|Pate Criticizes EC Decision Regarding
4/2. Hewitt Pate, the
Assistant Attorney General in charge of the Department of Justice's
Antitrust Division gave a
Washington DC in which discussed the European Commission's decision to fine
and obstruct Microsoft. He expressed "deep concern about the apparent basis of
this decision and the serious potential divergence it represents."
The EC announced its decision in a brief
press release on March 24, 2004. However, the EC has yet to release the
actual text of its decision. See, story titled "European Commission Seeks 497
Million Euros and Code Removal from Microsoft" in TLJ Daily E-Mail Alert No.
863, March 25, 2004.
Pate said that the EC decision lacks comity, that it will lead to antitrust forum
shopping by parties seeking to benefit from regulation, that it may protect
competitors rather than competition, and that it may chill lawful product
improvement. He described his criticisms as "frank and constructive dialog".
(at right) stated that "since 1996 the Antitrust Division has devoted
substantial effort to a Section 2 case aimed at addressing exclusionary conduct
by Microsoft. The ultimate outcome reflected not only considerable analysis and
enforcement judgments by the Department and many state attorneys general, but
also thorough review of those judgments in the U.S. judicial system. The Final
Judgment that emerged from that process provides clear and effective protection
for competition and consumers by preventing affirmative misconduct by Microsoft
that would inhibit competition in middleware programs."
"That protection applies not only to the web browser that was the original
subject of the United States' lawsuit, but also to the media player that is one
of the subjects of the EC's decision. Given this significant prior U.S. effort,
it is unfortunate that considerations of international comity and deference did
not, in the Commission's judgment, carry sufficient weight to avoid the
significant divergence that has now occurred. In a system of multiple enforcers,
the alternative inevitably leads parties who can benefit from regulatory
assistance to seek out the most restrictive regulator, and with respect to
global products the effects of that regulator's actions may have effects in all
markets", said Pate.
He continued that "the important tasks of eliminating affirmative impediments
to the healthy functioning of competitive markets should be achieved without
unduly hindering successful competitors or imposing burdens on third parties.
This fine balance is reflected in the carefully crafted terms of the Final
Judgment entered by the District Court. The EC has pursued a different
enforcement approach by imposing a 'code removal' remedy that was not at any
time -- including during the period when the U.S. was seeking a breakup of
Microsoft prior to the rejection of that remedy by the court of appeals -- part
of the United States' proposed remedy. We are concerned that imposing antitrust
liability on the basis of product enhancements, even by "dominant" companies,
risks protecting competitors, not competition, in ways that may ultimately harm
innovation and the consumers who benefit from it."
Pate also stated that "In the case of simply adding admittedly
valuable and functional features to
an existing product -- as opposed to the contractual terms and exclusionary
manipulations of software that were the issue in the U.S. case and that are now
prevented by our remedy -- my concern is that decisions of this type may be
interpreted by firms in ways that chill lawful product improvements that benefit
consumers. If the result is that a dominant firm simply cannot improve its
product by the addition of features until that product becomes sufficiently
inferior that its dominance is eroded, then the inconsistency with core
principles of U.S. antitrust law is plain. Even if a workable standard could be
advanced, the potential for anticompetitive and anticonsumer consequences would
remain high, both in a U.S. system in which enforcement is amplified through
private treble damages litigation, and in an EC system where the threshold for
finding ``dominance´´ appears much lower. Again, our concern is that while
certain competitors may well benefit from intervention, consumers and innovation
ultimately may not."
He also commented on maintaining a "positive relationship" with the EC. He
said that "our ability to engage in a frank and constructive dialog reflects the
health of that relationship".
Pate also discussed criminal antitrust enforcement, merger enforcement, the
First Data/Concord litigation, the News Corp. DirecTV review, and assuring
compliance with the Microsoft consent decree.
