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Issue 62 August 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. WORLDCOM FILES FOR BANKRUPTCY On July 21st, WorldCom announced that it was filing a Chapter 11 bankruptcy after confessing to nearly $4 billion in accounting irregularities. A day after the filing, the U.S. Bankruptcy Court in the Southern District of New York provisionally approved a $2 billion interim financing deal with a final hearing scheduled for September 4th. It is estimated that WorldCom has nearly $33 billion in debt. The interim financing is intended to make sure the company can continue operating while it attempts to restructure itself. Earlier in the month, Hinds County Chancery Court issued a temporary restraining order barring WorldCom, its former employees, and its current and former auditors from destroying any documents or records that might be subject to a state investigation into WorldCom’s financial improprieties. Arthur Andersen, WorldCom’s former auditor, is subject to the order. The SEC also filed a suit against WorldCom on June 26th in the U.S. District Court for the Southern District of New York, calling its accounting irregularities "a scheme directed and approved by its senior management .. [that] disguised its true operating performance by using undisclosed and improper accounting that materially overstated its income." The suit also charged WorldCom with fraud and asked the court to prohibit the destruction of evidence in the case and the payment of exorbitant bonuses to executives. Further information may be found at http://www.worldcom.com. The SEC’s complaint may be found at http://www.sec.gov/litigation/complaints/complr17588.htm CONCERN ABOUT AL QAEDA CYBERTERRORISM GROWS An FBI investigation suggests that al Qaeda is "casing" websites studying emergency telephone systems, electrical generation and transmission, water storage and distribution, nuclear power plants and gas facilities. Some of the probes focused on digital devices that permit remote control of fire dispatch services and pipelines. Some of the same information appeared on al Qaeda computers seized in January by the U.S. military in Afghanistan. One computer contained models of a dam, made with structural architecture and engineering software that enabled the planners to simulate its catastrophic failure. Further information may be found at http://zdnet.com.com/2102-1105-939811.html PUBLISHERS SUE GATOR OVER ADS/GET TRO On June 25th, a group of a dozen publishers filed suit against the Internet ad company Gator Corp., alleging that Gator sold ads on their websites without authority to do so and then pocketed the revenues. The suit was filed in the U.S. District Court for Eastern Virginia, and the plaintiffs include The Washington Post Co., the New York Times Co., Dow Jones & Co., Tribune Interactive, Gannett Co., Knight Ridder Digital, Condenet and American City Business Journals, Inc.The publishers charge that Gator offers to sell ads that appear when Gator users visit specific websites, even though those websites haven't authorized the ads. The complaint charges that placement of pop-up ads on the publishers' websites "alters the display of the Web site, which constitutes copyright infringement." The suit alleges that Gator's pop-up ads also constitute trademark infringements and misappropriation of the news. They are also alleged to constitute unfair competition because Gator's competing offer to advertisers makes it harder for publishers to sell their own ads. Gator has asked the court for an expedited trial. On July 12th, Judge Claude Hilton granted the publishers’ motion for a temporary restraining order and Gator was enjoined from delivering ads keyed to the plaintiffs’ sites pending resolution of the suit, which seeks a permanent injunction against Gator as well as monetary damages. The case is expected to go to trial before the end of the year. Further information may be found at http://www.gatorcorporation.com/companyinfo/press.html CALIFORNIA APPEALS COURT REJECTS APPEAL IN EBAY FRAUD SUIT On June 26th, the California Court of Appeals rejected the appeal of the trial court’s decision to dismiss a case brought by a group of eBay purchasers who alleged that eBay knew about the sale of bogus sports memorabilia on its site but did nothing to prevent it. The court concluded that there was no cause of action against eBay because it did not sell or offer to sell the collectibles at issue. "Additionally, we conclude imposition of...liability on eBay in this particular case is inconsistent...because appellants' causes of action ultimately hold eBay responsible for misinformation or misrepresentations originating with other defendants or third parties." The opinion in Gentry et al v. eBay, Inc. may be found at