Tech Law Journal Daily E-Mail Alert
October 11, 2002, 9:00 AM ET, Alert No. 528.
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FCC Declines to Approve EchoStar DirectTV Merger
10/10. The Federal Communications Commission (FCC) announced that it has "declined to approve the transfer of licenses from EchoStar Communications Corporation and Hughes Electronics Corporation, a subsidiary of General Motors Corporation, to a new entity". EchoStar and Hughes both provide direct broadcast satellite (DBS) service via their Dish Network and DirecTV. See, FCC release [MS Word].
The FCC also announced that it has issued an order "designating the application for a full evidentiary hearing before an Administrative Law Judge". However, the order allows the parties 30 days to amend their application to include major revisions designed to address the anti- competitive impact of their proposed merger.
The FCC's decision departs from its recent pattern in license transfer proceedings associated with major mergers. First, in this case, the FCC reached its decision before the Department of Justice's Antitrust Division reached its decision in its antitrust merger review proceeding. Second, the FCC declined to approve the transaction, and all but rejected the idea that the transaction could be revised or restructured. The FCC has more often approved transactions, after extracting changes in the terms, and imposing continuing obligations on the merged entity.
One winner in today's decision may be News Corp., which now has another shot at acquiring DirecTV.
All four FCC Commissioners supported the decision. All four released separate statements. Chairman Michael Powell wrote in his statement [MS Word] that "The combination of EchoStar and DirecTV would have us replace a vibrant competitive market with a regulated monopoly. This flies in the face of three decades of communications policy that has sought ways to eliminate the need for regulation by fostering greater competition."
Michael PowellPowell (at right) added that "The record before us irrefutably demonstrates that the proposed merger would eliminate an existing viable competitor in every market in the country. The case against approving the transfer application is particularly compelling with respect to residents of rural America who are not served by any cable operator. Those Americans would be left with only one choice for their subscription video service, now and in the foreseeable future. But that alone is not the cornerstone of our decision. At best, this merger would create a duopoly in areas served by cable; at worst it would create a merger to monopoly in unserved areas."
Commissioner Kathleen Abernathy wrote in her statement [MS Word] that "this proposed merger will likely harm consumers by eliminating a viable competitor in every market, driving up prices, and decreasing innovation and quality of service."
Commissioner Michael Copps wrote in his statement [MS Word] that "it would be an enormous risk to approve a transaction that results, at best, in the merger of a duopoly into a monopoly in a critical sector of multi channel video programming."
Commissioner Kevin Martin wrote in his statement [MS Word] that "I believe EchoStar currently is violating the must carry provisions of the Satellite Home Viewer Improvement Act (``SHVIA´´) and FCC rules by placing some broadcasters' signals on a second dish. I continue to be concerned about the burden this practice places on consumers and the impact this discrimination may have on some broadcasters -- particularly public broadcasters. I therefore dissent in part, on the majority's decision not to include EchoStar’s compliance with its must carry obligations among those issues designated for hearing."
Consumer Groups' Reactions. Two consumer groups offered criticism of the decision. Gene Kimmelman of the Consumers Union stated in a release that "this merger could have been structured in a way that actually helped consumers by making satellite TV a legitimate competitor to cable TV. Cable companies have a monopolistic grip on the vast majority of communities in America. Satellite companies haven't been able to compete head to head with cable because they cannot offer local TV channels in many places."
He continued that "The combination of EchoStar and DirecTV would have freed up enough spectrum for the merged company to offer local channels across the country. The FCC could have required the company to meet this goal. Satellite could have posed a serious threat to cable monopolies under the proper conditions. But the FCC today opted for the more narrow minded route and voted to block the merger. It's hard to understand how the FCC thinks that it's helping consumers by blocking, rather than restructuring, this deal. It was bad enough for consumers when Congress deregulated cable monopolies and allowed rates to skyrocket. But for regulators and antitrust officials to hinder efforts to make satellite more competitive with cable simply adds insult to injury."
