Politics and Law

AT&T said Tuesday that any Net neutrality plan restricting its ability to engage in "paid prioritization" of network traffic would be harmful and contrary to the fundamental principles of the Internet.

Telecommunications providers need the ability to set different prices for different forms of Internet service, AT&T said, adding that it already has "hundreds" of customers who have paid extra for higher-priority services.

"Our view is that if the Federal Communications Commission is going to be making policy decisions on this front, it should base them on the facts, as opposed to dogma," an AT&T representative told CNET on Tuesday. In a blog post, AT&T vice president Hank Hultquist argued that the Internet Engineering Task Force's specifications specifically permit paid prioritization.

The flap over paid prioritization started a few weeks ago when Free Press, a pro-regulatory advocacy group, sent letters (No. 1 and No. 2) to the FCC dubbing the concept "discriminatory" and claiming it will "only benefit the few content giants that have deep enough pockets to pay for favorable treatment."

In a telephone interview on Tuesday, Free Press research director Derek Turner said that allowing paid prioritization would undercut the entire concept of Net neutrality, which had its previous legal foundation swept away earlier this year when a federal appeals court shot down the FCC's attempt to punish Comcast for temporarily throttling BitTorrent transfers.

Since that ruling, liberal interest groups have been lobbying FCC chairman Julius Genachowski for a new set of regulations, while a majority of members of the U.S. Congress has opposed the idea. Google and Verizon responded by announcing their own proposal, which includes a "presumption" that paid prioritization on wired networks is illegal.

"A ban on paid prioritization is the DNA of the open Internet," Turner said. He called AT&T's arguments a "straw man," saying that: "What AT&T is describing is a practice that we have no problem with, which is that an end user can buy a T1 and set priority flags, and AT&T respects those priority flags."

Prioritization 'expected'
But the designers of the protocols that make up the modern Internet had something a bit more ambitious in mind. In the late 1990s, the Internet Engineering Task Force revised those standards to allow network operators to assign up to 64 different traffic "classes," meaning priority levels.

Free Press "wants to force consumers to be charged higher rates to pay for the construction of more broadband infrastructure than would be needed if networks could be better managed," says Berin Szoka, a senior fellow at the Progress and Freedom Foundation, which has been critical of new broadband regulations.

A July 1999 IETF specification (RFC 2638) discusses paid prioritization by saying: "It is expected that premium traffic would be allocated a small percentage of the total network capacity, but that it would be priced much higher." Another specification (RFC 2475) published half a year earlier says that setting different priorities for packets will "accommodate heterogeneous application requirements and user expectations" and "permit differentiated pricing of Internet service."

Today that concept of "differentiated services" is referred to as DiffServ. It's part of quality-of-service technologies that companies like AT&T offer, usually to business customers, that rely on DiffServ packet headers to group different types of classes of service together. Real-time voice communication may be ranked the highest, followed by financial transactions, then e-mail, and finally bulk file-transfer protocols that aren't as sensitive to brief slowdowns.

It's true that DiffServ markings are typically used inside corporate networks to support applications like VoIP. But a video-conferencing site that has connectivity through AT&T could presumably use DiffServ to prioritize its packets over, say, online shopping and BitTorrent transfers--and keep that priority all the way to an AT&T home customer.

Which is precisely the argument that AT&T is making. In a strongly-worded letter (PDF) sent Monday to the FCC, AT&T says that the protocol specification "in no way limits the use of DiffServ to packets marked by 'end users,' as opposed to content providers or network operators."

"The (FCC) should view with healthy skepticism the opinions it receives on technical Internet matters from an advocacy group with no demonstrable expertise or operational experience in those matters," AT&T's letter says. "Paid prioritization over Internet access is not, as Free Press maintains, some lurking future menace that would pervert the intent of the IETF. To the contrary, it was fully contemplated by the IETF."

Free Press' Turner disagrees. "DiffServ was not designed to be a tool to allow the network provider to drive application-level discrimination," he says. He says that his organization will send a letter to the FCC by Wednesday explaining its position.

