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December 22, 2003, 9:00 AM ET, Alert No. 804.
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FCC Approves News Corp.'s Acquisition of DirecTV, With Conditions

12/19. The Federal Communications Commission (FCC) announced that it has approved, by a vote of 3-2, News Corporation's acquisition of a de facto controlling interest in Hughes Electronics, and hence, its subsidiary, DirecTV Holdings, which provides direct broadcast satellite service (DBS) in the U.S.

The FCC did not release its Memorandum Opinion and Order (MOO). Rather, it released a document [29 pages in PDF] titled "Public Notice" that summarizes the MOO, which is to be released at an unspecified time. However, this is a very detailed public notice. The body of the notice is 16 pages. Four FCC Commissioners also released separate statements.

The three Republicans (Powell, Martin and Abernathy) formed the majority, while the two Democrats (Copps and Adelstein) dissented.

The Department of Justice (DOJ) also announced in a release that "it will not challenge News Corp.'s proposed acquisition of Hughes Electronics Corp., including its DirecTV subsidiary."

Previously, Echostar had sought to acquire DirecTV. However, the FCC rejected this proposed transaction. See, story titled "FCC Declines to Approve EchoStar DirectTV Merger", October 10, 2002. Echostar is also a DBS service provider. Hence, this would have been a horizontal merger.

News Corp. is a media business with operations around the world. Hence, this is a vertical merger.

News Corps.' operations include a U.S. broadcast network (Fox), numerous television stations, cable networks, a film studio, a television studio, newspapers (such as the New York Post), cable programming assets (such as the Fox News Channel, Speedvision, FX, Fox Movie Channel, and the National Geographic Channel), and interactive technology services.

On April 9, 2003, General Motors and Hughes Electronics announced that GM intended to split off Hughes, and simultaneously sell GM's 19.9 percent economic interest in Hughes to News Corp. See, story titled "GM, Hughes and News Corps Announce Directv Deal" in TLJ Daily E-Mail Alert No. 643, April 14, 2003.

GM, Hughes and News Corp. submitted their joint application for approval to the FCC on May 2, 2003. Thus, it took the FCC over seven and one half months to announce its decision.

See also, stories titled "Murdoch Defends News Corp.'s DirecTV Deal" in TLJ Daily E-Mail Alert No. 659, May 12, 2003; and "FCC Sets Deadlines for Comments on News Corp.'s DirecTV Deal" in TLJ Daily E-Mail Alert No. 664, May 19, 2003.

The FCC public notice summarizes the transaction. "This transaction involves the split-off of Hughes from GM, wherein Hughes will become a separate and independent company, followed by a series of transactions through which News Corp., through its majority-held subsidiary, Fox Entertainment Group ("FEG"), will acquire a 34% interest in Hughes. The remaining 66% interest in Hughes will be held by three GM employee benefit trusts (managed by an independent trustee), which combined will hold an approximately 20% interest in Hughes, and by the general public, which will hold an approximately 46% interest in Hughes."

It adds that "As a result, News Corp. will hold the single largest block of shares in Hughes, thus providing News Corp. with a de facto controlling interest over Hughes and its subsidiaries, including DirecTV Holdings, LLC ("DirecTV"), a wholly-owned subsidiary of Hughes, which provides DBS service in the United States, as well as Hughes Network Systems, Inc. ("HNS"), a facilities-based provider of very small aperture terminal ("VSAT") network systems, and PanAmSat Corporation ("PanAmSat"), a global facilities-based provider of geostationary-satellite orbit fixed satellite services ("FSS")."

The application to the FCC requests approval of the transfer of licenses associated with the transaction. The present public notice states that the FCC consents to the transfer of licenses. However, this proceeding is in the nature of an antitrust merger review. The FCC approval also imposes numerous conditions upon News Corp.

This public notice states that the FCC's "primary objective in reviewing license transfer applications is to promote the interest of the consumer of video programming -- to maximize the variety, quality and innovation of available programming and minimize its price where possible. The mechanism of choice to achieve this goal is generally to encourage a competitive marketplace."

The notice states that the FCC concludes that "The proposed transaction will shift control of one of the two domestic DBS providers from an owner who has made no secret of its desire to get out of the business in recent years to a company that has a proven record of innovation and success in providing DBS services and in competing with cable distribution systems in other markets throughout the world. The Commission finds that the potential improvement in DirecTV's service offerings under News Corp.'s innovative and aggressively competitive management, while inherently difficult to quantify precisely, would be a major public interest benefit. Another tangible benefit that we can ensure will be realized is News Corp.'s commitment to achieve the important public interest benefit of offering increased local channel service."

