News Briefs from October 21-25, 2001

Senate Passes Anti Terrorism Bill
10/25. The Senate passed HR 3162, which is known as the "anti terrorism bill", by a vote of 98 to 1. See, Roll Call No. 313. The House passed the bill on October 26. President Bush will promptly sign it. It contains many provisions that will increase the ability of law enforcement, intelligence, and other government agencies to combat terrorism, including expanded authority to conduct electronic surveillance of phone and Internet communications. It is titled the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism  Act of 2001 (USA PATRIOT ACT).
Michael Powell Addresses Broadband Policy
10/25. FCC Chairman Michael Powell gave a speech on broadband policy at a NARUC convention in Crystal City, Virginia. He stated that broadband should exist in a minimally regulated space, that there should be multiple broadband platforms, that availability rather than adoption rates should drive government policy, that broadband service is already widely available, and that copyright issues are delaying the distribution of broadband intensive content, and hence, demand for broadband.
Powell repeated his oft stated premise that "the key measure is availability of the service, not adoption rates. I emphasize availability, because there are many questions that remain as to what services consumers will value, and to what degree they will be willing to subscribe. I am hesitant to let adoption rates drive government responses, for a developing market needs the cues provided by consumer free choice."
Copyright Barriers to Broadband Adoption. Powell noted that broadband service, through either cable or DSL service, is already available to almost 85% of households; yet, only 12% of these households subscribe. He stated that part of the problem is the lack of applications for broadband. He added that "much of the broadband intensive content that is likely to be the core of broadband applications (like movies and music) is in the hands of major copyright holders that are unlikely to make it widely available without stringent protections and a way to profit from its distribution (see, for example, the Napster experience). This will take some hard work and time." (Parentheses in original.)
He also stated that "Much of what is holding broadband content back is caused by copyright holders trying to protect their goods in a digitized environment (in other words, a perfect reproduction world). Stimulating content creation might involve a re-examination of the copyright laws."
Regulatory Classification. Powell stated that "I believe strongly that broadband should exist in a minimally regulated space. Substantial investment is required to build these networks and we should limit regulatory costs and uncertainty. We should vigilantly guard against regulatory creep of existing models into broadband, in order to encourage investment."
Competition Policy. Powell was vague on this issue. He said that "Economic scale does matter and it does take a great deal of resources to deploy these networks. There will be a very strong pull towards greater concentration in these markets to get the job done and we will be forced to consider the trade-offs. I am equally convinced, however, that competition can exist in the race to deploy broadband platforms and that policy should not foreclose competition and jump on the monopoly trolley as it did in the early 1900s."
Multiple Broadband Platforms. He stated that "we should work to keep multiple platforms and routes to the home open and viable in a broadband world. We need to keep incentives alive that encourage investment in alternate platforms (such as cable, wireless, and satellite) and push entrepreneurs to find creative ways to bypass incumbents and get into the home."
NTIA Chief Addresses Broadband Policy
10/25. Nancy Victory, head of the National Telecommunications and Information Administration (NTIA), also gave a speech on broadband policy. The NTIA is a part of the Commerce Department. She spoke at a convention hosted by the NARUC, a group of government regulators.
Victory stated that "Although I would love to be able to unveil the Administration's broadband policy for you today, it remains a work in progress." She did state, however, that "government policy responses should not be driven by consumer adoption rates" and that "policies that promote rational facilities investment should be pursued". She also said that "competition should be promoted using a technology neutral paradigm" and that "the market might not always work in all areas, particularly in rural and certain urban areas".
Victory also announced that the NTIA is "planning to release a Request for Public Comment in the next few weeks to open the record for written comments and suggestions on a variety of broadband issues."
Library of Congress Reopens
10/26. The Library of Congress, which includes the Copyright Office, announced that it has "completed testing of all its Capitol Hill buildings and has been notified by the Centers for Disease Control and Prevention that the tests were negative and no evidence of anthrax contamination was found." It will reopen on Friday, October 26.
10th Circuit Rules in Dominion v. Echostar
10/25. The U.S. Court of Appeals (10thCir) issued its opinion [PDF] in Dominion v. Echostar, an interlocutory appeal from the issuance of a preliminary injunction in a contract dispute over activation of DBS subscribers. The Appeals Court affirmed the preliminary injunction order.
EchoStar, also know as the "DISH network", owns and operates satellites and transmits direct broadcast programming. Dominion is a TV and radio broadcaster of religious programming that operates the Sky Angel network. EchoStar leased eight transponders on its satellites to Dominion for satellite broadcasting.
