The commission is due to issue a ruling Friday that the cable giant violated federal law when it prevented some customers from swapping videos on file-swapping service BitTorrent, according to the report. Comcast has admitted “delaying” traffic to file-sharing sites. At a public hearing in February, Comcast Executive Vice President David Cohen said, “Comcast may on a limited basis temporarily delay certain P2P traffic when that traffic has or is projected to have an adverse effect on other customers’ use of the service.”

Consumer groups were incensed by the tactic, and the FCC investigation ensued over whether Comcast had violated any of its Net neutrality principles.

The Federal Communications Commission is expected to announce this week that Comcast wrongly interfered with file-sharing traffic, according to a report Sunday night on The Wall Street Journal’s Web site.

Comcast, the largest cable provider in the U.S., has been under fire for months after it was discovered the company had been slowing down peer-to-peer traffic on its network. The company claimed it had singled out peer-to-peer, file-sharing traffic, because it was eating up an inordinate amount of bandwidth, which caused degradation across the rest of its customers.

Late last week, three of the five FCC commissioners voted in favor of an item saying Comcast violated federal policy by dialing down peer-to-peer traffic over its network. The ruling, which won’t include a fine, will require Comcast to stop blocking or slowing traffic to peer-to-peer sites like BitTorrent, explain to consumers and the commission how it has blocked such traffic in the past, and publicly disclose how it plans to manage its network in the future.

CableLabs, a consortium created by the cable industry, must certify all CableCards. Microsoft’s Vista operating system supports CableCards, and this can effectively turn a sanctioned PC into a DVR.

Are cable and network TV companies trying to undermine the power of DVRs?

There is nothing to indicate that the blocking of the two NBC Universal shows represents some new attempt by the network or the entertainment industry to restrict the recording of over-the-air TV shows. In interviews with CNET News.com, executives of two DVR companies say broadcasters have not pressured them to limit recording–lately, at least.

What is a broadcast flag?

The term “broadcast flag” has taken on several meanings, but it is best known for describing a set of proposals made by the FCC. The commission wanted those that made television software and hardware equipment to honor the flag, a code that broadcasters can insert into the data stream of digital-TV shows that typically place restrictions on the copying of shows.

To date, it is unclear whether any broadcaster has intentionally tried to use the “copy never” or “copy once” commands to limit recordings from over-the-air digital or basic cable. It’s safe to say the practice isn’t common. But EFF says the block of American Gladiators proves that it can be done, and O’Brien expects that broadcasters will be under pressure to try it in the future.

What companies have acknowledged honoring copy controls?
It’s unclear whether any other software or hardware makers follow a policy similar to Microsoft’s.

The courts ruled against the FCC’s plan in 2005, saying the regulator couldn’t force electronics makers to interpret TV signals a certain way. Since then, those software and hardware companies have had the option of deciding whether to design their systems to obey the broadcasters’ flags.

The controversy began last week, when some Vista Media Center users trying to record from over-the-air digital or basic cable television discovered that they were barred from recording NBC TV shows American Gladiators and Medium.

(Credit:
Greg Sandoval)

Do DVR owners have any rights?

You bet. “You have a fair-use right to record TV content, as specified by the Supreme Court in the now-famous Betamax case,” O’Brien said.

It’s important to note that the flag rules were never meant to ban the recording of over-the-air digital broadcasts. They were designed to wall off content, and prevent mass reproduction and piracy. But Vista’s remote copy control apparently goes much further and may forbid the recording of broadcast TV shows.

O’Brien says companies that do “should come clean” and let consumers know that they could be buying a product that may limit their ability to record.

EFF's Danny O'Brien says digital-TV viewers must not lose the rights they owned as analog users.

How many people could be affected by this issue?
About 30 million U.S. households are equipped with a DVR, according to research firm Leichtman Research Group. Forrester Research says about a third of the country’s households own DVRs and predicts that the percentage will climb to 50 percent by 2010. That number is likely to rise rapidly after February 17, 2009, when all full-power U.S. broadcast television stations will switch from analog to digital broadcasts.

