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June 18, 2002, 9:00 AM ET, Alert No. 453.
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7th Circuit Criticizes But Follows Brulotte
6/17. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Scheiber v. Dolby Laboratories, a case involving enforcement of a patent licensing agreement that provides for royalty payments beyond the expiration of a patent term. The District Court declined to enforce the agreement. The Appeals Court reluctantly affirmed, citing the Supreme Court's decision in Brulotte v. Thys. However, Judge Richard Posner thoroughly criticized the Brulotte case.
Brulotte and Patent Misuse. The Supreme Court held in Brulotte v. Thys Co., 379 U.S. 29 (1964) that a patent holder's attempt to collect royalties beyond the term of the patent constituted misuse of the patent. Judge Posner, writing for a three judge panel, stated that "we have no authority to overrule a Supreme Court decision no matter how dubious its reasoning strikes us, or even how out of touch with the Supreme Court's current thinking the decision seems." While applying the Brulotte decision in this case, he went on to explain at length why Brulotte is such an awful precedent.
Background. Scheiber is a musician turned inventor who held U.S. and Canadian patents on the audio system known as "surround sound". The last of these patents expired in 1993 and 1995. Dolby Laboratories makes audio equipment. These parties reached a settlement to a 1983 patent infringement suit that included a patent license agreement that provided for the payment of royalties beyond the expiration of a patent term. Following expiration of the patent, Dolby refused to make further payments.
District Court. Scheiber filed a complaint in U.S. District Court (SDInd) against Dolby for enforcement of the licensing agreement. Dolby relied upon Brulotte. The District Court granted summary judgment to Dolby. Scheiber appealed.
Appeals Court. The Appeals Court noted that the facts in Brulotte were "just like this case; the two cases are indistinguishable." Hence, the Appeals Court affirmed.
"The decision has, it is true, been severely, and as it seems to us, with all due respect, justly, criticized, beginning with Justice Harlan's dissent", wrote Posner. "The Supreme Court’s majority opinion reasoned that by extracting a promise to continue paying royalties after expiration of the patent, the patentee extends the patent beyond the term fixed in the patent statute and therefore in violation of the law. That is not true. After the patent expires, anyone can make the patented process or product without being guilty of patent infringement. The patent can no longer be used to exclude anybody from such production. Expiration thus accomplishes what it is supposed to accomplish."
And because of this, Posner elaborated that if the parties negotiate an agreement that provides that royalties will be paid beyond the term of the patent, then amount of the royalty payment will reflect this fact, and the payment will be lower.
He wrote that "charging royalties beyond the term of the patent does not lengthen the patentee's monopoly; it merely alters the timing of royalty payments. This would be obvious if the license agreement between Scheiber and Dolby had become effective a month before the last patent expired. The parties could have agreed that Dolby would pay royalties for the next 100 years, but obviously the royalty rate would be minuscule because of the imminence of the patent’s expiration."
Federal Circuit. The U.S. Court of Appeals (FedCir), which has jurisdiction over appeals from patent cases, has also stated that it views the misuse doctrine with disfavor, and will apply it only in clear cases, such those matching the facts of Brulotte.
In contrast, some academics have argued for an expansion of the reasoning of Brulotte, by analogy, to copyright law. For example, Brulotte could be the basis of a court imposed limitation upon the anti circumvention rights created by the Digital Millennium Copright Act (DMCA), 17 U.S.C. § 1201.
7th Circuit Jurisdiction. This case was heard by the Seventh Circuit, rather than the Federal Circuit. Judge Posner noted that "Federal jurisdiction over the suit is based on diversity of citizenship, because a suit to enforce a patent licensing agreement does not arise under federal patent law."
Supreme Court News
6/17. The Supreme Court returned from recess, and issued several non technology related opinions. The Court also announced decisions on numerous petitions for writ of certiorari. The Court then recessed until Thursday, June 20.
The Supreme Court denied certiorari in Satellite Broadcasting and Communications Association v. FCC, No. 01-1332. See, Order List [PDF] at page 4. This case pertains to the FCC's carry one, carry all rule for satellite broadcasters. This is a petition for writ of certiorari to the U.S. Court of Appeals (4thCir), No. 01-1818, et seq.