Similarly, Mark Cooper of the Consumer Federation of America stated that "Yet again the Bush Administration votes in favor of monopolies. Today, the FCC rejected the merger of satellite competitors EchoStar and DirectTV while the Justice Department has failed to block the AT&T Comcast cable merger. The Administration lets cable monopolies flourish while it crushes potential competition from satellite. Even the Wall Street Journal today recognized that in order for satellite to compete with cable it needed more capacity and a bigger marketplace. What these decisions do is tip the scales in favor of the cable monopolies that will continue to raise basic cable rates and high speed Internet charges all to the detriment of consumers."
Satellite Broadband. The parties to the merger had argued that the merger was necessary to upgrade facilities to provide high speed Internet access service via satellite. They further argued that this broadband service could compete with wireline broadband providers, and in some rural areas, be the only provider of broadband services. One argument was that they needed to pool their spectrum to be able to provide broadband service.
However, the FCC rejected this argument. It wrote in its press release that "Competition to cable modem and DSL products from satellite providers would be a significant advance, but the claimed efficiency benefit here is weaker than in the MVPD market. There is no spectral efficiency gain because each broadband customer uses additional spectrum, regardless of the number of providers. The companies have failed to substantiate that their claimed broadband benefit was likely to occur or that the merger was necessary to achieve it."
Another argument advanced by the parties to the merger was that neither alone could attract the capital necessary to launch this new broadband service.
FCC Adopts Technology for Digital AM/FM Broadcasting
10/10. The Federal Communications Commission (FCC) announced, but did not release, a First Report and Order regarding digital AM/FM broadcasting. The FCC issued a press release [MS Word] in which it stated that it "selected in-band, on-channel (IBOC) as the technology" to be used by AM and FM broadcasters for digital broadcastings. This is MM Docket No. 99-325.
FCC Commissioners Kathleen Abernathy and Kevin Martin said in a joint statement [MS Word] that "We commend the work of the industry for developing a model that will not require allocation of additional spectrum and will allow for an efficient transition to digital radio, during which time consumers will be able to receive their current services without disruption."
FCC Commissioner Michael Copps wrote in his separate statement [MS Word] that "Digital radio presents a tremendous opportunity for terrestrial radio broadcasters to compete with new technologies. It holds forth the promise of better quality sound -- CD quality for FM, and FM quality for AM -- which will enhance audio service generally and may well reanimate AM radio. But that's just for starters. Going beyond sound quality there will be multiple broadcaster opportunities in the provision of new auxiliary services, such as multiple audio programming channels, audio on demand services, and interactive features, too."
Commerce Secretary Evans Writes Powell Re Auction 35
10/10. Secretary of Commerce Donald Evans wrote a letter to Federal Communications Commission (FCC) Chairman Michael Powell requesting that the FCC grant relief to the winning bidders in Auction 35. This is the FCC's re-auction of spectrum previously auctioned to NextWave, and now tied up by litigation.
He wrote that "On behalf of the Administration, I would like to commend the Commission for reexamining its position on providing relief to the winning bidders of Auction No. 35. The Commission's decision is a step in the right direction toward revitalizing the Nation's telecommunications industry. In light of the current condition of the industry and the extraordinary circumstances presented by Auction No. 35, I would urge the Commission to take the next important step by granting relief to the winning bidders as swiftly as possible."
He continued that "Over the last decade, the telecommunications industry, and particularly the explosive growth of the wireless sector, brought new services to consumers, increased productivity, and helped drive our economic prosperity. More recently, mounting debt loads and constricted capital markets have slowed the industry's progress."
Evans concluded that "Quick Commission action to grant relief from Auction No. 35, however, would bring much needed stability to the wireless sector and would allow the sector to focus its resources on meeting the needs of consumers. By restoring certainty, the Commission can lay the foundation for renewed investment, innovation, and job producing growth, both in the telecommunications industry and in the economy as a whole."
On October 8 the Cellular Telecommunications and Internet Association (CTIA) submitted a comment [10 pages in PDF] to the FCC in which it argued that "the wireless telecommunications industry, along with the rest of the telecommunications industry, is currently facing a capital crisis that threatens thousands of jobs and the ability of telecommunications carriers to continue investment in new infrastructure. By allowing Auction 35 winning bidders maximum flexibility to decide whether to request voluntary dismissal of pending applications, allowing a full refund of applicable deposits and granting a full release from contingent liabilities that encumber billions of dollars of wireless assets, the Commission can inject new liquidity into the wireless telecommunications industry that will foster capital development, job creation and better service for consumers."