He also commented on telecommunications generally. He stated that "the
Section 271 process
has been completed, signaling the openness to local competition. Exciting new
and independent avenues of competition in the form of Voice Over IP and growing
wireless substitution continue. The long-expected move toward consolidation in
the wireless sector may actually be arriving, and other new combinations and
competitive approaches may be on the horizon. We will examine each of these as
they come with an eye to the many changes occurring in this dynamic sector."
|Senators Bash FASB Stock Options Proposal
and Class Action Lawyers
4/1. Sen. John Ensign (R-NV),
Sen. George Allen (R-VA), and
Sen. John Warner
(R-VA) and spoke in the Senate in support of
S 1890, the
"Stock Option Accounting Reform Act", a bill that would require expensing of
stock options for only the CEO and the next four highest paid officers of a company.
On March 31, 2004, the Financial Accounting
Standards Board (FASB) released a
document titled "Exposure Draft, Share-Based Payment, an Amendment of FASB
Statements No. 123 and 95" that proposes that companies must expense stock
option plans for all employees.
The FASB summarized its report in a release. It wrote that "The exposure
draft covers a wide range of equity-based compensation arrangements. Under the
Board’s proposal, all forms of share-based payments to employees, including
employee stock options, would be treated the same as other forms of compensation
by recognizing the related cost in the income statement. The expense of the
award would generally be measured at fair value at the grant date. Current
accounting guidance requires that the expense relating to so-called fixed plan
employee stock options only be disclosed in the footnotes to the financial
The FASB's comment period for the exposure draft ends June 30, 2004. See,
titled "FASB Proposes Expensing of Stock Options" in TLJ Daily E-Mail Alert No.
867, April 1, 2004.
Ensign (at right) stated that "Trial lawyers are gearing up for the biggest
windfall of the 21st Century. They will be the only winners in this misguided
action. FASB's proposed rule would allow companies to either use Black Scholes
or a Binomial method to expense options. Both are flawed models and will yield
very different and certainly inaccurate results." See, Congressional
Record, April 1, 2004, at Page S3562.
He elaborated that "There is no question that market capital will
be destroyed when these flawed numbers hit financial statements. Because companies
have to choose the method they use to expense, and the inputs that feed into that
flawed model, they will most certainly be barraged by class action lawsuits from greedy
trial lawyers who will exploit the difficult decisions that FASB is going to force
companies to make."
He added that "individual investors will now have absolutely no ability to make
meaningful comparisons between companies. Different companies using different
flawed valuation models will confuse and mislead the very people FASB purports
Sen. Ensign also made the point that "This move represents a
tremendous threat to our global
competitiveness. Communist China has, as a part of their 5 year plan, the use of
stock options. They are setting out to duplicate the success of our very own
Silicon Valley and stock options are at the very heart of the Chinese government
Sen. Allen picked up on this point. He continued that "This news
is sure to be greeted with joy by our competitors in the
Pacific Rim. Entrepreneurs in Taiwan, Singapore and China will not just continue
to focus on software development or gene sequencing there. They will create
global competitors there which will be listed on those stock markets. They will
be free to offer stock options without the burden of expensing and our most
talented people will flock there, just as they flocked to the Silicon Valley and
Virginia when our technology industries were built. I find it distressing that a
communist country, the People's Republic of China, has companies attracting
entrepreneurial people and customers with stock options. Meanwhile, here in
America an unelected, prejudicial board wishes to stop such employee ownership,
motivation and success to Americans. This proposal will harm the ability of
innovative American companies to successfully compete."
Sen. Warner also spoke in the Senate about the FASB proposal. He stated
that the FASB action "will unequivocally impede economic growth and stifle the
economic recovery of our high-tech sector as well as other industries."
He stated that "small companies and start-ups, which depend on
employee stock options to
attract the smartest and brightest, will be dealt a detrimental blow. The costs
associated with the implementation of this new rule will inhibit small business
growth. In a time when the United States is struggling to keep more jobs in
America, this proposal undermines U.S. competitiveness. Talented and skilled U.S.
workers will be forced to look to our competitors, countries such as Taiwan and
Singapore, for high paying technology based employment.
