Stanford Center for Internet and Society

The appropriate regulatory classification of cable modem services has been disputed for over the last five years. In response to conflicting federal court decisions regarding the interpretation of the federal Communications Act as it applies to cable broadband services, the Federal Communications Commission (FCC) conducted inquiries and requests for comments on the classification of the cable modem platform and declared in its 2002 Declaratory Ruling that cable modem service was an “interstate information service” and was therefore not subject to regulations as either a cable service or a telecommunications service. This classification was based on the industry regulatory classifications in the Communications Act of 1934, with the Telecommunications Act of 1996 as the most recent major revision. The Communications Act distinguishes between three main types of services: 1. Telecommunications service: “[T]he transmission, between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received.” 47 U.S.C. § 153(43). Telecommunications service providers are subject to common carriers obligations and carry a large regulatory burden.

VeriSign is a leading provider of Internet security and control services, facilitating on-line communications and commercial transactions. Following the period of alleged misconduct (January 2001 to January 2002), VeriSign stock fell from $29.03 to $9.89 per share, VeriSign came under FTC investigations, and it was the target of securities fraud suits filed in California.The shareholder derivative action alleged that the defendant directors and managers of VeriSign breached their fiduciary duties of care by (a) announcing material misleading information and then engaging in insider trading, and (b) failing to maintain adequate accounting controls and failing to follow accepted accounting practices. Under Court of Chancery Rule 23.1, the Delaware Chancery Court dismissed the action, finding that the Plaintiff failed to plead the complaint with particularity the reasons for demand excusal.

The New York Supreme Court granted summary judgment for defendants and dismissed a libel suit against the author and publisher of Primary Colors, a novel based on the first presidential campaign of Bill Clinton. In a case that could have implications for future suits regarding online fantasy role-playing games, the trial court held that a plaintiff faces a higher standard when making a claim of libel against an author of a work of fiction than a work of nonfiction. While the publication of a factual statement about an individual that is both false and defamatory could give rise to a libel claim, “the description of the fictional character must be so closely akin to the real person claiming to be defamed that a reader of the book, knowing the real person, would have no difficulty linking the two.” Applying this higher standard, the court found that Carter-Clark failed to show that a reasonable person could attribute the conduct and characteristics of a fictional character in Primary Colors to Carter-Clark such that her reputation was damaged.Carter-Clark claimed that her reputation was damaged by the suggestion in the novel Primary Colors that she had a sexual encounter with Bill Clinton during his 1992 presidential campaign. The fictional book, which is based on the campaign of the then Arkansas governor, includes a description where the presidential candidate and a character named Ms. Baum, which Carter-Clark claims is her, emerge from a hotel room while adjusting their clothing and looking “disarrayed.” In Primary Colors, the character Ms. Baum is an adult literacy coordinator and a member of the regional board of the teachers union who first meets the presidential candidate at a Harlem library. There is only a slight physical description of Ms. Baum, who appears in nine pages of the novel. Carter-Clark was never an adult literacy coordinator or a member of the regional board of the teachers union.

In late 1999 and early 2000, MP3.com sought to provide a service to its users by making available mp3 files of musical compositions. At the time, technology to rip mp3’s from CDs was not readily available to the public; therefore, MP3.com created “server copies” of thousands of CDs and made them available to users who could prove ownership of the CDs. Country Road Music, Inc. with others brought suit against MP3.com in the District Court for the Southern District of New York for willful copyright infringement. All parties in this case moved for partial summary judgment. The court addressed these motions in this opinion.The plaintiffs sought summary judgment that the defendant’s activities constituted willful copyright infringement. The defendant argued that it had licenses from three major performing rights societies that granted it the right to publicly perform compositions over the Internet, and the license to “perform” implied a license to make the server copies. The court rejected the defendant’s claim. Under the Copyright Act of 1976, 17 U.S.C.A § 106(1),(4) “performance” and “reproduction” are separate rights, and a license authorizing performance does not imply an authorization of reproduction. In addition, performing rights societies do not have the authority to grant the right of reproduction. The defendant’s belief to the contrary was unreasonable and, therefore, is not sufficient support for a defense of innocent intent. Additionally, the doctrine of collateral estoppel entitled the plaintiff to summary judgment without determination of the merits of the defendant’s argument. Because this case involves the same legal claims and the same underlying transactions of previous suits, the defendant is precluded from re-litigating issues resolved in the previous suits. The court concluded, therefore, that the plaintiffs are entitled to summary judgment as to the defendant’s liability for willful copyright infringement based on the merits and as a matter of collateral estoppel.