The Supreme Court denied certiorari in Celtronix Telemetry, Inc. v. FCC, No. 01-1504. See, Order List [PDF] at page 4. This is a petition for writ of certiorari to the U.S. Court of Appeals (DCCir), Nos. 00-1400 and 00-1401, pertaining to FCC Interactive Video and Data Service licenses. See, opinion of the Court of Appeals.
NTIA Releases Rule on Spectrum Reallocation Costs
6/17. The National Telecommunications and Information Administration (NTIA) published a notice in the Federal Register containing a final rule regarding reimbursement of costs for federal to commercial spectrum reallocation.
The notice states that the NTIA has adopted rules "governing reimbursement to Federal entities by the private sector as a result of reallocation of frequency spectrum. This rule implements provisions of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (NDAA 99) which authorized Federal entities to accept compensation payments when they relocate or modify their frequency use to accommodate non- Federal users of the spectrum. By this action, spectrum that has been identified for reallocation can be provided to the private sector for future commercial wireless service, and the Federal Government will be compensated for the costs incurred in making that reallocated spectrum available."
These rules are effective June 17, 2002. See, Federal Register, June 17, 2002, Vol. 67, No. 116, at Pages 41182 - 41196. See also, NTIA release.
RIAA Settles with AudioGalaxy
6/17. The Recording Industry Association of America (RIAA) announced that a settlement has been reached in Zomba Records v. and Michael Merhej. Last month the RIAA and the National Music Publishers' Association (NMPA) filed a complaint [78 pages in PDF] in U.S. District Court (SDNY) against on behalf of members of the RIAA and NMPA. The complaint alleges vicarious and contributory copyright infringement in connection with the operation of a Napster like peer to peer music copying service.
The RIAA stated in a release that the settlement "would allow Audiogalaxy to operate a ``filter-in´´ system, which requires that for any music available, the songwriter, music publisher, and/or recording company must first consent to the use and sharing of the work. The other key provision of the agreement is for Audiogalaxy to pay the music publishers and recording industry a substantial sum based on Audiogalaxy's assets and interest in resolving this case quickly."
SEC's Pitt Speaks to Financial Writers
6/13. Securities and Exchange Commission (SEC) Chairman Harvey Pitt gave a speech in New York City to the New York Financial Writers Association. He stated that "I hadn't realized this when I took the job, but there really are a lot of critics and skeptics out there, shooting at us! And rulemaking doesn't make for the sexiest news stories. But, bear with us. We are constrained by rules dating back to the days of manual typewriters and carbon paper, while you and the rest of the world are on computers, cell phones and BlackBerrys!"
He added that "I am grateful to the financial reporters who ``invest´´ the time to understand that the rules we propose -- the faster disclosure rules we proposed yesterday, the new accounting regulatory regime we will propose a week from today, and the myriad of additional rules we have been churning out at a breakneck pace -- are all aimed at stopping the abuses that festered over the past five or ten years. Reporting on the rules, even if unglamorous, is an important way investor confidence legitimately can be raised." 
More News
6/17. The Interior Department's National Indian Gaming Commission published a notice in the Federal Register announcing the adoption of a final rule that includes changes in the definitions of "electronic, computer or other technologic aid" and "electronic or electromechanical facsimile." See, Federal Register, June 17, 2002, Vol. 67, No. 116, at Pages 41166 - 41174.
6/17. XO Communications filed a Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court (SNDY). See, XO release.
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FCC Receives Comments on Classification and Regulation of Cable Modem Services
6/17. June 17 was the deadline to submit comments to the Federal Communications Commission (FCC) regarding its Notice of Proposed Rulemaking (NPRM) regarding the consequences of the FCC's classification of cable modem service as an information service. The FCC received, and published in its web site, numerous comments that it received.
Providers of cable modem services generally supported the FCC's declaratory ruling that cable modem service is an information service, rather than a cable or telecommunications service. They also opposed the imposition of forced access requirements. In contrast, state and local entities generally opposed the information service classification, and advocated the right of local governmental entities to impose open access requirements, collect fees from cable modem service providers, and regulate cable modem service.
