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Old 28-09-06, 02:52 PM   #1
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Default Peer-To-Peer News - The Week In Review - September 30th, '06

"I could teach a chimp to copy a [DRM’d] DVD. Maybe there is some lower order of primate, like spider monkeys, that couldn't do it, but it's relatively easy." – Jim Flynn

"We're not stealing anything. We're claiming something that's rightfully ours. It's always been our position that if enough people go on the air with their stations, the FCC will be overwhelmed and unable to respond. " – Stephen Dunifer

"Does performing an existing effect, or variation thereof, confer upon the performer of it ownership of that effect, or the exclusive and perpetual right to all subsequent interpretations of it? On this point you and I are obviously in disagreement." – Eric Walton

"If an act hasn’t been prominently performed for a long time, and someone takes the trouble to bring it back from absolute death and put it into his act with fine touches, and which at least hasn’t been seen by a current generation, the gentlemanly thing to do is say, 'That’s his for now.'" – Teller

''When the concern over possible protests leads to self-censorship, then the democratic culture of free speech becomes endangered. Problems cannot be solved by keeping silent." – Bernd Neumann

"Our ideas about openness, tolerance and freedom must be lived on the offensive. Voluntary self-limitation gives those who fight against our values a confirmation in advance that we will not stand behind them." – Klaus Wowereit

Whose Victory?

The RIAA won the final and decisive victory they have been seeking for the last six years. What started with Napster in 1999 ended this week with a judge who ironically enough once had the temerity to stand up to them by shutting them down. After the US Supreme court re-started this case it landed back in his court where a now safely reined in Judge Wilson unfortunately ruled that yes, the evidence is overwhelming: Streamcast induced users to violate copyright and is therefore liable for "damages." I put damages in quotes because there aren’t any real ones. The only proven effect file-sharing has had on sales has been to improve them, but we all know this has never been about fairness or even logic. It is instead about destroying people’s free access to information by concentrating it in one centralized nexus among one very powerful group. This they have done well. With fines of $150,000 per occurrence I’m not sure the gross domestic product of the entire world is enough to cover these "damages," so we’ve seen the end of Morpheus, and in all probability the end of every company that operated like Streamcast.

As destructive a ruling as this is for America, it is not the end of peer-to-peer. We’ve been file-sharing all through every ruling good and bad, and as bad as it is now it has no practical effect on us. As a matter of fact, in keeping with a basic premise stated above, the only real effect I can deduce from all these lop-sided court victories has been to make the community more powerful. File–sharing has improved. Let’s not kid ourselves, this is testament only to the hard work of developers and activists, not to the ferocious efforts of the courts, lawmakers and media. The fact remains however that peer-to-peer has never been healthier, as it has simultaneously never been more hunted. It may be the nature of this new digital age but the harder they push the stronger we get, and we are very strong today.

On we go into this cyber world of sharing we have built. Where once we marveled at a new song in our folder we now see entire discographies. Where once we accepted the limitations of lossy codecs we now play perfect discs of lossless clones. Where once we thrilled to brief flickers of blocky video, we now transfer entire archives of pristine quality films. If against all evidence the RIAA this week claims victory in its efforts to halt our sharing then surely the true victory is the one that we, not they, have forged. Would that we could do this outside the cloud of civil disobedience? Yes. For now however, it is enough to savor for a moment this triumph we have earned.



September 30th, '06

Judge: StreamCast Induces Piracy

A federal judge ruled Wednesday against the distributor of the Morpheus online file-sharing software, finding the firm encouraged computer users to share music, movies and other copyright works without permission.

The ruling was a sweeping victory for a coalition of Hollywood movie studios, record companies and music publishers who sued Los Angeles-based StreamCast Networks and similar firms in 2001. The case led to a landmark copyright ruling by the U.S. Supreme Court last year.

In the 60-page decision, U.S. District Judge Stephen V. Wilson granted the entertainment companies' motion for summary judgment, concluding there was more than enough evidence of "massive infringement" on StreamCast's network, despite the company's arguments that it did not encourage computer users to violate copyright laws.

"In the record before the court, evidence of StreamCast's unlawful intent is overwhelming," Wilson wrote.

A StreamCast spokesman did not have an immediate comment on the ruling.

"No single court ruling solves piracy or can make up for several challenging years for the music community, but there's no doubt that that rules of the road for online music are better today than they were yesterday," Mitch Bainwol, chairman and chief executive of the Recording Industry Association of America, said in a statement.

Barring successful appeal, Wilson's ruling caps a long-running court battle over internet file sharing that erupted after the entertainment industry succeeded in shuttering pioneer file-swapping network Napster.

The rise of Napster clones such as Morpheus, Kazaa, Grokster and others prompted the entertainment companies to sue StreamCast and the operators of Grokster and Kazaa.

In 2003, Wilson ruled the file-sharing firms could not be held liable for the actions of the users of their software, a decision upheld by the appeals courts.

But last year, the U.S. Supreme Court heard the case and ruled that file-sharing companies could be held liable for deliberately encouraging or inducing customers to commit online piracy.

As part of its ruling, the Supreme Court sent the lawsuit back to Wilson's jurisdiction.

Since then, Sharman Networks, the operator of Kazaa, and the company behind Grokster have settled out of court.

Dog Bites Man

Lime Wire Sues RIAA
Lime Wire counterclaims in Manhattan Federal Court against Major Record Labels for Conspiracy to Destroy Competition

In Arista v. Lime Wire, in Manhattan federal court, Lime Wire has filed its answer and interposed counterclaims against the RIAA for antitrust violations, consumer fraud, and other misconduct, alleging that the RIAA's goal has been to

· destroy any online music distribution service they did not own or control, or force such services to do business with them on exclusive and/or other anticompetitive terms so as to limit and ultimately control the distribution and pricing of digital music, all to the detriment of consumers (Counterclaim, paragraph 26, page 18)

and that its members are engaged in

· a much larger modern conspiracy to destroy all innovation that content owners cannot control and that disrupts their historical business models.(Counterclaim, paragraph 28, page 18).

Lime Wire has demanded a trial by jury. The counterclaim makes for a very interesting read on the state of the music industry wars today.


Lawmakers Blast Hewlett - Packard Tactics

Lawmakers denounced the intrusive tactics used in Hewlett-Packard Co.'s spying probe as a congressional hearing launched Thursday with stark comparisons between the tawdry affair and the 67-year-old company's reputation for integrity.

Ousted HP Chairwoman Patricia Dunn, sitting with her attorney in the front row of the packed hearing room, listened as members of the House Energy and Commerce Committee voiced outrage at the company's probe into the source of boardroom leaks. HP used a shadowy network of private investigators who burrowed into the personal lives of journalists and HP directors, and impersonated them with a tactic known as ''pretexting'' to obtain their telephone records.

''We have before us witnesses from Hewlett-Packard to discuss a plumbers' operation that would make Richard Nixon blush were he still alive,'' Democratic Rep. John Dingell of Michigan said.

Rep. Ed Whitfield, R-Ky., chairman of the committee's investigative panel, demanded to know why, with many high-ranking HP executives and attorneys involved in the probe, ''No one had the good sense to say `Stop.'''

''It's a sad day for this proud company,'' said Rep. Diana DeGette of Colorado, the panel's senior Democrat. ''Something has really gone wrong at this institution.''

Dunn planned to testify that she discussed the conduct of the company's leak investigation with CEO Mark Hurd, board members and others in the company -- getting a clear impression that the directors were satisfied with it and that its methods were not improper.

Dunn and Hurd were appearing at the hearing with other top executives and hired detectives. Some volunteered to testify; others were attending under the summons of a congressional subpoena.

As lurid details of the affair emerged in recent weeks, HP's corporate casualties have mounted. The computer and printer maker announced the resignation of general counsel Ann Baskins on Thursday just ahead of the hearing where she was scheduled to testify, and her attorneys said she would invoke her Fifth Amendment right against self-incrimination and not answer lawmakers' questions.

The departure of Baskins, who has worked for the company since 1982, follows those of Dunn, two other directors and two high-level employees.

''Ms. Baskins always believed that the investigative methods that she knew about were lawful, and she took affirmative steps to confirm their legality,'' her attorneys told the committee in a letter Thursday. ''Ms. Baskins repeatedly sought and obtained assurances from a senior HP counsel that the techniques about which she knew were entirely lawful.''

Hewlett-Packard, the world's largest technology company and long a respected anchor of Silicon Valley, engaged a private detective firm for its quest to trace and stem boardroom leaks to journalists of confidential information. The firm in turn hired a network of investigators who masqueraded as HP directors and employees and as reporters to obtain their telephone records, surveilled them and their relatives, sifted through their garbage, and used an e-mail sting to dupe one of the reporters.

''I never doubted ... that what they were doing was legal,'' Dunn said in her testimony, which was released by the committee on Wednesday.

Dunn said she asked Ronald DeLia, the operator of the detective firm hired by HP, ''at every point of contact for his representation that everything being done was proper, legal and fully in compliance with HP's normal practices.''

Dunn disclosed that she learned in the spring of 2005 that the probe involved obtaining access to phone records.

Besides the inquiry by the House committee, federal and California prosecutors are investigating whether company insiders or outside investigators broke the law. California Attorney General Bill Lockyer has said he has enough evidence to indict HP insiders and contractors. And the Securities and Exchange Commission is pursuing a civil inquiry.

Hurd, who succeeded Dunn last Friday as chairman of Palo Alto, Calif.-based HP, apologized to those whose privacy was violated in the leak investigation.

''How did such an abuse of privacy occur in a company renowned for its commitment to privacy? It's an age-old story. The ends came to justify the means,'' he said in prepared testimony for the congressional hearing.

Hurd said Dunn had told him of the existence of the investigation, ''but I was not involved in the investigation itself.''

So closely tied was DeLia's firm, Security Outsourcing Solutions Inc. of Needham, Mass., to Hewlett-Packard -- for which it worked almost exclusively for eight years -- that Dunn refers to the firm as a ''captive subsidiary'' of Hewlett-Packard.

In a twist, it was DeLia who performed the background check on Hurd when the company was vetting him last year as a candidate for CEO.

Besides Dunn, Hurd and Baskins, Larry Sonsini -- HP's outside lawyer and one of Silicon Valley's most influential figures, who assured company executives of the legality of the spying probe -- agreed to appear at the hearing.

The committee has ordered DeLia and two other key figures in the leak probe to testify: Kevin T. Hunsaker, until recently the company's chief ethics officer, and Anthony R. Gentilucci, who managed HP's global investigations unit in Boston.

Five private investigators believed to have served as the foot soldiers in the company's efforts, also were subpoenaed to testify.

HP shares were up 1.2 percent at $35.80 on the New York Stock Exchange as the hearing was underway Thursday morning.

Microsoft Sues FairUse4WM Developers
Scott M. Fulton

In a federal district court in Seattle last Friday, IDG News Service is reporting, Microsoft filed suit against ten "John Does," one of whom goes by the screen handle "viodentia," for allegedly using stolen Microsoft source code as a means to make corrections to a utility called FairUse4WM, whose purpose is to strip Microsoft copy protection from media files.

The suit seeks a permanent injunction against the group, and contends Microsoft has suffered more than $75,000 in damages - a legal milestone.

One of Microsoft's lawyers was quoted this morning as saying that viodentia gained unlawful access to Microsoft source code, as a means for circumventing a Microsoft security patch that rendered FairUse4WM unusable.

Today, a post attributed to viodentia on a public forum where links to FairUse4WM are also posted, said, "FairUse4WM has been my own creation, and has never involved Microsoft source code. I link with Microsoft's static libraries provided with the compiler and various platform SDK files."

Previously, viodentia has contended that, although his source code does contain elements from Microsoft's own SDKs -- which are licensed to developers under, ironically "fair use provisions" -- he and his group have had as much right to do so as other developers. But apparently parts of the suit, IDG reports, claim that the group is using SDK code for purposes other than that which Microsoft allows under its license agreement.

In an interview with AOL's Engadget on Monday, viodentia took full credit for being the principal developer of the product.

"I am the only developer," he said, "although my friends served as early beta testers and sounding boards, and with the initial release I've gotten to know some very helpful people." When asked if there were any personal reasons for wanting to crack Windows DRM, viodentia responded, "My selfish rationale is the challenge in pitting my skills against the industry leader."

What neither Engadget nor anyone else in the press knew on Monday was that Microsoft had sued viodentia. Although at one point in the interview, he appeared to defend himself against the lawsuit's chief allegations, stating that he disapproved of Microsoft "claiming copyright to my program." In perhaps a counter-challenge, he said he looked forward to Microsoft's next round of improvements to its DRM technology.

BetaNews has contacted Microsoft for further comment.

Two weeks ago, security expert Bruce Schneier commented on his popular blog, "If you really want to see Microsoft scramble to patch a hole in its software, don't look to vulnerabilities that impact countless Internet Explorer users or give intruders control of thousands of Windows machines. Just crack Redmond's DRM."

No software vendor likes to issue patches, Schneier argued, because it makes the company look vulnerable. Yet, as he's implied in the past, companies can couch fixes to their ongoing problems as "security patches" in order to compensate for the appearance of vulnerability.

The problem is when Microsoft or some other company, he said, tries to frame a vulnerability in DRM -- a feature which few people will actually claim they want -- as a security breach. "No user is ever going to say: 'Oh no. I can now play the music I bought for my computer in my car. I must install a patch so I can't do that anymore."'

Version 1.3 of FairUse4WM was posted to a server today. In a response to a question from a user regarding a possible error, viodentia stated the cause could involve a feature of Windows Media DRM-encoded files that tries to send tracking information about, for instance, how often the file is listened to, back to a host. He suggests a work-around to disable this callback function.

Microsoft Puts Out Fix for Explorer Flaw
Allison Linn

Microsoft Corp. rushed out a fix Tuesday for a security flaw in its Internet Explorer Web browser after attackers had begun exploiting the vulnerability to take control of computers.

The Redmond-based software maker said it was putting out the fix ahead of the next scheduled security fix release date on Oct. 10 because of the severity of the problem. The flaw carries Microsoft's highest "critical" rating.

The vulnerability in Microsoft's browser is particularly worrisome to security experts because computer users could come under attack just by visiting a Web site that had been manipulated to take advantage of the flaw. That, in turn, would give an attacker complete control of a user's computer, including access to e-mails, personal information and other data.

Johannes Ullrich, chief technology officer with the security research organization SANS Institute, said it appears that a couple of thousand Web sites have already been manipulated to launch such attacks. The attack also seems to be spreading via e-mail, he said.

Stephen Toulouse, senior product manager in Microsoft's security technology unit, said Microsoft had only seen very limited attacks since the flaw became public a little over a week ago. But he said the activity was enough to prompt the company to release the update ahead of schedule.

"What we're seeing from our end are very specific, limited attacks," he said.

This is the latest in a series of flaws that have been publicly disclosed before Microsoft was able to offer users a patch. More typically, security researchers at outside organizations, or within Microsoft itself, discover the flaws and work in secret to come up with a patch before attackers have a chance to take advantage of them.

Ullrich faulted Microsoft for not getting a fix out sooner, noting that attacks are already under way, and urged users to get the fix immediately.

"Installing the patch is definitely the way to go," he said.

Number of Browser Vulnerabilities Rising
Eric Bangeman

According to the most recent update to security-firm Symantec's biannual Internet Security Threat Report, the last six months saw a significant uptick in the number of security vulnerabilities found in web browsers. Leading the way was Firefox, with 47 bugs discovered. Researchers and hackers discovered 38 vulnerabilities in Internet Explorer, 12 in Safari, and seven in Opera.

The numbers cover a six-month period from January 1 through June 30, 2006. Symantec says its data comes from over 40,000 sensors the company has deployed around the world as well as its database of vulnerabilities.

In addition to leading the pack in sheer number of vulnerabilities, Firefox also showed the greatest increase in number, as the popular open-source browser had only logged 17 during the previous reporting period. IE saw an increase of just over 50 percent, from 25; Safari doubled its previous six; and Opera was the only one of the four browsers monitored that actually saw a decrease in vulnerabilities, from nine to seven.

Data source: Symantec

Looking at the data, it is apparent that one's choice of browser does not automatically confer invulnerability while surfing the web. Security through obscurity—which has been a popular strategy with some users—doesn't guarantee safety. That said, Internet Explorer remains the most popular target for attacks, with 69 percent of all browser attacks targeted specifically at that browser alone. 20 percent of the attacks monitored during the period in question were targeted at Firefox.

When it comes to patching, all of the browsers are improving. Firefox is the fastest to get its patches out, with a one-day window of exposure. Opera had a two-day window of exposure, down from 18 days during the last half of 2005. The window of exposure for Safari is up to five days (from zero), while Internet Explorer typically has a nine-day window, down from 25 days in the previous study.

If there is one clear takeaway from Symantec's report, it's that one's choice of browser does not convey automatic immunity from browser-based attacks. Yes, most attacks target Internet Explorer, which makes economic sense for malware writers looking to make a quick buck. IE still accounts for almost 85 percent of all browsers in use today, making it the proverbial low-hanging fruit. However, no one is absolutely safe, making it important that surfers everywhere practice skeptical computing.

Lenovo to Recall 526,000 Notebook Batteries
Michael Kanellos

The battery problem keeps exploding.

Lenovo will recall 526,000 notebook batteries due to faulty batteries, the company said on Thursday.

The batteries were designed by Lenovo, but Sony produced the lithium ion cell. The recall impacts notebooks produced from Feburary 2005 to September 2006, according to Lenovo spokesman Ray Gorman. For now, the recall will only impact about 5 to 10 percent of notebooks produced by Lenovo, Gorman said, but the company recommends that all customers go to the Lenovo site and check to see if they have one of the faulty batteries.

Separately, Sony announced that it will initiate its own recall program involving battery packs using its battery cell technology. Details will be announced later in cooperation with the U.S. Consumer Products Safety Commission, but the program will involve the replacement of affected battery packs "in order to address concern related to recent overheating incidents," Sony said in a press release.

With the recall, Lenovo becomes the fourth major PC manufacturer to haul batteries back due to safety problems. Dell said that it would recall 4.1 million notebooks in August, and Apple Computer subsequently announced it had to recall 1.8 million notebooks. Toshiba, meanwhile, said this month that it would recall 340,000 machines.

A Lenovo ThinkPad T43 caught fire at Los Angeles International Airport earlier this month. In August, Lenovo said it was speaking with Sony about the issue. While Lenovo did begin to examine the potential for problems in the wake of the Dell and Apple recalls, the PC maker said that the way it puts batteries in its hardware differs from the other companies' methods. Lenovo acquired the ThinkPad line of notebooks from IBM, which historically has been known for careful design.

The problem with the recalled notebooks rests with lithium ion battery cells made by Sony. PC makers and component suppliers buy these cells and design batteries around them. These battery cells can provide several hours of electricity to notebooks, but the liquid inside them is flammable. If a short takes place, a chain chemical reaction can occur that melts the battery or causes the notebook to explode. Lenovo actually inserts technology into its batteries to prevent chain reactions and has contemplated licensing it to others.

Like the gas tank in a car, lithium ion batteries in most instances are safe. However, to extend battery life, battery makers have been putting more flammable liquid into these batteries, and making other parts inside the batteries smaller and thinner. This, in turn, increases the potential problem, as it is more likely that thinner materials will come loose and interfere with the proper working of the battery cell.

Back in 2004, Sony execs said lithium ion technology would likely be hitting its limit in 2006.

Start-ups and venture capitalists are tinkering with alternatives to lithium ion, such as zinc-based batteries, but these are not available yet.

Toshiba, Dell Recall Sony-Made Batteries
Yuri Kageyama

The Japanese electronics maker Toshiba Corp. said Friday that it is recalling 830,000 batteries made by Sony for its laptop computers while personal computer maker Dell Inc. expanded its recall of Sony battery packs by 100,000. The batteries can short-circuit and have been blamed for causing some computers to catch fire.

The latest announcements bring the tally of recalled Sony batteries to about 7 million worldwide, and are a major embarrassment for the Japanese electronics and entertainment powerhouse.

The recall comes as Sony Corp. is in the midst of a major overhaul of its operations, closing plants, shutting divisions and trimming jobs.

Sony said earlier Friday it had asked manufacturers using its problem batteries to carry out a recall.

It has said the batteries could catch fire in rare cases when microscopic metal particles came into contact with other parts of the battery cell, leading to a short circuit. Typically a battery pack will power off when there is a short circuit but on occasion the battery would catch fire instead.

Fujitsu Ltd., another major Japanese electronics company, will be making a decision soon about its laptops using Sony lithium-ion batteries, spokesman Masao Sakamoto said Friday.

The Toshiba recall involves Dynabook, Qosmio, Satellite Portege and Tecra models, but regional breakdowns and dates of manufacturing weren't immediately available, said Toshiba spokesman Keisuke Omori.

Omori said Toshiba's recall was in response to Sony's request, and Toshiba had not found any cases in which the laptops were at risk of catching fire.

"But we wanted to assure and satisfy our customers," he said.

Dell, the world's largest personal computer maker, said Friday that it is increasing the recall of Sony battery packs used in its systems to 4.2 million units from 4.1 million units. It already was the largest electronics-related recall in U.S. history.

Based in Round Rock, Texas, Dell said that the increase in the recall was made due to additional information received about the affected battery packs containing cells manufactured by Sony.

Dell and the Consumer Product Safety Commission announced the initial recall on Aug. 15, blaming Sony battery cells. Dell began shipping replacement batteries on Aug. 15.

On Friday, Dell said customers should recheck their batteries if they have not ordered or received a replacement battery.

On Thursday, IBM Corp. and Lenovo Group, the world's third-largest computer maker, said they were seeking the recall of 526,000 rechargeable, lithium-ion Sony batteries purchased with ThinkPad computers after one of them caught fire at Los Angeles International Airport this month.

In August, Apple Computer Inc. recalled 1.8 million batteries worldwide, warning they could catch fire.

Last week, Toshiba said it was recalling 340,000 laptop batteries, also made by Sony, but that was for a problem that caused the laptops to run out of power.

were seeking the recall of 526,000 rechargeable, lithium-ion batteries from Sony purchased with ThinkPad computers after one of them caught fire at Los Angeles International Airport this month.

Apple Computer Inc. has also recalled 1.8 million batteries worldwide, warning they could catch fire.

Google to File Motion in Orkut Case
Elizabeth Dwoskin

Google Inc. will file a motion in response to a Brazilian judges' deadline to turn over information on users of the company's social networking service Orkut, a spokeswoman said Wednesday.

On Aug. 22, Federal Judge Jose Marcos Lunardelli gave Google's Brazilian affiliate until Sept. 28 to release information needed to identify individuals accused of using Orkut to spread child pornography and engage in hate speech against blacks, Jews and homosexuals or face daily fines of $23,000.

Google spokeswoman Debbie Frost said the company would instead file a brief in court explaining why it can not comply with the judge's order.

"We have and will continue to provide Brazilian authorities with information on users who abuse the Orkut service, if their requests are reasonable and follow an appropriate legal process," said Frost who was in Sao Paulo for the court date.

"It is and always has been our intention to be as cooperative in the investigation and prosecution of crimes as we possibly can, while being careful to balance the interests of our users and the request from the authorities," she added.

Google claims that its Brazilian affiliate cannot provide the information because all the data about Orkut users is stored outside Brazil at the company's U.S.-based headquarters.

Google maintains that it is open to requests for information from foreign governments as long as the requests comply with United States laws and that they are issued within the country where the information is stored, Frost said.

In August, Lundarelli dismissed that argument, writing in his decision that "it is not relevant that the data are stored in the United States, since all the photographs and messages being investigated were published by Brazilians, through Internet connection in national territory."

The company says that it has already complied with 40 similar requests made by Brazilian authorities.

In a case, that the company says is not related to the lawsuit, this week Google took eight Orkut communities off-line at the request of the Brazilian government.

The company says those communities, which advocated drunk driving by minors, the pirating of cable television, and illegal drug use, did not comply with Orkut's terms of service, which state it is prohibited to "promote or encourage illegal activity."

Named after Turkish software engineer Orkut Buyukkokten, Orkut is an invitation-only service run by Google that lets members discuss a wide range of subjects in Internet forums, or "communities."

The service is more popular in Brazil than in any other country, with some 8 million users - representing about a quarter of all Brazilians who have Internet access.

3 AOL Subscribers Sue Over Data Release
Anick Jesdanun

Three AOL subscribers who suddenly found records of their Internet searches widely distributed online are suing the company under privacy laws and are seeking an end to its retention of search-related data.

The lawsuit is believed to be the first in the wake of AOL's intentional release of some 19 million search requests made over a three-month period by more than 650,000 subscribers, including the three plaintiffs - two unnamed Californians and Kasadore Ramkissoon of Richmond County, N.Y.

Filed Friday in U.S. District Court in Oakland, Calif., the lawsuit seeks class-action status. It does not specify the amount of damages being sought.

AOL already has apologized for the release, which it blamed on a researcher who had failed to gain proper clearances. The researcher and another AOL employee have been fired, and the company's chief technology officer has resigned. AOL also pledged to name its first chief privacy officer.

John Dominguez, one of the attorneys who filed the lawsuit, said AOL ought to do more.

"People paid AOL with the belief that their privacy was going to be protected," he said Monday. "That's not what happened."

Although AOL had substituted numeric IDs for the subscribers' real user names, the company acknowledged the search queries themselves may contain personally identifiable data, revealing names, credit card numbers and medical conditions.

In fact, The New York Times was able to trace user 4417749 to Thelma Arnold, 62, of Lilburn, Ga., while The Washington Post tracked down JoAnn Whitman, 55, of Grand Junction, Colo., after she accidentally typed into AOL's search engine an e-commerce order confirmation.

AOL removed the data from its Web site once executives learned of the release, but not before copies were already circulating. Web sites have even been created specifically to query AOL's search database.

Dominguez said AOL ought to at least try to shut down those sites or block them from its own search engines. And he said the company should stop collecting such records and destroy any it already has.

AOL currently keeps data linked to specific subscribers for up to 30 days and other data, such as the search records released, for longer. Data retention is standard practice among Internet search engines, which use such information to refine their services.

AOL LLC, a unit of Time Warner Inc., declined comment on the lawsuit, which alleges violations of the federal Electronic Communications Privacy Act and California consumer-protection laws.

Two privacy advocacy groups, the Electronic Frontier Foundation and the World Privacy Forum, already have filed complaints with the Federal Trade Commission.

VC McNamee: New Media To Help Recover Personal Time
Martin LaMonica

Well-known venture capitalist Roger McNamee said that the Internet has released the chokehold media companies used to have over content distribution, creating investment opportunities that could affect everything from education to politics.

McNamee, who founded Elevation Partners in 2004 to invest in media and entertainment, spoke at the Technology Review's Emerging Technology Conference at MIT on Thursday.

He said that the notion of community in integral to his view on media.

"The Internet we see today is about aggregation, but that's just the first step. The thing that's forming now is community," he said. "In community mode, you need trust and authority and you need to move up the stack to insight and knowledge."

McNamee spoke specifically about Elevation Partners' investment in Forbes, the venerable business magazine. He said that he hopes to introduce more personalization at Forbes's Web site in order to provide readers with valuable insight, rather than only news.

For example, a news story on changing mortgage rates could be a signal for a reader to refinance. In order to do that, the Web site needs a lot of personal information on the reader, which is valuable to advertisers.

"That is what business journalism has to aim for: personalization, trust and authority. I think all of journalism has to do that because people don't have enough time," McNamee said.

He said that he is investing in media because it has the potential to affect a large number of people and improve political discourse in the country.

But at the same time, he said that quality of information, specifically news coverage, is going down. That is a by-product of the self-publishing happening on the Web.

"If you look around today, the best sources of news are dying," he said, citing National Public Radio and the New York Times as high-quality, global news gatherers. "The average quality of what passes for news has declined dramatically."

Mark Cuban: Only a 'Moron' Would Buy YouTube

Billionaire investor and dot-com veteran Mark Cuban had harsh words Thursday for YouTube, the online site that lets people share video clips, saying only a "moron" would purchase the wildly popular start-up.

Cuban, co-founder of HDNet and owner of the NBA's Dallas Mavericks, also said YouTube would eventually be "sued into oblivion" because of copyright violations.

"They are just breaking the law," Cuban told a group of advertisers in New York. "The only reason it hasn't been sued yet is because there is nobody with big money to sue."

YouTube, based in San Mateo, Calif., specializes in serving up short videos created by everyday people. Its popularity, with more than 100 million video showings daily, has spurred speculation the firm will be sold or taken public.

But YouTube has also come under scrutiny because users often post copyrighted material, including music videos produced by well-established artists.

YouTube company representatives were not immediately available to respond to Cuban's comments.

Cuban said "anyone who buys that (YouTube) is a moron" because of potential lawsuits from copyright violations.

"There is a reason they haven't yet gone public, they haven't sold. It's because they are going to be toasted," said Cuban, who has sold start-ups to Yahoo and CompuServe.

YouTube, which has nearly one-third of the U.S. Web video audience, three times that of Google, or twice that of News Corp.'s MySpace, has been working on signing licensing deals with music companies and TV networks to ensure they are paid when users view their content.

This month YouTube unveiled its first deal to distribute music videos legally from a major music company by agreeing a deal with Warner Music Group, home to pop stars James Blunt and Madonna.

In other remarks, meanwhile, the often-controversial Cuban also told advertisers that the reach of YouTube is limited, particularly when it comes to user-generated videos.

"User-generated content is not going away," he said. "But do you want your advertising dollars spent on a video of Aunt Jenny watching her niece tap dance?"

"Somebody puts up something really good and you get, what, 60,000 viewers?" Cuban added during the event at Advertising Week in New York.

YouTube now offers advertising through banner ads, promotions and sponsorships. It has said it plans to roll out a range of different advertising options over the coming year.

Cuban cautioned advertisers against investing heavily in so-called viral campaigns that are spread by users beyond their initial point of distribution on YouTube or other video-sharing sites. But he touted opportunities to run commercials on high-definition television such as his HDNet network.

"What makes viral so special is it's so hard to do. It's so hard to plan. It's hard to stand out," he said, describing 99 percent of money advertisers spend on viral campaigns as "wasted."

"You guys love to be the trailing edge," he said.

User-Generated Web Content Will Grow Rapidly Through 2010
Press Release

User-Generated Content (UGC), such as that found on YouTube and MySpace, will continue to grow significantly in popularity and generate increasing revenue over the next several years, reports In-Stat. By 2010, the volume of downloads/views on these sites will surpass 65 billion, and revenues tied to UGC video are expected to exceed $850 million by 2010, the high-tech market research firm says. Revenues are those directly linked to videos in the form of banner/skyscrapers, embedded video, Google Adsense, and/or branded pages/channels.

“Democratization of media affords users the opportunity to express their opinions, rate content, and vote for their favorite videos,” says Michael Inouye, In-Stat analyst. “In addition, what may currently seem like ‘the Wild West’ is actually an industry that has started to see idiosyncratic ‘judiciary bodies’ and ‘rules of law’ imposed by each player within this market.”

Recent research by In-Stat found the following:

· The size of downloads/views are estimated to eclipse 1.1 exabytes of data by 2010, with uploads growing to more than 9.1 petabytes.
· 23% of the dozens of UCG sites studied currently support mobile access, with others making announcements for this support in the near future.
· YouTube holds the highest market share for video, but MySpace has the most visitors.

Recent In-Stat research, User Generated Content—More than Just Watching the YouTube and Hangin' in MySpace (#IN0602976CM), covers the user-generated content market on the Web. It provides estimates of current registered users and forecasts for downloads/uploads (size, number of files, and revenues directly tied to videos). It defines the market’s business models, discusses the players, such as YouTube and MySpace, and market opportunities. Profiles of dozens of UCG web sites are included. The price is $3,495 (US).

This research is part of In-Stat’s Consumer Media and Content Service, which focuses first on the changing digital content models, and then how this will influence the evolution of equipment, standards, technologies, services and consumer usage models. The service addresses the acquisition, distribution, and use of digital content (audio, imaging, video, and voice) and how it fits into the consumer’s digital entertainment lifestyle. The service explains the opportunities for equipment makers and service providers within the emerging digital home.

In related research from this service, In-Stat found that although Online Content Aggregators are in the early experimentation stages of rolling out video services, they will have some dramatic revenue-generating opportunities in the next five years. The worldwide market for online content services is expected to expand by a factor of 10, growing from about 13 million households during 2005 to more than 131 million households by 2010. The research, “Online Content Aggregators-AOL, Google, Yahoo!, MSN, Apple–Slowly Defining The Future of Television (#IN0602973CM),” covers the worldwide market for online video services. It examines the growing number of consumer households connected to high-speed, broadband Internet connections. It also provides a market penetration estimate, showing the percent of broadband households that are likely to regularly be viewing professional content delivered via Online Content Aggregators. The report compares the number of Digital Pay-TV households in each region against the number getting their video online. It also includes in-depth discussion of the positioning of the major Online Content Aggregators, broadcast networks, and Pay-TV services putting their video online.

Study: 107M Viewed Online Video in July

More than 100 million Americans, or three out of every five Internet users, viewed video online in July, a new study finds.

ComScore Media Metrix recorded both streaming, which requires a live Internet connection, and downloads, in which a user saves a file that can be viewed later or offline. All told, 107 million people streamed or downloaded nearly 7.2 billion video clips - an average of 67 apiece.

Yahoo Inc. was tops with 38 million unique users, followed by News Corp.'s MySpace.com at 37 million and YouTube Inc. at 31 million, according to comScore. Unlike with MySpace and YouTube, which emphasize user-generated video, the Yahoo offerings generally came through content partnerships. Yahoo only recently started a video-sharing service.

AOL, the Time Warner Inc. unit seeking to boost traffic to its ad-supported sites largely by expanding its video offerings, did not make the top three. AOL and other Time Warner video had 26 million users, placing it fourth ahead of Microsoft Corp., Viacom Inc. and Google Inc.

NBC to Put Out Some Shows on PCs Before TV
Michael Kanellos

If you want to watch NBC programs before they air, get a Viiv PC.

NBC Universal has cut a deal with Intel in which individuals who own Viiv PCs will be able to download and view certain programs before they air on the network, according to Merlin Kister, director of consumer client marketing for Intel.

Some television networks have offered first-run shows simultaneously with broadcast, but offering shows to PC owners before they broadcast is quite unusual. Some of the shows could be available up to a week in advance. In other cases, viewers may only get previews in advance.

Other content providers are increasingly looking to strike deals on Viiv. Viiv PCs are similar to standard PCs, but have been tested with a wide variety of music and video applications. The testing makes it easier for content providers to bring their wares to PCs because they don't have to do compatibility testing themselves, Kister said. Viiv PCs also come with content protection.

Kister did not say what shows would be available early. Intel CEO Paul Otellini said yesterday that NBC will let Viiv users download "Heroes" and "Studio 60 on Sunset Strip," but it is uncertain whether Viiv owners will get these shows first.

Quad-Core Chip Coming from Intel
Rachel Konrad

Intel Corp. plans to begin shipping microprocessors that have four computing engines on a single chip - products that analysts say will help it win back market share from rival Advanced Micro Devices Inc.

The first chip, the Intel Core 2 Extreme quad-core processor, will be available in November. Intel says it will deliver a 70 percent performance improvement over Intel's current chips, which have one or two computing cores. The new chip is aimed at gamers, programmers and other people with heavy-duty computing needs.

For general consumers, Intel will ship a quad-core chip starting in the first quarter of 2007. For businesses, Intel will begin shipping four-core server chips later this year. A low-energy, quad chip for servers will be launched early next year, the company said Tuesday.

Offering high performance while maintaining energy efficiency is the name of the game in chip industry, CEO Paul Otellini said at the Intel Developer Forum.
"The industry is going through the most profound shift in decades, moving to an era where performance and energy efficiency are critical in all market segments and all aspects of computing," he said. "The solution begins with the transistor and extends to the chip and platform levels."

Otellini said the Santa Clara-based company's chips would deliver a 300 percent improvement in performance per watt over the next four years.

The new products give Intel - the world's largest chip maker - the opportunity to reverse sinking profits and regain market share stolen by AMD. Earlier this month, Intel announced it would cut 10 percent of its staff, or 10,500 jobs positions, to save $3 billion per year by 2008.

Analysts have criticized Intel for reacting too slowly after AMD's 2003 launch of the Opteron and Athlon 64 chips for servers and desktop PCs.

AMD will introduce a particularly efficient and fast quad-core chip for high-performance servers in mid-2007, said spokesman John Taylor.

"Our strategy is consistent - it's a customer-focused strategy that makes the transition as easy and benefit-rich for the customer as possible," Taylor said.

But it's unclear whether AMD's offering will make up for Intel's early lead, said IDC analyst Bob O'Donnell.

"Intel moved up this announcement specifically as an offensive blow against AMD, and it gives Intel a good six- to nine-month lead," O'Donnell said. "They're both taking this battle seriously. There's no question AMD will react - it's just a matter of when."

Shares of Intel gained 55 cents - nearly 3 percent - to close at $19.96 in Tuesday trading on the Nasdaq Stock Market. Shares of AMD lost 78 cents - nearly 3 percent - to close at $25.99 on the Nasdaq.

Intel Fires Back at A.M.D. Over Bragging Rights on Chip
John Markoff

A war of words between Advanced Micro Devices and Intel is heating up as they vie to claim the advantage in creating a new generation of chips with four processing cores.

A week after A.M.D.’s chief executive, Hector Ruiz, called Intel an “abusive Goliath” using monopoly tactics, his Intel counterpart responded Tuesday that the harsh words were those of a rival losing ground on a new battlefront.

“This is about bragging rights,” the Intel chief executive, Paul S. Otellini, said in an interview after his speech opening the three-day Intel Developers Forum, an annual event for makers of PC’s and accessories.

Mr. Otellini announced that Intel would begin shipping quad-core processors for both high-end PC’s and servers in November, at least six months before quad-core processors are due from A.M.D.

Advanced Micro was first to make dual-core chips, featuring two processors, an approach the industry has taken in recent years to gain performance without increasing PC energy consumption. And in the last two years it has made significant inroads in Intel’s market share of both desktop and server computers.

But Intel, despite a deep round of cost-cutting announced Sept. 6, is beginning to reverse its market-share decline based on the success of its first two generations of dual-core processors, analysts said.

“I think that Intel now has the initiative,” said Roger Kay, president of Endpoint Technology Associates, a computer industry consulting firm. “They’re hitting their deadlines and even pulling them in a bit.”

Intel’s success in quickly bringing to market several generations of multiple-core chips is reflected in its winning back customers like Rackable Systems, a server maker that had moved almost entirely to A.M.D.

“We’re hearing a lot behind the scenes about new customer wins for Intel during the next nine months,” said Richard Doherty, president of Envisioneering, a computer industry consulting firm in Seaford, N.Y.

Intel and A.M.D. are taking different routes to the next generation. On Monday night at a dinner for reporters here, A.M.D.’s chief technology officer, Phil Hester, displayed a test wafer holding prototypes of the company’s quad-core processor, to be commercially available in mid-2007.

A.M.D. is beginning to focus on new designs that it is planning for 2008 based on its soon-to-be-completed acquisition of ATI Technologies, a maker of graphics coprocessors. By combining aspects of the two types of processors on a single chip, A.M.D. will be able to create a more balanced system in the future, he said.

“This is not just technology for technology’s sake,” he said.

In contrast to Intel, which will initially make its quad-core processor by packing two connected dual-core chips in a single package, A.M.D. will wait until its manufacturing process can achieve features as small as 65 nanometers, compared with the current 90, permitting it to place all four processor cores on a single chip.

Intel has a substantial lead in 65-nanometer manufacturing, and said Tuesday that it planned to add capacity in Arizona and Israel for a total investment of $9 billion in the most advanced generation of chip making. But the company decided to package two dual-core chips in a single package to gain a half-year lead in the new quad-core approach.

At a news conference, Mr. Otellini defended the approach, asserting that it would not result in any performance disadvantage. “The initial ones are multi-chip, but so what?” he said. “You guys are misreading the market if you think people care what’s in the package.”