"The Commission also considers whether, as a result of the transaction, the post-transaction entity will have an increased incentive and ability to engage in anticompetitive foreclosure strategies with respect to broadcast television station signals, regional sports cable programming networks, national and non-sports regional cable programming networks, and program-related technologies, including electronic and interactive programming guides. In several areas, no transaction-specific harms were found. In other areas, where the record demonstrates that the proposed transaction is likely to result in anticompetitive harms, the Commission crafted license conditions that are narrowly targeted to address those harms. The Commission concluded that, on balance, the potential public interest benefits of the transaction outweigh the potential harms, as ameliorated by the license conditions."

The notice states that the MOO imposes numerous conditions on News Corp. For example:

First, by the end of 2004, DirecTV must offer local service packages in an additional 30 designated market areas (DMAs) beyond what had been previously funded, projected or planned.

Second, News Corp. must offer its existing and future cable programming services on a non-exclusive basis and non-discriminatory terms and conditions, for as long as the FCC's program access rules are in effect. Moreover, an aggrieved multichannel video programming distributor (MVPD) may file a program access complaint for any alleged violation of the program access conditions.

Third, News Corp.'s commitments regarding nondiscriminatory MVPD access to cable programming is extended to any broadcast television station that News Corp. owns and operates, or on whose behalf it negotiates retransmission consent. Also, the good faith and exclusivity requirements of the 1999 Satellite Home Viewer Improvement Act (SHIVA), due to sunset at the end of 2005, are extended for as long as the FCC's program access rules are in effect.

Michael PowellFCC Chairman Michael Powell (at right) wrote in a separate statement [PDF] that "This merger with strict conditions ultimately benefits the American public. News Corporation has a history of taking significant risks and introducing new and innovative media services. Enhanced competition will increase pressure to improve service and lower prices for both cable and satellite television subscribers. This is a particularly compelling public interest benefit in light of continued cable rate hikes. Increased availability of local channels over satellite in rural America means access to more local programming in an additional 30 markets by year end 2004. Consumers are the winners."

He added that "Facilities-based competition among satellite and cable providers has led to more innovation, more programming and more subscribers. As a result of this transaction, those trends, competitive prices and better quality of service will continue for the American public."

FCC Commissioner Kevin Martin wrote in a separate statement [PDF] that "I support the Commission's decision to approve this transaction. While the merger of News Corp. and DirecTV presents potential harms and benefits, I believe that, on balance, the merger as conditioned will benefit consumers, competition, and the public interest."

He wrote separately to express his "disappointment that a majority of my colleagues is unwilling to grant APTS/PBS’s request to clarify the requirements under the Satellite Home Viewer Improvement Act ("SHVIA") and specifically require that, in providing local-into-local service pursuant to SHVIA, DirecTV could not place certain local broadcast stations on wing satellites."

FCC Commissioner Michael Copps wrote a separate statement [PDF] dissenting from "allowing this merger to go forward". He wrote, "Here we go again. Today the Commission demonstrates how serious -- and seriously misguided -- it was when it voted on June 2 to eviscerate media concentration protections."

"When is ``Big Media´´ big enough? With spectrum always scarce and diversity hanging by a thread, where is the logic -- where is the public interest benefit -- of giving more and more media power to fewer and fewer players? In the end, it all comes back to this: to putting too much power in one conglomerate’s hands and creating opportunities for abuse that accompany such concentrated power", stated Copps.

FCC Commissioner Jonathan Adelstein also wrote a separate statement [PDF] in which he expressed his reasons for dissenting. He wrote that the acquisition "will result in unprecedented control over local and national media properties in one global media empire. Its shockwaves will undoubtedly recast our entire media landscape."

He asserted that "With this unprecedented combination, News Corp. could be in a position to raise programming prices for consumers, harm competition in video programming and distribution markets nationwide, and decrease the diversity of media voices."

This proceeding is MB Docket No. 03-124.

USTR Complains About Lack of Transparency in the PR China

12/18. The Office of the U.S. Trade Representative (USTR) released a report [73 pages in PDF] titled "2003 Report To Congress On China's WTO Compliance". It addresses, among other topics, the lack of transparency in the People's Republic of China. It finds that China has done a tremendous amount of work in writing and revising its laws and rules, and has made these available to the public. However, the report criticizes the lack of openness during the process of writing and revising laws and rules.

See also, story titled "USTR Releases 2nd Annual Report on WTO Compliance by PR China" in TLJ Daily E-Mail Alert No. 803, December 19, 2003, which covers the intellectual property rights (IPR) and telecommunications related portions of the report.

The USTR report also reviews China's obligations regarding transparency. "China made a number of transparency commitments in its accession agreement. One of the most important of these commitments concerned the procedures for adopting or revising laws and regulations affecting trade in goods, services, TRIPS or the control of foreign exchange, given that China’s accession to the WTO became effective while China was still in the process of revising its trade-related laws and regulations to become WTO-consistent. China agreed to provide a reasonable period for public comment on these new or modified laws and regulations before implementing them, except in certain specific instances, enumerated in China’s accession agreement."

