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The Mishpat-Update #18

Welcome to the eighteenth issue of the weekly Mishpat Update, Law 
on the net from

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In this issue:

1. Introduction
2. Power to the Users!
3. Cyberlaw Updates


1. Introduction

I would like to welcome the 13 new subscribers who joined the list this

Last week Yahoo! learned about users' power the hard way. The No.1
portal was forced to change its operating agreement with millions of
Yahoo! - Geocities users after trying to claim the right to use users'
web site contents without paying copyright royalties.

As if Microsoft did not have enough legal trouble with the Government's
antitrust in which testimonies ended last week, it now faces a SEC
(U.S. Securities and Exchange Commission) investigation. Read more
about this story in the cyberlaw news section.

This issue has lots of other important computer law news including the
approval of the U.S. year 2000 computer bug bill and the new Australian
online censorship act.

The Mishpat Update archive (issues 1-15) is available at:

2. Power to the Users!

In response to a boycott and criticism from outraged customers, Yahoo!
abandoned an agreement that had given it eternal ownership of all
GeoCities Web sites only a few days after presenting Geocities users
with the new terms. Yahoo! users proved that at least some of the
online power is in the hand of millions of individual users.

The reason I decided to bring the story is that the change in the
operating agreement was licensing of copyright which is known to be one
of the biggest difficulties in the online world.

Yahoo! acquired GeoCities for an estimated  billion in January. The
portal said at the time that it planned to integrate e-commerce
throughout GeoCities, as well as reach home page builders through
direct marketing. The above sum means Yahoo! paid more than ,000 per
Geocities user, which is quite incredible since GeoCities' main service
is millions of freely hosted websites (Geocities' revenue comes from
banner advertising on those free sites). 
Many people wondered what Yahoo!'s plans for generating a bigger income
were. When Yahoo! announced Geocities new terms of service (TOS) on
June 25, web developers thought that Yahoo! was planning on using the
freely hosted sites' material without paying copyright royalties.

The new TOS (terms of service) stated that:
"By submitting content to any Yahoo property, you automatically grant,
or warrant that the owner of such content has expressly granted Yahoo
the royalty free, perpetual, irrevocable, non-exclusive and fully
sublicensable right and license to use, reproduce, modify, adapt,
publish, translate, create  derivative works from, distribute, perform
and display such content (in whole  or part) worldwide and/or to
incorporate it in other works in any form, media,  or technology now
known or later developed."

Members were also upset by the fact that they were unable to remove
their content or make changes to their sites without first accepting
the revised terms of service.
Many GeoCities homesteaders worried that Yahoo! could take their Web
pages and republish them -- even in another form, which the contract
allowed, such as books or CD-ROMs. 

Once word of the changes reached the developer community, reaction was
swift. Some disappointed homesteaders launched a boycott on the Yahoo!
site. "Stop using Yahoo. Boycott them, and all of their properties.
This includes,, and Don't buy
products from merchants at and let them know why!"
the organizers said. 

Faced with the boycott, Yahoo! thus modified the TOS. Yahoo added
several sentences to try to clarify a controversial provision about
content ownership.  "Yahoo does not own content you submit, unless we
specifically tell you otherwise before you submit it. You license the
content to Yahoo as set forth below for the purpose of displaying and
distributing such content on our network of properties and for the
promotion and marketing of our services."

A Yahoo! spokesman stressed there were never any plans for the company
to use sites in books. He said the rules that led to the outrage were
written before Yahoo!'s acquisition of GeoCities closed.

However there are still many problems with these terms. Yahoo! could
never rightfully contend that they "own" the content and they can't own
the copyright without a formal transfer, which requires more than the
TOS.  Second, their license rights are extensive but the limitations
are not as clear.  It doesn't explain exactly what their "network of
properties" is, and it doesn't say how far they can go in the
"promotion and marketing of our services."

One of the leaders of the boycott against GeoCities said that his
group's efforts to get Yahoo! to do more will continue. Meanwhile other
free hosting services such as Warner Brother's Acmecity
 and Crosswinds 
have seen 25-40% increase in membership over the the past week.

