Source: http://www.techlawjournal.com/alert/2002/09/04.asp
Timestamp: 2019-04-23 09:52:16+00:00

Document:
TLJ Daily E-Mail Alert No. 501, September 4, 2002.
September 4, 2002, 9:00 AM ET, Alert No. 501.
9/3. The U.S. Court of Appeals (5thCir) issued its opinion [21 pages in PDF] in Herrmann Holdings v. Lucent, holding, as matter of Texas law, that a clause in a merger contract that provides that the acquiring company will use its best efforts to promptly file an S-3 form with the SEC, may give rise to a breach of contract action.
Background. Herrmann Technology, Inc. (HTI) designed and developed passive thin film filters for use in telecommunications optical networking. It was owned by Herrmann Holdings Ltd and others (hereinafter Herrmanns). On June 16, 2000, Lucent and the Herrmanns signed an agreement whereby Lucent acquired HTI for 6,770,200 shares of Lucent stock, then worth about $438 Million, based on the closing stock price of $60.
The Herrmanns could not sell any of their Lucent stock in a public transaction on the open market until Lucent filed, and the Securities and Exchange Commission (SEC) declared effective, a Form S-3 registration statement. Under the agreement, Lucent was to "use its reasonable best efforts to prepare, file and cause to become effective, as promptly as practicable". However, Lucent repeatedly delayed, over the Herrmanns' objections. It took six weeks to file. During this delay, the price of Lucent stock dropped by nearly one third.
District Court. The Herrmanns filed a complaint in U.S. District Court (NDTex) against Lucent. Jurisdiction was based upon diversity of citizenship. The Herrmanns alleged breach of contract and violations of Article 581-33 of the Texas Securities Act and Section 27.01 of the Texas Business and Commerce Code. The District Court dismissed the complaint for failure to state a claim, pursuant to FRCP 12(b)(6), and failure to plead fraud with specificity, pursuant to FRCP 9(b), and entered judgment for Lucent. The Herrmanns appealed.
Appeals Court. The Appeals Court reversed the dismissal as to the contract claim, but affirmed as to the two other claims.
The Court first addressed the breach of contract claim. It noted that as a diversity case, it would apply the law of the state, Texas. However, it concluded that "The Texas Supreme Court has not yet ruled on the enforceability of best efforts clauses in breach of contract actions." Hence, it predicted how the Texas Supreme Court would rule on this issue, pursuant to Erie v. Tompkins.
The Appeals Court concluded that "the goal or guideline established by the best efforts provision in the Agreement was for Lucent to file and cause to become effective, ``as promptly as practicable创 and ``in the most expeditious manner practicable,创 a registration statement covering the Herrmanns' shares. Here, by alleging that the parties had a contract, that it contained two ``best efforts创 provisions that required Lucent to file and cause the S-3 to become effective ``as promptly as practicable创 and ``in the most expeditious manner practicable,创 that Lucent breached that contractual obligation, and that the Herrmanns suffered damages as a result of that breach, the Herrmanns successfully state a claim for breach of contract. ... Therefore, the district court erred in dismissing the Herrmanns' breach of contract claim."
The Appeals Court affirmed the Districts Court's dismissal of the two other claims. It affirmed the dismissal of the Texas securities fraud claim, for failure to plead fraudulent intent adequately under Rule 9(b); however, it allowed the Herrmanns leave to amend this claim.
8/30. The World Trade Organization (WTO) issued a Decision of the Arbitrator [46 pages in PDF] in the FSC/ETI matter. The WTO had previously held that the United States' Foreign Sales Corporation (FSC) tax regime, and its replacement, the Extraterritorial Income (ETI) regime, constitute illegal export subsidies. This decision authorizes the EU to impose $4 Billion in counter measures.
It the EU were to impose counter measures, they might target, among other things, exports by U.S. technology companies.
U.S. Trade Representative (USTR) Robert Zoellick stated in a release that "I'm disappointed that the arbitrator did not accept the lower figure put forward by the United States. We believe that $1 billion is much more accurate, ... Nevertheless, the key point, as the President has said, is that the Executive branch will work with Congress to fully comply with our WTO obligations. I believe that today's findings will ultimately be rendered moot by U.S. compliance with the WTO's recommendations and rulings in this dispute."
Similarly, Deputy Secretary of the Treasury Ken Dam stated in an August 30 release that "As the President has stated, the United States will comply with the WTO decision in this case. Therefore, I am confident that today's findings regarding damages will be rendered moot by our coming into compliance. We look forward to working with the Congress to enact changes to our tax law that will preserve the competitiveness of U.S. businesses and American workers while honoring our WTO obligations."