Movie and Music Industry Write to Universities About P2P Piracy
10/10. Leaders of several entertainment content groups wrote letters [4 pages in PDF] on October 3 to 2,300 colleges and universities complaining about peer to peer based copyright infringement.
The letters state that "We are concerned that an increasing and significant number of students are using university networks to engage in online piracy of copyrighted creative works. The educational purpose for which these networks were built is demeaned by such illegal behavior and is inconsistent with the ethical principles underlying the university community."
The letters continue that "The students and other users of your school's network who upload and download infringing copyrighted works without permission of the owners are violating Federal copyright law. ``Theft´´ is a harsh word, but that it is, pure and simple. As Deputy Assistant Attorney General John Malcolm recently stated, ``Stealing is stealing is stealing, whether it's done with sleight of hand by sticking something in a pocket or it’s done with the click of a mouse.´´ It is no different from walking into the campus bookstore and in a clandestine manner walking out with a textbook without paying for it." See, Malcolm speech of August 20, 2002.
The letters were signed by Hillary Rosen of the Recording Industry Association of America (RIAA), Jack Valenti of the Motion Picture Association of America (MPAA), Edward Murphy of the National Music Publishers' Association (NMPA), and Rick Carnes of the The Songwriters Guild of America.
See also, letters [3 pages in PDF] of October 8 to colleges and universities from David Ward of the American Council on Education, Nils Hasselmo of the Association of American Universities, David Warren of the National Association Independent Colleges and Universities, George Boggs of the American Association of Community Colleges, Constantine Curris of the American Association of State Colleges and Universities, and Peter Magrath of the National Association of State Universities and Land Grant Colleges. See also, RIAA release.
USTR Seeks Comments Re Special 301 Identifications
10/10. The Office of the U.S. Trade Representative (USTR) published a notice in the Federal Register that requests written comments from the public concerning two matters. First, the USTR requests comments regarding the acts, policies, and practices of trading partners of the U.S. that are relevant to the decision as to whether they should be identified under Section 182 of the Trade Act of 1974 (19 U.S.C. § 2242).
Section 182, which is commonly referred to as the "Special 301" provisions in the Trade Act, requires the USTR to identify 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.
Second, the USTR requests comments on the U.S. Government's 1998 Memorandum of Understanding with Paraguay on intellectual property matters, including enforcement.
The deadline to submit comments is 12:00 NOON on Wednesday, October 30, 2002. See, Federal Register, October 10, 2002, Vol. 67, No. 197, at Pages 63186 - 63187.
SEC Files Complaint Against Lernout & Hauspie
10/10. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (DC) against Lernout & Hauspie Speech Products N.V. alleging that it "engaged in a variety of undisclosed and deceptive transactions to inflate L&H's reported income and, consequently, the price of its stock", in violation of federal securities laws.
The complaint alleges violation of § 17(a) of the Securities Act, § 10(b) of the Exchange Act, § 13(a) of the Exchange Act, and §§ 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.
SEC Files Another WorldCom Complaint
10/10. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (SDNY) against Betty Vinson and Troy Normand, both former accountants for WorldCom, alleging that they participated in a fraud that inflated the company's earnings at the direction and with the knowledge of WorldCom's senior management, in violation of federal securities laws.
The complaint alleges violation of the antifraud, books and records, and internal controls provisions, § 17(a) of the Securities Act of 1933, §§ 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5 and 13b2-1 thereunder. The complaint also alleges aiding and abetting WorldCom's violations of the periodic reporting, books and records, and internal controls provisions, pursuant to §§ 13(a) and 13(b)(2)(A) & (B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder.
The U.S. Attorneys Office (SDNY) had previously brought criminal charges against the two. On October 10, they plead guilty to criminal charges. See, SEC release.
People and Appointments
10/10. President Bush announced his nomination of four persons to be judges of U.S. District Courts: Thomas Varlan (EDTenn), Cormac Carney (CDCal), Daniel Breen (WDTenn), and John Adams (NDOhio). See, White House release.
