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July 17, 2002, 9:00 AM ET, Alert No. 471.
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House Subcommittee Approves Bill to Limit Business Activity Taxes
7/16. The House Judiciary Committee's Subcommittee on Commercial and Administrative Law amended and approved HR 2526, the Internet Tax Fairness Act of 2001. The Subcommittee first approved by a unanimous voice vote an amendment offered by Rep. Bob Barr (R-GA), the Chairman of the Subcommittee. It then approved by voice vote the bill as amended.
The bill is sponsored by Rep. Bob Goodlatte (R-VA), Rep. Rick Boucher (D-VA), and Rep. Chris Cox (R-CA). As introduced, the bill contained a short section permanently extending the Internet Tax Freedom Act (ITFA). The rest of the 11 page bill dealt with state and local business activity taxes (BATs).
Rep. Barr's amendment changes the title of the bill from the "Internet Tax Fairness Act of 2001" to the "Business Activity Modernization Act of 2002", and deletes Section 2 of the bill as introduced, which provided for a permanent extension of the Internet Tax Freedom Act (ITFA). The original ITFA was passed in 1998. It created a three year moratorium on multiple and discriminatory Internet taxes, and taxes on Internet access. The ITFA was temporarily extended last fall.
The remainder of the bill as introduced is unaffected by the amendment. The bill would limit the imposition of business activity taxes (BATs) on electronic and other interstate commerce by state and local taxing authorities. However, the bill does not address sales taxes.
The bill would prohibit several Internet related BATs, including taxes on "The use of the Internet to create or maintain a World Wide Web site accessible by persons" in the taxing jurisdiction. The bill would also prohibit BATs on the use of an ISP, on-line service provider, internetwork communication service provider, or other Internet access service provider, or web hosting service. It would also prohibit BATs on the "use of any service provider for transmission of communications, whether by cable, satellite, radio, telecommunications, or other similar system." Also, the bill would prohibit BATs based on the "presence or use of intangible personal property ... including patents, copyrights, trademarks, logos, ... electronic or digital signals, and web pages ..."
The bill provides that no state or local taxing authority may impose a BAT unless the taxed entity "has a substantial physical presence" in the jurisdiction. The bill further prohibits BATs on the leasing or owning of property in the jurisdiction for less than 30 days, and on the assigning of employees, representatives or agents in the jurisdiction for less than 30 days. Finally, the bill prohibits BATs based on contracts, licenses, permits, loans, deposits, and securities.
Rep. Barr stated at the hearing that the bill "would provide much needed clarity". He elaborated that "while the Supreme Court has established a physical presence threshold for the collection of sales taxes, it has not fully articulated a fully coherent basis for determining when a non resident business enterprise has a sufficient economic presence to justify the imposition of business activity taxes."
He added that "Some states have aggressively used this uncertainty to aggressively assess and collect taxes on multi state corporations that have virtually no contact or connection with the taxing state." Moreover, said Rep. Barr, "While large corporations are often prepared to defend themselves against these sometimes spurious claims, small businesses, particularly those which use the Internet to reach out to the national market place, sometimes accept tenuous tax claims simply to avoid costly litigation expenses."
He concluded that "HR 2526 would reduce this vulnerability by establishing a bright line physical presence requirement for states and localities as a prerequisite to collect business activity taxes on interstate enterprises."
Finally, he said that the "extension of the Internet tax moratorium last year obviates the need for revisiting the Internet tax question at this time."
Rep. Darrell Issa (R-CA) also spoke in favor of the bill. He stated that "often the Internet -- we act like it is something new -- and every problem we face is something new. The fact is, the Internet is facing the same problem that small multi state businesses have faced for a long time. This legislation is a good start at looking at problems of operations in one state, relatively small presence in another state, one in which they have few, if any employees, no substantial capital investments of any sort, and yet the taxing authorities would like to have them and their accountants spend tens of thousands of dollars on paperwork in the hopes that they will get a piece of whatever profit that company has."