Intel also announced that it was making quicker progress on an initiative it introduced at its annual developer conference last year to reduce the power required for processing by a factor of 10. “In 2008 we’ll meet our decade goal of a 10X reduction in power,” he said.

According to Intel executives, this degree of power savings is needed to enable a future generation of ultra-light and portable computers.

Mr. Otellini also described a new research effort to build a processor capable of a trillion mathematical operations a second on a single piece of silicon. The research prototype, which contains 80 specialized math processors controlled by a single general processor, will be commercially available within five years, he said.

The project is an effort to match the processing power of what was in 1996 the world’s fastest supercomputer. That machine was used by weapons designers and was composed of 10,000 Pentium microprocessors, occupied about 2,000 square feet of floor space and cost $50 million.

In the interview after his speech, Mr. Otellini said that the new teraflop chip did not undercut the need for Intel’s troubled Itanium microprocessor, which the company has aimed at the high end of the computing marketplace.

Intel executives also described a new notebook design code-named Santa Rosa, to be available in the second half of 2007. It will include the coming 802.11n wireless standard, potentially five times as fast as current Wi-Fi systems.

Wireless Networking May Soon Get Faster. Will Anyone Care?
Martin Fackler

CHEJU, South Korea — On this volcanic island at the tip of the Korean Peninsula, where kings once exiled dissidents and tourists now flock to casinos, South Korean engineers recently unveiled a prototype of a wireless network that they hope will revolutionize Internet access.

In August, Samsung, the South Korean electronics company, gave the first public demonstration of its version of the network. One day, the company and others in the industry hope, the network will let users open a laptop anywhere and, without attaching a cable or looking for a Wi-Fi hot spot, immediately surf the Internet or download music and movies as fast as the fastest broadband.

But while Samsung and other companies like Intel and NTT DoCoMo of Japan are spending heavily in a race to control crucial aspects of this evolving new technology and to promote it as the next wave in Internet access, its future is far from certain.

Many in the industry seem split over whether the technology, known as fourth-generation wireless, or 4G, will usher in a new era of instant Internet availability or become a multibillion-dollar flop. Skeptics, many of them on Wall Street, point to a string of previous failures to turn wireless, still predominantly used for speaking on cellphones, into a challenger in the market for Internet access services. The market in the United States for Internet access — cable modems, D.S.L. and other methods — is worth up to $60 billion, said Bin Shen, a vice president at Sprint Nextel in charge of commercializing the new service.

Skeptics say the biggest danger is that the new system, while an engineering marvel, is not something that consumers will actually use. They say the sort of nationwide wireless networks being envisioned will be expensive to build and that the cost will probably get passed down to users in high fees. Fixed-line access like fiber optics and cable modems, they say, will continue to be cheaper, faster and more reliable.

“Four-G is just much ado about nothing,” said Edward F. Snyder, an analyst at Charter Equity Research. “There’s no business model here, just a lot of marketing and hot air.”

Even proponents are having a hard time defining exactly what they mean by 4G. About the only thing most agree on is speed: to be considered 4G, a network must be able to transmit a gigabit, or 1 billion bits of data, every second. That is fast enough to download an entire movie in under six seconds.

The name comes from the wireless industry’s fondness for talking about technologies in terms of generations. First generation refers to analog cellphones two decades ago; second, the first digital cellphones in the early 1990’s; and third, the faster networks that emerged in Japan and South Korea around 2000 but have not done as well in the United States and Europe.

Despite the uncertainties, some of the world’s biggest electronics companies are already rushing to get a piece of the 4G pie. Analysts say companies are scrambling to develop and patent the basic technologies and standards — and thus earn royalty income as the technology takes off. They also want to stake their claims ahead of next year, analysts said, when a global body of telecommunications regulators meets in Geneva to set the first standards for 4G.

While the effort is still in its early stages, two competing 4G standards have already emerged.

One is championed by NTT DoCoMo, Qualcomm and European companies like Ericsson, and is a modification of existing cellphone technology to move data more quickly. NTT DoCoMo, Japan’s largest wireless carrier, says it reached 4G-level transmission speeds in a field test in 2003. The company has gotten support from the Japanese government, which made leadership in 4G a national goal as early as 2001, and has poured millions of dollars in public money into research.

“Now is the time when companies are hurrying to grab 4G territory,” said Yuji Nakamura, deputy director of the mobile communications division at the communications ministry.

The other camp is led by Intel, the chip maker, which promotes a standard for wireless broadband called WiMax. Intel says it has invested hundreds of millions of dollars — it will not reveal exactly how much — in developing WiMax and 4G-related technologies in hopes of supplying the world with the semiconductors that will allow computers and other devices to access future networks.

Siavash M. Alamouti, chief technology officer of the service provider business group at Intel, dismisses the contention that consumers will not embrace wireless access to the Internet because they already have fixed-line access.

“That’s like saying you don’t need a cellphone because you have phones at home and in the office,” he said in an interview.

While Intel is moving quickly into 4G, Mr. Alamouti said, it is not gobbling up patents to shut out other companies. Instead, he said, Intel wants to encourage more companies to join the WiMax group by capping the royalties at about 2 to 3 percent of the price of the equipment they sell. That is about half of what its rival, Qualcomm, now charges for use of its technology, which is at the heart of many cellphones. Cheaper royalty fees would lower the price of equipment, making it more affordable to consumers.

Another front-runner in the WiMax camp is Samsung, which moved aggressively into 4G as a chance to shake its image as a low-cost technology imitator. Two years ago, the company started assembling a team of 170 engineers, most with doctorates from top universities in the United States. It says it has since spent more than $100 million on research and building a prototype.

Samsung expects that spending to “go way up,” Lee Ki Tae, president of Samsung’s telecommunications division, said in an interview. “In the past, we were behind in intellectual property. In the next generation, we are trying to be ahead.”

To showcase its leading role, Samsung gathered 50 industry executives and academics on Cheju island for a conference on 4G. A highlight was Samsung’s first demonstration of a working 4G prototype, which included a ride on a bus to show that the system functioned over distance and while the user was in motion.

The technology appeared to get a boost when Sprint Nextel announced in August that it would spend up to $3 billion to build what it called a 4G network, using technology from Intel and Samsung as well as Motorola. The network is intended to reach 100 million Americans by the end of 2008.

“We believe the Internet will be like air, something you want everywhere you go,” Mr. Shen of Sprint told the Samsung 4G conference.

Qwest Beats the Odds, So Far
Ken Belson

Richard C. Notebaert, the chief executive of Qwest Communications, is not one for conventional wisdom. Just a year ago, many on Wall Street thought Qwest, the nation’s fourth-largest phone company, was so weak that it was bound to be broken up or sold.

But Mr. Notebaert has quietly and consistently proved them wrong. He has cut costs, stabilized revenue and built up so much cash that Qwest is actually in a position to buy another industry player — perhaps a wireless carrier or a provider of corporate telecommunications services.

Such a move would go a long way toward arming Qwest with the tools it needs to fend off cable companies, Internet phone providers like Vonage and cellphone carriers like Cingular that are luring away hundreds of thousands of its customers. It would also help Qwest contend with Verizon Communications and A.T.& T., which account for half of all sales of communications services to companies.

“You can never relax or say I made it,” Mr. Notebaert said recently, sitting in a conference room atop the company’s headquarters with the Rocky Mountains in the distance. “This is a very competitive sector. You need some angst.”

The perpetually upbeat Mr. Notebaert, an avid jogger with a firm handshake, may not seem angst-ridden, but he still has reason to be. Though Qwest is no longer on life support, the company competes with fewer arrows in its quiver than the larger Bell companies, which are spending billions of dollars to build and run cellular and fiber networks.

Given the expense of those networks and Qwest’s considerable debt load, Mr. Notebaert has focused instead on keeping costs down, increasing profit and letting other companies do some of the heavy lifting.

Qwest now resells Sprint’s cellphone service, under its own brand, at a modest profit. Though the business is nowhere near as lucrative as that of Verizon Wireless or Cingular, it is far less expensive to run than Qwest’s old money-losing wireless business, which Mr. Notebaert unloaded two years ago.

Qwest also resells DirecTV; the alternative was to build its own fiber optic network for carrying television to homes, as Verizon and A.T.& T. are doing. Those costly projects have unnerved many Wall Street analysts.

By forgoing those ventures, Qwest has increased its profitability and its share price, which is up 136 percent in the last year. The stock gains have reduced Qwest’s attractiveness as a takeover target.

In the second quarter, Qwest’s profit margin rose to 31.9 percent, from 28.6 percent in the period in 2005 and 24.4 percent at the end of 2003. Part of that increase is a result of Qwest’s ability to keep its capital spending down to 12 percent of revenue, well below the 19 percent that Verizon spends.

“They have to make sure that over the next 5 to 10 years, they have enough capital to deal with competition,” said John C. Hodulik, an analyst at UBS Securities. Building a fiber network “would be a major undertaking,” he said, adding that the company “might be sitting back and waiting to see how A.T.& T. is doing” with its new network.

The cost-cutting has left Mr. Notebaert and Qwest’s board with a happy question: What to do with the roughly $1.8 billion in cash Qwest is expected to accumulate by the end of the year? They could use some of it, as well as Qwest’s healthier stock, to shop for companies or, as analysts expect, announce a dividend worth about $1 billion and buy back some of stock.

Mr. Notebaert hinted that a dividend could be in the works. “It’s time to reward our equity holders,” he said.

Qwest’s board is expected to make a decision by late October when the company reports its third-quarter earnings.

Major challenges remain. Revenue is barely growing as local phone customers continue to defect to cable and other providers. The pace of cost-cutting is also slowing, which means profits are going to be harder to come by in the next few quarters, analysts said.

“Dick staving off bankruptcy was a feat in and of itself,” said Christopher C. King, an analyst at Stifel Nicolaus, who has a sell rating on Qwest’s shares. “But where is the growth going to come from with cost-cutting slowing down and revenue flat?”

Qwest lost 263,000 phone lines in the second quarter, leaving it with 14.3 million lines, or 5.3 percent fewer than it had a year earlier. That decline may pick up speed as cable companies make further inroads into the phone business.

Qwest competes with Comcast, the country’s largest cable company, in five of its largest markets; it added 306,000 phone customers in the second quarter. In one of Qwest’s largest markets, Phoenix, the cable provider Cox Communications says it has more than 30 percent of the phone customers and 70 percent of the high-speed-data subscribers.

The success of the company’s wireless business has also been uneven. Revenue grew 7.6 percent in the second quarter compared with the period the previous year, but the number of subscribers dipped by 7,000 from the first quarter. Verizon Wireless, by contrast, added 1.8 million customers during the same quarter, and is a major source of growth for its parent, Verizon.

Qwest has been able to prevent these problems from hurting its financial picture by shrinking. Quarterly revenue per employee, a crucial benchmark, has grown 18.6 percent during the last three years, but that increase came as Qwest eliminated 17 percent of its work force, or more than 8,000 jobs.

The company has also become more efficient, reducing the time it takes to install high-speed Internet lines to three days, from five, and reviewing how it serves customers. Qwest outfits its trucks with locator devices so managers can instantly track how many miles technicians drive and how many jobs they complete each day. Using such data, Qwest can redesign routes to eliminate midday trips to the garage, for example.

“We have to take a minute-by-minute look at our business,” said Barry K. Allen, the executive vice president for operations at Qwest. “We have a lot of learning ahead of us.”

But the gains from cutting costs are starting to slow. Qwest is expected to trim operating expenses by 3.6 percent this year, down from a 9.1 percent improvement in 2002, according to Jeffrey Halpern, an analyst at Sanford C. Bernstein & Company.

New growth, analysts say, will probably come if Qwest acquires other companies, particularly a wireless carrier that could help it offer packages to draw customers away from cable providers. The problem is that while Qwest’s market capitalization has risen to $17.1 billion, it is probably not big enough to buy T-Mobile or Alltel, the fourth- and fifth-largest carriers.

U.S. Cellular is the next logical option, but its owners have shown no signs of wanting to sell the company.

Mr. Notebaert said Qwest was “very comfortable” not being “vertically and horizontally integrated in everything we do,” a sign that he does not feel compelled to buy a wireless business. The company, he suggested, could introduce a hybrid solution instead: handsets that work on cellular networks outdoors and Wi-Fi connections indoors, so customers can save cellular minutes by using their high-speed data lines at home.

Mr. Notebaert also dismissed talk that Qwest might sell some of its local phone lines to avoid exposure to competitive cable companies. Investors have approached Qwest looking to buy the company’s lines in Minnesota and New Mexico, but the talks were only preliminary.

“We aren’t in the business of selling our core,” he said, adding that the local-line business, while shrinking, still generates cash.

More likely, Qwest could pursue a company that bolsters its ability to sell to businesses, Mr. Notebaert said. Qwest recently completed its $107 million purchase of OnFiber Communications, which manages high-speed networks in 23 cities, most of them outside Qwest’s region. Qwest says it will add nearly $60 million in annual sales and save money by using OnFiber’s networks instead of leasing them from others.

Mr. Notebaert said Qwest would not “get deal heat” and overpay for a company. It demonstrated this resolve last year when, after raising its bid for MCI three times, it backed out of negotiations, allowing Verizon to buy the company. The loss to a much bigger rival renewed concerns about Qwest’s weakness and hurt the company’s stock.

Within a couple of months, Qwest’s decision to focus more on cutting debt and improving profit ignited the rally in its stock that continues today. But how long will the upswing last?

“Dick’s done a tremendous job of attacking a lot of tough problems in the right order,” said Mr. Halpern of Sanford C. Bernstein, who has a hold rating on Qwest’s stock. “But how long can the game go on? Cable company competition is looming and your stock is high, so the question is whether it is sustainable.”

In Italy, Political Fallout Over Plans for Telecom
Eric Sylvers

It started with the announcement of a clear-cut plan to split up Italy’s largest phone company, Telecom Italia, into separate mobile and fixed-line units.

But that seemingly simple plan has led to a verbal slugfest between the prime minister, Romano Prodi, and the company’s chairman, Marco Tronchetti Provera, who is also the country’s best-known executive. Now, Mr. Prodi’s government, which has a razor-thin majority in Parliament, seems to be wavering for the first time since he took office in May.

On Thursday, he faces public scrutiny by opposition members of Parliament when he appears before the lower house to answer to criticism that he might be interfering in Mr. Tronchetti Provera’s corporate sphere. Then, on Oct. 5, Mr. Prodi will again face opposition Parliament members at a hearing in the Senate.

Some members of Parliament are concerned that Mr. Prodi appears to be meddling in the affairs of a private company, despite European Union guidelines against such interference.

It would not be the first example of European government involvement in domestic businesses. In Spain, government officials are seeking to shield the country’s largest power company, Endesa, from an unwanted foreign takeover bid from a German company. French officials organized a merger between Gaz de France and Suez, two French companies, to thwart a bid for Suez from an Italian company, Enel. And last year, the governor of the Bank of Italy, Antonio Fazio, was forced to step down after a scandal in which he was accused of trying to avert a foreign takeover of Banco Antonveneta of Italy.

But Mr. Prodi, an economist who served as president of the European Commission, often stresses the importance of following directives of the European Union, which tends to be less protectionist than some officials of its member governments. Mr. Prodi also has a record of being reform-minded.

During his first term as prime minister a decade ago, he reduced Italy’s spending and raised taxes to lower the nation’s deficit so it could adopt the euro. In the first months so far of this term, he has pushed through measures to liberalize the Italian economy.

But his latest moves are raising eyebrows. When the opposition first demanded that Mr. Prodi, 67, appear before Parliament, he called the idea “crazy.” But he later bowed to pressure rather than alienate allies in his fractious nine-party coalition who insisted on hearing about the events surrounding Telecom Italia.

The situation became more confusing last week when Italian police arrested 20 people, including the former head of security at Telecom Italia, who was said to have spearheaded a group that illegally tracked the calls of more than 1,000 people. The arrests are part of a series of events that have weakened both Mr. Tronchetti Provera and Mr. Prodi.

Mr. Tronchetti Provera is chairman of Pirelli, which controls Telecom Italia. But he resigned as Telecom Italia’s chairman after the breakup plan was made public and Mr. Prodi expressed surprise at it. Mr. Prodi said he had not been informed of the plan in advance, even though he had met with Mr. Tronchetti Provera in July and again earlier this month.

Soon afterward, one of the prime minister’s closest advisers resigned, after two newspapers considered close to Mr. Tronchetti Provera printed a document the adviser sent him suggesting the government could buy some of Telecom Italia assets.

Mr. Prodi, who was chairman for a decade of a government holding company that oversaw all state-owned companies, has been trying to deflect suggestions that he is reverting to old habits of the Italian government, which once controlled most of the country’s largest companies.

“I have been a privatizer of the Italian economy,” Mr. Prodi said in a private interview last week. “We need it.”

Mr. Prodi last week warned his coalition partners, who waited in the wings for five years while Silvio Berlusconi ran the country, that if he fell from power he would bring down everybody else with him. Mr. Berlusconi on Saturday said Mr. Prodi’s government would not last much longer and that when the government fell, he would be ready to retake the reins.

Paolo Natale, a political science professor at the University of Milan, said the events were a serious blow for the Prodi government. “The evidence is that Prodi was not able to manage the Telecom Italia situation in a transparent way,” he said. “That has cost the government some of the consensus it had, but Italians have a short memory and Prodi has always been considered capable in the past, so this may blow over.”

Mr. Tronchetti Provera’s own problems could intensify. Prosecutors investigating the case that led to the 20 arrests have linked secret bank accounts in Monte Carlo to him and to Telecom Italia’s chief executive, Carlo Buora, according to La Repubblica, a Rome daily. The prosecutors suspect that a Pirelli employee bought and sold stocks through the Monte Carlo branch of Banca del Gottardo, deposited profits into the secret bank accounts of Mr. Tronchetti Provera and Mr. Buora, and covered the losses with a Pirelli account in Luxembourg, La Repubblica reported.

Mr. Tronchetti Provera vigorously defended himself in an appeal to journalists at a news conference in Milan on Monday.

“This evening I am here to ask for help not for me, but for the Telecom Italia group because these are healthy companies,” Mr. Tronchetti Provera said. “Help us get the truth to come out. These are good people who haven’t taken any money from the company.”

In a sign that tensions have not abated, one of Mr. Prodi’s ministers over the weekend said that things were better at Telecom Italia when it was owned by the government, which privatized the phone company in 1997. Telecom Italia was bought the next year in the country’s largest hostile takeover ever. Pirelli, with Mr. Tronchetti Provera at the helm, bought control of Telecom Italia in 2001, in an investment that has lost half its value in five years.

Mr. Tronchetti Provera’s most recent problems began three weeks ago when he presented to the board of Telecom Italia a plan to split the mobile and fixed-line operations into separate companies. The move would be a complete about-face for Telecom Italia, coming less than two years after the company acquired the part of the mobile unit it did not already own. At the time of that purchase, Mr. Tronchetti Provera trumpeted the importance of integrating the mobile and fixed-line businesses.

The proposed breakup drew angry reactions from politicians who saw it as the first step to the sale of the mobile unit, the only one of the four Italian mobile phone companies that is domestically owned. Mr. Tronchetti Provera says he has no plans to sell the mobile unit, which analysts estimate is worth about 35 billion euros, though he also said that if offers arrived they would be considered. Mr. Tronchetti Provera has made no secret that he is trying to shed some of Telecom Italia’s crippling debt, which at 40 billion euros may be more than the company’s market value.

Europe Makes Progress in iTunes Negotiations
Thomas Crampton

European negotiators said they made “surprising progress” in talks today with Apple Computer over easing the restrictions it imposes on users of its iTunes service, by far the dominant seller of downloaded music.

But a full resolution of the dispute could require Apple to make major changes in the iTunes business model.

Officials of four Nordic countries have threatened to impose heavy fines on Apple because iTunes prevents customers from using the songs they buy on music devices that compete with Apple’s iPod players. The officials say that restriction and other aspects of the way iTunes works violate consumer protection laws in the four countries — Norway, Sweden, Denmark and Finland.

“Our meeting was much more constructive than I expected it would be,” said Bjorn Erik Thon, director of the Norwegian consumer ombudsman’s office, which has taken the lead in the talks. “We argued and did not agree on a lot, but we discussed all issues.”

In addition to “interoperability” — being able to use downloaded music files on different manufacturers’ players — the talks covered four other issues, Mr. Thon said, including Apple’s refusal to accept liability for any damage its iTunes software might do to a computer and Apple’s claim of a right to change contract terms after purchase of a song.

“It would be inappropriate to discuss the exact areas where progress was made, but it was a positive and good dialogue,” Mr. Thon said. Fines were still a possibility, he added: “We prefer to find a solution through discussions, but we still have the possibility of bringing the case before the market council.”

Apple Computer said in a statement today that it was “working to address the concerns we’ve heard from several agencies in Europe, and we hope to resolve these issues as quickly as possible.”

New Software Can Search Podcasts
May Wong

Forget the blather. With a new audio search technology, users could jump right to the area of interest in podcasts, and soon also in videos. Pluggd Inc. showed off its HearHere search software Tuesday at DEMOfall 2006, an elite tech show of emerging technologies.

"It could well become the Google of audio Web," DEMO executive producer Chris Shipley said.

By using speech recognition and semantic analysis within its media player, HearHere allows users to skip commercials in the beginning of a podcast if they want, or bypass the baseball highlights to jump right to the football segment in a sports report.

Users just have to type in a keyword in the search box, and HearHere would display a map to indicate where in the podcast the content would likely match a request. It also displays the related words HearHere is using to make its matching decision.

For instance, if you type "PGA" in a search of ESPN podcasts, HearHere might indicate that it's using "golf" or "Tiger Woods" to find what you're looking for.

The public test version of HearHere now conducts searches within its own collection of podcasts at http://www.pluggd.com , and will offer the feature for Internet videos by the end of the year. The company plans to implement the technology for multimedia content found across the Internet next year.

Pluggd will not be alone, as several podcast search engines have sprung up in the past year or so to serve the booming popularity of Internet multimedia. Some already employ speech-to-text technology to generate searchable transcripts of podcasts and let users jump directly to certain points in a broadcast.

RingCube Software Squeezes PC Onto iPod
May Wong

Mobile computing just got more portable. Making even the latest pocketbook-sized ultra-mobile personal computers look more like lumbering giants, RingCube Technologies Inc. unveiled software that can virtually squeeze a PC onto an iPod, USB keychain drive, cell phone or any gizmo with digital storage space.

RingCube's MojoPac software mirrors a computer's personal settings, programs and data on a storage device. Then, when it's connected to any computer running Microsoft Corp.'s Windows XP operating system, the virtual desktop will run in a window of the underlying PC.

"You're taking your digital soul with you on any portable storage device," said Shan Appajodu, chief executive and co-founder of RingCube.

A user could toggle between the two computing environments. The company contends that everything you do with your MojoPac PC will remain private: the underlying host PC won't retain any of the files or cache copies of what you did on MojoPac, the company said.

The software can be downloaded and tested at no cost for 30 days. If bought within a month of the product's release, it will cost $29.99 with up to three additional licenses for $14.99 each. After the introductory period, the price will jump to $49.99, with up to three extra licenses costing $24.99 each.

MojoPac will be shown off at the DEMOfall 2006 conference, an elite showcase of emerging technologies being held this week in San Diego.

"I lug my laptop around with me everywhere and the idea that I could bring my work environment around with me on a USB key is really attractive," said DEMO producer Chris Shipley.

The software works by creating a virtual operating system that runs the programs users load onto the storage device. RingCube says MojoPac supports any off-the-shelf applications, including PC video games and applications such as Adobe Photoshop or Microsoft Office. Buy AP Photo Reprints

The idea is to transform any computer found at Internet cafes, dorm rooms, libraries or business offices into your personal computer, said Appajodu, who started developing the product more than two years ago.

Mountain View-based RingCube also hopes to introduce a prepackaged version of MojoPac such as on a keychain drive as a low cost computing alternative in developing nations, where many can't afford their own computers. Many people in those areas can't afford personal computers but have access to Internet kiosks.

MojoPac is available as a software download for $49.99 at http://www.mojopac.com .

Google Says ISP Resolved Access Problems

Google services were slow or inaccessible to some users of a single Internet service provider Tuesday, the company said.

In a statement, Google Inc. said its engineers "helped troubleshoot the problem and provided diagnostic information to the ISP. We believe the issue has since been resolved by the ISP," which the company did not name.

The cause of the glitch was not immediately known, nor were any details available on how widespread it was.

Brief outages of leading Internet sites are not uncommon. A software glitch delayed AOL.com e-mail for millions of users in June, while the video-sharing site YouTube.com was inaccessible for hours in mid-August.

Besides running the Internet's leading search engine, Google offers e-mail, chat, news aggregation and other services.

A Swarm of Angels: P2P Powered Film Model

A Swarm of Angels is a project that aims to create the first community driven film. The Film will be written, funded and distributed over the Internet. The plan is to gather a group of 50.000 people who each contribute £25 ($47.5) to join the project.

The initiator Matt Hanson is an award-winning filmmaker and accomplished writer who wants to break free from the traditional movie business model. Hanson was inspired by the power of social networks on the Internet. Together with his innovative ideas about the future of filmmaking taken from his book “The End of Celluloid“, this resulted in a unique project.

The film will be released under a Creative Commons license, and people are free to share, remix, and, distribute the film anyway they like.

The genre will be thriller based with some soft sci-fi elements. The community is currently developing two scripts, The Unfold and Glitch. Based on member input these scripts will be put into initial drafts written by Matt Hanson.

Wiki’s are used to refine, develop, and improve the final script. A vote will be taken by all members to decide which script is chosen for production. Member of “the Swarm” will be involved in MAJOR creative decisions.

We asked Matt Hanson why he thinks people should join the project. He told Torrentfreak:

“We are pioneering a new type of P2P/Bittorrent friendly film model, using member subscriptions to build a community around making a DRM-free film that everyone can download, share, and remix.

The success of this project would undoubtedly create a landmark example of how media can be created and made available for free. It would encourage an alternative entertainment model to Hollywood, which doesn’t crack down on filesharers, but encourages and accommodates them, and their enthusiasm.

I think the future of film is about bringing audiences and filmmakers closer together in entertainment communities where both can interact and get more out of the experience.

Each subscriber to A Swarm of Angels gets us closer to creating an entertainment revolution. It’s a great way to participate in something so exciting.”

This project truly is a great initiative. It is nice way to show Hollywood that there are alternatives to suing people, and implementing DRM.

A Swarm of Angels

The project currently has over 700+ members, deliberately being gathered through word of mouth, and blogs. They are going to freeze membership temporarily at 1000, so early members can take early creative decisions and do more development.

I encourage everyone to join the project, and if you own a blog or website: Spread the word!

So Small a Town, So Many Patent Suits
Julie Creswell

MARSHALL, TEX. ON a crisp Monday morning earlier this month, about 20 lawyers from some of the country’s top law firms shuffled their way into a brightly lit, wood-paneled federal courtroom in this small city in eastern Texas.

Wearing white shirts and dark suits, the lawyers congregated in small groups, leaning into one another with their arms crossed and speaking in hushed tones.

At precisely 8:30 a.m., a series of knocks on the right side of the courtroom signaled the entrance of Judge T. John Ward, a blur of black robe and white hair, who quickly took his seat and, with little preamble, began the proceedings.

Over the next few minutes, a 10-person jury listened raptly as lawyers for both sides laid out the case. Hyperion Solutions, a software company based in Santa Clara, Calif., accused the OutlookSoft Corporation of Stamford, Conn., of infringing two of its patents, causing $50 million in damages. A lawyer for OutlookSoft said the company did not steal any patented technology, adding that Hyperion’s patents were not even valid.

What was remarkable about the trial was not the issue being tried or the arguments proffered by each side, but that these big companies — like dozens more from the East and West Coasts — wound up in the Federal District Court here in Marshall, the self-proclaimed Pottery Capital of the World and home to the annual Fire Ant Festival (sponsored by Terminix, the pest-control company).

More patent lawsuits will be filed here this year than in federal district courts in San Francisco, Chicago, New York and Washington. Only the Central District of California, in Los Angeles, will handle more patent infringement cases.

On the surface, there is little to recommend Marshall as a locus for global corporations looking to duke it out over who owns the rights to important technology patents. Some 150 miles east of Dallas, and just minutes from the Louisiana border, Marshall and its 25,000 residents are fairly typical of most small cities in Texas. Marshall is a place where friendships last a lifetime and rivalries even longer, where residents still talk about the Civil War, debate on street corners about decades-old high school football games, and conduct midday business meetings over plates of meatloaf, mashed potatoes and banana pudding.

What sets Marshall apart from its neighbors is a red-hot patent docket. Four years ago, 32 patent lawsuits were filed in the Federal Eastern District of Texas, which includes Tyler, Texarkana and Marshall. This year, an estimated 234 cases will be filed in the district, a majority of them in Marshall.

What’s behind the rush to file patent lawsuits here? A combination of quick trials and plaintiff-friendly juries, many lawyers say. Patent cases are heard faster in Marshall than in many other courts. And while only a small number of cases make it to trial — roughly 5 percent — patent holders win 78 percent of the time, compared with an average of 59 percent nationwide, according to LegalMetric, a company that tracks patent litigation.

Those odds are daunting enough to encourage many corporate defendants to settle before setting foot in Marshall. Add to that the fact that jurors here have a history of handing out Texas-sized verdicts to winners. In April, for instance, a Marshall jury returned a $73 million verdict against EchoStar Communications for infringing the patents of TiVo.

MARSHALL was once one of the most prominent and wealthy cities in Texas, but much of the city’s industry and many of its downtown shops disappeared in recent decades. Now, thanks to an influx of out-of-town lawyers and the increased investment in real estate by a handful of local leaders, Marshall is in the early stages of a revival.

The sounds of hammers and electric saws echo across the brick-paved streets that line its picturesque downtown square as buildings that stood empty for years are being transformed into office space for rent.

Restaurants that depended on tourists drawn to town by the Fire Ant Festival, the Stagecoach Days Festival and the winter Wonderland of Lights display now do a brisk business catering lunches and dinners for visiting lawyers. Some hotel chains along Interstate 20, south of downtown, are running at 95 percent occupancy rates during the week.

“During the TiVo-EchoStar trial, 90 percent of my revenue for one month came from one of the law firms in the case,” said Phillip W. Gurganus, manager of the local 68-room Hampton Inn, where rates run $77 a night.

His mother, a former Texas tort reform lobbyist, helps to serve breakfast at the hotel. “I loved getting that check and taking it to the bank,” he added.

How far the dollars from visiting lawyers trickle through Marshall’s economy remains unclear and is the subject of discussion among local leaders.

For much of its history, Marshall has been a community divided by wealth and race. People whose grandparents or great-grandparents made fortunes from oil, natural gas or railroads live in gated mansions and rarely mix with those who frequent the local Wal-Mart or many downtown finance shops that make $300 loans. The median family income in Marshall is $30,000.

“The majority of Marshallites don’t even know the patent docket exists,” said Johnny B. Taylor, a native of Marshall who returned and started an office rental business after spending 31 years as a police officer in Arlington, Tex. “There’s one way the docket affects them: they can’t find parking.”

Cranking up the air-conditioner of her father-in-law’s 1990 red Cadillac DeVille with a matching red leather interior, Geraldine Mauthe, the city’s bubbly and silver-haired convention-and-visitors director, begins the tour of town.

Turning away from the pale yellow century-old Harrison County Courthouse, which is being renovated and updated to handle Marshall’s rapidly expanding patent docket, Ms. Mauthe often stops the Cadillac in the middle of the street — eliciting sharp honks from cars behind her — to point out local sights.

This much can be said about Marshall: It is not lacking in churches (50 Baptist, 35 of other Protestant denominations and 1 Roman Catholic), historic homes (many built in the 1850’s) and, oddly, funeral homes. “We have seven. Four for blacks and three for whites,” Ms. Mauthe said, matter-of-factly.

When she drove past a hair salon that offered haircuts, tanning and the services of a notary public, Ms. Mauthe rubbed her fingers together and said: “You got to make money somehow.”

Oh yes, Ms. Mauthe added, Marshall and its robust legal community go back a long way. In the late 1800’s, she said, Marshall was a bustling city, a transportation gateway to the North, linking local cotton farmers and the Texas and Pacific Railway.

As the railroad was built, personal-injury lawyers came to town to represent injured workers. In more recent decades, Scott Baldwin, Franklin Jones and other Marshall-based plaintiffs’ lawyers generated tens of millions of dollars in fees — and grabbed the national spotlight — by pursuing class-action lawsuits against companies that used asbestos and silica, and against the pharmaceutical and tobacco industries.

By the late 1990’s, though, it looked as if the good times were ending for Marshall’s lawyers. Broad tort reform in the state had limited punitive damages and later capped damages on medical malpractice lawsuits, effectively limiting the fees that lawyers could make.

In Marshall, an oft-told joke is that the passage of tort reform was when many local lawyers made the trip from P.I. to I.P. — that is, they moved out of personal injury and into intellectual property.

That was the road traveled by Samuel F. Baxter, a former state district court judge who had become a personal-injury lawyer, after he received a call from a lawyer in Dallas in 1996, asking him to help out in a patent lawsuit in Marshall. “I told him, ‘No, I don’t know anything about patents,’ ” Mr. Baxter recalled as he reclined far back in his chair in his Marshall office, which included an autographed Cy Young baseball and aging maps of the United States depicting an outsized Republic of Texas.

Mr. Baxter was eventually persuaded to take the case and was the lead trial lawyer defending Samsung in a patent lawsuit filed by Texas Instruments, which eventually settled. Since then, Mr. Baxter, who is a principal at McKool Smith, a Dallas-based law firm with a full-time office in Marshall, has been involved in a number of patent cases; in one, he helped represent TiVo in its patent fight with EchoStar.

Charmingly loquacious about his two adopted sons and local Civil War history, Mr. Baxter turns economical with his words when asked why the federal court in Marshall handles more patent lawsuits than federal courts in much larger cities.

“One, speed kills,” he said. “If you’re the plaintiff, you can go fast and get a resolution faster here than you can a lot of other places.

“Second, there’s a dearth of good lawsuits these days for lawyers to handle,” he added. “You know lawyers: they go where the money is.”

THE testing of Marshall as a patent battleground began nearly two decades ago, when Texas Instruments, which has its headquarters in Dallas, embarked on an aggressive strategy to make rivals license its patents. If a company would not capitulate or at least negotiate, a Texas Instruments team of lawyers would drag it to court — increasingly, down the road to the uncluttered courtrooms of Marshall.

In September 1999, Mr. Ward, a malpractice and product-liability lawyer with a practice nearby, in Longview, was sworn in to the East Texas federal bench.

A no-nonsense judge who charms people with his folksy demeanor but who also has a reputation for a fiery temper in the courtroom, Judge Ward began hearing patent cases. As a private lawyer, he had argued a few such cases; as a judge, however, he quickly grew frustrated at the slow pace, paperwork, and delays and motions that were part of a patent docket.

That’s when he adopted what he calls “the Rules.” As any lawyer who has shown up in Judge Ward’s courtroom will testify, the Rules put patent lawsuits on a strict timetable, laying out when key documents must be handed over and setting firm trial dates.

No 100-page motions or lawyer soliloquies are tolerated in Judge Ward’s courtroom. He puts page limits on documents and uses a chess clock to time opening and closing arguments, brusquely interrupting lawyers when it is time for them to wind it up.

The changes turned Marshall’s federal court into a “rocket docket” — a place where the time between filing and trying a lawsuit became significantly shorter than in other districts.

“I really shot myself in the foot when I adopted the Rules,” Judge Ward said with a laugh, sitting in a leather chair in his quiet, wood-paneled chambers during a lunch recess in the Hyperion-OutlookSoft trial. The reason, he added, was that the district was soon deluged by patent suits filed by companies seeking a quick resolution to their conflicts. While judges in nearby cities also began to hear patent cases, most of them remain before Judge Ward.

The expedited process pleases clients, though it is sometimes hard on the lawyers who break the Rules.

“When he’s mad, first his face gets red,” said Michael C. Smith, a lawyer with the Roth Law Firm in Marshall. “Then his neck gets red and he starts tucking his chin down into his chest. If he tears off his glasses, I don’t care what side you’re on, you had better drop to the floor and get under that table fast.”

Judge Ward said that he did not often lose his temper. “If I tell a lawyer to stop leading the witness and he continues, well, we’re going to have a problem,” he said.

SPEED is not the only feature bringing patent holders to Marshall. So, too, is the fact that they usually win. Three-fourths of the cases that come to trial in Marshall are decided in favor of the plaintiffs, compared with less than half in New York.

The success rate for patent holders in Marshall is a great incentive for defendants to settle matters quickly and privately. Since 1991, the Federal District Court in Marshall has held less than half the number of full patent trials as courts in Los Angeles, New York, Chicago and San Francisco.

“I would say that this is, historically anyway, a plaintiffs-oriented district,” Judge Ward said, noting that he lost a large patent suit there himself when he was practicing. He was part of the team representing Hyundai Electronics in 1999 when it lost a $25.2 million verdict in a lawsuit filed by Texas Instruments.

Others point to a different reason why plaintiffs may win more often than defendants: plaintiffs, they say, typically hire local Marshall lawyers. Hiring local in Marshall means that you will get a lawyer who not only knows the jurors, but who also probably knows their friends and even personal details like how often they go to church, local lawyers say.

“We had a Fourth of July party and we circulated the jury lists to people there on the boat dock,” said Joy Berry, a local lawyer who advises out-of-town law firms in jury selections. “By the time the party was over, we knew quite a bit about nearly everyone” on a list of potential jurors for coming trials, she said.

Mr. Smith of the Roth Law Firm said it could be difficult for outside lawyers to blend in and noted that some even tried to curry favor with jurors by taking on a drawl or wearing cowboy boots. “I call them T.B.L.’s, or ‘tall building lawyers,’ ” he said. “They don’t take their coats off no matter how hot it is down here.”

Indeed, local lawyers love to swap stories about visiting colleagues and their clients from bigger cities or from abroad.

One of Mr. Baxter’s favorites is about an out-of-town lawyer, a vegan, who wanted a late-night meal. “She walked over to Wendy’s and tried to order a salad through the drive-in window,” he recalled. “She was told she needed to be in a car to order through the drive-in window so she walked back over to the hotel, woke up one of the firm’s partners and had him take her through the drive-in window.” He laughed uproariously at the memory.

M. Craig Tyler, a lawyer in the Austin, Tex., office of Wilson Sonsini Goodrich & Rosati, the big Silicon Valley law firm, is fond of recounting how visitors react to Texas hospitality. “We’ve had many meals with clients from the Pacific Rim who take out their cellphones and send pictures back home when they see the portions of the meals in Marshall,” he said. “They thought it was family style, that one plate would feed many people.”

And then there are the tight-knit relationships that visiting lawyers encounter when they work in Marshall. In one patent case that eventually was settled, the plaintiffs hired an accountant whose clients included Judge Ward.

Patent litigation is a growing business across the country; Marshall is just the most visible example. Among the weightier issues behind the mushrooming of its patent docket is whether the elements that have made it expand — hungry plaintiffs’ lawyers, speedy judges and plaintiff-friendly juries — are encouraging an excess of expensive litigation that is actually stifling innovation.

Some say yes. “A lot of the cases being filed in Marshall are by patent holding companies, or patent trolls, as they’re called, whose primary and only assets are patents,” Mr. Tyler said.

Companies spent 32 percent more on outside counsel for intellectual property litigation in 2003 than in the previous year, Chuck Fish, the chief patent counsel for Time Warner, told the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property earlier this year. Spending for all other litigation rose a mere 1 percent during that time, Mr. Fish said.

Defending Marshall’s role, many residents note that not only is it cheaper to hold a trial in Marshall, but that it is neutral territory for virtually all corporations that find themselves in court here.

“It’s not as if you have a situation here where Microsoft is hated or Cisco is spit upon,” Mr. Baxter said. “Whether it happens in Marshall, Tex., or Des Moines, Iowa, these lawsuits are going to happen. They might as well happen here.”

And many in Marshall are looking for ways to profit from the patent gusher.

