FCC RULES ON INTERNET-BASED PHONE SERVICES

On November 9th, the Federal Communications Commission (FCC) ruled that providers of Internet-based phone call services fall under the jurisdiction of the federal government, exempting them from some key regulation by states. The FCC voted 5-0 in favor of Vonage Holdings Corp. of Edison, N.J., which had asked the agency to declare the company's product an interstate service, giving the FCC regulatory control. Vonage has been fighting public utilities officials in Minnesota who want the company to register in the state as a telecommunications service, subjecting it to rate regulation and other state rules. The FCC ruling applies to cable, phone and other companies offering an Internet phone service similar to the one Vonage provides. The decision does not, however, preclude states from imposing some taxes and fees. It also does not address access charges, which are fees paid to local phone companies for completing calls sent via the Internet to conventional phones. Vonage also had asked the commission to certify it as an information service, instead of a telecom company. That certification would have a profound impact on the industry because it would mean providers of Voice over Internet Protocol wouldn't have to pay the taxes and fees that traditional phone companies do. The commission did not rule on that request. Further information may be found at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-254112A1.doc

On November 3rd, a brother and sister who sent junk e-mail to millions of America Online customers were convicted in the nation's first felony prosecution of Internet spam distributors. Jurors found Jeremy Jaynes, 30, and Jessica DeGroot, 28, guilty of three counts each of sending e-mails with fraudulent and untraceable routing information. A third defendant, Richard Rutkowski, 30, was acquitted. All three defendants live in the Raleigh, N.C., area. Prosecutor Russell McGuire said Jaynes amassed a net wealth of $24 million peddling worthless products. Defense attorney David Oblon, representing Jaynes, argued that it was inappropriate for prosecutors to seek what he called an excessive punishment, given that this is the first prosecution under the Virginia law. He also noted that his client, a North Carolina resident, would have been unaware of the Virginia law. Oblon called the jury's recommendation of nine years in prison shocking. When Jaynes and DeGroot are formally sentenced in February, Circuit Court Judge Thomas Horne will have the option of reducing the jury's sentence or leaving it intact. Horne has been asked to set aside the verdict. If he declines to do so, Oblon may appeal and challenge the new law on constitutional grounds. The defendants have said the law is an unconstitutional infringement of free speech. Further information may be found at http://www.oag.state.va.us/media%20center/Current%20AG%20News%20Releases/110304_ Kilgore_Announces_9-Year-Sentence_for_Spammer.htm

On November 19th, it was reported that a federal judge in Los Angeles dismissed charges against a California man who used a keystroke logger to spy on his employer, ruling that the use of such a device does not violate federal wiretap law. Larry Ropp, a former claims adjuster for an insurance company, was caught last year using a KEYKatcher brand surveillance device on a secretary's computer while secretly helping consumer attorneys gather information against his employer, Bristol West Insurance Group. The KEYKatcher attaches inline with a keyboard connector, and stores every keystroke in an internal memory for later retrieval. Ropp had been indicted in what prosecutors heralded as the first federal criminal prosecution for the use of a hardware keystroke logger. The indictment charged a violation of the federal wiretap statute, which makes it illegal to covertly intercept electronic communications transmitted "over a system that affects interstate or foreign commerce." Prosecutors maintained that the tapped PC was covered by the statute because it was connected to Bristol West's national computer network, and the secretary had composed electronic mail messages on it. However, district court judge Gary Feeds granted a defense motion to dismiss the indictment, ruling that the interception of keystrokes between the keyboard and the computer's CPU did not meet the interstate or foreign commerce clause in the federal Wiretap Act, even if some of those keystrokes involved the composition of e-mail. The judge indicated that Congressional action would be needed to make the defendant’s conduct illegal. Further information may be found at http://www.securityfocus.com/news/9978

On November 23rd, it was reported that Perfect 10, a California-based pornographer, had sued Google, charging that its search engines allow users to illegally view versions of its nude photos and to access its website with hijacked passwords. Perfect 10 alleges that this violates its copyrights and injures its ability to profit from the distribution of the photos via its magazine and website. The suit states that a Google search for "perfect10.com passwords" serves up a list of usernames and passwords that would enable searchers to access Perfect 10's Web site and bypass its $25.50 monthly membership fee. The suit also charges Google with trademark infringement, circumvention of copyright-protection systems, trademark dilution, unfair competition and violation of rights of publicity. The lawsuit seeks unspecified damages. Further information may be found at http://news.com.com/Nude-photo+publisher+sues+Google/2100-1038_3-5464736.html

