Tech Law Journal Daily E-Mail Alert
August 8, 2006, Alert No. 1,427.
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FTC Sues Walsh Optical for Internet Sales of Contact Lens Without Prescriptions

8/7. The Federal Trade Commission (FTC) filed a complaint [6 pages in PDF] in U.S. District Court (DNJ) against Walsh Optical, Inc. and Kevin Walsh alleging violation of the Fairness to Contact Lens Consumers Act (FCLCA) and the FCT Act in connection with the sale of contact lens via web sites, without first obtaining verification of a prescription. The FTC simultaneously entered into a consent decree [12 pages in PDF] with the defendants. See also, FTC release.

The Congress enacted the FCLCA in 2003 in part to facilitate the sale of contact lenses over the internet. It requires that ophthalmologists and optometrists release contact lens prescriptions to their patients and verify contact lens prescriptions for internet sellers and other third parties. It is now codified at 15 U.S.C. §§ 7601-7610.

See, stories titled "House Passes Contact Lens Bill" in TLJ Daily E-Mail Alert No. 783, November 20, 2006; "Bill Would Facilitate Internet Sale of Replacement Contact Lenses" in TLJ Daily E-Mail Alert No. 669, May 29, 2003; and "House Subcommittee Holds Hearing on Contact Lens Bill" in TLJ Daily E-Mail Alert No. 736, September 10, 2003.

The FTC promulgated rules that require that contact lens sellers may sell contact lenses only in accordance with a contact lens prescription for the patient that is either presented to the seller or verified by direct communication with the prescriber. However, Walsh Optical sold contact lenses with complying with this rule.

The consent decree provides that the defendants will pay a fine of $40,000. It also enjoins the defendants from further violations, and imposes record keeping and reporting requirements.

This case is FTC v. Walsh Optical, Inc. and Kevin Walsh, U.S. District Court for the District of New Jersey, D.C. No. 06-3591.

FTC Holds That Rambus Unlawfully Monopolized Markets

8/2. The Federal Trade Commission (FTC) released its opinion [120 pages in PDF] in its administrative proceeding titled "In the Matter of Rambus, Inc.". It concludes that Rambus unlawfully monopolized the markets for four computer memory technologies that have been incorporated into industry standards for dynamic random access memory (DRAM) chips.

This reverses the February 17, 2004, order of Stephen McGuire, Chief Administrative Law Judge, dismissing the FTC's complaint. See, story titled "ALJ Dismisses FTC Complaint Against Rambus" in TLJ Daily E-Mail Alert No. 839, February 18, 2004.

The FTC also issued an order [2 pages in PDF] on August 2, 2006, titled "Order Reversing and Vacating Initial Decision and Accompanying Supplemental Briefing on Issues of Remedy, and Denying Complaint Counsel's Motion for Sanctions".

See also, FTC Docket No. 9302 for hyperlinks to pleadings in this proceeding.

FTC Complaint. On June 19, 2002, the FTC filed an administrative complaint against Rambus alleging anti competitive behavior in violation of Section 5 of the Federal Trade Commission Act (FTCA) in connection with its participation in a standard setting body for dynamic random access memory products. See, story titled "FTC Files Administrative Complaint Against Rambus" in TLJ Daily E-Mail Alert No. 455, June 20, 2002.

The complaint pertains to Rambus's participation in the JEDEC Solid State Technology Association, which was formerly known as the Joint Electron Device Engineering Council. JEDEC develops and issues technical standards for a form of computer memory known as synchronous dynamic random access memory (SDRAM).

The complaint alleged that Rambus "has illegally monopolized, attempted to monopolize, or otherwise engaged in unfair methods of competition in certain markets relating to technological features necessary for the design and manufacture of a common form of digital computer memory, known as dynamic random access memory, or ``DRAM.´´"

The FTC alleged that Rambus engaged in anticompetitive behavior in violation of Section 5 of the FTCA by "participating in the work of an industry standard setting organization, known as JEDEC, without making it known to JEDEC or to its members that Rambus was actively working to develop, and did in fact possess, a patent and several pending patent applications that involved specific technologies proposed for and ultimately adopted in the relevant standards."