10/10. Christopher Padilla was named Assistant U.S. Trade Representative (USTR) for Intergovernmental Affairs and Public Liaison. He has previously worked for Eastman Kodak Company, Lucent Technologies, and AT&T. See, USTR release.
10/10. Margaret Greene, President of Regulatory & External Affairs at BellSouth, is the new Chair of the U.S. Telecom Association's (USTA) Board of Directors. See, BellSouth release.
More News
10/10. The House Judiciary Committee's Subcommittee on Commercial and Administrative Law postponed its meeting to mark up HR 5429, the Satellite Services Act of 2002.
10/10. The Federal Communication Commission (FCC) published a notice in the Federal Register stating that it has postponed Auction No. 46, currently scheduled for October 30, 2002, to April 30, 2003. This is for one nationwide 5 megahertz license in the 1670 - 1675 MHz band. The FCC stated that "This postponement is necessary to provide additional time for bidder preparation and planning." See, Federal Register, October 10, 2002, Vol. 67, No. 197, at Pages 63095 - 63096. ArrayComm requested the postponement. The FCC previously announced this postponement by a public notice [PDF] on September 25, 2002.
10/10. The U.S. District Court (EDTex) held that Intel's Itanium chip infringe's patents held by Intergraph.
10/10. The House approved HJRes 114, which authorizes the use of force against Iraq, on a roll call vote of 296-133. See, Roll Call No. 455. The Senate has yet to pass the resolution. The House also passed the conference report on HR 5010, the defense appropriations bill, by a vote of 409-14. See, Roll Call No. 457. It also passed HR 5011, the military construction bill, by a vote of 419-0. See, Roll Call No. 458. However, the House and Senate have yet to pass most appropriation bills. The House passed HJRes 122, another continuing resolution to keep the government running, by a vote of 272-144. See, Roll Call No. 461. The Senate also passed it by unanimous consent.
Friday, October 11
The House will meet at 10:00 AM for legislative business.
Day two of a two day Annual Update Conference on Export Controls and Policy hosted by the Department of Commerce's Bureau of Industry and Security (BIS). See, agenda. Location: to be announced.
Deadline to submit comments to the FCC in response to it Public Notice [7 pages in PDF] regarding relief for the Auction No. 35 winners. The FCC asks for public comments regarding two possible scenarios for providing relief to the winning bidders in the January 2001 re-auction of spectrum previously auctioned to NextWave: full refund and option to dismiss all pending applications, and selective opt out for pending applications. See also, notice in Federal Register.
Monday, October 14
Columbus Day. The FCC will be closed. The National Press Club will be closed.
Tuesday, October 15
9:00 AM - 12:00 NOON. The U.S. Patent and Trademark Office's (USPTO) Technology Center 2800 will hold a Semiconductor Customer Partnership Meeting to discuss the quality and timeliness of the examination process. (2800 pertains to semiconductors, electrical and optical systems and components.) RSVP to Tom Thomas at tom.thomas or 703 308-2772. See, USPTO notice. Location: Crystal Park 1, Suite 819, 2011 Crystal Drive, Arlington, Virginia.
12:00 NOON. James Rogan (Under Secretary of Commerce for Intellectual Property and Director of the USPTO) will give an address titled "Reaffirming Intellectual Property Rights in an Information Age". See, notice. Press contact: Brigid Quinn at brigid.quinn or 703 305-8341. Location: Heritage Foundation, 214 Massachusetts Ave., NE.
Day one of a two day conference of the Association Internationale pour la Protection de la Propriété Intellectuelle (AIPPI) titled "How to be Successful with Patent and Trademark Litigation: Europe and the Far East". The agenda includes a business meeting (1:00 - 1:30 PM), a CLE seminar (1:30 - 5:00 PM), and a reception (5:00 - 6:30 PM). Location: Faculty Conference Room, Burns Building, 5th Floor, GWU Law School, 716 20th Street, NW.
Deadline to submit comments to the FCC in response to Qwest Communications' Section 271 application to provide in region interLATA service in the states of Colorado, Idaho, Iowa, Montana, Nebraska, North Dakota, Utah, Washington and Wyoming. This is WC Docket No. 02-314. See, FCC release [PDF].
