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News Briefs from April 16-20, 2001

4/20. The U.S. Court of Appeals (DCCir) issued its opinion in WorldCom v. FCC, a petition for review of an order of the FCC that Section 251 obligations extend to ILEC's provision of DSL service. The Court affirmed in part, and vacated and remanded in part.
Section 251 contains the interconnection requirements of the Telecom Act of 1996. It provides, among other things, that incumbent local exchange carriers (ILECs), such as Verizon, SBC, BellSouth, and Qwest, have a "duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory ..." It also provides that ILECs have a duty "to offer for resale at wholesale rates any telecommunications service that the carrier provides at retail to subscribers who are not telecommunications carriers". At issue is whether ILECs' digital subscriber line (DSL) service is subject to these § 251 mandates.
Qwest and others requested a clarification from the FCC regarding this issue. The FCC issued a first order, which the Court of Appeals vacated and remanded. The FCC then issued an a second order (see, In re Deployment of Wireline Services Offering Advanced Telecommunications Capability, 15 F.C.C.R. 385 (1999)) which is the subject of this Petition for Review. In this second order the FCC ruled that DSL based advanced services are subject to § 251(c) obligations on two theories: first, on the definition of "local exchange carrier", and second, on the definitions of "telephone exchange service" and "exchange access". The Appeals Court vacated and remanded the FCC's classification of DSL based advanced services as "telephone exchange service" or "exchange access." However, the Court denied Qwest's claim that ILECs can be subject to § 251(c) duties only with respect to the provision of "telephone exchange service" or "exchange access".
Judge Stephen Williams wrote the opinion; Judges David Sentelle and Judith Rogers joined.
4/20. President Bush announced his intent to nominate Robert Flores to be Administrator of the Office of Juvenile Justice and Delinquency Prevention (OJJDP). Flores is currently the VP and Senior Counsel for the National Law Center for Children and Families. He also served on the COPA Commission. He is one of the leading proponents of prosecuting obscenity on the Internet, and requiring schools and libraries receiving e-rate subsidies to use filtering technology. However, the OJJDP is not a prosecutorial office; it collects and disseminates information, and provides grants and other assistant to state and local authorities. It also has no authority regarding the e-rate. See, release.
4/20. The FTC appointed Molly Boast Director of its Bureau of Competition, which enforces antitrust laws. She was Senior Deputy Director of the Bureau from July 1999 through January 2001, and has been the Acting Director since then. See, FTC release. Commissioner Orson Swindle wrote a dissent in which he praised Boast, but stated that "even if Chairman Pitofsky's appointment of Molly Boast as Bureau Director was not intended to frustrate a smooth transition at the FTC, it surely could have that result." He elaborated that "it is no secret that Ms. Boast has informed the Commission and the staff of her intention to leave the agency soon. Second, the President recently announced his intention to nominate Timothy Muris as FTC Chairman."
4/20. The Plumbers and Pipefitters Local 572 Pension Fund filed a complaint [PDF] in U.S. District Court (NDCal) against Cisco and several of its officers and directors alleging violation of federal securities laws. Plaintiff, which is represented by the law firm of Milberg Weiss and others, seeks class action status. The one count complaint alleges violation of Section 10b and Rule 10b-5. Milberg Weiss is a law firm that files class action securities suits against technology companies when their stock prices drop. It has also recently filed suits against Amazon, AT&T, Broadcom, Covad, Deutsche Telekom, Gateway, Macromedia, Nortel, Oracle, and many other companies.
4/20. The U.S. Court of Appeals (FedCir) issued its opinion in Bristol-Meyers Squibb v. Ben Venue Laboratories, a patent case. The District Court held on summary judgment that certain claims of U.S. Patent 5,641,803 and 5,670,537, a three-hour administration of the antitumor drug paclitaxel, are not invalid for anticipation. The Appeals Court affirmed as to eight claims, and reversed as to two claims.
4/20. The U.S. Court of Appeals (FedCir) issued its opinion in Medtronic v. ACS and Guidant, a patent infringement case. Medtronic filed a complaint in U.S. District Court (DMinn) against Advanced Cardiovascular Systems and Guidant alleging infringement of its U.S. Patent No. 5,653,727, which relates to intravascular coronary stents. The District Court held the various claims of this patent were not infringed by Defendants' accused product. The Court of Appeals affirmed, holding that the District Court correctly construed the means plus function limitation of "means for connecting adjacent elements together."
4/20. The Office of the Commissioner of Baseball submitted a comment [PDF] to the FCC in response to its Notice of Inquiry regarding interactive TV over cable facilities. It argued that the FCC should not regulate the market for iTV services and platforms at this time, but if it does, it should avoid regulations which have an effect on the intellectual property rights of content owners.
4/20. The U.S. Court of Appeals (DC Cir) heard oral argument in National Public Radio v. FCC, Appeal No. 00-1246.
4/20. Linda Sanders and others filed a complaint in U.S. District Court (DColo) against 25 companies involved in the production or distribution of violent video games. Plaintiffs, who are represented by John DeCamp of Lincoln, Nebraska, seek class action status to sue on behalf of victims of Columbine killers Eric Harris and Dylan Klebold. The defendants include AOL Time Warner, Nintendo, Sony Computer Entertainment, ID Software, Atari, Sega, Virgin Interactive Media, Activision, and GT Interactive Software.
