Monday, March 2, 2009
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Wednesday, February 11, 2009
Tiffany v. eBay – Transnational Trademark Problems?
by Jeff Liu , MTTLR Associate Editor
Last summer, a federal district court ruled, in Tiffany v. Ebay, that online marketplace eBay was not liable under trademark and unfair competition law for facilitating the sale of counterfeit items on its website. The court noted that it is a “Trademark owner’s burden to police its mark, and companies like eBay cannot be held liable for trademark infringement based solely on their generalized knowledge that trademark infringement might be occurring.” Some U.S.-based commentators praised the decision; others were somewhat more critical. Few, however, commented on the way this decision has the potential to the put the U.S. directly at odds with several key European Union countries on contributory liability for trademark violations.
While this decision represents a victory for eBay and other online marketplaces in the United States, courts in other countries have shown less sympathy for eBay. Especially in European jurisdictions decisions have tilted in support of trademark holders rather than the operator(s) of online marketplaces. Several judicial decisions handed down by countries in the European are opposite to the decision handed down in Tiffany Inc. Two important decisions highlight the conflict at hand. On June 30, 2008, a French court ordered eBay to pay 61 million dollars in compensation to LVHM for allowing the sale of fake merchandise on its website. Just a month earlier, another French court had ordered eBay to pay Hermes a compensation of 20,000 Euros for the sale of counterfeit merchandise on its website. And both of these decisions come in light of decision by a German appeals court in April, 2008 against eBay on the same issue. The German appeals court ruled eBay had to take preventive measures against the sale of fake Rolexes on its website. Both the French and German courts seem to have taken the position that eBay has a responsibility to prevent the sale of counterfeit goods on its website, but the U.S. court has taken the opposite position, that the burden falls onto the holder of the trademark. In an increasingly global marketplace, this conflict will have to be resolved.
Tuesday, February 10, 2009
Testing the Scope of Fuel Economy Standard Preemption: The New York Taxicab Cases
by: Joshua E. Ney, Associate Editor, MTTLR
1 The CAFE standards specify a minimum fleet-wide average fuel economy applicable to manufacturers in a given model year.2
Since the enactment of the EPCA, the NHTSA has exercised this authority with relatively unchallenged exclusivity. The EPCA’s express preemption clause forbids States to “adopt or enforce a law or regulation related to fuel economy standards.”3 Until recently, few states had sought to regulate automobile fuel economy, and no court had determined that a state or local law violated this preemption clause. That changed on October 31, 2008, when a federal judge blocked the implementation of a new rule promulgated by the New York City Taxi & Limousine Commission (TLC).4 The ongoing legal battle is giving courts their first opportunity to define the scope of EPCA preemption.
The 2007 Rule: Preemption of State-Mandated Fuel Economy StandardsOn December 11, 2007,5 the TLC approved a rule (the “2007 Rule”) requiring all taxicabs coming into service on or after October, 1, 2008, to have “a minimum city rating of twenty-five (25) miles per gallon.”6 Beginning October 1, 2009, the 2007 Rule would require all taxicabs coming into service to have a minimum rating of thirty (30) miles per gallon.7 In contrast, most of the current taxicabs in the City achieve only 12–14 miles per gallon.8
In September 2008, a coalition of affected parties filed a complaint in the United States District Court for the Southern District of New York, asserting that the EPCA preempted the 2007 Rule.9 The plaintiffs included the Metropolitan Taxicab Board of Trade (MTBOT), a trade association made up of taxicab fleets in the City.10 The court granted the plaintiffs’ motion for a preliminary injunction, finding that the plaintiffs had “demonstrated a likelihood of success on the issue of preemption.”11 In the court’s view, “Congress’s undoubted intent was to make the setting of fuel economy standards exclusively a federal concern.”12 Thus, the 2007 Rule fell squarely within the “ordinary meaning” of the EPCA’s preemption clause.13 The court rejected the City’s argument that the preemption clause only applies to fuel economy standards as they relate to manufacturers or sellers (as opposed to consumers, such as taxi owners).14