FTC Opinion. The just released opinion states that "Through a course of deceptive conduct, Rambus exploited its participation in JEDEC to obtain patents that would cover technologies incorporated into now-ubiquitous JEDEC memory standards, without revealing its patent position to other JEDEC members. As a result, Rambus was able to distort the standard-setting process and engage in anticompetitive ``hold up´´ of the computer memory industry. Conduct of this sort has grave implications for competition."

The opinion concludes that "Rambus's acts of deception constituted exclusionary conduct under Section 2 of the Sherman Act, and that Rambus unlawfully monopolized the markets for four technologies incorporated into the JEDEC standards in violation of Section 5 of the FTC Act."

It adds that "We find that Rambus engaged in exclusionary conduct that significantly contributed to its acquisition of monopoly power in four related markets. By hiding the potential that Rambus would be able to impose royalty obligations of its own choosing, and by silently using JEDEC to assemble a patent portfolio to cover the SDRAM and DDR SDRAM standards, Rambus’s conduct significantly contributed to JEDEC’s choice of Rambus’s technologies for incorporation in the JEDEC DRAM standards and to JEDEC’s failure to secure assurances regarding future royalty rates – which, in turn, significantly contributed to Rambus’s acquisition of monopoly power."

FTC Commissioner Pamela Harbour wrote the opinion, which was joined by all four of the other Commissioners.

Concurring Opinion of Liebowitz. Commissioner Jonathan Liebowitz also wrote a concurring opinion [21 pages in PDF]. He wrote that Rambus' "conduct meets all the requisite elements of a Section 2 violation." However, he continued that "It would be equally apt, though, to characterize Rambus's conduct as an ``unfair method of competition´´ in violation of Section 5 of the FTC Act. Section 5 was intended from its inception to reach conduct that violates not only the antitrust laws themselves, but also the policies that those laws were intended to promote." (Footnote omitted.)

Liebowitz wrote that "From the FTC's earliest days, deceitful conduct has fallen within Section 5's province for its effects on competition, as well as on consumers. Innovation -- clearly at issue in this case -- is indisputably a matter of critical antitrust interest."

He elaborated that "some commentators have misperceived the Commission's authority to challenge ``unfair methods of competition,´´ incorrectly viewing it as limited, with perhaps a few exceptions, to violations of the Sherman and Clayton Acts. Others are unclear just how far Section 5 can reach beyond the antitrust laws. Regardless of the reasons for these cramped or confused views, a review of Section 5's legislative history, statutory language, and Supreme Court interpretations reveals a Congressional purpose that is unambiguous and an Agency mandate that is broader than many realize. (Footnotes omitted.)

Liebowitz argued that the FTC "should place greater emphasis on developing the full range of its jurisdiction and making it more clear to the bar, the public, the business community, and potential antitrust malefactors what Section 5 embraces and what it does not. Although the Commission has not left fallow its Section 5 jurisdiction to challenge conduct outside the antitrust laws, neither has the Agency fully exercised or explained it. In discussing Section 5 in the context of Rambus, I hope to encourage the Commission (and its staff) to develop further and employ more fully this critical and unique aspect of our statutory mandate. If we do, benefit will accrue both to consumers and to competition."

More News

8/7. The U.S. Court of Appeals (DCCir) issued its opinion [13 pages in PDF] in Telebrands v. FTC, upholding an order of the Federal Trade Commission (FTC). The FTC issued an administrative complaint against Telebrands Corp., and others, alleging that it made false and misleading claims in violation of Sections 5 and 12 of the FTC Act, which are codified at 15 U.S.C. §§ 45 and 52, in connection with its making unsubstantiated claims in infomercials regarding a purported weight loss and muscle building product. The FTC held that Telebrands violated the FTC Act and issued an order that contains fencing in injunctive provisions. Telebrands brought this petition for review to modify the order. The Court of Appeals upheld the order. This case is Telebrands Corp., et al. v. FTC, U.S. Court of Appeals for the District of Columbia Circuit, App. Ct. No. 05-2322, a petition for review of a final order of the FTC.