The dispute arose when EchoStar sent Dominion a letter stating that EchoStar would not activate any Dominion subscribers unless they purchased a minimum level of DISH Network programming, an unsubsidized satellite receiver directly from EchoStar, or a Dominion specific smart card. Dominion then sought, and obtained, injunctive relief from the District Court.
8th Circuit Rules in PSLRA Scienter Case
10/25. The U.S. Court of Appeals (8thCir) issued its opinion [PDF] in Florida v. Green Tree Financial, the 8th Circuit's first case to address the pleading standards in securities fraud cases under the PSLRA.
Plaintiffs filed three complaints against Green Tree Financial and several of its officers alleging violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The District Court held that the complaints failed to plead facts giving rise to a strong inference of scienter, as required by the PSLRA, and dismissed with prejudice. The Appeals Court reversed and remanded.
The issue in this case is whether the plaintiffs' complaints meet the pleading requirements set by the Private Securities Litigation Reform Act of 1995 (PSLRA), which the Congress passed to insulate defendants from abusive class action suits. High tech companies are frequently the targets of these suits. The PSLRA creates both a safe harbor for forward looking statements, and a heightened pleading requirement. It provides that plaintiffs must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." Eight circuits have previously addressed this question, reaching a variety of results.
The Court of Appeals in this case wrote that "the legislative history provides nothing but uncertainty about whether the motive- and- opportunity test is an inherent part of the strong inference standard or whether it modifies and relaxes that standard. Ultimately, the Act as passed does not resolve this question."
After reviewing the relevant statutes, legislative history, and opinion of other circuits, the Court reached several conclusions. It wrote: "First, motive and opportunity are generally relevant to a fraud case, and a showing of unusual or heightened motive will often form an important part of a complaint that meets the Reform Act standard. Second, in some cases the same circumstantial allegations that establish motive and opportunity also give additional reason to believe the defendant's misrepresentation was knowing or reckless. For instance, in insider trading cases, the timing of trades shows motive and opportunity, but it may also provide additional circumstantial evidence that the defendant knew of an advantage. Such allegations may meet the Reform Act standard, but if so it is because they give rise to a strong inference of scienter, not merely because they establish motive and opportunity. Third, when the complaint does not show motive and opportunity of any sort -- either the unusual, heightened motive highlighted in the Second Circuit cases, or even an everyday motive such as keeping one’s job -- then other allegations tending to show scienter would have to be particularly strong in order to meet the Reform Act standard."
Representatives Debate Trade
10/25. Rep. Marcy Kaptur (D-OH), one of the leading Congressional protectionists, spoke against free trade in the House. She said that "free trade does not bring freedom." She condemned the talks set for next month in Doha, Qatar. "The oil monarchy of Qatar wants to host the World Trade Organization talks next month, but yesterday the monarchy of Qatar condemned the actions of our brave soldiers who are fighting in Afghanistan in the war against terrorism," said Rep. Kaptur. "Now the United States plans to send our top trade negotiators to this country for an international trade meeting? ... President Bush has no choice. He must not permit U.S. negotiators to attend the World Trade Organization ministerial in Qatar next month. There should be no Qatar round. Free trade should bring freedom." See, Congressional Record, October 25, 2001, at page H7327.
10/25. In contrast, Rep. Judy Biggert (R-IL) spoke in the House in support of free trade, and pending trade promotion authority legislation: "I rise today to urge my colleagues to support granting the President Trade Promotion Authority". She said that it "does not mean no authority for Congress and the American people. Our trade negotiators have proven their commitment to developing consensus positions so that, once the negotiations are concluded, the trade agreements will win the approval of Congress and the American people. Without Trade Promotion Authority, there can be no more Free Trade Agreements. Without free trade, America loses." See, Congressional Record, October 25, 2001, at page H7312.
DOJ and FTC Announce International Competition Network
10/25. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) announced the launch of an International Competition Network (ICN), See, DOJ release and substantially identical FTC release.
The DOJ and FTC stated that the "ICN will provide an environment in which antitrust officials from dozens of countries can work together to achieve consensus on ways to make international antitrust enforcement more efficient and effective, to the benefit of consumers and companies around the world." The problem, they said, is that "With more than 60 countries around the world now reviewing mergers, many deals are reviewed in multiple countries, thereby creating the risk of inconsistent outcomes and potentially unnecessary procedural burdens. International cartels also cut across national borders, harming consumers in many countries."
The DOJ and FTC also stated that the ICN "has been embraced by a number of foreign antitrust officials including Mario Monti, EU Commissioner for Competition, Konrad von Finckenstein, Commissioner of the Canadian Competition Bureau, and Dr. Fernando Sanchez Ugarte, President of Mexico's Federal Competition Commission."
