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May 22, 2003, 9:00 AM ET, Alert No. 667.
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4th Circuit Rules on Relation of Telecom Act to Antitrust Law

5/20. The U.S. Court of Appeals (4thCir) issued its split opinion [27 pages in PDF] in Cavalier Telephone v. Verizon Virginia, another appellate opinion addressing alleged violations of the interconnection provisions of the Telecom Act of 1996, and violations of Section 2 of the Sherman Act. See also, the Goldwasser and Trinko cases. This issue is now before the Supreme Court. It granted certiorari in the Trinko case in March.

Background. Cavalier Telephone, a competitive local exchange carrier (CLEC), entered into an interconnection agreement with Verizon Virginia, an incumbent local exchange carrier (ILEC). Interconnection is mandated by 47 U.S.C. § 251. Cavalier alleges that Verizon implemented interconnection in a manner to prevent Cavalier from competing.

District Court. Cavalier filed a complaint in U.S. District Court (EDVa) against Verizon alleging, among other things, that Verizon monopolized or attempted to monopolize the relevant telecommunications market, in violation of § 2 of the Sherman Act, 15 U.S.C. § 2. The District Court dismissed the antitrust claim for failure to state a claim upon which relief may be granted. This appeal followed.

Appeals Court. The Court of Appeals affirmed.

It reasoned that "When enacting the Telecommunications Act, Congress could well have elected to rely only on the antitrust laws to create competition in local telecommunications markets by simply implementing the Supremacy Clause to preempt State laws that granted exclusive franchises in local markets. But foreseeing the inefficiency of that approach, Congress opted to take the proactive approach of creating new duties under the Telecommunications Act. By ``jump-starting´´ and ``accelerating´´ the creation of competition in the local markets through enactment of §§ 251 and 252 of the Telecommunications Act, Congress imposed more dramatic obligations on the local monopolies than would have been imposed simply by subjecting them to preexisting antitrust liability. This was necessary because the antitrust laws alone do not require legitimate monopolies to give up their monopolies or to help competitors."

"In furtherance of its intent to jump-start or accelerate competition in local markets through means independent of the antitrust laws, Congress enacted §§ 251 and 252 of the Telecommunications Act to impose entirely new duties, which were in addition to the duties imposed by § 2 of the Sherman Act", wrote the Appeals Court. "These obligations exceed the duties imposed by the antitrust laws, and failure to fulfill them would not have supplied the foundations of a monopoly claim."

"Thus, it appears that Congress wished to have both acts further competition in local telecommunications services markets through independent means. Stated otherwise, Congress intended that even as it imposed new duties through enactment of the Telecommunications Act that would fall outside the parameters of the antitrust laws, it intended that the duties imposed by the antitrust laws would be left ``untouched.´´"

"For all of these reasons, we conclude that the Sherman Act continues to apply in its own traditional domain, applying as it did before the Telecommunications Act, and the Telecommunications Act imposes new duties that may be enforced in accordance with its own provisions but not under the Sherman Act unless the conduct otherwise would have supported a claim under the Sherman Act absent the authority of the Telecommunications Act."

The Appeals Court concluded that "Because we find that Cavalier’s complaint alleges only breaches of duties that did not exist prior to the enactment of the Telecommunications Act and would not have supported a claim of monopolization or attempted monopolization, it has failed to state a claim under § 2 of the Sherman Act, and the State analogue, upon which relief can be granted. We therefore hold that the district court properly granted Verizon’s motion to dismiss this action pursuant to Rule 12(b)(6), and we affirm the judgment of the district court."

Judge Niemeyer wrote the opinion for the three judge panel. Judge Widener joined. Judge Morton Greenberg, a judge of the U.S. Court of Appeals (3rdCir) on senior status, sitting by designation, wrote a dissent.

This issue is far from settled. See for example, the Seventh Circuit's July 25, 2000, opinion in Goldwasser v. Ameritech, 222 F.3d 390 (7th Cir. 2000), dismissing an antitrust claim. In contrast, see the opinion of June 20, 2002, of the U.S. Court of Appeals (2ndCir) in the Trinko case, which reversed the District Court's dismissal of antitrust claims.