Rep. Bill Thomas (R-CA), the Chairman of the House Ways and Means Committee, introduced HR 5095, the American Competitiveness and Corporate Accountability Act of 2002, on July 11, 2002, to address the WTO's rulings regarding the FSC and ETI. See also, Rep. Thomas' summary. However, no action has been taken on the bill. Also, there is no replacement legislation pending in the Senate.
EU Trade Commissioner Pascal Lamy said in a release that "We need to see compliance in a series of steps. President Bush took a first important step at the last EU-US Summit by stating that the US Administration will do everything in its power to comply. Another important step has been accomplished with the introduction of the Thomas bill in Congress that is manifestly intended to bring the US into compliance. We call on the US Congress to act quickly so that legislation will move forward and enable repeal of the FSC/ETI scheme within a short period of time."
Lamy concluded that "The path is now clear for the EU to adopt sanctions if the US does not repeal the FSC/ETI scheme expeditiously. We will consult with our industry and the Member States on a detailed product list of possible countermeasures to be notified to the WTO. Before any countermeasures are taken, we will carefully evaluate progress made on US implementation."
Mike Moore, who just stepped down as Director General of the WTO, stated in a release that "The arbitration ruling marks a further stage of WTO involvement in this long running and difficult dispute. I have been following the FSC case closely and I commend both parties for working in a constructive manner throughout the duration of this dispute. I urge both parties to continue to cooperate and work toward resolving this dispute and the others between them in an amicable and constructive fashion. The European Union and the United States are among the most important members of this organization and both hold a special responsibility to ensure the continued health and soundness of WTO and global trading system."
9/2. The new World Trade Organization (WTO) Director General, Supachai Panitchpakdi, held his first press conference. He began by stating that "One of the most urgent issues that I intend to undertake is to see to it that we move into the phase of substantive negotiation under the Doha Development Agenda as soon as we can, as intensively as we can, as productively as we can." See, transcript.
8/30. The General Accounting Office (GAO) released a letter [7 pages in PDF] to Rep. Tom Davis (R-VA) in which it responds to his questions regarding "National Preparedness: Technology and Information Sharing Challenges".
The letter addresses agency turf battles, antitrust and FOIA obstacles to information sharing, the use of shared databases, research and development, information sharing by government agencies, the use of Extensible Markup Language (XML), and the use of customer relationship management (CRM) techniques and technology for homeland defense.
8/28. California Gov. Gray Davis signed SB 1863, sponsored by Sen. Debra Bowen (D - Marina del Rey). It would require the California Public Utilities Commission to provide a nonprofit community technology program with discounts comparable to those that are provided to schools and libraries to address inequality of access to advanced telecommunications services.
This bill amends the California Public Utilities Code to provide that "It is the intent of the Legislature that any program administered by the commission that addresses the inequality of access to advanced telecommunications services by providing those services to schools and libraries at a discounted price should also provide comparable discounts to a nonprofit community technology program."
9/3. President Bush nominated Scott Muller to be General Counsel of the Central Intelligence Agency (CIA). See, White House release.
8/30. Verizon and a collection of privacy groups have filed briefs with the U.S. District Court (DC) in a proceeding brought by the RIAA for the purpose enforcing a subpoena of Verizon's Internet services subsidiary. The RIAA motion states that it seeks the identity of the user of "a computer connected to the Verizon network that is a hub for significant music piracy". Verizon argues that the asserted basis for the subpoena, the DMCA, does not extend to situations such as this, where the alleged infringing material is stored on the computer of Verizon's customer, as opposed to Verizon's own system, and Verizon only serves an a communications conduit for the customer.
On August 20, the Recording Industry Association of America (RIAA) filed its motion and memorandum [19 pages in PDF] in U.S. District Court (DC) in a proceeding brought by the RIAA for the purpose of enforcing a subpoena of Verizon's Internet services subsidiary. The RIAA motion states that it seeks to enforce a subpoena issued on July 24, 2002, pursuant to the Digital Millenium Copyright Act (DMCA). It states that "Verizon has refused to comply."
17 U.S.C. � 512(h) provides, in part, that "A copyright owner or a person authorized to act on the owner's behalf may request the clerk of any United States district court to issue a subpoena to a service provider for identification of an alleged infringer in accordance with this subsection."
