Tech Law Journal Daily E-Mail Alert
August 11, 2003, 9:00 AM ET, Alert No. 715.
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Broadcom and Intel Settle Patent Suits

8/8. Broadcom and Intel announced they have settled all outstanding litigation between the companies as well as all litigation involving their affiliates pending in various U.S. federal courts, and in the U.S. International Trade Commission.

They stated that "Under the settlement agreement, all outstanding claims and counterclaims in those actions will be dismissed with prejudice. The parties also entered into reciprocal releases covering all patent claims and certain other claims. In connection with the settlement, Broadcom will pay Intel $60 million in cash in two equal installments in the third and fourth fiscal quarters of 2003." See, Intel release and substantially identical Broadcom release.

The two companies also stated that "Broadcom and Intel entered into a separate comprehensive cross-license agreement covering patents owned or controlled by either party or its subsidiaries, and having a first effective filing date, at any time through August 7, 2008. Under the agreement, products of each party and its subsidiaries are licensed under the patents of the other for the respective lives of the patents. All existing products of each party are licensed by the other. Certain proprietary products of each party are not licensed to the other, but neither company believes that the license exceptions are material to its business as currently conducted or planned. No fees or royalties are payable by either party with respect to its business as currently conducted or planned."

See, for example, complaint filed August 30, 2000, in the U.S. District Court (DDel) by Intel, and TLJ story titled "Intel Sues Broadcom for Patent Infringement", September 4, 2000.

FCC Hosts Tutorial on Fiber to the Home

8/7. The Federal Communications Commission (FCC) hosted a tutorial on August 7 on Fiber to the Home (FTTH) technology.

The primary speaker was Jim Farmer, VP of the Fiber to the Home Council. Leonard Ray of the FTTH Council also spoke. Ray stated that as of March of 2003, 110,000 homes were passed by fiber, and that 38,000 are connected, for a take rate of 35%. He added that of the homes passed by fiber, 70% are "over build", as opposed to "green field".

On February 20, 2003, the FCC asserted that it adopted an order regarding the Section 251 unbundling obligations of incumbent local exchange carriers (ILECs). This is also known as the triennial review order. However, the FCC has not released this order. The FCC has issued only a short press release [2 pages in PDF] and an attachment [4 pages in PDF].

The FCC's attachment to its press release briefly addresses FTTH. It states that "There is no unbundling requirement for new build/greenfield FTTH loops for both broadband and narrowband services. There is no unbundling requirement for overbuild/brownfield FTTH loops for broadband services. Incumbent LECs must continue to provide access to a transmission path suitable for providing narrowband service if the copper loop is retired." See also, TLJ stories on the FCC's announcement of it triennial review order.

Farmer stated that one of the advantages of fiber is its "tremendous information carrying capacity". As an example, he provided estimates for how long is would take to receive a copy of the movie "Braveheart" by different technologies. He stated that with a 56 kbps modem, it would take two days to download the movie. With a 128 kbps ISDN line, it would take 20 hours. FedEx could ship a DVD in 12 hours. With a 1 mbps downstream DSL connection, it would take two and a half hours. With a 2.5 mbps downstream cable modem, it would take 45 minutes. And, with FTTH, it would take less than one minute.

He listed other advantages of FTTH technology, including that it has few maintenance problems, it carries a signal a greater distance than electrical signals, it is easier to provide near symmetric rates with FTTH that with DSL or cable, its small size makes it easier to fit into existing crowded ducts, it is not affected by electrical interference, and it lasts a long time.

Farmer also reviewed the structure of fiber optic cables, the different types of lasers, single and dual fiber systems, the different wavelengths being used, and ATM and ethernet transport. He also reviewed FTTH architectures, including Passive Optical Networks (PONs), Active Node, and Hybrid PONs. He also covered security, telephony, and other topics.

Legislators Introduce Bills to Repeal ETI Regime and Extend R&D Tax Credit

7/28. On July 28, Sen. Orrin Hatch (R-UT) introduced S 1475, the "Promote Growth and Jobs in the USA Act of 2003". On July 25, Rep. Bill Thomas (R-CA) introduced HR 2896, the "American Jobs Creation Act of 2003". Both bills are large and complex tax bills with numerous provisions. Two provisions are of particular importance to technology companies -- the extension and modification of the research and development tax credit, and repeal of the recently enacted ETI regime.

