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November 1, 2002, 9:00 AM ET, Alert No. 540.
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DOJ and States Sue to Block Echostar Directv Merger
10/31. The U.S. Department of Justice (DOJ) and numerous states filed a complaint in U.S. District Court (DC) against Echostar Communications, Hughes Electronics, and others, seeking to block the proposed acquisition of Directv by Echostar, pursuant to Section 7 of the Clayton Act, 15 U.S.C. § 18. EchoStar and Hughes both provide direct broadcast satellite (DBS) service via their Dish Network and DirecTV.

Charles James, the Assistant Attorney General in charge of the DOJ's Antitrust Division, stated in a release that “This merger would give Echostar control of the skies for the provision of video programming by satellite, leaving customers to suffer from the resulting reduction in competition ... This merger would create a monopoly in those areas where cable television is not available, thereby eliminating the only competitive choice for millions of households. It would leave tens of millions of households -- for whom DirecTV, DISH Network, and cable now compete to provide multichannel video programming distribution service -- with a reduction from three to two competitive choices".

Charles Ergen, EchoStar Ch/CEO, stated in a release that "I would like to personally thank all those, including our customers, consumers, legislators, employees and numerous others, who during the past year have supported this historic merger proposal. We also thank the regulatory officials at the Department of Justice, FCC and the states who worked diligently to analyze this complex merger and gave us the opportunity to express our views. We continue to believe passionately that the merger of EchoStar and Hughes is the best chance to stop rising cable prices and to bring enhanced services to all Americans, especially those consumers living in rural America. We are obviously disappointed that at this time we have not been able to convince regulatory officials to share our vision. EchoStar will continue to explore all possible means to be allowed to compete against the cable giants and for more choice for all consumers."

The DOJ release also stated that the DOJ "gave serious consideration to the efficiencies and new services that the merging parties claimed would result from the transaction. While recognizing that certain efficiencies could result, the Department concluded the parties could not demonstrate any efficiencies likely to result from the merger were sufficient to outweigh the substantial adverse impact of the transaction on competition and consumers."

The DOJ also stated that it "considered a very recent proposal by the merging parties to restructure the transaction in an attempt to remedy the anticompetitive problems inherent in the merger. The Department concluded that even if the proposed concept could be realized, it was unlikely to become a sufficient replacement for the vigorous competition that now exists between Hughes and Echostar within a reasonable period of time."

The complaint alleges that "The proposed acquisition of Hughes by Echostar would cause significant harm to competition in numerous local markets for MVPD services throughout the country. For millions of households this merger would create a monopoly. For tens of millions of households in the United States, this merger would create a duopoly. The combination of the nation's only two DBS firms would substantially lessen competition in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. For the roughly 95% of U.S. television households that currently have three or fewer options for MVPD service, this merger would lead to higher prices and lower service quality than would be the case absent its consummation. The United States and the Plaintiff States therefore seek an order permanently enjoining the merger."

The complaint was filed by the DOJ, the states of Missouri, Arkansas, California, Connecticut, Hawaii, Idaho, Illinois, Iowa, Kentucky, Maine, Massachusetts, Mississippi, Montana, Nevada, New York, North Carolina, North Dakota, Oregon, Pennsylvania, Texas, Vermont, Washington, and Wisconsin, and Puerto Rico. The defendants are Hughes Electronics, Echostar Communications, General Motors and Directv Enterprises.

The DOJ and states request that "the proposed acquisition be adjudged to violate Section 7 of the Clayton Act, 15 U.S.C. §18" and that "the Defendants be permanently enjoined and restrained from carrying out the Agreement and Plan of Merger dated October 28, 2001, or from entering into or carrying out any agreement, understanding, or plan by which Echostar would merge with or acquire Hughes, its capital stock or any of its assets".

This is case number 1:02CV02138. The case has been assigned to Judge Ellen Huvelle.

