Tech Law Journal Daily E-Mail Alert
August 3, 2001, 9:00 AM ET, Alert No. 241.
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Subcommittee Approves 5 Year Extension of Internet Tax Freedom Act
8/2. The House Judiciary Committee's Commercial and Administrative Law Subcommittee approved HR 1552 the Internet Tax Nondiscrimination Act, on a voice vote. The bill would extend for five years the current moratorium on multiple or discriminatory Internet taxes, and taxes on Internet access. The current moratorium, which was enacted in the Internet Tax Freedom Act in 1998, is set to expire on October 21.
Rep. Bob Barr (R-GA), Chairman of the Subcommittee, presided. He said that without an extension, "I think you would see some liberties being taken with taxation of the Internet." He stated that "we have got to get something through very quickly that will preserve the moratorium." He added that a 5 year extension is a compromise, noting that many Members would prefer the permanent extension contained in HR 1675, which is also titled the Internet Tax Nondiscrimination Act. Finally, he said that "I think the administration agrees with us."
Gekas Amendment. Rep. Barr pointed out that "Internet sales comprise less than 1% of total retail sales." Rep. George Gekas (R-PA) offered, but then withdrew, an amendment that would provide that the moratorium be extended for 5 years, or until the total value of retail goods sold in electronic commerce in the U.S. reaches 5 percent of the total value of all retail goods sold in the U.S., whichever comes first.
Quill Decision. Rep. Mel Watt (D-NC) and Rep. Jerrold Nadler (D-NY) both argued that any legislation should both extend the current moratorium, and address state collection of sales and use taxes, which is not affected by the moratorium. Currently, Quill v. North Dakota, 504 U.S. 298 (1992), provides that state and local taxing authorities are barred under the Commerce Clause from requiring remote sellers without a substantial nexus to the taxing jurisdiction to collect sales taxes for sales to persons in the jurisdiction; however, the Court added that Congress may extend such authority.
Sales Tax Bills. Congress has passed no legislation pertaining to sales and use taxes. However, there are several bills pending in the Congress that would provide this authority. See, for example, HR 1410, sponsored by Rep. Ernest Istook (R-OK), and S 512, sponsored by Sen. Byron Dorgan (D-ND). Moreover, several Senators have attempted, unsuccessfully, to draft a "compromise bill" that would allow states to require remote sellers to collect sales taxes. The main issue in dispute involves requiring states to simplify their tax codes.
Rep. Nadler stated that "I don't believe we can totally divorce these two issues." He added that an impending expiration of the moratorium "leverage" for passing a sales and use tax bill, and that passing a five year extension would take away this leverage. Rep. Watt stated that the moratorium extension and sales tax issues "should continue on parallel tracks."
Watt Amendment. Rep. Watt offered an amendment that provides that "states are authorized to enter into an Interstate Sales and Use Tax Compact", and that after being signed by the 25 states, the "Congress shall consent to the Compact within  365 days ... after the adopting States transmit the Compact to Congress or such compact shall be deemed to be withdrawn after the 365 day period." Rep. Barr ruled the amendment non germane. Rep. Nadler stated that he too had an amendment to offer, but would save it for the full committee mark up session.
AMT Relief Bill Introduced
8/2. Represenatives Richard Neal (D-MA), Tom Davis (R-VA), Zoe Lofgren (D-CA), Jerry Weller (R-IL), and 9 others introduced a bill in the House to reform the Alternative Minimum Tax (AMT) treatment of Incentive Stock Options (ISOs). The bill would provide relief to some workers at high tech companies who exercised stock options before their companies' stock prices plummeted in 2000.
The problem with existing tax law, say the sponsors, is an unfair anomaly in the tax code. Some employees exercised incentive stock options in 2000 provided by their employers. The price of the stock at the time that the employee exercised the option was often much higher than the price when the option was granted. Hence, the employee realized a significant gain. However, many of these employees then held on to the stock, for example, to obtain long term gains tax treatment. But then, for many of these employees, the price of the stock dropped precipitously. This left some employees with a huge tax bill -- sometimes more than the value of the stock, or even their entire net worth. See, sponsors' release.
Related Bills. Sen. Joe Leiberman (D-CT) introduced a companion bill in the Senate. The bill introduced on August 2 refines HR 1487, which Rep. Lofgren introduced on April 4. The list of sponsors of HR 1487 grew to 49 members.
Current Law. Incentive Stock Options is codified at 26 U.S.C. § 422. The Alternative Minimum Tax is codified at 26 U.S.C. § 56.