The full text of the TOS can be found at:

Yahoo's explanation page

The Boycott Yahoo! site can be found at:

3. Cyberlaw Updates

Each week Mishpat-Update brings you the latest news about
online and computer law, with links to the full reports available
on the web.

* Australia passes online censorship law *
After many months of controversy, the Broadcasting (Online Services)
Amendment Act has finally passed through Australian parliament. Under
the regulations, the Australian Broadcasting Authority (ABA) will have
the power to order ISPs (Internet Service Providers), to take offensive
or illegal material off their sites, and to block access to certain
domestic or overseas based content. The new law will institute a movie
like rating system for Internet content. The ABA will order ISPs to
take down content on their servers rated X (Sexually Explicit) or RC
(Refused Classification) within 24 hours of being notified. ISPs that
fail to follow directions from the ABA could face fines of up to
,500 per day. The ABA will also be responsible for creating liaisons
with the industry over the development of industry codes of practice,
to ensure that offensive or illegal material is not accessible by
Internet users. 

Online civil liberties group, Electronic Frontiers Australia (EFA) said
that the man behind the bill, Information Technology Minister, Senator
Richard Alston, should resign from the IT portfolio. "He is
ill-equipped to provide a leadership role in the era of the information
economy since he has alienated himself from the very industry upon
which that economy must be built," EFA Executive Director Darce Cassidy
stated. "The digital age requires a Minister with a grasp of the
portfolio and an eye for the future, not a man who can't tell the
difference between the Internet and TV.",1087,10_148971,00.html
EFA full press release can be found at:

* Microsoft under SEC investigation *
Microsoft Corp. announced Wednesday that the Securities and Exchange
Commission was investigating the company's accounting practices.
Industry experts said the SEC investigation could be part of its effort
to restrain so called "cookie jar" accounting, which can have the
effect of smoothing over differences between strong and weak quarters.
Microsoft has consistently denied any such intent and insists that it
has adhered to "conservative" accounting practices. As is its custom in
such matters, the SEC declined to comment on whether an investigation
was under way. 
The SEC is believed to have begun its investigation in January in a
response to a wrongful discharge suit filed  by Charles Pancerzewski, a
former Microsoft internal auditor. The lawsuit, brought in 1996 and
settled last November on terms not made public, alleged that Microsoft
had manipulated revenue reserves totaling hundreds of millions of
dollars to make its profits appear more stable. The plaintiff said that
after reporting his discovery to his superiors, he was given an
unscheduled performance review and asked to resign. He accused
Microsoft of wrongful termination, age discrimination and breach of

* Caldera wins early round against Microsoft * 
Facing yet more legal problems, Microsoft lost in the first round of
the antitrust suit bought against it by software maker Caldera. A
federal judge ruled against Microsoft's request to strike down
antitrust claims brought by tiny rival Caldera. U.S. District Judge Dee
Benson denied four motions by Microsoft to narrow the scope of
Caldera's case, although he has not yet ruled on another three motions.
A jury trial in the case is currently scheduled to begin January 17,
Caldera contends that Microsoft engaged in a pattern of anti
competitive behavior intended to obtain and then maintain a monopoly
position in the computer operating system market in the late 1980s and
early 1990s. Caldera is seeking more than  billion in damages for
lost sales of its DR-DOS software, which competed with Microsoft's

* Student sent to jail because of hate mail *
Kingman Quon, who graduated in March from California State Polytechnic
University in Pomona with a marketing degree while free on bail, was
sentenced to two years in federal prison. He was sentenced for seven
misdemeanor accounts of interfering with federally protected
activities, and threatening touse force with the intent to intimidate
people because of their national origin or ethnic background. He
pleaded guilty to all the charges in February.
Quon sent hate filled messages to Hispanic faculty members at various
universities, the Internal Revenue Service and large corporations,
apparently picking his targets at random by looking for Hispanic names
on Web pages. The message began with "I hate your race.  I want you all
to die." In sentencing Quon, US District Judge Edward Rafeedie said he
doubted that the defendant intended to carry out any of his threats but
was skeptical of the defendant's remorse.