4/20. The FCC's WRC-03 Advisory Committee held a meeting to continue preparations for the 2003 World Radiocommunication Conference.
4/20. The FCC published in its web site a copy [PDF] of the presentation on digital TV made at the Thursday, April 19 meeting of the FCC.
4/19. The U.S. Court of Appeals (FedCir) issued its opinion in GE v. US, an appeal of a Customs Service classification. GE challenged the U.S. Customs Service's classification of multi format cameras which were for use solely with computerized tomography x-ray scanners. The U.S. Court of International Trade granted summary judgment to the Customs Service. The Appeals Court reversed.
4/19. The Federal Communications Commission held a public meeting Thursday morning to address three items. First, it adopted a Notice of Proposed Rulemaking to explore ways of reforming existing intercarrier compensation rules. Second, it approved amendments to its rules, known as the Dual Network Rule, to allow the major networks to acquire UPN an WB. Third, it heard a report on, and discussed the status of, the transition from analog to digital TV.
4/19. The FCC took action on the reciprocal compensation issue in two related matters on Thursday, April 19. First, it announced that it has adopted rules temporarily setting prices for intercarrier compensation for ISP bound traffic. Second, it announced the commencement of a broader NPRM relating to intercarrier compensation. However, the FCC released neither its price fixing rule nor its NPRM, and hence, left uncertain what it is doing.
Background: § 251(b)(5) of the 1996 Telecom Act provides that local phone companies must compensate each other for handling each other's local calls. A telephone company pays a second telephone company for each local call the second company completes to one of its customers. For example, if a person whose local phone company is the incumbent local exchange carrier (ILEC) makes a local phone call to another person whose local phone company is a competitive local exchange carrier (CLEC), the CLEC is entitled to compensation from the ILEC for completing the call. The same is the case if the call originates with the CLEC and completes with the ILEC. Hence, it is called "reciprocal compensation" in the statute. However, ILECs, such as BellSouth, Verizon, and SBC, now complain that some CLECs are abusing the system by concentrating on serving ISPs, but not residential customers, and making the money off of reciprocal compensation payments that are not in fact reciprocal, and involve little cost to provide. They want to end reciprocal compensation for ISP bound traffic. Others argue that doing so would harm competition, and could result in Internet access charges.
FCC Commences NPRM: The FCC adopted, but did not release, a Notice of Proposed Rule Making (NPRM) regarding intercarrier compensation generally. The Commission adopted the NPRM Wednesday night, and again at the Commission's public meeting Thursday morning. The Commission did not release the NPRM, explain its content, or quote from it. However, Commissioner Furchtgott-Roth quoted from the works of Milton Friedman and Adam Smith. Dorothy Attwood, Chief of the Common Carrier Bureau, and other FCC staff, held a press conference immediately after the Commission meeting to discuss the NPRM. However, they too refused to elaborate on the contents of the NPRM. The FCC merely issued a short release. FCC Commissioners and staff did say that they were interested in receiving comment on "bill and keep" proposals. (Re: Notice of Proposed Rulemaking, Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92.)
Chairman Powell praised the NPRM at the meeting. He called it "extraordinarily ambitious undertaking" that is "long overdue". He added that "in a competitive environment, and an environment in which new technical innovative services are being provided, that the regulatory regime itself risks distorting the efficient development of that market because there are such different compensation and regulatory regimes, depending on the nature of your service." See, also written statements by Powell, Ness and Furchtgott-Roth.
FCC Sets Prices: The FCC also adopted, but did not release, new rules setting intercarrier compensation rates for telecommunications traffic delivered to ISPs. The FCC issued a  release that states that "The Commission concluded that telecommunications traffic delivered to an ISP is interstate access traffic, specifically "information access," thus not subject to reciprocal compensation. Additionally, rather than immediately eliminate the current system, which has created opportunities for regulatory arbitrage and distorted market incentives, the Commission established a transitional cost recovery mechanism for the exchange of this traffic." The release also states the prices fixed by the FCC: "For the first six months following the effective date of this Order, intercarrier compensation of ISP-bound traffic will be capped at a rate of $.0015/minute-of-use (mou). For the 18 months thereafter, the rate will be capped at $.0010/mou. Thereafter, the rate will be capped at $.0007/mou." (CC Docket Nos. 96-98 and 99-68, Order on Remand and Report and Order, FCC 01-131.)
Harold Furchtgott-Roth criticized the practice of price setting by government agencies at the public meeting. He said that "deregulation is not about government setting prices. It is not about government setting up mechanisms or specific types of intercarrier arrangements -- intercarrier compensation arrangements. It is not about mandating bill and keep. It is not about mandating any type of price ..." He wants to "get the government out of the price setting business." He also noted the North Korean and Cuban governments set prices. He also released a written dissent afterwards which argued that the price rule is without legal basis. He predicted that "The result of the Commission's order will be another round of litigation, and, in all likelihood, this issue will be back at the agency in another couple of years."
