|FCC's NRIC Proposes Security Measures for
Telecoms and ISPs
|12/6. The Federal Communications Commission's (FCC)
Network Reliability and Interoperability Council (NRIC) held a
to discuss telecommunications network security and cyber security.
The NRIC reviewed 300 "best practices" for voluntary implementation by regulated
telecommunications companies, as well as by data service providers and ISPs.
The NRIC has until December 20 to vote on its recommendations. The FCC
issued a release
[3 pages in MS Word] summarizing the issues discussed.
|9th Circuit Dismisses Appeal in Knisley v.
|12/6. The U.S.
Court of Appeals (9thCir) issued its
opinion [PDF] in Knisley
v. Network Associates,
dismissing for lack of standing an appeal from an order awarding attorneys fees
in a class action against Network Associates Inc.
NAI entered into a settlement (which included attorneys fees) with the
attorneys for the class, the law firm of Lieff Cabraser. Noel Gage, a NAI
shareholder covered by the class action and its settlement, objected to the
settlement. The District Court approved the settlement.
The Appeals Court noted that "One risk of class action
settlements is that class counsel may collude with the defendants, tacitly
reducing the overall settlement in return for a higher attorney’s fee." Hence,
District Courts must review both the fairness and reasonableness of attorneys
fees in class action settlements.
However, the Appeals Court's decision turned on the issue of standing. It
found that Gage lacked standing to challenge the settlement. He was not a named
plaintiff. He did not submit a claim form. He rejected the settlement. And, he
is not the one who pays the attorneys fees. The Appeals Court concluded that he "has
failed to show that the relief he seeks will redress the injury he claims to
have suffered. He therefore lacks standing to appeal."
|6th Circuit Buries Protectionist Statute in
Tennessee Casket Case
|12/6. The U.S.
Court of Appeals (6thCir) issued its
v. Giles, a constitutional law case
that may make it easier to overturn some protectionist state statutes that impede electronic
commerce. The Court held unconstitutional a state
statute that it found to be an "attempt to prevent economic competition".
This case does not specifically involve Internet commerce, the use of
technology, or even technology companies. It deals with the sale of caskets.
This case involves a challenge to an obscure Tennessee statute regarding funeral
directors. Nevertheless, this case may have broader consequences for other
businesses, and particularly those involved in electronic commerce. The Court
held unconstitutional on Due Process and Equal Protection grounds a statute
enacted to protect state funeral directors from competition.
Numerous state protectionist statutes have the effect of banning many forms
of e-commerce, including sales of cars, wines, contact lenses, and other
products. These types of laws also obstruct Internet based travel agencies,
pharmacies, mortgage brokers, and many other services. See, for example, story
titled "House Subcommittee Holds Hearing on State Impediments to E-Commerce",
TLJ Daily E-Mail
Alert No. 518, September 27, 2002.
E-commerce proponents have had some success in challenging these types of
statutes under the Constitution's Commerce Clause. For example, the
U.S. District Court (SDNY)
held on November 12 in Swedenburg v. Kelly, that New York state's ban on
the direct shipment of out of state wine is unconstitutional. Small wineries
that are prohibited from selling directly to New York customers over the
Internet, or by other direct means, brought the challenge. See,
pages in PDF].
However, this 6th Circuit case is remarkable because it
is not a Commerce Clause case; rather, it is a Due Process and Equal Protection
case. The Court followed over six decades of precedent in determining that the
statute is an economic regulation.
It also followed precedent in determining that the rational basis test applies.
However, in applying the rational basis test to the statute in question, the
Court parted with precedent. It turned the rational basis analysis into rigorous
review in which it weighed the policy arguments in support of and against the
regulation, reviewed the evidence in the record in support, and subjected the
statute to economic analysis. The Court then found that the economic regulation
failed to meet the mere rational basis test.
So much for Carolene Products and its progeny.
The New Deal Supreme Court began a method of constitutional interpretation in
the landmark case of U.S. v.
Carolene Products, 304 U.S. 144 (1938). Other cases have clarified this approach.
It basically bifurcated the analysis of certain constitutional challenges to
statutes and other government actions. A very high standard is to be applied in
fundamental or individual rights cases, while a very low standard is to be applied in
commercial or economic rights cases. (A smaller category of regulations now
receive an intermediate level of scrutiny.)
For example, the Supreme Court wrote in Carolene Products that "the existence
of facts supporting the legislative judgment is to be presumed, for regulatory
legislation affecting ordinary commercial transactions is not to be pronounced
unconstitutional unless in the light of the facts made known or generally
assumed it is of such a character as to preclude the assumption that it rests
upon some rational basis within the knowledge and experience of the
legislators.4" The famous footnote four then went on to suggest a higher
level of scrutiny for individual rights.
Subsequent cases elaborated a "strict scrutiny" test for challenges to
statutes affecting certain individual rights, which test, as a practical matter,
is rarely met by the statute under challenge. Subsequent cases also elaborated a
"rational basis" test for challenges involving economic regulation, which test,
as a practical matter, is almost always met.
The 6th Circuit wrote that "strict scrutiny" test requires that
"the regulation must serve a compelling state purpose and be narrowly tailored to
achieving that purpose", while the "rational basis" test requires
"only that the
regulation bear some rational relation to a legitimate state interest".
Leading cases in which the Supreme Court upheld protectionist state economic
Williamson v. Lee Optical, 348 U.S. 483 (1955) and
Ferguson v. Skrupa, 372
U.S. 726 (1963).
In a few rare cases the Supreme Court has found that the rational basis test is
not satisfied. For example, in
Metropolitan Life v. Ward,
470 U.S. 869 (1985), the Court overturned on Equal Protection grounds an Alabama
statute that imposed a discriminatory tax on out of state insurance companies.
In the present case, the state of Tennessee required that only licensed
funeral directors could sell caskets. It further required an extensive course of
training to become a funeral director, much of which is unrelated to selling
caskets. Nathaniel Craigmiles, and others, sold caskets without first obtaining
funeral director licenses. The state shut down their businesses.
They filed a complaint in the U.S.
District Court (EDTenn) seeking
declaratory and injunctive relief that the Tennessee statute violates the Equal
Protection, Due Process, and Privileges and Immunities clauses of the Fourteenth
Amendment. The Institute for Justice, which
also represents the plaintiffs in the New York wine case, represents the
plaintiffs in this case.
The District Court ruled for the plaintiffs on Equal Protection and Due
Process grounds, but rejected their Privileges and Immunities claim. See.
Craigmiles v. Giles, 110 F. Supp. 2d 658. Tennessee appealed.
The Appeals Court affirmed on both Equal Protection and Due Process grounds.
However, it declined to address the Privileges and Immunities claim. It wrote
that the statute "appears directed at protecting
licensed funeral directors from retail price competition", and that it "harms
consumers in their pocketbooks".
This 6th Circuit case did not challenge the longstanding Constitutional
principal that the rational basis test is to be applied in cases involving
economic regulation. And, it purported to maintain continuity in the application
of the rational basis test. In fact, the opinion of the Court gives new meaning
to the rational basis test.
The Court began by stating that "The question before this court is whether
requiring those who sell funeral merchandise to be licensed funeral directors
bears a rational relationship to any legitimate purpose other than protecting
the economic interests of licensed funeral directors."
The state of Tennessee offered several arguments as to why it "promotes
both public health and safety and
consumer protection". The Court addressed these one at a time, and rejected
each. In some cases it simply found that countervailing arguments make more sense. In
others, it cited a lack of "evidence in the record" to support Tennessee's
arguments. In some situations it engaged in an analysis of competition. The
Court addressed "retail price competition", "package pricing",
"marginal costs", and the
extraction of "monopoly rents".
The Court gave the rational basis analysis far
more teeth that the Supreme Court gave it in cases such as Carolene Products,
Lee Optical and Ferguson. Moreover, the references to concepts such as "rent
seeking" sounds like an incorporation of "Chicago school" economic analysis into
Equal Protection jurisprudence.
The Court concluded with this. "Judicial
invalidation of economic regulation under the Fourteenth Amendment has been rare
in the modern era. See
West Coast Hotel v. Parrish, 300 U.S. 379 (1937). Our decision today is
not a return to Lochner, by which this court would elevate its economic
theory over that of legislative bodies. See
Lochner v. New York,
198 U.S. 45 (1905). No sophisticated economic analysis is required to see the
pretextual nature of the state's proffered explanations for the 1972 amendment.
We are not imposing our view of a well-functioning market on the people of
Tennessee. Instead, we invalidate only the General Assembly's naked attempt to
raise a fortress protecting the monopoly rents that funeral directors extract
from consumers. This measure to privilege certain businessmen over others at the
expense of consumers is not animated by a legitimate governmental purpose and
cannot survive even rational basis review."
The Court did not reference Carolene Products,
Lee Optical, or Ferguson.
The plaintiffs were fortunate in the assignment of judges to this case.
Judge Danny Boggs, an outspoken, free market, Federalist Society, conservative,
wrote the opinion. Judges Robert
Lawson joined. Krupansky and Boggs were both appointed to the 6th Circuit by
President Reagan. Lawson is a District Court judge appointed by President
The significance of this opinion is that this interpretation of the rational
basis test could be used to strike down barriers to electronic commerce, as well
as barriers to casket sales. The consequence may be that, at least in the 6th
Circuit (Michigan, Ohio, Kentucky, and Tennessee), opponents of protectionist
state statutes and rules will now have another effective legal argument for
challenging legal barriers to electronic commerce.
|O'Neill and Lindsey Resign
|12/6. Secretary of the Treasury Paul O'Neill and Director of the
National Economic Council Larry Lindsey both resigned. O'Neill's frank
comments often upset other members of the Bush administration, but made good
copy for journalists.
Several media reports have stated that President Bush may appoint
Snow to replace O'Neill. CSX is a railroad freight transportation company. Snow
is a former lawyer, government official, and professor, who has worked for CSX
since 1977. He was a Deputy Undersecretary of Transportation in the Ford
administration. CSX is not a technology company. However, it does license other
companies to place fiber optic cable in conduits along its railway rights of
President Bush released a
statement. He wrote that "My economic team has worked with me to craft and
implement an economic agenda that helped to lead the Nation out of recession and
back into a period of growth. I appreciate Paul O'Neill's and Larry Lindsey's
important contributions to making this happen. Both are highly talented and
dedicated, and they have served my Administration and our Nation well. I thank
them for their excellent service."
These latest departures add to the list of key government positions that are
vacant. Other positions to be filled include Chairman of the
Exchange Commission (SEC), Assistant Attorney General for the
Division, and numerous federal judgeships.
|Monday, December 9
|2:00 PM. The Information Technology
Association of America (ITAA) will host a web cast event titled "Protecting
Intellectual Property in Federal Government Contract Procurements". The
speaker will be
of the law firm of
Gibson Dunn & Crutcher. See,
registration page. For more information, contact Thomas Vincent at
Extended deadline to submit comments to the
in response to its requests for comments regarding whether to revise, clarify
or adopt any additional rules in order to more effectively carry out
Congress's directives in the Telephone Consumer Protection Act of 1991 (TCPA).
This is CG Docket No. 02-278. See, original
in the Federal Register, and
of extension [PDF].
|Tuesday, December 10
|10:45 AM -12:00 NOON. Assistant Secretary of the Treasury for
International Affairs Randal Quarles will speak as part of a panel titled "The
US-EU Agenda on Financial Services" at the European Institute's Trade and
Investment Seminar. Location: Swissotel -- The Watergate, Monticello Room,
2650 Virginia Ave., NW.
12:15 PM. The
FCBA's Cable Practice Committee will host a luncheon. The speaker will be
Marsha MacBride (FCC Chief of Staff). The price is $15. No walk-ins. For more
information, contact Lisa Cordell at 202 939-7900. RSVP to
email@example.com. Location: NCTA, 1724
Massachusetts Ave., NW.
Deadline to submit comments to the
National Telecommunications and Information Administration (NTIA)
regarding the wills, codicils, and testamentary trusts exception to the E-SIGN
Act. The Electronic Signatures in Global and National Commerce (E-SIGN) Act
provides, at Section 101, for the acceptance of electronic signatures in
interstate commerce, with certain enumerated exceptions. Section 103 of the
Act provides that "The provisions of section 101 shall not apply to ... a
State statute, regulation, or other rule of law governing the creation and
execution of wills, codicils, or testamentary trusts". The Act also requires
the NTIA to review, evaluate and report to Congress on each of the exceptions.
notice in the Federal Register, October 11, 2002, Vol. 67, No. 198, at
Pages 63379 - 63381.
|Wednesday, December 11
|9:30 AM. The
will hold a meeting. See,
agenda. Location: FCC, 445 12th Street, SW, Room TW-C05
(Commission Meeting Room).
10:00 - 11:30 AM. The
will hold a public forum to unveil the new concept designs for online filings.
Location: FCC, 12th Street, SW, Conference Room #1, 8th Floor.
12:15 PM. The
FCBA's Mass Media Practice Committee will host a brown bag luncheon. The
speakers will be Brooks Boliek (Hollywood Reporter), Bridgette Greenberg
(Communications Daily), Doug Halonen (Electronic Media), Ted Hearn (Multichannel
News), Bill McConnell (Broadcasting and Cable), and Leslie Stimson (Radio
World). RSVP to Barry Umansky at 202 263-4128 or
Location: National Association of Broadcasters
(NAB), 1st Floor Conference Room, 1771 N Street, NW.
|Thursday, December 12
|9:00 AM. The President's Council of Advisors on Science and Technology's (PCAST)
Subcommittee on Federal Research and Development Investment and its National
Benefits will hold an
open public forum on federal technology transfer mechanisms. See,
in the Federal Register. Location: RAND Washington Office, 1200 S. Hayes St., Arlington, VA,
Room 4204 (which is accessible from the Pentagon City metro stop).
12:00 NOON. The Cato Institute will
host a Capitol Hill briefing titled "Yellow Light on Total Information
Awareness". The scheduled speakers include Wayne Crews, Robert Levy,
Charles Peña. See, notice
and online registration form. Location: 1539 Longworth House Office Building.
FCBA will host its annual Chairman's Dinner. See,
registration form [PDF].
Location: Washington Hilton and Towers.
Day one of a two day conference hosted by the Practicing Law Institute and the
FCBA titled "Telecommunications Policy and Regulation". At 12:15 PM
Martin will deliver a keynote address. Location: Reagan International
|Friday, December 13
|9:15 - 11:30 AM. The American Enterprise
Institute (AEI) will host a panel discussion titled "Intellectual
Property: A Positive Side for Developing Country Business?". The speakers
will be Michael Finger (AEI), Ron Layton (LightYears IP), and others.
Location: AEI, 12th floor, 1150 17th St., NW.
9:30 AM. The U.S. International Trade
Commission (USITC) will meet regarding the preliminary countervailing duty
investigation regarding DRAMs and DRAM Modules from Korea
(Investigation No. 701-TA-431). See,
notice published in the
Federal Register. Location: Main Hearing Room, ITC Building, 500 E Street, SW.
Day two of a two day conference hosted by the Practicing Law Institute and the
FCBA titled "Telecommunications Policy and Regulation". Location: Reagan
International Trade Center.
EXTENDED TO JANUARY 17. Deadline to
submit reply comments to the
in response to its
Notice of Proposed Rulemaking (NPRM) [15 pages in PDF] in its proceeding
titled "In the Matter of Digital Broadcast Copy Protection". This NPRM
proposes that the FCC promulgate a broadcast flag rule, and seeks comment on
this, and related questions. This is MB Docket No. 02-230. See also,
FCC release [PDF] and
Order [PDF] of October 11, 2002 extending deadlines.
|People and Appointments
|12/7. Incumbent Sen. Mary Landrieu (D-LA) won the Louisiana Senate runoff
|12/6. The U.S. Patent and Trademark Office
(USPTO) announced that it "launched a prototype to test replacing its standard
paper processing of patent applications with electronic processing." See,
12/6. IBM announced that it has entered into an agreement with
Rational Software to
acquire the equity of Rational at a price of approximately $2.1 Billion. See,
IBM release and substantial
identical Rational release.
Rational makes open, industry standard tools, best practices
and services for developing business applications and building software products
and systems, including embedded software for cell phones. The deal will require
12/6. The Securities and Exchange Commission
(SEC) issued orders instituting administrative proceedings against,
and imposing sanctions upon, three former WorldCom executives, Buford Yates
(former Director of General Accounting), David Myers (former Comptroller and SVP),
and Betty Vinson (former Director of Management Reporting), for materially overstating earnings of
WorldCom. See, SEC
regarding Yates, release
regarding Myers, and release
regarding Vinson. The SEC previously filed civil enforcement actions in U.S.
District Court (SDNY) against Yates, Myers, Vinson, and WorldCom. Judgments have
been entered in those actions. See,
release summarizing those actions.
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