The DOJ and FTC also asserted that trade and antitrust issues are separable. They stated that the ICN "will not deal with trade issues, or other non antitrust issues." The DOJ and FTC releases do not address the use of antitrust enforcement as a non tariff barrier to trade.
District Court Enjoins AOL in AMP Infringement Action
10/25. The U.S. District Court (CDCal) issued its Order Granting Motion for Preliminary Injunction [PDF] in Playmedia Systems v. America Online. This is a copyright infringement action in which PlayMedia alleges that AOL's use of PlayMedia's AMP software infringes its copyright.
AMP decodes digital audio filed compressed in MP3 format. AOL asserted that it is licensed, through its acquisition of NullSoft, which had entered into a licensing agreement with PlayMedia. PlayMedia argued that AOL's use of AMP software exceeds the scope of this license. The District Court found that PlayMedia established probable success in proving that AOL is exceeding its license.
The order states that "America Online, its subsidiaries, ... are enjoined during the pendancy of this action, from (a) copying the AMP® computer software owned by Plaintiff PlayMedia Systems, Inc. or any derivative of the AMP® computer software including without limitation Nitrane (collectively "AMP®") into AOL 6.0 or any other computer software application other than Winamp; (b) creating derivative works based upon AMP® other than for use in conjunction with Winamp; (c) distributing AMP® with AOL 6.0 or any other computer software application other than Winamp; (d) purporting to license to any third party the right to copy, distribute or in any other manner use any version of AOL 6.0 that contains AMP®; and (e) permitting any user of AOL service from completing an online "session" on the AOL service without AMP® being removed from the user's copy of AOL 6.0 by means of an AOL online "live update." "
See, D.C. No. CV01-3506 AHM (Ex), Judge A. Howard Matz presiding.
People and Appointments
10/25. Brian Gross was named Director of Communications of the SEC. This newly created position will manage the SEC's relationships the Congress, Administration, federal, state, and local agencies, foreign regulatory bodies, and the SEC's regulatory constituents. Gross was previously a long time assistant to Sen. Phil Gramm (R-TX), ranking Republican on the Senate Banking Committee, which oversees the SEC. Sen. Gramm recently announced that he will not run for re-election in 2002. See, release.
10/25. Stephen Cutler was named Director of the SEC's Division of Enforcement. Before joining the SEC in 1999, Cutler was a partner at the Washington DC law firm of Wilmer Cutler & Pickering. See, SEC release.
10/25. Steven Goldberg was named of counsel at the New York office of the law firm of Morgan Lewis. He focuses on transactional matters, with a concentration in mergers and acquisitions, private equity and strategic investments. He has represented clients in multimedia, optical networking, e-commerce, telecommunications and venture capital. See, release.
More News
10/25. Microsoft announced the worldwide availability of its Windows XP operating system. See, release.
House Passes Anti Terrorism Bill
10/24. The House passed the anti terrorism bill by a vote of 357 to 66 on Wednesday morning, October 24. See, Roll Call No. 398. The Senate is likely to take up the bill on Thursday morning, October 25.
President Bush released a statement in which he said that "I am pleased Congress has reached an agreement on counter terrorism legislation that will give our law enforcement officials the tools and resources necessary to disrupt, weaken, and defeat terrorists. I look forward to signing this strong bipartisan plan into law so that we can combat terrorism and prevent future attacks." See also, statement by Sen. Patrick Leahy (D-VT).
HP Bids $750 Million to Purchase Comdisco's Availability Solutions
10/24. Hewlett Packard (HP) announced that it has submitted a bid of $750 Million to purchase substantially all of the assets of Comdisco's Availability Solutions (AS) operations. On October 22, the Department of Justice (DOJ) filed a civil complaint in U.S. District Court (DDC) against SunGard and Comdisco seeking to block SunGard's purchase of Comdisco's Availability Solutions business for $825 Million. See, DOJ release.
AS provides disaster protection and relief to keep computer systems accessible in disasters and other disruptions. On July 15, HP agreed to acquire AS for about $610 Million. Only July 16, Comdisco filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court (NDIll). The Bankruptcy Court ordered that the relevant Comdisco assets be sold at an auction. SunGard offered the highest of two bids at an October 11 auction -- $825 Million. See, October 12 Comdisco release.
HP stated in an October 24 release that "The HP bid is fully supported by the Official Committee of Unsecured Creditors and has been approved by the Comdisco board of directors. Both the creditors committee and Comdisco have withdrawn their support of a prior bid by SunGard ... HP's bid is still subject to final approval at a sale hearing of the U.S. Bankruptcy Court for the Northern District of Illinois, which has been rescheduled for Nov. 7."