Rep. Mel Watt (D-NC) spoke in opposition to the bill. He said that "I think the impact of this bill is going to be substantial. I think this is going to present real problems for state and local governments and taxing authorities." He said that many state and local governments face revenue shortfalls, and "this bill will increase those shortfalls".
The Software and Information Industry Association (SIIA) supports the bill. SIIA President Ken Wasch stated in a release that "We are pleased to see this critical step today towards establishing 'bright line' nexus standards for business activity taxes. Such clarification is extremely necessary in our digital economy to eliminate the potential for double taxation and uncertainty among businesses."
Appeals Court Upholds GLB Rules in Trans Union v. FTC
7/16. The U.S. Court of Appeals (DCCir) issued its opinion in Trans Union v. FTC, rejecting a challenge to the Federal Trade Commission's (FTC) rules implementing the privacy provisions of the Gramm Leach Bliley (GLB) Act.
Trans Union is a credit reporting agency (CRA) within the meaning of the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681, et seq. It filed a complaint in the U.S. District Court (DC) against the FTC challenging the regulations promulgated by the FTC and other federal agencies to implement the privacy provisions of the GLB Act, 12 U.S.C. §§ 6801, et seq. The District Court upheld the FTC's regulations. Trans Union appealed.
The Court of Appeals wrote that Trans Union argued that "the regulations unlawfully restrict a CRA's ability to disclose and reuse certain consumer information because (1) a CRA is not a "financial institution" subject to the FTC's rulemaking authority under the GLBA; (2) the regulations' definition of the statutory term ``personally identifiable financial information´´ (PIFI) is overbroad; (3) the regulations' restrictions on reuse of information are inconsistent with the GLBA; and (4) the challenged regulations infringe Trans Union's right of free speech under the First Amendment to the United States Constitution." The Appeals Court rejected these arguments, and affirmed the District Court.
Appeals Court Rules Iowa Communications Network Eligible for Universal Service
7/16. The U.S. Court of Appeals (DCCir) issued its opinion in USTA v. FCC, denying a petition for review of a Federal Communications Commission (FCC) order finding that the Iowa Communications Network (ICN) is a common carrier eligible for universal service subsidies.
The petitioner is the U.S. Telecom Association (USTA), a group that represents local exchange carriers, which are traditional recipients of universal services subsidies pursuant to 47 U.S.C. § 254. The ICN is a state agency that provides subsidized high speed telecommunications services in the state of Iowa, especially in areas inadequately covered by local exchange carriers. It administers a statewide fiber optics network.
The Court of Appeals first examined at length whether the USTA has standing to challenge this order. It concluded that it does. The Court then addressed the FCC's determination that the ICN is a common carrier eligible for universal service subsidies. It concluded that it is.
District Court Issues Injunction Order in Washington Post v. Gator
7/16. The U.S. District Court (EDVa) issued its Order in Washington Post v. Gator granting plaintiffs' motion for a preliminary injunction. The order bars the Gator Corporation from causing it pop-up ads to be displayed on any web site owned by or affiliated with the plaintiffs, including the Washington Post, New York Times, Boston Globe, Chicago Tribune, LA Times, and Wall Street Journal.
The Washington Post, and other major news publishers with web sites, allege web based trademark infringement, copyright infringement, and related claims in their complaint [99 pages in PDF] and motion for preliminary injunction. (See, Memorandum in Support of Plaintiffs' Motion for Preliminary Injunction [35 pages in PDF]). The Court heard oral argument on the motion on Friday, July 12.
The Court enjoined Gator from the following acts:
"1. Causing it pop-up advertisements to be displayed on any website owned by or affiliated with the Plaintiffs without the express consent of the Plaintiffs;
2. Altering or modifying, or causing any other entity to alter or modify, any part of a any website owned by or affiliated with the Plaintiffs, in any way, including its appearance or how it is displayed;
3. Infringing, or causing any other entity to infringe Plaintiffs' copyrights;
4. Making any designations of origin, descriptions, representations or suggestions that Plaintiffs are the source, sponsor or in any way affiliated with Defendant's advertisers on their web sites, services and products, and;
5. Infringing, or causing any other entity to infringe, Plaintiffs' trademark and/or other service mark rights"
The complaint states that Gator is "a parasite on the Web that free rides on the hard work and investments of Plaintiffs and other website owners. Gator makes money by placing advertisements for third parties on the Plaintiffs' websites without Plaintiffs' authorization."