The 2008 Rule: Preemption of Voluntary Fuel Economy Incentives?Following the district court decision, New York City Mayor Michael Bloomberg announced that the City would replace the enjoined 2007 Rule with “a series of initiatives to increase the use of fuel efficient and environmentally friendly taxicabs, through new financial incentives.”15 The incentives proposed by the Mayor (the “2008 Rule”) involve the City’s taxicab “lease cap” system. Under the “lease cap” system, a taxicab owner leasing his or her licensed taxicab to a driver may not charge a lease rate greater than the Standard Lease Cap.16 The Standard Lease Cap currently ranges from $105 to $129 per shift, depending on the time of the shift.17 Under the proposed 2008 Rule, fleet owners leasing fuel efficient vehicles will be allowed to charge drivers an additional $3 per shift, while the lease cap applicable to owners of non-fuel efficient vehicles will decrease by $12.18 These incentives are intended to compensate for the higher cost of purchasing fuel efficient vehicles.19
The precise contours of the 2008 Rule will not be clear until the TLC completes a formal rulemaking process.20 However, the president of the MTBOT has already voiced his intention to challenge the Rule.21 This legal challenge will tee up a novel question regarding the scope of EPCA preemption: May a State or political subdivision adopt voluntary incentive programs to encourage the purchase of fuel efficient vehicles where it could not have mandated the purchase of such vehicles?22
To resolve this question, the court will need to determine whether the 2008 Rule is “related to fuel economy standards” within the meaning of the EPCA’s preemption clause. In general, where a federal statute contains an express preemption clause, the preemption determination rests on the “plain wording” of the clause.23 In this case, however, the preemption clause’s use of “related to” language renders a simple “plain wording” analysis problematic.24 The Supreme Court has pointed out that “[i]f ‘relate to’ were taken to extend to the furthest stretch of its indeterminacy, then for all practical purposes preemption would never run its course, [and the effect would be] to read the presumption against preemption out of the law.”25 Rather, the court must “go beyond the unhelpful text and the frustrating difficulty of defining [‘related to’] and look instead to the objectives of the [EPCA] as a guide to the scope of the state law that Congress understood would survive.”26
In light of this guidance, the court must answer the following question to determine whether the EPCA preempts the 2008 Rule: In enacting the EPCA, did Congress intend to withdraw from the States the authority to provide economic incentives influencing consumer choices with respect to vehicle fuel economy? If the answer is yes, then the 2008 Rule “relates to” fuel economy standards, and the EPCA preempts the Rule. If the answer is no, then the 2008 Rule does not “relate to” fuel economy standards and survives EPCA preemption.27 This case will present a matter of first impression for the court. Furthermore, the Committee reports accompanying the bill that became the EPCA did not discuss the intended scope of the statute’s preemption clause.28 Thus, it is difficult to predict how the court will rule. Stay tuned.
1 The EPCA directs the United States Secretary of Transportation to prescribe the CAFE standards. 49 U.S.C. § 32902(a) (2006). The Secretary has delegated this authority to the NHTSA. 49 C.F.R. § 1.50(f) (2006).
2 49 U.S.C. § 32901(a)(6).
3 49 U.S.C. § 32919(a) (“When an average fuel economy standard prescribed under [the EPCA] is in effect, a State or a political subdivision of a State may not adopt or enforce a law or regulation related to fuel economy standards or average fuel economy standards for automobiles covered by an average fuel economy standard under [the EPCA].”)
4 Metro. Taxicab Board of Trade v. City of New York, No. 08 Civ. 7837 (PAC), 2008 WL 4866021 (S.D.N.Y. Oct. 31, 2008).
5 Press Release, New York City Taxi & Limo. Comm’n, TLC Unanimously Approves Regulations Leading to a Cleaner, Greener NY Taxi Fleet (Dec. 11. 2007).