S 1890 is sponsored by Sen. Mike Enzi
(R-WY), and 16 other Senators. The related bill in the House is
also titled the "Stock Option Accounting Reform Act". It is sponsored by
Rep. Richard Baker (R-LA),
Eshoo (D-CA), Rep. David Dreier
(R-CA), and 98 other Representatives.
The majority of the cosponsors of these bills are Republicans. However,
there are Democratic sponsors from states that are home to technology
In California, both Senators, Boxer and Feinstein, are cosponsors. The entire
Silicon Valley delegation, Democrats all, are cosponsors -- Rep. Eshoo, Rep.
Lofgren, Rep. Tauscher, and Rep. Honda. Other California Democrats who support
this bill include Pelosi, Sanchez, Dooley, Filner, and Harmon
From Oregon, Democratic Representatives Wu and Hooley are cosponsors. From
Washington, there is Rep. Inslee and Rep. Adam Smith. Finally, from Virginia,
there is Rep. Boucher and Rep. Jim Moran. These Democrats are frequently
involved in technology related issues.
|Microsoft and Sun Microsystems Settle
4/2. Microsoft and
Sun Microsystems announced that they have settled all pending
litigation between the two companies. See, Microsoft
release and Sun
Both companies stated that "The agreements involve payments of $700 million
to Sun by Microsoft to resolve pending antitrust issues and $900 million to
resolve patent issues. In addition, Sun and Microsoft have agreed to pay
royalties for use of each other's technology, with Microsoft making an up-front
payment of $350 million and Sun making payments when this technology is
incorporated into its server products."
They also announced "broad technology collaboration". Scott McNealy,
Sun, stated a joint press conference with Steve Ballmer, CEO of Microsoft, that "We
have Solaris, we have Sun, we have Java, but we also have Windows and .NET. We
need to interoperate, we need to make these things happen, and we need to just
stop the noise and start the collaboration and cooperation and get it together."
In 1997, Sun filed a
in the U.S. District Court (NDCal)
against Microsoft regarding Java licensing. Microsoft and Sun entered into a
Licensing and Distribution Agreement in
1996 under which Sun licensed its Java technology to Microsoft. The two
companies went through extensive litigation, and settled that litigation
2001. Microsoft had decided to develop its own competing programming language,
C#, as an alternative to Java. (This case was D.C. No. 97-CV-20884 and App. Ct.
See also, TLJ
of this case (last updated in 2000), with hyperlinks to pleadings, opinions and
orders. Microsoft also has a
web page with
extension links to pleadings, orders, and opinions in this case, and subsequent
litigation between the two companies.
Sun filed another complaint in the U.S. District Court (NDCal) against Microsoft
alleging violations of antitrust law, and copyright infringement. It built upon
on earlier disputes, but also incorporated antitrust. This was just
one of several such antitrust actions filed in the wake of the governments'
successful antitrust action against Microsoft. The Judicial Panel on
Multidistrict Litigation transferred the action to the
U.S. District Court (Maryland).
On December 23, 2003, the District Court issued its Java must carry
opinion [42 pages in PDF] of the District Court, and story titled
"District Court Rules Microsoft Must Carry Sun's Java" in
TLJ Daily E-Mail
Alert No. 574, December 24, 2002.
However, on June 26, 2003, the
U.S. Court of Appeals (4thCir) issued
[28 pages in PDF] vacating the portion of the District Court's preliminary
injunction that required Microsoft to incorporate in and distribute with every
copy of its Windows PC operating system and every copy of its web browser Sun's
Java software. This was also known as the "must carry injunction".
Appeals Court upheld the portion of the District Court's preliminary injunction
that prohibited Microsoft from distributing any software developments of Java
software, other than products licensed to Microsoft by Sun in the 2001
settlement agreement arising out the prior litigation over Microsoft's alleged
misuse of Java source code. (This case is D.C. Nos. CA-02-2739-JFM and
CA-00-1332-MDL, and App. Ct. No. 03-1116.)
