Politics and Law

President-elect Barack Obama on Wednesday announced the formation of an Economic Recovery Advisory Board, naming an economist with expertise in Internet policy as the board's staff director and chief economist.

Austan Goolsbee

(Credit: University of Chicago Booth School of Business)

The newly established economic advisory board will be expected to regularly brief Obama, Vice President-elect Joe Biden, and their economic team with independent, nonpartisan information and analysis that will help the administration formulate a plan for economic recovery. Obama named former Federal Reserve Chairman Paul Volcker as the board's chairman and Austan Goolsbee as staff director and chief economist of the board.

Goolsbee is an economics professor at the University of Chicago Business School whose research focuses on the Internet, the new economy, government policy, and taxes. In his new role, Goolsbee will act as the primary liaison between the economic advisory board and the Obama administration. Obama also announced he is nominating Goolsbee to be one of the three members of his Council of Economic Advisers.

While Goolsbee's experience is largely academic, he served for a year as a special consultant for Internet policy for the Justice Department's antitrust division. He advised Obama during his 2004 Senate race and served as an economic adviser to Obama during the presidential campaign. Goolsbee's profile on the University of Chicago Web site indicates he is scheduled to teach a course called "Economics and Policy in the Telecom, Media and Technology Industries" in the spring of 2009.

Obama said he plans to announce the remaining members of the economic advisory board in the coming weeks. He said his administration will seek out economic advice from "innovative thinkers who may not always subscribe to conventional wisdom," whether they come from the high tech or manufacturing sectors.

The board, which was modeled after President Eisenhower's Foreign Intelligence Advisory Board, will serve for a two-year term, after which Obama will decide whether it is still necessary.

A new feature called "Join the Discussion" was added Tuesday to President-elect Barack Obama's transition Web site, Change.gov, making the site more interactive for visitors.

The new page allows people to post to comments on a specific topic deemed a top priority by Obama. The page's first discussion focuses on health care and features a video from health care transition team members Dr. Dora Hughes and Lauren Aronson. As of Wednesday morning, more than 1,100 comments had been posted.

"A critical part of our health reform efforts is making sure every American voice is heard," Hughes says in the video. "We hope this is the beginning of a producitve and ongoing dialogue with Americans."

(Credit: Change.gov)

Obama amassed a large following on multiple social-networking sites during his campaign, including his own social-networking site, MyBarackObama.com. By contrast, Change.gov appeared decidedly Web 1.0 at its launch.

The new feature does not change that status much, as it simply allows people to post comments to the site. However, the page at least makes the comments viewable to other people. Other pages, such as "Share Your Story," feature a submission form that is sent to the transition team. Some stories submitted via that page have been featured on the Change.gov blog.

While the site still does not feature many user-driven elements, Obama's advisers have indicated the president-elect is interested in embracing Web 2.0 ideas like wikis to help solve America's problems. The transition team may be heading in that direction with the launch of the "Join the Discussion" page.

The page "will allow us get instant feedback from you about our top priorities," the Change.gov blog says. "We also hope it will allow you to form communities around these issues--with the best ideas and most interesting discussions floating to the top."

In light of the recent breach of President-elect Barack Obama's cell phone records, a senator on Monday sent a letter (PDF) to the Justice Department asking how many investigations or prosecutions the department has undertaken for violations of the Telephone Records and Privacy Protection Act.

Senate Judiciary Committee Chair Patrick Leahy (D-Vt.) sent the letter to Matthew Friedrich, acting assistant attorney general, noting that "data privacy breaches involving the sensitive phone records of ordinary Americans are occurring with greater frequency."

The Telephone Records and Privacy Protection Act, which Leahy sponsored and Congress passed in 2007, prohibits telecommunications carriers from obtaining confidential phone records by accessing customer accounts through the Internet without permission. Along with information about prosecutions and investigations, the letter asks whether the department has found the law effective in protecting Americans' privacy.

Obama's cell phone records were improperly accessed earlier this month by Verizon Wireless employees who were subsequently fired.

A new company is launching with the intent of acquiring patents to shield technology companies from costly patent lawsuits.