6 New York, N.Y., TLC Rule § 3-03(c)(10) (2008).
7 TLC Rule § 3-03(c)(11).
8 William Neuman, As First Plan Stalls, Mayor Tries New Push for Green Taxis, N.Y. Times, Nov. 14, 2008.
9 Metro. Taxicab, 2008 WL 4866021, at *1.
12 Id. at *8 (quoting Green Mountain, 508 F. Supp. 2d at 307).
13 Id. at *9.
14 Id. (citing Engine Mfrs. Ass’n v. South Coast Air Quality Mgmt. Dist., 541 U.S. 246 (2004), (holding that a state law that restricted emissions in new vehicles was preempted by the Clean Air Act regardless of whether it targeted purchasers or manufacturers.))
15 Press Release, Office of the Mayor, New York City, Mayor Bloomberg Announces New Incentive/Disincentive Program to Reach Goal of Green Taxi Fleet (Nov. 14, 2008).
16 New York, N.Y., TLC Rule § 1-78(a) (2008).
17 TLC Rule § 1-78(a)(1).
18 Press release, Office of the Mayor, New York City, supra note 15.
21 Neuman, supra note 8.
22 Cf. Engine Mfrs. Ass’n v. South Coast Air Quality Mgmt. Dist., 541 U.S. 246, 255 (2004), (declining to resolve the application of Clean Air Act preemption to voluntary incentive programs).
23 Green Mountain Chrysler Plymouth Dodge Jeep v. Crombie, 508 F. Supp. 2d 295, 351 (D. Vt. 2007).
24 See Id. at 353.
25 See New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995) (cited in Green Mountain, 508 F. Supp. 2d at 353).
26 See Green Mountain, 508 F. Supp. 2d at 353 (quoting Travelers 514 U.S. at 656).
27 In context of the federal ERISA statute, whose express preemption clause also includes broad “relate to” language, the Supreme Court has found that a state program did not “relate to” the federal requirements where the state program “merely provide[d] some measure of economic incentive to comport with the State’s requirements.” Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 332 (1997).
28 Green Mountain, 508 F. Supp. 2d at 354.
Criminal charges for cell-phone self-portraits - more harm than good.
by Melanie Persinger, MTTLR Associate Editor
a fifteen-year-old girl in Ohio was arrested for taking nude photographs of herself and sending them to other minors. The teenager was charged with illegal use of a minor in nudity oriented materials and possession of criminal tools under Ohio law 2907.323(A)(3). The charges could also qualify the girl to be classified as a sex offender, requiring her to register annually. An Ohio prosecutor, Ken Oswalt, said that the other minors who received the photographs might also be charged for possession of child pornography.
The Ohio case was recently settled out of court, and the young woman in that case will not have to register as a sex offender. But the law at issue was Ohio’s version of Megan’s law, which has been enacted, with slight variations, in all fifty states and the District of Columbia. This means that a similar case could potentially come up anywhere in the United States. In fact, the case in Ohio is by no means the first instance of a minor being faced with criminal charges for taking and sending, or posting online, nude photographs of themselves. According to Fox News, “Similar cases have been reported in New Jersey, New York, Alabama, Utah, Pennsylvania, Texas and Connecticut.” Michigan and Florida have also seen similar cases. Because this is a growing trend, it is important to ask ourselves if criminal charges are the appropriate way to deal with these teenagers’ misconduct.
The aim of laws of this type (preventing sexual offenses against minors) is to prevent harm to the child. Proponents of the law in issue argue that this means protecting children from harm they could cause to themselves in addition to protecting them against harm caused by others. While the current law does this to a certain extent, it is also overly broad in that it imposes a different, and arguably worse, harm on the minor. It is true that once the photographs become public, they will likely haunt the teenager forever or could possibly end up in the hands of adults who are looking for child pornography, both of which are harms that we should be concerned about. However, imposing criminal charges will not undo the fact that the photograph(s) are now out in public. Additionally, imposing criminal charges, especially requiring the minor to register as a sex offender, is also likely to haunt them forever. It is hard to see how preventing harm to minors justifies imposing other harms on them: the stigma of a criminal record and being labeled as a sex offender.
