ARTICLE ONE

The India Abroad debateAnonymous. India Abroad. New York, N.Y.: Nov 7, 2008. Vol. 39, Iss. 6; pg. A3, 7 pgsAbstract (Summary)Vijay Dandapani: Firstly, whether outsourcing is good or bad, I guess, is an individual's perspective. If you're directly affected by it, then obviously you're going to say it's bad. 'My job was outsourced to Bangalore' became a line in the last election. But I'll stay with this election, where [Barack Obama] has repeatedly said that outsourcing of jobs is a matter of concern to him and that he wants to stop giving free taxes to companies that export jobs, to use his phrase. You don't export jobs any more than you deliberately export cars or anything else. People are buying those products because it's what you have by way of expertise. The theory of comparative advantages says you produce what you're good at, and what you're not good at you simply cannot produce. Try exporting a Chevrolet to most parts of the world - they simply won't buy it. And that's why Americans buy Japanese cars - because it's a better product.

Toby Chaudhuri: I'd add one other thing to that. In addition to what [Satish Poondi] said, the most important thing here is the reality. Globalization is here, it's here to stay. We know how interdependent the international markets are. We saw that as credit started freezing in the US, that started to ripple around the world. And generally, again, like I said earlier, the American consumer is at the bottom of the global economy. So it's not really about just saying that it's not 'good' that we're exporting jobs, but what we do in response to that. And this is where, again, I think, there is a very clear choice. Senator [John McCain] wants to continue the Bush policies of not investing in our own economy on the demand side. And Senator Obama's position on this is actually that we need to invest publicly, the same way that President Kennedy invested in putting a man on the moon with an Apollo project. Senator Obama believes that this is a time to invest in clean energy, in alternative energy sources, unleash America's science and technology, unleash our education, create a whole new generation of jobs, manufacturing new goods that support the new green economy. And that also create goods and services that we can export around the world to help with the energy crisis that's probably going to be hitting us all. This is a forward way of looking at it. It's not so much about outsourcing as it is about building America's competitiveness in the world and, therefore, growing the global economy, which could use a kick-start.

Vijay Dandapani: No offence to the operatives. I'll speak about my own industry. Take today's New York Times. The city council, which is as Democratic as you can get, is looking to tax foreigners who are coming to the city. They want to raise the hotel tax. Guess why? Because Wall Street is not as rich as it was, and Wall Street, by the way, supported much of the wealth that's coursing through New York's veins, it's gone down. It's a horrible measure, and actually, if you go back in time, Ed Koch, a former Democratic mayor, said, 'Sock it to them. They're not from here.' That's the same psychology that still prevails. I got involved. Every hotelier benefits from this as does every New Yorker because you want the foreigners to come here. We are competing in not just in terms of taxes within the US but also in terms of taxes in other gateway cities like London, Paris, Tokyo. So if my hotel tax goes up - truly, it's a case that a customer can choose. You know what, I'll take a holiday to London as opposed to New York because it is twenty-one-and-a-quarter percent, which, by the way, was what it was before [Rudy Giuliani] lowered it. So when there's a fat cow, let's milk it till there are no udders left. That's the philosophy that goes against the grain of American competitiveness.

 »  Jump to indexing (document details)Full Text (11575  words)Copyright India Abroad Publications Nov 7, 2008

Last week, three panelists on either side walked you through some critical foreign policy and economic issues. In the concluding part of India Abroad's first-ever Presidential election debate, the panelists discuss the ticklish issues of health care, outsourcing and H1B visas, and share their vision for the future of America under their respective candidates.

Sreenath Sreenivasan (moderator): Welcome back to the India Abroad Forum on the 2008 Presidential elections, and our ongoing conversation about the issues. We are also trying to get a sense of what the new administration we get, no matter who wins, will look like.

Now we're moving to the issue of outsourcing, and I'll ask the Republicans here to clarify again what they went on the attack about the outsourcing issue. And we'll ask them to speak for a minute or two to outline how they think outsourcing makes a difference if a Republican is in power versus a Democrat in power. Vijay, would you like to start?

Vijay Dandapani: Firstly, whether outsourcing is good or bad, I guess, is an individual's perspective. If you're directly affected by it, then obviously you're going to say it's bad. 'My job was outsourced to Bangalore' became a line in the last election. But I'll stay with this election, where Obama has repeatedly said that outsourcing of jobs is a matter of concern to him and that he wants to stop giving free taxes to companies that export jobs, to use his phrase. You don't export jobs any more than you deliberately export cars or anything else. People are buying those products because it's what you have by way of expertise. The theory of comparative advantages says you produce what you're good at, and what you're not good at you simply cannot produce. Try exporting a Chevrolet to most parts of the world - they simply won't buy it. And that's why Americans buy Japanese cars - because it's a better product.

So the issue of outsourcing becomes a hot button issue if it is a particu- lar state that's affected by it, or a particular city or a neighborhood. But as far as India is concerned, one can argue that India has benefited the US through the expertise it has provided by lowering costs for companies. How many more software programs are available there for small busi- nesses as a consequence of outsourcing? That's not factored into this debate at all. Small businesses previously paid hundreds of thousands of dollars for very simple software that was enterprise specific and that's now freely available. I shouldn't say free, but certainly more affordable. That's a consequence of outsourcing. Now if somebody is displaced as a consequence of that, then that is the nature of the American economy. Joseph Schumpeter, an Austrian economist, talked about the notion of creative destruction. America has destroyed - in not the negative or the pejorative sense of the word - more jobs than any other nation. But it has also created more jobs than any other nation, and one of the reasons is the mobility it provides for jobs, for people and competitiveness. So the issue of outsourcing should be viewed in that light, in terms of how many jobs are created, and not just jobs that are destroyed.

Sreenath Sreenivasan: Okay, let's have a response from the Democrats.

Satish Poondi: The issue of outsourcing is a hot button issue and, as he said, it's whether you're gaining the job or losing that job is part of your perspective. It's part of the overall issue of free trade and its impact. Free trade's good, but free trade without limitations - and anything in excess - can be bad. And that's the point here today. In the last eight years we've had a President who thinks in black and white, good and bad, but it's not that simple. You know, when we talk of exporting of jobs, you have to remember that there are people in this country who started off as manufacturers in factories, and they saw the jobs go to other parts of the country. And we said to them, the world is changing. You have to get retrained, you have to go get a different education, go back to school. And it was tough for them, but many of them did. They went back to school, they got re-educated, they got retrained, and they started a second career. Now they're in their second career and suddenly all the jobs that they are getting are going out of the country - we can talk about exploitation and all, but I'm not sure that's the right word - they're losing those jobs.

And as a result we have to go to those same people and we say to them, it's time for you to go back to school, get retrained. You need to get a different type of job. It's your third career. And it's tough on people. People need to understand that. You know, when we talk about the American workers, and everyone says the American worker is the best workforce in the entire world, we need to remember that the American worker includes Indian Americans in this country as well. Now part of what we need to do is job training, and, of course Senator Obama is supporting that. But he also understands that we can't have the type of massive changes in such a short period of time without having an impact on not just the American worker but also the workers in other nations. Globalization and the exploitation of jobs has as much an impact here as it does in other countries. And even everyone in India or other countries don't always say that globalization is the greatest and that it shouldn't be criticized, and no one should try and change it. There are income impacts - the fact that a lot of things are cheaper outside also means that the labor

force isn't getting paid as well outside. There are work conditions that are not always met in other countries. Those need to be addressed. The environmental impact hasn't been addressed by globalization. There are a lot of issues connected with it. To try and frame it as black and white, to say everyone should be for free trade, anybody who isn't or who tries to change some details of it is completely against it, I think that's a very basic way of looking at things, and the world doesn't operate that way.

Sreenath Sreenivasan: Anybody else to talk on that?

Toby Chaudhuri: I'd add one other thing to that. In addition to what Satish said, the most important thing here is the reality. Globalization is here, it's here to stay. We know how interdependent the international markets are. We saw that as credit started freezing in the US, that started to ripple around the world. And generally, again, like I said earlier, the American consumer is at the bottom of the global economy. So it's not really about just saying that it's not 'good' that we're exporting jobs, but what we do in response to that. And this is where, again, I think, there is a very clear choice. Senator McCain wants to continue the Bush policies of not investing in our own economy on the demand side. And Senator Obama's position on this is actually that we need to invest publicly, the same way that President Kennedy invested in putting a man on the moon with an Apollo project. Senator Obama believes that this is a time to invest in clean energy, in alternative energy sources, unleash America's science and technology, unleash our education, create a whole new generation of jobs, manufacturing new goods that support the new green economy. And that also create goods and services that we can export around the world to help with the energy crisis that's probably going to be hitting us all. This is a forward way of looking at it. It's not so much about outsourcing as it is about building America's competitiveness in the world and, therefore, growing the global economy, which could use a kick-start.

Sreenath Sreenivasan: Okay, what I'd like to do now is to give the Republicans one chance to respond. Keep it really short, please, say a minute.

Kishan Putta: I agree with my colleague Satish that things are not black and white. We have to make sure that we don't think like that. I'm glad we have reasonable people here today but, you know, with either of these candidates, I want to stress to the Indian Americans or Indians watching around the world, whether we get Senator McCain or Senator Obama, we are going to get change. This is a change election, and with either candidate we are going to get change. The question is, are we going to get change that takes us backward or change that takes us forward.

Our colleagues say that John McCain is only tied only to all the other Republicans and to George Bush, and the failed policies, quote unquote, of the past eight years. Well, America doesn't want a return to the failed policies of the 1800s - of protectionism, of all these other things. And I'm not going to say that Barack Obama has no idea that the world has moved forward and has gone to a global economy. Of course he recognizes that fact; the question is, where is he siding, what stance is he taking, in the spectrum who is he siding with? I'll just quickly give you some evidence. You can't say black or white, but you can show some evidence of someone's record, and who they're siding with on these issues.

And I'll give you three points: The memo that his campaign put out last year about Hillary Clinton being the senator from Punjab. You know, it was put out by his staff and it was extremely offensive, extremely protectionist, xenophobic, anti-Indian, no doubt about it. And Barack Obama apologized for it. But any politician would; it was extremely embarrassing. He apologized for it but there were people on his staff who wrote that for him and he refused to remove them from his campaign. So those same people-just like the unionists who he sides with and who are very close to him - there are many protectionists who are very close to this guy and who will be in his administration. We don't want to be going back to those failed policies.

Also, he would want to raise taxes on anyone who hires anyone in India. There are so many Indian Americans who want to do business with India. It's a booming economy. It's a great opportunity for bilateral commercial activity, which is going to benefit both countries and the world. Why raise taxes on some just because they want to employ someone in India for their business? Barack Obama talks about scalpels and hatchets. This is a hatchet on anyone who wants to do business with India.

Sreenath Sreenivasan: Just to clarify, do you mean he wants to raise taxes on people who do business with India in particular? That's not what it is exactly, right?

Kishan Putta: Oh, well, it is - it is a tax increase. There is currently a deduction for businesses and he would remove that policy, which would increase their tax.

Sreenath Sreenivasan: Okay, one-minute response, please, from the Democrats.

Varun Nikore: Well, I think, Barack Obama's stated position is that he was going to reduce taxes on 95 percent of the people that pay taxes. I think what the American people really want at the end of the day is having a President who's going to put in sound business policies that protect the taxpayer, that show the taxpayer value for their tax dollars spent. But, you know, there's one other angle here that on the face of it may not seem to some folks as related to taxes. But it really is. It has something to do with priorities, so when we spend 50 billion dollars a month in Iraq, that reduces the pie, if you will, on the money that we can spend on things here in America that really matter to people, like education and healthcare.

I mean, we're spending an inordinate sum in building schools in Iraq and making sure, you know, that their economy sees a prosperous and a secure tomorrow. And I believe there is no American who would believe that they shouldn't have that opportunity. But I think we've reached the point now where the Americans are saying the Iraqis have 70 billion dollars in their coffers and we're spending our money to support them while we're undergoing this financial mess, we're opening up our 401 K statements every single day, and the middle class have hurt like they've never hurt before.

Sreenath Sreenivasan: Before I move to the next question, I'd like to ask Aziz to respond. Do you deal with a lot of people dealing with this aspect of the issues, dealing with outsourcing? What are your thoughts?

Aziz Haniffa: Yes, I think, as I travel across the country, this is an issue that concerns a lot of Indian Americans because, as it was mentioned, there are a lot of Indian Americans who are small business owners and who do outsource a lot of jobs, and a lot of work, to countries like India. And so I think this is indeed a concern. They are for free trade and they want to make sure that there are no restrictions that are placed that would make it much tougher for them to outsource. That sort of segues into something that I want the panelists to address also in terms of health care.

We all have this stereotype of Indian Americans, the Asian Americans, as the sort of the model minority. And now that the initial wave of immigrants who came to this country - the professionals - has now gone into the extended family - and even among these professionals, take a lot of the physicians. They are small business owners now, they're entrepreneurs, and the health-care issue concerns them a lot because the health-care premiums are going up, how much they can subsidize the health care of their works has gone up. And so this is a really burning issue, and health-care reform has not come about and, I think, what a lot of these people are worried about is how much are these things going up, and is it to the extent that it would be very difficult for them to run their businesses. So that is something I would like panelists from both sides to offer specifics on.

Sreenath Sreenivasan: Sure. So let's talk about health care. I think Aziz has lined up the questions pretty well, especially looking at the small business aspect of it, but also, as patients, where does your campaign come down, where does your candidate stand? And then I'll ask the same thing of the Republicans.

Satish Poondi: That's an excellent question, actually. Something that's close to me because, you know, I'm a pharmacist, and every day I see patients that have difficulties deciding between their medication costs and their costs of life and every other aspect of it. There's many parts of the insurance scheme but I'm going to address what's close to my heart - and that's preventive medicine. That's a buzzword that's been going around in medicine for a long time. Just today, approximately 47 million Americans have no insurance, no health-care insurance at all. That's about a five percent increase since 2005. And, interestingly enough, approximately 12 percent of those are children under the age of 18. So that means there are a lot of people in this country that don't have insurance. And what that does is it brings up the cost of medicine for everybody. And that's why it is important to talk of the uninsured.

For example, when you go to an emergency room visit, com- pared to going to a doctor's office, the expense of going to an emergency room is about three times what it is to go into a doc- tor's office. That's the increase in cost. And as an uninsured patient, you're five times more likely to go into that emergency room than anyone else is. You are five times more likely to go into an emergency room because you are not getting the preventive care going to the doc- tor's office. What that does for us as a country is that it raised the cost of health care for all of us. And that's important because studies have shown almost 50 percent of emergency visits can be cut through preventive care. Now that's an important issue that Barack Obama understands. And he's been ridiculed, sometimes, by the right, for his focus on the importance of preventive medicine. Quite honestly, if we can get people insured and we can find ways of offering preventive medicine, we can cut back the cost of health insurance and the cost of health care for all of us across the board. And that's important in this election.

Sreenath Sreenivasan: Okay, the Democrats have one more comment.

Toby Chaudhuri: I'll say one more thing. I think Satish raises some very important points and it's important again to look at the difference between the candidates here. John McCain's plan on health care basically taxes people on their health insurance. It creates incentive for a business to no longer provide coverage. So it essentially dismantles the employer-based coverage that those of us who have health insurance generally rely on. Now, when we look at this, McCain's cure to this problem is much worse than the disease because estimates would show that about 20 million people would be left without ample coverage. It goes even further to basically empower the insurance companies to figure out how coverage is put out. But the reality is the insu-ance companies are looking out for profits. So things like pre-existing conditions - guess what? It's going to get more difficult for folks to get coverage when they're already sick. And this is an issue which is facing - just as Aziz mentioned earlier - many hard-working Indian Americans across this country, even though we have above 40- or 50,000 doctors in our community, there are many, many more people who are lacking coverage right now. And the reality is that if we don't fix the health-care crisis in this country, then it's going to be very difficult to fix our economy for so many different reasons. But, in general, Democrats believe health care is a right, whereas Republicans don't share that same belief.

Kishan Putta: That's absolutely false, Toby. You know this.

Toby Chaudhuri: You mean, whether it's a right or a privilege?

Kishan Putta: John McCain wants everyone who wants health care coverage to have it. John McCain does believe in universal coverage in that sense. Anyone who wants health care coverage will have it. The problem is not the quality of health care in America, the problem is the affordability of it. It has gotten way too expensive, we can all agree on that. And so the cure is to bring those costs down. And that is what John McCain's plan is entirely focused around. You know, Barack Obama has been putting these ads out saying John McCain is going to unravel employer-sponsored health care, the backbone of American health care. If anything, Barack Obama's plan is going to unravel employer-sponsored health care. He wants to have guaranteed coverage for everyone and if you were a business owner struggling with the cost of health care for your employees and if you were going to cut back on something, and if all of a sudden there was this publicsponsored option, what would you do? You would drop them onto the public-sponsored option. That is just common sense.

And the difference is, John McCain wants to provide and empower people to have their own coverage, coverage that they can take with them anywhere. He wants to provide the 5,000 dollar tax credit for people to be able to buy their own health care on their own and not have to depend on the government's choices for them. You know, Barack Obama doesn't mention that his plan also calls for a public-sponsored plan, a government- run plan, a governmentsponsored health insurance plan.

And he's made it clear in the past that he sides philosophically with universal coverage from the government Medicare for all, for example. And that is what you're going to get with Barack Obama as we get into it over the years, that is the direction we will be headed with our public plan and what that means for doctors in America is, if you hated dealing with Medicare already, hated being a slave to the federal government for your payments, whether your payments rise or fall each year, with all the bureaucracy that comes with Medicare, you're in for a lot more of

that with Barack Obama. You will have to go to the government every year to decide. Much more and more of your salary is going to come from the government, and that is not what doctors want.

Sreenath Sreenivasan: So who will not want quality affordable care? I'd like to hear about that.

Suhail Khan: The question really is, do you want to condemn everybody to a lackluster quality care or do you want to give Americans the ability to make their own decisions to purchase the best care they can buy on the open market. That's the decision.

Toby Chaudhuri: For 5,000 dollars?

Suhail Khan: That - we can talk about that number, Toby, but the bottom line is, John McCain wants to give Americans the ability to have that own choice, whereas Senator Obama wants to give you one size fits all health care that will be a lackluster, bring it down to. ..We are the best health care system in the world for a reason - because we support innovation, because patients have choice. You take that away and we will reduce our health care system and the quality of our health care system. That's what John McCain wants to give every American - the ability to get health care that they want of their own choice but also to maintain the high quality that we enjoy as Americans.

Sreenath Sreenivasan: Let's have Vijay, who is a small business owner, to talk about this very quickly.

Vijay Dandapani: Well, I can't talk from personal experience because, here, in Manhattan, most of our staff is unionized and health care is obligatory. I do have colleagues in other parts of the country, where it is not and, you know, the funny thing about this is that Democrats don't like McCain's plan because right now the 5,000 dollars would result in accretions to the treasury; because right now an employer who gives it away, gives it to the employee, and that's not reported as income.

That's another aspect, but, as Suhail was mentioning, we have the best health care system. If you want any proof that the single-payer system that Obama's talking about does not work, one that is akin to Canada, that's akin to the national health care system of Britain, though he says it differs, well the fact is he wants one government-mandated system that would take away choice. Whereas with the 5,000 dollars you go around and make insurance companies compete for it. The essence, the fundamental fabric on which American enterprise is founded is competition. We don't shy away from it. If another hotelier down the road does better than me then I'm going to be out of business and the same thing is true for insurers. And it also goes against the grain of the American system, which is that states allow their own - make their own choices in terms of what their communities want. Now, if we're going to have something administered from Washington, DC, that's going to be very similar to what happened, in fact, in the Bush administration, but that's a separate topic. But McCain is, you know, against government expansion, contrary to Bush.

Aziz Haniffa: That brought some clarity, but not much! But that's another debate for another day, but one think I'd like both sides to get into is the immigration debate. You know, in all three debates that both nominees had, it was hardly addressed. And this is a burning, burning issue and one that has created considerable animosity in Congress. I'd like to know from each one of you as to where exactly your nominee stands on this. For the Republicans, John McCain really reached out, did have some of a viable, practical plan, but has moved away from it. And obviously he has to reach out to some constituency which doesn't like that plan. And on Senator Obama's side, there has hardly been any specifics; he talks about comprehensive immigration reform being imperative but there haven't been any specifics offered. So let's get to the meat of that and find out where exactly your nominees stand on it.

Sreenath Sreenivasan: Okay, so let's go first to the Republicans. Suhail Khan?

Toby Chaudhuri: Just before we go there - I'm sorry - I want to make sure the record is clear on this: the Obama campaign on health care actually offers a very clear choice between public options and private options. And generally, it is really graded so that private industry, which is...

Suhail Khan: And what is the fine if you don't pick one of those?

Toby Chaudhuri: Well, private industry generally wants to cover just young folks and folks without pre-existing conditions; the Obama plan insures that there is coverage across the board. It puts fairness and competition in the system. It is not a single-payer system. And it's important also to realize that the 5,000 dollar tax credit that the McCain plan basically creates boundaries around is not enough to cover many of our parents who need health coverage right now.

Kishan Putta: So, according to eHealth, which specializes in the individual market on health insurance, the average cost of a health plan for families in America is 5,000 dollars; the average cost for an individual is less than 2,000 dollars. You see these figures from the other side -that it's 12,000 dollars. That is true for the big policies that big employers give out, or unions give out to their members. But if you go to ehealth.com you will see many plans which are available for a hundred or 200 dollars per month. And if you can't qualify for one of those because of your health, John McCain understands and wants to be able to cover people who are already sick as well, by pooling in them together and lowering the cost in grouping at the state level.

Sreenath Sreenivasan: Okay, we're going to the immigration question and Suhail Khan's going to get us started.

Suhail Khan: Basically, on the immigration issue this is a good example of the differences between candidates. And the differences again are not only on the policies but the differences of the way they legislate, the way they show leadership, the way they reach across the aisle. Senator McCain, as Aziz pointed out, reached across the aisle to work with Senator Ted Kennedy of Massachusetts to introduce a comprehensive approach to the immigration situation that we face in our country, trying to balance two issues, two very important issues: number one, to get a handle on the influx of illegal immigrants we have in our country and, number two, to make sure that we have a strong and safe and secure border so that there is not an increase in illegal immigration coming into our country.

He reached across the aisle, he worked with the Bush administration, worked with Democrats to introduce that legislation and to push it forward. Now, unfortunately, so far we have not come to a consensus on the issue and come to an agreement, but that's an example of where Senator McCain has stood - right in the middle of the Senate, working with other leaders from both sides of the aisle to propose a solution, a solution that does not stereotype immigrants, that does not have all kinds of racially charged language.

Now some have said he has changed his position, which is erroneous. He has emphasized the enforcement portion because it was clear the American public wanted to rather than have a one size fits all, comprehensive change in immigration policy at one time - first start with stopping the bleeding, stopping the hemorrhaging by enforcing our borders. So he has emphasized that point at this point. But he has, time and time again, even during the campaign, right now - I heard him myself before a Hispanic audience where he has said he still supports a strong immigration reform plan that would allow for the normalization of the illegal immigrants that are here now, put them on a pathway to citizenship. They'll have to get to the back of the line, they cannot get rewarded for having broken the law initially. But there is some way where we could have a normalization of that pool of people, whether it is 10- or 12 million people in this country.

And the other part of it is, again, the enforcement. We have to have a much more comprehensive enforcement of our border. Now the one thing I want to make clear at this point is that Senator McCain, besides showing strong leadership in offering a plan, reaching across the aisle, working with Democrats, working with the administration to offer this plan and to show some leadership. At his great politi- cal peril, I might add, he has also been very clear that he wants to draw a hard line, make a strong distinction, between illegal immigration and legal immigration. And this is, again, another difference between Senator Obama and Senator McCain. Senator McCain realizes that America is a beacon for the entire world. America has been blest that we attract the best and brightest from all over the world, including Southeast Asia, South Asia: India, Pakistan, Bangladesh. And he wants to continue to keep those doors open. Again, I come from the Bay area - the hi-tech industry is crucial to our economy, indeed to the national economy. Many of those entrepreneurs are Indian Americans who have come and started businesses, and those businesses have become major corporations. He wants to continue that. Whether it's for education, for entrepreneurial purposes, small businesses, he wants to continue that immigration, whereas Barack Obama has sent

every signal - number one, that he's not going to reach across the aisle. By every measure, he has never reached across the aisle, he has always followed the party bosses. We talked about the nuclear agreement earlier. He only voted in favor of the nuclear agreement when Harry Reid said its okay, as a Democratic leader you can vote for this. Up until then he opposed it. Whereas, John McCain, much to the chagrin of the Republican leaders in Washington, has time and time again reached across the aisle, whether it was immigration, whether it was health care, the campaign finance reform he introduced with Senator Feingold, he has reached across the aisle to work with other members, and that's where leadership counts.

Sreenath Sreenivasan: Okay, gentlemen from the Democratic side, we're going to get a response from you.

Satish Poondi: Immigration's a pretty broad area, and it's probably hard to get through all facets of immigration right now in this debate. But what I'd like to talk to you on the immigration issue is something that, again, I've got to draw back from my experience in the community associations and such. This is one area where at least one Republican supports what we're looking at, and that's Rudy Giuliani. He took a lot of heat in the primaries from Mitt Romney and different people because he created in New York what they call a sanctuary city for undocumented aliens. And from a logistics standpoint, we know we have undocumented aliens in this country. Alright, it's a fact and what has happened over the course of American history for the last decades. It's not new to us. The big buzzword on the Republican side, though, is enforcement. And what they often mean by enforcement is empowering local police officers to start working as your INS, or your immigration officials. And that creates a logistical problem that, I think, people miss out on. Often times, if you empower local officials, local police, local townships and such to do the work of federal agents and immigration agencies, what happens is you freeze the conversations between individuals and townships on a local level, with police officers. I'll give you examples here.

If I'm sitting in a house and I'm undocumented and I see a big drug ring or what not right across the street, alright, I look at it and I'm almost afraid to call the cops because if I do they're going to come and bust me, maybe. And we've had these issues at the local level. For example, when you get...

Sreenath Sreenivasan: Can we get back to the actual campaigns? What is the actual difference in your approach, your campaign, your candidate?

Satish Poondi: Well, I think the big buzzwords there are enforcement, enforcement, enforcement. And they keep saying enforcement. Listen, the federal government needs to enforce it, should have power to enforce but the detail comes down to how we're going to have that enforcement, at what level, and who's going to be empowered to do it. And that's kind of the issue with him on immigration on the undocumented side.

Sreenath Sreenivasan: What about the H1-B issue? I'd like both sides to answer that. If the Democrats could take it first, please?

Varan Nikore: Well, you know, honestly, this is a sort of red herring in a way. I mean, we have a system now where there are not enough science and technology workers in the United States. And we have to essentially import those folks - a lot of them from the subcontinent - to do the job because there is no sound policy in the United States to support science and math education, on one hand. On the other hand, we see an inordinate amount of science- and technology-educated young men and women who have flocked to industries like the gaming industry, for example. And they have not gone into education, they have not gone into less lucrative professions, and we're dying in terms of the numbers of people that are going into math and science because we have not had a strategic focus in this country to do that.

Barack Obama strongly believes we need to make that a priority because we're going to lose our competitiveness we've already lost our competitiveness in many ways. The number of engineers that are coming out of our colleges and universities - and we all know that the largest minority group in colleges and universities, they are Indian Americans, sorry, Indians. And Chinese, those are the top two.

I believe they may trade places at times but, you know, we have to give more of an incentive in this country and the incentive really starts with a strategic plan and a strategic vision for that. And I have to say that in the last certainly

eight years we have not seen any emphasis on that. And it may be sort of sidelined to the whole HB-iB issue, who is for it, who's against it. But that's really the core of the problem.

Toby Chaudhuri: Let me add one quick thing to that. And I'm glad that Varun mentioned the Hi-B. Indian Americans are here because of immigration, obviously. But look at our last great wave. We've come here to work in the American economy. Years ago, we were part of agriculture, part of the manufacturing base in this country. Just our parents' generation came to this country after this country created Medicare and there was a demand for doctors, and India had a big pool of doctors out there. Right after the US and Russia were in the Cold War, and Russia put Sputnik on the moon, the Democrats started a Hindu Public Investment, created opportunities for scientists and engineers. And that created a big wave of immigration. But there still needs to be more fairness in that process. But it's important to realize also that when we talk about immigration in this Presidential debate it's been generally about other types of workers than the highly skilled workers.

Right now, what we have seen is within the Republican party is an interesting division. The reason why there's been gestures but not a whole lot of reform, rhetoric but not a lot of real things happening, is because there is a division. The corporate leaders want to exploit workers while at the same time the anti-immigrant base of the Republican party really wants to kick these folks out. So when we look at it, the Republican policies have generally been about doing the impossible: rounding up folks who are undocumented - millions of people, and extracting them from our economy, and also building walls.

Well, I think Barack Obama's position on this - and the Democrats' position on this - is in clear contrast to that. It's about making sure that we do three basic things: that we stem the tide of this flood of undocumented workers coming in, that we create a system around that; that we crack down on businesses that are exploiting workers and we start there. And we create a real path to citizenship, especially for honest workers who are paying taxes and who are contributing to our economy. And that's the kind of clarity that I think we're missing from John McCain, and that's why there's so much confusion about what exactly his position is because he's changed over the years.

Suhail Khan: He hasn't changed it a bit, and the bottom line is that, when it comes to the policies, to answer your question on this issue, there is not much of a difference when it comes down to it between Senator McCain and Senator Obama on the immigration issue. What the difference is, is in the ability to make change happen on this issue, to lead and to make something happen. Senator Obama, being someone who always sided with the party bosses, never crossed the aisle to vote in the American interest, only voted with his party, has never shown any leadership on any issue, much less this issue. And on this particular issue, Senator McCain has demonstrated leadership, taking great political risk to try and show leadership, to try and solve this issue. When it comes down to the merits, both candidates largely agree on how to solve the problem. But where the difference is, is in their ability to actually make change happen.

One example: When the partisans, both the Democrats and the Republicans - were bogged down on the issue of federal judges, and we almost had the Senate shut down over the issue of federal judges, it was John McCain who got together with several Democratic and Republican centrists and was able to put together a coalition to try and break that logjam. Senator Obama wasn't there, he wasn't part of that bipartisan group. So whether the issue is immigration, whether the issue is health care, whether the issue is education reform, John McCain has, time and time and time, shown that he will go against the party interests to put the American interest in front and foremost of his voting agenda and his initiative. And that's something that we need, that kind of person, in the White House.

Sreenath Sreenivasan: So let's have one more thought on the H1-B visa before we start wrapping up.

Kishan Putta: Just to be clear, John McCain does believe in expanding the number of H1-B visas. He does believe in loosening the family reunification laws. He does realize - as he told me in that car ride so long ago - that we need to enable more entrepreneurial immigrants to come to America. I will add one other thing, and this is my one bomb to be thrown for the evening. You know, John McCain stood up to Lou Dobbs on this issue and he still stands up to Lou Dobbs. Lou Dobbs hates no Republican more than John McCain for his stances on these issues. He's willing to take those scars and hits and get right back up and fight. But I will say that, you know, look at people's records, and where they've come down in the past and who is close to them. In Barack Obama's campaign's memo last year (the

anti-Indian memo) the campaign cited - to support their positions - the IT Professionals Association of America who gave Hillary Clinton a Weasel Award and Tom Tancredo a Patriot Award. The campaign cited this organization to support their positions. If you go to their web site, itpaa.org, you will find the most anti-Indian rhetoric possible - all about sending our jobs to India, India stealing our jobs. These ideas, we thought, had died in 2005, when John Kerry lost.

Sreenath Sreenivasan: I think Obama apologized for that.

Kishan Putta: Yeah, of course he had to apologize for that. All I was going to say is these ideas will find new voice with all the people that side with Barack Obama and are close to him and are still on his campaign, if he is elected President - and it is something we need to be wary of.

Sreenath Sreenivasan: Okay, what I'd like to do is to start wrapping up here, and I want to give both sides and each speaker time to give us some closing thoughts, but I want you to think about something that I'd like to incorporate in our questions. You are all immigrants or children of immigrants and a lot of people in our audience are either immigrants themselves, children of immigrants or people in India who care a lot about America. Some of them may be interested in coming to America, working here, studying here, etc. One of the things I'd like to ask each of you is what do you tell people who are thinking about America - from India? How is your new administration going to support and help and care about India and South Asia? The other thing I'd like to ask you is, a lot of people like Fareed Zakaria have written about America not so much the decline of America as the rise of the rest of the world. And that the rest of the world is catching up with America.

America has stood out as a place that stands apart from the rest of the world but now other places are catching up. So think if you can incorporate that question into your answer about a new administration - what it will do for America and also for that relationship. And then, finally, since all of you are so politically aware, are so good at talking about the issues, and you have such passion, I want to use this as an opportunity to inspire some folks who are watching this to get involved. You know, Aziz will tell you, if we were trying to do this 10 years ago, we'd have had a couple of people on this panel. Now we're seeing so many more people involved. So I'd like each of you to talk about that, maybe give tips and ideas for folks who are thinking about being politically aware, doesn't matter which side. I'd love to hear that. And finally, we'll let Aziz have the last word to kind of wrap up all the things he's been hearing today. So we'll start on this side and we'll ask Vijay Dandapani to get us started on this, so that he can give us his final thoughts on our forum today.

Vijay Dandapani: Well, I'm trying to make this quick. In terms of what Indians overseas could look towards a new America under a new Presidency is the same American exceptionalism that made this country great. What was different to this country in terms of its stock to, let's say, Old Europe? Old Europe had the same lineage, if you will, for want of a better word. But what changed it were the laws, the idea of a free market, the idea of competition. The American exceptionalism didn't come about through big government. If anything, our founding fathers, Jefferson downwards - this idea would have revulsed him, this idea of government deciding what is best for you. And that's what made it happen for all of us coming here. We made a free choice to come here, and that's a little meaning of that word, not Washington-speak over there. So this freedom to choose what's best for you in pursuit of your destiny is what brought us here, and it enabled us to succeed in academics or in academia or in a professional sphere. So to get to Fareed Zakaria's point, yes, that, if anything, reinforces this issue. Number one, I am not a pessimist, so therefore it's not a zero-sum game. The pie is decidedly bigger than what it was in the immediate post-war period. America does needs to compete, and American universities are actually looking to enter India to offer what they offered here on two counts: one is, not everyone is able to come here; and, on the other is, they want to be there in a new rising economy. Now how is that enabled? By choice. By your ability to partake of what is an American exceptionalism.

I'll close with this: the World Economic Freedom index cited many points under which they grade countries. America came on top on most of them, except on tax policy. We are regressing while even the OECD - that's largely the European nations, including the Eastern European nations - are decreasing their tax ratios. And here we are contemplating an increase. There's a lesson that when others are emulating us to get better, while we are seeking to in the other direction.

Sreenath Sreenivasan: Vijay, just one point. As someone who's a business owner, one thing that you do that is fairly neutral is you speak up, you get involved also. Putting aside your partisan hat, maybe just talk a little bit about how why it's important for people in your position to also speak up and participate, not leave it just to the operatives in the business.

Vijay Dandapani: Well, yeah, I'll speak about my own industry...

Sreenath Sreenivasan: No offence to the operatives. [Laughter]

Vijay Dandapani: No offence to the operatives. I'll speak about my own industry. Take today's New York Times. The city council, which is as Democratic as you can get, is looking to tax foreigners who are coming to the city. They want to raise the hotel tax. Guess why? Because Wall Street is not as rich as it was, and Wall Street, by the way, supported much of the wealth that's coursing through New York's veins, it's gone down. It's a horrible measure, and actually, if you go back in time, Ed Koch, a former Democratic mayor, said, 'Sock it to them. They're not from here.' That's the same psychology that still prevails. I got involved. Every hotelier benefits from this as does every New Yorker because you want the foreigners to come here. We are competing in not just in terms of taxes within the US but also in terms of taxes in other gateway cities like London, Paris, Tokyo. So if my hotel tax goes up - truly, it's a case that a customer can choose. You know what, I'll take a holiday to London as opposed to New York because it is twenty-one-and-a-quarter percent, which, by the way, was what it was before Giuliani lowered it. So when there's a fat cow, let's milk it till there are no udders left. That's the philosophy that goes against the grain of American competitiveness.

Sreenath Sreenivasan: So you didn't take off your hat but you're emphasizing the importance of speaking up and getting involved in issues, right? Thank you, that was Vijay Dandapani who works for the Apple Core Hotels and represents the Republicans here today. Our next speaker is Suhail Khan.

Suhail Khan: Well, I just want to say thank you. I really have enjoyed participating in this discussion this afternoon. It's been a real joy. One thing I particularly enjoy about the American political system is that we can discuss some of these issues very vigorously but still remain friends because, in the end, we care about our country, love our country. We love freedom and we're here discussing these issues in a very civil and open manner because we want to improve our country for the better in the next election and beyond.

Basically, what I want to close with is a couple of thoughts. And the first is, we have a real choice in just three weeks time as Americans. Regardless of our background, regardless of our ethnic heritage or religion, we have a real choice as Americans, about what type of future we want to have as a country. Do we want to have a country where individuals have their own ability to make their own decisions, whether it comes to their education or their health care, or their taxes to spend their own money, or do we have to have government mandate those decisions for us? That's the decision. And many of us, whether we're physicians, whether we're - we're all patients, whether we're small business owners, whether we're students, we have that ability as Americans to make those decisions for ourselves. And we don't need someone - whether they are in the state government or in the federal government - to tell us or to mandate for us what those decisions should be. And Senator McCain is someone who trusts Americans to make those own decisions. And time and time again, he has shown that he wants to empower Americans, and time and time again he has demonstrated leadership over the many decades of federal service as a senator, before that as a Congressman, and before than in uniform - that he has our country's interest at heart.

So that's something that really draws me to him, to support him as a candidate. I hope that others will see that as a deciding factor, if you are undecided as to who to support in this election. So I hope that you'll take one final look at both candidates and make a decision that is for our country's best interests beyond our own self-interest but something that will help and benefit our country as a whole.

The last thing I will say, in parting, is that, regardless, I'm so happy that Indian Americans, the other Americans of various backgrounds are getting involved in the political system. Getting out there, whether you are someone who just immigrated to our country and became a citizen or somebody who is fortunate enough, like myself, to have been born here, it's paramount that you make your voice heard, that you get out there, you register to vote, maybe if you

have time to volunteer on a campaign... One of the great things of our democracy is that it is fully open. Nobody cares what your name is, or your religion, or your faith, or where you came from. But if you love freedom, if you love our country, and you want to serve, you can walk into any campaign office - whether it's for Senator McCain, Senator Obama or any of the other candidates running for state and local office - and volunteer. Maybe just a few hours, maybe weeks at a time. Coming in now into the last few days I know both campaigns are looking for volunteers and it's a great way, whether you're young or you're old, whether you have a few hours or you have several weeks to get involved in your democracy. Again, I want to thank India Abroad and thank our panelists.

Sreenath Sreenivasan: Thank you. That was Suhail Khan. Thank you very much. Our next speaker is Kishan Putta.

Kishan Putta: Thank you again, India Abroad, for hosting this very nice event, and Sree for being our great moderator and for this great final question. You know, I guess my Democratic colleagues are going to have the last word on this, and that's fine, because this is a really great question which we can all come to agreement on when we put aside our differences. The thing that I think we do care about to agree with is Indian American political involvement. I don't know if we've arrived or not arrived, but we're making progress and we have this opportunity every four years to get our community excited. It reminds me of the old joke about the first Indian to be elected President in America. He calls his mom the next morning and he says, mom, did you know I got elected president. And she says, that's nice dear. And he says, mom, are you coming to the inauguration? She says, I don't know. Washington is so far from New Jersey. He says, mom, please, I'll send Air Force One to get you. Please come to Washington for the inauguration. She says, maybe. So inauguration day comes around, and he sends Air Force One for her. She flies down and she's sitting in the front row as he's being sworn in by the Chief Justice. She actually has a smile on her face. She nudges the person next to her and says, you see that boy standing up there? His younger brother just became a doctor.

That joke used to be extremely true in our community, that getting involved in public affairs was not very well respected for a new immigrant community but it is more and more changing and we have this opportunity. And that's why I founded Indians for McCain. I wanted to say that we only have 18 days left and the really important thing is to get the community involved. You know, October being the most festive month of the year for the Indian community, I encourage you to go to the Web site to print out our flyers to distribute them, to make phone calls by registering at johnmccain.com. You can find all this information on the Web site, but you can make phone calls to the battleground states even if you don't happen to be in one - and the majority of our community, for better or for worse, doesn't live in battleground states - but it's going to come down to that in our system and we need you to be involved. And we need to make sure this interest doesn't the with this election year either. And I know my colleagues here will stand with me to keep that spirit going but we can't do it without you, so please reach out to us and we will to you and we hope the community rises up this time more than ever before and that we keep it going into the future. Thank you.

Sreenath Sreenivasan: Thank you. That was Kishan Putta, the last of our Republican colleagues, and here we have our Democratic colleagues, and we're going to ask Toby Chaudhuri to get us started.

Toby Chaudhuri: Great. I also want to thank India Abroad for this forum. I learned about India Abroad first from my parents. And what's very interesting is, about 50 years ago - we lived in the New York City area - my father came to Times Square on New Year's eve. And the next morning he got on a bus and went down to Florida where he was going to be a PhD student in engineering, and, you know, he and his friends went one day to a restaurant - his Indian graduate student friends. They weren't allowed to eat there. They were actually kicked out of the restaurant because it was a white-only restaurant. What's interesting about this story is that I didn't actually hear it from my father; I actually heard it from one of his graduate school classmates who told me the story about 16 years ago? But it hasn't been until this very special year that my father's been able to start talking about this story again with his friends and his family because of the special election we have here going on in this country.

The election of Barack Obama versus John McCain is historic in proportion, not because of the politics that we're seeing, but because of some of the characters we have to choose from. It's really a transformative election, and when we look at the real issues that are facing each one of us and the involvement that the Republicans were talking about just now, that we're beginning to see in the Indian community, it's a very special time, and we have to take it very

seriously. So, if nothing else, we haven't had a chance to really drill into every possible issue here, but it's important that each of you take these conversations and have debates and discussions when you get together with your friends and your family within our community during all of these celebrations that are coming up. Because there are some very serious problems that our community faces that we need to solve. And when we look at that there are some very clear choices, like I've been saying all day. You know, the positions of John McCain - 1 mean, we're really seeing a Republican party that is now trying to cross dress as Democrats. They have stood for policies that have gotten not only the US but the world economy into a real mess, and those policies are not going to get us out. So we have to remember what that clear choice is, and remember that Barack Obama, what he symbolizes, is a transformation for our community. I mean, I joke about this, but Barack Obama could really be the Indian-American President.

Bill Clinton was the first African-American President. The opportunities that the Barack Obama presidency will open up for us are paramount... And when we look at it, the American dream has deteriorated for all of us, how the global economy isn't working so well, and how we must create a global economy that works for every one, we realize that we have some major challenges that we need to fix.

The biggest thing, though, here, is that, as a community, we are growing. Our strength in numbers is amazing, and our ability to communicate with one another is also intense. And when we get past partisanship and really figure out what problems we need to solve, I'm confident that, as a matter of choice, we're going to side with Democrats, the party that has believed in investing in people, in bubble-up economics, in making sure the economy is working for all, that there's affordable quality health care for all, that there's high quality education for every child that deserves it. As Indian Americans our population right now - we have many of our folks who are retiring and depending on Social Security, are new entrepreneurs, need an economy that works, children need a good education. These are places the Democrats have real solutions to offer, and the Republicans have failed to deliver.

Sreenath Sreenivasan: Thank you, Toby. Our next speaker is Varan Nikore.

Varun Nikore: Thank you again to India Abroad. This is an amazing opportunity, you know. I know that specific folks in our community - if you can pan to the side of the room you can see the past awardees of the India Abroad Person of the Year. These specific people have received a lot of recognition and if it weren't, though, for the work that India Abroad has done as the preeminent journal in our community, yeah, I would say a lot of issues would not get touched on, and we'd certainly not have this opportunity today. So I think it's incumbent upon the political process, it's incumbent upon the democracy, to have a press that is getting the word out, and I really want to applaud their efforts.

In terms of how Indian Americans and those of you watching across the ocean, just some words about how we've evolved in this country in terms of politics. You know, when I first got involved in politics back in 1992, 1 can count on probably one hand how many faces like mine that I saw stumping and knocking on doors or handing out leaflets at various stops. And in 2000, when I had an opportunity to work on the Al Gore campaign, I could count on probably two hands how many people we've seen involved in the political process. And now I think the numbers that we're seeing are immeasurable. The message I would like to echo with what Kishan and my colleagues on the other side who have stated about getting involved because there definitely is time left. Einstein said a mind stretched never goes back to its original shape. That's, I think, a lesson for all of us that once you get involved in the political process you don't see politics as raw politics, you see politics as public service. And calling it politics almost then muddies the water and it gives sort of a negative light to really what is, I think, the greatness about America, which is that we actually have a non-violent election every four years where we have great debates of the day and, at the end of it all, we come together as Americans, some of us of foreign origins, and we move on as a country.

I think I echo a lot of Toby's points. We have an amazing opportunity to not only work on an election but to get to that ballot booth on November the 4tn and vote. Two vastly different directions, I think are where Senator Obama and Senator McCain want to go. If you look at the issues of the economy, Iraq, health care, everything that was discussed today, we are not seeing elections that we saw in 2004 and 2000 where the candidates' main job may have been to muddy the waters and not get you to actually see the difference between the two candidates.

There are stark differences and we believe - I believe as a Democrat, as a strong supporter of Barack Obama - that when you look issue by issue you will see that there is a clear choice for this country and for this direction which I believe is really going to change America and cement us into this 21st century. And my last point I would say is that I would really encourage everybody to get involved, even if it is standing outside a polling place on November 4tn just to get a flavor of what is about to - that the change is about to come. Just do that but get to hand out leaflets and, you know, do whatever you can - stop in any office and, you know, you'll have no one else to blame on November 4 if the candidate that you chose didn't get elected but yourself.

Sreenath Sreenivasan: Okay, thank you. That was Varan Nikore and our final speaker is Dr Satish Poondi.

Satish Poondi: Thank you. I want to join my colleagues in thanking India Abroad for putting together this amazing event. And again, I'm in awe of the distinguished panel I'm here with today. The great part of this country is the ability to debate and to raise the level of ideas that we talk about. An important part of that is the press, and India Abroad has been on the leading front of that. And I think we owe them a lot of gratitude. You talk to an Indian American or an Indian long enough and you ask them about their first experience with politics, the first time they really realized American politics, sooner or later you're going to get to John F Kennedy's election. You know, it's been about 50 years. For the first time in half a century this country is really facing that kind of transformative election. We have so much on the line. We often toss around the words 'historic' and 'monumental.' It really applies in this case. The contrasts are stark. We've discussed them and I don't want to go through them again, but the contrasts are stark.

And what's on the line is so important, not just to the people in this country, not just to the families in this country, but to the entire world. We really have an opportunity to go back to being a country that is a leading portion of the entire world rather than a unilateral decision-maker. That's so important. We have an opportunity to raise the status of America, to raise what we stand for and to recommit ourselves to our founding principles. Barack Obama is that individual. For those of you in India watching in anticipation like many of us here, our nation has great decision to make and the process isn't always smooth, the process can sometimes can get a little dirty but it's a beautiful process. And as the largest democracy in the world, people in India understand that. For the people in this country apathy is not an option this time. This is not the time to stand on the sidelines and be an armchair politician watching either of your favorite networks; it's really the time to step on the field and to act in a way that you've never acted before, whether it's a first time of voting, whether it's going into a candidate's office and licking an envelope and putting literature into mail out. A lot of people started that way; I know I did. This is an important election. I can't stress that enough and I know America will make the right decision. I know we will be that shining beacon on the hill that Ronald Reagan used to talk about.

