Morris Manning & Martin, LLP

Recent Legislative & Regulatory Developments

I. Federal Legislation

A. Enacted Legislation

1. Examination Parity and Year 2000 Readiness For Financial Institutions Act (Public Law 105-164, formerly H.R. 3116)

(1) Extends federal regulatory authority to the Office of Thrift Supervision (OTS) and National Credit Union Administration (NCUA) to examine the operations of contractors offering Year 2000-sensitive services to thrifts and credit unions. This extended authority for the NCUA will expire on December 31, 2001. This oversight is consistent with that already possessed by the Federal Deposit Insurance Corp., the Federal Reserve Board, and the Office of the Comptroller of the Currency. 
(2) In addition, the OTS and the NCUA are to offer Year 2000 seminars and model approaches to thrifts and credit unions. 

Status: Signed into law by the President, March 20, 1998

2. Emergency Supplemental Appropriations Act of 1998 (Public Law 105-174, formerly H.R. 3579)

Summary: This section of the supplemental appropriations Bill is a response to Thomas v. Network Solutions (D.D.C. 1998), where the Court held that a 30% surcharge Network Solutions collected for an Òintellectual infrastructure fund was an illegal tax. In this Bill, Congress ratified the Network Solutions surcharge, making it a legal tax.
Status: Signed into law by the President, May 1, 1998

B. Pending Legislation

1. Copyright Issues

    1. Digital Millennium Copyright Act of 1998 (S. /H.R. 2281)
      Summary: This Bill has three significant titles:
      • Title One: Implements the recent WIPO treaties by adding a new Chapter 12 to Title 17 of the U.S. Code. This new Chapter addresses Copyright Protection and Management Systems. It prohibits those technologies which are primarily designed to circumvent controls limiting unauthorized access to copyrighted works. An example of such a prohibited technology would be a descrambling device. In addition, the Bill creates a cause of action against individuals who knowingly provide or distribute copyright management information which is false. Copyright management information is information such as the title, author and copyright notice of a work, as well as the terms and conditions for using the work.
      • Title Two: Exempts Online Service Providers from copyright infringement liability under certain conditions. The Bill closely follows an industry agreement on this issue and is an attempt to codify Religious Technology Center v. Netcom (N.D. Cal. 1995). This exemption covers digital network communications, caching on the ProviderÕs system, and information stored on the ProviderÕs System. The conditions for liability exemption include: the infringement was initiated by someone else and that it was carried out through an automated technical process. The Provider must also lack actual knowledge or notice regarding infringing information on the ProviderÕs servers. This exemption applies to both monetary damages and injunctions. However, injunctions are allowed under circumstances where the Provider can restrict access to specific infringing materials or identified subscribers who are engaged in infringing conduct.
      • Title Three: Exempts authorized computer repair personnel from copyright infringement liability when those personnel activate copyrighted software while repairing or servicing a computer. This Title would nullify MAI Systems v. Peak Computer (9th Cir. 1993).

      Status: Approved by a unanimous vote in the Senate Judiciary Committee on April 30, 1998. Approved unanimously by the Senate on May 14, 1998.

      Sponsor: Orrin Hatch (R-UT)
  1. Collection of Information Antipiracy Act (H.R. 2652)
    Summary: Protects databases through the creation of a new misappropriation cause of action. This cause of action will be based in unfair competition principles rather than copyright principles. Anyone who extracts or uses a substantial part of a collection of information gathered by another person through the investment of substantial monetary or other resources will be liable if the extraction or use harms the database ownerÕs marketed product or service. The remedies include monetary damages and injunctions, as well as criminal penalties where the extraction or use is both willful and done for commercial gain. The Bill specifically excludes computer programs, even when they are used in the manufacture or maintenance of a database. The Bill also excludes the gathering of the information through other means nonprofit educational, scientific or research uses, as well as news reporting. Finally, recent amendments have limited the Bill's protection to 15 years.

    Status: Approved by the House Judiciary Committee, March 24, 1998.

    Sponsor: Howard Coble (R-NC)

2. Tax Issues

    1. Internet Tax Freedom Act (H.R. 1054/S. 442)
      Summary: Prohibits state or local governments from imposing, assessing, or attempting to collect any tax or fee on the Internet or interactive computer services or on their use. The Bill exempts a tax that would be the same if generally imposed on interstate transactions affected by telephone use or mail orders and also exempts taxes imposed on net income derived from the Internet or interactive computer services.