8th Circuit Rules in Service Mark and Domain Case
10/24. The U.S. Court of Appeals (8thCir) issued its unpublished opinion [PDF] in Purdy v. Burlington Northern Sante Fe, a dispute over use of the service mark "BNSF" and related domain names. William Purdy is an angry former employee of Burlington Northern Railroad, which subsequently merged with the Sante Fe Railway, in 1994. It incorporated in Delaware as BNSF Corp. Meanwhile, in 1993, Purdy started using the service mark, "BNSF," as an abbreviation for "Bringing Now Safety First," to promote railroad safety. He formed Minnesota and North Dakota corporations named BNSF Corp.
In 1996, the USPTO granted Purdy use of the service mark "BNSF." In 1998, the U.S. District Court (Tex) ordered the service mark void ab initio and ordered the USPTO to cancel the registration. The U.S. Court of Appeals (5thCir) affirmed.
Purdy then brought this action in U.S. District Court (DMinn) to determine his rights to the service mark "BNSF" under common law. The District Court granted partial summary judgment to the railroad, on the grounds that it had made the first bona fide use of the mark. It held that Purdy's use in commerce was was sporadic, de minimus, and not directed at a relevant purchasing public. It also transferred ownership of Purdy's domain names to the railroad, and permanently enjoined Purdy from using the "BNSF" mark in any web site. (Purdy's web site is still online.) The Appeals Court affirmed.
NTIA Urges FCC to End Spectrum Caps
10/24. Nancy Victory, chief of the NTIA, sent a letter to FCC Chairman Michael Powell, and the other Commissioners, urging the FCC to repeal its commercial mobile radio service (CMRS) spectrum aggregation limits and cellular cross interest rules.
Victory elaborated that "While the rules may have served a purpose when the Commission was first licensing cellular and personal communications service (PCS) providers and initially creating a competitive market for CMRS, these rules are no longer necessary to preserve established competition. Indeed, their retention will more likely result in consumer harm. The rules' arbitrary constraints on system capacity limit service availability as well as stifle the deployment of innovative new offerings on the CMRS networks."
Commerce Secretary Donald Evans said in a release that "Today's cap is arbitrary and outdated. Technology must be free to advance as fast as the market demands. The words, 'all circuits are busy' need to be retired alongside other relics of the industrial age and replaced by the opportunities and innovations that consumers have come to expect in the 21st century."
Tom Wheeler, P/CEO of the Cellular Telecommunications & Internet Association (CTIA) had this to say: "remove the spectrum caps and allow free and unfettered competition to rule the mobile market. The White House, Secretary Evans and NTIA, under Ms. Victory's leadership has staked out a bold policy position that will bring new and innovative services to consumers across America. The wireless industry welcomes the administration's action and looks forward to working with the FCC to implement this policy." See, CTIA release.
Committee Hearings Cancelled
10/24. Biological screening in House and Senate office building have caused most hearings on Capitol Hill to be cancelled or postponed since October 17. The House Commerce Committee, which meets in the Rayburn Building, postponed its October 24 hearing on the Federal Trade Commission; FTC Chairman Timothy Muris had been scheduled to testify. The House Commerce Committee also postponed its October 25 hearing on HR 2417, the Dot Kids Domain Name Act of 2001. Similarly, the Senate Commerce Committee postponed its October 25 hearing on broadband deployment and digital TV, even though it meets in the Russell building, which reopened on Wednesday, October 24. Also, the Senate Judiciary Committee cancelled its October 25 executive business meeting; however, these weekly meetings are often cancelled under normal circumstances.
Mail from the USPTO
10/24. Nicholas Godici, acting head of the USPTO, wrote a letter regarding the safety of mail from the USPTO. He stated that the USPTO "has obtained reassurance from the Centers for Disease Control (CDC) about the safety of mailings from the USPTO. Some parties have expressed concern because some mail from the USPTO was in the past routed through the U.S. Postal Service's Brentwood Sorting Station in Washington, D.C., where workers are diagnosed as having contracted anthrax. Most outgoing correspondence from the USPTO did, through Friday, October 19, 2001, pass through the Brentwood Sorting Station, but no outgoing trademark correspondence used that facility. The Office on October 22, 2001, contacted the CDC. The CDC advises us that it is highly unlikely that mail passing through the Brentwood postal facility was contaminated and poses any threat. The Brentwood Station is now closed, and USPTO mailings, both incoming and outgoing, are currently being routed through another station."