People and Appointments
7/16. The Senate Commerce Committee approved the nomination of Jonathan Adelstein to be a Commissioner of the Federal Communications Commission (FCC).
7/16. Christopher Libertelli was named Legal Advisor to Federal Communications Commission (FCC) Chairman Michael Powell for wireline competition related matters. He went to work for the FCC in 1999. Before that, he was an associate with the law firm of Dow Lohnes & Albertson. See, FCC release [PDF].
7/16. Kyle Dixon was named Deputy Bureau Chief of the Federal Communications Commission's (FCC) Media Bureau, and Special Counsel to FCC Chairman Michael Powell for broadband policy. He was previously Legal Advisor to Powell on common carrier and broadband issues. Before he went to work for the FCC he worked for the law firm of Hogan & Hartson. See, FCC release [PDF].
7/16. Simon Wilkie was named Chief Economist of the Federal Communications Commission (FCC). He replaces David Sappington, who returned to the Department of Economics at the University of Florida. Wilkie is an economics professor at the California Institute of Technology. He has also taught at Columbia and the University of Rochester, where he received his doctorate. He also worked as a post doctoral fellow at Bell Communications Research (BellCore). He applies game theory to telecommunications. See, FCC release. [PDF].
7/17. President Bush formally nominated Roel Campos to be a Commissioner of the Securities and Exchange Commission (SEC) for a term expiring on June 5, 2005. Bush announced that he would nominate Campos, a radio company owner and former assistant U.S. Attorney, back in May. See, White House release.
Senate Subcommittee Holds Hearing on FBI's Antiquated Computers
7/16. The Senate Judiciary Committee's Subcommittee on Administrative Oversight and the Courts held a hearing to examine the Federal Bureau of Investigation's (FBI) computer problems. Sen. Charles Schumer (D-NY), the Chairman of the Subcommittee, presided. The only witness was Sherry Higgins, Project Management Executive in the Office of the Director of the FBI. She testified that the FBI has a three year plan to update its equipment, networking and database access.
Higgins, who went to work for the FBI four months ago, stated in her prepared testimony that the FBI has "antiquated computer workstations". For example, she stated that in the case of the FBI's investigative information system, "users navigate with the function keys instead of the point and click method common to web based applications. Simple tasks, such as storing an electronic version of a document today, require a user to perform twelve separate functions ..."
Sen. Schumer also pointed out that the FBI has five major investigative databases, but that they are not connected. He added that "If an agency cannot coordinate information and make it easily accessible, the entire house of cards will fall. We all felt the effects of this scenario on September 11. I pray to God we never feel it again, but if we don't fix our communications and technological woes, we could."
Sen. Jeff Sessions (R-AL) expressed concerns about the costs of the upgrade, and the security of the FBI's computer systems in light of the Robert Hanssen case.
Higgins testified that the FBI has a plan. It intends to acquire new workstation computers. It will also obtain printers and scanners. The FBI will upgrade to a point and click graphical unit interface. Moreover, its computers will have "Microsoft Office applications". They will also be networked. Moreover, the FBI plans to enable the searching of its multiple investigative databases with a single query.
Higgins stated that the upgrade will take 36 months. She described this as "our aggressive deployment schedule".
Sen. Schumer described the FBI's deployment schedule as "unacceptable". Furthermore, he stated that "I'd like to propose the idea of forming an advisory group made up of representatives from the private sector to work with the FBI on their technology development."
