Source: http://www.techlawjournal.com/alert/2002/10/08.asp
Timestamp: 2019-04-22 18:58:59+00:00

Document:
TLJ Daily E-Mail Alert No. 525, October 8, 2002.
October 8, 2002, 9:00 AM ET, Alert No. 525.
10/7. The Markle Foundation released a report titled "Protecting America's Freedom in the Information Age". It makes recommendations regarding the collection, analyzing and use of intelligence and information for homeland security purposes.
It recommends that the soon to be created Department of Homeland Security (DHS), rather than the existing Federal Bureau of Investigation (FBI), should be tasked with taking "the lead in collecting information that is publicly available or voluntarily obtained and in analyzing domestic information and intelligence from all sources and setting overall priorities for new collection efforts". The report recommends leaving the FBI with responsibility for "managing clandestine collection operations, like FISA wiretaps or the recruitment of undercover agents".
The report elaborates that the Department of Justice (DOJ) and the FBI "should be the lead agencies for law enforcement, exercising the power to investigate crimes, charge people with crimes, perhaps take away their liberty, and prepare cases for trial and appeal. The DHS should be the lead agency for shaping domestic intelligence products to inform policymakers, especially on the analytical side, so that there is some separation between the attitudes and priorities of intelligence analysis and the different, more concentrated, focus of law enforcement personnel authorized to use force on the street to make arrests and pursue or detain citizens."
The report further makes detailed recommendations regarding the structure of the information system. It should not be a centralized, Washington DC based, mainframe system. Rather, it should be a decentralized network with no central hub.
The report states that "America will make a mistake, however, if we create a centralized, ``mainframe´´ information architecture in Washington, D.C., rather than the networked, decentralized system that is needed to defeat the challenge of decentralized, sometimes networked adversaries. The problem is not just information sharing among federal agencies in Washington, D.C. Most of the people, information, and action will be in the field -- in regional or local federal offices, in state, regional, and local governments, and in private firms. The federal approach and guidelines can inform and support these local efforts, but information needs to be available widely and should not be required to flow through a central hub."
The report elaborates that "Local participants must be empowered to contribute, access, use, and analyze data."
The report also identifies several technologies. It states that "appropriate data sharing technologies such as XML must be identified and evaluated for applicability; decentralized and comprehensive directories will be required to ensure that individual participants can identify and access information; querying systems must be developed and maintained; network traffic and usage must be tracked and analyzed".
Also, "the federal government must build an operating system".
The report further states that while the federal government is spending much money to improve the information technology of individual agencies, "almost none of this money is being spent to solve the problem of how to share this information and intelligence among those federal agencies."
See, Part I [46 pages in PDF], which contains the table of content, overview, and report. See also, Part II [PDF], which contains working group analyses, and Part III [PDF], which contains background papers. See also, full report [1MB in PDF].
Who wrote the report? It states that it is "A Project of The Markle Foundation ... In Alliance with" the Miller Center for Public Affairs, the Brookings Institution, and the Center for Strategic and International Studies. The Markle Foundation is co-chaired by Zoe Baird and James Barksdale.
10/7. The House passed HR 4561, the Federal Agency Protection of Privacy Act, by a voice vote. The bill, which is sponsored by Rep. Bob Barr (R-GA), would require that rules noticed for public comment by federal agencies must be accompanied by an initial assessment of the rule's impact on personal privacy interests.
Sen. Max Cleland (D-GA) introduced S 2492, the companion bill in the Senate, on May 9, 2002. However, the Senate has taken no action on the bill.
10/7. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (SDNY) against Buford Yates alleging violation of federal securities laws in connection with fraudulent financial statements by WorldCom. See, SEC release.
Until August 2002, Yates was Director of General Accounting at WorldCom, which has already stated that it overstated the income it reported in its financial statements by over $7 Billion. The complaint alleges that "Defendant YATES knew, or was reckless in not knowing, that these accounting entries were made without supporting documentation, were not in conformity with GAAP, were not disclosed to the investing public."
The complaint alleges fraud, books and records and internal controls violations, and reporting violations. Specifically, the complaint contains four counts alleging violation of § 10(b) of the Exchange Act and Rule 10b-5 thereunder, § 17(a) of the Securities Act, § 13(b)(5) of Exchange Act and Rule 13b2-1 thereunder, §§ 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and § 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
Also on October 7, Yates plead guilty in U.S. District Court (SDNY) to related criminal charges.