“What the broadcasters and content owners have always wanted is a veto over new technologies,” O’Brien said. “They want some way of controlling the powers of devices that they don’t like. That’s what the fight over the broadcast flag was about.”

To this point, there are more questions than answers. We tried to address a few here.

How do CableCard rules apply?

A CableCard is an interface that enables U.S. consumers to view and record digital cable TV. It allows people to bypass set-top boxes and watch cable broadcasts on DVRs, computers, and TV sets, provided that they have been sanctioned by CableLabs.

“I’m not aware of any effort by the industry to prevent people from recording their shows,” said Jim Denney, TiVo’s vice president of product marketing. He qualified his answer by saying Hollywood doesn’t attempt to restrict recording “outside of the regulations already in place, a la CableCard rules.” We’ll get to those rules later.

One important point to note is that broadcasters frequently block DVRs from recording TV content that isn’t broadcast “over the air” (i.e. received by an aerial). Premium cable channels can prevent the recording of movies delivered via video-on-demand, or VOD. But what broadcasters haven’t done before is to try to systematically block the recording of content delivered over analog channels or over-the-air digital.

“The important thing to remember,” he added, “is that digital-TV viewers must not lose any of the rights they owned as analog users.”

Microsoft is soon expected to explain why it inserted technology into its Vista operating system that blocked digital-TV viewers from recording their favorite shows. Their current excuse–that Microsoft adheres to regulations proposed by the Federal Communications Commission–makes little sense, as the only rules on controlling recording from broadcast TV were struck down by the courts in 2005.

That doesn’t mean that they won’t, according to Danny O’Brien, a staffer at the Electronic Frontier Foundation, which advocates for Internet users and has launched its own investigation into the NBC block. O’Brien notes that broadcasters have always felt threatened by TiVo and other devices that help viewers skip commercials.

Users of
Windows Vista Media Centers who were blocked from recording two NBC shows last week are eager to learn why Microsoft is taking marching orders from broadcasters.

That triggered a wave of speculation. Some people asked if Hollywood had declared war on digital video recorders (DVRs). Some Windows users suspected Microsoft of possibly cutting financial deals with the studios. Others questioned whether a bug within Vista may have caused the block.

CableLabs require CableCard-equipped devices to come with DRM and adhere to commands from broadcasters. Those commands include “copy never,” “copy once,” and “copy freely.” Typically, consumers bump into these flags only when trying to record video-on-demand or pay-per-view programming from premium cable channels. VOD is often protected with a “copy never” or “copy once” command.

In what for some was a stunning acknowledgment by Microsoft, the software maker said Windows Media Center honors the flags used by broadcasters to limit recording.

The service sounds similar to Jambase and Bandloop, but with several interesting distinctions. A big one: instead of having to list their gigs themselves or rely on their fans to do it for them, bands will be able to connect their MySpace page to this service. Any gig they post on MySpace will automatically be fed into the system.

MySpace might want to take note. Its current business model seems to be based around building yet another online distribution channel for major label artists. In early ’90s software terms, it’s banking on becoming the Egghead Software of online music.

Microsoft's early success in drawing developers to its platform is one reason why Windows is so dominant today. Could MySpace follow the same path?

A couple days ago, Sonicbids CEO Panos Panay posted about his company’s new MySpace plug-in.

As a band, if you don’t have a MySpace page, you might as well not exist. And it appears that third parties are reaching the same conclusion–instead of trying to build new communities from scratch, these companies are using MySpace’s APIs to let their customers tap into what’s already on MySpace. It’s becoming the Windows of music–it’s not trendy, it doesn’t always work the way you expect it to, but for better or worse, it’s ubiquitous.

Of course, I have to wonder: if MySpace is Windows, what’s OS X?

If you’re not familiar with the company, Sonicbids caters to independent musicians, giving them a quick way to create an online press kit, which they can then submit to venues and concert promoters to get shows. The MySpace plug-in enables artists to incorporate their MySpace info–including that critical measure of online popularity, the number of MySpace friends they have–directly into their online press kit, where promoters and bookers can see it.

