Issue 57 March 2002	BYTES IN BRIEF® by Editors: Sharon D. Nelson, Esq. and John W. Simek Associate Editor: Amelia C. Hierholzer Editor Emeritus: G.V. Nelson 9500+ subscribers worldwide © 2001 Sensei Enterprises, Inc./Nelson & Wolfe. All rights reserved. This newsletter may not be reproduced or redistributed in any manner except with consent of the copyright owner. Distributed by Silver Law Inc. under license.

COURT OKS REPRODUCTION OF THUMBNAIL IMAGES

The Ninth Circuit Court of Appeals has ruled that web sites may legally reproduce and post thumbnail versions of copyrighted photographs without violating the artists' exclusive right to display their own works. The decision in Kelly v. Arriba was issued on February 6th, affirming in part and reversing in part the lower court's decision. The case was brought by Leslie Kelly, a professional photographer who sued the search engine Arriba for publishing his pictures on its site. Arriba (now known as "Ditto.com") follows a practice common among search engines of providing a service that canvasses the Internet for graphics files and returns results as thumbnail images. If a thumbnail is clicked, the site will return a framed image of the original web site containing the image. The court said this use of thumbnail images constituted fair use, in part because it was transformative or added value to the work, and also because it did not diminish the value of the underlying work. However, the judge also ruled that Arriba's subsequent display of Kelly's full-sized images in the framed web page is not a fair use and violates Kelly's exclusive right to display his copyrighted works. The panel ordered the case to be remanded back to the district court, which will determine the appropriate amount in damages and decide whether an injunction is necessary. The opinion in the case may be found at
http://caselaw.lp.findlaw.com/data2/circs/9th/0055521p.pdf

NINTH CIRCUIT RULES FOR PLAYBOY BUNNY

If you really were a Playboy Playmate of the Year, you have the right to use those words in your web site's metatags. So held the Ninth Circuit on February 1st, ruling that Terri Welles, Playboy's Playmate of the Year in 1981, may legitimately use Playboy related metatags descriptive of her relationship with Playboy to increase her visibility with search engines. The court did remand to the lower court the issue of whether Welles' use of the letters "PMOY" (Playmate of the Year) in her site wallpaper violated Playboy's trademark rights. The opinion in the case may be found at
http://caselaw.lp.findlaw.com/data2/circs/9th/0055009p.pdf

HOUSE PASSES BROADBAND BILL

On February 27th, the House of Representatives passed the controversial Tauzin-Dingell bill by a vote of 273-157. The bill would undo regulations in the Telecommunications Act of 1996 that force the Baby Bells to share their telecommunications networks. The bill's proponents claim that dropping the restrictions will motivate local phone companies to upgrade their networks and provide more high-speed Internet services. Long distance companies and start-up telephone companies competing with the Baby Bells argue that the bill will hurt competition and even further a monopoly situation in the provision of broadband services. The bill now moves to the Senate, where commentators have suggested that it is not likely to pass. The text of the bill may be found at
http://www.alts.org/Filings/042401TauzinDingell.pdf

A FIRST: NET FIRM HACKED OUT OF BUSINESS

In late January, one of Britain's oldest Internet Service Providers was compelled to close its operations after suffering a serious DDoS (Distributed Denial of Service) attack by anonymous hackers. CloudNine Communications was attacked in much the same manner as Yahoo, eBay, and Etrade were in February of 2000. In a DDoS attack, a computer is swamped with an overwhelming number of inbound requests so that the web site that it is serving ceases to function. Unable to function as an ISP, CloudNine reluctantly sold its business and turned over its 2,500 customers to rival Zetnet. The methodical attack occurred over months, as the hackers sought to map out the ISP's network, identifying the key servers and determining their capacity so they could attack with the appropriate force. Though the company worked with police, DDoS investigations are rarely successful. Further information may be found at
http://www.internetwk.com/story/INW20020201S0003

NAPSTER: DID RECORD LABELS MISUSE COPYRIGHTS?

