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April 2, 2003, 9:00 AM ET, Alert No. 635.
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House Subcommittee Holds Hearing on Bill to Make Internet Tax Moratorium Permanent

4/1. The House Judiciary Commitee's Subcommittee on Commercial and Administrative Law held a hearing on HR 49, the "Internet Tax Nondiscrimination Act".

The 105th Congress passed the Internet Tax Freedom Act in 1998, creating a three year moratorium on multiple or discriminatory internet taxes. The moratorium also extended to taxes on Internet access, with a grandfather clause for existing taxes. The 107th Congress passed HR 1552 in 2001, which extended the moratorium until November 1, 2003.

HR 49, which is sponsored by Rep. Chris Cox (R-CA), and its companion bill in the Senate, S 52, which is sponsored by Sen. Ron Wyden (D-OR), would permanently extend the ban on multiple or discriminatory taxes. These bills would also terminate the grandfathering of access taxes that existed in 1998.

Rep. Chris Cannon (R-UT), the Chairman of the Subcommittee, spoke in support of the bill. He said that he opposed linking this bill with the issue of taxation of remote sales. He said that the Subcommittee will hold another hearing on that issue. However, the Subcommittee has not yet scheduled a markup of HR 49, or a hearing on taxation of remote sales.

Rep. Chris CoxRep. Cox (at right), who is not a member of the Subcommittee, was permitted to participate on the panel. He spoke in support of his bill, and questioned witnesses. He argued that internet taxes are regressive, and "would discourage the adoption of broadband".

No member of the Subcommittee spoke in opposition to the bill. However, Rep. Tammy Baldwin (D-WI) spoke about access taxes. She said that Wisconsin has such a tax, but the proportion of people in the state with internet access continues to grow. She also stated that several states with such taxes in 1998 had lower than average percentages of residents with internet access in 1998, but now have a higher than average percentages of residents who are online.

James Gilmore, a former Governor of Virginia and the former Chairman of the Advisory Commission on Electronic Commerce, testified in support of the bill. He stated, and wrote in his prepared testimony, that the imposition of new taxes would inhibit internet and broadband adoption, exacerbate digital divides, and harm small internet service providers.

Gilmore also said that taxing the internet would be "European". He wrote that "America currently dominates the world market in electronic services, software development and digital content. We should strive to build on our competitive position even further. Tax policy favorable to Internet access and the content and information transferred over the Internet is critical to maintaining our competitive position in the world marketplace. Europe is looking for more ways to tax the Internet and the content, software and information exchanged over the web. We should resist the European paradigm of imposing VAT taxes on Internet service and the content and information accessed over the Internet."

Jack Kemp, a former Representative and former Secretary of Housing and Urban Development, also testified in support of the bill. He advocated passing "a clean moratorium" that does not also provide for a "national sales tax cartel". See also, prepared testimony.

Harris Miller, President of the Information Technology Association of America (ITAA) also testified in support of the bill. See, prepared testimony [PDF].

This left the dissent to Harley Duncan, Executive Director of the Federation of Tax Administrators. He stated that any extension of the moratorium should be temporary, rather than permanent. He also stated that it should preserve the grandfather rights of states that already have internet access taxes.

He also took issue with the bill's definition of the internet access and discriminatory tax. He wrote that definition of internet access "effectively allows a broad range of content and other services to be bundled with Internet access and potentially be considered as protected under the prohibition on the imposition of new taxes on Internet access." See, prepared testimony.

House Subcommittee Holds Hearing on Bill to Replace CARPs

4/1. The House Judiciary Commitee's Subcommittee on Courts, the Internet, and Intellectual Property held a hearing on HR 1417, the "Copyright Royalty and Distribution Reform Act".

