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February 15, 2002, 9:00 AM ET, Alert No. 370.
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8th Circuit Rules on Preemption & Abstention Issues in State Regulation of Cellular Contracts
2/14. The U.S. Court of Appeals (8thCir) issued its opinion [PDF] in Cedar Rapids Cellular Telephone v. Miller, a case regarding issues of federal preemption and abstention involved in state statutory prohibitions of certain terms pertaining to minimum terms, penalties, and arbitration that are contained in the contracts of wireless phone services providers.
Background. The Attorney General of the state of Iowa notified several wireless service providers that operated in Iowa that their 12 to 24 month term service agreements with cancellation fees of $300 and more violate the Iowa Consumer Credit Code. The Attorney General also objected to the arbitration provisions in the  contracts.
Complaint. The wireless service providers filed a complaint in U.S. District Court (NDIowa) against the Attorney General of Iowa seeking declaratory and injunctive relief. The wireless service providers sought declarations that the federal Communications Act preempts application of the Iowa state law to the term service agreements, that the federal Arbitration Act preempts application of the Iowa statute to the arbitration clauses in the term service agreements, that the Iowa statute interferes with interstate commerce, that the Iowa statute is void for vagueness under the due process clause of the Fourteenth Amendment, and that the Iowa Consumer Credit Code does not apply to their cellular telephone businesses. They also sought to enjoin action against them.
District Court Holding. The District Court held that it lacked jurisdiction over the preemption claims, on the grounds that that are federal defenses that cannot form a basis for federal jurisdiction. The District Court held that it did have jurisdiction over the remaining federal claims arising under the dormant commerce clause and the due process clause. It also assumed, without deciding, that it had supplemental jurisdiction over the appellants' state law claims. However, it still dismissed the case pursuant to several abstention doctrines. Three wireless service providers then brought this appeal: Cedar Rapids Cellular Telephone, Davenport Cellular Telephone Company, and WWC License.
Appeals Court. The Sixth Circuit reversed and remanded. It first held that the preemption claims provide federal jurisdiction because the wireless service providers seek injunctive relief. It then held that the District Court correctly chose to abstain from the claims of two of the wireless service providers, but should have stayed their claims, rather than dismiss them. As for the third appellant, the Appeals Court held that District Court should not have abstained, and on remand, the District Court should consider the federal claims.
People and Appointments
2/14. David Szady was named Assistant Director for Counterintelligence at the Federal Bureau of Investigation (FBI). Grant Ashley was named Assistant Director for Criminal Investigations. See, FBI release.
2/14. Anthony Thornley was named P/COO of Qualcomm. William Keitel was named SVP/CFO. See, Qualcomm release.
2/11. Mark Itri joined the Orange County office of the law firm of McDermott Will & Emery as a partner. He focuses on patent and trademark prosecution and litigation, and client counseling and opinion work. He concentrates on electronic and computer software arts, the internet, photocopiers, printers, facsimile devices, mechanical devices and instruments, pattern and speech recognition, and server and network systems. He was previously a partner at Fitzpatrick Cella Harper & Scinto. See, MWE release.
2/11. Andreas Weitbrecht, John Kallaugher, Marc Hansen and Jean Paul Poitras joined the Brussels office of the law firm of Latham & Watkins as partners. All four are antitrust lawyers who previously worked at the law firm of Wilmer Cutler & Pickering. Poitras focuses on trade, customs and EU competition law. He has advised on a dispute concerning the WTO compatibility of the EC 3G UMTS mobile telephone standard; he also has represented coalitions of computer and telecommunications companies in opposing EC trade protection measures against semiconductors and computer equipment. Kallaugher focuses on EU competition law, aviation and general transactional matters. He has represented international airlines, computer reservation systems and airline associations. Hansen focuses on EU competition, technology, and trade regulatory law; he represents clients in the communications, IT and online services and media sectors regarding content licensing and new digital delivery formats, and related digital rights management issues. Weitbrecht focuses on European and German antitrust law. See, LW release.
6th Circuit Rules in Lanham Act Case
 2/15. The U.S. Court of Appeals (6thCir) issued its opinion in Abercrombie & Fitch v. American Eagle Outfitters, a Lanham Act case. Abercrombie & Fitch (A&F) filed a complaint in U.S. District Court (SDOhio) against American Eagle alleging infringement of unregistered trade dress in violation of Section 43(a) of the Lanham Act. The District Court granted summary judgment to American Eagle on the grounds that A&F sought protection for something that was not trade dress. The Court of Appeals affirmed on other grounds -- that the designs were functional, and therefore, not protectable.