USPTO Names Group Directors
10/24. The USPTO added three new Group Directors to the Patent SES Management Team in the agency's Patent Examining Technology Centers. Sharon Gibson and Richard Seidel were named Directors in Patent Examining Technology Center 2800, which examines semiconductor, electrical, and optical systems and components. Bruce Kisliuk was named as a Group Director in Patent Examining Technology Center 1600, which examines inventions related to biotechnology and biochemistry. See, USPTO release.
Trade News
10/24. Federal Reserve Board Chairman Alan Greenspan gave a speech titled "Globalization". He advocated free markets, free trade, and globalization. He spoke in Washington DC at the Institute for International Economics.
10/24. Assistant Secretary of Stated Anthony Wayne gave a speech to the Global Business Forum in Washington DC titled "The Administration's International Economic Policies." He stated that "the President must have Trade Promotion Authority."
Powell Outlines FCC's Agenda
10/23. Federal Communications Commission (FCC) Chairman Michael Powell gave a major address in the FCC's Commission Meeting Room titled "Digital Broadband Migration Part II". It was a follow up to his December 8, 2000, speech titled "The Great Digital Broadband Migration". He stated that "breakthroughs in technology would drive an exodus from existing analog optimized architecture to digital optimized architecture" and that "the notion of migration was that the transition would be long, and perhaps arduous, but was nonetheless essential for survival."
He stated that the purpose of his speech was "to articulate the next installment of this vision and outline the five specific areas that will guide the Commission’s agenda." The five areas which he covered in the speech were broadband deployment, competition policy, spectrum allocation policy, re-examination of the foundations of media regulation, and homeland security. For each of these five areas, he listed a set of policy objectives, and a list of actions to be taken by the FCC, such as studies, reviews, and rule making proceedings.
He stated that he wants to achieve universal availability of broadband services, move towards a market oriented spectrum allocation policy, and extend universal service goals to advanced services. He also stated that facilities based competition is the ultimate objective of the FCC's competition policy. He was asked about the status of the NextWave negotiations. However, he declined to provide details, but stated that he wants to maintain "auction integrity".
Several telecom entities released statements commending Powell's address. See, statement by Walter McCormack (USTA P/CEO), statement by Russell Frisby (CompTel President), and statement by Herschel Abbott (BellSouth VP for Governmental Affairs).
Powell Outlines FCC Broadband Policy
10/23. Chairman Powell outlined five principal broadband policy objectives for the FCC. First, "The Nation should commit to achieving universal availability of broadband." He stressed that the goal should be "availability" rather than "adoption". Second, "Broadband service should exist in a minimally regulated space." He elaborated that "Substantial investment is required to build out these networks and we should limit regulatory costs and regulatory uncertainty. We should guard against regulatory creep in order to encourage investment by avoiding the threatening overhang of future regulation." However, he did not state which existing rules or proposals he opposes.
Third, "There should be multiple broadband platforms." Fourth, "Promote universal service objectives in economically sound ways." And fifth, "Do not let definitional battles define regulatory treatment."
Powell also discussed actions to be taken by the FCC. He said that the FCC will continue to study broadband issues in its annual Section 706 reports. He also stated that the FCC "needs to consider expeditiously how to classify the various forms in which these services are provisioned and consider what the access obligations will be for them." He also referenced three proceedings that "will be used as a vehicle for clarifying regulatory treatment of broadband infrastructure and service". These are "The New Networks Proceeding", "The Cable Open Access Proceeding", and "The 3G Spectrum Proceedings".
Powell Outlines Competition Policy
10/23. FCC Chairman Powell stated his four competition policy objectives for the FCC. First, he said that "Facilities based competition is the ultimate objective." He elaborated that "I believe that other methods of entry are useful interim steps to competing for local service, but Commission policy should provide incentives for competitors to ultimately offer more of their own facilities." Second, he stated that "Competition in the digital broadband world should come from many platforms." Third, he said that he favored "Simplified, Enforceable Interconnection Rules." Finally, he stated that "Universal service should be preserved in a manner that provides meaningful opportunities for competition."
Powell Discusses Spectrum Policy and 3G
10/23. FCC Chairman Michael Powell stated in his October 23 address that "our Nation's approach to spectrum allocation is seriously fractured. There have been dramatic changes in spectrum requirements and technology and services that use spectrum since 1934. Yet, while we have made some major strides in how we assign spectrum (principally through auctions), allocation policy is not keeping pace with the relentless spectrum demands. The spectrum allocation system is not effectively moving spectrum to its highest and best use in a timely manner."