      Status: Referred to House Commerce and Judiciary Committees, March 13, 1997. On the House side, the Bill may reach the floor by the week of May 25, 1998. Approved by the Senate Commerce, Science and Transportation Committee, November 4, 1997.

      Sponsors: Chris Cox (R-CA) (House), Ron Wyden (D-OR) (Senate)
    1. Internet Tax Freedom Act (H.R. 3529)
      Summary: This more recent version of the original Internet Tax Freedom Act is an attempt at compromise with the initial opponents of the Act. The Bill:
      (1) Creates a tax moratorium, but it is limited to three years. In addition, the prohibited taxes are specified and defined in the Bill: taxes on Internet access, online services, bit taxes, bandwidth taxes, multiple taxes on electronic commerce and discriminatory taxes on electronic commerce. State taxes prior to March 1, 1998 will be grandfathered, although those state tax rates cannot be increased during the moratorium period.
      (2) Creates a consultative group on the international taxation of electronic commerce. This group will include the Secretaries of Commerce, State and Treasury who will consult with the appropriate committees of Congress, the states, consumer groups and business groups. Within two years of the Act, the President shall submit a report to Congress regarding policy recommendations on the international taxation of electronic commerce.
      (3) Establishes a Commission on Electronic Commerce. This Commission will have 29 members, including the Secretaries of Commerce and Treasury, 14 representatives from state organizations such as the National League of Cities and 12 consumer and business representatives. Within two years of the Act, the President shall submit a report to Congress regarding policy recommendations on a uniform system of sales and use taxes on a statewide basis.
      Status: Referred to the House Judiciary, Rules and Ways and Means Committees, on March 23, 1998. Action is expected soon on this Bill, in conjunction with the original Internet Tax Freedom Act. 

      Sponsor: Steven Chabot (R-OH)
    1. Internet Fairness and Interstate Responsibility Act (S. 1888)
      (1) Establishes a three-year moratorium on taxes that would interfere with the flow of commerce via the Internet. The Bill contains similar exceptions to those in the original Internet Tax Freedom Act. Current taxes are not to be grandfathered into the moratorium.
      (2) Establishes a Commission on Internet Taxation and Regulation to develop a uniform set of definitions and principles for state and local jurisdictions to utilize regarding regulation and taxation of commercial transactions on the Internet. This Commission is to include the Secretaries of Commerce, State and Treasury as well as 12 presidential appointees, including software and electronic commerce business people. 
      (3) The Commission on Taxation on Regulation is to prepare a "Uniform Internet Commercial Code," pertaining to Internet transactions and Internet-related service transactions. This model legislation is to be prepared by the Commission by December 31, 2000.
      Status: Referred to the Senate Commerce, Science and Transportation Committee, March 31, 1998.

      Sponsor: Judd Gregg (R-NH), Joseph Lieberman (D-CT)
    1. Software Trade Secrets Protection Act (S. 1692)
      Summary: Prohibits the IRS from using summons authority to obtain computer software source code, as well as related customer communications and training materials. The Bill provides for 3 exceptions: (1) where need can be demonstrated because there is no otherwise available information; (2) in criminal enforcement cases; and (3) where the software is internally developed such that competitive issues are not implicated. Even when the IRS is able to use its summons authority, the Bill limits the ability of the IRS to disclose the software and requires the IRS to maintain the software in a secure environment. 

      Status: Referred to the Senate Committee on Finance, February 27, 1998.

      Sponsor: Don Nickles (R-OK)
  1. Taxpayers Internet Assistance Act of 1998 (S. 1901)
    Summary: Amends the Freedom of Information Act to provide Internet access to certain IRS information. This IRS information is already required to be accessible to the public. The IRS information must be available in a searchable database for the past five years, as well as all tax forms, instructions and publications for that same five year period. 

    Status: Referred to the Senate Judiciary Committee, April 1, 1998.

    Sponsor: Patrick Leahy (D-VT).