This struck me because it’s the second time in a week that I’ve heard a company acknowledge that MySpace is becoming a standard for online musicians. The other company is still in start-up mode and isn’t ready to go public yet, but it’s going to provide an online listing service for musicians to post gigs, and for fans to find local live music.

As I told an audience member at SXSW who asked about essential tools for online musicians, MySpace may no longer be considered hip or cutting-edge, but it’s an absolute essential first-stop for all musicians.

If you want to get in on this wireless action yourself, Circuit City has the Lexmark Z1480 Wireless Color Inkjet Printer for a ridiculously low $29.99 (after a fairly substantial $50 mail-in rebate).

(Credit:
Lexmark)

The rebate deal ends Saturday.

I put it in the corner, it prints. I put it in a closet, it prints. I stick it in an entirely different room, it prints. I’m sold.

The Z1480 includes both USB and 802.11g interfaces and supports Windows and
Mac systems. It’s a dual-cartridge printer that promises color output at resolutions up to 4800×1200 dpi. Basically, it’s an entry-level inkjet that just happens to support Wi-Fi printing. Trust me, once you cut that USB cord, you’ll never go back.

Find more deals, coupon codes, and bargains on CNET’s Shopper.com.

I just tested my first wireless printer (a Brother HL-2170w laser) and I’m loving it.

He explained that when he auditioned, he was asked to play out a scene in which his character is assembling a light saber with his mind.

“He was the guy who put the bugs in the games,” Lucas joked. “He put in 432. The testers only found 327. So for an extra 50 bucks, just send it to him, and he’ll send you a list of the bugs he found.”

“I’m a big Star Wars fan, and I like making outfits,” Pugh said, adding that he regularly dresses up in Luke Skywalker or Boba Fett outfits at events like WorldCom or ComicCon. “I made a Clone Trooper outfit, but I didn’t quite finish it.”

For Lucas, the event was an opportunity to show up, be seen by the faithful, and say a few words. Really, though, the only interesting thing he said was a line explaining that, “This is the first example of what we’ve been able to accomplish by putting (Industrial Light and Magic) and (Force Unleashed developer) LucasArts in the same building in (San Francisco’s) Presidio,” Lucas said. “So it was a great collaboration between the two of them.”

No, those are not new Best Buy security guards. They’re people dressed in stormtrooper outfits to celebrate the launch of ‘Star Wars: The Force Unleashed.’

Another fan, Alan Morales, a 35-year-old from Fairfield, Calif., had also come to the Best Buy to be among the first to purchase The Force Unleashed.

However, he did not elaborate on that intriguing comment, and he was not available afterward for questions.

He got an autograph from Witwer and co-star Adrienne Wikinson, and said, “Oh, yeah, you know it,” when asked if he was going to go straight home to play the game.

(Credit:
Daniel Terdiman/CNET News)

A man puts on his Chewbacca costume at the launch event for ‘Star Wars: The Force Unleashed,’ the new video game that is the latest chapter in the ‘Star Wars’ story line.

Pugh said he tends to be a fan of everything Star Wars and added, “I think (the game) is going to be good. Even the bad Star Wars games, I like.”

On the other hand, the place was packed, something that one store employee said was a very unusual occurrence. So, all in all, the energy generated may have been worth it for Lucas and his crew.

Update 12:27 p.m.: This story has been modified to reflect comment from LucasArts about interest in the game, as evidenced by pre-sales and number of sales at retail.

I started to take his picture, and he asked if I wanted him to put on the beast’s head first.

SAN FRANCISCO–George Lucas was the “surprise” special guest at the official launch party Monday night here for Star Wars: The Force Unleashed, the new video game that marks the latest chapter in the epic story line. And despite his only making a two-minute speech, most on hand were excited at the rare opportunity to see him.

(Credit:
Daniel Terdiman/CNET News)

One of them was Witwer, who spoke before Lucas showed up, and who got the crowd fired up by talking about his life as a Star Wars fan.

