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May 6, 2002, 9:00 AM ET, Alert No. 425.
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DC Circuit Remands FCC Bill and Keep Order
5/3. The U.S. Court of Appeals (DC) issued its opinion in WorldCom v. FCC, remanding (but not vacating) the Federal Communications Commission's (FCC) order on remand regarding it bill and keep system for ISP bound calls.
47 U.S.C. § 251 provides that local phone companies compensate each other for handling each other's local calls. One telephone company pays another telephone company for each local call the second company completes to one of its customers. If one customer whose local phone company is the ILEC makes a local phone call to another person whose local phone company is a competitive local exchange carrier (CLEC), the CLEC is entitled to compensation from the ILEC for completing the call. The same is the case if the call originates with the CLEC and completes with the ILEC. Hence, it is "reciprocal compensation."
Section 251(b)(5) provides as follows: "Obligations of all local exchange carriers[.] Each local exchange carrier has the following duties: ... (5) Reciprocal compensation[.] The duty to establish reciprocal compensation arrangements for the transport and termination of telecommunications."
The problem, the ILECs have argued, is that there is no reciprocity with calls made for the purpose of connecting to the Internet. Customers who use dial up modems to access the Internet via ISPs whose phone company is not the ILEC, place calls to the Internet, but there are not calls back from the Internet. Hence, the compensation flows one way; it is not reciprocal. ILECs have argued that some CLECs are abusing the system by concentrating on serving ISPs, but not residential customers, and making the money off of reciprocal compensation payments.
In 1999, the FCC issued an order stating that ISP bound calls are not local calls and therefore are not subject to reciprocal compensation under its rules implementing § 251(b)(5). The FCC applied an "end to end" analysis, stressing that ISP bound traffic ultimately reaches web sites that are typically located out of state. However, the Court of Appeals vacated that order, holding that the FCC failed to explain why the end to end analysis, which is traditionally employed in determining whether a call was jurisdictionally interstate or not, was relevant to deciding whether ISP calls fitted the local call or the long distance call model.
The FCC then issued an order on remand (which is at issue in this case) in which it again concluded that the compensation in delivering Internet bound traffic to an ISP should not be governed by the reciprocal compensation provision of § 251(b)(5). In this order on remand the FCC adopted a bill and keep system, under which each carrier recovers its costs from its own end users. The order on remand provides for a phase out of the old system as existing interconnection agreements expire. The FCC relied upon § 251(g).
Section 251(g) provides as follows: "Continued enforcement of exchange access and interconnection requirements[.] On and after February 8, 1996, each local exchange carrier, to the extent that it provides wireline services, shall provide exchange access, information access, and exchange services for such access to interexchange carriers and information service providers in accordance with the same equal access and nondiscriminatory interconnection restrictions and obligations (including receipt of compensation) that apply to such carrier on the date immediately preceding February 8, 1996, under any court order, consent decree, or regulation, order, or policy of the Commission, until such restrictions and obligations are explicitly superseded by regulations prescribed by the Commission after February 8, 1996. During the period beginning on February 8, 1996, and until such restrictions and obligations are so superseded, such restrictions and obligations shall be enforceable in the same manner as regulations of the Commission." (Parentheses in original.)
In the present case, the Appeals Court noted that "Because ISPs typically generate large volumes of one-way traffic in their direction, the old system attracted LECs that entered the business simply to serve ISPs, making enough money from reciprocal compensation to pay their ISP customers for the privilege of completing the calls."
However, the Court concluded that § 251(g) "does not provide a basis for the Commission's action". The Court held that "Because that section is worded simply as a transitional device, preserving various LEC duties that antedated the 1996 Act until such time as the Commission should adopt new rules pursuant to the Act, we find the Commission's reliance on § 251(g) precluded. Thus we remand the case. Because there may well be other legal bases for adopting the rules chosen by the Commission for compensation between the originating and the terminating LECs in calls to ISPs, we neither vacate the order nor address petitioners' attacks on various interim provisions devised by the Commission."