Industry Reaction: Bob Blau of BellSouth praised the FCC for limiting reciprocal compensation payments. "We congratulate the commission on this important first step out of the thicket that has allowed one group of companies to milk cash from BellSouth and others, for doing almost nothing but watching the internet one-way traffic flow. No one ever intended this compensation to be one-way rather than reciprocal. By setting lower rates, the commission allows companies to be compensated for services they actually perform and stops compensation for doing nothing. But, the fact of the matter is today's ruling still leaves incumbents subsidizing their competitors. The order is only a partial solution. BellSouth will participate vigorously in the next round of this debate, hoping to move to a bill and keep regime as quickly as possible." Similarly, Gary Lytle, President of the USTA, a group which represents ILECs, stated that "We are encouraged by today's announcement and look forward to reviewing the entire order upon its release. It's time for the FCC to close the reciprocal compensation loophole for good." See, release.
Russell Frisby, President of CompTel, praised the FCC for not eliminating reciprocal compensation payments. "Remember, the Bells were the ones who pushed so hard to get reciprocal compensation into the Act.  And now they want to penalize competitors for benefiting from it. All the competitors did was bring better prices and services to consumers when the Bells had no interest in it." He added that "The Bell monopolies have been trying every which way they can to wriggle out of the Telecommunications Act and its pro-competitive intent since the beginning. Reciprocal compensation is just one of those avenues. And the FCC's decision makes it clear that road is closed." See, release.
Commissioners encouraged parties interesting in this issue to review two working papers published by the FCC's Office of Plans and Policy. One is Bill and Keep at the Central Office as the Efficient Interconnection Regime [PDF], by Patrick DeGraba. It proposes "a unified approach to interconnection pricing called Central Office Bill and Keep ("COBAK"), which provides that a called party's carrier cannot charge an interconnecting carrier to terminate a call. Rather, each carrier recovers the cost of the loop and local switch from its own end-user customers). The second paper is A Competitively Neutral Approach to Network Interconnection [PDF], by Jay Atkinson and Christopher Barnekov. It proposes "a default bill and keep solution under which carriers split equally those costs that are solely incremental to interconnection, and recover all remaining costs from their own customers." For further background, see testimony of former FCC Common Carrier Bureau Chief Larry Strickling to the House Commerce Committee on June 22, 2000, and Bell Atlantic v. FCC, 206 F.3d 1 (D.C. Cir 2000).
4/19. The FCC voted at its public meeting to adopt a Report and Order that will amend its rules (at § 73.658(g)) to permit one of the four major TV networks (ABC, CBS, Fox and NBC) to own, operate, maintain or control the UPN and/or the WB TV network. Commissioner Furchtgott-Roth said he would have gone further and eliminated all FCC ownership restrictions; he reasoned that if there were a competition problem, the FTC or Antitrust Division could handle it. Commissioner Tristani dissented, lamenting that the rule will limit "broadcast diversity". See, FCC release and written statements of Tristani, Powell, and Ness. (MM Docket No. 00-108.)
4/19. The Federal Election Commission approved a draft advisory opinion regarding Morgan Stanley Dean Witter's plans to use a web site to authorize payroll deductions for political actions committees. MSDW submitted a Request for Advisory Opinion [PDF] requesting an opinion that it is permissible, pursuant to the E-SIGN Act, to use electronic signatures to authorize payroll deductions for the MSDW political action committee. The draft advisory opinion permits the activity, but does not rely upon the E-SIGN Act. The Commission approved the draft with little discussion by a vote of 6 to 0.
4/19. The Cato Institute hosted a book forum titled "Are the Crypto Wars Over? Privacy, Digital Security and the Future of Encryption Policy." Steven Levy discussed his book, Crypto: How the Code Rebels Beat the Government -- Saving Privacy in the Digital Age. Bruce Schneier discussed his book, Secrets and Lies: Digital Security in a Networked World. Levy stated that encryption export regulations were significantly relaxed over a year ago, but that it has not resulted in widespread use of encryption products.
Schneier said that "I believe we won the crypto war, but it was the wrong war." He said that most of the problems faced today, such as distributed denial of service attacks, web site defacements, unauthorized access, theft of data, and viruses, cannot be solved by cryptography. He elaborated that encryption protects data in motion, but today's problem's are primarily the security of data when it is sitting still on hard drives. There is no cryptological or other technological fix to these problems. He concluded that the answer lies in obtaining a lawful society, and this entails adoption of criminal statutes, and government prosecutions. "The way we will get security on the Internet is through convictions."
Schneier also stated that encryption can not provide a solution to the copyright infringement problems of record and movie companies. He said that audio and video can be encrypted, but ultimately, "the device that plays it must be able to decrypt it. If you are going to attack these systems, you don't attack the cryptography. You just grab the data after it has been decrypted."
4/19. The Children's Online Privacy Protection Act (COPPA), which was passed at the end of the 105th Congress in 1998, prohibits the collection of personally identifying information of children under 13 by web site operators without parental consent. The COPPA, and the implementing rules, went into affect on April 21, 2000. Several parties noted its first anniversary.