On March 10, 2003, the Supreme Court granted certiorari in Verizon v. Trinko. See, story titled "Supreme Court Grants Certiorari in Verizon v. Trinko" in TLJ Daily E-Mail Alert No. 620, March 11, 2003.

Also, on May 21, the U.S. Court of Appeals (9thCir) issued its amended opinion [47 pages in PDF] in MetroNet Services v. U S West. The Court made revisions to its original opinion, and denied petitions for rehearing and rehearing en banc. This is an antitrust case involving the market for small business local telephone services in Seattle, Washington. The Appeals Court reversed the District Court's grant of summary judgment to U S West (now Qwest). In so doing, the Appeals Court rejected U S West's argument that it has antitrust immunity. This issue is already before the Supreme Court in the Trinko case. See, story titled "9th Circuit Rules on Antitrust Immunity of ILECs" in TLJ Daily E-Mail Alert No. 634, April 1, 2003.

9th Circuit Rules in Antitrust Case

5/13. The U.S. Court of Appeals (9thCir) issued its opinion [29 pages in PDF] in Paladin v. Montana Power, an antitrust case involving the natural gas industry. However, while this is not a technology case, the topics addressed by the Court, including the essential facilities doctrine, illegal tying, and illegal group boycotts, may be applicable in other antitrust cases.

Paladin is a natural gas marketer. Montana Power is a natural gas pipeline company. Paladin filed a complaint in U.S. District Court (DMont) against Montana Power and others alleging federal antitrust and state law tort claims. Paladin alleged that Montana Power and another company created an illegal group boycott, that Paladin created an illegal tying arrangement, and that Paladin possessed storage facilities that constitute essential facilities and that it illegally monopolized them.

The District Court granted summary judgment to Montana Power and the other defendants on the federal antitrust claims, and dismissed the state law claims. The Appeals Court affirmed.

7th Circuit Addresses Erroneous Copyright Registrations, Assignments, and Works Made for Hire

5/21. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Billy Bob Teeth v. Novelty, a copyright infringement and trade dress infringement case involving novelty teeth. The dispute does not involve technology. Nevertheless, the Court addressed issues, such as authorship, registration, erroneous registration, assignment, and works made for hire, that are applicable in copyright cases involving technology.

This case involves a dispute over novelty teeth. These are phony teeth that are oversized, crooked, and chipped that fit over a person's real teeth. They are purchased and used for the purpose of humor, such as to imitate the movie character, Austin Powers.

Rich Bailey, while a dental student, first made a set of the phony teeth as a gag. He did not register a copyright (that is, as the author of a sculpture work). Bailey and Jonah White later formed a partnership to make and sell the teeth, and operated under the name "Billy Bob Teeth". Sales rose to $5 Million per year. But still, there was no copyright registration. They then formed a corporation. White then designed, or authored, the teeth that are at issue in this case. Belatedly, in 1999, the Billy Bob corporation obtained copyright registrations for "Sculpture and Artwork in Novelty Teeth" and "Sculpture and Artwork in Novelty Teeth with Chip." On the registrations the author was described as "Billy Bob Teeth, Inc., employer for hire of Jonah White."

Novelty began making phony teeth similar to Billy Bob's. Novelty marketed them as Bubba Teeth and Hilljack Teeth. Novelty obtained no license from Billy Bob. Billy Bob asserts that Novelty's teeth were copies, that Novelty used the same packaging, and that Novelty made bad bad teeth. This, asserted Billy Bob, caused some purchasers of Novelty's teeth to complain to Billy Bob.

Billy-Bob filed a complaint in U.S. District Court (SDIll) against Novelty alleging copyright infringement and trade dress infringement. During trial White, as owner, signed a nunc pro tunc copyright assignment, assigning his works to Billy Bob. The jury awarded Billy Bob $105,000 in damages for copyright infringement on Novelty's sale of Bubba Teeth, $30,000 in damages on the sale of Hilljack Teeth, and $7,046.40 in damages for trade dress infringement.

The District Court then granted judgment as matter of law to Novelty on the basis that the copyrights were invalid because neither of the works was a "work made for hire." That is, the Billy Bob corporation did not exist at the time the teeth were authored. The Court also conditionally granted the motion for a new trial. It upheld the damage award for trade dress infringement. This appeal followed.