The USTR reports that China's has done a "tremendous amount of work" in writing and rewriting its laws and rules. Nevertheless, it complains that "China's ministries and agencies have a poor record of providing an opportunity for public comment before new or modified laws and regulations are implemented. Although the State Council issued regulations in December 2001 addressing the procedures for the formulation of administrative regulations and rules and expressly allowing public comment, many of China’s ministries and agencies in 2002 continued to follow the practice prior to China’s accession to the WTO, and no notable progress took place in 2003."

The report elaborates that "Typically, the ministry or agency drafting a new or revised law or regulation consulted with and submitted drafts to other ministries and agencies, Chinese experts and affected Chinese companies. At times, it also consulted with select foreign companies, although it would not necessarily share drafts with them. As a result, as the end of the second year of China's WTO membership draws near, only a small proportion of new or revised laws and regulations have been issued after a period for public comment, and even in those cases the amount of time provided for public comment has generally been too short."

The report also finds that "China's ministries and agencies have a much better record when it comes to making new or revised laws and regulations available to the public. ... Indeed, these laws and regulations are often published not only in official journals, but also on the Internet." However, the report faults China for lagging in providing English translations.

Europe Complains About the USA's Trade Barriers

12/19. The European Commission (EC) released a report [85 pages in PDF] titled "Report on United States Barriers to Trade and Investment, 2003". It complains of lack of protection of certain intellectual property rights by the U.S. It complaints of market access barriers, and lack of transparency, in U.S. telecommunications regulation. And, it complains about U.S. export controls on encryption products, and the resulting negative impact on electronic commerce.

Pascal LamyEU Trade Commissioner Pascal Lamy (at right) stated in a release that "Although the vast majority of transatlantic trade passes unhindered, we need to review regularly those obstacles which exist and pursue action to remove them. This will ensure that business on both sides of the Atlantic benefit from clearer, more transparent trading conditions."

The report states that "The US Administration has stressed that its trade policy is based on the values of openness, transparency and respect for the rule of law." However, it continues that "there remain aspects of US trade policy which are a source of concern to the EU."

It concludes that "One of the most disquieting aspects of US policy is that domestic pressure to adopt protectionist measures appears to be stronger than willingness to seek internationally agreed solutions."

As would be expected, the report complains about many high profile non technology related protectionist measures, such as the recent steel quotas, the Helms Burton Act, and various buy America government procurement policies. But, it also makes numerous assertions regarding trade barriers involving intellectual property rights (IPR), encryption and e-commerce, and communications.

Intellectual Property. The report states that "Despite a number of positive changes in US legislation following Uruguay Round commitments, problems remain due to discrepancies between US legislation and other international commitments. Issues such as those related to the recognition of ``moral rights´´ to authors or government use of patents have not been resolved. The continued used of EU geographical indications on US products, particularly in the wine sector, is the source of considerable frustration for EU producers. In addition, the US has been condemned in dispute settlement cases related to US intellectual property legislation: Section 110(5) of the US Copyright Act (concerning licensing of music works) and Section 211 of the Omnibus Appropriations Act (on protection of trademarks). Moreover, the co-existence of fundamentally different patent systems (US first-to-invent system versus first-to-file system followed in the rest of the world) continues to create considerable interface problems for EU companies, not to speak of the financial effects of high administrative and litigation costs in patent matters." (Parentheses in original.)

Encryption and E-Commerce. The report states that "An interim final rule was published on 14 January 2000, which amends the Export Administration Regulations (EAR) to allow the export and re-export of any encryption commodity or software to individuals, commercial firms and other non-governmental end users in all destinations. It also allowed export and re-export of retail encryption commodities to end users in all destinations, streamlined post-export reporting requirements and incorporated the changes of the Wassenaar Arrangements (Cryptography Note)." (Parentheses in original.) See, notice in the Federal Register, January 14, 2000, Vol. 65, No. 10, at Pages 2491 -  2502; and, Export Administration Regulations.

However, the report continues that "This rule poses potential problems such as differential treatment for use by on the one hand government bodies, and on the other Internet and telecommunications service providers for which existing or new restrictions apply." The report elaborates on several of these problems.

The report adds that "A combination of the continuing constraints on the export of strong encryption products and on the interoperability of systems employing such technology inhibits not only trade in encryption products but also, more importantly, the effective growth of e-commerce. Thus, significant barriers to international trade in encryption products without key recovery continue to exist, despite the fact that EU Member States, like the USA, are all members of the Wassenaar Arrangement."

"The trend reported by some EU Member States of the US denying the export of certain dual-use items to EU Member States is especially worrying, given the high non-proliferation commitment of the EU Member States", the report states.

Communications. The report also states that "the EU remains concerned about the considerable barriers that EU and foreign-owned firms wishing to get access to the US market still face (e.g. investment restrictions, lengthy proceedings, conditionality of market access, and reciprocity-based procedures). EU-based satellite communications operators in particular have experienced difficulties accessing the US market." (Parentheses in original.)