>In an interesting shift of emphasis, the judge in the Napster case has decided to begin a discovery phase of the trial allowing Napster to investigate whether the major record labels have misused their copyrights. The story came to light on February 1st, when the transcript of a January 16th hearing in the case was publicized. U.S. District Court Judge Marilyn Patel's decision to probe possible misuse of copyrights could ultimately mean that the record labels would be unable to enforce their copyrights against the music-sharing service Napster, which stands accused of copyright infringement. On January 17th, the record companies, in conjunction with Napster, asked that the case be placed on hold so that the parties could attempt to reach a settlement. Patel granted the motion, but the parties were unable to reach a settlement and the legal "stay" expired on February 17th. On February 22nd, Patel ordered new scrutiny of the record labels' ownership rights to music, writing "The evidence now shows that the plaintiffs have licensed their catalogues of works for digital distribution in what could be an overreaching manner." She also wrote that the evidence suggests "the plaintiffs' entry into the digital distribution marketplace may run afoul of antitrust laws." Legal documents in the case may be found at
http://www.napster.com/pressroom/legal.html

MCAFEE PREPARES TO LAUNCH HACKERWATCH.ORG

McAfee, a division of Network Associates, is preparing to launch hackerwatch.org, a kind of "neighborhood watch" for the Internet age. The aim is to collect as much firewall data as possible, determine patterns for attacks submitted, and identify and stop hacker attempts and unwanted traffic. The service will help users discover whether anyone is hacking into their systems, and if so, lets them submit that information to the malicious user's ISP or local law enforcement officials. The site will also include Internet alerts from the CERT Coordination Center and the SANS Institute, as well as HackerWatch-based alerts. Ultimately, McAfee is moving toward a unified hacker/virus rating system. The site may be found at
http://www.hackerwatch.org/

FBI RAIDS "RAISETHEFIST" WEB SITE

>On January 24th, the Federal Bureau of Investigation raided the home of a Los Angeles teenager suspected of hacking into multiple web sites to publish anarchist messageS and using his own site to publish bomb-making information. An FBI affidavit said that Sherman Austin was believed to have violated federal computer fraud and abuse laws, as well as statutes prohibiting the distribution of bomb-making information. According to the FBI, Austin allegedly defaced at least five commercial sites since 1999 using the nickname "Ucaun." The FBI affidavit states that, on three of the sites, Austin left behind a hacking program named troop.cgi that was designed to attempt to log in to a computer operated by the U.S. Army. Austin has admitted vandalizing web sites. Though Austin was arrested and charged by the FBI, all charges against him were dropped without explanation on February 14th and Austin was released. Further information on the case and a link to some of the legal documents may be found at
http://www.raisethefist.com

TRUSTE ANNOUNCES COMMERCIAL ANTI-SPAM SEAL

The privacy seal group Truste announced on January 30th that it will introduce a certification and seal program for commercial e-mail, similar to its web site seal program. Partnering with ePrivacy Group, the new service will certify, by means of a seal, that e-mail sent by "trusted sender-certified" companies is compliant with Truste's privacy rules. Such firms as Microsoft, DoubleClick and Topica have agreed to support the program. Participants can obtain an e-mail seal if they comply with four criteria. The sender must abide by Truste's fair information practice principles and e-mail best practices, which include giving consumers a choice of whether to receive e-mail solicitations. The subject line must be accurate and the message text must allow consumers to opt out of further communications. Finally, the sender must agree to be accountable to Truste's dispute resolution program if a consumer complains about the company's e-mail practices. The new program will be called Trusted Sender. Further information may be found at http://www.truste.com/programs/pub_trustedsender.html