This is CS Docket No. 02-52. See, FCC release [PDF] and notice in Federal Register, April 17, 2002, Vol. 67, No. 74, at Pages 18848 - 18854.
The National Cable Telecommunications Association (NCTA) submitted a comment [59 pages in PDF] in which it stated that the FCC's "determination that cable modem service is an interstate information service provides a sound basis for allowing marketplace forces to propel the continued investment in and deployment of affordable broadband Internet access service throughout the nation. The Communications Act neither requires nor authorizes the Commission to impose a mandatory multiple ISP access requirement on cable modem service. Such a requirement would impose substantial costs and burdens on the Commission, on cable operators, and -- most importantly -- on consumers without providing any countervailing benefits."
The NCTA continued that "state and local governments have no basis -- in Title VI of the Act or anywhere else -- for imposing access requirements or otherwise regulating the provision of this interstate service. Cable operators have already been granted the right to use public rights of way within their cable franchise areas. No additional franchise or permission is necessary -- nor may any such permission be required -- for the provision of cable modem service over the same rights of way. Moreover, the Act precludes state and local governments from imposing fees attributable to the provision of services that, like cable modem service, are not a ``cable service.´´"
The NCTA concluded that "This is as it should be. There is, as Congress has recognized, a vibrantly competitive marketplace for Internet services -- including broadband Internet access. The public interest is best served, as Congress also recognized, when that competitive marketplace is allowed to develop ``unfettered by Federal or state regulation.´´ The Commission should, in this proceeding, make clear that this is precisely what follows from its determination that cable modem service is neither a cable service nor a telecommunications service but an interstate information service."
AT&T submitted a comment [58 pages in PDF] in which it stated that "the Commission should again decline to impose cable forced access regulation but should affirmatively preempt state and local regulation of cable Internet services".
AT&T wrote that the FCC should "affirmatively choose not to regulate ISP access to cable facilities on the basis that market forces will far better guarantee efficient, customer friendly arrangements between cable operators and ISPs (and, indeed, are already doing so). Moreover, the Commission can, and should, declare that state and local authorities cannot impose various forms of arbitrary and anticompetitive assessments and regulations that threaten the continued growth and development of interstate cable Internet services."
AT&T elaborated that "Regulation of cable Internet services is unwarranted because cable operators have clear incentives to maximize usage of broadband services and to reach commercially reasonable deals with any ISPs that might improve the customer experience. By contrast, continued regulation of wireline broadband services is necessary because the Bells have substantial market power and are strongly influenced by the reality that broadband services compete with their legacy monopolies."
AT&T also argued that "At least four categories of state and local laws and regulations are inconsistent with Title VI and thus should be declared to be preempted and superseded: (1) franchising authority regulations imposing open access requirements on cable Internet access; (2) state and local laws assessing franchise fees on cable modem service; (3) local franchising authorities. regulation of the terms and conditions for cable Internet services; and (4) state and local laws restricting a cable provider's right to collect or disclose its customers. personally identifiable information to market its services."
BellSouth provides DSL service, not cable modem service. However, it submitted a comment [12 page in PDF] anyway. It wants deregulation of DSL service.
It wrote that "The action that the Commission takes regarding broadband services must focus not only on the appropriate regulatory treatment of cable modem services, but on the appropriate regulatory treatment of the entire market for broadband services that provide access to the Internet. This market includes both broadband Internet services provided by cable modem as well as broadband services that utilize other technologies and network architectures, e.g., wireline facilities utilized by ILECs to provide service. The regulatory treatment of the entire market must be not only consistent, it must be identical. Any other approach will result in asymmetric regulation that will have an anticompetitive effect, distort the market and impede competition."
BellSouth added that it "supports the decision of the Commission to categorize cable modem service as an information service. BellSouth also supports the tentative conclusion that, as an information service, cable modem service should not be subject to Title II, and to the attendant obligations and requirements. This same approach must be applied to wireline broadband services for precisely the same reasons that support the above referenced conclusions. The restrictions on the provision of broadband Internet services by ILECs must be removed in this and related dockets, so that there will be appropriately consistent treatment of all services offered in this competitive market."