Commentary: Process and Transparency

12/19. Three documents were publicly released on Thursday, December 18 or Friday December 19 that pertain to the transparency of laws and rules affecting technology and communications. The U.S. Trade Representative (USTR) released a report [73 pages in PDF] that thoroughly criticizes the People's Republic of China for acting in a non-transparent manner in writing and re-writing its laws and rules. The USTR argues that this lack of transparency violates World Trade Organization (WTO) obligations. Second, the European Commission released a report [85 pages in PDF] that states that the Federal Communications Commission (FCC) has not acted in a transparent manner with respect to European satellite operators. Third, the FCC released a public notice [29 pages in PDF] announcing its approval News Corp.'s acquisition of direct broadcast satellite (DBS) service provider DirecTV. The FCC's News Corp. DirecTV proceeding is not about transparency; rather, it serves as useful starting point for a case study into the extent of the FCC's transparency.

The comment that is offered here is that while the U.S. has just released another in a series of comprehensive reports on lack of transparency abroad, there are also transparency issues in the U.S., as reflected by the EC's report that complains about FCC transparency, and the analysis in this article of FCC transparency in the merger review process.

See also, separate stories in this issue, titled "Europe Complains About the USA's Trade Barriers" and "USTR Complains About Lack of Transparency in the PR China", and "FCC Approves News Corps.' Acquisition of DirecTV, With Conditions"

The U.S. has just complained about China's lack of transparency. Various representatives of the U.S. have complained many times in the past about China's lack of transparency. Moreover, the USTR now regularly seeks to include transparency provisions in both multilateral and bilateral trade negotiations.

The just released USTR report finds that China has done a tremendous amount of work in writing and revising its laws and rules, and has made these available to the public. That is, it satisfies the first and most fundamental notion of transparency -- written rules. However, the report criticizes China on another aspect of transparency -- openness during the process of writing and revising laws and rules.

The EC has just accused the FCC of a lack of transparency. Although, the EC does have a record of asserting tenuous claims regarding U.S. trade related policies.

This EC report states that "European satellite operators have encountered serious difficulties in serving the US market". In particular, "These cases show that proceedings by the FCC on spectrum allocation and licensing are not always carried out in an objective, transparent, timely and non-discriminatory manner, and they have raised concerns regarding their compatibility with US WTO commitments."

This TLJ commentary examines the extent of the FCC's transparency in the case of merger reviews, such as the News Corp. DirecTV matter.

The first fundamental aspect of transparency is the notion that governments must have rules, that are reduced to writing, that are made available to everyone, and that are binding upon the public and government alike.

For example, on December 8, 2003, FCC Commissioner Kathleen Abernathy gave a speech [3 pages in PDF] in Geneva, Switzerland, in which she stated that "I believe that transparency is best achieved through the creation and publication of clear rules. However, for the regulatory regime to be successful, these rules must also be strictly enforced."

Hence, the first question in an analysis of transparency of merger reviews is to what extent there are written rules.

The starting point is the applicable statute. The FCC's decision in major merger reviews is based upon an application of competition or antitrust analysis to a proposed merger of companies. So then, what is the underlying statute that instructs the FCC to conduct merger reviews of companies and apply competition analysis, and sets out the standards as to which mergers are subject to review and the competition or antitrust principles to be applied?

Simply put, there is no such statute.

While the FCC has license transfer authority under Titled 47, the FCC conducts these proceedings as though it also has antitrust authority under Title 15, Chapter 1. But, it is not bound by the provisions of Title 15.

The second point in the analysis is the FCC's rules. That is, what regulations have the FCC promulgated to identify which mergers are subject to antitrust merger review analysis, the standards of competition analysis to be applied, and so forth.

Simply put, there no such regulations.

The Department of Justice (DOJ) and Federal Trade Commission (FTC), which statutory authority to apply competition analysis in merger reviews, have issued detailed guidelines. See, for example, Non-Horizontal Merger Guidelines (1984), Antitrust Guidelines for the Licensing of Intellectual Property (1995), Horizontal Merger Guidelines (1997), and Antitrust Guidelines for Collaborations Among Competitors (2000).

But, simply put, the FCC has no such guidelines.

The third point in the analysis is the FCC's procedural rules governing merger reviews. That is, what are the rules that cover procedural matters such as what to file, when to file it, deadlines, the decision making process, and so forth.

These rules do not exist.

To be sure, the FCC has engaged in some activities that possess some of the attributes of a transparent rule making proceeding. For example, while the FCC has promulgated no substantive or procedural rules governing merger reviews, it has conducted an informal, off the books, non-public process.

The FCC has held a series of meetings with affected companies, and their lawyers and consultants in recent years in which it has received verbal comments regarding merger reviews, and offered verbal guidance.