3. Electronic Commerce Issues.

  1. Digital Signature 

    1. Digital Signature and Electronic Authentication Act (H.R. 3472/S. 1594)
      Summary: Amends the Bank Protection Act of 1968 for the purpose of facilitating the use of electronic authentication by financial institutions.
      • Electronic authentication is defined in the Bill as a secure electronic technique that allows the user to (1) authenticate the identity or the information associated with a documentÕs sender; (2) determine the document was not modified during transmission; or (3) verify that a document received was sent by the identified party who has claimed to send it.
      • Financial institutions are authorized to use electronic authentication when they have entered into an agreement regarding the use of electronic authentication or when they have established a financial or transaction system using electronic authentication.
      • These provisions are subject to the review of the appropriate banking regulatory bodies, who may determine that electronic authentication is not consistent with safe and sound banking practices.
      • The Bill preempts any state regulations pertaining to the use of electronic authentication, such as those regarding digital certification authority. 

      Status: Referred to the House Committee on Banking and Financial Services, March 17, 1998. Referred to the Senate Committee on Banking, Housing and Urban Affairs.

      Sponsor: Merrill Cook (R-UT) (House), Robert Bennett (R-UT) (Senate)
    2. Electronic Commerce Enhancement Act of 1997 (H.R. 2991)
      Summary: Enhances electronic commerce by requiring agencies to use digital signatures, which are compatible with standards for such technology's use in commerce and industry.
      (1) Requires the Director of the Office of Management and Budget to make the forms of each federal agency available on an Internet web site and available for electronic submission, within 12 months of the date of the BillÕs passage. 
      (2) Each agency head will promulgate guidelines for the use of digital signatures by the agency's employees.
      (3) The Director of the Office of Management and Budget shall issue guidelines governing certification authorities. Agencies can accept certificates issued by trusted third parties, such as those who are appropriately accredited or licensed. The standards for government digital signatures and certification must be compatible with those used in commerce and industry.

      Status: Referred to the House Committees on Commerce and Government Reform and Oversight, November 9, 1997.

      Sponsor: Anna Eshoo (D-CA)
  2. Encryption 

      1. Promotion of Commerce On-Line in the Digital Era (Pro-Code) Act (S. 377)
        (1) Prohibits the Secretary of Commerce from regulating encryption standards outside of those used by government. The Bill also prohibits the federal government from regulating the interstate sale of encryption technology and from requiring a decryption key be given to any party. These prohibitions do not apply to encryption technology developed specifically for military use. 
        (2) Requires only a general license to export encryption technology, including computer software. 
        (3) Creates an Information Security Board to create cooperation between industry and government in exchanging information about general, nonconfidential developments in information security technologies.
        Status: Referred to the Senate Commerce, Science and Transportation Committee, February 27, 1997. 

        Sponsor: Conrad Burns (R-MT)

      1. Security and Freedom Through Encryption Act (H.R. 695)
        (1) Permits any person to use or sell any encryption, regardless of key length, algorithm or implementation technique. 
        (2) Prohibits the conditioning of certification authorities or establishing a regulatory scheme conditioned upon key escrow technology. 
        (3) Creates a National Electronic Technologies Center to improve encryption technologies and law enforcement's access to electronic information.
        (4) Allows the export of encryption technology, unless there is substantial evidence that the software will be diverted for a military or terrorist use. Hardware-based encryption technology may be exported if a product offering comparable security is available outside the United States without restrictions.
        Status: Referred to the House Judiciary and International Relations Committees, February 12, 1997. Referred to the House Commerce, National Security and Permanent Select Committee on Intelligence, June 26, 1997.

        Sponsor: Bob Goodlatte (R-VA)
    1. Secure Public Networks Act (S. 909)
      Summary: A new version of this Bill has been written, which will be a floor amendment to S. 909.
      (1) Encourages key recovery systems for encryption technology, but does not require their domestic use. Those certification authorities and key recovery agents who do comply with the key recovery guidelines will be granted civil and criminal immunity.
      (2) An encryption export advisory board will be created. However, unlike the original Bill, the new board will include eight members from industry and only four members from government. This board will decide whether export restrictions should be eased, based on the worldwide availability and demand for a product. The President retains the ability to veto the board's decisions.
      (3) The board can also allow for export control exemptions based on a high level of trust with a foreign end-user.
      Status: Reported favorably, Senate Commerce, Science and Transportation Committee, June 16, 1997. This Bill will likely be debated on the Senate floor in May, 1998.