On April 2, 2004, Microsoft and Sun did not release any settlement
agreement(s). They stated in their press releases that in addition to settling
their U.S. lawsuit, "Sun is also satisfied that the agreements announced today
satisfy the objectives it was pursuing in the EU actions pending against
The press releases elaborate on the nature of the collaboration between the
two companies. There is a "Technical Collaboration Agreement" that provides that
both companies with "access to aspects of each other's server-based technology
and will enable them to use this information to develop new server software
products that will work better together." This will eventually include Windows,
e-mail and database software. For example, "one of the important elements of
large scale computing environments is software to manage user identities,
authentication and authorization. As a result of this agreement, Sun and
Microsoft engineers will cooperate to allow identity information to be easily
shared between Microsoft Active Directory and the Sun Java System Identity
Server, resulting in less complex and more secure computing environments."
In addition, "Sun has agreed to sign a license for the Windows desktop
operating system communications protocols under Microsoft's Communications
Protocol Program, established pursuant to Microsoft's consent decree and final
Also, "Microsoft may continue to provide product support for the Microsoft
Java Virtual Machine that customers have deployed in Microsoft's products."
The two companies also stated that "Sun and Microsoft have agreed that they
will work together to improve technical collaboration between their Java and
Finally, the two companies also stated that "The parties have agreed to a
broad covenant not to sue with respect to all past patent infringement claims
they may have against each other."
|Japan Joins US in Complaining to WTO About
China's Discriminatory Tax on Integrated Circuits
3/31. Japan notified the World Trade
Organization (WTO) that it joins the United States in complaining to the WTO
the People's Republic of China's value added tax on integrated circuits violates
the PRC's WTO obligations. See,
Request to Join Consultations.
On March 18, 2004 the U.S. filed a
complaint, which is formally labeled a "Request for Consultations", with the WTO against the PRC stating that the PRC's preferential tax treatment of integrated
circuits produced in the PRC is discriminatory, and a violation of the PRC's WTO
titled "US Complains to WTO About PR China's Tax Preference for Domestic
Producers of Integrated Circuits" in TLJ Daily E-Mail Alert No. 859, March 19,
Japan's request states that "Pursuant to paragraph 11 of Article 4 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU),
the Government of Japan hereby notifies the Government of the People's Republic
of China that it desires to be joined in the consultations requested by the
Government of the United States in a communication circulated to WTO Members on
23 March 2004 (WT/DS309/1, G/L/675, S/L/160), titled "China - Value-Added Tax on
Integrated Circuits", in light of the substantial trade interest of Japan as one
of the major beneficiaries of the multilateral trading system under the WTO, as
well as being a major exporter of integrated circuits to China."
|Washington Tech Calendar
New items are highlighted in red.
|Monday, April 5
The House will be in recess from April 5 through April 16 for the Spring
recess. It will next meet on Monday, April 19.
The Senate will meet for morning business. No votes
will be taken.
The Supreme Court will begin
a recess. (It will return on April 19, 2004.)
Deadline to submit comments to the
Federal Communications Commission (FCC) in
response to its
Notice of Inquiry and Notice of Proposed Rulemaking (NOI & NPRM) [31 pages
in PDF] regarding the interference temperature method of quantifying
and managing interference among different services. See,
notice in the Federal Register, January 21, 2004, Vol. 69, No. 13, at
Pages 2863 - 2870. This NOI/NPRM is FCC 03-289 in ET Docket No. 03-237. See
also, stories titled "FCC Announces NOI/NPRM on Interference Temperature
Model" in TLJ
Daily E-Mail Alert No. 779, November 14, 2003, and "FCC Releases NOI/NPRM
on Interference Temperature Approach" in
TLJ Daily E-Mail
Alert No. 789, December 1, 2003.