On November 15th, Google filed suit in the Superior Court of Santa Clara County in California, charging that Texas-based Auctions Expert International signed up to display Google's targeted text advertising on its Web site, and then fraudulently clicked on the ads to profit from its pay-per-click system. According to the complaint, "Defendants . . . flagrantly abused (Google's service) by artificially and/or fraudulently generating ad clicks . . . These clicks were worthless to advertisers, but generated significant and unjust revenue for defendants." Google did not say how much money was lost, but the company is seeking compensatory and punitive damages to be determined at trial. With each click of a Google sponsored text link, it collects fees from advertisers, and shares that revenue with publishing partners that display those ads. The fraud is perpetrated in both automated and human ways. The most common method is the use of online robots, or "bots," programmed to click on advertisers' links that are displayed on Web sites or listed in search queries. A growing alternative employs low-cost workers who are hired in China, India and other countries to click on text links and other ads. A third form of fraud takes place when employees of companies click on rivals' ads to deplete their marketing budgets and skew search results. According to Google's complaint, Auctions Expert erected its Web site and signed up for its Adsense programs with the sole intention of generating false clicks and collecting advertiser fees. Further information may be found at http://www.eweek.com/article2/0,1759,1731167,00.asp

On October 28th, the U.S. Secret Service announced that its Operation Firewall had resulted in the arrest of suspects from eight states and six foreign countries on charges of identity theft, computer fraud, credit card fraud and conspiracy. The Service said that the individuals arrested worked together to steal more than 1.7 million credit card numbers and other financial information costing more than $4.3 million. 28 suspects had been arrested as of the 28th and the investigation is continuing, in cooperation with law enforcement officials from the United Kingdom, Canada, Bulgaria, Belarus, Poland, Sweden, Ukraine and the Netherlands. Further information may be found at http://www.ustreas.gov/usss/press/pub2304.pdf

On November 4th, the Federal Bureau of Investigation added Saad "Jay" Echouafni to its most wanted list. Echouafni, 37, is the former chief executive of Massachusetts-based Orbit Communication Corp. He is charged with hiring hackers to take down the websites of a large television services company – weekness.com. He is also alleged to have taken down the websites of Amazon.com and the Department of Homeland Security. Overall, his attacks reportedly caused more than $2 million in damages. Echouafni, along with 150 other defendants, was indicted as part of a Justice Department investigation code-named "Operation Cyberslam." However, it was his disappearance that earned him the slot on the most wanted list. Echouafni joins Jie Dong, who is charged with defrauding Internet auction sites out of nearly $1 million. A federal arrest warrant issued in California said Dong stiffed more than 5,000 winning bidders and fled the country. The FBI says Dong may now be somewhere in China or Hong Kong. Jerrod Lochmiller is charged with stealing at least $40,000 from 18 victims who thought they bought computers, televisions, musical instruments and other high-priced items at online auctions. Lochmiller also is charged with selling fake identification materials on the Internet. The inclusion of these kinds of accused criminals is part of FBI Director Robert S. Mueller III's decision to make cyber-crime one of the agency's top three investigative priorities. Further information may be found at http://www.fbi.gov/mostwant/alert/alert.htm

On November 10th, a World Trade Organization (WTO) panel said the U.S. should drop prohibitions on Americans placing bets in online casinos. In its final 287-page report, the WTO panel confirmed the preliminary ruling it issued in March in a dispute between the United States and the tiny Caribbean nation of Antigua and Barbuda, saying the ban represented an unfair trade barrier. U.S. diplomats in Geneva said they would contest the ruling before the WTO's seven-member appeals body. Antigua filed a case before the WTO last year. It contended that U.S. restrictions on Internet gambling violated trade commitments the United States has made as a member of the 148-nation WTO. U.S. trade officials responded that negotiators involved in the Uruguay Round of global trade talks, which created the WTO in 1995, clearly intended to exclude gambling. Antiguan authorities also had argued that restrictions that barred U.S. residents from betting at offshore casinos were harming the country's efforts to diversify its economy. Antigua has been promoting electronic commerce as a way to end the twin-island nation's reliance on tourism, a sector hurt by a series of hurricanes in the late 1990s. Antiguan officials estimate that online casinos employ some 3,000 of the 67,000 residents of Antigua. The WTO’s final report may be found at http://www.wto.org/english/tratop_e/dispu_e/285r_e.pdf