Hewlett-Packard has agreed to pay the U.S. government $55 million to settle charges that it paid kickbacks to technology partners for recommending HP products to federal agencies.

This final agreement, announced Monday by the Department of Justice, follows a tentative settlement reached earlier this month in which HP agreed in principle to resolve the case. The settlement closes the book on the DOJ's allegations that HP defrauded the General Services Administration (GSA) and other government agencies by paying "influencer fees" to third-party vendors.

"Contractors must deal fairly with the government when doing business with federal agencies," Tony West, assistant attorney general for the civil division of the Department of Justice, said in the statement. "As this case demonstrates, we will take action against those who seek to taint the government procurement process with illegal kickbacks."

The case stretches back to 2004 when two whistleblowers--Norman Rille, then a senior manager with Accenture, and Neal Roberts, a partner at PricewaterhouseCoopers--filed a civil complaint alleging that HP had doled out kickbacks. The suit, which also included Sun Microsystems and Accenture, was launched under provisions of the False Claims Act (PDF) in which private citizens can file actions regarding fraud on behalf of the U.S. and share in any money recovered.

In 2007, the DOJ joined the investigation and charged that the defendants used affiliate relationships "to enrich themselves through a kickback scheme."

The settlement also resolves charges that a 2002 contract between HP and the GSA was falsely priced because HP failed to provide complete information during negotiations with the government. At the time, HP contracted with the GSA to sell computer hardware and software to various federal agencies. Under regulations, HP was required to tell the GSA how it conducted business in the private sector to help the government better negotiate a fair price. In 2007, HP revealed that it had not complied with all the regulations, leading to a GSA audit that found the contract "defectively priced."

In response to the settlement, HP issued the following statement:

"HP denies engaging in any illegal conduct in connection with these matters. We believe it is in the best interest of our stakeholders to resolve the matter and move beyond this issue."

Updated 12:09 p.m. PDT with additional information and background and at 12:42 p.m. PDT with comment from the plaintiffs.

Microsoft co-founder Paul Allen fired a patent shot across the bow of several prominent technology companies Friday, suing Apple, Google, Facebook, Yahoo, and others over patent claims.

Microsoft co-founder Paul Allen

Allen's firm Interval Licensing filed a lawsuit in federal court alleging that the above companies, as well as AOL, eBay, Netflix, Office Depot, OfficeMax, and Staples, are violating patents he received for several Internet technologies while leading Interval Research, now out of business. The case was filed in U.S. District Court for the Western District of Washington, based in Seattle.

Interval said in a press release that "the patents in the lawsuit cover fundamental web technologies first developed at Interval Research in the 1990s, which the company believes are being infringed by major e-commerce and web search companies." David Postman, a spokesman for Allen, said this is the first time that patents related to Interval Research's work have been litigated.

Postman wouldn't comment on whether licensing discussions had taken place with the defendants prior to the filing of the lawsuit, but did say that all companies were informed that Interval held "patents of interest." The companies targeted were done so because of their work in e-commerce and search, Postman said. For example, Interval included as an exhibit in its lawsuit a screen grab of a very early "About Google" Web page from 1998 that lists Interval Research Corporation as an outside collaborator.

One may wonder why Allen's former company--Microsoft, which operates the third-leading search engine in the U.S. and now provides search technology to Yahoo--was not cited in the complaint. Postman said he would not discuss litigation strategies but emphasized that Interval is not necessarily done with these patents; in that, it might seek to widen the circle of defendants at a later date.

Representatives for Apple and Google did not immediately return requests for comment. However, Facebook spokesman Andrew Noyes said "We believe this suit is completely without merit and we will fight it vigorously."

The story was first reported by The Wall Street Journal.

Four specific patents are being cited in the case, according to Interval's release:

• No. 6,263,507, "Browser for Use in Navigating a Body of Information, With Particular Application to Browsing Information Represented By Audiovisual Data."

• No. 6,034,652, "Attention Manager for Occupying the Peripheral Attention of a Person in the Vicinity of a Display Device."

• No. 6,788,314, "Attention Manager for Occupying the Peripheral Attention of a Person in the Vicinity of a Display Device."