4/19. The Center for Media Education released a report [PDF] titled "COPPA: The First Year: A Survey of Sites." It found that "COPPA has brought about significant changes in Web sites' business practices in data collection. A number of promising creative approaches illustrated how companies can adapt to the rules without undermining the interactive personalized features of the Internet. Commercial Web sites can still provide customized experiences for children and learn more about their audience, without compromising children's privacy." However, it also found that "the industry is clearly not doing all it can to comply with the new privacy provisions, and in some cases, may be violating both the spirit and letter of the law."
4/19. The FTC approved the Entertainment Software Rating Board (ESRB) as a "safe harbor" program under the terms of the Children's Online Privacy Protection Act (COPPA). See, FTC release and ESRB release.
4/19. The FTC also filed three complaints in U.S. District Courts alleging violations of the COPPA. The FTC also simultaneously settled all three actions. Under the terms of the settlements, the offending web site operators will pay fines, delete illegally obtained information, and comply with the COPPA in the future. See,
 • Complaint [PDF] and Consent Decree [PDF] in US v. Looksmart (EDVa).
 • Complaint [PDF] and Consent Decree [PDF] in US v. Monach Services (DMd).
 • Complaint [PDF] and Consent Decree [PDF] in US v. (EDVa).
4/19. The record companies plaintiff and appellees filed their opposition to Napster's petition for a rehearing en banc with the U.S. Court of Appeals for the 9th Circuit. See also, letter brief on procedural issues, and response to Napster's motions for judicial notice, and to file supplemental brief.
4/19. President Bush announced his intent to nominate Allen Johnson to be Chief Agriculture Negotiator for the Office of the USTR. He is currently President of the National Oilseed Processors Association. See, release.
4/19. SEC Acting Chairman Laura Unger gave a speech at the Northwestern University School of Law in
Evanston, Illinois, titled "How Can Analysts Maintain Their Independence?"
4/19. Convergent Communications and its subsidiary Convergent Communications Services filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court. See, release.
4/18. The FTC filed three complaints in U.S. District Courts alleging unfair or deceptive practices under the Federal Trade Commission Act, and using false pretenses to obtain customer financial information from financial institutions under the Gramm Leach Bliley Act. Each defendant offered for sale through their web sites, and by other means, consumer financial information obtained illegally through the practice known as pretexting. See,
 • Complaint [PDF] in FTC v. Guzzetta dba Smart Data Systems (EDNY).
 • Complaint [PDF] in FTC v. Information Search Inc. and David Kacala (DMd).
 • Complaint [PDF] in FTC v. Garrett (SDTex).
The FTC's decision was controversial. Two of the five Commissioners, Orson Swindle and Thomas Leary, opposed the filing of these lawsuits. See, Swindle dissent and Leary statement. See also, FTC release.
4/18. The U.S. Supreme Court issued its opinion [PDF] in Hunt v. Cromartie, a case regarding the drawing of boundaries of Congressional districts. The case will be of great importance for redistricting following the 2000 census, which resulted in some states gaining seats, and others losing seats. However, it is also noteworthy that the district at issue in this case, the North Carolina 12th, is held by Rep. Mel Watt (D-NC). He is a senior member of the House Judiciary Committee, and the Ranking Member of its Commercial and Administrative Law Subcommittee. He has also been a proponent of legislation protecting the electronic privacy of individuals from incursions by federal law enforcement authorities. The Supreme Court upheld the oddly shaped 160 mile long district held by Rep. Watt.
4/18. The U.S. Court of Appeals (FedCir) issued its opinion in Electro Scientific v. General Scanning, a patent infringement case. Electro Scientific Industries (ESI) filed a complaint in U.S. District Court (NDCal) against General Scanning (GS) alleging infringement of U.S. Patent Nos. 5,265,114 and 5,473,624, both of which pertain to the use of lasers in the manufacture of integrated circuits. On summary judgment, the District Court held that GS literally infringed both patents. At trial, the jury awarded ESI $13,133,370 in damages for infringement of the '114 patent, but held the '624 patent invalid. GS then brought this appeal. The Court of Appeals affirmed.
4/18. The U.S. Court of Appeals (FedCir) issued its opinion in In Re Tsutomu Haruna and Sadao Kita. The Court of Appeals reversed the decision of the U.S. Board of Patent Appeals and Interferences that upheld the examiner's rejection of the sole claim in design patent application serial number 29/058,031. The sole claim of the '031 application is directed to an "ornamental design for a pre-recorded optical disk." The examiner rejected the claim as being unpatentable for obviousness.
4/18. Winstar, a competitive local exchange carrier (CLEC) which provides local and long distance voice, Internet access, and data transport, filed a Chapter 11 petition for bankruptcy in U.S. Bankruptcy Court (DDel). Winstar Ch/CEO William Rouhana stated that "We expect to emerge from the Chapter 11 process with a new balance sheet that has significantly less debt, thereby dramatically lowering our interest payments and providing us with more operating flexibility." See, Winstar release.
4/18. Winstar also filed a complaint in U.S. Bankruptcy Court (DDel) against Lucent. The complaint seeks damages for Lucent's alleged breach of its obligations under its strategic partnership agreement with Winstar, and specific performance of its alleged contractual obligations, including the payment of more than $90 million to Winstar. See, Winstar release.
