Tech Law Journal Daily E-Mail Alert
June 29, 2001, 8:00 AM ET, Alert No. 219.
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CJS Subcommittee Discusses FCC Budget and Policy
6/28. The Senate Appropriations Committee's Commerce, Justice, State, and the Judiciary (CJS) Subcommittee held a hearings on the proposed budgets for FY 2002 for the Federal Communications Commission and Securities and Exchange Commission. See, prepared testimony of FCC Chairman Michael Powell. The hearing served as a forum for discussing several difficult issues facing the FCC, including how to extend the universal service goals of ubiquity and affordability to new communications media (such as broadband Internet access and instant messaging), how to allocate more spectrum for third generation wireless services, and the Bell companies' efforts to rewrite key provisions of the Telecom Act of 1996.
Universal Service and New Technologies
6/28. Sen. Ted Stevens (R-AK), the ranking Republican on the Appropriations Committee, raised the subject of universal service at the CJS hearing. He represents a state with voters widely dispersed over vast rural and remote areas where the cost of communications services is high.
The longstanding policy of promoting universal service for voice telecommunications was codified in Section 254 of the Telecom Act of 1996. Only telecommunications services are subject to universal service support contributions. Also, this section, as interpreted by the FCC, has extended universal service support to schools and libraries for telecommunications, as well as for Internet access and internal wiring costs. Stevens pointed out while new methods of communications, such as broadband Internet access and instant messaging are becoming increasingly important, rural areas are likely to fall behind urban areas without universal service support for these services. He also stated that with only telecommunications services currently contributing, new technologies are also going to have to pay their way. "I continue to be worried about the future of the universal service fund," said Sen. Stevens. "The revenue base of universal service is declining, and the demands are increasing." He suggested that "one solution might be taxing the Internet ... to support the universal service fund." However, he added that he does not support this yet.
Chairman Powell stated that he is committed to the universal service goals of ubiquity and affordability, whatever the architecture of the communications. However, he added that he "reserves judgment" on who should contribute. He pointed out also that the FCC is constrained by a court decision preventing the FCC from tapping intrastate revenues for universal service, and by the language of Section 254. He suggested that a legislative solution may be required.
Tauzin  Dingell Bill
6/28. Sen. Hollings, the Chairman of the Appropriations Committee's CJS Subcommittee (as well as Chairman of the Commerce Committee) ridiculed the Bell companies for lobbying the Congress to pass HR 1542 (the Tauzin Dingell bill). He stated that the Bells are carrying on a "big charade". The Bells seek legislation that would exempt interlata data service (as distinguished from voice service) from the requirements of Section 251 of the Telecom Act of 1996. They assert that when the 1996 Act was being drafted, data communications were not considered, and were not intended to be covered by Section 251. Sen. Hollings, who was intimately involved in negotiations over the drafting of the bill, refuted this claim. He stated that Bell companies were involved in negotiations -- "they wrote the words". He continued that data was referenced over 470 times. He concluded that the Bells are engaged in "a big charade, a big straw man to extend their monopoly."
Sen. Dan Inouye (D-HI) and Sen. Hollings both asked Chairman Powell for his views on HR 1542. Powell stated that he would not take a position on the bill. Instead, he said there are two competing views of competition in the market for broadband services. One view is that competition exists between different "pipelines". These are currently cable and phone networks, but may in the future may also include wireless and satellite. He said that under this view, it does not matter whether there is competition between providers of the same service; competition is between the different pipelines. This, he said is the view of the proponents of HR 1542. He then said that the other view of broadband competition holds that there must be competition within each technology. Sen. Hollings was unimpressed. He said, "Let me correct that." He proceeded to explain that the intent of Congress in passing the 1996 Act was to require competition in local phone loop.
Spectrum Issues
6/28. Both Sen. Hollings and Sen. Stevens discussed spectrum policy with Chairman Powell at the CJS hearing. The FCC has recently taken very tentative steps towards developing secondary markets for spectrum, and moving towards property rights in spectrum. Sen. Hollings asked, "Who owns the spectrum? Are you and I the trustee" for spectrum? Powell answered that "it is clear that spectrum is the public property of the American taxpayers." Powell added that it is the function of the FCC to put spectrum to its highest and best use. He also stated that the FCC can reclaim licensed spectrum.
3G Wireless. Sen. Stevens focused specifically on third generation (3G) wireless services, which are intended to bring broadband Internet access to portable devices. Currently, the Defense Department is vigorously opposing the reallocation or sharing of any of the spectrum in the 1755 to 1850 MHz band which it now uses, but which has been identified for possible use by 3G services. Sen. Stevens suggested that one solution may be to ask the DOD to be "hard headed about what the really need," and allow the rest to be re-auctioned, with most of the proceeds from the sale of spectrum licenses going back to the DoD to fund new defense technologies. Chairman Powell responded, "I think it is a creative idea."