• No. 6,757,682, "Alerting Users to Items of Current Interest."

Allen founded Microsoft with Bill Gates ages ago, but hasn't played a prominent role at the company in years. He has since invested in a number of ventures in both the technology and entertainment worlds, and organizes his business and philanthropic activities through a firm called Vulcan.

Digeo, an Allen-backed maker of DVR technology, aggressively asserted patents against various companies about five years ago in various lawsuits against PalmSource, Audible.com, and Gemstar. Digeo was sold to Arris Group in 2009.

A copy of the complaint follows below:

CNET's Caroline McCarthy contributed to this report

A PR firm accused of writing phony iTunes reviews of its clients' iPhone apps is settling the case with the Federal Trade Commission.

As part of the proposed settlement (PDF), PR firm Reverb Communications and owner Tracie Snitker must remove any iTunes reviews that were written by Reverb employees posing as ordinary customers and who failed to disclose a relationship between Reverb and its game developer clients. The agreement also bars Reverb and Snitker from posting further reviews on iTunes that pretend to be from independent consumers or that neglect to disclose any connection between the company and its clients, according to the FTC.

(Credit: Screenshot by CNET)

"Companies, including public relations firms involved in online marketing, need to abide by long-held principles of truth in advertising," Mary Engle, director of the FTC's Division of Advertising Practices, said Thursday in a statement. "Advertisers should not pass themselves off as ordinary consumers touting a product, and endorsers should make it clear when they have financial connections to sellers."

Based in Twain Harte, Calif., Reverb handles PR, marketing, and sales services for video game developers. The FTC had charged that the firm posted reviews of mobile gaming apps on iTunes on behalf of its clients between November 2008 and May 2009. Reverb got itself into hot water with the government (PDF) by allegedly giving the impression that the reviews came from independent consumers and failing to reveal that it was hired to promote those games and that it took in a percentage of any sales. The FTC's complaint alleged that such disclosure would have been crucial to consumers deciding whether or not to buy the games.

In response to a request for comment on the FTC settlement, Snitker e-mailed CNET the following statement on behalf of Reverb:

"During discussions with the FTC, it became apparent that we would never agree on the facts of the situation. Rather than continuing to spend time and money arguing, and laying off employees to fight what we believed was a frivolous matter, we settled this case and ended the discussion because as the FTC states: 'The consent agreement is for settlement purposes only and does not constitute admission by the respondents of a law violation.'"

According to Snitker, the issue was specific to a small number of independent iTunes apps that several Reverb employees had installed on their own iPhones using their own money and accounts. The posts were not mandated by Reverb, added Snitker, nor were they part of any company policies.

"Seven out of our 16 employees purchased games which Reverb had been working on and to this the FTC dedicated an investigation," she said in her statement.

"The FTC has continuously made statements that the reviews are 'fake reviews,' something we question," continued Snitker in her statement. "If a person plays the game and posts one review based on their own opinion about the game should that be constituted as 'fake?' The FTC should evaluate if personal posts [from] these employees justifies this type of time, money, and investigation. It's become apparent to Reverb that this disagreement with the FTC is being used to communicate their new posting policy."

The posting policy (PDF) mentioned by Snitker was issued by the FTC last year. Under these guidelines, people who post reviews online are required to disclose any relationship with the seller, especially if money changes hands. The guidelines apply to employees of the seller as well as to those of the seller's ad agency.

Stacey Ferguson, a staff attorney with the FTC's division of advertising practices, spoke to CNET about the case. Responding to Snitker's question over the use of the term "fake reviews," Ferguson said that the FTC defined such reviews as giving the appearance that they were written by ordinary consumers when they were not and were in fact employees of Reverb. But she added that the agency was less concerned with the content of the reviews and more about the failure of Reverb to reveal the relationship with its clients.

"We're most concerned about the disclosure of the connection," explained Ferguson. "So whether or not the employee actually did love the game or not, that wasn't really of consequence to us. We want them to disclose that they did have an affiliation with Reverb and the client when they're making those endorsements."