This bill would replace Copyright Royalty Arbitration Panels (CARP), which is currently a system of ad hoc arbitration panels that recommend the royalty rates and distribution of royalty fees collected under certain of the statutory licenses and set some of the terms and conditions of some of the statutory licenses. The bill would replace the CARP system with a single permanent Copyright Royalty Judge, who would be appointed by the Librarian of Congress for a five year term, and be supported by two full-time professional staff members.

Marybeth Peters, the Register of Copyrights, stated in her prepared testimony that this bill would "would make significant changes to the CARP process to reduce costs, promote stability and the administrative efficiency of the copyright royalty distribution and rate adjustment system".

She identified several shortcomings of the current system. "First, there is no question that the CARPs are very costly both to the participants in a proceeding and on an institutional scale. Arbitrators are typically compensated at between $200 and $400 an hour for their work which, in hotly contested proceedings that involve many parties and large amounts of testimony (such as the recent rate setting proceeding for webcasting music over the Internet), can add up to considerable sums. In the case of a royalty rate adjustment proceeding, the arbitrators must be paid by the parties out of their own pockets. There is no question that in some rate adjustment proceedings, some interested parties conclude that they cannot afford the cost of participating."

She also said that "because of the ad hoc nature of the CARPs, there is a lack of stability and predictability in the process." Also, "there is a considerable lack of institutional expertise on the CARP panels."

Michael Remington, an attorney with the law firm of Drinker Biddle & Reath, which represents Broadcast Music, Inc. (BMI), stated in his prepared testimony that "the CARP system is in dire need of reform" and HR 1417 "is a positive step forward". He elaborated that "The system is time-consuming, formal and very expensive. It has neither promoted stability and predictability of results nor does it discourage resort to the costly, formal and protracted process. Settlements are all too often hard to achieve."

Remington testified that "H.R. 1417 also cures two serious defects in the current CARP system. First, currently the Copyright Office is placed in the schizophrenic situation of being the intake agency (a clerk of court, of sorts) and the appellate court (as advisor to the Librarian) for CARP decisions. Such dual responsibility is extremely rare in the United States and the Office clearly has struggled with balancing its two roles. H.R. 1417 both eliminates the Office’s intake role and removes the Librarian’s appellate responsibilities. A consultative role is appropriately preserved for the Office. The bill should specify that any advice rendered by the Office is limited to legal issues. Second, H.R. 1417 permits a single appeal to the U.S. Court of the Appeals for the D.C. Circuit (which has developed expertise in reviewing copyright royalty appeals)." (Parentheses in original.) He also offered several proposed refinements to the bill.

Bruce Rich, an attorney with the law firm of Weil Gotshal & Manges, which represents broadcast, cable and new media, stated in his prepared testimony that "the present CARP system’s reliance on three, newly-selected arbitrators for each CARP proceeding suffers serious shortcomings". He listed "Transient expertise and lack of continuity of decision-makers", "Lack of familiarity with prior precedents and, given the lack of probability of being chosen again to be an arbitrator, little incentive to craft meaningful precedent", "Wasteful expenditures of time in intra-arbitrator conferences on procedural and substantive issues", and "An inevitable tendency to reach compromise decisions, reflected in the remarkable tendency of virtually every party to a CARP proceeding to appeal the arbitrators’ rulings". He added that HR 1417 "commendably eliminates this cumbersome and inefficient approach in favor of the use of a single Copyright Royalty Judge ..."

Robert Garrett, an attorney with the law firm of Arnold & Porter, testified on behalf of Major League Baseball, the National Basketball Association, the National Football League, the National Collegiate Athletic Association, and other sports entities. He wrote in his prepared testimony that "The CARP structure should not be replaced with an entirely new decision-making body".

The CIIP Subcommittee also held a hearing on this issue on June 13, 2002. See, statements of Rep. Howard Coble (R-NC),  Rep. Darrell Issa (R-CA), Rep. Zoe Lofgren (D-CA), Rep. Rick Boucher (D-VA), Rep. John Conyers (D-MI), and prepared testimony of witnesses, Marybeth Peters, Bruce RichMichael Remington, Alan Garrett, and David Mandelbrot. See also, Final Print (Serial #78) [177 pages in PDF], and hearing transcript.