Aziz Haniffa: As we wrap up, on behalf of India Abroad, I would like to thank all our panelists. Most of you guys I've covered over the years. I've admired your activism, I've admired your passion, and I thank you very much for being here and for bringing some kind of clarity to our readers, to our viewers, and I thank you very much for it. I think all of you with your closing remarks have clearly shown your sincerity and your passion and India Abroad profusely thanks you for that.

And, Sree, thank you for always being there for us and for moderating this panel. I know that we may have just scratched some of the issues that we wanted to delve into but I think we brought about some kind of clarity - and these are issues that as I travel the country, as I have covered Indian Americans across the country, these are some of the wrenching issues that they really want answers to. And, to a very great extent, you all did justice. Thank you very much.

Sreenath Sreenivasan: Okay. Thank you, Aziz. And thank you for the reporting of it that you and the rest of the India Abroad staff team do. And I want to thank you all for watching this first forum India Abroad has hosted, and it has been my pleasure to be part of it, an honor. And I hope you will get involved, no matter whether you are citizens or not, wherever in the world you're watching the electoral process, and I hope, also, that you will give feedback to India Abroad about how this went and what are the issues you'd like to see. And there is still plenty of time writing letters to the editor and get involved. It makes a big, big difference. And we thank you very much for watching. Goodbye.

Author(s): Anonymous

Document types: Feature

Document features: Photographs

Section: US News

Publication title: India Abroad. New York, N.Y.: Nov 7, 2008. Vol. 39, Iss. 6;  pg. A3, 7 pgs

Source type: Newspaper

ISSN: 00468932

ProQuest document ID: 1597968821

Text Word Count 11575Copyright © 2009 ProQuest LLC. All rights reserved.

ARTICLE TWO

New York Times, The (NY) October 31, 2007 Hello, India? I Need Help With My Math Author: STEVE LOHREdition: Late Edition - FinalSection: Business/Financial DeskPage: 1Estimated printed pages: 6Digest:Some entrepreneurs, venture capitalists and offshoring veterans predict globalization of consumer services; they foresee array of potential services beyond tutoring and personal assistance like health and nutrition coaching, personal tax and legal advice, help with hobbies and cooking, learning new languages and skills and more; say such services will be offered for affordable monthly fees or piecework rates; globalization of consumer services faces daunting challenges, both economic and cultural; whether India will be successful in providing personal services as it has with providing services to corporations is unclear; photos (L)Article Text:Adrianne Yamaki, a 32-year-old management consultant in New York, travels constantly and logs 80-hour workweeks. So to eke out more time for herself, she routinely farms out the administrative chores of her life -- making travel arrangements, hair appointments and restaurant reservations and buying theater tickets -- to a personal assistant service, in India. Kenneth Tham, a high school sophomore in Arcadia, Calif., strives to improve his grades and scores on standardized tests. Most afternoons, he is tutored remotely by an instructor speaking to him on a voice-over-Internet headset while he sits at his personal computer going over lessons on the screen. The tutor is in India. The Bangalore butler is the latest development in offshore outsourcing. The first wave of slicing up services work and sending it abroad has been all about business operations. Computer programming, call centers, product design and back-office jobs like accounting and billing have to some degree

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migrated abroad, mainly to India. The Internet, of course, makes it possible, while lower wages in developing nations make outsourcing attractive to corporate America. The second wave, according to some entrepreneurs, venture capitalists and offshoring veterans, will be the globalization of consumer services. People like Ms. Yamaki and Mr. Tham, they predict, are the early customers in a market that will one day include millions of households in the United States and other nations. They foresee an array of potential services beyond tutoring and personal assistance like health and nutrition coaching, personal tax and legal advice, help with hobbies and cooking, learning new languages and skills and more. Such services, they say, will be offered for affordable monthly fees or piecework rates. "Consumer services delivered globally should be a huge market," observed K. P. Balaraj, a managing director of the Indian arm of Sequoia Capital, a venture capital firm in Silicon Valley. But globalization of consumer services faces daunting challenges, both economic and cultural. Offshore outsourcing for big business thrived partly because the jobs were often multimillion-dollar contracts and the work was repetitive. In economic terms, there were economies of scale so that the most efficient Indian offshore specialists could become multibillion-dollar companies like Infosys Technologies, Tata Consultancy Services and Wipro Technologies. It is not all clear that similar economies of scale can be achieved in the consumer market, where the customers are individual households and services must be priced in tens or hundreds of dollars. Then there are the matters of language, accent and cultural nuance that promise to hamper the communication and understanding needed to deliver personal services. Already, some American consumers voice frustrations in dealing with customer-service call centers in India. At the least, the spread of remotely delivered personal services will be a real test of globalization at the grass-roots level. Even optimists acknowledge the obstacles. In a report this year, Evalueserve, a research firm, predicted that "person-to-person offshoring," both consumer services and services for small businesses, would grow rapidly, to more than $2 billion by 2015. Yet consumer services, in particular, are in a "nascent phase," said Alok Aggarwal, chairman of Evalueserve and a former I.B.M. researcher. "It's promising, but it's not clear yet that you can build sizable companies in this market." Veterans of the business offshoring boom predict an emerging market, but most are not investing. Nandan M. Nilekani, co-chairman of Infosys, said there is "definitely an opportunity in the globalization of consumer services," and he listed several possibilities, even psychological counseling and religious confessionals. But, he added in an e-mail message, "This is just 'blue sky' thinking! We have no business interest at this point in this direction." What the offshore consumer services industry needs, it seems, is a solid success story in some promising market. A leading candidate to watch, according to analysts, is TutorVista, a tutoring service founded two years ago by Krishnan Ganesh, a 45-year-old Indian entrepreneur and a pioneer of offshore call centers. Concerns about the quality of K-12 education in America and the increased emphasis on standardized tests is driving the tutoring business in general. Traditional classroom tutoring services like Kaplan and Sylvan are doing well and offer online features. And there are other remote services like Growing Stars, Tutor.com and SmarThinking. Yet TutorVista, analysts say, is different in a number of ways. Other remote tutoring services generally offer hourly rates of $20 to $30 instead of the $40 to $60 hourly charges typical of on-site tutoring. By contrast, TutorVista takes an all-you-can-eat approach to instruction. Its standard offering is $99 a month for as many 45-minute tutoring sessions as a student arranges. TutorVista also stands out for its well-known venture backers, its scale and its ambition. The two-year-old company has raised more than $15 million from investors including Sequoia, Lightspeed Venture Partners and Silicon Valley Bank. TutorVista employs 760 people, including 600 tutors in India, a teaching staff it plans to double by year-end. Its 52-person technical staff has spent countless hours building the software system to schedule, monitor and connect potentially tens of thousands of tutors with students oceans away. "Our vision is to be part of the monthly budget of one million families," Mr. Ganesh said. It is a long-term goal. To date, TutorVista has signed up 10,000 subscribers in the United States, and its British service, rolled out in September, has 1,000. Further gains will depend on winning over more customers like the Tham family in California. Since he was in elementary school, Kenneth has had stints of conventional tutoring, often in classroom settings with up to 10 other students. At times, this cost the family up to $500 a month. Last year, Ernest Tham, a truck driver, noticed a reference to TutorVista on a Web site and suggested his son give it a try. "Kenneth was apprehensive at first, and I wasn't sure how it would work," Mr. Tham said. "But, shocking to say, it's gone very well." Kenneth said he initially found it "very unusual, not seeing another person. You get used to it, though. It's not a problem." He schedules one or two sessions nearly every day, mainly for English and chemistry. With a digital pen

and palette, he writes sentences and grammar exercises, for example, and his work appears on his computer screen and on the screen of his tutor. They discuss the lessons using Internet-telephone headsets. "You can also get help with homework problems," Kenneth said, "but they're not supposed to do all your homework for you." In a year with the TutorVista service, Kenneth has improved both his grades and standardized test scores, his father said. Ramya Tadikonda has tutored Kenneth Tham, among many others, from her home in Chennai, India. To achieve its ambitions, TutorVista must recruit, train and retain thousands of tutors like her. Ms. Tadikonda, 26, is a college graduate who had previously worked as a software and curriculum developer for a math Web site for students, but left to raise her children. Earlier this year, she joined TutorVista, took the company's 60-hour training course, followed by tests and practice sessions for two months. She now works about 24 hours a week as a math and English tutor and makes about $200 a month. Ms. Tadikondasays she enjoys tutoring and the flexible hours. "You can have a career and still spend time with your family," she said. "I never thought I could do that." The timing is right for global tutoring, according to John J. Stuppy, TutorVista's president and a former executive at Sylvan Learning, the Educational Testing Service and The Princeton Review. Improved Internet technology and the ability to tap of vast pool of educated instructors at low cost are crucial ingredients. "It becomes possible to make high-quality, one-on-one tutoring affordable and accessible to the masses," said Mr. Stuppy, who joined TutorVista last year. Steve Ludmer, 28, and his partner Avinash G. Samudrala, 27, are betting the time is right for another kind of global consumer service. They left lucrative jobs in management consulting and private equity to start a remote personal assistant service, called Ask Sunday, which began in July. The company is based in New York, but its work force is mostly in India. It is one of a handful of startups trying to create a business in offshore personal assistant service. Some, like GetFriday, charge hourly rates of $15 or so, but Ask Sunday has a per-request model, $29 a month for 30 requests a month or $49 for 50. The requests can be unusual. A few subscribers had Ask Sunday search online dating services for short lists of people who meet their criteria. But the requests are mainly to help busy people like Ms. Yamaki, the New York management consultant, free up time and outsource hassles. During a late meeting at the office recently, Ms. Yamaki said, she sent a one-line e-mail message from her laptop that told Ask Sunday to order her usual meals from her favorite Manhattan restaurant, for delivery at 9:30 p.m. When the meeting ended, her take-out food was waiting. To handle such personal chores, Ms. Yamaki has handed Ask Sunday a wealth of personal information, including credit card numbers, birth dates of family and friends and phone numbers for doctors, car services, favorite restaurants and others. She finds the convenience well worth it. "The service is great in a pinch to make your life a little smoother," Ms. Yamaki said. "And it's available 24 hours a day, which is more than you can expect from a personal assistant at work." Caption:PHOTOS: Ramya Tadikonda, above, works for TutorVista and tutors students online from her home in Chennai, India. Kenneth Tham, top, a 10th-grader in Arcadia, Calif., gets online help from a tutor in India.(PHOTOGRAPH BY NAMAS BHOJANI FOR THE NEW YORK TIMES; TOP, MARISSA ROTH FOR THE NEW YORK TIMES)(pg. C1); Tutor Vista has 600 tutors in India and 10,000 subscribers in the United States, including Kenneth Tham in Arcadia, Calif.(PHOTOGRAPH BY MARISSA ROTH FOR THE NEW YORK TIMES)(pg. C4)Copyright (c) 2007 The New York Times CompanyRecord Number: 2007-10-31-113840

ARTICLE THREE

OF PROTECTION AND SOVEREIGNTY: APPLYING THE COMPUTER FRAUD AND ABUSE ACT EXTRATERRITORIALLY TO PROTECT EMBEDDED SOFTWARE OUTSOURCED TO CHINA

NAME: Carrie Greenplate*

BIO: * Note and Comment Editor, American University Law Review, Volume 57; J.D. Candidate, May 2008, American University, Washington College of Law; B.S. in Business Administration, 1998, John Carroll University. I would like to thank my editor Tritia Yuen and Professors Padideh Ala'i and Mary Clark for their reviews and suggestions throughout the writing process. Thank you to my parents, William and Julia, for teaching me the value of hard work. Finally, to my partner and soul mate, Juan Amezcua, thank you for your unconditional love and support always.

SUMMARY:... "It" is embedded software - the instructions that programmers encode within a device, such as a CD player or weapon system, that help the device function. ... Thus, applied to the embedded software scenario, the programmer inserts malicious code into a protected computer, as defined by the CFAA. ... Under either definition of access, the programmer in the embedded software scenario accesses the protected computer to insert the malicious code. ... Likewise, in the embedded software scenario, the Chinese programmer is not located in the United States and at least exceeds authorized access of a protected computer located within the United States. ... In the embedded software scenario, a court can similarly find that it has subject matter jurisdiction over a charge brought against the Chinese programmer under the CFAA. ... Although in the embedded software scenario the access does not occur in real time, the Chinese programmer uses the U.S. infrastructure to introduce the malicious code into the country. ... Even though a court could find jurisdiction by using the conduct test, statutory interpretation and the effects test are the strongest bases for extending the CFAA extraterritorially and finding subject matter jurisdiction in the embedded software scenario. ... In the embedded software scenario, however, the balance of international comity weighs in favor of finding subject matter jurisdiction over a CFAA claim against a Chinese programmer. ...  

TEXT: [*130] 

Introduction Cars, airplanes, compact disc players, cellular telephones, heart monitors, weapons systems, and personal computers all have it. n1 In "the race to the bottom," an ever increasing number of U.S. businesses turn to the People's Republic of China ("China") to develop it. n2 But, the United States Government, n3 and some  [*131]  independent researchers n4 are concerned about the vulnerability of it. "It" is embedded software - the instructions that programmers encode within a device, such as a CD player or weapon system, that help the device function. n5

Embedded software pervades civilian and military products due to the increasing sophistication and use of technology. n6 U.S. companies that develop this embedded software compete in a global market where labor and resource costs outside the United States are lower. n7 Therefore, these companies choose to develop, or "source,"  [*132]  embedded software offshore to decrease costs and increase profits quickly.

The term "offshore sourcing" refers to the situation where a company uses low cost, high quality labor in a "host" country to perform tasks or processes that are not part of the company's core business. n8 With over 5,000 students and professionals completing studies in the United States, then returning to China, more U.S. companies are choosing China as a host country because the high quality of the workforce in addition to its lower cost equals a high return on investment. n9 Increasingly, however, this selection is causing  [*133]  concerns about the security of the resulting embedded software product. n10

In 2005, the Department of Defense ("DOD") commissioned a Defense Science Board Task Force to study "the extent to which foreign influenced software is embedded within systems critical to [its] mission ... ." n11 Although the government commissioned the study, any industry using embedded software feels this foreign influence due to the complexity and globalization of computer software. n12 For example, a group of independent researchers demonstrated that a programmer could insert a software virus into a radio frequency

identification tag ("RFID"), which is part of a microchip-based tracking technology used in commercial applications. n13

 [*134]  The cost of failed software can be in the billions of dollars. n14 Even more devastating, it can result in the loss of life. A Patriot Missile failed to intercept an Iraqi Scud missile during the 1991 Gulf War, killing twenty-eight American soldiers, because the missile's software contained incorrect calculations. n15 While that was an inadvertent miscalculation, programmers can insert malicious miscalculations into any embedded software developed overseas. n16 This malicious code can be a virus, worm, or any other series of computations that would cause a harmful effect to the product or the product's user. n17

Although companies test embedded software before releasing the product to the buyer, the amount of testing varies and at best only guarantees that the product has less than a certain number of defects, not zero defects. n18 As a result, companies could unknowingly release products containing a malicious code. Different political regimes and possible animosity towards the United States increase this risk. n19

This Comment argues that the United States has the legal means to address the challenges presented by sourcing embedded software  [*135]  development in China. This Comment uses an "embedded software scenario" as its example for analysis of the risks involved in developing embedded software in China and the possible legal means to reduce that risk or prosecute the offenders. n20

In the embedded software scenario, a U.S. company uses China as a host country and Chinese employees to develop embedded software for any number of devices. Thus, in the scenario, it is a Chinese programmer who inserts malicious code into the embedded software. n21 The U.S. company then exports the embedded software from China to the United States, where the malicious code executes and damages the end-user. Part I explains the two business arrangements the U.S. company likely uses when offshore sourcing to China. Part I will also briefly analyze the U.S. company's ability to choose the law and forum that will govern in the event of a breach of contract. This understanding is important because while Part II explains that Chinese and U.S. regulatory laws are not sufficient protection for the risks of the embedded software scenario, Part III suggests that parties to the contract should choose U.S. law where they have the freedom to do so or, alternatively, incorporate the language of the Computer Fraud and Abuse Act ("CFAA") n22 into private contracts as additional protection. n23 Finally, Part III argues that United States v. Ivanov n24 properly applied the CFAA extraterritorially and uses a comparison to extraterritorial application  [*136]  of economic laws to support this argument. The article concludes that a U.S. court should find subject matter jurisdiction under the CFAA in the embedded software scenario, providing the United States with a method to deter and punish those who jeopardize the security of technological products.

I. Overview of Business Arrangements and Choice of Law When Offshore Sourcing to China Sourcing business in China is a relatively new experience for most U.S. companies. n25 A U.S. company sourcing in China can choose from several types of business arrangements. n26 Two of the most popular are joint ventures and wholly foreign-owned enterprises ("WFOEs"). n27 Each business arrangement has different results regarding control of the business and choice of law and forum.

A. Joint Ventures and Wholly Foreign-Owned Enterprises Are Most Popular A U.S. company interested in offshore sourcing to China can choose to be a foreign-invested enterprise with a Chinese partner through a joint venture. n28 In this arrangement, there is a contract  [*137]  between the U.S. company and the Chinese counterpart to form the joint venture. n29 In addition, there are separate contracts for any transactions or agreements between the resulting joint venture enterprise and the U.S. company. n30 Similarly, there are contracts for transactions between the joint venture enterprise and the Chinese counterpart. n31 While a joint venture gives some control of the business to the China-based partner, having a Chinese counterpart, who is more familiar with Chinese law, can be a significant benefit to the U.S. company. n32

Alternatively, a U.S. company can choose to be a foreign-invested enterprise without a China-based partner by creating its own center to develop the embedded software. n33 The U.S. company can consider this a branch of the U.S. office or a subsidiary of the parent company. n34 Under Chinese law this arrangement will usually create a  [*138]  WFOE. n35 U.S. companies typically choose to establish a WFOE to have maximum control in hiring employees and dictating company policy, while enjoying limited liability. n36 Unlike a joint venture, there is no contract between the U.S. company and a Chinese counterpart in this arrangement. n37 Although the prospect of having a formal Chinese business partner affects the arrangement the U.S. company chooses, the ability to choose the law and the forum governing the contracts also affects the decision of the U.S. company to source development in China. n38

B. Choice of Law and Choice of Forum Depend on the Offshore Sourcing Arrangement Just as U.S. parties to a contract can often choose which law and forum will govern any contractual disputes, China's Contract Law  [*139]  allows the parties to a "foreign-related" contract to choose Chinese law or foreign law as the basis for resolving disputes. n39 A foreign-related contract, in the offshore sourcing situation, means that one party is not a Chinese legal person. n40

China considers the joint venture enterprise that results from the partnership between the U.S. company and the Chinese company a Chinese legal person. n41 While the contract between the U.S. and Chinese companies establishing a joint venture meets the definition of a foreign-related contract, implying choice of law, the Contract Law stipulates that the contracts for Chinese-foreign joint ventures shall apply the laws of China. n42 Thus, the contract between the U.S. company and the Chinese counterpart that forms the joint venture must choose Chinese law. n43 The parties may still choose arbitration as  [*140]  the forum for dispute resolution under the Contract Law. n44 Because the joint venture is a Chinese legal person, the contract and transactions between the China-based provider and the joint venture is a domestic contract and automatically governed by Chinese law. n45

Similarly, China considers the WFOE a self-contained Chinese legal person upon creation. n46 For the majority of the transactions the WFOE conducts, n47 the U.S. company does not have a choice of law or  [*141]  choice of forum as between Chinese law and U.S. law with this arrangement. n48 Chinese law will govern most business the WFOE conducts in China. However, in China, every company must provide an employment contract with its employees. n49 If the U.S. parent company, not the WFOE, is employing the Chinese programmer, the employment contract is a foreign-related contract and the U.S. company may choose the law and the forum to be applied to that contract. n50

While the Chinese Contract Law provides some flexibility for U.S. companies sourcing in China, choice of law and choice of forum are voluntary between the parties and relies on the parties including sufficiently clear terms. If protective terms are not included or are not clear, the contracts will not sufficiently protect the U.S. company or U.S. citizens. Thus, the scope of regulatory regimes around offshore sourcing embedded software to China are important to examine to determine legal sources, apart from private contracts, available to protect the United States from malicious code.

II. Chinese and U.S. Regulatory Law Are Insufficient to Provide Protection to U.S. Citizens and Companies China allows foreign companies to invest in China and export high technology goods, subject to some restrictions concerning State  [*142]  security. n51 Similarly, the United States Congress only minimally regulates offshore sourcing. n52 Thus, unless the offshore sourcing arrangement is seen as posing a threat to national security, neither Chinese nor U.S. regulatory law will restrict offshore sourcing.

A. Chinese Law Does Not Restrict Exporting Products Containing Embedded Software China promulgated the Foreign Trade Law in 2004 to support its "opening to the outside world" by permitting more freedom to import, export, and invest while ensuring the Chinese government still maintains some

oversight. n53 Currently, this law does not restrict embedded software production or export. n54

 [*143]  To facilitate this trade, the Chinese government provides a catalog that lists products and services which it classifies as encouraged, restricted, or prohibited for export. n55 China considers products or services not listed to be "permitted" as exports. Significantly, China does not list most goods containing embedded software as restricted or prohibited, making them at least "permitted" as an export. n56 The catalog lists some products, such as televisions and integrated circuits, which contain embedded software, as encouraged. n57 Thus, China likely does not restrict a U.S. company from programming embedded software products in China for export back to the United States.

B. U.S. Laws Focus on National Defense The United States has two main federal laws that could be applied to an offshore sourcing arrangement. First, the Exon-Florio Amendment n58 to the Omnibus Trade and Competitiveness Act of 1988 n59 authorizes the Committee on Foreign Investment in the United States ("CFIUS") to investigate acquisitions or mergers with a foreign company and, if necessary, prohibit that acquisition due to  [*144]  the effect on national security. n60 Notably for offshore sourcing arrangements, CFIUS may consider a joint venture or "similar arrangement" with a foreign company an acquisition if the foreign company could gain control over the U.S. business. n61

While there may be an instance where an offshore sourcing joint venture arrangement results in the Chinese partner acquiring control of the U.S. company, in typical arrangements, the U.S. company is likely to retain control over most major decisions. n62 Furthermore, knowing the definition of acquisition under this law, a U.S. company could create the joint venture such that the U.S. company would not lose control over most major decisions. n63 As such, it is unlikely that CFIUS would use the Exon-Florio Amendment to prohibit an offshore sourcing arrangement for embedded software, because it would not consider it a possibility that the foreign company could gain control of the joint venture. n64

Second, the U.S. Trade Expansion Act section 232 n65 allows the President to reduce imports if he determines that the product is being imported "in such quantities or under such circumstances" that threaten U.S. national security. n66 The Act does not explicitly define  [*145]  the term "national security." Instead, it gives five factors to consider when assessing the level of imports. n67 These factors indicate that the President should construe national security to mean "national defense." n68 Traditionally, the President has implemented restrictions only when there is a threat to national defense. n69

The past reluctance to use section 232 does not preclude the government from applying it to the embedded software scenario. Because weapons systems are a traditional area of national security, n70 and because weapons systems contain embedded software, n71 the President could deem importation of weapons systems with embedded software built in China a threat to national security. n72 However, the same threat of malicious code is present in civilian applications, which are not normally evaluated as a threat to national security. n73 Thus, section 232 is inapplicable to many offshore  [*146]  sourcing arrangements of embedded software, n74 requiring a different approach to the embedded software scenario.

III. The Computer Fraud and Abuse Act Is A Means To Enhance Security Even though Chinese and U.S. regulatory laws are not likely to reduce the risk of malicious code in the embedded software scenario, the Computer Fraud and Abuse Act ("CFAA") § 1030 offers a strong remedial tool to counter the scenario. n75 This act is broad enough to apply in new areas where products use embedded software n76 and allows for criminal and civil penalties. n77

 [*147]  U.S. companies can use the CFAA, and its case law interpretations, as a model to incorporate similar language into contracts with Chinese joint venture partners and Chinese employees to provide an additional level of security for the embedded software. n78 As applied to the embedded software scenario, a U.S. company or the U.S. government can bring a claim in a U.S. court against a Chinese programmer for violating the

CFAA. n79 Because the CFAA can be applied extraterritorially, a U.S. court can validly exercise subject matter jurisdiction over a claim brought against the programmer. n80

A. The Computer Fraud and Abuse Act Encompasses Malicious Code in Embedded Software For the CFAA to apply substantively to the embedded software scenario, one must first determine if programming malicious code into embedded software violates any sections of the statute. The CFAA prohibits knowingly or intentionally "accessing" a protected computer, "without authorization," or "exceeding authorized access" of a protected computer, to achieve some additional goal, such as obtaining information or causing damage to the computer. n81 A  [*148]  protected computer is a computer used by or for the U.S. government or a computer used in interstate or foreign commerce, even if the computer is physically located outside of the United States. n82

 [*149]  In the embedded software scenario, the embedded software is likely in a device that meets the definition of a protected computer, in part because the software helps the device perform the "logical, arithmetic, or storage functions" needed to meet the definition of computer. n83 In addition, the computer is protected by being involved in foreign commerce because the embedded software is programmed into a computer in China, then exported back to the United States. n84 Thus, applied to the embedded software scenario, the programmer inserts malicious code into a protected computer, as defined by the CFAA. n85 As a result, the key terms from the statute needing definition are "access" and "authorization."

 [*150]  The statute does not define the term "access," but accessing a computer is a requirement for liability in all but two of the seven subsections in section 1030(a). n86 Due to advances in computer technology since Congress wrote the statute, courts interpret the word "access" along a continuum of broad to narrow. n87

One broad interpretation of "access" is "the freedom or ability to make use of." n88 The court in America Online, Inc. v. National Health Care Discount, Inc., n89 acknowledged that the statute did not define "access" n90

and consequently turned to Merriam-Webster's Collegiate Dictionary. According to the dictionary, "access" means "to exercise the freedom or ability to ... make use of something." n91 The court  [*151]  held that the sender of an email makes use of the computers through which the message travels and, therefore, accesses those computers. n92 A similar statute in Kansas defined "access" as "to approach ... or otherwise make use of any resources of a computer." n93 But, in State v. Allen, n94 the Kansas Supreme Court chose to narrow the definition of the state statute using the Webster's Dictionary definition - "freedom or ability to make use of." n95

In Allen, the court found that the defendant did not make use of Southwestern Bell's telephone system simply by viewing the log-in prompt, and thus did not "access" the system. n96 Since the defendant did not go beyond the log-in prompt or enter a password, he did not have the ability to use the company's computers, and thus did not access them. n97

In the embedded software scenario, the programmer physically accesses the software embedded in the computer to modify it or insert malicious code. n98 The programmer goes beyond merely approaching and viewing a log-in prompt, as in Allen. Instead, the programmer alters or adds code to the protected computer. Although in other cases, like Allen, it may be unclear whether a defendant has accessed the computer, in the embedded software scenario the programmer actively "exercises the freedom or ability to make use of" the computer to program his or her malicious code. n99 Under either definition of access, the programmer in the embedded  [*152]  software scenario accesses the protected computer to insert the malicious code.

To violate the CFAA, the Chinese programmer must also either "exceed authorization" to access the protected computer or access the protected computer "without authorization." The first case interpreting access without authorization was United States v. Morris, n100 which established the "intended function" test. n101 Morris, a student at Cornell with authorized access to the Cornell computer system, released a computer virus into the Internet. n102 The court held that individuals with some access to a protected computer can still be without authorization. n103 Specifically in that case, although Morris had access to a function of the Cornell computer system, he did not use the features of the computer "in any way related to their intended function," which made

the use unauthorized. n104 Similarly, in the embedded software scenario, the programmer has authorized access to the original code, but by adding code in such a way that the original code does not perform its intended function, the  [*153]  programmer accesses the software, and thus the computer, without authorization. n105

Notably, the Senate detailed its intention to distinguish between "insiders" and "outsiders" in a 1986 Report regarding the CFAA. n106 The Report stated that Congress did not intend the statute to punish "insiders" who legitimately had access to a government computer but who had exceeded this access in the course of their employment. n107 The Report attempted to make clear that Congress authorized these "insiders." n108 Arguably then, for the embedded software scenario, the programmer merely "exceeds authorized access" because the programmer is an "insider" in the company; the programmer has authorized access to the protected computer to develop the embedded software as part of his or her job. n109 This means that the programmer did not violate CFAA sections (a)(3) nor (a)(5), which require the access of the protected computer to be "without authorization." n110

The programmer, however, could violate CFAA sections (a)(2)(C) or (a)(4), which prohibit exceeding authorization to obtain information from any protected computer involved in interstate or foreign commerce or using such computer to further a fraud. n111 For example, the court in EF Cultural Travel BV v. Explorica, Inc. n112 found  [*154]  that a former employee exceeded authorized access of EF's website because the access went beyond the terms of a confidentiality contract by obtaining proprietary information. n113 A programmer in the embedded software scenario could program malicious code to record a user's personal information then use that information to gain access to personal accounts, thereby obtaining information in violation of (a)(2)(C) and furthering a fraud in violation of (a)(4).

This reasoning is useful, as it relates to the embedded software scenario, particularly if the U.S. company incorporates scope of access provisions into the contract with the Chinese provider and employees. The U.S. plaintiff can argue that access to the software beyond what the parties stipulated in the contract "exceeds authorization," and thus violates the CFAA, so long as the Chinese programmer obtains some information or furthers a fraud. n114

While the "insider" versus "outsider" distinction could present a challenge to charging the Chinese programmer under the sections that require access without authorization, a properly constructed contract can help the government charge a person under the sections that allow for "exceeding authorization." n115 On the other hand, using the Morris "intended function" test, the programmer goes beyond merely "exceeding authorized access" and into "without authorization" because programming malicious code into the computer is not using the computer "in any way related to [its] intended function." n116 Thus, it is "without authorization" under all sections of the CFAA regardless of whether the programmer is considered an "insider" or "outsider." n117

 [*155] 

B. The U.S. Company Should Choose U.S. Law or Incorporate the CFAA Language into Private Contracts For the U.S. company in the embedded software scenario to ensure it can benefit from the private right of action in the CFAA, the company must explicitly choose U.S. law as the governing law in any foreign-related contract. n118 In addition, the company should choose the United States or arbitration as the forum. n119

Even if the contract is governed by Chinese law, the parties can use the CFAA as a guide to incorporate provisions to increase the security of the embedded software. n120 For example, the contract should state that programming malicious code into the embedded software constitutes unauthorized access. Any breach of these provisions would be a breach of contract, even under Chinese Contract Law. n121

Because China recognizes the freedom of parties to contract and state their own terms, it is possible that the parties may not include such protective language or may not choose U.S. law in a foreign-related contract.

Even so, a U.S. company or the U.S. government can still pursue a CFAA claim in a U.S. court against the Chinese programmer, as discussed below.

C. Using the Extraterritoriality of the CFAA to Enforce Security in Offshore Sourcing Situations If a U.S. company or the U.S. government brings a claim against the Chinese programmer who is part of the embedded software scenario, a U.S. court can find subject matter jurisdiction over the CFAA claim, regardless of whether the U.S. company was able to  [*156]  choose U.S. law through a foreign-related contract. n122 In this situation, to have subject matter jurisdiction, the court must be able to apply the CFAA extraterritorially because the Chinese programmer is located in China and much of the conduct began in China. n123

Before a court can apply the CFAA to prosecute the Chinese programmer, the U.S. plaintiff must overcome the presumption against extraterritoriality. n124 Stated in 1909 in American Banana Co. v. United Fruit Co., n125 the presumption against extraterritoriality requires the court to presume that a statute only applies within the United States. n126 Even language such as "every person" and "every contract" will be read as meaning only everyone within the territory for which Congress has the constitutional authority to legislate, which is usually the United States. n127

There are, however, three ways to overcome the presumption against extraterritoriality and find subject matter jurisdiction. First, the language and legislative history of the statute can be evidence of Congress's intent for the statute to be applied extraterritorially. n128 Second, even if the statute is silent or ambiguous on its intent, if [*157]  there is a substantial and intentional harmful effect within the territory of the United States, then the court can find jurisdiction. n129 Finally, if there was significant conduct within the territory of the United States that was essential to the crime or fraud, then the court can find jurisdiction, even if the statute is silent. n130 Unless the plaintiff satisfies one of these conditions, the court cannot assume "an intent to punish all whom [it] can catch." n131

While courts have consistently applied "market statute" claims - such as antitrust and securities fraud claims - extraterritorially, n132 a brief opinion, United States v. Ivanov n133 was the first case to apply the CFAA extraterritorially. Even though the CFAA is not a traditional economic law statute, the district court properly extended the law extraterritorially in Ivanov using similar reasoning to that in the antitrust and securities cases. n134 As such, U.S. courts can and should  [*158]  continue to apply the CFAA extraterritorially in embedded software scenario cases.

1. The CFAA statutory language and legislative history show intent for its extraterritorial application One method of overcoming the presumption against extraterritoriality for the CFAA is to interpret its language and history. n135 The statutory language does not have to be explicit in stating that a court can apply the statute extraterritorially; the language may simply reference that the statute includes foreign commerce. n136 In addition, if the legislative history indicates that Congress intended the statute to reach beyond the territorial bounds of the United States to protect U.S. citizens, then a court can find jurisdiction. n137

A court will first examine the plain language of the statute for clues from Congress as to whether it intended the statute to apply extraterritorially. The court in Kauther SDN BHD v. Sternberg n138 began with this plain language interpretation for section 10(b) of the 1934 Securities and Exchange Act ("1934 Securities Act"). n139 The court  [*159]  noted that section 10(b) prohibits fraud via "interstate commerce or of the mails in connection with the purchase or sale of any security." n140 The 1934 Securities Act defines "interstate commerce" to include "trade, commerce, transportation, or communication ... between any foreign country and any State." n141 While the statute does not explicitly state that courts can apply it extraterritorially, the court held that because the definition of interstate commerce included trade with foreign countries, it showed Congress's intention for the Act to be applied as such. n142

The 1934 Securities Act applied extraterritorially in part because it included the key words "commerce ...

between any foreign country and any State." n143 The court in Ivanov used similar language from the CFAA to extend the CFAA extraterritorially. n144 The district court in Ivanov specifically held that, for the CFAA, the government overcame the presumption against extraterritoriality because the CFAA uses the key terms "interstate or foreign commerce or communication," to apply to computers. n145 By using both the words "interstate" and "foreign", Congress intended the CFAA to apply both within the United States and abroad. n146 Consequently, the court found the language of the CFAA sufficient to overcome the presumption against extraterritoriality. n147

Despite the fact that the court in Kauther did not find explicit legislative history to support its interpretation that it could apply the  [*160]  1934 Securities Act extraterritorially, the Ivanov court found support in the 1996 Senate Report regarding the CFAA. n148 Congress added language to protect computers used in foreign commerce to the CFAA in 1996. n149 In its Report, Congress stated its concern that before 1996 the CFAA did not protect computers used in foreign commerce even though "hackers are often foreign-based." n150

In the embedded software scenario, a court should find subject matter jurisdiction over a CFAA claim against the Chinese programmer using reasoning identical to that in Ivanov, supported by Kauther. n151 Congress must have intended the statute to apply extraterritorially because the CFAA contains language that references both interstate and international commerce. n152 Furthermore, Congress added the 1996 CFAA amendments to address the scenario where a person not located in the United States exceeds authorization or accesses without authorization a computer used in foreign commerce yet located in the United States. n153 Likewise, in the embedded software scenario, the Chinese programmer is not located in the United States and at least exceeds authorized access of a protected computer located within the United States. As a result, a court can exercise subject matter jurisdiction for a CFAA claim brought against the Chinese programmer.

2. The effects test allows a court to extend the CFAA extraterritorially Even if the statutory language and history is silent or ambiguous, a court can use the effects test to determine extraterritorial application of the CFAA. n154 The effects test, also called the objective territorial  [*161]  principle, asserts the U.S. interest in punishing acts that have a detrimental effect within the United States but occur outside its boundaries. n155

Under the effects test, a country may hold a person liable under its laws "for conduct outside its borders that has consequences within its borders which the [country] reprehends ... ." n156 The conduct in other countries must have caused "foreseeable and substantial harm" to interests in the United States for a U.S. court to find jurisdiction. n157 In addition, the effects on the United States must be actual effects. n158 An unparticularized harmful effect in the United States is not enough to justify extending a statute extraterritorially. n159 Furthermore, if the defendant did not intend to cause harm within the United States, then a court cannot find subject matter jurisdiction. n160

One of the first cases to use the effects test was a market access case - United States v. Aluminum Co. of America ("Alcoa") n161 - in 1945. n162 In Alcoa, an antitrust case, the court held that, despite the presumption against extraterritoriality, it was also settled law that the United States may hold liable any person for acts done in another country but which have effects within the United States. n163 Alcoa, a Pennsylvania aluminum company with many subsidiaries, had allegedly agreed with foreign aluminum manufacturers to limit its imports into the foreign countries, while the foreign companies agreed either not to import into the United States or to do so under  [*162]  fixed amounts. n164 The court stated that although the cartel made the agreement outside the United States, it equaled an agreement to fix prices, violating the Sherman Act. n165 The effects test was satisfied because the agreement intended to restrict aluminum imports and exports, and the agreement actually restricted aluminum imports and exports. n166

U.S. courts continued to apply the effects test after Alcoa, notably in antitrust cases, n167 including in 1979 in Mannington Mills, Inc. v. Congoleum Corp. n168 There, the court similarly held that the Sherman Act prohibited acts having a harmful effect within the United States, even if the parties completed those acts

outside the United States. n169 Because the defendant's actions in threatening patent infringement suits in foreign countries restrained trade in the United States, the court ruled that the United States had subject matter jurisdiction per the effects test. n170

Similarly, the court in Ivanov properly determined that the effect of Ivanov's conduct in the United States gave U.S. courts jurisdiction, even though Ivanov was physically in Russia. n171 Although Ivanov used a complex computer process that he controlled from Russia, Ivanov purposefully accessed the OIB company's computer without authorization and obtained the valuable data in the United States, which the CFAA prohibits. n172 Moreover, similar to Mannington, Ivanov  [*163]  threatened to damage OIB's computers, which the CFAA also prohibits. n173 OIB received this threat in Connecticut about their computers located in Connecticut. n174 Just as in Mannington where the defendant made threats in a foreign country but the threats had their effect in the United States, n175 Ivanov made the threat from a computer in Russia, but the actual effect manifested itself in the United States. Because Ivanov accessed a specific computer in the United States and threatened a particular company's computer system, the effects were sufficiently particularized and foreseeable to give the United States jurisdiction under the effects test. n176

In addition, Ivanov intended such effects. Ivanov intended to obtain the data and move it to his computer in Russia. n177 He could not do this without affecting OIB's computers in the United States. As a result, the Ivanov court properly applied the CFAA extraterritorially, not only because of the language and history of the statute, but also because Ivanov's actions had their intended and actual effect in the United States.

In the embedded software scenario, a court can similarly find that it has subject matter jurisdiction over a charge brought against the Chinese programmer under the CFAA. n178 In this scenario, a programmer in China introduces malicious code into embedded software that the U.S. company exports back to the United States. Similar to Ivanov, even though the programmer inserts the malicious code into the embedded software product in China, if the product is physically in the United States when the malicious code executes, it renders its damaging effects in the United States. n179 Although the Chinese programmer may only generally know that the embedded software would be exported to the United States, but not exactly where in the United States, this does not defeat subject matter jurisdiction. n180

 [*164]  The specificity required from the antitrust jurisprudence is specificity of harm, not of location. n181 For example, the court in Alcoa discussed the restriction on imports as restrictions on imports into the United States generally that affected the prices in the United States as a whole. n182 Similarly, the court in Timberlane Lumber Co. v. Bank of America N.T. & S.A. n183 addressed the effect on "external trade and commerce of the United States" in discussing the attempt to prevent the export of lumber into the United States. n184 Neither case discussed an effect on a particular U.S. location but, rather, looked to the specific harm on the U.S. market overall. n185 Likewise, by introducing malicious code into embedded software exported to the United States, the Chinese programmer affects specifically the party in the United States who uses that embedded software, even though the location in the United States is not specifically known to the programmer.

Furthermore, embedded software is usually tailored to a specific product. n186 Thus, the programmer must understand the particular product to know how to introduce the malicious code. n187 If the programmer does not know specifically how to make the malicious code work in relation to the embedded software product, the malicious code may not execute. As such, in the embedded software scenario there is a greater specificity of harm than in the antitrust cases. n188 The agreements in the antitrust cases discussed target prices or higher market power but not necessarily a particular price or percentage of market power. n189 In contrast, a particular piece of  [*165]  malicious code, which the programmer inserts into the product, causes the specific harm in the embedded software scenario.

However, for the effects test to apply, the plaintiff must prove that the Chinese programmer intended to cause harm in the United States. n190 The plaintiff could prove this intention by showing that the programmer likely knew that the product would be exported back to the United States due to the company structure and business model, including the influence of U.S. culture and language in daily activities. n191 Although a joint venture or

WFOE could possibly sell embedded software products in China, in the embedded software scenario, the company employs programmers in China but exports the products back to the United States as part of the business model.  [*166]  If the U.S. company makes clear its scope of business and takes an active role in daily operations, it is likely that the Chinese programmer would be aware that some of the products will be exported back to the United States. n192 By programming malicious code into an embedded software product the programmer knew was likely destined for the United States, the Chinese programmer intended for the malicious code to affect the United States. Therefore, a court can use the effects test to exercise subject matter jurisdiction over the CFAA claim against the Chinese programmer. n193

3. The conduct test may also be used to find subject matter jurisdiction A person may, in some instances, commit acts within the United States that a U.S. law may prohibit, but the consummation and effects of those acts are outside of the United States. n194 Particularly in some securities fraud cases, a court cannot find jurisdiction using the effects test because the harm is to non-U.S. citizens, even though the actions furthering the securities fraud occurred in the United States. n195 The conduct test, also called the subjective territorial principle, allows a court to find jurisdiction when significant conduct occurs in the United States that furthers a fraud or crime that Congress intended to prohibit, while taking into account the sovereignty of foreign nations. n196

 [*167]  The conduct within the United States must be significant and it must be an essential or material link to the completion of the fraud or crime to find jurisdiction. n197 While the conduct within the United States cannot be "merely preparatory" or simply a "failure to prevent fraudulent acts where the bulk of the activity was performed in foreign countries," n198 the conduct does not necessarily have to satisfy the elements of the final fraud or crime for a court to find jurisdiction. n199

Courts will find extraterritorial jurisdiction when the defendant uses the United States as a base of operations. n200 For example, Section 10(b) prohibits the use of the U.S. mail system to perpetrate fraud on investors. n201 In IIT v. Vencap, Ltd., n202 the court ruled that the defendants, a company incorporated in the Bahamas, could be charged with violating section 10(b) even though the majority of the investors were not U.S. citizens because they used the U.S. mail system to perpetrate a fraud on investors. n203 The court stated that it did not believe that Congress intended the United States to be a "base for manufacturing fraudulent security devices for export, even when these are peddled only to foreigners." n204

More recently, the court in Kauther used almost identical reasoning of the conduct test to find subject matter jurisdiction over section 10(b) claims against the defendants. n205 The court stated that it had jurisdiction if the conduct in the United States is substantial and has a direct link to the loss. As a result, the court held that the plaintiffs sufficiently alleged that the defendants used the United States as a  [*168]  base of operations to defraud Kauther and sent the fraudulent material through the U.S. mail. n206

Even if the United States is not a base of operations, frequent use of the U.S. mail system can be enough for the United States to have jurisdiction. n207

In Continental Grain (Australia) Pty. Ltd. v. Pacific Oilseeds, Inc., n208 the court found subject matter jurisdiction over a 1934 Securities Act claim because the defendant's conduct in the United States furthered its fraudulent scheme. n209 The court found that conduct in the United States, which consisted of letters and telephone calls necessary to organize and complete the fraud, n210 were not "merely preparatory." n211

Although the court in United States v. Ivanov n212 did not find jurisdiction based on the conduct test, such a finding was possible. n213 First, the court could consider that the United States was a base of operations for Ivanov. Once Ivanov was in the United States, by accessing OIB's computers, he transferred data from the OIB computers to his computer in Russia. n214 This conduct was similar to the defendants in Vencap and Kauther who used offices in the United States to prepare and mail fraudulent material to investors. n215 Because Ivanov used the OIB computers located in the United States as the base to prepare the data and transmit it to Russia,

n216 his actions satisfy the conduct test.

In addition, Ivanov used the U.S. infrastructure as a means to complete his crime. The Ivanov court found that when Ivanov accessed OIB's computers, the access occurred at OIB's location in Connecticut. n217 This effectively places Ivanov in the United States. Just as the defendants needed to use the U.S. mail system in Continental Grain to complete their fraud, n218 Ivanov needed to access the OIB computers to transfer the data and transmit the threat to  [*169]  OIB. n219 Without the U.S. infrastructure in Continental Grain or the OIB computers in Ivanov, neither defendant could complete his crime. n220

Finding subject matter jurisdiction using the conduct test for the embedded software scenario is admittedly more difficult than finding jurisdiction using the effects test. The embedded software scenario assumes that the programmer is located in China and programs the malicious code in China. n221 Therefore, unlike the defendants in Kauther or Vencap, the United States is not a base of operations for the Chinese programmer. n222

A court could apply the conduct test to the embedded software scenario if it takes a broad view of "access" under the CFAA. A court has the freedom to find that the programmer in China "accesses" a computer in the United States through the malicious code because "access" is not statutorily defined and courts differ in their interpretations of the term. n223 The significant and essential conduct in the United States that furthers the programmer's goals is the "access" via the malicious code in the embedded software that has been exported from China to the United States.

Although in the embedded software scenario the access does not occur in real time, n224 the Chinese programmer uses the U.S. infrastructure to introduce the malicious code into the country. This is similar to the defendants in Continental Grain who had to use the U.S. infrastructure to send the fraudulent investment material. n225  [*170]  Without the U.S. infrastructure, the Chinese programmer could not introduce the malicious code into the United States. Just as the court in Continental Grain found subject matter jurisdiction because the defendant used the U.S. infrastructure in furtherance of a fraudulent scheme, n226 a court in the embedded software scenario could find jurisdiction with similar reasoning.

Even though a court could find jurisdiction by using the conduct test, statutory interpretation and the effects test are the strongest bases for extending the CFAA extraterritorially and finding subject matter jurisdiction in the embedded software scenario. n227 However, by its nature, extraterritorial application of a U.S. law infringes on the sovereignty of foreign nations to police and judge their own citizens. n228 As the jurisprudence of antitrust and securities law demonstrates, courts attempt to balance the interest of the United States with that of the foreign nation when deciding whether to exercise jurisdiction. n229

D. International Comity Considerations Support Subject Matter Jurisdiction While a court can find subject matter jurisdiction over a CFAA claim against a Chinese programmer from the language and history of the statute, the effects test, the conduct test, or a combination of the three approaches, there may be policy reasons why it should not do so in a particular case. In some situations, the interest to preserve harmony with the foreign country can outweigh the interest of the United States in pursuing jurisdiction. n230 In the embedded software scenario, however, the balance of international comity weighs in favor  [*171]  of finding subject matter jurisdiction over a CFAA claim against a Chinese programmer. n231

1. The jurisdictional rule of reason approach leads to exercising subject matter jurisdiction One primary approach to balancing a foreign country's sovereignty with U.S. jurisdiction is the jurisdictional rule of reason test. n232 The court in Timberlane explained the factors a court should weigh to balance the other country's interest; these include: (1) "the degree of conflict with foreign law or policy," (2) the nationality of the parties and the locations of the businesses, (3) the ability of either state to enforce compliance, (4) "the relative significance of effects on the United States as compared with those elsewhere," (5) the extent of the explicit purpose to harm U.S. commerce, (6) the foreseeability of the harmful effect or conduct, and (7) "the

relative  [*172]  importance to the violations charged of conduct within the United States as compared with conduct abroad." n233 After assessing these factors and the potential conflict between the United States and the foreign country, if the United States asserts jurisdiction, the court should then determine whether the interests of the United States are sufficient to support the exercise of extraterritorial jurisdiction. n234

Using the jurisdictional rule of reason test, the court in Timberlane found subject matter jurisdiction appropriate. n235 Even though most of the antitrust activity took place in Honduras, the defendants likely organized the conspiracy from San Francisco, which affected competition and commerce in the United States. n236 In addition, U.S. antitrust law did not conflict with the law or policy of Honduras. n237 The court was also not concerned about the harmony of relations between the United States and Honduras if a U.S. court exercised jurisdiction in the matter. n238

Whether a court should exercise subject matter jurisdiction in a particular embedded software scenario will vary depending on the exact nature of the crime. n239 Certain factors from the jurisdictional rule of reason do weigh in favor of finding jurisdiction in the embedded software scenario.