Senate Committee Holds Hearing on Privacy
2/13. The Senate Judiciary Committee's Technology, Terrorism, and Government Information Subcommittee held a hearing on privacy, identity theft, and protection of personal information. Sen. Dianne Feinstein (D-CA), who presided at the hearing, stated that "there are ominous signs that we are losing control over our personal information", and that legislation must be passed to protect personal privacy.
Sen. Judd Gregg (R-NH) testified as as witness to advocate passage of S 848, the Social Security Number Misuse Prevention Act of 2001, which would prohibit the display, sale, or purchase of social security numbers. This bill is sponsored by Sen. Feinstein, and cosponsored by Sen. Gregg.
Sen. Feinstein advocated passage of S 1055, which contains the ban on sale of social security numbers of S 848, but also includes many other provisions. It would require that individuals' consent be obtained before a wide range of types of data could be sold. She is the sponsor of this bill also.
See also, prepared testimony of Richard Stana (GAO), Susan Fisher (Doris Tate Crime Victims Bureau), Doug Comer (Intel), John Avila (Walt Disney Company), and Frank Torres (Consumers Union).
Should Tech Companies Be Held Liable for Security Defects?
2/14. Bruce Schneier, founder and CTO of Counterpane Internet Security, spoke at a luncheon on Capitol Hill on cyber security. He advocated holding technology companies liable for security defects.
He stated that cyber security "is less a technology problem, and more a business problem. That, in fact, we have a lot of technologies that can be brought to bear to solve our security problems, to make our networks more secure, to make our data more secure. The hard part is getting companies to implement them, whether it is software companies, their own products, or whether companies who are spending more on coffee than network security."
He continued that to incent companies to make more secure products, there must be costs for making insecure products. He said that "right now, having poor security makes you more cost effective, makes you get your products out faster, makes your budgets less."
He said that the legal system must "enforce liabilities. I really believe that we need liabilities in software and networks. The notion that a company can produce a product that is systemically flawed, and not be liable, only holds true in software. It doesn't hold true in other industries. It doesn't hold true in consumer products. And, every software company will scream about this. But, I think that it is important. We are seeing some changes in that in this past year. A judge told the Department of the Interior in October to get their network off of the Internet, because they could not protect the privacy of their constituents, their customers."
Secondly, Schneier argued that the legal system should "allow parties to transfer liabilities. This is where the insurance industry comes in. The whole goal of the insurance industry is to smooth risk, to transfer risk." He added that "Once the insurance industry gets involved, they will start mandating certain levels of security, based on actual data, based on actual payouts."
Schneier spoke at an event was hosted by the Forum on Technology and Innovation, which was founded by Sen. Bill Frist (R-TN), Sen. Jay Rockefeller (D-WV), and the Council on Competitiveness. Richard Clarke, Special Advisor to the President for Cyberspace Security, also spoke at the event. Senators Frist and Rockefeller, and Vint Cert of WorldCom, also spoke.
Securities Regulation News
2/14. Rep. Ken Bentsen (D-TX) introduced HR 3769, a bill to require disclosure, in electronic form, to the Securities and Exchange Commission (SEC), and to the public, of the sale of securities by an officer, director, affiliate, or principal shareholder of an issuer of the securities. The bill was referred to the House Committee on Financial Services.
2/15. The Consumers Union advocated rolling back the Private Securities Litigation Reform Act (PSLRA) and the Securities Litigation Uniform Standards Act (SLUSA). See, CU release.
2/13. The American Electronics Association (AEA) announced its opposition to S 1940, the "Ending the Double Standard for Stock Options Act". The bill, which is sponsored by Sen. Carl Levin (D-MI), Sen. John McCain (R-AZ), Sen. Peter Fitzgerald (R-IL), Sen. Richard Durbin (D-IL), and Sen. Mark Dayton (R-MN), would require companies to treat stock options for employees as an expense on financial statements if they take a tax deduction for stock option compensation.
William Archey, P/CEO of the AEA, stated in a release that "The high tech industry was the first in the US economy to distribute stock options to its entire workforce, from top executives down to entry level positions. As it stands, stock options help employers attract and retain qualified workers by giving them a financial stake in the future of the company. Many companies would find the tax and accounting regime of the Levin McCain bill so onerous that they would discontinue offering options to all but the most senior executives."