However, BellSouth added the caveat that if the FCC does not deregulate its DSL services, "then there is only one way to ensure regulatory symmetry and avoid anti- competitive consequences: Title II obligations must, in that event, be imposed upon the providers of cable modem service."
The state of California and the California Public Utilities Commission submitted a comment [43 pages in PDF] in which they urged the FCC "to adopt an open access regime for cable modem service. California further urges the FCC not to forbear from regulating the transport component of cable modem service as common carriage under Title II of the Act. The adoption of an open access regime and the regulation of cable modem transport under Title II are essential to meet the core policies of the 1996 Act -- enhanced consumer choice of services at lower prices, and the offering of services on just, reasonable, and nondiscriminatory terms."
The state of Texas submitted a comment [6 pages in PDF] also. It first questioned the FCC's conclusion that cable modem services are information services. It wrote that "We agree that while this may arguably be one conclusion, it is not a complete conclusion and does not fully address other important issues which are relevant to meeting the Commission's previously and widely stated goal of advancing high speed access to the internet regardless of the platform used."
Texas elaborated that "The categorization of services as either telecommunications services, cable services, or information services are not mutually exclusive, contrary to the statement in ¶41 of the Notice of Proposed Rulemaking. A cable modem service provider could easily be selling its regular cable programming, an information service through an ISP, and also providing voice over IP telephony and/or local exchange services, which are arguably telecommunications services. It would be fundamentally unfair to allow cable modem service providers to offer telecommunications services to customers without also obligating them to meet the regulatory requirements applicable to other providers of the identical services, the most important of these requirements being open access."
It added that "Cable modem service is fundamentally both an information service, the ISP element, AND a high speed transport for the data which is the source of the information. This is seen most obviously by the fact that ISP services are offered through dial-up, wireline broadband and cable modem. The internet service remains the same and this is the ``information service´´ component focused upon by the Commission in its tentative conclusion. These services are therefore not easily or correctly categorized as one type, but a hybrid of all three."
Texas concluded that "Cable modem services are not in and of themselves information services as they are really just a means of providing high speed transport of the ISP information to the customer. Because of the inherent duality of the nature of these services it is incumbent upon the Commission to proceed cautiously and to avoid an absolute reclassification of these services as purely information services to which few common carrier or consumer protection obligations attach."
Texas also argued that "The following current telecommunications service provider requirements must apply to cable modem service providers: 1.Open access requirements; and 2.Consumer protection requirements."
The ACLU also submitted a comment [PDF] in which it urged the FCC to adopt open access requirements. It also argued that the FCC "was mistaken when it classified cable modem service as an information service".
Tuesday, June 18
The House will meet at 10:30 PM for morning hour, and at 12:00 NOON for legislative business.
The Senate will meet at 9:30 AM. It will resume consideration of S 2600, the Terrorism Risk Insurance Act of 2002.
The Supreme Court is on recess until June 20.
8:30 - 10:00 AM. The American Enterprise Institute (AEI) will host a press breakfast titled "Telecommunications and Media Issues" with former FCC Commissioner Harold Furchtgott Roth and other AEI scholars. RSVP to Veronique Rodman at telephone 202 862-4871 or vrodman Location: AEI, 1150 17th Street, NW, 11th Floor Conference Room.
9:00 AM - 4:00 PM. The Global Internet Project (GIP) will host a conference titled Spam: Can It Be Stopped? FTC Commissioner Orson Swindle will give the opening keynote address at 9:20 AM. See, agenda. Location: Crystal Gateway Marriott, Arlington, VA.
10:00 AM. The House Judiciary Committee has scheduled a meeting to mark up several bills, including HR 3215, the "Combatting Illegal Gambling Reform and Modernization Act" and HR 4623, the "Child Obscenity and Pormography Prevention Act of 2002". HR 3215 is Rep. Bob Goodlatte's (R-VA) Internet gambling bill. See, amendment in the nature of a substitute offered on June 13. Webcast. Press contact: Jeff Lungren or Terry Shawn at 202 225-2492. Location: Room 2141, Rayburn Building.
