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February 16, 2004, 9:00 AM ET, Alert No. 837.
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FCC Adopts NPRM Regarding Regulation of Internet Protocol Services

2/12. The Federal Communications Commission (FCC) adopted, but did not release, a notice of proposed rulemaking (NPRM) regarding regulation of internet protocol services, including voice over internet protocol (VOIP), at its February 12 meeting.

The FCC issued a short press release [2 pages in PDF] describing this NPRM, and each of the Commissioners wrote (and read or paraphrased) a separate statement. This NPRM is FCC 04-28 in Docket No. WC 04-36.

The FCC release states that the NPRM "asks broad questions covering a wide range of services and applications to differentiate between Internet services and traditional telephony services and to distinguish among different classes of Internet services. Specifically, the Notice asks which regulatory requirements -– for example, those relating to E911, disability accessibility, access charges, and universal service – should be extended to different types of Internet services. The Notice also asks questions on the legal and regulatory framework for each type of Internet service and the relevant jurisdictional considerations for each category."

FCC Chairman Michael Powell said that "This NPRM is, in many ways, the curtain going up on a really new era in communications. ... This is digital migration in spades." He added that this is "this is the most important item, I am aware of, in communications history, in some ways".

"The Communications Act is being rewritten by technology," said Powell, not by the FCC.

Russell Hanser, of the FCC's Wireline Competition Bureau's (WCB) Competition Policy Division (CPD), summarized the contents of NPRM at the FCC's February 12 meeting.

He said that "The notice of proposed rulemaking that you have before you initiates a proceeding to examine issues relating to services and applications making use of the internet protocol (IP), including, but not limited to voice over IP service. We collectively call these offerings IP enabled services, which we define to include communications capabilities making use of the internet protocol, as well as software based applications that facilitate use of those capabilities. The notice describes the fundamental changes resulting from the rise of broadband facilities, and the IP enabled services that typically ride over them."

Hanser continued that "The notice requests comment on ways in which the Commission might categorize IP enabled services to ensure that any regulations applied are applied only where they are most appropriate. For example, the item asks whether the Commission might [inaudible words] to IP enabled services, on the basis of whether they are treated by the public as substitutes for traditional telephony, on the basis of whether they interconnect with the public switched network, or on any other basis." (TLJ transcribed Hanser's statements from an audio recording.)

He stated that "the item asks whether the jurisdictional conclusion should govern the treatment of other IP enabled services, and seeks comments on the applicability of other jurisdictional principles to these services."

Hanser stated that "The notice then asks how each category of IP enabled service should be classified under the communications Act, and whether, and which particular regulatory requirements they then should apply. Specifically, the notice addresses vital concerns regarding broader universal service obligations and and entitlements with respect to IP enabled services. It posses critical questions regarding the collection of access charges in relation to these services."

He stated that "The notice also reaffirms the Commission's commitment that communications are available to all Americans, and are configured to protect public safety. To that end it raises questions about how the Commission might best the address the needs of individuals with disabilities, and preserve or expand the 911 and E911 systems in the context of IP enabled services."

Finally, he said that "the notice asks whether various other regulatory requirements, including traditional economic common carrier regulation, and various consumer protections, should apply to any category of IP services."

Chairman Powell wrote in a separate statement [PDF] that "While IP-enabled services should remain free from traditional monopoly regulation, rules designed to ensure law enforcement access, universal service, disability access, and emergency 911 service can and should be preserved in the new architecture. In today's Notice, we seek comment on whether and how to apply discrete regulatory requirements where necessary to fulfill important federal policy objectives."

Kathleen AbernathyFCC Commissioner Kathleen Abernathy (at right) made several points in separate statement [PDF]. She wrote that "I believe that the regulatory framework for IP-based services must be predominantly federal. ... Moreover, most forms of IP communications appear to transcend jurisdictional boundaries, rendering obsolete the traditional separation of services into interstate and intrastate buckets."

Second, she wrote that "I am deeply skeptical about the application of economic regulation to these nascent services. Public-utility regulations have traditionally been imposed on local exchange carriers to restrain their market power. Services such as VOIP, by contrast, appear to have low barriers to entry and it does not appear that any provider occupies a dominant market position."

Third, Abernathy wrote that "I am committed to ensuring that our regulatory approach meets certain critical social policy objectives. As most policymakers at the federal and state level have recognized, we will need to find solutions to guarantee access to 911 services, the ability of law enforcement agencies to conduct surveillance, the preservation of universal service, and access by persons with disabilities."

See also, FCC Commissioner Kevin Martin's separate statement [PDF]. He concluded, that, "as we move forward, we should all be trying to work toward policies that try to treat similar services in a similar fashion, and don't create kind of unfortunate regulatory arbitrage opportunities that Commissioner Abernathy and others have talked about."

FCC Commissioner Michael Copps wrote in his separate statement [PDF] that "I limit my support to concurring here because this proceeding on IP-enabled services strikes me as getting rather too close to final conclusions. In this Notice, we seem to be judging IP-related services without defining them. We ask questions about how to classify these ill-defined services, but then presume, or at least suggest, the answers. The impression is left that we are asking what rules we should apply when we relocate whole services and technologies to Title I from Title II. Were we eventually to take this route, we would be rewriting the 1996 Act -- from top to bottom. This agency has no right to substitute its reclassification wishes for the will of Congress."

He added that "we need to address intercarrier compensation to create a level playing field that minimizes arbitrages and maximizes the opportunities for new technologies to flourish."