Sen. Schumer also discussed appropriations. He said that Congress appropriated $223 Million for FY01 for the FBI's Information Management, Automation and Telecommunications (IMAT). It appropriated $507 Million for FY02. He also said that the Senate Appropriations Committee has recommended a supplemental appropriation of $30 Million for FY02. Moreover, he said, the FBI has requested an increase of $48 Million for FY03, to $555 Million.
The President's proposed budget [PDF] for FY03 for the Department of Justice for FY03 estimates that there will be 25,464 full time equivalent employees at the FBI. $555 Million, divided by 25,464 employees, comes to $21,795 per employee per year for information technology.
Greenspan Addresses Tech Sector
7/16. Federal Reserve Board Chairman Alan Greenspan appeared before the Senate Banking Committee to present the Federal Reserve's Monetary Policy Report to the Congress. Both the report, and his prepared testimony address the technology sector.
He first addressed the general economic situation in his prepared testimony. He stated that "Over the four and one half months since I last testified before this Committee on monetary policy, the economy has continued to expand, largely along the broad contours we had anticipated at that time. Although the uncertainties of earlier this year are as yet not fully resolved, the U.S. economy appears to have withstood a set of blows -- major declines in equity markets, a sharp retrenchment in investment spending, and the tragic terrorist attacks of last September -- that in previous business cycles almost surely would have induced a severe contraction. The mildness and brevity of the downturn, as I indicated earlier this year, are a testament to the notable improvement in the resilience and flexibility of the U.S. economy."
He also focused on technology. He said that "business spending has been depressed. The recent economic downturn was driven, in large measure, by the sharp falloff in the demand for capital goods that occurred when firms suddenly realized that stocks of such goods -- both those already in place as well as those in inventory -- were excessive. The resulting declines in the production of capital goods were particularly sizable in the high tech sector. Monthly shipments of computers and peripherals, for example, fell by about 40 percent from their peak in 1999 through their trough in 2001. Sales by communications equipment producers slumped just as sharply.
He added that "The collapse of many Internet firms and the difficulties of the high tech sector more generally led to a significant drop in the demand for office space that was exacerbated as the economic slowdown widened beyond the tech sector."
The Monetary Policy Report states that "Real business spending on equipment and software (E&S) was little changed in the first quarter after having dropped sharply last year. In the high tech category, real expenditures moved up in the first quarter after a double digit decline in 2001. Outlays for computers posted large gains in inflation adjusted terms in both the fourth and first quarters; many businesses apparently postponed computer replacement over much of last year but now seem to be taking advantage of ongoing technological progress and the associated large declines in prices. In contrast, real expenditures for communications equipment were little changed in the first quarter after having plunged by one third during 2001. Excess capacity in the provision of telecom services is continuing to weigh heavily on the demand for communications equipment. Business outlays for software edged down in real terms in the first quarter."
The report also states that "While exports of computers continued to fall, exports of semiconductors rose for the first time in nearly two years." Finally, it states that "Business outlays for software edged down in real terms in the first quarter."
Copyright Office Notice
7/16. The Copyright Office published a notice in the Federal Register directing "all claimants to royalty fees collected in 1999, 2000 and 2001 for the distribution of digital audio recording devices and media to submit comments as to whether a controversy exists as to the distribution of the royalty fees in the 1999, 2000 and 2001 Musical Works Funds." Comments and notices of intention to participate are due by September 16, 2002. See, Federal Register, July 16, 2002, Vol. 67, No. 136, at Pages 46698 - 46699.
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Wednesday, July 17
The House will meet at 10:00 AM for legislative business.
9:00 AM. The Congressional Internet Caucus Advisory Committee, Transatlantic Policy Network (TPN), and European Internet Foundation (EIF) will host two roundtable discussions on intellectual property (9:00 AM) and broadband (10:00 AM). The panelists include members of the European parliament. Location: Reserve Officers Association, 1st and Constitution, NE.
9:30 AM. The Senate Commerce Committee will hold a hearing on legislation to authorize funding for the FTC. FTC Commissioners Timothy Muris, Mozelle Thompson, Sheila Anthony, Orson Swindle, and Thomas Leary will testify. Location: Room 253, Russell Building.