The FTC hasn't revealed which mobile game apps were involved or whether any of the developers were included in the investigation. Ferguson said that the FTC made the decision not to charge the game developers in this particular case, but beyond that she couldn't divulge any further details.

Reverb's Web site indicates that it has worked on iPhone games for at least two game developers, including Publisher X (maker of such titles as Beer Bounce, Real Deal Blackjack, and Zen Pinball Rollercoaster) and Pangea Software (known for such games as Billy Frontier, Enigmo, and Cro-Mag Rally).

Pangea CEO Brian Greenstone said Friday in an e-mail that he had just learned of the settlement the previous day.

"We haven't done anything with Reverb in ages, so I'm not really sure what goes on over there these days," he said.

The agreement won't be binding until September 24 during which time it will be viewable online for comments by the public. Making such agreements available to consumers and businesses is standard operating procedure for the FTC as an agency serving the public, according to Ferguson. Though public comments wouldn't prevent the order from being finalized, they can sometimes prompt the agency to modify some of the details. But Ferguson said that the current agreement will likely stand as it is now.

Updated 12:30 p.m. PDT: Added comments from FTC staff attorney Stacey Ferguson.

Newspaper publishers didn't ask the U.S. Congress to put news-reading apps on mobile phones. Walkie-talkie and CB radio makers haven't pushed Apple or Nokia for radio frequency compatibility.

But radio broadcasters are a bit more politically ambitious. Claiming public safety benefits, the National Association of Broadcasters is proposing a new federal law that would force manufacturers to implant FM tuners in all mobile phones.

In an interview with CNET on Thursday, NAB executive vice president Dennis Wharton said that because nonbroadcast wireless networks tend to become clogged during emergencies, "there would be a public benefit to have free and local radio on all of these devices."

"I don't think it's a huge burden on cell phone manufacturers to add this device," Wharton said. Lending its support is the Music First coalition, which includes the Recording Industry Association of America (RIAA) and the American Federation of Musicians.

What Wharton didn't add, probably because it was obvious enough, is that giving radio stations a way to expand their audience--as more Americans turn to the Internet for news and iPods for music--also could yield a welcome increase in audience and revenue. (Since 2006, radio advertising revenue has plummeted from $21.4 billion to $16 billion, a 26 percent decline.)

This FM tuner proposal may seem to have popped, Aphrodite-like, out of the ether. But in reality, it's been simmering for a while as part of a long-running discussion of radio royalties. One possibility: if NAB agrees to pay about $100 million a year to musicians and their managers in exchange for an FM tuner, then all that needs to happen is for Congress to order device makers to go along.

"If we were to present our legislative package [to Congress], we'd hope they'd take it seriously this year," NAB's Wharton said.

The NAB's push for implantation of FM receivers has created--in what came as a surprise during the middle of Washington's August doldrums--a political flap that is pitting broadcasters and the music industry against consumer electronics makers and technology companies. It's even inspired some clever artwork.

Six of the largest tech trade associations have publicly opposed any forcible-FM-tuner-implantation. In a letter sent this week to the Senate and House committees with jurisdiction over the topic, the tech groups said the idea amounted to candlestick makers campaigning against the electric light bulb: "Calls for an FM chip mandate are not about public safety but are instead about propping up a business which consumers are abandoning as they avail themselves of new, more consumer-friendly options."

Just so nobody missed the casual insult, Gary Shapiro, head of the Consumer Electronics Association, likened the broadcasters and the recording industry to "buggy-whip industries that refuse to innovate and seek to impose penalties on those that do."

What's more, said the letter that was signed by the Consumer Electronics Association, CTIA-The Wireless Association, TechAmerica, and the Information Technology Industry Council--the groups behind the idea "lack any expertise in the development of wireless devices and are in no position to dictate what type of functionality is included in a wireless device."

Wharton readily conceded that radio broadcasters have not sketched out a detailed proposal. He noted that the NAB board has not yet voted to proceed with asking Congress to enact mandatory FM tuners. When asked about whether an FM tuner would require a lengthy antenna, Wharton said that was a question for MIT engineers to figure out, not him.