NextWave. Chairman Powell spoke with reporters after the hearing about the June 22 opinion of the U.S. Court of Appeals (DCCir) in NextWave v. FCC. He stated that "This is a major blow to the legal and regulatory foundation of our auction policy." He declined to state whether the FCC would appeal.
Appeals Court Rules in USA v. Microsoft
The U.S. Court of Appeals (DCCir) issued its en banc opinion in USA v. Microsoft. This is an antitrust action brought by the Department of Justice's Antitrust Division and by individual states. The Court of Appeals affirmed in part, reversed in part, and remanded in part the District Court's judgment assessing liability. It vacated in full the Final Judgment containing the break up order. Finally, it remanded the case to a different trial judge.
District Court Proceedings. The District Court, Judge Thomas Jackson presiding, determined that Microsoft had maintained a monopoly in the market for Intel compatible PC operating systems in violation of 2 of the Sherman Antitrust Act; attempted to gain a monopoly in the market for Internet browsers in violation of 2; and illegally tied two purportedly separate products, Windows and Internet Explorer, in violation of 1. See, Judge Jackson's Conclusions of Law (April 3, 2000). The District Court then issued a Final Judgment requiring Microsoft to submit a proposed plan of divestiture, with the company to be split into an operating systems business and an applications business. See, Judge Jackson's and Final Judgment (June 7, 2000). Microsoft appealed.
Holding Re Violation of the Sherman Act. The Appeals Court affirmed in part and reverse in part the District Court's judgment that Microsoft violated 2 of the Sherman Act by employing anticompetitive means to maintain a monopoly in the operating system market. The Appeals Court reversed the District Court's determination that Microsoft violated 2 of the Sherman Act by illegally attempting to monopolize the internet browser market. The Appeals Court remanded the District Court's finding that Microsoft violated 1 of the Sherman Act by unlawfully tying its browser to its operating system. The Appeals Court also stated this its holding extends to the District Court's findings with respect to the state law counterparts of the plaintiffs' Sherman Act claims.
Holding Re Breakup Order. The Appeals Court also vacated the District Court's Final Judgment ordering the break up of Microsoft, on several grounds. First, the Final Judgment was based on a number of liability determinations that the Appeals Court reversed. Second, the District Court erred in failing to hold an evidentiary hearing to address remedies specific factual disputes.
Holding Re Jackson's Appearance of Partiality. Third, the "trial judge engaged in impermissible ex parte contacts by holding secret interviews with members of the media and made numerous offensive comments about Microsoft officials in public statements outside of the courtroom, giving rise to an appearance of partiality. The Appeals Court added that "the actions of the trial judge seriously tainted the proceedings before the District Court and called into question the integrity of the judicial process." The Appeals Court ordered reassignment to another trial judge.
Gates' Reaction. Microsoft Chief Software Engineer Bill Gates said that "The ruling lifts the cloud of breakup over the company, reverses the tying claim, and says clearly that we did not attempt to monopolize the browser market." See, Microsoft release and statement by Bill Gates.
Congressional Reaction
6/28. Sen. Herb Kohl (D-WI) and Sen. Mike DeWine (R-OH), the Chairman and Ranking Member of the Senate Subcommittee on Antitrust, Business Rights and Competition, issued a joint statement: "The recent DC Circuit court ruling is a split decision that reflects the important balance that must be struck between ensuring competitive markets and allowing businesses room to innovate -- both of which are important for consumers. The court overturned the breakup order, but at the same time confirmed that Microsoft had engaged in illegal monopoly maintenance. Today's decision does not end the Microsoft litigation, and further proceedings will likely continue in the coming months. The full implications of this decision will be known only over time as antitrust law is applied to the entire high technology industry, but it is clear that the antitrust laws must play a key role in ensuring competitive markets in this sector. We will continue to monitor future developments in the case closely but feel strongly that the case must remain above politics. Whatever the outcome of this particular case, we will continue to work to assure that no one company can abuse a dominant market position to the detriment of competition and consumers."
6/28. Rep. Dick Armey (R-TX) stated that "I applaud today's ruling because its good for American competitiveness. It sends the message that innovation in America will be rewarded, not punished. Our antitrust laws should not be used to hold our most successful companies back to give the competition a chance to catch up. That kind of tired economic thinking is exactly what our new economy does not need. Government needs to get off the back of our innovators so that high tech America can prosper." See, statement.