Archey added that "The current rules governing accounting and tax treatment of stock options are transparent and consistent and require no added complications. The Levin McCain bill would frustrate investors and impose unnecessary costs on broad based employee stock option plans. The high tech industry successfully defeated this bill in 1997. We will mount a similar effort this time as well."
2/15. Stephen Cutler, Director of the Securities & Exchange Commission's (SEC) Division of Enforcement, gave a speech in Hallandale, Florida, regarding SEC enforcement efforts. He stated that "there is a dark cloud hanging over all of us these days. Practically overnight, a system we'd all come to believe in has been exposed as plagued with weaknesses." He added that "there has never been a better time to consider wide ranging and meaningful policy reform."
Cutler also stated that "many of our investigations flow from complaints or other submissions by members of the public. ... In 2001, the Enforcement Complaint Center, our online mailbox, received an average of 365 emails per business day, up from fewer than 300 per business day during year 2000. In comparison, during January 2002, the Complaint Center averaged 525 emails per day, a 45% increase over the 2001 average."
2/13. David Thatcher plead guilty in U.S. District Court (NDCal) to securities fraud in violation of 18 U.S.C. § 371, in connection with his participation in transactions in which Critical Path improperly recognized revenue during the 3rd and 4th quarters of 2000. See, Plea Agreement [PDF] and USAO release.
Newspaper Broadcast Cross Ownership Rule
2/15. Friday, February 15, was the extended deadline to file reply comments with the FCC in its proceeding regarding cross ownership of broadcast stations and newspapers. (This is MM Docket No. 01-235.) Media companies recommended that the FCC eliminate this cross ownership rule.
Cox Enterprises submitted a reply comment [PDF] in which it argued that the daily newspaper broadcast cross ownership restriction cannot withstand judicial scrutiny under the First Amendment, and is contrary to the policy embodied in the Telecommunications Act of 1996 Congress that free markets and competition best promote the public interest. It therefore argued for abolition of cross ownership rules. Other media companies submitted similar comments.
The Tribune Company submitted a reply comment [PDF] in which it argued that "newspaper circulation and television ratings have suffered significant declines as a result of the emergence of new media competition, principally from cable/ satellite and the Internet." It argued that this renders the regulated media vulnerable to new competitors.
Gannett Company submitted a reply comment [PDF] stating that the FCC should eliminate the cross ownership rule because "traditional media outlets have been inundated with new competitors, sufficient that the cross ownership restriction is no longer necessary to protect competition or diversity."
The Newspaper Association of America submitted a comment [PDF] in which it argued that "The media marketplace is more robust than ever -- there are more broadcast stations, radio stations, cable and other MVPD households, weekly and alternative newspapers, and Internet subscribers than at any other time in U.S. history".
The Consumers Union and the AFL-CIO previously submitted comments arguing for continuation of the restriction.
Monday, Feb 18
Presidents' Day. The FCC will be closed. The House and Senate will be in recess from February 18 through 22.
Tuesday, Feb 19
4:00 PM. Deadline to submit grant applications to the Department of Labor's Employment and Training Administration for funds for skills training programs. These grants are financed by user fees paid by employers in the H-1B visa program. See, notice in Federal Register, January 10, 2002, Vol. 67, No. 7, at Page 1368. This notice changes a deadline of February 12 contained in a previous notice in the Federal Register.
Extended deadline to submit reply comments to the FCC in response to its Further Notice of Proposed Rulemaking regarding its cable horizontal and vertical ownership limits. See, original notice [PDF] in Federal Register of October 11, 2001, and extension Order [PDF] of January 29, 2002. The NCTA requested the extension.
Deadline to submit comments to the Federal Trade Commission (FTC) regarding its proposed settlement with Eli Lilly (which accidentally disclosed the e-mail addresses of 669 subscribers to a Prozac e-mail list). The proposed settlement requires Eli Lilly to establish a security program. See, notice in the Federal Register.
Deadline to submit comments to the Federal Communications Commission (FCC) in the matter of Ambient's application for a determination that it is an exempt telecommunications company. It is an electric power company that also provides broadband Internet access and related information services over power lines to electrical outlets in residences. See, FCC release [PDF].