The Appeals Court reversed the judgment as a matter of law (JMOL) regarding copyright infringement.

The Court first addressed the nature of works made for hire. It wrote that "A copyright ``vests initially in the author or authors of the work.´´ 17 U.S.C. § 201. Under the ``work made for hire´´ provisions in 17 U.S.C. § 101, employers are considered authors. A ``work made for hire´´ is a work prepared by an ``employee within the scope of his or her employment´´ or a ``work specially ordered or commissioned´´ within nine specified categories. Community for Creative Non-Violence v. Reid, 490 U.S. 730, 738 (1989). When a work falls within the nine categories, it can be a work made for hire if ``the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.´´ § 101. For an item to be a commissioned work, then, the parties must agree in advance that that is what it will be."

The Court concluded that Billy Bob cannot claim that the works are works made for hire, because Billy Bob did not exist at the time that they were authored.

The Appeals Court continued, however, that the error on the registration is not fatal to Billy Bob's case. It wrote that inadvertent errors on registration certificates do not bar infringement actions. The Court wrote, "So Jonah White is the author of the teeth in question and, in this case, Billy-Bob, Inc. claims ownership of the copyright by assignment from White. Copyrights, like other property rights, can be transferred from an owner to another entity." And this was accomplished by the mid-trial assignment.

Moreover, the Appeals Court held that Novelty lacks standing to challenge the assignment. It wrote that "The statute is in the nature of a statute of frauds and is designed to resolve disputes among copyright owners and transferees." And since, in this case, there is no dispute between Billy Bob, White and Bailey, there is no reason to set aside the assignment.

Hence, the Appeals Court affirmed in part (the trade dress infringement award), and reversed in part (the JMOL on the copyright infringement awards). Billy Bob gets what the jury awarded it.

Adelstein Addresses Media Ownership

5/20. Federal Communications Commission (FCC) Commissioner Jonathan Adelstein gave a speech [7 pages in PDF] to the Media Institute regarding the FCC's review of its media ownership rules.

He said that the public opposes further media consolidation. He also rejected the idea that the development of new technologies for the dissemination of information warrant changing long standing media ownership rules.

Jonathan AdelsteinAdelstein (at right) stated that "Despite the oft-repeated exhortation that technology has changed everything, a simple fact remains. No technological advances have made it possible for every person who wants to broadcast in a local community to do so. We therefore must reaffirm that the public interest is served by promoting all three of the basic principles that form the foundation of American broadcasting system: localism, diversity, and competition -- not just competition alone."

He added that "Neither cable nor the Internet has changed the huge market power granted by federal license to use scarce broadcast spectrum, particularly when that license comes with the requirement to be carried on cable."

He offered several recommendations. "First, we must consider how to hold broadcasters accountable to the public for the benefits they claim will result from consolidation. ... Before allowing media companies to expand into traditionally protected areas, the public should know how it will benefit them. The FCC should then require an annual showing from the consolidated broadcaster that it met its commitments."

"Second", said Adelstein, "diversity concerns stemming from cross-ownership of a broadcast station with other media outlets like newspapers or cable should be addressed based upon a specific showing of the diverse voices available in individual local markets and the power of the proposed combination to undermine diverse viewpoints."

"Third, with respect to the national cap, while I clearly prefer to keep the cap at the 35% level that Congress established, in my opinion, the only other number that makes legal and policy sense is 40%, the number the market is at today."

The Tech Law Journal Daily E-Mail Alert will not be published on Monday, May 26, Tuesday, May 27, or Wednesday, May 28, for a Memorial Day break.
Capitol Hill News

5/21. The House Judiciary Committee amended and passed HR 1115, the Class Action Fairness Act, by a vote of 20-14. It was a largely party line vote, with Republicans supporting the bill, and Democrats opposing it. However, Rep. Rick Boucher (D-VA), a cosponsor of the bill, voted for it. See also, story titled "House Committee Holds Hearing on Class Action Reform Bill" in TLJ Daily E-Mail Alert No. 664, May 19, 2003.