Deadline to submit comments to the
National Archives and Records Administration's
Electronic Records Policy Working Group regarding implementation of Section
207(e)(1)(A) of the E-Government Act of 2002, regarding "Public Access to
Electronic Information". This section provides for "the adoption by
agencies of policies and procedures to ensure that chapters 21, 25, 27, 29,
and 31 of title 44, United States Code, are applied effectively and
comprehensively to Government information on the Internet and to other
electronic records.'' See,
notice in the Federal Register, March 8, 2004, Vol. 69, No. 45, at Page
|Tuesday, April 6
|Wednesday, April 7
10:00 AM. The Senate Judiciary
Committee Subcommittee on Administrative Oversight and the
Courts will hold a hearing on a proposal to split the Ninth Circuit. See,
Room 226, Dirksen Building.
12:30 - 1:30 PM. The Center Strategic
and International Studies (CSIS) will host a program on cybersecurity.
The speakers will be Steve Ballmer (CEO of Microsoft), John Hamre (P/CEO of
the CSIS), Robert Holleyman (P/CEO of the Business Software
Alliance). Press contact: Mark Schoeff at 202-775-3242 or
firstname.lastname@example.org or Gina Maffei at
Location: CSIS, 1800 K Street, NW, B-1 conference level.
12:30 PM. Virginia Attorney General
Jerry Kilgore will speak on "Technology
and the Law". Location: George
Mason University School of Law.
12:30 PM - 2:00 PM. The
DC Bar Association's Section on Criminal
Law and Individual Rights will host a brown bag lunch (with admission charge)
titled "Federal Practice Series: Handling Electronic Evidence: From Authentication
to Admissibility to Minimizing that Damaging E-mail". The speaker will be Adam Rosman (Zuckerman Spaeder). Prices vary. For more information, call 202 626-3463.
Location: D.C. Bar Conference Center, 1250 H Street NW, B-1 Level.
Deadline to submit reply comments to the
Federal Communications Commission (FCC)
regarding its proposed rules regarding universal service subsidies for rural
health clinics. Comments are due by February 23, 2004. Reply comments are due
by April 7, 2004. See,
notice in the Federal Register, December 24, 2003, Vol. 68, No. 247, at
Pages 74538 - 74541.
|Thursday, April 8
10:00 AM. The Senate Judiciary Committee will
hold a hearing on several pending judicial nominations, including William
Duane Benton (to be a Judge of the U.S. Court of Appeals for the 8th
Circuit), Robert Bryan Harwell (District of South Carolina), George Schiavelli
(Central District of California), and Curtis Gomez (Virgin Islands). See,
Location: Room 226, Dirksen Building.
11:00 AM. The Senate Commerce
Committee will hold a business meeting. The agenda includes consideration of
several non technology related bills and several nominations, including that of
Theodore Kassinger to be Deputy Secretary of the Department of Commerce. Press
contact: Rebecca Hanks at 202 224-2670. Location: Room 253, Russell Building.
1:30 - 3:00 PM. Federal Communications
Commission (FCC) World RadioCommunication 2007 (WRC-07) Advisory Committee's
Informal Working Group on Satellite Services and HAPS will meet. See, FCC
[PDF]. Location: Leventhal Senter & Lerman, 2000 K Street, NW, 7th Floor Conference
6:00 - 8:00 PM. The Federal Communications
Bar Association (FCBA) will
host a continuing legal education (CLE) seminar titled "FCC's Environmental
and Historic Preservation Action Plan - One Year Later". Prices vary. To
register, contact Wendy Parish at email@example.com.
Location: Wiley Rein & Fielding, 1750 K Street,
NW, 10th Floor.
|WTO Panel Rules Regarding Telecommunications
4/2. A dispute settlement panel of the World Trade
Organization (WTO) released its
pages in PDF] regarding telecommunications in Mexico. On August 17, 2000, the U.S.
complained to the WTO against Mexico regarding trade in basic and value-added
The panel found for the U.S. on several matters. It found that "Mexico
has not met its GATS commitments under
Section 2.2(b) of its Reference Paper since it fails to ensure that a major
supplier provides interconnection at cost oriented rates to United States
suppliers for the cross-border supply, on a facilities basis in Mexico, of the
basic telecommunications services at issue".
