added.)

Court of Appeals. The Court of Appeals affirmed.

Embarq argued on appeal that (1) there was no interception because it did not acquire the contents of any communications, and even if there was interception, then (2) it was by NebuAd and not Embarq, (3) customers had consented via its privacy policy, and (4) the ordinary course of business exception applies.

The Court of Appeals wrote that "Traffic on the Internet is electronic communication" within the meaning of the ECPA. The Court did not address whether non-party NebuAd had intercepted any electronic communications.

The Court of Appeals wrote that Section 2520 "includes no aiding-and-abetting language" and "the ECPA creates no aiding-and-abetting civil liability, Embarq is liable only if it itself intercepted those communications." Hence, "Embarq cannot be liable as an aider and abettor" for any violations of the ECPA by NebuAd.

The Court of Appeals also wrote that "the undisputed facts establish that NebuAd's use of the UTA gave Embarq access to no more of its users' electronic communications than it had in the ordinary course of its business as an ISP. Embarq is therefore protected from liability by the statutory exemption for activities conducted in the ordinary course of a service provider’s business. ... Embarq’s only access to data collected by the UTA was in the ordinary course of its business as an ISP."

However, the Court of Appeals did not determine whether there had been any unlawful interception by NebuAd. Nor did it rule on the consent via privacy policy argument.

Matthew Price and David Handzo (Jenner & Block) and Emmett Logan (Stinson Moheck) represented Embarq.

This case is Kathleen Kirch, et al.  v. Embarq Management Company and United Telephone Company of Eastern Kansas, U.S. Court of Appeals for the 10th Circuit, App. Ct. No. 11-3275, an appeal from the U.S. District Court for the District of Kansas, D.C. No. 2:10-CV-02047-JAR-GLR. Judge Hartz wrote the opinion of the Court of Appeals, in which Judges Murphy and Holmes joined.

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12/28. The U.S. Court of Appeals (9thCir) issued its amended opinion [16 pages in PDF] in Meyer v. Portfolio Recovery Associates, a Telephone Consumer Protection Act (TCPA) case. The Court of Appeals affirmed the District Court's provisional grant of class certification, and preliminary injunction restraining PRA from using its Avaya Proactive Contact Dialer to place calls to cellular telephone numbers with California area codes that PRA obtained via skip-tracing. This opinion amends the October 12 opinion of the Court of Appeals, and denies the petition for panel rehearing and rehearing en banc. This case is Jesse Meyer v. Portfolio Recovery Associates, LLC, U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 11-56600, an appeal from the U.S. District Court for the Southern District of California, D.C. No. 3:11-cv-01008-AJB-RBB, Judge Anthony Battaglia presiding. Judge Morgan Christen wrote the opinion of the Court of Appeals, in which Judges Dorothy Nelson and Raymond Fisher joined.

12/28. The People's Republic of China's (PRC) Xinhua published a piece titled "Apple Fined for Copyright Violation". It states that "The Beijing No. 2 Intermediate People's Court ordered Apple to pay a total of 1.03 million yuan (165,908 U. S. dollars) to eight Chinese writers and two companies for violating their copyrights." (Parentheses in original.) It adds that the Court held that "Apple violated the plaintiffs' ``right of communication through information networks,´´ an element of China's Copyright Law, by providing apps that contained unlicensed electronic versions of the books".

12/28. Hewlett Packard (HP) released another statement regarding HP's acquisition of Autonomy. HP wrote that "the U.S. Department of Justice advised HP that they have opened an investigation relating to Autonomy. HP is cooperating with the Department of Justice, the Securities and Exchange Commission and the UK’s Serious Fraud Office in this matter." See also, HP's Form 10-K filed with the Securities and Exchange Commission (SEC) on December 27, 2012.

2nd Circuit to Consider Application of 4th Amendment to Delays in Examining Seized Hard Drives and ISP E-Mail

12/27. The U.S. Court of Appeals (2ndCir) issued a short per curiam opinion in U.S. v. Metter, a securities fraud case involving suppression of evidence collected from seized computer hard drives and ISP e-mail accounts. The key issue, yet to be decided by the Court of Appeals, is how long can the government delay its review of seized electronic evidence to determine what falls outside of the scope of its search warrants, and what is privileged.

