Issue 61 July 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.

On May 31st, the U.S. District Court for the Eastern District of Pennsylvania held that the Children’s Internet Protection Act (CIPA) violates the First Amendment. CIPA was enacted in 2000 and requires libraries to block children’s access to pornography and other materials deemed harmful to minors in order to receive federal funds. The court found that current filtering products that block objectionable material inevitably block material that does not fall within CIPA’s definitions. The court noted that filters had erroneously labeled as adult or sexually explicit sites of orphanages, churches and political candidates. The court suggested other ways of dealing with the issue, including allowing children to use unfiltered machines when accompanied by an adult and placing terminals out of the view of most patrons to avoid offensive materials being publicly displayed. On June 20th, the government appealed the decision to the Supreme Court, which is required to hear challenges to this law. The opinion in the case may be found at http://www.paed.uscourts.gov/us03011.shtml

ICANN COMMITTEE RECOMMENDS RESTRUCTURING

In a report released on May 31st, a committee established by the Internet Corporation for Assigned Names and Numbers (ICANN) recommended that ICANN be restructured and that it alter its method for choosing corporate directors. It rejected a proposal to make national governments a part of ICANN. The committee, which consists of four of ICANN's 19 directors, stressed that its report did not represent the official views of the entire ICANN board. However, it is thought that the report represents a general consensus among the directors. The committee asked for public comment and said it hoped a reform plan would be approved at ICANN’s late June meeting in Romania. Under the committee's plan, seven seats on the ICANN board would go to groups representing domain-name sellers, security experts, government delegates, and other established technical and commercial groups. The international community behind country code domains such as France's ".fr" would also get a seat. Another five to 11 seats would be chosen by a nominating committee to represent the Internet community as a whole. Outsiders could file complaints with an ombudsman, or go to an independent arbitration forum if they believed the group was violating its bylaws. The report from the Committee on ICANN Evolution and Reform may be found at http://www.icann.org/committees/evol-reform/recommendations-31may02.htm

EUROPE BANS SPAM

It was reported on May 31st that the European Parliament voted to prohibit the transmission of bulk unsolicited commercial e-mail. The directive must be adopted by member states but is expected to be in place next year. It will require that people "opt in" to receive commercial e-mail. It is uncertain how much impact the directive may have, since so much spam comes from outside the European Union. The legislation impacts only European-registered companies, and it is estimated that 90% of all spam is either untraceable or has its origins outside the Union. The vote also rejected proposed restrictions on the use of cookies, which would have required that users give explicit consent before a cookie could be placed on their computer. Under the directive, cookies may be used as long as surfers are given that information before using the web site. Further information may be found at http://www.itweek.co.uk/News/1132292

DOJ EXPANDS FBI’S NET SEARCHING POWERS

On May 30th, the Department of Justice announced that it would loosen restrictions on domestic surveillance, granting the Federal Bureau of Investigation broad new power to search the Internet and monitor public areas and gatherings as part of its battle against terrorism. Previously, agents could not surf the web and investigate public areas unless they were looking for information directly connected to an ongoing investigation. The new guidelines, announced by Attorney General John Ashcroft, do not require Congressional approval. The new guidelines may be found at http://www.usdoj.gov/olp/index.html#agguide

FBI SEEKS HIGHER TECH REORGANIZATION

On May 29th, the FBI announced that the Federal Bureau of Investigation was "years behind where it should be in terms of having the technological infrastructure." FBI Director Robert Mueller said that the reorganization would involve the acquisition of more technology and making sure that all FBI employees understand computers and how they can assist in the performance of their duties. He also said that the FBI would become more connected to the rest of the government, especially the Central Intelligence Agency and would put more resources into "data mining, financial record analysis and communications analysis." The FBI intends to hire more IT talent, but Mueller was not specific how and whether the government would be able to offer the kind of salaries needed to attract such talent. A guide to the FBI’s reorganization plan may be found at http://www.fbi.gov/page2/reorg529temp.htm