House Judiciary Committee Seeks More Information From DOJ Regarding USA Patriot Act Implementation

4/1. Rep. James Sensenbrenner (R-WI) and Rep. John Conyers (D-MI) wrote a letter to Attorney General John Ashcroft regarding implementation of the USA PATRIOT Act. The letter is a long list of written interrogatories, and a request for production of documents, pertaining to the use of preexisting authorities and the new authorities conferred by the Act. The letter asks numerous questions about data mining and electronic records.

The letter covers a wide range of topics. Several are technology related. For example, the letter includes this: "The Department has increased the use of ``national security letters´´ that require businesses to turn over electronic records about finances, telephone calls, e-mail and other personal information. A. Please identify the specific authority relied on for issuing these letters. B. Has any litigation resulted from the issuance of these letters ..."?

The letter also asks "Has any administrative disciplinary proceeding or civil action been initiated under section 223 of the Act for any unauthorized disclosure of certain intercepts?"

The letter also asks numerous questions about "data mining". It states that "The new guidelines allow FBI agents to attend a public event, such as a political demonstration or a religious service, and to use data mining services, provided doing so is for the purpose of preventing or detecting terrorism." It then asks, "What level of predication is required to permit FBI agents to attend public events or to use data mining services?"

It also asks, "Are FBI agents required to record in writing -- before they use data mining techniques or attend a public event under the guidelines -- how such activity is for the purpose of detecting or preventing terrorism?"

The letter also states that "With the FBI's authority to ``data mine´´ under the Guidelines, many fear that the FBI will have too much information and that the Bureau does not currently have the tools necessary to make good use of intelligence or to keep vast amounts of information secure." It then asks, "What has been done and is being done to improve the Bureau’s ability to interpret all of this new data? What security measures have been implemented to prevent unauthorized access to such data?"

It further inquires, "What type of supervision will be required when agents use data mining? Will field agents be able to initiate data mining on their own or will they be required to obtain approval from a supervisor?" Also, "What data mining services has the FBI used? How long will data obtained through data mining be retained and how will it be indexed?"

The data mining questions continue. "Where and how is information obtained through data mining stored? Is access to data obtained through data mining limited to those involved in a particular investigation? How is erroneous information corrected or purged, if at all? Has the Department issued written policies to provide guidance in this area? Does it plan to issue such policies? ... Has, and from what companies, the Department purchased information or entered into contracts with data mining companies? To what extent and how will persons listed in such information be able to correct errors or inaccuracies?"

The letter also asks, "Is the Department assisting in the implementation of the Computer Assisted Passenger Prescreening System (CAPPS I or II), which would be used to screen airline passengers?"

Rep. Sensenbrenner and Rep. Conyers are the Chairman and ranking Democrat on the House Judiciary Committee.

Legislators Urge FCC to Amend Broadcast Ownership Rules by June

3/28. Rep. Billy Tauzin (R-LA) and eleven other members of the House and Senate wrote a letter to Federal Communications Commission (FCC) Chairman Michael Powell regarding media ownership rules.

"Our concerns are both procedural and substantive", wrote the legislators. "With respect to our procedural concerns, you have outlined a schedule for completing the biennial review that calls for the Commission to release its decision by June of this year. We respectfully request that the Commission adhere to this schedule. Permitting this important proceeding to slip into summer or fall will not make the issues involved any easier to resolve."

Rep. Billy TauzinRep. Tauzin (at right), and the others, continued that "the Commission's ownership restrictions are outdated. It is time for the Commission to amend all of its broadcast ownership rules and bring them into alignment with the realities of today's media marketplace. The public interest is in ensuring consumers a diverse source of local news, public affairs, and community interest programming. The extensive public record developed by the Commission underscores that perpetuation of outdated ownership rules in light of today's marketplace does not satisfy the requirements of the Telecommunications Act or the public interest."