Subsection 512(h)(5) provides, in part, that "Upon receipt of the issued subpoena, ... the service provider shall expeditiously disclose to the copyright owner or person authorized by the copyright owner the information required by the subpoena, notwithstanding any other provision of law and regardless of whether the service provider responds to the notification."
Verizon argues that the subpoena is invalid and should not be enforced, because Section 512 applies only when the infringing material is stored on the equipment of the subpoenaed party, and because there is no case or controversy within the meaning of Article III of the Constitution.
Verizon states that "It is clear from RIAA's assertion, however, that Verizon did not store any of the challenged sound files on its system or network. Verizon thus was not involved with the subscriber's activities except, at most, as a passive conduit within the meaning of subsection 512(a)."
Verizon then argues that "The subpoena power set forth in subsection 512(h) of the DMCA does not apply when the service provider acts as a passive conduit. The statute strictly confines the subpoena power to circumstances where the assertedly infringing material is stored on the service provider's system or network."
Verizon continues that "RIAA is seeking to expand the subsection 512(h) subpoena power to reach all Internet users, not just those who store infringing material on a service provider's system or network. RIAA proposes a dazzlingly broad subpoena power that would allow any person, without filing a complaint, to invoke the coercive power of a federal court to force disclosure of the identity of any user of the Internet, based on a mere assertion in a form submitted to the court's clerk that the user is engaged in infringing activity."
Verizon further argues that "Such a broad ranging invocation of federal judicial authority, as a pure investigative tool outside of the context of a pending case, raises substantial questions as to whether it exceeds the power of an Article III court."
Verizon also raises a First Amendment argument, which the amicus brief addresses in more detail.
On August 30 a collection of privacy groups, including the Electronic Privacy Information Center (EPIC), filed an amicus curiae brief that emphasizes the First Amendment right of anonymous speech.
The amici argue that "Not only was the statute never intended to reach a situation in which the allegedly infringing material resides on the user抯 own computer rather than a computer owned or controlled by the ISP, but the application of the statute as RIAA urges highlights the constitutional infirmities of Section 512(h) itself. The statute provides that, upon an unsupported allegation of copyright infringement by an Internet user on his own computer, a clerk of a court, without any substantive review by the court itself, must issue a subpoena to the user's ISP for the identity of the user. Yet, under the Constitution, anonymous speech is protected. Thus, this case falls into the line of cases that have established safeguards for protecting the anonymity of Internet speakers who have not been shown to have engaged in any prohibited conduct."
The amici argue that the relevant subpoena provision of the statute is unconstitutional, or in the alternative, that the Court should infer procedural due process provisions, including "notice, an opportunity to object, and judicial review".
Verizon's brief was written William Iverson and others at the law firm of Covington and Burling. The amicus brief was written by Megan Gray and others. The proceeding is titled "In Re Verizon Internet Services, Inc.; Recording Industry Association of America v. Verizon Internet Services, Inc." It is D.C. No. 1:02MS00323. The RIAA's reply brief is due on Wednesday, September 4.
9/3. The Electronic Privacy Information Center (EPIC) and Privacy International released the 2002 edition of their annual survey of the state of privacy in over fifty countries. It is titled "Privacy and Human Rights 2002: An International Survey of Privacy Laws and Developments".
The report can be downloaded in three parts, without charge. See, Analysis: Forward, Overview, Threats to Workplace Privacy [111 pages / 782KB in PDF], Country Reports: Argentina to Lithuania [985 KB in PDF], and Country Reports: Luxenbourg to United States [855 KB in PDF]. Alternatively, the report can be purchased in hard copy from EPIC's online bookstore. See also, Privacy International release.
The report concludes that "The events of September 11, 2001 brought new challenges to the protection of privacy in the modern era. In the rush to strengthen national security and to reduce the risk of future terrorist acts, governments around the world turned to legal authority and new technology to extend control over individuals. Many of these proposals have had far-reaching consequences for the protection of privacy."
"Another significant development was the adoption, in June 2002, of the European Union's Electronic Communications Privacy Directive. This Directive allows European Union member states to enact laws requiring Internet Service Providers, and other telecommunications operators, to retain the traffic and location data of all people using mobile phones, text messaging, land-line telephones, faxes, e-mails, chatrooms, the Internet, or any other electronic communication devices, to communicate."
However, the report also finds that "efforts to pass new data protection laws or to strengthen existing laws are continuing in Eastern Europe, Asia and Latin America." In addition, "laws or codes to protect privacy in the workplace are gaining more prominence."