Wednesday, Feb 20
9:00 AM - 4:30 PM. The Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) will hold the third in a series of joint hearings on antitrust and intellectual property. There will be two sessions (9:00 AM - 12:30 PM and 2:00 - 4:30 PM) titled "Economic Perspectives on Intellectual Property, Competition and Innovation". The morning speakers will be Wesley Cohen (Carnegie Mellon Univ.), Robert Evenson (Yale), Edmund Kitch (Univ. of Virginia), James Langenfeld (LECG), and Maureen O’Rourke (Boston Univ.). The afternoon speakers will be Shane Greenstein (Northwestern), Margaret Calvert (Economists, Inc.), Joshua Lerner (Harvard Business School), Stan Liebowitz (Univ. of Texas at Dallas), Philip Nelson (Economists, Inc.), Janusz Ordover (NYU), and Lawrence White (NYU). Location: Room 432, FTC, 600 Pennsylvania Ave., NW.
8:00 AM - 6:00 PM. The FCBA and Georgetown University Law Center (GULC) will co-host a CLE program titled "FCC Speaks". FCC Chairman Michael Powell will speak on "The Path to the Digital Broadband Migration" at 8:30 AM. FCC Commissioners Abernathy, Copps, and Martin will participate in a panel discussion at 4:20 PM. The program will also include panels titled "National Broadband Policy", "Competition Policy Panel", "Spectrum Allocation Policy", "Media Ownership Working Group", "Digital Television Task Force", and "Homeland Security Council". See, full schedule. The price to attend is $795, $745 (GULC alumni), $695 (FCBA members), $595 (government employees). Location: GULC, Moot Courtroom, 600 New Jersey Ave., NW.
Thursday, Feb 21
9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in Unity Broadcasting v. FCC, No. 01-1148. Judges Henderson, Randolph and Rogers will preside. Location: 333 Constitution Ave. NW.
12:15 PM. The FCBA's (FCBA) Young Lawyers Committee will hold a brown bag lunch. RSVP to Yaron Dori at ydori Location: Hogan & Hartson, 555 13th Street, NW, Room 13E-407 (use East Tower elevators).
IIPA Submits Special 301 Recommendations to USTR
2/15. Friday, February 15, was the deadline to submit comments to the Office of the U.S. Trade Representative (USTR) regarding foreign countries that deny adequate and effective protection of intellectual property rights or deny fair and equitable market access to U.S. persons who rely on intellectual property protection. The USTR requested these comments pursuant to its duties under § 182 of the Trade Act of 1974, 19 U.S.C. § 2242, which is better known as the "Special 301" provisions.
The International Intellectual Property Alliance (IIPA) submitted a comment which it summarized in a seven page release [PDF]. IIPA urged the USTR "to maintain Ukraine as a Priority Foreign Country under Special 301" because it has "failed to adopt and enforce an adequate law controlling pirate optical media production originating there."
The IIPA urged the USTR to elevate Brazil, Kuwait, Turkey and Pakistan to the Priority Watch List. It also asked that Argentina, Costa Rica, Dominican Republic, Egypt, India, Indonesia, Israel, Korea, Lebanon, Philippines, Russia, Taiwan, and Uruguay be kept on the Priority Watch List.
The IIPA also urged the USTR "to continue monitoring the compliance of the People’s Republic of China and Paraguay, under Section 306 of the Trade Act, with their bilateral commitments to the U.S. on copyright and copyright enforcement and (for China) on its market access commitments. Under Section 306, failure to comply with these commitments can result in virtually immediate trade sanctions."
The Business Software Alliance (BSA), which is a member of the IIPA, stated in a separate release that "China still maintains abhorrent end user piracy rates and needs to step up enforcement efforts." The BSA also singled out Taiwan, Korea and Italy. "Taiwan needs to adopt a more integrated approach to stem the growth of corporate end user piracy in 2002". It further stated that "Korea continues to fall short in curtailing corporate end user piracy" and that "end user piracy of business application software in Italy remains among the highest in Europe".
More News
2/13. The Kentucky Public Service Commission approved Alltel's application to purchase about 600,000 local telephone lines in Kentucky from Verizon. See, Alltel release.
2/15. Globalstar announced that it filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court (DDel). See, release.
2/15. The U.S. Patent and Trademark Office (USPTO) published the February issue of the USPTO Pulse in its web site.
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