But he's not willing to shrink back from political cage-fighting either. "We understand their opposition," Wharton said. "They'd rather usage based pricing, to have FM over IP so they can charge for it. That's where their business model is headed." FM broadcasts, he notes, are free.

"We've had discussions with cell phone makers, and there's been some progress but not much," Wharton said. "We argue that there would be a public benefit to have free and local radio on all of these devices."

Even though revenues are shrinking, radio's audience is growing. Recent Arbitron data suggests radio reaches 239 million people--aged 12 and older--in a typical week.

In an odd twist, though, the very manufacturers whose Washington representatives are savaging NAB's proposal already appear to include FM tuners in their wireless gadgetry.

A teardown and analysis of the iPhone 3G performed by market intelligence firm iSuppli says Apple uses a single-chip Bluetooth/FM/WLAN device made by Broadcom. The Droid uses a Texas Instruments Bluetooth/WLAN/FM transmitter and receiver, iSuppli says, and the BlackBerry Torch is outfitted with a Texas Instruments WL1271A Bluetooth/WLAN/FM chip.

Of course, the mere existence of a built-in feature on a chip doesn't mean the manufacturer has enabled it, added an antenna, or provided a way for the operating system to do anything useful with it. (Microsoft's Zune does feature an FM radio.)

And this is precisely what the consumer electronics groups say: "Requiring an FM chip would require a separate antenna in order to accommodate the significant differences between FM signal wavelengths and cellular/PCS signal wavelengths."

Disclosure: CBS, parent company of CNET and music site Last.fm, is a member of NAB's television advisory board.

American wireless customers are paying less for cell phone service than they did a decade ago, but they have fewer choices of carriers, a report from the Government Accountability Office said Thursday.

The GAO is the audit arm of Congress, and in the report there was both good and bad news for consumers. The good news is that the average price for wireless services declined each year from 1999 to 2008, the GAO said, citing Consumer Price Index data. In fact, average prices in 2009 were half the prices in 1999, the report said.

"This illustrates that consumers are generally getting more wireless services (such as more voice minutes of use) for lower costs than they were 10 years ago," the GAO said.

CTIA, the trade group that represents the wireless industry, said the GAO's findings confirm that healthy competition in the wireless market exists and is benefiting consumers.

"In finding that wireless consumers are seeing 'lower prices and better coverage,' today's GAO report confirms what we've been saying for a long time--that the U.S. wireless industry is extremely competitive and continues to respond to increasing consumer demand by delivering real benefits for American consumers," CTIA president and CEO, Steve Largent said in a statement.

But the GAO didn't exactly say that the market was competitive. In fact, the report points out that consumers have fewer choices of service providers today than they did a decade ago. The report said that four major U.S. operators--Verizon Wireless, AT&T, Sprint Nextel and T-Mobile USA--dominate the market with about 90 percent market share. This leaves little room for regional companies to compete.

The GAO's findings are in line with a report the Federal Communications Commission issued earlier this year. For the first time, the FCC did not say the wireless industry was competitive, and instead said it had become concentrated. The FCC said 60 percent of the nation's subscribers and revenue come from the country's two largest wireless providers: AT&T and Verizon Wireless.

Consumer advocates say these findings are bad news for consumers because it allows the market to be controlled by a few major players.

"The GAO's findings, together with the FCC's recent report on wireless competition, paint a clear picture of an increasingly concentrated industry in which competitors and consumers pay high prices to pad the high profit margins of AT&T and Verizon," Chris Riley, counsel for the consumer advocacy group Free Press, said in a statement. "Inflated backhaul costs, misguided spectrum policies, and exclusive rights to popular devices have fostered an environment where companies cannot compete on a level playing field. With the lack of competition, consumers are paying the price through early termination penalties, hidden and vague usage restrictions, and nontransparent, nonsensical charges and fees."

The FCC has made spurring competition one of its goals as part of the National Broadband Plan. The agency is currently looking at ways to get more spectrum into the hands of wireless operators to feed demand for more mobile services, but the agency also hopes to attract new service providers to the wireless broadband market.