RPX, a San Francisco-based start-up, calls itself a "defensive patent aggregator." The company plans to buy available patents to keep them out of the hands of "patent trolls," or firms that obtain patents for the purpose of suing other companies for royalties or licensing fees.

RPX will sell memberships to companies for a fixed annual fee that could range from $35,000 to $4.9 million, depending on the member company's operating income. For the price of the annual membership, companies will receive the patent licenses purchased by RPX. The Wall Street Journal reported that Cisco Systems and IBM have already signed up.

Patent trolls have raised more than $6 billion over the last 10 years to acquire patents to initiate lawsuits, RPX says on its Web site. eBay went all the way to the Supreme Court in a patent dispute with MercExchange, a small Virginia-based company claiming that the online auctioneer had infringed on three of its patents. The two companies eventually reached a settlement agreement.

RPX is financed by two venture capital firms, Kleiner Perkins Caufield & Byers and Charles Rivers Ventures. Its two chief executives, John Amster and Geoffrey Barker, previously served as vice presidents of Intellectual Ventures, another company in the business of purchasing patents.

RPX says it has acquired 150 U.S. patents and has submitted 60 U.S. patent applications worth a total of $40 million in areas including Internet search, radio frequency identification, and mobile technology.

Facebook has been awarded $873 million in damages against a Canadian man accused of sending spam messages to its members.

The default judgment was issued in federal court in San Jose, Calif., on Friday against Adam Guerbuez, of Montreal, and his company, Atlantis Blue Capital. The ruling also forbids Guerbuez from using Facebook or interacting with its members ever again.

Facebook doesn't expect to necessarily collect the money because "it's unlikely that Geurbez and Atlantis Blue Capital could ever honor the judgment rendered against them," Max Kelly, Facebook's director of security, wrote in a blog posting on Monday. "We are confident that this award represents a powerful deterrent to anyone and everyone who would seek to abuse Facebook and its users."

Neither Guerbuez, who has made money selling videos showing people attacking the homeless in Montreal, nor Atlantis Blue Capital could be reached for comment.

Facebook noticed an uptick in spam beginning in the spring, with Facebook members receiving messages from friends and other members offering things like herbal marijuana and male enhancement pills for sale, a spokesman said. The messages were coming from Facebook accounts that had been compromised.

Facebook sued under the Can-Spam (Controlling the Assault of Non-Solicited Pornography and Marketing) Act, which bans "false and misleading" marketing e-mails. Although the law was written for e-mails, a judgment in favor of MySpace in May set the precedent for extending the law to messages sent within social networks. In that case, MySpace was awarded $234 million to be paid by so-called Spam King Sanford Wallace and another man.

The Facebook award is the largest judgment in history for a case brought under the Can-Spam Act, according to Kelly.

Facebook has beefed up its antispam technology since the spring, creating tools that can delete spam messages from accounts and block URLs that direct people to spam Web sites.

The worsening U.S. economy has elicited a range of responses from lawmakers in recent weeks.

President-elect Barack Obama officially introduced his economic team on Monday, giving more indication that reinvigorating the nation's slumping economy will be his top priority once he is sworn into office. Lawmakers are still considering whether to provide assistance to the auto industry and may put together a new, massive stimulus package.

Meanwhile, President Bush over the weekend continued to press for more free trade--a cause heartily endorsed by the consumer electronics industry.

The chance for Congress to put the Colombia free trade agreement to an up-or-down vote expires with its lame-duck session. With just weeks left, groups like the Consumer Electronics Association--which represents companies like Apple, Microsoft, and Hitachi--are doing all they can to convince lawmakers that enabling free trade will stimulate the economy.

Gary Shapiro, CEO, Consumer Electronics Association

CEA President and CEO Gary Shapiro says that other countries will beat the United States to the punch if Congress does not ratify the agreement. Indeed, Colombia just recently signed free trade deals with Canada and China. Congress has refused to ratify the United States' agreement with Colombia, arranged in 2006, because of concerns over human rights practices in Colombia.

Shapiro spoke with CNET News recently about why free trade is critical for the U.S. economy, what the consumer electronics sector expects from an Obama administration, and how the industry will fare in today's floundering economy.

Q: Why is the CEA so interested in promoting free trade?
Shapiro: In the 21st century, trade is important to any country, and other countries seem to realize that. Now we need to.