LINUX DISTRIBUTORS SEEK POWER IN UNITY

On May 30th, Linux distributors Caldera, SuSE, Turbolinux and Conectiva announced that they will unify under the name "UnitedLinux." The UnitedLinux consortium was created to form a standardized distribution of the Linux operating system, hoping to attract more businesses to the open-source operating system. Currently, each company offers a customized version of the Linux operating system, with different user interfaces, features and capabilities. Applications that were developed for one company's Linux OS distribution may not work well, or at all, on another version. It has long been surmised that compatibility problems and choosing between different versions of Linux has hurt the advance of Linux, as well as financial concerns that only one or two distributors of Linux might survive. The largest and best-known Linux distributor is Red Hat, which is not a part of the consortium. Under the terms of the agreement, the four partner companies will collaborate on the development of one common Linux operating environment, which will be released under the "Powered by UnitedLinux" banner. The new distribution will comply with the Linux Standards Base, a project for standardizing Linux platforms across the industry, as well as the Linux standard for internationalization. Distributions will be available for several languages, including English, German, French, Korean and Chinese. The UnitedLinux website may be found at http://www.unitedlinux.com/

EFF FILES SUIT TO ESTABLISH RIGHT TO RECORD ON DIGITAL DEVICES

On June 6th, the Electronic Frontier Foundation filed suit on behalf of five owners of ReplayTV personal video recorders against 27 entertainment companies in the U.S. District Court in Los Angeles. The suit asks the court to rule that owners of these digital recorders, which store TV broadcasts on internal hard drives, have the right to record shows, skip commercials and move recorded content to other devices. It also asks the court to forbid SonicBlue Inc. from downgrading the capability of ReplayTV boxes it has already sold. The defendants in the case had filed their own suit against SonicBlue, the maker of ReplayTV, in the same court in October of 2001. That suit alleges that SonicBlue’s products infringe on their copyrights by stripping ads from recordings, then allowing users to share their ad-free copies with other Replay owners. Further information may be found at http://www.wired.com/news/print/0,1294,53032,00.html

NAPSTER FILES FOR BANKRUPTCY

In its glory days, the music swapping service Napster boasted 60 million users. On June 3rd, the embattled Napster filed for Chapter 11 bankruptcy. According to papers filed in the U.S. Bankruptcy Court in Wilmington, Delaware, Napster has agreed to sell its assets to music-industry leader Bertelsmann AG for $8 million in cash and the assumption of certain liabilities. The liabilities include any new loans to Napster and forgiveness of the $91 million owed to Bertelsmann before the filing. After the bankruptcy process is completed, Bertelsmann will take control of Napster, unless there's a higher bid from another company. As of April 30, Napster had $7.9 million in assets and $101 million in liabilities. Napster insists that its bankruptcy filing is not meant as an obituary and that it continues its relaunch plans. Napster’s own announcement may be found at http://www.napster.com/index.html

VERISIGN SUED AGAIN OVER MARKETING CAMPAIGN

On June 6th, domain name registrar Go Daddy filed the fourth suit against Verisign for allegedly deceiving competitors’ customers into transferring their business. The suit was filed in federal court in Phoenix, Arizona and charges VeriSign with false and deceptive advertising, interference with customer relationships, misappropriation of trade secrets and consumer fraud. VeriSign had sent Go Daddy customers a letter titled "Domain Name Expiration Notices" which encouraged recipients to return the forms, with $29 per domain, or risk forfeiting their domains. However, the "reply by" dates allegedly bear no relation to the domain expiration dates and customers who returned the forms would be paying $29 instead of the $8.95 per domain they had been paying to Go Daddy. On June 20th, the court entered a stipulated order prohibiting VeriSign from sending the letters to Go Daddy customers and also prohibiting it from sending the letters to customers of other registrars. Further information may be found at http://www.godaddy.com/gdshop/PressReleases/Websitereleaseformat6-6-02.pdf and http://www.godaddy.com/gdshop/pressreleases/6-20-02.pdf

NADER’S MICROSOFT REMEDY

On June 4th, Ralph Nader asked the Bush administration to wield its purchasing power to help defeat Microsoft’s dominance in computer operating systems and office productivity software. According to Nader, only the U.S. government has sufficient clout to make a difference and help accomplish what the lengthy antitrust suit has failed to do. In a letter to the head of the Office of Management and Budget, Nader asked the Bush Administration to disclose how much it spends on Microsoft products such as operating systems and word processors, and suggested a variety of remedies the federal government could take to encourage competition. Nader suggested that the government could require the software giant to make its proprietary formats work smoothly with products from Apple Computer, International Business Machines and other rivals. He also suggested it could buy the rights to Microsoft's software outright and release it into the public domain. Further information can be found at http://www.wired.com/news/antitrust/0,1551,52967,00.html