Wednesday, December 3, 2008
Webcaster Settlement Act: Can it Really Save Internet Radio?
by: Adam Denhoff, Associate Editor, MTTLR
Webcaster Settlement Act in October. The Act allows webcasters and record labels to continue negotiating for a reduced performance royalty rate while Congress is in recess, as it extends the deadline for a new deal to February 15, 2009. The issue stems from a March, 2007 decision by the Copyright Royalty Board (CRB), which would force webcasters to pay for each song streamed to each user at a retroactive rate as follows:
2006: $0.0008 per song, per listenerSoundExchange, the organization that represents artists and record labels, favors higher performance royalties because it believes that musicians deserve their fair share of Internet radio profits. The Digital Media Association (DiMA), a trade organization that represents a number of prominent webcasters including AOL Radio and Yahoo! Music, believes that the decision of the Copyright Royalty Board would bring about the end of Internet radio by forcing webcasters to pay outrageously high performance royalties at rates that they simply could not afford.
The Radio and Internet Newsletter (RAIN) calculates that, assuming the average Internet broadcasting station plays 16 songs per hour, a webcaster would have a royalty obligation of 1.28 cents per listener hour in 2006 (which would skyrocket almost three-fold by 2010). These royalties would only cover use of the sound recording, and webcasters also have to pay an additional fee to holders of copyrights in the composition. Using the CRB’s proposed royalty structure, it would be nearly impossible for an Internet radio station to remain profitable, and most, if not all webcasters would be forced out of business. Tim Westergren, the head of Pandora (one of the nation’s most popular Web radio services), believes that its royalty fees for this year could represent 70% of its projected $25 million dollar revenue. According to David Oxendide, a lawyer representing many smaller webcasters, CRB’s royalty structure would be a fatal blow to small and medium sized stations whose royalties would be between 100% and 300% of annual revenues.
Traditional radio broadcasters, like those represented by the National Association of Broadcasters (NAB), have seen web-based radio as a serious threat to their dominance. They lobbied against the Webcaster Settlement Act. However, they retracted their aggressive opposition to the Act when the negotiating deadline was extended to February 15; the extension will allow the NAB to negotiate its own performance royalty structure with SoundExchange. Today, terrestrial radio broadcasters pay licensing fees only, but SoundExchange is working to change that.
What does all this mean for Internet radio? Well, even SoundExchange acknowledges that the royalties in CRB’s model might be unworkably high. Nonetheless, SoundExchange officials complain that Internet radio stations have done too little to turn a profit from streaming music on the web. Webcasters counter by arguing that advertisers have yet to embrace Internet radio which makes it nearly impossible to get investment funding.
Although the music is industry is in shambles and record labels are desperate for new sources of revenue (i.e. performance royalties from online radio stations), perhaps biting the hand that feeds is not the right approach. A thriving source of online music is essential for the survival of the music industry. Surely record companies would prefer that new music be spread via web-based radio rather than on illegal file sharing networks? Introducing performance royalties into both the digital and terrestrial radio schemes makes sense; why should radio stations be required to compensate the songwriter, but not the performer or record label for use of copyrighted material? However, the Recording Industry Association of America, SoundExchange, and DiMA should negotiate a performance royalty rate that benefits all parties by ensuring that Internet radio lives on. The impossible-to-interpret “willing buyer, willing seller” model utilized by the CRB is not a transparent approach. The Webcaster Settlement Act, which allows the parties to negotiate further, is a step in the right direction.