"With new emerging uses, the Commission must not only evaluate and react to the new services, it must also deal with the conflicting set of legacy allocation decisions. New services are forced to demonstrate demand for the service to justify modification of the allocation table. Lack of proof, however, makes it hard to do so and unleashes a highly politicized process. Existing users move to block new uses and line up support for their position, and the new providers are forced to do the same. The ultimate decision is reached as a result of a politicized reactive process."
While Chairman Powell was bluntly critical of existing methods of allocation, he was vague on what changes he favors. He said that there should be a move towards "a paradigm of market oriented allocation policy", but did not provide on specifics. Moreover, he reiterated that spectrum is a "public resource". And, he did not comment on the role of the NTIA, other than to mention that he will work with Nancy Victory, its chief. The NTIA manages spectrum allocated for military and government users.
He outlined four broad spectrum policy objectives for the FCC: "market oriented allocation policy", "interference protection", "aggressively promote spectral efficiency", and "reserve and protect spectrum for public safety." As for planned actions, he said that the FCC would study existing spectrum use, map current use of spectrum, and strengthen the FCC's technical capability.
During the question and answer session he elaborated somewhat about market oriented spectrum allocation. He stated that "a lot of, particularly economists, argue that you can't completely achieve this, but you would increase efficiency and optimization of spectrum, if the license had, were like a drivers license ... that you could not preordain what it could be used for. ... Why is that more efficient? Because if I am an incumbent that has spectrum, right now I have really no cost, no ability to truly measure the cost of just using it, or using it inefficiently, or not using it at all, because I am not really able to make the transfer to someone who might value it more highly.
Powell continued: "So, if a broadcaster had spectrum which he doesn't value highly, but there is a new innovative data application that values it very highly, a market would say, facilitate the mission to let that person buy it from that person. And, much of allocation policy kind of impedes and restricts the ability to do that. That would allow spectrum to have more liquidity, and move more efficiently to new and innovative uses, as opposed to what has to happen now."
He concluded: "Here is what happens now. The wireless industry comes to the government and says, 'We need 3G spectrum. So, get it for us.' We have to then go through an extraordinary exercise about who to take it away from. Surprise. They never want to do so. Not only do you have to take it away, you usually have to find a place to put them, and you have to pay to put them there. It would be a very different environment -- if a private participant could come to them and say, 'we will buy you out', as opposed to extraordinary government projects."
Powell Addresses Universal Service and Internet Services
10/23. Powell stated that the goals of universal service remain to make service "as widely available as possible" and "as affordable as possible". He said that subsidization in the telephony context "was an extraordinarily successful policy." However, he added that it "was a policy optimized for the monopoly environment. And when Congress choose to change the directions in a competitive environment, some of its objectives there were frustrated, not by the goal of universal service, but the method in which it was applied."
He continued that "there is a bigger set of questions about the next chapter of advanced services. There are going to be many different characteristics of that service. There are going to many different cost dynamics. And, I want to be a voice that says, 'Take a deep breath before we rush into this, and really think about achieving universal service goals in a way that is not nearly as heavily regulated, or it requires less intervention, or will be more consistent with economic principals, so that we don't get to the end of it, and we are having this same discussion about, 'Oh gosh, where is all the broadband competition, and why didn't it occur. And, we all sit around and saying, 'It is because we put the cart before the horse in terms of the way we regulated." He made these comments during the question and answer portion of his address.
George Gilder Addresses Broadband Policy
10/23. George Gilder gave an address on broadband policy in which he argued that broadband services should be deregulated, and particularly, that the incumbent local exchange carriers (ILECs) should be deregulated. He stated broadband deployment is fundamental to reviving the economy. In addition, he argued for monetary policy that recognizes that there is global deflation which is harming debt laden tech companies.
He stated that "what went wrong is two key factors: ... a global deflation ... and regulatory paralysis in the local loop. These were the two big factors that halted this tremendous pace of Internet deployment and the deployment of content for it."
Gilder criticized the Telecom Act of 1996. He stated that "what happened really in 1996 was a regulation of broadband. And, price controls imposed on broadband by the FCC across the country. And this meant that the incumbent operators were forced to share their facilities with rivals at costs well below their real cost. And this had two effects. It, one, created lots of companies attempting to hitch hike on the RBOC facilities ... The other effect was to devalue all facilities based carriers ... They had to compete with the bargain basement facilities that were being mandated under what is called TELRIC -- total element long run incremental costs."
"They privatize the risk, and socialize the rewards, and the result is paralysis of investment," concluded Gilder.
Section 271 and Long Distance. "There should not be any distinction between long distance and local service. That is a vestige of a long gone era. Communications is communications. The problem with the separation is that it adds yet another layer of cost to broadband services," said Gilder. "So, you get slower deployment than you would otherwise have."