SEC WANTS MORE INFORMATION ON CORPORATE SITES

In a novel regulatory twist, the U.S. Securities and Exchange Commission is seeking to dictate the information contained on corporate web sites. The SEC announced on February 13th that it wants firms to be required to post all their financial filings on their web sites. It also wants records of insider trades available in electronic format and online. Although most of these filings are made with Edgar, the government's public securities database, in reality consumers tend to go directly to corporate sites for information rather than Edgar. In moves that seem to be following in the wake of the Enron debacle, the SEC also wants companies to submit certain filings more quickly, announce new developments such as debt ratings changes and include more detail about accounting methods in public documents. The new proposal would require that companies immediately post every filing submitted electronically to the SEC, not only select documents like annual and quarterly reports. Before this proposal can become effective, the SEC must first publish a formal draft and seek public comment. Further information may be found at
http://www.sec.gov/news/press/2002-22.txt

ABA TAKES ISSUE WITH UCITA

On January 31st, the American Bar Association's Working Group Report on the Uniform Computer Information Transactions Act (UCITA) was released. The report called UCITA "extremely difficult to understand" and cautions that without redrafting, the consequence may be "considerable controversy and litigation over what its various 'rules' really mean." The report was drafted by a nine-member committee headed by Judge John Vittone, chief judge for the Office of Administrative Law Judges at the U.S. Department of Labor. UCITA offers a legal framework for licensing contracts that lack specific provisions. Opponents say UCITA's default provisions grant too many questionable rights to software publishers. The ABA formed the committee in response to concerns raised by UCITA opponents. The report may be found at
http://www.abanet.org/leadership/ucita.pdf

SEARCH ENGINES SUED FOR "PAY FOR PLACEMENT"

Diet firm Mark Nutritionals has filed what is thought to be the first lawsuit claiming that search engine sites charging for placement in their searches violate trademarks. Mark alleges that sites including Overture Services, AltaVista, Kanoodle and FindWhat are deceiving consumers by presenting a list of competing products when users search on the phrase "body solutions." The suit was filed in U.S. District Court in San Antonio and seeks $10 million in compensatory damages and $100 million in punitive damages from each search engine. Further information may be found at
http://www.internetnews.com/IAR/article/0,,12_966901,00.html

NY ATTORNEY GENERAL SUES NETWORK ASSOCIATES OVER FREE SPEECH

New York Attorney General Eliot Spitzer announced on February 7th that his office has sued Network Associates over a censorship clause contained in the antivirus and firewall software sold by NA's McAfee subsidiary. The clause says customers cannot publish product reviews or results of benchmark tests without permission from the company. The Attorney General contends that those provisions unconstitutionally restrict free speech. The suit was filed in the state Supreme Court and cites a case in which NA allegedly used the clause to try to force the magazine Network World to retract a negative review of McAfee's Gauntlet firewall software. Further information may be found at http://www.oag.state.ny.us/press/2002/feb/feb07a_02.html

IS LINKING COVERED BY A PATENT?

BT Group PLC believes that linking is covered by a patent and that it holds the patent. Its first target is Prodigy, and its lawsuit against Prodigy alleges that it is in violation of a hyperlink patent granted years ago. BT is calling the trial a test case whose outcome will determine whether it can commercialize a potentially lucrative patent. If successful, BT intends to go after other American Internet service providers, America being the only jurisdiction governed by the patent. The suit was filed in the U.S. District Court for the Southern District of New York. An interesting defense may come in the form of a grainy black and white film on the Stanford University web site at http://sloan.stanford.edu/MouseSite/1968Demo.html. The 1968 clip shows Stanford computer researchers demonstrating what many experts believe is the first instance of hypertext linking. If so, it may invalidate the BT patent. BT's patent was filed in the United States in 1976 and granted in 1989. In a hearing on the case on February 11th, Judge Colleen McMahon noted that BT's claim would be hard to prove. "The language of this patent is archaic," she noted "and it appears that this technology was already outmoded by the time it was patented." Further information may be found at
http://www.wired.com/news/business/0,1367,50356,00.html