FCC Commissioner Jonathan Adelstein emphasized universal service in his separate statement [PDF]. He wrote that "The Act charges us to maintain universal service, which is crucial in delivering communications services to our nation’s schools, libraries, low income consumers, and rural communities. We will need to look closely at how IP-enabled services affect our ability to fund and deliver those services. The support that our universal service programs bring to our nation’s rural communities is critical, so I am particularly glad that this Notice seeks direct comment on issues of concern to Rural America."

House Science Committee Holds Hearing on R&D Funding

2/11. The House Science Committee held a hearing on President Bush's budget proposals for fiscal year 2005 pertaining to funding of federal research and development. The Committee is the authorizing committee for the National Science Foundation (NSF), the Department of Commerce's (DOC) National Institute of Standards and Technology (NIST), the Department of Energy's (DOE) Office of Science, and other agencies.

The Science Committee members tend to favor larger R&D budgets than either the Presidents who propose the budgets, or the House Appropriations Committee members, who write the actual appropriations.

On February 2, Rep. Sherwood Boehlert (R-NY), the Chairman of the Committee, stated that "I am very disappointed in the proposed science budget". See, release.

For the February 11 hearing Rep. Boehlert wrote in his opening statement that "I think my views on the proposed R&D budget for fiscal 2005 are already pretty well known. On the one hand, I understand that the Administration's goal was to protect science in a very austere budget environment, and I appreciate that. On the other hand, it's impossible to seriously view this as a good budget for science. Now, I say that this is not a good budget for science, but we still don't know whether it's the best budget we can get. That's going to depend much more on the overall ``macro´´ decisions the Congress makes on the budget than on anything else. It's far too early to tell how things will work out. All I know is that I will be doing everything I can to see that science prospers."

Rep. Vernon Ehlers (R-MI), the Chairman of the Subcommittee on Environment, Technology and Standards, wrote in his prepared testimony that "Scientific research and development forms the foundation of increased innovation, economic vitality and national security. Scientific research is an investment that promises, and has historically delivered, significant returns on that investment."

He lamented that "For the past several years, research and development funding for defense, weapons development, biomedical sciences, and national security has increased while other areas of federal research and development, especially basic research in the physical sciences, has remained flat or declined. The President's FY 2005 request of $132 billion for research and development continues this trend."

John MarburgerIn contrast, John Marburger (at right), the Director of the President's Office of Science and Technology Policy, wrote in his prepared testimony that the "budget request commits 13.5% of total discretionary outlays to R&D, the highest level in 37 years. Not since 1968 during the Apollo program have we seen an investment in research and development of this magnitude. Of this amount, the budget commits 5.7% of total discretionary outlays to non-defense R&D, the third highest level in 25 years."

Rita Colwell, Director of the NSF, wrote in her prepared testimony that the NSF "is requesting $5.745 billion dollars. That's an increase of $167 million, or 3 percent more than in the FY 2004 enacted level."

She also addressed nanotech research. "NSF's investment in Nanoscale Science and Engineering targets the fundamental research that underlies nanotechnology -- which very likely will be the next ``transformational´´ technology", wrote Colwell. "Investments in this priority area will emphasize research on nanoscale structures and phenomena, and quantum control. NSF is the lead agency for the government-wide National Nanotechnology Initiative (NNI). NSF is requesting $305 million, an increase of nearly $52 million or 20 percent. This is by far NSF's largest priority area investment."

See also, prepared testimony of Charles McQueary (Under Secretary for Science and Technology, Department of Homeland Security), prepared testimony of Phillip Bond (Under Secretary of Commerce for Technology, Department of Commerce), and prepared testimony [PDF] of Raymond Orbach (Director, Office of Science, Department of Energy).

Microsoft also released statement on both government and corporate R&D. It states that "One of the most important priorities, essential to ensuring America’s future economic vitality, is sustaining the nation’s commitment to research and development in science and technology. Federal support for R&D drives a cycle of innovation that fuels the economy."

It also states that "Especially vital is the National Science Foundation, which sponsors discoveries across the frontiers of science, nurtures a technologically savvy workforce and helps build state-of-the-art facilities for pioneering science and engineering. Given many other needs, the Bush administration should be commended for its proposed increase in the NSF budget, and we hope Congress will continue to support the NSF and other government research programs."

Microsoft's statement adds that "Proposed increases in R&D to protect the nation’s critical information infrastructure from cyberattacks are also important." Finally, the it argues that "Policymakers can help promote innovation and economic growth by encouraging private R&D investment. One way is for Congress to extend the current research tax credit, which is set to expire in June."

House Subcommittee Approves Broadcast Decency Enforcement Act

2/11. The House Commerce Committee's Subcommittee on Telecommunications and the Internet held a hearing on HR 3717, the "Broadcast Decency Enforcement Act of 2004", on Wednesday, February 11.

See, prepared testimony of Mel Karmazin (P/COO of Viacom), prepared testimony of Paul Tagliabue (Commissioner of the National Football League), prepared testimony of Michael Powell (FCC Chairman), prepared testimony of Kathleen Abernathy (FCC Commissioner), prepared testimony of Jonathan Adelstein (FCC Commissioner), prepared testimony of Michael Copps (FCC Commissioner), and prepared testimony of Kevin Martin (FCC Commissioner).

Rep. John Dingell (D-MI), the ranking Democrat on the full Committee, suggested in his prepared statement that "Perhaps the penalties in this legislation need to be more closely tied to the advertising revenues that the indecent broadcast generates. As long as the revenues from such broadcasts far exceed the penalties, this behavior will continue."