5/21. The Senate Commerce Committee held a hearing on unsolicited bulk e-mail. See, prepared testimony of Sen. Charles Schumer (D-NY), and prepared testimony of Sen. Mark Dayton (D-MN). See also, prepared testimony of Orson Swindle (Federal Trade Commission),  Mozelle Thompson (Federal Trade Commission), Ted Leonsis (American Online), Enrique Salem (Brightmail), Trevor Hughes (Network Advertising Initiative), Mark Rotenberg (Electronic Privacy Information Center), and Ronald Scelson (Scelson Online Marketing).

5/21. The Senate Banking Committee held a hearing titled "National Export Strategy". See, opening statement of Sen. Richard Shelby (R-AL) and opening statement of Sen. Elizabeth Dole (R-NC). See also, prepared testimony of witnesses: Philip Merrill (President of the Export Import Bank of the United States), Peter Watson (President of the Overseas Private Investment Corporation), and Hector Barreto (Administrator of the Small Business Administration.

5/21. The House Homeland Security Committee's (HHSC) Subcommittee on Cybersecurity, Science, and Research & Development held a hearing titled "Homeland Security Science and Technology: Preparing for the Future." See, prepared testimony of Charles McQueary, Under Secretary of the Department of Homeland Security (DHS). He testified about, among other topics, the Threat and Vulnerability, Testing and Assessment (TVTA) program. He wrote that the purposed of the TVTA is "to create advanced modeling, and information and analysis capabilities that can be used by the organizations in the Department to fulfill their missions and objectives. One thrust of this program is to develop advanced computing, information, and assessment capabilities in support of threat and vulnerability analysis, detection, prevention and response. This portfolio also conducts extensive research and development activities in the area of cybersecurity, addressing areas not currently addressed elsewhere in the Federal government. An example of this is developing tools and techniques for assessing and detecting the insider threat."

Thursday, May 22

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

9:30 AM. The Senate Judiciary Committee will hold an executive business meeting. The agenda includes consideration of several nominations, including Michael Chertoff (to be Judge of the U.S. Court of Appeals for the 3rd Circuit), David Campbell (U.S. District Court for the District of Arizona), Robert McCallum (to be Associate Attorney General), Peter Keisler (to be Assistant Attorney General in charge of the Civil Division), and Hewitt Pate (to be Assistant Attorney General in charge of the Antitrust Division). The agenda also includes consideration of several bills, including S 554, a bill to allow photographic, electronic, broadcast, or television coverage of federal court proceedings. See, notice. Press contact: Margarita Tapia at 202 224-5225. Location: Room 226, Dirksen Building.

10:00 AM. The Senate Commerce Committee will hold yet another hearing on media ownership. Press contact: Rebecca Hanks 202 224-2670 or Andy Davis at 202 224-6654. Location: Room 253, Russell Building.

10:00 AM. The Senate Indian Affairs Committee will hold a hearing on telecommunications in Indian country. Location: Room 485, Russell Building.

10:00 AM. The House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property will meet to mark up HR 1561, the "United States Patent and Trademark Fee Modernization Act of 2003". The event will be webcast. Press contact: Jeff Lungren or Terry Shawn at 202 225-2492. Location: Room 2141, Rayburn Building.

11:00 AM. The House Judiciary Committee's Subcommittee on Commercial and Administrative Law will meet to mark up HR 49, the "Internet Tax Nondiscrimination Act". The event will be webcast. Press contact: Jeff Lungren or Terry Shawn at 202 225-2492. Location: Room 2141, Rayburn Building.

2:00 PM. The Senate Judiciary Committee will hold a hearing on several pending judicial nominations, including Richard Wesley (Second Circuit), Ronnie Greer (Eastern District of Tennessee), Thomas Hardiman (Western District of Pennsylvania), Mark Kravitz (District of Connecticut), John Woodcock (District of Maine). Press contact: Margarita Tapia at 202 224-5225. Location: Room 226, Dirksen Building.

2:30 PM. The Senate Commerce Committee's Subcommittee on Communications will hold a hearing to examine wireless broadband in rural areas. Location: Room 562, Dirksen Building.

Friday, May 23

The House will meet at 9:00 AM for legislative business.