Monday, December 1, 2008
State-Funded Stem Cell Research and Benefit Sharing
by: Hilary J. Libka, Associate Editor, MTTLR
1 The states have organized funding through bond sales, the Tobacco Master Settlement Agreement, executive expenditures, and legislative appropriations.2 Depending on the state and award, the funds are either directed toward particular research projects or infrastructure development at public and private institutions as well as non-profit and for-profit organizations.3
Public funding of stem cell research presents policy controversies that extend far beyond the science. Each state that participates must develop oversight for its investment and consider the potential outcomes of accelerating the market. One imminent issue that must be resolved is how the state should benefit from any intellectual property (IP) that may result from the funding.
The federal Bayh-Dole Act is one model states could look to for managing IP. The Act gives US universities, small businesses, and non-profit organizations the right to inventions developed through research funded by the federal government.4 The government keeps a nonexclusive license to the invention (among several other rights), but no royalties are collected.5 The biotech industry is pushing for this model at the state level.6 On the other end of the spectrum, consumer advocates argue for a public ownership model, where the state would retain the rights to any patents resulting from public funding.7 As a state that has been struggling with IP agreements, California is an important starting place to understand the complexities of benefit sharing in the realm of stem cell research funding.
Case Study: California
In November 2004, California became the largest source of funding for stem cell research in the world when voters passed Proposition 71 (a.k.a. the California Stem Cell Research and Cures Bond Act).8 The petition-driven initiative authorized the state to sell $3 billion in general obligation bond funds to be disbursed to in-state researchers over ten years.9 Up to $350 million may be paid out annually, and the funding is guaranteed by the state, which pays the principal and interest costs with bond sales for the first five years of the program, then with state income taxes and sales tax.10 Proposition 71 was incorporated as a politically-insulated state constitutional amendment: modifications are only possible with an unlikely 70% legislative majority and the governor’s signature.11 High expectations are attached to the initiative, which was sold to voters on two points: (1) “Cures for California” and (2) economic benefits, such as IP revenues, reduced health care costs (state welfare programs and government employee benefits), and additional research activity (more jobs and taxable income).12
Proposition 71 established the California Institute for Regenerative Medicine (CIRM), a state oversight agency, to disburse funds to research organizations.13 CIRM is also charged with regulating state-funded stem cell research activities.14 This includes:
[E]stablish[ing] standards that require that all grants and loan awards be subject to intellectual property agreements that balance the opportunity of the State of California to benefit from the patents, royalties, and licenses that result from basic research, therapy development, and clinical trials with the need to assure that essential medical research is not unreasonably hindered by the intellectual property agreements.15Although this provision stresses that California should benefit from resulting technologies, it fails to specify how the benefit sharing should take place. The generality is especially striking given the tendency of the legislation to delineate CIRM elements narrowly (sometimes too narrowly, as with the composition of the governing board and working groups, none of which included any legal experts).16 Initial uncertainty and qualms about transparency and accountability have slowed the process of developing IP standards.