On Thursday, February 12, the subcommittee forwarded the bill to the full committee by voice vote.

Also on February 12, Federal Communications Commission (FCC) Chairman Michael Powell wrote letters to the heads of the National Cable Telecommunications Association (NCTA), the National Association of Broadcasters (NAB), ABC, CBS, NBS, and Fox regarding regarding obscene and indecent programming. See, FCC web page with hyperlinks to each letter in PDF.

And, on February 11, the National Association of Broadcasters (NAB) announced that it will hold an "All-Industry Summit to address topics related to responsible programming". See, release.

The NCTA also released a document [20 pages in PDF] titled "Cable Industry Efforts to Empower Consumers: Choice, Control and Education".

Appeals Court Rules Contributory Infringement Claim Against AOL Must Go to Jury

2/10. The U.S. Court of Appeals (9thCir) issued its opinion [18 pages in PDF] in Ellison v. Robertson and AOL, reversing the District Court, and allowing a claim for contributory copyright infringement against AOL to go to a jury, notwithstanding the safe harbor provisions of the Digital Millennium Copyright Act (DMCA).

Introduction. Harlan Ellison is an author. Stephen Robertson is a digital thief. But, this case is not about Robertson; he does not have deep pockets. It is about Ellison's attempt to recover from an internet service provider (ISP), America Online (AOL), for Robertson's infringing activities, under the theories of vicarious and contributory infringement, based upon AOL's providing its subscribers access to the USENET news-group that Robertson used.

This case does not overturn, or provide a tortured construction of, the DMCA safe harbor language. Rather, during the relevant time period, AOL bungled its efforts to qualify for DMCA immunity. The DMCA does not provide ISPs absolute immunity from suit for copyright infringement. Rather, it provides a series of safe harbors, contingent upon the ISP's compliance with the requirements set forth in the DMCA. The Appeals Court merely held that there is a factual dispute in this case, to be decided by the jury, as to whether AOL complied with the safe harbor requirements.

Parties. Ellison is a long time author of short stories, books, screen plays, and other works, with an emphasis on science fiction. See, Ellison's bibliography and Amazon search for "Harlan Ellison". He holds and enforces copyrights.

Robertson scanned, converted into digital files, and published online some of Ellison's written copyrighted works, without license. He published them on a peer-to-peer file sharing network, USENET, in the news-group, alt.binaries.e-book.

America Online (AOL) is an ISP that provided its subscribers with access to this news-group.

In April of 2000 Ellison learned of the infringement. Ellison asserts that his counsel sent an e-mail message to AOL to notifying it of the infringing activity. AOL denies receipt.

But, the Appeals Court wrote that "AOL changed its contact e-mail address from ``´´ to ``´´ in the fall of 1999, but waited until April 2000 to register the change with the U.S. Copyright Office. Moreover, AOL failed to configure the old e-mail address so that it would either forward messages to the new address or return new messages to their senders. In the meantime, complaints such as Ellison's went unheeded, and complainants were not notified that their messages had not been delivered."

The Appeals Court also wrote that an AOL subscriber telephoned AOL with information about the infringing activity. But, AOL took no action to terminate its subscribers' access to the news-group until after it had been served with Ellison's summons and complaint.

Statute. Section 512 of the Digital Millennium Copyright Act (DMCA), which is codified at 17 U.S.C. § 512, is also known as the Online Copyright Infringement Liability Limitation Act (OCILLA). It provides a set of safe harbors from liability for infringement.

Subsection 512(a) provides the safe harbor that is claimed by AOL in this case. It provides, in part, that "A service provider shall not be liable ... for infringement of copyright by reason of the provider's 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, if (1) the transmission of the material was initiated by or at the direction of a person other than the service provider; (2) the transmission, routing, provision of connections, or storage is carried out through an automatic technical process without selection of the material by the service provider; (3) the service provider does not select the recipients of the material except as an automatic response to the request of another person; (4)  no copy of the material made by the service provider in the course of such intermediate or transient storage is maintained on the system or network in a manner ordinarily accessible to anyone other than anticipated recipients, and no such copy is maintained on the system or network in a manner ordinarily accessible to such anticipated recipients for a longer period than is reasonably necessary for the transmission, routing, or provision of connections; and (5) the material is transmitted through the system or network without modification of its content."

However, to qualify for protection under Section 512(a), or the other safe harbor provisions, the claimant must also satisfy the requirements of Subsection 512(i). This subsection provides that "The limitations on liability established by this section shall apply to a service provider only if the service provider--
  (A) has adopted and reasonably implemented, and informs subscribers and account holders of the service provider's system or network of, a policy that provides for the termination in appropriate circumstances of subscribers and account holders of the service provider's system or network who are repeat infringers; and
  (B) accommodates and does not interfere with standard technical measures."

District Court. Ellison filed a complaint in U.S. District Court (CDCal) against Robertson and AOL alleging infringement by Robertson and vicarious and contributory infringement by AOL. AOL moved for summary judgment, asserting, among other things, that it qualified for one of the four safe harbor limitations of DMCA.

The District Court held, on summary judgment, that AOL is not vicariously liable, and that while there are triable issues of material fact on the contributory infringement claim, AOL qualifies under the DMCA for immunity. Ellison appealed.