On October 10, the Federal Communications Commission (FCC), which has authority over license transfers, 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". The FCC has assigned the matter for hearing before an administrative law judge. See, TLJ story titled "FCC Declines to Approve EchoStar DirectTV Merger", October 10, 2002.

GAO Reports on Competition Between Cable and DBS
10/31. The General Accounting Office (GAO) issued a report [57 pages in PDF] titled "Telecommunications: Issues in Providing Cable and Satellite Television Services".

The GAO did not address the merits of the proposed merger of Echostar and Directv. Rather, the GAO examined three issues: "(1) whether the availability of cable modem Internet access service appears to be affecting the competitiveness of DBS companies in the provision of video services, (2) whether cable prices and DBS penetration rates appear to be affected in areas where the DBS companies offer local broadcast channels, and (3) whether the two individual DBS companies are technologically capable of expanding local broadcast channel services into all 210 television markets in the United States."

The GAO conducted a telephone survey of consumers. On the first issue, the GAO found that "the availability of Internet access services is important for some consumers -- although not the majority of consumers -- when they are considering various video service providers. In particular, just over half of the respondents to our survey said that when thinking about purchasing television programming service, the availability of cable modem Internet service would not make them more likely to consider cable video service over DBS video service. However, almost one-third of respondents said that when thinking about purchasing television programming service, the availability of cable modem Internet service would make them "moderately more likely" or "much more likely" to consider cable over DBS, and these respondents were more likely to have a higher household income and to be younger than respondents not influenced by the availability of cable modem service. Most respondents (88 percent) said they had never considered satellite Internet service."

The report was prepared for Sen. Herb Kohl (D-WI) and Sen. Mike DeWine (R-OH), the Chairman and ranking Republican on the Senate Judiciary Committee's Subcommittee on Antitrust, Competition, and Business and Consumer Rights.

Tech Crime Report
10/28. A grand jury of the U.S. District Court (CDCal) returned a two count indictment of Tony Minh Nguyen on October 23 charging that he manufactured and trafficked in counterfeit Compaq computer memory modules. The U.S. Attorneys Office (USAO) announced that he was arrested on October 28. The USAO explained the scheme in a release: "Nguyen directed sales and production at Dynasty Memory, Inc., a Santa Ana computer supply company. The two count indictment alleges that Nguyen directed Dynasty employees to purchase out-of-date Compaq memory components. Then, Dynasty employees would remove the Compaq labels and, under Nguyen’s direction, they would re-adhere the Compaq labels to non-Compaq memory components, creating a product that would be substantially indistinguishable from genuine Compaq products. Nguyen then directed that these counterfeit parts be sold as the genuine article."

10/29. Jonathan Beck plead guilty in U.S. District Court (NDCal) to insider trading in the stock of Critical Path in violation of 15 U.S.C. § 78j(b), 15 U.S.C. § 78 ff(a), and 17 C.F.R.§ 240.10b-5. Beck is a former VP of Critical Path, a San Francisco based technology company. See, USAO release.

10/30. The U.S. District Court (NDTex) sentenced Henry Wang to six months confinement, and ordered him to pay $41,042 in restitution, following his plea of guilty to one count of computer fraud in violation of 18 U.S.C. § 1030(a)(4). Wang worked as a software developer for J.C. Penney, where he accessed and copied, without authority, proprietary information, including computer files that comprised the source code for the J.C. Penney electronic commerce store. See, USAO release.

10/31. The U.S. Court of Appeals (6thCir) issued it opinion in USA v. Tommy Newell, affirming the District Court's imposition of a 27 month sentence for making threatening statements in numerous e-mails, and by telephone, in violation of 18 U.S.C. § 875(c). This is an Internet love gone wrong case. Newall met a woman over the Internet. They subsequently met in person. When her husband was released from prison, she dropped Newell. Upset, he sent her lots of ugly threats by e-mail, but did not harm her. Now, Newell goes to prison.