* U.S. Y2K bill approved *
White House and congressional negotiators struck a deal on legislation
aimed at limiting lawsuits against companies over year 2000 computer
glitches. Congress has approved the new bill which is expected to be
signed by the White House this week. The business community and high
tech groups have backed the bill, which they say could save them from a
financial catastrophe, costing billions of dollars in lawsuits from Y2K
related problems. President Clinton supported legal protections but
threatened to veto the bills coming out of the House and Senate because
they did too little to protect consumer interests.
The bill would give companies 90 days to fix computers before lawsuits
could be filed and would encourage mediation efforts. It also would cap
punitive damages for small businesses and ensure that in most cases
defendants would be held liable for only that share of the damage they
caused. In one of the last issues worked out in the negotiations, the
monetary threshold for a class action lawsuit was raised from 
million to  million. Clinton wanted to ensure that only large class
action suits would be moved to federal courts, which critics argue give
defendants more favorable forums and where consumers would face more

* UK judge asserts jurisdiction over U.S. porn site *
A British judge ruled that the content of American Web sites could be
subject to British jurisdiction. British law prohibits the distribution
of pornography for financial gain under its Obscene Publications Act of
1959. The law was amended in 1994 to include computer related
Graham Waddon ran a group of US porn sites for commercial purposes from
his home in London, with titles such as FarmSex, Europerv, and
Schoolgirls-'R'-Us. As such, he argued the porn material was published
outside of Britain. Crown Court Judge Christopher Hardy disagreed. He
ruled that the publication occurred when Waddon transmitted the
material to the Web sites and when British police downloaded it.

I know that I don't usually add my comments and I stick to reporting
but... Personally I think that while the part of the ruling that
uploading should be considered publishing is plausible, the second part
of the reasoning is more problematic. It means that if british police
download pornographic material from an American site maintained by an
American citizen, an English court can assert jurisdiction over him.
That is of course an extreme solution because it means that the UK has
jurisdiction over all the material published on the web. (This comment
is only about the jurisdictional problem, not about other questions
arising from this case such as freedom of speech).

* New virus hits Chinese Microsoft users *
Users of some Chinese language Microsoft software are at risk of losing
all their data as a new virus hits the internet. The virus
W97M_AUTOEXEC, or "July Killer," originates in China. Written in Visual
Basic, a Microsoft programming language integrated into the Office
product line, it affects users of Chinese Windows.

* Phone company sues insurance companies for Y2K costs *
GTE Corp. has sued five insurance companies seeking  million for
their refusal to pay costs that the phone company incurred to battle
the Year 2000 computer bug. The complaint is believed to be one of the
first such cases involving an insurance remedy for Y2K costs. GTE filed
the suit under policies that cover damage to electronic equipment.

* EU starts antitrust investigation against NSI *
The European Union is investigating whether a Network Solutions' (NSI)
contract for new domain name registrars violates Continental antitrust
laws. The agreement has already been criticized by some of the 43
companies chosen to enter the market for registering domain names
ending in  ".com," ".net," and ".org,". 
The EU's concerns are that in addition to requirements that registrars
post a ,000 "performance bond" that NSI can collect if it believes
the contract has not been met, registrars also must agree to indemnify
NSI and allow the company to revoke its right to register domain names.
NSI also refuses to provide information about the technical workings of
the shared registration system before companies commit to using it
under the contract.

* HP sues Xerox
Hewlett-Packard Co. (HP) said it was suing Xerox Corp. for alleged
breach of contract and patent infringement relating to HP's color laser
printing technology. The complaint follows HP's termination of Xerox's
license to use HP TrueRes technology, which sharpens images in color
laser printers. The termination came after what HP said were nine
months of discussions. This is the fifth patent suit between HP, the
largest maker of computer printers, and Xerox, the No. 1 maker of
photocopiers. The other four such cases concern inkjet technology,
touch screen user interface and technology to enhance printer

* U.S. government web sites hacked *
Two more U.S. government web sites were hacked last week. 
Hackers broke into the U.S. Army's Web site and defaced the main home
page. According to army spokesman there were "no security breaches,"
and operations weren't impacted. Some observers believe the hackers may
have used a known security hole in Allaire Corp.'s Cold Fusion software
that is used by the army. Allaire issued bulletins earlier this year
about Cold Fusion, warning that some sample applications shipped with
the software could leave systems vulnerable to files being uploaded or
deleted on a site.