On October 12th, U.S. District Judge Cynthia Rufe (Eastern District of Pennsylvania) ruled that alleged file sharers must be given a notice explaining their legal rights before their Internet service provider hands over any personal information to the music labels. The Recording Industry Association of America has filed thousands of "John Doe" lawsuits, where the industry's trade association sues people based on their Internet protocol addresses without knowing their names. The RIAA must first obtain an order from a judge to subpoena the Internet service providers for the name of the defendant. With Rufe's order, now ISPs in the Eastern District of Pennsylvania must provide a detailed notice to their customers advising them of their rights, before they hand over their customers' names to the music companies' lawyers. The order in Elektra Entertainment v. Does 1-6 may be found at http://www.eff.org/IP/P2P/RIAA_v_ThePeople/20041012_Order_Granting_Request.pdf

On November 10th, Microsoft announced that it would indemnify nearly all its customers against any claims that their use of Microsoft software infringed on any intellectual-property claims. The company said the protection extends to current and older versions of its software, including its Windows operating system, Office desktop software and SQL Server database. The company already offers unlimited protection to its volume license customers but is adding the indemnity for customers who buy its key products in other ways, such as from a computer maker or even off a retail shelf. Microsoft is expected to tout the indemnification program as a reason for customers not to defect to Linux. Further information may be found at http://www.microsoft.com/presspass/press/2004/nov04/11-10IPProtectionPR.asp

On November 15th, Burst.com, a company suing Microsoft for patent infringement, alleged in court documents that Microsoft instructs its employees to routinely destroy internal e-mail every 30 days, despite a court order to retain such documents. Burst.com, a streaming media software company, filed a pretrial motion with a U.S. District Court in Baltimore asking the judge to find that Microsoft has destroyed evidence and to instruct a jury to take that into consideration once the antitrust and patent infringement trial begins. A representative for Microsoft, however, said that while the company does have a guideline that suggests deleting e-mails after 30 days, the policy is not a strict requirement and that correspondence related to lawsuits is not included. Legal documents in the case may be found at http://www.burst.com/new/newsevents/legalactivity.htm

On November 17th, Congress passed a bill authorizing $165 million in new supercomputing funding in the United States, a move that came a week after a report criticized current supercomputing as insufficient for the country's security needs. The Department of Energy High-End Computing Revitalization Act of 2004 is expected to be signed by the President. Supercomputers are powerful machines used for tasks such as predicting hurricane paths and other weather issues, assuring nuclear weapons will work despite aging, investigating human biochemistry, cracking encoded communications, and projecting the consequences of global warming. The bill authorizes $50 million to be spent in fiscal 2005, $55 million in fiscal 2006 and $60 million in fiscal 2007. With the funding, the Energy Department will research high-end computing; develop and buy supercomputers; establish a center to develop and maintain software; and transfer technology to the private sector. The text of the Act may be found by entering the bill number (H.R. 4516) at http://thomas.loc.gov/

On November 12th, Congress acted to prohibit state and local governments from taxing connections that link consumers to the Internet for the next three years. The bill blocks taxation of all types of Internet connections, from traditional dial-up services to high-speed broadband lines. States that had started taxing Internet access before the first ban, enacted in 1998, can continue collecting those fees. The original ban didn't envision the adoption of DSL lines, and the law would require the few states that now tax those connections to phase out their levies. An earlier ban lapsed more than a year ago while lawmakers struggled to rewrite the regulations to include new technologies while ensuring that it wouldn't exempt all telecommunications activities from taxation. The text of the Act may be found by entering the bill number (S. 150) at http://thomas.loc.gov/

VeriSign released an Internet Security Intelligence Briefing in November, reporting that organized gangs are more likely than ever to be behind online attacks. The criminal groups increasingly rely on massive numbers of compromised home PCs to launch their attacks. Attackers can make money by holding online businesses ransom over threatened denial-of-service onslaughts, through credit card fraud or from spam income. The report's findings are based on the data generated by the Internet services company's handling of online registrations, domain look-ups, credit card transactions and corporate network security. The number of security incidents has increased some 150 percent over the third quarter a year ago, and computers located in the United States account for more than 90 percent of the probes and attacks. VeriSign’s report may be found at http://www.verisign.com/static/017574.pdf