More News
10/31. The U.S. Court of Appeals (6thCir) issued its opinion in Telxon v. Federal Insurance, a diversity case involving the obligation of an insurance company to reimburse its insured, a telecom company, for costs of defending of class action securities case. The Court of Appeals affirmed the District Court's summary judgment for the insurance company

10/31. The Federal Communications Commission's (FCC) Wireline Competition Bureau (WCB) issued a Public Notice [PDF] in which it requests comments on AT&T's October 15 Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Services [118 pages in PDF]. AT&T stated in a release "the premature removal of price regulations on special access services -- the high capacity local links to buildings that provide businesses with telephone and high speed Internet services -- has allowed the Bells to gouge their customers and competitors to the tune of $5 billion annually, with a resulting deadweight drag on the economy." The ILECs oppose the proposal. Comments are due by December 2, 2002. Reply comments are due by December 23, 2002. This is RM No. 10593.

FCC Announces Agenda for November 7 Meeting
10/31. The Federal Communications Commission (FCC) announced the agenda for its open meeting on Thursday, November 7. The FCC's Spectrum Policy Task Force (SPTF) will report on its findings and recommendations, and the FCC will take up other spectrum related items.

In addition to the SPTF report, four other spectrum related items are on the agenda. The FCC's International Bureau will report on the outcome of the International Telecommunication Union Plenipotentiary Conference. The FCC will consider a Second Report and Order that would allocate spectrum in the 1.7 and 2.1 GHz bands that can be used to provide advanced wireless services (AWS), such as 3G or IMT-2000. The FCC will consider a Notice of Proposed Rulemaking (NPRM) concerning service rules for (AWS) in the 1.7 GHz and 2.1 GHz bands. The FCC will consider a NPRM and Order concerning allocation and service rules for the Dedicated Short Range Communication Services in the 5.850-5.925 GHz band.

The FCC will also consider a Second Report and Order concerning new broadcast and MVPD equal employment opportunity rules and policies.

The meeting will be at 9:30 AM in Room TW-C305 (Commission Meeting Room), 445 12th Street, SW.

Greenspan Addresses Education, Knowledge, Innovation and Technology
10/29. Federal Reserve Board Chairman Alan Greenspan gave a speech titled "Education" to the Institute of International Education, in New York City. It was a wide ranging and philosophical speech about the nature of knowledge, additions to knowledge, innovation, education and economic success. And, like many of Greenspan's recent speeches, it focused on the causes and consequences of advances in computer and communications technologies.

It was an unusual speech for a federal government official. He praised the U.S. educational system, which is not unusual. But, he said that its excellence is not the result of government funding or guidance. Rather, "it has been influenced importantly by the values of a strong market economy -- competition, risk taking, and innovation."

It is common for elected representatives and government officials to advocate the role of government in improving the educational system. Greenspan omitted the role of government from his speech. Instead, he argued, the educational system is good because it imitates, interacts with, and responds to the private sector. Moreover, it works so well because of some of its own institutions, such as its emphasis on research, its peer reviewed journals, and its continuing commitment to the liberal arts and interdisciplinary activities.

According to Greenspan, a nation's economic success is dependant in part on its education system. One of the reasons that the U.S. is prosperous, and the U.S. economy over the years has grown so fast, is the educational system.

It is also common for elected representatives and government officials to address innovation in terms of increasing government spending at agencies or universities that conduct research. It is also common for representatives and officials to advocate changes to the legal framework for protecting innovation -- the intellectual property laws. Although, most of the debate in recent years has focused solely on laws affecting the music and movie industries, which rarely contribute to knowledge.

Greenspan made no mention of either R&D spending or IP laws. Instead, he identified various institutions of the U.S. educational system that contribute to technological creation and innovation.

To Greenspan, knowledge is "a deeper understanding of how the world works". Its proper use is "to alter our physical and social environment for the better". He stated, "Especially notable has been our application of both scientific advances and organizational paradigms to raise living standards across most of the population, and, as a consequence, engender marked increases in average longevity and quality of life."