Appeals Court. The Appeals Court reversed in part. It agreed that there is no vicarious liability, and that there are triable issues of material fact on the contributory infringement claim. But, it also held that there are material issues of fact as to whether AOL qualifies for DMCA immunity. Ellison's contributory infringement claim against AOL therefore goes to the jury.

First, as to vicarious liability, the Appeals Court wrote that there are two elements. Ellison must show "that AOL derived a direct financial benefit from the infringement and had the right and ability to supervise the infringing activity."

The Court reasoned that "the central question of the ``direct financial benefit´´ inquiry in this case is whether the infringing activity constitutes a draw for subscribers, not just an added benefit." The Court concluded that "The record lacks evidence that AOL attracted or retained subscriptions because of the infringement or lost subscriptions because of AOL’s eventual obstruction of the infringement. Accordingly, no jury could reasonably conclude that AOL received a direct financial benefit from providing access to the infringing material. Therefore, Ellison's claim of vicarious copyright infringement fails."

Second, as to contributory liability, the Appeals Court wrote that there are two elements, knowledge and material contribution.

It concluded that "Because there is evidence indicating that AOL changed its e-mail address in an unreasonable manner and that AOL should have been on notice of infringing activity we conclude that a reasonable trier of fact could find that AOL had reason to know of potentially infringing activity occurring within its USENET network."

And, "Because a reasonable trier of fact could conclude that AOL materially contributed to the copyright infringement by storing infringing copies of Ellison's works on its USENET groups and providing the groups' users with access to those copies, we agree with the district court’s finding that this constituted a triable issue."

Third, the Court addressed whether the DMCA provides AOL immunity from the contributory infringement claim.

The Appeals Court wrote that "It is difficult to conclude as a matter of law, as the district court did, that AOL had ``reasonably implemented´´ a policy against repeat infringers. There is ample evidence in the record that suggests that AOL did not have an effective notification procedure in place at the time the alleged infringing activities were taking place. Although AOL did notify the Copyright Office of its correct e-mail address before Ellison's attorney attempted to contact AOL and did post its correct email address on the AOL website with a brief summary of its policy as to repeat infringers, AOL also: (1) changed the email address to which infringement notifications were supposed to have been sent; and (2) failed to provide for forwarding of messages sent to the old address or notification that the e-mail address was inactive."

Hence, the Appeals Court concluded that Ellison's vicarious infringement claim fails, and will not go to the jury. It held that there are factual issues in dispute regarding both contributory infringement, and whether AOL qualifies for DMCA immunity in this case. So, these issues go to the jury.

This case is Harlan Ellison v. Stephen Robertson and America Online, U.S. Court of Appeals for the 9th Circuit, No. 02-55797, an appeal from the U.S. District Court for the Central District of California, D.C. No. CV-00-04321-FMC, Judge Florence Cooper presiding.

District Court Lets Stand $19,725,270.00 Infringement Verdict for Copying Newsletter onto Corporate Intranet

2/10. The U.S. District Court (DMd) issued a Memorandum Opinion [16 pages in PDF] in Lowry's Reports v. Legg Mason, letting stand a jury award of nearly $20 Million for copyright infringement and breach of contract for copying the Lowry's Reports financial newsletter onto its corporate intranet.

While individual P2P infringers may copy with little fear of legal consequences, and ISPs are usually shielded by the safe harbor provisions of Section 512 of the DMCA, this opinion demonstrates that deep pocket corporations that willfully copy newsletters in house may be held liable and assessed damages under a strict mathematical application of the statutory damages provisions of the Copyright Act. In the present case, purely in house copying led to a $19,725,270.00 award.

Lowry's Reports, Inc. publishes the financial newsletter named "Lowry's New York Stock Exchange Market Trend Analysis". Legg Mason (LM) is a global financial services company that is involved in asset management, securities brokerage, and investment banking. LM republished issues of Lowry's newsletters on its corporate intranet, without license.

Lowry's filed a complaint in U.S. District Court (DMd) against LM alleging copyright infringement, common-law unfair competition, and breach of contract. LM moved for summary judgment.

On July 10, 2003, the District Court issued a Memorandum Opinion [42 pages in PDF] in which it granted the motion in part, and denied it in part. It granted summary judgment to LM on the unfair competition claim, but denied the motion as to the infringement and contract claims. The Court also ruled on various issues relating to the calculation of damages. This opinion is also reported as Lowry’s Reports, Inc. v. Legg Mason, Inc., 271 F. Supp. 2d 737 (2003).

On October 3, 2003, a trial jury of the District Court returned its verdict in favor of Lowry's on both the infringement and contract claims. The jury awarded damages of $19,725,270.00. See also, Lowry's release and Wiley Rein & Fielding (counsel for Lowry's) release. LM also issued a release.

LM then moved for judgment as a matter of law, and for a new trial, arguing that the jury award was excessive, that is was based on erroneous instructions, and that it was contrary to the evidence.

On February 10, 2004, the District Court ruled that "Legg Mason's motion for a new trial will be denied and the jury's award will not be modified."

The Court wrote that there was evidence of bad faith conduct and willful infringement. It also wrote that the "statutory damages award was within the limits set by Congress in the Copyright Act."

It added that "the evidence indicated that Legg Mason was a sophisticated entity that repeatedly infringed Lowry's copyrights, even when asked to stop. In light of this evidence, the Court will not modify the jury's award or order a new trial because of its size."

The Court also rejected LM's argument that statutory damages should be limited to four times the actual damages. The Court held that "there has never been a requirement that statutory damages must be strictly related to actual injury."

