First Amendment Protections for Employees

Involved in the Adult Industry – The Marcie Betts Case

By: Lawrence G. Walters

www.FirstAmendment.com

Imagine showing up for your day job one Friday afternoon and being summoned by your boss for a “chat.” When you arrive at his or her office, you are handed a stack of pictures of you downloaded from the adult Website that nobody was supposed to know about. Your employer then hands you a pink slip, and tells you to immediately clean out your desk. Welcome to the world of workplace discrimination – but this kind of discrimination is usually not against the law.

This scenario is becoming more and more common these days; and most employees are out of luck because of the “Employment at Will” doctrine. That legal principle essentially allows employers to terminate workers for any reason, or no reason whatsoever. However, one fired employee, by the name of Marcie Betts, stood up and fought back, and recently won the right to job reinstatement; on First Amendment grounds. This is her story:

Marcie Betts was a prison guard, or “corrections officer” as they now prefer to be called. She worked at Roxbury Correctional Institution in Hagerstown, Maryland, and was an exemplary probationary employee. Before she was hired, she sold some nude pictures of herself to an adult Website called BurningAngel.com. During the interview process with the Division of Corrections, she was never asked whether she had been involved in adult entertainment or nude modeling, although an extensive background investigation was conducted and plenty of

opportunity existed for such inquiry. She was hired in November, 2003, and after some training time, reported for work the middle of January, 2003. She immediately received positive feedback from her superiors and co-workers about her job performance. However, it was not long before rumors of her involvement with the adult Website began to surface, to her surprise and dismay. After initially attempting to shrug off the rumors, the Warden ultimately confronted her with evidence of her participation in the Website. An investigation was launched, during which it was uncovered that an inmate almost obtained a magazine containing an image of Ms. Betts. As it turns out, this inmate had a subscription to a magazine entitled Tabu Tattoo, wherein a single image of Marcie Betts appeared. Inmates at Roxbury Correctional Institute are allowed to receive sexually explicit materials; however, this magazine was intercepted before the inmate ever received it, because it contained a picture of a corrections officer, which made it contraband. Importantly, inmates there are not permitted to access the Internet at this particular institution. Therefore, there was no indication that any inmate ever actually accessed or viewed any erotic image of Marcie Betts — either online or in any other medium.

Nonetheless, Ms. Betts was terminated on January 29, 2003, as a result of her pre- employment nude modeling and involvement with the Website. Although she was not represented by counsel at that point, the firing certainly seemed unfair, and possibly unconstitutional, at least to her. In upholding the firing during the initial administrative review process, a hearing officer determined that “some” of the images justifying the termination were not protected by the First Amendment. Parenthetically, none of the subject images were ever declared to be obscene by any court or jury, and therefore this finding defied logic. At that point, Ms. Betts retained the author as lead counsel, and Jon Katz, Esq., as local counsel, to defend her interests and seek reinstatement as a corrections officer with the Division of Corrections. She

also set up a legal defense fund website, www.FightForOurRights.com, to inform the public about this significant battle. Importantly, as a public employee, she enjoyed a Fifth Amendment property right in her employment, unlike most private sector employees. Also, given the reasons asserted for the termination, substantial Free Speech interests were at stake as well.

Terminated employees are entitled to a full-blown adversarial hearing on the legality of their termination, under Maryland administrative law. Such a hearing was immediately requested, and in response, on September 22 through 23, 2003, an Administrative Hearing was conducted before Administrative Law Judge D. Harrison Pratt to determine whether involvement in an adult Website constituted legal justification for terminating a public employee. The Division of Corrections pulled out all the stops in its attempt to justify this termination, even going so far as to hire a surprise expert witness, the former Director of the Virginia Department of Corrections, which generally is not cheap. Although this expert was not disclosed until a few days before the hearing, he was allowed to testify as to all the “parade of horribles” that would occur if Ms. Betts were allowed to function as a Corrections Officer after having appeared nude on an adult Website. The essence of the Department’s position was that once a female appeared in erotic photography, and the inmate population learned about it, that female was forever transformed into nothing more than a sex object who would thereafter be subject to immediate sexual abuse by the inmate, who could not control themselves upon learning of such information. Such concerns were dismissed as “speculative” by the Judge, who on November 12, 2003, determined that the termination violated Marcie Betts’ First Amendment rights to freedom of speech, and that those rights outweighed any safety concerns identified by the Division. The Judge also did not overlook the fact that even though these images had been in global circulation for several months before she was fired, no inmate had ever come into possession of a single

image of Marcie Betts. She is therefore now entitled to reinstatement with full pay and benefits, along with compensation for attorney’s fees incurred in seeking her job back. An online copy of the decision can be found here.

Those employees working for private employers may not be so lucky if their involvement in the adult entertainment field is uncovered and used as a basis for termination. The First Amendment’s guarantee of freedom of speech only prohibits governmental censorship and retaliation, and is not applicable to private employers. While other legal theories might be used to challenge a discharge based on involvement in adult media in the private sector, such as breach of contract, gender discrimination or retaliatory discharge, these claims are much more difficult to pursue, particularly in the absence of a written employment contract. Only a couple of states and cities have enacted legislation protecting employees from adverse employment action based on leisure time or off duty conduct. However, as the role of the employer becomes more and more controlling in the average citizen’s daily life, such legislation is likely to catch on. Large employers have become something akin to quasi-governments given their power over our daily lives and ability to control our behavior. The role of the employer is often much more influential than the role of the government, in one’s daily routine. Accordingly, federal legislation is necessary to protect the privacy interests of workers nationwide, to prevent the employer from taking the place of Big Brother in 2004. For now, at least one adult Internet model’s First Amendment rights have been vindicated; something all too rare in modern times.

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of adult media. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at Larry@LawrenceWalters.com, through his website: www.FirstAmendment.com or via AOL Screen Name: “Webattorney.”