The (Colombia) agreement is very important for a variety of reasons. American companies have given over $1.3 billion in tariffs to Colombia. Today, (Colombia) pays absolutely nothing.

It's also important from a big picture perspective. There's a battle being fought for the hearts and minds for Latin Americans, and politically, Colombia's one of our best friends in the region. The Colombian people and their leaders have done everything we've asked, so we want to reward the fact Colombia has been so helpful. We don't want to drive them into the arms of Castro and Chavez.

Electronics aren't the first goods that come to mind when thinking about trade with Colombia--how much does this trade agreement really impact the technology sector?
Shapiro: They clearly send us a lot of roses, and we in turn send them several pieces of fairly sophisticated equipment like John Deere machines. It's not that it's critical for the future of the tech industry, but if we can't pass the Colombia free trade agreement, there will be no others in the future. It is the death of free trade, and the rest of the world will pass us by.

From your perspective, why hasn't the Colombia free trade agreement been put to a vote in Congress?
Shapiro: Because Speaker Nancy Pelosi has not allowed it to be voted on. We suspect the unions have asked her to not vote on it. Unions, I suspect, never want to see a free trade agreement again.

This is bipartisan--it's supported without objection by both sides, but the opportunity to vote on it up or down expires with this Congress. It's not challenging in that we have yet to find anyone who disagrees with the trade deal. The only challenge is some Democrats don't want to buck the unions or Speaker Pelosi. We feel we have the votes there, other than Speaker Pelosi and a few others.

I would be surprised if Congress passes anything this year that would be signed by the president if it didn't have Colombia as a part of it. This is the last thing the administration wants to do before bowing out. They are so frustrated, as are Republicans and many Democrats.

How is the CEA working with Congress to move the Colombia agreement forward?
Shapiro: Congress is coming back in December, and our job is to make sure that in anything Congress passes, this is part of the deal. I cannot imagine a Detroit bailout package without this being part of it.

But if you're seeking to get a change, it has got to come from the Congress and the Colombians. The only thing we can do is put the pressure on them. We ran a series of ads last week in The Hill, Politico, and Roll Call, basically giving the message to pass the free trade agreement to get the economy going. They have pictures of U.S. workers saying this is the best economic stimulus you can give right now.

The tech industry is not going to Congress for a handout. We're not asking for anything but the ability to trade and the ability to innovate.

Do you think you'll be able to work with President-elect Obama to move the tech agenda forward?
Shapiro: Some of the things President-elect Obama has said--that we need to attract to the best and the brightest and invest in broadband deployment--we're optimistic because of that. He ran the most phenomenal digital campaign in history. He's used technology, and he sees the power of it. He is president in part because of consumer electronics, whether it was texting or reaching voters through some other technology. I'm sure he sees the value there, all the positive things technology can do, so I don't think there's that much education that's going to be required there.

It's clear his focus is on the economy. His team has already given hints from the people around him that they'll be looking at the Colombia trade agreement. There are a thousand question marks remaining, but he's indicated through his people he'd like to have it on the agenda for next year.

Congress has taken some major steps lately to shield American businesses from market forces--do you fear what that could mean for free trade?
Shapiro: Yes. I am concerned about the future competitiveness of the United States. I think we have the most competitive economy in the world, but we have a big challenge ahead of us in the next few years.

Future job growth is likely to come from the technology industry, and innovation requires the flexibility for companies to hire and fire. In the tech industry, unionization would be devastating, frankly.

So we are opposing the card check legislative proposal. It's the question of how workers can be intimidated into unionization when they don't want that.

(The Employee Free Choice Act, also called "card check" legislation, passed in the House of Representatives in 2007. The bill would allow workers to unionize by signing a card rather than through secret ballot. It stalled in the Senate last year.)

It's a matter of freedom of employee privacy. The private vote has been a part of American society for 200 years. That's how people vote.

How will the consumer electronics sector hold up in the current economic climate?
Shapiro: Better than most, but not as good as we would like. Technology products are more of a necessity. They used to be a luxury, but now people need products to do a whole set of things that are considered essential in their lives.

In economic downturns, to the extent that people lose their jobs, they want to start a home office to start a new business. With this increasing emphasis on teleworking, people will be investing in personal technology.