11:00 AM. James Rogan (Director of the USPTO) will announce the award of partnership contracts to five companies for the electronic filing of patent applications as part of its strategic plan. See, notice. Press contact: Richard Maulsby at 703 305-8341or Location: USPTO, 2121 Crystal Drive, Room 911, Arlington, VA.
12:00 NOON. The FTC will host an event titled Workshop on Merger Remedies. See, FTC release. Location: Room 332, FTC, 600 Pennsylvania Ave., NW.
2:30 - 4:30 PM. The Department of State's (DOS) International Telecommunication Advisory Committee (ITAC-D) will hold a meeting. This Committee advises the Department on policy, technical and operational issues with respect to the International Telecom. Union (ITU). For more information, and security restrictions, see notice in Federal Register. Location: Room 1406, DOS.
Day one of a four day conference titled "INET 2002: Internet Crossroads: Where Technology and Policy Intersect". See, conference information page. Location: Crystal Gateway Marriott, Arlington, VA.
Wednesday, June 19
The House will meet at 10:00 AM for legislative business.
The Supreme Court is on recess until June 20.
The FCC has scheduled Auction 44, pertaining to spectrum in the 700 megahertz band. On May 24, 2002, the FCC announced that Auction 31 is postponed until January 14, 2003, but that Auction 44 will proceed on June 19, 2002. See, FCC notice of postponement.
10:00 AM. The Senate Commerce Committee's Subcommittee on Science, and Transportation Communications will hold a hearing to examine future sufficiency and stability of the Universal Service Fund. Location: Room 253, Russell Building.
11:30 AM. The Congressional Wireless Caucus will hold a press conference. The scheduled speakers include Sen. Sam Brownback (R-KS), Sen. Byron Dorgan (D-ND), Rep. Chip Pickering (R-MS), and Rep. Al Wynn (D-MD). Press contact: Kimberly Kuo at 202 736-3202 or Location: Rayburn Building Foyer.
12:30 PM. The Association of Federal Communications Consulting Engineers will hold a luncheon meeting. For reservations or more information, contact Noel Luddy at luddyen or 301 299-2270. The price to attend is $35. Location: Wyndham City Center Hotel, 1143 New Hampshire Ave., NW.
1:45 PM. The Senate Health, Education, Labor, and Pensions Committee will hold a hearing on proposed legislation authorizing funds for the National Science Foundation, focusing on math and science research, development, and education. Location: Room 430, Dirksen Building.
6:00 - 8:00 PM. The FCBA will host a Continuing Legal Education (CLE) program titled TELRIC at the Crossroads: The Supreme Court Decision in Verizon v. FCC. The scheduled panelists are Bradford Ramsay (General Counsel of the NARUC), Lawrence Sarjeant (SVP/GC of the USTA), and John Windhausen (President of the ALTS). Location: Capitol Hilton, 1001 16th St., NW.
7:00 - 8:00 PM. The National Press Club CyberCocktail Lecture Series will host an panel discussion titled The State of ePR. It will be followed by a cocktail reception at 8:00 - 9:30 PM. The participants will be Rod Kuckro (Bandwith), Lori Barnes (Public Relations Society of America), Mike Fulton (Golin Harris), Steve Ginsberg (Reuters), Mike McMearty (WTOP), Rick Rudman (Vocus), and Danny Selnick (PR Newswire). The price to attend for non members is $10. To make reservations, call 202 662-7501 or email lauraf Location: Ballroom, National Press Club, 529 14th St. NW, 13th Floor.
Day two of a four day conference titled "INET 2002: Internet Crossroads: Where Technology and Policy Intersect". See, conference information page. Location: Crystal Gateway Marriott, Arlington, VA. 
Thursday, June 20
The House will meet at 10:00 AM for legislative business.
The Supreme Court will return from recess.