The District Court granted Metter's motion to suppress evidence, finding that seizure of vast amounts of data, and taking no action for 15 months, is not only unreasonable under the 4th Amendment, but "disturbing". The District Court added that the government compounded the problem by threatening to release unreviewed records of all defendants to their co-defendants without regard for privilege.

The U.S. brought this interlocutory appeal. Metter moved to dismiss the appeal. The just released opinion merely denies the motion to dismiss the appeal. The Court of Appeals will proceed to rule on the merits of the appeal. That opinion will be of first impression in the 2nd Circuit, and significant for all courts.

The 2nd Circuit's forthcoming opinion on the merits may set a critical precedent regarding application of the 4th Amendment to government seizures of vast amounts of information from computers and ISP accounts, for off site reviews, and then delaying its review of that data.

This is a criminal securities fraud case. See, Department of Justice (DOJ) May 5, 2010 release announcing the commencement of this criminal action.

The Securities and Exchange Commission (SEC) also simultaneously brought a civil fraud action. See, May 5, 2010 complaint. The just released Court of Appeals opinion contains little information. However, the District Court's May 17, 2012 Memorandum and Order in the criminal action granting the motion to suppress evidence is thorough.

The FBI, pursuant to a court issued warrant, searched Metter's house, and seized four computer hard drives. It also searched business offices, pursuant to warrants, and seized more hard drives. It collected 50 hard drives, and made complete copies of each. The warrants allowed seizures, to be followed by offsite review of the drives.

Since the government returned the drives, application of the 4th Amendment to deprivation of access to computing equipment and data is not at issue in this case.

The FBI also obtained warrants directed to ISPs to seize e-mail and text messages of Metter and other defendants. It acquired copies of e-mail and text messages.

Metter does not contest the warrants, or the seizures. Rather, at issue is the government's collection and dissemination of a huge amount of electronic records, much of which was not relevant to the investigation, and beyond the scope of the search warrants, and then delaying for 15 months in examining the records.

District Court wrote that "This case raises an interesting issue of first impression in this Circuit that may impact electronic discovery in future criminal investigations and cases: How long may the government retain seized and imaged electronic evidence before conducting a review of that evidence to determine whether any of it falls outside the scope of a search warrant?"

The District Court held that courts should make case by case factual determinations of whether seizures of electronic data are reasonable.

The District Court wrote that "An image of an electronic document contains all of the same information as the original electronic document. To the extent the owner or custodian of the electronic document has privacy concerns regarding the government's retention of the original document, the owner would have identical privacy concerns with the government's retention of the imaged document. For example, the seizure of a personal email account could, in addition to evidence responsive to a search warrant, yield personal communications between a cheating spouse and his or her paramour or communications between an individual and his or her family regarding an embarrassing medical condition. These hypothetical communications clearly fall outside the scope of the search warrants in this case (and arguably those in most criminal cases). Thus, the government's long-term retention of images of these communications presents the same privacy concerns as would the government's retention of the original communications." (Parentheses in original.)

"Unlike warrants seeking readily identifiable evidence such as narcotics or firearms, an onsite search of a computer for the evidence sought by a warrant is not practical or even possible in some instances." The District Court continued that "The warrants drafted in this case comport with modern standards of reasonableness. The warrants requested permission to seize computer hard drives and email accounts and to image them offsite." Moreover, "The Court does not expect the government to make onsite determinations of whether a file or document contained on a hard drive or in an email account falls within the scope of the warrant and, thus, off-site imagining is a necessity of the digital era. ... Warrants requesting off-site review of seized electronic data are routinely upheld as reasonable."

"The Court recognizes that under current law there is no established upper limit as to when the government must review seized electronic data to determine whether the evidence seized falls within the scope of a warrant." However, it continued that "the Fourth Amendment requires the government to complete its review, i.e., execute the warrant, within a “reasonable” period of time."

The District Court wrote that there is no authority for the proposition that "the government may seize and image electronic data and then retain that data with no plans whatsoever to begin review of that data to determine whether any irrelevant, personal information was improperly seized. The government's blatant disregard for its responsibility in this case is unacceptable and unreasonable."