In the last auction, the FCC instituted a provision in the rules that required the winner of a certain block of licenses to make any network built with that spectrum to be open to other carriers and devices. Verizon Communications won that spectrum in the auction and is using it to build its 4G wireless network using a technology called LTE or Long Term Evolution.

The GAO's report could help shape policy going forward. It could influence future rules on wireless auctions. And it may influence policy makers and congressional leaders on Capitol Hill as the heated Net neutrality debate comes to a head.

Phone companies say they are willing to accept some rules or regulations for traditional wired broadband networks. But they say that wireless should be treated differently. In a joint proposal submitted to lawmakers and other policy officials, Google and Verizon argued that not only are wireless networks more constrained, but they are also more competitive than wireline networks.

This is true in the sense that most people in the U.S. only have at best two choices for broadband service. But most of the major markets in the U.S have only four choices for wireless service, a number that consumer advocates worry is too low to keep the industry in check.

The GAO report also found that wireless subscriptions have exploded in the last decade growing from 3.5 million in 1999 to 285 million at the end of 2009. Nearly 40 percent of U.S. households rely primarily on wireless service, the report found. And the report also noted that coverage has improved.

As for state of competition, the GAO said more information is needed.

"In particular, additional data could help assess the competitiveness of small and regional carriers, as well as shed light on the impact of switching costs for consumers," the GAO said in its report.

Rick Kaplan, chief counsel for FCC Chairman Julius Genachowski, said the commission will address the issues suggested in the GAO report.

"We agree with GAO that data-driven analysis of the wireless marketplace is essential for pro-innovation, pro-competition policies," he said in a statement. "The FCC has taken proactive steps to improve our data and analysis, including collecting new and better data for this year's Mobile Wireless Competition Report."

Facebook is concerned that a start-up social network with the word "book" in its portmanteau title is infringing on its own trademarks. It filed a court complaint on Wednesday in a California district court against Teachbook, a networking site geared toward teachers.

Claiming that Teachbook is "riding on the coattails of the fame and enormous goodwill of the Facebook trademark," the complaint asserts that the start-up, which is headquartered in a suburb of Chicago, shouldn't be using the "-book" suffix.

"The 'book' component of the Facebook mark has no descriptive meaning and is arbitrary and highly distinctive in the context of online communities and networking Web sites," the complaint explains. "If others could freely use 'generic plus BOOK' marks for online networking services targeted to that particular generic category of individuals, the suffix 'book' could become a generic term for 'online community/networking services' or 'social networking services.' That would dilute the distinctiveness of the Facebook marks, impairing their ability to function as unique and distinctive identifiers of Facebook's goods and services."

Teachbook, which has not yet commented on the matter, doesn't appear to imitate Facebook's design or feel, but Facebook's whole argument is that it doesn't want the "-book" suffix to become a social-networking term independent of the Facebook brand. The complaint brings up, among other things, that Teachbook markets itself as a social-networking option for teachers whose schools may have blocked or forbidden access to social networks such as Facebook.

Noooooo! Not Ferretbook! Leave the ferrets alone, Facebook!

(Credit: CC: Flickr user mrpattersonsir)

It should be noted that the context of "-book" in the name Teachbook is very similar to that used by a company called Poolhouse Enterprises, which runs Facebook applications for users who want to showcase their kids and pets--Dogbook, Catbook, Ferretbook, and Rodentbook, to name a few. Several of Poolhouse's more popular apps are also available in Apple's App Store.

Poolhouse did not immediately respond to a request for comment.

Facebook founder Mark Zuckerberg derived the company's name (originally "Thefacebook") from the common college term "facebook," the bound book of classmate mugshots typically distributed to incoming freshmen. But since then, the social-networking site, which has more than 500 million users around the world, has more or less co-opted the word. Two years ago, the uncertainty of the trademark made some headlines, when Aaron Greenspan, a software entrepreneur who had attended Harvard University with Zuckerberg and claimed ownership of the concept behind Facebook, petitioned to the U.S. Patent and Trademark Office to have Facebook's trademark on the word revoked.