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SEC and EU's CESR to Discuss Interactive Data and Other IT Related Financial Reporting Issues

8/2. The Securities and Exchange Commission (SEC) and the Committee of European Securities Regulators (CESR) released document [6 pages in PDF] titled "CESR-SEC Work Plan". Part II of the plan is titled "Modernisation of financial reporting and disclosure". It pertains to the use of information technologies, including interactive data.

Chris CoxChris Cox (at left), Chairman of the SEC, stated in a release that "As our markets grow more sophisticated, so must the relationships among regulators. The work plan demonstrates the intention of the SEC and CESR to have a forward-looking dialogue on key emerging issues, as well as take practical steps to encourage high-quality and consistent application of IFRS. The result will be greater protection and better disclosure for investors, particularly as they seek investment opportunities across the Atlantic."

Fabrice Demarigny, Secretary General of CESR, stated in this same release that "This work plan creates a constructive and practical cooperation framework between the EU and US securities supervisors in the enforcement of financial reporting. I believe it will significantly contribute towards decisions on the use of IFRS in the US and US GAAP in Europe."

The plan states that one of its goals is "Evaluation and identification of Information Technology (IT) solutions for disclosure and electronic storage of corporate information (including financial information)." (Parentheses in original.)

It states that the SEC and CESR "will exchange views on policies favoring the use of technology and IT networks in disclosure/storage of financial information, including the use of interactive data."

The plan then identifies four areas of discussion.

"Information sharing regarding current IT developments: In the 2nd half of 2006 and continuing as appropriate, the SEC staff and the relevant CESR expert groups will schedule additional videoconferences in which the relevant experts will update each other on regulatory developments in relation to IT projects related to electronic disclosure/storage of financial information."

"Use of interactive data software: In the 2nd half of 2006 and quarterly thereafter, SEC staff and the relevant CESR expert group will meet via videoconference to exchange views and, where relevant, compare experiences with interactive data software, and potentially to coordinate feedback to those responsible for writing interactive data taxonomies and to software developers."

"Joint incentives to issuers to use interactive data software: In the 2nd half of 2006 and quarterly thereafter, SEC staff and the relevant CESR expert group will explore the possibility of developing common incentives to offer to issuers that voluntarily file reports using interactive data."

"Future possible discussion: Once fundamental strategic choices have been made in the US and in the EU on general architectures for storage of corporate information, one topic of future discussion will be possible forms of linkages between the SEC’s EDGAR and European storage mechanisms."

See also, short essay titled "XBRL: Give Them the Tools and They Will Finish the Job", by Peter Wallison of the American Enterprise Institute (AEI), and TLJ story titled "AEI Paper Urges Quicker SEC Development of XBRL for GAAP" in TLJ Daily E-Mail Alert No. 1,324, March 7, 2006.

Wallison argued that the SEC's efforts to incorporate XBRL for Generally Accepted Accounting Procedures (GAAP) into the SEC's financial reporting process is a good thing. The problem, wrote Wallison, is that the EU is moving more quickly to develop XBRL for their competing International Financial Reporting Standards (IFRS). He stated that "in the globalized capital market of today, capital will flow to the companies whose financial statements are most easily analyzed and understood, giving the companies that state their financials in IFRS an important competitive advantage over those that use US-GAAP".

Chairman Cox and other SEC Commissioners have frequently spoken about the XBRL program. See for example, speech of November 7, 2005, in Tokyo, Japan, and speech of November 11, 2005, in Boca Raton, Florida. See also, story titled "SEC Chairman Cox Discusses Use of Interactive Data in Corporate Reporting" in TLJ Daily E-Mail Alert No. 1,250, November 9, 2005.

Washington Tech Calendar
New items are highlighted in red.
Tuesday, August 8

The House will next meet at 2:00 PM on Wednesday, September 6. See, Republican Whip Notice.

The Senate will next meet at 11:00 AM on Tuesday, September 5.