In addition, the Court further limited the scope of its ruling. It also wrote that "we do not decide whether handling calls to ISPs constitutes ``telephone exchange service´´ or ``exchange access´´ ... or neither, or whether those terms cover the universe to which such calls might belong. Nor do we decide the scope of the ``telecommunications´´ covered by § 251(b)(5). Nor do we decide whether the Commission may adopt bill-and-keep for ISP-bound calls pursuant to § 251(b)(5) ... Indeed these are only samples of the issues we do not decide, which are in fact all issues other than whether § 251(g) provided the authority claimed by the Commission for not applying § 251(b)(5). Moreover, we do not decide petitioners' claims that the interim pricing limits imposed by the Commission are inadequately reasoned. Because we can't yet know the legal basis for the Commission's ultimate rules, or even what those rules may prove to be, we have no meaningful context in which to assess these explicitly transitional measures."
District Court Dismisses Antitrust Complaint in Covad v. Verizon
5/3. The U.S. District Court (DC) issued its opinion and order [PDF] in Covad v. Bell Atlantic dismissing Covad's antitrust complaint against Bell Atlantic, which is now known as Verizon. The Court followed the precedent of Goldwasser v. Ameritech.
Covad filed a complaint against Bell Atlantic and subsidiary companies on April 28, 1999, alleging that they unlawfully maintained monopoly power in various telecommunications markets, including the DSL market, and engaged in anticompetitive and exclusionary conduct in violation of Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. § 1 and § 2, Sections 4 and 16 of the Clayton Antitrust Act, 15 U.S.C. § 15 and § 26, the antitrust laws of the District of Columbia, and the common law.
Covad alleged that Bell Atlantic refused to collocate or provide physical space and facilities for the placement of Covad's equipment within Bell Atlantic's central offices, denied access to local loops, refused to maintain adequate operations support systems (OSS), and denied access to the transport facilities that connect Covad's central office equipment with other points in Covad's network.
The Court concluded that "the Complaint reveals that virtually all allegations of exclusionary conduct, with the exception of the retaliatory patent law suit, relate to Bell Atlantic's failure to comply with the myriad duties contained in sections 251 and 252 of the 1996 Act."
The Court held that "Covad's allegations, which essentially relate to Bell Atlantic's failure to comply with 1996 Act duties, fall squarely outside the parameters of antitrust law. As recognized by the Seventh Circuit in Goldwasser v. Ameritech, 222 F.3d 390 (7th Cir. 2000), the 1996 Act contains duties and obligations of affirmative assistance that ``go well beyond anything the antitrust laws would mandate on their own.´´"
The Court continued that "the duties of affirmative assistance set forth in the 1996 Act exist outside the parameters of pre-existing antitrust law. Bell Atlantic's alleged failure to comply with those duties, which is the lion's share of Plaintiffs' Complaint, does not constitute ``exclusionary´´ conduct as a matter of law, which is the sine qua non of any antitrust violation."
FRB Governor Addresses the Role of Technology in Financial Literacy
5/2. Federal Reserve Board (FRB) Governor Edward Gramlich gave a speech titled "Financial Literacy" at the Financial Literacy Teacher Training Workshop, at the University of Illinois at Chicago. He addressed the use of computer and Internet technology to promote financial literacy.
He stated that "The rapid development of electronic delivery systems has resulted in sophisticated interactive programs, which allow users to construct budgets and enter their personal data. The Federal Reserve Banks of Dallas and Chicago have used such technology to develop interactive web-based programs on financial literacy and money management."
He added that "With the proliferation of home computers, the use of technology will continue to offer options for consumers to increase their knowledge of financial services and products. The flip side of this opportunity is the challenge of reaching those who lack the technological access or capability to participate in these efforts. We need alternative methods of disseminating information to those living on the other side of the digital divide."