The National Oceanic and Atmospheric Administration's (NOAA) Storm
Prediction Center was added to the list of hacked sites just a day
later. Both the site and e-mail for the Storm Prediction Center were
taken down as soon as the infiltration was detected.

* NSI site hacked *
Hackers hit Network Solutions Inc. (NSI) web site redirecting NSI
visitors to the Internet Council of Registrars (CORE) one of NSI's
future ".com" competitors and to the new body in charge of managing the
internet's technical functions (ICANN).

* Judge dismisses another Judge's online defamation lawsuit *
A judge has dismissed a defamation lawsuit filed against an America
Online user by a judge in Pennsylvania. The Pennsylvania jurist,
Allegheny County Superior Court Judge Joan Orie-Melvin, sought ,000
in damages from an AOL user, whose identity she did not know, over a
statement on a Web site expressing dismay that Ms. Orie-Melvin had
allegedly lobbied on behalf of a lawyer seeking a judgeship. She filed
the suit in Loudoun County because AOL is based there. AOL was not a
party to the suit.  Loudoun County Circuit Judge Thomas Horne ruled
that just because AOL is based there does not mean Virginia courts are
open to lawsuits involving worldwide Internet communications.

* Religious schools gain money for internet access *
A U.S. Federal District Court judge ruled that a state program in
Wisconsin that subsidizes Internet access at schools, including
religious schools, is constitutional and does not violate the First
Amendment's provision for separation of church and state. But the judge
found that a related program that gives grants to religious schools
that set up their own Internet access outside of the state subsidy
program, does breach the wall between government and religion.
(Free registration to the NY Times required)

* Labor violation in Silicon Valley *
Federal and state officials plan to open an investigation into
alleged labor violations by Silicon Valley companies that are
reportedly using Asian immigrants to assemble electronic goods at homes
for much less than standard rates. The San Jose Mercury News, which
published two reports on the alleged abuses, reported that
Hewlett-Packard, Sun Microsystems, and Cisco Systems were among the
firms that contracted with companies that paid workers for labor done
in their homes. According to those reports, at least a dozen
contracting firms, from small businesses to giant corporations, had
used piecework arrangements to try to hold down production costs. The
articles also reported that the contracting work was done in the last
year and possibly violated safety, tax, and labor laws.,4586,2287524,00.html

* U.S. government ask for rehearing of crypto case *
The U.S. Department of Justice asked the 9th Circuit Court of Appeals
to review the landmark ruling that federal encryption regulations are
unconstitutional (the ruling in Daniel Bernstein vs. the Justice
Department was reported in Mishpat Update #10). A three judge panel
from the 9th Circuit ruled last month that export controls over
cryptographic software and related technologies violate the First
Amendment. The government argues that source code is only an occasional
form of expression and said the court should have come up with
guidelines to make the regulations constitutional.
The ruling in Bernstein vs. the Justice Department is available at:

* Apple sues iMac look alike *
Apple computer filed a complaint against Future Power and Korean
conglomerate Daewoo over a  computer that looks nearly identical to
Apple's colorful iMac. Apple's lawsuit will likely raise a number of
important issues about copyright law. Historically, the courts did not
extend copyright protection to so called utilitarian objects. However,
courts have begun to grant copyright protection to "styled" items on
the grounds that novel industrial design can communicate or represent a
copyrightable idea. In addition, Apple sources have said, parts of the
process involved in tinting the iMac's casing are protected by patents.,4586,2286992,00.html

If you know of any cyberlaw updates, please send them to

That's all for this time,
see you next week

Yedidya M. Melchior 

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