8/26. The International Trademark Association (INTA) filed an amicus curiae brief [39 pages in PDF] with the Supreme Court in Moseley v. V. Secret Catalogue, a trademark case. At issue is whether the plaintiff in a lawsuit for violation of the Federal Trademark Dilution Act (FTDA) must show actual economic loss.
Background. Victoria's Secret filed a complaint in U.S. District Court (WDKent) against Victor Moseley alleging trademark infringement and violation of the FTDA, 15 U.S.C. � 1125(c), in connection with his use of the name "Victor's Little Secret" for a lingerie and adult toy business. The District Court granted summary judgment to Moseley on the federal trademark infringement claims, finding that Victoria's Secret had not provided sufficient evidence to establish a likelihood of confusion between the two marks. The District Court also found that the Victor's Little Secret mark both blurred and tarnished the Victoria's Secret mark under the FTDA and enjoined Moseley from making further use of the Victor's Little Secret mark.
Moseley appealed the District Court's FTDA ruling. The U.S. Court of Appeals (6thCir) issued its opinion on July 30, 2001, affirming the District Court. It held that economic harm may be inferred in trademark dilution claims. The Supreme Court granted certiorari on April 15, 2002.
The Supreme Court's review will resolve the differences between various circuits on this issue. See, for example, Nabisco v. PF Brands, 191 F.3d 208 (2d Cir. 1999) and Ringling Bros. Barnum & Bailey v. Utah, 170 F.3d 449 (4th Cir. 1999).
INTA Brief. The INTA supports the interpretation contained in the Sixth Circuit opinion under review, and opposes that of the Fourth Circuit (which requires actual harm).
However, INTA argues that "section 43(c) does not refer to ``actual harm创 or to an ``actual lessening创 of selling power -- and none of the principles of statutory construction that petitioners espouse mandate adding those words to give plain meaning to the law."
The House will return from its Summer District Work Period. It will meet at 2:00 PM for legislative business. No votes are expected before 6:30 PM. The House will consider a number of non tech related measures under suspension of the rules. See, Whip Notice.
Deadline to submit comments to the National Intellectual Property Law Enforcement Coordination Council (NIPLECC) regarding its agenda and mission. The NIPLECC is co-chaired by the U.S. Patent and Trademark Office (USPTO) and the Department of Justice (DOJ). See, notice in Federal Register. See also, the NIPLECC's 2000 report.
Day one of a three day meeting titled "U.S. Ireland Business Summit". The only event on September 4 is an evening reception on Capitol Hill in the Cannon Caucus Room from 6:30 - 8:30 PM. See, conference web site.
Deadline for the Recording Industry Association of America (RIAA) to file its reply brief with the U.S. District Court (DC) in RIAA v. Verizon, an action to enforce a subpoena pursuant to the Digital Millenium Copyright Act (DMCA), at 17 U.S.C. � 512(h). This is D.C. No. 1:02MS00323.
The House will meet at 10:00 AM for legislative business. It will consider several non tech related bills. See, Whip Notice.
8:30 AM - 6:00 PM. Day one of a two day conference titled "Symposium on the Role of Scientific and Technical Data and Information in the Public Domain" hosted by the National Academy of Sciences. See, agenda. Location: National Academy of Sciences Auditorium, 2100 C Street NW.
9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in CompTel v. FCC, No. 00-1272. This is a petition for review of the FCC's June 2000 Supplemental Order Clarification of the FCC's Local Competition Order. CompTel challenges the FCC's authority to restrict access to unbundled network elements (UNEs), and especially enhanced extended links (EELs). See, brief [PDF] of CompTel.Judges Edwards, Rogers and Williams will preside. Location: Courtroom 20, 333 Constitution Ave., NW.
10:00 AM. The House Judiciary Committee will hold a meeting to mark up several bills. The last item on the agenda is HR 4561, the Federal Agency Protection of Privacy Act, sponsored by Rep. Bob Barr (R-GA). The bill would require federal agencies to the agency shall prepare and make available for public comment an initial privacy impact analysis when it proposes new regulations. Location: Room 2141, Rayburn Building.
10:00 AM. The Senate Judiciary Committee will hold an executive business meeting. See, notice. Location: Room 226, Dirksen Building.
12:00 NOON. William Lash (Assistant Secretary of Commerce for Market Access and Compliance) will speak on "Trade Compliance After TPA". Location: Heritage Foundation, 214 Massachusetts Ave NE.