Greenspan then turned to how the U.S. economy has become increasingly knowledge based, and how knowledge is becoming increasingly specialized. He stated that "The share of the nation's output that is conceptual appears to have accelerated after World War II with the insights that led to the development of the transistor and microprocessor. They have spawned remarkable alterations in how we, and many other societies, live."

He continued that "Computers, telecommunications, and satellite technologies have enabled data and ideas -- the ever more important elements of valued output -- to be expeditiously transferred geographically to where they can be put to best use. Thus, these advanced means of communication have added much the same type of value that the railroads added in transporting the more physical goods of an earlier century."

"Here in the United States, we have developed an exceptionally sophisticated stock of capital assets -- fostered by the most conceptual and intangible of all new products -- software. Breakthroughs in all areas of technology -- despite the recent slowdown -- have been continually adding to the growing list of almost wholly conceptual elements in our economic output. These developments are affecting how we produce output and are demanding greater specialized knowledge," said Greenspan.

Greenspan next listed the major determinants of a nation's economic success. Among these is its educational system. He said that the "key determinants of how successful any country will be in transforming its physical and human assets into economic growth" are "openness to trade, a strong institutional infrastructure, disciplined macroeconomic policies, and an effective system of education -- formal or otherwise".

He added that success lies in the interaction of these determinants. For example, "An educated workforce, then, is a necessary ingredient for economic advance, but it is apparently much more powerful when combined with a strong, competitive economic system, where rights of persons and property are protected."

He then turned to the economic advantages held by the U.S. as a result of its educational system.

First, he said, is that "the marketplace work[s] efficiently to guide our educational system, defined in its widest sense, toward the broader needs of our economy." He elaborated that "technological advance has brought with it not only improvements in the capital inputs used in production but also new demands on workers who must interact with that increasingly more complex stock of capital" and "Our educational system responded".

He also said that the U.S. system of higher education is effective because of competition, both between institutions, and between categories of institutions (such as research universities, liberal arts colleges, and community colleges).

He also addressed the sources of the creativity and innovation at U.S. institutions of higher education. One source is the "promotion of peer reviewed scholarship and the value they place on creativity and risk taking". Another is the "patience and the flexibility to accept that uncertainty, confident that the rigorous effort to explore ideas would eventually lead to discovery."

He also tackled the roots of creative and innovative thinking. He suggested that the liberal arts education and interdisciplinary activity remain essential. "Critical awareness and the abilities to hypothesize, to interpret, and to communicate are essential elements of successful innovation in a conceptual based economy," said Greenspan. Moreover, "the ability to think conceptually is fostered through exposure to philosophy, literature, music, art, and languages. So called liberal education is presumed to spawn a greater understanding of all aspects of living -- an essential ingredient to broaden one's world view. As the President of the University of Pennsylvania, Judith Rodin, put it, such an understanding comes by ``vaulting over disciplinary walls´´ and exploring other fields of study. Most great conceptual advances are interdisciplinary and involve synergies of different specialities."

Or, in Greenspan speak, the liberal arts education is "a means of increasing technical intellectual efficiency".

He then offered the observation that the payoffs have been impressive. "With the emergence of significant centers of commercial innovation and entrepreneurship -- Silicon Valley, the Research Triangle, and the clustering of biotech enterprises in the Northeast corridor -- creative ideas flow freely between local academic scholars and those in industry. Those ventures that succeeded have materially added to our base of knowledge. But even those that failed, as many did, left residual insights that may spark future research."

Greenspan made no pleas for government spending on education or research and development. He made no recommendations for government regulation of education. He commented on no pending legislation.

He offered only one recommendation. He said that "We must ensure that teaching and research continue to supply the creative intellectual energy that drives our system forward. As the conceptual inputs to the value added in our economic processes continue to grow, the ability to think abstractly will be increasingly important across a broad range of professions. Critical awareness and the abilities to hypothesize, to interpret, and to communicate are essential elements of successful innovation in a conceptual based economy." Although, he offered no guidance on how one ensures this, or if the government even plays any role in ensuring this.