      Sponsors: John McCain (R-AZ), Bob Kerrey (D-NE)

4. Year 2000

Year 2000 ERISA/Federal Year 2000 Council Bill (S. 2000)

(1) Amends the ERISA Act of 1974 by requiring fiduciaries to determine that any bank, insurance carrier, or issuer of securities the fiduciary may invest in have taken steps to substantially eliminate any Year 2000 problem that party may face. If the security is traded on a market, the fiduciary must determine the market will operate without any interruption due to the Year 2000 problem. 
(2) The Bill requires the President to establish a PresidentÕs Council on Year 2000 Conversion. One representative from each executive department shall participate in the Council. This Council will oversee executive branch Year 2000 solutions, including policy direction and resource allocation.
Status: Referred to the Senate Committee on Government Affairs, April 29, 1998

Sponsor: Robert Bennett (R-UT)

In addition, the Senate Appropriations Committee approved $225 billion for discretionary funding of federal government remediation projects on May 14, 1998.

5. Privacy Issues

  1. Unsolicited Email / "Spam" Regulation

      1. Electronic Mailbox Protection Act of 1997 (S. 875)
        Summary: A person is subject to a penalty of up to $5,000 if they do one of the following:
        (1) Sends unsolicited email from an unregistered or fictitious address to prevent responses to the message.
        (2) Disguises the source of the unsolicited email message to prevent recipients from using a mail filter.
        (3) After sending an unsolicited email message, fails to comply with a request to terminate sending further messages.
        (4) Distributes a collection of email addresses while knowing that some of the recipients do not want to receive unsolicited email. 
        (5) Initiates an unsolicited email message despite prior notice that the recipient does not want to receive an unsolicited message.
        (6) Registers or creates an Internet domain name for the principal purpose of initiating the transmission of unsolicited email.
        (7) Sends an unsolicited email message through an interactive computer service knowing that sending that message violates the rules of the interactive computer service.
        (8) Despite the contrary rules of an interactive computer service, accessing that serviceÕs server to collect email addresses.
        (9) Initiates the transmission of bulk unsolicited email messages but then splits up the messages to circumvent this Bill.
        Status: Referred to the Senate Commerce, Science and Transportation Committee, June 11, 1997.

        Sponsor: Robert Torricelli (D-NJ)
      1. Netizens Protection Act of 1997 (H.R. 1748)
        Summary: Amends the 1934 Communications Act to:
        (1) Ban the transmission of unsolicited advertisements by electronic mail when there is no preexisting and ongoing business or personal relationship, unless the recipient provides an express invitation to send such advertisements.
        (2) Require unsolicited advertisements begin with the date and time the message is sent, the senderÕs identity and the senderÕs return email address.
        Status: Referred to the House Commerce Committee, May 22, 1997

        Sponsor: Chris Smith (R-NJ)
    1. Unsolicited Commercial Electronic Mail Choice Act of 1997 (S. 771)
      (1) Requires any person transmitting an unsolicited commercial electronic mail message to include as part of the message the word "advertisement" at the beginning of the message, as well as the name and address of the sender.
      (2) Empowers the Federal Trade Commission with authority over unsolicited electronic mail. This includes the ability to conduct investigations and impose fines. 
      (3) Allows a state to bring an action on behalf of its residents, so long as that state notifies the Federal Trade Commission.
      (4) Requires that senders of unsolicited electronic mail terminate those messages upon the request of the recipients of those messages.
      Status: Referred to the Senate Commerce, Science and Transportation Committee, May 21, 1997.

      Sponsor: Frank Murkowski (R-AK)
  2. Data Privacy

    1. Government Data
      (A) Federal Internet Privacy Protection Act of 1997 (H.R. 1367)
      Summary: Prohibits Federal agencies from making available through the Internet certain confidential records with respect to individuals and to provide for remedies in cases in which such records are made available through the Internet.
      Status: Referred to the House Government Reform and Oversight Committee, April 17, 1997.
      Sponsor: Rep. Mark Barrett (D-WI)

      (B) Social Security Information Safeguards Act of 1997 (H.R. 1331)
      Summary: Requires the Commissioner of Social Security to assemble a Social Security Information Safeguards Panel to assist the Commissioner in developing appropriate mechanisms and safeguards to ensure the confidentiality and integrity of personal Social Security records made accessible to the public.
      Status: Referred to the House Ways and Means Committee, April 15, 1997.
      Sponsor: Rep. Barbara Kennelly (D-CT)
    2. Commercial Data
      (A) Consumer Internet Privacy Protection Act of 1997 (H.R. 98)
      Summary: Prohibits an interactive computer service from disclosing to third parties any personally identifiable information provided by a subscriber without the subscriber’s written consent.