First, similar to Timberlane, there is no conflict with Chinese law. n240 Chinese law does not require a programmer to insert malicious code into embedded software. In fact, a court can legitimately read the Chinese Criminal Code to prohibit such conduct, making the U.S. and Chinese criminal laws similar. n241 Even if a court does not read the  [*173]  Chinese Criminal Code as such, the Code does not appear to encourage such acts. n242 Thus, a court could not find a conflict of law to weigh against jurisdiction. n243

Second, due to the lack of ensured prosecution in China, it is more likely the U.S. judicial system can effectively adjudicate its computer crime law, both civilly and criminally. n244 Third, all effects from the [*174]  malicious code will be in the United States, none in China. Finally, these effects are explicit and foreseeable in causing harm to the United States. All these factors combine to weigh in favor of exercising subject matter jurisdiction. n245

2. Policy considerations also permit exercising jurisdiction A court does not have to rely on the Timberlane factors to balance jurisdiction with international comity, but can look to other policy considerations to examine this balance. n246 One line of reasoning suggests that if the U.S. exercises jurisdiction for conduct within its borders but with the ultimate effects felt abroad, it encourages other countries to find and exercise jurisdiction when conduct occurs in the foreign country but has its effects in the United States, thus further protecting the United States. n247 In addition, if there is no conflict with the other country's laws, then a court can often find jurisdiction without further consideration. n248

A second line of reasoning suggests that if a court can discern from the statute or the legislative history an intent on the part of Congress to prohibit a specific action within the United States, then the balance will favor finding jurisdiction. n249 If Congress designed a law to protect certain groups in the United States, then a court will tend  [*175]  to find jurisdiction. In SEC v. Kasser, n250 the court held that Congress designed the antifraud provisions of the securities acts to ensure "high standards of conduct in securities transactions" in the United States and protect "investors from the effects of fraud." n251 Moreover, the court found that the legislative intent was to prevent the United States from becoming a "haven" for defrauders and manipulators. n252 Similarly, in Continental Grain, the court held that finding jurisdiction was consistent with the intent of Congress to encourage high standards of conduct in the investment market and not to use the United States as a base of operations. n253

Furthermore, in both Kasser and Continental Grain the courts also held that by finding jurisdiction it would encourage other countries "to take appropriate steps against parties who seek to perpetrate frauds in the United States." n254 While both policy reasons need not be present, they offer alternative reasoning to the factor test set out in Timberlane.

More recently, in Hartford Fire Insurance Co. v. California, n255 the Supreme Court found that "international comity would not counsel against exercising jurisdiction" based on a comparison of U.S. and British law. n256 The Court focused solely on the fact that British law did not force the London insurance providers to violate U.S. law, even though the providers' actions would have been legal in London. n257 The Court held that simply because conduct is lawful in the country in which it takes place, it does not prevent extraterritorial application of U.S. antitrust laws "even where the foreign state has a strong policy to permit or encourage such conduct." n258 Thus, there was no conflict of U.S. and British laws to weigh against exercising jurisdiction, which was the only conflict the Court felt it needed to consider. n259

Applying the non-Timberlane international comity approaches to the embedded software scenario, a court can still exercise subject matter jurisdiction. First, Congress designed the CFAA to punish  [*176]  those who access a protected computer without authorization. n260 While there is still debate on the exact definition of "access" and "authorization," the 1996 Senate Report noted Congress's concern for computers used in foreign commerce that were vulnerable to hackers located in foreign countries. n261 Just as Congress intended the securities acts to protect investors from general fraud and to encourage high standards in the investment market, n262 the CFAA protects computer users from unwanted access and encourages those with knowledge about computer systems to use their knowledge to improve technology, not to harm others. n263

Second, finding jurisdiction over a Chinese citizen for violating the CFAA may encourage China to find jurisdiction over its own citizens who attempt to cause harmful effects in the United States. Additionally, if exercising jurisdiction in the securities cases can encourage a higher standard for investment markets internationally, n264 then finding jurisdiction in the embedded software scenario can encourage a higher standard for ensuring software security. Third, and more directly, using the Hartford Fire analysis, so long as there is no conflict between U.S. law and Chinese law, there is no need to further examine international comity principles. n265 Because a Chinese programmer could comply with both Chinese law and U.S. law by not programming malicious code into the embedded software, international comity would not preclude jurisdiction over a CFAA claim. n266

In sum, a court can use the jurisdictional rule of reason factor analysis to determine whether it should exercise subject matter jurisdiction in the embedded software scenario or a more generalized  [*177]  policy consideration approach. Either method will take into account the United States' relationship with China and its own interests in protecting American citizens and businesses yet still result in finding subject matter jurisdiction. n267

Conclusion U.S. businesses looking to source work in China and the U.S. government have an interest in ensuring the security of embedded software designed and built in China. In addition to incorporating protective language into private contracts and choosing U.S. law in foreign related contracts, extending the Computer Fraud and Abuse Act extraterritorially allows the United States to prosecute or sue a Chinese citizen who chooses to program malicious code into embedded software, even though that person is physically located in China. Following the reasoning of antitrust and securities fraud cases, the CFAA can be applied extraterritorially because of its statutory language and history; because the effects of the malicious code in the United States is substantial; and because conduct furthering the violation of the CFAA occurred in the United States. The extraterritorial application of the CFAA also acts as a deterrent to any programmer who would program malicious code into embedded software developed in China, and it serves as a remedial tool for any malicious code that has already made its way to the United States. Therefore, even acknowledging that there may be some security risk to developing embedded software overseas, there is no need to restrict offshore sourcing to China.

Legal Topics:

For related research and practice materials, see the following legal topics:Business & Corporate LawForeign BusinessesGeneral OverviewCivil ProcedureJurisdictionGeneral OverviewComputer & Internet LawCriminal OffensesComputer Fraud & Abuse Act

FOOTNOTES:

n1. Edward A. Lee, Embedded Software, Nov. 1, 2001, http://ptolemy.eecs.berkeley.edu/publications/papers/02/embsoft/embsoftwre.pdf, published in 56 Advances in Computers 56 (2002) [hereinafter Lee, Embedded Software]; accord Bas Graaf et al., Embedded Software Engineering: The State of the Practice, IEEE Software, Nov.-Dec. 2003, at 61 (reiterating that cars and airplanes as well as DVD players and medical systems use embedded software); Edward A. Lee, What's Ahead for Embedded Software?, Computer, Sept. 2000, at 18 [hereinafter Lee, What's Ahead] (repeating that "gadgets and cars use embedded software").

n2. See Stephen F. Diamond, The "Race To The Bottom" Returns: China's Challenge To The International Labor Movement, 10 U.C. Davis J. Int'l L. & Pol'y 39, 41-42 (2003) (describing the "race to the bottom" not solely in terms of a company's ability to employ the lowest wages but also its ability to combine high-productivity with lower wages than would be demanded in more developed countries); see also Paul McDougall, The Offshore Equation, Info. Week, Sept. 6, 2004, at 32, available at http://www.informationweek.com (search "The Offshore Equation") (providing an example of a moving and relocation company who required a Return on Investment within two years; to meet this ROI and provide a technical solution to better match customer demand with available trucks, the company had to use a software development company based in India, at a fraction of the cost).

n3. See Mickey Meece, Lenovo Aims to Calm Fears Over Security, N.Y. Times, July 29, 2006, at C3 (reporting on the State Department's fears of viruses in computers purchased from Lenovo, a China-based computer manufacturer); Gary Anthes, DOD Report to Detail Dangers of Foreign Software, ComputerWorld, Nov. 22, 2006, http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=274599&intsrc=hm list (announcing that one day, the United States will "badly need communications" and will have a denial of service attack resulting in a "billion-dollar weapon[] unable to function"); see also John R. Schmertz & Mike Meier, U.S. Clears Merger of IBM's PC Division with Giant Chinese Computer Maker, 11 Int'l L. Update 47, 47 (2005) (reporting that to complete the sale Lenovo agreed to move its headquarters from Beijing to the United States to satisfy the U.S. government).

n4. See John Markoff, Study Says Chips in ID Tags Are Vulnerable to Viruses, N.Y. Times, Mar. 15, 2006, at C3 (quoting the opinion of Peter Neumann, a computer scientist at a research firm in California, who said "it shouldn't surprise you that a system that is designed to be manufactured as cheaply as possible is designed with no security constraints whatsoever"); Erik Sherman, Going East, Info. Security, Nov. 2003, at 14, available at http://infosecuritymag.techtarget.com/ss/0,295796,sid6 iss205 art458,00.html (emphasizing that the inclusion of malicious code is a risk when using third parties to code a company's software); see also Richard Ford, Malcode Mysteries Revealed, Security & Privacy (IEEE, New York, NY), May-June 2005, at 72 (reporting that viruses and worms still exist and should be defended against even though some computer users see them as requirements to the benefits of technology).

n5. See, e.g., Lee, Embedded Software, supra note 1, at 1 (stressing that embedded software's principal role is its "interaction with the physical world" and its execution on various machines that are not necessarily personal computers).

n6. E.g., Graaf, supra note 1, at 61 (predicting that by 2013 the use of products containing embedded software will grow "exponentially"). Contrary to what its name might imply, embedded software is not simply typical software, such as Microsoft Word, on a microchip. Lee, Embedded Software, supra note 1, at 2. Embedded software is more closely related to the device or hardware into which it is programmed, such as a telephone or

personal digital assistant ("PDA"), than Microsoft Word is related to a computer. Id. Microsoft Word can be used on many devices, including different brands of computers or PDAs, but embedded software programmed for a cellular telephone is suitable only for the telephone. As such, the hardware constrains the ability to program, test, and secure the embedded software. Graaf, supra note 1, at 61. Often an engineer who is an expert in the hardware designs the embedded software program, rather than a typical software programmer who can design and build a program for use on many different types of operating systems. Lee, What's Ahead, supra note 1, at 19. Therefore, this Comment chooses to focus on embedded software because of its increasing use, its requirement for specialization, and its challenge to thorough testing.

n7. See, e.g., Carlos Grande, Companies UK: Marconi's Technology Fails the Price Test, Fin. Times (London), May 4, 2005, at 23 (reporting that Marconi lost a British Telecom contract based on price, not knowledge, which might lead to a reduction in Marconi's R&D workforce to reduce its own costs); Paul McDougall, supra note 2, at 32 (providing an example of a moving and relocation company that used a software development company based in India, at a fraction of the cost of software development companies in the United States, in order to meet a two-year Return on Investment).

n8. Erran Carmel & Paul Tjia, Offshoring Information Technology: Sourcing and Outsourcing to a Global Workforce xix (2005) (using the term "offshore sourcing" to encompass the situation "where sourcing can be from outside the firm or inside the firm[,]" but the location is outside the boundaries of the home country). In other words, the U.S. company has sourced a portion of work to a different country. Id. Offshore sourcing may also include joint ventures with a partner company that is local to the foreign country. Id. at 120 (reviewing the principle deal structures of an offshore sourcing arrangement, including the captive center/subsidiary, joint venture, build operate transfer model, and contract). See generally Trevor W. Nagel & Michael T. Murphy, Structuring Technology Outsourcing Relationships: Customer Concerns, Strategies and Processes, 4 Int'l J.L. & Info. Tech. 151, 163 (1996) (noting that a proposal for outsourcing work can be a strategic alliance or partnership). Strictly speaking, "offshoring" signifies using a non-home country for a business transaction. Carmel & Tjia, supra, at xviii; see Fraser Mendel, Offshore Outsourcing and Offshoring to China, in John F. Delaney & William A. Tanenbaum, Practising Law Inst., The Outsourcing Revolution 2005: Protecting Critical Business Functions 257 (2005) (defining "offshore outsourcing" as hiring a third-party to complete work for the customer's business "in a country other than the one that is the major market for the final product or service"). Correspondingly, businesses use "outsourcing" to signify "that tasks and processes are contracted to be performed outside the boundaries of the firm." Carmel & Tjia, supra, at xviii-xix (elaborating with the example that General Electric uses Tata Consultancy Services in India to perform certain tasks, while Siemens has a center it owns in India). Additionally, businesses use the term to signify when they delegate an entire process, and sometimes physical assets or staff, to an outsider. Id. at xviii-xix (providing the example that these processes can be a single task for a one time project or an on-going business process such as a call center). See generally E. Michael Power & Roland L. Trope, Averting Security Missteps in Outsourcing, http://libproxy.temple.edu:4070/security (describing how companies increasingly use providers in other countries to perform tasks on a continuing basis). This Comment uses the terms "offshore sourcing" and "sourcing" to mean performing some business task in a non-U.S. country.

n9. Carmel & Tjia, supra note 8, at 31 (comparing the average annual wage for a software professional in the United States of $ 63,000 with $ 9,000 at the highest range for India and $ 14,200 at the highest range for China). Furthermore, the Chinese Communist Party declared in their Tenth Five-Year Plan in 2001 that developing skills in technology is a key goal for the country. Tenth Five-Year Plan for National Economic and Social Development (promulgated by State Council of China, Mar. 15, 2001, effective Mar. 15, 2001), translated at http://www.trp.hku.hk/infofile/china/2002/10-5-yr-plan.pdf (last visited Aug. 27, 2007) (P.R.C.) [hereinafter Tenth Five-Year Plan P.R.C.] (listing "Making Reform and Opening Up and Making Technological Progress the Driving Force" as one of the Guiding Principles of the Five-Year Plan). As stated in its 1982 Constitution and in its Tenth Five-Year Plan, China is committed to opening the country to investment and in particular wants to develop its technology sector. Xian fa preamble (1982) (P.R.C.); Tenth Five-Year Plan P.R.C., supra. See generally U.S. Gov't Accounting Office, Offshoring: U.S. Semiconductor and Software Industries Increasingly Produce in China and India 2, 8-12 (2006) (tracking the flow of manufacturing of semiconductor devices and software development to India and China from the early 1990s

and summarizing that the cost savings and high quality work companies experienced overseas led companies to expand offshore sourcing to software and systems integration).

n10. See Power & Trope, supra note 8, at 70-73 (discussing the security risks posed by outsourcing technology development to outsiders).

n11. See Memorandum from Kenneth J. Krieg, Under Secretary of Defense, to Chairman, Defense Science Board (Oct. 5, 2005), http://www.acq.osd.mil/dsb/tors/TOR-2005-10-05-MIFIDS.pdf; see also Defense Science Task Force, High Performance Microchip Supply 3 (2005), available at http://www.acq.osd.mil/dsb/reports/2005-02-HPMS%5FReport%5FFinal.pdf (summarizing that the study revealed that the manufacturing capabilities of critical microelectronics have moved to countries with lower cost capital, which results in lower trustworthiness and supply assurance for such components); Anthes, supra note 3 (discussing the upcoming release of the DOD report that "calls for a variety of prevention and detection measures"). According to the Anthes article, the DOD task force was supposed to de-classify the full software report in early 2007. Id. As of July 1, 2007, the report is not posted. When de-classified, the report will be available at the Defense Science Board website, http://www.acq.osd.mil/dsb/reports.htm.

n12. Anthes, supra note 3 (clarifying that it is not xenophobia but the fact that everything is connected that makes networks vulnerable to code that is developed overseas with little or no U.S. oversight); accord Sherman, supra note 4, at 14 (discussing concerns from companies and academic researchers regarding the vulnerability of software developed overseas).

n13. Markoff, supra note 4. In addition, experts in the computer engineering field report that ensuring fully secure embedded software - meaning little to no software errors - is, at best, difficult. E.g., Paul Kocher et al., Security as a New Dimension in Embedded System Design 753 (2004) (asserting that although security for embedded software systems is critical, these same systems are constrained by their own designs from providing full security); Louise Longdin, Liability for Defects in Bespoke Software: Are Lawyers and Information Scientists Speaking the Same Language?, 8 Int'l J.L. & Info. Tech. 1, 11 (2000) (reporting that often software is released with known defects).

n14. E.g., James Gleick, Little Bug, Big Bang, N.Y. Times, Dec. 1, 1996, § 6 (Magazine), at 38 (reporting on the crash of the Ariane-5 unmanned rocket that cost $ 7 billion to build and explaining that an incorrect conversion of a 64-bit number to a 16-bit number caused the system to shut down and the rocket to explode on its first launch).

n15. U.S. Gen. Accounting Office, Patriot Missile Defense: Software Problem Led to System Failure at Dhahran, Saudi Arabia 1 (1992).

n16. See, e.g., Anthes, supra note 3 (quoting Ira Winkler, author of the book Spies Among Us, as suggesting that "if there is one line of code written overseas, that's one line too many").

n17. See Ford, supra note 4, at 72 (defining viruses and worms). People often use the terms virus and worm interchangeably. However, they are technically different. A virus is a self-replicating program that copies itself and can modify other programs, such that using the modified program implies using an evolved version of the original virus. Id. at 72. On the other hand, a worm is a self-contained program that does not need other programs in order to copy itself to other computer systems. Eugene H. Spafford, A Failure to Learn from the Past 2 (2003). Regardless, both a virus and a worm can be classified as malicious code. Id. See generally Symantec Corp., What Is The Difference Between Viruses, Worms, and Trojans?, http://service1.symantec.com/SUPPORT/nav.nsf/docid/1999041209131106 (last visited Aug. 19, 2007) (providing more definitions of various malicious programs).

n18. See, e.g., Longdin, supra note 13, at 10-11 (relating the various methods of testing, including user

acceptance testing, that most software goes through). Some software manufacturers may use "cleanroom" engineering to certify reliability. Id. at 10. "Cleanroom" engineering means that throughout the entire program development process the quality of the product is continually assessed and, if necessary, adjusted. Id. While this results in fewer errors, it is also time intensive, resulting in higher development costs. Id. at 10-11.

n19. E.g., U.S. Gen. Accounting Office, Critical Infrastructure Protection: Challenges and Efforts to Secure Control Systems 14 (2004) (concluding that the security of the control system that governs U.S. infrastructure is vulnerable to cyber-attacks); Robert Lezner & Nathan Vardi, The Next Threat, Forbes, Sept. 20, 2004, at 70 (reporting that the FBI and NSA believe foreign governments such as Iran and China have trained hackers in Internet warfare).

n20. Since the Internet, viruses have become mainstream. Correspondingly, many law review articles have been written on the question of jurisdiction. The majority of these articles focus on jurisdiction over the Internet for any country or jurisdiction over crimes that take place over the Internet; they do not generally discuss the extraterritorial application of the Computer Fraud and Abuse Act ("CFAA"). See, e.g., Susan W. Brenner & Bert-Jaap Koops, Approaches to Cybercrime Jurisdiction, 4 J. High Tech. L. 1, 3-10 (2004); Henry H. Perritt, Jr., Jurisdiction in Cyberspace, 41 Vill. L. Rev. 1, 2-5 (1996); Ellen S. Podgor, Cybercrime: National, Transnational, or International?, 50 Wayne L. Rev. 97, 97-101 (2004). One Note does apply the principles of extraterritorial jurisdiction to the 1994 version of the CFAA, but again does so generally to viruses released over the Internet. John Eisinger, Note, Script Kiddies Beware: The Long Arm of U.S. Jurisdiction to Prescribe, 59 Wash. & Lee L. Rev. 1507, 1508, 1512-37 (2002). This Comment, in contrast, focuses on two jurisdictions, the United States and China. This Comment also does not address viruses released over the Internet. Instead, it focuses on a virus within a physical good such as a computer, car, or airplane and analyzes extraterritorial jurisdiction of the current CFAA in light of extraterritorial application of U.S. antitrust and securities laws.

n21. Although any programmer, Chinese or American, could insert malicious code into embedded software, this Comment chooses to focus on the situation where a Chinese programmer does so in order to limit the paper to the territorial jurisdiction issues.

n22. Counterfeit Access Device and Computer Fraud and Abuse Act of 1984, tit. II, ch. XXI, 98 Stat. 1837, 2190-92 (1984) (current version at 18 U.S.C. § 1030 (2000)).

n23. See infra Part III (discussing the advantages to incorporating U.S. law into foreign contracts).

n24. 175 F. Supp. 2d 367 (D. Conn. 2001).

n25. See James M. Zimmerman, China Law Deskbook: A Legal Guide for Foreign-Invested Enterprise 81 (2d ed. 2004) (noting that 1980s regulations limited the types of direct investments businesses could undertake in China, but today China has relaxed some standards to make a wholly foreign-owned enterprise more common); US-China Business Council, An Introduction to the US-China Business Council, http://www.uschina.org/more.html (last visited July 23, 2007) (explaining that since the end of the 1970s, there has been "massive growth of U.S.-China economic engagement"). Even though international business transactions can be traced back to 1622, establishing a business in China has only recently become common. John H. Jackson et al., Legal Problems of International Economic Relations 46-48 (3d ed. 1995) (diagramming a "typical international sales transaction" and noting that international law may affect a bank's ability to issue letters of credit and that "conflict of laws" arise during contractual disputes of this nature); Lee Peoples, Strategies and Sources for International Legal Research, 60 Consumer Fin. L.Q. Rep. 412, 421 (2006) (noting that international trade law can be traced back to 1622 and the customary law of merchants).

n26. See Carmel & Tjia, supra note 8, at xix (reviewing offshore arrangements such as the subsidiary arrangement, joint venture, build operate transfer model, and one-time contracts for specific tasks); Nagel & Murphy, supra note 8, at 163 (noting that a proposal for outsourcing work can be a strategic alliance or

partnership).

n27. Jie Chen, Guide to Establishing a Subsidiary in China, The Licensing Journal, Nov.-Dec. 2005, at 8.

n28. Carmel & Tjia, supra note 8, at 119; Zimmerman, supra note 25, at 90, 103. For purposes of this Comment, the foreign partner has no possibility of acquiring a controlling interest in the joint venture or U.S. company. If the Chinese partner could acquire a controlling interest, the arrangement would be subject to review under the Exon-Florio Amendment. 50 U.S.C.A. app. § 2170 (1994); 31 C.F.R. 800.301; David Scott Nance & Jessica Wasserman, Regulation of Imports and Foreign Investment in the United States on National Security Grounds, 11 Mich. J. Int'l L. 926, 965-66 (1990); see Jose E. Alvarez, Political Protectionism and United States International Investment Obligations in Conflict: The Hazards of Exon-Florio, 30 Va. J. Int'l L. 1, 82-83 (1989); infra Part II.B (discussing the Exon-Florio Amendment). Joint ventures in China must be approved by the Ministry of Foreign Economic Relations and Trade. Regulations for the Implementation of the Law on Joint Ventures Using Chinese and Foreign Investment (promulgated by State Council, Sept. 20, 1983, effective Sept. 20, 1983), art. 8, translated at http://english.mofcom.gov.cn/static/column/lawsdata/chineselaw.html/1 (last visited Aug. 19, 2007) (P.R.C.) [hereinafter Regulations for Implementation of Joint Ventures P.R.C.].

n29. See Regulations for Implementation of Joint Ventures P.R.C., supra note 28, at art. 9(1) (discussing the process of approval for a joint venture with a foreign entity).

n30. See id. art. 7 (listing the various agreements and contracts that the joint ventures have the right to operate under).

n31. Id.

n32. The Chinese partner may be more connected in the government and judicial system, which can facilitate approvals and prompt treatment in the courts. Zimmerman, supra note 25, at 89 (pointing out that a Chinese partner can assist in developing an operational base, securing resources, and using "guanxi" or "connections" to help with government approval); accord Patricia Pattison & Daniel Herron, The Mountains Are High and the Emperor Is Far Away: Sanctity of Contract in China, 40 Am. Bus. L.J. 459, 484-85 (stating that "guanxi" is a method of cultivating relationships and has often benefited Chinese citizens when the rule of law has been lacking). But see Zimmerman, supra note 25, at 92 (asserting that WFOEs are more popular now and giving tips on how to select a Chinese partner if law or necessity does not allow the U.S. company to set up a WFOE).

n33. Carmel & Tjia, supra note 8, at 119. In China, the detailed regulations vary depending on the type of organization and parties involved. For example, China has a specific law for joint ventures and a different law for WFOEs. E.g., Regulations for Implementation of Joint Ventures P.R.C., supra note 28; Detailed Rules for the Implementation of the Law on Wholly Foreign-Owned Enterprises in China (re-promulgated by Order No. 301 of the State Council, April 12, 2001, effective April 12, 2001) (P.R.C.), translated at http://english.mofcom.gov.cn/static/column/lawsdata/chine selaw.html/3 (last visited Sept. 10, 2007) [hereinafter Rules for Implementation of WFOEs P.R.C.]. Because state law generally governs businesses in the United States, the state in which the business operates or is incorporated would govern the type of offshore sourcing arrangement in the United States. See generally Konrad Zweigert & Hein Kotz, Introduction to Comparative Law 260-61 (Tony Weir trans., 3d rev. ed. 1998).

n34. See Carmel & Tjia, supra note 8, at xix, 119; see also Chen, supra note 27, at 7 (guiding readers on the value of establishing a subsidiary in China if the company intends to conduct long-term business in China). In either the captive center or subsidiary arrangement, the company could have started the business in China or acquired an already established company. Carmel & Tjia, supra note 8, at 119. To analyze U.S. regulatory law in Part II.B, this Comment assumes that the foreign-based subsidiary or branch has no possibility of acquiring

a controlling interest in the U.S. parent company.

n35. Rules for Implementation of WFOEs P.R.C., supra note 33; Zimmerman, supra note 25, at 76-80, 113; cf. Company Law (promulgated by Standing Committee of National People's Congress, Dec. 29, 1993, revised Dec. 25, 1999), ch. 9 (P.R.C.), translated at http://english.mofcom.gov.cn/static/column/lawsdata/chineselaw.html/1 (last visited Aug. 19, 2007) (allowing foreign companies to set up branches in China; however, different laws govern WFOEs or joint ventures). The arrangement could also be a representative office but this is less likely because a representative office may not engage in profit making activities, including signing contracts. See Chen, supra note 27, at 7 (commenting that while a representative office can act as a liaison for a foreign-based company, it cannot conduct business in China directly). Each of these are distinct types of "foreign invested enterprises" without a Chinese partner that are available to any foreign party. Zimmerman, supra note 25, at 75. China also recognizes other business arrangements such as processing trade contracts, holding companies, and foreign-invested venture capital investment enterprises. Id. at 106-25. However, these types of organizations are not applicable to an offshore sourcing arrangement and as such will not be discussed in this Comment.

n36. See Chen, supra note 27, at 7 (asserting that choosing a WFOE model for investment in China is becoming more popular as foreign companies become comfortable with doing business in China, and China becomes comfortable with allowing foreign businesses in); see also Zimmerman, supra note 25, at 79 (noting that after China's accession to the WTO, U.S. companies have greater flexibility and meet less resistance when setting up WFOEs, leading to the WFOE being the preferred entity of foreign investors).

n37. Although there would be contractual obligations between the U.S. subsidiary and its parent, no contract would exist between a U.S. company and a Chinese-owned enterprise because the whole endeavor would be under the complete control of the U.S. company. See Zimmerman, supra note 25, at 78-81 (discussing the WFOE as being free from outside investment - hence, the "wholly foreign-owned enterprise" label).

n38. For each of the arrangements discussed in this section, except for the WFOE arrangement, there will be a contract between the U.S. company and the Chinese counterpart which details the responsibilities of each. See infra Part I.B (discussing the substantive contract law of China).

n39. Contract Law (promulgated by National People's Congress Mar. 15, 1999, effective Oct. 1, 1999), art. 126, translated at http://english.mofcom.gov.cn/static/column/lawsdata/chineselaw.html/1 (last visited Aug. 19, 2007) (P.R.C.) [hereinafter Contract Law P.R.C.]. The first clause of Article 126 as translated states:

 Parties to a foreign related contract may choose a country's law as an applicable law for contract dispute resolution unless there is a different provision in any Chinese laws. If parties to a foreign contract fail to choose an applicable law, the laws of the country which has the closest relation to the contract shall be applicable. Wei Luo, The Contract Law of the People's Republic of China 61 (1999) [hereinafter Wei Luo, Contract Law P.R.C.]; see Mo Zhang, Choice of Law in Contracts: A Chinese Approach, 26 Nw. J. Int'l L. & Bus. 289, 314-15 (2006) (explaining that the first clause of Article 126 of the Contract Law permits the parties expressly to choose the applicable law for the contract so long as the exception clause is not triggered). The Chinese Contract Law became effective in 1999 and reflects a reform in China to incorporate internationally recognized contract principles such as equality between parties, good faith, and freedom of contract. Wei Luo, Contract Law P.R.C., supra, at 12-13. This reform is a step towards China becoming a more market based economy. Id. at 13-14.

n40. Mo Zhang, supra note 39, at 298 (listing the possible permutations of a foreign contract as "(a) at least one party is not a Chinese citizen or legal person, (b) the subject matter of the contract is in a foreign country

(e.g., the item to be sold or purchased is located outside of China), or (c) the conclusion or performance of the contract is made in a foreign country"). Only when a contract is "foreign" under Chinese law does "the question as to which law shall govern the contract become relevant." Id. "If a contract is domestic in nature, it is without question that the contract will be subject to Chinese law only." Id.

n41. Regulations for the Implementation of Joint Ventures P.R.C., supra note 28, at art. 2. In normal commercial contracts with third parties and joint ventures, the Contract Law P.R.C. would apply. See Contract Law P.R.C., supra note 39, at art. 126; Zimmerman, supra note 25, at 90 nn.46-47. In the United States, joint ventures are part of the state law for corporations. 1 James D. Cox & Thomas Lee Hazen, Cox & Hazen on Corporations § 1.08 (2d ed. 2003). The foreign counterpart of the joint venture is usually considered to be doing business in the state as a partnership and is governed by state law, instead of Chinese law. Fletcher Cyclopedia Corporations § 8500 (1998). However, this Comment does not undertake an analysis of the liability of partnerships in the United States.

n42. Contract Law P.R.C., supra note 39, at art. 126.

n43. Id. The second clause of Article 126 states:

 The laws of the People's Republic of China shall be applied to all Sino-foreign equity joint venture enterprise contracts, Sino-foreign cooperative joint venture enterprise contracts and exploration and development of natural resources contracts which are performed within the territory of the People's Republic of China. Wei Luo, Contract Law P.R.C., supra note 39, at 61; see Mo Zhang, supra note 39, at 320 (explaining that although Chinese Contract Law recognizes party autonomy in choosing the law to be applied, the second paragraph of Article 126 has a mandatory exception for Chinese-foreign contractual joint ventures, which must choose Chinese law).

n44. Contract Law P.R.C., supra note 39, at art. 128. Article 128 states in relevant part:

 The parties may resolve a contract dispute[] through settlement or mediation... . The parties to a foreign contract may submit their disputes to a Chinese arbitration institution or other arbitration institutions for arbitration according to their arbitration agreement. Wei Luo, Contract Law P.R.C., supra note 39, at 62.

n45. Contract Law P.R.C., supra note 39, at art. 126; see Mo Zhang, supra note 39, at 298 ("If a contract is domestic in nature, it is without question that the contract will be subject to Chinese law only.").

n46. Rules for Implementation of WFOEs P.R.C., supra note 33, at art. 2 ("Wholly foreign-owned enterprises shall be subject to the jurisdiction of and receive the protection of Chinese laws. Business activities which wholly foreign-owned enterprises engage in within Chinese territory must comply with Chinese laws and regulations and any activity detrimental to China's social public interest shall be prohibited."). Being subject to Chinese law may concern U.S. companies because of the relative lack of transparency and influence of the Chinese Communist Party on the judicial system. Sarah Biddulph, China's Accession to the WTO: Legal System Transparency and Administrative Reform, in China and the Long March to Global Trade: The Accession of China to the World Trade Organization 156 (Sylvia Ostry et al. eds., 2002); Mei Ying Gechlik, Judicial Reform in China: Lessons from Shanghai, 19 Colum. J. Asian L. 97, 97-100 (2005). At the same time, a WFOE would theoretically receive the same protection under Chinese law as any other Chinese business because of China's WTO membership. See World Trade Organization, Principles of the Trading System,

http://www.wto.org/english/thewto e/whatis e/tif e/fact2 e.htm (last visited Aug. 19, 2007) (describing the principle of national treatment). Interestingly, the United States would consider the Chinese subsidiary of a U.S. company subject to U.S. law for certain purposes. See, e.g., Restatement (Third) of Foreign Relations Law of the U.S. § 414 (1987) ("[A] state may exercise jurisdiction to prescribe for limited purposes with respect to activities of foreign branches of corporations organized under its laws."); 36 Am. Jur. 2d Foreign Corporations § 448 (explaining that by virtue of the minimum contacts doctrine, a subsidiary may be subject to in personam jurisdiction in the state in which its parent is located).

n47. Some interactions between the WFOE as a subsidiary to a U.S. company may be governed by U.S. law. "[A] state may exercise jurisdiction to prescribe for limited purposes with respect to activities of foreign branches of corporations organized under its laws." Restatement (Third) of Foreign Relations Law of the U.S. § 414; 36 Am. Jur. 2d Foreign Corporations § 448.

n48. Rules for Implementation of WFOEs P.R.C., supra note 33, at art. 2.

n49. Regulations on the Labor Management of the Foreign-Funded Enterprise (promulgated by Ministry of Labor and Ministry of Foreign Trade & Economic Cooperation, Aug. 11, 1994, effective Aug. 11, 1994), art. 4, 8 (P.R.C.), translated at http://english.mofcom.gov.cn/static/column/lawsdata/chineselaw.html/1 (last visited Aug. 19, 2007) [hereinafter Foreign Enterprise Labor Management P.R.C.] (stating that the labor contracts are between the employee and the foreign company and indicating that a foreign funded enterprise must follow the Labour Law); Labour Law of the People's Republic of China (effective Jan. 1 1995), art. 16 (P.R.C.), translated at http://english.mofcom.gov.cn/aarticle/policyrelease/internationalpolicy/200703/20070304475283.html (requiring a labor contract for any labor relationship). In addition, a foreign-invested enterprise may employ U.S. citizens but must give hiring preference to Chinese nationals. Regulations on the Management of Employment of Foreigners in China (promulgated by Ministry of Labor, Jan. 22, 1996, effective May 1, 1996), ch. 2, arts. 5-6, translated at http://english.mofcom.gov.cn/static/column/lawsdata/chineselaw.html/1 (last visited Aug. 19, 2007) (P.R.C.) [hereinafter Regulations on Employment of Foreigners P.R.C.].

n50. Contract Law P.R.C., supra note 39, at art. 126. The joint venture arrangement would also have employment contracts with its employees. For those employment contracts to be foreign-related, the contract must be between the U.S. company and the Chinese employee. However, it is also possible in the joint venture that the Chinese partner would hire the Chinese employees and have the employment contract be between the Chinese partner and Chinese employee, making it a domestic contract.

n51. See Foreign Trade Law (promulgated by Nat'l People's Congress, Apr. 6, 2004, effective July 1, 2004), arts. 1, 3, 11, 14, translated at http://www.tdctrade.com/report/reg/reg 040503.htm?w sid=194&w pid=703&w nid=&w cid=&w idt=1900-01-01&w oid=180&w jid= (P.R.C.) [hereinafter Foreign Trade Law P.R.C.].

n52. John F. Delaney, Privacy, Data Security and Outsourcing: The Regulatory Framework, in Delaney & Tanenbaum, supra note 8, at 611-34. Often, federal and state regulations are targeted at protecting data that is transferred between business units or companies, such as the Gramm-Leach-Bliley Act of 1999 and the Amendment to California Civil Code Section 1798.82 (requiring businesses that suffer a breach of data security to notify California residents). Id. at 632. While there are frequent proposals in state and federal legislatures to limit offshore sourcing, many of these proposals seem to target only government contractors. See, e.g., Gregory B. Hladky, Blumenthal Pushes Firms with U.S. Workers, New Haven Register (Conn.), Feb. 13, 2007, available at http://www.nhregister.com/site/index.cfm?newsid=17843249&BRD=1281&PAG=461&dept id=517515&rfi=8 (reporting that the Connecticut Attorney General proposed legislation giving preference to U.S. companies that do not outsource for state contracts); Chris Seper, Offshoring Finds Foes in Ohio Legislature, Plain Dealer (Ohio), Apr. 19, 2004, at E4 (reporting on a proposal from lawmakers restricting state and local contracts to companies that do not send work overseas).

n53. Foreign Trade Law P.R.C., supra note 51, at arts. 1, 3, 11, 14. The Law defines foreign trade as "the import and export of goods, technology, and the international trade of services." Id. art. 2. It also allows the State Council to take action quickly if any import or export situation abruptly or abnormally interferes with the economic security of the state:

 The authority responsible for foreign trade under the State Council and other related authorities under the State Council shall develop a surveillance mechanism to deal with emergencies related to import and export of goods and technology and international trade in services, to cope with emergent and abnormal circumstances in foreign trade, and safeguard the country's economic security. Id. art. 49. Unlike Exon-Florio and section 232, any violation of the Chinese Foreign Trade Law can result in fines or criminal prosecution. Id. arts. 60-66. The Foreign Trade Law also implements some of China's obligations under the WTO, granting most favored nation and national treatment to businesses from the United States. Id. art. 6. See generally Biddulph, supra note 46, at 163-65 (listing examples of China's requirements under the General Agreement on Tariffs and Trade ("GATT")). So long as the business registers its contracts, and unless another law restricts the imports or exports, the Foreign Trade Law allows the free import and export of goods and services. Foreign Trade Law P.R.C., supra note 51, at arts. 14-16. A government circular sets forth procedures to be followed.

 Foreign-funded projects shall be examined and approved, and put on record respectively by the departments of development planning and the economic and trade departments according to the limit of authority for examination and approval; the contracts and articles of association of foreign-funded enterprises shall be examined and approved, and put on record by the departments of foreign trade and economic cooperation. Circular on Strengthening the Admin. of the Establishment of Sensitive Materials Prod. Enters. in China by Foreign Investors, No. 165 (promulgated by State Dev. Planning Comm., Ministry of Foreign Trade & Econ. Cooperation, State Econ. Comm., May 11, 2002), at 1, translated at http://www.fdi.gov.cn/pub/FDI EN/Laws/InvestmentDirection/GuidanceforSpecificIndustries/P020060620332181098108.pdf (last visited Aug. 19, 2007) (P.R.C.).

n54. Catalog of Restricted Foreign Investment Industries (promulgated by State Dev. Planning Comm., Ministry of Foreign Trade & Econ. Cooperation, State Econ. Comm., May 11, 2002, effective May 11, 2002), translated at http://www.chinadaily.com.cn/bizchina/2006-04/20/content 572210.htm (P.R.C.) [hereinafter Catalog for Investment P.R.C.]. China does restrict some types of exports "in order to safeguard the national security, public interest, or public ethics." Foreign Trade Law P.R.C., supra note 51, at art. 16. Article 26 of the Foreign Trade Law has the same restriction for international services. Id. art. 26.

n55. Foreign Trade Law P.R.C., supra note 51, at art. 11.

n56. Id. arts. 4, 11; see Catalog for Investment P.R.C., supra note 54 (listing the encouraged, restricted, and prohibited export items). China has also issued a Circular specifically addressing questions on software export. Circular Concerning Relevant Questions About Software Exports (promulgated by Ministry of Foreign Trade & Econ. Cooperation et al., Jan. 4, 2001, effective Jan. 4, 2001), translated at http://english.hebiic.gov.cn/policy/PolicyDetail.aspx?id=210 (last visited Aug. 18, 2007) (P.R.C.). This regulation clarifies that unless the software exporting company has a registered capital of more than one million RMB, its exports must be managed by the Ministry of Foreign Trade and Economic Cooperation. Id.

n57. Catalog for Investment P.R.C., supra note 54.

n58. 50 U.S.C.A. app. § 2170 (1994).

n59. Pub. L. No. 100-418, tit. V, § 5113, 102 Stat. 1432 (1988).

n60. Id. Note that national security is not defined in the statute. 50 U.S.C.A. app. § 2170; Nance & Wasserman, supra note 28, at 951.

n61. 31 C.F.R. 800.301 (2006); accord Alvarez, supra note 28, at 82-83; Nance & Wasserman, supra note 28, at 965-66.

n62. See Nagel & Murphy, supra note 8, at 152 (noting that management's goal to shed non-core business functions is one reason offshore sourcing is growing, implying that the U.S. company will retain its core functions); see also Carmel & Tjia, supra note 8, at 15, 111 (observing that companies tend to keep "creative, innovative, and research oriented" activities in the United States and noting that a "strategic peril" in offshore sourcing is losing the company's core competency). See generally Mendel, supra note 8, at 257 (providing the explanation that U.S. companies use offshore sourcing to yield cost savings and increase efficiency, yet the company is "typically able to exert more control" by offshore sourcing to a subsidiary or close foreign affiliate). Moreover, if for some reason the CFIUS did decide to investigate an offshore sourcing joint venture arrangement, the U.S. company could negotiate terms to assure the Committee the requisite level of security, as Lenovo did by moving its headquarters to the United States. Schmertz & Meier, supra note 3, at 1. Lenovo Group Ltd., the largest China-based PC maker, acquired IBM's PC business in 2005. Id. The one stipulation for approval was that Lenovo would move its headquarters to the United States from Beijing. Id. Today, major production operations are both in China and North Carolina. Michael Schuman, Lenovo's Global Gambit, Time, Oct. 2006, at G15.

n63. See Chen, supra note 27, at 10 (discussing the control of power in joint ventures and noting that it was not uncommon for the board of directors to create an arrangement that maintains control of the other entity).

n64. See id. ("The parties to a Joint Venture will pay particular attention to balancing each partner's control over the Joint Venture.").

n65. 19 U.S.C. § 1862 (2000).

n66. Nance & Wasserman, supra note 28, at 929-30. In enacting the section, Congress stated that the purpose was to safeguard the security of the Nation, "not the output or profitability of any plant or industry except as these may be essential to national security." H.R. Rep. No. 85-1761, at 13-15 (1958).

n67. 19 U.S.C. § 1862. The President should consider the following factors: (1) "domestic production of the article needed for projected national defense requirements;" (2) "the capacity of domestic industries to meet such requirements;" (3) "existing and anticipated availabilities of the human resources, products, raw materials, and other supplies and services essential to the national defense;" (4) "the requirements of growth of such industries and such supplies and services, including the investment, exploration, and development necessary to assure such growth;" and (5) "the importation of goods in terms of their quantities, availabilities, character, and use as those affect such industries and the capacity of the United States to meet national security requirements." 19 U.S.C. § 1862(d). The statute adds that

 the Secretary and the President shall further recognize the close relation of the economic welfare of the Nation to our national security, and shall take into consideration the impact of foreign competition on the economic welfare of individual domestic industries; and any substantial unemployment, decrease in revenues of government, loss of skills or investment, or other serious effects resulting from the displacement of any

domestic products by excessive imports. 19 U.S.C. § 1862(d). The statute also provides that the Secretary should consider the relationship between economic welfare and national security. 19 U.S.C. § 1862.

n68. Nance & Wasserman, supra note 28, at 935-36.

n69. The investigating authority (the International Trade Administration) specifically considers whether, during a national emergency, the domestic industry can expand production sufficiently, whether the existing stock can be converted from civilian to military use, and whether the imports are reliable. Nance & Wasserman, supra note 28, at 938 n.61. The only product that has been unilaterally restricted is petroleum imports from Libya. Id. at 945. This restriction is generally viewed as stemming from political considerations rather than the actual stockpile or domestic ability to produce petroleum. Id.

n70. See Anthes, supra note 3 (quoting the opinion of Paul Strassmann, a professor at George Mason University, that a denial of service problem could result in "billion-dollar weapons unable to function").

n71. See, e.g., id. (discussing the possible dangers of overseas code in U.S. weapons systems).

n72. Nance & Wasserman, supra note 28, at 935 (noting the President's power to determine which imports are a threat to national security).

n73. See, e.g., id. at 935-36 (explaining that although what is a threat to national security is undefined, "the focus is upon national defense" applications).

n74. Cf. Gary G. Yerkey, U.S. Commerce Department to Publish "Catch-All' Export Rule for China This Spring, 23 Int'l Trade Reporter 427, 433 (2006) (reporting that the Department of Commerce proposed limiting exports from the United States to China that "could damage national security," for example when the exporter knows the product could have a military end-use).

n75. 18 U.S.C. § 1030 (2000). There are also narrower laws that address sabotage of nuclear facilities or airplanes that the United States could use to prosecute a person in those specific situations. See, e.g., 18 U.S.C. § 32 (2000) (providing for fines and imprisonment for the willful damage or disabling of aircraft); 42 U.S.C. § 2284 (2000) (providing criminal penalties for the sabotage of nuclear facilities or fuel). The CFAA can be used in conjunction with these and other specific laws. See, e.g., United States v. Ivanov, 175 F. Supp. 2d 367, 370 (D. Conn. 2001) (charging Ivanov with violations of the CFAA, the Hobbs Act, 18 U.S.C. § 1951 (2000), and the Access Device Statute, 18 U.S.C. § 1029 (2000)); Am. Online, Inc. v. Nat'l Health Care Disc., Inc., 121 F. Supp. 2d 1255, 1258 (N.D. Iowa 2000) (charging National Health Care Discount with a violation of the CFAA and Virginia Computer Crimes Act).

n76. See Anthes, supra note 3. Anthes references software being used in weapons systems and "systems that bundle the hardware, an operating system, a database and other components in addition to the application code." Id. Many articles, cases, and even the legislative history of the CFAA reference viruses being inserted into the Internet by a "hacker," or some other act of an outsider using the Internet or a network to obtain information or to impair systems. See, e.g., Am. Online, Inc., 121 F. Supp. 2d at 1272-76 (finding that the defendant violated the CFAA by using the AOL network to send spam e-mail); H.R. Rep. No. 98-894, at 10 (1984), as reprinted in 1984 U.S.C.C.A.N. 3689, 3695-96 (discussing the problem of "hackers" and their proliferation due to the growth of computer networks); Debra Wong Yang & Brian M. Hoffstadt, Countering the Cyber - Crime Threat, 43 Am. Crim. L. Rev. 201, 201-02 (2006) (referencing breaches in security networks regardless of industry); Spammer, Described as Scourge of In-Box, Is Charged with Fraud, N.Y. Times, June 1, 2007, at A1 (reporting the apprehension of a hacker who used "computers infected with malicious code to send out millions of pieces of spam since 2003"). But see Joseph M. Olivenbaum, Ctrl-Alt-

Delete: Rethinking Federal Computer Crime Legislation, 27 Seton Hall L. Rev. 574, 576 (1997) ("[A] "computer-specific' approach results, too often, in criminal statutes that are unnecessary, imprecise, clumsy, over-inclusive, or ineffective."). What the DOD report and what this Comment attempt to bring to light is the fact that an insider can insert malicious code into any aspect of the broader computing system, without the need of a network. Anthes, supra note 3 ("You can put back doors and Trojans in any layer of that environment, not just in the custom code."). In other words, the malicious code can be inserted when the system is being built.

n77. 18 U.S.C. § 1030(c), (g) (establishing fines and imprisonment for violations of subsections (a) and (b) and allowing for a civil action for a violation of clauses (i), (ii), (iii), (iv), or (v) of subsection(a)(5)(B)). But cf. Reid Skibell, Cybercrimes and Misdemeanors: A Reevaluation of the Computer Fraud and Abuse Act, 18 Berkeley Tech. L.J. 909, 911, 922, 937-39 (2003) (criticizing the overly punitive nature of the CFAA).

n78. See infra Part III.A.

n79. See infra Part III.B.

n80. See infra Part III.C.

n81. 18 U.S.C. § 1030. The CFAA states, in relevant part:

 (a) Whoever - 

 (1) having knowingly accessed a computer without authorization or exceeding authorized access, and by means of such conduct having obtained information ... of national defense or foreign relations ... with reason to believe that such information so obtained could be used to the injury of the United States, or to the advantage of any foreign nation willfully communicates, delivers, transmits ... to any person not entitled to receive it; 

 (2) intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains - 

 ... 