4/18. The California Court of Appeal issued its opinion [PDF] in Howard Gunty Profit Sharing Plan v. Superior Court, a case regarding certification of a class representative in a state securities class action proceeding. The trial court held that the Howard Gunty PSP is a "professional plaintiff".
4/18. Robert Sachs P/CEO of the NCTA gave a speech to the Media Institute in Washington DC titled "Cable, Broadcast and the First Amendment" in which he addressed "must carry" requirement.
4/18. The ICANN published a notice in its web site regarding a proposal to change registrar application fees and annual registrar fixed accreditation fees. The ICANN will address this proposal on June 3 in a public forum at its next round of meetings in Stockholm, Sweden.
4/18. A grand jury of the U.S. District Court (WDKent) returned a superceding indictment against Kurtis Cullen and Bruce Zak charging conspiracy to steal trade secrets, attempted theft of trade secrets, and wire fraud. The indictment states that defendants engaged in a scheme to buy a proprietary computer source code from an employee of See, release.
4/17. Novell announced that it has settled its case against Academic Data Solutions and its principals, Ezra Natanely and Rachael Natanely. Novell brought suit in U.S. District Court (EDNY) against ADS in January of 1999 for copyright and trademark infringement for distributing counterfeit versions of Novell's NetWare software, and for using counterfeit Novell labels. See, release.
4/17. President Bush gave a speech to the Organization of American States in Washington DC in which he advocated free trade. "Open trade fuels the engines of economic growth that creates new jobs and new income. It applies the power of markets to the needs of the poor. It spurs the process of economic and legal reform. It helps dismantle protectionist bureaucracies that stifle incentive and invite corruption. And open trade reenforces the habits of liberty that sustain democracy over the long term. For all these reasons, my administration is committed to pursuing open trade at every opportunity. We'll pursue open trade bilaterally, with individual nations such as Chile and Singapore and Jordan. We'll pursue open trade globally through a new round of multilateral negotiations. We want to open global markets so that our farmers and ranchers and workers and service providers and high-tech entrepreneurs can enjoy the benefits of a more integrated world. And, of course, we'll pursue these goals throughout our hemisphere through the free trade area of the Americas."
President Bush also addressed fast track trade negotiating authority. "Since open trade is one of my top priorities for our hemisphere, gaining U.S. trade promotion authority is one of my top priorities in Congress. I made this clear in my first address to the Congress. We have reinforced this message in meetings my Cabinet officers and I have had with over 100 members of Congress. Trade promotion authority gives our trading partners confidence that they can rely on the deals that they negotiate. It allows us to seize opportunities to expand the circle of trade and prosperity. We're now actively working with Congress on a strategy for passing legislation, granting the trade promotion authority. We'll intensify this effort when I return from Quebec, and I'm confident we'll succeed."
4/17. Rep. Billy Tauzin (R-LA), Chairman of the House Commerce Committee, sent letters to the several local telecommunications companies requesting detailed information related to their costs and revenues associated with servicing ISPs. The letters focus on the practice of reciprocal compensation. Section 251(b)(5) of the Telecom Act of 1996 provides that competing companies must pay certain charges to one another for calls that terminate on each other's networks. The letters request information regarding the reciprocal compensation revenue received by certain companies, including the amount, its percentage of total revenue, the percentage attributable to ISP bound traffic, and costs associated with generating it.
4/17. The FCC released an Order [PDF] imposing a  fine against AT&T for slamming -- the authorized switching of consumers' long distance carriers. The FCC found that AT&T had slammed 11 customers. AT&T argued that the slamming was unintentional. The FCC fined AT&T $520,000. See, FCC Order of Forefeiture and Enforcement Bureau release.
4/17. The FTC reached a consent agreement with the owners and operators of several pornographic web sites who made false and deceptive statements regarding free trial memberships, and then billed credit and debit card accounts without authorization. The FTC's administrative complaint states that the defendants promised free trial memberships, but then "immediately charge consumers' credit or debit cards for one month's membership fee effective as of the date that the consumers first provide credit or debit card information and agree to participate in the free trial membership offers". Under the terms of the Agreement Containing Consent Order to Cease and Desist, Voice Media Inc, and its owners and officers, Ron Levi and Paul Lesser, agreed not to lie to their customers any more. However, they were not fined. See also, FTC release.
4/17. President Bush will nominate Clark Randt to be U.S. Ambassador to the People's Republic of China. Randt is currently a partner in the Hong Kong office of the law firm of Shearman & Sterling. He is partner in the firm's Mergers and Acquisitions and Corporate Finance Groups. He specializes in direct foreign investment, capital markets and financing transactions in the Asia-Pacific region. He also heads the firm's China practice. He speaks Chinese Mandarin. He also went to college with George Bush, where the two were fraternity brothers.
4/17. President Bush announced his intent to nominate Michael Garcia to be Assistant Secretary of Commerce for Export Enforcement. Garcia has been an Assistant U.S. Attorney for the Southern District of New York since 1992. See, release.