THE paint is peeling and the wallpaper in the bathroom is nothing short of hideous, but all Johnny Taylor sees as he walks through the former doctor’s office he just bought in town is space for as many as 16 lawyers.

“Furnished office space is renting for $1 to $1.50 a square foot per week. So, a 2,000-square-foot office can get $2,000 per week,” said Mr. Taylor, who has already wired the building for high-speed Internet access and created marshallofficespace.com to highlight offices for rent and offer advertising to local businesses.

One of the first challenges for visiting lawyers arriving in Marshall is cramped quarters. They often roll into town with semitrailer trucks that have traveled from San Francisco or New York containing everything that could be needed to try a case, including volumes of documents, copying machines, desks, video and audio equipment and even cappuccino machines.

Some people in Marshall are trying to save them the trouble by providing fully equipped office space on short-term leases.

“We’re going to have a 6,000-square-foot space for a war room that we can rent out for $7,500 to $10,000 a week,” said Leslie D. Ware, a patent lawyer in Dallas, who bought a former furniture building next door to the federal courthouse. “A firm could basically walk in, plug in their laptops, work and unplug and go home,” he said.

Others are trying to lure patent dollars through different tacks. Fairfield Inn, which bought a subscription to Pacer, the electronic docket, routinely calls law firms to offer rooms for their lawyers with cases scheduled for trial.

“I’m thinking of coming up with a T-shirt for the lawyers,” said Jennie A. Kelehan, a former financial adviser who moved here from Houston three years ago and is now the co-owner of a wine and specialty store called Under the Texas Sun. She estimated that lawyers in town for the patent docket were responsible for about a sixth of her sales.

“The patent lawyers were not in our plans at all,” she said, “but they are definitely a huge asset for us and we will start using that as we start planning for the future.”

Others, though, seem more skeptical about the long-term effect of the patent docket on Marshall’s economy. They said they would like to bring in new industries and increase tourism.

“For the most part, the rocket docket and the lawyers are ‘today dollars,’ ” said Alan Grantham, a member of the Marshall Economic Development Corporation and a senior vice president at Bancorp South. “They spend the night at a hotel, rent cars and eat at restaurants.” But, he added that the patent docket was not the only factor driving the local economy.

Others, like Jerry Cargill, who runs a wholesale beverage distributing company in Dallas and has a family farm outside Marshall, said they hoped that increased tourism would play a bigger role in Marshall’s comeback.

In the last three years, Mr. Cargill has bought nine buildings downtown, as well as a $500,000 stake in the historic Hotel Marshall. The City of Marshall put in $1 million and others raised $527,000 to restore the building to its original Italian Renaissance design.

“I didn’t even hear about the rocket docket until a year ago,” Mr. Cargill said. “By then, we were well into the various projects.”

This fall, a tourism marketing firm is coming to town to create a branding plan and to offer ideas to alter Marshall’s infrastructure for tourism. “It’s a unique community,” Mr. Cargill said. “It just needs some marketing.”

Marshall’s patent docket may not be able to sustain its current pace of growth. Its reputation for speed is starting to attract so many cases that a certain sluggishness may be setting in. Four years ago, lawsuits took less than two years to go to trial. Now the average time between when a suit is filed and when it goes to court is more than 27 months.

There is legislative movement afoot as well. This spring, two senators, Patrick J. Leahy, Democrat of Vermont, and Orrin G. Hatch, Republican of Utah, introduced a patent reform bill. Among its many provisions is one to limit damages in patent lawsuits and another to require a more substantial connection between a business and the court where it brings a patent lawsuit.

WE think the bill will restore more balance in the patent system and remove incentives for plaintiffs to run to one jurisdiction and try to hit the jackpot,” said Mark W. Isakowitz, a lobbyist with the Coalition for Patent Fairness, which advocates patent reform on behalf of corporations. Any reform would likely happen next year at the earliest, lawyers say.

But the biggest change in Marshall’s status could come if plaintiffs start losing more cases.

A jury in Judge Ward’s courtroom in July stunned observers when it returned a verdict that said WG Security Products had not infringed any of the patents of Sensormatic.

The jury in the Hyperion-OutlookSoft case went even further a little over a week ago. After a five-day trial, it deliberated for less than three hours before deciding that OutlookSoft had not infringed the Hyperion patents and that those patents were invalid.

After the verdict was read, OutlookSoft’s legal team returned to the local law office it had been working out of and opened some Champagne, said the company’s chief executive, W. Phillip Wilmington, who attended every day of the trial in Marshall.

“As we were going through our victory discussion, a big truck pulls up and there goes the copier and fax machines out the door,” Mr. Wilmington said. “It disappeared just as quickly as it was set up. I’m sure the week following, there was someone coming in to do it all over again.”
http://www.nytimes.com/2006/09/24/bu... tner=homepage

MySpace Launches Voter-Registration Plan
Anick Jesdanun

The youth-heavy online hangout MySpace.com is launching a voter-registration drive to engage its members in civics. In partnership with the nonpartisan group Declare Yourself, MySpace is running ads on its highly trafficked Web site and giving members tools such as a "I Registered To Vote On MySpace" badge to place on their personal profile pages.

"Young people in this country ... are really engaged in what's happening in their community and want to make a difference," said Jeff Berman, MySpace's senior vice president for public affairs. "The key is to make it easy for them to get engaged. By putting these tools on MySpace and putting it in front of their eyes, you make it far more likely they will use them."

News Corp.'s MySpace is the leading online social-networking site, in which users stay connected by adding others as "friends" and expanding their networks by meeting friends of their friends. MySpace offers message boards, Web journals and other free features its members can use to circulate links for video and other items they like.

Berman said the company was hoping its users would use such tools to encourage friends to register. He acknowledged MySpace was late in launching a voter-registration drive, but said he still hoped "thousands upon thousands of MySpacers will register to vote and spread the word."

Election Day is Nov. 7, and many states close voter registration up to a month before that.

To register, members simply go to http://www.myspace.com/declareyourself and enter a state or ZIP code. After entering the requested information, the site generates a PDF file that can be printed and mailed to state election officials. A Spanish version also is available.

Although MySpace has a heavy youth population, about 80 percent of its 114 million registered members are old enough to vote, according to the Los Angeles-based company.

MySpace is not alone trying to register Americans, particular youths voting for the first time. A San Francisco-based nonprofit group called Mobile Voter offers a service for people to register via cell-phone text messaging.

Political campaigns themselves have also been turning to MySpace and similar sites to reach supporters, with many candidates creating profile pages they hope users would further circulate.


On the Net:

Election Assistance Commission: http://eac.gov

National Association of Secretaries of State vote site: http://www.canivote.org

The Big Gamble on Electronic Voting
Randall Stross

HANGING chads made it difficult to read voter intentions in 2000. Hotel minibar keys may do the same for the elections in November.

The mechanics of voting have undergone a major change since the imbroglio that engulfed presidential balloting in 2000. Embarrassed by an election that had to be settled by the Supreme Court, Congress passed the Help America Vote Act of 2002, which provided funds to improve voting equipment.

From 2003 to 2005, some $3 billion flew out of the federal purse for equipment purchases. Nothing said “state of the art” like a paperless voting machine that electronically records and tallies votes with the tap of a touch screen. Election Data Services, a political consulting firm that specializes in redistricting, estimates that about 40 percent of registered voters will use an electronic machine in the coming elections.

One brand of machine leads in market share by a sizable margin: the AccuVote, made by Diebold Election Systems. Two weeks ago, however, Diebold suffered one of the worst kinds of public embarrassment for a company that began in 1859 by making safes and vaults.

Edward W. Felten, a professor of computer science at Princeton, and his student collaborators conducted a demonstration with an AccuVote TS and noticed that the key to the machine’s memory card slot appeared to be similar to one that a staff member had at home.

When he brought the key into the office and tried it, the door protecting the AccuVote’s memory card slot swung open obligingly. Upon examination, the key turned out to be a standard industrial part used in simple locks for office furniture, computer cases, jukeboxes — and hotel minibars.

Once the memory card slot was accessible, how difficult would it be to introduce malicious software that could manipulate vote tallies? That is one of the questions that Professor Felten and two of his students, Ariel J. Feldman and J. Alex Haldeman, have been investigating. In the face of Diebold’s refusal to let scientists test the AccuVote, the Princeton team got its hands on a machine only with the help of a third party.

Even before the researchers had made the serendipitous discovery about the minibar key, they had released a devastating critique of the AccuVote’s security. For computer scientists, they supplied a technical paper; for the general public, they prepared an accompanying video. Their short answer to the question of the practicality of vote theft with the AccuVote: easily accomplished.

The researchers demonstrated the machine’s vulnerability to an attack by means of code that can be introduced with a memory card. The program they devised does not tamper with the voting process. The machine records each vote as it should, and makes a backup copy, too.

Every 15 seconds or so, however, the rogue program checks the internal vote tallies, then adds and subtracts votes, as needed, to reach programmed targets; it also makes identical changes in the backup file. The alterations cannot be detected later because the total number of votes perfectly matches the total number of voters. At the end of the election day, the rogue program erases itself, leaving no trace.

On Sept. 13, when Princeton’s Center for Information Technology Policy posted its findings, Diebold issued a press release that shrugged off the demonstration and analysis. It said Princeton’s AccuVote machine was “two generations old” and “not used anywhere in the country.”

I spoke last week with Professor Felten, who said he could not imagine how a newer version of the AccuVote’s software could protect itself against this kind of attack. But he also said he would welcome the opportunity to test it. I called Diebold to see if it would lend Princeton a machine.

Mark G. Radke, director for marketing at Diebold, said that the AccuVote machines were certified by state election officials and that no academic researcher would be permitted to test an AccuVote supplied by the company. “This is analogous to launching a nuclear missile,” he said enigmatically, adding that Diebold had to restrict “access to the buttons.”

I persisted. Suppose, I asked, that a test machine were placed in the custodial care of the United States Election Assistance Commission, a government agency. Mr. Radke demurred again, saying the company’s critics were so focused on software that they “have no appreciation of physical security” that protects the machines from intrusion.

This same point was featured prominently in the company’s press release that criticized the Princeton study, saying it “all but ignores physical security and election procedures.” It is a criticism that collides with the facts on Page 5 of the Princeton study, where the authors provide step-by-step details of how to install the malicious software in the AccuVote.

Even before the minibar lineage of the AccuVote key had been discovered, the researchers had learned that the lock was easily circumvented: one of them could consistently pick it in less than 10 seconds.

If skeptics cannot believe what they read about the ease of manipulating an election, they can watch the 10-minute online video: the AccuVote lock is picked, a memory card is inserted and the malicious software is loaded; the machine is rebooted, and within 60 seconds the machine is ready to throw the election in favor of any specified candidate.

Computer scientists with expertise in security issues have been sounding alarms for years. David L. Dill at Stanford and Douglas W. Jones at the University of Iowa were among the first to alert the public to potential problems. But the possibility of vote theft by electronic means remained nothing more than a hypothesis — until the summer of 2003, when the code for the AccuVote’s operating system was discovered on a Diebold server that was publicly accessible.

The code quickly made its way into researchers’ hands. Suspected vulnerabilities were confirmed, and never-contemplated sloppiness was added to the list of concerns. At a computer security conference, the AccuVote’s anatomy was analyzed closely by a team: Aviel D. Rubin, a computer science professor at Johns Hopkins; two junior associates, Tadayoshi Kohno and Adam Stubblefield; and Dan S. Wallach, an associate professor in computer science at Rice. They described how the AccuVote software design rendered the machine vulnerable to manipulation by smart cards. They found that the standard protections to prevent alteration of the internal code were missing; they characterized the system as “far below even the most minimal security standards.”

Professor Rubin has just published a nontechnical memoir, “Brave New Ballot: The Battle to Safeguard Democracy in the Age of Electronic Voting” (Morgan Road Books), that describes how his quiet life was upended after he and his colleagues published their paper. He recalls in his book that Diebold’s lawyers sent each of the paper’s authors a letter threatening the possibility of legal action, warning them to “exercise caution” in interviews with the press lest they make a statement that would “appear designed to improperly impair and impede Diebold’s existing and future business.” Johns Hopkins rallied to his side, however, and the university’s president, William R. Brody, commended him for being on the case.

Recently, there have been signs that states are having second thoughts about trusting their AccuVote equipment. Officials in California, Florida and Pennsylvania have been outspoken about their concerns. In Maryland earlier this year, the state House of Delegates voted 137 to 0 in favor of a bill to prohibit the use of its AccuVote machines because they were not equipped to generate a paper audit trail. (The state Senate did not take up the measure and it died.)

Professor Rubin favors the use of touch screens only for “ballot marking” — capturing a voter’s intended choice — then printing out a paper ballot with only the voter’s chosen candidates that the voter can visually check. Election officials can then use the slip to tally votes with an optical scanner made by a different manufacturer.

Manual audits of the tallies in at least 1 percent of all precincts, as is now required in California, would provide a transparent method of checking for integrity. Should a full recount be necessary, the paper ballots, containing only the selected names, provide unambiguous records of original intent.

“Let computers do what they do best,” Professor Rubin said, “and let paper do what it does best.”

Officials Wary of Electronic Voting Machines
Ian Urbina

A growing number of state and local officials are getting cold feet about electronic voting technology, and many are making last-minute efforts to limit or reverse the rollout of new machines in the November elections.

Less than two months before voters head to the polls, Gov. Robert L. Ehrlich Jr. of Maryland this week became the most recent official to raise concerns publicly. Mr. Ehrlich, a Republican, said he lacked confidence in the state’s new $106 million electronic voting system and suggested a return to paper ballots.

Dozens of states have adopted electronic voting technology to comply with federal legislation in 2002 intended to phase out old-fashioned lever and punch-card machines after the “hanging chads” confusion of the 2000 presidential election.

But some election officials and voting experts say they fear that the new technology may have only swapped old problems for newer, more complicated ones. Their concerns became more urgent after widespread problems with the new technology were reported this year in primaries in Ohio, Arkansas, Illinois, Maryland and elsewhere.

This year, about one-third of all precincts nationwide are using the electronic voting technology for the first time, raising the chance of problems at the polls as workers struggle to adjust to the new system.

“I think there is good reason for concern headed into the midterm elections,” said Richard F. Celeste, a Democrat and former Ohio governor who was co-chairman of a study of new machines for the National Research Council with Richard L. Thornburgh, a Republican and former governor of Pennsylvania.

“You have to train the poll workers,” Mr. Celeste said, “especially since many of them are of a generation for whom this technology is a particular challenge. You need to have plans in place to relocate voters to another precinct if machines don’t work, and I just don’t know whether these steps have been taken.”

Paperless touch-screen machines have been the biggest source of consternation, and with about 40 percent of registered voters nationally expected to cast their ballots on these machines in the midterm elections, many local officials fear that the lack of a paper trail will leave no way to verify votes in case of fraud or computer failure.

As a result, states are scrambling to make last-minute fixes before the technology has its biggest test in November, when voter turnout will be higher than in the primaries, many races will be close and the threat of litigation will be ever-present.

“We have the real chance of recounts in the coming elections, and if you have differences between the paper trail and the electronic record, which number prevails?” said Richard L. Hasen, a professor at Loyola Law School in Los Angeles and the author of the Election Law blog, www.electionlawblog.org.

Professor Hasen found that election challenges filed in court grew to 361 in 2004, up from 197 in 2000. “What you have coming up is the intersection of new technology and an unclear legal regime,” he said.

Like Mr. Ehrlich, other state officials have decided on a late-hour change of course. In January, Gov. Bill Richardson of New Mexico decided to reverse plans to use the touch-screen machines, opting instead to return to paper ballots with optical scanners. Last month, the Connecticut secretary of state, Susan Bysiewicz, decided to do the same.

“I didn’t want my state to continue being an embarrassment like Ohio and Florida every four years,” said Mr. Richardson, a Democrat, adding, “I also thought we needed to restore voter confidence, and that wasn’t going to happen with the touch-screen machines.”

In Pennsylvania, a state senator introduced a bill last week that would require every precinct to provide voters with the option to use paper ballots, which would involve printing extra absentee ballots and having them on site. A similar measure is being considered on the federal level.

In the last year or so, at least 27 states have adopted measures requiring a paper trail, which has often involved replacing paperless touch-screen machines with ones that have a printer attached.

But even the systems backed up by paper have problems. In a study released this month, the nonpartisan Election Science Institute found that about 10 percent of the paper ballots sampled from the May primary in Cuyahoga County, Ohio, were uncountable because printers had jammed and poll workers had loaded the paper in backward.

Lawsuits have been filed in Colorado, Arizona, California, Pennsylvania and Georgia seeking to prohibit the use of touch-screen machines.

Deborah L. Markowitz, the Vermont secretary of state and the president of the National Association of Secretaries of State, said that while there might be some problems in November, she expected them to be limited and isolated.

“The real story of the recent primary races was how few problems there were, considering how new this technology is,” said Ms. Markowitz, a Democrat. “The failures we did see, like in Maryland, Ohio and Missouri, were small and most often from poll workers not being prepared.”

Many states have installed the machines in the past year because of a federal deadline. If states wanted to take advantage of federal incentives offered by the Help America Vote Act, they had to upgrade their voting machines by 2006.

In the primary last week in Maryland, several counties reported machine-related problems, including computers that misidentified the party affiliations of voters, electronic voter registration lists that froze and voting-machine memory cards whose contents could not be electronically transmitted. In Montgomery County, election workers did not receive access cards to voting machines for the county’s 238 precincts on time, forcing as many as 12,000 voters to use provisional paper ballots until they ran out.

“We had a bad experience in the primary that led to very long lines, which means people get discouraged and leave the polls without voting,” said Governor Ehrlich, who is in a tight re-election race and has been accused by his critics of trying to use the voting issue to motivate his base. “We have hot races coming up in November and turnout will be high, so we can expect lines to be two or three times longer. If even a couple of these machines break down, we could be in serious trouble.”

Problems during primaries elsewhere have been equally severe.

In the Illinois primary in March, Cook County officials delayed the results of the county board elections for a week because of human and mechanical problems at hundreds of sites with new voting machines made by Sequoia Voting Systems.

In the April primary in Tarrant County, Tex., machines made by Hart InterCivic counted some ballots as many as six times, recording 100,000 more votes than were cast. The problem was attributed to programming errors, not hacking.

In the past year, the Government Accountability Office, the Brennan Center for Justice at New York University and the Congressional Research Service have released reports raising concerns about the security of electronic machines.

Advocates of the new technology dispute the conclusions.

“Many of these are exaggerated accusations by a handful of vocal activists,” said Mark Radke, director of marketing for Diebold Election Systems, one of the largest sellers of touch-screen machines. “But if you want to talk about fraud and tabulation error, the newer technology is far more accurate.”

Mr. Radke cited a study from the California Institute of Technology that found that between the 2000 election, when touch-screen machines were not used, and the 2004 election, when they were, there was a 40 percent reduction in voter error in Maryland, making the vote there the most accurate in the country.

“There is always the potential for human error,” Mr. Radke said, “but that is easily correctible.”

But critics say bugs and hackers could corrupt the machines.

A Princeton University study released this month on one of Diebold’s machines — a model that Diebold says it no longer uses — found that hackers could easily tamper with electronic voting machines by installing a virus to disable the machines and change the vote totals.

Mr. Radke dismissed the concerns about hackers and bugs as most often based on unrealistic scenarios.

“We don’t leave these machines sitting on a street corner,” he said. “But in one of these cases, they gave the hackers complete and unfettered access to the machines.”

Warren Stewart, legislative director for VoteTrustUSA, an advocacy group that has criticized electronic voting, said that after poll workers are trained to use the machines in the days before an election, many counties send the machines home with the workers. “That seems like pretty unfettered access to me,” Mr. Stewart said.

Bill Would Reimburse States for Printing Alternate Ballots
Ian Urbina

Three Senate Democrats proposed emergency legislation on Tuesday to reimburse states for printing paper ballots in case of problems with electronic voting machines on Nov. 7.

The proposal is a response to grass-roots pressures and growing concern by local and state officials about touch-screen machines. An estimated 40 percent of voters will use those machines in the election.

“If someone asks for a paper ballot, they ought to be able to have it,” said Senator Barbara Boxer of California, a co-sponsor of the measure with Senators Christopher J. Dodd of Connecticut and Russell D. Feingold of Wisconsin.

Republican leadership aides were skeptical about the prospects for the measure. It would have to advance without opposition from any senator and then make it through the House in the short time available before Election Day.

Dozens of states are using optical-scan and touch-screen machines to comply with federal laws intended to phase out lever and punch-card machines after the hanging-chads confusion of the 2000 presidential election. Widespread problems were reported with the new technology and with the poll workers using them this year in primaries in Arkansas, Illinois, Maryland, Ohio and elsewhere.

Local and state officials have expressed concern that the new systems might not be ready to handle increased turnouts. Election experts fear that the lack of a paper trail with most touch-screen machines will leave no way to verify votes in case of fraud or computer failure.

Last week, Gov. Robert L. Ehrlich Jr. of Maryland, a Republican, joined the skeptics, saying he lacked confidence in his state’s new $106 million electronic system and suggesting that state officials offer all voters paper ballots as an alternative.

The proposed federal bill would provide 75 cents for each backup paper ballot that a precinct prints. If ballots are printed for half the 27 million voters expected to use touch-screen machines, Ms. Boxer said, her bill would cost Washington no more than $10.1 million.

Barbara Burt, vice president and director of election reform programs at Common Cause, a good-governance advocacy group, said that the bill would have been stronger if it had required precincts to provide paper ballots in federal elections, but that it was a step in the right direction.

“Lack of funding has been the main excuse that local election officials have used to avoid implementing paper precautions,” Ms. Burt said. “This takes that excuse away from them entirely.”

Ms. Boxer said mandating all precincts to provide paper ballots would have been impractical.

“I think Big Brother dictating something to local jurisdictions is a big mistake, because they will balk at it,” she said. “What we’re saying here is that you run your own elections, and we are going to help you run it properly. If local officials don’t take advantage of the option to take precautions, then they’re the ones on the line.”

Brad Friedman, a liberal blogger and longtime critic of electronic voting, said that incentives to print paper ballots would help, but that without a federal mandate some voters would still have no choice but to use touch-screens.

On Thursday the Committee on House Administration, which has a role in overseeing election procedures, will hold a hearing to consider whether all voting equipment should produce a paper record that lets voters verify how they voted.

Carl Hulse contributed reporting.

Chairwoman Leaves Hewlett in Spying Furor
Damon Darlin and Matt Richtel

The furor over Hewlett-Packard’s spying operation claimed its highest-ranking victim on Friday with the immediate resignation of its chairwoman, Patricia C. Dunn.

The move was announced by Mark V. Hurd, the chief executive, who will now succeed her. But even as he offered an account of an investigation gone awry, and offered apologies to those whose privacy was invaded, he made it clear that many questions had yet to be answered.

His voice shaking, Mr. Hurd said a review of the means used to trace leaks from the company’s board had produced “very disturbing” findings. He also conceded that “I could have, and I should have,” read a report prepared for him while the operation was under way.

The investigators’ zeal led them into a shadowy world of surveillance, and in the end the giant computer company was embarrassed by its own use of technology.

Two executives who supervised the effort were also reported to be leaving.

In addition to direct surveillance, the operation entailed the use of possibly illegal methods to obtain phone records of board members, journalists and others; an attempt to place software on a reporter’s computer to track e-mail; and a study of the use of clerical workers and cleaners to infiltrate two news organizations.

At a news conference at Hewlett-Packard’s headquarters here, Mr. Hurd said it had been proper and necessary for Ms. Dunn to try to stem leaks of confidential information. But he added, “While many of the right processes were in place, they unfortunately broke down, and no one in the management chain, including me, caught them.”

It was the company’s first public discussion of the revelations that have engulfed it for more than two weeks. Mr. Hurd took no questions, with the company saying he did not want to pre-empt his testimony next week to a House subcommittee looking into the Hewlett-Packard affair.

In a statement provided by Hewlett-Packard, Ms. Dunn said she had resigned at the request of the board. But she said that while she had the responsibility to identify the source of leaks, “I did not propose the specific methods,” and those who performed the investigation “let me and the company down.”

According to people briefed on Mr. Hurd’s plans, Kevin T. Hunsaker, its senior counsel and director of ethics, and Anthony R. Gentilucci, its Boston-based manager of global investigations, will leave the company. Mr. Hurd did not speak to this issue, and the company declined to comment.

Some industry analysts had expected Hewlett-Packard to announce more directly who it felt was responsible, inside or outside the company.

“A lot of us thought there was going to be a lot more,” said Jeffrey Sonnenfeld, senior associate dean of the Yale School of Management. But he added that Mr. Hurd apparently felt he needed more time to understand all that occurred.

The initial reaction of investors appeared favorable. In after-hours trading, Hewlett-Packard’s stock was up more than 1 percent.

The effort to find the source of the boardroom leak began in early 2005, around the time of Carleton S. Fiorina’s dismissal as chairwoman and chief executive, and yielded inconclusive results that year. A second phase began in January 2006, as an account of a senior management meeting was being prepared by the online technology news service CNET.

By May, the investigative efforts had identified one board member, George A. Keyworth II, as a source of unauthorized disclosures. He refused an initial request to resign, but another director, Thomas J. Perkins, quit over the investigation. It was Mr. Perkins’s attempt to get the company to acknowledge the reasons for his resignation that brought the entire operation — and deep animosities within the board — into public view early this month.

On Sept. 12, a week after the initial disclosures, Ms. Dunn said she would step down as chairwoman effective in January, to be succeeded by Mr. Hurd. Mr. Keyworth, her antagonist, then agreed to resign.

The moves by Hewlett-Packard on Friday were an attempt to get ahead of the torrent of daily disclosures about the spying operation and an acknowledgment of the irresponsibility, if not illegality, of the methods.

State and federal prosecutors are exploring whether any laws were broken by anyone inside the company or those hired in an investigative chain extending to Boston, Florida and the Midwest. A central element was the use of pretexting, which involved impersonating someone to obtain that person’s calling records from a phone company.

Mr. Hunsaker, the lawyer and ethics officer, directed the 2006 phase of the investigation. Mr. Gentilucci, the Boston-based investigations officer, was involved in both the 2005 and 2006 phases of the investigation.

Mr. Hurd said that on Sept. 8 he retained a law firm, Morgan Lewis, which has concluded that the investigation team led by Mr. Hunsaker provided regular updates to Ms. Dunn, and to a lesser extent to the general counsel, Ann O. Baskins.

“Some of the findings that Morgan Lewis has uncovered are very disturbing to me,” Mr. Hurd said.

Michael J. Holston, a partner in the firm, laid out some evidence to reporters Friday after Mr. Hurd’s comments. While noting that the firm’s review was not complete, he said Ms. Dunn had personally contacted and engaged Security Outsourcing Solutions, a tiny Boston-area investigative firm operated by Ronald R. DeLia, in the 2005 phase.

“For the first month or so of the investigation, Ms. Dunn worked directly with Ron DeLia from S.O.S.,” Mr. Holston said, and it was only two months later that the company’s own detectives were brought in.

In an interview two weeks ago, Ms. Dunn said she had turned to the head of security to handle that investigation. Ms. Dunn’s lawyer, James J. Brosnahan, reiterated that claim Friday. “She went to the right people, and she was assured that what they were doing was legal,” he said.

Mr. Hurd was briefed on the first phase of the investigation, called Kona I, on July 22, 2005, Mr. Holston said. But he said Mr. Hurd attended only a portion of that meeting, which included Ms. Dunn, Ms. Baskins, Mr. DeLia, Mr. Gentilucci and Jim Fairbaugh, the head of global security. The participants were told the investigation was inconclusive, and by late summer it was inactive.

Kona II, the phase that began in January of this year, was far more energetic. “Over the next three months, regular updates were provided by members of the investigation team to Ms. Dunn and, to a lesser extent, to Ms. Baskins,” Mr. Holston said.

A crucial document was a March 2006 report prepared by the company’s investigators and Mr. DeLia under the supervision of Mr. Hunsaker, a senior company lawyer. Mr. Hurd was given a copy of that report, but he said he did not read it. “I could have, and I should have,” he said.

The report identified the source of the leaks and outlined techniques used to get that information, including pretexting. It was also sent to the company’s outside counsel, the powerful Silicon Valley firm of Wilson Sonsini Goodrich & Rosati, for review and comment, Mr. Holston said.

Mr. Holston noted that the Kona II report claimed that the techniques were legal. But as e-mail messages disclosed this week have shown, Mr. Hunsaker suspected early this year that the techniques might not be above-board. When he asked Mr. Gentilucci about the legality, he was told that it was “on the edge,” and Mr. Hunsaker replied: “I shouldn’t have asked.”

Despite those assurances, Mr. Hunsaker never obtained a written legal opinion, according to people briefed on the company’s review of its investigation.

Mr. Holston also discussed other aspects of the operation, including the use of surveillance software surreptitiously sent to the computer of a CNET reporter.

Mr. Holston said the program had been designed to determine whether the reporter would forward a misleading e-mail message, purporting to offer inside information about the company, to her source on the Hewlett-Packard board for confirmation.

The scheme did not work, Mr. Holston said, noting that the investigation team never received an indication that the misleading message had been forwarded.

Mr. Hurd affirmed that he had been informed of the plan to send a bogus message and had approved of the “naming convention” that was used. But he said he did not recall knowing or approving of the tracking technology. Neither Mr. Hurd nor Mr. Holston indicated why the chief executive did not raise questions about the way the scheme was to be carried out.

Damon Darlin reported from Palo Alto, Calif., and Matt Richtel from San Francisco. Miguel Helft contributed reporting from Palo Alto.

NBC Draws Protests From Conservatives
Edward Wyatt

NBC has drawn protests this week from religious conservatives over the content of two television shows, but for different reasons — in one instance for excluding references to God and in the other for possibly including religious imagery.

The disputes, over the network’s proposed broadcast of a Madonna concert that includes a crucifixion scene and over its cutting religious references from the animated children’s show “VeggieTales,” have some critics charging that NBC maintains a double standard toward Christianity.

Alan Wurtzel, an NBC executive who oversees broadcast standards, said in an interview on Friday that there was no double standard. Rather, he said, the network was evaluating each show individually.

In the case of “VeggieTales,” which its creators have said “isn’t a show about values, it’s a show about God,” Mr. Wurtzel said he felt the network was being unfairly punished.

“We frequently get criticized for putting on programming that does not deal with traditional values or religious themes,” he said. “Here is a show that clearly does that, and the criticism is that we didn’t go far enough.”

“VeggieTales,” which NBC added to its Saturday morning line-up this month, was originally created for home video, and episodes of the video series routinely contain religious themes, Bible verses and statements about God’s love and purpose.

NBC secured the rights to the show as part of a children’s programming partnership called Qubo, which it formed earlier this year with Classic Media, the owner of the VeggieTales franchise; Scholastic, the children’s publisher; Ion Media Networks; and Corus Entertainment. When the deal was announced in August, the partners said the “VeggieTales” episodes would be edited to NBC programming guidelines.

Since the show went on the air, however, Phil Vischer, the co-creator of “VeggieTales,” has complained on his Internet site (www.philvischer.com) that NBC has ordered most if not all of the references to God and the Bible to be excised from the episodes prepared for NBC.

“I’m not at all happy with the edits,” Mr. Vischer wrote. “I didn’t know I’d need to make them when I agreed to produce the show, and I considered dropping out when I found out just how much would need to be removed.”

Mr. Vischer added that he had decided not to withdraw from the project “as a favor” to Classic Media.

A spokesman for the show’s parent, however, said the company would rather have an edited version on the air than nothing. Bob Smith, a spokesman for Big Idea, the unit of Classic Media that produces VeggieTales, said that despite the edits, “the thread and values we’re trying to get across is unmistakable.”

“If it weren’t,” he added, “we never would have agreed to it.”

Mr. Wurtzel said NBC did not believe it had deleted the show’s religious message; he said the network had bought the rights to “Veggie Tales” because of its positive religious themes but that it did ask for changes to comply with its standards.

“We are not a religious broadcaster,” he said. “There are universally accepted religious values that we do think are appropriate,” but the promotion of “any particular religion or a particular denomination” is not allowed.

“Clearly the show has religious themes,” Mr. Wurtzel said. “It puts forth some very specific religious values. We had to make a decision about where it went further than we considered appropriate.”

Fans of “VeggieTales” have objected that the edited versions make the message unrecognizable, and L. Brent Bozell, president of the Parents Television Council, wrote letters to NBC executives complaining about both the “VeggieTales” decision and another issue, a Madonna concert scheduled to be broadcast in November.

Kevin Reilly, president of NBC Entertainment, announced this summer that the network would broadcast a taped concert by Madonna during the November ratings sweeps period. At the time, he said the concert would be edited to exclude offensive material. But Mr. Reilly was also quoted in August as saying that the network had no problem with a part of the performance in which Madonna sings while mounted on a cross, in imitation of the Crucifixion of Jesus.

That part of Madonna’s current concert tour has drawn protests around the world from people who believe it is blasphemous or offensive to Christians. This week, after receiving letters of protest about the concert and its intentions, NBC said it had not yet decided whether to include the crucifixion scene.

A spokeswoman for Madonna, however, said Friday that the singer considered the scene crucial to the performance and could withdraw the right for NBC to televise the concert if the scene were cut.

Liz Rosenberg, a publicist at Warner Brothers Records who serves as a spokeswoman for Madonna, said in an e-mail message: “Madonna would not want this number to be censored. It is an important aspect of the show.” She said she could not immediately reach Madonna to ask if she would pull out of the concert if NBC cut the song, “but my educated guess is that she will not back down.”

Madonna also issued a statement on Thursday saying that the performance was “neither anti-Christian, sacrilegious or blasphemous.”

“Rather,” it went on to say, “it is my plea to the audience to encourage mankind to help one another and see the world as a unified whole. I believe in my heart that if Jesus were alive today, he would be doing the same thing.”

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Votes: 40,544

The Echoes of His Mind Just Keep Reverberating
David Browne

FORTY years ago a standard was born, although completely by accident. In the fall of 1966 Fred Neil was recording a folk-blues album in Los Angeles. But he hadn’t written enough songs to complete it, and he was getting anxious to return home to Miami. His manager at the time, Herb Cohen, quickly made a deal: Write one more tune and record it immediately, then you can go.

With that, Mr. Neil retreated to a bathroom at the studio and, five minutes later, emerged with the new composition: a lanky, concise ballad — just two verses and a chorus, with one verse and the chorus repeated — that expressed his desire to go home, “where the sun keeps shining in the pouring rain.”

The song was cut fast, in one take, and Mr. Cohen made good on his promise. “He sang it once,” he recalled, “and then we packed up, and I took him to the airport.”

Mr. Neil (who died in 2001) may have considered the number a throwaway, but in a case study of the unpredictable ways in which pop can work, the song, “Everybody’s Talkin’,” has quietly become a landmark of the classic-rock era. Most people know it from Harry Nilsson’s orchestral-pop rendition, which hit No. 6 after being prominently used in the 1969 movie “Midnight Cowboy,” but it has been recorded by nearly 100 artists, including Stevie Wonder, Willie Nelson, Neil Diamond and Liza Minnelli.

This year five new or unearthed renditions have been released. The band Luna included a straightforward version on “Lunafied,” (Rhino) its collection of covers. The jazz-pop singer Madeleine Peyroux turned it into a sultry saunter on her new album, “Half the Perfect World” (Rounder). Last week Julio Iglesias transformed it into a suave adult-contemporary love song on “Romantic Classics” (Columbia).

Three older recordings popped up this year as well. The famous version was repackaged on a Harry Nilsson anthology. A previously unreleased take by Crosby, Stills & Nash was included on an expanded reissue of the trio’s 1969 debut. And Mr. Neil’s original recording, the one cut in a flash, re-emerged when Water Music reissued his 1967 album “Fred Neil.”

“Everybody loves that song,” said Dean Wareham, leader of Luna, which recently broke up. The band first cut the song in the mid-1990’s and went on to perform it on numerous occasions, including its farewell concert last year. Mr. Wareham said he was initially exposed to the song by his parents, who were Nilsson fans. “It’s perfectly constructed,” he said. “I can hum every guitar line and string part.”

Theo Cateforis, a music-history professor at Syracuse University, said, “Harmonically it’s a very simple song, and it’s easy to get a handle on the melody.” But, he said, the lyrics also account for the song’s appeal. “It’s one of the great open-road songs, along with ‘Born to Be Wild.’ It taps into a sense of freedom and taking a journey. The narrator wants to separate himself from the problems around him, which is a universal feeling that can apply to any era. It works as well now as it did in the 60’s.”

According to BMI, the organization that tracks broadcast play and collects song royalties, “Everybody’s Talkin’ ” has been played on radio and television a total of 6.7 million times, including 160,000 times in 2005. In another possible sign of its ubiquity, it was even the basis for a plagiarism charge this year. Six Palms Music, the song’s publisher, claimed that “I Don’t Care What Your Friends Say,” a new song used on “The O.C.,” bore a melodic resemblance to it. The matter was settled out of court, and Third Story emerged with ownership of the disputed song.

The many versions — and lives — of “Everybody’s Talkin’ ” began soon after it was written. In the 60’s and 70’s Lena Horne used it as the basis for frisky jazz vocalese; Harold Melvin and the Blue Notes turned it into pleading Philly soul; Bill Withers transformed it into a soul-funk stomp; Tony Bennett made it a big-band showcase; and Leonard Nimoy talk-sang his way through it. The oddest version, though, may be a disco makeover featuring Louis Armstrong.

In the decades that followed, the song was rediscovered by alternative and indie rock types. Two British bands, the Beautiful South and the Jazz Butcher, resurrected it. In 2002 the techno producer Paul Oakenfold sampled the Nilsson version on his club hit “Starry Eyed Surprise.” Two years later the Go! Team, an electronica collective from Britain, also used a sample of it in “Everyone’s a V.I.P. to Someone.”

“I didn’t know the song was covered or revered that much,” Mr. Oakenfold wrote in an e-mail interview. He said he knew the song exclusively from “Midnight Cowboy” and “really liked the guitar line.”

It’s not uncommon to encounter someone who knows “Everybody’s Talkin’ ” but doesn’t know much about Fred Neil, since he went out of his way to avoid anything approaching the spotlight. With a deep, resonant voice and hangdog face, he made his name in the mid-60’s in Greenwich Village, where he wrote coffeehouse standards like “The Dolphins,” “The Other Side of This Life” and “Little Bit of Rain.” He was so revered that Bob Dylan once opened a show for him.

By the end of the 60’s, though, Mr. Neil had retreated to Florida, rarely performing or writing new material. His cut of the royalties of “Everybody’s Talkin’ ” — estimated by Mr. Cohen to be in the millions of dollars over the years — allowed him to live a reclusive, comfortable life.

“He was a very sensitive person,” said Robert Steinberg, Mr. Neil’s lawyer. “He couldn’t handle the music business.”

Mr. Steinberg said his client had been vehemently opposed to the placement of his most famous song in “Forrest Gump,” saying he was “afraid they’d exploit it.” Thanks to the particularities of Mr. Neil’s publishing contract, however, the song was used in the film nonetheless.

Mr. Neil’s death was as low key as his life. On July 7, 2001, the police in Summerland Key, Fla., responded to an emergency call at his house. They found Mr. Neil, 65, unconscious on the floor. He had $13 in his wallet and a last will and testament on a nightstand by his bed. He had been battling skin cancer (chemotherapy treatments were set to begin nine days later) and was pronounced dead of natural causes.

Until the end he remained a mystery even to those who knew and worked with him. Mr. Steinberg said he was still confounded by Mr. Neil’s creative withdrawal. “Was it that he didn’t want to be part of the business, or was he afraid of not living up to what he had done before?” he said. “I could never figure it out.”

But everyone agreed on one matter: Mr. Neil never thought much of “Everybody’s Talkin’,” despite its continued popularity and the lifelong revenue it provided.

“He never gave the song much credence at all,” Mr. Cohen recalled. “It was just a way to get out of the studio. He hated L.A.”

Editor: Andy Pratt does a quick, funky and quirky version on his 2003 release Cover Me – Jack.