He offered only one criticism of the U.S. educational system. He said that "tests of student achievement in mathematics and science suggest that our high schoolers have been falling short of their peers in other countries." However, he added, "I trust that this degradation will prove to be transitory."

People and Appointments
10/31. Robert Lamm was named Corporate Secretary and Director of Corporate Governance of Computer Associates International. See, CAI release.

10/29. Samuel Palmisano was elected Chairman of the Board of Directors of IBM, effective January 1, 2003. He will succeed Louis Gerstner. See, IBM release.

10/31. Jack Krumholtz was named co-chair of CapNet, a Washington DC based group that represents technology companies. He is also Microsoft's Director of Federal Government Affairs and Associate General Counsel. He replaces former Rep. Vic Fazio. Lisa Nelson of AOL Time Warner remains a co-chair.

Judge Kotelly to Release Rulings in Microsoft Cases on Friday at 4:30
10/31. The U.S. District Court (DC) published a notice [PDF] stating that "At approximately 4:30 p.m. on Friday, November 1, 2002, United States District Court Judge Colleen Kollar- Kotelly will issue Opinions in the Microsoft cases."

The notice adds that "At that time, copies of the Opinions can be downloaded in PDF format from the U.S. District Court's homepage,"

The Department of Justice, nine state plaintiffs, and Microsoft reached a settlement last November of the governments' antitrust case against Microsoft. They submitted a revised settlement agreement in February of this year. Judge Kotelly can either approve or reject this settlement. See, Second Revised Proposed Final Judgment, filed on February 27, 2002. In addition, Judge Kotelly will likely rule on remedies requested by the non-settling state plaintiffs.

Friday, November 1
8:30 AM - 1:00 PM. Day two of a two day CLE seminar hosted by the FCBA titled "Communications Law 101: A Practitioner's Primer". The price to attend is $250 for lawyers and paralegals in private practice or corporate positions, and $125 for those in government service, non-profit positions or in law school. Location: Georgetown University Law Center, 600 New Jersey Ave., NW.

12:30 - 2:00 PM. The Cato Institute will host an event titled "Capitol Hill Briefing: Too Much Deregulation or Not Enough?" The speakers will be Peter VanDoren (Cato) and Mark Cooper (Consumer Federation of America). For more information, contact Krystal Brand at 202 789-5229. Location: Room 121, Cannon House Office Building.

4:30 PM. The U.S. District Court (DC) will release online its opinions in the Microsoft cases. See, notice [PDF].

Deadline to submit reply comments to the FCC regarding BellSouth's Section 271 application with the FCC to provide in region interLATA service in the states of Florida and Tennessee. This is WC Docket No. 02-307. See, FCC notice [PDF].

Deadline to submit reply 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].

Monday, November 4
The Senate will meet at 10:30 AM in pro forma session only.

The Supreme Court will return from its recess, which it began on October 22.

8:30 - 11:00 AM. The Alliance for Public Technology (APT) & the High Tech Broadband Coalition (HTBC) will host an event titled "From Debate to Deployment: Demonstrating the Power of Broadband." FCC Commissioner Michael Copps will deliver the opening keynote address. For more information, contact Matt Bennett at 202 263-2972 or mbennett Location: The Hotel Washington, 515 15th Street NW.

Deadline to submit comments to the NTIA in response to its request for comments on two of the nine exceptions to the Electronic Signatures in Global and National Commerce (E-SIGN) Act. The E-SIGN Act provides for the acceptance of electronic signatures in interstate commerce, with certain enumerated exceptions. The two categories of exempt documents that are the subject of this request for comments are court records and hazardous materials notices. The Act tasks the NTIA with studying these exemptions, and providing reports to Congress. See also, NTIA release, notice in Federal Register, regarding court records, and notice in Federal Register, regarding hazardous materials notices.