 (B) information from any department or agency of the United States; or 

 (C) information from any protected computer if the conduct involved an interstate or foreign communication; 

 (3) intentionally, without authorization to access any nonpublic computer of a department or agency of the United States, accesses such a computer ... and such conduct affects that use by or for the Government of the United States;

 

 (4) knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value ... ; 

 (5) 

 (A) 

 (i) knowingly causes the transmission of a program, information, code, or command, and ... intentionally causes damage without authorization, to a protected computer; 

 (ii) intentionally accesses a protected computer without authorization, and ... recklessly causes damage; or 

 (iii) intentionally accesses a protected computer without authorization, and ... causes damage; and 

 (B) by conduct described in clause (i), (ii), or (iii) of subparagraph (A), caused ... 

 (i) loss to 1 or more persons during any 1-year period ... aggregating at least $ 5,000 in value ... ; 

 ... 

 (iii) physical injury to any person; 

 (iv) a threat to public health or safety; or 

 (v) damage affecting a computer system used by or for a government entity in furtherance of the administration of justice, national defense, or national security; 

 

(6) knowingly and with intent to defraud traffics ... in any password or similar information through which a computer may be accessed without authorization, if - 

 (A) such trafficking affects interstate or foreign commerce; or 

 (B) such computer is used by or for the Government of the United States; [or] 

 (7) with intent to extort from any person any money or other thing of value, transmits in interstate or foreign commerce any communication containing any threat to cause damage to a protected computer; 

 shall be punished ... . 18 U.S.C. § 1030(a) (footnote omitted). A violation of the act could be as simple as accessing a protected computer to gain information, so long as the access was an interstate or foreign communication and was intentional. 18 U.S.C. § 1030 (a)(2)(C). The act also prohibits accessing a protected computer in order to cause damage to the computer. 18 U.S.C. § 1030(a)(5). The damage caused may be intentional, 18 U.S.C. § 1030(a)(5)(A)(i), reckless, § 1030(a)(5)(A)(ii), or negligent, § 1030(a)(5)(A)(iii). See Int'l Airport Ctrs., L.L.C. v. Citrin, 440 F.3d 418, 420-21 (7th Cir. 2006) (holding that deleting files from a computer to which the defendant was no longer allowed access, using a secure-erase program which had to be added to the computer, would be violation of the CFAA); Moulton v. VC3, No. 1:00 CV434-TWT, 2000 WL 33310901, at 6 (N.D. Ga. Nov. 7, 2000) (holding that certain methods of scanning a computer to determine security weaknesses do not fit the definition of damage because the scanning did not compromise network security and no information was made unavailable).

n82. 18 U.S.C. § 1030(e)(2). A computer includes any "electronic, magnetic, optical, electrochemical, or other high speed data processing device performing logical, arithmetic, or storage functions, and includes any data storage facility or communications facility directly related to or operating in conjunction with such device." Id. § 1030(e)(1). Congress then limited the definition by including the clause, "but such term does not include an automated typewriter or typesetter, a portable hand held calculator, or other similar device." Id. The legislative history suggests that Congress struggled with the definition of computer.

 The whole issue of defining the word "computer' has plagued the consideration of computer crime legislation since its early days... . Initially, it was the Subcommittee on Crime's opinion that the dictionary definition was as good as one available considering the volatile state of technology in this area. The Committee decided, however, that a specific definition was desirable in order to avoid attacks upon the statute on the grounds of vagueness. H.R. Rep. No. 98-894, at 23 (1984), as reprinted in 1984 U.S.C.C.A.N. 3689, 3709. Although much of the original 1984 statute has been changed, the definition of "computer" has remained the same since the initial enactment. Compare Counterfeit Access Device and Computer Fraud and Abuse Act of 1984, tit. II, ch. XXI, 98 Stat. 1837, 2190-92 (1984) (current version at 18 U.S.C. § 1030 (2000)), with 18 U.S.C. § 1030(e)(1). A 1979 proposal suggested that the definition be: "an electronic device which performs logical, arithmetic, and memory functions by the manipulations of electronic or magnetic impulses, and includes all output, processing, storage, software, or communication facilities which are connected or related to such a device in a

system or network." Olivenbaum, supra note 76, at 619 n.202 (citation omitted). While Congress recognized the need for "computer-specific" statutes, the pace at which technology changes risks making these statutes inapplicable to certain situations. Id. at 576; accord President's Working Group on Unlawful Conduct on the Internet, The Electronic Frontier: The Challenge of Unlawful Conduct on the Internet, Mar. 2000, http://www.cybercrime.gov/unlawful.htm#TECH (recommending that any regulation of unlawful conduct on the Internet should be treated in a technology-neutral manner).

n83. United States v. Mitra, 405 F.3d 492, 495 (7th Cir. 2005) (explaining that the statute is general, likely allowing iPods, wireless base stations, cell phones, cell towers, and other items to be considered computers, and that it is the legislature's duty, not the courts', to amend the statute to give it less coverage); Lee, Embedded Software, supra note 1, at 1 (explaining embedded software to have as its principal role the interaction with the physical world via the device in which it resides, such as a car, airplane, or telephone).

n84. Accord Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1291 (3d Cir. 1979) (stating that the Supreme Court classified foreign commerce as applying to "importing, exporting, and other commercial transactions as well as transportation and communication between the United States and a foreign country"); see United States v. Ivanov, 175 F. Supp. 2d 367, 374 (D. Conn. 2001) (distinguishing foreign commerce and interstate commerce).

n85. Note that the end product might not be a "computer," as commonly thought, but even devices such as CD players contain sufficient software to be considered "micro-computers." See Graaf, supra note 1, at 61 (explaining that many devices today contain software).

n86. 18 U.S.C. § 1030(a). Subsections (1) and (4) prohibit knowingly accessing a protected computer. § 1030(a)(1), (a)(4). Subsections (2), (3), and (5) prohibit intentionally accessing a protected computer. § 1030(a)(2), (a)(3), (a)(5).

n87. See generally Orin S. Kerr, Cybercrime's Scope: Interpreting "Access" and "Authorization" in Computer Misuse Statutes, 78 N.Y.U. L. Rev. 1596 (2003). Professor Orin Kerr has explored the limitations of not having a definition of access in the statute. Id. at 1620-21. In his article, he comments that "access" can have two different meanings - "first, that a user accesses a computer when she sends a command to that computer instructing it to perform a task, and the computer performs the request as instructed" or alternatively, "that a user accesses a computer when she sends a command requesting information and the computer responds by sending back the requested information." Id. Thus, without a definition in the statute it is unclear which of these meanings should be applied by courts because the advance of computer technology since the 1970s makes the definition of access no longer self-explanatory. Id. at 1620-21, 1641. Proponents of "unauthorized access" laws see these laws as analogous to the traditional breaking and entering or trespass laws, making the concept of "access" easy to envision. Id. at 640-41. Today, however, the question becomes: what is a physical presence when there are "always on" Internet connections? Id. at 641. While in 1975 a user had to dial-in to a computer network using a telephone line and usually enter some text-based identification to proceed, today's users "merge seamlessly" with the Internet and the computers connected to it. Id. "Today you might know when you use a computer, but the word "access' is merely a label to be assigned somewhat awkwardly to conduct that may not seem like an access at all." Id.; accord Olivenbaum, supra note 76, at 576 ("To the extent that they are drafted in "technology-specific' language, the pace of technological change and the ingenuity of computer-literate criminals guarantee that those statutes will be obsolete almost as soon as they are enacted.").

n88. See Am. Online, Inc. v. Nat'l Health Care Disc., Inc., 121 F. Supp. 2d 1255, 1272-73 (N.D. Iowa 2000) (citing Merriam-Webster's Collegiate Dictionary 6 (10th ed. 1994)).

n89. 121 F. Supp. 2d 1255. In this civil case, America Online, Inc. ("AOL") brought suit against National Health Care Discount, Inc. ("NHCD") for sending unsolicited bulk email, or "spam," through the AOL network to members' email. Id. at 1259. The contractor for NHCD harvested the AOL members' email addresses, then sent out hundreds of millions of emails regarding the NHCD products, often using inaccurate

"From" information. Id. at 1266-67.

n90. Id. at 1272.

n91. Id. at 1273 (internal quotation marks omitted). In the context of America Online, Inc., "when someone sends an e-mail message from his or her own computer, and the message then is transmitted through a number of other computers until it reaches its destination, the sender is making use of all of those computers, and is therefore "accessing' them." Id. at 1273. As such, NHCD made use of the AOL member computers in violation of the CFAA. Id. at 1273; see Role Models Am., Inc. v. Jones, 305 F. Supp. 2d 564, 566-67 (D. Md. 2004) (citing Am. Online, Inc., 121 F. Supp. 2d at 1272-73) (observing that "the word "access,' in this context, is an active verb: it means "to gain access to,' or "to exercise the freedom or ability to make use of something;'" therefore, passively receiving information is not accessing the computer from which the information came); State v. Riley, 846 P.2d 1365, 1367-68, 1373 (Wash. 1993) (en banc) (holding that Riley accessed the telephone company's computers without authorization by repeatedly dialing the access number for long distance calls and guessing random passwords in an attempt to learn which passwords would allow him to make long distance calls and charge the calls to another telephone company customer).

n92. Am. Online, Inc., 121 F. Supp. 2d at 1272-73.

n93. Kan. Stat. Ann. § 21-3755(a)(1) (1996) (amended in 1997 to strike the word "approach" from the definition of "Access"). Since the Kansas statute is similarly worded to the federal CFAA, it is relevant to use as an analogy.

n94. 917 P.2d 848 (Kan. 1996).

n95. Id. at 852-53 (explaining that the wording "to approach" in the statutory definition lent itself to too broad an application).

n96. Id. at 853; see Kerr, supra note 87, at 1624, 1646-47 (describing Allen and commenting that courts should interpret "access" even more broadly than the Allen court did, while narrowing the interpretation of "unauthorized").

n97. Allen, 917 P.2d at 853. Otherwise, under the definition in the state statute, "any unauthorized physical proximity to a computer could constitute a crime." Id. at 852 (citation omitted).

n98. 18 U.S.C. § 1030(e) (2000).

n99. See Am. Online, Inc. v. Nat'l Health Care Disc., Inc., 121 F. Supp. 2d 1255, 1272-73 (N.D. Iowa 2000) (defining "access" as an active verb "to exercise the freedom or ability to make use of something").

n100. 928 F.2d 504 (2d Cir. 1991).

n101. Id. at 510. Although the case was decided under the 1988 version of the CFAA, it is still relevant. The key terms in the 1988 version are carried over to the current statute. Compare 18 U.S.C. § 1030(a)(5)(A)(iii) (2000) ("intentionally accesses a protected computer without authorization, and as a result of such conduct, causes damage"), with 18 U.S.C.A. § 1030(a)(5) (1986) ("intentionally accesses a Federal interest computer without authorization, and ... damages, or destroys information in any such Federal interest computer").

n102. 928 F.2d at 505, 509. "Morris was authorized to use computers at Cornell ... . As a result, Morris was authorized to communicate with other computers on the network to send electronic mail ... ." Id. at 509. Morris argued that the release of the virus via the Cornell computer only "exceeded authorized access" and thus did not violate § 1030(a)(5)(A). Id. at 510. Morris relied on a Senate report that stated the statute was aimed at

outsiders who would not have access to Federal interest computers. Id. Interestingly, Morris claimed to have released the virus only to expose weaknesses in the Internet. Id. at 505.

n103. See id. at 510 (countering that the Senate report also included as an outsider any person who is outside of his or her government department, even though he or she may be a government employee).

n104. Id. at 510. As Professor Kerr notes, the court may have been drawing on a seemingly unspoken rule in the computer world. Kerr, supra note 87, at 1632 ("Although the court did not elaborate on its standard, the intended function test appears to derive largely from a sense of social norms in the community of computer users."). A software program is designed and built to perform certain tasks, "and network providers enable the programs to allow users to perform those tasks." Id. at 1632. However, by providing the program, the provider "implicitly authorizes users to use their computers to perform the intended functions, but implicitly do not authorize users to exploit weaknesses in the programs that allow them to perform unintended functions." Id. "When a user exploits weaknesses in a program and uses a function in an unintended way to access a computer, the thinking goes, that access is "without authorization.'" Id.

n105. Contra Am. Online, Inc. v. Nat'l Health Care Disc., Inc., 121 F. Supp. 2d 1255, 1273 (N.D. Iowa 2000) (discussing the definition of "without authorization" and wondering if, by violating the Terms of Service, the user's access then becomes unauthorized for purposes of the statute). AOL members have authorization to access the AOL network by virtue of being members, but the AOL Terms of Service specifically state that members are not permitted to send spam e-mail. Id. at 1260. The court held that, ultimately, authorization is a question of fact, but used the "insider" versus "outsider" metaphor Congress used when forming the statute. Id. at 1273. ("Similarly, is the member converted from an "insider' to an "outsider' for purposes of the CFAA by violating AOL's policies? On the other hand, if AOL members are "outsiders,' then why would AOL's membership policies apply to them at all?").

n106. S. Rep. No. 99-432, at 7-8 (1986), as reprinted in 1986 U.S.C.C.A.N. 2479, 2485-86.

n107. Id. The Senate thought this "exceeding [of] authorization" could be handled via administrative disciplinary procedures. Id. Additionally, the Senate was concerned that people authorized to repair the computers, which includes altering data, would be charged or sued under the Act. Id. at 12.

n108. Id.

n109. This flows logically from the embedded software scenario. As explained, the programmer's job is to access the software to program it. The programmer, however, exceeds this authorized access as soon as he or she attempts to maliciously add or change the software.

n110. 18 U.S.C. § 1030(a)(3), (a)(5) (2000).

n111. 18 U.S.C. § 1030(a)(2)(c), (a)(4).

n112. 274 F.3d 577 (1st Cir. 2001). This case involved the defendant, Explorica, using a "scraper program" to gather information from EF's website on pricing packages of tours for high school students. Id. at 579. A scraper program is like a robot that gathers information quickly from the Internet. Id. The defendants created this scraper program specifically to gather tour information from EF's website in order to undercut their prices. Id. Explorica's vice president, as a former employee of EF, knew what type of information Explorica would need to create the scraper program. Id. When the vice president left EF, he signed a confidentiality contract stating that he would not use any business information contrary to the interests of EF. Id. at 582.

n113. Id. at 583-84. Note that although § 1030(a)(4) requires an intent to defraud, the court did not rule on this intent because it was not raised in the briefs. Id. at 581 n.9. Thus, the court solely ruled on whether using the

scraper program went beyond the terms of the confidentiality agreement and in turn exceeded authorization. Id. at 581-84.

n114. See, e.g., id. (discussing the way that a contract can determine what actions "exceed authorization").

n115. 18 U.S.C. § 1030(a)(1), (a)(2), (a)(4). Importantly, the subsection under which a U.S. company may bring a private right of action requires that the access be "without authorization," not merely exceeding authorization. 18 U.S.C. § 1030(a)(5).

n116. United States v. Morris, 928 F.2d 504, 510 (2d Cir. 1991).

n117. 18 U.S.C. § 1030. The United States could take a lesson from China in this matter. The Chinese Criminal Code's broad statement that the government may punish any interference in the normal functioning of a computer information system covers more instances of embedded software by focusing on the result, rather than the definition of "computer" or "access without authorization." Wei Luo, The 1997 Criminal Code of the People's Republic of China: With English Translation and Introduction 156 (Hein & Co. 1998) [hereinafter Wei Luo, 1997 Criminal Code] (stating art. 286). According to the Chinese Criminal Code, if the normal functioning of what, at the time, is considered a computer is impaired, then the person has violated the law. Id.

n118. See supra Part I.B (discussing choice of law and choice of forum in offshore sourcing arrangements). The foreign-related contracts in the embedded software scenario are primarily the employment contracts between the U.S. company and Chinese programmers. The contract that produces the joint venture must be governed by Chinese law. See id.; see also supra note 49 and accompanying text (explaining that all employers must have employment contracts with their employees).

n119. See supra Part I.B.

n120. See, e.g., Morris, 928 F.2d at 510 (explaining how contracts can provide broad protection, even when the actions taken do not fit within the requirements of the statute).

n121. Contract Law P.R.C., supra note 39, at art. 8.

n122. The U.S. company can claim that the Chinese programmer violated the CFAA. 18 U.S.C. § 1030 (a)(5)(B). 18 U.S.C. § 1030(g) states, in part, "A civil action for a violation of this section may be brought only if the conduct involves one of the factors set forth in clause (i), (ii), (iii), (iv), or (v) of subsection (a)(5)(B)." The U.S. government may also file a criminal case against the Chinese programmer for violating any section of the CFAA. § 1030(c).

n123. There are many ways a court could have jurisdiction over the Chinese programmer. For the embedded software scenario in this Comment, personal jurisdiction is not likely a viable method for the court because the scenario assumes the Chinese programmer is not physically in the United States and likely has no minimum contacts with the United States. See, e.g., Burnham v. Superior Court, 495 U.S. 604, 619 (1990) ("Jurisdiction based on physical presence alone constitutes due process because it is one of the continuing traditions of our legal system that define the due process standard of "traditional notions of fair play and substantial justice.'"). As the Supreme Court held in the landmark jurisdiction case of International Shoe Co. v. Washington:

 Due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. 

326 U.S. 310, 316 (1945). If either of these is true, then the court may have personal jurisdiction. A court may also have diversity jurisdiction because the programmer is Chinese and the business or government is American, but the amount in controversy must be more than $ 75,000. 28 U.S.C. § 1332 (2000). This Comment focuses on extending the CFAA extraterritorially, and finding federal question subject matter jurisdiction for a claim brought against a programmer in China under this statute.

n124. Am. Banana Co. v. United Fruit Co., 213 U.S. 347, 357 (1909) (discussing the presumption against extraterritoriality).

n125. Id.

n126. See id. at 357 ("All legislation is prima facie territorial.").

n127. Id.

n128. See infra Part III.C.1 (analyzing the application of statutory interpretation to the CFAA and the embedded software scenario).

n129. See infra Part III.C.2 (analyzing the application of the effects test as developed from antitrust case law to the CFAA).

n130. See infra Part III.C.3 (analyzing the application of the conduct test as developed from securities case law to the CFAA).

n131. United States v. Aluminum Co. of Am., 148 F.2d 416, 443 (2d Cir. 1945). There is a difference between the jurisdiction to prescribe and the jurisdiction to adjudicate. A court or legislature may have jurisdiction to prescribe or apply a law extraterritorially if it satisfies one of these principles, but it may not be able to enforce that law against a non-citizen if that person is not within the territory of the United States. Restatement (Third) of Foreign Relations Law of the United States § 421 cmt. a (1987). Generally, U.S. law requires an extradition treaty with the non-citizen's country in order to try that person in the United States for crimes committed abroad. 18 U.S.C. § 3181(a) (2000) ("The provisions of this chapter relating to the surrender of persons who have committed crimes in foreign countries shall continue in force only during the existence of any treaty of extradition with such foreign government."). As yet, the United States does not have an extradition treaty with China, although the two countries do have a Mutual Legal Assistance Treaty. Mutual Legal Assistance in Criminal Matters, June 19, 2000, U.S.-P.R.C, Temp. State Dept. No. 01-44. However, this Comment takes the approach that, similar to the application of the antitrust statutes and the fraud provisions of the securities statutes, a court could still adjudicate a CFAA claim against a Chinese programmer, regardless of the existence of an extradition treaty. See, e.g., United States v. Nippon Paper Indus. Co., 109 F.3d 1, 4-5, 9 (1st Cir. 1997) (holding that acts committed abroad but having effects in the United States may be a basis for criminal prosecution under the Sherman Act). See generally Charles J. Johnson, Jr., Application of Federal Securities Laws to International Securities Transactions, 45 Alb. L. Rev. 890, 891-92 (1981) (summarizing that courts apply the antifraud provisions of the 1934 Securities Act extraterritorially, while perhaps courts are more restrained in applying the registration rules for securities extraterritorially).

n132. Accord Roger P. Alford, The Extraterritorial Application of Antitrust Laws: The United States and European Community Approaches, 33 Va. J. Int'l L. 1, 7-19 (1992) [hereinafter Alford, Extraterritorial Antitrust Laws] (reviewing the antitrust case law where courts have applied the Sherman Act extraterritorially); John W. Hamlin, Comment, Exporting United States Law: Transnational Securities Fraud and Section 10(b) of the Securities Exchange Act of 1934, 3 Conn. J. Int'l L. 373, 385-96 (1988) (reviewing the securities case law where courts have applied section 10(b) of the 1934 Securities Act extraterritorially).

n133. 175 F. Supp. 2d 367 (D. Conn. 2001).

n134. Id. at 370, 373-75.

n135. See id. at 373 ("This "presumption against extraterritoriality' may be overcome by showing "clear evidence of congressional intent to apply a statute beyond our borders.'" (citation omitted)).

n136. E.g., Kauther SDN BHD v. Sternberg, 149 F.3d 659, 664-65 (7th Cir. 1998) (suggesting that because Section 10(b) of the 1934 Securities and Exchange Act defines "interstate commerce" in part as trade between any foreign country and any State, that Congress would have wanted the Section to be applied extraterritorially).

n137. See id. at 663-64 (positing that if the legislative history of the 1934 Securities and Exchange Act had given the court any direction, the court would have used that history to help determine extraterritoriality); SEC v. Kasser, 548 F.2d 109, 116 (3d Cir. 1977) (holding that Congress's purpose, for both the 1933 and 1934 Securities Acts, was to ensure high standards for investments in the United States, even for investors from abroad).

n138. 149 F.3d 659 (7th Cir. 1998).

n139. Id. at 664. But cf. United States v. Aluminum Co. of Am., 148 F.2d 416, 443-44 (2d Cir. 1945) (assuming that the Sherman Act does not cover agreements unless an effect within the United States could actually be shown, without discussing the exact language of the Sherman Act). Section 10(b) of the 1934 Securities and Exchange Act states that

 it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange ... . to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. 15 U.S.C. § 78j(b) (2000). The SEC then promulgated Rule 10b-5, which states that

 it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, 

 (a) To employ any device, scheme, or artifice to defraud, 

 (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or 

 (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit

upon any person, in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5 (2007).

n140. Kauther, 149 F.3d at 664 (7th Cir. 1998); see 15 U.S.C. § 78j(b) ("It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails ... to use or employ ... any manipulative or deceptive device ... .").

n141. 15 U.S.C. § 78c(a)(17) (2000); Kauther, 149 F.3d at 664.

n142. Kauther, 149 F.3d at 664 ("Congress did leave some indication in the language of the securities laws about their intended application to foreign commerce.").

n143. Id.; see Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1291 (3d Cir. 1979) (defining foreign commerce as "importing, exporting, and other commercial transactions, as well as transportation and communication between the United States and a foreign country").

n144. 175 F. Supp. 2d 367, 374 (D. Conn. 2001).

n145. Id.

n146. Id.

n147. Id.

n148. Id.

n149. S. Rep. No. 104-357, at 3 (1996).

n150. Ivanov, 175 F. Supp. 2d at 374; S. Rep. No. 104-357, at 4.

n151. See Kauther SDN BHD v. Sternberg, 149 F.3d 659, 664 (7th Cir. 1998) (noting that courts have concluded the statutory language indicates that that the antifraud provisions are applicable to at least some securities transactions); Ivanov, 175 F. Supp. 2d at 374-75 (arguing that Congress's intent is clear in that it wanted the CFAA to apply to "computers used "in interstate or foreign commerce or communication'").

n152. See, e.g., 18 U.S.C. § 1030(a)(2)(C) (2000).

n153. See Ivanov, 175 F. Supp. 2d at 374 (citing the 1996 Senate Report to suggest that Congress was concerned about the threat of foreign-based hackers); S. Rep. No. 104-357, at 3-5 (1996). The person would also have to meet one of the additional requirements in any of the seven sections of § 1030(a) in order to be charged. See supra note 81 (listing the specific requirements of the CFAA).

n154. A court can use this test in conjunction with the statute's language and history or as an individual test. See, e.g., Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1291-92 (3d Cir. 1979) (conceding that other courts have found the Sherman Act language not to prohibit extraterritorial application, and primarily using the effects test to find jurisdiction); Ivanov, 175 F. Supp. 2d at 370-74 (using both the effects test and statutory interpretation to apply the CFAA extraterritorially).

n155. Alford, Extraterritorial Antitrust Laws, supra note 132, at 4 (defining the effects test as the ability of a state to assert jurisdiction "over conduct outside its borders where such conduct has the intended effect of

causing a substantial adverse impact within the state's territory" and noting that it is the exercise of jurisdiction under this test that has produced the most conflict among nations); Hamlin, supra note 132, at 379 (using the term "objective principle" to refer to the effects test). See generally Restatement (Third) of Foreign Relations Law of the United States § 402(1)(c), § 402 cmt. d (1987) (summarizing a state's jurisdiction to prescribe law when "conduct outside its territory has or is intended to have substantial effect within its territory" as an aspect of the territoriality principle, but qualifying that it should be only when reasonable under § 403).

n156. Timberlane Lumber Co. v. Bank of Am., N.T. & S.A., 549 F.2d 597, 610 (9th Cir. 1976); United States v. Aluminum Co. of Am. (Alcoa), 148 F.2d 416, 443 (2d Cir. 1945). See generally Andreas F. Lowenfeld, International Economic Law 346-47 (2002) (tracing briefly the history of the effects test through the antitrust case law).

n157. Kauther SDN BHD v. Sternberg, 149 F.3d 659, 665 (7th Cir. 1998); Mannington Mills, 595 F.2d at 1296 n.6.

n158. Alcoa, 148 F.2d at 444.

n159. Int'l Inv. Trust v. Cornfeld, 619 F.2d 909, 917 (2d Cir. 1980); Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 989 (2d Cir. 1975).

n160. Bersch, 519 F.2d at 989.

n161. 148 F.2d 416 (2d Cir. 1945).

n162. Id. at 421 (referring to the Aluminum Company of America as "Alcoa, that being the name by which the company has become almost universally known").

n163. Id. at 443.

n164. Id. at 422.

n165. 15 U.S.C. § 1 (2000).

n166. Alcoa, 148 F.2d at 444-45; see United States v. Nippon Paper Indus., 109 F.3d 1, 1-2, 9 (1st Cir. 1997) (finding jurisdiction over a group of Japanese fax paper suppliers who held meetings solely in Japan to fix prices of paper in North America).

n167. E.g., Cont'l Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 704 (1962) (holding that the Canadian respondent was not outside the reach of the Sherman Act just because part of the activity took place outside the United States, so long as the activity's effects are felt within the United States); Steele v. Bulova Watch Co., 344 U.S. 280, 288 (1952) (holding that Am. Banana Co. v. United Fruit Co., 213 U.S. 347 (1909), did not confer a blanket immunity on activities which "radiate unlawful consequences" in the United States even if those activities were initiated outside the country); Timberlane Lumber Co. v. Bank of Am., N.T. & S.A., 549 F.2d 597, 610-12 (9th Cir. 1976).

n168. 595 F.2d 1287 (3d Cir. 1979).

n169. Id. at 1291-92.

n170. Id. at 1290.

n171. 175 F. Supp. 2d 367, 370-71 (D. Conn. 2001).

n172. Id. at 371-72. More, specifically, an individual violates the CFAA if he or she

 knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $ 5,000 in any 1-year period. 18 U.S.C. § 1030(a)(4) (2000). OIB's computers were "protected" under the CFAA definition because OIB used them in interstate commerce. 18 U.S.C. § 1030(e) (defining protected computers).

n173. 18 U.S.C. § 1030(a)(7) ("Whoever ... with intent to extort from any person any money or other thing of value, transmits in interstate or foreign commerce any communication containing any threat to cause damage to a protected computer ... shall be punished as provided in subsection (c) of this section."); Ivanov, 175 F. Supp. 2d at 372.

n174. Ivanov, 175 F. Supp. 2d at 372.

n175. 595 F.2d 1287, 1290 (3d Cir. 1979).

n176. Ivanov, 175 F. Supp. 2d at 372.

n177. Id. at 370-72.

n178. See id. at 370-71.

n179. So long as the product containing the embedded software is considered a protected computer, the U.S. company or U.S. government can bring a claim under the CFAA against the programmer. See 18 U.S.C. § 1030(e) (defining a protected computer).

n180. Id.

n181. Accord Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1291-92 (3d Cir. 1979) (holding that threatening to bring patent infringement suits in foreign countries restricted trade in the United States); see United States v. Aluminum Co. of Am. (Alcoa), 148 F.2d 416, 444 (2d Cir. 1945) (finding that the cartel's general agreement to restrict production had the specific effect of limiting imports into the United States);.

n182. Alcoa, 148 F.2d at 443-44.

n183. 549 F.2d 597 (9th Cir. 1976).

n184. Id. at 611.

n185. Timberlane Lumber Co. v. Bank of Am., N.T. & S.A., 549 F.2d 597, 609-11 (9th Cir. 1976); Alcoa, 148 F.2d at 443-44.

n186. See, e.g., Lee, Embedded Software, supra note 1, at 2 (asserting that embedded software is closely

related to and is constrained by the device into which the software is programmed).

n187. See Lee, What's Ahead, supra note 1, at 19 (explaining that the embedded software developer is also an expert in the particular device for which he or she is programming).

n188. E.g., Timberlane Lumber, 549 F.2d at 609-11 (finding harm to the lumber market generally); Alcoa, 148 F.2d at 422 (describing a general harm to aluminum competition in the United States).

n189. E.g., Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1290, 1292 (3d Cir. 1979) (holding that the U.S. courts had jurisdiction because the threats to bring patent infringement suits could be seen as an attempt to monopolize the market); Alcoa, 148 F.2d at 422, 443-44 (ruling that the agreement to restrict imports was equivalent to price fixing, which is prohibited by the Sherman Act).

n190. Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 989 (2d Cir. 1975); Alcoa, 148 F.2d at 444 (holding that the cartel intended to restrict aluminum imports and exports through its agreement).

n191. See Chen, supra note 27, at 10 (explaining that foreign invested enterprises such as WFOEs and joint ventures are required to be set up for a specific purpose); Daniel C.K. Chow, The Limited Partnership Joint Venture Model in the People's Republic of China, 30 Law & Pol'y Int'l Bus. 1, 10-12 (1998) (arguing that joint ventures between U.S. and Chinese partners often encounter management-style or decision conflicts and suggesting that, at the outset of establishing the joint venture, the U.S. company make clear through specific agreements and governance structure that it will have the main role in the management and operational decision-making for the enterprise). But cf. Rules for Implementation of WFOEs P.R.C., supra note 33, at art. 15 (requiring the name of the business for the application but not specifying what the name must include). Additionally, assuming that the U.S. company that is offshore sourcing to China has already established operations in the United States, some knowledge transfer will need to take place between the U.S. company and the Chinese counterpart. Carmel & Tjia, supra note 8, at 130-31. This knowledge transfer forces explicit interaction between the U.S. employees and Chinese employees to transfer knowledge areas such as skills, processes, and work norms. Id. at 131. Furthermore, the U.S. company will set up a governance structure between its Chinese counterpart and itself. This includes detailing the hierarchy, setting goals, and developing a relationship. Id. at 141. Knowledge transfer activities, setting up the governance structure, and implementing the governance structure heavily involve the participation of the U.S. company and employees with the Chinese employees. Thus, the Chinese employees are likely to know they are working for a U.S.-based company. In addition, offshore sourcing often encounters cross-cultural issues. See S. Krishna et al., Managing Cross-Cultural Issues in Global Software Outsourcing, Commc'ns of the ACM, Apr. 2004, at 62, 64 (providing examples of cross-cultural differences that are evident in outsourcing relationships such as preferring written agreements over verbal, social behavior, attitude toward authority, and language); Mendel, supra note 8, at 259 (acknowledging the presence of language and cultural differences even when the U.S. company sets up a subsidiary in China); see also Carmel & Tjia, supra note 8, at 176-80 (showing that in the power orientation index by Geert Hofsted and Edward Hall, U.S. employees are forty points lower than Chinese, meaning that hierarchy is very important to the Chinese and they are less likely to question managers; in addition, in the relationship orientation index, there is a seventy-one point difference, U.S. employees view themselves as highly individualistic, Chinese employees view themselves as highly collectivistic).

n192. Cf. Chow, supra note 191, at 10-12 (suggesting that the U.S. company take an active role in the joint venture to avoid conflicts in any decision making).

n193. See supra notes 190-193 and accompanying text (showing how a plaintiff could show harm necessary to meet the effects test standard).

n194. See Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326, 1334 (1972) (stating that while a court has jurisdiction over conduct occurring in another country but has effects within the United States, it also has jurisdiction over significant conduct within the United States that relates to the harm, even if the harm is in

another country).

n195. See Kauther SDN BHD v. Sternberg, 149 F.3d 659, 667 (7th Cir. 1998) (finding jurisdiction over a Caribbean corporation for fraudulently inducing a Malaysian corporation to invest in satellite technology because the Caribbean corporation used the United States as a base of operations to further the fraud); Timberlane Lumber Co. v. Bank of Am., N.T. & S.A., 549 F.2d 597, 611-12 (9th Cir. 1976) ("The effects test by itself is incomplete because it fails to consider other nations' interests."); Leasco, 468 F.2d at 1334 (acknowledging that the harmful effects in the case did not manifest within the United States); supra Part III.C.2 (discussing the effects test).

n196. See, e.g., Cont'l Grain (Austl.) Pty. Ltd. v. Pac. Oilseeds, Inc., 592 F.2d 409, 421-22 (8th Cir. 1979) ("We decline to immunize, for strictly jurisdictional reasons, defendants who unleash from this country a pervasive scheme to defraud a foreign corporation." (citation omitted)); Hamlin, supra note 132, at 378-79 (describing the conduct test as the subjective territorial principle). See generally Restatement (Third) of Foreign Relations Law of the United States § 416 (1987) (summarizing that, as it has developed in the United States with respect to the regulation of securities, the conduct test permits the United States to prescribe conduct related to any transaction in securities carried out in the United States, whether or not the security is traded on an organized securities market). A court can also use this test in conjunction with the language and history of the statute, with the effects test, or as an individual test. See Cont'l Grain, 592 F.2d at 416-17 (agreeing that jurisdiction may be established by meeting the requirements of either the subjective or objective territorial principles, or both).

n197. Leasco, 468 F.2d at 1334.

n198. Cont'l Grain, 592 F.2d at 418, 420.

n199. Kauther, 149 F.3d at 667.

n200. See, e.g., IIT v. Vencap, Ltd., 519 F.2d 1001, 1017-18 (2d Cir. 1975). See generally Barbara S. Thomas, Extraterritoriality in an Era of Internationalization of the Securities Markets: The Need to Revisit Domestic Policies, 35 Rutgers L. Rev. 453, 455 (1983) (summarizing how most U.S. courts have determined that Congress did not intend for the United States to be used as a base of operations for fraudulent activity even if the effect of the activity is felt outside the United States).

n201. 15 U.S.C. § 78j(b) (2000); 17 C.F.R. § 240.10b-5 (2007).

n202. 519 F.2d at 1001.

n203. Id. at 1018 ("Literally hundreds of transactions and pieces of mail for Vencap and to a lesser extent for Intervent and Intercapital were initiated, directed and consummated from and received at 99 Park Avenue.").

n204. Id. at 1017.

n205. Kauther SDN BHD v. Sternberg, 149 F.3d 659, 665, 667 (7th Cir. 1998).

n206. Id.

n207. Cont'l Grain (Austl.) Pty. Ltd. v. Pac. Oilseeds, Inc., 592 F.2d 409, 420-21 (8th Cir. 1979).

n208. 592 F.2d 409 (8th Cir. 1979).

n209. Id. at 420.

n210. Id.

n211. Id.

n212. 175 F. Supp. 2d 367, 373 (D. Conn. 2001).

n213. See id. (finding jurisdiction based on statutory interpretation and the effects test).

n214. Id. at 371-72.

n215. See Kauther SDN BHD v. Sternberg, 149 F.3d 659, 665 (7th Cir. 1998); IIT v. Vencap, Ltd., 519 F.2d 1001, 1017-18 (2d Cir. 1975).

n216. Ivanov, 175 F. Supp. 2d at 371-72.

n217. Id. at 371.

n218. Cont'l Grain (Austl.) Pty. Ltd. v. Pac. Oilseeds, Inc., 592 F.2d 409, 420 (8th Cir. 1979).

n219. Ivanov, 175 F. Supp. 2d at 371.

n220. See id.; Cont'l Grain, 592 F.2d at 420.

n221. See supra Introduction (setting up the embedded software scenario).

n222. In addition, it is unlikely the court would hold the U.S. parent company responsible for the acts of the employee in China. A court can normally hold a corporation responsible for criminal acts of its employees if the employee acts under the actual or apparent authority of the corporation and for the corporation's benefit. United States v. Automated Med. Labs. Inc., 770 F.2d 399, 406-07 (4th Cir. 1985). This is true even if the corporation explicitly prohibits the act. E.g., United States v. Hilton Hotels Corp., 467 F.2d 1000, 1004-05, 1007 (9th Cir. 1972) (demonstrating that compliance efforts alone do not immunize the corporation from liability). In contrast, the court in Butera v. IBM held specifically that it could not apply the CFAA to the corporation if the corporation did not explicitly authorize the employee's action. 456 F. Supp. 2d 104, 110 (D.D.C. 2006). Therefore, a court could not find subject matter jurisdiction based solely on the conduct of the U.S. company in the United States, unless the U.S. company actively participated in programming the malicious code.

n223. See 18 U.S.C. § 1030(e) (2000) (defining several other terms in the statute, but not defining "access"); see also Kerr, supra note 87, at 1617-21 (criticizing the lack of definition); supra Part III.A (discussing definition of "access").

n224. Contra Ivanov, 175 F. Supp. 2d at 369, 371-72 (describing the real time hacking by Ivanov).

n225. Cont'l Grain (Austl.) Pty. Ltd. v. Pac. Oilseeds, Inc., 592 F.2d 409, 419 (8th Cir. 1979).

n226. Id. at 420.

n227. See supra Part III.C (analyzing statutory interpretation, effects test, and conduct test).

n228. Accord Timberlane Lumber Co. v. Bank of Am., N.T. & S.A., 549 F.2d 597, 613 (9th Cir. 1976) (stating that in addition to analyzing whether there was a sufficiently large effect on American foreign commerce, the court must also address whether the "magnitude of the effect on American foreign commerce are (sic) sufficiently strong, vis-a-vis those of other nations"). Timberlane's analysis for when anticompetitive conduct in foreign nations can provide subject matter jurisdiction for an antitrust suit in U.S. courts has been superseded by statute. See 15 U.S.C. § 6a (1982) (providing a subject matter jurisdiction test for conduct involving trade with foreign nations). The principles of international comity that the court discusses, however, are still relevant. See Timberlane, 549 F.2d at 613-14 (balancing many factors in deciding jurisdiction).

n229. See Timberlane, 549 F.2d at 613-14 (listing the elements that should be taken into account when balancing the interests of the foreign nation); see also SEC v. Kasser, 548 F.2d 109, 116 (3d Cir. 1977) (analyzing policy considerations for exercising jurisdiction after holding that the defendant's conduct allowed the court to find jurisdiction).

n230. Timberlane, 549 F.2d at 609.

n231. See Alford, Extraterritorial Antitrust Laws, supra note 132, at 37 ("The U.S. approach essentially grants courts the right to assert jurisdiction as broadly as international law permits, but then gives them the discretion to refuse to exercise this right in the interest of international comity."); see also Douglas E. Rosenthal, Relationship of U.S. Antitrust Laws to Formulation of Foreign Economic Policy, Particularly Export and Overseas Investment Policy, 49 Antitrust L.J. 1189, 1193-94 (1980) (suggesting that the Department of Justice took a case-by-case approach to asserting extraterritorial jurisdiction, particularly for antitrust cases, in the 1970s). See generally Restatement (Third) of Foreign Relations Law of the United States § 403 (1987) (limiting the jurisdiction to prescribe if it would be "unreasonable"). The Restatement lists the following eight factors to consider in determining reasonableness:

 (a) the link of the activity to the territory of the regulating state, i.e., the extent to which the activity takes place within the territory, or has substantial, direct, and foreseeable effect upon or in the territory; 

 (b) the connections, such as nationality, residence, or economic activity, between the regulating state and the person principally responsible for the activity to be regulated, or between that state and those whom the regulation is designed to protect; 

 (c) the character of the activity to be regulated, the importance of regulation to the regulating state, the extent to which other states regulate such activities, and the degree to which the desirability of such regulation is generally accepted; 

 (d) the existence of justified expectations that might be protected or hurt by the regulation; 

 (e) the importance of the regulation to the international political, legal, or economic system; 

 (f) the extent to which the regulation is consistent with the traditions of the international system; 

 (g) the extent to which another state may have an interest in regulating the activity; and 

 (h) the likelihood of conflict with regulation by another state. Restatement (Third) of Foreign Relations Law of the United States § 403(2). It then cautions that the list is not exhaustive and that no priority should be given to any one factor. Id. § 403 cmt. b.

n232. Timberlane, 549 F.2d at 614.

n233. Id.; see Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1297-98 (3d Cir. 1979) (reiterating and adding to the Timberlane factors but holding that the factual record was not sufficient to make a finding about the factors).

n234. Timberlane, 549 F.2d at 614-15; cf. Harold G. Maier, Extraterritorial Jurisdiction at a Crossroads: An Intersection Between Public and Private International Law, 76 Am. J. Int'l L. 280, 317 (1982) (positing that it is difficult for a U.S. court to objectively balance the interest of another country with that of the United States, thus making the jurisdiction rule of reason test unworkable).

n235. Timberlane, 549 F.2d at 615.

n236. Id.

n237. Id.

n238. Id.

n239. See Cont'l Grain (Austl.) Pty. Ltd. v. Pac. Oilseeds, Inc., 592 F.2d 409, 421-22 (8th Cir. 1979) (holding that the United States had jurisdiction when considering international comity); Timberlane, 549 F.2d at 614-15 (finding that the U.S. court had jurisdiction after weighing all the factors to determine whether finding jurisdiction would conflict with foreign law or policy).

n240. See Timberlane, 549 F.2d at 615 ("There has been no indication of any conflict with the law or policy of the Honduran government.").

n241. Specifically, the Chinese Criminal Code article 286 states in relevant part:

 Whoever ... cancels, alters, increases or jams the functions of the computer information system, thereby making it impossible for the system to operate normally ... . Whoever intentionally creates or spreads destructive programs such as the computer viruses, thus affecting the normal operation of the computer system ... shall be [sentenced to fixed-term imprisonment]. Criminal Law of the People's Republic of China (promulgated by National People's Congress, Mar. 14, 1997,

effective Oct. 1, 1997), art. 286, available at http://libproxy.temple.edu:2131/law/dispecontent.asp?db=1&id=354 (P.R.C.) [hereinafter Criminal Code P.R.C.]. See generally Wei Luo, 1997 Criminal Code, supra note 117, at 8 (interpreting 1997 Criminal Code, Article 3, to state that only crimes that are defined explicitly in the Code are crimes; a person cannot be found guilty by an analogous law).

n242. See generally Criminal Code P.R.C., supra note 241, at arts. 4, 286 (stating that any offender of an act explicitly defined in the law shall be punished, and prohibiting the spread of computer viruses); Wei Luo, 1997 Criminal Code, supra note 117, at 16 (listing as one of the major new offenses added to the 1997 Criminal Code to be "computer frauds (Article 285-286)").

n243. See Timberlane, 549 F.2d at 615 (citing a lack of a conflict of law as a factor supporting jurisdiction).

n244. See supra note 131 (noting that the power to adjudicate and the power to enforce are separate and therefore although a U.S. court could rule against a Chinese national, there may still be an issue of enforcing the judgment). Despite China's recent progress and accession to the World Trade Organization (WTO), litigating in China still concerns U.S. companies. E.g., U.S. Trade Representative, 2004 Report to Congress on China's WTO Compliance 3 ("China deserves due recognition for the tremendous efforts made to reform its economy to comply with the requirements of the WTO."); Mei Ying Gechlik, supra note 46, at 97-98 (criticizing China's courts for lacking fairness and justice but noting that Beijing has begun to take steps to improve the judicial system); Mo Zhang, Int'l Civil Litigation in China: A Practical Analysis of the Chinese Judicial System, 25 B.C. Int'l & Comp. L. Rev. 59, 63 (2002). One of the reasons for the concern is that few Chinese laws are published in English, and the Chinese judicial system is complex for someone unfamiliar with it. See Sylvia Ostry, Article X and the Concept of Transparency in the GATT/WTO, in China and the Long March to Global Trade, supra note 46, at 128 (noting the "multilayered complexity" of the Chinese legal system and reviewing the various types of laws, including internal administrative laws and generalized laws issued by the National People's Congress); see also Wei Luo, Chinese Law and Legal Research 164-65 (2005) (reviewing the history of the Chinese publishing industry, which was essentially shut down during the Cultural Revolution but between the 1980s and 2000 grew from a little over forty thousand titles to over one hundred and forty three thousand titles). Lawyers and scholars also recognize problems within the Chinese judicial system, which has suffered from interference by the Chinese Communist Party ("CCP") leaders. Mei Ying Gechlik, supra note 46, at 100-01 (reporting that, as of 2005, interference into the judiciary from party officials was still a major obstacle in litigation); Yuwen Li, Court Reform In China: Problems, Progress and Prospects, in Implementation of Law in the People's Republic of China 58-59 (Jianfu Chen et al. eds., 2002) (listing lack of judicial independence as a major problem of the judicial system and reporting that courts often make decisions on cases according to the "instructions of the leaders of the Communist Party" and the government). The central government and CCP leadership have a large influence on the local courts, which in turn facilitates pushing the judges to conform their judgments to the social and legal ideals of the CCP. See Mei Ying Gechlik, supra note 46, at 136 (explaining that this influence is a fundamental problem with the court system); see also Biddulph, supra note 46, at 176 (explaining that courts and judges in China have a lower status and lack financial independence from the local government, which hampers the judges' independence to rule on cases). As such, a U.S. company is not guaranteed fairness and the relative predictability it is accustomed to in the United States if it uses Chinese courts to litigate. See, e.g., Biddulph, supra note 46, at 156 (noting that there is still unease about the relationship between law and policy set by the ruling Chinese Communist Party).

n245. See Timberlane, 549 F.2d at 614 (listing factors for determining when subject matter jurisdiction should be exercised). Factors that weigh in favor of not exercising jurisdiction include the fact that the programmer is a Chinese citizen and that China does have a law apparently prohibiting the spread of computer viruses. In addition, a court should take into account the current political relationship with China at the time the case arises. See id.

n246. See, e.g., SEC v. Kasser, 548 F.2d 109, 116 (3d Cir. 1977) (articulating three general policy rationales for finding jurisdiction); see also Cont'l Grain (Austl.) Pty. Ltd. v. Pac. Oilseeds, Inc., 592 F.2d 409, 421-22

(8th Cir. 1979) (using policy rationales from Kasser to support finding jurisdiction).

n247. See Kasser, 548 F.2d at 116 ("By finding jurisdiction here, we may encourage other nations to take appropriate steps against parties who seek to perpetrate frauds in the United States."); see also Cont'l Grain, 592 F.2d at 421 (stating that finding jurisdiction will encourage other nation's courts to find jurisdiction when a fraud takes place in the United States).

n248. See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 797-99 (1993) (determining that there was no conflict with British law).

n249. See Kasser, 548 F.2d at 116 (noting that the purpose of the statute was to protect the domestic market from fraud and finding jurisdiction would conform with that purpose); see also Cont'l Grain, 592 F.2d at 421 (agreeing with the rationale articulated by the Kasser Court).

n250. 548 F.2d at 109.

n251. Id. at 116.

n252. Id.

n253. Cont'l Grain, 592 F.2d at 421.

n254. See Kasser, 548 F.2d at 116; see also Cont'l Grain, 592 F.2d at 421 (hoping that finding jurisdiction would lead to reciprocal enforcement abroad).

n255. 509 U.S. 764 (1993).

n256. Id. at 798.

n257. Id. at 797-99.

n258. Id. at 799.

n259. Id.; cf. Alford, Extraterritorial Antitrust Laws, supra note 132, at 19 (describing the Hartford ruling and criticizing the Court for its lack of concern for "the legitimate sovereignty interests of another country that may have concurrent jurisdiction").

n260. See S. Rep. No. 104-357, at 3-5 (1996) (stating that the goal was to have a single statute to address all computer crimes).

n261. See id. at 4-5; see also United States v. Ivanov, 175 F. Supp. 2d 367, 374 (D. Conn. 2001) (using the 1996 Senate Report to support its finding of extraterritorial jurisdiction).

n262. See, e.g., Cont'l Grain (Austl.) Pty. Ltd. v. Pac. Oilseeds, Inc., 592 F.2d 409, 421 (8th Cir. 1979); SEC v. Kasser, 548 F.2d 109, 116 (3d Cir. 1977).

n263. See 18 U.S.C. § 1030 (2000) (prohibiting computer fraud and abuse).

n264. Accord Cont'l Grain, 592 F.2d at 421 (agreeing with the Kasser analysis); see Kasser, 548 F.2d at 116 (reasoning that finding jurisdiction would make it more likely that foreign courts would also find jurisdiction,

creating a more effective securities regulation regime).

n265. See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 798-99 (1993) (holding that there was no conflict between British and American Law because the party could abide by both laws simultaneously).

n266. See id. at 798-99 (reasoning that there is only a conflict if a party cannot abide by both laws simultaneously). See generally Restatement (Third) of Foreign Relations Law of the U.S. § 403(2)(h) (1987) (listing the likelihood of conflict with regulations of another state as a factor in analyzing whether a U.S. court should exercise jurisdiction).

n267. Supra notes 232-34, 247-59 and accompanying text.  