10:00 AM. Federal Communications Commission (FCC) Commissioner Robert McDowell will host an event titled "briefing for members of the media". RSVP to Clyde Ensslin at clyde dot ensslin at fcc dot gov or 202-418-0506. Location: Conference Room 5, 8th Floor, FCC Headquarters, 445 12th St., SW.

6:30 - 8:30 PM. The Federal Communications Bar Association's (FCBA) Young Lawyers Committee will host an event titled "End of Summer Happy Hour". For more information, contact Chris Fedeli at cfedeli at crblaw dot com or 202-828-9874, or Micah Caldwell at mcaldwell at fw-law dot com or 202-939-7901. Location: Capitol City Brewing Company -- Capitol Hill, 2 Massachusetts Ave. NE.

Deadline to submit to the Internal Revenue Service (IRS) outlines of topics to be discussed at the IRS's public hearing on August 29, 2006, regarding its notice of proposed rule making pertaining to the application of 26 U.S.C. § 199, which provides a deduction for income attributable to domestic production activities, to certain transactions involving computer software. See, notice in the Federal Register, June 1, 2006, Vol. 71, No. 105, at Pages 31128-31129.

Wednesday, August 9

11:00 AM. The Center for Democracy & Technology (CDT) will host a news conference by teleconference to discuss the findings of the CDT study titled "Following the Money II: The Role of Intermediaries in Adware Advertising". The speakers will be Ari Schwartz and Alissa Cooper. The study will be published in the CDT web site at 10:00 AM. The call in number is 800-377-8846. The participant code is 92713123#.

The Federal Communications Commission (FCC) will commence Auction 66. This is the auction of Advance Wireless Services (AWS) licenses in the 1710-1755 MHz and 2110-2155 MHz (AWS-1) bands. See also, notice in the Federal Register, June 2, 2006, Vol. 71, No. 106, at Pages 32089-32091.

Day one of a three day continuing legal education (CLE) seminar hosted by the American Intellectual Property Law Association (AIPLA) titled "Practical Patent Prosecution for New Lawyers". See, notice [PDF]. For more information, call 703-415-0780. Location: Hilton Crystal City, 2399 Jefferson Davis Highway, Arlington, VA.

Thursday, August 10

Day two of a three day continuing legal education (CLE) seminar hosted by the American Intellectual Property Law Association (AIPLA) titled "Practical Patent Prosecution for New Lawyers". See, notice [PDF]. For more information, call 703-415-0780. Location: Hilton Crystal City, 2399 Jefferson Davis Highway, Arlington, VA.

Friday, August 11

Day three of a three day continuing legal education (CLE) seminar hosted by the American Intellectual Property Law Association (AIPLA) titled "Practical Patent Prosecution for New Lawyers". See, notice [PDF]. For more information, call 703-415-0780. Location: Hilton Crystal City, 2399 Jefferson Davis Highway, Arlington, VA.

5:00 PM. Deadline to submit comments to the National Institute of Standards and Technology's (NIST) Computer Security Division regarding its draft [11 pages in PDF] of Special Publication 800-96, titled "PIV Card / Reader Interoperability Guidelines".

Tuesday, August 15

1:00 - 3:00 PM. The Department of State's (DOS) International Telecommunication Advisory Committee will meet to prepare for ITU Radiocommunication Sector's Special Committee on Regulatory/Procedural Matters that will take place on December 4-8, 2006, in Geneva, Switzerland. See, notice in the Federal Register, May 4, 2006, Vol. 71, No. 86, at Pages 26397-26398. Location: Boeing Company, 1200 Wilson Blvd., Arlington, VA.

6:00 - 9:15 PM. Day one of a two day continuing legal education (CLE) seminar titled "Software Patent Primer: Acquisition, Exploitation, Enforcement and Defense" hosted by the DC Bar Association. The speakers will include Stephen Parker (Novak Druce), Brian Rosenbloom (Rothwell Figg Ernst & Manbeck), David Temeles (Temeles & Temeles), and Martin Zoltick (Rothwell Figg). The price to attend ranges from $95-$170. For more information, call 202-626-3488. See, notice and notice. Location: D.C. Bar Conference Center, 1250 H Street NW, B-1 Level.