      Status: Referred to the House Commerce Committee, January 7, 1997

      Sponsor: Rep. Vento (D-MN)
      (B) Data Privacy Act of 1997 (H.R. 2368)
      (1) Establishes a computer interactive services industry working group to establish voluntary guidelines:
      (a) limiting the collection of personal information for commercial purposes obtained through any interactive computer service; 
      (b) relating to the distribution of unsolicited commercial email messages;
      (c) and to provide incentives to follow the guidelines, including icons which indicate guideline adherence.
      (2) The Bill also prohibits the use of personal information for commercial marketing purposes, the use of personal health or medical information for medical purposes, or the display of another person's social security number through an interactive computer service, unless that person had a prior business relationship or valid contract with the information provider. 
      Status: Referred to the House Commerce Committee, July 31, 1997
      Sponsor: Rep. Billy Tauzin (R-LA)
      (C) Social Security On-Line Privacy Protection Act of 1996 [sic] (H.R. 1287)
      Summary: Prohibits interactive computer services from disclosing an individualÕs social security numbers or related personal information without his or her prior, informed, written consent. Individuals are allowed to revoke their consent at any time, upon which the interactive computer service will cease disclosing the private information.
      Status: Referred to the House Commerce Committee, April 10, 1997
      Sponsor: Rep. Robert Franks (R-NJ)

6. Government Service Issues.

    1. Citizens Right to Know Act (H.R. 2433)
      Summary: Amends the Federal Election Campaign Act to require all reports filed with the Federal Election Committee to be filed electronically and such information is required to be made available on the Internet.

      Status: Referred to the House Oversight Committee, September 8, 1997

      Sponsor: Lynn Rivers (D-MI)
  1. Internet Election Information Act of 1997 (H.R. 653)
    Summary: Amends the Federal Election Campaign Act to exempt donated interactive computer services and their direct costs from contributions and expenditures if the service allows its facilities to be used by all the candidates in the election. 

    Status: Referred to the House Oversight Committee, February 6, 1997.

    Sponsor: Richard White (R-WA)

7. First Amendment Issues

    1. Communications Decency Act (S. 1482)
      Summary: Amends section 223 of the 1934 Communications Act to prohibit the commercial distribution of material that is harmful to minors.

      This prohibition is limited to material transmitted over the World Wide Web. Those caught in violation can be fined or imprisoned for up to six months. 

      "Harmful to minors" is defined as communication that (1) appeals to a prurient interest in nudity, sex or excretion; (2) depicts in a patently offensive way with regard to minors, actual or simulated sexual acts or contacts or a lewd exhibition of genitals; and (3) lacks serious literary, artistic, political or scientific value. 

      Status: Approved by the Senate Commerce Committee, March 12, 1998. 

      Sponsor: Dan Coats (R-IN)
    1. The E-Rate Policy & Child Protection Act of 1998 (H.R. 3442)
      Summary: Amends the 1934 Communications Act to require public schools and libraries to establish a supervision policy regarding access to material inappropriate for children when those institutions receive universal service support or preferential rates or treatment under the Act.

      Status: Referred to the House Commerce Committee, March 11, 1998.

      Sponsor: Edward J. Markey (D-MA)
    1. Internet School-Filtering Act of 1998 (S. 1619)
      Summary: Requires public schools to certify they have installed a filtering or blocking mechanism for Internet content before allowing those schools to receive universal service funds under the 1934 Communications Act. 

      Status: Approved by the Senate Commerce Committee, March 12, 1998.

      Sponsor: John McCain (R-Ariz)
  1. Family-Friendly Internet Access Act of 1997 (H.R. 1180)
    Summary: Amends the 1934 Communications Act to require Internet access providers to provide filtering software.

    Status: Referred to the House Commerce Committee, March 20, 1997.