"The government's retention of all imaged electronic documents, including personal emails, without any review whatsoever to determine not only their relevance to this case, but also to determine whether any recognized legal privileges attached to them, is unreasonable and disturbing. Moreover, the government repeatedly asserted its intent to release indiscriminately the imaged evidence to every defendant, prior to conducting any review to determine if it contained evidence outside the scope of the warrants. ... The Court agrees with Defendant that the release to the co-defendants of any and all seized electronic data without a predetermination of its privilege, nature or relevance to the charged criminal conduct only compounds the assault on his privacy concerns. It underscores the government's utter disregard for and relinquishment of its duty to insure that its warrants are executed properly."

The District Court also offered unkind characterizations of the motivations of the government. "The lack of good faith by the government can be inferred from its conduct in this case. In the affidavits in support of the search warrants issued in this case, the government promised to review the evidence seized offsite to determine whether any evidence fell outside the scope of the warrants." But, "The government's own conduct and statements indicate that it had no intention of fulfilling its obligations as promised in the search warrants."

Finally, the District Court wrote that the judiciary cannot "permit the government to ignore its obligations. Otherwise, the Fourth Amendment would lose all force and meaning in the digital era and citizens will have no recourse as to the unlawful seizure of information that falls outside the scope of a search warrant and its subsequent dissemination."

This criminal case is U.S. v. Michael Metter, U.S. Court of Appeals for the 2nd Circuit, App. Ct. No. 12-2423-cr, an appeal from the U.S. District Court for the Eastern District of New York, D.C. No. 10–CR–600 (DLI), Judge Dora Irizarry presiding. The Court of Appeals issued a per curiam opinion of Judge Sack, Chin and Lohier.

The civil action is SEC v. Spongetech Delivery Systems, Inc., et al., U.S. District Court for the Eastern District of New York, D.C. No. SV 10-2031, Judge Dora Irizarry presiding.

See also, story titled "11th Circuit Considers 4th Amendment Consequences of 25 Day Delay in Seeking Warrant to Search a Seized Laptop" in TLJ Daily E-Mail Alert No. 2,489, December 12, 2012.

7th Circuit Addresses Price Fixing Per Se Antitrust Liability

12/27. The U.S. Court of Appeals (7thCir) issued its opinion [19 pages in PDF] in In Re Sulphuric Acid Antitrust Litigation, a class action antitrust case, brought under Section 1 of the Sherman, in which the plaintiffs asserted per se liability for alleged price fixing.

The plaintiffs are chemical companies that purchase sulfuric acid as one of the inputs into their production of chemicals. The defendants own smelters that process nonferrous minerals such as nickel and copper. They also produce sulfuric acid and sell or sold it to plaintiffs.

The District Court ruled that the case could not proceed on the theory of per se liability. The plaintiffs decided to appeal, and forego the opportunity to proceed to trial on a rule of reason theory. The Court of Appeals affirmed, with antitrust authority Richard Posner writing the opinion.

The facts of this case do not involve information or communications technology. However, price fixing and per se versus the rule of reason are also applicable in analyzing certain business practices in tech sectors. Also, the precedents addressed at length in this opinion include Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979), and Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877. 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.

This case is In Re Sulphuric Acid Antitrust Litigation, U.S. Court of Appeals for the 7th Circuit, App. Ct. Nos. 12-1109 and 12-1224, appeals from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 03 C 4576, Judge James Holderman presiding. Judge Posner wrote the opinion of the Court of Appeals, in which Judges Kanne and Sykes joined.

District Court in California Enjoins Aereokiller

12/27. The U.S. District Court (CDCal) issued an injunction in Fox v. Aereokiller, ordering defendants to stop streaming the plaintiffs' copyrighted television programming.

The plaintiffs are Fox Television Stations, and other companies that produce and license copyrighted programming for free over the air TV, and for cable and satellite service providers, and for online services such as Hulu and Apple iTunes. The defendants retransmit by online streaming the plaintiffs copyrighted programming, without license.

The plaintiffs claimed copyright infringement, and sought injunctive relief. The defendants relied upon the July 11, 2012, opinion  of the U.S. District Court (SDNY) in WNET v. Aereo.

That case is currently on appeal to the U.S. Court of Appeals (2ndCir). See, story titled "2nd Circuit Hears Oral Argument in Aereo Case" in TLJ Daily E-Mail Alert No. 2,482, December 4, 2012.

However, the USDC/CDCal reached the opposite conclusion in this case involving the same legal claim and similar facts.