R&D Tax Credit. The R&D tax credit has become a perennial issue in Congress. The credit was first enacted in 1981 as a temporary measure. It has been extended repeatedly since then. Under the current scheme, corporations receive a 20% tax credit for qualified research and development expenditures (QREs) in excess of a calculated base amount.

HR 2896 and S 1475 would once again amend Section 41 of the Internal Revenue Code to extend the R&D tax credit. It is currently set to expire on June 30, 2004. Sen. Hatch's bill, at Section 301, would permanently extend the credit. Rep. Thomas' bill, at Section 1011, would extend the credit until December 31, 2007.

Rep. Thomas' bill would also amend Section 41 regarding the alternative simplified credit for qualified research expenses. Rep. Thomas issued a release that states that this change "is of particular benefit to military manufacturers and other manufacturers that make significant R&D expenditures but receive a relatively small credit under current law."

Sen. Hatch's bill would increase the rates of the alternative incremental credit, and provide an alternative simplified credit for qualified research expenses. Sen. Hatch stated at a press conference on July 25 that his bill "would extend permanently the research credit, which is one of the most important incentives we can offer to keep innovation in this country. This issue is clear. R&D is vital to a nation's long-term economic health. If we don't provide a strong incentive for companies to keep this research here, our trading partners will lure it away." See, transcript.

Sections 301-303 of Sen. Hatch's bill are substantially the same as a stand alone bill introduced by Sen. Hatch, Sen. Max Baucus (D-MT) and others on March 19, 2003 -- S 664, the Investment in America Act of 2003. S 664, in turn, is the companion bill to HR 463, introduced by Rep. Nancy Johnson (R-CT) and others on January 29, 2003.

See also, story titled "Representatives Introduce Bills to Make R&D Tax Credit Permanent" in TLJ Daily E-Mail Alert No. 596, February 3, 2003.

FSC/ETI. Both bills would repeal the Extraterritorial Income Exclusion Act of 2000 (ETI), which the Congress enacted as a replacement for the Foreign Sales Corporation (FSC) tax regime.

The World Trade Organization (WTO) has ruled that both the FSC and ETI tax regimes constitute illegal export subsidies, and authorized the European Union (EU) to impose retaliatory tariffs. The U.S. unsuccessfully argued to the WTO that the U.S. has a global tax system, while European nations have territorial tax systems, that this puts U.S. exporters at a competitive advantage, and that tax regimes such as ETI and FSC that exempt certain foreign source income from taxation merely level the playing field.

Technology companies that sell software or equipment abroad have benefited from FSC/ETI. Also, the EU has indicted that if it takes retaliatory measures, it may target certain technology sectors.

Rep. Thomas' release states that his bill "takes necessary steps to repeal the FSC-ETI regime that has been found illegal -- four times -- by the World Trade Organization (WTO). Absent legislative action, the European Union (EU) has announced it will begin imposing $4 billion in sanctions against U.S. products by January 1, 2004. This legislation will not only prevent retaliation, but also make U.S. companies and workers more competitive and productive than they are today by reforming our antiquated corporate tax system."

Sen. Hatch stated that "our bills are quite different in many respects". He stated that his bill "would repeal the FSC/ETI rules, but would give generous transition relief -- a 3-year phaseout starting in 2004." He added that "it includes the most comprehensive set of international tax reform provisions ever considered by Congress. It would offer significant relief from double taxation in the context of the foreign tax credit, as well as rationalize the rules governing how U.S. companies structure their global operations."

Sen. Hatch also stated that "Like the bill Chairman Thomas is introducing, my legislation is not revenue neutral. I have targeted it to have a net cost of about $200 billion. Some of you may be wondering if I think I can get another tax cut bill of $200 billion through the Senate. Probably not, but enactment of my entire bill this year is not my primary goal." He elaborated that he wants "to highlight the importance of complying with our WTO obligations this year", "expand the options on the table", and "make the final bill more beneficial to U.S. domestic and U.S.-based multinational companies and their workers".