Greenspan's rationale was that "facebook" had been a common term prior to the rise of Facebook, and that the trademark, for which Facebook originally filed in February 2005, made it difficult for him to market the title of his book, "Authoritas: One Student's Harvard Admissions and the Founding of the Facebook Era" through Google search ads.

The legal dispute between Greenspan's company, Think Computer, and Facebook was settled last May. The terms of the settlement explained that Greenspan would abandon his efforts to cancel the Facebook trademark. At the time, Greenspan was quoted as saying that "I am glad that my contributions have been recognized by Facebook" and Zuckerberg as saying that "we are pleased that we've been able to amicably resolve our differences."

Greenspan, reached via e-mail, said he was unable to comment further.

A few ads from Craigslist's adult services section for Manhattan on Wednesday morning.

(Credit: CNET staff via Craigslist)

Craigslist's adult services section is under fire once again.

Attorneys general from 17 states sent a joint letter (PDF) on Tuesday that asks the site to immediately remove the section because it promotes prostitution and child trafficking.

In the letter to Craigslist CEO Jim Buckmaster and founder Craig Newmark, the attorneys general state that ads for both adult and child prostitutes are "rampant" on the site. And because Craigslist cannot or will not adequately screen these ads, the attorneys general said, the section should be taken down.

Asserting that women and children are being exploited by the ads, the attorneys general cited the case of two girls who said last month that they were trafficked for sex through the site. The two girls wrote an open letter to Craigslist that appeared in ads in The Washington Post and San Francisco Chronicle, in which they asked the company to remove the adult services section.

Craigslist responded to the girls' open letter in a blog post, in which it asked for police reports and further information so that it could investigate. The company stated that it works with law enforcement to go after people who break the law by misusing the site.

In another recent blog post, Craigslist touted its manual screening process. The company noted that since May 2009, all ads are screened by attorneys to make sure that they adhere to Craigslist's guidelines. The blog reported that 700,000 ads have been rejected since this process was implemented.

But Craigslist's screening process has failed to satisfy the attorneys general, who told the company in their letter that "your much-touted 'manual review' of Adult Services ads has failed to yield any discernible reduction in obvious solicitations."

The attorneys general also accuse the company of a "blame the victim" mentality, claiming that it has been putting the onus on victims and law enforcement by criticizing them for not providing Craigslist with police reports to document alleged crimes.

The state officials acknowledge that taking down adult ads would result in a loss of revenue for Craigslist. "No amount of money, however, can justify the scourge of illegal prostitution, and the suffering of the women and children who will continue to be victimized, in the market and trafficking provided by Craigslist," their letter states.

The 17 attorneys general who co-signed the letter hail from Arkansas, Connecticut, Idaho, Illinois, Iowa, Kansas, Maryland, Michigan, Missouri, Montana, New Hampshire, Ohio, Rhode Island, South Carolina, Tennessee, Texas, and Virginia.

In response to the letter, Craigslist spokeswoman Susan MacTavish Best sent the following statement to CNET:

"We strongly support the [desire of the] attorneys general...to end trafficking in children and women, through the Internet or by any other means. We hope to work closely with them, as we are with experts at nonprofits and in law enforcement, to prevent misuse of our site in facilitation of trafficking, and to combat such crimes wherever they appear, online or offline."

Tuesday's letter follows a subpoena issued by Connecticut Attorney General Richard Blumenthal in May, in which he asked Craigslist for documents detailing its ad-screening process and the revenue it brings in from its adult services section.

The current focus is not new. Last year, several attorneys general met with Craigslist to discuss their concerns over the adult ads. Led by Blumenthal--who at the time said Craigslist operates an "online brothel"--the officials pressed the site to eliminate the adult section. In early 2009, the sheriff for the Chicago area filed a civil suit against Craigslist over what was then called the "erotic services" section, though a judge later threw out the suit.

Other events have also put Craigslist's adult ads under a microscope. Last year, Boston University medical student Philip Markoff was arrested on charges that he killed a woman he met on Craigslist. The so-called "Craigslist killer" was recently found dead in his jail cell after apparently committing suicide.

Updated at 12:30 p.m. PDT to include a response from Craigslist.