Deadline to submit reply comments to the FCC regarding SBC's Section 271 application with the FCC to provide in region interLATA service in the state of California. This is WC Docket No. 02-306. See, FCC notice [PDF].

Tuesday, November 5
Election Day.

9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in 21st Century Telesis v. FCC, No. 01-1435. Judges Randolph, Rogers and Williams will preside. Location: Courtroom 20, 333 Constitution Ave., NW.

Deadline to submit applications to the Agriculture Department's Rural Utilities Service for grants under its pilot program for the provision of broadband transmission service in rural America for fiscal year 2002. See, notice in the Federal Register.

Wednesday, November 6
9:30 - 11:30 AM and 2:00 - 4:00 PM. The FTC and the DOJ's Antitrust Division will hold the final workshops in their joint series titled "Competition and Intellectual Property Law and Policy in the Knowledge Based Economy" on October 25 and 30 and November 6. The November 6 event is titled "Antitrust Law and Patent Landscapes". The 9:30 AM program is titled "Standard Setting Organizations: Evaluating the Anticompetitive Risks Of Negotiating IP Licensing Terms and Conditions Before A Standard Is Set". The 2:00 PM program is titled "Relationships Among Competitors and Incentives to Compete: Cross Licensing of Patent Portfolios, Grantbacks, Reach Through Royalties, and Non- Assertion Clauses". Location: FTC Room 432, 600 Pennsylvania Ave., NW.

10:00 - 11:30 AM. Media Security and Reliability Council (MSRC) will hold a meeting. FCC's Chairman Michael Powell will participate. The MSRC is a federal advisory committee formed after the terrorist attacks of September 11, 2001, to study ways to secure and maintain broadcast and multichannel video programming distribution (MVPD) in the face of terrorist attacks, natural disasters and other threats. See, FCC release [PDF]. Location: FCC, Commission Meeting Room (TW-C305), 445 12th Street, SW.

12:15 PM. The FCBA's Global Telecommunications Development Committee and International Practice Committee will host an event titled "What Happened in Marrakesh? A Debriefing on the 2002 ITU Plenipot". The speakers will be David Gross, Coordinator of International Communications and Information Policy at the State Department. RSVP to jhindin Location: Wiley Rein & Fielding, 1750 K St, 10th Floor.

Thursday, November 7
The Senate will meet at 10:30 AM in pro forma session only.

9:30 AM. The FCC will hold a meeting. The agenda includes a number of spectrum related items. The Spectrum Policy Task Force will report on its findings and recommendations. The FCC's International Bureau will report on the outcome of the International Telecommunication Union Plenipotentiary Conference. The FCC will consider a Second Report and Order that would allocate spectrum in the 1.7 and 2.1 GHz bands that can be used to provide advanced wireless services (AWS), such as 3G or IMT-2000. The FCC will consider a Notice of Proposed Rulemaking (NPRM) concerning service rules for (AWS) in the 1.7 GHz and 2.1 GHz bands. And, the FCC will consider a NPRM and Order concerning allocation and service rules for the Dedicated Short Range Communication Services in the 5.850-5.925 GHz band. Location: FCC, 445 12th Street, SW, Room TW-C05 (Commission Meeting Room).

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Altiris v. Symantec, No. 02-1137. This is a patent infringement case involving technology for remotely controlling the boot process of a computer. It is appealed from the U.S. District Court (CDUtah). Location: 717 Madison Place, NW.

Friday, November 8
The Senate will meet at 10:30 AM in pro forma session only.

9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in AT&T v. FCC, No. 01-1511. Judges Ginsburg, Edwards and Garland will preside. Location: 333 Constitution Ave., NW.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Cygnus Telecommunications Technology v., No. 02-1325. This is a consolidated patent case appealed from the U.S. District Court (NDCal). Location: 717 Madison Place, NW.

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