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ARTICLE FOUR

New York Times, The (NY) July 5, 2007 At I.B.M., A Smarter Way To Outsource Author: STEVE LOHREdition: Late Edition - FinalSection: Business/Financial DeskPage: 1Estimated printed pages: 5Digest:IBM is working with Texas utility CenterPoint Energy to install computerized electric meters, sensors and software in 'smart grid' project to improve service and conserve energy; engineer Jeffrey Taft's work involves being translator between different vernaculars and cultures of computing and electric power; oversees design and building of software tailored for utilities; work cannot be done overseas, but some of programming is done in India by IBM employees; trick for companies like IBM is to figure out what work to do where, and, more important, to keep bringing in kind of higher-end work that needs to be done in this country, competing on basis of specialized

expertise and not on price alone; debate continues over how much skilled work in vast service sector of American economy can migrate offshore to lower-cost nations like India; graph; photos (L)Article Text:Jeffrey Taft is a road warrior in the global high-technology services economy, and his work shows why there are limits to the number of skilled jobs that can be shipped abroad in the Internet age. Each Monday, Mr. Taft awakes before dawn at his home in Canonsburg, Pa., heads for the Pittsburgh airport and flies to Houston for the week. He is one of dozens of I.B.M. services employees from around the country who are working with a Texas utility, CenterPoint Energy, to install computerized electric meters, sensors and software in a "smart grid" project to improve service and conserve energy. Mr. Taft, 51, is an engineer fluent in programming languages and experienced in the utility business. Much of his work, he says, involves being a translator between the different vernaculars and cultures of computing and electric power, as he oversees the design and building of software tailored for utilities. "It takes a tremendous amount of face-to-face work," he said. What he does, in short, cannot be done overseas. But some of the programming work can be, so I.B.M. employees in India are also on the utility project team. The trick for companies like I.B.M. is to figure out what work to do where, and, more important, to keep bringing in the kind of higher-end work that needs to be done in this country, competing on the basis of specialized expertise and not on price alone. The debate continues over how much skilled work in the vast service sector of the American economy can migrate offshore to lower-cost nations like India. Estimates of the number of services jobs potentially at risk, by economists and research organizations, range widely from a few million to more than 40 million, which is about a third of total employment in services. Jobs in technology services may be particularly vulnerable because computer programming can be described in math-based rules that are then sent over the Internet to anywhere there are skilled workers. Already, a significant amount of basic computer programming work has gone offshore to fast-growing Indian outsourcing companies like Infosys, Wipro and Tata Consultancy Services. To compete, companies like I.B.M. have to move up the economic ladder to do more complicated work, as do entire Western economies and individual workers. "Once you start moving up the occupational chains, the work is not as rules-based," said Frank Levy, a labor economist at the Massachusetts Institute of Technology. "People are doing more custom work that varies case by case." In the field of technology services, Mr. Levy said, the essential skill is "often a lot more about business knowledge than it is about software technology -- and it's a lot harder to ship that kind of work overseas." The offshore specialists in India are learning that lesson. As they increasingly compete for higher-end work, the Indian companies are hiring thousands of workers this year in the United States, adding an odd twist to the offshoring trend. Tata alone plans to recruit 1,000 workers in America, said Surya Kant, president of the company's American unit, for "the near-shore work that requires regular contact with clients in person." For I.B.M., the world's largest supplier of technology services, moving up to more sophisticated work is not the only step in its strategy to address the rising global competition. Labor represents 70 to 80 percent of the cost in traditional technology service contracts, and the traditional work of maintaining and updating software and data centers for corporate customers is still a large part of I.B.M.'s services business. So I.B.M. has moved aggressively to tap the global labor pool, and it is increasingly using software to automate as much traditional services work as possible. Today, I.B.M. employs 53,000 people in India, up from 3,000 in 2002; in India, the salaries for computer programmers are still about a third of those in the United States. Over the same span, the company's work force in the United States declined slightly, to 127,000 at the end of last year. I.B.M. is also one of the world's largest software companies. And its software development work, bolstered by dozens of acquisitions in the last few years, is more and more being done with an eye for use in its services business -- to substitute software automation for labor. Smarter, more customized software can automatically handle some programming chores. I.B.M. employs 200,000 people worldwide in its services business, and if growth means constantly having to add more people, the business is in trouble. "We couldn't keep building out labor," Samuel J. Palmisano, the chief executive, said. "The long-term strategic answer was not to have a half a million people working for I.B.M." Today, the company's global work force is organized in clusters of business expertise and connected by high-speed communications links. Project managers can search worldwide for the right people with the right skills for a job. One tool is Professional Marketplace, a Web-based database of people and expertise.

The idea is to build networks for producing and delivering technology services much like the global manufacturing networks that have evolved over the last couple of decades. Look inside a computer or automobile and the parts come from all over the world. High-end technology services projects increasingly will follow that formula, combining skills from across the globe and delivered on-site or remotely over the Internet. Over the years, I.B.M. has been challenged by disruptive waves of technology, from the minicomputer to the Internet. Mr. Palmisano sees the globalization of services as the next big shift in the business landscape, and I.B.M. is moving to adapt. "We're reinventing I.B.M. once again," he said. "We're reinventing it by moving up to the higher-value portions of our industry and creating this globally integrated enterprise." The utility project I.B.M. is doing in Texas offers a glimpse of the global formula. The far-flung work team includes research scientists in Yorktown Heights, N.Y., and Austin, Tex.; software developers in Pune and Bangalore, India; engineering equipment and quality-control specialists in Miami and New York; and utility experts and software designers like Mr. Taft that have come from Philadelphia, San Francisco, Los Angeles, Chicago, Raleigh, N.C., and elsewhere. I.B.M. plans to use the skills learned and software written for the smart-grid project in work with utility clients around the world. In the services field, these are deemed "reusable assets," reducing costs in the future. Ron Ambrosio, a senior I.B.M. researcher, has been down to Houston a few times, attaching sensors to power lines and collecting gigabytes of data on electricity flows. He and others at I.B.M. are studying how to predict and prevent power failures, optimize performance, reduce costs and conserve energy. "We're looking at this as part of a worldwide opportunity," he said. Dennis Hendon, an account executive, and Rob Calvo, a senior services consultant, lead the I.B.M. team in Houston. Mr. Hendon is an engineer by training, while Mr. Calvo has a business degree, but their real skills lie in years of on-the-job training -- what labor experts call "passive knowledge" and "complex communications," observing, listening, coordinating, negotiating and persuading. The two men say they think of themselves as orchestra conductors, getting all the human parts working smoothly together, inside and outside I.B.M. "We aren't mounting the poles, but our subcontractors are," Mr. Hendon said. CenterPoint considered trying to do the smart-grid project itself, but not for long, said Thomas Standish, a senior vice president. "We don't begin to have the kind of Internet and technological sophistication we needed for this," he said. CenterPoint talked to other large technology services companies, Mr. Standish said, but soon settled on I.B.M. as the one with the breadth of research, software and services capability needed for the ambitious project. In Pune, Dheeraj Gupta, a 34-year-old software engineer, said it was I.B.M.'s breadth -- and thus the range of opportunity for him -- that prompted him to join the company in 2000. After earning a master's degree at an elite technical institute in India, Mr. Gupta worked at four software and services companies in India before being recruited to I.B.M. At I.B.M., Mr. Gupta began as a Java programmer, but later moved to higher-end work, personifying the strategy for success in the evolving global services economy. Today, Mr. Gupta leads a team of four developers writing software for utilities like CenterPoint. "I'm a technical guy," he said. "And now I'm moving higher up the ladder. I know various software technologies but now I'm gaining business and industry expertise as well." Caption:Photos: Jeffrey Taft, at desk, an I.B.M. engineer from near Pittsburgh, working with Jared Scheuer at a utility in Houston. (Photograph by Jessica Kourkounis for The New York Times)(pg. C1); Jeffrey Taft of I.B.M., left, discussing software with Jared Scheuer, right, of Center Point Energy in Houston. (Photograph by Jessica Kourkounis for The New York Times)(pg. C4) Diagram: "Home Team Advantage" To compete with foreign service providers, companies like I.B.M. need to do more specialized work that requires domestic expertise. An I.B.M. project to upgrade a Texas utility is a good example most positions are filled by local experts because business knowledge and face-to-face interactions are required. For future utility projects, I.B.M. can reuse its technology, allowing it to cut costs. Diagram shows various I.B.M. jobs in various locations.Copyright (c) 2007 The New York Times CompanyRecord Number: 2007-07-05-742392

ARTICLE FIVE

New York Times, The (NY) April 19, 2006 Political Clout In the Age Of Outsourcing Author: DAVID LEONHARDTEdition: Late Edition - FinalSection: Business/Financial DeskPage: 1Estimated printed pages: 3Article Text:A FEW years ago, stories about a scary new kind of outsourcing began making the rounds. Apparently, hospitals were starting to send their radiology work to India, where doctors who make far less than American radiologists do were reading X-rays, M.R.I.'s and CT scans. It quickly became a signature example of how globalization was moving up the food chain, threatening not just factory and call center workers but the so-called knowledge workers who were supposed to be immune. If radiologists and their $350,000 average salaries weren't safe from the jobs exodus, who was? On ABC, George Will said the outsourcing of radiology could make health care affordable again, to which Senator Charles E. Schumer of New York retorted that thousands of American radiologists would lose their jobs. On NPR, an economist said the pay of radiologists was already suffering. At the White House, an adviser to President Bush suggested that fewer medical students would enter the field in the future. "We're losing radiologists," Representative Sherrod Brown, an Ohio Democrat, said on CNN while Lou Dobbs listened approvingly. "We're losing all kinds of white-collar jobs, all kinds of jobs in addition to manufacturing jobs, which we're losing by the droves in my state." But up in Boston, Frank Levy, an economist at the Massachusetts Institute of Technology, realized that he still had not heard or read much about actual Indian radiologists. Like the once elusive Snuffleupagus of Sesame Street, they were much discussed but rarely seen. So Mr. Levy began looking. He teamed up with two other M.I.T. researchers, Ari Goelman and Kyoung-Hee Yu, and they dug into the global radiology business. In the end, they were able to find exactly one company in India that was reading images from American patients. It employs three radiologists. There may be other such radiologists scattered around India, but Mr. Levy says, "I think 20 is an overestimate." Some exodus. URBAN myths feed off real fears, and this myth caught on because Americans don't know quite what to think about globalization. There is no doubt that trade makes countries richer, but it also creates victims. And since the country is doing almost nothing right now to ease the burden of those victims -- the people whose jobs really have gone to India or another country -- it is easy to become scared. Radiologists seem like just the sort of workers who should be scared. Computer networks can now send an electronic image to India faster than a messenger can take it from one hospital floor to another. Often, those images are taken during emergencies at night, when radiologists here are sleeping and radiologists in India are not. There also happens to be a shortage of radiologists in the United States. Sophisticated new M.R.I. and CT machines can detect tiny tumors that once would have gone unnoticed, and doctors are ordering a lot more scans as a result. When I talked last week to E. Stephen Amis Jr., the head of the radiology department at Montefiore Medical Center in the Bronx, he had just finished looking at some of the 700 images that had been produced by a single abdominal CT exam. "We were just taking pictures of big, thick slabs of the body 20 years ago," Dr. Amis said. "Now we're taking thinner and thinner slices." Economically, in other words, radiology has a lot in common with industries that are outsourcing jobs. It has high labor costs, it's growing rapidly and it's portable. Politically, though, radiology could not be more different. Unlike software engineers, textile workers or credit card customer service employees, doctors have enough political power to erect trade barriers, and they have built some very effective ones. To practice medicine in this country, doctors are generally required to have done their training here. Otherwise, it is extremely difficult to be certified by a board of other doctors or be licensed by a state government. The three radiologists Mr. Levy found in Bangalore did their residencies at Baylor, Yale and the University of Massachusetts before returning home to India. "No profession I know of has as much power to self-regulate as doctors do," Mr. Levy said.

So even if the world's most talented radiologist happened to have trained in India, there would be no test he could take to prove his mettle here. It's as if the law required cars sold here to have been made by the graduates of an American high school. Much as the United Automobile Workers might love such a law, Americans would never tolerate it, because it would drive up the price of cars and keep us from enjoying innovations that happened to come from overseas. But isn't that precisely what health care protectionism does? It keeps out competition. For now, the practical effect on radiology is small. At its highest levels, the United States health care system may be the best the world has ever known. India doesn't even have many radiologists today, let alone a large number who measure up to American standards. But that's going to change. Eventually, Indian doctors will be able to do the preliminary diagnoses that are a big part of radiology. Something similar will happen in accounting, architecture, education, engineering and the law, as Mr. Levy and his colleagues suggest in the coming Milken Institute Review. These fields tend to be regulated already, giving them noble excuses -- like certification, client privacy and legal accountability -- to put up trade barriers. But the real reason will usually be a simple desire to protect jobs and salaries. When factory workers have asked for that kind of protection, the country has told them no. So why does the answer change when the request comes from a wealthier, more influential group of workers? Caption:Photo: A radiologist near Bangalore.Copyright (c) 2006 The New York Times CompanyRecord Number: 2006-04-19-621439

ARTICLE SIX

Made in America outsourcedSamuel J Vance. Miami Times. Miami, Fla.: Nov 1-Nov 7, 2006. Vol. 84, Iss. 6; pg. 2A, 2 pgsAbstract (Summary)I am not saying anything now nor will I say anything in the future that is intended to demean or discourage education. Education is the super glue of the super structure that we refer to when we say the "American dream." We need more people with two year and four year degrees. We need more people with masters and Ph.D. degrees. Indeed Ph.D. should stand for "Preach Higher Dreams." It is, after all, one of the highest educational dreams.

I decided to try and sort this through with someone who had more knowledge and experience with this than I did. How bad was this really? I decided to speak to Bob Baugh because he is the National Executive Director of the AFL-CIO Industrial Union Council. He started off the conversation by telling me that "manufacturing is the canary in the coal mine." It turns out that we have lost 3.5 million manufacturing jobs since 1998.

Boeing got a new Aerospace contract to build 787 jets. Boeing turned around and outsourced more than 70 percent of the labor that was needed to build the 787s. Meanwhile they have laid off 25,000 machinists and 25,000 engineers. They thought that these jobs should go to some very deserving people in places such as China, Japan and Italy. As we went through these facts, Bob Baugh pointed out something that we have heard many times. "The last hired are the first to be fired," so this job destruction does not bode well for Black America.

 »  Jump to indexing (document details)Full Text (865  words)Copyright Miami Times Nov 1-Nov 7, 2006

For many years a public service commercial was run in this country that said "if you want to get a good job, you have to get a good education." During that time our nation was emphasizing the importance of a high school diploma.

A high school diploma is still the bedrock of American employment and I would never encourage anyone to do anything less. I also strongly encourage Blacks to get some type of advanced training and/or higher education.

I am not saying anything now nor will I say anything in the future that is intended to demean or discourage education. Education is the super glue of the super structure that we refer to when we say the "American dream." We need more people with two year and four year degrees. We need more people with masters and Ph.D. degrees. Indeed Ph.D. should stand for "Preach Higher Dreams." It is, after all, one of the highest educational dreams.

Today, I am addressing a threat that is being presented to Americans of all educational levels, even Ph.D.s and medical doctors.

Our nation is being attacked by a dream thief that goes by the name of globalization. It has manifested itself through what is known as outsourcing. This is a process that has been underway for quite some time. Unfortunately, the people that were able to oppose it were the people that tended to do the least to fight it. Many of them felt smug and insulated from the ravages of outsourcing. They thought that their level of education would protect their income and therefore their standard of living.

Martin Luther King said "that injustice anywhere is a threat to justice everywhere." How naive is a man that thinks that his rights are not connected to the rights of others? If the rights of the weak have been abridged, the rights of the strong will surely follow.

Many years ago I picked up the expression that "the life that you save may be your own."

I have been following outsourcing for quite some time but the final straw for me came when I began to call for airline ticket prices. I noticed every time that I called Delta, I got a person with an East Indian accent. Were there not enough people in the United States with high school diplomas for these jobs? Taking airline reservations has traditionally been a good entry level job. It was always the type of job that was considered to be a great stepping stone for a person that desired a starting position with a major corporation.

Less than a week after this happened I was talking to a friend of mine from the medical field and she had been informed that Blue Cross has outsourced its customer jobs to the Indian subcontinent. Once again we have a major corporation with entry level jobs that are being denied to Americans.

I have tried to sort this out in my mind and the more that I think about the ramifications of the economic flight of America, the more confusing this gets. Many years ago I read that Henry Ford said that he wanted his employees to make $5 a day so that there would be somebody that could afford to buy his cars.

I decided to try and sort this through with someone who had more knowledge and experience with this than I did. How bad was this really? I decided to speak to Bob Baugh because he is the National Executive Director of the AFL-CIO Industrial Union Council. He started off the conversation by telling me that "manufacturing is the canary in the coal mine." It turns out that we have lost 3.5 million manufacturing jobs since 1998.

In the new millennium we have expanded our job losses into research, engineering, design and professional technical jobs. We even have companies that are outsourcing the reading of X-rays (do we really need this one)? GE has outsourced tens of thousands of financial service jobs in particular. And just in case you're thinking that what we need are more major American companies with major contracts, you had better think again.

Boeing got a new Aerospace contract to build 787 jets. Boeing turned around and outsourced more than 70 percent of the labor that was needed to build the 787s. Meanwhile they have laid off 25,000 machinists and 25,000

engineers. They thought that these jobs should go to some very deserving people in places such as China, Japan and Italy. As we went through these facts, Bob Baugh pointed out something that we have heard many times. "The last hired are the first to be fired," so this job destruction does not bode well for Black America.

This election cycle and every election cycle hereafter we need to pay close attention to anything and everything that our future leaders have to say about outsourcing. If we don't, 'made in America' will be just a memory that is made in our minds.

[Sidebar]Just in case something in this article has disturbed you, you'll probably sleep better tonight knowing that the average CEO of a Standard and Poor's Company made $11.75 million in total compensation in 2005.

Indexing (document details)Subjects: Higher education,  African Americans,  Academic degrees,  Outsourcing,  Job

requirements,  Labor force

Locations: United States--US

People: Baugh, Bob

Companies: Boeing Co (NAICS: 336411, 336413, 336414 ) ,  Delta Air Lines Inc (NAICS: 481111 )

Author(s): Samuel J Vance

Document types: Commentary

Publication title: Miami Times. Miami, Fla.: Nov 1-Nov 7, 2006. Vol. 84, Iss. 6;  pg. 2A, 2 pgs

Source type: Newspaper

ISSN: 07390319

ProQuest document ID: 1174912751

Text Word Count 865

ARTICLE SEVEN

New York Times, The (NY) June 24, 2005 Cutting Here, But Hiring Over There Author: STEVE LOHREdition: Late Edition - FinalSection: Business/Financial DeskPage: 1Estimated printed pages: 4Digest:IBM plans to increase its payroll in India this year by more than 14,000 workers, even as it proceeds with layoffs of up to 13,000 workers in Europe and US; numbers are telling evidence of continuing globalization of work and migration of some skilled jobs to low-wage countries like India; IBM senior vice president Robert W Moffat explains buildup in India is attributable to surging demand for technology services in thriving Indian economy and

305 PQ 1241630586

opportunity to tap many skilled Indian software engineers to work on projects around world; Marcus Courtney, president of Washington Alliance of Technology Workers, or WashTech, group that seeks to unionize such workers, says winners are richest corporations in world, and American workers lose; graph; photo (M)Article Text:Even as it proceeds with layoffs of up to 13,000 workers in Europe and the United States, I.B.M. plans to increase its payroll in India this year by more than 14,000 workers, according to an internal company document. Those numbers are telling evidence of the continuing globalization of work and the migration of some skilled jobs to low-wage countries like India. And I.B.M., the world's largest information technology company, is something of a corporate laboratory that highlights the trend. Its actions inform the worries and policy debate that surround the rise of a global labor force in science, engineering and other fields that require advanced education. To critics, I.B.M. is a leading example of the corporate strategy of shopping the globe for the cheapest labor in a single-minded pursuit of profits, to the detriment of wages, benefits and job security here and in other developed countries. The company announced last month that it would cut 10,000 to 13,000 jobs, about a quarter of them in the United States and the bulk of the rest in Western Europe. "I.B.M. is really pushing this offshore outsourcing to relentlessly cut costs and to export skilled jobs abroad," said Marcus Courtney, president of the Washington Alliance of Technology Workers, or WashTech, a group that seeks to unionize such workers. "The winners are the richest corporations in the world, and American workers lose." WashTech, based in Washington State, gave the I.B.M. document on Indian employment to The New York Times. It is labeled "I.B.M. Confidential" and dated April 2005. An I.B.M. employee concerned about the shifting of jobs abroad provided the document to WashTech. I.B.M. declined to comment on the document or the numbers in it, other than to say that there are many documents, charts and projections generated within the company. But in an interview, Robert W. Moffat, an I.B.M. senior vice president, explained that the buildup in India was attributable to surging demand for technology services in the thriving Indian economy and the opportunity to tap the many skilled Indian software engineers to work on projects around the world. Lower trade barriers and cheaper telecommunications and computing ability help allow a distant labor force to work on technology projects, he said. Mr. Moffat said I.B.M. was making the shift from a classic multinational corporation with separate businesses in many different countries to a truly worldwide company whose work can be divided and parceled out to the most efficient locations. Cost is part of the calculation, Mr. Moffat noted, but typically not the most important consideration. "People who say this is simply labor arbitrage don't get it," he said. "It's mostly about skills." And Mr. Moffat said that I.B.M. was hiring people around the world, including many in the United States, in new businesses that the company has marked for growth, even as it trims elsewhere. The company's overall employment in the United States has held steady for the last few years, at about 130,000. To foster growth, I.B.M. is increasingly trying to help its client companies use information technology rather than just selling them the hardware and software. So I.B.M. researchers and programmers are more and more being put to work for customers, redesigning and automating tasks like procurement, accounting and customer service. Yet those advanced services projects will be broken into pieces, with different experts in different countries handling a slice. This emerging globalization of operations, Mr. Moffat noted, does lead to a global labor market in certain fields. "You are no longer competing just with the guy down the street, but also with people around the world," he said. Such competition, however, can become particularly harsh for workers in the West when they are competing against well-educated workers in low-wage countries like India. An experienced software programmer in the United States earning $75,000 a year can often be replaced by an Indian programmer who earns $15,000 or so. Most economic studies, including one last week by the McKinsey Global Institute, a research group, have concluded that the offshore outsourcing of work will not have a huge effect on American jobs as a whole. But looking at job numbers alone, said Joseph E. Stiglitz, a Nobel Prize-winning economist and a professor at Columbia University, understates the potential problem. "What worries me is that it could have an enormous effect on wages, and that could have a wrenching impact on society," said Professor Stiglitz, a former chief economist of the World Bank. The fact that globalization anxiety about jobs and wages does not extend to executive ranks has stirred resentment among workers. "Maybe the shareholders should look offshore for competitive executives who would collect less pay and fewer benefits," said Lee Conrad, national coordinator of the Alliance@IBM, a union-affiliated group that has 6,500 dues-paying members at I.B.M. "In all this talk of global competitiveness, the burden all falls on the workers."

Education and retraining, most experts agree, is a major part of the answer for helping skilled workers adjust and find new jobs to replace those lost to global competition. For its part, I.B.M. says it spends more than $700 million on training its employees for new jobs within the company, and for those laid off it offers severance packages that include career counseling and reimbursement for retraining. Even some champions of globalization say the corporate winners should do more to ease the transition of the losers. "The wealth creation clearly has some fallout, and there is a responsibility for it," said Diana Farrell, director of the McKinsey Global Institute. By one calculation, the cost of softening the blow might not be all that high. For every dollar invested offshore, American companies save 58 cents, McKinsey estimates. And 4 or 5 percent of those savings could pay for a theoretical wage insurance program that would cover 70 percent of the income lost between an old job and a new one, as well as subsidized health care coverage, McKinsey said. Caption:Photo: I.B.M. employees in the global services network center in Boulder, Colo. As computing costs decrease, worldwide coordination of efforts among a distant and lower-paid work force is more effectively achieved. (Photo by Kevin Moloney for The New York Times)(pg. C5) Chart: "I.B.M. employees" Graph tracks number of I.B.M. employees from India and the rest of the world from 2002 through projected 2005. (Sources by Company reports; company document via WashTech)(pg. C1)Copyright (c) 2005 The New York Times CompanyRecord Number: 2005-06-24-297445

ARTICLE EIGHT

New York Times, The (NY) June 19, 2005 Column: ECONOMIC VIEWTrue or False: Outsourcing Is a Crisis Author: EDUARDO PORTEREdition: Late Edition - FinalSection: SundayBusinessPage: 4Estimated printed pages: 3Article Text:IF you read only the headlines, the future of globalization may seem scary, indeed. American jobs have already been heading abroad. And as telecommunications and more powerful computers enable companies to take even more jobs overseas, the service sector, which accounts for about 85 percent of the United States work force, will be increasingly vulnerable to competition from the cheap labor pools of the developing world. So the question looms: Is America on the verge of losing oodles of white-collar jobs? Probably not. The threat of global outsourcing is easily overstated. The debate over the global competition for jobs is awash in dire projections. All those legal assistants in New York and Washington, for example, could be replaced with smart young graduates from Hyderabad. Office support occupations -- jobs like data entry assistant, file clerk and the entire payroll department -- could also be carried out in remote locations. "We are really at the beginning stages of this, and it is accelerating rapidly," said Ron Hira, assistant professor of public policy at the Rochester Institute of Technology. In a study published this year, two economists at the Organization for Economic Cooperation and Development in Brussels estimated that 20 percent of the developed world's employment could be "potentially affected" by global outsourcing. That could include all American librarians, statisticians, chemical engineers and air traffic controllers, the study said. What does "potentially affected" mean? Even if offshoring didn't drain away all these jobs, global competition for employment -- including workers in developing countries who earn so little by comparison -- could severely dent the livelihoods of American workers. "It isn't going to hurt in terms of jobs," said William J. Baumol, an economics professor at New York University who has studied the costs of globalization. "It is going to hurt in terms of wages."

But even if millions of tasks can be done by cheaper labor on the other side of the planet, businesses won't rush to move every job they can to wherever the cost is lowest. The labor market isn't quite that global, and it's unlikely to be anytime soon. In a new set of reports, the McKinsey Global Institute, a research group known for its unabashedly favorable view of globalization, argued that 160 million service jobs -- about 10 percent of total worldwide employment -- could be moved to remote sites because these job functions don't require customer contact, local knowledge or complex interactions with the rest of a business. Yet after surveying dozens of companies in eight sectors, from pharmaceutical companies to insurers, it concluded that only a small fraction of these jobs would actually be sent away. The report estimates that by 2008, multinational companies in the entire developed world will have located only 4.1 million service jobs in low-wage countries, up from about 1.5 million in 2003. The figure is equivalent to only 1 percent of the total number of service jobs in developed countries. Some sectors, like retail and health care, are likely to put very few jobs in poor countries. McKinsey estimated that less than 0.07 percent of health care jobs in 2008 would be outsourced to low-wage countries. But even designers of packaged software, whose work can easily be done abroad, will outsource only 18 percent of their jobs, the report said. Moving tasks to faraway sites isn't simple. According to McKinsey's study, many business processes are difficult to separate into discrete chunks that can be sent away. Many insurance companies use information technology systems that have been cobbled together over time and would be difficult to manage remotely. Managers can be unwilling or unprepared to work overseas. And sometimes the tasks that can be sent offshore are too small to make the move worthwhile. To top it off, there aren't that many suitable cheap workers available. Human-resources managers interviewed for the McKinsey study said that for reasons ranging from poor language skills to second-rate education systems, only about 13 percent of the young, college-educated professionals in the big developing countries are suitable to work for multinationals. And competition from local companies reduces this pool. Sure, there are a billion Indians, but only a tiny percentage of the Indian work force have the appropriate qualifications. "Only a fraction have English as a medium of instruction, and only a fraction of those speak English that you or I can understand," said Jagdish N. Bhagwati, a professor of economics at Columbia University. Of course, many of these obstacles can be overcome with time. The pool of adequate workers in poorer countries will grow, and companies will eventually iron out many of the logistical complications. But that is likely to take a while. "The rate at which companies are willing and able is much slower than you would realize," said Diana Farrell, director of the McKinsey Global Institute. "We see this as being evolutionary, continuous but measured change." Copyright (c) 2005 The New York Times CompanyRecord Number: 2005-06-19-226254

ARTICLE NINE

Did you mean: "...(TITLE(ARTICLE: The OFFSPRING of American..."

Copyright (c) 2005 Loyola University Chicago Institute for Health LawAnnals of Health Law

Summer, 2005

14 Ann. Health L. 205

1 1 HIT_1 false

GNBFI 21_T6499852197

LENGTH: 29169 words

ARTICLE: The Offshoring of American Medicine: Scope, Economic Issues and Legal Liabilities

NAME: Thomas R. McLean, MD, JD, FACS, Esq.*

BIO: *CEO, Third Millennium Consultants, LLC, Shawnee, Kansas (www.firms.findlaw.com/TMCLLC); Clinical Assistant Professor of Surgery, University of Kansas School of Medicine; Attending Surgeon at the Dwight D. Eisenhower Veterans Administration Medical Center, Leavenworth, Kansas. Address correspondence to Tom McLean at Third Millennium Consultants, LLC, 4970 Park, Shawnee, Kansas 66216, or via email at tmclean@dnamail.com. The author wishes to thank Edward P. Richards, Professor of Law, Louisiana State University, for critically reviewing this article at the draft stage. I wish to acknowledge and thank America's Veterans and the Veteran's Administration, both of whom afforded me the time to develop my thoughts on the changing landscape of health care delivery.

SUMMARY:... The "offshoring" of American jobs, that is, outsourcing jobs to foreign countries, is not a new phenomenon. ... Shifting our health care delivery paradigm from physician-decision makers to physician extender / guideline-driven decision-making will facilitate telemedicine implementation; hence the offshoring of medical jobs. ... Yet, because the offshoring of medicine is both technology dependent and operationally complex, medical job exportation will not occur in isolation, but will likely require the development of new sophisticated international business organizations. ... Analyzing the offshoring of medical jobs by dissection of its components (e.g., regulations, costs, state-of-the-art technology, and liability) was done to facilitate the discussion of the current place and future of telemedicine. ... Thus, given the significant improvements in telemedical technology, the growing expertise of Canada as a remote surgical provider, and the growing expertise of India as a remote radiology provider, absent a change, America will soon likely be purchasing health care services from overseas providers who administer medical care with the same level of quality at a lower cost than the U.S. providers. ...  

TEXT: [*205] 

I. INTRODUCTION The "offshoring" of American jobs, that is, outsourcing jobs to foreign countries, is not a new phenomenon. Because of the relatively large wage-benefit differential between American and foreign labor, it became more cost effective to ship overseas many American blue-collar manufacturing jobs in the 1970s. n1 While wage-benefit differentials are an important part of the calculus behind job exportation, other factors, like technology, play an important role in this phenomenon. n2 In fact, the Internet and standardized software technology has as much to do with the recent offshoring of white-collar service jobs as the magnitude of wage - benefit differentials between American and foreign white-collar labor markets. n3 Once considered immune to outsourcing, fourteen million American white-collar service sector jobs, 11% of the nation's entire work force, are now  [*206]  considered vulnerable to shipment abroad due to technological innovations. n4 For most Americans, the exportation of blue-collar jobs is a tragedy, but the offshoring of white-collar jobs could be devastating. While the exportation of white-collar jobs has captivated the press, little has been written about the offshoring of American medical jobs, which may now increase because of recent technological innovations in the fields of telemedicine n5 and cybersurgery. n6

Accordingly, the purpose of this article is to examine the outsourcing of American medical jobs. n7 Part II contains two subparts. The first subsection reviews the socioeconomic forces that drive the exportation of jobs. The second subsection provides a brief overview of recent changes in the law that, along with various socioeconomic forces, will facilitate the offshoring of medical jobs. Together, the subsections of Part II make clear that, like other white-collar industries, the medical profession cannot resist having much of its workforce shipped overseas. Part III surveys the field of telemedicine, demonstrating that many fields of medicine have

already succumbed to offshoring, and nothing is preventing the remaining fields of  [*207]  medicine from following suit. n8

Part IV addresses legal liability associated with the exportation of medical jobs. In particular, while malpractice will be at least as common in cyberspace as it is in the real world, international law and the legal "lag phase" associated with technology n9 leaves many unanswered questions on cyberspace medical malpractice. Finally, Part V returns to the topic of money. If America is to preserve its hegemonic position in the field of health care, particularly telemedicine, the best defense is a good offense. That is, if America wants to minimize the number of medical jobs that are exported during the next decade, it must embrace telemedicine wholeheartedly, regardless of the upfront costs. This article concludes with the observation that America is on the threshold of purchasing its health care services from the vendors who provide quality medical care at the cheapest price, even if those vendors are located overseas.

II. OFF-SHORING OF JOBS

A. The Birth of Offshoring: A Blue-collar Perspective For the most part, the offshoring of American jobs is a post-World War II phenomenon. Before the war, laborers had very little power to demand concessions from employers. For example, as World War I ended, the anemic labor movement could not even gather enough popular support to protect children. n10 Even as late as the 1930s, the labor movement could not muster enough support to keep President Roosevelt's pro-labor legislation alive. n11 In contrast, by the end of the second World War, not only was the labor movement better organized, n12 but it also had increased its negotiating  [*208]  power for three reasons. First, war casualties caused a labor shortage. Second, many of the returning service personnel opted not to enter the workforce, but rather elected to attend school under the G.I. Bill, thereby exacerbating the labor shortage. n13 Third, as the demand for consumer goods skyrocketed during the post-war economic boom, the demand for labor needed to increase if consumer demands were to be met. n14 This was not possible, of course with loss of life during the war and returning service personnel opting to attend college.

After the American Federation of Labor (AFL) and the Committee for Industrial Organization (CIO) merged in 1955, the mismatch of labor supply and employer demand resulted in allegations that labor had a monopolistic hold on the market place. n15 Regardless of whether a labor monopoly truly existed, it was nonetheless true that for the first time, labor had such negotiating power that it could demand wage concessions from major corporations like General Motors. However, labor-driven wage escalation forced manufacturers to raise the prices of their goods, thereby stimulating inflation. n16 Consequently, by the mid-1960s, major employers were attempting to mitigate inflationary pressures of wage concessions by granting employee medical benefits. n17 From the employers' point of view, such an exchange actually lowered the total cost of labor because the employers purchased group health insurance for less than employees could purchase on their own for comparable coverage. Unfortunately, by the end of the 1970s, this strategy of substituting employee benefit programs for wage concessions created its own set of problems because medicine became increasingly expensive n18 while life expectancy grew significantly. n19

 [*209]  The zenith of labor's power came in the mid-1970s when it had the ability to shut down plants. n20 At that time, the U.S. labor force commanded wages and benefits that were unprecedented in any other market. The cost of benefits proved particularly vexing to employers because the rate of inflation in the medical sector exceeded the inflation rate for the national economy. n21 Businesses needed to control these expenses, but lacked the negotiating power to affect labor costs. Some large employers turned to the federal government for relief. n22 In response, the Nixon and Ford administrations enacted, respectively, the Federal Health Maintenance Organization (HMO) Act n23 and the Employees Retirement Income Security Act (ERISA). n24 The purpose of the HMO Act was to initiate what we know today as the managed care industry. The Act sought to facilitate the replacement of indemnity insurance by creating a more efficient substitute insurance option. n25 ERISA, on the other hand, sought to provide uniform procedures for managing health and pension plans. Uniform procedures benefit employers because they decrease the employers' administration costs to

operate employee benefit plans. A key consideration in passing the HMO Act and ERISA was the government's desire to help employers control the cost of medical benefits.

Unfortunately, a double-digit rate of inflation in both the medical sector and the general economy negated any advantages gained by employers after the HMO Act and ERISA were enacted. n26 General inflation was driven not only by Vietnam War costs, but also by the Arab oil embargo, which demonstrated that we all live in a global world. n27 Where the general rate of  [*210]  inflation increased, medical-sector inflation exploded. n28 Both forms of inflation greatly impacted employers who were locked into long-term labor contracts containing cost-of-living-allowance (COLA) provisions.

In the late 1960s and early 1970s, strong labor negotiators extracted COLAs from employers. The idea behind COLAs was that labor was not going to allow any hard-earned benefits to be eaten up by future inflation. Having a COLA provision in a labor contract meant that each year, employees' wages and benefits automatically increased according to the previous year's inflation rate. n29 Consequently, the double-digit inflation rates of the 1970s mixed explosively with these COLA provisions to raise the cost of providing medical benefits to unprecedented levels. n30 In time, COLA provisions, medical inflation, and other economic forces such as population growth synergistically combined in such a way that employers now pay a half billion dollars per year to cover employees' health care benefits. n31

As the 1970s came to a close, the detrimental impact of escalating health care costs became increasingly apparent: health benefit costs had become many employers' largest expense. For example, during President Reagan's first term, GM was paying Blue Cross as much for health insurance as it was paying U.S. Steel for the raw material to make its cars. n32 Once again, employers looked to Washington for some form of health insurance and pension cost relief n33 because the cost of these benefits effectively levied a  [*211]  tax on American goods sold abroad, forcing American goods to trade at a competitive disadvantage on the global market. n34 Some commentators have openly wondered why employers must continue to provide health care benefits at their detriment. n35 Tinkering with employer-provided health insurance has not controlled medical inflation, leading large employers to search for other solutions to reduce or eliminate the high wage and benefit costs of labor.

In the 1980s, employers used one of two methods to control the cost of employee benefit packages: demand more sophisticated managed care products from insurers or export jobs overseas to exploit more favorable labor markets. n36 For many reasons, managed care techniques, which have attempted to control physician autonomy with nonspecific incentives, have proved less than satisfactory. n37 The reality is that managed care products have only stabilized medical inflation at best, holding it to a rate of about ten percent per year. n38 That is, managed care products have seemed to only cap off the rise of medical inflation, without necessarily making health care more cost effective.

Sending jobs offshore, which continues today, proved to be the more durable solution to controlling labor costs. By shifting their manufacturing  [*212]  operations to a more labor-friendly location, employers not only reduced their direct labor costs by paying lower wages but also reduced or eliminated many indirect labor costs like health care and pension benefits. n39 Accordingly, over last 20 years, America has increasingly exported its blue-collar manufacturing jobs while the country as a whole shifted to a white-collar, service-based economy. Exporting blue-collar jobs may not have been an ideal solution to rising labor costs; nevertheless, such job exportation has helped American manufacturers stay competitive in the global market place.

B. More Than Meets the Eye: A White-Collar Perspective n40

 As many blue-collar workers lost their jobs, those in white-collar industries looked the other way, smugly believing that service sector jobs were safe from exportation. However, while companies outsourced their manufacturing jobs in the 1980s, they also laid the groundwork to send white-collar service sector and medical jobs offshore. At first glance, it would seem that the corporate rationale for offshoring white-collar and medical jobs would be the same as that used for outsourcing blue-collar positions: capitalizing on a low-cost

labor market. To some degree, this is true. Yet, as the following discussion on offshoring white-collar positions demonstrates, the increase in exportation of non-manufacturing jobs over the past decade is more complicated. n41

1. Requirements for Offshoring White-collar Jobs As in the manufacturing sector, the offshoring of white-collar service jobs is partly driven by a favorable employee wage-benefit differential between the U.S. and the foreign host country. n42 An Indian graduate of an American business school who returns to work in Calcutta has thirty percent fewer cost-of-living expenses than if he remained working in Chicago, although the Calcutta businessman earns only fourteen percent of [*213]  the salary an American businessman would earn. n43 Moreover, by relocating MBA positions to Calcutta, not only would a corporation cut the cost of its wages, it would also substantially cut the cost of medical benefits. To corporate America, the elimination of medical benefit expenses has particular appeal because these expenses are increasing at an unsustainable rate. n44

Between 1999 and 2004, the balance sheets for corporate America were more negatively influenced by the rise in medical benefit expenses than by wages. n45 In fact, General Motors recently reported a $ 1.1 billion first quarter loss, its worst quarterly loss in over a decade, citing rising heath care costs as a primary factor in lost profits now and for the future. n46 The automaker projected that its union-based health care costs were approaching $ 6 billion for this year, possibly forcing it to withdraw funds from a $ 20 billion cash reserve allocated for retiree health care expenses. n47 General Motors reportedly provides health care for over one million people, including workers, retirees, and their families, who pay no deductibles or monthly premiums. n48

Nevertheless, successfully offshoring white-collar jobs involves more than a favorable wage-benefit differential; two other factors contribute to the emigration's success. First, cost-effective telecommunication technology must be available to link the offshore location with the home office. n49 As used here, telecommunication technology contemplates both an appropriate telecommunications connection and compatible standardized software, including spreadsheets and word processing software. n50 Thus, even though the Internet and personal computers have been available for  [*214]  almost two decades, the software enabling global communication only became available in the early 1990s. American Express became the first company to invest significant capital in offshoring some of its backroom call center operations to India. n51 Many other corporations could not follow suit until the software became more affordable. n52 Today, however, because of improvements in software quality and the decreasing cost of software, large corporations can no longer afford "to ignore information technology, or relegate it to the back burner," because offshoring white-collar jobs has become essential for corporate survival. n53

The second, and more problematic, requirement is that the host country providing the cheap laborers must have a large number of educated, English-speaking people. But even India, which has a particularly large English-speaking population, cannot yet support the importation of American white-collar jobs to a significant degree because so few Indians are truly fluent in English. In fact, several U.S. companies have already had to repatriate their telephone call centers because the Indian operators could not sufficiently understand slang and idiomatic English phrases. n54 More generally, an inability to make subtle distinctions in English means that certain white-collar jobs are not easily exportable because creative ideas cannot be communicated effectively. n55 Generally, if a corporate job description cannot be written in the context of a finite set of rules, the job is not exportable. n56

Yet despite concerns over language skills, 2.8 million jobs were shipped overseas from 2001 to 2003 n57 and an estimated fourteen million more service jobs are vulnerable for exportation over the next five years. n58 At first, the exportation of white-collar jobs was limited to low-level service jobs. A decade ago, all that American Express was willing or able to send offshore was its overnight reconciliation accounting operations. n59 But in recent years, corporate firms export aeronautical engineers, software  [*215]  designers, and stock analysts. China, Russia, and India, "with [their] big stocks of educated workers, [are] merging rapidly into the global

labor market." n60 Corporate firms exported their more sophisticated white-collar jobs after experimenting with sending simpler or lower risk jobs offshore; job exportation in the medical sector followed the same strategy.

For many reasons, however, these demographic figures on white-collar job exportation provide an incomplete picture. First, America is not the only country exporting white-collar jobs. n61 Indeed, some high-wage countries like Japan run a trade surplus with low-wage trading partners. n62 Second, even if America exported one million jobs per year, that would represent less than one percent of the American workforce. n63 Accordingly, while the absolute number of white-collar jobs sent offshore appears alarming, the significance of that number is on the same order of magnitude as the round-off error associated with the calculation of net jobs. n64 Third, the concept of net jobs is important because many of the jobs that have disappeared from the American workplace were not exported, but were rendered obsolete and are no longer being filled. n65 Finally, some corporate executives received generous incentives to export blue-collar and white-collar jobs overseas. n66

2. Setting the Stage to Export Medical Positions The exportation of medical jobs is likely to increase as telemedicine gains a greater foothold in the medical market place. It is not surprising that the medical community already exports some of its backroom operations, like medical billing and transcription, and specialty care based  [*216]  on image analysis, like radiology. n67 But successfully exporting medical jobs require more than telecommunication technology and a large number of English speakers. It also requires: (1) a solid regulatory lattice; (2) evolution in doctor-patient relationship; and (3) the medical community gaining greater experience with newer business models and marketing techniques.

a. Regulatory Facilitation of Telemedicine Three key legislative acts facilitated the advancement of telemedicine: n68 the Telecommunications Act of 1996; n69 the Balanced Budget Act of 1997 (BBA); n70 and the Federal Food, Drug, and Cosmetic Act (FFDCA), as amended. n71

Congress enacted the Telecommunications Act to force telephone companies to provide universal service in remote areas and to ensure that residents in those areas were not charged an exorbitant amount for telephone access. n72 Before the mid-1990s, telephone companies rarely provided access to rural areas because it was not cost-effective: those regions would not generate enough revenue to pay off of the initial connection costs. n73 But because of the federal government's intervention, urban physician-specialists could, for the first time, communicate with rural physicians or patients in a cost-efficient manner. n74 This technology laid the  [*217]  groundwork for telemedicine.