This case is Fox Television Stations, Inc., et al. v. Aereokiller, LLC, et al., U.S. District Court for the Central District of California, D.C. No. 2-12:cv-06921-GW, Judge George Wu presiding. This is one of two very similar actions pending in the same court. The other is D.C. No. 2-12:cv-06950.

The two appeals pending in the the 2nd Circuit are CBS Broadcasting, Inc., et al. v. Aereo, Inc., and Fox Television Stations, Inc., et al. v. Aereo, Inc., U.S. Court of Appeals for the 2nd Circuit, App. Ct. Nos. 12-2808 and 12-2786.

People and Appointments

12/27. President Obama is expected to nominate Sen. John Kerry (D-MA) to be Secretary of State. This would open another Democratic seat on the Senate Commerce Committee (SCC). His resignation from the Senate would also create an empty Senate seat, which would be filled on a temporary basis, by Gov. Deval Patrick (D-MA), until a special election is held. Rep. Ed Markey (D-MA) announced on December 27, 2012, that he will run in the special election. Rep. Markey was first elected to the House in 1976, and is one of the senior Democrats on the House Commerce Committee (HCC). He also served for many years as either the Chairman or ranking Democrat on the HCC's telecom subcommittee. Although, he became the ranking Democrat on the Natural Resources Committee at the beginning of the 112th Congress, and Rep. Anna Eshoo (D-CA) therefore became the ranking Democrat on the HCC's Subcommittee on Communications and Technology.

12/27. California Governor Gerry Brown appointed Dan Brenner to be a California state trial court judge (Superior Court, Los Angeles County). Brenner is a Washington DC based communications lawyer. He has been a partner in the Washington DC office of the law firm of Hogan Lovells since 2009. Before that, he worked for 17 years at the National Cable and Telecommunications Association (NCTA). During the Reagan administration, he was a legal advisor to Federal Communications Commission (FCC) Chairman Mark Fowler. See, California Governor's office release. Gov. Brown announced a large number of  judicial appointments on December 27, 2012.

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12/27. The U.S. Court of Appeals (10thCir) issued its opinion in Blehm v. Jacobs, a copyright case involving cartoon characters. The District Court granted summary judgment of non-infringement, on the basis that the works are not substantially similar. The Court of Appeals affirmed. This case is Gary Blehm v. Alberta Jacobs, et al., U.S. Court of Appeals for the 10th Circuit, App. Ct. No. 11-1479, an appeal from the U.S. District Court for the District of Colorado, D.C. No. 1:09-CV-02865-RPM. Judge Matheson wrote the opinion of the Court of Appeals, in which Judges Briscoe and Gorsuch joined.

12/27. The U.S. Court of Appeals (9thCir) issued its amended opinion [13 pages in PDF] in Chesbro v. Best Buy, a Telephone Consumer Protection Act (TCPA) case. This is a putative class action alleging that a series of automated telephone calls by Best Buy violated the TCPA. The District Court granted summary judgment to Best Buy. The Court of Appeals reversed and remanded. This opinion amends the October 17 opinion of the Court of Appeals. This case is Michael Chesbro v. Best Buy Stores, L.P., U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 11-35784, an appeal from the U.S. District Court for the Western District of Washington, D.C. No. 2:10-cv-00774-RAJ, Judge Richard Jones presiding. Judge John Noonan wrote the opinion of the Court of Appeals, in which Judges Susan Graber and Johnnie Rawlinson joined.

12/27. The Federal Trade Commission (FTC) granted early termination on December 27, 2012 of the HSR waiting period for the transaction involving Elliott International Limited and Compuware Corporation. See, FTC notice.

2nd Circuit Holds Unauthorized Access to a Computer Can Create Personal Jurisdiction

12/26. The U.S. Court of Appeals (2ndCir) issued its opinion [10 pages in PDF] in MacDermid v. Dieter, a case regarding personal jurisdiction over a distant defendant based upon unauthorized access to a computer system.

MacDermind, Inc. is a chemical company based in Waterbury, Connecticut. It has a subsidiary in Canada. Jackie Dieter, who worked for that subsidiary, lived and worked in Canada. Her contact with the state of Connecticut is MacDermid's allegations, in a complaint filed in the U.S. District Court (DConn), that she used a computer in Canada to access a computer server of MacDermid in Connecticut to download files, in violation of Connecticut state statutes that create a private right of action for unauthorized access to a protected computer system and theft of trade secrets.