Early lawsuits tried to overturn Proposition 71 by claiming CIRM was unconstitutional; complaints focused on CIRM’s validity as a public agency and its members’ affiliations with patient advocacy groups, biotech companies, and research institutions.17 A $150 million loan to CIRM from the governor kept the program afloat while the initial legal issues were resolved,18 but these “built-in conflicts of interest” continue to plague operations. Both pro- and anti-hES cell research advocates have raised ethical concerns, and in 2008, the state Controller audited CIRM’s grant approval process.19
Most recently and against steep odds, the state legislature successfully passed Senate Bill 1565, which called for a study of the governance structure of the program by the independent Milton Marks “Little Hoover” Commission on California State Government Organization and Economy.20 SB 1565 also would have forced a ceiling on the price of drugs resulting from CIRM-funded research and required a plan from funded organizations that would make the drugs accessible to uninsured Californians.21 Although Governor Schwarzenegger vetoed the bill because of its restrictions on CIRM’s authority to adopt IP standards, the oversight commission has announced it will still proceed with its investigation.22
In March 2008, after two years of research and debate, the CIRM governing board finally approved IP standards for the funding program.23 Like the Bayh-Dole model, nonprofit organizations receiving public funds may retain their patents and must share net revenues with individual inventors.24 But unlike the Bayh-Dole model, after a threshold amount of revenues and in proportion to CIRM’s support, the organization must pay 25% of its share to the state’s General Fund; the rest may only be used to support scientific research or education.25 Meanwhile, for-profit organizations also keep their patents, but the state gets 25% of royalties on licenses after a threshold amount as well as a fraction (2-5% unless a blockbuster drug, which generates more than $250 million of revenue annually) of the revenues from any products commercialized by the organizations.26 Furthermore, for-profit organizations must sell products at low prices to California’s discount prescription drug program.27
And yet, even with these new explicit standards, the uncertainty persists. CIRM’s agenda for its latest IP meeting included, "Consideration of draft amendments to consolidate non-profit and for-profit intellectual property regulations and begin formal process of adoption."28 CIRM has also been considering additional in-state discounts, and Californians, especially the state legislature, will continue considering CIRM. Although the state has been successful in attracting biotechnology,29 “[CIRM] is still an unknown quantity, and that spooks the biotech industry.”30 Several company executives and investors have been echoing the concerns of one general counsel: “We will take CIRM money last. We don’t want to be in a position where, years from now, we are actually forced to sell [our products] in California at a loss.”31
The sheer dollar value of California’s funding continues to attract the stem cell industry despite uncertainty regarding public access requirements and other forms of benefit sharing. What about states thinking of or already implementing smaller stem cell research funds? Can they afford to promise a program that will “pay for itself,” followed by years of figuring out how to “pay back the taxpayers”?32
IP revenues and restrictions are great selling points to taxpayers but terrible incentives for industry. The program is useless if it fails to attract participants. When it comes to access issues, which consumers should receive a discount? If beneficiaries of government programs and the uninsured are covered for new medical treatments, is that fair to the insured taxpayer whose insurance may not cover the treatment and whose rates will probably go up regardless of coverage? By what time do you have to start paying taxes in California to get the benefit of a new drug—before development, before clinical trials? Do you have to pay taxes to the state or even be a California resident? Medical tourism may benefit the state, but being the capital of social welfare probably will not.
As more states consider implementing public funds for stem cell research, the benefit sharing issues are going to be critical for collecting and maintaining public and industry confidence. Maybe the question California made a mistake in postponing when it passed Proposition 71 was not how, but whether the state should force benefit sharing at all. State stem cell research funding programs still have much to offer in terms of economic advantages and future medical breakthroughs, even if the state does not directly share in IP revenues. States should attempt to quantify and communicate expected revenues. Because funding states cannot foresee research outcomes (both treatments and revenues), it’s not an accurate measure to ask taxpayers how much they would pay to eliminate spinal cord injuries, cancer, or one of many other suggested targets. However, some taxpayers are interested in taking a shot at these cures, and it’s possible that the total value of the research to taxpayers may be much greater than any state’s investment.
1 California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New York, and Wisconsin fund hES cell research. Meanwhile, Indiana, North Carolina, Ohio, and Virginia only fund adult stem cell research. See National Conference of State Legislatures, Stem Cell Research, Jan. 2008.
4 35 U.S.C. §§ 200-212 (1980).
6 Joe Mullin, Stem Cell Gold Rush, IP Law & Bus., June 2008.
8 CIRM, About CIRM, (last visited October 20, 2008).
9 Legislative Analyst’s Office, Proposition 71: Stem Cell Research. Funding. Bonds. Initiative Constitutional Amendment and Statute., July 2004.
11 Jesse Reynolds & Marcy Darnovsky, Center for Genetics & Society, The California Stem Cell Program at One Year: A Progress Report 7 (2006).