The BBA further enabled the development of telemedicine by providing a reimbursement mechanism for providers. n75 The federal government initially did not reimburse telemedicine services because it was not widely practiced and little research addressed the "cost, quality and access" of telemedicine. n76 Even as late as 2001, a congressional report on telemedicine listed a "lack of reimbursement" as a critical barrier to the expansion of telemedicine. n77

However, the BBA directed the Centers for Medicare and Medicaid Services (CMS) to reimburse health care providers for certain telemedicine services, particularly teleconsultations, thereby providing physicians with new incentives to enter the telemedicine market. n78 Today, reimbursable telemedicine services include: office and other outpatient visits, professional consultations, psychiatric interviews, individual psychotherapy, and pharmacologic management. n79 Private insurers also reimburse some telemedical services, n80 undoubtedly because six states have mandated some telemedical coverage. n81 Reimbursement, however, is contingent on whether the telemedical system qualifies as an interactive telecommunications system. A telemedicine system is considered interactive for reimbursement purposes if: (1) the audio and video equipment permits two-way, real-time interactive communication between the patient and the remote physician; and (2) the patient is in the

office of a physician or in a hospital. n82

The Telecommunication Act and the BBA directly impacted  [*218]  telemedicine. Conversely, Congress's amendments to the FFDCA had a less direct impact on telemedicine. The Food and Drug Administration (FDA) does not have jurisdiction to regulate medical devices directly under the FFDCA; rather, the FDA's jurisdiction arises from the Medical Device Amendments (MDA) to the Act. n83 The FDA primarily regulates medical devices through the pre-market approval (PMA) process. n84 Medical device manufacturers may apply for mandatory PMA under section 360 or 510(k) of the amendment, n85 but they may not sell medical devices on the open market without one or the other form of PMA.

However, the FDA is limited in its ability to police medical devices once they are on the market. In 1996, pursuant to its authority under the MDA, the FDA established the Center for Devices and Radiological Health (CDRH) to supervise clinical telemedicine. n86 Using the CDRH, the FDA has been able to expand it jurisdiction over telemedical devices. The CDRH determines whether the machines used to transport telemedical video, voice, and data information and the algorithms that control telemedical devices are allowed on the market. n87

The CDRH not only adopts the policies and procedures that define  [*219]  medical devices' safe usage, it also regulates personnel, equipment, practices, and the procedures in use in telemedical facilities. n88 While the CDRH currently concentrates its efforts on the safety of Internet drug sales, it could be a powerful regulatory force in the telemedical field if it chose to exercise the full extent of its oversight authority. n89

In short, the FDA's regulation of telemedical devices is more de facto than de jure, creating a number of problems for the FDA: (1) it has no authority over a device unless the device is intended to be used for a medical purpose; (2) it must approve every medical device software update; and (3) it has no formal authority to regulate the market. n90

But regardless of whether the FDA's authority over telemedicine is de facto or de jure, the fact that the FDA has entered the field of telemedicine facilitates the offshoring of medical positions by imposing safety standards and guidelines on the rapidly expanding telemedicine market. n91 Without some form of safety standards, medical device manufacturers would be reluctant to enter the market. n92 But because the FDA's oversight would encourage more manufacturers to enter the telemedicine market, competition likely will increase and costs of telemedical hardware and software will fall, making it easier for more providers to offer telemedical services. n93 Moreover, as the FDA gains expertise with medical devices and articulates clear standards, telemedical device manufacturers in other countries will likely adopt the FDA's standards rather than "reinvent the  [*220]  wheel." n94

Of course, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) also impacts telemedicine and the offshoring of medical jobs. n95 This paper will not address the regulatory network that has arisen in the wake of HIPAA's enactment. n96 But because the electronic storage and transmission of medical data inherent in telemedicine implicates privacy issues, HIPPA's impact on telemedicine must be considered.

First, HIPAA has been moderately successful in meeting its goal of keeping patients' medical information confidential. n97 Generally, HIPAA imposes civil and criminal penalties on any health care provider who stores or transmits any identifiable, patient-specific medical information. n98 Presumably, HIPAA's privacy and security rules apply to all telemedical transactions.

As HIPPA is applied to telemedicine, it is both a blessing and a curse. Like the FDA standards, HIPAA standards and regulations provide a uniform playing field that will entice manufacturers to develop new and better telemedical hardware and software. On the other hand, HIPAA imposes substantial civil and criminal penalties for failing to comply with the Act's complex standards to protect patient information, and will undoubtedly deter some providers who would otherwise consider offering  [*221]  telemedical services. n99 In fact, as discussed below, a major university has already contemplated HIPPA liability because it sent its

medical billing operations offshore. n100

b. A New Medical Paradigm The second factor facilitating the exportation of medical jobs is the devaluation of medical knowledge. The medical community traditionally had a virtual monopoly on medical knowledge. If the average person wanted medical information, he would speak to a medical professional, or try to extract the information from arcane medical text books. But the technological changes of the past thirty years have all but destroyed the industry's monopoly on medical knowledge.

The changing paradigm for the management of pregnancy illustrates this shift. In the 1970s, pregnancy was treated as a disease. If a woman wanted to know if she was pregnant, she went to her physician's office for a physical exam and medical testing. Today, if that same woman wants to know if she is pregnant, she purchases a home pregnancy test kit. If the test is positive, the woman can search the Internet to determine not only whether her physician has been sued or disciplined, but also to discover medical issues that arise during pregnancy and her physician's philosophies on how to handle such issues. When the woman visits her obstetrician's office, she dictates the terms of her treatment, like whether she will accept an epidural for pain management. n101 In the modern era of pregnancy management, the only decision left for the doctor to make is the decision to agree. n102 Furthermore, while the doctor's decision to agree with his patient's demands solidifies the contractual relationship between them, it is not necessarily a decision that requires a medical degree. n103

 [*222]  From the medical community's perspective, surrendering its medical expertise could not have come at worse time. By the mid-1980s, managed care had supplanted fee-for-service reimbursement as the primary means for compensating physician services, causing physicians to engage in questionable behavior to supplant their plummeting income. n104 For example, in an effort to secure managed care contracts, physicians agreed to contracts containing the "gag rule" clause. n105 The "gag rule" formally stated the following:

 Physician shall agree not to take any action or make any communication which undermines or could undermine the confidence of enrollees, their employers, their unions, or the public in U.S. Health care or the quality of U.S. Health care coverage. Physician shall keep the Proprietary Information payment rates, utilization-review procedures, etc. and this Agreement strictly confidential. n106

 Such clauses had the effect of alerting physicians that it was in their best interests to withhold medically significant information from patients, or fail to disclose to patients that their medical plans may not have been treating them fairly. n107 Therefore, as a condition of obtaining these contracts, physicians agreed not to disclose any information regarding their incentives. Eventually, the gag rule, like most secrets, became public knowledge. As a result, the public learned that the medical community would subordinate its interests for cash contracts. From then on, the public decided that physicians could no longer be trusted as the exclusive holders of medical knowledge. With its faith in the beneficence of the medical community shattered, the public's view of providers had to evolve because once trust exits a relationship, the parties to the relationship no longer look at each other the same way. n108

Thus, in hindsight, it appears inevitable that the public, empowered with  [*223]  medical knowledge and a natural skepticism of medical providers, would embrace the patient safety revolution. The Institute of Medicine's (IOM) publication of To Err is Human: Building a Safer Health System, which reported that physician-errors may kill as many 98,000 hospitalized patients per year, n109 launched the patient safety revolution in late 1999. Having sounded the alarm that providers made an excessive number of errors in treating patients, the IOM announced in three successive publications its recommendations for remedial action to improve health care quality. n110 While a detailed discussion of the IOM's remedial action plan is not appropriate in this article, a few comments are in order. n111 For the IOM, the key to improving health care is the development and implementation of medical-indication and clinical-practice guidelines. n112 Guidelines not

only create bright-line tests to gauge the quality of care rendered by physicians and hospitals; but such guidelines also allow medical care to be delegated to "physician extenders," that is, physicians' assistants or advanced practice nurses. In fact, a premise of the patient safety movement is that providers who follow the guidelines are fungible, which is all the more reason for those who actually pay for health insurance to want to have medical jobs sent offshore to low-cost providers.

While a shift to having health care provided by physician extenders is driven by multiple economic forces, perhaps the two most important of these forces are: the devaluation of medical knowledge and the greater likelihood that physician extenders will be more compliant clinical practice  [*224]  guidelines. n113 Shifting our health care delivery paradigm from physician-decision makers to physician extender / guideline-driven decision-making will facilitate telemedicine implementation; hence the offshoring of medical jobs. Although telemedicine may have started out as merely teleconsultation between physicians, telemedicine as it exists today allows for a centrally located physician to supervise a number of remotely located physician extenders. n114 In so doing, fewer physicians and ancillary medical personnel are required to deliver the same level of care, thereby reducing the cost to deliver health care.

To illustrate, consider how the Texas Correctional System (TCS) makes use of telemedicine and physician extenders. n115 The TCS, which operates a number of prisons throughout Texas, contracts exclusively with University of Texas at Galveston for medical services. In the past this meant that when a prisoner in El Paso claimed to need medical attention, the prisoner would have to be transported approximately 1,000 miles to see a physician. Accordingly, prior to telemedicine, it was very inefficient to emergently transport a single prisoner from El Paso to Galveston, especially if the prisoner was not acutely ill. However, by providing the Galveston physicians with a telemedical link to the various prisons, many of logistical and security concerns with prisoner transport for medical consultation could be eliminated. More specifically, the TCS's telemedical system allowed a Galveston-based physician who was supervising a physician extender to monitor the physician extender-prisoner encounter. Based on what the supervising physician observes during the interview and physical examination conducted by the physician extender, the physician could then make a medical decision on whether the patient was sufficiently acutely ill to justify urgent transport.

But it must be realized that TCS does not have to hire a physician from Galveston, or even Texas, to supervise physician extender-prisoner encounters. Rather, there is nothing that prevents the TCS from hiring a  [*225]  physician anywhere in the world to supervise the medical needs of its prisoners. More generally, because telemedical signals can be sent across international boarders, nothing prevents a patient located in America from being treated by a physician located in Beijing. n116 And as was the case with the exportation of other white-collar jobs, exportation of medical jobs to Beijing or Calcutta could substantially reduce total health care costs because foreign physicians are willing to accept much less in wages and benefits. n117

To be sure, the political and financial concerns with the offshoring of medical jobs will be substantial; yet, the greatest impediment to medical jobs exportation is most likely to be a lack of physician extenders in this country who are capable of facilitating the remote doctor's examination. n118 Still, the size of the physician extender labor pool is a relative, and not an absolute, concern in assessing the feasibility of offshoring medical jobs because the IOM is recommending that the U.S not only train more nurses, but also that America should do whatever is possible to keep nurses working in the medical field. n119

c. New Business Models The final factor that favors medical jobs exportation is the evolution of our health care delivery system. During the past two decades, providers have seen their income progressively whittled away such that providers today must cope with razor-thin profit margins. Consequently, physicians no longer practice solo or in small groups. n120 Rather, physicians are practicing as employees of corporations or in Independent Practice Associations (IPAs). With this shift in practice patterns to new business organization, physicians have recently adopted a number of sophisticated marketing and business strategies to control costs. n121 In particular,  [*226]  providers increasingly are looking at the Internet as a marketing tool and the franchising of a brand-name as strategies to

gain economies of scale.

1. Marketing Medicine on the Internet Since 1995, when the introduction of the Netscape browser revolutionized the Internet, n122 physicians have increasingly viewed the Internet as a means to market their services. n123 Physicians view the Internet as a cheap way to lure patients who are directing their own medical care into their cyberspace office. What these patients are looking for in cyberspace is a physician with a good outcome reputation and someone who can be trusted. The actual location of the physician is only a secondary concern to many of these patients. After all, patients have been willing to travel to places such as the Mayo Clinic and Texas Heart Institute for years. Given such a mindset, in the near future, patients will likely not be bothered if the physician of their choice is located in a foreign country. Physical location is secondary to the physician's clinical track record, trustworthiness, and an ability to provide the desired medical treatment telemedically. n124

From an economic perspective, as the number of Internet-mediated transactions with international providers increases, there will be a corresponding decrease in the need for American providers. In addition, if international providers continue to follow American providers by marketing themselves on the Internet, and are willing to undercut American providers on price, basic economic principles dictate that American medical jobs will  [*227]  move offshore. n125

2. The Franchise Model and Name Recognition The increase in use of the business franchise model will also stimulate the exportation of medical jobs. Perhaps the best known example of the franchise model phenomenon in clinical medicine is the Mayo Clinic. The Mayo Clinic has established franchise operations in Scottsdale, Arizona and Jacksonville, Florida n126 by franchising its Minnesota operation. These franchise operations allowed the Mayo Clinic to gain competitive advantages in the national market place through the creation of economies of scale that eliminated operational redundancy. In addition, a marquee health care provider like the Mayo Clinic benefits from instant name recognition when it moves into a new market. n127 Although the Mayo Clinic has limited its expansion to domestic cities, other providers have already franchised their operations internationally. n128 Once a foreign-based operation is up and running, it is likely that the American parent company will transfer some of its operation to overseas locations to take advantage of a cheaper labor market. n129 In fact, the franchise model is already being  [*228]  exploited by some American telemedical health care providers. n130

III. Offshoring Medicine The above discussion makes it clear that virtually nothing prevents American medical jobs from being exported. Thus, the next question is just how far down the road to exporting medical jobs has the U.S. already traveled? That is, if providers were given the right economic incentives, political support and cost-effective technology, how much longer will it be before a significant number of medical jobs are exported? The short answer to this question is that the U.S. has already begun offshoring some medical jobs in significant numbers. n131

Presently America is offshoring a significant number of medical jobs that involve "back room" operations and radiology services. n132 Common to both of these jobs is that they require a low level of technological sophistication n133 and they have minimal exposure to tort liability. n134 However, since telemedicine n135 and cybersurgery are already sufficiently advanced, it is only a matter of time before all fields in medicine can be exported. Therefore, if medical inflation is not checked and the telecommunication technology train continues to roll, face-to-face encounters will become less important to patients and surgical jobs are likely to be exported before the decade is out. n136

 [*229]  Offshoring medicine not only promises to be less costly as it exploits an economically more favorable foreign labor market, but the offshoring of medical jobs also has the potential to improve health care quality.

Offshoring will improve access to health care because patients will be examined immediately by trained physicians on a round-the-clock basis. n137 Additionally, quality will be improved because providers will be monitored for medical errors on a continuous basis. n138

A. Medical Paperwork is Already Being Offshored Telecommunication technology is revolutionizing all aspects of the practice of medicine as providers look to find more cost-efficient techniques to provide patient care. In recent years, providers' income has progressively fallen while their expenses have continued to increase. n139 Accordingly, providers have been forced to operate on razor-thin profit margins. Like other industries that had to cope with razor-thin profit margins in the last thirty years, health care providers are increasingly looking to offshore some of their backroom operations just as American Express did a decade ago. n140 In fact, for many providers today there is "no choice but to use offshore services if they can get the same quality service for less than it would cost in America." n141

1. Transcription Accordingly, many American providers are exporting their backroom operations like transcription and billing. Offshoring medical transcription is a straight forward, somewhat simplistic telecommunications application. [*230]  From the providers' point of view, nothing has changed: the providers dial a telephone number, dictate the medical information, and the typed report is presented to them twenty-four to seventy-two hours later for their signatures. Historically, the providers' dictations were recorded on magnetic tape and transcribed at the convenience of a local vender. Even today, for the most part, medical transcription is operated as a cottage-industry by transcriptionists who work out of their homes. However in the aggregate, medical transcription is big business in America as it generates $ 15 billion to $ 20 billion in revenue per year. n142

Medical transcription became a multibillion-dollar industry for two reasons. First, billions of medical transactions occur each year. Some of these transactions are trivial; for example, when a patient returns to a provider to have their sutures removed. Other medical transactions, such as an organ transplant operation are complex. Regardless of the complexity of any medical transaction, the doctor needs to provide medical documentation, to be properly paid and handwritten notes are increasingly unacceptable. n143 Second, the transcriptionists must not only be good typists, but they must also be fluent in the language of medicine. These requirements place medical transcription outside of the general secretarial skill set. Consequently, American transcriptionists command salaries of $ 27,000 to $ 30,000, plus benefits. n144 Such relatively high wages and benefits, which are similar to the wages and benefits received by many unionized blue-collar workers, serve as a stimulus to offshore medical transcription. n145

With the advent of the Internet and the falling cost of telecommunications, n146 when a provider now dials a local number, the dictation is frequently sent to India where it is transcribed and then returned either as an e-mail attachment or sent Federal Express the next day. Regardless of the exact procedure used, offshoring of medical transcriptions  [*231]  jobs not only frequently results in less turnaround time, but also is associated with significant cost savings. In India, a medical transcriptionist can be hired for a little as $ 125 to $ 150 a month. n147 When compared to the wages received by transcriptionists in the U.S., the differential in wages and benefits is so significant that perhaps the only reason any transcription is still performed in the U.S. is that the money saved on labor savings is often offset by heavier investments in technology, management, editing and quality assurance. Still, by offshoring their medical transcriptions, providers can general save fifteen to twenty-five percent off the cost of local transcription services. n148

2. Billing In the age of information, money moves with a click of a computer key. Thus, like medical transcription, American providers are already exporting an impressive amount of their billing. The reason is, once again, a favorable wage-benefit differential in the labor force and the only technology that is required is access to the Internet and an Excel(R) spreadsheet. Interestingly, although upfront costs for the technology to offshore

medical billing are minimal and English fluency requirements for billing operations are much less, the costs to export medical billing operations are still fairly high. Currently, for a medical practice to offshore its billing operation, it will cost upwards of $ 20,000 to $ 22,000 per year. n149 However, this is still cheaper than the $ 30,000 per year it costs to bring a similar operation in-house. n150

Given favorable economics, it is hard to argue with providers who wish to offshore their transcription and/or billing operations. Exportation of these jobs is associated with few negative risks and improves a provider's profit margin. n151 However, the need to protect patient confidentiality is the  [*232]  one liability that should not be overlooked. n152 The Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires that covered entities (e.g., providers) must ensure that protected patient information (PPI) (e.g., a medical transcription) is not disclosed without proper authorization. n153 Providers who have exploited foreign labor markets for their backroom operations have already had to contemplate HIPAA liability. n154 For example, consider the HIPAA liability issues that the University California at San Francisco (UCSF) had to resolve after offshoring some of its billing and transcriptions operations. n155 UCSF, much to its chagrin, became involved in a contract dispute with a foreign vendor who threatened to post UCSF's patients' PPI on the Internet unless the vendor was fully compensated. n156 Aware that such an action by the vendor could expose the university to significant HIPAA liability, UCSF settled with the vendor. n157 Regrettably, UCSF's experience is not an isolated event. As a result, six states n158 are contemplating a ban on outsourcing all provider billing and transcription operations. n159

B. Disease Management: The Model For Primary Care Physicians At this point, it could be argued that medical transcription and billing are not really medical jobs. Because an advanced medical degree is not  [*233]  required to perform these backroom operations, these jobs are little more than garden-variety white-collar labor. Such an argument is fair, but the inclusion of transcription and billing in this discussion is required for two reasons: (1) for completeness; and (2) to emphasize that there are virtually no positions connected with the practice of medicine that are not exportable. n160 Therefore, with the goal of demonstrating that virtually all medical care is exportable, we begin a survey of the formal practice of medicine with the field of primary care, which is the process of adopting the innovative techniques disease management. n161

At present, although disease management (DM) is the most rapidly growing sector of the health care industry, n162 it remains an amorphous concept without an agreed-upon definition. According to the Congressional Budget Office (CBO), DM "covers a range of activities that attempt[] to address several perceived shortcomings of current medical practice." n163 The CBO then goes on to state that DM is most easily recognized by its characteristic components: (1) active education of patients especially with respect to the proper use of medication; (2) active and regular monitoring of patient's progress; and (3) coordination of patient care among providers. n164 While patient education and coordination of patient care are clearly facilitated by the use of telemedicine, which brings a remote provider into contact with a patient, the discussion here will focus on demonstrating how DM will facilitate remote monitoring of outpatients.

Seventy-five percent of all health care dollars are spent treating chronic  [*234]  disease. n165 Hospitals, for the most part, treat acute disease-states, while chronic diseases are treated in the outpatient setting. Medical monitoring of a chronic disease is the key to a successful outpatient management program. Traditionally, the medical monitoring of outpatients was performed by having the patients come to a physicians' office on regular, sometimes weekly, basis. Once in the doctor's office, patients were made to wait for long periods to see the doctor, which from a societal point of view is a tremendously inefficient way to manage the labor force. The waiting room experience, however, was not a total loss because the nursing staff could use the waiting period to gather the key data for monitoring the patient's disease; for example, the patient's vital signs, weight, and occasionally draw blood for testing. Once this information was gathered the doctor might supplement this data with a limited examination prior to making a diagnosis and initiating treatment.

Unfortunately, this Norman Rockwellian image of American health care is rapidly being relegated to the

history books because of innovations in DM and telemedical technology. Using the DM paradigm, the patient's key data no longer has to be gathered in the doctor's office. Rather, DM makes uses of patient monitoring devices that telemetrically link patients to providers. n166 At the low end of the DM technology spectrum are scales that measure the daily weight of congestive heart failure patients and devices that measure the blood sugar of diabetic patients and then telephone these parameters into a provider's office. In contrast, at the high end of the DM technology spectrum is the LifeWatch Corporation. Using the latest in telemetric monitoring and cellular technology, LifeWatch monitors patients' heart rhythm in real-time. n167

In addition, DM technology will soon include Machine-to-Machine (M2M) devices. n168 Sophisticated M2M devices will facilitate outpatient  [*235]  management by automation; one device will telephone in patients' parameters and another device will send the patient a set of specific care instructions, which may prescribe that they go to the emergency room or take less insulin. n169

Advocates of DM note that using medical devices to monitor outpatient care has distinct clinical advantages, because many chronic disease-states, like congestive heart failure, diabetes, and hypertension, are inefficiently managed absent telemetry. n170 Whether DM is cost effective is another story. n171 In part, cost-effectiveness is controversial because at present, providers still need to be involved in a patient's care to perform an appropriate examination. This means that DM as we know it today must be administered by a local physician. Where the physician can make a medical decision about a patient absent a detailed physical examination, based on the symptoms and daily weight of a patient with congestive heart failure, for example, the patient may be able to avoid some visits to the doctor's office.

However, we have already noted that telemedical techniques, coupled with the use of physician extenders, allows the supervising physician to operate from anywhere in the world. Similarly, data collected via DM monitoring can be forwarded anywhere in the world. Accordingly, DM not only facilitates outpatient management, n172 it also facilitates the offshoring of medical jobs. To the extent that data collected by a DM device needs to be supplemented with a physical examination, the examination could be performed by a local physician extender who is being supervised by a remote physician. n173 Thus in the near future, U.S. patients may be spending less time in the waiting room of a doctor's office.

The quality of a physical examination performed in cyberspace is not a trivial issue. Professor John Blum points out that the physical separation, and to a lesser degree the temporal separation, of the physician and patient during a telemedical encounter creates problems with traditional notions of  [*236]  whether a doctor-patient relationship is established n174 and whether physician is appropriately licensed. n175 Generally, a physician may be subject to disciplinary action for the unlicensed practice of medicine if he prescribes medicine or administers online medical treatment without first having performed a physical examination on the patient. n176 Still, determining when a doctor-patient relationship is created and when a license is required to perform cybermedicine is unsettled in both the real world and in cyberspace, where a physical examination does not occur. Accordingly, Professor Blum concludes his review by noting that work remains to be done to harmonize the various judicial solutions and law review concepts of the doctor-patient relationship and licensure in cyberspace. n177

However, as a practitioner, I would favor a more practical definition for the establishment of a doctor-patient relationship in cyberspace. The relationship should be established when a remote physician actually performs a review of a patient's PPI. In addition to being a bright line standard, using this standard to determine the existence of a doctor-patient relationship would expand governmental oversight to a number of situations where oversight could potentially improve patient safety. n178 For example,  [*237]  when a remote radiologist reviews an x-ray now, a physical examination is not really performed because the radiologist simply reviews the patient's radiographic image. In this situation, a traditional doctor-patient relationship arguably is not established. On the other hand, if reviewing a patient's PPI, including an x-ray, triggers the creation of a doctor-patient relationship, there would be no question that radiologist's interpretation of a radiographic image would establish the basis of a doctor-patient relationship such that the doctor was engaging in the practice of medicine. n179 Additionally, basing the doctor-patient relationship on the review of PPI is consistent with the

recommendations of other commentators n180 and the Federation of State Medical Boards. n181

C. Moving Intensive Care Units (ICUs) Offshore Notwithstanding the concern over whether telemedicine-facilitated DM constitutes the practice of medicine, what is critical to recall at this juncture is that telemedicine allows for the offshoring of virtually all medical jobs. The use of telecommunications means that the provider who monitors a patient in a DM program can be anywhere in the world because the patient's data, and not the patient, is presented to the provider for a medical decision. Moreover, remote patient monitoring is not limited to the ambulatory setting for the management of chronic disease. While a telephone connection constituted "telecommunication" thus far in this article, going forward, telecommunications should be viewed broadly to include cable and broadband n182 and newer technologies based on the vertical integration of video image suppliers. n183 Today's telemedical technology is being increasingly applied to acute care settings in hospitals, making medical jobs within the hospital at risk for exportation. To illustrate, consider perhaps the most risky in-hospital situation for offshoring: patient care in an intensive care unit (ICU).

 [*238]  Today, the most acutely ill patients are managed in ICUs. In the best of situations, which are typically found in the tertiary care centers, ICUs are staffed during daylight hours by fully-trained specialists in intensive care medicine. These "intensivists" are not capable of working around the clock. While some ICUs are staffed by fully-trained physicians each night, most ICUs are either staffed by residents n184 or are staffed by physicians who take calls from home. n185 But staffing ICUs at night with residents and on-call physicians is less than ideal as death and disease never sleep; many patients decompensate between midnight and dawn. n186 For this reason and others, Leapfrog, a round-table employer discussion group, has long asserted that remote twenty-four hour-a-day monitoring of ICU patients could save as many as 53,000 lives per year. n187 Recently published data demonstrates that eICUs, which use remote specialists to monitor and provide patient care in multiple ICUs, show superior outcomes both in terms of patient events and dollars saved when compared with ICUs that were traditionally staffed. n188

Like DM providers, eICU providers may be located anywhere in the world. n189 This is an important point if we are to provide quality ICU care to patients on a round-the-clock basis. Dr. Michael Breslow recently conducted a two-year study examining the care given to 2,140 patients located in two ICUs whose care was remotely monitored by trained professionals. n190 Dr. Breslow's study was premised on the assumption that  [*239]  better ICU outcomes are achieved if remote intensivists telemetrically monitor ICU patients compared to ICU care provided solely by residents or on-call physicians. However, Dr. Breslow's actual study design did not provide for round-the-clock monitoring. Therefore, Dr. Breslow's study stops short of measuring the true benefits of eICU care. If there is really a benefit having ICU patient care remotely monitored by specialists, such supervision should be on a round-the-clock basis.

Dr. Breslow's study design undoubtedly reflects the economic realities of providing continuous round-the-clock coverage. Such comprehensive monitoring of patients rarely occurs in America because so few physicians are able and physically willing to provide coverage on the third shift. One solution to this physician-labor dilemma would be to hire intensive care specialists living in a time zone eight hours ahead of or behind America. n191 In this way, the local fully-trained intensivists would provide patient care on the first and second shifts while an offshore physician would provide oversight coverage on the third shift.

Admittedly, if we were to move to such a health care delivery model for eICUs, the telecommunication systems employed would have to be capable of handling the large volume of continuous digital data generated by ICU patients. High volumes of continuous digital data, in turn, are associated with some logistic and technical problems, including the need for dedicated telecommunications links, which are not always readily available, n192 and dealing with providers who frequently are not set up to handle electronic medical records, let alone major telemedicine data interfaces. n193 Accordingly, we will need more than a favorable wage-benefit differential and a large contingent of English speaking physicians in Beijing and Calcutta before American

eICUs are routinely staffed on the third shift by offshored physicians.

Yet the current logistical and technical problems faced by telemedicine are likely to disappear as health care providers around the world embrace technology for electronic storage and transmission of patient-specific data. That is, the logistical and technical problems associated with telemedicine are solvable. Moreover, these problems are likely to be solved sooner rather than later because providers are already being given incentives, in the  [*240]  form of a competitive advantage in the market place, to adopt telemedical technology. n194 For example, given that the cost of electronic data storage is falling rapidly, n195 it is estimated that all-digital hospitals will be able to reduce their operating expenses by twenty percent when compared with a traditional hospital that does not employ telemedical technology. n196 Given such projected cost savings, it is not surprising that in 2001, HealthSouth broke ground to build the first all-digital hospital. n197

D. Teleradiology: The Model for Imaging Physicians n198

 An important aspect of the all-digital hospitals will be their teleradiology capabilities. Because all-digital hospitals will be able to store and transmit electronic images, they will be in a position to hire physicians willing to work for lower wages and benefits in exchange for the freedom to interpret radiographic images from anywhere in the world. n199 That is, in five to ten years, hospitals will likely be in a position to choose whether they receive their radiology support staff locally or from overseas. Although all-digital  [*241]  hospitals are not yet commonplace, three economic forces are driving traditional hospitals to purchase their radiology services from overseas providers. The first factor is the magnitude of the wage-benefit differential that exists between American and foreign radiologists. After all, why would anyone pay an American radiologist $ 350,000 per year "if they [could] get a cheap Indian radiologist for $ 25,000 [per year]." n200

The second factor concerns the perception that a shortage of radiologists exists in this country. This perceived shortage allows radiologists to demand high fees for work done on the first and second shifts, and even higher fees if they work the third shift. Thus, providing in-house radiologist coverage on the third shift is cost-prohibitive for most hospitals in this country. Hospitals could solve this problem by purchasing radiology services from foreign vendors. n201

The effect of physicians' inability to access offshore medical employees is unclear; any shortage of radiologists may be more apparent than real because the American medical community tends to over-utilize radiology services. n202 If radiographic images were ordered as a result of evidence-based indications, as recommended by clinical guidelines, fewer imaging studies would need to be performed and thus, fewer radiologists would be needed. Radiologists benefit from the perception that they are in short supply. A shortage of radiologists, whether real or perceived, allows radiologists to receive premium remuneration.

The third factor driving the exploration of teleradiology services is the patient safety revolution. Because few radiologists are available between 11 p.m. and 7 a.m. to interpret the radiology films of patients with medical emergencies, some quality-minded radiology groups have come up with unique solution for providing continuous coverage that is tantamount to offshoring. Yet this protocol avoids many of the licensing and visa concerns that are typically raised in legal discussions of telemedicine. The groups rotate a fully licensed, board certified radiologist to Europe in order to exploit the time difference. For example, a group of radiologists in Sacramento that wishes to provide round-the-clock service by a well-rested physician may send a different radiologist to Spain every few months. Because Spain is eight time zones ahead of Sacramento, the radiologist can  [*242]  read the x-rays created by the third-shift technicians in Sacramento in real time. n203 In essence, the Sacramento radiology group has opened a Spanish radiology suite to provide radiology coverage services to Sacramento patients at night.

This is a clever, progressive solution to a difficult health care delivery dilemma. Yet, it begs the question: when will the Sacramento radiology group completely relocate its third shift operation offshore and hire a Spanish radiologist to take the place of the rotating American radiologist? The short answer is that no one knows for sure because of the multiple factors that must be contemplated. However, it seems reasonable that

the Sacramento group will hire Spanish radiologists for their Spanish radiology suite when the transaction costs of rotating American radiologists to Spain exceed the cost to license and credential new Spanish radiologists. n204

For many high-volume hospital systems in America, opening a Spanish radiology suite may be an ideal solution for providing cost-effective radiology services on the third shift. Unfortunately, this solution is not available for low-volume hospitals because it would not be cost-effective to relocate American radiologists to Europe on a regular basis. For these low-volume hospitals, an offshore radiology industry has already come into existence to meet their radiological needs. The apparent leader in this industry is Teleradiology Solutions, an Indian corporation that provides overnight radiology coverage for "30 hospitals in the U.S. including California, Georgia, Indiana, Massachusetts, Minnesota, Texas, [and] Washington." n205 Teleradiology Solutions boasts that its board-certified radiologists will provide reports for "Computed Tomography, MRI, ultrasound, X-Ray, nuclear medicine studies and conventional plain films (digital format) with a turn around time of under 30 minutes for a transcribed faxed report." n206

This suggests that because an Indian vendor can provide board-certified, third-shift radiologists so cheaply, American hospitals may hire  [*243]  Teleradiology Solutions for all of its radiological needs. Certainly if Teleradiology Solutions could provide board-certified physicians in other time zones, it may become a formidable economic force in the American health delivery system. In short, while America is presently only flirting with offshoring primary care medicine, it is offshoring significant numbers of radiology positions.

E. Cybersurgery: The Model for Interventional Physicians Thus far, this article has focused on diagnostic telemedicine, including primary care, intensive care, and radiology. Once a diagnosis is made, a treatment decision logically follows, which generally includes a combination of drug therapy, diet manipulation, and perhaps exercise modifications. Conceptually, in order for an offshore physician to treat those patients who have chronic diseases, who are relegated to the ICU, or who have recently undergone an imaging study, he must simply telephone the patient or his caregiver with a prescription for medicine, diet or exercise. To the extent that there will be any barriers to the remote management of medical patients over the next five to ten years, it is reasonable to assume that these barriers will largely be regulatory, relating to licensure and scope of practice compliance, for example. n207

Existing technology is sufficient to export primary care workers, intensivists, and radiological staff. But exportation of surgical jobs would seem to be an unlikely prospect for exportation overseas because of the physical proximity required between surgeon and patient. However, robotic surgical technology has advanced to a point where even surgical jobs are likely be offshored in the next five to ten years. n208

 [*244]  In 2000, the Food and Drug Administration (FDA) gave Intuitive Surgical approval to place its da Vinci Surgical System(R) (da Vinci) on the market. n209 The instrument "allows the surgeon to sit at a console and control, in real time, via InSite(R) Vision, two articulating robotic arms that respond in a fashion similar to a surgeon's hands." n210 It "substantially advances the technology of minimally invasive surgery far beyond current instruments on the market" and "allows the surgeon ... to be positioned remote from the patient undergoing the operation." n211

One year after the da Vinci entered the market, Dr. Jacques Marescaux, Chairman of the Department of Digestive and Endocrine Surgery at the University of Strasbourg, used a similar robotic machine and a dedicated telecommunication link to perform "Operation Lindberg," the world's first transoceanic surgical operation. During the procedure, Dr. Marescaux, who was in New York City, successfully remove the gallbladder of a patient in France, four thousand miles away. n212 Although Dr. Marescaux was the first to perform the Lindberg procedure, German n213 and Japanese n214 investigators soon repeated his results by also conducting successful surgeries.

Interestingly, Canada has become the country that has most wholeheartedly embraced and developed

cybersurgery. In 2004, the Canadian government opened the "Centre for Minimal Access Surgery" (CMAS) in Hamilton, Ontario in order to extend the "availability of minimal invasion surgery to Canadians living in remote areas." n215 A preliminary report on the success of CMAS reported that the cybersurgery center performed twenty-two intra-abdominal procedures on patients located in North Bay, Ontario. n216 Thus, cybersurgery is no longer an  [*245]  intellectual novelty, but rather it has become a legitimate technique for treating patients.

By moving cybersurgery from the backburner of prototypical demonstrations to actual clinical usage, the Canadians have stepped to the forefront of cybersurgery. This advancement was a missed opportunity for American surgeons because our country lacked interest in entering the cybersurgical field. n217 While the Canadians have not shown any interest in using the CMAS to move into the U.S. surgical market, offshoring U.S. surgical business to Canada could become a reality if the economics become favorable.

F. Bottom Line: The Practice of Medicine is Already Being Exported In the late twentieth century, well-paid blue-collar workers learned a harsh economic reality: corporate America was willing to export high paying jobs to improve its bottom line. White-collar workers, who initially believed that the greater educational requirements for their positions meant that their jobs were not exportable, discovered that powerful economic forces could drive their jobs overseas. Now, as this overview of telemedicine has demonstrated, the medical community stands on the threshold of learning that their jobs have no immunity to the economic forces that move jobs across oceans to exploit cheaper labor markets.

The offshoring of American jobs, including medical jobs, occurs when the expenses associated with exportation are offset by profits recovered by operating in a foreign country over time. That is, before a job is exported, a company must determine when the break-even point occurs. The break-even point can occur after only a few months where, for example, the start-up costs are minimal and the wage-benefit deferential is large. Or, a company may break even after many years if the start-up costs are excessive and the wage-benefit deferential is minimal. n218 In the blue-and white-collar worlds, that figure can be calculated fairly easily because start-up costs, on-going operational costs, the wage-benefit deferential, and  [*246]  liabilities are all known or can be reasonably estimated.

However, calculating the break-even point for the offshoring of medical jobs is tricky. While the start-up costs, on-going operational costs, and the wage-benefit deferential associated with telemedically-performed medical services are known, the liability associated with providing telemedical services is largely unknown, complicating the computation. In fact, the volume of American health care jobs that are being exported is inversely related to the perceived liability risks. Currently, the most frequently exported medical jobs involve backroom operations and radiology. Offshoring these types of jobs has relatively low risk: they primarily attract liability for loss of data and breach of patient confidentiality. While HIPAA penalties can be severe for breach of patient confidentiality, these risks can be minimized if proper safeguards are taken.

On the other hand, medical monitoring of patients, via DM in the outpatient setting or via eICUs for in-patients, is associated with moderate risk. These types of telemedical services not only carry the risk of breach of confidentiality, but also the risk of telecommunication interruption and negligent telecommunication signal transmission, which can be significant risks for some telemedical providers. However, exposure to such liability tends to be minimized by the fact that multiple providers are required to be involved in an offshore medical monitoring transaction. Thus, demonstrating causation in a malpractice action would be difficult. The exposure to malpractice liability is greater for practitioners who use technology like DM or work in eICUs, as opposed to practicing radiology. Thus, it is not surprising that DM and eICUs are only now exploring telemedicine.

Additionally, cybersurgery carries a considerable threat of tort liability due to the immediate risk of significant bodily injury. Moreover, it is easier to prove causation against the individual providers in cybersurgery malpractice cases because the injury is more clearly caused by the physician's error. The risk of tort liability is

likely the reason that only one country, Canada, has entered the cybersurgical field. n219 Clarifying the liability issues concerning cybersurgery will stimulate the offshoring of surgeries.

 [*247] 

IV. CIVIL PROCEDURE AND LIABILITY ISSUES A discussion of tort liability for offshoring medical jobs at this juncture is premature because a court must first have jurisdiction to find tort liability. A traditional civil procedure analysis of cyberspace jurisdiction should begin with a determination of whether the defendant engaged in purposeful "minimum contacts," and whether a long-arm statute exists such that traditional notions of fair play would not be upset by bringing a defendant into the court to answer for the alleged wrong-doing. n220 In contrast to the physical world, however, cyberspace relationships raise several novel nuances in the minimum contacts analysis, such as whether the "inconvenient forum" doctrine is applicable. n221In prior analyses of minimum contacts with respect to cyberspace, it was generally assumed that liability was being assessed against a domestic defendant. That is, prior cyberspace minimum contacts analyses have, for the most part, assumed that the court was in the U.S. and the defendant was a U.S. citizen. But when contemplating the tort liability of an offshore medical provider, such an assumption is not appropriate. n222

A. International Jurisdiction Before a foreign medical provider can be held liable in the U.S., an American court must determine whether international law grants that court jurisdiction over the foreign provider. n223 Although a detailed discussion of international law is beyond the scope of this article, the short answer to this question is that international law is unsettled as to whether a U.S. court has jurisdiction over an offshore provider. n224 In part, this is because international law as applied to telemedicine "is complex and disjointed, as it is composed of pockets of law that are only linked together by these  [*248]  technologies and applications." n225 In part, international law concerning telemedicine is unsettled because the nascent telemetrical industry is too small to have attracted much international attention, especially as compared to trade in steel or semiconductors. Hence, the law is lagging behind technology. n226

In a recent review of how international law impacts telemedicine, Professor Blum observed that there are no international agreements concerning telemedicine. n227 This observation undoubtedly reflects the fact that the fundamental purpose of international trade agreements is to facilitate the movement of goods and non-medical services across international boarders. n228 Consequently, telemedical commerce has generally fallen outside of the scope of international agreements. To the extent that telemedicine is covered in international agreements, it is covered only collaterally as it falls within discussions of confidentiality, intellectual property, and telecommunication standards. n229 Unfortunately, the result is that the key tort liability laws, i.e., malpractice and insurance law, have been neglected in most international agreements. n230

Still, progress is being made on the application of international civil procedure to offshore medical malpractice. Malaysia recently became the first and only country to have "enacted a generic telemedicine law, covering licensure, informed consent and telemedicine standard development." n231 Additionally, the General Agreement on Trade in Services (GATS) is the first multinational agreement to establish legally enforceable rights to trade in all services. n232 In particular, GATS covers: "all services except those provided in the exercise of government power." n233

Regional trade agreements allow more opportunity to specifically address telemedicine. For example, the North American Free Trade  [*249]  Agreement (NAFTA) n234 has a chapter that covers professional services, which appears to contemplate telemedicine. However, NAFTA's professional services chapter contains an opt-out provision, n235 which, interestingly enough, was exercised by the Canadian government. n236 Professor Blum speculated that the Canadians may have opted out of the professional services chapter because of fears that "for-profit American health care entrepreneurs" would move into Canada and siphon health care

reimbursement away from Canadian providers. n237 Subsequent to the publication of Professor Blum's article, Canada successfully launched its Centre for Minimal Access Surgery (CMAS) suggesting that perhaps the real reason Canada opted out of NAFTA's professional service chapter was to protect its inchoate cybersurgical industry.

Another important regional trade agreement that impacts the offshoring of medical jobs is the European Commission's Directive to Establish a Legal Framework for the Development of Electronic Commerce. n238 Under this agreement,

 the place of business for an Internet company is where the physical premises are located, as well as the possibility of concluding contracts on-line or the removal of rules requiring that contracts be drawn on paper. Also, the directive adopts the "mere conduit" rule for information intermediaries, which minimizes liability for passing on or storing information unless actual knowledge can be shown. n239

 Thus the Commission's directive has important implications for further tort liability.

In short, while a number of regional international trade agreements give some indication as to whether a U.S. court may have jurisdiction over a foreign telemedical provider, we are far from a consensus opinion. Thus, jurisdictional issues alone will leave telemedical providers with significant uncertainty on their cyber-malpractice exposure. But even if these jurisdictional issues are resolved substantial uncertainty would still remain as to the applicability of negligence law to foreign telemedical providers.

 [*250] 

B. Negligence by Offshore Physicians The Institute of Medicine (IOM) is undoubtedly correct that the addition of telecommunication technology to the practice of medicine in the form of electronic medical records n240 and electronic outreach programs to rural America n241 will improve health care quality overall. Yet, the introduction of new technology into the marketplace creates its own set of problems, which can remain dormant for long periods of time before a technological bug triggers a disaster. n242 Perhaps one of the most significant differences between the "real" world, with its purely mechanical machines, and cyberspace, with its intangible electronics, is the unexpected ways harm to third parties arises in cyberspace. Unlike in the "real" world, machines in cyberspace can cause harm to third parties because of the effects of electromagnetic interference, n243 hacking, n244 and computer viruses, even if the machines are otherwise non-defective and properly maintained. n245 In short, while telemedicine will bring a lot of good, it will also virtually guarantee that cyber-malpractice litigation will be more complex due to the substantial differences between the real and cyber worlds. n246

So if America is already exporting medical jobs, why have we not yet heard about a salacious case of cyber-malpractice committed by a foreign physician? There appears to be at least three answers to this question. [*251]  First, at present, we are offshoring only low risk medical jobs. When a third-world vendor makes an error in transcription or billing, patients are not physically harmed, so there is less support for a malpractice claim. Similarly, because treating physicians generally review radiographic images themselves, diagnostic radiologists rarely harm patients. And even when a radiologist does cause harm to a patient, his liability is often cut off by the actions of a treating physician. n247

Second, if medical jobs are exported, the delivery of health care becomes more complex. In the traditional practice of medicine, adverse outcomes generally arise through one of two phenomena: the natural course of disease or physician error. As there are only two possibilities, the causal analysis of an adverse event is fairly straightforward. On the other hand, when a patient is injured by an offshore provider, there are several additional causes of adverse outcomes, such as robotic machine defects, telecommunication link failures, and

unrelated third-party hackers and saboteurs. n248 As a corollary, multiple causes suggests that cyber-malpractice will likely involve many defendants. Multiple defendants, in turn, means that medical malpractice litigation concerning medical care delivered by an offshore provider is likely to degenerate into "finger pointing" cases, which tend to settle out of court. n249 Because no opinion is generated and the settlement agreements almost always contain confidentiality clauses, finger pointing cyber-malpractice cases remain off-limits to the public.

The third reason cyber-malpractice is not yet a matter of public discussion on the radar screen has to do with legal lag time. n250 This phenomenon appears to have been first described by former President Nixon early in his career. n251 In 1936, Nixon observed that over the course of a generation, automobile liability law had exploded. Immediately after the automobile was introduced, a comprehensive review of automobile liability could have been compiled in a four page document; by the 1930s, that review would require an encyclopedia. n252 The point of Nixon's argument was that it takes the legal community a measurable length of time to comprehend and digest new technology before it begins to regulate that  [*252]  technology under tort law. n253

Legal lag time appears to occur in the field of telemedicine and more generally in computer technology. In a recent review of computer technology, Professors Michael Rustad and Thomas Koenig failed to identify any cases of computer malpractice. n254 Rustad and Koenig also expressed surprise that no court has yet found medical malpractice liability arising out of an online consultation, given the "widespread adoption" of telemedicine in this country. n255 Traditionally, "courts have been wary of extending professional standards of care to medical web sites, medical software licensors, or other purveyors of information-age health products." n256 Thus, it seems reasonable to conclude that tort liability associated with the exportation of medical positions via telemedicine is still in the "lag" phase.

Philosophically, whether tort law should be applied in cyberspace is another issue. Tort law as we know it was largely developed to deal with accidents in the Industrial Age. n257 Thus, applying tort law in the Age of Information should be questioned as it may have unintended consequences. As noted elsewhere, telemedicine is fundamentally changing the nature of the physician-patient relationship. n258 Professor Nicholas Terry observed that if the traditional physician-patient relationship has been altered, it may no longer be fair to apply traditional medical duties to offshore physicians. n259

To illustrate, consider the standard of care issue as it is applied to offshore physicians. Even within America, the standard of medical care varies from state to state. n260 Concern over the proper standard of care will [*253]  be magnified in cases where medical care is provide by an overseas provider because state-of-the-art medical care in some sections of India or China may be substandard care in the U.S. Further, it has been argued that telemedical providers owe their patients a higher standard of care than face-to-face providers because telemedical providers must understand the limitations of telecommunication technology in addition to the limitations of medical care. n261 It is important to note that a deviation from the standard of care may be due to a software glitch, which may be very difficult to prove. n262 Thus, we are a long way from having a consensus opinion on the standard of telemedical care in cyberspace.

Still, it is unlikely that we will totally jettison our centuries' old system for providing compensation to victims of negligence in cyberspace. Even if we were to eliminate tort law from the health care arena, many principles of tort law would still be identifiable and operative. n263 Thus, while the degree of duty, standard of care, and causation owed by an offshore physician to patients in this country are likely to be debated for sometime, how we actually analyze a particular legal situation and identify the dispositive factors is not likely to change. While there are few rules to guide the liability analysis for adverse events at present, in ten to twenty years an encyclopedia will probably be needed to store the rules of cyber-malpractice.