Wednesday, October 16
9:00 AM - 4:00 PM. The FCC will host a day long conference on rights of way management issues. See, FCC notice [PDF]. For more information contact Kris Monteith or Gene Fullano at 202 418-1400, kmonteit or gfullano Audio web cast. Location: FCC, Commission Meeting Room, 445 12th Street, SW.
10:00 AM. The Senate Appropriations Committee's Treasury and General Government Subcommittee will hold a hearings on U.S. companies' moving their headquarters offshore. Location: Room 192, Dirksen Building.
11:00 AM - 12:00 NOON. James Rogan (Director of the USPTO) and Richard Russell (Associate Director for Technology of the White House Office of Science and Technology Policy) will lead a roundtable discussion on the future of innovation with 37 leading inventors, including Steve Wozniak (computers), Donald Keck and Peter Schulz (fiber optics), and Doug Englebart (mouse). See, list of participants. Press contact: Brigid Quinn at brigid.quinn or 703 305-8341. Location: Room 4830, Department of Commerce, 14th and Constitution, NW.
1:30 - 3:00 PM. Sam Bodman (Deputy Secretary of Commerce), James Rogan (Director of the USPTO), and 37 leading inventors will hold an awards ceremony commemorating the bicentennial of the USPTO. Press contact: Brigid Quinn at brigid.quinn or 703 305-8341. Location: Auditorium, Department of Commerce, 14th and Constitution, NW.
6:00 - 8:00 PM. The FCBA's Transactional Practice Committee will host a CLE seminar titled "Bankruptcy Issues in FCC Practice". For more information contact Brian Weimer at 202 371-7604 or Laura Phillips at 202 842-8891. Registrations and cancellations due by 5:00 PM on October 14. Location: Skadden Arps, Conf. Rm. 11 A, 1440 New York Ave., NW.
Day two of a two day conference of the Association Internationale pour la Protection de la Propriété Intellectuelle (AIPPI) titled "How to be Successful with Patent and Trademark Litigation: Europe and the Far East". The agenda includes a CLE seminar (9:30 AM - 1:00 PM). Location: Faculty Conference Room, Burns Building, 5th Floor, GWU Law School, 716 20th Street, NW.
Thursday, October 17
3:00 PM. David Post (Temple University School of Law), will present a draft of a paper titled "Against Against Cyberanarchy". The lecture is sponsored by the George Washington University (GWU) Law School's Dean Dinwooodey Center for Intellectual Property Studies. For more information, contact Prof. Robert Brauneis at 202 994-6138 or by email. Location: GWU Law School, Burns Building, 5th Floor, Faculty Conference Center, 720 20th St., NW.
Day one of a two day conference titled "Open Source: A Case for e-Government". The event is hosted by infoDev, the Cyberspace Policy Institute of The George Washington University, and the UNDP. See, notice. Location: The World Bank, IFC Auditorium, 2121 Pennsylvania Ave.
Friday, October 18
9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in Office of Communications of the United Church of Christ v. FCC, No. 01-1374. This is a petition for review of a final order [30 pages in PDF] of the FCC approving the assignment of certain licenses from Chris Craft Industries to Fox Television Stations. The Church of Christ and others had opposed the transfer before the FCC, and now appeal the FCC's approval of the transfer. Location: Courtroom 20, 333 Constitution Ave., NW.
12:15 PM. The FCBA's Mass Media Practice Committee will host a brown bag lunch to conduct an organizational meeting. RSVP to Barry Umansky at 202 263-4128. Location: NAB, 1771 N St., NW.
Day one of a two day conference titled "Open Source: A Case for e-Government". The event is hosted by infoDev, the Cyberspace Policy Institute of The George Washington University, and the UNDP. See, notice. Location: The World Bank, IFC Auditorium, 2121 Pennsylvania Ave.
Deadline to submit comments to the FCC regarding the petition for declaratory ruling in CC Docket No. 01-92 requesting that the FCC determine that wireless termination tariffs are not a proper mechanism for establishing reciprocal compensation arrangements between local exchange carriers (LECs) and commercial mobile radio service (CMRS) providers. See, FCC notice [PDF].
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