BRITAIN DEBUTS SMALL CLAIMS CYBERCOURT

A new online service launched in early February by Britain's Court Service allows people claiming amounts less than 100,000 pounds ($140,000) to file their pleadings using forms on a court service site. The court service is called the Money Claim Online pilot. In the announcement of the service's debut, it was noted that more than 1.6 million claims were made in 2000 for such things as overdue loans, past due rent and unpaid bills for goods and services. However, only 36,000 cases actually went to trial. The government expects to process 25,000 cases through the service this year. Money Claim Online was built by the technology firm EDS and cost roughly 2 million pounds ($2.8 million) to launch, with an annual upkeep of 900,000 pounds ($1.3 million). Defendants can file an acknowledgement of the claim online, but admission of a claim must still be done by mail. If a defendant decides to challenge a claim, the case is transferred to a local county court for trial. Money Claim Online may be found at:
http://www.moneyclaim.gov.uk

EU APPROVES ONLINE SALES TAX

On February 13th, the EU Council of Economic and Finance Ministers gave its approval to a European Commission proposal to apply the value-added tax, or VAT, to so-called digital products. Those products could include computer games and software, as well as radio or television broadcasting, delivered online. The rule, which takes effect on July 1st, will require non-EU businesses selling products to EU consumers over the Internet to levy the VAT tax on purchases. The EU maintains that the new rule will put non-EU companies on a level playing field with EU businesses that are required to charge a VAT tax. Non-EU companies will be required to register with an EU member state and apply the correct VAT tax depending on where the customer is located. Bush Administration officials say the program could violate World Trade Organization rules, hinting at a possible trade dispute, though the EU claims the VAT is consistent with the Organization for Economic Cooperation and Development's rules. The European Parliament now must agree to the plan before the council officially can adopt the policy. Further information may be found at
http://news.com.com/2100-1017-837235.html

AFILIAS ANNOUNCES DOMAIN REDISTRIBUTION PLAN

Afilias, the registrar which manages the new .info top level domains, announced on February 18th its plans for redistributing the .info addresses it has reclaimed from fraudulent registrants. Afilias has challenged more than 6700 names thus far and has won its first round of battle which resulted in the World Intellectual Property Organization (WIPO) revoking the first 741 names Afilias challenged. Starting in April or May, users will be able to view searchable lists of reclaimed addresses online and sign up to buy names through authorized domain name sellers. Orders will be taken for three weeks, and then the contested addresses will be awarded through a random selection process. The wholesale price of the reclaimed names will be $5.75, the same amount Afilias charges for dot-info addresses registered in real time. Internet registrars will set the retail price for the reclaimed names. Further information may be found at
http://www.afilias.com/news/press_releases/pr_articles/2002-02-18-01

SHUTTING DOWN ASIAN SPAM ­ AND EVERYTHING ELSE

Frustrated by the amount of spam coming from Asia, an increasing number of systems administrators are blocking all e-mail originating from Asia. Unfortunately, their self-defense mechanism blocks legitimate communications as well as spam. Anti-spam activists say that Asian ISPs are uncooperative in helping to shut down spam. According to anti-spammers from the group Spamhaus, China Telecom receives more than 50,000 spam complaints a day, all of which are ignored, answered only by an automatic message which says that spam is not under their control. Blocking the ISPs still doesn't entirely solve the problem, since refusing the constant attempted connections also strains servers. Reportedly, even after being blocked, Asian ISPs rarely take any action. Part of the problem, of course, comes from Western spammers who exploit Asian mail servers to relay their spam. Many Asian systems run older software or software which hasn't been properly configured to prevent the relaying. The problem is expected to attract diplomatic attention as it grows in scope. Further information may be found at
http://www.wired.com/news/politics/0,1283,50455,00.html

FCC MAY DEREGULATE BROADBAND

The FCC announced on February 14th that it is proposing to define high-speed broadband connections as information services, which would free providers from all the regulations that impact telecommunication services. The FCC said it is seeking to limit the risk and uncertainty of regulation and to lower the cost of infrastructure investment in its broadband policies. By classifying broadband services as information services, the FCC hopes to achieve a level playing field for all providers, including incumbent local exchange carriers (ILECs), competitive local exchange carriers (CLECs), or cable network operators. The notice of proposed rule making will be followed by a 60-90 day comment period, after which the FCC can make its proposal a rule, proceed on a different course, or take no action at all. Further information may be found at http://www.fcc.gov/Bureaus/Common_Carrier/ News_Releases/2002/nrcc0202.html