Text of Bill. The bill provides, in relevant part, as follows: "In the case of an incentive stock option (as defined in section 422 of the Internal Revenue Code of 1986) exercised during calendar year 2000, the amount taken into account under section 56(b)(3) of such Code by reason of such exercise shall not exceed the amount that would have been taken into account if, on the date of such exercise, the fair market value of the stock acquired pursuant to such option had been its fair market value as of April 15, 2001 (or, if such stock is sold or exchanged on or before such date, the amount realized on such sale or exchange)."
Sponsors. The thirteen original sponsors of the bill include representatives of districts with concentrations of high tech companies, including Lofgren (Silicon Valley), Dunn (Seattle area), Davis, Moran and Wolf (northern Virginia), Doggett (Austin, Texas), and Cannon (Provo and Orem, Utah). There are also several members of the Ways and Means Committee, which has jurisdiction, on the sponsorship list, including Neal, Weller, Matsui, and Dunn.
GAO Reports on Legal Fees Paid to Attorneys for IP and Antitrust Work
8/2. The GAO issued a report [PDF] titled "Hourly Fees Paid by Various Federal Agencies to Private Attorneys for Legal Services". The report was prepared at the request of Rep. William Delahunt (D-MA), a member of the House Judiciary Committee.
Intellectual Property Services. The report addressed fees paid by NASA and the Veterans Administration (VA) for legal services involving intellectual property law. It stated that NASA paid $210 per hour to prepare a patent application. Also, the VA paid an average of $308 per hour for "advice on the government's legal rights in certain software products and on the potential liability under various trade secret laws."
Antitrust Division. Another item in the report is that in FY 2000 "the Antitrust Division had 17 contracts and paid an average hourly fee of $271." The report did not identify the names of firms or individual attorneys, or the work which they performed. Nor did it state whether $271 per hour was paid for work on competitive analyses of applications to provide in region interLATA services.
Senate Committee Approves NTIA Nominee Nancy Victory
8/2. The Senate Commerce Committee held a hearing on August 1 on several pending nominations, including that of Nancy Victory to be Assistant Secretary of Commerce for Communications and Information. On August 2 the Committee voted en bloc to approve these nominations without any dissenting votes. Victory is on track to become the next head of the National Telecommunications and Information Administration (NTIA). William Hatch has been acting head since the departure of Greg Rohde shortly after the inauguration of President Bush.
Role of the NTIA. Sen. Conrad Burns (R-MT) described the NTIA as "one of the most important seats" at the Department of Commerce at the August 1 hearing. It has spectrum management responsibilities with respect to spectrum bands assigned for government use. This puts it at the center of the debate over locating and reallocating spectrum for use by third generation (3G) wireless services, which is intended to bring broadband Internet access to portable devices. Similarly, the NTIA is involved in the debate over emerging ultrawideband (UWB) technologies. It also administers a grant program for communications related projects. Finally, it serves as the administration's advocate before the FCC, the Congress, and in public forums on many communications and Internet issues.
Victory testified that her two main issues will be locating spectrum for new uses, and promoting broadband deployment. In response to a question from Sen. Byron Dorgan (D-ND), she stated that she hoped to be an "activist". Sen. Burns advised her that "your function is primarily in the area of policy."
Broadband Deployment. Sen. George Allen (R-VA) asked Victory about efforts to promote deployment of broadband Internet access services in rural areas. She responded that this is "definitely a goal". She added that "I don't believe that the administration has taken a position on any of the legislative proposals yet." Nor did she state her views on the Tauzin Dingell bill, or any other legislative proposals. She only stated that any government action "should be technology neutral." Sen. Allen added that in addition to copper and cable, fiber, wireless, and satellite will be important to broadband deployment.
Sen. Dorgan also used to occasion to advocate broadband deployment in rural areas, such as his home state of North Dakota. He stated that broadband access "has to be supported by the Universal Service Fund."
3G Wireless. Sen. Allen asked her, "Would you be willing to identify the most promising chunks of the spectrum?" She responded, "I don't think I could identify for you what is the best option." She continued that her role would be to try to create a climate in which all sides come to the table and compromise. She also ducked a question on the timing of the 1710-1755 MHz spectrum auction. Finally, she suggested that she would institute incentives for efficient use of spectrum; however, she added, "I don't know what those mechanisms would be at this time."
Conflicts of Interest. Sen. Dorgan questioned Victory about conflicts of interest, and a story in the Wall Street Journal on August 1 that stated that Victory and her husband "own large amounts of stock in companies such as Verizon Communications Corp. that would benefit from controlling valuable government- owned airwaves needed to deliver advanced "third generation" wireless-data services ..." She responded that "I no longer own that stock. I sold it quite a while ago." She also stated that there is one matter in which she will recuse herself -- ultrawideband (UWB). Sen. Dorgan expressed his support for her confirmation.