    Sponsor: Joseph McDade (R-PA)

8. Crime Issues

    1. Internet Gambling Prohibition Act of 1997 (H.R. 2380/S. 474)
      (1) Amends the federal criminal code to prohibit and penalize the placing, receiving or otherwise making a bet or wager via the Internet or any other interactive computer service. The Bill also criminalizes the business of online gambling.
      (2) Grants the U.S. District Courts original and exclusive jurisdiction under this Bill. State attorneys general or other state officials may institute proceedings under appropriate circumstances.
      (3) Directs the Secretary of State to conclude international agreements that would allow the United States to enforce this Bill against individuals violating the Bill outside United States borders.
      Status: Referred to the House Judiciary Committee, Subcommittee on Crime. Placed on the Senate Legislative Calendar, October 23, 1997.

      Sponsors: Bob Goodlatte (R-VA) (House), Jon Kyle (R-AZ) (Senate)
  1. Child Protection and Sexual Predator Punishment Act of 1998 (H.R. 3494)
    (1) Criminalizes the use of the mails or other interstate or foreign commerce to knowingly contact a person under the age of 18 for the purpose of engaging in sexual activity with a minor.
    (2) Criminalizes the use of the mails or other interstate or foreign commerce to knowingly transfer obscene matter to someone under 18 or someone who has been represented as being under 18.
    (3) Criminalizes the knowing possession of a computer disk which contains three or more depictions of a minor engaged in sexually explicit conduct
    Status: Referred to the House Subcommittee on Crime, March 18, 1998.

    Sponsor: Bill McCollum (R-FL)

II. State Legislation

A. California (Cal. Gov Code Chapter 5.1 Sections 8330 and 8331) - Requires state agencies that have Internet websites to use these sights to make forms available through which individuals can register complaints and comments relating to that agency. 

B. California (Assembly Bill 1710) - Damages available to plaintiffs in litigation involving Year 2000 problems will be limited to costs resulting from bodily injury and costs to replace or repair failed computer systems or programs.

C. Florida (House Bill 3619) - Authorizes certain state government officials to reassign resources to address an existing or predicted Year 2000 computer systems failure and to immunize state agencies, instrumentalities, or any unit of local government from civil or administrative actions arising from a Year 2000 computer date calculation failure.

D. Illinois (House Bill 3180/Electronic Commerce Security Act) - An act to promote business and contracts electronically through the Internet and other electronic medium.

E. Massachusetts (Senate Bill 2162) - Makes it a crime, punishable by up to three months incarceration or a fine not to exceed $500, to repeatedly send a harassing, annoying, or indecent or obscene message to a person, including by mail, telephone, electronic mail, facsimile, or Internet transmission.

F. Michigan (Senate Bill 1091) - Makes it a felony to use the Internet to commit, attempt to commit, conspire, or solicit another to commit child sex abuse, criminal sexual conduct, kidnapping, unlawful detention of a child, stalking, and other crimes against minors.

G. Minnesota (Minn. ALS 366) - Requires free Internet access to certain state publications.

H. Nebraska (Legislative Resolution 397) - Authorizes a study examining Internet gaming activities in the state and whether legislation prohibiting such gaming should be enacted.

I. New Jersey (Senate Bill 982) - Directs the Commission on Holocaust Education to instruct public school teachers on how to recognize false and misleading information about the Holocaust disseminated over the Internet. 

J. New York (Assembly Bill 10151) - Permits driver’s license renewals via an application that is available over the Internet.

K. New York (Senate Bill 66750) - Exempts from sales and consumption taxes, tangible personal property used or consumed to receive, initiate, transmit, switch or monitor the switching of telecommunications services or Internet access services.

L. New York (Senate Bill 7259) - Authorizes the Public Service Commission to require public libraries and schools using telecommunications, computer data, the Internet, and other information systems to use filtering software to block or filter materials harmful to minors.

M. Pennsylvania (House Bill 2438) - Makes it a crime to use a computer or communications facility to engage in the business of gambling.

N. South Carolina (SB897) - Requests a moratorium on imposition of taxes on the flow of commerce via the Internet.

O. Virginia (HB277) - Provides immunity from liability stemming from Year 2000 bugs in lawsuits against the Commonwealth of Virginia in State Court.

P. Virginia (HB276) - Virginia vendors of Year 2000 services would receive additional points in their response to proposal requests for professional services competitively negotiated under the Virginia Public Procurement Act.