Representatives Introduce Bill to Ban False Information in Domain Name Registration
5/2. Rep. Howard Coble (R-NC) and Rep. Howard Berman (D-CA) introduced HR 4640, an untitled bill to criminalize providing false information in registering a domain name. The bill was referred to the House Judiciary Committee. Reps. Coble and Berman are the Chairman and ranking Democrat on the Subcommittee on Courts, the Internet and Intellectual Property.
The bill would add a new section to the criminal code that provides that "Whoever knowingly and with intent to defraud provides material and misleading false contact information to a domain name registrar, domain name registry, or other domain name registration authority in registering a domain name shall be fined under this title or imprisoned not more than 5 years, or both."
Reps. Conyers and Cannon Introduce Copyright and Antitrust Bill
5/2. Rep. John Conyers (D-MI) and Rep. Chris Cannon (R-UT) introduced HR 4643, an untitled bill that would affect the application of antitrust law to freelance writers and artists, expand the application of criminal copyright infringement to unpublished works, and revise the provisions of the Copyright Act regarding the affect of registration on remedies for infringement.
First, the bill would provide for the special application of the antitrust laws to certain negotiations of freelance writers and freelance artists for the sale of their written and graphic material to publishers. Specifically, the bill states that "The antitrust laws shall apply to freelance writers or freelance artists for purposes of negotiating the terms and conditions of contracts for the sale of written material or graphic material created by them to publishers, in the same manner as such laws apply to collective bargaining by employees who are members of a bargaining unit recognized under the National Labor Relations Act (29 U.S.C. 151 et seq.) to engage in collective bargaining with an employer."
Second, the bill would also rewrite 17 U.S.C. § 412, regarding registration as a prerequisite to certain remedies for copyright infringement.
Third, the bill would expand the criminal copyright infringement provisions contained in 17 U.S.C. § 506(a)(2) and 18 U.S.C. § 2319(c)(3) to include "unpublished works".
The bill was referred to the House Judiciary Committee, of which both Reps. Conyers and Cannon are members. Rep. Conyers is the ranking Democrat. 
More New Bills
5/2. Rep. Ed Markey (D-MA) introduced HR 4641. The Congressional Record describes this as a bill "to allocate spectrum for the enhancement of wireless telecommunications, and to invest wireless spectrum auction proceeds for the military preparedness and educational preparedness of the United States for the digital era, and for other purposes". It was referred to the House Commerce Committee.
5/2. Rep. Mike Pence (R-IN), Rep. Sheila Lee (D-TX), and Rep. Rob Simmons (R-CT) introduced HR 4658, a bill to amend the criminal code to ban the use of false or misleading domain names to attract children to web sites that are not appropriate for children. The bill was referred to the House Judiciary Committee.
Greenspan Addresses Tech Sector Stock Options
5/3. Federal Reserve Board (FRB) Chairman Alan Greenspan gave a speech electronically at the 2002 Financial Markets Conference of the Federal Reserve Bank of Atlanta, at Sea Island, Georgia, titled "Stock Options and Related Matters".
He stated that "the very complexity and dynamism of our system requires that we constantly evaluate the tools employed for measuring corporate performance to ensure that they adapt appropriately to the evolving financial and economic environment. In that regard, the increasing use of stock option grants to employees has raised new challenges for our accounting system."
He noted that "Such options are important to the venture capital industry, and many in high tech industries have counselled against making any changes to current practices. They argue that the use of options is an exceptionally valuable compensation mechanism; that recognizing an expense associated with these grants would reduce the use of options, harming high tech companies; that the effect of options on fully diluted earnings per share is already recognized; and that we cannot measure the costs of options with sufficient accuracy to justify their recognition on financial statements." He added that "These are important concerns."