Dieter filed a motion to dismiss for lack of personal jurisdiction. The District Court dismissed. This appeal followed.

The Court of Appeals reversed.

It first summarized some of the basis requirements for the exercise of personal jurisdiction established by the Supreme court in International Shoe v. Washington, 326 U.S. 310, World-Wide Volkswagen v. Woodson, 444 U.S. 286, and Burger King v. Rudzewicz, 471 U.S. 462. There must exist minimum contacts between the distant defendant and the forum jurisdiction. The exercise of jurisdiction must not offend traditional notions of fair play and substantial justice. And, the forum court has personal jurisdiction over a nonresident foreigner who has purposefully directed his activities at residents of the forum state.

The Court of Appeals reasoned that "Deiter purposefully availed herself of the privilege of conducting activities within Connecticut because she was aware ``of the centralization and housing of the companies' e-mail system and the storage of confidential, proprietary information and trade secrets´´ in Waterbury, Connecticut, and she used that email system and its Connecticut servers in retrieving and emailing confidential files."

The Court elaborated that "Most Internet users, perhaps, have no idea of the location of the servers through which they send their emails. Here, however, MacDermid has alleged that Deiter knew that the email servers she used and the confidential files she misappropriated were both located in Connecticut. She used those servers to send an email which itself constituted the alleged tort. And in addition to purposefully availing herself of the privilege of conducting computer activities in Connecticut, she directed her allegedly tortious conduct towards MacDermid, a Connecticut corporation."

The Court also noted that the inconvenience of defending oneself in a distant forum has decreased in recent decades because of the "conveniences of modern communication and transportation ease".

This case is MacDermid, Inc. v. Jackie Dieter, U.S. Court of Appeals for the 2nd Circuit, App. Ct. No. 11-5388-cv, an appeal from the U.S. District Court for the District of Connecticut. Judge Barrington Parker wrote the opinion of the Court of Appeals, in which Judges Newman and Raggi joined.

8th Circuit Holds E-Mail and Phone Communications Do not Create Personal Jurisdiction in Contract Dispute

12/26. The U.S. Court of Appeals (8thCir) issued its opinion [11 pages in PDF] in Dairy Farmers of America v. Bassett & Walker, a case involving personal jurisdiction over a distant defendant.

The Dairy Farmers of America (DFA) is based in Kansas City, Missouri. Bassett & Walker (BW) is based in Toronto, Canada. BW bought dairy products from DFA on credit.

The DFA filed a complaint in the U.S. District Court (WDMo) against BW to enforce contract debts. BW had no agent for service of process, offices, property, bank accounts, telephone listings, or employees in Missouri, and did not advertise or promote its business in Missouri. However, BW communicated by phone and email with the DFA's Missouri headquarters about delivery and billing.

BW moved to dismiss for lack of personal jurisdiction. The District Court dismissed. This appeal followed.

The Court of Appeals affirmed, both under the Missouri long arm jurisdiction statute, and the federal Constitution's due process limitation upon the exercise of personal jurisdiction. BW's phone calls and email to Missouri were insufficient to constitute a "transaction of any business within this state" as required by the state long arm statute. They were also insufficient to satisfy the due process component of the exercise of personal jurisdiction.

This case is Dairy Farmers of America, Inc. v. Bassett & Walker International, Inc., U.S. Court of Appeals for the 8th Circuit, App. Ct. No. 12-1723, an appeal from the U.S. District Court for the Western District of Missouri, Judge Fernando Gaitan presiding. Judge Benton wrote the opinion of the Court of Appeals, in which Judges Malloy and Kristine Baker (USDC/EDArk sitting by designation) joined.

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12/26. The Securities and Exchange Commission (SEC) filed an amended complaint in the U.S. District Court (SDNY) in its action alleging violation of federal securities laws (10b5 fraud -- insider trading) in connection with stock trading in advance of IBM's acquisition of SPSS in 2009. This complaint adds another defendant, research analyst Trent Martin. See, SEC release. The SEC filed its original complaint on November 29. See, SEC release and "More News" in TLJ Daily E-Mail Alert No. 2,487, December 10, 2012. This case is SEC v. Thomas C. Conradt, David J. Weishaus, and Trent Martin, U.S. District Court for the Southern District of New York, D.C. No. 12 CIV 8676.

Go to News from December 21-25, 2012.