Regulation of Voice. Gilder conceded that some regulation should remain. He said that "there is such an enormous entrenched regulatory system for voice, which is a relatively static service, which will be eroded over time, as IP telephony advances. You probably do have to retain regulations on voice. The universal service charade is not going to be dissolved tomorrow. The emergencies services, the 911, all of that cluster of requirements that surrounds existing voice probably can't be dissolved".
Tauzin Dingell Bill. Gilder stated that the Tauzin Dingell bill would "deregulate broadband." He stated that "it is a step forward. It counteracts the pressure to enforce the darn Act, and to require them to collocate more fully, and to share more generously, and to unbundle more readily. And, all those requirements just deter deployment. The whole idea of sharing facilities with your rivals is just not -- at punitive costs -- is just a prescription for paralysis."
Future of the Bells. "All of these incumbent companies are going to be swept away by history. And, to worry about their monopoly power today is just perverse and backward retro thinking." Gilder added that "BOCs are going to have very aggressively to compete. They are not going to be able to exploit their monopolies. They are going to be bypassed."
Bell Lobbyists. Gilder continued that the Bells "have to be allowed to compete, or else, they will increasingly try to obstruct their rivals. It is all they can do. They got plenty of lobbyists. They are government creations almost. And, they are surrounded on all sides by government, and defended on all sides by lobbyists. And, that arrangement is destructive to the future of the economy."
WorldCom. Gilder also criticized regulators for requiring WorldCom to sell MCI Internet facilities, and for blocking the merger with Sprint. He said that "WorldCom was fighting monopoly, but of course, the monopoly fighters in Washington all supported the incumbent telopolies against the challenges".
Spectrum Policy. Gilder also touched on spectrum policy and Third Generation (3G) wireless systems. Gilder said that he opposes public auctions. They "just about wiped out 3G in Europe." Instead, he argued that "expansion of unlicensed areas of spectrum is important."
Deflation. Gilder also argued that the world economy is in a state of deflation, and government policy should recognize and address this. He added that "one of the more disappointing developments of the last year has been Greenspan's incredible blindness on a whole number of issues. I mean, I think he is over the hill."
Gilder is the author of Telecosm: How Infinite Bandwidth Will Revolutionize Our World [Amazon], and numerous other books. He spoke at a Discovery Institute luncheon at the University Club in Washington DC. He also spoke with TLJ afterwards. The above quotes are from his luncheon address, his answers to questions from the audience, and the following interview.
NCTA Chairman Addresses State of Cable Industry
10/23. Michael Willner, Chairman of the NCTA, gave a speech regarding the state of the cable industry. He stated that "the result of the Telecommunications Act of 1996 Act is impressive but not perfect. In our core business, satellite provides service to 23% of the multichannel video market -- up from nearly nothing when the Act was passed. Consumers have choices in Internet connectivity, deciding between dial-up, broadband, DSL and satellite options, all competing in the marketplace. And the deployment of broadband is now widespread. Nearly two thirds of Americans today have access to broadband connectivity to the Internet."
He added that "There remains one challenge in bringing competition to all telecommunications services. The entrenched local Bell monopolies continue to enjoy near universal market share. But that too is changing."
Willner is the P/CEO of Insight Communications, the 8th largest cable operator in the U.S., with about 1.4 Million subscribers. He spoke in Washington DC to the Washington Metropolitan Cable Club.
House Debates Anti Terrorism Bill
10/23. The U.S. House debated, but did not vote on, HR 3162, late on Tuesday, October 23. This bill is the conference report on the anti terrorism bill. The bill was considered under suspension of rules, meaning that it can not be amended, and requires a two thirds majority to pass. The vote is scheduled for Wednesday, October 24. The House passed an earlier version of the antiterrorism bill, HR 2975, the PATRIOT Act, by a vote of 337 to 79 on Friday, October 12.
Internet Tax Moratorium
10/23. Sen. George Allen (R-VA) and Sen. Byron Dorgan (D-ND) debated Internet taxes in the Senate. Sen. Allen asked for the unanimous consent of the Senate to immediately proceed to the consideration of HR 1552, the Internet Tax Non Discrimination Act. The House passed this bill on October 16. It provides for a two year extension of the Internet Tax Freedom Act. This moratorium was enacted in 1998, and expired on October 21. Sen. Dorgan objected, and the Senate did not proceed to consider the bill.