http://www.courtinfo.ca.gov/opinions/documents/D037661.PDF MICROSOFT’S PALLADIUM: BEAUTY OR BEAST? Microsoft released some information about its much ballyhooed security system, dubbed "Palladium," in June. July brought a firestorm of commentary, much of it skeptical commentary from privacy groups. Palladium is a more comprehensive version of the Hailstorm and Passport services. Through software and hardware controls, Palladium would make Microsoft the gatekeeper of identification and authentication. Additionally, systems embedded in both software and hardware would control access to content, thereby creating ubiquitous digital rights management schemes that can track users and control use of media. Microsoft expects to have elements of the system in place by 2004. Palladium creates a virtual vault inside the Windows operating system. In it, each user can create personal "safe-deposit boxes" for storing encrypted information. The information would be accessible only to those software programs, websites and people that the computer recognized as being authorized to see it. Hard-wired authentication has spooked many commentators, who worry that Microsoft might have its own plans for Palladium, including controlling what sort of software could be run. Others worry about Palladium containing hacker-friendly vulnerabilities. Further information on both sides of the issue may be found at http://www.epic.org/privacy/consumer/microsoft/palladium.html and http://www.microsoft.com/presspass/features/2002/jul02/07-01palladium.asp NY APPEALS COURT SAYS WEB POSTING IS LIKE PRINT IN LIBEL CASE On July 2nd, the New York Court of Appeals issued its decision in Firth v. Slate, holding unanimously that the single publication rule applies to allegedly defamatory materials posted on the Internet. The case involved a harsh posting by the state inspector general criticizing environmental police officer George Firth. The posted report questioned Firth’s integrity and criticized his management in the disposal and sale of surplus handguns. The report was posted on the state’s website in December of 1996. Firth, who was suspended and ultimately resigned, sued the state 15 months after the first publication, three months beyond the statute of limitations. The case was therefore dismissed on the basis that the single publication rule applied, even though the piece remained on the website continuously. On appeal, it was argued that the modifications to the website resurrected the statute of limitations. The appellate court concluded that a "multiple publication rule would implicate an even greater potential for endless retriggering of the statute of limitations, multiplicity of suits and harassment of defendants." The court flatly dismissed the argument that website modifications constituted republication, saying that "The mere addition of unrelated information to a Web site cannot be equated with the repetition of defamatory matter in a separately published edition of a book or newspaper." Further information may be found at http://www.phillipsnizer.com/int-art190.htm PAC BELL DSL BILLING SUIT SETTLED Pacific Bell has reached a tentative settlement with state regulators in California, agreeing to pay what would be a record $27 million fine for billing tens of thousands of customers for high-speed Internet service that they did not request. Since 1999, some 800 customers have complained to the state Public Utilities Commission that Pac Bell billed them for DSL services they didn't order, didn't receive or wanted to drop. The company has acknowledged incorrectly billing between 30,000 and 70,000 customers. If approved by the commission and an administrative judge, the $27 million fine will go to the state's general fund. It would be the largest ever levied by state utility regulators, surpassing the $25.6 million regulators fined Pac Bell last year for misleading marketing tactics. The company said it has created a new DSL billing center. Further information may be found at http://usatoday.com/life/cyber/tech/2002/07/05/pac-bellhtm FTC ISSUES AD PLACEMENT WARNING TO SEARCH ENGINES On June 28th, the Federal Trade Commission warned Internet search engines placing paid ads at the top of query results that they need to clearly disclose the practice. Letters went out to Microsoft, AOL Time Warner, Alta Vista, Direct Hit Technologies, iWon, LookSmart, and Terra Lycos encouraging them to draw a marked line between editorial content and advertising. The paid ads are often similar in appearance to the search results and are frequently identified as "Sponsored Links" or "Partners." The FTC letter warns "the intermingling of non-paid Web sites with paid-inclusion Web sites in the search database may cause consumer confusion and mislead consumers." The only search engine that