In the mean time, American jurisprudence on telemedical liability will remain in limbo. Yet, because the offshoring of medicine is both technology dependent and operationally complex, medical job exportation will not occur in isolation, but will likely require the development of new sophisticated international business organizations. Because business  [*254]  organizations prefer not to operate in a legal limbo, the first international telemedical providers will want to define the legal boundaries of liability. Because of the

potential profit, these forthcoming telemedical providers will be pushing to minimize the legal lag time associated with telemedicine. In this regard, Professor Terry has already articulated a set of factors that must be addressed by international telemedical providers to minimize the legal lag phase of telemedicine:

 First, the history of e-health illustrates the way that health care in the United States has devalued patient expectations and access to care while over-investing in processes and technologies that serve the few. Second, e-health provides a rich source of examples revealing the transformation of health law away from an increasingly marginalized doctrine rooted in professional and personal paradigms. Third, e-health provides a disruptive model, particularly in its most recent iterations, that can be used to shake out otherwise dormant issues of law and policy. n264

 Lurking in the background of all of Professor Terry's factors is the concept that patient alienation is fodder for cyber-malpractice suits. Consequently, it is likely that institutional international telemedical providers, who presently would not be protected by medical malpractices caps, n265 would want to define cyber-malpractice so as to minimize their exposure to liability. This suggests that compensation for patient alienation will need to be minimized in cyber-malpractice actions. Also, business organizations that want to enter the telemedical market will want to enter the market early to secure market share and lobby the government to minimize their own liability. n266 All of these actions will tend to limit the legal lag time associated with telemedicine.

There is one more factor that will work to minimize the legal lag phase of telemedicine. When the American telemedical providers approach the government to enact laws defining their liability, they may soon find that the government is willing to listen. To protect American health care jobs and preserve American hegemony in health care, as will be discussed in the next section, the government will want to nurture and develop telemedicine. To accomplish this goal, the government will have to grant telemedical  [*255]  providers a stable regulatory lattice that minimizes their exposure to tort liability.

V. THE FUTURE: THE BEST DEFENSE IS A GOOD OFFENSE There is more to business life than issues of liability; so far, this discussion of offshoring medical jobs via telemedicine can be criticized because it atomizes the subject matter. Analyzing the offshoring of medical jobs by dissection of its components (e.g., regulations, costs, state-of-the-art technology, and liability) was done to facilitate the discussion of the current place and future of telemedicine. Yet, in life it is not the parts that matter, it the whole. Thus the most appropriate view for society to analysis the offshoring of medical jobs via telemedical technology is in toto. To measure the impact of telemedicine on society in toto, an appropriated standard is needed. Fortunately, when it comes to our health care delivery system, the "Iron Triangle;" i.e., access to care, quality, and cost, has become the recognized standard to determine health care quality. n267

When telemedicine is assessed against the back drop of the Iron Triangle not only does it appear that telemedicine will improve the quality of health care, but such an analysis also suggests that if America wants to preserve its medical jobs, it must embrace telemedicine and minimize the associated legal lag period. In particular, if America is to regain its hegemonic position in telemedicine from the Canadians, America should aggressively invest in and build the best quality telemedical systems for remote non-urban areas so that these systems can be franchised throughout the world. n268

A. The Iron Triangle and Telemedicine The Iron Triangle, originally a term used to describe an unholy alliance between the military, government, and corporate America during the Cold War, n269 refers to the concept that excellence in health care is not determined by access to care, quality, and cost individually. Rather, excellence in health care is a function of all three variables. n270 The Iron Triangle framework for evaluating health care technology means that we should not look at telemedicine merely as an innovation that will lead to the loss of  [*256]  America jobs.

Rather, the proper analysis for the value of telemedicine is to examine costs and impact on quality and access to care for the country. Although telemedical up-front costs are of concern, in the long run, telemedicine will improve access to care and quality of medical care in this country.

1. Access to Care Of the three corners of the health care Iron Triangle, telemedicine scores highest in improving access to care. Millions of Americans live in rural regions far away from high quality, full-service health care providers, let alone from state-of-the-art tertiary care medical centers. In fact, improving access to high quality, full-service health care providers by eliminating travel logistics is the raison d'etre for developing telemedicine. The notion that telemedicine improves access to medical care is so strong that most studies on the impact of telemedicine have simply assumed this to be true. n271 Furthermore, it seems telemedicine's ability to improve access to care is accepted worldwide, as even some of the poorest third-world countries are investing their scarce resources in improving access to medical care for their citizens by building telemedical systems. n272

2. Quality of Care Quality of medical care, like beauty, is in the eye of the beholder. In this regard, it is useful to consider some of the more frequently used methods to assess quality of medical care. Presently, the preferred method to determine quality of care is to measure patient satisfaction because it is cheap and easy to measure. However, use of patient satisfaction surveys may not be the most appropriate means of measuring telemedicine quality administered by offshore providers because of the changing nature of the doctor-patient interaction n273 and decreasing patient expectations. n274

In reality, quality of medical care is increasingly determined by the guideline method. According to the Institute of Medicine (IOM), a provider's compliance with existing clinical guidelines is the best indicator of quality medical care. n275 By this method, one measures quality patient care by determining how often the provider deviates from the clinical  [*257]  practice guidelines. Under this system of analysis, the best providers are those who follow the guidelines; accordingly, these providers neither over nor under prescribe medical care. On the plus side, using guideline compliance as an index to quality medical care is desirable because it is an objective standard that is publicized so that providers, patients, and payors all know what factors are being scrutinized. On the other hand, this method is undesirable because the parameters tested for quality are controversial, n276 and sometime providers are merely changing their behavior to game the system. n277

Thus, we come to a fundamental problem in determining the quality of medical care: should quality of care rendered by a provider turn on the provider organization's structure, function, or outcome? n278 Because an organization's structure has little to do with patients' satisfaction of their clinical outcome, most commentators would not index quality of care to a provider's business structure. Providers ideally would like to see quality based on outcome, but measuring outcome is expensive and controversial at both the design and analysis stages. Thus, while the functional approach to quality of care, i.e. compliance with guidelines, has its detractors, quality of care is most likely going to be determined by clinical guidelines. Guideline analysis is cheaper to perform, and although it is controversial with respect to the parameters chosen, it is less controversial when the data is analyzed. Moreover, the parameters used in guideline compliance analysis are likely to become less controversial as the government assists in developing methodologies to determine the most appropriate parameters of compliance for a particular clinical situation. n279

Regardless of the ultimate definition of what constitutes quality medical care, telemedicine will improve quality because of its audit trails. The IOM has long been a proponent of moving the country to electronic medical records, in part because the audit trails of electronic medical records will  [*258]  facilitate the identification of medical errors. n280 One of the reasons the IOM advocated strengthening medical examiner offices was to identify medical errors n281 because so few hospitals have electronic medical records. n282 Given that many cybersurgical operations, the most complex of all telemedical interactions, can be recorded in their

entirety on a single CD-ROM disc, n283 telemedicine offers a quantum step forward in medical record keeping.

In short, because telemedical audit trails will improve error analysis, it is reasonable to conclude that telemedicine will stimulate improvements in quality of medical care no matter how quality is ultimately determined. n284

3. Cost Cost is an elusive concept in health care, perhaps even more than quality. Telemedical costs are nebulous because of the fuzzy initial costs and assessment of liability exposure. To illustrate, consider how a telecommunications provider is likely to view the telemedicine industry. Thus far, telecommunications companies have had only a passing interest in entering the telemedicine market. That is, while U.S. telecommunications will allow medical digital data to pass through their systems, no American telecommunication companies have shown any interest in partnering with providers to develop more sophisticated telemedical technology like cybersurgery. In contrast German, French, and Japanese telephone companies have demonstrated their willingness to work with providers to set up prototypical cybersurgery demonstrations. n285 Because telecommunication companies face liability for telecommunication interruption if they become telemedical providers n286 it is likely that they are  [*259]  waiting for the legal lag phase of telemedical liability analysis to pass before entering the market. By waiting, the telecommunication companies will better be able to calculate their exposure in cyber medical malpractice actions. As sophisticated telemedicine encounters are impossible without the telecommunications companies functioning as the links between patients and providers, n287 it is unclear what they would ultimately charge for their services in this health care arena. n288

An additional figure that complicates the cost analysis of telemedicine is over what period of time the expenses should be amortized. n289 As Professor Henry Hazlitt notes, most economic analyses provide misleading results because they are not carried out over sufficiently long time horizons. n290 Thus, telemedicine may appear to be cost prohibitive if one considers only the first few years of operation. Also, the cost-prohibitive nature of telemedicine is related to the perception that telemedicine is more of a novelty than a clinical tool. But as the above survey of telemedicine indicates, it is probably only a matter of time before many medical services are purchased from quality cost-efficient overseas vendors. However, it is also true that the long-run analysis of telemedicine is complicated by the nature of the assumptions that need to be made. For example, some assumptions need to be made concerning reimbursement, which varies with geographic location. n291 But whether reimbursement rates in geographic areas remain stable regardless of the relatively long period of time it takes to get a telemedical system up and running is an open question.

Even if the initial costs are high and the long-run analysis of telemedicine uncertain, it is nonetheless likely that the U.S. government will soon be interested in investing in a telemedical infrastructure in order  [*260]  to reap the collateral benefits. n292 After all, investing in infrastructure often yields unanticipated dividends. Consider the interstate highway system. The Eisenhower administration invested a significant cost in erecting the interstate highway system to transport missiles and facilitate mass evacuations, if necessary. n293 But almost immediately, the government's investment yielded unanticipated benefits as new industries sprang up along the road side, like fast food outlets and roadside motels. n294

Similarly, the investment in a telemedical superhighway is likely to produce benefits we can hardly anticipate. At the very least, a telemedical infrastructure will facilitate the development of competition and economies of scale that have the potential to lower overall health care costs. n295 Competition will be stimulated as rural providers begin to compete with urban providers for patients. However, urban providers have the advantage in that competition because every rural patient captured will make the urban provider's economies of scale just that much larger, thereby allowing the urban provider to lower its prices without reducing the quality of services provided. n296 Of course, because it is likely that the prices of telemedical services will fall, a long term economic analysis will be that much more uncertain. n297

Two additional points must be made before leaving this discussion of the cost-effectiveness of telemedicine. First, comparing the installation of a telemedical infrastructure to the building of the interstate highway system is not entirely analogous. When the interstate highway system was built, there was no concern that an offshore construction vendor would exploit and capitalize on the system. But it is possible that a foreign vendor could commandeer a fiber-optic cable system to deliver telemedical services on its own. Thus, American companies will not want to build and pay for telemedical infrastructure if large benefits are reaped by foreign providers. So how should the government protect our nascent telemedical industry? Should we set up a protective tariff, or should we seek to opt out of the  [*261]  professional services chapter of NAFTA? These are questions to be decided.

Second, in addition to those political questions, there is the practical question of just how America will actually finance telemedical infrastructure. As we move further into the twenty-first century, venture capitalists are playing an increasingly larger role in the development of medical technology. n298 As many hospital systems are already operating on razor-thin profit margins, n299 it is reasonable to expect that venture capitalists may be involved with the formation of many telemedical operations. This involvement will likely mean that greater financial discipline will be expected of providers. Moreover, doing business with foreign providers over the long run will mean that medical providers will have to become more proficient in handling international financing and foreign exchange. In particular, many of the international telemedical providers will no doubt want to establish hedge funds to deal with foreign exchange rate risks. n300 But hedge funds, and sophisticated financial transactions in general, will create their own risks for providers. n301

4. Epilogue: Telemedicine and the Iron Triangle In short, when telemedicine is considered against the Iron Triangle, investment in a telemedical infrastructure receives high marks in the access to care corner, high marks in the quality corner, depending on how quality is measured, and no mark in the cost corner because at present, up-front and long-term economic considerations are too speculative. So, should there be a telemedical superhighway when two of the three corners of the Iron Triangle are pointing up? That's a difficult question to answer, especially considering the potential loses. Alternatively, perhaps we are contemplating the wrong question. Rather than calculating a precise quantitative cost of telemedicine, perhaps the better question to ask is: can we afford not to invest in telemedicine?

In 2004, when Canada opened its remote robotic surgical operation in Hamilton, Ontario, the U.S. quietly fell to the number two position in the hierarchical world of medical technology. For Canada, this was no small [*262]  feat, especially considering that Canadian health care dollars are scarce n302 and that Canada's health care delivery system has been under stress for sometime. n303 It is true that by offering high-tech, state-of-the-art surgery, Canada will be better able to retain its surgeons and provide health care to its more rural areas. n304 But with more providers at home, the Canadians should be contemplating whether to provide offshore medical services for other countries, like the U.S., the U.K., and perhaps even some third-world countries. n305 After all, American health care providers have captured a share of a foreign medical market. n306 Thus, given the significant improvements in telemedical technology, the growing expertise of Canada as a remote surgical provider, and the growing expertise of India as a remote radiology provider, absent a change, America will soon likely be purchasing health care services from overseas providers who administer medical care with the same level of quality at a lower cost than the U.S. providers. n307

B. A Coasian View of Offshoring Medical Jobs While the legal lag and cost-effectiveness of telemedicine will not be resolved in the next two or three years, it seems clear that telemedicine will ultimately become as commonplace as automobiles on the interstate highway system. The certainty of this statement lies in the recognition that the business community is abandoning a premise of the Industrial Age: locally produced goods and services are cheaper than those produced remotely. Rather, the history of business in the twentieth century teaches that frequently it is more cost-effective to purchase goods and services on  [*263]  the open market than to make them locally.

Some time ago, Ronald H. Coase, a Nobel laureate in economics, examined the relationship of the firm to the marketplace. n308 The firm "in modern economic theory is an organization that transforms inputs into outputs." n309 That is, a firm produces a good or a service. On the other hand, markets are "intuitions that exist to facilitate exchange." n310 In a Coasian view of the world, how large a firm becomes is determined by the overall transaction costs. When the cost of raw materials coupled with administrative costs to produce a good or service exceeds the cost of purchasing the same item on the open market, the firm will no longer expand. n311 At that point, a reasonable manufacturer will no longer make the goods or generate the services in the firm; rather, the manufacturer will become a distributor and purchase the goods or services on the open market for their resale value. n312 Given that many other industries obey Coasian principles, there is no reason to think that medicine is any exception.

As the above survey of the telemedical industry reveals, many fields of medicine, like radiology, are already at a point where offshoring medical services is cheaper than providing those services locally due to excessive local production and transaction costs. These local costs are excessive because of the relatively high wages and benefits commanded by radiologists. On the other hand, administrative costs associated with offshoring radiology jobs have been minimized by improvements in telemedical technology and cheap telecommunication connections. n313 These changes in global economic forces have created a favorable climate for the offshoring of radiology jobs. Moreover, the offshoring of other medical jobs, like surgery, will follow suit as the resolution of the legal lag phase associated with telemedical technology causes transaction costs to fall. In the long run, the medical community will no more be able to resist the forces that compel the offshoring of medical jobs than the blue-and other white-collar professions were.

To the extent that America wants to keep medical jobs at home, the real question is: how does America prevent the various economic forces from sweeping American medical jobs overseas? Protective trade barriers, such [*264]  as licensure and visa requirements, certainly may be utilized to keep American medical jobs at home because trade barriers can be erected fairly inexpensively. However, trade barriers are only a quick-fix solution; history teaches that protective trade barriers, in the long run, are ineffective at preserving domestic markets. n314 Thus, if we as a nation wish to prevent medical jobs from being exported, something more than trade barriers will be needed.

Considering the dynamic nature of the practice of medicine, perhaps the solution to saving medical jobs from exportation can be found in a new practice paradigm. Concerns for the safety of patients are changing the way medicine is practiced. In particular, the patient safety revolution is questioning the wisdom of allowing sleep-deprived providers to attend to patients. n315 A worldwide trend already exists to limit the professional practice time of physicians to as few as a forty hours per week. n316 The greatest impediment to the implementation of such a policy is that we presently have insufficient numbers of providers to deliver health care on a round-the-clock basis if physicians are work restricted to forty-hour workweeks. n317 This is a solvable problem, however, and ultimately, absent a change in the direction of the patient safety revolution both here and abroad, health care in this country should continue to evolve towards a shift-work system. This evolution is important because physicians working in shifts is likely to decrease medical errors and offer a partial solution to keeping some medical jobs in America.

Nevertheless, moving to a shift-work model for health care delivery will not save all medical jobs from exportation. Some jobs will be rendered obsolete by technology. Moreover, offshoring blue-and white-collar jobs has taught us that the exportation of some medical jobs may be desirable. For example, shipping jobs to India has given that country $ 420 billion more in discretionary income. n318 This income in turn allows Indians to purchase American products, especially brand name apparel and fiber optic cable. n319

Adopting a shift-work system of health care delivery may help to keep medical jobs in the U.S. if it is coupled with a heavy investment in telemedical technology. This recommendation many seem somewhat paradoxical because technology is an important driver of medical  [*265]  inflation. n320 But, if the goal is to keep medical jobs in the country, then the U.S. must be prepared to fund the endeavor. The history of economics teaches us that the best way to protect a labor market is not by protective tariffs, but rather by adding capital to stimulate

technologic innovation, which, in turn, preserves jobs. n321 Society benefits from more technology. Consequently, the best solution to keeping medical jobs in America appears to require America to regain its hegemonic position in telemedical technology. n322

Under this system, American day-shift physicians could use telemedicine between 11:00 p.m. and 7:00 a.m. to treat remote rural patients and overseas patients. By having providers work second and third shifts, our domestic market would be better protected against foreign competition. But if America is to preserve its medical jobs and become the "doctor-to-the-world" by expanding its medical services overseas, we must master telemedicine technology. Given the existing labor differential, for America to successfully compete in foreign markets as a provider of medical services, we must develop the world's most efficient telemedical system. Finally, by aggressively entering the telemedical market, America will benefit as other countries look to America for guidance on which telemedical standards to adopt and how to resolve their own legal lag periods.

VI. CONCLUSION Because regulatory changes in the mid-1990s made telemedicine profitable, the U.S. is now exporting many of its medical jobs, especially medical backroom operations and radiology. Other medical jobs, such as primary care and surgery, are likely to follow as the legal liability associated with telemedicine is clarified and the financial markets realize that telemedical transactional costs have fallen. In short, to minimize the exportation of medical jobs, the U.S. needs to regain it hegemonic position in telemedical technology from Canada by gaining a stronger position in the field of telemedicine. By asserting its presence in international telemedicine, the U.S. may have an effective long-term strategy for keeping medical jobs from being exported.

**

Legal Topics:

For related research and practice materials, see the following legal topics:Antitrust & Trade LawIndustry RegulationProfessional Associations & Higher EducationGeneral OverviewHealthcare LawInsuranceGeneral OverviewInternational Trade LawImports & ExportsGeneral Overview

FOOTNOTES:

n1. See David Halberstam, The Reckoning, 690-96 (1986). See Smithsonian Institute, Between a Rock and a Hard Place: A History of America Sweatshops 1820 - Present; available at http://americanhistory.si.edu/sweatshops/history/2t111.htm (last visited Apr. 28, 2005).

n2. Daniel W. Drezner, The Outsourcing Bogeyman, Foreign Aff. May/June 2004, available at www.foreignaffairs.org/20040501faessay83304/daniel-w-drezner/theoutsourcing-bogyman.html (last visited Apr. 16, 2005); Lael Brainard & Robert E. Litan, Policy Brief No. 132: "Offshoring" Service Jobs: Bane or Boon - and What to Do?, Brookings Inst. 3 (2004), available at http://www.brookings.edu/dybdocroot/comm/policybriefs/pb132.pdf (last visited Apr. 16, 2005).

n3. Drezner, supra note 2; Brainard & Litan, supra note 2, at 3.

n4. Carleen Hawn, Offshore Storm: The Global Razor's Edge, 79 Fast Company 27 (2004).

n5. There are many definitions of telemedicine. As used in this article, telemedicine is the practice of medicine

"across distance via telecommunications and interactive video technology." Am. Med. Ass'n Joint Report of Council on Med. Educ. & Council on Med. Serv., The Promotion of Quality Telemedicine (June 1996). Herein, telemedicine is distinguished from e-health, which is broader in scope as it includes not only health care delivery but also health information and physician credentialing. Special Comm. on Prof'l Conduct and Ethics, Fed'n of State Med. Boards, Model Guidelines for the Appropriate Use of the Internet in Med. Practice (Apr. 2002). With a few exceptions, this article addresses the exportation of physician's jobs. Discussion of non-physician medical jobs is generally beyond the scope of this article, except to the extent that it demonstrates a trend in the offshoring phenomenon generally.

n6. A widely quoted, but somewhat antiquated, view of cybersurgery is that it "encompasses both the emerging complementarity between clinicians and machines (particularly computers) and the integration of diverse digital technologies into the full spectrum of surgical care." Cybersurgery Advanced Technologies for Surgical Practice 4 (Richard M. Satava ed. 1998) [hereinafter Satava]. What distinguishes telemedicine, which is basically a diagnostic modality, from cybersurgery is that the latter is a therapeutic modality, "which raises either the immediate or short-term potential that the patient may experience loss of life or limb." See Thomas R. McLean, Cybersurgery: An Argument for Enterprise Liability, 23 J. Legal Med. 167, 169 n.20 (2002) [hereinafter Cybersurgery].

n7. See Thomas R. McLean, The 80-Hour Work Week: Why Safer Patient Care Will Mean More Healthcare is Provided by Physician Extenders, 26 J. Legal Med. (forthcoming Sept. 2005) [hereinafter 80-Hour Work Week]; Thomas R. McLean, Crossing The Quality Chasm: Autonomous Physician Extenders Will Necessitate A Shift To Enterprise Liability Coverage For Healthcare Delivery, 12 Health Matrix 239 (2002) [hereinafter Quality Chasm].

n8. In this paper, where a distinction is not critical, the word "telemedicine" is used to mean both diagnostic telemedicine and therapeutic cybersurgery.

n9. See Michael L. Rustad & Thomas H. Koenig, Cybertorts and Legal Lag: An Empirical Analysis, 13 S. Cal. Interdisc. L.J. 77, 77-78 (2003) (discussing how in 1936, Richard Nixon observed that in one generation, automobile liability law exploded such that the size of a comprehensive review went from a four-page document to an encyclopedia).

n10. Hammer v. Dagenhart, 247 U.S. 251, 276-77 (1918) (finding Federal Child Labor Law, 39 Stat. 675, ch. 432 (1916) unconstitutional).

n11. A central piece of New Deal Legislation was the National Industrial Recovery Act (NIRA), 15 U.S.C. 709 (1933) amended by 49 Stat. 375, ch. 246 (1935) (giving labor the right to collectively organize). However, NIRA was quickly challenged and overturned by the Supreme Court. See Panama Refining v. Ryan, 293 U.S. 388 (1935) (holding NIRA's reliance on the Commerce Clause was misplaced); A.L.A. Schechter Poultry v. United States, 295 U.S. 495 (1935) (holding NIRA was an improper delegation of power to the executive branch).

n12. Although the American Federation of Labor (AFL) had been formed years earlier to protect laborers working in the garment industry, the AFL was not interested in supporting "industrial" unions. Accordingly, the workers in industrial settings formed their own union, the Committee for Industrial Organization (CIO), in 1935. See Walter Galenson, The CIO Challenge to the AFL: A History of the American Labor Movement 1935-1941, 3-6 (1960). The AFL capitalized in this momentum to secure passage of the National Labor Relations Act (NLRA), 29 U.S.C. 151-169; N.L.R.B. v. Jones & Laughlin Steel, 301 U.S. 1 (1937) (holding employees had a right to organize and select their representatives for lawful purposes just as the respondent had a right to organize its business and select its own officers and agents).

n13. See R. Lamont Jones, Jr., GI Bill Changed the Face of U.S. Education, Pittsburgh Post-Gazette, June 22, 1994, at A1. The GI Bill, which has been amended multiple times since its passage in 1944, directly changed

the United States's education system and, secondarily, the labor market. Id.

n14. Videotape: History of the U.S. Economy in the Twentieth Century (Teaching Co. 1997) (on file with the author).

n15. Arthur J. Goldberg, AFL-CIO Labor United, 164-69 (1956).

n16. Videotape: Economics (Teaching Co. 1997) (on file with the author).

n17. Id., but cf. William Styring III, The Coming Financial Collapse of the U.S. Healthcare System, Outlook, Fall 1998 (tracing to the origins of employee health benefits to the WWII when defense contractors needed a means to attract labor and avoid wartime wage controls).

n18. See Thomas R. McLean & Edward P. Richards, Healthcare's "Thirty Year's War": The Origins and Dissolution of Managed Care, 60 N.Y.U. Ann. Surv. Am. L. 283, 316 (2004).

n19. See Lester C. Thurow, The Birth of a Revolutionary Class, N.Y. Times, May 19, 1996, at A46 (demonstrating that when Medicare was enacted in 1964, only 3% of the population lived beyond the age of 65; today, 13% of an even larger U.S. population lives beyond age 65, and this percentage will double as the baby boomers age).

n20. Danny Hakim, Their Health Costs Soaring, Automakers Are to Begin Labor Talks, N.Y. Times, July 15, 2003, at C1.

n21. Edward P. Richards & Thomas R. McLean, Physicians In Managed Care: A Multidimensional Analysis of New Trends in Liability and Business Risk, 18 J. Legal Med. 443, 445 (1997). This phenomenon is known as "medical inflation." Id.

n22. Id.

n23. Health Maintenance Organizations (HMO) Act, 42 U.S.C. 300e-10 (1973).

n24. Employee Retirement Income Security (ERISA) Act, 29 U.S.C. 1001 et seq (1974).

n25. Richards & McLean, supra note 21, at 454.

n26. Id. at 446.

n27. Mark Hall, Institutional Control of Physician Behavior: Legal Barriers to Healthcare Cost Containment, 137 U. Pa. L. Rev. 431, 435 (1988).

n28. Richard B. Warner, Medical Care Inflation, Kansas Physician, Aug. 2003; available at http://flinthills.org/Master%20Articles%20Library/Health/medical_care_inflation%20-%20richard%20warner.htm (last visited Mar. 30, 2005).

n29. Charles Tiefer, "Budgetized" Health Entitlements and The Fiscal Constitution In Congress's 1995-1996 Budget Battle, 33 Harv. J. on Legis. 411, 418 (1996).

n30. Id.

n31. Milt Freudenheim & Robert Pear, Momentum Builds for U.S. Role in Paying Highest Health Costs, N.Y.

Times, Oct. 23, 2004, at A1. In 2003, employers paid $ 520 billion to provide health care benefits. Id. Regardless of who won the 2004 presidential election, "Congress will soon take up the idea of fighting high health insurance costs by shielding employers from the most expensive medical care." Id.

n32. Thomas R. McLean, Cybersurgery: Innovation or a Means to Close Community Hospitals and Displace Physicians? 20 J. Marshall J. Computer & Info. L. 495, 511-12 (2002); George D. Lundberg, M.D. & John Stacy, Severed Trust: Why American Medicine Hasn't Been Fixed 37-39 (2001). Even today, the cost of health care benefits is playing a major role in the collapse of the airline industry. See Micheline Maynard, Lower Your Window Shades. Today's Film Is "The Rookie," N.Y. Times, Oct. 17, 2004, at 35 ("for the airlines today the two biggest cost are labor and fuel").

n33. Depending on how a pension plan is set up, pension payments potentially include not only a living expense allowance, but they also frequently include a medical benefit package. For more than a decade, pension plan reserves have been dissipated to pay for medical entitlements. See Ellen E. Schultz, More Retirees May See Health Cuts, Wall St. J., Oct. 14, 2004, at A5.

n34. See Danny Hakim, Carmakers In for a Long Haul In Paying Retiree Healthcare, N.Y. Times, Sept. 15, 2004, at A1; McLean, supra note 32, at 511. Presently, GM must add an average $ 1,200 to the price of each car to cover health benefits for its United Auto Workers (UAW) union members. Hakim, supra note 20, at C1. This helps explain why Princeton University economist Uwe Reinhardt calls the Big Three automakers "a social insurance system that sells cars to finance itself." Id.

n35. Daniel Akst, On the Contrary: Why do Employers Pay for Health Insurance, Anyway?, N.Y. Times, Nov. 2, 2003, at 34 ("our employer-based system seriously obscures who is paying what, making cost controls difficult... . There is no good reason for any of this, aside from historical accident.").

n36. For brevity's sake, this article intentionally takes the myopic view that only excessive labor costs drive the offshoring of manufacturing jobs. In reality, wages and benefits are only one part of the calculus for outsourcing America's manufacturing work force. Another significant economic factor is the regulatory burden of complying with the Occupation Safety and Health Act (OSHA), Pub L. No. 91-596, 84 Stat. 1590 (1970). See Thomas R. McLean, The Implications of Patient Safety Research & Risk Managed Care, 26 S. Ill. U.L.J. 227, 250 (2002) (discussing why it was cheaper for manufacturers to ship dangerous jobs overseas). Manufacturing jobs are often offshored as part of a labor regulatory arbitrage scheme. Frank Partnoy, Infectious Greed 163 (2003). For a detailed discussion of regulatory arbitrage in labor or financial markets, see generally id. In addition, some exportation of labor is driven by capital investment strategies. For example, when an outmoded U.S. factory requires replacement, it is often cheaper to build abroad, especially if the foreign country provides financial or tax incentives for relocation. Id.

n37. Richards & McLean, supra note 21, at 447.

n38. Hakim, supra note 34, at A1. Note that today, the onerous problems associated with providing employee health benefit packages, even with managed care cost-control techniques, continues to haunt major employers. For example, the two biggest costs for the airline industry are labor with all its benefits and fuel. Maynard, supra note 32, at 35.

n39. Of course, the employer would have to weigh the costs associated with the translocation of their manufacturing plants and the cost of shipping the finished product back to the U.S. to determine whether offshoring a manufacturing plant was in the company's best interest.

n40. As used in this article, the concept of offshoring white-collar jobs is entirely analogous to the offshoring of blue-collar jobs. This is to be distinguished from the offshoring of a business operation to gain tax advantages through the use of a foreign distribution operation, see Edmund L. Andrews, A Civil War Within a

Trade Dispute, N.Y. Times, Sept. 20, 2002, at C1, or corporate inversion, see David Cay Johnson, Perfectly Legal, Portfolio (2003).

n41. Nelson D. Schwartz, Down and Out in White-collar America, Fortune, June 23, 2003, at 79-86.

n42. See David Stires, The Breaking Point, Fortune, Mar. 3, 2003, at 105-12.

n43. Saritha Rai, Financial Firms Hasten Their Move to Outsourcing, N.Y. Times, Aug. 18, 2004, at W1.

n44. Gen. Accounting Office, Pub. No. GAO-04-793SP, Healthcare: Unsustainable Trends Necessitate Comprehensive and Fundamental Reforms to Control Spending and Improve Value 3 (2004), available at http://www.gao.gov/new.items/d04793sp.pdf (last visited Apr. 16, 2005) (data provided by the GAO concerns both blue-and white-collar workers).

n45. Daniel Altman, Where's Your Raise?, Business 2.0, Sept. 2004, at 40.

n46. Danny Hakim, G.M. Lost $ 1.1 Billion in First Quarter, N.Y.Times, Apr. 20, 2005, at http://www.nytimes.com/2005/04/20/business/businessspecial3/20auto.html?pagewanted=1&ei=5070&en=b3f0605e74b5bf16&ex=1114660800.

n47. Id.

n48. Id.

n49. A communication link is less critical for offshoring blue-collar jobs because large amounts of data are not transmitted at one time.

n50. Drezner, supra note 2. In addition to technology, telecommunication costs have plummeted because of a surplus of fiberoptic cable. See Florence Olsen, Lighting Up "Dark Fiber," Chronicle of Higher Educ., Mar. 14, 2003, at A29, available at http://libproxy.temple.edu:2286/free/v49/i27/27a02901.htm (last visited Apr. 16, 2005).

n51. Drezner, supra note 2.

n52. Hal R. Varian, Economic Scene; IT may or may not matter, it depends on how you use IT, N.Y. Times, May 6, 2004, at C2.

n53. Drezner, supra note 2. See also Thomas L. Friedman, The Lexus and the Olive Tree: Understanding Globalization 171-74 (1999).

n54. Justin Fox, Hang-ups in India, Fortune, Dec. 22, 2003, at 44.

n55. Eduardo Porter, Send Jobs to India? U.S. Companies Say It's Not Always Best, N.Y. Times, Apr. 28, 2004, at A1.

n56. Id.

n57. Louis Uchitelle, A Statistic That's Missing: Jobs That Moved Overseas, N.Y. Times, Oct. 5, 2003, at 124.

n58. Miguel Helft, Lack of Reliable Data Plagues Offshore Debate, S.J. Mercury News, Apr. 21, 2004, at 11B.

n59. Drezner, supra note 2.

n60. Uchitelle, supra note 57, at 124.

n61. For example, both Germany and Canada export white-collar jobs. Carol Matlack et al., Job Exports: Europe's Turn, Bus. Wk., Apr. 19, 2004, at 50; Ian Austen, Canada, the Closer Country for Outsourcing Work, N.Y. Times, Nov. 30, 2004, at W1.

n62. Jeffery Pfeffer, Stop Picking Worker's Pockets, Business 2.0, July 2004, at 64.

n63. Brainard & Litan, supra note 2, at 2 (estimating the American workforce at 137 million).

n64. Net jobs, as used here, is defined as existing job market + jobs created - jobs destroyed by obsolesce - exported jobs.

n65. Although the actual figures for white-collar positions that have become obsolete are fuzzy, job obsolescence for blue-collar positions is more firm. Geoffrey Colvin, Value Driven: Worrying About Jobs Isn't Productive, Fortune, Nov. 10, 2003, at 60. During a recent seven year period, the "world's 20 largest economies lost 22 million manufacturing jobs." Id.

n66. Diane Stafford, Offshoring Paying Off for CEOs?, Kansas City Star, Sept. 2, 2004, available at http://www.kansascity.com/mld/kansascity/business/9557390.htm?1c (last visited Apr. 16, 2005) (observing that "the 50 U.S. CEOs who offshored the largest number of service jobs in 2003 earned 28 percent more than the average large-company CEO.").

n67. Rupa Chanda, Trade in Health Services, 80 Bull. of the World Health Org. 158, 158 (2002), available at http://www.who.int/trade/en/THpart1chap3.pdf (last visited Apr. 16, 2005). Interestingly, it is probably only a matter of time before discussions of offshoring legal jobs becomes common place, as most of the economic factors that will drive medical jobs offshore apply with equal force to the legal profession. David Brook, Made in India, Legal Affairs, May/June 2005, available at http://www.legalaffairs.org/issues/May-June-2005/scene_brook_mayjun05.msp; see also Stephen M. Worth, The Transnational Practice of Law: Staggering Growth in Spite of Economic and Regulatory Barriers to Entry, Across Borders Int'l L.J. 8 (2004), available at www.across-borders.com.

n68. Susan E. Volkert, Telemedicine: Rx for the Future of Healthcare, 6 Mich. Telecomm. Tech. L. Rev. 147, 161 (2000). Professor Volkert provides a detailed discussion of these legislative acts in her article.

n69. Telecommunications Act of 1996, Pub. L. No. 104-104 101, 110 Stat. 56 (1996) (codified as 47 U.S.C. 254 (2000)).

n70. Balanced Budget Act of 1997, Pub. L. No. 105-33 4206, 111 Stat. 251, 377-79 (1997) (codified as 42 U.S.C. 1395l (2004)).

n71. Federal Food, Drug, and Cosmetic Act, 21 U.S.C. 301-39781 (2000).

n72. Volkert, supra note 68, at 192-93. To "ensure that no rural community is left behind" in the telemedical era, the Institute of Medicine is recommending that all regulatory barriers to telemedicine, in the field of telecommunication, be eliminated. Inst. of Med., Quality Through Collaboration: The Future of Rural

Healthcare 13 (2005).

n73. Cybersurgery, supra note 6, at 172-73.

n74. Volkert, supra note 68, at 162. In the wake of the Telecommunication Act, the FCC, on its own initiative, did much to insure that American telecommunication standards become the standard for the rest of the world. Id. at 162 n.67.

n75. Id. at 231-32.

n76. Kirsten Rabe Smolensky, Telemedicine Reimbursement: Raising the Iron Triangle to a New Plateau, 13 Health Matrix 371, 372 (2003).

n77. Id. at 372.

n78. Pub. L. No. 105-33, 4206(a), 111 Stat. 251, 377-79 (1997).

n79. Smolensky, supra note 76, at 376-78. See also Dept. of Health & Human Svcs., Medicare Carriers Manual Part 3 - Claims Process 15-95 (2003). In general, subject to certain geographic restrictions, Medicare reimburses telemedicine services at the same rate it would reimburse the same service rendered in a face-to-face interaction. This means that Medicare is not reimbursing providers for the out-of-pocket expenses associated with setting up the telemedicine network.

n80. Smolensky, supra note 76, at 380. However, thus far most of the cost of developing and implementing telemedicine has been borne by the federal government. Volkert, supra note 68, at 154.

n81. See CA. Ins. Code 10123.85 (2003) (applicable for disabled patients only); Colo. Rev. Stat. 10-16-102(21)(a) (2002); Haw. Rev. Stat. 432D-23.5(c) (2000); Ky. Rev. Stat. Ann. 304.17A-138(1)(a) (2001); La. Rev. Stat. Ann. 22:657(F) and Tex. Ins. Code Ann. art. 21.53F, 3(a) (2001) (reimbursement cannot be denied simply because there is no face-to-face consultation).

n82. Smolensky, supra note 76, at 376-78.

n83. Medical Device Amendments of 1976, Pub. L. No. 94-295 3, 90 Stat. 539, 12-18 (1976). Herein the discussion of the FDA's pre-market approval has been simplified to focus on class III medical devices. A more detailed discussion of the pre-market approval can be found in Cybersurgery, supra note 6, at 187-92.

n84. 21 U.S.C. 360 (1994).

n85. See id. 360. See also 21 U.S.C. 510(k) (1994). Under 360, a manufacturer must meticulously document a device's safety to obtain PMA. However, if the FDA grants 360 approval, the manufacturer will not be subject to state products liability actions. See Medtronic v. Lohr, 518 U.S. 470, 501 (1996); Horn v. Thoratec Corp., 376 F.3d 163, 169 (3d Cir. 2004); Mitchell v. Collagen Corp., 126 F.3d 902, 910 (7th Cir. 1997); Goodlin v. Medtronic, 167 F.3d 1367, 1371 (11th Cir. 1999); Kemp v. Medtronic, 231 F.3d 216, (6th Cir. 2000). On the other hand, 510(k) PMA is less onerous, but leaves the manufacturer exposed to products liability actions. See Cybersurgery, supra note 6, at 189-90.

n86. Marilynn Larkin, Lights, Camera, Telemedicine, FDA Consumer Mag., May-June 1997, available at http://www.fda.gov/fdac/features/1997/497_tele.html (last visited April 16, 2005). In actuality, the FDA had been asserting its jurisdiction in telemedicine for sometime. See Nat'l Telecomm. & Info. Admin., Dep't of Commerce, Telemedicine Report to Congress 63 (Jan. 21, 1987) (on file with author) ("The use of advance

telecommunications technology to deliver healthcare brings with it a host of concerns about safety and effectiveness.").

n87. Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin., Report on Home Use Medical Device Meetings (June 6-7, 2002), available at www.fda.gov/cdrh/meetings/FDLI-home.html (last visited Apr. 16, 2005). Whether FDA approval is granted turns on a totality of circumstances. Volkert, supra note 68, at 207. In granting approval, the FDA "will look to what the manufacturer claims in making the product, how the product is advertised and whether the product has a specific medical purpose. For telemedicine practice, the FDA's position of whether or not a device is "intended' for use in the diagnosis, treatment or prevention of disease may not be subject, at present, to a legal litmus test." Ctr. for Devices & Radiological Health, supra note 84.

n88. Volkert, supra note 68, at 206. The "FDA does not regulate the "delivery of healthcare services' or even the transmission of information between physicians and patients, but it does address those issues that relate to technology and concerns about safety and effectiveness." Volkert, supra note 68, at 243.

n89. See generally FDA website, www.fda.gov; Ctr. For Devices & Radiological Health website,www.fda.gov/cdrh.

n90. Volkert, supra note 68, at 210-11.

n91. The actual size of the telemedicine market is the subject of much debate. See DeBakey Corp. v. Raytheon Serv. Co., 2000 WL 1273317 (Del. Ch., Aug. 25, 2000) (size of telemedicine market was a fact issue in dispute in that case). However, the U.S. domestic market may be as large as $ 40 to $ 60 billion. P. Greg Gulick, The Development of a Global Hospital is Closer Than We Think: An Examination of the International Implications of Telemedicine and the Developments, Uses and Problems Facing International Telemedicine Programs, 11 Ind. Int'l & Comp. L. Rev. 183, 186 (2000) (citing VA Healthcare & Tech., The Veterans Health Administration Health Information Infrastructure Before the Subcomm. on Oversight and Investigations of the Comm. on Veterans' Affairs, U.S. House of Reps. (1994), 101st Cong. (statement of Michael D. McDonald, Senior Advisor, Health and Telecommunications, The C. Everett Koop Institute)).

n92. Author's Note: This is analogous to the situation in the videotape market of the 1970s. Only after it became clear that the VHS format would be the industry standard (and not Sony's BetaMax format) did large numbers of manufacturers enter the market and drive down the price of video recorders.

n93. See infra Part III.

n94. In Part IV, I argue that if America wants to retain (actually regain) its hegemonic position in the world of telemedicine, America needs to embrace this technology. A corollary of this principle is that the first country to dominate the telemedicine market place will have an opportunity to dictate global standards as international governing bodies frequently adopt the industry leader's standards. See Part IV, infra.

n95. Health Insurance Portability and Accountability Act (HIPAA) Pub. L. No. 104-191, 110 Stat. 1936 (1996) (codified as amended in sections 18, 26, 29, 42 and 45 of the U.S. Code).

n96. HIPAA has two major subdivisions: the Privacy rule and the Security rule. Briefly, under the Privacy Rule, covered health care organizations must insure that protected patient information (PPI) remains confidential. Failure of a covered entity to keep PPI confidential can result in substantial civil penalties and criminal liability. Under the Security Rule, covered entities are to establish hardware and software safeguards to protect PPI from unauthorized viewing, such as by hacking. See Michelle C. Pierre, New Technology, Old Issues: The All-Digital Hospital and Medical Information Privacy, 56 Rutgers L. Rev. 541, 549-54 (2004).

n97. See Gen. Accounting Office, Pub. No. GAO-04-965, Health Information First-Year Experiences under

the Federal Privacy Rule (2004), available at http://www.gao.gov/new.items/d04965.pdf (last visited Apr. 16, 2005). After HIPPA was effective for one year, the GAO identified the following impediments to further HIPPA implementation: (1) providers found creating a document audit trail and need to develop agreements with business associates onerous; (2) state officials and various researchers experienced a slow down in information flow; and (3) consumers were confused as to their rights and obligations under HIPPA. Id.

n98. Pierre, supra note 93, at 549-50.

n99. Some would argue that HIPAA is not enough protection for patients. Pierre, supra note 93, at 551. Professor Pierre posits that: (1) HIPAA's discretionary reasonableness standard is insufficient; (2) certain exceptions to the application of HIPAA should be eliminated; and (3) based on European notions of patient privacy we should be doing more. If HIPAA is expanded along these lines as outlined by Professor Pierre, the barrier to entering the telemedical field would be increased.

n100. See infra Part III.B.

n101. Author's Note: These observations are based on my personal experience.

n102. Patients' demands are not limited to what invasive procedures they will receive. For example, some patients attempt to limit those members of the hospital staff with whom they will have contact. Sanjeev Dutta et al., "And Doctor, No Residents Please!", 197(6) J. Am. Coll. of Surgeons 1012, 1012 (2003).

n103. Not all patients engage in such behavior, but the percentage of patients empowered with medical knowledge seems to be increasing yearly. Moreover, knowledge-empowered patients are not limited to the private sector. For example, even in the VA system, some of the more sophisticated patients with lung and esophageal cancer visit a doctor armed with knowledge of their disease and are ready to debate the merits of surgery versus chemotherapy. Ten years ago such a knowledge-empowered patient in the VA system was almost unimaginable.

n104. Thomas R. McLean & Edward P. Richards, Managed Care Liability for Breach of Fiduciary Duty After Pegram v. Herdrich: The End of ERISA Preemption for State Law Liability for Medical Care Decision Making, 53 Fla. L. Rev. 1, 18-19; Richards & McLean, supra note 21, at 446-50.

n105. Richards & McLean, supra note 21, at 455.

n106. Id. at 455 (citing Woodhandler & Himmelstein, Extreme Risk - The New Corporate Proposition for Physicians, 333 New England J. Med. 1706, 1706 (1995)).