CLASS ACTION AGAINST NO-COPY CDS

Milberg Weiss, known for its class action lawsuits, filed a California consumer class action suit against five record labels on June 11th, alleging that the audio discs they are selling with no-copy technology are misleading and defective. In Dickey v. Universal Music Group, filed in Los Angeles Superior Court, the suit requests that the defendants be enjoined from selling the compact discs and ordered to refund or replace them and/or label the products as inferior to standard CDs. The complaint charges that the record labels "conspired and agreed among themselves to sell defective audio discs which were rendered unreproducible or unstable for use in many personal computers. By selling these inferior quality audio discs, defendants are attempting to curb the public's exercise of their right to play, backup, space-shift and time-shift their own music to other playback mediums." The Recording Industry Association of America has argued that record labels have the right to protect their property from theft. The complaint in the case may be found at http://www.milberg.com/pdf/audiocds/complaint.pdf

PATENT OFFICE AWARDS E-FILING CONTRACTS

The U.S. Patent and Trademark Office announced on June 18th that it had awarded electronic filing contracts to five companies. The five companies, Aspen Grove, AutoDocs, First to File, LegalStar, and LexisNexis, will integrate their software with the USPTO, permitting users to submit secure electronic patent applications. Currently, just two or three percent of patent applications are filed electronically, and even those are converted to paper for purposes of processing. Earlier in June, the USPTO announced its 21st Century Strategic Plan, calling for a system to electronically process patents, including the electronic image capture of all incoming and outgoing paper documents, with a project completion date of October 1, 2004. Further information may be found at http://www.uspto.gov/web/offices/com/speeches/02-48.htm

WORLDCOM FIDDLES WITH DOLLARS: DOJ REVIEW

Late on June 25th, WorldCom disclosed that it had improperly accounted for almost $4 billion, inflating its revenues to match investor and stock market expectations. On the 26th, the Department of Justice announced that it was reviewing the facts in the case. The SEC issued a restraining order on June 26th demanding that current WorldCom employees and affiliates preserve documents that may be evidence in the case. On June 27th, a federal judge also issued a restraining order to ensure that WorldCom’s former CEO, Bernie Ebbers and former auditor, Arthur Andersen, don’t destroy WorldCom related documents. Commentators have speculated whether WorldCom can avoid bankruptcy, and what a bankruptcy might mean for the tech sector and business in general. WorldCom assets include MCI, the second largest long-distance provider, and UUNet, a unit that carries the bulk of the Internet's traffic. The demise of WorldCom would cause major disruptions for business, according to analysts. WorldCom’s future may depend on whether it can persuade financial institutions to extend credit to it when its financial results are questionable. At the same time, WorldCom must maintain service with 17,000 impending layoffs. WorldCom is currently about $30 billion in debt. If banks try to force repayment of the credit it has already used, it is thought that this might force the company into bankruptcy. Given the situation, there is concern that the problems may be amplified by customer defections to such companies as AT&T, Sprint, and Cable & Wireless. Further information may be found at http://www.worldcom.com/about_the_company/press_releases/display.phtml?cr/200206 25

HOUSE VOTES TO RESTRICT COMPUTER-GENERATED PORN

In a 413-8 vote on June 25th, the House of Representatives voted to restrict computer-generated sexual images of minors. The vote was in response to the recent Supreme Court decision in April declaring unconstitutional an earlier ban on "morphed" child pornography, finding that it violated the First Amendment. A similar bill has been introduced in the Senate and its passage is regarded as certain. The new bill includes relatively minor changes to the 1996 version of the law, known as the Child Pornography Prevention Act. That legislation had prohibited any image that "appears to be" a minor. The new Child Obscenity and Pornography Prevention Act (COPPA) refers to any computer-generated image that is "virtually indistinguishable from that of a minor engaging in sexually explicit conduct." It is thought that the narrower language will survive constitutional scrutiny although some legal scholars disagree, saying that the bill does not eradicate the problems delineated by the Supreme Court in its recent decision. The text of the bill may be found by entering the bill number (H.R. 4623) at http://thomas.loc.gov/