10:00 AM. Federal Reserve Board Chairman Alan Greenspan will testify before the House Financial Services Committee. He will deliver his semi annual report on monetary policy. See, notice. Location: Room 2128, Rayburn Building.
10:00 AM. The House Judiciary Committee will meet to mark up several bills, including S 487, the Technology, Education, and Copyright Harmonization Act of 2001 (TEACH Act). Webcast. Press contact: Jeff Lungren or Terry Shawn at 202 225-2492. Location: Room 2141, Rayburn Building.
12:00 NOON. The Congressional Internet Caucus Advisory Committee will host a luncheon. The scheduled speakers include Richard Clarke (Special Advisor to the President for Cyberspace Security) and Kathleen Abernathy (FCC Commissioner). An RSVP is required to attend. Contact either rsvp or call Danielle at 202 638-4370. Location: Reserve Officers Association, 1st and Constitution, NE.
1:00 - 4:00 PM. The Department of Commerce's (DOC) Technology Administration will host a workshop on digital entertainment and its availability to consumers. Phil Bond (Under Secretary of Commerce for Technology) and James Rogan (Director of the USPTO) will co-host the event. For more information, contact Chris Israel, Deputy Assistant Secretary for Technology Policy, at 202 482-5687. See, notice in the Federal Register. Location: Room 4830, Hoover Building, 1401 Constitution Ave., NW.
3:00 PM. FTC Chairman Timothy Muris will hold a press availability to "discuss a three day public workshop that will explore the potential anticompetitive effects on e-commerce of certain state regulations, and how certain e-commerce business practices may raise antitrust concerns". See, FTC notice. Reporters may participate by telephone conference (call 1 800 720-5830, Chairperson Bruce Jennings, Confirmation #13029107). Location: FTC, Room 481, 600 Pennsylvania Ave., NW.
Extended deadline to submit reply comments to the FCC in response to its notice of proposed rulemaking regarding its unbundling analysis under § 251 of the Communications Act and the identification of specific unbundling requirements for incumbent local exchange carriers. See, May 29 order [PDF] extending deadline from June 5 to July 17. See also, notice in the Federal Register. This is CC Docket No. 01-338.
Thursday, July 18
The House will meet at 10:00 AM for legislative business.
9:30 AM. The House Commerce Committee's Subcommittee on Commerce, Trade, and Consumer Protection will hold a hearing titled "Are All Online Travel Sites Good for the Consumer: An Examination of Supplier Owned Online Travel Sites". See, notice. Webcast. Press contact: Ken Johnson or Jon Tripp at 202 225-5735. Location: Room 2123, Rayburn Building.
9:30 AM. The Senate Special Committee on Aging will hold a hearing on identify theft. Howard Beales, Director of the FTC's Bureau of Consumer Protection, will testify. Location: Room 628, Dirksen Building.
10:00 AM. The House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property will hold an oversight hearing titled "The U.S. Patent and Trademark Office: Fee Schedule Adjustment and Agency Reform". Location: Room 2141, Rayburn Building.
10:00 AM. The Senate Judiciary Committee will hold an executive business meeting. The agenda includes S 2395, a bill regarding counterfeiting and copyright piracy. See, amendment in the nature of a substitute released on July 11. Press contact: Mimi Devlin at 202 224-9437. Location: Room 226, Dirksen Building.
10:00 AM. The Senate Banking Committee will hold a hearing on the nominations of Paul Atkins and Harvey Goldschmid to be Commissioners of the SEC. See, notice. Location: Room 538, Dirksen Building.
12:00 NOON - 2:00 PM. The National Youth Science Camp (NYSC) and Entrust, Inc. will host a luncheon and panel discussion titled the "Role of Technology in Establishing Homeland Security". Former NATO Commander General Wesley Clark and Sen. Robert Byrd (D-WV) are scheduled to deliver the keynote addresses. Lunch will be served. Interested media should RSVP by contacting Caroline Dietz at 202 715-1532 or caroline.dietz Location: Room 325 (Senate Caucus Room), Russell Building.