ASPEN, Colo.--Intel Chief Executive Officer Paul Otellini offered a depressing set of observations about the economy and the Obama administration Monday evening, coupled with a dark commentary on the future of the technology industry if nothing changes.

Otellini's remarks during dinner at the Technology Policy Institute's Aspen Forum here amounted to a warning to the administration officials and assorted Capitol Hill aides in the audience: unless government policies are altered, he predicted, "the next big thing will not be invented here. Jobs will not be created here."

Intel CEO Paul Otellini, who warned this week that the U.S. faces a huge tech decline.

(Credit: Intel)

The U.S. legal environment has become so hostile to business, Otellini said, that there is likely to be "an inevitable erosion and shift of wealth, much like we're seeing today in Europe--this is the bitter truth."

Not long ago, Otellini said, "our research centers were without peer. No country was more attractive for start-up capital...We seemed a generation ahead of the rest of the world in information technology. That simply is no longer the case."

The phenomenon of technology executives advancing dismal predictions and offering pointed critiques of Washington politicking isn't new, of course.

For instance: In 2005, midway through the Bush administration, Microsoft's Bill Gates told a Washington audience that curbs on immigration and guest workers would provide a boost to research institutions in China and India. A year earlier, then-Intel CEO Craig Barrett warned that the U.S. must dramatically improve its education system.

That never happened. Nor did politicians follow Gates' advice to rethink laws that led to foreign engineers being kicked out of the country as soon as they finish their degrees.

And now, six years later with no significant reforms, it should come as no surprise that the predictions have become more dire.

Deep in a 'Do' loop
Otellini singled out the political state of affairs in Democrat-dominated Washington, saying: "I think this group does not understand what it takes to create jobs. And I think they're flummoxed by their experiment in Keynesian economics not working."

Since an unusually sharp downturn accelerated in late 2008, the Obama administration and its allies in the U.S. Congress have enacted trillions in deficit spending they say will create an economic stimulus but have not extended the Bush tax cuts and have pushed to levy extensive new health care and carbon regulations on businesses.

"They're in a 'Do' loop right now trying to figure out what the answer is," Otellini said.

As a result, he said, "every business in America has a list of more variables than I've ever seen in my career." If variables like capital gains taxes and the R&D tax credit are resolved correctly, jobs will stay here, but if politicians make decisions "the wrong way, people will not invest in the United States. They'll invest elsewhere."

Take factories. "I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States," Otellini said.

The rub: Ninety percent of that additional cost of a $4 billion factory is not labor but the cost to comply with taxes and regulations that other nations don't impose. (Cypress Semiconductor CEO T.J. Rodgers elaborated on this in an interview with CNET, saying the problem is not higher U.S. wages but antibusiness laws: "The killer factor in California for a manufacturer to create, say, a thousand blue-collar jobs is a hostile government that doesn't want you there and demonstrates it in thousands of ways.")

"If our tax rate approached that of the rest of the world, corporations would have an incentive to invest here," Otellini said. But instead, it's the second highest in the industrialized world, making the United States a less attractive place to invest--and create jobs--than places in Europe and Asia that are "clamoring" for Intel's business.

The comments from Intel's chief executive echoed statements made a day earlier by Carly Fiorina, the former HP CEO turned Republican Senate candidate.

America's skilled-worker visa system is so badly broken and anti-immigration that "we have to start from scratch," Fiorina said, adding that too many government policies push jobs overseas instead of making U.S. companies competitive against international rivals.

"Our corporate tax rates are the second highest in the world," and Congress has repeatedly failed to make an R&D tax credit permanent, Fiorina told the Aspen audience. It's time to start "acknowledging the reality that companies go where they're welcome," she said. (The effective U.S. corporate income tax is 35 percent, far over the industrialized-nation average of 18.2 percent.)

Chris Marangi, associate portfolio manager at Gamco Investors in Rye, N.Y., said Tuesday: "Capital is agnostic. It doesn't have a religion. It doesn't have a philosophy. It goes where it finds the highest returns." The problem, Marangi said, is that many other "countries have a more friendly regulatory regime than we do."