4/17. The California Court of Appeal issued its opinion [PDF] in Visionshape v. Kofax Image Products. Kofax manufactures video boards used to connect document scanners to personal computers. Visionshape and Kofax marketed competing software that was compatible with Kofax video boards. In September 1997 Kofax released a new video board that was compatible with its software, but not Visionshape's. Visionshape filed a complaint against Kofax alleging (1) unlawful loss leader sales, (2) unlawful sales below cost, (3) unlawful tying arrangement, (4) intentional interference with prospective economic advantage, (5) negligent interference with prospective economic advantage, and (6) unfair competition. Kofax filed a demurrer that the complaint failed to state a claim. The trial court sustained the demurrer, without leave to amend, and entered a judgment of dismissal. Visionshape brought this appeal. The Court of Appeal affirmed.
4/17. The U.S. Court of Appeals (3rdCir) issued its opinion in Medtronic AVE v. Advanced Cardiovascular Systems, a case regarding arbitration clauses and patent infringement claims. Medtronic filed a complaint in U.S. District Court (DDel) against Advanced Cardiovascular Systems (ACS) alleging patent infringement. ACS sought a stay of the patent infringement litigation pending arbitration so that it could enforce the arbitration clauses in two agreements. The District Court denied the motion to stay, and the Appeals Court affirmed.
4/17. The U.S. Court of Appeals (FedCir) issued its opinion in Harry Schoell v. Regal Marine, a patent infringement case. Schoell sued Regal Marine alleging infringement of U.S. Patent No. 5,456,202, which relates to boat hulls. The Appeals Court affirmed the District Court's judgment that Regal Marine had not infringed plaintiff's patent, either literally, or under the doctrine of equivalents.
4/17. The U.S. Court of Appeals (2ndCir) issued its opinion in New Kayak Pool v. Island Pools, a trademark infringement case. Both New Kayak Pool and Island Pools make above ground swimming pools and accessories. Both market their products via mail order catalogues. Kayak has registered the trademark "Kayak Pools." Island published a catalogue in 1999 which stated "Kayak® Pool Owners: We Carry a Complete Line of Parts and Supplies for Your Pool." Kayak filed a complaint in U.S. District Court (WDNY) alleging trademark infringement and unfair competition under the Lanham Act against Island, and seeking injunctive relief. The District Court denied Kayak's request for injunctive relief. This appeal followed. The Appeals court vacated and remanded, with instructions to apply the multi-factor balancing test articulated in Polaroid v. Polarad, 287 F.2d 492 (2d Cir. 1961).
4/17. PSINet released 4th quarter results. It stated that "the Company's cash, cash equivalents, short-term investments and marketable securities, including the proceeds from the sale of PSINet Transactions Solutions on April 3, 2001, are not expected to be sufficient to meet the Company's anticipated cash needs. ... These efforts are likely to involve reorganization under the federal bankruptcy code." See, PSINet release.
4/17. Kenneth Walton plead guilty in U.S. District Court (EDCal) to three counts of wire fraud and four counts of mail fraud for making fraudulent or shill bids on eBay. Scott Beach plead guilty to one count of wire fraud and three counts of mail fraud. A third defendant in this case, Kenneth Fetterman, is a fugitive. See, release.
4/16. The Center for Democracy and Technology, other groups, and academics, wrote a letter to Mitch Daniels, Director of the Office of Management and Budget, urging him to promptly fill the position of Chief Privacy Counselor at the OMB.
4/16. A grand jury of the U.S. District Court (NDCal) returned an indictment [PDF] against Malcolm Wittenberg charging two counts of insider trading in violation of 15 U.S.C. § 78j and 17 C.F.R. 240.10b-5. Wittenberg is the head of the patent department in the San Francisco office of the law firm of Crosby Heafey Roach & May. The indictment alleges that he twice made purchases of stock of a software company (Forte Software) that was a client of the firm, and that was about to be acquired by Sun Microsystems, based upon material non public information that he acquired in the course of his representation of that client. The indictment alleges that Wittenberg learned of the impending transaction when lawyers for Sun and Forte asked him to provide information regarding Forte's intellectual property. The complaint further alleges that his gross proceeds from the transactions was $54,687.44. Otherwise, the five page indictment is short on details. John Hemann is the Assistant U.S. Attorney who is prosecuting the case. Wittenberg is represented by Doug Young, who handles white collar crimes at the law firm of Farella Braun & Martel. See, USAO release of April 16. See also, Sun release of August 23, 2000, regarding its acquisition of Forte.
4/16. The SEC filed a civil complaint in U.S. District Court (NDCal) against Malcolm Wittenberg alleging violation of federal securities laws in connection with allegations that he traded in stock on the basis of material non public information. He simultaneously consented, without admitting or denying the allegations in the complaint, to the entry of a permanent injunction against future violations of §  10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and to pay a total of $29,224.67, including $14,000 in disgorgement of trading profits, $1,224.67 in prejudgment interest and a civil penalty of $14,000. See, SEC release. On April 16 a grand jury of the U.S. District Court (NDCal) returned a two count indictment [PDF] against Wittenberg.