FCC's Lack of Engineering Expertise
6/28. Chairman Powell and Sen. Hollings discussed the FCC's lack of technical expertise at the CJS hearing. The FCC is and agency of lawyers. It lacks staff who can understand the new technologies that the FCC seeks to regulate. The FCC has no trouble attracting the brightest lawyers, because a short stint at the FCC greatly increases the earning capacity of these lawyers. Most go to work for the law firms that represent companies regulated by the FCC, or the companies themselves. There is no comparable payoff for engineers. Moreover, they are asked to work at the lowly levels of GS-5 and GS-7.
Powell stated that "we cannot depend on those we regulate for on-the-job tutorials while we make decisions. Over the last six years, our engineering staff has decreased by more than 20 percent. Within the next four years, 40 percent of our engineering staff will be eligible to retire."
Sen. Hollings asked of the FCC's FY 2002 budget request, "does this take care of the engineers and the lawyers too?" Chairman Powell responded "no, it does not over time take care of it." He added that this budget request, which barely covers cost of living adjustments, "is the first step." He will seek more funding later.
Microsoft Opinion
The Appeals Court's slip opinion is 125 on paper, and is available on the USCA web site in a single file. Tech Law Journal converted this file into HTML, and split it into 9 separate files, which are hyperlinked below.
Case Caption, Attorneys, Table of Contents and Summary.
I. Introduction.
  A. Background.
B. Overview.
II. Monopolization.
A. Monopoly Power.
B. Anticompetitive Conduct.
  1. Licenses Issued to Original Equipment Manufacturers.
2. Integration of IE and Windows.
3. Agreements with Internet Access Providers.
4. Dealings with Internet Content Providers, Independent Software Vendors, and Apple Computer.
5. Java.
6. Course of Conduct.
C. Causation.
III. Attempted Monopolization.
IV. Tying.
V. Trial Proceedings and Remedy.
VI. Judicial Misconduct.
VII. Conclusion.
E-SIGN Hearing
6/28. The House Financial Services Committee's Subcommittee on Domestic Monetary Policy, Technology and Economic Growth held a hearing titled ESIGN -- Encouraging the Use of Electronic Signatures in the Financial Services Industry. See, opening statement [PDF] of Rep. Peter King (R-NY), the Subcommittee Chairman. See also, prepared testimony [PDF] of witnesses: Eileen Harrington (FTC), Christopher Roe (American Insurance Assoc.), Thomas Crocker (Alston & Bird), Jeremiah Buckley (Electronic Financial Services Council), Louis Rosenthal (Financial Services Roundtable), Margot Saunders (National Consumer Law Center).
Friday, June 29
10:00 AM. Walt Strack, Chief Economist of the FCC's Wireless Telecommunications Bureau, will give a keynote address titled "Wireless Telecommunications in the U.S." at the 2001 International Communications Forecasting Conference. Location: Arlington, VA.
Monday, July 2
July 2- July 6. The House and Senate will be in recess for the Independence Day District Work Period.
Abernathy Speech on FCC
6/25. Recently appointed FCC Commissioner Kathleen Abernathy gave a speech in which she summarized her approach to regulation. She stated that "I will always prefer a private market based solution to a government mandate. I have learned through experience that functioning markets will always make better decisions than government. It will reward winners and punish losers more effectively and efficiently than regulators and provides consumers with greater benefits. In areas where it is necessary for government to intervene and to enact rules, they must be clear, obtainable, and enforced vigorously. Government must be humble, especially in regulating technology."
6/27. House Majority Leader Dick Armey (R-TX) gave a speech to the Federalist Society on privacy. He stated that "We shouldn't allow ourselves to be distracted by false notions of privacy that encourage more government control over our lives. Instead, conservatives must embrace privacy -- but on our terms, not theirs. For privacy, properly understood, is about reining in the most intrusive force in the lives of Americans. Today, that force is the federal government."
More News
6/28. The Copyright Office published a notice in the Federal Register that it has completed its annual review of Copyright Office regulations and adopted several non- substantive amendments to clarify, update and correct the text of the regulations. See, Federal Register, June 28, 2001, Vol. 66, No. 125, at Pages 34372 - 34374.
6/28. The U.S. Court of Appeals (7thCir) issued its opinion in USA v. Walton. This is a criminal case in which an employee of Perdue University used a networked workstation to download pictures from the Internet, and store them on a network server. He was charged, convicted, and sentenced for possession of child pormography in violation of 18 U.S.C. 2252(A)(a)(5)(B), and receiving child pormography in violation of 18 U.S.C. 2252A(a)(2). He appealed on several issues, all of which the Appeals Court rejected.
6/27. The U.S. Court of Appeals (FedCir) issued its opinion in Durel v. Osram Sylvania, a patent infringement case involving electro- luminescent phosphor particles used to illuminate watches and instrument panels in cars. Reversed.
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