Each person intending to buy a copy of the game was given a numbered card and told that the card would guarantee them a place in line once the store closed.

He also joked that his son had worked on the development of the game for a little while.

“It’s not a movie, but it has to do with the story in general,” Morales said. “It pieces together certain parts you don’t know of the story.”

(Credit:
Daniel Terdiman/CNET News)

The new game, known by many simply as The Force Unleashed, is the first Star Wars game to be considered by Lucas an actual chapter in the overall story line that begins with the three prequel films–The Phantom Menace; Attack of the Clones; and Revenge of the Sith–continues with this summer’s animated film, The Clone Wars and then, of course, concludes with the original three films, Star Wars; The Empire Strikes Back; and Return of the Jedi.

Indeed, Witwer said that his deep knowledge of the Star Wars universe was a major factor in his being hired to play the lead role in the game.

(Credit:
Daniel Terdiman/CNET News)

No, I told him. At an event like this, it’s better to know that, in fact, there is a human underneath the fur.

For many of the fans who turned out for the event, the biggest excitement was getting a chance to meet some of the actors who made the characters in the story come to life.

‘Star Wars’ creator George Lucas made a surprise appearance Monday night at the launch event in San Francisco for the new video game, ‘Star Wars: The Force Unleashed.’ Click the image above for a full gallery of game launch photos.

“I don’t remember when I saw the first film,” Witwer told CNET News. “It’s just (always been) part of my life since I was recording memories.”

“That was a real fanboy thing,” he said.

The event took place Monday evening at a Best Buy outlet in this city’s Mission district, an odd choice of venues for the launch of what many have been calling one of the biggest video games of the year.

Haden Blackman, the director of ‘Star Wars: The Force Unleashed,’ left, jokes with Sam Witwer, the lead actor in the game at its launch event in San Francisco Monday night.

First is a new form of artificial intelligence called Euphoria, which is designed to ensure things happen differently each time in the game, even if they begin the same way.

Since he is a lifelong fan of all things Star Wars, I asked Witwer if a video game was the right medium to choose for the newest chapter in the overall story line.

“So long as the stories are good,” he answered, “I think any medium is the way to go.”

But a LucasArts spokesperson wrote me later to say that the number of available tickets had been arbitrary and that, in fact, pre-orders for the game had been high.

In addition to playing Darth Vader’s apprentice, Witwer also asked for and was given the opportunity to play the role of Emperor Palpatine, which he said most people didn’t know.

He added that he’d been a Star Wars fan since moving to the United States as a kid from Guatemala, and said that from what he’d heard about the game, “it’s a big turning point for Star Wars.”

Throughout the evening, fans like Morales and Pugh mingled with people hired to play various Star Wars characters. There were R2-D2s, and every now and then you would hear the iconic beep and bloops of an R2-D2.

As of 9:36 p.m. Monday night, just 24 minutes before closing, only 227 tickets had been taken out of around 1,000 that were available. And while it’s not clear whether that means that interest in the game is lower than expected, it struck me as possible evidence that there wasn’t massive amounts of interest in the game.

In the new game, the main character, played by actor Sam Witwer, is an apprentice of Darth Vader, and the story line centers on that apprentice’s path to redemption.

So on Monday, Star Wars fans were given the opportunity to be among the very first to get their hands on the game. But it was an unusual midnight-madness kind of launch event in that instead of having everyone line up outside the Best Buy first, everyone was allowed inside the store while it was still open in order to mill around, listen to MCs talking about the game, get autographs from the game’s voice-over actors, and just get revved up.

One fan at the launch event who seemed inclined to agree was Ian Pugh, a 25-year-old from Porterville, Calif., who was dressed as Darth Vader’s apprentice from the game.

But maybe my favorite moment of the evening was seeing a man putting on his Chewbacca outfit outside the store.

“At that point, Haden said, ‘OK, this is the guy,’” Witwer said.

Witwer said he decided to play the scene as if it was a difficult task, and when asked by the game’s director, Haden Blackman, why he was doing so, he answered that such a task for a Sith apprentice–which the character is, according to the story–would be much harder than it would be for a Jedi apprentice.