It also found that "Mexico has not met its GATS commitments under Section 1.1 of
its Reference Paper to maintain ``appropriate measures´´ to prevent
anti-competitive practices, since it maintains
measures that require anti-competitive practices among competing suppliers
which, alone or together, are a major supplier of the services at issue".
It also found that "Mexico has not met its obligations under
Section 5(a) of the GATS Annex on Telecommunications since it fails to ensure
access to and use of public telecommunications transport networks and services
on reasonable terms to United States service suppliers for the cross-border
supply, on a facilities basis in Mexico, of the basic telecommunications
services at issue"
Finally, it found that "Mexico has not met its obligations under Section 5(b) of the
GATS Annex on Telecommunications, since it fails to ensure that United States
commercial agencies, whose commercial presence Mexico has committed to allow,
have access to and use of private leased circuits within or across the border of
Mexico, and are permitted to interconnect these circuits to public
telecommunications transport networks and services or with circuits of other
Also, the panel recommended that "that the Dispute Settlement
Body request Mexico to bring its measures into conformity wit h its obligations
under the GATS."
However, the panel found for Mexico on several matters. It found that
"Mexico has not violated Section 2.2(b) of its Reference Paper, with respect to
cross-border supply, on a non-facilities basis in Mexico, of the basic
telecommunications services at issue".
It also found that "Mexico has not violated Section 5(a) of the GATS Annex on
Telecommunications, with respect to the cross-border supply, on a non-facilities
basis in Mexico, of the basic telecommunications services at issue".
Finally, it found that "Mexico has not violated Section 5(b) of the GATS Annex on
Telecommunications, with respect to the cross-border supply, on a non-facilities
basis into Mexico, of the basic telecommunications services at issue."
|People and Appointments
4/2. Jonathan Schwartz was named President and Chief Operating Officer
of Sun Microsystems. He was previously Sun's
Executive Vice President of Software. See, Sun
4/2. The Office of the U.S. Trade
Representative (USTR) released the
draft text of
the U.S. Morocco Free Trade Agreement. See especially, chapters pertaining to
commerce [PDF], and
rights [PDF], and
regarding optical disks.
4/1. The Computer & Communications
Industry Association (CCIA) filed an
brief [27 pages in PDF] with the U.S. Court
of Appeals (FedCir) in Chamberlain v. Skylink regarding the
anti-circumvention provisions of the DMCA (17 U.S.C. § 1201) and
interperability. The CCIA brief states that "In this case, Chamberlain attempts
to use Section 1201 of the DMCA to thwart competition between its transmitters
and the Model 39 transmitters manufactured by Skylink Technologies. Chamberlain
argues that in order to communicate commands to Chamberlain garage door openers,
Skylink’s transmitters circumvent a technological protection measure designed to
prevent non-Chamberlain transmitters from interacting with the software in
Chamberlain receivers. Chamberlain asserts that by manufacturing transmitters
capable of this circumvention, Skylink has violated 17 U.S.C.§ 1201(a)(2)." The
CCIA concludes that "Interoperability is critical to competition in the computer
industry. In turn, reverse engineering and subsequent use of the interface
specifications learned through reverse engineering are critical to achieving
interoperability. Congress inserted Section 1201(f) into the DMCA to insure that
the prohibition of circumvention of technological protection measures did not
interfere with interoperability." The brief was written by Jonathan Band and
Matthew Schruers of the Washington DC office of the law firm of
Morrison & Foerster (MoFo). This case is
The Chamberlain Group, Inc. v. Skylink Technologies, Inc., U.S Court of
Appeals for the Federal Circuit, App. Ct. No. 04-1118, an appeal from the U.S.
District Court for the Northern District of Illinois, D.C. No. 02-CV-6376).
3/30. The European Commission announced it a
release that it has "adopted
today a series of documents which complete the landmark modernisation of the
European Union's antitrust enforcement rules and procedures". This landmark
package will take effect on May 1, 2004. The EC also published the following
items, all in PDF:
Cooperation with Courts,
Notice on Complaints,
Effect on Trade, and
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