Digital Set Design Transforms Films Like ‘Flyboys’
Bryan Reesman

"FLYBOYS,” which opened on Friday, is a modest film as things are now measured. Its ensemble cast has no eye-catching names. Its director, Tony Bill, while a solid craftsman, has never been a major box office draw. And its budget of around $55 million, though substantial, is only a fraction of what studios routinely spend on their blockbusters.

Yet the picture, about American pilots during World War I, looms surprisingly large on the screen. In one memorable sequence, for instance, the fliers attack a zeppelin in midair, riddling it with bullets and triggering explosions that send German soldiers fleeing along the top and interior of the airship, while biplanes buzz on all sides.

Scenes of that sort are rapidly blurring the line between big movies and smaller ones, in part because computer design and effects, no longer the preserve of hyper-real science fiction and fantasy, have gone natural. In a wave of films now reaching the screen, digital elements are woven together with the real, vastly extending the filmmaker’s reach and leaving the audience to guess where one ends and the other begins.

In “Flyboys,” as it happens, the explosions and scampering soldiers are genuine, though the zeppelin itself is a digital replication of a 30-foot miniature. “We knew that we needed to do a real explosion with the randomness and chaos rather than a computer-generated explosion, which would have been too calculated and obvious,” said Peter Chiang, the visual-effects supervisor who oversaw the scene.

In “United 93,” released earlier this year, Mr. Chiang used a subtler technique known as digital set extension to stretch the scope of a film that was budgeted at only about $15 million. First the director, Paul Greengrass, and his crew photographed much of the movie in a 50-foot section of an airplane; then Mr. Chiang and company made it look deeper by adding extra rows, people and luggage into approximately 30 shots.

J. André Chaintreuil, a digital set designer whose credits include “The Terminal,” “Superman Returns” and James Cameron’s forthcoming “Avatar,” said Hollywood was still largely “old school” in the field despite the growing number of computerized hybrids. Hand drafting, he said, remains a popular choice, though things are changing rapidly.

“An ordinary set designer draws everything by hand, while a digital set designer obviously uses the computer to aid them in figuring out how a set is configured,” Mr. Chaintreuil said. By modeling a 3-D design on his computer, he can walk a director and production designer through a set before it has even been constructed or before a handmade model has been built. That digitized information can also be shared with multiple departments that usually generate their own plans.

“If the vendor uses 3-D data, we can send them that, and they can choose how to use that data to do their piece of the job as efficiently as they can,” Mr. Chaintreuil said. “Also, if there are any visual-effects shots, we can send out a model of exactly what construction is building for people to study.” In addition alterations and changes to the designs require far less time and labor.

Digital design in the early phases of a project increasingly opens the door to digital techniques in actual production, even with films that seem to be steeped in the grit of real life. On last year’s skateboarding film “Lords of Dogtown,” for example, Mr. Chaintreuil assisted the filmmakers in building a pier in San Diego.

Not only did he create digital set extensions — expanding locations to become larger than they really were — but he also helped the director, Catherine Hardwicke, determine which shots she could obtain, particularly with a program function that imitates views through specific camera lenses. “If we can be in the 3-D world, we can say, ‘If you shoot this way, you’ll get great depth through the piers, and you won’t have to build this half of the pier,’ ” he explained.

Mr. Chaintreuil, who began working in film with models and miniatures, said there were two levels of digital set designers. Some “purely use the computer as a drafting tool, which means they’re basically computer drafters,” he said. “Then digital set designers like myself get called in to do the incredible or the impossible. We get brought in to do crazy surfaces and things you just wouldn’t imagine.”

That being said, many in the vanguard of digital set design appear to pride themselves on a growing ability to meld their work into the commonplace, validating an old saw that the best special effects are the ones you don’t see.

Such is the case with Aaron Haye, whose digital set design credits include “X-Men: The Last Stand” and “Monster House,” and who began his career as a lead model maker at George Lucas’s Industrial Light & Magic. Lately he has been working not on heroes and monsters but on the creation of modern Middle Eastern neighborhoods for the director Peter Berg’s forthcoming military drama “The Kingdom.”

“We built a large, international housing complex” on the campus of Arizona State University East in Mesa, Ariz., Mr. Haye said. “It’s basically just a bunch of apartment buildings, recreational facilities and baseball fields.”

But drafting such ordinary places in 3-D had its advantages, particularly as the physical sets required digital extensions to make them larger. Mr. Haye noted that Tom Duffield, the production designer of “The Kingdom,” had never worked with a digital set designer before, so Mr. Haye wound up on the project for nearly a year, as digital work seeped into the film.

Yet Mr. Haye, who is working on David Fincher’s New Orleans-based period film, “The Curious Case of Benjamin Button” — a project that uses only digital set designers — envisions a time when the entire field will be transformed by computer technology. Mr. Haye said, “With every production designer I work with, we move a little further in that direction.”

Tim Arango

Worried about its massive DVD sales, retail behemoth Wal-Mart has told some of Hollywood's biggest players it will retaliate against them for selling movies on Apple's iTunes.

Last year when Disney announced it would begin offering episodes of the hit shows "Lost" and "Desperate Housewives" on Apple's iTunes, the reaction of the world's largest retailer sent shockwaves through the entertainment industry.

Wal-Mart, worried that offering the shows for viewing on iPods would cut into DVD sales at its stores, sent "cases and cases" of DVDs back to Disney, according to a source familiar with the matter.

Now, following Apple's entrance in to the business of selling full-length films for download, the battle between Hollywood and its largest client is getting uglier, as studio executives say Wal-Mart has overtly threatened to retaliate if they go into business with Apple.

So far, Apple has only inked a deal with one studio - Disney - on whose board Apple boss Steve Jobs sits. But after seeing the success Apple had in creating a legal download business for the music industry, the movie industry would like to come aboard.

"We all want to be in the Apple business," said one high-level executive at a major movie studio. But Apple's pricing - $9.99 to $14.99 - is lower than DVD prices at Wal-Mart.

The studios generally charge Wal-Mart a wholesale price of $17.95 for new DVDs, while Apple is paying Disney a wholesale price of about $14.50 per film, according to a studio source.

The last thing studios want to do before the holiday shopping season is to offend their biggest sales outlet; the studios, collectively, rely on Wal-Mart for some $5 billion of DVD sales in the fourth quarter.

But several weeks ago, in the midst of rumors that Apple was close to announcing a deal with Disney, Wal-Mart's David Porter - the executive responsible for stocking the retailer's shelves with DVDs and CDs and whose influence is so immense in Tinseltown that he's been named to Premiere magazine's annual power list - made the rounds of Hollywood studios.

His message, according to a studio exec involved in the discussions: that there would be "serious ramifications" if the studios hopped in bed with Apple.

"They threatened to hurt us in terms of buying less products," said this person.

The situation between Bentonville and Hollywood has gotten so heated and so high-level that Jobs recently phoned Wal-Mart CEO Lee Scott to ask him to moderate his stance, according to a source.

"What they probably will do is not hurt Disney on new titles, but will buy less of their library titles," said one source.

Library titles, however, are where Wal-Mart makes money from DVDs. The retailer typically slashes the price of new releases below cost, making up for it by selling other products to shoppers.

A Wal-Mart spokeswoman said, "We intend to meet our customer needs whether they choose to purchase movies online or in the store and will continue to work hard with all our partners to do that."

Click Fraud Is Growing on the Web
Karen J. Bannan

A year ago, DiamondHarmony.com, an online jewelry store, decided that it had outgrown its sole source of advertising, which was eBay. The company added an elaborate marketing effort on search engines that included a pay-per-click advertising campaign based on keywords and phrases. For its trouble, DiamondHarmony became ensnared in click fraud.

Instead of actual prospects, the clicks were coming from fraudulent sources. The fraud, which cost DiamondHarmony $17,000 over seven months, was uncovered through analytical software the company installed from ClickTracks of Santa Cruz, Calif.

Click fraud most commonly happens when renegade partners, who get a portion of the fees earned by a search engine each time a paid link is clicked, deliberately generate excessive clicks with no chance that any of the clicks will result in a sale for the business that is paying for them.

The spurious clicks can be generated through automated programs or by paying people to spend time clicking over and over on a link.

As for DiamondHarmony, the company was initially spending about $45 to $50 a day on each of the eight search engines where it placed advertising, said Joe Tedd, its manager for search strategies.

The week before Thanksgiving, however, Mr. Tedd started seeing a large increase in clicks from one engine in particular, while its corresponding conversion rate — the number of sales in relation to clicks — kept going down.

“In November, we saw the number of searches going up on all the engines we had placement on,’’ Mr. Tedd said. “But while all the other engines were seeing higher conversion rates, this one engine was doing so poorly, we actually took the campaign offline.”

“The search provider was syndicating the keyword to partner publishers, but while the clicks were being counted on the publisher’s site, they weren’t coming through to our site,” he added.

Businesses can also fall victim to click fraud at their competitors’ hands. Companies vying for the same position on a list of paid search results may click often enough on a competitor’s ad to push the rival over its spending limit — knocking them out of paid search listings temporarily.

Companies typically set a daily budget for individual search terms as well as their entire campaign.

This year eMarketer Inc., a research firm, estimated that the overall online advertising market for 2006 would be $16.7 billion; paid search was expected to reach $6.9 billion by the end of the year. The company on Monday will revise those figures.

The overall online market is being re-evaluated down by 3 percent to 6 percent. Search engine marketing’s share of that market, however, remains constant.

The scope of the problem depends on who is describing it. Business owners like Iain Burton, the chairman of Aspinal of London, a manufacturer and seller of fine leather items, says click fraud is much more pervasive than the search engines acknowledge. Mr. Burton, who spends about $50,000 each month for paid search advertising, said he was amazed at how blatant it could be.

“I used to make money on pay-per-click advertising; I’d say it used to be really good. But it has become ridiculously expensive. I’ve lost tens of thousands on click fraud over time.”

Search engine providers disagree and say the overwhelming majority of fraudulent clicks were never seen by advertisers because they were discovered and removed. A Yahoo spokeswoman, Gaude Paez, did say, however, that click fraud is a serious, but manageable, challenge.

“We believe that our entire industry must be vigilant in staying one step ahead of spammers,” said John Slade, senior director for Yahoo’s Clickthrough Protection.

Click Forensics, a consulting firm based in San Antonio, puts the number of fraudulent clicks at about 14 percent of total clicks, based on a recent survey of more than 1,300 online marketers.

The truth probably lies somewhere in between, said Danny Sullivan, the editor of SearchEngineWatch.com, an online industry newsletter.

Google, the search leader, agreed to pay $90 million to settle a click fraud class-action suit — with up to $30 million of that allocated for legal costs. In July, Google’s proposed settlement was approved by an Arkansas judge who called the ruling “fair, reasonable, and adequate.”

Still, 556 advertisers opted out of the class-action suit, leaving the door open for additional lawsuits. And in June, Yahoo agreed to pay litigants’ legal fees, estimated at $4.95 million, and provide credits to any company that could prove it was a victim of click fraud from January 2004 through this year.

What makes the problem worse, industry followers say, is that many instances of click fraud go undetected. “We’re not at a point in Internet history where we can easily point to a number and easily point to a solution,” said Dana Todd, president of the Search Engine Marketing Professional Organization. Moreover, “the technology solutions out there to combat the problem are neither free or easy, especially for small businesses that are already overwhelmed by search engine marketing.”

Indeed, while larger companies expect — and can usually afford — to pay for some measure of click fraud, smaller companies have no choice but to ferret out inaccuracies, Mr. Sullivan said. The best way to start, he said, is to measure conversions to see if the ads are working.

But for many smaller business, Ms. Todd says, the only way to monitor the problem are either manually auditing clicks or using campaign management software or services. And often that seems not worth the bother.

“You have to look through all your data and see what clicks came in from where, and why they didn’t convert, which is fairly time-consuming and technical,’’ she said. “You can use some of the freebie trackers, but they may not give you the level of transparency to be able to understand what’s happening on your site.’’

“We believe that some of the biggest offenders,’’ she added, “are doing it in such minuscule amounts that it stays below the radar — a nickel here, a penny there — but it adds up in a huge way.”

Mr. Burton of Aspinal said he was forced to hire a professional pay-per-click management company to address the issue, and found that he had lost $10,000 over three months to click fraud.

“It’s a bigger problem with companies outside of Google,” he said. “When you look at your stats and find that — with a popular keyword — some smaller engine is sending through 10 times more traffic than Google, which gets by far the largest amount of traffic, then you know there’s a problem.”

Shuman Ghosemajumder, Google’s business product manager for trust and safety, said a company’s search provider should do the sleuthing.

“We’ve got a system of real-time detection filters that constantly scan for suspicious activity based on the rules we’ve set up,” he said. “The vast majority of invalid clicks are handled by them. We’re also manually reviewing to detect publishers who might be generating fraudulent clicks. When we do find out, we terminate that publisher.’’

Download Start-Up Takes Aim at DVDs
Michael Kanellos

Video download site EZTakes doesn't have the same selection of first-run films and TV shows that sites like Movielink or Apple Computer's iTunes do, but it offers something else: Consumers can burn movies to a disc.

The Easthampton, Mass.-based start-up, which is removing the beta label from its movie download service this week, hopes to carve a name for itself in the highly competitive digital entertainment realm by providing convenience.

With EZTakes' service, users order a movie or television show online, with prices ranging from free to $12 and above. The company's servers then send a digital copy to the consumer's hard drive, and they can burn two copies to blank DVD discs and watch what they downloaded on their TVs or other device.

"We've found people always don't write the name of the movie on the disc, so you can have a backup copy," said CEO Jim Flynn.

Currently, most movie download sites don't let consumers burn downloads to DVDs. Some sites, such as Amazon.com's Unbox, let consumers transfer a download from one PC to another, but not copy it to a disc. As a result, movies often have to be watched on a small PC screen.

EZTakes, though, will likely face strong competition from established players and several newcomers. In addition to the online movie service Amazon is expected to launch soon, the company has started to more actively promote its CustomFlix service. In CustomFlix, consumers order obscure content and CustomFlix sends them a custom-burned DVD.

AOL also announced recently that it will let consumers download TV shows and movies to their computers and play them back on plasma or LCD TVs. The service, however, initially will work only with Viiv PCs. Sites like Veoh Networks are also making it easier to find the sorts of cult classics EZTakes specializes in.

Apple, meanwhile, next year will let consumers who buy movies from its site watch them on TVs if they also own iTV, a newly unveiled piece of hardware that lets consumers stream movies or music to televisions. Devices similar to iTV have failed to sell in the past, but they were released when video download services were just beginning to take off.

Bring me the head of Ed Begley Jr.
While Movielink sells first-run films, many of the offerings in EZTakes are relatively obscure: "The Mind Reader," a 1934 film starring Claude Rains as a phony mind reader; "Blood Sucking Freaks," regarded by some as one of the cult classics of our time; and "Tall Tales and Legends: The Legend of Sleepy Hollow" starring Ed Begley Jr. and Beverly D'Angelo.

Still, the selection is improving all the time, Flynn said. Through a deal with Koch Entertainment, a large music and film distributor, EZTakes can sell customers "The Umbrellas of Cherbourg," for $15.99. Amazon sells it for $21.99, although Amazon affiliates sell new copies for around $14.

The site also offers the critically acclaimed 2004 documentary "Supersize Me"; the Marlon Brando western "One-Eyed Jacks" (for $1.99); and a version of "The Old Man and the Sea" starring Anthony Quinn. Episodes of "Wild Kingdom"--the ones where Marlin Perkins ordered his cheery assistant Jim to wrestle with alligators and other dangerous animals--are also available.

Consumers also download a lot of yoga and exercise videos, Flynn added. The service, which went into beta last year, currently touts a few hundred movies and some 20,000 registered users. Roughly 80 percent of people who have bought one movie have come back as repeat customers, according to Flynn.

Generally speaking, the company sells its movies for less than what the DVDs sell for in stores because the movies are downloaded electronically. Films from Koch sell for around 25 percent to 30 percent less than the store-bought DVD versions of the same movies. Many of the classic movies, such as the Lon Chaney version of "The Hunchback of Notre Dame," sell for $1.99 because the movies have entered the public domain.

Soon, the selection will also resemble, and perhaps compete with, Wal-Mart's. Mill Creek Entertainment, which provides many of the TV shows and movies--including the Essential Ernest Collection and a lot of old John Wayne movies--sold in the end-cap displays at big-box retailers, has signed with EZTakes. The deal will approximately double the number of films offered on the site.

Flynn says he has also begun to speak more to major movie studios. "There are a couple of major studios where executives are saying 'My marching orders are to try everything,'" he said.

Piracy remains a problem, but it can be contained. The company inserts copyright protection into its downloads to prevent excessive copying. It also has a fingerprint function tracing copying back to the source. Besides, Flynn added, it's not like other protection systems are foolproof.

"I could teach a chimp to copy a DVD" protected by DRM schemes from other vendors, he joked. "Maybe there is some lower order of primate, like spider monkeys, that couldn't do it, but it's relatively easy."

Woman Says RIAA Cannot Introduce Songs into Lawsuit if it Has Not Produced Song Files

In UMG v. Lindor, the defendant Marie Lindor has made a motion to preclude the RIAA from introducing into the case songs as to which it has failed to produce the song files.

Ms. Lindor's lawyers submitted to the Court the RIAA's interrogatory responses where the record companies had stated under oath that their case was based upon (a) Media Sentry's detection of song files being 'distributed' and (b) Media Sentry's allegedly making "perfect digital copies" of those files.

Ms. Lindor's attorneys argued that the RIAA cannot prove that it made perfect digital copies of the songs if it doesn't have the song files.

The MPAA Surrenders in War Against Piracy
Mark Hachman

Somewhere in the bowels of Stansted Airport in London once sat Lucky and Flo, two Labrador retrievers, the latest weapons in the war on piracy.

Originally commissioned by the UK's FACT (Federation Against Copyright Theft), Lucky and Flo are now employed by the Motion Picture Association of America (MPAA), which plans to take the dogs on a "world tour", sniffing out fake DVDs in cities around the globe.

It's a high-profile war, and apparently no expense is being spared. But what about the Web? What if there was an easily accessible source of illegally copyrighted materials, with a search engine, on a site that had participated in a press release with the MPAA itself, touting new automated measures to prevent piracy? Wouldn't the MPAA see the forest for the trees and quickly crack down on the offender?

As it turns out, apparently not.

I'm talking about Guba.com, which offers for-pay online rentals and purchases of licensed movies and TV shows, but also archives files published to Usenet, a collection of text-based newsgroups that can hide encodings of copyrighted material often spread across dozens of separate messages.

At this point, I imagine Guba's chief executive, Thomas McInerney, is slowly turning a bit pink. After I wrote about how Guba makes Usenet-based copyrighted content available to download for free, McInerney emailed me to ask if I accepted bribes from his competitors to write the story. I didn't, and do not.

What I did do, though, was follow up yet again with the MPAA, which unfortunately did not return calls for my original story. My memory here is faulty, but I believe I made five phone calls over a period of three days, to both the Washington D.C. and Los Angeles offices. I'm pretty sure that by the fifth phone call I left a message along these lines:

"Hi, this is Mark Hachman from PC Magazine. I'm calling about Guba.com, a site that is archiving copyrighted content – not clips, mind you, but whole files – and making them available for download. I believe Guba is a partner of yours, since you co-authored a press release with them in July. Would someone be available for comment?"

I thought that such a message would instantly put me in touch with someone on the MPAA's legal team, eager to crack down on the offending site. Nope. It instead prompted this statement, given to me Thursday night by a spokeswoman in the MPAA's Los Angeles office. ("Johnny" is the name of the automated filtering software Guba developed.)

"It's our understanding that Guba.com is committed to using 'Johnny' to filter MPAA movies on their network," the spokeswoman said. "They've been working with us in good faith, and they'll continue to do so. We have a relationship with Guba, and they have a commitment into making sure that they don't offer copyrighted content. We'll continue to monitor the situation, and if for some reason it doesn't happen we will talk to them."

Compare and contrast that statement with one offered by the MPAA a year ago:

"The MPAA has developed a multi-pronged approach to combat piracy, and we are working to deliver our movies to consumers in new and innovative ways," Gayle Osterberg, a spokesperson for the MPAA, said then. "However, when it comes to consumers stealing our product, we also have a very aggressive enforcement aspect to our anti-piracy program. In cases where people are illegally downloading films, there is a great likelihood that they risk being sued at some point down the line."

When I asked the MPAA representative to view the Guba site to confirm that copyrighted files were available there for free download, apparently illegally, the spokeswoman refused. When I offered to point her to an apparently illegally ripped DVD copy of The Ring available on the site, she also declined. Continued...
As for the UK sitcoms available on the site, Eddy Leviten, who heads the communications department at FACT, said Friday that the agency's hands were tied, as it's a site hosted within the U.S.

Remember that the original story pointed out that Guba's sci-fi section contained numerous examples of TV shows, from Star Trek to Stargate SG1. Each file may be watched on the site, without special software, in its entirety, then downloaded to a user's hard drive, or transcoded into a format for playback onto an Apple iPod or Sony PSP.

Think about that for a second. BitTorrent doesn't offer that capability. No file-sharing program that I've ever heard of does either. What an honestly amazing convenience that is. Even licensed sites such as CinemaNow don't offer the ability to download files in alternative formats, even though they too offer "free files". For every "The Saint" episode offered by CinemaNow, however, there's an Attack of the Giant Leeches. No thanks – I'll take an old episode of WKRP In Cincinnati instead. Thanks, Guba!

Keep in mind that Guba is offering licensed content, from Warner Bros., typically available at the top of the screen when performing a "general videos" search. That's not the content that I'm referring to. I suspect that a deal with Universal (the owner of Star Trek) might be a bit delayed, however, as there's no point in selling content when it's being offered for free a few inches down the page.

McInerney's argument is that sites like YouTube also offer copyrighted content. "There is essentially every copyrighted video work ever made in the history of mankind on YouTube," he wrote in an email. "Yet for some reason, you chose to write a story about copyrighted content 'running wild' on Guba. It's patently absurd."

There's some validity to his comment, and to a separate one that BitTorrent (which has also joined with the MPAA) also can be used to find copyrighted files. BitTorrent is a protocol, however. YouTube, moreover, mainly hosts clips of files, not the whole enchilada. I'm not going to claim YouTube is offering a "fair use" defense, but keep in mind this reference from the U.S. Copyright Office:

"The 1961 Report of the Register of Copyrights on the General Revision of the U.S. Copyright Law cites examples of activities that courts have regarded as fair use: "quotation of excerpts in a review or criticism for purposes of illustration or comment; quotation of short passages in a scholarly or technical work, for illustration or clarification of the author's observations; use in a parody of some of the content of the work parodied; summary of an address or article, with brief quotations, in a news report; reproduction by a library of a portion of a work to replace part of a damaged copy; reproduction by a teacher or student of a small part of a work to illustrate a lesson; reproduction of a work in legislative or judicial proceedings or reports; incidental and fortuitous reproduction, in a newsreel or broadcast, of a work located in the scene of an event being reported."

Fair use does not include the republication of the whole of the original work. Your argument fails here, Mr. McInerney. Continued...
And as for the argument that savvy uploaders are gaming the system by using misleading file names – before I called Guba, the filtering software apparently didn't catch the files named "Battlestar Galactica," two words which, as far as I know, do not exist outside of the context of the television show. And I think this is now the third time I have pointed out that the majority of the files in the science-fiction section are copyrighted files. For Pete's sake, the site has a dedicated "TV Shows" section!

Of course, the whole problem could be solved by simply capping the duration of published videos at 20 minutes or so, less than the length of a U.S. TV show. Apparently the site's owners haven't thought of this, even though its competitors have.

But here's the rub: in February, the MPAA filed suit against sites including TorrentSpy and BTHub, arguing that even links to copyrighted content encourage people to download illegally. Meanwhile, Guba happily provides copyrighted content to the public. And the MPAA has utterly lost the moral high ground, if it hadn't already.

The only conclusion I can draw from this is that the Guba archive is an MPAA-sanctioned supply of copyrighted content. Maybe this is a social experiment, a quiet no-mans-land where users sick of paying $24.99 for a new DVD and studio execs burned out on the Hollywood lifestyle can swap a few bits with the average joe. Seriously, if a site provides downloadable content using an MPAA-approved filtering algorithm to weed out copyrighted content, isn't that a safe argument that downloaders should be free from liability?

So apologies all 'round, then. I clearly have missed the gaping hole in the MPAA's position, that of leniency to its partners.

Guba's McInerney says that "if our only job was to police for copyrighted content, it would be one thing, but we have features and technologies to build at the same time in a very competitive environment."

What a brilliant argument that is. I think that the next time the MPAA sends a cease-and-desist letter to a university student, that student should point out the "features and technologies" he himself is working on, as a part of his education. Do you live in a "competitive environment"? I do.

Look, Mr. McInerney, I feel sorry for criticizing your business model so harshly. But you've picked your side and joined forces with the MPAA, which has adopted an absolutist position with regards to piracy, a war that, as you're proving, can not be fought on all fronts. I sincerely hope that you aren't threatened with a suit filed by the MPAA, as others have been.

It's just a shame that you, and Guba, don't provide enough files for users to download a whole season's worth of Star Trek: Voyager, for example. I found just sixteen episodes. But don't worry; all in all, there's enough to last your customers a long, long time.

Just don't burn it to a DVD. Poor Lucky and Flo wouldn't know what to do.

Ithaca College and the RIAA

The RIAA is our friend : )

"As you may know, the entertainment community has become increasingly concerned about illegal file sharing on universities’ Local Area Network (LAN) using such programs as Direct Connect (DC++), MyTunes/OurTunes (both well-known hacks of Apple's iTunes software) and other similar programs. Our industries have recently launched a systematic program to identify and curtail campus Local Area Network (“LAN”) piracy. We write today to inform you that we have information indicating such a problem exists at [SCHOOL]."

Thus wrote entertainment cartel capos Cary Sherman of the RIAA and Dan Glickman of the MPAA (Motion Picture Asssociation of America), in April, to 40 university presidents in 25 states.

Clerks responsible for sending the email presumaby replaced [SCHOOL] with the name of the appropriate institution.

Now, "In its latest strategy for dealing with illegal file sharing on college campuses, the Recording Industry Association of America (RIAA) is asking for help from college administrators to deal with the growing trend of students sharing copyrighted files on local area networks (LANs)," says Ithaca College's The Ithacan.

And why not? After all, it's now routine for the Big Four Organized Music's RIAA and the Big Six Hollywood studios' MPAA to use school staffs as industry cops with local tax-payers footing the bill.

The story has Dave Weil, director of Web systems for Ithaca's information technology services, pointing out Apogee Telecom handles the college’s residential Net and it hadn't said anything about students sharing copyrighted files through residential LANs.

But, "If the college became aware of it, it's against our policies, so we would investigate and take appropriate action," Weil said. And Mike Leary, assistant director of judicial affairs, said his office has sent out more than 250 warning letters since 2003 to students identified by Apogee, "for illegally sharing files on the Internet," The Ithican states.

"We're heartened to see Ithaca staff following instructions so closely," said RIAA boss Mitch 'The Don' Bainwol.

Just kidding. He didn't really say that.

Meanwhile, sophomore Kyle Rogers had heard from Apogee, "for illegally sharing a copy of a computer game on Bittorrent". Apparently, "Students using Bittorrent share files with Internet users outside of the college, so it can be traced," states The Ithican.

It can?

Anyway, "Rogers said he immediately complied with the e-mail, which instructed him to delete the files and notify Apogee that he had done so to avoid a lawsuit. Rogers said several of his friends had also received similar e-mails and promptly deleted the illegal material from their computers as well.

"I had no idea I was being monitored," The Ithacan has him saying. "I was pretty freaked out."

"As you are no doubt aware, these issues are critically important to not only us, but to all communities that value the protection of copyright and intellectual property," adds the email. "We look forward to working with you as we continue to pursue a comprehensive approach to addressing piracy on college campuses: promoting educational efforts; working with university administrators on technological solutions and offering legal music and movie services; and when necessary, enforcing our rights as appropriate."

Ithaca College wasn't on the original RIAA/MPAA mailing list.

Microsoft Admits WGA Failures “Coming Up More Commonly Now”
Ed Bott

Scrolling through the posts on Microsoft’s official WGA Validation Problems forum is like reading accident reports from a multiple-car pileup on Interstate 5. Many of the victims are completely innocent and have no idea what hit them, and cleaning up the mess can be a nightmare.

Even a casual reading of the posts at the WGA Validation Problems forum makes it clear that WGA has serious problems. But Microsoft refuses to share any hard data about WGA installations, making it impossible for independent observers to quantify the extent of the problems. Until now, that is.

With the help of a researcher, I went through a sample of 137 recent problem reports from actual Windows users, posted publicly on the WGA Validation Problems forum. Our research was the online equivalent of listening in to two weeks worth of calls to Microsoft’s support lines. The results we found directly contradict Microsoft’s insistence that "only a handful of actual false positives have been seen."

According to our analysis, 42% of the people who experienced problems with WGA and reported those problems to Microsoft’s public forums during that period were actually running Genuine Microsoft Windows. That’s not just our opinion, either. Those statistics were reported by the Redmond-approved Microsoft Genuine Advantage Diagnostic utility.

In our research, we discovered that two Microsoft employees have publicly and repeatedly acknowledged that a particular type of WGA false positive is "coming up more commonly now." We found a widely used security tool from McAfee that triggered WGA failures on perfectly legitimate systems. And we read dozens of reports from frustrated Windows users whose systems are running legally licensed copies of Windows XP but who are blocked from receiving security updates via Windows Update and who are blocked from installing premium Microsoft downloads such as Internet Explorer 7 because the WGA tool mistakenly identified their Windows installations as counterfeit.

Our methodology was as follows:

o We reviewed all discussion threads from the WGA Validation Problems forum, beginning with threads started on August 1 and continuing in sequence until we reached new discussions dated August 15. Choosing this range of dates allowed us to be certain that Microsoft representatives had had sufficient time to respond to every post. We also looked at a sample of more recent posts and found reports that were similar to those during the sample period.

o We counted only forum threads containing output generated from the Microsoft Genuine Advantage Diagnostic utility. Microsoft’s representatives insist that users run this utility and paste the results for analysis before they will agree to resolve any issues on this forum. This effectively eliminated "chatter" and posts that didn’t directly relate to WGA.

o We tabulated the Validation Status field to divide the total sample of problem reports into the "buckets" Microsoft uses to classify Windows users for its WGA program. The overwhelming majority - all but 6% - of the validation results fell into four categories: Genuine, Blocked VLK, Invalid Product Key, and Not Activated.

As the graph shows, 39% of problem reports were from people who were indeed using counterfeit software, activated by an invalid product key or a stolen or leaked volume license key that has been blocked by Microsoft. But we were shocked to discover that the largest group of reported problems - representing 42% of the reports in our sample - came from people running copies of Windows that were Genuine, according to the MGA Diagnostic tool.

We have every reason to believe that this group is a representative sample of people who have experienced unexplained WGA notifications telling them they’re running counterfeit software. (Obviously, it doesn’t include people who knowingly installed counterfeit copies of Windows.) If anything, they represent a slightly more sophisticated group than average, because they were able to track down the WGA Validation Problems forum. But there’s no indication that this group is otherwise atypical.

So, where did those false positives come from?

One large group consists of people who, for some unexplained reason, were displaying cryptographic errors related to digital signatures. The problem is so common, in fact, that Microsoft representatives have a canned response they paste into replies to forum visitors who appear to be showing false positives caused by these errors. Here’s a sample of the canned text, posted by Microsoft’s Phil Liu. We read these exact same words over and over and over again in forum threads during our sample period:

The issue seems to lie with the "unknown" signature that is coming up more commonly now. The "unknown" signature denotes a problem with detecting digital signatures. [emphasis added]

That snippet - "unknown signature … coming up more commonly now" - appears in at least 30 different threads between July 31 and September 18. The solution isn’t easy, especially for a computer novice. Microsoft’s representatives instructed users to open a Command Prompt window and type 10 separate commands to re-register system DLLs. The repair procedure worked, but this victim’s response was typical:

That fixed the problem. I was able to get the updates and no more counterfeit messages. I think there is an issue with this new validating software. I am for stopping piracy - but this is crazy.

Another set of problems were caused by a registry-cleaning utility called QuickClean, which is part of McAfee’s Internet Security Suite. According to McAfees’ promotional copy, "McAfee QuickClean technology helps optimize your computer performance, eliminating drive-clogging ‘Internet build-up’ (e.g., temp files, cached files, file remnants, Active X code), unused programs and other unnecessary clutter to free up valuable disk space." Unfortunately, it also "cleaned up" the information the WGA utility used to identify legitimate copies of Windows XP.

A post on McAfee’s support forums first reported this problem on July 31. This thread, started on August 11, is the first to document the problem on Microsoft’s support forums:

One of the tools on the new Security Center is a "quick-clean" tool, which I ran because my computer was running a bit slow. The next morning, after a McAfee security (definitions) update and a reboot, WGA flagged my computer as non-genuine.

Over the next three weeks, another nine users added posts to this thread saying they were experiencing identical problems. Microsoft’s Phil Liu posted an update on August 31, confirming that McAfee had finally issued a patch on August 30. In other words, users of a very popular security suite for one full month were one click away from falsely being accused of running counterfeit software. That problem is now solved, but there’s no indication that WGA is robust enough to protect itself from other system-level utilities that might cause similar problems in the future.

And then there are the Microsoft customers who receive no help at all after reporting that WGA notification messages were flagging their software as counterfeit even when the MGA Diagnostic utility showed it was Genuine. Most get canned responses telling them to go visit Microsoft’s WGA Diagnostic page or update the WGA Notification utility or run a command to re-register the Wgatray.exe program. This thread is typical, with two separate customers reporting that the canned responses didn’t work and no follow-up from Microsoft. We found dozens of these cut-and-paste responses to Microsoft customers reporting that their Genuine software had failed WGA validation. Did the fixes work? No one knows, because the original posters either never returned to the forum or never posted a reply. Only 20% of the forum threads we looked at included a follow-up message from the original poster indicating that they had solved the problem.

And the reports we analyzed here are from customers who actually managed to find their way to the WGA Validation Problems forum. On our test machine, running a counterfeit copy of Windows XP supplied to us by Microsoft, clicking the pop-up WGA Notification bubble led to a page that offered to sell us a Windows Genuine Advantage Kit for $149. The page includes no acknowledgment that the errors might be caused by problems with digital signatures, with third-party software, or with a failed WGA Notification installation. Since I published Busted! What happens when WGA attacks (including this Image gallery showing the WGA process at work), Microsoft has made no attempt to improve the help it offers users who may be experiencing false positives.

How many legitimate customers are simply paying Microsoft an extra $149 because it’s easier than going through the hassle of working out the problem? If the answer is more than zero, it’s too many.

Last Thursday, I contacted Microsoft’s WGA team and offered to discuss the details of this story with them so they could comment on it. Despite repeated follow-up messages from me, they have declined the opportunity to hear about this story or to comment on it.

Update 26-Sep 6:15AM PDT: After this story was posted, a Microsoft spokesperson who had not read the story and had declined the opportunity to review any details about our findings sent an e-mail statement affirming the company’s confidence in WGA. You can read that statement in this follow-up post.

Access Denied
Yuki Noguchi

Between work and personal e-mail, multiple banking and retirement accounts, two association memberships, photo sites, Web communities, and retailers like Amazon.com and eBay.com, C. David Gammel maintains 130 online accounts, each requiring a user name and password.

Gammel tracks his sundry log-in information in a file on his computer, but on at least two occasions he's confused or mistyped his password, and been locked out of his SunTrust bank accounts, forcing him to call the bank or look for an open branch to regain access.

"It's frustrating -- if understandable," said Gammel, a consultant in Silver Spring. He has also been denied access on a news site when he couldn't remember his log-in information, he said. "I bail on them if I'm having a difficult time," he said.

Password peeves come as a cost of doing business online using multiple computer applications. A typical professional relies on a dozen or more programs or Web sites to manage his life at home and work, and many of those require user authentication for access.

But the increased reliance on technology and the commensurate accumulation of passwords has reintroduced human fallibility into the security equation. Consumers' memories are straining under the pressure of remembering so many passwords. And when they fail to, companies increasingly are having to rely on the judgments of their employees to decide how to field calls from forgetful customers.

The average number of passwords used at work is between six and 12, and is increasing at about 20 percent a year, according to RSA Security Inc., a software and security consulting firm. To make matters more complex, Web sites and workplaces often ask users to change passwords at regular intervals, or require a mix of lower-case and capitalized letters, numbers, and special characters such as "#" or "$" -- a practice that makes it harder for a hacker to guess at a person's password.

But the abundance of frequently changing passwords -- and the confusing jumble of permutations and combinations most computer users create -- are not only inconvenient, they often undermine the very security goal they were meant to achieve.

At two-thirds of companies, workers kept passwords by writing them on a piece of paper kept in the office, according a study released last week by RSA. Another 59 percent stowed them in files on their computer, and 40 percent wrote them on sticky notes pasted around their computer monitor, allowing any passerby to see.

"There's a tradeoff between convenience and security that people don't think about very much," said Jim Harper, director of information policy studies at the Cato Institute, who said he keeps a file tracking at least 50 logins and about 25 password variations. "Technical people have been working on this for a long time, but it's hard to come up with something that's easy and secure."

Like many users, Kimball Brace, president of the consulting firm Election Data Services Inc., rotated between three or four standard iterations of his password, a system that worked for a while.

"I'm a heavy Internet user and a heavy computer user, and as such I'm always hitting various new sites, so I do see a proliferation of passwords becoming necessary," but the convenience and access can come with a frustrating price, he said.

Once, when Brace was on the road, he tried to log into his airline's Web site from a computer kiosk, but couldn't remember his password.

"You've got three chances to remember what you did," he said. When he couldn't, the site blocked him and he was forced to fly another airline.

Password management has become such a problem that it has spawned a small technology sub-industry.

Dozens of companies such as Siber Systems Inc. in Fairfax make software that consolidate various passwords under a single master password. Siber Systems, for example, has a program called Roboform that automatically unlocks all the sites users visit, by consolidating all log-in information into one master password. (Even password management has its limitations. If users forget the master password, they're simply out of luck and must re-register.)

Sites like Bugmenot.com have surfaced in response to the frustration of having to register for an account just to read a news story, for example. That site lists generic usernames and passwords that anyone can use to gain access, as well as a system that allows users to note whether the name and password worked or not, keeping the list fresh.

Many users permit Web sites to send cookies, or small bits of identifying information, back to the computer so the site remembers when a registered user returns. Many password-protected sites also anticipate the need and offer "forgot your password?" links that e-mail the password, or send a new one, to the user's e-mail address.

In the future, biometric markers such as fingerprint scanners -- some of which are on newer computers -- might be the future of solving the problems of password protection, some security experts say.

Acquiring someone's password by masquerading as someone who has forgotten one is often the pretext criminals use to obtain private information -- a major security problem that's entered the limelight in recent weeks.

Password fatigue has created a rich environment for identity exploitation, said Robert Douglas, an information security consultant. Reinstating customers like Gammel -- rightful users who get blocked from accounts after failing to enter the correct password -- creates a problem for companies, which then need to authenticate a customer's identity through other means.

"Look: I can't remember all these PINs or passwords, and I'm about to get on a plane" a criminal might say to a call-center operator to cajole them out of a password, said Douglas, a former private investigator who researches non-technical methods people use to hack into private information. Often, the only additional information the hacker might be required to provide is easily obtainable biographical facts like the last four digits of the account holder's Social Security number, or their mother's maiden name, he said.

"We live in a generation that wants instant access, and they want it yesterday ," he said. "Companies don't want to anger a real customer" who might have forgotten a password, he said, but in accommodating that request, they might be giving information to a criminal.

Encryption Expert Teaches Security
Brian Bergstein

It must say something about our times that Bruce Schneier, a geeky computer encryption expert turned all-purpose security guru, occasionally gets recognized in public. "My life is just plain surreal," he says.

Schneier, 43, has made it so by popping up whenever technology and regular life intersect, weighing in on everything from the uselessness of post-Sept. 11 airport security measures to the perils of electronic voting machines and new passports with radio chips.