Greenspan elaborated that "some view the current treatment of option grants as having been a major aid in raising capital to finance the rapid exploitation of advanced technologies. While the vital contribution of new technology to the growth of our economy is evident to all, not all new ideas create value on net. Not all new ideas should be financed. In recent years, substantial capital arguably was wasted on a number of enterprises whose prospects appeared more promising than they turned out to be. This waste is an inevitable byproduct of the risk taking that generates the growth in our economy. However, the amount of waste becomes unnecessarily large when the earnings reports that help investors allocate investment are inaccurate."
"Stock option grants, properly constructed, can be highly effective in aligning the interests of corporate officers with those of shareholders. Such an alignment is an essential condition for maximizing the long-term market value of the firm", said Greenspan.
"Regrettably, some current issuance practices have not created the alignment of incentives that encourages desired corporate behavior. One problem is that stock options, as currently structured, often provide only a loose link between compensation and successful management. A company's share price, and hence the value of related options, is heavily influenced by economy wide forces -- that is, by changes in interest rates, inflation, and myriad other forces wholly unrelated to the success or failure of a particular corporate strategy."
Hence, Greenspan recommended that "Stock or options policy should require that rewards reflect the success or failure of managements' decisions. Grants of stock or options in lieu of cash could be used more effectively by tying such grants through time to some measure of the firm's performance relative to a carefully chosen benchmark."
He also discussed stock option accounting. 
People and Appointments
5/3. President Bush introduced Alberto Gonzalez, his White House counsel, during a speech on appointments to the federal judiciary. The White House transcript contains the following: "He's served on the U.S. -- or the Texas Supreme Court." Gonzalez was a Justice of the Supreme Court of Texas from 1999 to 2000. Some speculate that he is on the President's short list of potential nominees to the Supreme Court of the U.S.
More News
5/3. Bruce Mehlman, Assistant Secretary of Commerce for Technology Policy, gave a speech titled "The Changing Wealth of Nations: Intellectual Property in the Age of Innovation" at the Licensing Executives Society Spring Meeting in Washington DC. He stated that "our intellectual property regime and education system will determine our success in the 21st Century".
5/3. The Department of Justice published in the Federal Register public comments received on the Revised Proposed Final Judgment in United States v. Microsoft. See, entry page, with hyperlinks.
5/3. The U.S. Patent and Trademark Office (USPTO) announced that on May 6 it begins hosting intellectual property officials from nine countries for two weeks of seminars. The officials are from Korea, Vietnam, Egypt, Mexico, Bulgaria, Croatia, Macedonia, Romania, and Serbia Montenegro. See, USPTO release.
5/3. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (DNJ) against U.S. Funding Corporation and others alleging violation of U.S. securities laws. The SEC alleges that defendants fraudulently solicited investors using bulk e-mail that promised investors a rate of return of 45% over two years, fully secured. See also, SEC release.
5/2. President Bush addressed the Foreign Sales Corporation (FSC) tax regime dispute with EU at a joint press conference with Spanish President Jose Maria Aznar and EC President Romano Prodi. Bush stated that "Today, I informed President Aznar and President Prodi that I will work with our Congress to fully comply with the WTO decision on our tax rules for international corporations. This will require both time, and it will require legislation. I hope and expect that we can all act in the same spirit of understanding as we work through other problems." See, transcript.
5/3. President Bush gave a speech in Washington regarding judicial appointments. He stated that "there is a vacancy crisis on our federal courts. Both the President and the United States Senate have constitutional responsibilities to address vacancies on the federal bench. I have nominated 100 outstanding jurists for these posts. But the Senate thus far has not done its part to ensure that our federal courts operate at full strength. Justice is at risk in America, and the Senate must act for the good of the country." The Bush administration also released a memorandum titled "Fact Sheet: President Bush Calls on the Senate to Address the Vacancy Crisis in the Federal Courts".
Monday, May 6
The House will meet in pro forma session at 2:00 PM.
The Senate will meet at 3:00 PM.
The Supreme Court is on recess until May 13.