Revolving Door for Telecom Lawyers
8/2. Nancy Victory is just one of many telecom lawyers who have moved between the Washington DC law firms, such as Wiley Rein & Fielding (WRF), that represent telecom and Internet companies and trade groups, and the government agencies and offices, such as the NTIA and FCC, that regulate them.
Victory until recently was a partner at WRF. Her husband, Michael Senkowski, remains head of WRF's Communications Practice. He is also a former Administrative Assistant to the Chairman of the FCC. Victory will join many other former WRF attorneys who now hold top positions in government regulating telecom and Internet companies. Kevin Martin, one of the five FCC Commissioners, was once an associate at WRF. Bryan Tramont, who is Senior Legal Advisor to newly appointed FCC Commissioner Kathleen Abernathy, also worked at WRF. Maria Cino, the new Assistant Secretary of Commerce and Director General of the United States and Foreign Commercial Service, is another WRF veteran. Bruce Mehlman, who is now Assistant Secretary of Commerce for Technology Policy, has also worked at WRF, as well as on the Hill.
Similarly, WRF is full of attorneys who have worked at the regulatory bodies. For example, lead partner Richard Wiley is a former FCC Chairman. Finally, Victory will replace Greg Rohde, who has never worked at WRF. However, before moving to the NTIA, he was the top telecom aide to Sen. Dorgan, who presided over Victory's confirmation hearing. 
DC Circuit Rules in Adrx v. Biovail
7/31. The U.S. Court of Appeals (DCCir) issued its opinion in Andrx Pharmceuticals v. Biovail, appeals from two District Court decisions in a private antitrust case involving patents and Food and Drug Administration drug applications. The Appeals Court affirmed the District Court's dismissal of the antitrust counterclaim for failure to sufficiently allege injury, but reversed its decision to do so with prejudice. Remanded.
Export Administration Act Consent Agreement
8/1. Sen. Fred Thompson (R-TN), an opponent of S 149, the Export Administration Act of 2001, and Sen. Tom Daschle (D-SD), the Senate Majority Leader, engaged in a discussion on the Senate floor regarding a unanimous consent request to bring up the bill after the August recess.
Sen. Daschle stated that the "Export Administration Act is part of the unanimous consent agreement that we entered into a moment ago. It allows the majority leader to call up the bill on September 4. I say to my colleagues, and especially to my colleague from Tennessee, that this is an agreement he and I discussed prior to entering into the agreement. It acknowledges that we would have at least 2 full days of debate that would accommodate the interest of the Senator from Tennessee in discussing this issue prior to the time I would file a cloture motion. I confirm that for the RECORD, and fully expect that those 2 full days of debate will be immediately following the time we come back." Sen. Thompson agreed to this unanimous consent request. See, Congressional Record, August 1, 2001, at page S8535.
... or of the Press
8/1. Rep. Eliot Engel (D-NY), Rep. Bobby Rush (D-IL), and Rep. Mike Honda (D-CA) introduced HR 2700, a bill that would require the FCC to establish an office on victims of media bias. It was referred to the House Commerce Committee, of which Reps. Engel and Rush are members. 
Appeals Court Denies Microsoft's Motion for Rehearing
8/2. The U.S. Court of Appeals (DCCir) issued an order [PDF] denying both Microsoft's July 18 Petition for Rehearing and the government's July 13 Motion for Immediate Issuance of Mandate. Microsoft had sought review on the sole issue of commingling of certain software code specific to web browsing with software code used for other purposes in certain files in Windows 98. Microsoft stated that the June 28 opinion of the U.S. Court of Appeals "accepted the district court's conclusion that such "commingling" had occurred and that it violated Section 2 of the Sherman Act. The Court's ruling with regard to "commingling" of software code is important because it might be read to suggest that OEMs should be given the option of removing the software code in Windows 98 (if any) that is specific to Web browsing."
The Court wrote, in its brief order, "Upon consideration of appellees' motion for immediate issuance of the mandate, the response thereto, appellant’s petition for rehearing, and the response thereto, it is ORDERED that the motion for immediate issuance of the mandate be denied. It is FURTHER ORDERED that the petition for rehearing be denied. Nothing in the Court’s opinion is intended to preclude the District Court’s consideration of remedy issues."