Consumer electronics products hold up very nicely in terms of providing value per hour of use. Any of our products are a fraction of the cost of competing ways of spending money. We're not as important as food, but we're not the boat industry. We're somewhere in between the fun luxury and the absolute necessity.

What other technology-related legislative priorities do you see on the horizon for the next Congress?
Shapiro: For 2009, I think there should be a reduction of the corporate tax rate because it's the highest in the world. We'd like to see a national recycling standard. There are states and localities passing piecemeal laws on how to recycle electronics, but we need a national standard.

I would like to see fast track authority given to the president for trade agreements. Otherwise, you might as well abolish the Office of the U.S. Trade Representative. It's impossible to negotiate an agreement if someone else is going to go back and change it. That authority expired in August, so no trade agreements are being negotiated now because no one will negotiate with us.

Barack Obama will be the most shadowed president in history, and it won't be just the Secret Service and press corps surrounding him.

Citizens and paparazzi armed with camera phones and a variety of other multimedia devices will chronicle every movement he makes in public and post it online.

President-elect Obama visits a Chicago deli to pick up some corned beef sandwiches. According to various reports, Obama and troop arrived at Manny's Cafeteria and Deli at 12:29 p.m. and walked out at 12:45 p.m. with two cherry pies and three corned beef sandwiches, paying $48.34 in cash.

(Credit: Change.gov)

Obama's visit on Friday afternoon to Manny's Cafeteria and Deli in Chicago was treated as a major event. Some footage was recorded by the Associated Press (see below), and in the background you can see employees, as well as a horde of press members, pointing their cameras at Obama. With half the planet in possession of increasingly capable camera phones, Obama's life will fill enormous disk space in the cloud.

Politico is also keeping track of Obama's daily life with its "44" blog, documenting the president-elect's movements and important announcements during the transition to the White House. The forthcoming Obama White House will be treated like a reality TV show or West Wing, broadcast 24x7 on the Internet.

(Credit: Politico 44)

Other presidents, including George W. Bush, have been similarly tracked online, but the Obama presidency brings a more finely tuned understanding to this phenomenon. Obama's pre-inauguration site, Change.gov, is providing its own play-by-play of Obama's activities, including briefly detailing the deli visit with a photo slideshow.

Posting its own version of events is a way for the Obama team to gain some control over the chaos and messaging in the midst of the incessant Obama lifestreaming that will occur over the next four or eight years. The disciplined, focused, and modulated Obama has already had a lot of practice on a big stage. Now the spotlight is all on him. Every gesture and word from Obama accessible to the public will be recorded and posted online, from a multitude of sources and points of views. His lifestream will be endlessly scrutinized and measured for meaning.

The Obama office of communications will be very busy building on the lessons learned from the campaign. Obama will likely hold more press conferences than his predecessor, but his team will continue its use of the Internet to directly reach the American people, as in Obama's weekly radio address, which is also a Web TV show that reached nearly 900,000 YouTube viewers with the November 14 edition.

Dan Manatt of PoliticsTV offers some useful suggestions--such as making the U.S. budget comprehensible to mere mortals--to the Obama communications team in a blog post on TechPresident.com:

The president's budget should become a multimedia document that makes the numbers--and the policy questions--accessible to the average citizen. The budget should be released online--not just as a pdf, as it is now, but as a multimedia, dynamic document with Web apps, widgets, and appendices applying Quicken-style functionalities, dynamic charts, etc. That way Americans can visualize and understand where their $3 trillion in tax dollars (minus the $1 trillion deficit) goes to. (Perhaps not surprisingly, private sites, including Wikipedia, http://en.wikipedia.org/wiki/United_States_federal_budget, offer citizens better digital tools to understand the budget than the White House and the OMB, http://www.whitehouse.gov/omb/budget/fy2009/).

Given the lack of confidence in the economy and the measures taken by the current administration, as well as Congress, providing more transparency into the budget process and bailouts would be helpful to the national psyche. You can expect Obama to use his online TV channel to further change the course of history.

The United States through its history has been the world's leading innovator thanks to a few hobbyists tinkering in their garages. If the U.S. wants to maintain its dominance in the world market, some argue, its policies should encourage innovation through broadband deployment.