At one of these meetings, on March 1, 2000, the FCC did release a short, informal, and non-binding statement of the FCC's merger review process. See also, TLJ transcript of statement by then FCC General Counsel, Chris Wright. However, the last time that this writer attempted to attend one of these FCC meetings, an FCC lawyer instructed this writer to leave the room. The meeting was not noticed in the Federal Register, it was not webcast, and the FCC has published no transcript or record of the meeting. And, since this writer was ejected, there was no story in the TLJ Daily E-Mail Alert.

Thus, the FCC has no statute, substantive rules, guidelines, or procedural rules. The next point in the analysis is the body of court made case law. But, there is nothing here either. The U.S. Courts of Appeals have authority to hear petitions for review of final orders of the FCC, such as the final orders adopting rules. But, the FCC has adopted no rules, so there have been no rules to challenge in the Courts, and hence, no Court opinions regarding those rules.

The Courts might also hear challenges to denials of merger requests. But, with only one notable exception (Echostar-DirecTV), the FCC has always approved the major mergers, albeit with conditions attached. Hence, the parties to the merger are not challenging denials of their requests.

The final source of written law would be the actual orders of the FCC granting or denying merger requests. In the present proceeding, the FCC issued "Public Notice" that states that the FCC has adopted a "Memorandum Opinion and Order". A final order could be the subject of a petition for reconsideration at the FCC. It could be subject to judicial review. It would also, in principle, be binding upon the FCC. But, the FCC has not issued an order. It has issued only a "Public Notice". A public notice is not written law.

Hypothetically, the FCC could release the order tomorrow. Sometimes the lag time between the announcement of an order and its release is only one day. On the other hand, in some important matters, the dead time has been months. For example, the FCC announced its triennial review order on February 20, 2003, but did not release the order until August 21, 2003 -- six months later.

Moreover, orders in merger review proceedings have limited value as written law. For example, these orders only instruct the parties to the merger. Similarly or identically situated parties, who did not happen to go through a license transfer, are not affected by the order.

So, there is little that one can cite in support of the proposition that the FCC has written rules governing merger reviews. In contrast, the U.S. is vociferously complaining about China, while all along conceding that the Chinese government has written rules, and is making them available to the public. (There is an issue regarding the availability to English translations.) The complaint, generally, goes to the process by which the Chinese adopt rules (that is, notice and opportunity to submit comments). And in the case of intellectual property, there is also the complaint that the rules are not enforced.

Analyzing the fairness of the procedure employed by the FCC in writing its rules is problematic, because the FCC has no rules in the area of merger reviews. Moreover, to the extent that the FCC has engaged in informal proceedings that provide some opportunity for comment, and some feedback, these proceedings possess some of the deficiencies cited by the USTR in its report.

And of course, this analysis goes only to transparency at the FCC in merger reviews. Case studies of some other areas would reveal a much higher degree of transparency.

DC Circuit Reverses in RIAA v. Verizon

12/19. The U.S. Court of Appeals (DCCir) issued its opinion [16 pages in PDF] in RIAA v. Verizon, reversing the District Court, and holding that a Section 512(h) subpoena may only be issued to an ISP that is engaged in storing on its servers material that is infringing or the subject of infringing activity.

This opinion deprives the RIAA and copyright holders of an expeditious and inexpensive means for acquiring the names of P2P infringers from their ISPs. Other more time consuming and expensive procedures remain available to the music industry. However, since the number of P2P infringers is huge, the opinion is a significant setback for the RIAA and the music industry in their efforts to protect copyrighted material from online infringement.

Background. The Recording Industry Association of America (RIAA) represents music companies whose copyrights are being infringed by people using peer to peer (P2P) file sharing systems.

When the RIAA and others failed to obtain orders from courts enjoining producers of decentralized P2P programs, they adopted a strategy of pursuing individual infringers.

The RIAA possesses only Internet Protocol (IP) number information on infringers. This does not reveal the identity of the infringers. However, internet service providers (ISPs), such as Verizon Internet Services, which provide internet access for the P2P infringers, possess information that would associate subscriber information with IP number information. That is, obtaining the ISP's information enables the RIAA, or its members, to file complaints alleging infringement against the individual infringers that names the individuals. It also enables them to contact the individuals before filing a complaint in court.

ISPs, such as Verizon, that provide broadband internet access, derive considerable revenues from people who subscribe to their services, in whole or in part, to be able to use P2P systems to obtain copyrighted music without paying for it. These ISPs have opposed the efforts of the RIAA.

The RIAA cannot sue these ISPs for infringement, because of the safe harbor provisions of the Digital Millennium Copyright Act (DMCA).

The RIAA has obtained subpoenas from the Clerk of the Court of the U.S. District Court for the District of Columbia, pursuant to 17 U.S.C. § 512(h), and served them upon ISPs.