4/16. The FCC approved Verizon's Section 271 application to provide in-region interLATA long distance service in Massachusetts. This is the fifth state for which the FCC has allowed the regional bell operating company to enter the long distance phone service market. The others are New York, Texas, Oklahoma, and Kansas. See, FCC release and Verizon release. Chairman Michael Powell supported the decision, along with Commissioners Harold Furchtgott-Roth and Susan Ness. See, separate statements of Powell, HFR, and Ness. The FCC wrote in its Memorandum Opinion and Order [MSWord, 142 pages plus voluminous appendices] that it commends Verizon for "all of the work that it has undertaken to open its local exchange market to competition in Massachusetts. For example, Verizon states that competitive local exchange carriers (competitive LECs) serve more than 513,000 lines on a facilities basis in Massachusetts ..." (FCC Docket No. CC 01-9.)
Commissioner Gloria Tristani dissented. She wrote in her statement that "The availability of unbundled network elements (UNEs) at cost-based rates is an essential ingredient of a primary strategy for entering the residential market in Massachusetts. ... Based on the evidence in the record, I cannot conclude that Verizon has demonstrated that its switching rates are based on the forward-looking, total element long run incremental cost (TELRIC) of providing that network element."
USTA President Gary Lytle said in a statement that "We anticipate several long distance applications from other Bell companies this year. The FCC should act quickly to approve those applications and give consumers across the country real choices in telecommunications services." BellSouth Vice chairman Jere Drummond said in a prepared statement that "We anticipate a series of applications, starting with Georgia, which we plan to file soon."
Some criticized the FCC's decision. The Consumer Federation of America and the Massachusetts Consumers' Coalition released a joint statement in which they asserted that "Allowing Verizon to sell long distance service before it has opened its monopoly service areas to alternative local service providers snuffs out any hope that a vigorously competitive telephone market will develop." Similarly, AT&T VP for Federal Government Affairs Len Cali said in a prepared statement that "The FCC afforded Verizon far too much latitude in approving its application to offer long distance services in Massachusetts. Verizon's wholesale rates do not comply with the requirements of the Telecom Act, and do not permit meaningful competition."
4/16. The FCC released a Second Order on Reconsideration [PDF] in its CALEA proceeding (CC Docket No. 97-213). Congress passed the Communications Assistance for Law Enforcement Act in 1994 to enable law enforcement authorities (LEAs) to maintain their existing wiretap capabilities in new telecommunications devices. It provides that wireline, cellular, and broadband Personal Communications Services carriers must make their equipment capable of certain surveillance functions. The FBI and Justice Department have since aggressively sought to expand their CALEA authority through interpretation and implementation.
In the present matter, the FBI asked the FCC reconsider its previous orders implementing the CALEA by further imposing "more effective personnel security obligations" upon carriers. The FCC declined to impose new requirements, stating that carriers were capable of ensuring security "without micro-management oversight by law enforcement or the Commission." The FBI also asked the FCC to require carriers to generate an automated message that would permit LEAs "to confirm periodically that the software used to conduct an interception is working correctly and is accessing the equipment, facilities, or services of the correct subscriber." The FCC declined this request also. However, the FCC did make minor revisions to §§ 64.2103 and 64.2104 of its rules to clarify the arrangements telecommunications carriers subject to CALEA must make to ensure that LEAs can contact them when necessary, and the interception activity that triggers a record keeping requirement.
4/16. Monday, April 16, was the deadline to file comments with the FCC regarding its Final Report [101 pages in PDF] on the possible use of spectrum in the 2500-2690 MHz band for Third Generation (3G) wireless systems. See, notice requesting comments published in the Federal Register, April 11, 2001, Vol. 66, No. 70, at Pages 18740 - 18741. The Final Report, dated March 30, 2001, is titled "Final Report: March 30, 2001: Spectrum Study of the 2500-2690 MHz Band: The Potential for Accommodating Third Generation Mobile Systems". It concluded that this spectrum is already heavily licensed throughout the country, that it would be technical difficult to segment or share the spectrum, and that relocation could cost between $10.2 and 30.4 Billion. See also, executive summary of Final Report.
Incumbent users of spectrum in the 2500 to 2690 MHz band filed comments commending the Final Report, and urging the FCC not to place 3G services in this band. The National ITFS Association submitted a comment in which it stated that "The Final Report effectively precludes any rational argument that the ITFS/MDS bands can or should be made available for 3G services. It's time to take these bands off the table so that ITFS/MDS licensees and their partners can move forward with the roll out of fixed wireless broadband services, which are critical to the educational and commercial well being of this country." The American Association of School Administrators submitted a comment in which it stated that "we urge that the ITFS spectrum no longer be considered a viable option for 3 rd Generation Cellular rollout."
Clearwire, which is a provider of wireless high speed Internet access, and equipment for two-way fixed wireless Internet access in the 2500 to 2690 MHz band, submitted a comment in which it argued that "The Final Report confirms that there is no room in the 2500-2690 MHz band for 3G services, and no way to make room. All parties agree that spectrum sharing will not work. There is not enough in-band spectrum for segmentation, and not enough elsewhere for relocation. Even if spectrum could be found, either segmentation or relocation would entail costs in the tens of billions of dollars. The Commission must place 3G services elsewhere in the spectrum." Sprint submitted a comment in which it stated that "MDS/ITFS services can neither share the band nor be reallocated to other spectrum without great disruption of service and prohibitive cost."