While Congress has taken steps to promote universal broadband, a new working paper from the New America Foundation suggests a peculiar route to fostering the nation's next great innovators: allowing consumers to purchase and own their own fiber-optic connection.

In their paper Homes with Tails (PDF), Columbia Law School professor and NAF Fellow Tim Wu and Google Policy Analyst Derek Slater lay out a proposal in which a community would establish a collectively-owned fiber trunk cable that would lead to individually-owned lines into people's homes.

Columbia Law professor Tim Wu explained Friday the benefits of encouraging privately owned fiber lines.

(Credit: Stephanie Condon/CNET News)

Such an architecture would be "akin to a condominium complex--also a radical form of property not too long ago," Slater said.

The fiber would lead an open point of presence (or PoP), at which different service providers could set up equipment and compete for residents' business.

The option to own fiber should be available, the authors argued, since it is unlikely that the private sector will invest in widespread fiber deployment, and there are too many unanswered questions as to how the government might fund such a venture.

"It costs billions and billions of dollars, and it's not clear what the killer app would be that would justify the investment," Wu said.

Cost would be a clear obstacle for any consumer as well, he acknowledged.

"It is true $2,000 is a lot of money, but people spend tens of thousands of dollars on home renovations all the time," Wu said.

The authors said that while there is no reason why privately owned fiber cannot work, it will require some experimentation and research.

Moreover, they said, their plan is not intended to be widespread but for places where it could easily be established, such as in newly-built communities with homeowner associations. It should be for the few who could make the most out of such great capacity.

"What could the hobbyists, the Steve Wozniaks and Steve Jobses of today, do with 10 gigabytes?" asked Wu. "We're talking about giant leaps forward."

Rob Atkinson, president of the Information Technology and Innovation Foundation, said that the plan was commendable for putting forward new policy innovation, which is lacking in the United States.

"Other nations are becoming the laboratories for democracy," he said. "This is really about policy innovation to drive technological innovation."

A representative for Verizon challenged the notion that telecommunication companies are not investing enough to drive innovation. The industry spends $65 billion annually to maintain and upgrade its networks, said Link Hoewing, Verizon's assistant vice president of Internet and technology issues.

More at issue is compelling people who have access to broadband to actually use it, Hoewing said. Consumers often say they do not need to pay for it because they have access to high-speed Internet at work.

The authors submitted their proposal was not the answer to improving broadband access in the U.S., but one of many possible solutions.

"Solving this problem is so important that we need as much experimentation and investigation to come up with many solutions as possible," Slater said.

Even as it continues to grow, Facebook is facing less pressure to reveal its finances.

The Securities and Exchange Commission in October granted the social-networking site an exemption to part of the SEC Act of 1934, which requires companies to disclose financial information once they have more than 500 stockholders and $10 million in assets.

As BusinessWeek reported, lawyers for Facebook sent the SEC a letter on October 13, asking for an exemption for its distribution of restricted stock. The letter noted that the company could in the future have more than 500 employees with restricted stock. The company currently has more than 700 employees.

While the company did not ask for an exemption for its other forms of equity--stock options or stock purchase rights--it argued that restricted stock units merit exemption because they cannot be traded and are not subject to any active investor interest. The SEC agreed to Facebook's request for an exemption until the company goes public or there is a change of control over the company.

Restricted stock has become a more common form of compensation since it has certain tax advantages over stock options.

WASHINGTON--A federal judge decided on Thursday not to impose a prison sentence on the senior directors of E-Gold, an Internet-based digital currency firm, who had previously pleaded guilty to violations of money laundering and running an unlicensed money transmitting business.

The three directors of E-Gold, in addition to its Gold & Silver Reserve parent company, were indicted in April 2007 after federal prosecutors accused the online payment site of being a haven for criminal activity like processing investment scams and payments for child pornography. They said its loose verification standards for users' identity attracted criminals.

The three men and the companies pleaded guilty to the charges in July 2008.

U.S. District Judge Rosemary Collyer said the men deserved lenient sentences because they did not intend to engage in illegal activity. Even though, Collyer said, the U.S. Justice Department wanted to use the cases to show "this new day of Internet crime is going to be...vigorously prosecuted," that alone was not enough reason to incarcerate the defendants.