currently meets the FTC’s disclosure guidelines is Google. A recent survey by Consumers Union found 60 percent of Internet users polled had no idea that some search engines were paid fees to list some sites more prominently than others. Further information may be found at http://www.ftc.gov/os/closings/staff/commercialalertletter.htm MICROSOFT: NO NEED TO DISCLOSE CONGRESSIONAL LOBBYING Judge Kollar-Kotelly decided on July 1st that Microsoft does not have to disclose its lobbying contacts with Congress in connection with the government’s antitrust case against Microsoft. The ruling found that the Tunney Act had not been violated. The court noted that "Neither party has identified any case in which the ... disclosure has included contacts beyond those with the executive branch, nor has the court located any such case." The ruling came as part of a procedural order in which the judge certified that Microsoft and the Justice Department have fulfilled the steps required by the Tunney Act. She will now decide whether the federal settlement is in the public interest, which is the final requirement before the settlement goes into effect. Legal documents in the case may be found at http://www.microsoft.com/presspass/legalnews.asp ICANN: NO ORDINARY PEOPLE ON BOARD On June 28th, the Internet Corporation for Assigned Names and Numbers unanimously passed a resolution at its quarterly meeting in Bucharest that excludes ordinary Internet users from its board. Critics charge that abolishing the online election of individual users will allow mainstream interests to tighten their grip on the Internet. The 19-member board of directors will be drawn from representatives of technical, business, government and nonprofit organizations. It will decide all policy matters governing the fundamental domain name system for the Internet. In a separate vote, ICANN approved the introduction of a 30-day grace period, giving current domain name owners extra time to renew their domain name contracts to prevent the names from falling into the hands of speculators. A separate measure to introduce a waiting list for coveted domain names will be considered later this summer. Further information may be found at http://www.icann.org/minutes/prelim-report-28jun02.htm DANISH COURT FORBIDS DEEP HYPERLINKS A Danish court has ruled that news aggregator Newsbooster may not use deep links (bypassing the home page) of other sites without their permission. The limited ruling, in Copenhagen’s lower bailiff’s court, prevented Newsbooster from deep linking to the 28 sites of the Danish Newspaper Publishers’ Association. Some website operators argue they should be able to control links to their sites to prevent competitors from capitalizing on the work and money that went into creating their content. However, critics of deep-linking bans say prohibitions on certain types of linking would alter the nature of the Internet, which relies on the free flow of information to operate. A translation of salient portions of the ruling may be found at http://www.newsbooster.com/?pg=judge&lan=eng UK ISPS SUBJECT TO 8/1 INTERCEPTION DEADLINE In accordance with the provisions of the Regulation of Investigatory Powers Act, ISPs throughout the United Kingdom will be required, beginning on August 1st, to be prepared to intercept and store electronic communications, including e-mails, faxes and web surfing data. The Act was introduced to give law enforcement authorities the same power to intercept digital communication as exists with respect to telephone calls and letters. Critics have pointed out a couple of flaws. First, the Home Office has not yet told ISPs how they will be compensated for performing their interception and storage duties. More significantly, though the Act was passed to fight terrorism and organized crime, it applies only to large ISPs. Anyone who wants to avoid interception merely needs to locate an ISP with less than 10,000 customers. For those ISPs subject to the law, they have one working day to provide a mechanism to intercept communications once an interception has been authorized. The ISP must transmit the intercepted data in real time to the individual who applied for the warrant and must be able to simultaneously intercept the communications of up to 1 in every 10,000 people who use its service. The text of the Act may be found at http://www.hmso.gov.uk/acts/acts2000/20000023.htm MINNESOTA SUPREME COURT RULES ON NET LIBEL On July 11th, the Minnesota Supreme Court ruled that a Minnesota woman who wrote a posting on the Internet critical of an Alabama scholar couldn’t be sued for libel in the scholar's home state. The court vacated a $25,000 judgment against Marianne Luban, whose criticism on an Internet newsgroup devoted to Egyptology was directed at Katherine Griffis, a