10/7. Federal Reserve Board Chairman Alan Greenspan gave a speech via satellite to the annual convention of the American Bankers Association in Phoenix, Arizona. He stated that one of the reasons for the relative health of the U.S. banking system despite the recent recession is that new computing and communications technologies have facilitated the creation of new and complex financial instruments that made it easier for banks to hedge risks. He also advised that banks should now take advantage of decreased costs of storage and computing to collect, data mine, and analyze default and loss data from the recent and previous recessions in order to further improve risk management practices.
He spoke about "the apparent incongruity between the recent substantial losses on corporate credits and the continued strength of the U.S. banking system." He said that "the U.S. financial system has suffered a sharp run-up in corporate bond defaults, business failures, and investor losses. At commercial banks, troubled loans -- including charge offs, classified loans, and delinquent credits -- have also climbed to quite high levels. At the same time, banks in this country remain quite healthy ..."
"Why is this?", he asked. He answered by pointing out that the recent recession was "less severe" than prior recessions, that consumers have "maintained their expenditures", and that "Consumer and mortgage loans have not suffered the sharp run-up in delinquencies that loans in the business sector have". He also said that it is significant that "banks had impressive earnings and balance sheets going into the current period of stress".
However, he also pointed out that computer and telecommunications technologies played a role. He said that the resiliency of the U.S. banking system resulted in part from "the new techniques in risk management that have been applied in banking during the past few years". This includes the use of new financial instruments, such as "credit default swaps and collateralized debt obligations".
He said that "Conceptual advances in pricing options and other complex financial products, along with improvements in computer and telecommunications technologies, have significantly lowered the costs of, and expanded the opportunities for, hedging risks that were not readily deflected in earlier decades. Moreover, the counterparty credit risk associated with the use of derivative instruments has been mitigated by legally enforceable netting and through the growing use of collateral agreements. These increasingly complex financial instruments have been especial contributors, particularly over the past couple of stressful years, to the development of a far more flexible, efficient, and resilient financial system than existed just a quarter century ago."
Finally, Greenspan said that "Large losses have been taken, and more are yet to be recognized." Yet, this also provides an opportunity. He said that the "most recent credit cycle has created an abundant supply of exactly the kind of critical information that banks will need to improve their risk management".
So, he advised that "Now is the time to collect and maintain these default and loss data in a disciplined and uniform fashion. Most banks missed that opportunity in the early 1990s, and some are going back at great cost to mine these data today. A decade ago, one might have been excused from undertaking such data collection efforts because of the technology then existing and the cost of data storage. These reasons are no longer justified. Further, the collection of data on defaulting credits, both from past cycles and on a continuing basis, is required to link internal default and loss estimates with the minimum regulatory requirements under the new Basel Capital Accord now being developed for the large internationally active banks."
He specifically addressed the importance of improving credit scoring models, and "continually updating the database on which the model operates", such as through "longer and larger database[s]".
10/4. The U.S. Court of Appeals (1stCir) issued its opinion in Open Software Foundation v. U.S. Fidelity & Guaranty, a case regarding a general commercial liability insurer's duty to defend its insured under "personal injury" or "advertising injury" clauses of an insurance contract, where the insured was sued for alleged violations for antitrust and unfair competition laws for its alleged refusal to bundle software. The Appeals Court affirmed the District Court's summary judgment for the insurer; that is, there is no coverage under the policy.
Background. The Open Software Foundation was formed in 1988 by eight computer and software companies (including DEC and HP) to design and market a UNIX based operating system known as OSF/1. Addamax Corporation, a software maker, wanted the OSF to incorporate its security software into OSF/1. OSF declined. Addamax filed a complaint in U.S. District Court (DMass) against the OSF, HP and DEC alleging violation of federal and state antitrust and unfair competition laws.
OSF held a general commercial liability policy issued by U.S. Fidelity & Guarantee (USF&G) which covered, among other things, "personal injury" and "advertising injury". OSF requested that USF&G defend it. USF&G refused. OSF and defended itself and prevailed. Hence, there is no duty to indemnify issue in this appeal.
District Court. OSF and HP then brought the present action. They filed a complaint in U.S. District Court (DMass) against USF&G alleging breach of the duty to defend under the insurance contract. The District Court granted summary judgment to USF&G. This appeal followed.