And, the District Court found nothing wrong with the instructions that it had given to the jury.

However, the Court denied Lowry's motion for attorneys fees. The Court found that one factor weighed in favor of granting attorneys fees. Lowry's "provided evidence that Legg Mason obstructed discovery, made material misrepresentations to the Court, and destroyed evidence". However, Court also found that the consideration of "deterrence and compensation, was adequately provided for by the jury’s award".

This case is Lowry's Reports, Inc. v. Legg Mason, Inc., et al., U.S. District Court for the District of Maryland, D.C. No. WDQ-01-3898.

Washington Tech Calendar
New items are highlighted in red.
Monday, February 16

The House and Senate will be in recess from February 16 through February 20 for the Presidents Day recess.

Presidents Day. The Federal Communications Commission (FCC) and other federal agencies will be closed. The National Press Club will be closed.

Tuesday, February 17

9:00 AM - 5:00 PM. Day one of a three day workshop to be hosted by the Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC) on merger enforcement. See, notice and agenda. Location: FTC, 601 New Jersey Ave., NW, Conference Center.

9:00 AM - 4:00 PM. The National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) and Advanced Network Technologies Division (ANTD) will host a one day conference titled "Spam Technology Workshop". See, notice and conference website. The price to attend is $70. The deadline to register is February 3. Location: Building 101, Green Auditorium, NIST, Gaithersburg, MD.

9:30 AM - 12:30 PM. The U.S. Patent and Trademark Office (USPTO) will host a public roundtable meeting regarding the effectiveness of inter partes reexamination proceedings. See, notice in the Federal Register, December 30, 2003, Vol. 68, No. 249, at Pages 75217 - 75218. See also USPTO's February 17 notice. Location: USPTO, conference room, 2nd floor, Crystal Park 2, 2121 Crystal Drive, Arlington, VA.

Day one of a three day workshop hosted by the National Institute of Standards and Technology's (NIST) Computer Security Division titled "Advanced Information Technology (IT) Security Auditing". See, notice. Location: NIST, Gaithersburg, MD.

Deadline to submit comments to the Federal Communications Commission (FCC) to update the record concerning petitions for reconsideration of rules that the FCC adopted in the 1997 access charge reform docket. See, notice in the Federal Register, January 16, 2004, Vol. 69, No. 11, at Pages 2560 - 2561.

Wednesday, February 18

9:00 AM - 5:15 PM. Day two of a three day workshop to be hosted by the Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC) on merger enforcement. See, notice and agenda. Location: FTC, 601 New Jersey Ave., NW, Conference Center.

10:00 AM. Jane Mago, Chief of the Federal Communications Commission's (FCC) Office of Strategic Planning and Policy Analysis, will host an event titled "briefing for members of the media". She will address "major issues". Persons intending to attend are requested to contact Meribeth McCarrick at 202 418-0654 or Location: FCC, 8th floor South Conference Room (8-B516), 445 12th Street, SW.

12:00 NOON - 2:00 PM. The DC Bar Association will host a luncheon program titled "Bursting the Bubble on Internet Pop-Up Ads?". The speakers will be Terrance Ross (Gibson Dunn & Crutcher, attorneys for the Washington Post in Washington Post v. Gator), Arnold Lutzker (attorney for defendants in U-Haul v., and Walter Effross (American University). Prices vary. For more information, call 202 626-3463. Location: D.C. Bar Conference Center, 1250 H Street NW, B-1 Level.

12:15 PM. The Federal Communications Bar Association's (FCBA) Young Lawyers Committee will host a brown bag lunch. The topic will be "DTV Reality -- It's Here". The speakers will include Rick Chessen, the Associate Bureau Chief of the Federal Communications Commission's (FCC) Media Bureau, and head of the FCC's DTV Task Force. For more information, contact Peter Corea at 202 418-7931 or or Ryan Wallach at 202 303-1159 or Location: Willkie Farr & Gallagher, 1875 K St., NW.

Day two of a three day workshop hosted by the National Institute of Standards and Technology's (NIST) Computer Security Division titled "Advanced Information Technology (IT) Security Auditing". See, notice. Location: NIST, Gaithersburg, MD.

Thursday, February 19

9:00 AM - 4:30 PM. Day three of a three day workshop to be hosted by the Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC) on merger enforcement. See, notice and agenda. Location: FTC, 601 New Jersey Ave., NW, Conference Center.

12:00 NOON - 2:00 PM. The DC Bar Association will host a brown bag lunch. The speaker will be Joe Whitley, General Counsel of the Department of Homeland Security (DHS). Prices vary. For more information, call 202 626-3463. Location: Morrison & Foerster, 2000 Pennsylvania Ave., NW, Suite 5500.

4:00 PM. Michael Carroll (Villanova University School of Law) will present a paper titled "The Human Face of Deadweight Loss: Recognizing the Limits of Ignorance as a Justification for Uniform Intellectual Property Rights". For more information, contact Robert Brauneis at 202 994-6138 or Location: George Washington University Law School, Faculty Conference Center, Burns Building, 5th Floor, 716 20th Street, NW.

Day three of a three day workshop hosted by the National Institute of Standards and Technology's (NIST) Computer Security Division titled "Advanced Information Technology (IT) Security Auditing". See, notice. Location: NIST, Gaithersburg, MD.

Friday, February 20

9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in Communications Vending Corp. v. FCC, No. 02-1364. Judges Sentelle, Randolph, and Tatel will preside. Location: Location: 333 Constitution Ave. NW.