2:00 - 4:00 PM. The Federal Communications Commission's (FCC) Advisory Committee for the 2003 World Radiocommunication Conference (WRC-03 Advisory Committee) will hold a meeting. This meeting was originally scheduled for August 22. See, original notice in Federal Register, and rescheduling notice in Federal Register. Location: Commission Meeting Room (TW-C305), 445 12th Street, SW.
Day two of a three day meeting titled "U.S. Ireland Business Summit". Secretary of Commerce Don Evans is scheduled to speak at 9:30 AM. From 2:30 - 4:30 PM there will be a panel discussion titled "Information and Communications Technology". The scheduled panelists include FCC Commissioner Kevin Martin. See, conference web site. Location: Ronald Reagan Building.
Deadline to request to testify before the Trade Policy Staff Committee (TPSC) hearing on China's compliance with the commitments it made in connection with its accession to the World Trade Organization (WTO). See, U.S. Trade Representative (USTR) notice in the Federal Register.
The House and Senate will hold a joint meeting in New York City.
9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in Motion Picture Association of America v. FCC, No. 01-1149. Judges Edwards, Henderson and Rogers will preside. Location: 333 Constitution Ave., NW.
8:30 AM - 4:00 PM. Day two of a two day conference titled "Symposium on the Role of Scientific and Technical Data and Information in the Public Domain" hosted by the National Academy of Sciences. See, agenda. Location: National Academy of Sciences Auditorium, 2100 C Street NW.
Day three of a three day meeting titled "U.S. Ireland Business Summit". See, conference web site. Location: Ronald Reagan Building.
9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in WorldCom v. FCC, No. 01-1198. Judges Tatel, Garland and Williams will preside. Location: Courtroom 20, 333 Constitution Ave., NW.
Day one of a two day conference on patent interference law, hosted by the Intellectual Property Owners Association (IPO). For more information, call 202 466-2396. Location: Ronald Reagan International Trade Center.
9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in AT&T v. FCC, No. 01-1188. Judges Ginsburg, Sentelle and Silberman will preside. Location: 333 Constitution Ave., NW.
12:00 NOON. The FCBA's Engineering and Technical Practice Committee will host a brown bag lunch titled "Spectrum Management Reform: Preliminary Perspectives". The scheduled speakers are Paul Kolodzy (FCC Senior Spectrum Policy Advisor) and Mike Gallagher (NTIA). RSVP to Lisa Gaisford. Location: FCC, 445 12th St., SW, Courtyard Level, Conference Rooms B418 & B511.
12:00 NOON. Deadline to submit written commits to the Office of the USTR in response to its notice in the Federal Register requesting comments on China's compliance with the commitments it made in connection with its accession to the World Trade Organization (WTO).
Day two of a two day conference on patent interference law, hosted by the Intellectual Property Owners Association (IPO). For more information, call 202 466-2396. Location: Ronald Reagan International Trade Center.
The Intellectual Property Owners Association (IPO) Board of Directors will hold a meeting.
8/30. The U.S. Court of Appeals (4thCir) issued its opinion [12 pages in PDF] in Cavalier Telephone v. Virginia Power, reversing a preliminary injunction in a pole attachments case, for failure to exhaust administrative remedies before the FCC.
Cavalier Telephone is a facilities based competitive local exchange carrier (CLEC) that provides telecommunications services to residential and business customers in several parts of the state of Virginia. Virginia Power is an electric utility that provides power to homes and businesses through a network of approximately one million poles. Cavalier seeks access to Virginia Power's poles.
Cavalier first filed a complaint with the Federal Communications Commission (FCC) alleging that Virginia Power denied it access to its poles in violation of the Pole Attachment Act, which requires utilities such as Virginia Power to provide "any telecommunications carrier with nondiscriminatory access to any pole, duct, conduit, or right-of-way owned or controlled by it." See, 47 U.S.C.A. � 224.
The FCC issued an order compelling Virginia Power to expedite processing of permits, among other things. The FCC later issued a second order terminating Virginia Power's annual pole attachment rate of $37.00 per pole, substituting a rate of $5.12, and ordering Virginia Power to compensate Cavalier for previous overcharges. Virginia Power then filed an application for review with the FCC.
Without waiting for the FCC's determination on Virginia Power's application for review, Cavalier filed a complaint with the U.S. District Court (EDVa) against Virginia Power seeking enforcement of the FCC order. The District Court granted Cavalier a preliminary injunction.
The Appeals Court reversed and remanded with instructions to dismiss the complaint. It held that the administrative process before the FCC had not been completed. Cavalier can not seek judicial enforcement of the Pole Attachments Act, or an FCC order thereunder, until it has exhausted its administrative remedies.

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