COPYRIGHT OFFICE ISSUES WEBCAST MUSIC ROYALTY RATES

After years of debate, the Copyright Office declared on February 20th that webcasters must pay .0014 cents per use of every song they play. Commercial radio stations that simulcast their broadcasts over the Internet will pay half that rate. More fees will probably follow because music publishers are likely to receive compensation as well. The new royalty rate, which applies retroactively to webcasts dating from 1998, represents a compromise between the Digital Media Association and the Recording Industry Association of America. The current rates only apply for two years, which means the current agreement covers webcasts between 1998 and 2000. Both sides will immediately begin renegotiating the fees to cover broadcasts through 2002 and 2004. The U.S. Copyright Office must still approve the royalty rates. This decision will come only after a 60-day public comment period. Further information may be found at
http://www.loc.gov/copyright/carp/webcasting_rates.html

NINTH CIRCUIT OVERTURNS ENTREPRENEUR DOMAIN CASE

On February 11th, the Ninth Circuit Court of Appeals overturned a lower court injunction that prevented Scott Smith of Sacramento, California, from using the word "entrepreneur" in his business name or his firm's publications. Smith's public relations firm had been barred from using the domain EntrepreneurPR.com on the grounds that it infringed the trademark belonging to the publisher of Entrepreneur magazine. The court made it clear that they believed Smith's EntrepreneurPR.com domain wasn't likely to be confused with a destination operated by the magazine publisher just because it contained the word entrepreneur. The judges said that similarities between one company's words and another's trademarks are "context-specific concepts." The panel wrote "The differences in sound and meaning between 'ENTREPRENEUR' and 'EntrepreneurPR' ... still have import in the domain name context." The opinion in the case may be found at
http://caselaw.lp.findlaw.com/data2/circs/9th/0056559p.pdf

MICROSOFT CASE DECONSTRUCTED: MS MUST REVEAL CODE

On January 30th, U.S. District Court Judge Colleen Kollar-Kotelly asked Microsoft and the Justice Department to file a joint status report on their proposed settlement and asked if they were planning any changes in the settlement in response to public comments. The Justice Department has until February 28th to respond to public comments, after which the judge will accept, amend or reject the proposed settlement.

On February 1st, Kollar-Kotelly issued an order deconsolidating the federal antitrust cases headed by the U.S. Department of Justice and the case that involves the nine states and the District of Columbia, who are not participating in the settlement. All parties had agreed to the deconsolidation. In the ongoing case, a remedy hearing is scheduled for March 11th.

In a joint status report released on February 7th, Microsoft and the Department of Justice said they might modify their proposed settlement in response to public comments. Based on the volume of public comments the Justice Department received regarding its proposed settlement of the case, the parties asked Kollar- Kotelly to omit oral third-party testimony from any future hearings on the agreement. During the 60-day comment period, which ended on January 28th, the Justice Department received over 30,000 submissions. Roughly half opposed the settlement, roughly one quarter favored it, and roughly one quarter did not express a view.

Kollar-Kotelly announced on February 8th that she would hold a hearing on the settlement during the week of March 4th as requested by the parties. She did not say how long the hearing would last or whether settlement critics would be heard. On February 12th, in the ongoing antitrust suit, the remaining states said they needed to be able to inspect the Windows source code to verify Microsoft's allegation that it is not technically feasible for Microsoft to offer a stripped down version of the operating system. The plaintiffs also filed a motion to bar the appearance of 18 of 23 new witnesses that Microsoft has added to its witness list, arguing that there is not enough time to depose these new witnesses before the February 22nd discovery cutoff. If the motion is denied, the plaintiffs requested an extension of the discovery period.