Steve DelBianco, VP of the Association for Competitive Technology (ACT), a pro Microsoft group, criticized the Court's order. He stated in a release that "The industry needs some clarity on this matter, since it is not completely clear as to whether the appeals court ruling on "commingling of code" was narrow and relevant only to user access to the browser, rather than to other innovations in Windows. Continued confusion on this matter could be disastrous given the life or death stakes for the thousands of programmers currently porting their software to Windows XP. These programmers and their companies have made a crucial business decision to rely upon those features to be part of the operating system and deserve to have some stability sooner rather than later."
Friday, August 3
9:00 AM - 5:00 PM. Day one of a two day conference titled "6th Annual Independent Inventor's Conference." The conference its hosted by U.S. Patent and Trademark Office (USPTO) and the Office of Independent Inventor Programs (OIIP). See, USPTO notice. Location: The DoubleTree Hotel, 300 Army Navy Drive, Arlington, Virginia.
9:30 AM. The House Commerce Committee's Subcommittee on Oversight and Investigations will hold a hearing for titled "How Secure is Sensitive Commerce Department Data and Operations? A Review of the Department's Computer Security Policies and Practices." Location: Room 2123, Rayburn House Office Building. The scheduled witnesses are Robert Dacey (Director, Information Security Issues, GAO), Johnnie Frazier (Inspector General, Commerce Dept.), Samuel Bodman (Deputy Secretary, Commerce Dept.), and Thomas Pyke (Acting CIO, Commerce Dept.).
Deadline to file comments with the FCC in its Notice of Inquiry (NOI) regarding video competition. On June 20, 2001 the FCC adopted a NOI into the status of competition in the market for the delivery of video programming. The FCC stated in a release that "The NOI seeks information that will allow the FCC to evaluate the status of competition in the video marketplace, prospects for new entrants to that market, and its effect on the cable television industry and consumers. The NOI also solicits information regarding the extent to which consumers have choices among video programming distributors and delivery technologies." Reply comments are due by September 5. See, CS Docket No. 01-129.
The calendar section of the August 2 Daily E-Mail Alert (No. 240) stated that the Senate Commerce Committee would vote on the nomination of Nancy Victory to be head of the NTIA on Friday, August 3. In fact, the Committee voted on her nomination on Thursday, August 2. See, story at left.
Saturday, August 4
9:00 AM - 5:00 PM. Day two of a two day conference titled "6th Annual Independent Inventor's Conference." The conference its hosted by U.S. Patent and Trademark Office (USPTO) and the Office of Independent Inventor Programs (OIIP). See, USPTO notice. Location: The DoubleTree Hotel, 300 Army Navy Drive, Arlington, Virginia.
Monday, August 6
9:00 AM - 5:00 PM. The FCC's Consumer/Disability Telecommunications Advisory Committee will meet. Location: FCC, 445 12th Street, SW, Room TW-C305, Washington DC.
Deadline for the FCC to file a petition for rehearing before the U.S. Court of Appeals (DCCir) in NextWave v. FCC, the never ending battle over cancellation of the bankrupt NextWave's spectrum licenses. See, June 22, 2001 opinion of the Appeals Court.
People and Appointments
8/2. The Senate confirmed Robert Mueller to be FBI Director by a vote of 98 to 0.
8/1. The Senate confirmed Harvey Pitt to the Chairman of the SEC.
8/2. President Bush announced his intent to nominate Roscoe Howard to be U.S. Attorney for the District of Columbia. See, White House release.
8/2. President Bush nominated Jeffrey Howard to be a U.S. Circuit Judge for the First Circuit, and Terrence O'Brien to be a U.S. Circuit Judge for the Tenth Circuit. See White House release.
8/2. Sony's U.S. holding company named Nicole Seligman to be General Counsel. She is a partner in the Washington DC law firm of Williams & Connolly. She was one of former President Clinton's impeachment defense attorneys. She is also married to Joel Klein, who was an Assistant Attorney General in charge of the Antitrust Division in the Clinton administration, and architect of the Microsoft antitrust litigation.
8/2. The RIAA named Joel Flatow to be its General Manager, West Coast Affairs. See, RIAA release.
More News
7/31. The U.S. Court of Appeals (FedCir) issued its opinion in Viskase v. American National Can, a patent infringement case involving shrink wrap. The Appeals Court affirmed in part, reversed in part, and remanded.
8/2. Rhythms NetConnections, a DSL service provider, filed a Chapter 11 petition for bankruptcy in U.S. Bankruptcy Court (SDNY).
8/2. The Copyright Office published a notice [PDF] in the Federal Register of several very minor changes to its rules found at 37 CFR 202.1 and 202.17. Each correction changes Latin phrases into italic font.
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