The Council of the Americas will hold a three day conference titled "New Realities in the Hemisphere" on May 5-7. On May 6 at 8:45 AM Secretary of State Colin Powell will speak. At 9:30 AM Director of Homeland Security Tom Ridge will speak. At 10:45 AM Treasury Secretary Paul O'Neill will speak. At 12:30 PM Commerce Secretary Donald Evans will give the luncheon address. At 2:45 PM Vice President Dick Cheney will speak. See, agenda [PDF]. For more information, call 202 639-0724. Location: Loy Henderson Conference Room, Department of State, 2201 C Street, NW.
Deadline to submit requests to attend or participate in the Copyright Office's public roundtable discussion concerning "issues raised in the course of an ongoing rulemaking proceeding to adopt requirements for giving copyright owners reasonable notice of the use of their works for sound recordings under the section 114 and 112 statutory licenses and for how records of such use shall be kept and made available to copyright owners." See, notice in Federal Register.
Tuesday, May 7
The House will meet at 12:30 PM for morning hour and at 2:00 PM for legislative business. No votes are expected before 6:30 PM. The House will consider a number of measures under suspension of the rules.
9:00 AM - 4:00 PM. The Association for Competitive Technology (ACT) will host a series of panel discussions on technology issues. The panels are as follows. 10:00 AM: E-Commerce and the Revenge of the Middleman; 11:00 AM: International Trade and the IT Industry; 1:00 PM: Pitfalls of Regulating Technology. 2:00 PM: Antitrust Enforcement and Merger Approvals in the IT industry; and 3:00 PM: How to make Fiscal Policy Friendly to Small Business. Location: Room HC-8, U.S. Capitol Building.
The Council of the Americas will hold a three day conference titled "New Realities in the Hemisphere" on May 5-7. On May 7 at 9:00 AM Sen. Max Baucus (D-MT) will speak. At 11:45 USTR Robert Zoellick will speak. See, agenda [PDF]. For more information, call 202 639-0724. Location: Loy Henderson Conference Room, Department of State, 2201 C Street, NW.
12:00 NOON. The Advisory Committee to the Congressional Internet Caucus will host a luncheon. The speaker will be Marty Cooper, inventor of the portable cellular telephone and CEO of ArrayComm. RSVP to rsvp or Danielle Wiblemo at 202 638-4370. Location: Reserve Officers Assoc.
1:30 to 3:30 PM. The State Department's International Telecommunication Advisory Committee, Radiocommunication Sector (ITAC-R) will hold a meeting. The ITAC advises the State Department on policy, technical and operational issues with respect to the International Telecommunication Union. This meeting will address preparations for the ITU-R World Radiocommunication Conference 2003 (WRC-03). See, notice in Federal Register. Location: Department of State, Dean Acheson auditorium.
Wednesday, May 8
The House will meet at 10:00 AM for legislative business.
9:00 AM - 12:00 NOON. The Telecommunications Service Priority System Oversight Committee will meet. See, notice in Federal Register. Location: NCS conference room, 2nd floor, 701 South Court House Road, Arlington, VA.
9:30 AM. The Senate Governmental Affairs Committee will hold a hearing to examine infrastructure security, focusing on private public information sharing. Location: Room 342, Dirksen Building.
10:00 AM - 12:00 NOON. The FCBA's International Practice Committee will host a roundtable discussion with David Gross, Deputy Assistant Secretary for International Communications and Information Policy, State Dept. RSVP to Maggie McBride at 202 719-7101. Location: Wiley Rein & Fielding, 1750 K Street, NW.
10:00 AM. The Senate Judiciary Committee will hold a hearing regarding reform of the Federal Bureau of Investigation and Department of Justice. See, notice. Press contact: Mimi Devlin at 202 224-9437 Location: Room 226, Dirksen Building.
12:00 NOON - 1:30 PM. Marybeth Peters, Register of Copyrights, will speak at the Center for Strategic and International Studies (CSIS). For more information, contact Joelle Laszlo at 202 775-3175 or jlaszlo Location: 4th Floor Conference Room, CSIS, 1800 K St NW.