Statute. § 512 provides ISPs a safe harbor from liability for infringement based on the activities of their users. There are four specific limitations on liability. § 512(a) pertains to "transmitting, routing, or providing connections for, material through a system or network controlled or operated by or for the service provider, or by reason of the intermediate and transient storage of that material in the course of such transmitting, routing, or providing connections". § 512(b) pertains to "the intermediate and temporary storage of material on a system or network". § 512(c) pertains to "material that resides on a system or network controlled or operated by or for the service provider". And, § 512(d) pertains to "referring or linking users to an online location containing infringing material or infringing activity, by using information location tools, including a directory, index, reference, pointer, or hypertext link".

Subsection 512(h) then provides, in part, that "A copyright owner or a person authorized to act on the owner's behalf may request the clerk of any United States district court to issue a subpoena to a service provider for identification of an alleged infringer in accordance with this subsection." The statute then provides that the requester should also provide a copy of the 512(c)(3) notice, a proposed subpoena, and a sworn declaration.

The 512(c)(3) notice must include, among other things, an "Identification of the material that is claimed to be infringing or to be the subject of infringing activity and that is to be removed or access to which is to be disabled, and information reasonably sufficient to permit the service provider to locate the material." (See, 512(c)(3)(a)(iii).)

However, the statute does not expressly limit the availability of 512(h) subpoenas to 512(c) situations.

Subsection 512(h)(5) then provides, in part, that "Upon receipt of the issued subpoena, ... the service provider shall expeditiously disclose to the copyright owner or person authorized by the copyright owner the information required by the subpoena, notwithstanding any other provision of law and regardless of whether the service provider responds to the notification."

District Court. In August of 2002, Verizon filed a complaint in the District Court challenging some of the first of these subpoenas. See, stories titled "RIAA Seeks to Enforce Subpoena to Identify Anonymous Infringer" in TLJ Daily E-Mail Alert No. 499, August 27, 2002; and "Verizon and Privacy Groups Oppose RIAA Subpoena" in TLJ Daily E-Mail Alert No. 501, September 4, 2002.

The District Court has issued two major opinions in this case. First, on January 21, 2003, the District Court issued its 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 that 512(h) subpoenas were only available with respect to infringers who stored infringing content on the servers of the ISP.

See, story titled "District Court Rules DMCA Subpoenas Available for P2P Infringers" in TLJ Daily E-Mail Alert No. 588, January 22, 2003. This opinion is also reported at 240 F. Supp. 2d 24.

Second, on April 4, 2003, the District Court issued an opinion [58 pages in PDF] holding that the issuance of a subpoena by a Clerk of the District Court pursuant to § 512(h) to obtain the identity of an anonymous peer to peer infringer from his ISP does not violate either the First Amendment of the Constitution, or the justiciability requirements of Article III.

See, story titled "District Court Rules That A DMCA § 512(h) Subpoena for the Identity of an P2P Infringer Does not Violate the Constitution" in TLJ Daily E-Mail Alert No. 649, April 25, 2003. This opinion is also reported at 257 F. Supp. 2d 244.

Court of Appeals. Verizon appealed both decisions to the Court of Appeals, raising three issues. The Court summarized these three arguments as follows: "(1) § 512(h) does not authorize the issuance of a subpoena to an ISP acting solely as a conduit for communications the content of which is determined by others; if the statute does authorize such a subpoena, then the statute is unconstitutional because (2) the district court lacked Article III jurisdiction to issue a subpoena with no underlying ``case or controversy´´ pending before the court; and (3) § 512(h) violates the First Amendment because it lacks sufficient safeguards to protect an internet user’s ability to speak and to associate anonymously."

The Court of Appeal accepted Verizon's first argument regarding statutory construction, and therefore reversed. It did not decide the other two issues, regarding justiciability and the First Amendment.

The Court wrote that "The issue is whether § 512(h) applies to an ISP acting only as a conduit for data transferred between two internet users, such as persons sending and receiving e-mail or, as in this case, sharing P2P files. Verizon contends § 512(h) does not authorize the issuance of a subpoena to an ISP that transmits infringing material but does not store any such material on its servers. The RIAA argues § 512(h) on its face authorizes the issuance of a subpoena to an ``[internet] service provider´´ without regard to whether the ISP is acting as a conduit for user-directed communications. We conclude from both the terms of § 512(h) and the overall structure of § 512 that, as Verizon contends, a subpoena may be issued only to an ISP engaged in storing on its servers material that is infringing or the subject of infringing activity."

The Court reasoned that "Section 512 creates four safe harbors, each of which immunizes ISPs from liability for copyright infringement under certain highly specified conditions."

It recited each of the four safe harbor provisions of 512(a)-(d), and then observed that "Notably present in §§ 512(b)-(d), and notably absent from § 512(a), is the so-called notice and take-down provision. It makes a condition of the ISP's protection from liability for copyright infringement that ``upon notification of claimed infringement as described in [§ 512](c)(3),´´ the ISP ``responds expeditiously to remove, or disable access to, the material that is claimed to be infringing.´´"

"The RIAA's notification identifies absolutely no material Verizon could remove or access to which it could disable, which indicates to us that § 512(c)(3)(A) concerns means of infringement other than P2P file sharing", concluded the Court. "In sum, we agree with Verizon that § 512(h) does not by its terms authorize the subpoenas issued here. A § 512(h) subpoena simply cannot meet the notice requirement of § 512(c)(3)(A)(iii)."

This opinion prevents the RIAA and other persons and entities asserting copyright infringement from using the relative simple and streamlined Section 512(h) process to obtain subpoenas directed to ISPs to obtain subscriber information, in most situations. It does not prevent the use of other legal procedures to compel ISPs to produce subscriber information, such as the filing of lawsuits against infringers whose names are not known (also know as John Doe lawsuits), and then seeking production of ISP information with a Rule 45 subpoena.

Nor does this opinion in any way limit or dispute earlier opinions that have held that the individuals who use P2P systems to copy copyrighted works, without authorization, are infringers.

Judge Douglas Ginsburg wrote the opinion of the Court, in which Judges Stephen Williams and John Roberts joined.

This case is Recording Industry Association of America (RIAA) v. Verizon Internet Services, U.S. Court of Appeals for the District of Columbia, Nos. 03-7015 and 03–7053, appeals from the U.S. District Court for the District of Columbia, D.C. Nos. No. 02ms00323 and 03ms00040, Judge John Bates presiding.

Cary Sherman, President of the RIAA, stated in a release that "This is a disappointing procedural decision, but it only changes the process by which we will file lawsuits against online infringers. This decision in no way changes our right to sue, or the fact that those who upload or download copyrighted music without authorization are engaging in illegal activity. We can and will continue to file copyright infringement lawsuits against illegal file sharers."

He added that "This decision is inconsistent with both the views of Congress and the findings of the district court. It unfortunately means we can no longer notify illegal file sharers before we file lawsuits against them to offer the opportunity to settle outside of litigation. Verizon is solely responsible for a legal process that will now be less sensitive to the interests of its subscribers who engage in illegal activity."

Consumer Electronics Association (CEA) P/CEO Gary Shapiro stated in a release that this "ruling is an important victory for privacy, free expression, and technological innovation. The tactics of the copyright holders, now blocked by the Circuit Court, created an Orwellian world of privacy invasion, secret police and no judicial oversight. Generally, under the initial ruling, anyone claiming to be a copyright owner could obtain the identity of Internet users without any prior legal determination that the user had engaged in an illegal activity."

GAO Finds Inconsistencies, Inaccuracies and Omissions in the DOD IT Budget Submission for FY 2004

12/19. The General Accounting Office (GAO) released a report [PDF] titled "Information Technology: Improvements Needed in the Reliability of Defense Budget Submissions". See, Volume I [PDF] and Volume II [PDF].

The information technology (IT) budget for the Department of Defense (DOD) accounts for about half of the about $59 Billion government-wide IT budget in fiscal year 2004.

The GAO report found that the "DOD's fiscal year 2004 IT budget submission includes inconsistencies, inaccuracies, and omissions that limit its reliability. For example, the Capital Investment Reports, which provide detailed information on each major IT initiative, are inconsistent with DOD’s IT budget summary report. In particular, 15 major initiatives that appear in the budget summary report do not appear in the Capital Investment Reports, and discrepancies exist between the amounts that the two types of reports included for 73 major initiatives. These discrepancies total about $1.6 billion." (Footnote omitted.)

The report was prepared for Rep. Jim Saxton (R-NJ) and Rep. Marty Meehan (D-MA), the Chairman and ranking Democrat on the House Armed Services Committee's Subcommittee on Terrorism, Unconventional Threats, and Capabilities.

People and Appointments

12/19. Wayne Carlin, Regional Director of the Securities and Exchange Commission's (SEC) Northeast Regional Office, will leave the SEC in January. He will become a partner in the law firm of Wachtell Lipton Rosen & Katz. See, SEC release.

Marsha MacBride12/8. Marsha MacBride (at right) was named Executive Vice President of the National Association of Broadcasters' (NAB) Legal and Regulatory Affairs Department. She was Chief of Staff to Federal Communications Commission (FCC) Chairman Michael Powell from 2001 to September 2003. See, NAB release.

12/15. Sen. Max Baucus (D-MT), the ranking Democrat on the Senate Finance Committee, named Russ Sullivan Democratic Staff Director. He has been Democratic Chief Tax Counsel since 1999. From 1995 through 1999 he was Tax Counsel and Legislative Director for Sen. Bob Graham (D-FL). Before that, he worked for the law firm of Vinson & Elkins. Sen. Baucus also named Bill Dauster Deputy Staff Director. He has worked for the Committee as Democratic General Counsel since April of 2003. Sen. Baucus also named Patrick Heck Chief Tax Counsel.

12/18. Intel announced the appointment of 14 new Vice Presidents: Robert Bruck (VP of the Technology and Manufacturing Group and director of Fab Capital Equipment Development), (Sophia) Lee Fang Chew (VP of the Sales and Marketing Group and general manager of the Reseller Channel Operation), Kevin Corbett (VP of the Desktop Platforms Group and director of Marketing and Strategic Planning), Douglas Davis (VP of the Intel Communications Group and general manager of the Network Processor Division), Anthony Gosden (VP of Finance and Enterprise Services and assistant treasurer and director of Corporate Credit), Timothy Hendry (VP of the Technology and Manufacturing Group and plant manager of Fab 11X), Gerald Holzhammer (VP of the Desktop Platforms Group and co-general manager of the Platform Architecture and Solutions Division), Renee James (VP of the Sales and Marketing Group and general manager of the Microsoft Program Office), John Johnson (VP of Finance and Enterprise Services and director of Information Technology Customer Services), Donald MacDonald (VP of the Sales and Marketing Group and director of Worldwide Branding and Campaigns), Thomas Macdonald (VP of the Enterprise Platforms Group and general manager of the Advanced Components Division), Clemente Russo (VP of the Technology and Manufacturing Group and general manager of Systems Manufacturing), Babak Sabi (VP of the Technology and Manufacturing Group and co-director of the Corporate Quality Network), and Shane D. Wall (VP of the Corporate Technology Group and director of the Systems Technology Lab). See, Intel release.


The TLJ Daily E-Mail Alert will not be published on Wednesday, December 24, Thursday, December 25, or Friday, December 26.

Washington Tech Calendar
New items are highlighted in red.
Monday, December 22

The House is in adjournment.

The Senate is in adjournment. (It will convene on January 20, 2004.)

The Supreme Court is in recess. (It will return on January 12, 2004.)

Deadline to submit initial comments to the Copyright Office (CO) in response to its Notice of Inquiry (NOI) regarding notice and recordkeeping for use of sound recordings under statutory license. The CO published a notice in the Federal Register stating that it "is requesting public comment on the adoption of regulations for records of use of sound recordings performed pursuant to the statutory license for public performances of sound recordings by means of digital audio transmissions between October 28, 1998, and the effective date of soon-to-be-announced interim regulations." See, Federal Register: October 8, 2003, Vol. 68, No. 195, at Page 58054.

Thursday, December 25

Christmas. Executive branch agencies will be closed.

Friday, December 26

Executive branch agencies will be closed. See, Executive Order.

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its notice of proposed rulemaking (NPRM) regarding digital low power television and television translator stations. This is FCC 03-198, in MB Docket No. 03-185. See, notice in the Federal Register, September 26, 2003, Vol. 68, No. 187, at Pages 55566 - 55573.

Monday, December 29

Deadline to submit comments to the Federal Communications Commission (FCC) regarding its notice of proposed rulemaking (NPRM) pertaining to promoting spectrum based services in rural areas. See, notice in the Federal Register summarizing this NPRM, and story titled "FCC Announces NPRM Regarding Regulations Affecting the Use of Spectrum in Rural Areas" in TLJ Daily E-Mail Alert No. 739, September 15, 2003. This NPRM is FCC 03-222 in WT Docket Nos. 02-381, 01-14, and 03-202. The FCC adopted this NPRM on September 10, 2003, and released it on October 6, 2003. See, Federal Register, November 12, 2003, Vol. 68, No. 218, at Pages 64050-64072.

Wednesday, December 31

Deadline to submit a paper or panel proposal for the National Institute of Standards and Technology's (NIST) Spam Technology Workshop to be held on February 27, 2004. For more information, contact Joan Hash at 301 975-3357. See, notice in the Federal Register, November 25, 2003, Vol. 68, No. 227, at Pages 66075 - 66076.

Thursday, January 1

News Years Day.

Friday, January 2

The Federal Communications Commission's (FCC) new broadcast flag mandate takes effect. The FCC announced and released its Report and Order Further Notice of Proposed Rulemaking [72 pages in PDF] on November 4, 2003. This item is FCC 03-273 in MB Docket 02-230. See, notice in the Federal Register (December 3, 2003, Vol. 68, No. 232, at Pages 67599 - 67607) summarizing and stating the effective date of these rules. For more information, contact Rick Chessen or Susan Mort at or 202-418-7200. See also, stories titled "FCC Releases Broadcast Flag Rule" in TLJ Daily E-Mail Alert No. 772, November 5, 2003; and "FCC Publishes Notices Regarding Broadcast Flag Proceeding" in TLJ Daily E-Mail Alert No. 794, December 8, 2003.

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