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The battlefields


Following are some areas where the federal government and the high-technology industry have clashed in recent months.
Securities litigation
As high-technology markets have become increasingly volatile, shareholders have begun suing companies in greater numbers, often claiming that they had received misleading corporate information. The industry contends that it has been besieged with so-called strike suits sometimes filed only because a company's stock price dropped. High-tech firms lobbied for more than three years for regulations designed to reduce "frivolous" suits, resulting in passage of the Private Securities Litigation Reform Act. President Clinton, under pressure from trial lawyers and consumer groups, vetoed the legislation, but that action was overridden by Congress at the end of last year. In what was widely viewed as a public concession, however, the president opposed Proposition 211, a California initiative on the November ballot that would make it easier for investors in that state to sue companies.

Encryption software
At the urging of law enforcement agencies, the Clinton administration has fought for restrictions on the exportation of encryption technology that could help terrorists and other criminals to communicate and carry out illegal acts in secret code. The software industry argues that the policy is moot because other countries already ship such technology, adding that this also gives overseas companies a distinct competitive advantage on legitimate markets. The industry, along with Internet civil liberties groups, has backed a bill now before the Senate known as the Pro-CODE Act (Promotion of Commerce On-Line in the Digital Era), which would reverse Cold War-era policy that classifies software encryption as munitions.

Foreign sales taxes
Under a 1984 law, entertainment companies are exempt from U.S. taxes on 15 percent to 30 percent of income generated from sales of CDs, tapes, and other products overseas. The software industry contends that it deserves the same benefit and has been denied it only because the regulations as originally written do not include computer-related products. The Clinton administration has deferred the matter to the Internal Revenue Service, which has so far declined to include software in its interpretation of the law. Microsoft has filed suit in U.S. Tax Court to recover taxes paid in years past. The IRS declined to outline its policy to CNET, saying it does not comment publicly on pending cases.

Capital gains taxes
Capital gains taxes are imposed for lump-sum income earnings resulting from the sale of such assets as stock or property. Current law imposes a 28 percent tax on the difference between the sale price of an asset and the purchase price, but it does not account for inflation, resulting in taxation that in some cases is larger than the profit. Because stock options are used so widely for compensation by high-tech companies, the industry has strongly supported any attempts to change this system. A number of revisions to the current tax code have been proposed for capital gains, but none has been enacted in recent years.

Content regulation
Internet-related companies companies have lobbied against the federal Communications Decency Act, which forbids any online content deemed indecent or patently offensive. High-technology companies have sided with the ACLU and other civil liberties groups in opposing the law, maintaining that its restrictions would impose a chilling effect on information providers and other Internet services. Microsoft CEO Bill Gates and others have spoken out against the more draconian aspects of the law, which has been rejected by two federal courts as unconstitutional and is now before the Supreme Court.