12 Ralph Brave, Stem-cell Wonderland, Sacramento News & Rev., Oct. 20, 2005 (“Cures for California” was the name of the Proposition 71 campaign); Legislative Analyst’s Office, supra note 7.
15 State of California, Text of Proposed Laws: Proposition 71, (last visited October 20, 2008).
16 Lori P. Knowles, State-sponsored Human Stem Cell Research: Regulatory Approaches and Standard Setting, 21 (2006).
17 Judge Rules Suits Challenging Stem Cell Agency Have No Merit, N.Y.Times, Apr. 22, 2006.
18 Christine Vestal, Stem Cell Wars Rage in State Capitols, Stateline.org, July 20, 2006.
19 Op-Ed, Stem Cell Housecleaning, L.A. Times, Dec. 12, 2007.
20 S.B. 1565, 2007-08, Reg. Sess. (Cal. 2008).
22 Governor Vetoes California Stem Cell Bill, Sacramento Bus. J., Sept. 29, 2008.
23 Mullin, supra note 4.
24 17 Cal. Code of Regs. § 100308 (2008).
26 17 Cal. Code of Regs. § 100408 (2008).
27 17 Cal. Code of Regs. § 100407 (2008).
28 IP Task Force Subcommittee, Agenda for October 29, 2008.
29 Office of the Governor, Governor Celebrates California Innovation and Research at 2008 Biotechnology Industry Organization Conference, June 18, 2008 (citing 3,000 new companies, $4.3 billion in venture capital—nearly half of what is invested nationwide, and $73 billion in estimated annual revenues).
30 Mullin, supra note 4.
32 Reynolds & Darnovsky, supra note 9, at 9 (suggesting that the Proposition 71 campaign was misleading).
Thursday, November 27, 2008
Be Thankful For Less Spam, But Probably Not For Long – Link roundup on activities of questionable legality online
by: Michael Schultz, Associate Editor, MTTLR
You (or your IT staff) may have been thankful to find that spam traffic has been a bit lighter in the last few weeks, after the recent shutdown of a major spam hub that, by some estimates, was responsible for as much as 75 percent of the world’s junk mail. You might have expected the company facilitating all of that spam – not to mention illegally gathered credit card information and child pornography – would have chosen to operate from the relative obscurity of an offshore hosting service. Instead, McColo Corporation set up shop in San Jose, California in a “top-level modern [...] IT center.” To be clear, McColo is merely the “virtual host” for those that are actually sending the spam; something akin to a landlord of an apartment building in which most, if not all, of the apartments are being used for illegal activity.
In an interesting twist, it wasn’t U.S. authorities that shut down the hub – instead the companies that provided internet connection for McColo decided to cut ties. This leaves open the possibility of McColo finding another internet provider – or the individual sites being hosted by McColo to disperse, making them harder to track and shut down. In fact, only two weeks after the shutdown, spam levels are reported to already be back to two-thirds of their previous levels.
Brian Krebs of the Washington Post, who is credited with the initial investigation and breaking the story, writes that “Multiple security researchers have recently published data naming McColo as the host for all of the top robot networks or "botnets," which are vast collections of hacked computers that are networked together to blast out spam or attack others online. These include SecureWorks, FireEye and ThreatExpert.” According to Mr. Krebs, “[what is] unclear is the extent to which McColo could be held legally responsible for the activities of the clients for whom it provides hosting services. There is no evidence that McColo has been charged with any crime, and these activities may not violate the law.”
So what is the law (and what should it be?) in this murky, seedy area of the internet? Below is a roundup of various links that may help to address that question:
FBI wants widespread monitoring of 'illegal' Internet activity
Illegal Internet Activity a Growing Concern for Enterprise Organizations
Using the Law to Address Illegal Activity on the Internet
Employer responsibility to report illegal activities established by Court
FBI Internet Crime Complaint Center
Michigan Telecommunications and Technology Law Review -
625 South State · Ann Arbor, MI 48109 · 734.764.4181