He does it by writing books, essays, a frequently updated Web log and an e-mail newsletter with 125,000 subscribers. It helps that he has never met a reporter whose phone calls he will not return. "I'm a media slut," he admits.

That might make it tempting to dismiss the bearded, ponytailed Schneier as being in the business of promoting Schneier. Of course there's some of that _ he has a program "ego-scan" his book-sales ranking on Amazon.com every hour.

But that doesn't detract from the respect he engenders.

A former Pentagon and Bell Labs technologist who invented important methods of cryptography and wrote a textbook on the subject (meriting him a mention in "The Da Vinci Code"), Schneier has testified to Congress and shared ideas with Rand Corp. researchers. Even though he has denigrated the billions spent on airport security as almost entirely wasted, the Transportation Security Administration asked him for advice about its passenger-screening program.

"Bruce Schneier is a master of explaining security, and a master of telling us why security and freedom are the same thing, why security can't ever be had at freedom's expense," says Cory Doctorow, an author and fellow at the Electronic Frontier Foundation.

Schneier sees himself as a teacher dispensing clear-headed lessons in an era poisoned by irrational fears of terrorism. "I'd like everyone to take a deep breath and listen for a minute," he wrote in a recent online essay.

His favorite topic these days is the intersection of security, economics and psychology.

For example, Schneier blasts almost all airport screening measures as meaningless "security theater" that makes people incorrectly believe they are safer. After all, who says the next terrorist attack will involve the methods used last time? Who says it even has to involve airplanes?

"The game of having all these tactics is one we can't win because terrorists get to see it in advance," he says. "By definition you're going to pick a plot we're not going to catch. It's a game we can't win. Let's stop playing it."

Instead, Schneier says the game ought to be about stopping bad people _ mainly through better intelligence and police work. That money would be much better spent, he says, than making sure security screeners confiscate corkscrews or any other particular item from passengers.

"Airport security only works against the sloppy and the stupid," he contends. "We can't keep weapons out of prisons; we can't hope to keep them out of airports or subways."

Taken to its logical end, Schneier's alternative security recipe of better policing could seem to be a call for stronger surveillance or data mining. But Schneier _ a member of the American Civil Liberties Union _ says he opposes many such tactics not so much on privacy grounds but because they're bad security.

How so? Because snooping through vast storehouses of personal records in search of clues to terrorist activity invariably turns up too many wrong leads to be cost-effective, he argues. These methods can sniff out the predictable crime of credit card fraud, for example, but terrorism is much rarer, he notes.

This being Bruce Schneier, he's quick to illustrate this lesson. Having lunch in a hip bistro, Schneier points out that the restaurant serves food even before the patrons pay. It would seem to be bad security _ people might walk out on the bill. Yet the practice makes social sense.

"People are inherently good," Schneier says. "Otherwise, society would fall apart."

To some ears, Schneier's analyses are too simplistic.

"I regard his views, frankly, as dangerous," says Clark Kent Ervin, a former Department of Homeland Security inspector general who argues that incompetence at the agency has left gaping security holes.

He says Schneier erroneously claims "the threat is exaggerated and we're overreacting."

"Some people (including policymakers) take this view seriously and, therefore, are deluded into thinking that we're safer than we are," says Ervin, director of the homeland security program at the Aspen Institute. "His writings can be used as an excuse by DHS and its supporters for DHS' not having done more."

Although his career began at the Department of Defense _ he won't say what he did there _ Schneier is used to challenging prevailing ideas in government. In the 1990s, he objected to Clinton administration attempts to stifle the spread of encryption, the science of obscuring data to keep it secret. Schneier stressed then that computer cryptography was of huge economic value because of the security it gave companies and people against intruders.

But Schneier soon saw that those claims were overstated.

While encryption has its place _ it is what secures Web-based banking and shopping _ Schneier realized that too often it was deployed in silly ways. For example, some companies let employees unlock encrypted files with simple passwords, which often ended up being easy to steal or guess.

In other words, all the technical sophistication in the world can lock data from prying eyes, but if people leave the keys in the open, not much security results.

Since then, Schneier has been on his mission to explain that security is a complex system unlikely to be saved by technology alone.

Some commentary seems to emanate from him almost daily, on top of his duties as chief technical officer for Counterpane Internet Security Inc., a network monitoring company he co-founded. He and his wife, Karen Cooper, also find time to contribute restaurant reviews to the Star Tribune of Minneapolis.

Schneier has repeatedly said "we are one attack away from a police state," and says such a civil-liberties crackdown would be even more likely under a Democratic administration. That is from the same school of thought that only an ardent anticommunist like Richard Nixon could get away with engaging with Red China in the 1970s.

But beneath Schneier's someday-I'll-say-I-told-you-so realism is a streak of optimism. He fully expects to change people's minds about the need for cost-effectiveness rather than showmanship in security.

"Eventually we will all come to our senses about security," he says. "I think it's 10 to 20 years. A generation."

A skeptic demurs. Isn't it an insoluble aspect of human nature to be greatly governed by our fears, even when we know they're irrational? Most people know driving is more dangerous than flying, but few of us grip the armrests when a car pulls out of the garage.

"That is what reason is about. That's the beauty of being human," Schneier responds. Being afraid of something and doing it anyway, he contends, "that's what courage actually is."

On the Net:

Schneier's blog: http://www.schneier.com/blog

A tongue-in-cheek geek tribute to Schneier:


Messages That Go `Poof' After Sending Them
Brian Bergstein

A hallmark of "Mission: Impossible" was the message that would self-destruct after a spy played it. Now a startup communications company promises that same level of secrecy with a Web-based messaging system designed to leave no traces.

The VaporStream system from Void Communications LLC is envisioned as a complement to e-mail and instant messaging, both of which leave abundant records.

Let's say Alice wants to discuss something privately with Bob. Alice calls up a VaporStream Web page, which is encrypted by the same method that secures Internet commerce and banking. Then she selects Bob on her list of VaporStream chat partners.

That brings up a new window, where she can type a message. Neither her name nor Bob's appears anywhere. The individual messages cannot be copied or pasted into other programs.

When she sends the message, it no longer is visible on her computer. It goes to a server maintained by VaporStream, where it sits in a sort of holding pattern in a temporary segment of the server's memory.

When Bob checks his VaporStream Web page, he can see that he has a message from Alice and clicks to read it. When it is delivered, it leaves the VaporStream server for good.

When Bob responds, Alice's original message disappears from his computer. On and on it goes, in a conversation in which both parties have to remember their previous lines, making VaporStream more like a time-shifted phone conversation than an e-mail thread.

"Neither the sender nor the recipient has a full copy," said Amit Shah, the co-founder and chief technologist.

VaporStream is scheduled to be unveiled at the influential DEMOfall tech show in San Diego on Tuesday and become generally available in October.

Shah and co-founder Joseph Collins Jr. hope VaporStream's design and low cost - $40 per user annually - will attract companies that are swamped with the challenge of archiving business-critical e-mails and throwing away those of a personal or inconsequential nature.

A company could tell its employees to do all of their informal communications in VaporStream, for example. Besides PCs, VaporStream will be available for mobile gadgets such as BlackBerrys.

That's not to say that this is a natural for the business world.

Financial services firms, for example, are likely to reject VaporStream because of regulatory requirements governing the retention of their electronic communications. Other companies simply might not trust their workers enough to give them a record-less method of communication.

"I don't typically have customers come to me and say, `I'm looking for a messaging system where I can hide all traces of what I'm saying,'" said Matt Brown, a senior analyst at Forrester Research. Of VaporStream's overall prospects, he said, "I'm highly skeptical."

Companies also can set up "blacklists" and "whitelists" for their employees that dictate who can and cannot send VaporStreams to each other.

However, Nancy Flynn, founder of the ePolicy Institute, which trains companies on proper use of e-mail, said she suspects some businesses will welcome VaporStream because it could help them better articulate rules about when employees should and should not use e-mail.

Many e-mails have to be kept for audits, regulatory purposes or lawsuits, but personal messages that invariably get swept into that mix are often embarrassing, not to mention costly to store, she noted.

VaporStream isn't entirely dependent on businesses. Anyone can sign up for $40 a year.

But secrecy-seeking criminals, take note: While the system records no conversation logs, Collins said VaporStream will comply with wiretapping laws. That means the authorities would not be able to review past chats, but they could get warrants giving them the right to put an ear to future ones.


On the Net:


Intel proudly shows off snooping tech

IDF Reads Your PC Even When It's Off
Tony Dennis

In a laudable effort to make life much, much easier for IT managers, Intel outlined how it intends to widen the scope of its Active Management Technology (AMT).

AMT can effectively snoop on what's inside your PC.

The principle is simple. Details about a VPro or Centrino based PC are saved into non-volatile memory. But, scarily, this information can be read even if the machine's power switch is in the 'off' position.

Armed with such information an IT manager might want to remotely fix a PC. This can be done using Intel’s Trusted Execution Technology (formerly known as La Grande).

Just how powerful this facility can be, was shown in a demo where a connected laptop was rebooted and its BIOS edited from a management console.

Good stuff. But Intel intends this capability to work over wireless networks not just wired (ie fixed Ethernet) links.

Obviously Intel claims this kind of stuff is mega secure. But what if it were hacked? Or what if they hacked it?

You could potentially be woken up in the middle of the night by the sounds of somebody completely reconfiguring your laptop.

Technology for Spying Lures More Than Military
Julie Creswell and Ron Stodghill

In the world of security sleuths and private investigators, it’s billed as one of the biggest events of the year. Some 20,000 experts in the business are gathering this week in San Diego to check out the latest in high-tech surveillance gadgets and sit in on seminars discussing undercover investigations, background checks and interrogation techniques.

One of the keynote speakers is George J. Tenet, the former director of the Central Intelligence Agency.

But many of those attending the ASIS International “Maximum Security” conference will not be there on behalf of the United States government or the military. They work for corporate America, where security is a big and sometimes controversial business, as the executives of Hewlett-Packard have found in the wake of revelations of a covert-operations spying scandal that the company conducted against its own directors and journalists.

There’s no word whether executives from Hewlett-Packard are attending the conference to take in seminars like “Rules of Engagement: The Impact of Security Services Contracts in Future Litigation” or “Trusted Insiders — Preventing Betrayal in High-Risk Times.”

But while H.P. may be in the spotlight for the spying imbroglio in its boardroom, it is far from alone in diving into the murky world of private investigators and secret surveillance.

Companies worldwide spent an estimated $95 billion on security last year, according to the Freedonia Group, a market research firm in Cleveland. While that’s a broad figure that includes spending on emergency planning in case of a terrorist attack and protecting corporate records from hackers, an increasing portion went to high-tech equipment like spyware and specialized data-mining software that was deployed in-house so companies could better see what their own employees were up to.

Outside their offices, corporations are also turning to a vast network of large consulting firms and local ex-cops-turned-detectives that can supply all sorts of personal information and run surveillance on competitors, executives and directors using techniques worthy of the C.I.A.

The problem with all this spying, however, is that technology has far outpaced its users’ knowledge of the laws and ethics regarding privacy, which vary from state to state, say experts.

“In this day and age, it’s not impossible for me to find checks that you wrote and cleared in your bank account yesterday,” said Thomas D. Thacher II, who spent years rooting out fraud in construction projects in New York before forming the investigative firm Thacher Associates. “It is scary the personal information that is available through obviously illegal means.”

In the case of Hewlett-Packard, the company hired private investigators who used “pretexting” — pretending to be someone else — to gather home phone records of directors and journalists it believed were involved with the leaking of secrets from the boardroom. Investigators for H.P. also tried to plant software on a reporter’s computer to track a bogus document it sent to her and considered infiltrating newsrooms with spies masquerading as clerical workers or cleaners.

“The means here did not justify the end,” said George Bradt, chief executive of PrimeGenesis, which coaches chief executives on leadership topics. “They pulled out a Sherman tank to attack a mouse.”

The H.P. episode is not the first time a company has tried to spy on, or to manipulate, journalists. In 1965, General Motors hired private detectives to investigate Ralph Nader after the publication of “Unsafe at Any Speed.” (Mr. Nader later won a court settlement of $284,000 against G.M. for invasion of privacy.) In 1989, American Express admitted to planting defamatory articles about Edmund J. Safra, a former company executive who left to form a competing bank.

Still, corporate security experts say there are plenty of legitimate reasons companies need to be involved in the spy game, or at least to bolster their intelligence-gathering apparatus. Companies frequently tap investigators to unearth compromising data about individuals who have filed lawsuits against them, to scour gray or counterfeit markets for knock-offs of their products or, increasingly, to uncover whether short sellers are working in concert to drive their companies’ stock down.

More remarkably, many defend the practice of pretexting as a useful way for companies to keep track of their competition.

“Pretexting is a valuable investigative tool in its natural form,” said Charles Mittelstadt, a security consultant in Atlanta who has worked with H.P., I.B.M. and Georgia-Pacific in criminal cases. “Company A calls Company B and impersonates a consumer to vendor to obtain vital information about pricing, development plans, etc.,” he said.

But just because a company has the capability to spy, should it? According to some investigators, they, not their clients, are the ones drawing an ethical line in the sand.

“We are frequently asked by clients who watch far too much television whether we can do this or do that. In our engagement letter with them, we make it clear we will not do anything illegal and they should not expect us to,” said Joseph Rosetti, who headed up security at I.B.M. for years before joining Kroll Associates. He now runs his own firm, called SafirRosetti.

“Investigators are going to have problems until they develop a set of national standards to which they must conform,” said Jack Lichtenstein, director of government affairs and public policy for ASIS International (formerly the American Society for Industrial Security), which is host of the San Diego conference.

The biggest challenge companies face when they turn to outside private investigators — and one of the chief appeals of using them — is not knowing and controlling the techniques to be used. That’s because security firms typically farm out parts of the investigation to other firms or local on-the-ground investigators.

“We will pull a number of subcontractors into an investigation. There are firms out there that have strength in the computer-forensic world or S.E.C. matters that can help out,” said Mr. Thacher. “But the further you go down the chain, the more removed the client is from the investigation and their ability to judge or know how the information is being obtained.”

That may have been the case with Hewlett-Packard, experts say.

Hewlett-Packard’s chairwoman, Patricia C. Dunn, has acknowledged that she authorized the investigation, and documents show that its senior counsel and director of ethics, Kevin T. Hunsaker, directed the operation, which involved Hewlett-Packard investigators and several layers of outside detectives and subcontractors.

Already, some companies are trying to cover their tracks in the wake of the Hewlett-Packard spy scandal.

“We just received a retention agreement from a large Wall Street firm in which the specific language was laid out that the consultant agreed not to do things that are illegal,” said Mr. Thacher. “It made us all smile. One would think that goes without saying. But it’s in there now.”

Invasion of the Computer Snatchers

Hackers are hijacking thousands of PCs to spy on users, shake down online businesses, steal identities and send millions of pieces of spam. If you think your computer is safe, think again
Brian Krebs

In the six hours between crashing into bed and rolling out of it, the 21-year-old hacker has broken into nearly 2,000 personal computers around the globe. He slept while software he wrote scoured the Internet for vulnerable computers and infected them with viruses that turned them into slaves.

Now, with the smoke of his day's first Marlboro curling across the living room of his parents' brick rambler, the hacker known online as "0x80" (pronounced X-eighty) plops his wiry frame into a tan, weathered couch, sets his new laptop on the coffee table and punches in a series of commands. At his behest, the commandeered PCs will begin downloading and installing software that will bombard their users with advertisements for pornographic Web sites. After the installation, 0x80 orders the machines to search the Internet for other potential victims.

The young hacker, who has agreed to be interviewed only if he isn't identified by name or home town, takes a deep drag of his smoke and leans back against the couch to exhale. He smiles. This is his day job, and his work is finished in less than two minutes. In two weeks, he will receive a $300 check from one of the online marketing companies that pays him for his services.

"Most days, I just sit at home and chat online while I make money," 0x80 says. "I get one check like every 15 days in the mail for a few hundred bucks, and a buncha others I get from banks in Canada every 30 days." He says his work earns him an average of $6,800 per month, although he's made as much as $10,000. Not bad money for a high school dropout.

Hacked, remote-controlled home computers, known as robots or "bots," and large groups of robot networks like the one 0x80 runs -- called "botnets" -- are the souped-up cyber engines driving nearly all criminal commerce on the Internet. Botnets are used to relay millions of pieces of junk e-mail, or spam, touting everything from cheap Viagra to get-rich-quick business schemes. And the botmasters who control these computer networks are at the heart of ominous and increasingly common online shakedowns known as "denial of service attacks." In such an attack, Web gangsters demand tens of thousands of dollars in protection money from businesses. If the businesses refuse to pay, the criminals order the thousands of computers that make up their botnets to flood the Web sites with meaningless traffic, crippling the businesses and costing them thousands or hundreds of thousands of dollars in lost revenue.

0x80 says that he doesn't use his botnet to shake down businesses. Instead, he and a growing number of botmasters make money by seeding their botnets with spyware, also known as adware. Once installed on a PC, the adware serves up pop-up advertisements and mines data about the user's online browsing habits. The computer worm that powers the botnet also gathers far more sensitive data from the victim's machine, including passwords, e-mail addresses, Social Security numbers and credit card data. The spyware and adware problem is pervasive and growing: A recent survey by the National Cyber Security Alliance and America Online found that four of five computers connected to the Web have some type of spyware or adware installed on them, with or without the owner's knowledge.

The distribution of online advertisements via spyware and adware has become a $2 billion industry, according to security software maker Webroot Software Inc. And as the industry has boomed, so have the botnets. Just a few months ago, FBI agents arrested a 20-year-old from Southern California for installing adware on a botnet of more than 400,000 hacked computers. Jeanson James Ancheta's victims included computers at the Naval Air Warfare Center and machines at the Defense Information Systems Agency, according to government documents. He pleaded guilty to the charges last month.

Like Ancheta, 0x80 installs adware and spyware surreptitiously, though the law requires the computer owner's consent. The young hacker doesn't have much sympathy for his victims. "All those people in my botnet, right, if I don't use them, they're just gonna eventually get caught up in someone else's net, so it might as well be mine," 0x80 says. "I mean, most of these people I infect are so stupid they really ain't got no business being on [the Internet] in the first place."

Tall and lanky, with hair that falls down to his eyebrows, 0x80 almost never looks you in the eye when he talks, his accent a slurry of heavy Southern drawl and Midwestern nasality. He lives with his folks in a small town in Middle America. The nearest businesses are a used-car lot, a gas station/convenience store and a strip club, where 0x80 says he recently dropped $800 for an hour alone in a VIP room with several dancers. He tells his parents that he works from home for a Web design firm. His bedroom resembles a miniature mission control center, with computers, television and computer monitors, and what must be several miles' worth of tangled wires plugged into an array of surge-protected power strips.

At the moment, 0x80 controls more than 13,000 computers in more than 20 countries. This morning he installs spyware on just a few hundred of the 2,000 PCs that he has commandeered in the last few hours. He will stagger the remaining installations throughout this day and into the next, using a program he wrote that automates the process. If he installs too many bundles of spyware at once, the online marketing companies, "get suspicious, they cut me off, and I don't get paid," he mumbles, squinting at the screen while the nub of his cigarette sprinkles ashes all over his laptop and the coffee table. "I've learned not to get greedy."

A small dog with matted fur enters the living room and winds through 0x80's feet. 0x80 gives the dog a gentle shove with his foot, without even looking up from his laptop. He furiously stabs at the keyboard with his two forefingers, punching out a short command that produces a mesmerizing blur of black-on-white text that scrolls up the computer screen at several pages per second. 0x80 makes it halfway through a cigarette before the text flying across the screen finally stops. The command he typed -- "pstore" -- is short for "password store." On the screen in front of him is a listing of every user name and password that the owner of each infected computer has stored in the Microsoft Internet Explorer Web browser on his or her computer.

A quick scroll through the first few dozen pages of the file reveals credentials his victims have used to log in to online accounts at PayPal, eBay, Bank of America and Citibank, to name just a few. Many of the Web sites for which user names and passwords are stored are harmless, such as sports or hobby sites. Others are potentially far more revealing, such as hard-core sex and fetish Web sites. 0x80 has also found credentials for thousands of e-mail accounts, including dozens at ".mil" and ".gov" (U.S. military and government) addresses.

"See all that info?" 0x80 asks. "I don't use it, and I don't sell it like a lot of guys I know do. That's too risky." His goal is to make money, not to end up in jail.

One of his victims, a computer-loving 29-year-old pastor named Michael White, could tell 0x80 plenty about jail. White runs the Agape Church and Christian Center in Memphis but admits he wasn't always a man of God.

Ten years ago, he was a freshman at the University of Memphis, where he was on the track team and the dean's list. Then he fell in love with liquor, he says, and flunked out of school. He landed in jail twice over the next 18 months, both times for driving a car that didn't belong to him.

Next came the accident that changed his life. One night, while White was driving a friend's Mitsubishi Eclipse, a police cruiser pulled up behind him, lights flashing. White says he was intoxicated, and driving without a license or insurance. He panicked, floored the car and lost control, flipping the Eclipse over and over until the fuel tank ignited. White woke up in a hospital bed with third-degree burns over 30 percent of his body. The searing heat from the explosion had melted his ears into little nubs, and doctors had amputated the pinky finger on his scarred left hand.

Fifteen plastic surgeries and more than two years of physical therapy later, White had healed enough to face the charges against him, which included aggravated assault for endangering the lives of other motorists. He pleaded guilty in 1999 and served almost two years at a prison in Tennessee.

During his time in prison, he says, "I realized the Lord had called me to ministry." Since White's release in 2001, God has played a huge part in his life. And so have computers. He typically spends 50 to 60 hours a week surfing the Web, instant-messaging and e-mailing. He even met his wife online. Shortly after starting his ministry, he entered an online chat room dedicated to Christian ministries and struck up a conversation with a woman using the screen name "Warrior Princess." They hit it off immediately and married 15 months later. Taneshia gave birth to their first child, MaKalya, last month.

But the same technology that led White to his wife betrayed him last summer. His desktop computer, which he had paid $350 for in 2004, was suddenly inundated with pop-up ads for adult Web sites. A mysterious toolbar with the symbol "XXX" had shown up in the topmost portion of every Internet Explorer Web browser window he opened.

A friend spent a few days trying to remove the pornographic software, but each time he did, the software reinstalled itself after the computer was reconnected to the Internet. White initially suspected that one of the kids he tutors after school had used his PC to visit some questionable Web sites. He wasn't aware that his computer had been hijacked by 0x80 until he was contacted by the reporter writing this story.

0x80's bot program was able to infiltrate the pastor's computer because the PC lacked dozens of software patches that Microsoft has issued to fix security flaws in its Windows operating system. White says he was counting on a $50 firewall and antivirus software suite he purchased from Trend Micro to keep hackers and viruses from attacking his PC, but he confesses he's not sure whether the software was equipped with the latest updates that would allow it to detect the most recent viruses.

"I'll be honest, as someone who loves technology, I've not done a great job with this computer," White says. He eventually opted to buy a new PC rather than spend the time and money to repair the infected one. "It just made more sense for me to get a new $300 Dell that came with a free monitor that was better than the one I had," he says.

The whole episode, he says, has taught him a valuable lesson: It's easier to take the precautions needed to keep a computer from being hacked than it is to clean it up after the damage has been done. "Overall, you've got to realize that, just like if you don't secure your home, you run the risk of getting burglarized; if you're crazy enough to leave the door on your computer open these days, like I did, someone's gonna walk right in and make themselves at home."

0x80 began learning how to program at age 14, before his family even owned a computer. Like many hackers of his generation, he got his start by meeting techies on networks run by America Online.

"This buddy of mine who lived two houses down from me had a computer before I did. He was always on AOL, but he also always had trouble figuring out how to do stuff, so I'd just go on all the time and figure it out for him." 0x80 says he got into writing viruses by accident after logging onto an AOL chat room named "Lesbians Only."

"Someone sent me a virus that made it so that every time I typed anything on the keyboard it would pop a message up on the screen that said, 'I'M [expletive] GAY!'" 0x80 recalls. He tried to stop the computer from flashing the message, but nothing worked. "I finally found [information] on it using my friend's PC and figured out how to write a batch script to stop the virus."

After that, 0x80 became obsessed with computer viruses and dedicated nearly all his time to tinkering with them. On his 16th birthday, his folks gave him his own computer to do schoolwork. It wasn't long before 0x80 was skipping school to spend time in online channels known as Internet Relay Chat, a vast sea of text-based communications networks that predates instant-messaging software. There are tens of thousands of IRC channels all over the world catering to almost every imaginable audience or interest, including quite a few frequented exclusively by hackers, virus writers and loose-knit criminal groups. IRC channels have traditionally been among the most popular means of controlling botnets.

About two years ago, 0x80 entered an IRC channel where several hackers were bragging about how much they were making using botnets to install spyware. Up to that point, 0x80 had used his botnet mainly for "packeting," conducting petty denial-of-service attacks to knock his buddies or enemies offline. Within a few weeks of visiting that channel, 0x80 was modifying the computer worm code he needed to transform his botnet into a money machine.

He and his hacker friends are part of a generation raised on the Internet, where everything from software to digital music to a reliable income can be had at little cost or effort. Some of them routinely go out of their way to avoid paying for anything. During a recent conference call with half a dozen of 0x80's buddies using an 800-number conferencing system they had hacked, one guy suggests ordering food for delivery. Nah, one of his friends says, "let's social it." The hackers take turns explaining how they "social" free food from pizza joints by counterfeiting coupons or impersonating customer service managers.

"Dude, the best part is when you walk in, you hand them the coupon or whatever, they give you your [pizza], and you walk out," one of them enthuses. "Then, it's like, yes, I am . . . the coolest man alive."

"Dude, that's so true," echoes a 16-year-old hacker. "Free pizza tastes so much better than pay pizza any day."

0x80 expresses some ambivalence about this lifestyle and occasionally ponders what he should do next. He's toyed with the notion of going to a community college to get a degree in computer science, but the idea of getting an honest job with a legitimate tech company doesn't hold much appeal. "I'd probably have to take a pretty bad pay cut no matter where I worked," he says.

Asked whether he worries about getting caught, 0x80 stuffs his hands into his jeans pockets, shrugs his shoulders and looks down at his shoes. "To tell the truth, man, I'm sorta surprised they haven't caught me yet." He claims he doesn't care but then confesses that he dedicates quite a bit of time to covering his tracks. "I do stay up very late each night trying to make sure nobody is going to kick in my front door . . . If I do [get caught], I'm not all that worried. I've got enough money. I can always get a good lawyer."

Adware and spyware distribution companies promise instant riches to people who agree to help install their programs. These installers are known in the business as "affiliates."

Many adware distribution sites recruit affiliates with photos of stacked $100 bills. GammaCash.com, for instance, the company that makes the XXX toolbar that Michael White discovered on his computer, features an animated image of a pair of hands cupped to hold an expensive watch. Wait a few seconds, and the watch disappears, only to be replaced by a Cadillac sport utility vehicle, which quickly morphs into a yacht.

The companies include in their "terms and conditions" disclaimers that they do not permit the installation of their products without the consent of the person who owns the computer. Most claim they will terminate without pay any affiliates who violate that rule.

But 0x80 and one of his friends -- who goes by the screen name Majy -- say they've easily disguised their installation methods. Their biggest complaint about the whole enterprise: being routinely shortchanged by the adware distribution companies, which often "shave," or undercount, the number of programs installed by their affiliates.

"It sucks, too, because the companies will shaft you, and there isn't a lot you can do about it," says Majy, 19, who claims to have had as many as 30,000 computers in his botnet.

There are, in fact, legal ways to induce PC owners to download spyware and adware. Most computer users acquire spyware and adware simply by browsing certain Web sites, or agreeing to install games or software programs that come bundled with spyware and adware. Before its Web site went dark not long ago, TopConverting.com bundled its adware and spyware with products most likely to appeal to children and teenagers: simple games, online game insignias or "avatars," and "emoticons," custom-made smiley faces for use in instant-message software. The company also marketed short digital videos that catered to the humor of teenage boys: "Beavis and Butt-Head" cartoons, a short clip called "Boob Boxing" and another titled "Bath Fart."

Computer users may or may not understand what they are consenting to when they click "OK" to the lengthy, legalistic disclosures that accompany these games or videos. But those notices are legal contracts that essentially absolve the adware companies from any liability associated with the use or misuse of their programs.

0x80 and Majy don't leave computer owners any chance to decline the adware. Once they invade a computer and add it to their botnet, they use automated keystroke codes to order the enslaved machine to click "OK" on installation agreements. 0x80 says he even created a program that allows him to remotely wipe computers in his botnet clean of old adware, making room for him to install new adware -- and get paid again.

And getting paid is the whole point. Majy says TopConverting, which did not respond to requests for comment for this article, paid him an average of $2,400 every two weeks for installing its programs. He got 20 cents per install for computers in the United States and five cents per install for PCs in 16 other countries, including France, Germany and the United Kingdom. A nickel per install doesn't sound like much, unless you control a botnet of tens of thousands of computers.

Majy also receives income from Gamma-Cash, which bills itself on its Web site as "an industry leader in online adult affiliate programs." The company pays affiliates to drive traffic to adult Web sites, mainly through pop-up advertisements for porn sites served to users through its XXX toolbar, which hijacks the victim's Web browser and sets its home page to one of several subscription porn sites. Majy says Gamma-Cash, which did not respond to requests for comment, sends him a $400 check each month from a bank in Canada.

0x80 also installs adware for Gamma-Cash. And he works for a company called Loudcash, which was recently purchased by one of the largest and most important players in the adware business: 180solutions.

Half of the glass-and-steel structure that houses 180solutions' sprawling headquarters in Bellevue, Wash., rests underground; the other half juts out at acute angles. The rooftop sports an AstroTurfed volleyball court, a gas grill and a commanding view of the Seattle skyline.

Some of the company's 200-plus employees zip around the long hallways on Segways or foot-powered scooters. Throughout the building are polka-dotted posters that read, "Who Do You Want to Be?" The signs are meant to challenge employees to continuously reevaluate their roles, but they also reflect the seven-year-old company's effort to prove to the world that it has executed a 180-degree shift away from its past business practices.

180solutions got its start in the adware industry with a product called Epipo, which paid people roughly six cents per hour to view specially targeted advertisements sent to their computers. The product became popular among college students, who quickly figured out ways to automate browsing the Web so that they could get paid for viewing ads while they were away from their computers. According to allegations in a lawsuit filed by the Washington state attorney general's office, 180 responded by changing the payment terms so that it was virtually impossible for people to collect the promised money. The company nearly went bankrupt when it settled the suit in 2002.

By that time, 180 had changed its marketing strategy. Instead of paying people to install its adware, the company lured them with free games, which came bundled with ad-serving software called "n-Case." The software tracked users' surfing and buying habits, and was extremely difficult to remove. Consumer advocates had little difficulty showing that n-Case was being installed without user consent. Faced with increasing criticism for the fraudulent installs, 180 rebranded the software as 180 Search Assistant. The new software's chief distinguishing feature was that it was easier to remove than n-Case.

In 2004, venture capitalists invested $40 million in 180solutions, fueling rapid growth. That year, 180 says, it raked in more than $50 million delivering online ads for some of America's best-known corporations, including JP Morgan Chase, Cingular, T-Mobile, Monster.com and Expedia.com. (Among the hundreds of companies that have placed ads through 180solutions is Kaplan University Online, which is owned by The Washington Post Co.)

By 180's own count, its adware is installed on 20 million computers. The people who use those computers receive pop-up ads based on what they are searching for online. If the user searches for the term "travel," 180's software will look through its database of clients in the travel business and present an ad from the company that bid the most on that search term. The next time that user searches using the same term, 180 will serve the ad of the next-highest bidder for that word, and so on. 180 then gets paid from 1.5 to 2.5 cents for each ad it delivers to the user. The more computers with 180's adware, the more revenue each ad generates.

Consumer groups gathered mountains of evidence that 180 Search Assistant was being installed on thousands of computers without user consent. Once again, 180 tried to quiet its critics. Toward the end of last year, the company announced it was phasing out 180 Search Assistant in favor of the Seekmo Search Assistant. Company spokesman Sean Sundwall says Seekmo will be more fraud resistant than 180 Search Assistant, and that it will not be distributed or bundled with other software programs without 180's permission. The company says this will give it far more control over how Seekmo is installed and by whom.

But Ben Edelman, who has spent years chronicling the offenses of the adware industry while working toward a PhD in economics at Harvard University, says Seekmo is functionally the same program as 180 Search Assistant. Edelman says 180's penchant for renaming its software each time abuses are highlighted is part of the reason the anti-spyware community directs so much vitriol at the company.

"The idea that 180solutions got where they are today through bad business practices and that they continue to make money from that user base is hardly unique to them," Edelman says. "What really makes people so mad is that 180 is far less apologetic than the other players" in the industry.

The Center for Democracy & Technology, the leader of a group called the Anti-Spyware Coalition, spent two years working with 180 to resolve dozens of consumer complaints about surreptitious installs. Ari Schwartz, the center's deputy director, says each time the subject arose, the company claimed it was blindsided by the accusations and that it needed more time to correct its distributors' behavior.

Weeks after 180solutions said it was discontinuing its 180 Search Assistant software, a computer worm began spreading rapidly across AOL's instant message network, downloading and installing viruses and a host of other programs -- including 180 Search Assistant -- on victims' computers. While 180 denied it had anything to do with the worm, for the CDT, that was the last straw: On January 23, the nonprofit filed a detailed complaint with the Federal Trade Commission urging the agency to sue 180solutions for violating consumer protection laws.

In a statement, 180solutions denied that it was ignoring the problem, arguing that it had made "great progress in the fight against spyware" and insisting that it shared the CDT's vision of "protecting the rights and privacy of consumers on the Internet . . . We have made voluntary improvements to address every reasonable concern that the CDT has made us aware of."

Company executives acknowledge they didn't begin addressing the fraud problems wrought by what 180 co-founder Dan Todd calls "a few bad actors" until mid-2004. Dressed in worn-out jeans and an untucked dress shirt, 34-year-old Todd puts one foot up on the coffee table in his glass office and tries to explain how things spiraled so far out of control. "At some point between dealing with legitimate distributors and these botnet guys who try real hard to look like good guys, we realized that something had gone terribly wrong and that our plan of outsourcing our relationship to the consumer had backfired," Todd says.

Last year, he says, 180 executives purchased some of their biggest distributors, including Loudcash, as part of a plan to rein in "rogue distributors" and help clean up the company's adware distribution practices. 180 says it no longer allows its adware to be bundled with adult Web site content or peer-to-peer (P2P) online file-sharing services that many people accuse of promoting music and movie piracy. "Our goal," he says, "is to minimize the financial incentive for people to install our software illegally, with the goal of making sure that our money never gets paid to bad actors."

To demonstrate its commitment, 180 filed lawsuits last year against seven distributors, accusing them of using botnets to earn more than $60,000 installing the company's adware without computer owners' consent. When the defendants -- all of whom live outside of the United States -- refused to make the trip here to face the allegations against them, 180 referred the matter to the FBI, says company attorney Ken McGraw.

The company also worked with the FBI and Dutch authorities last year on an investigation that shut down a botnet of more than 1 million computers in the Netherlands. The FBI acknowledged that 180 was instrumental in helping to track down the botmasters. 180, in fact, became the target of a denial-of-service attack by the botmasters, who were furious that the company was refusing to pay them for surreptitious adware installs. The attack briefly crippled 180's Web site, making the company a victim of the botnet phenomenon.

Yet 180's insistence that it is cracking down on botmasters has yet to win over the anti-spyware activists, who have spent years unraveling the labyrinthine economic ties among advertisers, adware vendors and their affiliates. The anti-spyware hawks don't believe 180solutions has changed the way it operates or that the company is buying up major players in the adware industry in order to clean up its act. "That's sort of like a drunk saying he's buying up a liquor store to solve his drinking habit," says Eric Howes, an executive at Sunbelt Software, an anti-spyware firm.

At a recent anti-spyware conference, Todd was openly mocked for claiming that 180 previously had no way of knowing how many of its distributors were installing its software illegally. Someone at the conference suggested that 180 use its technology to periodically present users with pop-ups asking them whether they had authorized the adware to be installed in the first place. Now the company says it is doing just that. If the answer is no, the user can remove the software with a click of a button.

0x80 hasn't paid much attention to the public condemnation of 180's business practices. And he says he doubts any of the measures the company is taking will discourage botmasters from installing adware. "It doesn't really matter what [180] does to try and stop them," the hacker says. "There's just too much money to be made there. People will just find another company to work with."

Sam Norris answers the door of his handsome stucco-and-Spanish-tile home near San Diego dressed in jeans, a polo shirt and squeaky-clean blue and white suede sneakers. He smiles broadly. "You picked a great week to come out," he says. "I'm tracking quite a few botnets today."

Norris, 31, is president of an Internet service company called ChangeIP.com that finds itself at the center of the battle against botnets. He estimates that he is spending up to 20 hours a week preventing botmasters like 0x80 and Majy from using his network to control their botnets.

Botmasters typically control their herds of infected PCs by having each report to a central server and await instructions, which may be to attack a Web site, send spam or download spyware programs. But many of the IRC networks that have been used for this purpose are beginning to crack down on botmasters. As a result, an increasing number of hackers are trying to cover their tracks by taking advantage of the services of companies like Norris's, which allow Internet browsers to find hundreds of small Web sites by name (for example: smallwebsite.com), even though the actual numeric address of the sites can change from day to day.

Botmasters like 0x80, however, have turned that process inside out. They use Norris's service to hide their botnets when they jump from server to server. Should authorities or computer security experts start to zero in on the server that's running their botnet, they can switch servers, and ChangeIP.com will enable the hijacked computers to find the new hideout.

In most cases, it is easy for Norris to tell which hosts on his network are legitimate Web sites and which are botnets: Most small Web sites don't have thousands of computers trying to access the site at precisely the same time. By tracking the communications traffic between the infected machines and the botmaster's control channel, Norris can capture data that might be useful to law enforcement, including snippets of text or code that may hold clues about the geographic location or identity of the botmaster.

Norris says he sees an average of 37 new botnets per week trying to use his company's service, and sometimes as many as 10 new botnets per day. Last spring, he cut off access to a botnet of more than 40,000 PCs that was being used as a massive install base for spyware. "I am seeing this botnet-spyware connection just skyrocket," Norris says, "and I think it's because these guys are realizing there's tons of cash to be made here."

A computer programmer by trade, Norris dissected a copy of the bot used by one hacker he recently banished from ChangeIP.com's network. The program contained instructions for installing 14 adware and spyware programs, and Norris says the bot code was encrypted and so thoroughly disguised that none of the antivirus software he used detected the code as malicious. As he was examining the bot program, Norris accidentally executed it, causing his machine to become infected. Almost immediately, he says, the program downloaded a package of adware and launched several pop-up ads for pornographic Web sites. It also installed GammaCash's infamous XXX toolbar.

Norris's forensics work revealed that the bot program also contained more than 30 other features, including the ability to capture all of the victim's Web traffic and keystrokes, as well as a program that looks for PayPal user names and passwords. Other programs installed by the bot allowed the attackers to peek through a user's webcam.

Norris often works out of his home in the auburn hills of San Marcos, Calif., where F-16 fighter jets from nearby Miramar Naval Air Station streak across the sky. Today he sits down at the desk in his cramped home office and clacks away at his keyboard, generating a slew of line graphs measuring the level of traffic flowing across his company's networks. He's a member of an informal enforcement group of more than 100 independent security experts worldwide who share daily data on the size, location and activity of the Web's most disruptive botnets. Hailing from Internet service providers, computer hardware manufacturers and software security firms, the group's members use that information to shut down botnets by cutting off the infected computers and forwarding the intelligence they glean to law enforcement.

Each morning, Norris receives an e-mail listing the online locations of the Web servers used to control some the world's most dangerous botnets. "First thing I do most days is go through this list and try to find out which ones" are using his network, he says, pointing to a report he just generated that lists the top 20 traffic-generating sites on his company's system. "Most of these are botnets."