THE ACACIA ISSUE:

A LOOK AT THE OPTIONS

BY: LAWRENCE G. WALTERS WESTON, GARROU & DEWITT

WWW.FIRSTAMENDMENT.COM

Introduction

Recently, Acacia Media Technologies Corporation, (“Acacia”), sent a round of letters directed to those in the adult Internet industry who have provided “access” to Websites allegedly violating their patent claims by streaming video. Most of these new targets fall into the category of affiliates or link lists, and do not actually stream any video from their sites. Acacia’s theory of liability in this case will be contributory or vicarious patent infringement. Initial reactions have ranged from shock and dismay, to depression and resignation to exit the adult industry completely. Once the initial effect wears off, it will be time to take a level-headed look at the various options available to webmasters prior to the stated deadline of November 30, 2003.

The following information must be prefaced by a disclaimer: This author is not a registered patent attorney, and thus does not intend to provide any commentary or advice on the enforceability of Acacia’s patents, or the merits of its claims. However, the Acacia issue has affected many of the author’s clients, thus resulting in a certain level of education and analysis, under the guidance of outside patent counsel. This article will not recommend any particular option over any other, but will attempt to set forth the various choices, and logical consequences thereof.

Any webmaster who has received the recent Acacia Media demand has the following basic options:

Option 1 – Accept the License Agreement

Acacia has provided a “grace period” until November 30, 2003, to accept the terms of its Webmaster License Agreement and/or Content Provider License Agreement for its DMT Technology. The terms of its Agreement can be found on www.AcaciaResearch.com. Several of the large adult media corporations have accepted the License Agreement, including Vivid Entertainment Group, Wicked Pictures, Platinum Bucks and LFP, Inc. (Hustler). Essentially, the License Agreement requires webmasters to pay Acacia a royalty fee amounting to a percentage of gross receipts realized from the Website containing the streaming content. This option essentially puts you into business with Acacia, with whom you will be sharing revenues. An accounting of revenues may be requested to confirm that Acacia is getting its “fair share.” This option will reduce the webmasters’ bottom line, but in a known percentage. For those webmasters who do not like to gamble, this option will eliminate all risk on a go-forward basis, and quantify any exposure to liability for past patent infringement.

Option 2 – Join the Defense Group

A number of adult media companies have joined a coalition of industry players who have chosen to stand and fight against the validity of Acacia’s patent claims. Some members of the group have already been sued, and are actively in litigation. The defense group has hired the renowned patent firm of Fish & Richardson, www.FR.com, to represent its interests in the Acacia litigation. Those who have not been sued can request an opinion letter from defense counsel, regarding the validity of Acacia’s patent claims in regard to the actual technology being used by any particular Website for streaming video. An Association has been formed to back the defense group called the Internet Media Protective Association, www.IMPAI.org. More information can be found on that site about joining the Association and/or the defense group. Acacia, however, has claimed that some members of this group are conspiring to interfere with Acacia’s attempts to negotiate License Agreements with defendants who choose to settle.1

Option 3 – Hire Individual Patent Counsel

Webmasters affected by the Acacia issue always have the option of hiring their own personal patent attorney. Webmasters searching for such representation should make sure that any candidate for legal counsel is a “registered patent attorney.” The field of patent law is extremely specialized. Attorneys should not dabble in a field like patent litigation. Webmasters should only consider patent attorneys who have had years of experience litigating patent claims in federal court. It is most advisable to seek a referral to such a legal specialist from your own general counsel or Internet attorney. Retaining private patent counsel is the best, and of course the most expensive, option. Any webmaster’s unique situation can only be thoroughly evaluated by an experienced patent attorney who is focused solely on that client’s particular circumstance. However, it should be noted that independently evaluating each of Acacia’s patent “claims,” and comparing those claims with the specific technology used for streaming video on any given Website, can be a time consuming and costly process that also requires the involvement of a computer engineer. There can be no question about the fact that Acacia realizes the time and expense required to property evaluate its complex claims, which consequently makes acceptance of the License Agreement more attractive. However, it may be that after proper evaluation, it is determined that your method of video streaming does not infringe on Acacia’s patents. If such is the ultimate conclusion, the cost of the analysis would be money well spent.

Option 4 – Negotiate with Acacia Independently

Any webmaster can pick up the phone and call Acacia, or send the company an email. Acacia has no obligation to negotiate on the terms of its License Agreement; however nothing prevents that from happening. Acacia can settle on different terms with different individual defendants. However, negotiating the resolution of a patent claim without legal counsel is dangerous business for several reasons. Initially, anything you say to a representative of Acacia could be considered an “admission” or “statement against interest” under the Federal Rules of Evidence, and therefore admissible in subsequent legal proceedings against you. There may be various settlement privileges that come into play, preventing the admissibility of such statements, however a webmaster treads on dangerous ground if he or she decides to get into a substantive discussion with a representative of Acacia regarding the issues of video streaming, or any other relevant legal fact. Attorneys can negotiate such issues without the fear of making binding admissions, or giving away sensitive information that could bear on potential defenses. It is therefore always advisable to utilize the services of an attorney when embarking on such negotiations. Another concern is the disadvantage that a webmaster is at, compared to a member of Acacia’s legal staff. Acacia holds all the cards in the negotiation, and discussing patent claims with its representatives will be similar to negotiating with someone who speaks another language. It may be difficult for the webmaster to know if any particular terms being proposed are fair or reasonable.