10:00 - 11:30 AM. The Federal Communications Commission's (FCC) Media Security and Reliability Council will hold a meeting. See, notice in Federal Register: November 19, 2002, Vol. 67, No. 223, at Page 69742. For more information, contact Barbara Kreisman at 202-418-1600. Location: FCC, 445 12th St. SW Room TW-C305.

Deadline to submit to the Department of Commerce (DOC) nominations for award of the National Medal of Technology. See, nomination guidelines and notice in the Federal Register, February 14, 2003, Vol. 68, No. 31, at Pages 7509.

Monday, May 26

Memorial Day. The House and Senate will be in recess for the Memorial Day District Work Period from May 26 through May 30. The Supreme Court is in recess.

Tuesday, May 27

Deadline to submit comments to the U.S. Patent and Trademark Office (USPTO) regarding its notice of proposed rulemaking (NPRM) to amend its regulations to implement the Madrid Protocol Implementation Act of 2002 (MPIA). See, notice in the Federal Register, March 28, 2003, Vol. 68, No. 60, at Pages 15119 - 15138.

Wednesday, May 28

The Federal Communications Commission (FCC) will begin Auction 49 (lower 700 MHz band).

Thursday, May 29

12:15 PM. The Federal Communications Bar Association's (FCBA) Cable Practice Committee will host a brown bag lunch. The speaker will be Ken Ferree, Bureau Chief of the Federal Communications Commission's (FCC) Media Bureau. RSVP to Wendy Parish at Location: National Cable & Telecommunications Association (NCTA), 1724 Massachusetts Ave., NW, 2nd Floor Conference Room.

12:15 PM. The Federal Communications Bar Association's (FCBA) Young Lawyers Committee (YLC) will host a brown bag lunch. The topics will be "YLC Year in Review, Planning Meeting 2003, and Elections". For more info contact Yaron Dori at or Ryan Wallach at Location: Willkie Farr & Gallagher, 1875 K St., NW.

Deadline to submit to the National Institute of Standards and Technology (NIST) the 2003 Award Applications for the Malcolm Baldrige awards. See, Application Form [MS Word].

Friday, May 30

10:00 AM. The U.S. Patent and Trademark Office (USPTO) will a public hearing its notice of proposed rulemaking (NPRM) to amend its regulations to implement the Madrid Protocol Implementation Act of 2002 (MPIA). See, notice in the Federal Register, March 28, 2003, Vol. 68, No. 60, at Pages 15119 - 15138. Location: USPTO, Patent Theater, 2121 Crystal Drive, Room 200, Arlington, VA.

More News

5/20. U.S. Telecom Association (USTA) P/CEO Walter McCormick criticized the Federal Communications Commission (FCC) for failing to release its triennial review order, which the FCC announced that it had adopted back in February. He stated in a release that this delay is "an open-ended policy limbo that deepens telecom's fiscal woes and ill-serves the nation." See also, story titled "Rep. Upton Criticizes FCC for Failure to Release Triennial Review Order" in TLJ Daily E-Mail Alert No. 666, May 21, 2003.

5/21. The Treasury Department's Michael Dawson gave a speech titled "Protecting Critical Financial Infrastructure". Dawson is the Deputy Assistant Secretary for Critical Infrastructure Protection and Compliance Policy at the Treasury Department. He spoke in Chicago, Illinois.

5/21. The National Telecommunications and Information Administration (NTIA) published a web site titled "State and Local Rights of Way". It contains a survey of state rights of way laws, a collection of "Rights of Way Success Stories", and a collection of hyperlinks to the web sites of groups and other government entities involvrd in rights of way issues. Some service providers assert that state, local, and federal government entities impose rights of way obstacles to the timely deployment of broadband facilities.

5/21. The Federal Election Commission (FEC) announced that it has assessed civil fines in sixty-six administrative cases. It fined the Level 3 Communications Inc. Political Action Committee $700 for filing a late report. It fined the Sony Pictures Entertainment Inc. PAC $343.75 for filing a late report. It also fined the Friends of John Conyers $5,250 for not filing a quarterly report. Rep. John Conyers (D-MI) is the ranking Democrat on the House Judiciary Committee. See, FEC release.

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