And the botnets are hardly limited to hijacked home computers. A few months back, Norris found more than 10,000 infected PCs on the inside of a Fortune 100 company network, all trying to contact a control server located at ChangeIP.com. When Norris called the company with the bad news, its poorly trained network administrator had no idea how to respond. "I call this guy up and say, 'Hey, you've got 10,000 infected computers on your network that are attacking me,' and this guy is basically, like, 'Well, what do you want me to do about it?' "

Norris says that after collecting enough evidence about a botnet, he terminates the account and, he hopes, disconnects the botmaster from his army of infected machines. He says "he hopes" because many times the botmaster will have instructed his enslaved machines in advance to try several other domain names should the main control channel be shuttered. But in most cases, Norris says, the botmaster simply shifts control of his botnet to another Internet service provider. "Other times, the attackers play dumb and send polite e-mails asking why their service has been shut off." And, occasionally, the hackers will rebuild their botnets elsewhere and use them to retaliate against ChangeIP. Last year a botmaster who had been cut off joined forces with another botnet to direct such a massive, constant stream of bogus Web traffic at ChangeIP.com that the site had difficulty processing legitimate traffic for nearly a week.

As the botnet problem has escalated, so has the interest of federal law enforcement, Norris says. Not long ago, he was contacted by a National Security Agency official who asked for records related to several ChangeIP accounts. He's also had visits from FBI agents hot on the trail of several botmasters. One FBI agent said he couldn't disclose the details of his investigation but handed Norris a copy of a Time magazine article about Chinese hackers suspected of infiltrating U.S. corporate and military computer networks.

"The feds are finally starting to understand that botnets are more than just a nuisance: They're the source of all that's evil on the Internet today, from hacking and spamming to phishing and spying," Norris says. (Phishing involves impersonating trusted Web sites to gain confidential information from computer users.)

Shutting down a botnet can be arduous work, but finding the criminal on the controlling end of the herd has proven an especially challenging task for law enforcement. That's in part because security experts like Norris and others often disagree over whether to dismantle the botnets as soon as possible or to monitor them for a period of time in order to gather intelligence that might prove useful in helping investigators track down the criminals behind them.

Hank Nussbacher, an independent Internet security consultant based in Israel and a member of the group that's sharing information on botnet activity, says most members have their hands full just shutting down the botnets' command and control centers. "Occasionally, the Internet service provider where the [bot control center] is located requests that it not be shut down because they are collecting forensics information for some law enforcement agency, but I'd say about 98 percent of the time, as soon as we find one, we shut it down."

Louis Reigel III, assistant director of the FBI's Cyber Division, says the botnet data regularly shared by security experts like Norris is invaluable. But Reigel stresses that prosecuting botmasters is difficult because their crimes and networks usually span multiple continents, which means working with foreign law enforcement agencies and depending on their cooperation.

The FBI has dedicated several agents from its special technologies section to tracking down botnet operators and is pursuing hundreds of investigations, Reigel says. But "the techniques being used by these bot guys are becoming more efficient every day, so the bot situation is probably going to get a lot worse before it gets better."

Norris shares that fear and worries that more botmasters will begin to exploit emerging peer-to-peer communication technologies of the sort that power controversial music- and movie-sharing networks like Kazaa and LimeWire. Such networks would allow enslaved computers to communicate instructions and share software updates among one other, so that they would no longer depend on orders from the master servers that Norris and other bot hunters search out and disable every day.

"When P2P becomes the norm with these bots," Norris says, "that's when I call it quits with this botnet stuff, because, at that point, it will be pretty much out of my hands."

On the eve of a visit to his home by a Washington Post photographer, 0x80 decides to tell his father what he really does for a living, in part, he says, because hiding it is starting to eat him up inside. 0x80 tells his father the whole truth, but he can't bring himself to break the news to his mother because, as he puts it, "she's really Christian and that would just crush her to know I'm involved in something like this."

"I told my dad I had made an Internet worm that infected people, and then I used their computers to make money, and he just shook his head and was, like, 'I hope you don't go to jail for that . . .' and . . . 'I hope it wasn't underage porn you was doing.'"

That same question has been encroaching on 0x80's peace of mind of late. His hard-boiled pose has begun to break down, and instead of sneering at the risks of getting caught and brought to justice, he's begun to talk about quitting the criminal hacking scene to join the Army, which, he reasons, will offer not only discipline and the motivation to earn his GED but also potentially a free ride to college. From there, he can imagine a more respectable future working on information technology projects for the military.

"It's nice to have up to $10,000 a month coming in, but, if it's not legit, then I also have all this other stuff to worry about," 0x80 says. "Like, I gotta hide my laptop every night, and every time I don't come online for a day I have people blowing up my cell phone asking if I got raided by the feds."

0x80 has shared his plans with a few of his online buddies, many of whom have grown dependent on his ability to develop ever more stealthy and effective botnet programs.

"Some of my people really don't want me to leave, but I've got to figure out a way to use the [expletive] I know to get something going for myself," 0x80 says. "With the Army, I could get stationed someplace where I would have a better chance at getting a higher-paying job and still be able to do what I like to do. Either way, I gotta get up outta this hole I'm living in."

GE Laptop Theft Exposes Data on Thousands

General Electric said on Tuesday that a company laptop containing the names and Social Security numbers of 50,000 current and former employees was stolen in early September.

The laptop, issued to a GE official who was authorized to have the data, was stolen from a locked hotel room, the company said.

The Connecticut-based company began mailing letters earlier this week to the people whose names and Social Security numbers were on the laptop, to notify them of the breach and to offer a year's free access to a credit-monitoring service, GE spokesman Russell Wilkerson said.

Wilkerson declined to give further details, such as where and when the theft took place or whether the company official was still with General Electric.

Nonetheless, he said evidence suggested the thief was after the stolen computer, rather than the data on it, and said there was no sign that the information had been

The loss of the data raises the specter that the information could be used in identity theft schemes, in which thieves apply for credit cards and other services using stolen details.

The U.S. Veterans Affairs Department came under fire in the spring after a laptop containing data on 26 million military veterans and service members was stolen from a staffer's home.

In the past year, major U.S. companies that have reported the loss of computer equipment containing data on employees and customers have included aircraft maker Boeing, financial services company Ameriprise Financial and a U.S. mortgage firm owned by Dutch bank ABN AMRO Holding.

H.P. Counsel Resigns as Hearings Open
Miguel Helft and Damon Darlin

WASHINGTON, Sept. 28 — Hewlett-Packard’s general counsel, Ann O. Baskins, has resigned from the company, and her lawyer said she will not answer questions at the Congressional hearing scheduled for today.

As Hewlett-Packard’s chief in-house lawyer, Ms. Baskins was one of the key executives supervising the company’s spying operation on its own directors, journalists and others, meant to identify the source of leaks of confidential information to the news media. Revelations about the spying operation prompted the hearing.

The company’s former chairwoman, Patricia C. Dunn, who resigned last week, is expected to testify today. In prepared remarks, she wrote that she worked closely with Ms. Baskins and was in regular contact with those conducting the leak inquiry, but was not supervising the inquiry.

The resignation of Ms. Baskins, who had been with Hewlett-Packard since 1982, follows the departure of two other company executives, Anthony R. Gentilucci, manager of global investigations, and Kevin Hunsaker, senior counsel and director of ethics. Mr. Hunsaker reported directly to Ms. Baskins.

A lawyer for Ms. Baskins, K. Lee Blalack 2nd of O’Melveny & Myers, said “Ms. Baskins always believed that the investigative methods she knew about were lawful, and she took affirmative steps to confirm their legality.”

That stance closely echoed the one taken by Ms. Dunn in her prepared remarks for the hearing today — that she never had reason to believe that illegal methods were used and that she repeatedly sought assurances on that point from those directly involved.

Still, Mr. Blalack said, “Ms. Baskins wishes she had more actively inquired about the methods being used, and taken steps to halt any that were inconsistent with H.P.’s high ethcial standards, such as pretexting.”

Pretexting refers to the use of subterfuge to obtain confidential information, such as impersonating a telephone subscriber to obtain the subscriber’s calling records.

A senior investigator for the company was warning early this year, as the operation entered a crucial phase, that the pretexting techniques being used were “very unethical at the least, and quite likely illegal.”

Saying that the practices, even if legal, “could damage our reputation or worse,” the investigator, Vince Nye, said in an e-mail message, “I think we need to refocus our strategy and proceed on the high-ground course.” Mr. Nye worked in the company’s global security unit.

Why that advice was not followed — and apparently did not reach the top levels of Hewlett-Packard’s leadership — is expected to be a central theme of today’s hearing.

The roles of Ms. Dunn and the company’s chief executive, Mark V. Hurd, in the investigation — the extent of their knowledge, their action or inaction, and the questions they raised or failed to — are expected to dominate the questioning. In addition to Ms. Dunn, several private detectives involved in the matter are expected to testify today.

The company’s investigation, aimed at tracing leaks to the news media from the company’s board in 2005 and early 2006, came into public view scarcely three weeks ago as a result of deep divisions in the boardroom. It is also the subject of federal and state criminal investigations.

Mr. Nye’s e-mail message, obtained by The New York Times from someone with access to documents given to the committee, is the strongest indication yet of internal questions about the operation’s legality.

It was sent on Feb. 7, shortly after a new leak from the board had revived the investigation and at a time when more elaborate forms of surveillance, beyond obtaining phone records, were being considered or carried out.

The message was addressed to Mr. Gentilucci, the head of the company’s Boston-based global investigations unit and a central figure in the operation from its start a year earlier. It is not clear whether or how Mr. Gentilucci responded.

In her prepared testimony, Ms. Dunn wrote that once the board agreed to an investigation of leaks in early 2005, she relied on top Hewlett-Packard officials who referred her to the company’s global security department, which in turn referred her to Ronald R. DeLia, a contractor in the Boston area who had performed investigations for Hewlett-Packard for nearly a decade.

“I did not ‘hire’ the private investigators” involved in the operation, Ms. Dunn said. “They were already under contract to H.P. when the leak investigation was initiated.”

Ms. Dunn called Mr. DeLia’s firm a “captive subsidiary” of Hewlett-Packard and noted that it was used to perform a background check on Mr. Hurd before he was hired, including a report on his health.

Ms. Dunn said that after she learned in the spring of 2005 that the phone records of directors were being gathered, “the clear impression I had from Mr. DeLia was that such records could be obtained from publicly available sources in a legal and appropriate manner.”

She also said that “given that attorneys were unambiguously overseeing” a later, more intense phase of the investigation that employed similar techniques, she had no reason to believe those techniques were inappropriate.

It was not until after the second phase concluded in May 2006 that she began to comprehend the word “pretext,” Ms. Dunn said, adding, “I still do not understand whether it is or is not legal, as opinions vary.”

Ms. Dunn also lashed out at Thomas J. Perkins, a former board member whom she accused of disseminating “false statements about my having organized and conducted an elaborate spying campaign on H.P. directors for no good reason except, to paraphrase, a delusion of paranoia.”

Mr. Perkins resigned from the board in May over the leak investigation, whose findings pointed to a friend and fellow director, George A. Keyworth II, as the source. It was Mr. Perkins’s subsequent inquiries into the investigation’s methods that led to their disclosure this month.

Ms. Dunn’s statement defends the goal of the investigation, and it includes no expression of regret or apology for its handling.

In his own prepared testimony, Mr. Hurd portrays Ms. Dunn as having taken a more engaged role in the operation, saying she “enlisted the professional services” of Mr. DeLia.

Mr. Hurd’s statement largely reiterates the account he offered in announcing Ms. Dunn’s resignation last Friday. He says he was present at two meetings to discuss the operation while it was under way, and was consulted at another point about the use of a bogus e-mail message to try to detect a reporter’s source.

“While many of the right processes were in place, they unfortunately broke down, and no one in the management chain, including me, caught it,” he said.

Just how those processes broke down is likely to be a topic of pointed questioning by members of the House Energy and Commerce Committee.

Among the documents sent to the committee is an 18-page report from Kevin T. Hunsaker, senior counsel and director of ethics at the company, after the investigation’s conclusion in May that summarizes the findings and makes clear that private phone records were obtained — adding in a footnote that the effort involved “a lawful investigative methodology commonly utilized.” It was sent to Mr. Hurd, the company’s board, and Ms. Baskins, the general counsel.

“These folks still in the company need to come clean,” said Greg Walden, the Oregon Republican who is vice chairman of the panel’s investigations and oversight subcommittee, which is convening the hearing.

Five additional witnesses, all said to have been engaged in obtaining phone records, were subpoenaed Wednesday to appear at the hearing.

The five are Bryan Wagner of Littleton, Colo.; Darren Brost of Austin, Tex.; Charles Kelly of CAS Agency in Villa Rica, Ga.; Cassandra Selvage of Eye in the Sky Investigations in Dade City, Fla.; and Valerie Preston of InSearchOf Inc., in Cooper City, Fla. Congressional staff members said they did not know if any would answer questions.

The five are believed to be at the end of a long investigative chain that stretched from Hewlett-Packard’s headquarters in Palo Alto, Calif., to its own investigators in Boston, through Mr. DeLia’s firm, Security Outsourcing Solutions, and on to Action Research Group, a data broker in Melbourne, Fla., that is said to have hired the actual pretexters.

The hearing is scheduled to begin at 10 a.m. and stretch into the evening. It is expected to be covered live by C-Span 3, a government affairs cable network.

The hearing will begin with a panel of witnesses who are expected to invoke their Fifth Amendment right against self-incrimination.

Lawyers for two of those subpoenaed — Mr. Gentilucci, the manager of global investigations, and Mr. Hunsaker, the senior counsel — said their clients had not decided whether to answer questions.

Mr. DeLia, the author of several reports on the investigation given to company officials, has also been subpoenaed, but it is not clear how he will respond. His lawyer could not be reached for comment.

A second panel will include company officials who were involved in the investigation, including Ms. Dunn; Ms. Baskins; and Fred Adler, a security investigator; it will also include Larry W. Sonsini, the company’s outside counsel, and Joseph DePante, the owner of Action Research Group, the Florida investigative firm.

A third session will include only Mr. Hurd, at his request, in part because he wanted his role to seen as separate from other H.P. officials.

Sitting separately, however, carries its own risks. He will face more questions than if he shared the panel with others, since each committee member gets 10 minutes to ask questions at each panel.
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Pirate Radio Stations Challenge Feds
Martha Mendoza

To Stephen Dunifer, it was yet another revolutionary moment. But to the untrained eye, it looked more like a geek fest. Over four days, a dozen men and women shyly bumped shoulders as they studied schematics and tinkered with romex connectors, resistors, microphone cords, meters, sockets and capacitors - the stuff of illegal radio stations.

In the corner of this cluttered electronics lab, hunched over a computer, sat Dunifer, their teacher, "the patron saint of pirate radio." Part rock star, part Johnny Appleseed and fully the bane of the Federal Communications Commission, Dunifer has long, gray hair, large, clear glasses and a deep commitment to what he calls "Free Radio."

"We're not stealing anything. We're claiming something that's rightfully ours," he says.

His goal is to create FM radio stations faster than the FCC can shut them down.

"It's always been our position that if enough people go on the air with their stations, the FCC will be overwhelmed and unable to respond," he says.

Pirate radio is radio without a license, radio without government regulations. It's "america the criminal" at midnight on Human Rights Radio in Springfield, Illinois and pre-dawn erotica on Freak Radio in Santa Cruz, Calif. It's an inordinate amount of Frank Zappa at WFZR in West End, Pa. (a station dedicated to playing his music) and the "Voice of the American Patriot" ("no support for liberals disguised as wannabe Conservatives") at NLNR in Butte, Mont.

The rapidly proliferating scofflaws - and there are now hundreds of them broadcasting at any given moment in this country - are usually only audible within a few miles of their "home-brewed" transmitters. They find unused sections of the FM dial, fire up their mini-transmitters, raise their antennas and set up their station.

Some opt to broadcast on the Internet as well, opening up their audience to the entire globe. Costs typically range from about $250 to $1,500.

Pirates, as they call themselves, draw loyal audiences in their communities but complaints from the larger, licensed public and private radio stations who say the microbroadcasters interrupt their signals. And they are a thorn in the side of the FCC, which is tasked with shutting them down.

Ten miles away from Dunifer's radio camp, at an undisclosed location in San Francisco, an FCC enforcement team is part of a nationwide campaign to thwart the pirates.

A record 185 unlicensed broadcasters received fines, cease and desist letters or had been raided by the by early September, up from 151 enforcement actions in all of 2005 and 92 in 2004, according to John Anderson, an expert on pirate radio who tracks FCC enforcement at University of Illinois' Institute of Communications Research. His data show a steady increase in pirate radio enforcement dating back 10 years.

"There are a lot more stations out there these days, thus there are a lot more stations for the FCC to find and bust," said Anderson.

Despite federal laws that ban unlicensed radio, efforts to shut down the stations are rarely popular and appear to be ineffectual, at least some of the time. For example:

-The neon sign says "ON AIR" at the storefront KNOZ station in Sacramento, Calif., even though broadcaster William Major was fined $10,000 by the FCC in June. Major says he's been wrongly painted as a pirate station, and that the FCC just overlooked his license application which he says is still pending. And the fine? "It's 10 G's," he said. "I don't have 10 G's. But they're being real gentleman about it, you know what I mean? They gave us the fine and they're letting us do our thing."

-Residents of Brattleboro, Vt., are also once again listening to free radio. Last summer the FCC raided and shut down their 10-watt radio free brattleboro, prompting an ongoing federal court battle. This summer a new community radio station received permits to open and raised a 30-foot antenna.

-When federal agents raided free radio Santa Cruz in 2004, a crowd of several hundred protesters soon gathered at the 10-year-old broadcast center - including the mayor, who was shouting through a bullhorn. The tires on the FCC agents' cars were slashed before they could leave, and then they received parking tickets before they could repair them. A few days later a fundraiser brought in more than $25,000 and Freak Radio, which is still on the air, was launched.

The FCC's beef, insisted spokesman David Fiske, is with neither the public dissent nor the abundance of Frank Zappa music. The problem is that pirate radio stations can make it impossible for the public to listen to licensed broadcasting and can cut into air traffic control communications, he said.

"We are completely complaint driven," he said. "If there are more enforcement actions, that's because there have been more complaints."

The FCC's 2007 budget includes an additional $1,080,000 for Mobile Digital Direction Finding Vehicles which can be used to sniff out pirate radio stations. But that same budget includes no extra staffing for the FCC's 333-person enforcement bureau, which is tasked with policing everything from cable television to telephone services. They're supposed to investigate obscene broadcasts, bust unwanted faxers and regulate the airwaves.

Pirate radio in its current form dates back 21 years to Zoom Black Magic Radio in Fresno, Calif., founded by Walter Dunn to bring diversity to the FM dial. The FCC raided his station and fined him $2,000 two years later, but like stations of today, he quickly popped up nearby.

At Dunifer's Radio Camp, students are warned about the FCC and taught how to evade the enforcement agents. At the end of four intense days, they walked out holding their own, hand-built, ready-to-use FM radio transmitter, a shiny box slightly larger than a brick.

Participants came from as far away as Namibia and as nearby as five blocks away.

Their reasons for wanting their own station were equally diverse: a neat, middle-aged woman from Mexico, accompanied by a translator, said she wanted to bring news and political information to her community; two young men from Tucson in flowered shirts and sandals said they wanted to start a new pirate station to replace several that have been shut down by the FCC; a self-described "boring insurance clerk" in a lilac blazer was just "looking for something interesting to do"; a man with red dreadlocks, green earrings and tattooed arms was slated to take over the technology job at his local pirate station.

No one is sorrier to hear about these Radio Camp graduates than Dennis Wharton, spokesman for the National Association of Broadcasters, who described Dunifer as "the patron saint of pirate radio." And he didn't mean it as praise.

He said his members, frustrated by interference on their stations, push the FCC to enforce the rules against pirate operators.

"You'd be hard pressed to find a pirate radio station that isn't interfering with another licensed station," he said.

But Wharton conceded that the FCC's policing efforts can be futile.

"It's like whack a mole," he said. "You knock it out in one place and it pops up somewhere else."

First Tests: Fast 32GB Flash Hard Drive

New solid-state hard drives make their way into portable devices.
Jon L. Jacobi

Are you ready for laptop storage with no moving parts to spin up, break, drain your battery, add weight, or make noise? That's what you get with Samsung's new 32GB SSD (Solid State Drive). Built using NAND flash memory, the SSD is the first consumer unit with enough capacity to compete against standard notebook drives; 32GB may not satisfy multimedia addicts, but it's plenty for average business users.

We looked at a preproduction model to see how it fared against 5400-rpm Seagate drives using the latest perpendicular recording technology or traditional longitudinal recording. The SSD found files more than twice as fast, and accelerated boot-up. Its cumulative speed advantage over the other two drives was an impressive 25 percent, though it was slower on two tests that involved accessing the drive many times rather than performing longer sequential reads and writes.

Shipping now, the 32GB and 16GB drives will initially be sold to equipment makers only. Given flash memory costs (approximately $63 per 4GB chip module at press time), it will be a while before an SSD matches the cost per gigabyte of a standard notebook drive, which is typically less than $2 per GB. Samsung already includes the drive in its Japan-only Q30 subnotebook; the company is in discussions with U.S. vendors to bring SSD laptops and portable devices here.

Though the SSD's price is high, its silent operation, light weight, incredible shock resistance, and low level of power consumption bolster its appeal. Our unit weighed just 1.6 ounces, compared to 3.5 ounces for a typical 2.5-inch drive; 1.8-inch SSDs weigh even less. Its shock rating is a whopping 1500G--it can withstand most shocks short of being fired out of a howitzer--far higher than a standard drive's 200G to 300G rating. And it draws a tiny 0.5 watt of power while active and 0.1 watt at idle, far less than common drives.

But don't expect huge battery-life savings. On our system-level test, we saw a boost of about 9 percent in battery life for the test unit when configured with the SSD as opposed to with the Seagate Momentus 5400.3 (4 hours, 25 minutes versus 4 hours, 3 minutes).

Hybrid Tech

To enjoy some of the benefits of an SSD without shelling out big bucks, consider a hybrid drive such as one of Seagate's 2.5-inch Momentus 5400 PSD series, which sport 256MB of flash memory cache. Such drives don't offer all the perks of an SSD, but they do save power by letting the drive motor spin down more often, and they cut boot and resume times by retaining the operating system data in the cache. They should also allow faster access to "instant on" multimedia and boost overall performance. Seagate hinted that hybrids will cost about 10 percent more than regular drives.

Vendors should release hybrids close to the ship date of Microsoft's Vista OS, which will include ReadyBoost, a feature that can use flash memory to accelerate system responsiveness. (See Plugged In, for another Samsung flash-based product that will offer hybrid capabilities.)

Still, mobile pros who can deal with the smaller capacity of a pure SSD--and can afford it--will love the 32GB SSD.

Core Values

With the iPod and the iMac, Steve Jobs has revolutionised the media world. But now a financial scandal could topple Apple’s inspirational chief executive
Chris Ayres

The screen went dead for a second. When it came back on, a thin, greying man in his fifties — wearing circular frameless glasses, a couple of days’ stubble, and a black cotton shirt buttoned to the collar — was talking calmly against a glowing purple and black background. He could have been a cult leader, a dictator from the 22nd century, or perhaps an alien prince, addressing Earth from another dimension. In fact, he was Steve Jobs, co-founder and chief executive officer of Apple Computer: the man who has sold the world 60 million iPods, one billion music downloads, 45 million television show downloads and more than ten million iMacs, thus changing forever the way media is consumed by the masses. He was being interviewed on CNBC, the influential financial news channel.

To anyone who has worked in Silicon Valley, the rhythm and tone of Jobs’s voice was instantly recognisable as the “reality distortion field” — a term invented by one of Jobs’s employees to sum up the Apple CEO’s uncanny ability to convince anyone of anything, regardless of the facts.

“We’re not under investigation by the SEC or anyone else,” said Jobs, referring to America’s much-feared financial regulator. “[But] we did start our own investigation,” he continued. “We did discover some irregularities, and we’re, y’know, letting that investigation have it’s due course . . . and it’ll be completed in the not too distant future.”

The Apple CEO’s manner was that of a doctor, gently dismissing the latest phantom symptom of a hypochondriac patient. And when the camera cut from Jobs to a reporter standing outside Apple’s latest product launch event in San Francisco — a fire engine wailing portentously in the background — it was tempting to feel reassured.

But to anyone who has followed the script of any previous corporate scandal in the United States, it was deeply unsettling. For example: how could Jobs possibly know for certain that the SEC wasn’t investigating Apple’s accounts? Especially given that the iPod manufacturer had left investors panicking in August by declaring that financial reports issued by the company since 2002 “should not be relied upon” — not to mention the fact that the “irregularities” of which Jobs spoke were related directly to his own remuneration package.

Clearly, the implications of the Apple investigation, in terms of tax penalties, SEC fines, possible fraud charges and lawsuits, were potentially catastrophic. Hence the note sent out to clients by the Wall Street analyst Richard Farmer, of Merrill Lynch, which brought up the “potential risk . . . that Steve Jobs might be unable to continue as CEO of Apple”.

Perhaps Jobs, already on to the second act of his career, couldn’t bring himself to even think of such a possibility. Perhaps he had fallen victim to his own reality distortion field. Regardless, the question on everyone else’s minds remained: had that beautiful white Apple turned rotten at its core?

Jobs was born in 1955 to an American mother and a Syrian father, but he was put up for adoption because his parents were unmarried. His Arab roots remain something of a mystery (Jobs has infamously sparred with his biographers), but what’s undisputed is this: he grew up in Cupertino, near San José in California, and co-founded Apple in 1976 with his friend and fellow Homebrew Computer Club member Steve “Woz” Wozniak. Jobs was 21, Wozniak 26.

By 1985, however, Jobs had been ousted by Apple’s board amid complaints about his savage and temperamental management technique.

“It was awful-tasting medicine,” Jobs admitted later, “but I guess the patient needed it.” He didn’t return to Apple until more than a decade later, having spent his exile buying Pixar animation studios from George Lucas for $5 million (he would later sell it for $7.4 billion, a 1,479 per cent profit) and founding NeXT Computer.

Jobs’s return to Apple’s HQ at 1 Infinite Loop, Cupertino, turned out to be one of the greatest comeback stories in American history — a Second Coming, as one book memorably put it. Within a year, Jobs had released the iMac. Three years after that came iTunes, then the iPod, then global revolution. For Apple devotees — and there are many — Jobs was a visionary, a prophet, and an undisputed genius (although his management style remained controversial, and “being Steved” became shorthand for being fired while riding in the elevator with the Apple CEO). By the late 1990s, Apple’s sleek white hardware was a lifestyle choice: an almost political statement of good taste over the ugly compromise of Windows-based PCs. Yet few could have predicted the scale of Apple’s success. Between 1997 and 2006, Apple’s stock multiplied in value by five, from just over $16 to just under $90 (adjusted for stock splits).

PC users bought iPods by the million, then swapped their PCs for iMacs, then fitted them with iSight cameras and Airport wireless base stations.

Meanwhile, Apple began selling its hardware at retail stores that looked like modern art museums — complete with “genius bars” for one-on-one Apple technical support.

Even better: customers seemed willing to put up with the often dubious reliability of both Apple’s computers and its music players, both of which suffered battery problems (another example, said critics, of the RDF). To keep the company’s relentless momentum going, Jobs even put Intel chips inside his computers, thus allowing them not just to “think different” (Apple’s advertising slogan), but “think the unthinkable”, and run Windows XP. To promote the new compatibility, Apple launched a TV ad campaign in which a funky young Asian man with jeans, trainers, and a record bag conversed with a fat, balding and neurotic middle-aged salesman in a cardigan. The message was clear: Macs are for rock stars; PCs are for nerds.

The message was completed with iPod endorsements from two rock stars who don’t even do commercial endorsements: Bono and Bob Dylan.

Jobs’s reputation as a 21st-century miracle man was completed by his refusal to take anything other than $1 in salary from Apple — enough to buy a single track on iTunes every year, leaving one cent change. Once again, however, the reality was very different: Jobs had in fact been given a $90 million Gulfstream V jet by Apple, and was getting extraordinarily rich (on paper, at least) from share options — the same options that would cause today’s looming crisis.

Put simply, share options work like this: on a specific date, a company issues a certain number of shares to an employee. The employee can buy these shares at a fixed “strike price” —usually their value on the day they were issued — at a future date. The more the company’s stock goes up between the issue date and the “exercise” date, the more profit the employee stands to make. Investors foot the bill for this, because the value of their shares is diluted when a company issues more shares as options. And yet, because the interests of option-holding employees and investors are supposedly aligned — they both want the shares to rise in value — Wall Street generally prefers stock option incentives to cash bonuses and big salaries.

But stock options can be manipulated by so-called “backdating”. This happens when a company artificially sets the strike price of an option low, essentially rigging it so that a profit is guaranteed. There is growing concern on Wall Street that this practice has been going on for years — with the strike price of many options suspiciously matching the annual low-points of companies’ share prices. This is the subject of Apple’s internal investigation, as well as investigations at 100 or so other US companies. It is thought that in January 2000 Jobs was issued ten million share options by Apple, with a strike price that corresponded to the company’s lowest share price for that month. The resulting profit could have been as high as half-a-billion dollars — but Jobs never collected it. Apple mysteriously cancelled the grant in 2003 and replaced it with another.

Jobs’s case is made stronger by the fact that he never sat on Apple’s remuneration committee after becoming CEO in 1997. But it has also been undermined by reports claiming that executives at Pixar, the animation studio owned by Jobs until he sold it to Walt Disney this year, also received stock option grants at suspiciously low prices (the strike prices corresponded almost exactly to Pixar’s annual share price lows, as demonstrated by a series of widely-circulated graphs). Jobs might not have been one of the Pixar executives awarded any options, but the very fact that not one but two of his companies are now caught up in the widening scandal raises more questions.

The bottom line, of course, is this: will the man who turned computers into gallery exhibits, and who revolutionised the way music is sold and consumed, end up being fired from the company he co-founded for a second time? Will he be ruined by something as idiotic as a rigged stock option, when his fortune is already valued at about $4.4 billion? Until Apple’s investigation is over, it’s impossible to say. Yet Jesse Eisinger, columnist for The Wall Street Journal, made this prediction: “It’s clear that some companies and executives behaved egregiously while others may merely have had lapses in their internal controls . . . the likely outcome is that a relatively small number of the most egregious actors will be punished. Most of the rest will skate free.”

In the worst case scenario, Jobs, now married with four children (one of whom was born to an ex-girlfriend), could get caught up in a fraud case. Indeed, Apple is already the subject of a lawsuit claiming that the company filed “false and misleading statements” to the SEC and backdated options to reap “millions of dollars in unlawful profits”. The best case scenario is that some corrected financial reports are prepared, some extra taxes are paid, some lawsuits are settled out of court, everyone is cleared and another 60 million iPods are sold.

Jobs certainly appears undeterred — and the American press, so far, seems to be on his side. After all, why take down a man who has obviously contributed so much to the American economy, making huge wealth for shareholders along the way?

Apple’s shares, meanwhile, have completely recovered from the initial shock of the options investigation. One of the reasons was the presentation made by Jobs on the day of his CNBC interview a fortnight ago. He unveiled a new movie downloading service for iTunes, fielded questions about the much-rumoured iPhone and widescreen iPod, and unveiled a gadget called iTV that can beam video across a wireless network — allowing people to send movies wirelessly from their iMacs to their TV sets in different rooms, in the same way that iTunes users can already send music wirelessly to their hi-fi systems in different rooms.

While Jobs’s movie downloading service was seen as half-hearted compared with the rival service from Amazon.com, iTV was immediately applauded as a huge breakthrough. “iTV stole the show”, declared the online edition of Business Week.

Back on stage, Jobs was beaming. “Pretty cool, huh?” he said, as reality twisted and turned.

Not So Funny Anymore
Sharon Waxman

When Jim Carrey picked up the phone to call his agent, Nick Stevens, earlier this month, it was the end of a long, profitable run.

The comedy superstar called Mr. Stevens, who had represented him for 15 years, guiding his success from “In Living Color” on television to “Ace Ventura” in movies to a rare stratosphere of $20 million roles, to tell him that his services were no longer required. Instead, Mr. Carrey was moving on to that sprawling behemoth of Hollywood talent agencies, the Creative Artists Agency.

The move, which rumbled through Hollywood like a storm, signaled changing times for a tight network of stars who have dominated Hollywood comedies for several years, including Mr. Carrey, Ben Stiller, Owen Wilson, Will Ferrell, Jack Black, Vince Vaughn, Steve Carell and writer-directors Judd Apatow and Adam McKay.

For years now, the key to this web of interwoven talent has been Mr. Stevens and his deputies at the United Talent Agency, and the talent managers Jimmy Miller and Eric Gold, who represented most of the artists.

Now all that may be coming to an end, amid accusations of back-stabbing and character assassination. Not only did Mr. Stevens lose one of his most lucrative and longstanding clients in Mr. Carrey, after having lost Mr. Ferrell last year, but Mr. Miller and Mr. Gold dissolved their 12-year management partnership in early July, splitting their clients except for one they continue to share: Mr. Carrey. Their ties had frayed to the point of dysfunction; their relations with Mr. Stevens, by all accounts, have been shredded.

While the episode is one more example of Creative Artists’ aggressive acquisition of Hollywood talent, the shift in the comedy arena is also part of a broader tectonic movement going on in the entertainment industry. Studios have cracked down on the prices they are willing to pay for top performers and have reduced the overall number of films they make and release.

In particular, the studios began balking at the budgets of recent comedies and at the percentage of gross revenue they were expected to pay. In May, Fox pulled the plug on “Used Guys,” a futuristic comedy starring Ben Stiller and Jim Carrey, to be directed by Jay Roach, saying that the $112 million budget and back-end revenue deals were too high.

Shortly thereafter, another star vehicle for Mr. Carrey, “Ripley’s Believe It or Not,” was suspended at Paramount, when the studio protested as the budget climbed over $150 million and the star demanded changes to the script.

“Right now the whole business is in this cloud of change, and we’re all just trying to figure it out,” Mr. Gold said in an interview. “On the one hand it’s exciting, and rife with opportunity. But it’s a disruptive thing. And people are scared, and the studios are a little lost, and everyone is a little lost.”

Until recently, the artists in the Gold/Miller Company, part of Mosaic Media, and the United Talent comedy stables had been largely protected from those pressures. What the agents and managers sometimes called a “wheel of comedy” successfully built actors into $20 million stars, including Mr. Carrey, then Mr. Ferrell and now Mr. Vaughn, and was responsible for many of the blockbuster comedies made in Hollywood over the last several years.

This summer alone, those movies included “The Break-Up,” the romantic comedy developed by Mr. Vaughn, who starred in the film; “Talladega Nights: The Ballad of Ricky Bobby,” a Nascar comedy starring Mr. Ferrell and written by him and Mr. McKay; “Nacho Libre” starring Mr. Black and co-produced by him, and “You, Me and Dupree,” starring Owen Wilson and co-produced by him.

Mr. Miller goes back with Mr. Carrey all the way to his days as a struggling stand-up comedian when Mr. Miller would signal music cues from the side of the stage. Mr. Gold, who represented the Wayans brothers, met Mr. Carrey through the Wayans’ hit show “In Living Color,” and soon became his co-manager. They took Mr. Carrey to Mr. Stevens in the early 1990’s, when the United Talent Agency was in its infancy. With the addition of the prolific Mr. Stiller and his many collaborators, the comedy network grew to include many of Hollywood’s most recognizable figures, who generated their own material and starred in, co-wrote and co-produced each other’s movies.

That network gave United Talent and Gold/Miller enormous leverage. Mr. Miller, in particular, did not hesitate to wield the clout of his clients. He sometimes angered his studio counterparts by suggesting, for example, that his star would be unavailable for promotional appearances unless a script change was made, according to executives who worked with him. And projects were often take-it-or-leave-it packages.

Recently, some studios decided to leave it, embarrassing some United Talent clients. “Used Guys,” starring Mr. Stiller and Mr. Carrey, was just weeks away from shooting in Arizona when the decision was made, and Mr. Carrey was angered by the negative publicity surrounding the shutdown. This month, Fox bought the rights to the “Used Guys” script, but did not tell Mr. Miller or his client, Mr. Roach. Instead the agent for the screenwriter of “Used Guys,” Caren Bohrman, had to tell Mr. Roach and Mr. Miller about having sold the rights to Fox, after they inquired repeatedly about doing so.

“They were devastated” to learn the script had been bought by Fox, said Ms. Bohrman. “I believe Jay is really upset, and I’m sorry for that.”

Mr. Carrey was also at odds with the director Tim Burton over the script of “Ripley’s Believe It or Not.” When Paramount suspended the project, Mr. Burton decided to shoot “Sweeney Todd” instead; executives close to the “Ripley” project said Mr. Carrey and Mr. Burton were trying to work out their differences.

Mr. Carrey gave no specific reason for defecting to Creative Artists after so many years with Mr. Stevens, but Mr. Gold said it was the star’s decision alone. “Jim Carrey isn’t a robot that we tell him what to do,” he said. “He’s well informed. He has opinions, eyes that watch, ears that listen.”

Jim Berkus, chairman of United Talent, agreed that losing Mr. Carrey was a fork in the road of sorts.

“He’s in our DNA,” he said. “We look at him as a founding member of the company. As he grew, we grew. It was a very productive, heartfelt, close collaborative relationship between Nick and Jim, and U.T.A. and Jim. We did a lot of big things together, made a lot of big deals, dodged a lot of icebergs.”

Mr. Stevens declined to comment for this story. The agent, who lives just a block from Mr. Carrey and would commonly greet the star with an exuberant, “Jimmy G!” when he called, is said to be embarrassed and angry at the end of their relationship.

Mr. Gold has signed with Creative Artists as a client, and is seeking to raise money to finance and produce movies, while Mr. Miller, who declined to comment, is pursuing a separate path as a producer, while continuing to manage the careers of his clients. Mr. Gold described his feelings for his former partner as, “I love him and I hate him, all in the same hour.”

As for the partnership over Mr. Carrey with Mr. Stevens, he said, “We were the guys who went from ‘In Living Color,’ to ride him to the biggest deal ever made at the time, to the mix of movies he’s been in. Here it is coming to an end. It’s sad.”

Mary Parent, a producer at Universal Pictures, said the breakup would not necessarily affect the movies that got made. “It’s like a divorce with people who have kids,” she said. “You figure out how to work with each other, for the kids’ sake. They’re all smart and know their core business. They’ll always do what’s best for their clients.”

Another thing that apparently hasn’t changed is the price tags of comedies. At Universal, “Evan Almighty,” the sequel to the Jim Carrey comedy “Bruce Almighty,” has soared far over budget to $175 million, according to executives close to the film, although the studio will not confirm that figure. And at Fox, “Night at the Museum,” starring Mr. Stiller, is so far costing close to $120 million, according to an executive close to the production.

Young Internet Producers, Bankrolled, Are Seeking Act II
Miguel Helft

Silicon Valley is awash in serial entrepreneurs, those who start a company, run it for a while, and then after success, failure or something in between, move on and start again.

Jay Adelson, 36, and Kevin Rose, 29, are parallel entrepreneurs — starting a second company just as the first one is taking off.

In 2004, the two started Digg, a fast-growing Web site that allows users to play editor by submitting links to news accounts around the Internet and collectively deciding which deserve top billing.

Now, while they are still very much involved with Digg, Mr. Adelson and Mr. Rose are preparing to announce that they have turned the Revision3 Corporation, an Internet video production firm they have been running on the side, into a full-fledged company.

Revision3 has close to $1 million in financing from a group of investors that includes Marc Andreessen, the founder of Netscape, and Greylock Partners, a venture capital firm that has backed the start-ups Facebook and LinkedIn, as well as Digg.

It is trying to capitalize on the rapid growth of Internet video, and its founders hope that their programming formula, a hybrid of the polished shows created for the networks and the amateur videos that populate sites like YouTube, will be the path to commercial success in this medium.

The company is built around a series of Internet television shows, or video podcasts, aimed at a young, technologically savvy audience, one steeped in “geek culture,” as Mr. Adelson, the chief executive of both Digg and Revision3, put it.