See, stories titled "WTO Authorizes FSC/ETI Related Tariffs" in TLJ Daily E-Mail Alert No. 657, May 8, 2003; "Rep. Thomas Writes Colleagues Re FSC Dispute" in TLJ Daily E-Mail Alert No. 622, March 13, 2003; "Deputy Treasury Secretary Addresses FSC/ETI and WTO Rulings" in TLJ Daily E-Mail Alert No. 526, October 9, 2002; "Sen. Baucus Calls WTO Dispute Settlement Process a ``Kangaroo Court´´" in TLJ Daily E-Mail Alert No. 519, September 30, 2003; and, "Grassley and Baucus Organize Meeting on FSC/ETI Issue" in TLJ Daily E-Mail Alert No. 511, September 18, 2002. See also, TLJ news analysis titled "The FSC Tax Bill and Technology Exporters", November 17, 2000.

Rep. Thomas is the Chairman of the House Ways and Means Committee, which has jurisdiction over his bill. Sen. Hatch is a senior member of the Senate Finance Committee, which has jurisdiction over his bill.

Business Software Alliance Estimates Software Piracy In Each State

8/5. Business Software Alliance (BSA) released a study [14 pages in PDF] titled "U.S. Software State Piracy Study". The study estimates that the software piracy rate for the nation dropped from 25.1% in 2001 to 22.8% in 2002. The study also estimates that there were over $6 Billion in retail sales losses in 2002 due to piracy.

The states with the highest piracy rates were Mississippi (41.7), Wyoming (40.3), Alabama (39.5), Montana (37.6), and West Virginia (36.8). The study concluded that "The regions with the lowest population density tend to have the highest piracy rates".

The states with the lowest piracy rates were Illinois (13.5), Michigan (13.9), Indiana (14.5), New York (15.4), and Wisconsin (15.6).

The piracy rate in California is 19.6%. In Washington state, it is 19.0%.

The study explains its methodology. It is based on "comparing two sets of data, the demand for new software applications, and the legal supply of new software applications." The study elaborates that "PC shipments by state were estimated from a detailed review of the employment and population of each state and market research that surveyed the PC penetration rate of each state. On this basis, estimates of PC shipments could be made for each state."

"To estimate software demand, IPR developed ratios for the amount of software installed on each PC. This was developed from market research on the U.S. market." And, the study states, "To estimate the supply of legal software by state, IPR relied on detailed industry sales data. BSA member companies volunteer their proprietary shipment data to the study under non-disclosure agreements for the purpose of constructing an accurate estimate of the software industry’s 2002 shipments."

This study was conducted for the BSA by the International Planning and Research Corporation (IPR). See also, BSA release.

Monday, August 11

The House is in recess until September 3. Senate is in recess until September 2. The Supreme Court is in recess.

2:00 - 3:30 PM. The American Enterprise Institute (AEI) will host a panel discussion titled "Trade Agreements and Capital Controls". The speakers will be John Taylor (Treasury Department) and Jagdish Bhagwati (Columbia University). See, notice. Location: AEI, 12th Floor, 1150 17th Street, NW.

Deadline to submit comments to the General Services Administration's (GSA) Office of Electronic Government and Technology regarding its draft policy titled "Draft E -- E-Authentication for Federal Agencies". See, notice in the Federal Register, July 11, 2003, Vol. 68, No. 133, at Pages 41370 - 41374.

Tuesday, August 12

Deadline to submit comments, or requests to speak at the September 2, 2003 public hearing, on the Treasury Department's and the Internal Revenue Service's (IRS) notice of proposed rulemaking (NPRM) regarding regulations that "affect certain taxpayers who participate in the transfer of stock pursuant to the exercise of incentive stock options and the exercise of options granted pursuant to an employee stock purchase plan (statutory options)." See, notice in the Federal Register, June 9, 2003, Vol. 68, No. 110, at Pages 34344 - 34370.

Wednesday, August 13

10:00 AM - 12:00 PM. The Federal Communications Commission's (FCC) Wireless Telecommunications Bureau (WTB) will hold a public forum to present the new application search interfaces that will be available for the public to access Multipoint Distribution Service/Instructional Television Fixed Service (MDS/ITFS) Application data. See, notice [PDF]. Location: Room 4-B-516, 4th Floor, FCC, 445 12th Street, SW.

Day one of a three day conference hosted by the American Intellectual Property Law Association (AIPLA) titled "2003 Practical Patent Prosecution Training for New Lawyers". See, notice [PDF]. Location: Arlington, VA.