WEBCASTER FEES CUT IN HALF BY COPYRIGHT OFFICE

On June 20th, the Copyright Office announced new webcasting rates, requiring webcasters to pay record labels .07 cents each time a song is streamed live and .02 cents for archived or simulcasted streams. The rates, even though slashed in half, were still met with opposition from webcasters who say that the high rates force fees that cannot be recouped. In February, the Copyright Arbitration Royalty Panel said that webcasters should pay .14 cents per stream. The rate was not binding and was rejected by the webcasting industry. Hearings were reopened to determine the final royalty rate. Webcasters now have 45 days to pay royalty payments for services dating back to 1998. Some webcasters have said that they will go to Congress to attempt to have the rates overturned. The new webcaster rates may be found at http://www.copyright.gov/carp/webcasting_rates_final.html

MICROSOFT AND SEC NEGOTIATE A DEAL

Most companies try to conceal their bad news, but Microsoft appears to have taken the opposite tack. According to a report published by the Wall Street Journal on May 30th, Microsoft’s filings with the Securities and Exchange Commission essentially tried to downplay its earnings. Under a proposed settlement approved by the SEC, Microsoft reportedly has agreed to stop certain accounting practices that concealed the true extent of its revenues. The conduct complained of using "cookie-jar reserves" -- putting money in reserve during strong fiscal quarters instead of counting it as income, and then drawing on reserves during weak quarters to boost income. This hurts investors who buy when the stock is artificially inflated and sell when it is artificially understated. Microsoft will not admit or deny guilt as part of the settlement and is not expected to face a fine. Microsoft's auditor was Deloitte & Touche. Further information may be found at http://www.sec.gov/news/press/2002-80.htm

BURST.COM SUES MICROSOFT

On June 19th, Burst.com filed suit against Microsoft in the U.S. District Court for the Northern District of California, alleging that Microsoft’s upcoming video encoding and decoding product (Corona) includes Burst’s patented video-delivery technology. The suit alleges that Microsoft pressured its partners and customers, including Intel and RealNetworks, into abandoning support for Burst’s technology. It also charges that Microsoft deliberately caused Burst’s products to be incompatible with Windows software. Burst claims that Microsoft had access to its streaming technology while the two companies were negotiating a deal for the rights to the technology and, when the talks fell through, Microsoft took the technology and put it in Corona. The complaint in the case may be found at http://burst.burst.com/new/newsevents/legalactivity.htm

MICROSOFT: NEARING THE FINISH LINE

On May 31st, U.S. District Court Judge Colleen Kollar-Kotelly denied a motion by non-settling states in the Microsoft antitrust case to allow an August 2000 e-mail into evidence, finding that it would prejudice Microsoft’s defense. In the memo, Microsoft Senior Vice President Joachim Kempin complained that Intel was encouraging computer manufacturers to support Linux and funding research and development for devices that would operate with Linux. Kempin suggested that Microsoft therefore withhold technical information from Intel and "work underground" to advance its competitors in the industry.

Also this month, Judge Kollar-Kotelly denied a Microsoft motion to dismiss the antitrust case, saying that the nine non-settling states have the right to seek penalties that would apply throughout the country. Microsoft had asked for a dismissal, saying the states could not show specific harm to their residents and that their proposed holding would be inconsistent with a federal settlement reached in November. The court has yet to rule on whether to approve the federal settlement.

On June 10th, the last major filings in the case took place when both sides filed their proposed findings of fact and conclusions of law. Final arguments were held on June 19th. Although Kollar-Kotelly had asked both sides to rank their competing proposals and asked Microsoft specifically whether it could live with any of the "least onerous" penalties proposed by the states, Microsoft’s attorneys did not budge during closing arguments. Microsoft also refused to consider modifying the company deal with the federal government, saying that Microsoft had fully negotiated and had gone as far as it could go. The states’ lawyers zeroed in on Bill Gates’ testimony in the hearings as well as e-mails, saying that threats were "part of the fabric of how they do business." They also complied with the judge’s request and prioritized their proposed penalties, saying that the most important thing is that Microsoft disclose enough technical information to software developers as that is critical to the health of the technology industry. The final decision is expected in late summer. Legal documents in the case may be found at http://www.microsoft.com/presspass/legalnews.asp


Copyright ©  2001 Nelson & Wolfe/Sensei Enterprises, Inc. All rights reserved.