The most popular show so far is “Diggnation,” which is already in its 64th weekly episode. Each installment features Mr. Rose and a co-host, Alex Albrecht, 30, sitting on a couch, drinking beer and talking about some of the most popular stories that have turned up on Digg.com that week. Invariably, most of these are technology-related.

The core audience for “Diggnation” consists of users of Digg, which has more than half a million members and attracted 8.5 million visitors last month, up from 2.3 million in August 2005, according to Mr. Adelson. (That is much higher than the 1.2 million visitors reported for August by comScore Media Metrix, a widely used source of Web traffic data, but it shows a similar growth rate. Mr. Adelson argues that the service does not properly measure the site’s niche audience.)

Digg’s success has made Mr. Rose, 29, an exemplar of sorts in user-generated media, the phenomenon behind the startling growth of YouTube and the popularity of MySpace and Facebook, among other recently minted Internet companies.

The “Diggnation” shows, which are frequently photographed in Mr. Rose’s walk-up apartment in San Francisco, last 45 minutes to an hour and involve a fair amount of banter, off-color jokes and digressions on topics like skateboarding and beer-bottle openers. “A lot of geeks do that, but don’t have a camera,” Mr. Rose said, in explaining what he does and its appeal to fans.

The show is not for everyone, but Digg fans appear to be loyal. Mr. Adelson said that each episode of “Diggnation” was downloaded about 250,000 times, and that all Revision3 shows, including one about hacker culture and a cooking program called “Ctrl-Alt-Chicken,” were downloaded a total of about 1.5 million times each month.

Exact audiences are difficult to measure, especially since video podcast viewers often use software that automatically downloads episodes onto their PC’s, and may not watch all of them.

But “Diggnation” routinely ranks among the most popular shows in the Apple iTunes podcast directory. It is also distributed on its own Web site and through YouTube and other services. By way of comparison, when ABC ran a two-month test and offered free episodes from four hit series on its Web site, including “Desperate Housewives,” “Lost” and “Alias,” it reported 5.7 million online requests for the shows.

Many of Revision3’s performers and producers, including Mr. Rose and Mr. Albrecht, gained experience on the cable television channel TechTV, so they come to the shows with production skills.

That puts the company on the leading edge of a shift in Internet video from user-generated clips to “a more controlled environment,” said Allen Weiner, a research director at the market research firm Gartner.

Mr. Weiner predicted that the popularity of this kind of programming would surge in the next few months. Whether it will turn into an enduring form of entertainment, let alone a profitable one, is an open question. “Let’s face it, this is an experiment in progress,” Mr. Weiner said.

Indeed, Revision3’s technologically hungry audience represents a subset of MySpace enthusiasts, but it is not clear how large a subset it is. The company has broadened its lineup of shows to embrace alternative music, cooking and comedy. But in doing so, Revision3 may run into the kind of challenges faced by Digg.

In June, Digg expanded beyond technology to include world news, business and other topics. Mr. Adelson said more than half the site was now made up of links to nontechnology news. But on a recent afternoon, the top link in the “world and business” section was an item about whether the movie character Napoleon Dynamite was a nerd or a geek. The six most popular items on the site were technology-related.

“It’s a niche,” said George Zachary, an experienced veteran Silicon Valley investor who is a partner in Charles River Ventures of Waltham, Mass., and Menlo Park, Calif.

Most Internet users have much broader interests, Mr. Zachary said, adding, “If you look at the top search terms of Yahoo and Google, it’s not tech products.”

David Sze of Greylock Partners is bullish about Revision3’s prospects but acknowledges that the appeal beyond its core technology audience is unknown. “How new programs will extend the user base remains to be seen,” Mr. Sze said.

Mr. Zachary applauds the company, saying: “One of the most important things going on in media is that people want an authentic point of view. That’s why things like ‘Diggnation’ are popular.”

At a taping of the show last week in San Francisco, Mr. Rose and Mr. Albrecht settled on a couch — each with a laptop, unshaven and in jeans and a T-shirt. As a camera rolled, they spent five minutes chatting about each of seven top items on Digg that week, including one titled “How Paris Hilton Can Help Your Web Development (seriously).”

Everything about the show, including the ads, is unscripted. It is basically up to Mr. Rose and Mr. Albrecht to say whatever they feel like about their sponsors, which include the Internet domain company GoDaddy.com and CacheFly, which helps Web sites transmit video.

“It was a bit scary out of the gate,” said Barbara Rechterman, executive vice president for marketing at GoDaddy, which is known for its racy Super Bowl ads. But she added, “It has worked really well for us.”

Mr. Adelson said Revision3 was already profitable and had monthly revenue from “Diggnation” alone ranging from $50,000 to $100,000. While that is modest, it happened without much effort. Advertisers, he said, called him asking to be on “Diggnation.”

With the new funds, Revision3 will be able to put together an advertising sales team, give regular contracts to performers, lease office and studio space and spruce up its Web site.

Cuts Inc. to Offer Video-Editing Service
May Wong

A new video-editing service will let anyone sit in the director's chair to edit and mix copyrighted videos - and even allow users to share their works online.

Hollywood studios may chafe, but Cuts Inc. says its offering is legal.

Users never technically alter the original video, and people who want to watch a video edited with Cuts must have their own copy - whether it's a DVD, or video purchased or rented from online outlets like Movielink, Amazon.com Inc.'s Unbox, or Apple Computer Inc.'s iTunes Music Store.

Unlike existing video-sharing Web sites where viewers can go to watch homemade or tweaked videos that others have uploaded, Cuts doesn't provide the video itself - only a separate software layer of what it calls virtual edits.

Cuts, which will be showed off at this week's DEMOfall tech conference in San Diego, will be free. It will initially generate revenue through ads and sponsorships, the company said. A public test version will be available later this year.

"All over the world people are taking control of their viewing experiences, in many cases illegally," DEMO producer Chris Shipley said. "But everyone should be able to personalize their digital videos without fear of violating the law. Cuts is launching a clever and easy solution to this problem."

Some digital media technophiles have already figured out how to fool around with movies and TV shows, and post their cuts online - helping to put popular video-sharing sites like YouTube in a bit of hot water with owners of copyrighted material.

Cuts believes its system works around that problem. With its editing software, users will be able to mix scenes from two movies, add written commentary or get rid of unwanted scenes like the scary shark sequence at the beginning of "Finding Nemo" that frightens toddlers.

The software also allows users to blend copyrighted work with home movies.

The San Francisco-based company provides a media player, which implements the edits. Users can choose from their own private library of personalized cuts or check out the "Cutlists" that others may have posted publicly online.

The Cuts media player works only on a computer. Unless you're among the growing but small number of households to have their televisions hooked up to a computer or the home network, that means you'd have to watch the cut video on a PC monitor.

Though a wide range of other companies from Apple, Microsoft Corp., TiVo Inc. and Cisco Systems Inc. are all working to make it easier to deliver video to the living room, Cuts Chief Executive Evan Krauss points to how people are already getting more comfortable watching short videos or TV shows on their computers. More than 50 million people are now watching videos online, he said, and more than 45 million TV shows have been downloaded from iTunes.

Cuts also will allow users to build their own communities - a parents section, say, for recommendations of kid-friendly Cutlists - and will rely on users to rate the items and police them.

Cuts wants to become another venue for user-generated video entertainment by catering to teenagers looking to show off humorous movie commentary, budding directors offering their takes, and parents looking to mute bad language or block unwanted scenes.

"The expectation of this generation is that everything is interactive," Krauss said.

Mercora to Debut Mobile Music Service
Alex Veiga

Mercora Inc., which distributes software for webcasting music, is making a bid for the bourgeoning mobile music market with a new application that enables users of select wireless devices to listen to tracks stored on PCs or other users' computers.

The Santa Clara-based firm was to debut the service, dubbed Mercora M, on Monday.

Listening to full-length music tracks on mobile devices now generally takes two forms: sideloading - transferring music from a computer to capable handsets - or downloading a track over a high-speed wireless data connection directly to the device.

Such tracks either play as they download, also known as streaming, or download into the mobile device's memory for later playback.

The Mercora service works by streaming songs from a user's music library on their computer to select mobile phones or handheld PCs.

It also allows users to stream tracks broadcast on thousands of Internet radio channels, and eventually, songs from up to five other Mercora users, the company said.

The service requires that users install the Mercora software on a computer running Microsoft Corp.'s Windows operating system. Only mobile devices running the Windows Mobile 5.0 software will work with the service.

At launch, Mercora M will be free through Oct. 31, after which the company will charge $4.99 a month. The company was also offering a 12-month subscription for $49.99 and a two-year subscription for $99.99.

The service launch comes at a time when major wireless carriers and digital music services are increasingly making audio and video content available to mobile customers. Services sometimes charge fees, but in many cases, the content is ad-supported.

In the U.S., about 17 percent of mobile phone customers use their phones to send pictures, listen to audio, play games and browse the Web, said Charles Golvin, a mobile market analyst for Forrester Research.

"The trend is very much in this direction," Golvin said. "Two years ago, it was only about 6 percent."

As the number of mobile devices-turned-music players has grown, some people have begun to see the devices as potential rivals to standard digital music players, such as Apple Computer Inc.'s iPods.

Mercora's mobile service is the most aggressive service yet capable of blurring the line between phone and portable music player, suggested Rob Enderle, an analyst for the Enderle Group.

"The Mercora M represents the next big step in mobile music enjoyment," Enderle added.

Mobile music services that rely on streaming data, however, face potential drawbacks because sometimes the spotty wireless service can interrupt playback, Golvin said. That could dissuade some mobile customers from using services such as Mercora and, instead, they might opt for sideloading music to their handsets.

"It's not unfathomable that consumers would download such an application and use it," Golvin said of Mercora M. "(But) MP3 players are being built into lots and lots of phones. Once you have the music on your phone, there are no playback issues."


On the Net:

Mercora: http://www.mercora.com/M

BPI Wants Tax Breaks for New Acts

The UK recording industry says it should get tax breaks for finding the next generation of recording artists.

The British Phonographic Industry (BPI) wants its members to be eligible for tax credits which are currently awarded to businesses conducting research.

Such a system would lead to "greater investment" in new music, said BPI chairman Peter Jamieson.

The BPI was responding to a government programme which is seeking advice on how to make the UK more creative.

It says its members should be eligible for the Treasury's research and development tax credits because they spend 17% of their turnover on finding new artists.

That figure is roughly equal to the amount pharmaceutical companies spend on research and development, says the BPI.

'Creative hub'

The Department for Culture Media and Sport launched its Creative Economies Programme in November last year.

It aims to make the UK the "world's creative hub" by addressing issues such as training, finance and intellectual property.

But the BPI has raised concerns about the scope of the programme.

It says initial reports concentrate too much on how the government could "micro-manage" creative industries.

The BPI says the government's role should be to provide a framework for such businesses, rather than intervening in how they are run.

It has recommended the formation of an independent body which would act as an intermediary between the government and the creative industries.

Ministers are now reviewing the BPI's recommendations, along with those from other branches of the creative industries.

They hope to produce a policy paper in early 2007.

More than two million people work in creative industries in the UK, which includes businesses such as music, film, fashion, publishing and software.

In 2003, they accounted for £11.6bn of the UK's exports - more than 4% of the total amount of goods and services sent abroad.

OpenOffice: Breaking Microsoft’s Dominance
Ahmed ElAmin

I am writing this article using Writer, part of the slick new OpenOffice.org suite, which by the way is free and now rivals Microsoft Office in terms of features.
Microsoft charges about $499 list for its product suite, which includes Word, Exel, PowerPoint, FrontPage, and Access if you buy the professional version.
OpenOffice.org works just as well, has more or less the same abilities, and can both read and save to Microsoft formats. This latter point is important for those who want to run it side by side with the Microsoft versions, who want to switch without having to ditch their archives,or who need to share documents with others.

OOo is free under an open source licence, which allows individuals and businesses to use it without fear of breaking any patent licensing. It is an example of the fine work produced by hundreds of individuals collaborating over the Internet on the project, just for the fun of breaking Microsoft’s dominance. While OpenOffice has been around for a few years, the recently release of the second version takes it into the competitive space. Ooo, as it is sometimes written, is no clunky amateur effort.

Each application works smoothly and is rich in features. Writer, the program I am using, is OpenOffice.org’s word processor. It is easy to use if you know how to use Word. If not, a detailed manual is available at the OOo site (www.OpenOffice.org) along with an imbedded help file, as for all the other programs.

Calc is a spreadsheet that looks pretty much like Exel, with all the tools to calculate, analyse,summarise, and present data in numerical reports. It can pull in external data, sort it, filter it and produce subtotals and statistical analyses. It also has 13 categories of 2-D and 3-D charts including line, area, column, pie, XY, stock and net templates.

The Impress program works like PowerPoint to create multimedia presentations. The Draw program can be used to produce a range of diagrams. Base is a new addition in Version 2, allowing users to manipulate database data to create and modify tables, forms, queries, and reports.

OOo’s roots lie in Sun Microsystems’ 1999 acquisition of Star Division, a German company that built an office suite called StarOffice. Sun later released the product as the open-source OpenOffice.org project.The open source licence also allows resellers to provide commercial copies, right now available for about $29, if you feel more comfortable going that route rather than downloading the 76MB installation file from the OpenOffice.org site.

Versions are available for Windows; Linux, Mac and Unix platforms. Give it a spin. If you already use Microsoft Office, you can run both side by side. It can open all Microsoft Office documents and it also saves back into that format. It also comes with a built feature to convert documents into PDF format,which works really well. This gets rid of the need to buy Adobe Acrobat’s commercial version if you only need to convert from a word processor. You should note that OOo does not support Word macros or Excel pivot tables.

In November last year Microsoft said it would offer Word, Excel and PowerPoint document formats as open standards.

Technology is transforming the workforce, which may be more mobile than you think. A global study by the Yankee Group shows where the possibilities lie.
According to this year study about 40 percent of today’s workforce can be classified as “mobile”, withnumbers increasing by 10 percent over the past four years.
The increased mobility can be attributed to new technologies in telephony and wireless communications,changing demographics (older workers turn family oriented), globalisation, and increased functionalityfor mobile devices. Mobile workers are defined as workers who spend 20 percent or more of their time away from their primary workspace.

“As a result of increased workforce mobility, global companies are being forced to accommodate the changing workforce dynamics with delivery technologies, applications and IT strategies specifically targeted to accommodate the rapidly changing mobility requirements of their employees,” says the market researcher.
One-third of companies surveyed suggested they would deploy some form of enterprise applications over a mobile device within the next three years.

So how do you make sure you keep in touch? Its survey of best practices found that companies must build their information technology and deliver enterprise applications, services and productivity tools to cater for the mobile workforce. Wireless e-mail access remains the driving application. Web browsing on the move is growing in importance.

“These two factors-combined with the fact that application vendors are beginning to deliver mobile capabilities in some form or factor-are starting to pique the interest of enterprises,” the Yankee Group stated. You can read the rest of the advice at www.yankeegroup.com.

A Crunchy-Granola Path From Macramé and LSD to Wikipedia and Google
Edward Rothstein

The pages are yellowed, the addresses and phone numbers all but useless, the products antique, the utopian expectations quaint. But the “Whole Earth Catalog” — and particularly “The Last Whole Earth Catalog,” published in 1971, which ended up selling a million copies and winning the National Book Award — has the eerie luminosity of a Sears catalog from the turn of the last century. It is a portrait of an age and its dreams.

Deerskin jackets and potter’s wheels, geodesic domes and star charts, instructions on raising bees and on repairing Volkswagens, advice on building furniture and cultivating marijuana: all this can be found here, along with celebrations of communal life and swipes at big government, big business and a technocratic society.

Can this encyclopedia of countercultural romance have anything to do with today’s technological world, a world of broadband connections, TCP/IP protocol and the Internet? The Internet, after all, began during the cold war as an attempt to create a network of computers that would be resilient in case of nuclear attack. Its instigator, the United States Department of Defense, was at the very center of the culture being countered by the “Whole Earth Catalog.” How could the romantic, utopian culture of the 1960’s, with its deep suspicions about modernity and its machinery, be closely linked to one of the most important technological revolutions of the last hundred years?

Yet as Fred Turner points out in his revealing new book, “From Counterculture to Cyberculture: Stewart Brand, the Whole Earth Network, and the Rise of Digital Utopianism” (University of Chicago Press), there is no way to separate cyberculture from counterculture; indeed, cyberculture grew from its predecessor’s compost. Mr. Turner suggests that Stewart Brand, who created the “Whole Earth Catalog,” was the major node in a network of countercultural speculators, promoters, inventors and entrepreneurs who helped change the world in ways quite different from those they originally envisioned.

Mr. Turner, who teaches in the communication department at Stanford University, is rigorous in his argument, thorough to the point of exhaustion, and impressive in his range. The basic premise, though, is not unfamiliar. A decade ago the cultural critic Mark Dery suggested in his book “Escape Velocity” that the PC revolution could well be called “Counterculture 2.0.” Other writers have also pointed out uncanny overlaps.

And some of the anecdotal evidence is familiar. Steve Jobs created and promoted Apple as a countercultural computer company, most famously in the 1984 television ad that associated it with the demolishment of a totalitarian Big Brother. Even I.B.M., in promoting its first PC, tried to undermine the computer’s association with corporate power, marketing its machine using images of Charlie Chaplin’s tramp, who had twitted the gears of industry in “Modern Times.”

Connections were even made by the participants. Theodore Roszak, whose 1969 book, “The Making of a Counter Culture,” popularized that era’s doctrines, later asserted that computer hackers — “whose origins can be discerned in the old Whole Earth Catalog” — invented the personal computer as a means of “fostering dissent and questioning authority.” Timothy Leary, the psychedelic maestro of that period, declared that “the PC is the LSD of the 1990’s.”

Soon after publishing “The Last Whole Earth Catalog,” Mr. Brand started to write about the computer scene, helped create the “Whole Earth Software Catalog” and, in 1985, became a founder of the WELL — the Whole Earth ’Lectronic Link — a pioneering online community. “As it turned out,” Mr. Brand once explained, “psychedelic drugs, communes, and Buckminster Fuller domes were a dead end, but computers were an avenue to realms beyond our dreams.” By the 90’s, those realms were celebrated by the magazine Wired.

It might be argued that so prevalent was the counterculture, and so experimental and energetic were its most vocal proponents, that it would have been surprising had many of them not found their way to the computer revolution. But Mr. Turner demonstrates something more essential in the continuity.

First, he suggests, we are mistaken in thinking that the postwar technological world was dominated by hierarchies and rigid categories. Under the influence of the mathematician Norbert Wiener, it became increasingly common to think of humans and machines as interacting elements of “cybernetic systems” — organisms through which information flowed. This also led to a different way of thinking about living organisms and their networks of interaction.

Marshall McLuhan wrote in 1964: “Today we have extended our central nervous system itself in a global embrace, abolishing both space and time as far as our planet is concerned.” Buckminster Fuller proposed the idea of a Comprehensive Designer, a creator who would embody “an emerging synthesis of artist, inventor, mechanic, objective economist and evolutionary strategist.”

These writers were the patron saints of the “Whole Earth Catalog,” their books appearing alongside macramé and carpentry manuals, their ideas presumably brought to life in the commune, where the natural and human world would be bound together, creating a single organism from which new possibilities would unfold.

By the 1980’s, Mr. Turner argues, similar fantasies were inspired by the computer. It had freed itself from corporate control and ownership; it was also capable of connecting with other computers in communities like the WELL (which John Perry Barlow, a former lyricist for the Grateful Dead, called “the latest thing in frontier villages”). The Internet, designed to be inherently nonhierarchical, suggested even more grand possibilities, even a revolution in politics and human consciousness.

In the 90’s, Mr. Turner says, the writers and editors of Wired believed “they would tear down hierarchies, undermine the sorts of corporations and governments that had spawned them” and replace them with a “peer-to-peer, collaborative society, interlinked by invisible currents of energy and information.” Cyberculture was to be the fulfillment of counterculture.

Ultimately, of course, such fulfillment was not to be had. But the consequences of the association were profound. One reason for the heady pace of innovation during the 90’s is that the motivation was never purely abstract, but was often accompanied by utopian passions. Software development occurred not just in the private realm, but also among collaborative communities that objected to corporate ownership. Even today’s Wikipedia — the online encyclopedia continuously being written by its users — can be traced to these ideas.

But there were also limitations of vision and imagination. For a long time, cyberspace advocates were reluctant to take the problem of mischievous hacking seriously and could look askance at the very notion of copyright in the cyberworld. There was even a strain of countercultural romance in the ways in which the corporate monopolist Microsoft became widely portrayed as an Evil Empire threatening the libertarian Internet. (This is also one reason that Google, which has turned out to be Microsoft’s most potent competitor, made its motto “Don’t be evil.”)

Moreover, so messianic were expectations, that many failed to see that cyberspace was not really a different realm from the hard-wired world of ordinary experience, but would become an extension of it: a place where banking, shopping, conversation and business transactions could take place, where the bourgeois world and an imagined frontier would again have to work out their uneasy relations, and would again face an uncertain future.

Rural Areas Left in Slow Lane of High-Speed Data Highway
Ken Belson

For most businesses, the goal is to attract as many customers as possible. But in the fast-changing telephone industry, companies are increasingly trying to get rid of many of theirs.

Bill and Ursula Johnson are among the unwanted. These dairy farmers in bucolic northeastern Vermont wake up before dawn not just to milk their cows, but to log on to the Internet, too.

Their dial-up connection is so pokey that the only time they can reliably get onto the Web site of the company that handles their payroll is at 4 in the morning, when it is less busy. Mr. Johnson doubles as state representative for the area, and he doesn’t even bother logging on to deal with that. He communicates with colleagues in Montpelier, the capital, by phone and post instead.

The Johnsons’ communication agony could soon get worse. Instead of upgrading them to high-speed Internet access, Verizon, their local phone company, is looking to sell the 1.6 million local phone lines it controls in Vermont, New Hampshire and Maine. The possible sale is part of an internal plan called Project Nor’easter, according to a person with knowledge of the details.

A Verizon spokesman, John Bonomo, would not comment on the plan, but said the company “continually evaluates the assets and properties in our portfolio for strategic fit and financial performance.”

Verizon is not alone in its desire to reduce the number of landlines it owns. Big phone and cable companies are reluctant to upgrade and expand their networks in sparsely populated places where there are not enough customers to justify the investment. Instead, they are funneling billions of dollars into projects in cities and suburbs where the prospects for a decent return are higher.

But those projects are unlikely to reach rural areas of Vermont and other states, leaving millions of people in the Internet’s slow lane, just as high-speed access is becoming more of a necessity than a luxury. The United States already lags behind much of the industrialized world in broadband access.

The lack of broadband has preserved places like Bessie’s Diner as Canaan’s de facto meeting hall. Over burgers and turkey club sandwiches, local residents swap tidbits that, in a more wired world, might end up in e-mail and instant messages.

Helen Masson, who lost her job at an Ethan Allen furniture factory a few years ago, grumbles that the lack of broadband has made it harder for her to find work, despite taking computer classes. Mr. Johnson, sitting nearby, nods in agreement. “The staff at the statehouse shudder when I’m on a committee because they have to lick a stamp instead of pressing a send button,” he said.

Verizon has sold phone lines before. In 2005, the Carlyle Group bought its business in Hawaii. Verizon also sold 1.3 million lines in Alabama, Kentucky and Missouri in 2002.

Others have followed. In May, Sprint Nextel spun off its local phone division with 7.1 million lines and renamed it Embarq. In July, Alltel spun off its local phone group and merged it with Valor Communications.

If Verizon does sell the New England lines, it would most likely be to a smaller company or private equity group that could be even less capable of offering fast Internet access. That prospect has Vermonters fearful that the exodus of jobs and employers from the state could accelerate.

“We have companies that lose money because they don’t have broadband,” said Maureen Connolly, a director at the Economic Development Council of Northern Vermont. “We’re not a third world country. We shouldn’t have to beg for service.”

While selling off slow-growing landlines in New England may please Verizon’s shareholders seeking higher returns, the company’s plan has reignited long-simmering political and economic debates about whether the region is being left behind as wealthier states nearby pull further ahead.

The proceeds from any sale of New England lines would help Verizon pay for the potentially more lucrative fiber optic network it is building in and around cities like New York and Boston.

The network is part of Verizon’s push to transform itself into a fast-growing technology company and shed its image as a stodgy utility.

The possibility that Verizon would sell local lines is another sign of how much the phone business has changed in the last half decade. Verizon and other former local phone monopolies argue that since the cellphone, cable and Internet companies that are luring away millions of their customers are not compelled to serve remote and rural places, then they should not have to bear that burden either.

In Vermont, Verizon has broadband available on just 56 percent of its 330,000 lines, compared with 95 percent for most local phone companies, which receive substantial federal subsidies. Without the same aid, Verizon must bear more of the financial burden to upgrade its network.

“Vermont — like all rural states — has higher fixed costs of providing service,” said Polly Brown, president of Verizon Vermont, where the number of landlines has declined 9.1 percent since 2002. “You’re spreading those costs over fewer customers, who are located far and wide, and you’re dealing with topographical challenges such as mountains and a rock base.”

Residents, unions and politicians in Vermont do not dispute that the phone business is a challenging one, but they say that residents will have a harder time telecommuting or home-schooling their children. Towns like Canaan will not have access to the growing number of government records kept online, they say, and hotels and other tourist attractions will have a harder time attracting outsiders.

Take Michael and Louise Kingston, who have had a summer home in nearby Averill for the last 35 years. Owners of a grape-growing company with vineyards in Chile and California, they often cut their vacations short and return home to New Jersey because they cannot run their business on the 26-kilobit dial-up line — a speed considered fast in 1993 — in Averill.

“It means we can spend less time here, which means you spend less money here at a time when the local economy needs it,” Mr. Kingston said.

Connections are so slow that their son drives 25 miles south to Island Pond to find a broadband line. There is no cellphone service either, so when locals go to areas where there is reception, they take along other peoples’ phones to retrieve their voice mail for them. In places where Verizon does not sell high-speed Internet, some people have the option of getting broadband from their cable provider. But in Vermont, cable companies have focused on more populous towns like Montpelier and Burlington, the state’s largest city. Cable coverage in the northeast part of the state is spotty.

Several rural phone carriers have spoken to Verizon about its lines in New England, including Fairpoint Communications, CenturyTel and Citizens Communications, according to people with knowledge of the discussions. Buyout firms may also be considering the business.

Rural phone lines can be profitable because the basic infrastructure was paid for years ago, there are often few competitors and subsidies from the Universal Service Fund, which helps carriers provide service to hard-to-reach consumers, can be substantial.

But the subsidies do not benefit all carriers equally. For example, Vermont Telecom, which has 21,000 phone lines in the state, will receive $24.34 a month per line in the fourth quarter from the fund, money that is credited to customers on their bills.

But as a larger carrier, Verizon will receive one-tenth the subsidy, or $2.42 per phone line. Any company that buys Verizon’s lines will inherit the same subsidies, making such a deal a less attractive investment. Verizon could compensate by lowering its sale price, at the risk of disappointing shareholders.

The economics of providing broadband in rural areas are discouraging, too. The cost of upgrading an existing copper line that runs from switching stations to remote homes can be as much as $5,000, according to the National Exchange Carrier Association. Such costs are prohibitive for phone companies, which typically want to make back their money within three years, said Victor Glass, the director of demand forecasting at the carrier association.

Though frustrations with Verizon run high in places like Canaan, the alternatives are more alarming. Since it took over Verizon’s lines in Hawaii, the Carlyle Group has had billing problems that caused a fourfold spike in consumer complaints.

Carlyle’s experience could presage what rural areas like northern Vermont might face if Verizon departs, particularly if the buyer sharply cuts costs and jobs.

“We would rather deal with Verizon because there’s a process in place and people up and down the food chain that we know,” said Darlene Stone, an operator at a Verizon call center in South Burlington and chief steward in the Communications Workers of America, which represents 135 Verizon employees in Vermont. “Private equity funds are not people who are going to be interested in our opinions.”

The possibility that a sale could lead to worse service has put regulators in the uneasy position of trying to pressure Verizon to do more while not alienating the company, which invested 37 percent less in its network in Vermont last year than in 2001.

In 2005, the Public Service Board fined Verizon $8.1 million for providing inadequate customer service in Vermont. This year, regulators also got Verizon to agree to expand its broadband coverage to 80 percent of its phone lines by 2010.

That holds out some hope for isolated areas, but there is no guarantee that any particular customer, like the Johnsons, will be among the 80 percent and there is no guarantee that Verizon will still be in Vermont by then.

Alternative broadband providers who could fill that gap face problems, too. Jake Marsh, who runs Island Pond Wireless, a company that beams high-speed Internet signals over strings of antennas, has signed up 250 customers and has a waiting list just as long. But to expand, he is counting on towns getting state funds to help defray the installation costs.

Yet officials in Norton, 15 miles west of Canaan, could not download the 20-page grant application because their dial-up line was so slow.

Composer of 'Bikini' Song, Paul Van Valkenburgh, Dies
Nanci G. Hutson

The New Milford native and composer of the 1960s novelty tune "Itsy Bitsy Teeny Weenie Yellow Polka Dot Bikini'' died earlier this month.

Paul Van Valkenburgh, 68, who wrote the song and several others as a young man under the name "Paul Vance," died at his Ormond Beach home in Florida on Sept. 6.

Van Valkenburgh grew up in New Milford but later moved back to Florida, where he was born.

Van Valkenburgh has seven living children. Two still live in the area: Daughter Karen Machado lives in New Milford and his son, Paul Van Valkenburgh Jr., lives in Bethel.

His other children are: Kevin, Laura, Michelle, Sherry, and Susan. He was predeceased by a son, Peter Leroux.

The owner of a painting and decorating business in Florida, Van Valkenburgh was a Navy veteran who fought in the Korean Conflict, and who in his early years wrote several songs.

His silly, snappy tune about a girl wearing a very revealing "yellow polka dot bikini'' was a hit when it was released on Aug. 8, 1960, by artist Brian Hyland.

Van Valkenburgh wrote and collaborated on some other songs, including "Hey Now Mary'' and "Magic Melody," but none gained the notoriety of the "bikini'' song.

Today, the song appears in yogurt commercials.

In Van Valkenburgh's obituary, his family wrote that he loved listening to music and spending time with family and friends.

He is survived by his wife of 32 years, Rose Leroux, along with many grandchildren, nieces, nephews and friends.

Family members declined further comment.

Donations in Van Valkenburgh's memory can be made to the Hospice of the Palm Coast in Florida. 149 South Ridgewood Ave., Suite 400, Daytona Beach, Fla. 32114.

Not so Teenie Weenie Story Stuns Family

Florida songwriter disproves late man's longtime claim to be the author of 'bikini' song
Nanci G. Hutson

Paul Van Valkenburgh, formerly of New Milford and Danbury, once was a budding singing and songwriting talent, but it appears he exaggerated throughout his life in claiming that he wrote the 1960s tune, "Itsy Bitsy Teenie Weenie Yellow Polka Dot Bikini."

Van Valkenburgh, who played the Greater Danbury music scene in 1959 under the name Paul Vance, told his family and friends for decades that he wrote the song but never collected royalties because he'd signed them away as a young man.

When the family placed his obituary on Sunday, they prominently cited the song -- which was, in fact, written by a Paul Vance -- as a career highlight.

The family paid their last respects to Van Valkenburgh earlier this month in Ormond Beach, Fla., after he died of lung cancer. He was 68. His obituary moved nationally via the Associated Press.

That's when another, and very much alive, Paul Vance of Florida -- who insists he wrote the "bikini song" and on Wednesday produced records of lucrative royalty payments to the AP to prove it -- started getting condolence calls.

"You have no idea how this has affected my family and my life," said the living Paul Vance, during an interview Wednesday.

The lively grandfather said, "I'm getting about 200 calls every three hours.

A friend came over to give her condolences and was shocked to find out I was not dead. It's crazy."

This 76-year-old Vance of Coral Springs, not Ormond Beach, said he spoke up to set the record straight. A career songwriter, Vance has written music for such artists as Frank Sinatra, Perry Como, Johnny Mathis, as well as scores for musicals and other genres.

The family of Van Valkenburgh is shocked by the revelations.

"He told me he wrote it. He showed me the record, but we've moved so many times I don't know where that record is now,'' the 80-year-old Rose Leroux said of Van Valkenburgh from her Florida home on Wednesday. She and her husband of 32 years moved from Danbury to Ormond Beach in 1973 where he owned a painting and decorating business.

"I do have one record of 'Hey Now, Mary!'' and 'Magic Melody'' and he is singing on that record. And I know it is his voice. I lived with him for almost 40 years.

"I don't know what that man (Paul Vance of Coral Springs) is trying to accomplish,'' she said. "If he's getting royalties, why is he bothering (to come forward)."

Her husband didn't get any royalties.

"He supposedly sold the rights to it (the 'bikini' song) when he was just 19, and that was long before I met him when he was 30.

"I don't know what all the hoopla is about. If this gets back to his son (Paul Jr. in Bethel) it's going to break his heart.''

Van Valkenburgh is survived by seven children -- Paul Jr., Kevin, Karen Machado, Laura, Michelle Prior, Sherry and Susan Leroux -- as well as several grandchildren and a sister, Lillian Raymond in Torrington. His eldest son lives in Bethel and his daughter, Karen, lives in New Milford. He is preceded in death by Leroux's son, Peter. Rose Leroux was his second wife.

The other Paul Vance said he has no animosity toward Van Valkenburgh, who he speculates was just bragging with no idea of the potential consequences, and his family "sincerely believes he wrote it,'' the tune Vance describes as an "evergreen song.'' Upon his death, Vance said, they were just trying to assure his "few moments of fame.''

Doreen Van Valkenburgh, Paul Jr.'s wife who prepared the paid obituary with the songwriting credits that first appeared in The News-Times Sunday, is completely perplexed.

"Through all the years I've known him, that's what he said,'' Doreen Valkenburgh said of her father-in-law, who she first met about 12 years ago.

"This is all screwed up. We would have never made such a thing up. We're not that kind of people.''

Paul Jr. said he finds the whole scenario "weird.''

He said he remembers his father going places and singing the "bikini'' song for them. He can't imagine his father would have intentionally made up such a tall tale.

Yet the evidence seems stacked against Van Valkenburgh's claims to that piece of musical history.

"I'd absolutely, positively bet my life on this,'' said Ronnie Allen, 63, of Morrisville, Pa., a disc jockey and 15-year writer and researcher for Casey Kasem and "American Top 40.''

"He (Van Valkenburgh) could have written those other two songs. I don't doubt that. But I am positively, definitely, 100 percent certain he was not the Paul Vance who wrote 'Itsy Bitsy Teenie Weenie Yellow Polka Dot Bikini.'''

A former Danbury middle school classmate Betty Ireland said she was saddened to read about Van Valkenburgh's death. She said she knew nothing of the composing controversy.

In school, she said she remembered that he played the drums, and had done some recording under the name Paul Vance, but didn't recall anything about other musical aspirations. She said she mostly knew him from afar, but recalled that even though he was the quiet type, girls found his tall, blond good looks appealing.

A July 31, 1959, article in The News-Times about Van Valkenburgh's ambition to break onto the national rock 'n' roll music scene described him as a "six-foot-one, blue-eyed crooner'' who was "explosive when in action'' and went by the stage name Paul Vance. The article noted that his "Hey Now, Mary'' record at that time had already sold more than 40,000 copies, and its popularity was such that he and his promoters expected a "gold record.''

In 1955, Ireland recalled that she was working in the downtown Danbury Woolworth's when Van Valkenburgh came in wearing a U.S. Navy uniform. She said she just wanted people to know that he had roots in Danbury.

In his obituary, Doreen Van Valkenburgh wrote that her father-in-law served on the USS Yorktown during the Korean conflict, and his wife said she has pictures of him standing on the ship.

As distressed as Vance has been over the mixed identities -- he will be appearing on a Fox news show this morning -- he said he is still trying to keep some perspective, and a sense of humor.

Now, he said, when he reads the caller identification on his cellphone, and it's a friend or family, Vance said he answers, "This is Heaven.''

Microsoft Spinoff Wallop Launches Test

Wallop, a startup spun out of Microsoft Corp.'s research lab, is launching the test version of an online social networking site with the premise that people will want to pay extra to look good.

The company, which aims to compete with established brands like MySpace and Facebook, plans to sell graphics and other features people can use to decorate their personal profile pages.

Wallop says the plan to charge users for the decorations will supplant the advertising that supports many such free sites. The add-ons will initially cost somewhere between 99 cents and $4, said Karl Jacob, the San Francisco company's chief executive. The company will offer some elements for free.

People will only be able to sign up for the service if an existing member invites them, an approach Facebook is about to abandon.

Wallop has its origins in a Microsoft research project that goes back several years. In the interim, News Corp.'s MySpace has emerged as a market leader in the now-hot field of forging and maintaining friendships online.

MySpace already lets users customize pages for free, though users typically have to find HTML code elsewhere to post into their profiles. Some visitors have complained that flashy icons and colorful lettering in such customized profiles can make them difficult to read.


On the Net:


Online Ad Revenues in U.S. Set Record

Internet advertising revenues in the United States grew 37 percent in the first half of this year, reaching a new high of $7.9 billion.

Keyword ads displayed alongside search results remain the most lucrative format, accounting for 40 percent of revenues from January to June, the Interactive Advertising Bureau said Monday. Banner display ads made up 21 percent and classified ads 20 percent.

Revenues are on target for a fourth consecutive year of growth - and the third of setting records, said Pete Petrusky, director of entertainment and media at PricewaterhouseCoopers LLP, which conducted the quarterly study for the IAB, an industry trade group.

Online ad revenues reached $12.5 billion last year.

Despite the growth, Internet advertising accounts for only about 5 percent of all U.S. advertising revenues.

Google to Push for More Electrical Efficiency in PC’s
John Markoff

Google is calling on the computer industry to create a simpler and more efficient power supply standard that it says will save billions of kilowatt-hours of energy annually.

In a white paper to be presented Tuesday on the opening day of the Intel Developer Forum here, two leading data center designers at Google will argue that the industry is mired in inefficiency for historical reasons, dating to the introduction of the first I.B.M. PC in 1981.

At that time, standard power supplies, which convert high-voltage alternating current to low-voltage direct current, were required to provide multiple output voltage, which is no longer necessary in today’s PC’s.

The Google plan calls for a shift from multivoltage power supplies to a single 12-volt standard. Although voltage conversion would still take place on the PC motherboard, the simpler design of the new power supply would make it easier to achieve higher overall efficiencies.

The Google proposal is similar in its intent to an existing effort by the electric utility industry to offer computer makers financial incentives for designing more efficient power supplies for personal computers. Existing PC power supplies vary widely in efficiency, from as high as 90 percent to as low as 20 percent.

The existing effort, 80 Plus, sets an 80 percent efficiency standard as a goal. It is a partnership between Ecos Consulting, an environmental consulting firm, and a group of electric utility companies. Ecos began measuring the efficiency of computer power supplies in 2003 and found that none of them met the efficiency standard.

But a technical adviser for the utility project said in a telephone interview on Monday that since the program began last year, the industry has begun to move toward more efficient designs.

“We now have 70 compliant designs from 15 to 20 manufacturers,” said the adviser, Chris Calwell, vice president and director for policy and research at Ecos Consulting. The new designs are just becoming available in commercial products, he said.

Modern PC designs shift the control of voltage to the motherboards, making the multiple voltage requirements of industry standard power supplies unnecessary, wrote Urs Hölzle and William Weihl, the authors of the Google paper, “High-Efficiency Power Supplies for Home Computers and Servers.”

Google executives said Monday that they were not familiar with the existing effort. They said the project was complementary with their plan and that they were trying to start an industry discussion of the issue.

The overall Google goal is to be applauded, Mr. Calwell said, but by redesigning and simplifying power supply design, he worries that it is possible that overall efficiency may not be improved significantly.

Both the Google engineers and Mr. Calwell agreed that there was a significant design flaw, which they described as “overprovisioning,” in today’s PC power supplies. “It’s like putting a 400-horsepower engine in every car, just because some cars have to tow large trailers every once in a while,” Mr. Calwell said.