When both parties exchanged preliminary witness lists in December of 2001, Microsoft listed six witnesses, all of which were company employees. The newly submitted list includes a total of 34 witnesses. Microsoft said it needs the witnesses to defend itself against the sanctions proposed by the states. On February 8th, the Justice Department asked Kollar-Kotelly to dismiss a challenge to the settlement filed by the American Antitrust Institute, arguing that the AAI has no right to question the deal, nor do the other 30,000 individuals and groups who had the opportunity to comment on the settlement during the public comment period. The AAI had asked the court to suspend court action on the settlement until after Microsoft discloses all contacts it had with members of Congress and their staffs in connection with the case. It also wants the Justice Department to explain why it rejected other remedies such as breaking the company up. Kollar-Kotelly rejected the challenge on February 20th, finding that the group did not have standing to file the suit.

In an unexpected filing, Microsoft accused Oracle Vice President Ken Glueck of being one of the primary movers assisting the states in drafting their remedy proposal. Microsoft's emergency motion asked that Oracle be ordered to turn over requested documents which it believes "are likely to contain factual information about Microsoft, Microsoft's competitors and various markets as a whole," inuring to its benefit. On February 14th, Microsoft advised the court that the dispute had been resolved. On February 18th, Kollar-Kotelly ordered Microsoft to disclose some parts of the Windows source code, including Windows XP Home, Professional, and XP Embedded to a panel of experts from the states still suing Microsoft. The panel will attempt to determine whether Microsoft is correct in its assertion that it cannot technically separate its operating system from other application components.

On February 19th, the remaining states filed a brief saying that Microsoft has already used its proposed settlement to impose more severe terms on computer manufacturers. Based on the February 8th deposition of Microsoft senior vice president Richard Fade, the states charge that the company has taken advantage of the terms of the proposed antitrust settlement "to adopt significantly more onerous licensing terms and to impose them on the (computer manufacturers)." All 20 of the nation's top PC manufacturers are reportedly unhappy with the new terms according to Fade's deposition. On February 22nd, Microsoft and the Justice Department agreed not to oppose the attempt to introduce this evidence, although it occurred after the public comment period, so long as the states do not add more information or try to testify at the Tunney Act hearing to be held on March 6th. Legal documents in the case may be found at
http://www.microsoft.com/presspass/legalnews.asp

LINDOWS GEARS FOR BATTLE AGAINST MICROSOFT

On February 14th, Lindows.com revealed its battle plan in its fight against Microsoft's trademark lawsuit seeking to prevent Lindows from using the terms LindowsOS and Lindows.com. LindowsOS is an operating system for Pentium based a computer that has the ability to run both Windows and Linux software titles. Microsoft's suit alleges that the similarity between the two names will confuse customers. A court hearing is now set for February 27th in the U.S. District Court for the Western District of Washington, when the two companies will offer oral arguments. The term "windows" has been used by hundreds of independent companies and products, Lindows.com said, and is used generically in the software industry to describe a feature of a graphical user interface. Along with a number of dissimilarities between the companies' logos and software products, Lindows.com said that Microsoft has so far failed to show any likelihood of confusion. Pleadings in the case may be found at
http://www.net2.com/lindows

BE ADDS STING TO MICROSOFT'S MONTH

On February 19th, Be Incorporated announced that it had filed suit against Microsoft for the destruction of Be's business resulting from the anticompetitive business practices of Microsoft. The lawsuit, which was filed in the United States District Court in San Francisco, alleges that Microsoft harmed Be through a series of illegal exclusionary and anticompetitive acts designed to maintain its monopoly in the Intel-compatible PC operating system market and created exclusive dealing arrangements with PC OEMs prohibiting the sale of PCs with multiple pre-installed operating systems. The suit asks for unspecified damages for the benefit of the company and its shareholders. Be, which last year sold its technology to Palm, is in the process of corporate dissolution. Further information may be found at http://www.beincorporated.com/press/pressreleases/02-02-19_msft_complaint.html