2:00 PM. The Senate Judiciary Committee will hold a hearing on pending nominations. Press contact: Mimi Devlin at 202 224-9437. Location: Room 226, Dirksen Building.
2:00 PM. The Senate Appropriations Committee's Subcommittee on Commerce, Justice, State, and the Judiciary will meet to mark up several appropriations bills, including that for the Departments of Commerce, Justice, and State, the Judiciary, and related agencies. Location: Room S-128, Capitol Building.
2:30 PM. The Senate Commerce Committee will hold a hearing on the nominations of Kathie Olsen and Richard Russell to be Associate Directors of the Office of Science and Technology Policy. Press contact: Andy Davis at 202 224-6654. Location: Room 253, Russell Building.
5:00 PM. Hearing before the U.S. District Court (DC) in EPIC v. Department of Defense, a Freedom of Information Act case. This hearing concerns whether the DOD can charge the EPIC fees. This is Case Number 02-1233. Location: 333 Constitution Ave., NW.
Deadline to submit comments to the FCC in response to its request for comments on the FCC's Office of Plans and Policy's (OPP) Working Paper No. 35 [PDF], titled "Horizontal Concentration in the Cable Television Industry: An Experimental Analysis" authored by Mark Bykowsky, Anthony Kwasnica and William Sharkey. See, Public Notice [PDF].
Friday, July 19
The House will meet at 9:00 AM for legislative business. No votes expected after 6:00 PM.
12:30 PM. SEC Chairman Harvey Pitt will give a luncheon speech. Location: Ballroom, National Press Club, 529 14th St. NW, 13th Floor.
Deadline to submit applications to the Department of Education for Community Technology Centers Program grants for Fiscal Year 2002 to create or expand community technology centers that will provide disadvantaged residents of economically distressed urban and rural communities with access to information technology and related training. See, notice in the Federal Register.
Deadline to submit comments to the State Department regarding the effects of the privatization of Inmarsat and INTELSAT on U.S. industry, jobs, and industry access to the to the global marketplace. See, notice in the Federal Register.
Monday, July 22
Day one of a two day seminar hosted by the American Intellectual Property Law Association on the Patent Cooperation Treaty. See, online brochure [PDF]. Location: Crystal Gateway Marriott, Arlington, VA.
2:00 - 4:00 PM. The FCC's Advisory Committee for the 2003 World Radiocommunication Conference (WRC-03 Advisory Committee) will hold a meeting. See, notice in Federal Register. Location: FCC, 6th Floor South Conference Room (6-B516), 445 12th Street, SW.
Deadline to submit comments to the FCC in response to its Notice of Proposed Rule Making "regarding the sunset of the statutory requirements under section 272 imposed on Bell Operating Companies (BOCs) when they provide in-region, interLATA services and seeks comment on whether, and if so, under what conditions, the structural and nondiscrimination safeguards established in section 272 should be extended by the Commission either generally or with respect to specific states." See, notice in the Federal Register.
Tuesday, July 23
11:00 AM. The Cato Institute will host a panel discussion titled "Who Rules the Root? ICANN, Domain Names, and the Battle over Internet Governance". The scheduled speakers are Milton Mueller (author of Ruling the Root: Internet Governance and the Taming of Cyberspace), Ira Magaziner (SJS Advisors), Michael Roberts (The Darwin Group), and Harold Feld (Media Access Project). Lunch will follow. See, Cato notice. Location: 1000 Massachusetts Avenue, NW.
Deadline to file reply comments with the Federal Communications Commission's (FCC) Spectrum Policy Task Force in response to its request for comments on spectrum policy, including taking steps toward market oriented allocation and assignment policies, interference, efficient use of spectrum, public safety communications, and international issues. See, Public Notice [PDF].
Day two of a two day seminar hosted by the American Intellectual Property Law Association on the Patent Cooperation Treaty. See, online brochure [PDF]. Location: Crystal Gateway Marriott, Arlington, VA.