Option 5 – Wait and See Approach

Acacia has provided a grace period until November 30, 2003, within which to evaluate one’s options, and make a decision. Therefore, nothing must be done today, and a webmaster can take advantage of the grace period to learn as much as possible about the issue before making any decisions. There are many sides to this story, and numerous complex legal, factual and technological issues are involved. Discussion boards are alive with debate surrounding this topic, and much can be learned by your fellow industry participants. A new Website has been created for the purpose of fighting “patent abuse” entitled: www.FightThePatent.com. Several industry leaders are calling for an organized opposition to Acacia’s claims, and such resistance is growing. On the other hand, a number of larger companies have accepted the License Agreement, which itself provides valuable information, by implication. Educating yourself regarding the details of this complex problem is essential in order to make a proper decision. Option 6 – Do Nothing

Unfortunately, many affected webmasters will choose to bury their heads in the sand and take no action in response to Acacia letter. Many simply believe that this is “wrong” and so they should not have to spend any time or money in response to these claims. However, even the most frivolous legal claim must be taken seriously, since failure to act may result in the loss of rights or opportunities. For example, Acacia may withdraw its offer to accept the current License Agreement, and seek to hold many webmasters responsible for past infringement, spanning a period of several years. Damages in patent infringement case can be astronomical, depending on the specific situation. Some webmasters are hoping that the “court case” involving Acacia will be resolved soon, and that its patent claims will be invalidated. Such is an unrealistic expectation, however, since the litigation against the existing defendants is in its early stages. No substantive rulings have occurred to date regarding the enforceability of Acacia’s patents. It could be years before a final decision is handed down, once a trial has occurred and all appeals have been exhausted. Therefore, each webmaster must act in his or her own best interests now, without regard to how other defendants will fare in court.

Conclusion

In an era where financial success in the adult industry is becoming more and more elusive, the time and effort necessary to deal with these patent claims can result in tremendous resentment and despair. However, nothing has been able to significantly impact the viability of the adult Internet industry, despite attacks from within and without. The industry will continue to survive, and it is in Acacia’s best interests that it does, if this company intends to base its future profits on royalties received from successful players. So, in a way, everybody is in this together. Webmasters should therefore take some time to carefully evaluate their options and make appropriate decisions, in their own best interests.

Lawrence G. Walters, Esq., is a partner with the law firm of Weston, Garrou & DeWitt, which maintains offices in Orlando, Los Angeles and San Diego. Mr. Walters represents clients involved in all aspects of adult media. The firm handles First Amendment cases nationwide, and has been involved in significant Free Speech litigation before the United States Supreme Court. All statements made in the above article are matters of opinion only, and should not be considered legal advice. Please consult your own attorney on specific legal matters. You can reach Lawrence Walters at Larry@LawrenceWalters.com, www.FirstAmendment.com or AOL Screen Name: “Webattorney.”

ADULT INDUSTRY UPDATE

By: Lawrence G. Walters, Esq.

www.FirstAmendment.com

GUILT BY EXTREME ASSOCIATION

This month’s Update will not be the usual collection of interesting news stories and legal tidbits. The current prosecution of Extreme Associates and the industry’s response thereto is and must be the single most important issue for adult webmasters to consider presently. That issue therefore will be the focus of this month’s Update.

Marybeth Buchanan, the Assistant United States Attorney heading up the prosecution against Extreme Associates, claims that even Playboy may be obscene in parts of the country.1 Yes, ladies and gentlemen, this is the United States in year 2003. The Department of Justice refuses to inform the public where it will draw the line regarding what it believes to be obscene, but it promises that at least 49 other federal obscenity prosecutions are in the works.2 If history is to be any guide as to what to expect in the future, it is likely that the feds will start prosecuting extreme, fringe, fetish material, and slowly work their way towards more acceptable forms of alternative erotica, like BDSM, interracial, facial, or even gay material. The nation’s Obscenity Czar, Andrew Osterbaan, recently pointed out that even producers of “mainstream” erotica are not immune, and that cases currently in the works include one of the largest producers of adult videos in the world.3 There is no list of what content is or is not legal that webmasters can use as a guide in producing erotica. All adult materials are presumed to be protected by the United States Constitution unless and until declared obscene by a judge or jury.

The single most significant fact to be gleaned from the Extreme Associates prosecution is the government’s contention that individual video clips appearing on ExtremeAssociates.com can be independently alleged to be obscene without taking into consideration any other materials appearing on the site; ignoring the requirement that material be considered as a whole. Should that view prevail, Internet obscenity cases will immediately become significantly more difficult to defend. Currently, many webmasters rely on significant amounts of artistic or literary material appearing on their sites as a means to satisfy the Miller Test for obscenity, which provides a defense against charges that a work is obscene, if, taken as a whole, the work either lacks prurient appeal or contains serious literary, artistic, scientific or political value.4 If the courts will now allow the government to single out individual video clips, or potentially specific images, for prosecution under federal obscenity laws, that would be tantamount to ripping out pages of a book and asking a judge or jury to declare each of those specific pages obscene, without considering the whole book. While the practice of charging individual video clips as independently obscene will certainly be challenged in the Extreme Associates case, it evidences the government’s creative, yet sinister, approach to federal obscenity prosecutions.

Equally diabolical is the Department of Justice’s decision to bring this case in the Western District of Pennsylvania on the basis that: 1) Video tapes were allegedly sent to that location from Extreme Associates in California, and 2) The video clips were downloaded in Pennsylvania. Mixing the online delivery of Website content across state borders with the physical delivery of tangible media to that same location confuses the community standards issue for the courts and the jury, and muddies the waters on the arguments relating to the difficulties in applying the concept of local community standards to online communications. The argument goes something like this:

Defense counsel: Your Honor, you can’t apply the community standards of Western Pennsylvania to online content originating from California.

The Government: But Your Honor, the Defendant sent video tapes into this community, and was certainly aware that their content would be received in that location.

The Court: How is this different from any other case where a national distributor sends video tapes to various locations across the country?

Defense Counsel: Well, Your Honor, my client did not know that its Website content would be downloaded in Pennsylvania even though it sent similar content through the mail to that location.

The Court: Are you asking this Court to instruct the jury to apply a different set of community standards to the online content as opposed to the video tapes?

Defense Counsel: Possibly, or maybe there should be a national standard applied to the Website content, and a local standard applied to the video tapes.

The Court: Well, it seems like the jury will get awfully confused on what standard they must use to evaluate the legality of these materials, don’t you think, counselor?

The Government: Your Honor, If Extreme knew that it may be subject to the community standards of Pittsburgh, Pennsylvania when sending video tapes there, the Court should apply local community standards for our purposes when evaluating Extreme’s Website content.

Defense Counsel: But Your Honor, there’s a difference . . . The Court: Sounds reasonable to me.