On October 7, the Tenth Circuit Court of Appeals greenlighted the Federal Trade Commission (FTC) to continue implementing the National Do Not Call Registry -- a federally maintained list of phone numbers whose owners no longer want to receive telemarketing calls. The order grants the FTC's request for a stay pending a final ruling by the court on a district court's permanent injunction against the Registry. The lower court had enjoined the Registry out of concern that the FTC's decision that the Registry would apply only to commercial telemarketers violated the First Amendment by unfairly favoring non-commercial speech over commercial speech. In its opinion, the Tenth Circuit held that the FTC had met its burden of showing a "substantial likelihood of success" in demonstrating that its decision to restrict only commercial telemarketing would pass First Amendment muster.The Tenth Circuit's examination of the Registry's First Amendment effects uses the three-step test from Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n of N.Y., 447 U.S. 557, 566 (1980). For a speech restriction to pass muster, the government must (1) assert a substantial government interest to be achieved by the restriction, (2) show that the restriction directly advances that interest, and (3) show that the restriction is narrowly tailored to meet that interest. In its analysis of the Registry, the Tenth Circuit combines the latter two factors into one determination of whether there is a "fit between the legislature's ends and the means chosen to accomplish those ends," as in United States v. Edge Broad. Co., 509 U.S. 418, 427-28 (1993).

Plaintiff, Brach's Confections, Inc. ("Brach's"), a Delaware corporation with its principal places of business in the Northern District of Illinois and Chattanooga, Tennessee, has filed a six-count complaint alleging cybersquatting, trademark infringement, federal false designation and unfair competition under the Lanham Act, as well as violations of the Illinois Trademark Dilution Act, Consumer Fraud and Deceptive Business Practices Act and the Illinois Uniform Deceptive Trade Practices Act against defendants Eric Keller ("Keller"), a New Jersey resident, and Candy Sites, LLC ("Candy Sites"), a New Jersey corporation. Keller moved to dismiss Brach's complaint for lack of personal jurisdiction and improper venue pursuant to Fed.R.Civ.P. 12(b)(2) & (3). Brach's moved for default judgment against both defendants. In its complaint, Brach’s alleged that defendants unlawfully registered and used 9 domain names related to its trademark, including , and . Defendant Keller is a CEO of Candy Sites and owns various “interactive” websites where consumers may purchase several of Brach’s products. The sites, which contain graphic images of various of Brach’s trademarks, enable consumers to purchase bulk candy over the Internet by clicking on an e-mail link and making payment either by check or using the PayPal online payment service. These websites are not directed to consumers in any one particular state, and at least four purchases have been made by Illinois consumers.

The court in Crown Pontiac addressed whether a preliminary injunction may properly issue against a consumer who incorporates a company’s trade name into a website domain name, where such website is used by the consumer to publicize his grievances with the company. Defendant Thomas Ballock, car buyer, was disappointed with a sunroof installed by plaintiff dealership, Crown Pontiac, doing business as Crown Pontiac Nissan (“Crown”). After an unsuccessful attempt by Ballock to revoke purchase of the vehicle, arbitration proceedings were initiated to resolve his dispute with Crown according to the terms of the parties’ contract for sale. Ballock, finding arbitration little more to his liking than the botched sunroof, obtained the domain name “www.crownpontiacnissan.com,” and began adding content critical of Crown’s business practices and arbitration generally.

[Editor's note: What follows is a detailed summation of a case from a non-US jurisdiction. The degree of detail is intended to reflect the technical nature of the decision.]

The Court of Appeal of the Hague ruled against the Church of Scientology in its copyright infringement suit against a Dutch writer and her ISP, XS4ALL. The writer, formerly a practicing Scientologist, posted to a website parts of confidential church documents, and the church sued under the Dutch Copyright Act of 1912. In 1999, the district court ruled in favor of the defendants, citing freedom of speech concerns. However, that court also ruled that ISPs should be held liable for posted materials that might violate existing copyrights. The Court of Appeal affirmed the first ruling, but reversed the second, holding that ISPs were not liable for posted materials. The documents at issue in this case became available as a result of a separate lawsuit in U.S. federal district court by the church against one of its former members in the early 1990’s. In that earlier case, the former member submitted an affidavit that included confidential excerpts from documents stating church doctrine and detailing the organization of Scientology. The writer in the current case initially published the entire affidavit on her web site in 1995, but removed it in early 1996 after legal action by the church. However, she then posted her own account about Scientology that included quotations from the confidential and copyrighted documents.

[Editor's note: What follows is a detailed summation of the case that may be of limited interest to non-specialists. The degree of detail is intended to reflect the technical nature of the decision and to help clarify conflicting media reports about its holdings.]

In 1987, the European Community developed a nomenclature of goods (the “Combined Nomenclature”) for the purpose of levying customs tariffs and tracking the flow of goods through its borders. Companies that traffic in goods are required to obtain a Binding Tariff Information (“BTI”) certificate from customs officials; the BTI contains binding information on the customs classification of the relevant goods. In August 2000, Sony applied for a BTI from United Kingdom customs officials to import its PlayStation®2 product. Customs officials classed PlayStation®2 as a game console under Chapter 95 of the Combined Nomenclature, and not as a computer under Chapter 84 as Sony had asked, on the grounds that the device “was not freely programmable.”

Sony requested an unsuccessful departmental review of the BTI and appealed to the VAT and Duties Tribunal in London. In the meantime, the European Nomenclature Committee took the issue under discussion and decided that PlayStation®2 was freely programmable. U.K. customs officials now agreed with Sony that PlayStation®2, because freely programmable, should be classified under Chapter 84 and amended the original BTI decision. On July 10, 2001, the Nomenclature Committee promulgated a new regulation classifying an apparatus very similar to PlayStation®2, and accompanied by a photo of the Sony product, as falling under Chapter 95.