They urged the FCC "to conclude its media ownership proceeding and to reach a final decision on the fate of all its ownership rules by June of this year."

Wednesday, April 2

The House will meet at 10:00 PM for legislative business.

9:30 AM. The Senate Commerce Committee's Communications Subcommittee will hold a hearing
on universal service subsidies, and policies that may ensure future stability and sufficiency. The scheduled witnesses include Federal Communications Commission (FCC) Commissioner Kathleen Abernathy, Carson Hughes (Telepax), Joel Lubin (AT&T), Matthew Dosch (Comporium Communications), Robert Orent (Hiawatha Communication), William Gillis (Center to Bridge the Digital Divide, Washington State University), Charles Robinson (Alaska Commnuications System), Jack Rhyner (TelAlaska), and Dana Tindall (General Communications, Inc.). Location: Room 253, Russell Building.

10:00 AM. The Senate Governmental Affairs Committee will hold a hearing on several pending nominees, including that of Clay Johnson to be Deputy Director for Management at the Office of Management and Budget (OMB). Location: Room 342, Dirksen Building.

11:00 AM. The Business Software Alliance (BSA) will hold a media conference call to discuss a study on software piracy. BSA P/CEO Robert Holleyman will moderate. To participate, call 1 888 243-0812. See, BSA release.

11:30 AM - 2:00 PM. Anne Mulcahy, Ch/CEO of Xerox, will speak at the U.S. Chamber of Commerce program titled "From Survival to Success: Leading in Turbulent Times". See, notice. Location: U.S. Chamber of Commerce, 1615 H Street, NW.

1:00 - 3:00 PM. The President's National Security Telecommunications Advisory Committee (NSTAC) will hold a meeting via conference call. The meeting is closed to the public. See, notice in the Federal Register, March 21, 2003, Vol. 68, No. 55, at Page 13967.

The Supreme Court will hear oral argument in Dastar Corporation v. Twentieth Century Fox Film, a case involving whether Section 43(a) of the Lanham Act, codified at 15 U.S.C. § 1125(a), requires an independent showing that consumers will likely be confused by a defendant's false designation of origin or false or misleading description or representation of fact. Dastar made a video that copied extensively from a TV program (that had entered the public domain) without crediting the source. Twentieth Century Fox prevailed in the courts below on a Lanham Act claim.

Thursday, April 3

The House will meet at 10:00 PM for legislative business.

10:00 AM. The Senate Appropriations Committee's VA, HUD, and Independent Agencies Subcommittee will hold a hearing on the FY 2004 budget for the National Science Foundation and the Office of Science Technology Policy (OSTP). Location: Room 138, Dirksen Building.

11:00 AM- 12:00 NOON. Charles McQueary, Under Secretary for Science and Technology, at the Department of Homeland Security (DHS), will speak at a program titled "Homeland Security Business Forum: Science and Technology Under DHS". See, notice and registration pages. The price to attend is $35 for members and $100 for non members. Location: U.S. Chamber of Commerce, 1615 H Street, NW.

12:00 NOON. John Muleta, Chief of the Federal Communications Commission's (FCC) Wireless Telecommunications Bureau will speak at the Land Mobile Communications Council's annual meeting. Location: Loews L'Enfant Plaza Hotel.

3:00 PM. The House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property will hold a hearing on HR__, the "United States Patent and Trademark Fee Modernization Act of 2003". James Rogan, Director of the U.S. Patent and Trademark Office's (USPTO) will testify regarding this and the USPTO's 21st Century Strategic Plan. Webcast. Location: Room 2141, Rayburn Building.

3:30 PM. Pamela Samuelson (Professor, UC Berkeley) will give a lecture titled "Freedom to Tinker, Freedom to Learn: A Constitutional Interest in Reverse Engineering". For more information, contact Julie Cohen at Location: Georgetown University Law Center, Faculty Lounge, 600 New Jersey Ave., NW.