(Credit:
Daniel Terdiman/CNET News)

A man dressed as Obi-Wan Kenobi makes some of the guests at the launch event smile.

Indeed, Lucas doesn’t venture into public very often, so for many of the people who had come to line up to buy the new game when it went on-sale at 12:01 a.m. Tuesday, his appearance and quick talk were a treat.

And second is what is known as digital molecular matter, a technology meant to bring more realistic consequences to things like a door breaking, or something smashing into a big piece of metal.

Go ahead and ask the person next to you at the office about the BlackBerry Storm. Chances are, if they aren’t in to technology like you and I, they wouldn’t have the slightest clue about it even though it’s making headlines all over the tech world today.

Will that happen with the BlackBerry Storm? Uh, no. Instead, the Storm will be covered by a select few media outlets in the middle of a newscast and quickly forgotten about after that. There won’t be local stations covering lines around the Verizon store and even when it’s released, the average person probably won’t know about it.

And that’s where RIM finds itself now. The BlackBerry Storm is an incredibly appealing device in its own right and slowly, but surely, the device will make its way into the mainstream as reports break out about its functionality and usability, but until that happens, it’s a mystery to the average user.

It’s sad, but true.

Tech journalists and gadget lovers across the globe are rejoicing over the announcement of the BlackBerry Storm, RIM’s first touchscreen cell phone to compete with the
iPhone.

It can’t.

Apple has help with every product it releases, but RIM doesn’t have that luxury. So no matter how great the Storm will be, it doesn’t matter.

In contrast, the iPhone wasn’t a mystery to anyone once Steve Jobs showed it off at his Stevenote. The mainstream media was in attendance to see what he had up its sleeve and reported on every last detail. On launch day, every single major media outlet was chomping at the bit to cover the cell phone industry’s latest and greatest offering.

It’s not that I have a problem with RIM–I think the BlackBerry Curve is a fantastic device–or that I’m not impressed by the Storm. I just don’t see how BlackBerry’s first touchscreen device can compete against the iPhone if the vast majority of “mainstream” users simply don’t know anything about it.

Those who can’t wait to get their hands on BlackBerry’s latest call it a marvel and its keyboard functionality, which makes you press down on the screen to register a “touch”, is something worth drooling over.

Do you see what I’m getting at here? No matter how important a new device in the cell phone business may be to the growth of the industry, it will never be able to outshine the iPhone.

Then ask those people what they knew about the iPhone the day after it was announced. I’ll bet you’ll find that they knew much more about the iPhone than the BlackBerry Storm.

Check out Don’s Digital Home podcast, Twitter feed, and FriendFeed.

OK, I guess I can concede that the Storm is really neat and the touchscreen idea is fantastic. But I still don’t see how the BlackBerry Storm will be able to compete on any level with the iPhone 3G.

So how does RIM fight the Apple onslaught and the mainstream media that only cares about Steve Jobs?

“Every American should have affordable access to high-speed Internet, no matter where they live. This is essential to economic growth and will help maintain our global competitiveness,” said Larry Cohen, president of the Communications Workers of America. “Unfortunately, fragmented government programs and uneven private sector responses to build out Internet access have left a digital divide across the country.”

Signed earlier this year, the American Recovery and Reinvestment Act includes a provision for a national broadband plan by spring of next year and grants of $7.2 billion to bring high-speed Internet to rural and remote locations across the country.

Web surfing in the U.S. averages around 5.1 megabits per second (mbps), lagging far behind top-ranked South Korea, where speeds average more than 20 mbps. In 2007, the U.S. download speed was 3.5 mbps, inching up only 1.6 mbps since then. At that rate, notes the report, it will take the U.S. 15 years to catch up with South Korea.

The report discovered that Internet users who live in the Northeast or Mid-Atlantic regions enjoy faster speeds than those in the South or West. The five fastest states included Delaware (9.9 mbps), Rhode Island (9.8 mbps), New Jersey (8.9 mbps), Massachusetts (8.6 mbps), and New York (8.4 mbps).