10:00 AM - 12:00 NOON. The Federal Communications Commission's (FCC) Office of Engineering and Technology (OET) will host a tutorial titled "Capacity Enhancement Methods for Wireless Networks: Complementary Beamforming, Space-Time Coding and Space-Time Collaborative Communications". The speaker will be Vahid Tarokh, a professor of electrical engineering at Harvard. See, notice [PDF]. Location: FCC, Commission Meeting Room (TW-C305), 445 12th Street, SW.

2:00 - 3:30 PM. The American Enterprise Institute (AEI) will host an event titled "Have Attorney's Fees Risen in Class Action Settlements?". See, notice. Location: AEI, 12th floor, 1150 17th St., NW.

Deadline to submit comments to the U.S. Patent and Trademark Office (USPTO) regarding its review of the effectiveness of inter partes reexamination proceedings. See, notice in the Federal Register, December 30, 2003, Vol. 68, No. 249, at Pages 75217 - 75218.

Extended deadline to submit reply comments to the Federal Communications Commission (FCC) regarding BellSouth's request for a declaratory ruling that the state commissions may not regulate broadband internet access services by requiring BellSouth to provide wholesale or retail broadband services to voice service customers of competitive local exchange carriers (CLECs) using unbundled network elements (UNEs). BellSouth submitted its 334 page filing on December 9, 2003. See, "Emergency Request for Declaratory Ruling" (without attachments) [35 pages in PDF]. This is WC Docket No. 03-251. See, FCC notice [PDF].

Deadline to submit comments to the National Institute of Standards and Technology's (NIST) regarding DRAFT Special Publication 800-60, titled "Guide for Mapping Types of Information and Information Systems to Security Categories". See, Volume I [PDF] and Volume II [PDF]. Comments should be submitted to For more information, contact Elaine Frye at

Deadline to submit comments to the Federal Communications Commission (FCC) its request that parties refresh the record regarding reconsideration of rules adopted in the 1999 access reform docket. This is CC Docket Nos. 96-262, 94-1, 98-157, and CCB/CPD File No. 98-63, adopted August 5, 1999, and released August 27, 1999. See, notice in the Federal Register, January 21, 2004, Vol. 69, No. 13, at Pages 2862 - 2863.

Comcast Makes Bid for Disney

2/11. Comcast Corporation announced a hostile bid for The Walt Disney Company. Comcast is primarily a cable company. Disney is an entertainment content company; its assets include ESPN, Disney Channel, theme parks, and ABC. Hence, this would be a vertical merger.

Comcast P/CEO Brian Roberts wrote in a February 11 letter to Disney CEO Michael Eisner that "We have a wonderful opportunity to create a company that combines distribution and content in a way that is far stronger and more valuable than either Disney or Comcast can be standing alone. To this end, we are proposing a tax-free stock for stock merger in which Comcast would issue 0.78 of a share of its Class A voting common stock for each share of Disney. This represents a premium of over $5 billion for your shareholders, based on yesterday’s closing prices. Under our proposal, your shareholders would own approximately 42% of the combined company."

The proposed merger will require regulatory approvals. Roberts also wrote that "We have analyzed the issues associated with regulatory approval and are confident that all necessary approvals can be obtained in a timely fashion. Given the landscape that has evolved in our industry over the past few years, the creation of integrated content and distribution companies is essential to increasing the level of competition. The FCC’s existing program access and program carriage rules ensure that the combined company will continue to make all of its satellite-delivered national and regional cable networks available on a non-exclusive, non-discriminatory basis and that there will be no discrimination against unaffiliated programming services, all consistent with the undertakings made by News Corp. in its recent acquisition of DirecTV."

Comcast also issued a release which states that "The superior track record of Comcast's management is shown by its success in the acquisition of AT&T Broadband, which was twice the size of Comcast when acquired fifteen months ago. Performance of the merged company has far exceeded initial margin improvement expectations."

CEO Roberts states in this release that "Our management team has a proven track record of successful integration of our merger partners". This management team includes Stephen Burke, President of Comcast Cable, who previously worked for Eisner at Disney. Said Burke, "I know Disney's businesses very well".

Disney issued a release on February 11 that states, in full, "The Walt Disney Company Board of Directors has received and will carefully evaluate the unsolicited proposal from Comcast Corp. In the meantime, there is no action for shareholders to take. Today and tomorrow, the company will present to Institutional Investors and Analysts at a previously scheduled conference its broad array of unique and valuable businesses, as well as the strategies being deployed to fully realize the tremendous long-term value of those assets."

Comcast also announced that it is being advised by Morgan Stanley, JPMorgan, Quadrangle Group and Rohatyn Associates, and that the law firm of Davis Polk & Wardwell is its legal advisor.

Many of the Washington DC based interest groups that often express opposition to media and communications mergers and acquisitions have already expressed opposition to this proposed acquisition.

For example, Jeff Chester of the Center for Digital Democracy wrote in a release that "such heightened media consolidation in cable, broadcast, and online distribution and content is a threat to American democracy".

He charged that "This deal is the direct legacy of Michael Powell and the Bush FCC. Powell has supported further consolidation, signaling to Comcast that such a deal is possible. Powell could have sought to restore the broadcast-cable cross-ownership rule (something his fellow Commissioner Michael Copps urged). Finally, it should come as no surprise that Comcast's Roberts is backing Pres. Bush for re-election and that the company's president, Stephen Burke, is a $100,000-plus ``Pioneer´´ for Bush-Cheney." (Parentheses in original.)