scholar living in Alabama. Griffis filed a libel action in Alabama and Luban did not attend the court sessions, arguing that Alabama did not have jurisdiction, which resulted in a default judgment. Griffis then asked a Minnesota court to enforce the award. Luban's attorney argued that the original suit should have been filed in Minnesota, saying most libel cases for printed materials occur in the place where the statement is produced. The Supreme Court’s unanimous decision overturned rulings in two lower Minnesota courts upholding the Alabama verdict. The court said that "the fact that messages posted to the newsgroup could have been read in Alabama, just as they could have been read anywhere in the world, cannot suffice to establish Alabama as the focal point of the defendant's conduct." The court’s opinion may be found at http://www.lawlibrary.state.mn.us/archive/supct/0207/c301296.htm RIAA AND MPAA BRING KAZAA INTO FILE-SWAPPING SUIT In October of 2001, the Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA) sued three prominent file-swapping companies in federal district court in Los Angeles. On July 8th, the court agreed that the plaintiffs could join Sharman Networks, which distributes the file-swapping Kazaa software, as a party. The suit had originially named Morpheus’ parent StreamCast Networks, Grokster and Kazaa BV, the Netherlands-based company that created the Kazaa software. In February, Kazaa BV sold the Kazaa file-swapping software to Sharman, a company based for tax reasons in Vanuatu, a small island in the South Pacific. The recording and movie industry trade groups asked permission to add that company to the lawsuit in June. Further information may be found at http://zdnet.com.com/2102-1105-942593.html ACLU SEEKS TO OVERTURN DMCA On July 25th, the American Civil Liberties Union filed a lawsuit seeking to overturn portions of the Digital Millennium Copyright Act (DMCA) on the grounds that it is so sweeping that it interferes with researchers’ ability to gauge the efficacy of Internet filtering programs. Suing on behalf of a 22-year-old programmer who is performing such research, the ACLU hopes to narrow the reach of the DMCA. Thus far, courts have upheld the DMCA's broad restrictions on the "circumvention of copyright protection systems." The ACLU is hoping that this case will be different because the plaintiff is a sympathetic figure performing the socially useful act of evaluating software used in public schools and libraries. Filtering software typically includes an encrypted list of sexually explicit or otherwise banned websites. Edelman wants to invent and distribute a utility that would circumvent that protection, thereby violating the DMCA. Edelman v. N2H2 was filed in federal district court in Massachusetts and asks for an injunction barring N2H2 from suing Edelman. It also asks permission for Edelman to decrypt N2H2's blacklist, publish the decrypted blacklist and distribute the decoding utility. Further, the ACLU is asking for a declaration that the license agreement accompanying N2H2's software is unenforceable because it is an unconscionable misuse of copyright and contrary to federal and state public policy. N2H2's license says: "You shall not copy or make any changes or modifications to the software, and you shall not decrypt, decode, translate, decompile, disassemble, or otherwise reverse engineer the software." The complaint in the case may be found at http://www.aclu.org/court/edelman.pdf HOUSE VOTES TO STIFFEN CYBERCRIME PENALTIES On July 15th, the House of Representatives voted 385-3 to increase computer crime penalties and to make it simpler for Internet service providers to disclose possible cybercrime related materials to government agencies and law enforcement. The bill also says that immediate threats to national security should be included among emergency instances where law enforcement can tap into computer communications. The bill exempts from civil or criminal liability Internet service providers who disclose communications to government offices in the good-faith belief in the existence of an emergency that poses danger of death or serious physical injury. The bill allows electronic surveillance tools such as pen registers and trap and trace devices to be used for 48 hours while court authorization is sought, if an immediate threat to national security exists or protected computers are being attacked. Such devices allow law enforcement to find the source or destination of computer communications without capturing the content. The bill doubles the maximum penalty for knowingly attempting to cause serious injury through a cyber-attack to 20 years' imprisonment. Attempts to cause death are punishable by up to life in prison. In answer to privacy concerns, the bill requires that agencies