The U.S. is the only country without a national policy to promote high-speed Internet access, noted the report. But that may be about to change.

The 2009 report was compiled using data from the CWA’s latest Speed Matters test, which measures the time it takes to communicate with the nearest server on the Net. Gathered from May 2008 to May 2009, the test tracked the speed of more than 413,000 Internet users.

In the report, the CWA called for such measures as an Internet infrastructure with enough capacity for 10 mbps downstream and 1 mbps upstream by 2010, tax incentives for businesses to provide faster speeds, and grants to provide computers and broadband equipment to low-income households.

That’s a step in the right direction, said the CWA. But the organization would like to see more specific improvements.

States on the slow end were Mississippi (3.7 mbps), South Carolina (3.6 mbps), Arkansas (3.1 mbps), Idaho (2.6 mbps), and Alaska (2.3 mbps).

The CWA’s 2009 Report on Internet Speeds also compared Internet performance throughout all 50 U.S. states.

The average Internet download speed in the U.S. is slower than that in 27 other countries, according to a new report by the Communications Workers of America.

See also: Picnik; and watch for Adobe’s own Photoshop Online.

In fact, I want to encourage this crazy ambition. If Worth1000 can build a suite of professional media creation and management apps all at once using new Web platforms–and even if it tries but in the end cannot– it could encourage other developers to stretch beyond today’s current Web 2.0 apps. We certainly could use more real Web apps, and fewer me-too social networks or developers’ resumes masquerading as products.

As I reported from Demo 2008, new Flash- and Flex-based Web apps are putting traditional desktop apps to shame. The database Blist, the widget maker Sprout, and the photo manager Joggle are all Web-based apps that give up almost nothing to run inside a browser.

Case in point: the Aviary suite of graphics apps, coming out soon from the team at Worth1000. The first app, the image editor Phoenix, will make you question the value of your Photoshop license. Not that it’s a drop-in replacement for Photoshop today, but it gives you a strong indication that the need for expensive apps licensed on a per-PC basis is ending.

Other Aviary graphics apps to come include a color palette creator, an “algorithm-based pattern generator,” a vector editor (competitor to Adobe Illustrator?), a 3D modeler, and other non-graphics tools such as a word processor, an audio editor, a “music generator,” plus a network file storage system and a marketplace for the exchange of creative works.

And I’ll tell you this: I’m not seeing nearly the same creativity today in traditional software that I am seeing on Flash and in browser-based apps. Flash-based apps are finally beginning to compete head-on with standard software. Many new Flash apps aren’t just different. They’re better.

Online apps in general have other advantages. Most offer Web-based storage and built-in access to the world’s largest collaboration network: the Internet. Nobody likes hassling with LAN-based workgroup software installations, and with Web apps you don’t have to.

Even rich media apps will fall

There are invitations to Phoenix, the new app discussed in this post, set aside for Webware readers. Read on to learn how to get yours.

I experimented with Phoenix a bit. I can’t give it a deep review, since I’m not an expert in image editing. However, it certainly does a lot of the things I’ve done when poking around in Photoshop: It has rich tools for selected image elements, layering items you’re working on, and transforming parts of the image. Lacking, of course, is plug-in support and Photoshop’s snappiness when it runs on a fast PC. But the capability to open an image directly from a URL is pretty cool, and I would fully expect to see the capability to write files right back soon as well.

(Credit:
CNET / Rafe Needleman)

Flash has its downsides, of course. It’s yet another layer of platform software for an app to run on. For the most part, today’s overpowered personal computers and fast broadband connections punch through this inefficiency. However, in some cases, Flash just doesn’t offer up enough performance. The personal finance app Voyant, for example, eschews Flash for Java; a Voyant developer told me it’s faster at the math his app needs to perform.

Flash-based applications are inherently cross-platform, because there are Flash runtimes that work in Internet Explorer and
Firefox; on Macs, Windows, and Linux. (There are even Flash runtimes for mobile phones and set-top boxes, although Adobe’s expensive licensing schemes for those platforms do a lot to keep Flash apps off them.) With Adobe’s new AIR runtime environment being basically a wrapper for Flash and Flex, we can expect that many of these Flash apps will be released as independent app-like products, but with Flash’s cross-platform and Web-native advantages.