8:00 AM - 4:00 PM. The NIST will host an event titled NIST Nanotechnology Open House. Location: NIST, Gaithersburg, MD.
9:30 AM. The Senate Governmental Affairs Committee will hold a hearing to examine the President's proposal to create a Department of Homeland Security.
1:00 PM. The FTC and others will hold a press conference to announce more than 50 law enforcement actions targeting business opportunity and work at home scams. The scheduled participants include Howard Beales (Director of the FTC's Bureau of Consumer Protection), Dale Cantone (Deputy Securities Commissioner of the State of Maryland), and Laura Flippin (Department of Justice). See, FTC release. Location: FTC, Room 432, 600 Pennsylvania Ave., NW.
2:00 PM. The House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property will hold an oversight hearing titled Patent Reexamination and Small Business Innovation. Webcast. Press contact: Jeff Lungren or Terry Shawn at 202 225-2492. Location: Room 2141, Rayburn Building.
Day three of a four day conference titled "INET 2002: Internet Crossroads: Where Technology and Policy Intersect". See, conference information page. Location: Crystal Gateway Marriott, Arlington, VA.
The FCC's Technological Advisory Council will hold a meeting. Location: FCC, 445 12th St., SW., Room TW-C305.
Friday, June 21
The House will meet at 9:00 AM for legislative business.
8:30 - 9:30 AM. The U.S. Chamber of Commerce will host a breakfast. The speaker will be Nick Calio, Assistant to the President for Legislative Affairs. Webcast. Location: 1615 H Street, NW.
9:00 AM. FTC Commissioner Mozelle Thompson will be the keynote speaker at the National Energy Marketers Association's Annual Membership Meeting. Location: Marriott Metro Center, 775 12th Street, NW.
? 9:30 AM. The Senate Judiciary Committee's Technology Subcommittee may hold a hearing on identity theft. Press contact: Mimi Devlin at 202 224-9437. Location: Room 226, Dirksen Building.
1:00 PM. The FCC will hold a meeting to receive input from industry and other affected parties on proposals to reform the FCC's universal service contribution methodology. See, notice [PDF]. Location: FCC, Room TW-C305, 445 12th Street, SW.
1:30 - 3:30 PM. The U.S. International Telecommunication Advisory Committee Telecommunication Advisory Committee Radiocommunication Sector (ITAC-R) will hold a meeting. The purpose of the Committee is to advise the Department of State on policy and technical issues with respect to the International Telecom. Union (ITU). This meeting will address activities of the Study Groups of the ITAC-R, preparations for the upcoming WRC-03 and guidelines for ITAC-R participation. See, notice in Federal Register. Location: Department of State, Room 1408.
Day four of a four day conference titled "INET 2002: Internet Crossroads: Where Technology and Policy Intersect". See, conference information page. Location: Crystal Gateway Marriott, Arlington, VA.
Saturday, June 22
10:00 AM - 5:00 PM. The Electronic Privacy Information Center (EPIC) and others will host an event titled "The Public Voice in Internet Policy Making". At 10:10, Paul Margie, Legal Advisor to FCC Commissioner Michael Copps will speak on "Privacy Challenges for Internet Users in Europe". Following Margie, Erika Mann, a Member of the European Parliament, will speak. See, agenda. RSVP to publicvoice02 For more information contact Sarah Andrews at andrews Location: Crystal Gateway Marriott, 1700 Jefferson Davis Highway, Arlington, VA.
Monday, June 24
10:00 AM - 1:00 PM. The FCC will hold an en banc hearing on broadcast and cable equal employment opportunity rules. Location: Room TW-C305, FCC, 445 12th Street, SW.
Day one of a two day conference hosted by the Computer & Communications Industry Association (CCIA)
titled "2002 Washington Caucus". The scheduled speakers include Glenn Hubbard (Council of Economic Advisors), Rep. Nancy Pelosi (D-CA), Sen. Chuck Hagel (R-NE), Mozelle Thompson (FTC), Bruce Mehlman (Technology Administration), Rep. Howard Berman (D-CA), and Rep. Zoe Lofgren (D-CA). See, CCIA notice. Location: Willard Hotel.