Thursday, August 14

Deadline to submit comments to the National Institute of Standards and Technology (NIST) regarding its document [12 pages in PDF] titled "Draft Federal Information Processing Standard (FIPS) 199 on Standards for Security Categorization of Federal Information and Information Systems". The NIST states that this document "defines requirements to be used by Federal agencies to categorize information and information systems, and to provide appropriate levels of information security according to a range of risk levels." For more information, contact Ron Ross at 301 975-5390 or See, notice in the Federal Register, May 16, 2003, Vol. 68, No. 95, at Pages 26573 - 26574.

Friday, August 15

Deadline to submit comments to the Federal Communications Commission (FCC) in response to a Petition for Rulemaking on compliance by carriers with relevant statutory provisions on disclosure of customer information in 911 emergencies. The petition was submitted by the National Emergency Number Association (NENA), the Association of Public Safety Communications Officials International (APCO), and the National Association of State Nine One One Administrators (NASNA). See, FCC notice [3 pages in PDF]. For more information, contact Barbara Reideler or Jared Carlson at 202 418-1310.

People and Appointments

8/6. Jeff Cutler was named VP of the Content Division of the Software & Information Industry Association (SIIA). See, release.

More News

8/8. The Federal Communications Commission (FCC) published a notice in the Federal Register describing and reciting its rule changes to its rule implementing the Children's Internet Protection Act (CIPA). The FCC released its Order on July 24, 2003. The CIPA requires schools and libraries receiving e-rate subsidies from the FCC to certify that they have internet safety policies and technology protection measures. This is part of Docket No. 96-45. See, Federal Register, August 8, 2003, Vol. 68, No. 153, at Pages 47253 - 47255.

8/8. Oracle announced in a release that "it has extended its previously announced tender offer for all of the common stock of PeopleSoft, Inc. to midnight EDT on Friday, September 19, 2003. ... The tender offer was previously set to expire at midnight EDT on Friday, August 15, 2003."

8/6. SBC Communications announced plans to deploy over 20,000 WiFi hot spots in 6,000 locations in hotels, airports, convention centers and other sites in its 13 state territory. It stated that it plans to provide an integrated WiFi and third generation (3G) wireless service. SBC further stated that "SBC companies will use their various assets to deploy the Wi-Fi hot spots. Where possible, the companies plan to use their public telephone infrastructure to establish access points and use SBC DSL or T1 service to transport data from the access point to the network." See, SBC release.

8/8. The U.S. District Court (SDNY) ruled in Motorola v. Uzan on defendants' motion to stay the court's $4.26 Billion judgment against the Uzans pending appeal. Motorola stated in a release that the Court "agreed to stay execution of the judgment pending appeal until August 15, 2003, and thereafter, only if the Uzans post a $1 billion bond by that date." On July 31, 2003, the Court issued its Opinion and Order [172 pages in PDF] holding defendants liable for common law fraud, promissory fraud, and civil conspiracy to defraud, and awarding Motorola Credit Corporation (MCC) over $4 Billion in compensatory damages, punitive damages, and interest. See, story titled "Judge Awards Motorola $4,265,793,811.32 From Turkish Telecom Deadbeats" in TLJ Daily E-Mail Alert No. 709, August 1, 2003.

8/5. DirecTV stated in a release that "DIRECTV, Inc. and NDS Group plc announced today that they have agreed to stay the litigation between them pending in the U.S. District Court in Los Angeles, Calif. The stay will continue until the anticipated closing of the acquisition by NDS' parent company, The News Corporation Limited, of 34 percent of DIRECTV's parent company, Hughes Electronics Corporation. The acquisition is currently undergoing regulatory review and is expected to close by year-end, upon which the litigation and all claims and counterclaims alleged therein, will be dismissed with prejudice. The companies further announced that DIRECTV will begin deploying a new conditional access viewing card, known as the D1 card, which contains technology contributed by both DIRECTV and NDS. NDS and DIRECTV have also agreed to discuss plans for future generations of conditional access viewing cards to be used by DIRECTV. In connection with their agreement to stay the litigation, the parties have entered into specified commercial arrangements, which include resolving outstanding payment issues with respect to the P4 and D1 viewing cards."

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