Day one of a two day conference hosted by the University of Maryland's Center for Intellectual Property titled "Copyright in the Digital Age: Challenges Facing the Academy". The agenda includes sessions on the TEACH Act, peer to peer file copying, and the DMCA. Location: Greenbelt Marriott, Maryland.

Friday, April 4

The House will meet at 10:00 PM for legislative business.

Day one of a two day conference hosted by the University of Maryland's Center for Intellectual Property titled "Copyright in the Digital Age: Challenges Facing the Academy". The agenda includes sessions on the TEACH Act, peer to peer file copying, and the DMCA. Location: Greenbelt Marriott, Maryland.

8:00 AM. Phil Bond, Under Secretary of Commerce for the Technology Administration (TA), will deliver a speech titled "Growth and Policy Implications of Nanotechnology" at the National Nanotechnology Initiative 2003 Conference. For more information, contact Connie Correll at or 202 482-1065. Location: Omni Shoreham Hotel, 2500 Calvert St, NW.

9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in Sprint Corp v. FCC, No. 02-1129. Judges Sentelle, Rogers and Garland will preside. Location: 333 Constitution Ave., NW.

12:15 - 1:30 PM. The Federal Communications Bar Association's (FCBA) Wireless Telecommunications Committee will host a luncheon. The speaker will be John Muleta, Chief of the Federal Communications Commission's (FCC) Wireless Telecommunications Bureau. The price to attend is $15. Cancellations and/or RSVPs are due by 5:00 PM on Tuesday, April 1. RSVP to Wendy Parish at Location: Sidley Austin, 1501 K Street, NW, Conference Room 6E.

6:00 PM. Deadline to submit applications to the National Telecommunications and Information Administration (NTIA) for planning and construction grants for public radio and nonbroadcast facilities under the Public Telecommunications Facilities Program (PTFP). See, notice in the Federal Register, March 5, 2003, Vol. 68, No. 43, at Pages 10609 - 10615.

Monday, April 7

The Intellectual Property Owners Association (IPO) will hold a Committee Leadership Meeting. For more information, call 202 466-2396. Location: Ronald Reagan International Trade Center.

DEADLINE EXTENDED TO APRIL 17. Deadline to submit comments to the Federal Communications Commission (FCC) in response to its Notice of Inquiry (NOI) [MS Word] regarding "Additional Spectrum for Unlicensed Devices Below 900 MHz and in the 3 GHz Band". Unlicensed devices would include, among other things, 802.11. See, notice in Federal Register, January 21, 2003, Vol. 68, No. 13, at Pages 2730-2733. See also, story titled "FCC Announces Notice of Inquiry Re More Spectrum for Unlicensed Use" in TLJ Daily E-Mail Alert No. 566, December 12, 2002. For more information, contact Hugh Van Tuyl in the FCC's Office of Engineering & Technology at or 202 418-7506. This is OET Docket No. 02-380. See, notice of extention [PDF].

Deadline to submit comments to the Office of the U.S. Trade Representative (USTR) regarding the establishment of a petition process to review eligibility of countries for the benefits of the Andean Trade Preference Act. See, notice in Federal Register, February 4, 2003, Vol. 68, No. 23, at Pages 5542-5545.

Tuesday, April 8

9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in Public Service Commission of Colorado v. FCC, No. 02-1163. Judges Rogers, Garland and Silberman will preside. Location: 333 Constitution Ave., NW.

12:30 PM. Ted Turner will give a luncheon speech. Location: Ballroom, National Press Club, 529 14th St. NW, 13th Floor.

4:00 PM. Ellen Goodman will present a draft paper titled "Spectrum Rights in the Telecosm to Come". For more information, contact Robert Brauneis at 202 994-6138 or Location: George Washington University Law School, Faculty Conference Center, Burns Building, 5th Floor, 720 20th Street, NW.

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