N107. Id. at 455.

n108. Physicians' value to the public will probably remain low until the medical community takes affirmative steps to demonstrate to the public that physicians can be trusted and sufficient numbers of the public-at-large are harmed by their own attempts to manage their medical conditions; for example, by attempting to navigate the direct-to-customer advertisement now commonly used by the pharmaceutical industry.

n109. Inst. of Med., To Err is Human: Building a Safer Health System 1 (2000) [hereinafter To Err is Human]. Five years after the IOM published To Err is Human, the majority of Americans believe that the quality of health care has not improved, or worse yet, it has declined. See Kaiser Family Foundation, National Survey on Consumers' Experiences with Patient Safety and Quality Information 8 (2004), available at www.kff.org/kaiserpolls/pomr111704pkg.cfm; Robert M. Wachter, The End of the Beginning: Patient Safety Five Years After "To Err is Human,' Health Aff., Web Exclusive, Nov. 30, 2004, at

http://libproxy.temple.edu:4723/cgi/content/abstract/hlthaff.w4.534 (last visited Apr. 16, 2005).

n110. Inst. of Med., Patient Safety: Achieving a New Standard of Care (2004) [hereinafter Patient Safety]; Inst. of Med., Leadership by Example: Coordinating Governmental Roles in Improving Healthcare Quality (2002) [hereinafter Leadership by Example]; and Inst. of Med., Crossing the Quality Chasm: A New Heath Care System for the 21st Century (2001) [hereinafter Crossing the Quality Chasm].

n111. See Thomas R. McLean, Patient Safety: Something for Everybody, 13 Leg. Med. Persp. 19 (2004) (discussing the IOM publication, Patient Safety); Thomas R. McLean, Medical Rationing: The Implicit Results of Leadership by Example, 36 J. Health L. 325 (2003) (discussing the IOM publication, Leadership By Example); Quality Chasm, supra note 7, at 239 (discussing the IOM publication, Crossing the Quality Chasm).

n112. See Thomas R. McLean, Application of Administrative Law to Healthcare Reform: The Real Politik of Crossing the Quality Chasm 16 J.L. & Health 65, 71-74 (2002) (discussing how such guidelines will be developed and implemented).

n113. Neither the Leapfrog Group nor the National Association of Nurse Practitioners is aware of any evidence that demonstrates that physician extenders are more compliant with clinical practice guidelines than physicians. (Personal communication with these organizations, Nov. 22, 2004). Nor have I been able to confirm this as a fact from a review of the literature. Still, it is probable that physician extenders will follow guidelines better than physicians for two reasons: first, compliance with guidelines will provide physician extenders with more prestigious and possibly better paying positions; second, physicians will view compliance with clinical guidelines as an affront because guideline compliance means a loss of professional autonomy.

n114. See generally Quality Chasm, supra note 7, at 246-64 (discussing state licensure and scope of practice acts for physician extenders as well as show the method of supervision that a physician must use in supervising physician extenders is determined by the states).

n115. Jason Calhoun, M.D., Remarks at the Meeting of American College of Surgeons, Candidate and Associate Society (Oct. 22-27, 2000).

n116. McLean, supra note 32, at 514.

n117. I was unable to find reliable data for physicians' income in China or India. Thus, the actual magnitude of physician wage-benefit differential between the U.S. and China is speculative. Moreover, there is no reason to believe that an offshore physician would charge American patients the same rate they would charge the indigenous population.

n118. 80-Hour Work Week, supra note 7.

n119. Inst. of Med., Keeping Patients Safe: Transforming the Work Environment for Nurses 48 (2004).

n120. Thomas R. McLean, Deep Pockets: The Liability of Risk Managed Care Organizations for Medical Malpractice, in Alvin Lee Block, 2003 Medical Malpractice Update 221-22 (2003) [hereinafter Deep Pockets].

n121. See Thomas R. McLean, Antitrust Law and a Tale of Two Industries, 32 Am. Heart Hosp. J. 24, 24 (2004). Because marketing strategies and delivery systems change with the times, it should come as no surprise that the offshoring of medical jobs is not a new idea; albeit, in early times the term "offshoring" was not used. For example, in the 1960s, several European nations, particularly the Netherlands, offshored their cardiac surgical jobs to the U.S. From across the ocean, the Europeans sent raw material (defective hearts) and money to Drs. M.A. DeBakey and D.A. Cooley who would then operate and send back the finished product (a repaired heart). See generally Thomas Thompson, Hearts of Surgeons and Transplants, Miracles and Disasters

along the Cardiac Frontier (1971).

n122. Michael Lewis, The New New Thing 112 (2002).

n123. P. Greg Gulick, E-Health And The Future of Medicine: The Economic, Legal, Regulatory, Cultural, and Organizational Obstacles Facing Telemedicine and Cybermedicine Programs, 12 Alb. L.J. Sci. & Tech. 351, 354-62 (2002). See also id. (discussing how Jim Clark launched Hyperion in an unsuccessful attempt to control the e-Health market); cf. J.D. Kleinde, Vaporware.com: The Failed Promise Of The Healthcare Internet 19 Health Aff. 57, 57-58 2000 (observing that Internet is already littered with empty provider.com companies that failed because the company was poorly designed).

n124. Physicians in other countries also use the Internet to market their services. There is no reason to believe that when an American searches for a physician, that the search will be limited to the United States, especially if the American patient can get what is desired from the foreign physician. See Carolyn Edmonds, British Columbia Reports Big Increase in Demand For Flu Shots, Seattle Post Intelligencer, at B9 (Nov. 4, 2004) (demonstrating that when Americans in Washington State discovered that Canadian providers had an ample supply of flu shots, Americans were willing go to Canada and pay for the shot).

n125. At present the chief mechanism to battle offshore businesses is the erection of trade barriers to increase the offshore company's transaction cost. However, history teaches that trade barriers, like tariffs and licensing requirements, become increasingly ineffective as time passes. McLean, supra note 32, at 521-23.

n126. See McLean, supra note 32, at 524 (describing how the Mayo Clinic also has created several satellite operations in several smaller markets).

n127. An implicit assumption behind a health care provider cloning its operation is that the provider wishes to gain a greater market share. This raises the specter of antitrust; a detailed discussion of which is beyond the scope of this article. See generally Fed. Trade Commn. & the Dep't of Justice, Improving Healthcare: A Dose of Competition (2004), available at http://www.healthlawyers.org/docs/ask2004/FTC_report.pdf (last visited Apr. 16, 2005) (competition to improve cost and quality could be favorably induced by: (1) elimination of trade barriers including CON programs and state-specific provider licensure requirements; (2) liberalizing the use of "allied health professionals," or physician extenders; (3) increasing the utilization of telemedical technology; and (4) single-specialty hospitals). See also Deep Pockets, supra note 120, at 126-27.

n128. Edmund Newton, A Kansas Cardiologist With His Eye on the World, N.Y.Times, Oct. 30, 2002, at C2 (discussing how a U.S. cardiologist franchised his clinic operation to China); Andrew Pollack, Who's Reading Your X-Ray? N.Y. Times, Nov. 16, 2003, at 31 (the "University of Pittsburgh Medical Center essentially manages a transplant hospital in Italy").

n129. There is no reason to believe the American medical service providers will behave differently than American manufacturers when they gain access to a cheap labor pool. See supra Part II.A. See also Saritha Rai, Low Costs Lure Foreigners to India for Medical Care; N.Y. Times, Apr. 07, 2005, at C6. If Americans are willing to travel to India today to purchase medical care cheaper than they can in the U.S., id., it is not unreasonable to believe that telemedicine, which obviates the need to physically travel to India, would not flourish because lower-wage Indian providers decrease the costs to individual Americans.

n130. See, e.g., K. Vijaya, Teleradiology Solutions: Taking Expertise to Hospitals in US, Express Healthcare Mgmt., Feb. 16-29, 2004, available at http://www.expresshealthcaremgmt.com/20040229/innews07.shtml (last visited Apr. 16, 2005).

n131. World Health Org., Rep. to India, Country Report for Mode 1: Cross Border Trade for Health Services 63-65 (2004), available at http://www.whoindia.org/EIP/GATS/10-63.pdf (observing that India providers have

already captured 2% of the U.S. health care market.

n132. See infra Part III.A.

n133. The low level of technology is reflected in the minimal amount of capital that must be raised to become a telemedicine provider. Letter from Jafar Amini, MD, Chief, Section of Leavenworth Veteran's Administration Dep't of Radiology, to author (Mar. 21, 2005) (on file with author); Telephone interview with Lynda A. Cleveland, Telecommunications Attorney, Overland Park, Kan. (Mar. 23, 2005).

n134. Considering the enormous number of radiographic images created each year, very few radiologists are sued. See Thomas R. McLean, Why Do Physicians Who Treat Lung Cancer Get Sued? 126 Chest 1672, 1672-79 (2004).

n135. Discussion here will focus primarily on state-of-the-art telemedicine in the U.S. However, it should be kept in mind that even third-world countries are rapidly embracing telemedicine as means to improve access to medical care. See Gulick, supra note 91, at 193-200.

n136. For evidence that the doctor-patient paradigm requires less face-to-face interaction, consider the explosion in cyberprescription, see generally John D. Blum, Internet Medicine and the Evolving Legal Status of the Physician-Patient Relationship, 24 J. Leg. Med. 413 (2003), and post-operative care interactions, Lars M. Ellison et al., Telerounding and Patient Satisfaction after Surgery, 199 J. Am. Coll. Surg. 523 (2004). See also supra Part II.B.

n137. Experience with the offshoring of white-collar jobs has taught us that when it comes to professional services, corporations that offer round-the-clock availability of their services have a competitive advantage in the marketplace. John Heilemann, In Through the Outsourcing Door, Business 2.0, Dec. 2004, at 54.

n138. Id.

n139. Even if the rate of inflation was zero in recent years, expenses for providers have increased in several areas. For example, provider expenses that have increased significantly in recent years, independent of the effects of inflation, are medical malpractice premiums and the providers' own health benefits. Bruce Japsen, Doctor insurer hit for premium, pay hikes, Chi. Trib., Mar. 26, 2004, at 1; Bruce Japsen, Justices protect HMOs from big damage awards, Chi. Trib., June 22, 2004, at 1.

n140. Tyler Chin, Physician Paperwork Swept Offshore, AMNews, May 10, 2004, available at http://libproxy.temple.edu:2305/amednews/2004/05/10/bil10510.htm (last visited Apr. 16, 2005).

n141. Tyler Chin, Doctors Also Ship Work Overseas (But They Don't Always Know It), AMNews, Nov. 10, 2003, available at http://libproxy.temple.edu:2305/amednews/2003/11/10/bisb1110.htm (last visited Apr. 16, 2005).

n142. Id.

n143. Crossing the Quality Chasm, supra note 110, at 166 (advocating the universal usage of electronic medical records).

n144. Chin, supra note 140. Assuming a 40-hour work week, with two weeks of vacation, this means that transcriptions earn about $ 14-15/hour.

n145. Chin, supra note 140; see also Halberstam, supra note 1, at 694.

n146. In 2004, fifty-one percent of Internet users access the Internet via Wi-fi broadband technology. Om Malik, Home Entertainment to Go, Business 2.0, Dec. 2004, at 29. Accordingly, telecommunication cost will continue to fall as cities wire their streets with Wi-fi antennas. See Jessie Drucker, Telcom Giants Oppose Cities on Web Access, Wall St. J., Nov. 23, 2004, at B1. By paying for such infrastructure improvements with taxes, Wi-Fi technology holds the promise that Internet access charges may become a thing of the past. Id.; cf. Mark Glassman, Most Wanted: Drilling Down/Wireless Internet; Why Not Wi-Fi?; N.Y Times, Nov. 15, 2004, at C11 (because Wi-Fi is a low energy signal, Wi-Fi does not penetrate buildings well).

n147. Chin, supra note 140.

n148. Id. As the cost of technology and management fall, the economics of hiring Indian transcriptionists will become increasingly more desirable. Perhaps only high-quality voice-recognition software will be able to keep some transcription jobs from being offshored. However, voice recognition software will not save the jobs of American transcriptionists. Id.

n149. Tyler Chin, The Doctor Is Outsourcing: To Hire or Not to Hire, AMNews, Aug. 11, 2003, available at http://libproxy.temple.edu:2305/amednews/2003/08/11/bisa0811.htm (last visited Apr. 29, 2005).

n150. Id. It is unclear why exportation of medical billing costs proportionately more than exportation of transcription. Perhaps it is a reflection of the fact the offshore accountants are in higher demand because non-medical companies, like American Express, compete for the same talent. On the other hand, perhaps foreign accountants have learned that Americans are willing to pay more to foreign vendors because it is still cheaper than purchasing accounting services from U.S. vendors.

n151. Id. An important liability that is outside the scope of this article is liability of a provider for the submission of a false claim. See False Claims Act, 31 U.S.C. 3729 (2003). It is well established that providers are responsible for false claims submitted to the government under the providers' names regardless of whether the statement was drafted by a third-party. It is unclear what the provider's liability would be for innocent billing errors committed by third-parties in a foreign country who have limited command of the English language. If a provider is not liable for the billing errors of foreign agents, then this begs the question: if limited language skills vitiate false claims liability, would limited language skills by a third-party in America be a defense in a false claims action?

n152. Chin, supra note 141.

n153. See Chin, supra note 141. Patient confidentiality is ever a greater liability if any part of the telecommunication system is wireless. See William M. Bukeley, Wireless Mischief, Wall St. J., Dec. 7, 2004, at B1.

n154. Bringing foreign vendors into compliance with HIPAA will significantly increase transaction costs of offshoring some health care backroom operations.

n155. Chin, supra note 141.

n156. Id.

n157. In this particular situation, UCSF was aware that its PPI was at risk for public exposure. However, providers are not always aware that patient PPI is at risk for pubic disclosure due to computer hacking or the use of spyware. See Kevin D. Mitnick, The Art of Deception 57 (2002). Further discussion of this topic, which

is contemplated by HIPAA's security rule, is beyond the scope of this article.

n158. These states are Arizona, California, Colorado, New Jersey, South Carolina, and Washington. Tyler Chin, California Could Ban Foreign Outsourcing of Patient Files, AMNews, Mar. 15, 2004, available at http://libproxy.temple.edu:2305/amednews/2004/03/15/bisc0315.htm (last visited Apr. 16, 2005).

n159. Id.

n160. I will concede that it is unlikely in the near future that all medical jobs will be exportable. These jobs are characterized by the need for close physical proximity to a patient; and include such jobs as direct care givers who actually position patients, assist in transferring patients, and changing a patient's bed. However, as will be discussed later in the article, nursing and physician assistant jobs that involve monitoring and modulation of medical care are exportable.

n161. A primary care physician (PCP) refers to a practitioner of internal medicine and family practice. However, as used here, the term is given a broader meaning. PCPs in this paper also include pediatricians, obstetricians, and gynecologists in their non-surgical capacities. The reason a broader view of PCPs is used is because what distinguishes these medical disciplines is their patient population, and not the specific area of medicine practiced.

n162. Disease Management: New Care Paradigm in Cardiology?, 33 Cardiology 1, 1-4 (2004).

n163. Cong. Budget Off., An Analysis of the Literature on Disease Management Programs, available at www.cbo.gov/showdoc.cfm?index=5909&sequence=0 (last visited Apr. 16, 2005). These shortcomings are: (1) that chronic conditions either go untreated or are inappropriately managed; (2) there is a disparity between evidence-based recommended treatment guidelines and current practice; and (3) care is often given without physicians' coordination. Id.

n164. Id.

n165. Allen I. Goldberg, Integrated System for Chronic Disease Management, 125 Chest 365-66 (2004); cf. Bob Joyce, National Health Plan Would Save Money, The Daily Star, July 1, 2003, available at http://www.thedailystar.com/opinion/letters/2003/07/lt0701.html (last visited Apr. 16, 2005) (most of the Medicare dollars are consumed during the last three months of life, when Medicare beneficiaries are frequently hospital inpatients).

n166. See Jon Van, Telemedicine at Heart of Diagnostics Change, Chi. Trib., Oct. 6, 2004, at C1.

n167. Anne Eisenberg, When the Athlete's Heart Falters, a Monitor Dials for Help, N.Y. Times, Jan. 9, 2003, at G7.

n168. Jon Van, Machine-to-Machine Talk Not Stuff of Fiction, Chi. Trib., Sept. 2, 2003, at C1 ("widespread availability of cheap computer chips combined with easily accessible wireless phone networks means that no machine, no matter how lowly, need ever be lonely again. The advent of machine networking, which is sometimes called "pervasive computing,' eventually will change nearly every line of business"). In the extreme situation, the M2M technology will facilitate offshoring of jobs because automation will eliminate many providers' jobs around the world as the M2M device's telephone data can be accessed anywhere.

n169. See id.; Eisenberg, supra note 167, at G7.

n170. CMS Will Match State Costs for Running Disease Management Programs, Health L. News, Apr. 2004,

at 16.

n171. Compare Cong. Budget Off., supra note 163 (DM industry as it currently exists is not cost-effective) with HF Disease Management Teams: Varied Approaches Find Success, 33 Cardiology 1, 4 (2004) (for patients admitted to the hospital with heart failure, DM caused an 87% drop in readmission during the next year).

n172. See supra Part II.B.2.

n173. David Paar, Telemedicine in Practice: Texas Department of Criminal Justice, HEPP (May 2000), available at http://www.aegis.com/pubs/hepp/2000/HEPP2000-0501.html#f12 (last visited Apr. 29, 2005).

n174. Blum, supra note 136, at 455. Professor Blum argues that, based on existing principles of law, the key to determining whether medicine is being practiced in cyberspace turns on whether a physical exam was, or should have been, performed.

n175. Gulick, supra note 123, at 364. In addition to fifty states, twelve federal agencies have some regulatory oversight of the practice of medicine. Id. at 378. A question closely related to licensure is whether the offshore physician who telemedically examines an American patient needs a visa to enter this country. Personal communication Amy J. Sokol, Vice President and General Counsel, Carondelet Health, Oct. 20, 2004. If a foreign physician needs a visa and a license to practice medicine, then it would seem reasonable to require an offshore foreign physician to have a visa to enter this country telemedically in order to practice. Id. A detailed discussion of visas in telemedicine is beyond the scope of this article. See Amy Hagopian et al., Health Departments' Use of International Medical Graduates in Physician Shortage Areas, Health Aff., Sept.-Oct. 2003; Myrle Croasdale, Visa Complications Snare Physicians; Hospitals Scramble, AMNews, Sept. 15, 2003, available at www.ama-assn.org/amednews/2003/09/15/prl20915.htm (last visited Mar. 29, 2005).

n176. Robert J. Waters, Anticompetitive Efforts to Restrict Telehealth Services on the Internet, Presentation to Center for Telehealth Law, Washington D.C., Oct. 9, 2002 (slides on file with author) (observing that by enactment, regulation, or policy, twenty-seven states require a physical examination before prescribing medication). Id. See also Ill. Dep't of Prof'l Regulation, Disciplinary Report for Oct. 2002, at 10, available at http://www.ildpr.com/news/discpln/0210_dis.pdf.

n177. Blum, supra note 136, at 455.

n178. Using an analogous line of logic, doctor-patient relationships have been deemed to exist when a medical director makes a decision without performing a physical examination. See State Bd. of Registration for the Healing Arts v. Fallon, 41 S.W.3d 474, 477 (Mo. 2001); Murphy v. Bd. of Med. Exam'rs, 949 P.2d 530, 536 (Ariz. Ct. App. 1997).

n179. It would also help to distinguish cocktail-party advice from the practice of medicine.

n180. See Nicholas P. Terry, Cyber-Malpractice: Legal Exposure for Cybermedicine, 25 Am. J.L. & Med. 327, 328 (1999) (e.g. giving advice that physician reasonably expects a patient to follow or accepting payment constitutes the practice of medicine); Julie Reed, Cybermedicine: Defying and Redefining Patient Standards of Care, 37 Ind. L. Rev. 845, 856 (2004) (noting that the practice of medicine by use of "online questionnaire consultation doesn't constitute an acceptable standard of care").

n181. Fed'n of State Med. Boards, A Guide to the Essentials of the Modern Medical Practice Act (10th ed. 2003), at II(A)(5) (the practice of medicine includes "rendering a determination of medical necessity or decision affecting concerning the diagnosis or treatment of a patient").

n182. See Cybersurgery, supra note 6, at 172-73.

n183. See John Heilemann, Mark Cuban's End Game, Business 2.0, Nov. 2004, at 74.

n184. A resident is a physician who has completed medical school and an internship and is now receiving training in a specialized area, which is required for board certification in any medical or surgical specialty. See Medicinenet.com, at http://www.medterms.com/script/main/art.asp?articlekey=9957.

n185. See, e.g., Advocate Healthcare website, at http://www.advocatehealth.com/system/info/tvspots/eicu.html#q2 ("intensivists[,] critical care nurses and healthcare assistants ... will be available both at the bedside and remotely to monitor all 212 adult ICU beds across Advocate's eight Chicago area hospitals.").

n186. See Peter Spiegler, Time of Admission and Mortality in the Intensive Care Unit, 11 Clin. Pulmonary Med. 118-19 (2004).

n187. Jumping over Leapfrog's Head, Mod. Physician, July 1, 2002, at 17; Michael J. Breslow et al., Effects of a Multiple-Site Intensive Care Unit Telemedicine Program on Clinical and Economic Outcomes: An Alternative Paradigm for Intensivist Staffing, 32 Critical Care Med. 31 (2004).

n188. Id.; Carolyn Bekes, Pro: Multiplier, 32 Critical Care Med. 287 (2004); Steve G. Peters & Christopher J. Farmer, Con: Is the Tele-intensive Care Unit Ready for Prime Time?, 32 Critical Care Med. 288 (2004). However, any study or commentary of ICU efficiency must be tempered by recognition that there is no objective "gold standard" to use as a comparison to judge the quality of care given. Jean-Louis Vincent, Evidence-Based Medicine in the ICU, 120 Chest 592 (2004).

n189. In the studies done by Breslow, ICU patients were monitored by remote American physicians. Breslow, supra note 187, at 32. However, if the remote monitoring physician had been stationed in China or India, an even greater cost savings may have been possible.

n190. Id. at 34.

n191. See infra III.D.

n192. Military Using Telemedicine, Chi. Trib., May 10, 2004, at C17.

n193. Melanie Warner, Under the Knife, Business 2.0 Jan./Feb. 2004, at 84-88 (only 20% of hospitals have electronic medical record systems); Milt Freudenheim, Many Hospitals Resist Computerized Patient Care, N.Y. Times, April 6, 2004, at C1 (only a few of non-governmental hospitals used on-line ordering of hospital pharmaceuticals); Inst. of Med., Health Professional Education: A Bridge to Quality (2003) (health care professionals have not kept up-to-date with technology and management innovations).

n194. Once data is stored and transmitted electronically, telemedicine and the ability to offshore medical jobs are only a half-step away.

n195. Matthew Maier, A New Dimension in Storage, Business 2.0, Nov. 2003, at 34 (discussing how three dimensional holographic storage techniques will vastly expand the storage capacity of two dimensional DVD technology, thereby lowering the costs for storing data).

n196. Robert A. Gerberry, Legal Ramifications of the Formation of Digital Hospitals, 4 Health L. 27, 27-28

(2002).

n197. HealthSouth, Oracle to Build Groundbreaking Digital Hospital, PR Newswire, Mar. 26, 2001 (given HealthSouth's current legal problems, it is unclear if this all-digital hospital will come to fruition).

n198. Herein only teleradiology is discussed. However, with minor modifications to this discussion, the points raised concerning the practice of radiology in cyberspace apply equally to any branch of medicine that is primarily concerned with the evaluation of images or the evaluation of clinical data that can be reduced to an image format. These branches of medicine are all ripe for exportation via telemedicine, including dermatology, see R. Wooton et al., Multicenter Randomize Control Trial Comparing Real Time Teledermatology with Conventional Outpatient Dermatologic Care, 320 Brit. Med. J. 1244 (2000); ophthalmology, see Laurie Barclay, Telemedicine May Improve Screening for Diabetic Retinopathy, Diabetes Care, 25 Medscape 1384 (2002); and pathology, see B.H. Williams, The AFIP center for telemedicine application - pathology for the twenty-first century, 3 Telemed. Virtual Real. 64 (1998). Herein this discussion also contemplates that some endoscopy procedures are going to be supplanted by innovative radiology techniques thereby rendering those endoscopy procedures obsolete. J. Perry et al., Computed Tomographic Virtual Colonoscopy to Screen for Colorectal Neoplasia in Asymptomatic Adults, 349 New Eng. J. Med. 2191 (2003) (discussing how some radiologic imaging techniques are equivalent to endoscopic examinations).

n199. In addition to reading films, radiologists also supervise radiology technicians. Herein, the focus is on the radiologists as film interpreters. But as radiology services are increasingly provided by physician extenders there is no question that supervisory positions in radiology can be exported. See 80-Hour Work Week, supra note 7.

n200. Pollack, supra note 128, at 31.

n201. Teleradiology Services in India, outsource2india.com, June 2004, at http://www.outsource2india.com/Newsletter/June04/June2004.htm (last visited Mar. 28, 2005).

n202. See Sara Schaefer Munoz, Additional Reader for Mammograms Is Urged by Study, N.Y. Times, June 11, 2004, at B4 (noting that if physician assistants were trained to interpret mammograms as some recommendations suggest, it would "help offset a shortage of radiologists and keep up with demand for breast imaging").

N203. Chin, supra note 141; see also Pollack, supra note 128, at 31.

n204. Another wrinkle in such calculations is just how much money should be paid to the radiologists in Spain. The cost-of-living in Barcelona, Spain is less than it is in major American cities, including New York, Chicago, San Francisco, and Miami. See Mercer Human Resource Consulting, 2004 Cost-of-Living Survey, World's Most and Least Expensive Cities, available at http://money.cnn.com/pf/features/popups/costofliving/popup.html (last visited Mar. 28, 2005). Thus, an employer who deploys a radiologist in Spain could argue that remuneration for the radiologist in Spain does not need to be set according to an American cost-of-living.

n205. Vijaya, supra note 130.

n206. Id. Still, as critics of Teleradiology Solution have pointed out, how do you insure quality when your vendor is "8,000 miles away?" Lindsey Tanner, Global Telemedicine on Call for U.S. Hospitals, Chi. Trib., Dec. 6, 2004, at 14. While a fuller discussion of quality insurance for offshoring medical services is important, it is beyond the scope of this article.

n207. In general, states require full licensure for a physician to provide telemedical services. Waters, supra

note 176 (nineteen states specifically require full licensure to practice telemedicine, and three others require full licensure by policy). A total of twenty-seven states require, by enactment, regulation, or policy, a physical examination of the patient before prescribing medication. Id. See also Wendi Johnson, Telemedicine: Diagnosing the Legal Issues, in Health Law Handbook 3:4 (Alice G. Grosfield ed., 2001) (listing the requirements for telemedicine as "full licensure"). However, only FSMB's model act for medical licensure and six states require telemedical providers to have special purpose licensures, which are limited licenses that allow a physician to practice in a state if certain conditions are met. See Waters, supra note 176; Ala. (Ala. Code 34-24-500 to 508 (2002)); Del. (140th Leg., Gen. Assembly (2000)); Mont. (S.B. 241, H.B. 399, Reg. Sess. (1999)); Or. (S.B. 600, 70th Leg., Reg. Sess. (1999)); Tenn. (Tenn. Comp. R. & Regs. 0880-2.16 (2002)); and Texas (22 Tex. Admin. Code 174.3 (2002)).

n208. This discussion contemplates that cybersurgery includes general and thoracic surgery. However, given that simulator training is being developed for many cardiologic and invasive percutaneous radiologic procedures, it is only a matter of time before these procedures are preformed remotely by telemedicine. Simulator Making Major Inroads into Medical Training, 31 Cardiology 1-4 (2002) (discussing the use of to simulator to teach management strategies during cardiac cathertization).

n209. Jeremy Manier, Assisted by Robotics, Doctors Performing Surgeries from Afar, Chi. Trib., Oct. 25, 2000, at A1; see also Intuitive Surgical's website at http://www.intuitivesurgical.com (last visited Mar. 29, 2005).

n210. See Intuitive Surgical, supra note 209.

n211. Cybersurgery, supra note 6, at 169. It is fascinating that the control console of the da Vinci robot looks surprisingly like a "Sensorama" machine, circa 1960. See Satava, supra note 6, at 76.

n212. Angela Doland, Surgeons in N.Y. work on patient in France, Chi. Trib., Sept. 21, 2001, at 24.

n213. Robot Op First For Surgeons, Scottish Daily Rec. & Sunday Mail Ltd., Apr. 25, 2002, at 29 (reporting on a cybersurgery operation where the surgeon was located in Virginia and the patient in Berlin).

n214. Long-Distance Surgery May Break Record, The Yomiuri Shimbun/Daily Yomiuri, Mar. 19, 2002, at 3 (reporting that the Japanese had performed cybersurgery on a patient in New York).

n215. Government of Canada Announces Funding for Two New Electronic Health Projects in Ontario, Canada NewsWire, Mar. 25, 2002. Lydia Dotto, Long-distance surgery, Toronto Globe & Mail, Oct. 2, 2004, at http://www.theglobeandmail.com (last visited Mar. 29, 2005).

n216. Dotto, supra note 215. According to mapquest.com, Hamilton and North Bay, Ontario are about 248 miles apart.

n217. " America is falling behind the rest of the world in telemedical expertise." McLean, supra note 32, at 522 n.155.

n218. The outcome of this calculation varies over time. For example, exportation of jobs to China is currently favorable because neither Chinese businesses nor the Chinese government provides medical benefits. See Michael A. Lev, In China, No Money Means No Treatment, Chi. Trib., Nov. 12, 2004, at 4 (describing how people are literally dying in the street because they have no money to purchase health care). This means that as third-world lifestyles resemble those found in the U.S., some form of insurance or health benefits program will need to be established. Id. Accordingly, such a paradigm shift in the third world will change the calculus for determining whether offshoring remains economically reasonable.

n219. An interesting question would be whether the Canadian government has granted CMAS immunity from medical malpractice. When CMAS was contacted for this article, they declined to comment in writing on their immunity status. A search of Lexis's Consolidated Statutes of Canada and Consolidated Statutes of Ontario returned no hits for a search of "CMAS or Centre for Minimal Access Surgery."

n220. Int'l Shoe v. Wash., 326 U.S. 310, 316-17 (1945); see also Gulick, supra note 91, at 205-06, for a detailed discussion of minimum contacts with respect to cyberspace.

n221. Volker, supra note 68, at 186-87.

n222. In the discussion that follows, it will be assumed that the court is located in the U.S. and the health care provider is located offshore.

n223. Herein it is assumed that Dormant Commerce Clause prevents the states from regulating telemedicine. Beth L. Rubin, Quintiles Transnational v. WebMD: The Dorminant Commerce Clause Applied to State Privacy Laws, 2 Privacy & L. 10 (2001), available at http://www.dechert.com/library/Privacy%206-01.PDF (citing Quintiles Transnational v. WebMD, 5:01-CV-180-BO(3) (E.D.N.C. Mar. 22, 2001)). See also Vonage v. Minn. Pub. Util. Comm., 394 F.3d 568 (8th Cir. 2004) (holding that state Public Utility Commission has no authority over Vonage as a voice over internet protocol (VOIP) provider because Vonage does more than a traditional phone company).

n224. John D. Blum, The Role of Law In Global E-Health: A Tool For Development And Equity In A Digitally Divided World, 46 St. Louis U. L.J. 85, 96 (2002).

n225. Id. at 110.

n226. See Rustad & Koenig, supra note 9, at 77-78.

n227. Blum, supra note 224, at 85; see also Leah B. Mendelsohn, A Piece of the Puzzle: Telemedicine as an Instrument To Facilitate The Improvement of Healthcare in Developing Countries?, 18 Emory Int'l L. Rev. 151, 153 (2004) (discussing the issues related to a lack of physical boundaries and jurisdiction); David R. Johnson & David Post, Surveying Law and Borders: The Rise of Law in Cyberspace, 48 Stan. L. Rev. 1367 (1996).

n228. Blum, supra note 224, at 95.

n229. Id.

n230. Edward M. Zimmerman, Lauren M. Hollender, & Mikeisha T. Anderson, Telemedicine Is Redefining the Delivery of Healthcare Services, 162 N.J.L.J. 1184, available at WL 12/18/2000 NJLJ S8, at 5-6 (2000).

n231. Blum, supra note 224, at 97.

n232. Gen. Agreement on Trade in Servs., Services: Rules for Growth & Investment, at http://www.wto.org/english/docs_e/legal_e/26-gats.doc (last visited Apr. 21, 2005).

n233. Blum, supra note 224, at 91.

n234. Canada-Mexico-United States: North American Free Trade Agreement, Agreement on Trade, May 1993, 32 I.L.M. 605, 648-53.

n235. Blum, supra note 224, at 92; see also European Commission, Electronic Commerce: Commission proposes legal framework, at http://europa.eu.int/comm/internal_market/en/ecommerce/999.htm (last visited Apr. 29, 2005); Bryan Schwartz, NAFTA Reservations in the Areas of Healthcare, 5 Health L.J. 99, 103-07 (1997).

n236. Blum, supra note 224, at 92.

n237. Id.

n238. Id. at 95-96.

n239. Id.

n240. See Patient Safety, supra note 110, at 45-47.

n241. See To Err is Human, supra note 109, at 13.

n242. The quintessential example of such a technological flaw is a glitch in a software program. See In Re Air Crash Near Cali, Colom., 985 F. Supp. 1106 (S.D. Fla. 1997), vacated on other grounds by Piamba Cortes v. Am. Airlines, Inc., 177 F.3d 1272 (11th Cir. 1999) (automatic pilot software glitch causes plane to crash); Gen. Motors v. Johnston, 592 So. 2d 1054, 1060-61 (Ala. 1992) (software defect resulted in fatal automobile accident); Jonathan Jacky, Safety-Critical Computing: Hazards, Practices, Standards, and Regulation, in Computerization and Controversy: Value Conflicts and Social Choices (1996) (software glitch in Therac-25 resulted in several patients receiving an excessive dose of radiation), available at http://staff.washington.edu/<diff>jon/pubs/safety-critical.html (last visited Apr. 13, 2005).

n243. Jube Shiver, Jr., Traffic getting jammed in wireless world, Chi. Trib., Nov. 8, 2003, at 3. However, electromagnetic interference with medical devices has diminished since 2000, when the government reserved a specific broadband frequency for medical use. See the FDA Center for Devices and Radiological Health's website at http://www.fda.gov/cdrh/safety/emimts.html (last modified July 11, 2000).

n244. Mitnick, supra note 157, at 4 (noting that some hacking is facilitated by the computer's owner-operator); Dawn Fallik, Security Doesn't Have To Be Such A Problem on Wireless, Chi. Trib., May 8, 2004, at C4 (discussing the use of virus protection and firewalls as a means of substantially decreasing hacking).

n245. James Coates, MyDoom unleashes some scary thoughts about future of net, Chi. Trib., Feb. 1, 2004, at C2; cf. John Schwartz, Worm hits Microsoft, which ignored own advice, L.A. Times, Jan. 28, 2003, at C4 ("SQL Slammer" worm's effectiveness was due in part to Microsoft's laxity).

n246. Cybersurgery, supra note 6, at 179-80.

n247. This is not to say that radiologists cannot be successfully sued. See McLean, supra note 134, at 1672-79.

n248. Cybersurgery, supra note 6, at 179-97. Herein no attempt is made to clarify the nature of the actions against the defendants, which may include simple negligence, malpractice, or products liability.

n249. Id.

n250. Rustad & Koenig, supra note 9, at 77-78.

n251. Richard M. Nixon, Changing Rules of Liability in Automobile Accident Litigation, 3 Law & Contemp.

Probs. 476 (1936).

n252. Rustad & Koenig, supra note 9, at 77-78.

n253. Nixon, supra note 250, at 476.

n254. Id., but see Nielsen Media Research v. Microsystems Software, 99-10876, 2002 U.S. Dist. LEXIS 18261 (S.D.N.Y. Sept. 30, 2002) (professional malpractice action against a software developer was dismissed at summary judgment stage on the grounds that New York did not yet recognize such an action).

n255. Rustad & Koenig, supra note 9, at 136.

n256. Id.

n257. Lawrence M. Friedman, A History of American Law 467 (2d ed. 1985) (positing that in the Age of Information, the law of torts "must be laid at the door of the industrial revolution, whose machines had a marvelous capacity for smashing the human body").

n258. See supra Part III.B.

n259. See Terry, supra note 180, at 341. However, even without telemedicine, the Age of Information is altering the nature of the doctor-patient relationship. A good illustration of this is direct-to-customer advertising by which drug companies attempt to bypass the physician and market their products directly to the patient. Under these conditions, some courts have questioned whether drug companies are entitled to the learned intermediate defense in products liability actions. See Perez v. Wyeth Laboratories, 734 A.2d 1245, 1246 (N.J. 1999).

n260. Tyler Chin, Firm Treating Strangers by Web Shut Out by Illinois, AMNews, Nov. 4, 2002, available at http://libproxy.temple.edu:2305/amednews/2002/11/04/bise1104.htm; see also Ill. Dep't of Prof'l Regulation, supra note 176, at 10 (finding that an Indiana-based physician consulting and pharmacy service website cannot sell its services telemedically in Illinois because the company's practice for controlling its drug supply, based on Indiana regulations, did not comport with Illinois's more stringent standards).

n261. Cybersurgery, supra note 6, at 184-85.

n262. Not only can it be difficult to find a bug in a software program, the software program may not have been created by a human. Sudha Nagaraj, Software Reuse: Why Reinvent the Wheel?, Computers Today, May 15, 1999, at 94 (discussing how computer-assisted software engineering tools have automated computer programming so that a computer program writes a computer program).

n263. See generally Edward P. Richards & Thomas R. McLean, Administrative Compensation for Medical Malpractice Injuries: Reconciling the Brave New World of Patient Safety and the Torts System, 49 St. Louis U.L.J. 73 (2004) (examining the feasibility of replacing the current medical malpractice system with an administrative law system modeled after Medicare); Thomas R. McLean, Health v. Stealth: The Complexities of Tort Reform, 12 Legal Med. Persp. 19 (2003) (comparing tort law, no-fault coverage, and enterprise liability in the health care arena); Cybersurgery, supra note 6, at 205-10 (comparing tort law and enterprise liability); and 80-Hour Work Week, supra note 7.

n264. Nicholas P. Terry, A Medical Ghost in the E-Health Machine, 14 Health Matrix 225, 225-26 (2004).

n265. See Cook v. Newman, 142 S.W.3d 880 (Mo. Ct. App. 2004).

n266. Except for the fear of financial loss, nothing prevents American telemedical companies from getting into the offshoring business. In fact, a market already exists for any American telemedical provider who wants to enter the field because European hospitals that are concerned with patient safety and avoiding medical errors caused by sleepy physicians would logically want to hire Americans who would voluntarily provide medical coverage for Europe's third shift. See 80-Hour Work Week, supra note 7.

n267. P.R. Wenzel & J.E. Rohrer, The Iron Triangle of Healthcare Reform, 2 Clin. Perform. Qual. Healthcare 7-9 (1994) (on file with author).

n268. While many health care providers may have aesthetic objections to following the McDonald's corporate model, that is the basic strategy being proposed here.

n269. Dan Broidy, The Iron Triangle, at xxviii (2003). On leaving office, President Eisenhower warned America of the "grave implications" of business transactions between corporate America, the military, and the federal government. Id.

n270. Wenzel & Rohrer, supra note 267, at 7-9.

n271. Smolensky, supra note 76, at 398.

n272. Perspectives on Healthcare and Biomedical Research: Impact of Technology on Global Health, 5 Pfizer Journal 10 (2001), available at http://www.thepfizerjournal.com/pdfs/TPJ18.pdf (last visited Apr. 16, 2005).

n273. Smolensky, supra note 76, at 393; supra section II.B.2.

n274. Ellison, supra note 130; supra section II.B.2.

n275. Patient Safety, supra note 110, at 5-6.

n276. Not only do definitions vary, but there is no agreement upon what should be identified and measured. Smolensky, supra note 76, at 390.

n277. This is known as the Hawthorne Effect. See Stephen W. Draper, The Hawthorne effect and other expectancy effects: a note, Department of Psychology, University of Glasgow, at http://www.psy.gla.ac.uk/<diff>steve/hawth.html#Hawthorne%20overall (last modified Mar. 28, 2005).

n278. Because outcomes are what matter to patients, most patients would probably want quality indexed to outcome. Using outcomes analysis suffers because such studies are the most difficult to undertake, and the most expensive. As to cost matters, it should not be surprising that the IOM has come out strongly in favor of using the functional approach, i.e., compliance with guidelines, as the measure for quality. See Patient Safety, supra note 110, at 5-6.

n279. See generally Gen. Accounting Office, Pub. No. GAO-05-01, Informing Our Nation: Improving How to Understand and Assess the USA's Position and Progress (2004), available at www.gao.gov/cgi-bin/getrpt?GAO-05-1.pdf (last visited Mar. 28, 2005).

n280. Patient Safety, supra note 110, at 6. Unfortunately, only 20% of hospitals use electronic medical records. See Warner, supra note 193, at 85; see also Freudenheim, supra note 193, at C1. Medical error analysis is needed for both guideline analysis and outcome studies of quality of care. Thus, regardless of how we

ultimately define quality of care, error analysis will play a role.

n281. Inst. of Med., Medicolegal Death Investigation, Public Health, and Healthcare 44-48 (2003).

n282. See Warner, supra note 193, at 85; Freudenheim, supra note 193, at C1.

n283. McLean, supra note 32, at 508.

n284. I will concede the point that conceptually, America can move toward all-digital hospitals without having to develop telemedicine first. This, however, seems an unlikely scenario.

n285. See McLean, supra note 32, at 524 n.155.

n286. Under a traditional tort analysis, telecommunication companies probably face no liability for service interruptions in low-risk telemedicine services like teleradiology. McLean, supra note 32, at 501. However, I would argue that if a telecommunication company enters into partnership agreements with providers to deliver high-risk telemedical services like cybersurgery, imposing liability on telecommunication companies could be justified based on a change of circumstances and receipt of remuneration in excess of what is received for providing voice and data transmission. Id. at 502.

n287. One reason that the offshoring of formal medical jobs has been limited to services like radiology is because these services can be administered over a standard telephone line. More sophisticated telemedicine services, like cybersurgery, will require health care providers to collaborate with the telecommunication companies that will provide dedicated and secure connections between providers and patients. See supra parts III.D., E.

n288. The telecommunication costs associated with telemedicine would depend on several factors, including whether the link was by hardwire or broadband, where the patient was located vis-a-vis the provider, and the nature of the telemetrically-given care. A consultation may only require a standard telephone line or the Internet (email or voice over internet protocol). In contrast, cybersurgery will demand a secure, dedicated, hardwired link, for the foreseeable future.

n289. See Sandeep Jauhar & David J. Slotwiner, The Economics of [Implantable Cardio-Defibrillators], 351 New Eng. J. Med. 2542 (2004).

n290. Henry Hazlitt, Economics in One Lesson, 15-19 Blackstone (1979). But cf. John Maynard Keynes, The General Theory of Employment, Interest and Money (1936) (the preference for short-term economic analysis in modern times can be traced to Keynes who opined that in the long run, we are all dead).

n291. Supra Part II.B.2.

n292. The IOM is firmly behind the use of telemedicine to improve the quality of medical care to rural America. See generally Inst. of Med., supra note 72.

n293. See Federal-Aid Highway Act of 1956, ch. 462, 70 Stat. 374, Pub. L. 84-627 (1956).

n294. David Halberstam, The Fifties 32 (1994).

n295. Smolensky, supra note 76, at 384-85.

n296. Reed Abelson, An M.R.I. Machine for Every Doctor? Someone Has to Pay, N.Y. Times, Mar. 13, 2004,

at A1 ("diagnostic imaging, which also includes CT and PET scans, is approaching a $ 100-billion-a-year business, according to a recent report by the Blue Cross and Blue Shield Association."). See also McLean, supra note 32, at 517-19.

n297. Such analysis is further complicated by the fact that a global provider of health care services would use differential pricing, such that the price to purchase an offshore medical service would not be uniform across the globe. See Blum, supra note 224, at 105-07.

n298. Steve Lohr, Venture Medicine, Healthcare Costs Are a Killer, but Maybe That's a Plus, N.Y. Times, Sept. 26, 2004, at 45.

n299. Thomas R. McLean, Why Administrators Who Work in Glass Hospitals Should Not Throw Stones, 2 Am. Heart Hosp. J., 109-13 (2004).

n300. Partnoy, supra note 36, at 136.

n301. Alison Leigh Cowan, Investment Losses Hurt Major Cleveland Hospital, N.Y. Times, Mar. 10, 2003, at A15. The sophisticated Cleveland Clinic lost one-third of its foundation fund in long-term investments. One has to wonders if such large losses were due to the clinic taking a large position in the derivative market. See id.

n302. Allen S. Detsky & C. David Naylor, Canada's Healthcare System, Delayed Reform, 349 N. Eng. J. Med. 804, 804-10 (2003).

n303. Clifford Krauss, Canada Looks for Ways to Fix Its Healthcare System, N.Y. Times, Sept. 12 2004, at 13 (the "doctor shortage is hurting the economies of small towns seeking to attract businesses. But it is also taxing the energies of the doctors who do live in those towns, as well as the resources of local hospitals - and patients often complain that their treatment is rushed"); Clifford Krauss, Canada's Healthcare System Needs More Money, Panel Says, N.Y. Times, Nov. 29, 2002, at A27.

n304. See Krauss, supra note 303, at 13; Krauss, supra note 303, at A27.

n305. Providing surgical services for third-world countries would not only generate cash, it would also generate experience for the Canadian surgeons, and foster goodwill. See Mendelsohn, supra note 227, at 153.

n306. McLean, supra note 32, at 515. Dr. Eric Tangalos of the Mayo Clinic has suggested that "the export of U.S. medical expertise," particularly with telemedicine, could provide enough money to "fund our domestic healthcare system." Id. Furthermore, an estimated forty to sixty billion dollars per year could be saved with the implementation of an interactive telemedicine system. Gulick, supra note 91, at 186.

n307. If Canada moves to amend NAFTA, that may indicate that Canadian telemedical providers are contemplating invading the U.S. health market.

n308. See generally Ronald H. Coase, The Firm, the Market, and the Law (1988).

n309. Id. at 5.

n310. Id. at 7.

n311. Id. at 6-8.

n312. In part, Enron attempted to follow Coase's theory. Partnoy, supra note 36, at 180. The firm started off drilling for oil and natural gas, but as drilling costs increased and transaction costs associated with moving energy transmission across boarders fell due to deregulation, Enron transformed itself from an energy producer to an energy trader. Id.

n313. See generally Om Malik, Broadbandits (2003).

n314. McLean, supra note 32, at 511.

n315. 80-Hour Work Week, supra note 7.

n316. Id.

n317. Id.

n318. Om Malik, The New Land of Opportunity, Business 2.0, July 2004, at 72-79.

n319. Id.

n320. PriceWaterhouseCoopers, Cost of Caring: Key Drivers of Growth in Spending on Hospital Care 10, 17 (2003) (the most important driver of the $ 84 billion dollar increase in hospital spending over the past five years was technology).

n321. Daniel Altman, Neoconomy 58-59 (2004).

n322. Id. at 60-61.  

ARTICLE TEN

South China Morning Post

January 20, 2009 Tuesday

IT outsourcing firms see risks, openings in downturn

BYLINE: Woods Lee in Beijing

SECTION: BUSINESS; Pg. 2

1 1 HIT_1 false

GNBFI 21_T6499901301

LENGTH: 811 words

You Puhua, the 22-year-old owner of a small information technology outsourcing company in Beijing, is struggling to find a new direction for his firm's growth.

In the second half of last year, Mr You began to feel the pinch of the global financial crisis as his customers, mostly small and medium-sized enterprises (SMEs), became more price-sensitive, and his competitors made inroads with lower quotes.

"I'm left wondering whether I should move to the higher-end IT service market or simply shift to other trades to avoid the cutthroat competition," he said.

Similarly, the country's technology outsourcing industry is bracing for the fallout from the financial crisis, predicted to reach its worst by the second half of this year. But the financial turmoil may also provide some rare opportunities for mainland technology outsourcing firms to expand globally, according to analysts.

Indian technology outsourcers are feeling the pinch as offshore customers from financial sectors in Europe and the United States drastically cut contracts. But Chinese technology outsourcers are suffering as armies of local SMEs, a substantial market, fold as their overseas orders dry up.

About 70,000 SMEs, mostly in the manufacturing hubs of the Yangtze and Pearl river deltas, went bankrupt by July last year, according to research by International Data Corp.

It believes the overall growth rate of the country's technology industry will slow to below 10 per cent this year from the previous estimate of about 15 per cent.

"There is a clear trend of caution among customers, particularly over long-term projects," said George Fok, managing director of PCCW Solutions, a key outsourcer on the mainland. "We expect demand to continue for outsourcing engagements but the buying cycles will be longer and decisions more considered as clients think hard about returns and cost savings."

Some chronic defects in the nation's technology outsourcing industry are making the situation worse.

"The lack of large-scale firms, a severe talent shortage and the reluctance of Chinese companies to outsource their business functions are hindering China's aspiration of becoming a leading global outsourcing player," said Enrico Benni, head of consultancy McKinsey's technology practice in Beijing.

Between 2003 and 2007, the domestic technology outsourcing sector grew 17 per cent annually on average, 4 percentage points below previous forecasts, according to a McKinsey report.

"Over the next five years, the existing 3,000-plus software outsourcing companies will probably be reduced to 30," said Sun Zhenyao, chairman of hiSoft Technology International.

But the global financial crisis may allow the country to close the gap with industry leaders, particularly India. The latter holds about 70 per cent of the global technology outsourcing market, worth more than $60US billion in 2007, compared with the less than 10 per cent held by China.

"Although IT outsourcing in financial sectors has borne the biggest brunt of the global credit crunch, China has suffered less from it due to the country's comparatively small presence in those sectors," said Qiu Hongtian, a technology service analyst with Fortune Securities.

For the first nine months of last year, the number of new outsourcing contracts worth more than $20US million

in the financial industry declined globally to about 100 from 130 a year earlier, with the total contract value down from $18US billion to $11US billion, according to McKinsey.

China's growth, which is predicted to remain at more than 8 per cent this year, could offer a reliable refuge from the dwindling offshore technology outsourcing markets.

"Although our overseas markets are basically not affected by the financial crisis, we have decided to explore more domestic markets as a precaution," said a senior marketing manager at Wicresoft, a technology and business process outsourcing service provider.

He said the company made 75 per cent of its $60US million revenue last year from offshore deals.

Turning to the domestic market to weather the financial turmoil was expected to become a trend this year, analysts said.

"The Chinese IT outsourcers that have been relying on offshore markets will borrow their overseas experience to explore domestic markets and some multinational players will also try to tap into the resilient growth in China," said IDC researcher Vivian Yu.

The best opportunities for Chinese technology outsourcers might arise from turmoil in the industry in Europe and the US, where industry consolidation may leave many high-calibre professionals looking for new opportunities.

"[Mergers and acquisitions] launched by Chinese IT outsourcers in advanced markets are going on right now although the deals may not be eye-catching for their moderate contract values," said Alex Peng, a partner in McKinsey's Beijing office.

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