On November 12th, Novell filed suit against Microsoft, claiming the company used anti-competitive tactics in the desktop software market during the 1990s that adversely affected WordPerfect. The suit argues that Microsoft restrained trade from 1994 to 1996, when Novell sold its WordPerfect word processing application and Quattro Pro spreadsheet. The suit, filed in U.S. District Court in Salt Lake City, seeks unspecified damages. Novell charges that Microsoft withheld "critical technical information" about Windows from Novell, which Novell says hampered its ability to create competitive versions of its productivity applications. Novell also contends that Microsoft deliberately excluded WordPerfect from the marketplace. Novell said Microsoft used its monopoly power to prevent hardware manufacturers from offering WordPerfect to customers. Microsoft dismisses Novell's suit as fundamentally flawed, saying that Novell's mismanagement caused WordPerfect to fall out of favor with consumers. Further information may be found at http://www.novell.com/news/press/archive/2004/11/pr04077.html

On November 15th, U.S. District Judge James Ware (San Jose, CA) ruled that credit card companies aren't liable when someone uses their charge card to buy stolen pornography. The judge threw out a copyright and trademark infringement suit brought against Visa International Service Association and MasterCard International Inc. by Perfect 10 Inc., which publishes an adult magazine and operates an adult Web site. Perfect 10 alleged that hundreds of Web site operators around the world are selling its trademarked images of women and argued that the credit card companies that process these transactions are liable for contributory and vicarious copyright infringement. Perfect 10 has said it will appeal the ruling. Further information may be found at http://www.law.com/jsp/article.jsp?id=1100535339538

On November 17th, the FTC announced that it had reached a settlement with PETCO, the nation’s second largest pet supply chain, with more than 670 stores. The FTC charged that PETCO falsely assured its online customers that their credit card numbers were secure when they were actually unencrypted and vulnerable to common computer hacking attacks. PETCO promised to upgrade its online security and submit regular reports on its progress. The company did not admit making misstatements and will not pay a fine. Further information may be found at http://www.ftc.gov/opa/2004/11/petco.htm

On November 16th, Hollywood's major movie studios filed lawsuits against hundreds of people suspected of trading movies online. The lawsuits, which could seek up to $150,000 in damages for each film illegally copied, are the first of their kind to be filed by the movie industry. The lawsuits were filed in federal courts across the country by Disney, Warner Bros., MGM, Universal, Fox, Paramount and Sony. The movie studios are filing the suits without knowing the names of the suspected pirates. Instead, the studios filed "John Doe" suits that cite unique Internet addresses. However, Judge William Alsup slowed Hollywood’s pursuit of the file swappers, saying the movie studios improperly bundled too many separate cases together, without showing good reason. He allowed the first of the suits to go ahead to the discovery process, in which the identity of the alleged file swapper will be requested from Internet service provider Pacific Bell, but he put the other 11 cases on hold. Legal documents in the cases may be found at http://www.eff.org/IP/P2P/MPAA_v_ThePeople

ForSaleByOwner.com had sued the state of California over its requirement that the firm get a real estate broker's license in order to publish house listings. On November 23rd, it was reported that a federal judge had ruled that the California Department of Real Estate was wrong to insist that a website had to obtain a real estate broker's license in order to publish paid ads listing properties for sale. The company charges customers an upfront fee to list their properties on its website, which also publishes other real estate-related information but does not act as a broker in transactions. Judge Morrison C. England Jr. of the U.S. District Court in Sacramento said the state's statute "appears wholly arbitrary" because it was requiring ForSaleByOwner.com to get a broker's license while allowing newspapers that publish the same information, online and in print, to operate without one. Further information may be found at http://inman.com/inf/realmatrix/story.asp?ID=43758

The United Nations has announced the members of its long awaited Working Group on Internet Governance. The group includes members from government, business, and civil society. The Working Group will prepare the ground for a decision on Internet governance by the second phase of the World Summit on the Information Society, to be held in Tunis in November of 2005. The report of the group is to be submitted to the Secretary-General in July of 2005. Further information may be found at http://www.un.org/News/Press/docs/2004/pi1620.doc.htm

On November 2nd, it was reported that a tiny company alleging that it holds a U.S. patent covering all international commerce handled by computer sued Dell Inc. for patent infringement. DE Technologies Inc., of Blacksburg, Va., filed the suit in U.S. District Court in Roanoke, Virginia. Its founder and chief executive, Ed Pool, said that ultimately DE Technologies hopes to license its patent to multinational companies in return for a small percentage of the value of their international shipments, a sum that would collectively amount to billions of dollars. Dell is the first company DE has sued under the patent and made no comment on the suit. The DE Technologies patent was filed in 1996 and awarded in 2002. Further information may be found at http://www.investors.com/breakingnews.asp?journalid=23787473&brk=1