Extended deadline to submit comments to the FCC in its proceeding titled "In the Matter of Rules and Policies Concerning Multiple Ownership of Radio Broadcast Stations in Local Markets Definition of Radio Markets". See, FCC release [PDF].
Thursday, May 9
The House will meet at 10:00 AM for legislative business.
10:00 AM - 12:00 NOON. The House Science Committee's Subcommittee on Research will hold a hearing on the National Science Foundation Reauthorization Act of 2002. Press contact: Heidi Tringe Heidi.Tringe or 202 225-4275. Webcast. Location: Room 2318, Rayburn Building.
10:00 AM - 12:00 NOON. The House Science Committee's Subcommittee on Research will meet to mark up HR 3130, the Technology Talent Act of 2001 (immediately following the hearing on the NSF reauthorization bill). This bill would authorized grants to be awarded on a competitive basis to institutions of higher education to increase the number of students studying and receiving associates or bachelor's degrees in science, mathematics, engineering, and technology. Press contact: Heidi Tringe Heidi.Tringe or 202 225-4275. Webcast. Location: Room 2318, Rayburn Building.
Deadline to pre-register to attend the NIST's Advanced Technology Program (ATP) Advisory Committee meeting on May 14. The agenda includes a discussion on universities and R&D technology issues, a presentation on In-Q-Tel (the CIA's Silicon Valley venture capital group), an update on the ATP competition, and a presentation on the ATP Computer Based Software Focus Program. Submit your name, time of arrival, e-mail address and phone number to Carolyn Stull at carolyn.stull or 301 975-5607. See, notice in Federal Register.
Friday, May 10
The House will meet at 9:00 AM for legislative business. No votes are expected after 2:00 PM.
8:30 AM - 4:30 PM. The New America Foundation and Public Knowledge will co-host a conference titled "Protecting the Information Commons: Asserting the Public Interest In Copyright Law and Digital Infrastructure". The scheduled speakers include Rep. Rick Boucher (D-VA). RSVP to Tina Sherman at 202 986-2700 or sherman Location: National Guard Association, One Massachusetts Avenue NW.
9:00 AM - 5:00 PM. The Copyright Office (CO) will hold "a public roundtable discussion concerning issues raised in the course of an ongoing rulemaking proceeding to adopt requirements for giving copyright owners reasonable notice of the use of their works for sound recordings under the section 114 and 112 statutory licenses and for how records of such use shall be kept and made available to copyright owners." See, notice in Federal Register. Requests to attend or participate must be submitted by close of business on Monday, May 6, 2002. Location: Room LM620 (Dining Room A), James Madison Memorial Building, First and Independence Avenue, SE.
9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in AT&T v. FCC, No. 01-1467, and Verizon v. FCC, No. 01-1371. Judges Ginsburg, Randolph and Tatel will preside. Location: 333 Constitution Ave. NW.
9:30 AM - 1:00 PM. The SEC will hold an event titled "Investor Summit" which will also be webcast. See, SEC release. Location: WOD Room, basement, SEC, 450 5th Street NW.
10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in ULead Systems v. Lex Computer, No. 01-1320, an appeal from the U.S. District Court (CDCal). The lower court held that U.S. Patent No. 4,538,188 is unenforceable due to the owner's inequitable conduct in fraudulently paying reduced small entity maintenance fees to the USPTO when it was not a small entity. Location: LaFayette Square, at 717 Madison Place, NW.
12:15 PM. The The FCBA's Wireless Committee will host a luncheon.
1:00 PM. The House Commerce Committee's Subcommittee on Telecommunications and the Internet will hold a field hearing titled "Chatting On Line: A Dangerous Proposition for Children." Rep. Fred Upton (R-MI) will preside. Press contact: Ken Johnson or Jon Tripp at 202 225-5735. Location: Kalamazoo Central High School, Kalamazoo, MI.
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