Gold & Silver Reserve CEO Douglas Jackson was sentenced to 300 hours of community service, a $200 fine, and three years of supervision, including six months of electronically monitored home detention. He had faced a maximum sentence of 20 years in prison and a $500,000 fine.

Jackson was spared a heavier fine because, according to his attorney, he's deeply in debt. "Dr. Jackson has suffered, will continue to suffer, and may never be successful with E-Gold," the judge said.

Reid Jackson, Douglas Jackson's brother, and E-Gold director Barry Downey were each sentenced to three years of probation, 300 hours of community service. They also were ordered to pay a $2,500 fine and a $100 assessment fee each.

The defendants were also ordered to obtain licenses to do business in the states in which a license is required, something the company had already begun doing. In September, E-Gold hired KPMG to aid its development of an anti-money laundering program; it has already contacted every state to determine whether a license is needed.

E-Gold and Gold & Silver Reserve faced a maximum fine of $3.7 million, but because neither company could pay that much, they were fined $300,000 with the condition that $10,000 be paid on Monday, with further monthly payments to start in May 2009.

Many of E-Gold's users turned to it as an alternative to a bank account denominated in U.S. dollars, which lose money due to inflation especially when interest rates are low. By contrast, gold has zoomed upward from roughly $300 an ounce in 2002 to around $750 an ounce today.

Supporters of E-Gold and gold-denominated accounts have suggested that enabling nearly anonymous transfers of money in and out of the banking system is what led the feds to target the company. For his part, Jackson initially blasted the feds, saying the Secret Service "deceived" a judge with "bogus testimony" so they could conduct a raid on E-Gold designed to put it out of business.

Federal prosecutors claimed there was no doubt the directors knew E-Gold facilitates criminal activity. An analysis in January 2008 of the 65 most valuable E-Gold accounts showed that more than 70 percent were involved in criminal activity, according to Laurel Rimon, a Justice Department prosecutor.

Furthermore, prosecutors said, the funds that flow through E-Gold, which launched in 1996, are significant. At its height, the site had more than 4 million accounts and facilitated more than $5 million fund transfers a day.

Though illegal activity continued on E-Gold well after Douglas Jackson acknowledged the company was under investigation in 2004, the defendants claimed that they received bad legal counsel, which convinced them the site did not have to be licensed as a money transmitting business.

"If he had thought it needed to be licensed, he would have done everything in his power to make that happen," Federal Public Defender Michelle Peterson said about Reid Jackson.

The court also accepted the argument that Downey was unaware of the company's need for a license, even though he is a practicing lawyer.

The defendants also argued they have worked to the best of their abilities to cooperate with investigators, but the prosecutors provided evidence that the directors may have been trying to circumspect government interference.

The company was incorporated in Bermuda, for instance, even though its operations are based out of Melbourne, Fla. Barry Pollack, Downey's defense attorney, said the site's offshore registry did not impede the directors from responding to subpoenas. (If the site had been entirely overseas, as GoldMoney.com is, it wouldn't have had to worry about the feds. On the other hand, GoldMoney does demand proof of identity.)

Douglas Jackson founded the site on a philosophy opposed to government regulation, prosecutors said. "Dr. Jackson was very candid about his vision to create a version of a financial institution that didn't have regulations," prosecutor Jonathan Haray said.

Intentions and philosophies notwithstanding, the defense said, the defendants should remain out of jail so they could keep the site up and running and continue to help investigators track criminals. E-Gold's records of IP addresses and timestamps provide a trail to criminals--and proof the company had no intention of inviting criminal activity, the defense said.

The prosecution questioned how useful E-Gold's cooperation really was.

"The vast majority (of IP addresses from E-Gold) don't have good identifying information," said Rimon. "If an IP address leads to a P.O. box on a street corner in Estonia, that doesn't do us much good, and that's what we found in many cases."

E-Gold remains open for business today, though Jackson said in an announcement on November 14 that it was still figuring out how to comply with the registration process for new accounts now that it's subject to regulation as a "financial institution." New account creation is "temporarily suspended."

CNET News' Declan McCullagh contributed to this report.