AUGUST 17, 2006

Technology

By Catherine Holahan and Dawn Kopecki

Wiretap Ruling Threatens Telecoms

Businesses accused of helping the Bush Administration eavesdrop on customers could be in for a legal bruising

Telecommunications and Internet companies accused of working with the Bush Administration's domestic eavesdropping program could be in for more legal headaches, after a federal judge ruled Thursday that the warrantless wiretaps violated the constitution.

U.S. District Judge Anna Diggs Taylor in Detroit dealt a major blow to the White House in a 43-page opinion that said President George W. Bush exceeded his authority and that the program violated the First and Fourth Amendments protecting free speech and privacy. She ordered the National Security Agency to immediately halt a secret program that monitors telephone calls and e-mails of Americans that are in contact with suspected terrorists.

FUTURE FIGHT. The federal government plans to appeal the case, which appears headed for the Supreme Court. The American Civil Liberties Union, which brought the suit against the NSA, agreed to temporarily allow the wiretapping program to continue, while the Justice Dept. prepares to fight the court's decision at a hearing scheduled for Sept. 7.

U.S. Attorney General Alberto Gonzales said he was disappointed and that he and the administration "respectfully disagree" with the ruling, saying the program has been extremely effective and important to national security.

"I believe very strongly that the president does have the authority to authorize this kind of conduct in a time—particularly in a time of war," Gonzales told reporters at a press conference held shortly after the court's decision.

POLITICAL TALK. Lawmakers quickly recast the decision as a partisan issue, ripe for debate in November's elections. Senate Democratic Leader Harry Reid of Nevada said the ruling was "the latest example of how the Bush Administration has jeopardized our efforts in the war on terror. The Administration's decision to ignore the Constitution and the Congress has come at the expense of the security of the American people." The subject line of an e-mail blast from the Republican National Committee read, "Liberal Judge Backs Dem Agenda to Weaken National Security."

Businesses accused of aiding the Bush administration in wiretapping could also be in for a legal bruising, say civil liberties groups that have sued telecom providers AT&T (T ), Verizon (VZ ), and BellSouth (BLS ) for allegedly helping the NSA. The ruling could set a precedent other courts can't ignore.

"Every phone company that is assisting the government in its illegal surveillance would want to think long and hard before it continues that agreement," says Ann Beeson, the ACLU's lead attorney in the case. "There are already lawsuits claiming that their cooperation for the past several years is illegal and now that the judge has declared it is illegal, their liability increases. The risk is much greater from a business perspective."

ACLU ADVANTAGE. AT&T spokesman Walt Sharp declined to comment on the litigation, saying, "We're fully committed to protecting our customer's privacy, and beyond that, we don't comment on matters of national security." Verizon spokesman Eric Rabe said, "We believe that everything we've done here has been within the law."

He added that it was too soon to say whether the court's ruling will attract more litigation. "There have been all kinds of opportunistic lawsuits since this story became public…I've read the decision. But how it plays out, we'll have to wait and see." Officials at BellSouth did not return calls for comment.

The Electronic Frontier Foundation (EFF), a nonprofit advocacy group for digital rights, said the ACLU's victory strengthens the EFF's own case against AT&T, which is taking place in the U.S District Court for the Northern District of California. The federal government and others have tried to get that case and related lawsuits dismissed, based largely on arguments that laws prohibiting the disclosure of state secrets override all other legal claims.

SECURITY'S WEAK SIGNAL. In the ACLU case, however, Judge Taylor rejected the government's argument that national security interests override the constitutional protections of journalists, lawyers, and others who brought the suit in Detroit, saying that "…public interest is clear in this matter. It is the upholding of our constitution."

"It was never the intent of the framers to give the president such unfettered control, particularly where his actions blatantly disregard the parameters clearly enumerated in the Bill of Rights," she wrote in her decision, which is the first to rule on the legality of the federal government's domestic surveillance program. "The Office of the Chief Executive has itself been created, with its powers, by the Constitution. There are no hereditary Kings in America and no powers not created by the Constitution."

AT&T and the government lost their motion last month to dismiss the EFF's case. The motion is being appealed, and a decision is expected by the end of the month. Cindy Cohn, legal director at the EFF, says that the recent ruling makes it more unlikely that AT&T and the government will win on appeal. "It is good that the federal courts are stepping up and recognizing our role in protecting our rights even in times when there are national security interests at stake," says Cohn. "The judge said we have an obligation under the constitution to protect people's rights even under an executive that claims national security."

ATTENTION ON AT&T. The EFF singled out AT&T, relying on testimony and documents provided by a former employee. The group believes the employee makes a strong case that the company was directly involved in the NSA's wiretapping program (see BusinessWeek.com, 5/29/06, "The Snooping Goes Beyond Phone Calls").

The group also believes that other companies are involved, but Cohn says they do not have enough evidence to expand the suit (see BusinessWeek.com, 1/23/06, "The NSA: Security in Numbers").

Given the recent ruling, future claims are likely inevitable—not least because Judge Taylor left open the question of whether telecom and Internet companies were allowed to store data on customers. Taylor ruled that there was not enough evidence out in the open for her to make a decision regarding the matter and threw out that portion of the case.

The amount of data collected by Internet companies has recently been questioned by the EFF, as well as other civil liberties and privacy advocates. Time Warner's AOL (TWX ) recently revealed that it collects and stores search data for its clients for months. Though the data is stored under numbers corresponding to users, and not their names, the content of searches can be detailed enough to identify individuals.