Chester added this: "Given Microsoft's investment in Comcast and its new relation with Disney, there are also implications for every desktop and set-top.   Comcast has opposed any federal policy that would ensure that the broadband Internet operates on an open and nondiscriminatory basis."

On February 9, Microsoft and Disney announced an agreement regarding digital media initiatives and digital rights management technologies. See, Microsoft release.

Similarly, Gene Kimmelman of the Consumers Union (CU) stated in a release that "If this deal goes through it tightens the ownership grip over some of the most important sources of news, information and entertainment in our country ... Disney has an enormous package of extremely popular, marquee programming and a national network that would now be owned by the largest cable distributor in the country which has little to no competition in most communities. The potential impact is enormous."

Kimmelman added that the FCC "has been on a path to aggressively de-regulate the media and telecommunications industry ... Hopefully, the Third Circuit Court of Appeals will overturn the FCC's lax media ownership rules and send the Commission back to the drawing board to prevent more massive media consolidation."

The U.S. Court of Appeals (3rdCir) heard oral argument in Prometheus Radio Project v. FCC on February 11. This case consolidates the various petitions for review of the media ownership rules changes that the FCC announced at its June 2, 2003 meeting.

On June 2, 2003, the FCC announced its Report and Order and Notice of Proposed Rulemaking [257 pages in PDF] amending its media ownership rules. This item is FCC 03-127. See, story titled "FCC Announces Revisions to Media Ownership Rules" in TLJ Daily E-Mail Alert No. 672, June 3, 2003. The FCC released the text of the order on July 2, 2003. See, story titled "FCC Releases Media Ownership Order and NPRM" in TLJ Daily E-Mail Alert No. 692, July 7, 2003.

FTC Releases Data on Do Not Call Registry Complaints and Registrations

2/13. The Federal Trade Commission (FTC) released a report [4 pages in PDF] regarding the National Do Not Call Registry. The report states that during the time period October 11, 2003 through December 31, 2003, 150,409 consumers submitted complaints regarding violation of the Do Not Call rules.

Timothy MurisThe FTC also issued a release that associates the word "only" with the number "150,409". In addition, FTC Chairman Timothy Muris (at right) states in this release that "The telemarketing industry has shown exceptional compliance with the National Do Not Call Registry ... The Do Not Call program has been highly successful in protecting consumers' privacy. While we appreciate the high rate of compliance".

The FTC report also states that as of December 31, 2003, there have been 55,849,898 registrations of telephone numbers.

See also, the FTC's National Do Not Call Registry web site.

Appeals Court Addresses Meaning of "Necessary" in FCC Biennial Review Process

2/13. The U.S. Court of Appeals (DCCir) issued its opinion [24 pages in PDF] in Cellco Partnership v. FCC, petitions for review of certain parts of the Federal Communications Commission's (FCC) biennial regulatory reviews.

Section 11 of the Telecommunications Act of 1996, which is codified at 47 U.S.C. § 161, provides for biennial reviews of all FCC regulations. This case pertains to the biennial review process, and in particular, the meaning of the term "necessary".

47 U.S.C. § 161 states that "In every even-numbered year (beginning with 1998), the Commission -- shall review all regulations issued under this chapter in effect at the time of the review that apply to the operations or activities of any provider of telecommunications service; and (2) shall determine whether any such regulation is no longer necessary in the public interest as the result of meaningful economic competition between providers of such service." (Parentheses in original.)

It then provides that the FCC "shall repeal or modify any regulation it determines to be no longer necessary in the public interest".

This case also involves two particular regulations that the FCC did not repeal. First, 47 C.F.R. § 43.61(a) pertains to reports of international telecommunications traffic. Second, 47 U.S.C. § 63.21(i) pertains to conditions applicable to all international Section 214 authorizations; subsection (i) pertains to notifications of name changes.

The Court of Appeals denied the petitions for review. It concluded that "Because of the chameleon-like nature of the term ``necessary,´´ whose meaning depends on its statutory context, we defer to the Commission's reasonable interpretation of § 11 as requiring it to apply the same standard used to adopt regulations under 47 U.S.C. § 201(b) to determinations of whether the regulations remain necessary in the public interest, and as imposing a time limit for Commission action only in § 11(a)."

The Court also rejected the argument that the FCC's orders were arbitrary and capricious.

This case is Cellco Partnership, dba Verizon Wireless v. FCC and USA, No. 02-1262, and Verizon Telephone Companies, Inc., et al. v. FCC and USA, respondents, and AT&T and Cingular Wireless, intervenors, No. 03–1080, petitions for review of final orders of the FCC.

District Court Addresses Personal Jurisdiction in Patent Litigation

2/10. The U.S. District Court (DMass) issued its Memorandum Opinion and Order [16 pages in PDF] in Measurement Computing Corp. v. General Patent Corp., a patent and antitrust case involving computer boards. However, the main issue in this opinion is personal jurisdiction, and in particular, what contacts with the forum state are sufficient to confer personal jurisdiction in patent litigation. The District Court found that it lacked personal jurisdiction over the out of state defendant, and dismissed.

Measurement Computing (MC) is a Massachusetts corporation that makes circuit boards used to connect personal computers to external devices. General Patent Corporation (GPC) is a New York corporation that acquires interests in patents and licenses or litigates those interests on a contingency basis.

GPC wrote to MC alleging patent infringement.