The United States government has, without a doubt, thought through many of the legal and constitutional arguments that will be raised in the defense of the Extreme Associates prosecution. The feds often pick specific issues and venues in the attempt to establish precedent in their favor. The Extreme Associates prosecution may be one of those cases. As noted earlier, the government could be starting with the fringe material and working its way to mainstream erotica. According to one Justice Department official, “There is no particular behavior that is off the table.”6 Along the way, this approach could be calculated to establish precedent favorable to the government to assist in prosecution of the more mainstream material. It will take a team of talented and dedicated attorneys, along with some brave federal judges to recognize what the government is trying to accomplish, and put a stop to this blatant censorship campaign. Should the government obtain victories in the earlier, more difficult cases, that precedent will come back to haunt the industry in a big way. An acquittal in the Extreme Associates case, on the other hand, could prove a huge setback for the government.

The Extreme Associates case should serve as a call to arms for the adult Internet industry since rulings in that case will undoubtedly affect the industry as a whole. Our industry did not assist in any way with the first federal obscenity prosecution against adult webmasters in Beckley, West Virginia.7 Consequently, the amateur couple producing videos for sale over a Website, along with their webmasters, have all pled guilty to one count of conspiracy to distribute obscene materials, in exchange for the dismissal of three other counts.8 The industry now has an opportunity to get involved in this current prosecution which specifically involves material downloaded from the Internet. Groups such as the Internet Freedom Association (www.OnlineFreedom.com) and the Free Speech Coalition (www.FreeSpeechCoalition.com) need your support and membership. If the industry turns its back on webmasters producing extreme or fringe content, the feds may soon be coming for you with a long line of victories in their hip pocket to use against you. Keep in mind, the federal government has unlimited financial resources to prosecute these cases, under the recently-passed PROTECT Act. On the other hand, adult webmasters number in the tens of thousands, and command the attention of millions of online web surfers. This industry can fight back financially and politically by pooling its resources to fight these first few cases brought by the government, and by using the great communication tool called “the Internet” to remove the censors from power.

Rumor already has it that Attorney General John Ashcroft may not return to his post if George Bush is elected to a second term.9 Ashcroft is already on the ropes, trying to defend the USA Patriot act, however his attempts to do so have met with a cool reception.10 It has now been established that the Act has been used against common criminals, instead of reserved for the terrorists, as promised.11 If the moderates and political advisors in the current administration get the message that this campaign against erotica will cost them significant votes from the mainstream, merely to pacify the ultra-right wing zealots, this obscenity campaign will be dropped like a hot potato fresh out of the microwave oven.

The adult Internet industry resents and resists organization and cooperation like the plague. On the one hand, it is such individualistic and rebellious attitudes that make adult webmasters such enjoyable clients to represent. However, in the interests of industry survival, the ego attachments and natural distrust of any sort of formal organization held by the adult webmaster community must give way to a collaboration based on the consistency of interests associated with fighting government censorship in the early stages. There is still time.

Lawrence G. Walters, Esquire is a partner with the law firm of Weston, Garrou & DeWitt, with offices in Orlando, Los Angeles and San Diego. Mr. Walters represents clients involved in all aspects of adult media. The firm handles First Amendment cases nationwide, and has been involved in much of the significant Free Speech litigation before the United States Supreme Court over the last 40 years. All statements made in the above article are matters of opinion only, and should not be considered legal advice. Please consult your own attorney on specific legal matters. You can reach Lawrence Walters at Larry@LawrenceWalters.com, www.FirstAmendment.com or AOL Screen Name: “Webattorney.”

ADULT INDUSTRY UPDATE

By: Lawrence G. Walters, Esq.

www.FirstAmendment.com

THE RETURN OF THE OBSCENITY SECTION

It appears that the Child Exploitation and Obscenity Section of the Justice Department’s Criminal Division is back in action, after over a decade of relative calm for the adult industry. Recent comments and legal actions indicate that the “Section” is gearing up for an assault on the industry, using beefed-up obscenity laws, now that Congress passed the PROTECT Act. “I have the feeling that something big is going to happen in the near future,” said Patrick Trueman, a former federal obscenity prosecutor and current consultant to the American Family Association – referencing upcoming obscenity prosecutions.1 “I have been assured of that,” he added.2 Andrew Osterbaan, head of the Section, said that new prosecutors and Internet analysts were recently added to target those who sell obscene materials over the Internet and promised, “We hope to alter criminally offensive conduct on the Internet as you see it.”3 Osterbaan is also well aware of the inevitable First Amendment challenges that will be asserted in any such prosecution: “Obviously we’re going to be developing some new case law in that area,” he said.4 Recently, however, Trueman has been complaining about the lack of results by the Justice Department. “This is an issue they haven’t handled well . . . they haven’t made it a priority, and therefore there have been less than a handful of prosecutions and no prosecutions to date of major pornographers who are violating the law,” he said.5 Violating the law in whose opinion, one might wonder.

Possibly in response to this kind of pressure, Alabama Republican Senator, Jeff Sessions and Texas Republican Representative, Lamar Smith, are planning to introduce a resolution urging the Justice Department and all 93 United States Attorneys across the country to be more aggressive in prosecuting obscenity.6 Concerned Women for America (“CWA”), a so-called public policy group that also supports the resolution, accused United States Attorneys across the country of ignoring over 22,000 complaints of obscenity forwarded to them for investigation since June of last year through the “ObscenityCrimes.org.”7 The group is urging citizens to write letters to their United States Attorney, asking: “What are you doing about obscenity enforcement?”8

Disturbingly, eight out of ten Americans believe that federal laws against Internet obscenity should be vigorously enforced, according to a recent poll by the Wirthlin Worldwide research company.9 Another poll, conducted by Morality in Media, a well-known censorship group, concluded that 70% of respondents did not believe that obscenity laws were being vigorously enforced.10 The reliability of these polls is certainly suspect.