Who needs Photoshop?

If you want to try out Phoenix, there are 100 early-bird invitations set aside for Webware readers. Go here to enter your e-mail address. You have to click over from this story to get on the list–cutting and pasting the link won’t work.

(Credit:
Inside Facebook)

Facebook on Sunday began a slow roll-out of its new Chat service.

More to come from Webware

Justin Smith at Inside Facebook has a tour of the new service. Justin’s quick review concludes that Facebook Chat is a “very compelling experience that will spell trouble for legacy IM networks that haven’t built vibrant social networks around their friend lists (i.e. AIM). By making Facebook more real time/presence oriented, Facebook session length should go up a lot. Facebook will become an important player in IM very soon.”

It looks like Facebook is taking a slow approach to make sure that it can handle the increased load and scaling as users start playing with Chat, which is apparently just on a few networks so far.

Arbitration clauses are popular for several reasons: (1) they dictate where a future case will be heard, (2) they remove the risks of trying the case to a jury, (3) they lessen exposure to class action lawsuits, and (4) they tend to favor businesses rather than consumers. PayPal, eBay, and many other software and on-line service providers include arbitration clauses in their standard terms of use, as do airlines, cruise ships, and outdoor arenas (though there is some question concerning the enforceablity of arbitration provisions in one-sided contracts such as software “shrink-wrap” licenses wikipedia:”shrink wrap contract”). They are also frequently used in intellectual property license agreements. But there’s a catch. The federal statute governing arbitration, the Federal Arbitration Act (”FAA”), also “makes contracts to arbitrate “valid, irrevocable, and enforceable,’ so long as their subject involves ‘commerce.’” Id. at 5. Specifically, unless you can prove the arbitration involved corruption, fraud, misconduct, exceeding authority, or evident miscalculation of the award, the courts cannot overturn an arbitration decision. See FAA Sec. 10, 11. In other words, once an arbitration decision is made, you’re stuck with it.

“[t]he United States District Court for the District of Oregon may enter judgment upon any award, either by confirming the award or by vacating, modifying or correcting the award. The Court shall vacate, modify or correct any award: (i) where the arbitrator’s findings of facts are not supported by substantial evidence, or (ii) where the arbitrator’s conclusions of law are erroneous.”

This doesn’t mean that the parties cannot protect themselves from arbitrators who ignore the law. Arbitration agreements can, and often do, include requirements that specify the rules and procedures that must be followed. My prediction is that going forward, arbitration provisions will become a bit more detailed as to the legal procedures that must be followed, giving parties and their lawyers a few more things to argue about when drafting a contract.

In other words, the parties agreed to make the binding arbitration a little less binding. Until this week, federal courts in eighteen states allowed this practice, courts in twenty-two states rejected it. Numerous organizations filed friend of the court briefs in support of one side or the other, some arguing the importance of finality in arbitrations, others predicting doom and gloom for arbitration if the courts were not allowed more oversight. Now the matter is settled. The wording of the statute governs, and parties can not obtain heightened judicial review by writing their arbitration agreement to allow it. In other words, absent a few narrow exceptions, you’re stuck with the arbitrator’s decision.

Tuesday, the U.S. Supreme Court issued a much awaited decision concerning arbitration agreements. Hall Street Associates LLC v. Mattel Inc. Full Opinion in PDF format While this case won’t grab many headlines and is unlikely to be featured on the evening news, arbitration agreements are very common in high-tech, which means that changes to this area of the law can have far reaching effects.

To make arbitration a bit more flexible, lawyers often wrote the terms of the contract to expand judicial oversight of the process. In the Hall Street case, the arbitration agreement gave the court power to change any arbitration award if the arbitration panel made a legal error, giving the disappointed party what amounts to a do-over in Federal Court. The exact wording of their agreement was as follows: