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January 31, 2003, 9:00 AM ET, Alert No. 595.
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Sen. McCain Introduces Telecom Diversity Bill
1/20. Sen. John McCain (R-AZ), the Chairman of the Senate Commerce Committee, introduced The Telecommunications Ownership Diversification Act [25 pages in PDF], a bill that would amend the Internal Revenue Code to provide for a deferral of tax on gain from the sale of telecommunications businesses in specific circumstances or a tax credit and other incentives to promote diversity of ownership in telecommunications businesses.

Sen. John McCainSen. McCain (at right) stated that "this bill would encourage ownership by individuals who are currently underrepresented in the ownership of telecommunications companies, including minorities and women, by making carefully crafted changes in the tax code."

He elaborated that "It would provide sellers of telecommunications assets a tax deferral when those assets are bought for cash by certain small businesses. It would also provide investors an incentive to consider certain small businesses by providing a reduction in the tax on gains from investment in these companies." See, McCain statement [PDF].

Federal Communications Commission (FCC) Chairman Michael Powell stated in a release [PDF] that "Senator John McCain today introduced legislation that uses a tax-based incentive system, designed to encourage and facilitate new entry, including entry by women and minorities, into the telecommunications industry. This legislation is well crafted and much needed. I wholeheartedly support this effort. I again thank Senator McCain for consistently showing leadership in this important effort. Like him, I believe it is essential that we promote greater inclusiveness in our media and communications delivery sectors."

Robert Sachs, P/CEO of the National Cable and Telecommunications Association (NCTA) stated in a release that the cable industry supports Sen. McCain's bill. He stated that "we look forward to working with Senator McCain and others to enact this much needed legislation. As communications media converge, minority and economically disadvantaged businesses should be able to fully participate in this vital sector of our economy."

The bill would apply to "telecommunications businesses" which it defines as "a business which, as its primary purpose, engages in electronic communications and is regulated by the Federal Communications Commission pursuant to the Communications Act of 1934, including a cable system ..., a radio station ..., a broadcasting station providing television service ..., a provider of direct broadcast satellite service ..., a provider of video programming ..., a provider of commercial mobile services ..., a telecommunications carrier ..., a provider of fixed satellite service, a reseller of the communications service or commercial mobile service, or a provider of multichannel multipoint distribution service." (Citations omitted.)

This enumeration of covered businesses does not expressly include internet service providers, or other internet based businesses. The bill's statement of findings and purposes, however, does reference internet businesses. It states that "Current trends in the telecommunications industry show that there is increasing convergence among various media, including broadcasting, cable television, and Internet-based businesses, that provide news, information, and entertainment."

Senate Commerce Committee Holds Hearing on Radio Ownership
1/30. The Senate Commerce Committee held a hearing to examine media ownership, focusing on consolidation in the radio industry. The Federal Communications Commission (FCC) is currently reviewing its media ownership rules.

Sen. John McCain (R-AZ), the Chairman of the Committee, said in his opening statement [PDF] that "I continue to believe that anachronistic government regulations that do not reflect today's multimedia marketplace should be thoroughly reviewed by the FCC and repealed or modified wherever appropriate."

He added that "I believe that, wherever possible, we should look to market-based approaches to ensure there is diversity in media ownership. Later today, I will reintroduce the "The Telecommunications Ownership Diversification Act." The bill provides a tax deferral and other market-based incentives designed to ensure that our tax laws do not disadvantage small businesses that may be owned by women and minorities who can help to further viewpoint diversity in media."

Sen. Ernest HollingsSen. Ernest Hollings (D-SC), the ranking Democrat on the Committee, stated in his opening statement that "the core values of competition, diversity, and localism that have long served as fundamental pillars of our democracy, are today under attack." He complained about "FCC Commissioners who seem intent on relaxing or eliminating many of the existing ownership rules without regard to the tremendous consolidation that has already occurred."

He concluded that "while investors on Wall Street have profited handsomely from these mergers, consumers on Main Street have suffered. Radio consolidation has contributed to a 34% decline in the number of owners, a 90% rise in the cost of advertising rates, a rise in indecent broadcasts, and the replacement of local news and community programming with remote "voice tracking" and syndicated hollering that ill-serves the public interest."

Sen. Russ Feingold (D-WI), who sponsored S 2691, the Competition in Radio and Concert Industries Act of 2002, in the 107th Congress, stated in his opening statement that "the rapid consolidation in ownership of the radio and concert industry has made it difficult for individuals, artists, and organizations to find outlets to express their creativity and promote diversity."

He wrote that "My legislation prohibits those who own radio stations and concert promotion services or venues from leveraging their cross-ownership to hinder competition in the industry. For example, if an owner of a radio station and a promotion service hinders access to the airwaves of a rival promoter or artist, then the owner would be subject to penalties."

Rep. Howard Berman (D-CA) wrote in prepared testimony [14 pages in PDF] for the Committee that "I am deeply concerned that radio industry consolidation and related activities are hurting songwriters, musicians, recording artists, concert promoters, radio listeners, and the music community as a whole. I believe the negative effects of radio industry consolidation merit serious congressional scrutiny, and should spur investigations by the Department of Justice (DOJ) and Federal Communications Commission (FCC)." He represents a southern California district that is home to many members of the music industry.

He said that while the DOJ has taken no action regarding broadcasters, "The Bush DOJ has indicated, through its ongoing investigation of the Pressplay and MusicNet ventures, that it is interested neither the DOJ or FCC have, to my knowledge, conducted investigations. in publicly pursuing a lengthy investigation of speculative antitrust concerns that may be raised by new entities in the as-yet infinitesimally small market for legal online music. If it has such grave concerns about antitrust issues related to the music industry, why isn’t it willing to pursue allegations of actual anticompetitive behavior in the related radio and concert promotion industries?"

Edward Fritts of the National Association of Broadcasters (NAB) stated that "As radio deregulation has moved forward, radio's critics have tended to overstate the effects of industry trends. Compared to other entertainment choices, radio is perhaps the LEAST consolidated sector. The Hollywood movie studios, the record companies, Direct Broadcast Satellite, Cable Systems, newspapers -- even the Internet -- all have more of their revenue share concentrated among the top ten owners than does radio."

See also, prepared testimony of witnesses: Lowry Mays (Ch/CEO of Clear Channel Communications), Edward Fritts (P/CEO of the NAB), Don Henley (singer and songwriter), Robert Short (President of Short Broadcasting), and Jenny Toomey (Executive Director of the Future of Music Coalition).

GAO Reports on Government Management Challenges and Program Risks
1/30. The General Accounting Office (GAO) released a series of reports on major executive branch agencies titled "Major Management Challenges and Program Risks". Among the many issues addressed are the export controls pertaining to high performance computers and semiconductors, the FBI's cyber security center, the FBI's antiquated information technology, and threats to critical infrastructures.

The report [34 pages in PDF] regarding the Department of Commerce, which is titled "Major Management Challenges and Program Risks: Department of Commerce", addresses, among other things, the export control regime handled by the Bureau of Industry and Security (BIS).

This report reviews prior GAO reports which have "identified numerous problems in the administration of this system". For example, it states that "Our August 2002 report on high performance computers found that the President’s justification for raising export control thresholds did not fully meet the requirements of law and was based on inaccurate information provided by the computer industry and an inadequate assessment of national security issues. Thus, we concluded that the decision to raise the export control threshold was analytically weak and premature, given market conditions."

The report also states that "U.S. agencies had not conducted the analyses necessary to create a sound basis for its licensing decisions on exports of advanced semiconductor manufacturing equipment to China." It elaborated that "U.S. policies and practices to control the export of advanced semiconductor technology to China are unclear and inconsistent, leading to uncertainty among U.S. industries about the rationale for some licensing decisions. We concluded that the current export control system needs to be reexamined because it has not slowed China’s ability to obtain billions of dollars worth of advanced semiconductor equipment. Consequently, we recommended that the Secretaries of Commerce, Defense, and State reassess, document, and update U.S. policy and practices on exporting semiconductor manufacturing equipment and materials to China."

The GAO's report [54 pages in PDF] regarding the Department of Justice (DOJ) covers, among other things, the FBI's National Infrastructure Protection Center (NIPC), which coordinates the federal government's response to computer based incidents.

This report reviews a prior GAO report, in which the GAO found that "the development of NIPC’s analysis and warning capabilities were limited by multiple factors, including the lack of a comprehensive governmentwide or national framework for promptly obtaining and analyzing information on imminent attacks, a shortage of skilled staff, the need to ensure that NIPC does not raise undue alarm for insignificant incidents, and the need to ensure that sensitive information is protected. We recommended that NIPC develop a comprehensive written policy for establishing analysis and warning capabilities."

This DOJ report also addresses the FBI's "antiquated computer hardware and software and the lack of a fully functional E-mail system" which "hamper the FBI’s ability to share time sensitive information internally and with other intelligence and law enforcement agencies."

The GAO also released a report [34 pages in PDF] titled "High-Risk Series: Protecting Information Systems Supporting the Federal Government and the Nation's Critical Infrastructures".

More News
1/30. President Bush formally notified the Congress of his intent to enter into free trade agreements (FTA) with Chile and Singapore. He wrote in his notice regarding Chile that "This is an agreement for the economy of the 21st century. Inventors, performers, authors, and creative enterprises in the United States and Chile will benefit from enhanced copyright, patent, trademark, trade secret, and other intellectual property rights protection. The Agreement also contains state of the art protections for digital products and electronic commerce". See also, President's notice regarding Singapore, the U.S. Trade Representative's (USTR) December 2002 summary [PDF] of the Singapore FTA, and the USTR's December 2002 summary [PDF] of the Chile FTA.

1/30. The Cato Institute released a report titled "Free Trade, Free Markets: Rating the 107th Congress" by Daniel Griswold. See, executive summary and full report [PDF]. The study is based on 12 roll call votes in the Senate, and 18 roll call votes in the House on trade barrier and trade subsidy issues. The report also provides scores for Representatives and Senators. The report classifies Representatives and Senators according to whether they are free traders (oppose both trade barriers and trade subsidies), interventionists (favor both barriers and subsidies), internationalists (oppose barriers and support subsidies), or isolationists (support barriers and oppose subsidies). The report concludes that "Despite all the hype about globalization and the supposed universal triumph of free-market policies, governments around the world, including that of the United States, continue to intervene in the flow of goods, services, people, and capital across international borders."

1/30. The Copyright Office (CO) published a notice in the Federal Register regarding a Notice of Proposed Rulemaking (NPRM) relating to proposed regulations that set rates and terms for the use of sound recordings by preexisting subscription services for the period January 1, 2002 through December 31, 2007. The deadline for comments is March 3, 2003. For more information, contact David Carson (General Counsel) or Tanya Sandros (Senior Attorney, Copyright Arbitration Royalty Panel) at 202 707-8380. See, Federal Register, January 30, 2003, Vol. 68, No. 20, at Page 4744-4747.

1/30. The Department of Agriculture's Rural Utilities Service (RUS) published a notice in the Federal Register regarding its final rule establishing the Rural Broadband Access Loan and Loan Guarantee Program as authorized by the Farm Security and Rural Investment Act of 2002 (Public Law 101-171). Section 6103 of the Act provides for loans and loan guarantees to fund the cost of construction, improvement, or acquisition of facilities and equipment for the provision of broadband service in eligible rural communities. This rule takes effect on January 30. For more information, contact Roberta Purcell at 202 720-9554. See, Federal Register, January 30, 2003, Vol. 68, No. 20, at Pages 4684-4692.

Friday, January 31
12:00 NOON. The Progress & Freedom Foundation (PFF) will host a briefing titled "The FCC & Telecom Recovery: A Scorecard for Evaluating the Rules". The speakers will be Randolph May (PFF), Thomas Lenard (PFF), Solveig Singleton (Competitive Enterprise Institute), Adam Thierer (Cato Institute), and Jeffrey Eisenach (PFF). RSVP to Rebecca Fuller at 202 289-8928 or Location: Room B-340, Rayburn Building.

12:00 NOON. The Federalist Society will host a lunch titled "Antitrust and IP". For more information, contact Jessi King at 822-8138. Location: First Amendment Lounge, National Press Club, 529 14th St. NW, 13th Floor.

Deadline to submit comments to the National Institute of Standards and Technology (NIST) regarding its draft publication [78 pages in PDF] titled "Guidelines for the Security Certification and Accreditation of Federal Information Technology Systems". This is NIST Special Publication 800-37. It was written by Ron Ross and Marianne Swanson in the NIST's Information Technology Laboratory's Computer Security Division, with input from others. Send comments to

Extended deadline to submit reply comments to the Federal Communications Commission (FCC) on whether it should change its rules restricting telemarketing calls and facsimile advertisements. This is CG Docket No. 02-278. See, original notice in the Federal Register, earlier notice of extension [PDF], and further notice in Federal Register of extension.

Deadline to submit applications to the Federal Communications Commission (FCC) for membership on the FCC's Consumer Advisory Committee. For more information, contact Scott Marshall at 202 418-2809

Monday, February 3
10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Bell Communications v. Fore Systems, No. 02-1083. Location: Courtroom 201, 717 Madison Place, NW.

Deadline to submit comments to the Federal Communications Commission (FCC) in response to its Notice of Inquiry (NOI) in the proceeding titled "In the matter of Facilitating the Provision of Spectrum Based Services to Rural Areas and Promoting Opportunities for Rural Telephone Companies To Provide Spectrum Based Services". This is WT Docket No. 02-381. For more information, contact Robert Krinsky at 202 418-0660. See also, notice in the Federal Register, January 7, 2003, Vol. 68, No. 4, at Pages 723 - 730.

EXTENDED TO FEBRUARY 18. Deadline to submit comments to the Federal Communications Commission (FCC) in response to its Further Notice of Proposed Rulemaking, (FNPRM), released last month, regarding whether providers of various services and devices not currently within the scope of the FCC's 911 rules should be required to provide access to emergency services. This is CC Docket No. 94-102 and IB Docket No. 99-67. See, notice in the Federal Register, January 23, 2003, Vol. 68, No. 15, at Pages 3214 - 3220. See also, notice of extension.

Deadline to submit comments to the Copyright Office (CO) in response to its notice of proposed rulemaking (NPRM) regarding the form, content, and manner of service of notices of termination under Section 203 of the Copyright Act. 17 U.S.C. § 203 pertains to the termination of transfers and licenses granted by the author. See, notice in the Federal Register, December 20, 2002 Vol. 67, No. 245, at Pages 77951 - 77955. For more information, contact David Carson, CO General Counsel, at 202 707-8380.

Deadline to submit comments to the Federal Trade Commission (FTC) regarding MSC.Software's December 30, 2002, petition [8 page PDF scan] for approval of its proposed divestiture of Nastran software to EDS. The petition is titled "Petition of MSC.Software Corporation for Approval of Proposed Divestiture". It was filed in the FTC's administrative proceeding titled "In the Matter of MSC.Software Corporation". This is FTC Docket No. 9299. In August 2002, the FTC and MSC also entered into an Agreement Containing Consent Order [22 pages PDF] which provides that MSC must divest at least one copy of its current advanced Nastran software, including the source code. The divestiture will be through royalty free, perpetual, non-exclusive licenses to one or two acquirers who must be approved by the FTC. For more information, contact Daniel Ducore of the FTC's Bureau of Competition at 202 326-2526.

Tuesday, February 4
9:00 AM - 12:00 NOON. Hearing at the USPTO to assist it in writing a report to the Congress regarding technological protection systems for digitized copyrighted works and to prevent infringement. This report is required by the Technology, Education and Copyright Harmonization Act of 2002 (TEACH Act). See, notice in the Federal Register, December 9, 2002, Vol. 67, No. 236, at Pages 72920 - 72921. For more information, contact Michael Shapiro at 703 305-9300 or Location: 2121 Crystal Drive, Crystal Park 2, Room 200 (Patent Theatre), Arlington, VA.
Wednesday, February 5
8:30 - 10:00 AM. Harold Furchtgott-Roth and Gregory Sidak of the American Enterprise Institute (AEI) will host a press breakfast to discuss pending FCC reviews of telecommunications regulations and media ownership rules. RSVP to Veronique Rodman at or call Heather Dresser at 202 862-5884. Location: AEI, 1150 17th Street, NW.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Altima Communications v. USITC, No. 02-1110. The U.S. International Trade Commission barred the import by Altima Communications, a Broadcom subsidiary, of certain ethernet networking products found to infringe Intel patents. Fish and Richardson represents Intel in this matter. Location: Courtroom 402, 717 Madison Place, NW.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Crossroads Systems v. Chaparral Network Storage, No. 02-1158. This is an appeal from the U.S. District Court (WDTex) in a patent infringement case involving storage router technology. (D.C. No. 00-CA-217-SS.) Location: Courtroom 203, 717 Madison Place, NW.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Digital Privacy v. RSA Security, No. 02-1440. This is an appeal from the U.S. District Court (EDVa) in a patent infringement case involving the pre-boot protection of unauthorized use of computer programs and data. Location: Courtroom 201, 717 Madison Place, NW.

11:00 AM. The Cato Institute will host a panel discussion titled "Battle over the Broadcast Flag: The IP Wars and the HDTV Transition". The speakers will be Fritz Attaway (Motion Picture Association of America), Jim Burger (Dow Lohnes & Albertson), Mike Godwin (Public Knowledge), and Andy Setos (Fox Entertainment Group). See, notice and registration page. Lunch will follow. Location: Cato, 1000 Massachusetts Ave., NW.

12:30 PM. The House Armed Services Committee will hold its organizational meeting for the 108th Congress. Location: Room 2118, Rayburn Building.

1:00 PM. The House Commerce Committee's Subcommittee on Telecommunications and the Internet
will hold a hearing titled "Health of the Telecommunications Sector: A Perspective from Investors and Economists". See, notice. Location: Room 2123, Rayburn Building.

Thursday, February 6
3:30 PM. Madhavi Sunder (Professor of Law, University of California at Davis Law School) will give a lecture titled "IP3: Intellectual Property, Identity Politics, and the Internet Protocol". For more information, contact Julie Cohen at Location: Georgetown University Law Center, Faculty Lounge, 600 New Jersey Ave., NW.

Deadline to submit comments to the Federal Communications Commission (FCC) regarding BellSouth's December 20, 2002 Petition for Forbearance [16 pages in PDF] from application of the separate subsidiary requirements to provide international directory assistance service. BellSouth asked the FCC to forbear from applying the structural separation requirements of 47 U.S.C. § 272 to allow BellSouth to provide international directory assistance service on an integrated basis together with its local and nonlocal directory assistance services. See, FCC notice [2 pages in PDF]. This is CC Docket No. 97-172.

Friday, February 7
12:00 NOON. The Cato Institute will host a panel discussion titled "Technology Policy in the 108th Congress". The speakers will be Steve Delbianco (Association for Competitive Technology), Clyde Crews (Cato), and Adam Thierer (Cato). See, notice and registration page. Location: Room B-369, Rayburn Building.

12:00 NOON - 1:30 PM. The Bureau of Industry and Security's National Infrastructure Advisory Council (NIAC) will meet. Richard Clarke (Special Advisor to the President for Cyberspace Security) and Richard Davidson, (Chairman of NIAC) will speak. The agenda also includes a discussion of Internet Protocol Version 6.0 and responsible disclosure of cyber attacks or incidents. The public can attend only via teleconference. Call 1-888-899-7785 (toll free) or 1-913-312-4169 (toll), and when prompted, enter pass code 1468517. See, notice in the Federal Register, January 28, 2003, Vol. 68, No.18, at Page 4167.

Verizon Seeks Stay of Order Regarding RIAA Subpoena
1/30. Verizon filed a motion with the U.S. District Court (DC) in RIAA v. Verizon requesting that the Court stay its order that Verizon comply with a subpoena directing it to provide the Recording Industry Association of America (RIAA) the identity of a subscriber to its internet access service while its appeals to the U.S. Court of Appeals (DCCir). See, Verizon release.

On January 21, the District Court issued its Memorandum Opinion, ruling that copyright holders can obtain subpoenas pursuant to 17 U.S.C. § 512(h) that require Internet Service Providers (ISPs) to reveal the identities of their customers who infringe copyrights on peer to peer filing sharing systems. Verizon had argued unsuccessfully that § 512(h) subpoenas are only available with respect to infringers who store infringing content on the servers of the ISP. See also, TLJ story titled "District Court Rules DMCA Subpoenas Available for P2P Infringers", January 21, 2003.

Verizon stated in a release that "The recording industry brought this case as a 'test case' of its aggressive legal theories. We are seeking a stay so that the Court of Appeals can issue a final ruling on the critical legal issues before we are required to turn over our subscriber's identity."

People and Appointments
1/30. The Senate Finance Committee unanimously approved the nomination of John Snow to be Secretary of the Treasury on Thursday morning, January 30. On Thursday evening the full Senate approved the nomination. He replaces Paul O'Neill, who resigned last month.

1/30. Eva Wohn was named head of the Cellular Telecommunications & Internet Association's (CTIA) State Affairs Division, a new department within Government Affairs that will handle state and local government issues. See, CTIA release.


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