Signs of the upcoming obscenity prosecutions are already apparent: The Justice Department has initiated an obscenity prosecution against Mike and Sharon Corbett, alleging that videos sold through the Website, www.girlspooping.com, are obscene. The Justice Department is also looking to renew a 1998 obscenity investigation involving Garry Ragsdale and Clarence Thomas Gartman, in connection with various rape-torture fantasy videos.11 Finally, there was the well-publicized raid against Xtreme Associates, conducted in April, 2003. All of this leads to the inevitable conclusion that obscenity battles are looming on the horizon, and that the adult Internet industry must organize and make their stand.

STREAMING ADULT VIDEO PERFORMANCES NOT PROTECTED BY THE FIRST AMENDMENT

In a disturbing blow to the First Amendment’s protection of erotic speech, a federal judge recently ruled that the First Amendment does not protect “live acts of sexual intercourse, masturbation or oral sex between marital partners captured on ‘streaming’ or real time video tape for dissemination over the Web.”12 The judge issued the ruling in connection with a case brought by a former Sheriff’s Deputy against his former employer, the Palm Beach County Sheriff’s Office, alleging a deprivation of First Amendment rights as a result of his termination for engaging in group sexual activities displayed on the Internet.13 The court dismissed the Plaintiff’s claims, concluding: “[G]roup physical sexual activity staged, and photographed in a hotel room for mass distribution over a pay Website, does not constitute expressive conduct within the meaning of the First Amendment.”14 While the court paid lip service to the well- established precedent protecting the right to distribute or view non-obscene, sexually explicit materials, it denied such protection for those who “engage” in public sexual activity, “either in the middle of the street, or in a hotel room under the eye of a camera with intent to capture and distribute the images over the Web to a mass audience.15 This ruling strikes at the heart of the constitutional protections afforded those who perform in sexually oriented media. Given the financial status of the Plaintiffs, an appeal of this unfortunate decision is unlikely in the absence of significant industry support.

BILLING WOES

Pressure from Visa and MasterCard over administrative and chargeback requirements have caused a major Internet billing company to go under. Websitebilling.com announced its withdrawal from the Industry and cessation of business on May 23, 2003, citing “arbitrary fines” by card associations, foreign banks and their agents.16 Relatedly, a multi-million dollar fraud suit has been initiated by Paycom against MasterCard, accusing the credit card association of fraud and antitrust.17 Paycom is complaining about the “monopolistic” rules and “illegal” fines ranging in the millions of dollars.18

However, it is not only the adult Internet companies that are accusing the credit card companies of fraud. Another fraud suit was filed by three mainstream Internet merchants against Visa, MasterCard, American Express and Discover, claiming that these associations actually profit from Internet fraud and do not seek to stop it.19 The Complaint seeks class action status, claiming that the merchants bear virtually all the costs associated with fraud and theft online. Allegations of monopolistic abuse have also surfaced in this suit.20 “What we’re seeking is not only restitution of excessive penalties but also to cure tomorrow,” said the attorney representing the Plaintiffs in the Raleigh, North Carolina, litigation. The named Plaintiffs are eGeneral, which runs a health Website, New York-based Direct Foreign Exchange, PLC, which runs an online currency exchange, and West Virginia-based Howell Automotive, which sells auto parts online. The damages claimed in this suit could run into the hundreds of millions of dollars. “They are abusing their monopolistic powers because merchants cannot function online without being able to accept these credit cards,” Ishman added.21

This suit comes hot on the heels of a settlement reached by MasterCard and Visa in litigation brought against them by various retailers regarding their debit card practices.22 Visa/MasterCard agreed to pay three billion dollars to settle the class action case, and agreed to lower debit card fees and allow merchants to refuse certain cards.23 Hey, it’s just monopoly money!

The adult Internet Industry is frantically searching for a solution to its credit card and billing problems. With PayPal withdrawing, adult Websites are faced with fewer and fewer options. If the current impasse is not resolved soon, the government may not need to launch an assault on the industry to achieve its desired censorship result.

SPAM UPDATE

Federal lawmakers are continuing to wrestle with the Spam issue. The House is currently debating a bill being called “Reduction and Distribution of Spam Act,” authored by Representative Richard Burr (R–NC), which may have the best chance of being passed by the full House in light of its political support.24 Violators could spend up to two years in prison, and ISPs would be allowed to sue for $10 per each email sent to an opted-out recipient, with a cap of $500,000.25 However, critics are calling the bill “weak,” claiming that it would do more to protect mass email advertising than to combat spam.26 “If I thought that everything that was legal under this bill would end up in my mailbox, I’d jump off the Capitol building,” said one Internet industry participant.27 Lobbyists representing several direct marketing groups attended some of the meetings relating to the proposed legislation, which may have contributed to the weakening of the bill.28 Some state Attorneys General claim that the bill is riddled with loopholes, which may prevent the states from enforcing their own, tougher anti-spam laws. For example, the draft bill would provide any company with a “preexisting relationship” with customers the right to send email for up to three years.29 Anti-spam groups have also criticized the bill. “This is yet another bill . . . attempting to get rid of the porn and the scams, but really clearing the way for legitimate companies to spam,” said Joe Mozena, co-founder of the Coalition Against Unsolicited Commercial Email, or CAUSE.30 It is currently estimated that spam comprises over 40% of all email.31

One spammer felt the wrath of EarthLink’s disdain for the practice this month. Howard Carmack, identified as a ringleader of spammers, was hit with a $16.4 million judgment and a permanent injunction in federal court, in a lawsuit brought by EarthLink.32 A number of similar federal lawsuits are pending against other notorious spammers in an effort to cut down on junk email.33

EYE IN THE SKY

Smile for the camera: Big brother is watching you – without a warrant. High definition satellite imagery is currently available to the government, and anybody else with a credit card. Under existing technology, high resolution images of virtually any coordinates on earth can be obtained through powerful satellite cameras.34 However, the widespread availability of these images is raising significant privacy concerns. “Do we really want the ability to track everybody all the time, without any suspicion, or without probable cause?” asked Attorney Doug Klunder, in a recent interview.35 These issues were recently the subject of a Washington Supreme Court case on whether a warrant should be required to track a person’s movements using satellite devices.36 A previous United States Supreme Court opinion, authored by conservative Justice Antonin Scalia, indicated that a warrant would be required to observe heat signatures emanating from a home, in connection with a marijuana growing investigation.37 In the home “all details are intimate details, because the entire area is held safe from prying government eyes,” Scalia said in the opinion.38 Maybe this will create a new niche for adult Websites: SatelliteVoyeurism.com?