must report to the Justice Department within 90 days after getting access to electronic communications. The text of the bill may be found by entering the bill number (H.R. 3482.) at http://thomas.loc.gov/ SENATE VOTES TO CREATE EMERGENCY TECHNOLOGY GUARD On July 19th, the U.S. Senate approved legislation to create the National Emergency Technology Guard, teams of experts available to prevent and react to terror attacks on America’s communications infrastructure. The Science and Technology Emergency Mobilization Act also establishes a government agency to coordinate sharing security technology and authorizes $35 million to create emergency communications programs. Additionally, it provides for the creation of a "virtual technology reserve" of privately owned equipment that could be loaned to the government in an emergency. The House of Representatives has approved a similar plan but the two bills must now be reconciled before going to President Bush for signature. The text of the bill may be founding by entering the bill number (S. 2037) at http://thomas.loc.gov/ ACLU CHALLENGES ARIZONA LAW CENSORING DEATH PENALTY SITES On July 18th, the American Civil Liberties Union, acting on behalf of anti-death penalty and other advocacy groups, filed a suit in Arizona federal district court seeking to overturn a state law that bans all information about Arizona prisoners from the Internet. The lawsuit, Canadian Coalition Against the Death Penalty v. Terry L. Stewart, was brought on behalf of three prisoners' rights groups against the Arizona Department of Corrections, which is responsible for enforcing this law. The law (Arizona House Bill 2376) also bars prisoners from corresponding with a "communication service provider" or "remote computing service" and disciplines prisoners if any person outside prison walls accesses a provider or service website at a prisoner's request. The groups represented by the ACLU include the Canadian Coalition Against the Death Penalty, which has information about 45 Arizona prisoners on its website; Stop Prisoner Rape, a group that seeks to end sexual violence against individuals in detention; and Citizens United for Alternatives to the Death Penalty, a group that organizes public education campaigns with the intention of abolishing the death penalty. All of the ACLU's clients maintain websites with prisoner information. Recent state agency notices demand that prisoners have their names and case information removed from advocacy websites or face prison discipline and possible criminal prosecution. The ACLU's complaint alleges that the legislation in question has the effect of suppressing the flow of information about prisoners to the outside world and stifles the advocacy efforts of the ACLU's clients and other anti-death penalty and prisoner rights organizations. The complaint in the case may be found at http://www.aclu.org/court/stewart.pdf CYBERSQUATTING ABORTION ACTIVIST SUED A number of prestigious consumer and media companies have banded together to sue a Minneapolis abortion activist from using their trademarks to direct Net surfers to anti-abortion web sites. The suit was filed on July 18th in the U.S. District Court in Minneapolis. Plaintiffs include The Washington Post, Coca-Cola, McDonalds and PepsiCo. Defendant William S. Purdy, Sr. is accused of registering such names as MyCoca-Cola.com, MyMcDonalds.com, MyPepsi.org and washingtonpostsays.com, and then directing visitors to those domains to anti-abortion sites with graphic pictures of aborted fetuses. Purdy has said he registered the domain names as a religious and political statement to draw attention to abortion and that he has no ties to the anti-abortion Web sites. Further information may be found at http://www.usatoday.com/tech/news/techpolicy/2002-07-19-cybersquatting_x.htm AKAMAI SUES SPEEDERA OVER DATA THEFT Massachusetts-based Akamai Technologies sued rival Speedera Networks on June 25th, accusing Speedera of hacking into its network and stealing proprietary information. The lawsuit, filed in state Superior Court in San Francisco, followed a visit to Speedera by the Federal Bureau of Investigation, that action prompted by a sealed affidavit that Speedera said was filed by Akamai. Both companies are in the businesses of speeding up customers’ websites by decreasing download times with their proprietary technology. Speedera denies all charges and filed its own lawsuit against Akamai on the same day charging Akamai with unfair competition, false advertising and trade libel. In a court hearing held on June 26th, the judge granted Akamai’s request for expedited discovery process. Further information may be found at http://www.akamai.com/en/html/about/press/press357.html Copyright ©  2001 Nelson & Wolfe/Sensei Enterprises, Inc. All rights reserved.