Digital Media

SAN FRANCISCO--A federal judge on Tuesday heard arguments in a case that centers on an important constitutional principle: can the Feds immunize any telecommunications company that violated the law by opening its network to government snoops?

That was the question debated in the courtroom of U.S. District Judge Vaughn Walker on Tuesday. Lawyers with the U.S. Justice Department, who sought to persuade Walker to throw out lawsuits pending against the telecommunications companies, told him the government engages in a variety of activities designed to "protect the heartland." Those in the Bush administration have said the lawsuits could expose state secrets, but the administration has never confirmed that it enlisted the help of any phone companies to conduct domestic surveillance operations.

Nonetheless, last summer Congress passed the FISA Amendments Act (FAA), a law that gives the U.S. attorney general the power to immunize telecom companies from lawsuits that accuse them of conducting unlawful spying at the bequest of the U.S. government.

Deputy Assistant Attorney General Carl Nichols told Walker that the proper decision was to toss out the lawsuits and not second guess the Bush administration.

Nonsense, said Cindy Cohn, an attorney with the Electronic Frontier Foundation, a group that advocates for the rights of Internet users. EFF has brought a class-action lawsuit against AT&T on behalf of customers and accuses AT&T of turning over communication records to the National Security Agency. On Tuesday, Cohn and the EFF asked Walker to throw out the federal statute and to tell Congress to start over.

Trying to get a district judge to buck the president and Congress is no easy feat, but EFF's three main legal arguments went like this:

•  Congress can't remove constitutional rights with a law. That is a cornerstone of a constitutional system like ours, Cohn said.

•  Unlike what has been publicized, the FAA statute doesn't grant immunity to phone companies. It gives the U.S. attorney general the right to dispense immunities to phone companies. "Congress is supposed to make laws, not write laws that hand lawmaking powers to the president," Cohn said following the hearing.

•  EFF also argued that there is too much secrecy involved in the process of reviewing the government's surveillance operations. Judge's like Walker could only review evidence supplied by the attorney general and that says EFF erodes the public's right to due process.

The immunity law was highly controversial in Congress, with some critics calling it a pardon for Bush. Cohn said the statute was an attempt by the Bush administration to cover up illegal acts.

"You don't need immunity if you haven't done anything wrong," said Cohn who has long accused the federal government of using AT&T's facility in San Francisco to house surveillance operations. "This isn't one little wiretap that went astray. They built a structure on Folsom Street that's permanent. That's not just a little foot fault over the constitution or the law. That is willful disregard and I think that the immunity law is their attempt to go back over and get Congress to paper it over for them."

At the beginning of the hearing, Walker started off by asking Justice Department attorneys why he shouldn't wait to see how President-elect Barack Obama's incoming administration plans to deal with the question.

"It would be very unlikely for any future Department of Justice to decline to defend the constitutionality of the statute," Nichols told Walker.

Walker didn't indicate when he might issue a decision.

CNET News' Declan McCullagh contributed to this report.

Google and Yahoo are in early-stage negotiations with the U.S. Justice Department to avoid an antitrust challenge to their proposed advertising agreement, according to a report Monday night in The Wall Street Journal.

Meanwhile, the Justice Department and a multistate task force are still reviewing the proposal to decide whether to oppose the partnership, which has been criticized by advertising groups as anticompetitive. In September, the Justice Department hired antitrust litigator Sandy Litvack as a consultant in its networking and technology unit to weigh whether the case could be won at trial, say sources.

Under the nonexclusive partnership, which the companies hope to launch later this month, Google would supply Yahoo with some search ads, a move that could increase Yahoo search revenue but that also gives Google even more power in the market. Yahoo expects the 10-year deal to raise revenue by $800 million in its first year and to provide an extra $250 million to $450 million in incremental operating cash flow.

As part of the original proposal, which was made to regulators when Microsoft still had a buyout offer on the table for Yahoo, the Internet search pioneer said it would give the Justice Department three and half months to review the deal before it implements the search advertising partnership.

Faced with that financial challenge and a desire to push the Google ad deal through, Yahoo proposed to regulators that it subject the search advertising deal to a review process similar to one used for major mergers under the Hart-Scott-Rodino Act, said a source familiar with Yahoo.

Google's share of the U.S. search market reached 71 percent in August, compared with Yahoo's 18.26, according to Hitwise's most recent numbers.