ANTI-PATRIOT ACT

In a brave move, the small town of Arcata, California, made it a crime to comply with the USA Patriot Act.39 The city ordinance would impose a fine of $57 on any City department head who voluntarily complies with investigations or arrests under the Patriot Act.40 Town officials acknowledge that the law is mostly symbolic, since federal law would trump any local ordinance; however the move has put the small town in the limelight. Critics of the Patriot Act claim that it violates civil liberties, however supporters claim that it helps fight terrorism.41 Perhaps Arcata will start a trend. On the other hand, the Commissioners may just end up in a CIA holding cell for all eternity.

GRADY ACQUITTED

The highly publicized case against James Grady ended in an acquittal recently.42 Grady was initially arrested on 886 counts of sexually exploiting children through child modeling sites operated in Arapahoe County, Colorado. However, when the trial started, the number was reduced to 39. The jury acquitted Grady of all 39 counts.43 The charges involved photographs of young girls, some 13 years old, in provocative poses with suggestive clothing, which prosecutors claimed constituted sexual exploitation of a minor. However, Grady had received written permission from the parents of the teens to post the pictures on his Website, trueteenbabes.com. The case is largely seen as precedent-setting for the child modeling industry.

SCORE ONE FOR ACACIA

The adult Internet industry is closely following the patent suit brought by Acacia Media over its claimed right to control the use of common video downloading technology over the Internet. Recently, Acacia won the right to use the term “adult entertainment” in describing the alleged infringers.44 Homegrown Video and New Destiny Media filed a motion asking the judge to remove all references to “adult entertainment,” which the movants sought to strike based on fears of prejudice.45 The judge allowed the descriptions to stand.46 Several adult Internet companies have come together to fight the patent claims. The group contends that the patent cannot be enforced since the technology had already existed and was being used at the time that the patents were awarded to Acacia.

CENSORSHIP BATTLES DOWN UNDER

“Plain silly:” That’s what an adult industry crusader in Australia called Queensland’s pornography laws.47 The statement was made in Brisbane District Court in a case involving the selling of some banned X-rated films and magazines by a company known as “Good Vibrations.”48 The company was found not guilty of selling the items, but the Office of Fair Trading appealed.49 The legal arguments focused on the interpretation of the Australian Constitution, as it applies to adult materials. In describing the prohibition on sale of adult materials in certain parts of Australia, the company’s lawyer claimed, “that’s not just unconstitutional, it’s just plain silly.”50 This case may set precedent for another 100 prosecutions, also pending in Queensland. See, the United States is not the only source of “silly” anti-porn laws.

Lawrence G. Walters, Esquire is a partner with the law firm of Weston, Garrou & DeWitt, with offices in Orlando, Los Angeles and San Diego. Mr. Walters represents clients involved in all aspects of adult media. The firm handles First Amendment cases nationwide, and has been involved in much of the significant Free Speech litigation before the United States Supreme Court over the last 40 years. All statements made in the above article are matters of opinion only, and should not be considered legal advice. Please consult your own attorney on specific legal matters. You can reach Lawrence Walters at Larry@LawrenceWalters.com, www.FirstAmendment.com or AOL Screen Name: “Webattorney.”

ADULT INDUSTRY UPDATE

By: Lawrence G. Walters, Esq.

www.FirstAmendment.com

JUDICIAL UPDATE

In the courts this month, the Third Circuit Court of Appeal again struck down the Child Online Protection Act (“COPA”). The law has never been enforced and was sent back to the Third Circuit Court of Appeals from the United States Supreme Court to consider additional arguments that the Circuit Court did not resolve the first time around. One concern that the court noted in striking down the law is that in attempting to define “harmful material,” COPA makes no distinctions between things appropriate for a five year old and something harmful to a seventeen year old.1 Also, since the law requires that surfers desiring to view erotica provide a credit card number, this unfairly requires adults to identify themselves before viewing constitutionally protected material.2 Another review by the United States Supreme Court is likely as a result of this decision.

Meanwhile, Texas Republican Representative Lamar Smith unveiled what he calls the “Child Obscenity and Pornography Act of 2003,” which would prohibit the sale or trading of child pornography or obscenity involving prepubescent children.3 Of particular concern is porn peer to peer file swapping which uses services such as Kazza as a swap meet for child pornography.4 One way or another, we will wind up with more federal restrictions on providing adult materials to children.

The United States Supreme Court rendered an interesting ruling this month: The Court ruled against lingerie seller Victoria’s Secret on its trademark claim against a small sex toy and adult video store named “Victor’s Secret.”5 The Court noted that federal trademark law requires substantial evidence that a competitor actually caused harm by using a similar-sounding name.6 Notably, this ruling produced a unanimous decision in favor of an adult entertainment establishment. With Justices Scalia and Reinquist voting in favor of a sex store, perhaps there is hope for justice at the High Court. Notably, this case is not a green light to use sound-alike names – do so only with extreme caution and sound legal advice.

LEGISLATIVE UPDATE

Congress recently passed the new virtual child pornography law, creatively entitled “The Child Abduction Prevention Act of 2003.”7 Apparently, our lawmakers did not understand the import of last years United States Supreme Court decision striking down portions of the Child Pornography and Prevention Act of 1996, which was Congress’ first attempt to regulate “virtual” child pornography. Many of the same concerns are created by the new legislation, although the House is certainly bobbing and weaving in its attempt to come up with something that will pass constitutional muster. Section 1466A of the Bill prohibits the production, distribution, receipt, or possession with intent to distribute, of any visual depiction which is, or is indistinguishable from, that of a prepubescent child engaging in sexually explicit conduct. This Bill will certainly be challenged if it is passed into law, and the United States Supreme Court may once again be faced with a difficult decision on the constitutional reach of the government’s authority to regulate depictions of pretend children. Because it is limited to prepubescent minors, however, there will be less impetus to challenge it because responsible businesses always stay clear of such images. The likely challenges will come from criminal defendants.

More disturbing than virtual child pornography restrictions are the other add-ons to this Bill, relating to deceptive domain names and federal records keeping requirements. The Bill contains a new prohibition on the use of “misleading” domain names by adult websites. “The Internet can be used to deceive children into viewing inappropriate material,” said Representative Mike Pence (R-Ind.), who drafted the domain name amendment to the Bill.8 Specifically, Section 2252B(b) provides, “Whoever knowingly uses a misleading domain name with the intent to deceive a minor into viewing material that is harmful to minors on the Internet shall be fined under this Title or imprisoned not more than four years, or both.”9 Interestingly, webmasters who use the words “sex” or “porn” are provided a safe harbor from prosecution. Couldn’t the Representatives come up with a few more words that clearly denote adult content? That project might have provided an interesting afternoon task for some House staffers. The test for determining what is “harmful to minors” under this new Bill is the same test used in the COPA law, which is the subject of substantial federal court litigation regarding its constitutionality. If COPA is struck down by the United States Supreme Court this time around, the misleading domain name law likely will fall with it.

Perhaps most disturbing is the last sub-section of the Child Abduction Prevention Act that requires the Attorney General to submit a report to Congress detailing the number of times since January, 1993, that the Department of Justice has inspected Section 2257 records of adult content producers.10 This sub-section also requires Attorney General John Ashcroft to disclose the number of violations prosecuted as a result of those inspections.11 It seems as though any member of Congress could simply pick up the telephone and call General Ashcroft to ask him these questions. Accordingly, it is unlikely that the purpose of the legislation is really to obtain this statistical information. Rather, it is to light a fire under the Department of Justice to persuade federal agents to begin inspecting records and prosecuting violations. This provision, buried in the fine print of this proposed law, should be of extreme concern to all webmasters who have any question about the extent of their § 2257 compliance. It is reasonable to assume that the Department of Justice will begin inspecting § 2257 records on a widespread basis, even if this section of the Bill is defeated (fat chance!). Compliance with the dictates of Title 18, U.S.C. §2257 cannot be overemphasized in these uncertain times for the adult industry.

OBSCENITY UPDATE

The Feds are at it again, with at least two new federal obscenity prosecutions directed at adult video content distributed through the United States Mail. Federal agents, postal inspectors and LAPD officers raided the offices of Extreme Associates on April 8, 2003, and seized records, videos and Model Releases relating to several movies.12 The raid on Extreme Associates came only days after the Justice Department arrested a West Virginia couple on obscenity charges relating to the operation of a “scat” fetish site, girlspooping.com.  Justice Department officials have threatened to seize the couple’s home, out of which the business was allegedly operated. The case is pending in Bluefield, West Virginia – hardly a bastion of liberal thought. It appears that the long-feared reinstatement of regular federal obscenity prosecutions against adult content has finally become a reality, prompting many adult industry participants to review their content and seek legal guidance regarding its defensibility. Thus far, distractions abroad have likely prohibited an all-out assault on the adult industry by the Department of Justice, just as a matter of resource allocation.

PAYMENT PROCESSOR PANIC

The big news on the payment processing front this month was the pull-out by PayPal from the adult internet industry. Many webmasters were surprised to receive a notice from PayPal that as of May 12, 2003, it would no longer support transactions for adult content or products. PayPal previously had served as a viable alternative means of paying for adult content, especially for smaller amateur sites that could not obtain a merchant account, or afford to comply with the new regulations imposed by the third party billing processors. Some industry leaders have speculated that PayPal’s pull out from the adult industry may be a signal of hard times to come; some even suggesting that the company was tipped off and given an opportunity to get out before the going gets tough. While such conspiracy theories are sometimes interesting to consider, there has been no official confirmation that PayPal had access to inside information.

Also generating some panic amongst adult webmasters is the rumor that Visa will no longer provide processing services for AVS sites. Although there is no official word yet from Visa, it is interesting to note that AdultCheck has changed its description of services from an “Age Verification System” to an “Access Verification System.”14 These continued payment processing hurdles force one to consider whether at some point in the future, adult content might only be purchased by sending cash in the mail.

THE INTERNET PATENT MESS

Most tuned-in webmasters are painfully aware of the patent claims by Acacia Research, which contends that it owns patents to what is commonly known as “streaming media.” Acacia has sued several adult Websites, and made over 700 claims against companies in the adult entertainment industry because of their perceived profitability. That conclusion may itself be a miscalculation on Acacia’s part, since experts have recently opined that Internet erotica is not the money catcher it’s often believed to be outside the professional adult industry.15 Notably, there have also been some misinterpretations as to the volume of adult material on the Internet. Recent estimates indicate that total erotic content is still less than five percent of all material available online.16 In any event, Acacia has filed suit against a number of adult companies (along with many non-adult ones) under the theory that they are violating Acacia’s patent claims. Several such companies have organized and retained the national intellectual property law firm of Fish & Richardson to defend their interests, in the attempt to defeat the patent claims.17 Although there’s been no resolution to the merits of Acacia’s claims, a jury recently struck down four patent infringement claims against two Internet security companies in a Delaware trial, where the Plaintiff claimed to have invented a popular method for processing secure transactions over the Internet.18 The Plaintiff had been granted seven patents between November, 1993, and October, 1999, to cover Secure Sockets Layer (SSL) which is commonly used to scramble data during Internet transactions between Websites and their customers.19 A second trial on these issues is looming, and nobody is counting their chickens on that case yet. However, this may be a positive indicator of which way the wind is blowing on Internet patents.

MARRIOTT CONTINUES TO BUCKLE

Another Marriott Hotel in Cincinnati has succumbed to the pressure of the Citizens for Community Values (“CCV”), a censorship group focused on eliminating adult fare from area hotels. The Cincinnati Marriott North in Westchester, Ohio, is the second local hotel to bow to pressure from the censorship group and law enforcement officials.20 The Butler County Prosecutor’s Office warned that owners might face obscenity charges unless they cut off pay per view adult entertainment. After receiving complaints about a couple of movies, local prosecutors indicated that Marriott officials “were very cooperative.”21 Chilling effect in action! FEDS SEIZE WEBSITES

In a move that has concerned some civil libertarians, federal agents from the Justice Department are starting to seize and take over Websites owned by businesses that distribute bongs, roach clips, rolling papers and other alleged drug paraphernalia. Civil liberties groups and legal scholars fear that the government could use the new seizure policies to spy on Web surfers who visit the confiscated sites.22 David Sobel, General Counsel for the Electronic Privacy Information Center, recently said, “The government is suddenly in a position of being able to monitor the Web-surfing activities on unwitting individuals who believe they are going to a Website . . . but possibly implicating themselves into some law enforcement investigation.”23 Thus far, 15 to 20 sites have either been taken over or redirected by the Justice Department, according to Attorney General John Ashcroft. In the meantime, those looking to consume tobacco products via exotic smoking devices are encouraged to avoid online shopping and to visit their local head shop instead.

ANTI-SPAM LEGISLATION

Anti-spam crusaders have been emboldened by the recent Eighth Circuit Court of Appeals decision upholding the federal junk fax law.24 In this case, American Blast Fax, Inc. and Fax.com challenged provisions of the Telephone Consumer Protection Act of 1991, prohibiting unsolicited fax advertising on First Amendment grounds. Although the trial court struck down the restrictions as a violation of Free Speech, the Eighth Circuit Court of Appeals reversed and found the legislation constitutional. In light of this court decision, anti-spam advocates began pushing harder for a federal law against unsolicited email. Ray Everett-Church, Counsel to the Coalition Against Unsolicited Commercial Email, claims that the same arguments used to justify the unsolicited fax regulation can be made about spam.25 Comparing spam to fax, Everett said, “The junk email problem cries out even louder for a solution.”26 However, the Electronic Frontier Foundation argues that regulating email spam may not be as easy as regulating junk faxes. The Appeals Court decision focused on the costs associated with tying up fax machines and using up paper and ink to receive faxes, which largely differentiates unsolicited email.27 Nonetheless, Senator Conrad Burns (R-Montana) introduced federal anti- spam legislation called “Controlling the Assault of Non-Solicited Pornography and Marketing Act,” but it was not called to the Senate floor for a vote.28 More recently, a Bill was introduced in Arkansas, requiring spam to contain an identifying URL, the phrase; “ADV: Adult,” a valid functioning email address to allow removal, and a toll-free telephone number for recipients to call to be removed from the list.29 Although approximately sixteen states have passed anti-spam legislation, attempts at regulating unsolicited email at the federal level have thus far been unsuccessful.

ONLINE GAMBLING UPDATE

Online casino gambling has been dealt another potential setback this month as the House Financial Services Committee approved a Bill that would require credit card companies and payment services such as PayPal to block money transfers to Internet gambling sites.30 “No one is immune to the potential ruin that Internet gambling can bring,” said Committee Chairman, Michael Oxley (R-Ohio).31 However, Massachusetts Democrat Bonnie Frank opposed the measure, likening it to a new form of prohibition.32 A similar bill is pending in the Senate. The online gambling industry has been dogged by conflicting court decisions regarding the applicability of federal gambling law to online gaming, along with competing legislation alternatively proposing both criminalization and potential legalization of Internet gaming. ONLINE POLITICKING

The Internet has provided an ideal venue for grassroots political campaigns, and several new Websites are popping up to assist in the endeavor. For example, MeetUp.com, is a new free service that gathers people together to discuss various subjects that has found a niche in campaigning for candidates.33 Since its inception, MeetUp.com has held dozens of events around the country for voters to support their presidential candidates. As this author has preached for years, webmasters may hold the key to the next presidential election should they use their power to effect political change.

Blue Balling the Boys Overseas

Last month, Update reported that at least one company was sending adult fare care packages to troops stationed abroad. It was not long before censorship groups like Focus on the Family and Concerned Women for America have objected to the offer of erotic assistance. Detractors cited degradation of women and concerns about the Muslim reaction to adult entertainment as reasons to halt the shipments.34 Focus on the Family also integrated the concept of obscenity; “The interstate distribution of obscene material is a criminal violation, and United States attorneys and even the FBI should investigate . . . ”35 The Middle East might as well be initiated with American culture sooner, rather than later.

BIZZARO WORLD

The winner of the bizarre story of the month is a tie: Tennessee has proposed to ban X- rated videos from cars, and a man was arrested after refusing to remove an anti-war shirt in the mall. The State Senate of Tennessee has voted unanimously to ban X-rated videos from cars and other vehicles if the TV screens can be seen from the street.36 Erotica fans can still view the tapes if their car windows are tinted or covered by shades, so long as they keep their eyes on the road! The final oddity this month is the well-publicized arrest of the individual who failed to remove a shirt proclaiming “Peace on Earth, Give Peace a Chance.”37 Mall officials quickly distanced themselves from the security officer’s actions, and the guard was fired. Perhaps these absurd actions are necessary to give the American public a refresher course in First Amendment rights.

Lawrence G. Walters, Esquire is a partner with the law firm of Weston, Garrou & DeWitt, with offices in Orlando, Los Angeles and San Diego. Mr. Walters represents clients involved in all aspects of adult media. The firm handles First Amendment cases nationwide, and has been involved in much of the significant Free Speech litigation before the United States Supreme Court over the last 40 years. All statements made in the above article are matters of opinion only, and should not be considered legal advice. Please consult your own attorney on specific legal matters. You can reach Lawrence Walters at Larry@LawrenceWalters.com, www.FirstAmendment.com or AOL Screen Name: “Webattorney.”