The Google white paper argues that the opportunity for power savings is immense — by deploying the new power supplies in 100 million desktop PC’s running eight hours a day, it will be possible to save 40 billion kilowatt-hours over three years, or more than $5 billion at California’s energy rates.

Although Google does not plan to enter the personal computer market, the company is a large purchaser of microprocessors and has evolved a highly energy-efficient power supply system for its data centers.

It is not the first time Google has entered into an industry debate over efficiency. At the Consumer Electronics Show in January, its co-founder, Larry Page, called on the industry to adopt a single power supply standard for portable devices.

“I’m going to just plead with all of you, let’s get the power supply problems fixed, or let’s get all these devices talking together,” he said during a keynote address.

According to EPRI Solutions, an energy research and consulting firm, over 2.5 billion AC/DC power supplies are used in the United States and 6 to 10 billion worldwide.

Currently, EPRI said, power supplies account for more than 2 percent of the nation’s electricity consumption and that more efficient design could cut use in half, saving nearly $3 billion in electricity costs.

One personal computer industry pioneer said he believed that the Google proposal might have important indirect benefits.

“I imagine a standard low-voltage distribution system inside buildings having alternate energy supplies like solar,” said Lee Felsenstein, the designer of the Osborne 1 and Sol personal computers. “Google’s proposal would make that a practicality.”

REVIEW: Sony's Reader a Step Forward
Peter Svensson

Books have been a bit of the orphan in the digital world. Music has the iPod. Video has YouTube. Books have, well, Amazon.com, where you can buy them printed on paper.

Sure, there are electronic books available for download at Amazon and elsewhere, but they haven't really caught on. Sony Corp. is now tackling part of the problem with the U.S. launch of the first e-book reader that imitates the look of paper by using an innovative screen technology.

Is this the iPod for books? Not quite. But it is a step forward.

The Sony Reader is a handsome affair the size of a paperback book, but only a third of an inch thick. It goes on sale for $350 on Sony's Web site Wednesday, and in Borders stores in October.

The 6-inch screen can be taken for a monochrome liquid-crystal display at first glance, but on closer inspection looks like no other electronic display. It's behind a thin pane of glass, but unlike an LCD it shows no "depth" - it pretty much looks like a light gray piece of paper with dark gray text.

The display, based on technology from Massachusetts Institute of Technology spinoff E Ink Corp., is composed of tiny capsules with electrically charged particles of white and black ink. When a static electric charge is applied on the side of the capsule that faces the reader, it attracts the white particles to the face of the display, making that pixel show light gray. Reversing the charge brings the black pigments floating through the capsule to replace the white pigments, and the pixel shows as dark gray.

Like paper, the display is readable from any angle, but it doesn't look as good as the real thing, chiefly because the contrast doesn't compare well. The background isn't white and the letters aren't black. The letters show some jaggedness, even though the resolution is a very respectable 800 by 600 pixels. It will display photos, though they look a bit like black-and-white photocopies.

But it's still a more comfortable reading medium than any other electronic display. The text is easy on the eyes in almost any light you could read a book by.

The other major advantage of the display is that it's a real power sipper. Sony says a Reader with a full charge in its lithium battery can show up to 7,500 pages, an amazing figure that I unfortunately didn't have the time to test.

The reason behind this trilogy-busting stamina is that the display only consumes power when it flips to a new page. Displaying the same page continuously consumes no power, though the electronics of the device itself do use a little bit.

The Reader's internal memory holds up to 100 books, depending on their size. The memory can be expanded with inexpensive SD cards or Memory Sticks.

To load books, connect the Reader with a supplied cable to a Windows PC running the accompanying software. You can transfer Word documents or Portable Document Format files to the Reader, download blog feeds, or buy e-books at Sony's online store. It will also play MP3 music or audiobook files.

The store is not live yet, so I was unable to test it, but the interface looks comfortably like that of iTunes. It should have 10,000 titles at launch, Sony said, with major titles from publishers like HarperCollins, Simon and Schuster and Penguin-Putnam. In keeping with the e-book market so far, there's no big price break: the electronic version will cost a dollar or so less than the printed book.

The Reader would be a perfect companion for the avid book reader, but for a few things.

First of all, navigation is fairly clumsy. You can't just enter the page number and jump to the page, nor can you enter a word or phrase to search for, as you can when reading a book on a PC. To get around, there are 10 buttons that will each take you a 10th of the way through text. You can also jump to chapter starts, or return to bookmarks. Still, this is very much a one-way device, designed for reading a book straight through from cover to cover.

This lack of interactivity is partly because the screen is slow to change, since it takes time for the pigments to move through the capsules. It takes about a second to display a new page. That means no scrolling through pages, and no note-taking on the screen - imagine having to wait a second for each letter you write to appear.

Secondly, and less importantly, the Reader handles PDFs poorly. It doesn't allow you to zoom in on them, so if they're formatted for standard 8.5-inch-by-11-inch pages, the text will be illegibly small.

Thirdly, the Reader doesn't have a built-in light source, unlike PCs and personal digital assistants. A small clip-on light of the kind sold for books should work well, though.

Because of these drawbacks, it's hard to see the Reader as something that will bust the e-book market open. But it deserves a much better reception than the generally small LCD-based devices that hit the market a couple of years ago, some of which are already discontinued.

Other competition comes from cell phones and PDAs, but none of them match the Reader for screen size, legibility and battery life. Laptops, Tablet PCs and tablet-style Ultra-Mobile PCs have the screen size, but are heavier, more expensive, take time to boot up and have short battery lives.

The real competition, though, will be printed books, which have so far defeated all digital contenders with their excellent "battery life" and "display quality." Sony's going to have to try a little harder before it can really start saving trees.


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Opera Canceled Over a Depiction of Muhammad
Judy Dempsey and Mark Landler

BERLIN, Sept. 26 — A leading German opera house has canceled performances of a Mozart opera because of security fears stirred by a scene that depicts the severed head of the Prophet Muhammad, prompting a storm of protest here about what many see as the surrender of artistic freedom.

The Deutsche Oper Berlin said Tuesday that it had pulled “Idomeneo” from its fall schedule after the police warned of an “incalculable risk” to the performers and the audience.

The company’s director, Kirsten Harms, said she regretted the decision but felt she had no choice. She said she was told in August that the police had received an anonymous threat, but she acted only after extensive deliberations.

Political and cultural figures throughout Germany condemned the cancellation. Some said it recalled the decision of European newspapers not to reprint satirical cartoons about Muhammad, after their publication in Denmark generated a furor among Muslims.

Wolfgang Börnsen, a culture spokesman for Chancellor Angela Merkel’s conservative bloc in Parliament, accused the opera house of “falling on its knees before the terrorists.”

“It is a signal to other stages in Germany, or even elsewhere in Europe, to put no works on their programs that criticize Islam,” he said.

The disputed scene is not part of Mozart’s opera, but was added by the director, Hans Neuenfels. In it, the king of Crete, Idomeneo, carries the heads of Muhammad, Jesus, Buddha and Poseidon on to the stage, placing each on a stool.

“Idomeneo,” first performed in 1781, tells a mythical story of Poseidon, or Neptune, the god of the sea, who toys with men’s lives and demands spiteful sacrifice.

The cancellation of the performances fanned a debate in Europe about whether the West is compromising values like free expression to avoid stoking anger in the Muslim world.

Already in Germany, there is growing sentiment that Pope Benedict XVI may have overdone his contrition for a recent speech in Bavaria, in which he cited a historical reference to Islam as “evil and inhuman.” The speech set off waves of protests in Muslim countries.

The interior minister, Wolfgang Schäuble, who has defended the pope and called for more dialogue with Muslims in Europe, said canceling the opera was unacceptable and “crazy.”

Michael Naumann, a former German culture minister, said, “It’s a slap in the face of artistic freedom, by the artists themselves.” Mr. Naumann, now the publisher of the weekly newspaper Die Zeit, added, “The pope showed the way by being so extraordinarily apologetic.”

The sulfurous public reaction prompted some people to speculate that the decision might eventually be reversed.

Ms. Harms said the “Idomeneo” production, which was first staged by the Deutsche Oper in 2003, would remain on the opera’s program. It could be performed later, she said, though she would have to consider the political and diplomatic aspects of “this complex issue.”

The scene with the severed heads aroused controversy among Muslims and Christians when the Deutsche Oper first staged it. But the company was not the target of any organized protests, and the Deutsche Oper put four performances on its calendar for this November.

Then, in August, came the anonymous threat.

“All this came in light of the cartoon controversy,” said a police spokesman, Uwe Kozelnik. “We started to investigate and finally concluded that disturbances could not be ruled out.”

While the police said they did not pressure the Deutsche Oper to cancel the opera, they supported the decision.

Berlin’s chief security official, Ehrhart Körting, drew a parallel between the decision and that of German newspapers earlier this year to resist reprinting the cartoons depicting Muhammad.

“Even the German journalists’ association criticized the reprinting of the cartoons because their publication could hurt the religious feelings of one group of people,” Mr. Körting said in a statement.

Muslim leaders in Germany reacted cautiously. Several planned to participate in a conference on Wednesday organized by the government to foster a better dialogue with Germany’s 3.2 million Muslims.

The leader of the Islamic Council, Ali Kizilkaya, told a radio station in Berlin that he welcomed the cancellation, saying a depiction of decapitated Muhammad “could certainly offend Muslims.”

“Nevertheless, of course, I think it is horrible that one has to be afraid,” Mr. Kizilkaya said, according to The Associated Press. “That is not the right way to open dialogue.”

The head of the Central Council of Muslims in Germany, Ayyub Axel Köhler, declined to comment on the decision, saying he wanted to learn more about the circumstances.

Those circumstances appear to be in some dispute.

At a news conference on Tuesday, Ms. Harms said she broached the possibility of removing the offending scene with Mr. Neuenfels. When he resisted, she let the matter drop.

However, a lawyer for Mr. Neuenfels, Peter Raue, said Ms. Harms telephoned the director on Sept. 9 to tell him she planned to cancel the performances. The issue of tinkering with the ending never came up, Mr. Raue said, and in any event, “you couldn’t change it; it is part of the story.”

The scene devised by Mr. Neuenfels puts a sanguinary ending on an opera that, in the way Mozart wrote it, ends with King Idomeneo giving up his throne to appease the god of the sea, and blessing the romantic union of his son Idamante with the Greek princess Ilia.

The severed heads of the religious figures, Mr. Raue said, was meant by Mr. Neuenfels to make a point that “all the founders of religions were figures that didn’t bring peace to the world.”

André Kraft, spokesman for Komische Oper, a more adventurous opera house where Mr. Neuenfels is engaged in another Mozart production, described the 65-year-old director as “a secularist who does not believe religion solves the problems of the world.”

For the Deutsche Oper, the cancellation is a major crisis for a prestigious opera company that has been in transition. Founded in 1912 as the Deutsches Opernhaus, the company moved to its present building in western Berlin in 1961, opening with a production of Mozart’s “Don Giovanni.”

Ms. Harms was appointed director in 2004, coming from a less prominent opera house in the northern German city of Kiel. While there, she said, she faced a bomb threat to the opera house. Ms. Harms plans to present her first production, a little-known work by Alberto Franchetti called “Germania,” on Oct. 15.

Some critics of the decision to cancel said it revealed the weaknesses of Berlin’s generously supported cultural institutions.

“Because they are subsidized by the German state, there is a great deal of artistic independence, but also a lack of accountability and intellectual rigor,” said Gary Smith, the director of the American Academy in Berlin.

The practice of updating classical operas — often with current political or social themes — is common in Germany. But the cancellation of “Idomeneo” could make this production a landmark of another kind.

“I’ve never heard of something like this, or even similar to it,” said Nikolaus Lehnhoff, a prominent German opera director. “I have seen many politically incorrect performances in Berlin. I think the reaction to the pope’s speech has sensitized the cultural scene.”

Judy Dempsey reported from Berlin, and Mark Landler from Frankfurt.

German Official: Canceling Opera 'Crazy'

Germany's interior minister condemned a leading opera house's decision to cancel a production of Mozart's ''Idomeneo'' out of concern a scene featuring the severed head of the Prophet Muhammad could provoke a dangerous reaction from Muslims.

Kirsten Harms, director of Berlin's Deutsche Oper, said she decided to cancel the production after a warning from state security officials and described her decision as ''weighing artistic freedom and freedom of a theater ... against the question of security for people's lives.''

But the move immediately provoked strong reaction across Germany.

''That is crazy,'' said Interior Minister Wolfgang Schaeuble, the country's top security official, speaking to reporters in Washington, D.C. ''This is unacceptable.''

The furor is the latest in Europe over religious sensitivities -- following cartoons of the prophet first published in a Danish newspaper and recent remarks by Pope Benedict XVI decrying holy war.

German government officials and Muslim leaders were to open a summit on Wednesday to launch a two-year dialogue on how to better integrate the country's 3 million Muslims.

After its premiere in 2003, the production by Hans Neuenfels drew widespread criticism over a scene in which King Idomeneo presents the severed heads not only of the Greek god of the sea, Poseidon, but also of Muhammad, Jesus and Buddha.

The severed heads are an addition by director Neuenfels to the 225-year-old opera, which was last performed by the company in March 2004. All four performances were pulled from the fall schedule after an anonymous call from a concerned operagoer worried about the impact of the Muhammad head.

Response from Germany's Islamic community was mixed, with some praising the decision and others calling on Muslims to accept the role of provocation in art.

The leader of Germany's Islamic Council welcomed the move, saying a depiction of Muhammad with a severed head ''could certainly offend Muslims.''

But in an interview with German radio, Ali Kizilkaya added: ''I think it is horrible that one has to be afraid ... That is not the right way to open dialogue.''

The leader of Germany's Turkish community said it was time Muslims accepted freedom of expression in art.

''This is about art, not about politics,'' Kenan Kolat told Bavarian Radio. ''We should not make art dependent on religion -- then we are back in the Middle Ages.''

Neuenfels has insisted his staging not be altered, saying the scene where the king presents the severed heads represents his protest against ''any form of organized religion or its founders.''

''I stand behind my production and will not change it,'' Neuenfels told the Berliner Morgenpost in its Tuesday edition.

The opera house's decision comes after the German-born pope infuriated Muslims by quoting the words of a 14th-century Byzantine emperor who characterized some of the teachings of the Prophet Muhammad as ''evil and inhuman,'' particularly ''his command to spread by the sword the faith.''

Earlier this year, violent protests erupted across the Muslim world after a Danish newspaper published 12 cartoons depicting Muhammad. The caricatures were reprinted by dozens of newspapers and Web sites in Europe and elsewhere, often in the name of freedom of expression.

Islamic law is interpreted to forbid any depiction of Muhammad for fear it could lead to idolatry.

''We know the consequences of the conflict over the (Muhammad) caricatures,'' Deutsche Oper said in a statement. ''We believe that needs to be taken very seriously and hope for your support.''

Berlin security officials had warned Harms that staging the opera could ''in its originally produced form .... pose an incalculable security risk to the public and employees.''

It is not only Muslims who have been offended by depictions of religion in art.

Last month Madonna drew criticism from some Roman Catholics in Germany for a show that staged a mock crucifixion. Mel Gibson's 2004 movie, ''The Passion of Christ'' met with disapproval from some Catholics and some Jews. In 2004, a Birmingham, England, theater canceled its run of ''Behzti'' after a violent protest by members of the Sikh community.

Still, many in normally open and tolerant Berlin, which has become a home for cutting edge and often contentious artistic productions, cautioned against compromising on issues of freedom of speech and art.

''Our ideas about openness, tolerance and freedom must be lived on the offensive. Voluntary self-limitation gives those who fight against our values a confirmation in advance that we will not stand behind them,'' said Mayor Klaus Wowereit.

Bernd Neumann, the federal government's top cultural official, said that ''problems cannot be solved by keeping silent.''

''When the concern over possible protests leads to self-censorship, then the democratic culture of free speech becomes endangered.''


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New Look at ‘Mona Lisa’ Yields Some New Secrets
Ian Austen

The first major scientific analysis of the “Mona Lisa” in 50 years has uncovered some unexpected secrets, including signs that Leonardo da Vinci changed his mind about his composition, French and Canadian researchers said Tuesday.

Photographs taken with invisible infrared light and a special infrared camera suggest that at least one of the details was hiding in plain sight, the scientists and conservators said.

The sitter in the Louvre Museum’s 16th-century masterpiece, believed to be Lisa Gherardini, the wife of a Florentine silk merchant, was originally painted wearing a large transparent overdress made from gauze, they said. Under normal light, part of the garment is visible on the right-hand side of the painting, but appears simply to be part of the background.

“You can see it when you know what you’re looking for,” said Bruno Mottin, a curator in the research department of the Center of Research and Restoration of the Museums of France, known as C2RMF. He spoke at a news conference with researchers from the National Research Council of Canada.

Mr. Mottin said such transparent robes were worn by expecting or nursing mothers in 16th-century Italy. The robe’s reappearance in the “Mona Lisa” would dovetail with scholarly research indicating that the painting might have been commissioned to commemorate the birth of Lisa Gherardini’s third child.

The imaging also shows, although less clearly, that some of the sitter’s hair was rolled into a small bun and tucked under a tiny bonnet with an attached veil. (The images are too cloudy to be reproduced on newsprint.)

“That is not surprising,” Mr. Mottin said. “The bonnet was usually worn by women in the 16th century.”

More generally, the researchers said they realized that centuries of grime had obscured some elements of the painting.

“You’re seeing a lot more fine detail, showing that this remarkable painting is actually more remarkable than we believed,” said John M. Taylor, an imaging scientist and conservator with the National Research Council of Canada.

Mr. Mottin said that two pieces of clothing had faded from view, largely because of the application of now-discolored layers of lacquer over the centuries.

While the “Mona Lisa” has become famous for the sitter’s calm, some say enigmatic, smile, it appears that the composition was not always so restful. For example, the new images show that at one point one of her hands was painted in a clenched rather than a relaxed position.

“It was as if she was going to get up from a chair,” Mr. Mottin said of the version Leonardo ultimately changed.

David Rosand, a Renaissance art historian at Columbia University, said it was not surprising that the “Mona Lisa” contained hidden secrets. “This is a painting that has never been cleaned, that is remarkably dirty,” he said. “This is exactly what one would expect.”

For security and conservation reasons, scholars have rarely been able to view the painting other than through heavy glass, the researchers noted.

Indeed, Mr. Mottin, whose laboratory is within the Louvre palace complex, said that the “Mona Lisa” last received a complete examination after being vandalized in 1956.

Among other cutting-edge technologies, the scientists used a newly developed Canadian laser camera to construct an extremely detailed three-dimensional model of the painting.

It reveals that while the “Mona Lisa” may be old and dirty, it is not, as had long been thought, particularly fragile.

“We have a good handle on the physical state of the painting,” Mr. Taylor said. While the wood panel on which it is painted is quite warped at points, he said, the 3-D model shows that it is sound and that the paint remains well bonded to its surface.

The 3-D scanner is a variation on equipment used by American astronauts earlier this month to check the space shuttle for damage before it returned to Earth. The Canadian research council, which has worked with museums around the world since the 1980’s and with the French for a decade, developed a model able to resolve fine details in artworks at the limit of known optical technologies.

The pictures it produced, during two scanning sessions in 2004 when the Louvre was closed in the evening, are so detailed that special monitors had to be created to view them.

Researchers hope that their newfound ability to measure and reproduce fine detail will allow conservators and art historians to settle longstanding debates about Leonardo’s sfumato painting technique, which resulted in a painting with no obvious brush strokes.

Mr. Taylor said the scan showed, as expected, that the “Mona Lisa” had been created by using many extremely thin layers of paint.

Mr. Mottin said many scholars believed that Leonardo first executed the light portions of his painting and then gradually built up the dark areas.

A computer-generated relief map of the painting made with the scanned data shows that, in fact, the dark areas around the sitter’s mouth and eyes have the thickest layers of paint. Yet other dark areas are comparatively thin.

Over time, Mr. Mottin said, he hopes that the detailed digital image will help yield even more specific information.

“What I’d still like to know is really how the painting was done,” he said.

Many of the researchers’ findings and images are reported in a book by Jean-Pierre Mohen, Mr. Mottin and Michel Menu that has just been published by Harry N. Abrams, “Mona Lisa: Inside the Painting.”

D’Aquino, 90, Dies; ‘Tokyo Rose’ Suspect

Iva Toguri D’Aquino, who was wrongly convicted of being the World War II propagandist Tokyo Rose died yesterday of natural causes, according to family members. She was 90.

Tokyo Rose was the name given by soldiers to a female radio broadcaster responsible for anti-American transmissions intended to demoralise soldiers fighting in the Pacific theatre. Ms D’Aquino, who was later pardoned, was the only US citizen identified among the potential suspects.

In 1949, she became the seventh person to be convicted of treason in American history and served six years in prison. But doubts about her possible role as Tokyo Rose later surfaced and she was pardoned by President Gerald Ford in 1977.

Ms D’Aquino was born in Los Angeles on July 4, 1916, to Japanese immigrant parents. She began to use the first name Iva during her school years.

She was visiting relatives in Japan after graduating from the University of California, Los Angeles, when she became trapped in the country at the beginning of World War II, according to a statement from Barbara Trembley, a Toguri family spokeswoman.

She took odd jobs to support herself while trying to find a way out of the country. That led to her work on a Japanese propaganda radio show manned by Allied prisoners called Zero Hour, the statement said. Using the name "Orphan Ann", she performed comedy skits and introduced newscasts.

On April 19, 1945, Ms D’Aquino married a Portuguese citizen of Japanese-Portuguese ancestry.

The FBI and the Army conducted an extensive investigation to determine whether she had committed crimes against the US.

It was decided that the evidence then known did not merit prosecution, and she was released. But a public furore ensued, that convinced the Justice Department that the matter should be re-examined. Ms D’Aquino was arrested in Yokohama in 1945 and brought back to America where she was tried and convicted.

Ms D’Aquino spent the years following her release from prison living a quiet life on Chicago’s North Side.

Ron Yates, dean of the College of Communications at the University of Illinois, is credited with helping to win her pardon. As a reporter at the Chicago Tribune, Mr Yates managed to track down Ms D’Aquino’s accusers, who said that they were pressured by prosecutors to lie.

Pirates Run Aground at the Polls
Bernhard Warner

The Piracy Party's mustered about 1 per cent of the vote in Sweden's general election but failed to secure an MP, writes Bernhard Warner

Was it naïve to think that a populist movement galvanised by a call of ‘downloads for all!’ could sweep into political power? This rueful question is on the minds of many young Swedes this week after national elections.

The youth-dominated Piracy Party, founded earlier this year in Sweden before spreading to 16 other countries including Britain, failed in its first trip to the polls on Sunday. A party founded on three basic principles – to reform commercial copyright, eradicate meddlesome patent laws and stop the surveillance of file-sharers – proved to be less popular with the voters than the tax cuts and new jobs promised by the victorious right-leaning Moderate Party.

While the official tally was still unavailable at the time of publication, the Piracy Party was expected to amass about 1 per cent of the popular vote. They had been hoping for 4 per cent (or roughly 300,000 votes), the threshold required to earn seats in parliament and begin the arduous task of convincing lawmakers of the need to rewrite legislation governing copyright and patents and to strengthen privacy protections for all netizens.

The BitTorrent generation’s most organised push yet for copyright reform, certainly the net’s most popular rallying cry, will now be stalled for at least two more years – until after the 2009 European Parliamentary elections, an election the Piracy Party has in its sights.

"Obviously, we’re not happy we didn’t get more of the vote," Balder Lingegard, a university student from Gothenburg who serves as the Pirate Party secretary and ran for an MP seat, told me this week after a full day of classes. "But if you think what we’ve accomplished for an organisation with such financial limitations, the mood is still high."

When we spoke last week, on the eve of the elections, he was upbeat and a bit anxious. The early poll results showed promise, and it dawned on him that if successful, the 22-year-old would have to figure out a way to juggle his quantum physics classes with his parliamentary obligations.

But instead, as Mr Lingegard dolefully noted this week, it’s back to the books. He says the party’s primary focus now is to get its 9,500 registered members more involved by organising into regional groups to keep the message alive and tap into the next generation of would-be voters, the 14- to 19-year-olds. Above all, he says, the party needs to clarify its position: that it’s not a bunch of freeloaders, an image that dogged the party throughout the campaign.

"The largest problem we had was the party was not considered a serious party," he says. "Most of the people we met considered us to be some kind of joke. Some thought we had no serious platform, that we just wanted stuff for free. We believe that this image is beginning to change."

The issue that’s winning over the sceptical ones is the spectre of increased surveillance. "No one wants a surveillance nation like you have in Britain" he says.

Alluding to the movement’s appeal overseas, Mr Lingegard vowed that the Piracy Party will remain an active voice in the digital copyright debate. Perhaps the party’s rhetoric is already sinking in. Starting with the campaign, some of the more prominent Swedish political candidates have begun to question for the first time publicly whether the criminalisation of file-sharing ought to be addressed. Whether it’s a political stunt on their parts to appeal to young voters remains to be seen.

To be sure, whether the Piracy Party will last to the 2009 European elections is, historically speaking, a long shot. Political parties formed on a narrow set of issues – lest you forget, the Piracy Party proudly takes no stance on such hotly debated issues as foreign policy, the euro, taxation or the environment – often quickly fall out of favour with the populace.

Even in the aftermath of defeat, the party is not calling for any radical changes; crucially, it sees no need in adding to its platform the concerns of what might be called the analogue world: namely, clean air, job security and the euro. The Party, says Mr Lingegard, has attracted members who were former anarchists, nationalists and communists. "If we were to appeal more to the general public with these issues, the 9,500 members we have today would leave."

In my first conversation with Mr Lingegard in June, I asked him how he would define the party using conventional political labels. Is the Piracy Party centrist, I asked? Right or left? Could it be libertarian or even communist? Certainly, elements of each would appeal to a sharing-is-good, keep-government-out platform. Mr Lingegard responded there is no –ist that applies to the Piracy Party.

Perhaps that clinched the party’s downfall. To quote one famous –ist, Vladimir Ilyich Lenin: "Politics begin where the masses are, not where there are thousands, but where there are millions. That is where serious politics begin."

It’s a bitter lesson learned for this young movement. Filesharers of the world, you are still not united.

Mural Deemed Too Violent for School
Keach Hagey

After a debate that divided members largely along the lines of generation and gender, the Chickahominy Neighborhood Association voted unanimously yesterday not to bring a controversial Revolutionary War mural back to Hamilton Avenue School because its content is too violent.

Instead, the group agreed to leave the mural, "The Life and Times of General Israel Putnam of Connecticut," at its current location at Greenwich Library, with the proviso that the foundation that restored it pay for a new mural to be painted for the school, and which will represent the history of Western Greenwich.

"I fought to get that mural back in the school, but when I actually saw it, and saw how violent it was, I had to agree it probably wasn't in the best interest of the children," said Sylvester Pecora, chairman of the association. "But it would be unfair if the library kept the mural and we didn't get a mural."

Painted by James Daughtery of Weston as part of the Works Progress Administration program in 1935, the mural depicts Putnam, Greenwich's war hero, aiming his musket at snarling wolves while all around him Native Americans hurl tomahawks and men armed with guns and knives tussle.

It hung high in the gymnasium of Hamilton Avenue School for nearly 60 years, often knocked by errant basketballs, before it was removed in 1998 and restored with $54,145 donated by the Ruth W. Brown Foundation. It has since hung in Greenwich Library.

Education specifications for the new Hamilton Avenue School called for the mural to be returned to the school and to hang prominently in view of the media center, but after educators and parents took a look at the restored mural's contents, they began to have doubts.

Principal Damaris Rau said having a mural depicting men threatening each other with knives would send a confusing message to elementary school students, who are strictly forbidden from engaging in any violent behavior at the school.

"We will not tolerate teasing, bullying or fighting at Hamilton Avenue School," she said. "But can you imagine them saying, 'How come I can't hit him, but there are knives and guns in that picture?' "

But several older members of the community, especially those who had fought in wars themselves, argued that violence was a part of life, and, more importantly, the mural was a part of the Chickahominy community's history.

Chickahominy native Joseph Ricciardi, fought in World War II and argued that children should know about wars because wars are the reason that they are free now. He also argued that it was the parents' job to make sure the children didn't act violently at school.

"If you look, we can see the difference between male and female right here," he said. "I know you women are concerned about your children, and I understand that because you bear that child, but you also got to understand that we were brought up in a school where we were disciplined."

"We used to get the felt," he continued. "We used to get hit with a rubber hose in the leg. I'm not saying that you should do that. But man, if you would discipline your kids at home, you wouldn't have to discipline them in school."

But PTA President Laura DiBella argued that things are different in a post-Columbine world. Although the mural didn't bother her when she attended the school, she doesn't want her young son to see it every day. Several other parents echoed her statements.

"It's not appropriate for elementary school children," said Aixa Capozza, whose 5-year-old daughter attends the school.

Deputy Superintendent Mary Capwell announced that she had been talking with Mike Harris, a Greenwich attorney and trustee of the Ruth W. Brown Foundation, about the possibility of having another mural painted to take its place in the new school.

The foundation was willing to pay for it, but only if there was consensus that it was something the community wanted, Capwell said.

Over the course of an hour, that consensus emerged, as opponents of giving up the mural, which is technically owned by the town, gradually came to the side of the parents and educators.

Capwell said the foundation would like the subject of the new mural to be decided by a subcommittee consisting of members of the neighborhood association, which would act as part of the committee designing the programs for the new school. She added that the Board of Education had agreed to change the education specifications for the new school to include the painting of a new mural.

Pecora read a letter from one artist, Gary Calabra, brother of St. Roch Church Pastor Nicholas Calabra, proposing one idea: The new mural should depict the history of the Byram Quarry, which supplied the stone for the Brooklyn Bridge, the base of the Statue of Liberty and St. Roch Church.

Songwriters, Record Firms Agree On U.K. Royalty for Downloads
Aaron O. Patrick

British record companies and songwriters reached agreement over how much artists should be paid when their songs are sold online or through cellphone downloads, ending a dispute that cast uncertainty over the distribution of profits from digital-download services.

Both sides backed down from their initial claims, agreeing to adopt the existing temporary rate under which songwriters receive 8% of revenue for the next three years, equivalent to about 5.3 pence, or 10 cents, per song download from Apple Computer Inc.'s iTunes Store service.

Songwriters and composers had demanded an increase to 12% to recognize the lower costs to record companies of selling downloads, compared with compact discs. The music companies wanted a 6.5% rate and certain discounts to help develop the music-download industry.

At the end of the three years, a new agreement will have to be negotiated.

The settlement yesterday, announced by both sides in a joint statement, came on the opening day of a hearing at the United Kingdom's copyright tribunal that was to have set the rate. The tribunal approved the settlement, a spokesman for the songwriters and composers said.

The agreement is legally binding only for music sold in the U.K., Europe's biggest online-music market. But experts say it probably will be taken into account in similar cases under way in other countries, including Germany and the U.S.

Sales of music downloads are relatively small but are increasing quickly. Revenue from Internet-music sales tripled in 2005 to $1.1 billion, making up 6% of all music sales, according to the International Federation of the Phonographic Industry.

About 300 British record companies were represented by the British Phonographic Industry. The BPI coordinated with seven companies that sell music online. Several mobile-phone operators that offer music downloads were also part of the negotiations.

Songwriters were represented by Adam Singer, head of both the Mechanical-Copyright Protection Society Ltd., which collects royalties for digital downloads and CD sales, and the Performing Right Society Ltd., which collects royalties for live performances.

Inside the Museum, Dylan’s Youth Goes on Display
Jon Pareles

On Nov. 4, 1961, after working in Greenwich Village clubs, Bob Dylan made his New York City concert debut at Carnegie Chapter Hall (now the Kaplan Space, used for rehearsals). It held 225 people; fewer than 55 showed up. Less than two years later, he was the reigning star of the protest-song movement and the folk revival. Another two years, and a generation would be arguing over whether it was right for him to go electric — not that he would pay any attention.

“Bob Dylan’s American Journey, 1956-1966,” an exhibition at the Morgan Library and Museum through Jan. 6, revisits Mr. Dylan’s headlong trajectory through the early 1960’s, giving visitors a close-up view of a writer and songwriter at work.

The exhibition, which originated at the Experience Music Project in Seattle, doesn’t challenge conventional wisdom. “Born into changing times, Bob Dylan shaped history in song,” it announces, and there’s no caviling or second-guessing through each phase, up to Mr. Dylan’s 1966 motorcycle accident and reclusion. For context, there are segments on the folk revival, McCarthyism and the civil rights movement.

It’s the same era covered by the Martin Scorsese documentary “No Direction Home,” with roughly the same perspective: that Mr. Dylan soaked up everything instantaneously, intersected briefly with the well-meaning folk revival, but was always on his own path. “People often say first time that this isn’t folkmusic,” he told Izzy Young from the Folklore Center in Greenwich Village for program notes at the Carnegie Chapter Hall concert. “My songs aren’t easy to listen to.”

Where “No Direction Home” echoed the tumult of the 1960’s, the museum show allows contemplation instead. There’s a listening station offering that 1961 concert, which has never been officially released; a self-effacing but clearly confident Mr. Dylan yodels gleefully through “Freight Train Blues.”

Listening stations also offer illuminating comparisons: Woody Guthrie’s “1913 Massacre” alongside the same melody in Mr. Dylan’s “Song for Woody,” and Mr. Dylan singing “No More Auction Block,” the melody he would extend for “Blowin’ in the Wind.” A video station has clips from “Don’t Look Back,” the documentary of Mr. Dylan’s 1965 tour of England, and from the rarer, unreleased “Eat the Document,” made a year later.

The exhibition includes staples of rock museumcraft: instruments, discs, posters. A map of Greenwich Village shows how six square blocks held the folk-revival universe. Pictures of Woody Guthrie and Arthur Rimbaud reveal the sources of iconic Dylan poses.

A few explanatory labels draw overreaching conclusions, including one about Ramblin’ Jack Elliott, a Woody Guthrie disciple like the young Mr. Dylan: “Elliott was so well established playing Guthrie songs that Dylan realized he would need to write his own songs to make an impression.” (Mr. Dylan might have become a songwriter anyway.) A Turkish tambourine owned by the New York studio musician Bruce Langhorne is cited as one inspiration for “Mr. Tambourine Man,” but it’s just a round drum, with nothing to jingle-jangle.

The exhibition’s most telling artifacts are the manuscripts: songs in progress, written or typed on whatever paper was at hand. They reveal how Mr. Dylan sharpened every line. “Gates of Eden,” crammed in small, neat lettering on the back of a sheet of Holiday Inn stationery, wasn’t finished yet: “All men are kings inside the gates of Eden,” it reads, later to be changed to the grimmer “There are no kings inside the gates of Eden.”

A page of “Like a Rolling Stone,” famously a torrent of words before it was distilled into the song, has only the phrase “How does it feel” from the eventual lyrics. An early version of “Don’t Think Twice, It’s All Right” was just called “It’s All Right,” and in its margins Mr. Dylan was trying to decide between “Allright” and “All Right.”

Like “No Direction Home,” the exhibition is full of reminders of how seriously music was treated at the time. For the folkies, each song was a manifesto, each change a matter of high stakes. An account of Mr. Dylan’s epochal 1965 Newport Folk Festival appearance in the folk music magazine Sing Out! was far from uncomprehending: “ ‘The people’ so loved by Pete Seeger are ‘the mob’ so hated by Dylan,” Jim Rooney wrote. The folkies, he continued, “seemed to understand that night for the first time what Dylan has been trying to say for over a year — that he is not theirs or anyone else’s.” He concluded: “He shook us. And that’s why we have poets and artists.”

The only one taking it lightly, or trying to, was Mr. Dylan himself. The exhibition’s postscript is a video outtake from “Eat the Document”: Mr. Dylan in a London alley, making Dadaist poetry out of a dog groomer’s advertising sign. Inspired and silly, a genius even when he’s goofing around, he cracks himself up.

“Bob Dylan’s American Journey, 1956-1966” continues through Jan. 6 at the Morgan Library and Museum, 225 Madison Avenue, at 36th Street; (212) 685-0008.

Dueling Magicians: Whose Trick Is It Anyway?
Campbell Robertson

The Knight’s Tour, a feat of mental agility in which you trace the path of a knight to every square of a chess board, landing on each square only once, is at least a thousand years old, Eric Walton explains when he performs it in the finale of his show “Esoterica” at the DR2 Theater. But it was hardly esoteric to the woman in the audience on Monday night who whispered that she knew how it worked.

“Oh, I’ve seen Ricky Jay do that,” she said.

Mr. Jay, the sleight-of-hand artist and magic historian, did the Knight’s Tour in “Ricky Jay: On the Stem,” his 2002 show. It wasn’t the only overlap between Mr. Jay’s and Mr. Walton’s acts. “I paid for a ticket and I sat through the show,” Mr. Jay said, “and I would very much like my money and my material back.”

Mr. Walton has said that he and Mr. Jay are both new dogs performing old and well-documented tricks.

“This material has been out there,” said Mr. Walton, who has been working on his current act for the last four years. “The best magicians can do is take existing routines and sort of put our own spin on them.”

The skirmish began a few weeks ago when Mr. Jay went to “Esoterica” with friends including Jules Fisher, the Tony Award-winning lighting designer, who is also an amateur magician. The resemblances were apparent early on.

Like Mr. Jay, Mr. Walton uses antique and sizable words — “Brobdingnagian” (Mr. Walton), “pachydermatous” (Mr. Jay) — wears pinstripe suits and combines his act with professorial asides on magic history.

Some tricks overlap too: in “Ricky Jay and His 52 Assistants,” his 1994 show, Mr. Jay made a fountain of cards spring from both hands and plucked two previously chosen ones from the air, a trick, he said, that was the trademark of a card man named Max Malini in the 1920’s. Mr. Walton does the same trick, though with one hand, for his encore.

In “On the Stem” Mr. Jay performed an old con game called Fast and Loose, involving a gold chain, which he said showed up in Shakespeare; Mr. Walton does the same trick, and mentions the specific Shakespeare plays.

Then there was the Knight’s Tour.

Mr. Jay set the trick up as a tribute to Harry Kahne, a 1920’s performer who specialized in the Multiple Mental Marvel: performing several mental tasks at once. In his version Mr. Jay recited the Knight’s Tour without looking at the giant chessboard behind him, in between finding the cube roots of several random large numbers, quoting Shakespeare and singing work songs.

Mr. Walton, who also pays tribute to past performers, does the Knight’s Tour without looking at the chess board, while completing a magic square — in which all rows, columns, diagonals and quadrants add up to the same randomly selected number — and throwing out state capitals and trivia.

A few days after the performance, Mr. Fisher sent an e-mail message to Mr. Walton saying the presentation of the Knight’s Tour “so closely approaches its inspiration as to border on plagiarism,” and suggesting he try another trick.

In response Mr. Walton sent a lengthy message with a detailed history of the Knight’s Tour, mentioning a recent performer, a Belgian chess showman, who combined the tour with feats of memorization.

“Does performing an existing effect, or variation thereof, confer upon the performer of it ownership of that effect, or the exclusive and perpetual right to all subsequent interpretations of it?” Mr. Walton asked in his message. “On this point you and I are obviously in disagreement.”

Shortly afterward, Mr. Walton contacted a Web site, ontheleesh.com, to which he had given an interview, and asked them to remove a quotation describing Mr. Jay as a source of inspiration.

Teller, the non-speaking half of Penn and Teller, who has seen Mr. Jay’s shows but not Mr. Walton’s, said such debates arose quite often in the magic world. Outright ownership isn’t at stake, he added, but Mr. Jay’s act constituted a painstaking and innovative revival of some little-practiced classics, and a certain code of courtesy should apply.

“If an act hasn’t been prominently performed for a long time, and someone takes the trouble to bring it back from absolute death and put it into his act with fine touches, and which at least hasn’t been seen by a current generation,” he said, “the gentlemanly thing to do is say, ‘That’s his for now.’ ”

That said, he added, “magicians are not unique in their absence of creativity.”

Until next week,

- js.

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