MC did not wait to be sued (in New York) for patent infringement. Rather, it filed a complaint in U.S. District Court in Massachusetts seeking a declaratory judgment of patent non-infringement, invalidity and unenforcability, as well as violation of federal antitrust law. GPC filed a motion to dismiss alleging, among other things, lack of personal jurisdiction. Both sides want home court advantage.

The District Court held that MC "has failed to establish that General Patent's contacts, however purposefully directed toward Massachusetts, are sufficiently related to the present claims to support an exercise of personal jurisdiction. Because the Court thus finds personal jurisdiction lacking, it does not address General Patent’s additional grounds for dismissal."

This case is Measurement Computing Corpration v. General Patent Corporation International and Acticon Technologies, LLC, U.S. District Court for the District of Massachusetts, D.C. No. 03-11047-WGY, Judge William Young presiding.

IIPI Paper Examines Tax Deductions for IP Donations

2/2. The International Intellectual Property Institute (IIPI) released a paper [48 pages in PDF] titled "IP Donations: A Policy Review". The paper, which was written by Ron Layton and Peter Bloch, is a review of the US tax regime under which corporations may be entitled to deductions for donations of intellectual property, particularly patents, to non-profit institutions, such as universities.

In 1958, Internal Revenue Service (IRS) Revenue Ruling 58-260 confirmed the deductibility of donated patents. However, some, including Sen. Charles Grassley (R-IA), the Chairman of the Senate Finance Committee, have since argued that the regime has been abused.

In addition, the IRS recently announced that it will crack down on excessive claims of deductions. In late December of 2003, the IRS issued an undated notice [3 pages in PDF] that states that the IRS "is aware that some taxpayers that transfer patents or other intellectual property to charitable organizations are claiming charitable contribution deductions in excess of the amounts to which they are entitled under § 170 of the Internal Revenue Code." See, story titled "IRS Plans Crack Down on Charitable Contributions Deductions Involving Transfers of Intellectual Property" in TLJ Daily E-Mail Alert No. 805, December 23, 2003.

The IIPI paper states that "Since revenue ruling 58-260, the IRS has allowed donor corporations to revalue their patents before donating, by ignoring book value and assessing the present value of future potential income streams from the patent or group of patents at issue. Allowing deductibility on this present-value basis created a significant tax incentive for donor corporations, particularly since most of the patents involved in the process have been inactive (``orphaned´´) and thus a liability to the owner, rather than an asset."

The IIPI paper identifies two consequences of this regime. "First, American taxpayers are bearing the cost of the tax deductions without being able to measure the likely benefits. And, second, the system in place has created the unintended cost of tax abuse, or perceived tax abuse, in part at least because of the difficulties in defining a rigorous and objective assessment system for the current value of particular patents with uncertain futures."

Recently, Sen. Grassley, and others, have sought to address abuses of this tax regime through legislation.

First, Sen. Grassley succeeded in adding language to the Senate's version of HR 2, the "Jobs and Growth Tax Relief Reconciliation Act of 2003", a major tax cut bill. See, "Senate Passes Tax Bill with Limitation of Deduction for Charitable Contributions of Intellectual Property" in TLJ Daily E-Mail Alert No. 664, May 19, 2003. This bill ultimately became law (Public Law No. 108-27) on May 28, 2003, but without Sen. Grassley's IP language.

Sen. Grassley has also inserted language addressing this issue into S 1637, the "Jumpstart Our Business Strength (JOBS) Act". This is a huge tax bill, the primary purpose of which is to revise tax law to bring it into compliance with World Trade Organization (WTO) rulings that the US Foreign Sales Corporation (FSC) tax regime, and its replacement, the Extraterritorial Income (ETI) tax regime, constitute illegal export subsidies.

Sen. Grassley introduced the bill on September 18, 2003. The Senate Finance Committee amended and approved the bill on October 2, 2003. See also, Committee Report, No. 108-192.

Section 495 of the bill would amend 26 U.S.C. § 170, which pertains to charitable contributions, to limit the deduction for contributions of patents, copyrights, trademarks, trade names, trade secrets, know-how, software, and similar property.

People and Appointments

2/12. The Senate confirmed Samuel Bodman to be Deputy Secretary of the Treasury.

More News

2/11. MCI (WorldCom) announced in a release that "it has filed in U.S. Bankruptcy Court for a 60-day extension, from the current February 28, 2004 deadline, to formally emerge from Chapter 11. The extension would give the company sufficient time to complete its filings with the Securities and Exchange Commission (SEC), the last significant task to be completed before the company emerges. It would expand the time period for MCI to satisfy all conditions necessary to emerge from 120 days to 180 days, which is a common timeframe for large Chapter 11 cases. MCI would be able to file and emerge at any time during the 60-day extension period."

2/12. Microsoft announced in a release that "On Thursday, February 12, Microsoft became aware that portions of the Microsoft Windows 2000 and Windows NT 4.0 source code were illegally made available on the Internet. Subsequent investigation has shown this was not the result of any breach of Microsoft’s corporate network or internal security, nor is it related to Microsoft's Shared Source Initiative or its Government Security Program, which enable our customers, partners and governments to legally access Microsoft source code." Microsoft added that it "is working closely with the U.S. Federal Bureau of Investigation on this matter. Microsoft source code is both copyrighted and protected as a trade secret."

2/10. Albert Foer, President of the American Antitrust Institute (AAI), released a paper [9 pages in PDF] titled "Horizontal Merger Analysis and the Role of Concentration in the Merger Guidelines".

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