Appeals Court. The Court of Appeals affirmed. Jurisdiction in this case was based upon diversity of citizenship. So, the Court applied Massachusetts law regarding the duty to defend. The Court wrote that "the insurer must accept tender of a defense if the complaints state or adumbrate a covered claim when read in light of extrinsic facts bearing some relevance to the allegations that the plaintiff did not specifically include in the complaint, but were nonetheless known or readily knowable by the insurer when the defense was tendered". However, upon reviewing the policy, the complaint, and extrinsic facts, the Court concluded that complaint against OSF did not state or adumbrate a covered claim.
10/7. The Department of Justice (DOJ) stated in a release that Charles James, Assistant Attorney General for the Antitrust Division, wrote a letter to a consortium proposing to offer free electronic tax services. The release stated that the consortium "should pose no threat to competition in the market for providing tax services to individuals".
10/4. The Office of the U.S. Trade Representative (USTR) issued a release in which it stated that USTR Robert Zoellick met with Bahraini Minister of Finance and National Economy Abdallah Saif. The release states that the two discussed "intellectual property rights", and that "They agreed that the two sides would follow up on the day's discussions, including on issues such as science based consideration of biotechnology and legislation to open Bahrain's telecommunications market ..."
10/7. The Supreme Court is back from its summer recess, which it began on June 28, 2002.
10/3. The U.S. District Court (NDIll) entered judgment in SEC v. System Software Associates, Roger Covey and Joseph Skadra. The Securities and Exchange Commission (SEC) filed a civil complaint against System Software Associates (SSA), and Covey, a former Ch/CEO, and Skadra, a former CFO, in July of 2000 alleging that Covey and Skadra caused SSA to misstate its financial results for several years by improperly reporting revenue on sales of a UNIX language software product before the product was developed sufficiently to support revenue recognition under Generally Accepted Accounting Principles (GAAP). Covey and Skadra are enjoined from further violations of federal securities laws. Covey is also required to pay $216,205.38 in disgorgement and prejudgment interest and $100,000 in civil penalties. See, SEC release.
The House will meet at 9:00 AM for morning hour and at 10:00 AM for legislative business.
The Supreme Court will hear oral argument in FCC v. Nextwave, Case No. 01-653, and Arctic Slope Corp. v. Nextwave, Case No. 01-657.
Day one of a three day public workshop hosted by the FTC to "explore how certain state regulations and private business practices may be having significantly anticompetitive effects on e-commerce". See, FTC release. Location: FTC, 600 Pennsylvania Ave., NW.
10:00 AM. The Senate Judiciary Committee will hold a business meeting. See, notice. Press contact: Blythe McCormick at 202 224-9437. Location: Room 226, Dirksen Building.
10:00 AM. The Copyright Office (CO) will hold a status conference regarding data format and delivery for record keeping requirements to be established by the CO for the Section 112 and 114 statutory licenses. See, notice [PDF].
12:15 PM. The FCBA's Professional Responsibility Committee will hold a brown bag lunch to discuss the scheduling of committee events and activities for the upcoming year. For More Information: Frank Montero. No RSVP is required. Location: Arnold & Porter, 555 12th Street, NW.
12:30 PM. Tom Donahue, P/CEO of the U.S. Chamber of Commerce, will give a luncheon address. Location: National Press Club, Ballroom, 529 14th St. NW, 13th Floor.
3:00 PM. Kozo Yabe will give an address titled "Protecting Intellectual Property Rights in Cyberspace: A Japanese Perspective". Yabe is a partner in the Tokyo based law firm of Yuasa & Hara, which focuses on intellectual property law. The lecture is sponsored by the George Washington University (GWU) Law School's Dean Dinwooodey Center for Intellectual Property Studies. For more information, contact Prof. Robert Brauneis at 202 994-6138 or by email. Location: GWU Law School, Burns Building, 5th Floor, Faculty Conference Center, 720 20th St., NW.
6:10 - 7:30 PM. The George Washington University (GWU) Cyberspace Security and Policy Research Institute and the GWU Law School will host a panel discussion titled "The Music Wars over Digital Intellectual Property". The speakers will be James Boyle (Duke Law School), Stanley Pierre-Louis (RIAA), and Lance Hoffman (GWU Computer Science Department). Location: GWU Law School, Room LL 102, 2000 H St., NW.
10:00 AM. The House Commerce Committee's Subcommittee on Commerce, Trade, and Consumer Protection will hold a hearing titled "Telecommunications and Trade Promotion Authority: Meaningful Market Access Goals for Telecommunications Services in International Trade Agreements". Web cast. See, notice. Location: Room 2322, Rayburn Building.
Columbus Day. The FCC will be closed.

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