Background information: 3G is intended to bring broadband Internet access to portable devices, but needs spectrum allocated for its use. Two spectrum bands were identified by the International Telecommunication Union (ITU) 2000 World Radiocommunication Conference (WRC-2000) for possible 3G use. One is the 1710 to 1885 MHz band, which is currently being used by federal agencies, especially the Department of Defense. It is subject to NTIA jurisdiction. The DOD adamantly opposes locating 3G systems in this band. The other is the 2500 to 2690 MHz band, which is currently being used for MMDS and ITFS, and which is subject to FCC jurisdiction. As the comments quoted above indicate, incumbent users of this are likewise hostile to the use of this band by 3G services.
4/16. Monday, April 16, was the deadline to file comments with the FCC in response to its notice requesting comments to "update and refresh the record" on issues raised in its Computer III Further Notice of Proposed Rulemaking, originally issued on January 30, 1998. Computer III established nonstructural safeguards for the provision of enhanced services by the Bell Operating Companies (BOCs). eVoice, which provides voice mail services which allow users to access their messages via the Internet, submitted a comment [PDF]. It urged the FCC "to continue all of the existing Computer III and ONA safeguards". It also argued that the BOCs have repeatedly violated the existing Computer III and ONA safeguards, and hence, additional safeguards and enforcement efforts are necessary. See, CC Dockets 95-20 and 98-10. The FCC's notice was published in the Federal Register, March 15, 2001, Vol. 66, No. 51, at Pages 15064 - 15065.
4/16. President Lagos of Chile met in Washington DC with US President Bush. The two held a joint press conference at which Bush stated that "I'm confident that by the time this year is over we will conclude a free trade agreement with Chile." He also stated that "I'd certainly like to have what they call fast track authority. ... It's important for the President to fight for the right to be able to negotiate trade agreements without amendment. I believe we're making progress toward regaining that power for the President." See, transcript.
4/16. The Progressive Policy Institute released a report [PDF] titled Online Privacy and a Free Internet
Striking a Balance
, which was authored by Shane Ham and Robert Atkinson. The report reviews the three major online privacy bills introduced in the 106th Congress, and endorses the bill sponsored by Sen. John McCain (R-AZ) and Sen. John Kerry (D-MA). Their bill requires specific notice mandates, an opt-out mandate, and strong state preemption. See also, PPI release and S 2928 (106th), the Consumer Internet Privacy Enhancement Act.
4/16. Several plaintiffs filed a complaint [PDF] in U.S. District Court (SDNY) against Winstar and several of its officers and directors alleging violation of federal securities laws. Plaintiffs, who are represented by the law firm of Milberg Weiss, seek class action status. Count I alleges violation of § 10(b) of the Exchange Act, and Rule 10b-5 thereunder, by all defendants. Count II alleges violation of § 20(a) of the Exchange Act by the individual defendants. Milberg Weiss is a law firm the specializes in bringing class action lawsuits against high tech companies. The other class action law firms that have filed similar complaints include Shalov Stone & Bonner.
4/16. The Free Republic filed its appeal brief with the U.S. Court of Appeals (9thCir) in Free Republic v. LA Times and Washington Post. The Los Angeles Times and the Washington Post sued the Free Republic for copyright infringement for publishing copies of news stories from their web sites without permission. The Free Republic, which operates a bulletin board web site for political conservatives, raised the affirmative defense of fair use. U.S. District Court Judge Margaret Morrow rejected the fair use defense. See also, TLJ case summary.
4/16. The U.S. District Court (DOr) sentenced Jeffrey Stockton to serve 12 months and one day in prison based upon his conviction for criminal copyright infringement. Stockton willfully infringed copyrights of Adobe Systems for purposes of private financial gain by selling unlicensed copies over the Internet.
4/16. The George Washington University Virginia Campus held a symposium titled "Privacy in the Information Age." See, agenda.
4/16. Winstar, a competitive local exchange carrier (CLEC) which provides local and long distance voice, Internet access, and data transport, stated that it "is considering all appropriate actions, including the possibility of a reorganization under Chapter 11 of the U.S. Bankruptcy Code ..." Winstar also stated that "did not make aggregate interest payments of approximately $75 million on its senior debt securities, which were due on April 16, 2001. Under the terms of this debt, the Company has 30 days from the payment date to make the required payment in order to cure this default. Additionally, Lucent Technologies has declared a default under the terms of the Company's facility with Lucent, which Winstar disputes." See, release.
4/16. The FCC's International Bureau published a notice [PDF] requesting public comments to assist it in preparing its annual report to various Congressional committees regarding the progress being made under the ORBIT Act in promoting competition in satellite communications services, and in privatizing INTELSAT and Inmarsat.
4/16. Daniel Dorosin joined the Palo Alto office of the law firm of Fenwick & West as a partner its Corporate Group. He will focus on advising venture-backed start-up companies. See, release.

Go to News Briefs from April 11-15, 2001.

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