EPIC Restates Complaint Against Microsoft Windows XP
10/23. A group of interest groups, led by the Electronic Privacy Information Center (EPIC), sent a letter to Federal Trade Commission (FTC) Chairman Timothy Muris, and to the Chairmen and Ranking Members of the House and Senate Commerce Committees, restating their complaint that the soon to be released Windows XP operating system will adversely affect the privacy of users, and violate the Federal Trade Commission Act ban on unfair and deceptive trade practices.
On July 26, 2001, these groups submitted a complaint [PDF] to the FTC. The complaint states that "Microsoft has engaged, and is engaging, in unfair and deceptive trade practices intended to profile, track, and monitor millions of Internet users. Central to the scheme is a system of services, known collectively as ".NET," which incorporate "Passport," "Wallet," and "HailStorm" that are designed to obtain personal information from consumers in the United States unfairly and deceptively." The complainants asked the FTC to investigate Microsoft, and then order Microsoft to "revise the XP registration ..." However, the FTC has taken no action against Microsoft.
The signatories to the latest letter are the Center for Digital Democracy, Center for Media Education, Computer Professionals for Social Responsibility, Consumer Action, Consumers Union, EPIC, Electronic Frontier Foundation, Junkbusters Corp., Media Access Project, NetAction, Privacy Rights Clearinghouse, and U.S. PIRG.
The Association for Competitive Technology (ACT) responded to the letter. It stated that "While claiming to defend consumers, EPIC seems more concerned with taking away their choices. As Microsoft improves Passport based on consumer feedback, EPIC's continued ranting demonstrates that they just don't like the idea of a 'single logon.' Rather than voicing those concerns in the marketplace of ideas, however, they are trying to manipulate government into taking the choice away from consumers. Contrary to EPIC's continued misstatements, Passport is a choice and anyone who has concerns can use a different 'single logon' solution or none at all."
Appeals Court Denies Rehearing for Trans Union
10/23. The U.S. Court of Appeals (DCCir) issued its opinion in Trans Union v. FTC, denying Trans Union's petition for rehearing. On April 13 the Appeals Court issued its original opinion in favor of the FTC. This proceeding is a petition for review of an FTC cease and desist order regarding the sale of consumer reports by credit reporting agencies for marketing purposes. On April 13 the Appeals Court upheld the FTC's order that Trans Union (TU) must stop selling target marketing lists for purposes not listed in the Fair Credit Reporting Act (FRCA). The Appeals Court also upheld the constitutionality of the FRCA.
Petitition for Rehearing. TU argued in its petition for rehearing that the Appeals Court incorrectly applied the opinion of the Supreme Court in Dun & Bradstreet v. Greenmoss when it applied only intermediate scrutiny to TU's target marketing lists. In denying this petition for rehearing the Appeals Court stated that these lists comprise speech of purely private concern, read by only TU and a few of its customers.
Trans Union. TU is one of the three large credit reporting agencies. It compiles credit reports about individuals from credit information that it collects from banks, credit card companies, and other lenders. Its databases contain information on 190 Million people. It then sells these credit reports to lenders, employers, and insurance companies. This practice is not at issue. However, TU also sells target marketing products to direct marketers. These consist of lists of names and addresses of individuals who meet specific criteria, such as possession of an auto loan, a department store credit card, or two or more mortgages. This practice at issue.
Fair Credit Reporting Act. The FTC has responsibility for enforcing the FCRA. This statute protects the privacy of credit information by prohibiting credit reporting agencies from selling "consumer reports", except under the circumstances enumerated in the Act. The FRCA lists whether to approve an application for credit, employment, or insurance -- but not direct marketing. The FRCA defines a "consumer report" as any information provided "by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for (A) credit ..."
Earlier Proceedings. The FTC has been trying to stop this practice for a decade. The FTC instituted a proceeding against TU in 1992. The FTC first issued a cease and desist order in 1994. However, the Court of Appeals granted TU's petition for review, on the grounds that the FTC had failed to provide evidence that TU's target marketing products were used by marketers in the issuance of credit. See, Trans Union Corp. v. FTC, 81 F.3d 228 (DCCir 1996). So, the FTC conducted extensive discovery, held a month long administrative trial, and documented this contention. It again ordered TU to stop. TU then filed this petition for review.
April 13 Opinion. The Court of Appeals denied the petition for review in its April 13 order. First, TU argued that the FTC again failed to provide substantial evidence in support of its findings. The Appeals Court this time held that the FTC had provided substantial evidence that the target marketing lists being sold by TU to marketers were being used as a factor in granting credit, and hence, are "consumer reports" within the meaning of the FRCA. Second, TU argued that the FRCA is unconstitutionally vague under the due process clause of the Fifth Amendment, and that it is an unconstitutional restraint on free speech. TU sought application of the strict scrutiny standard. The Appeals Court upheld the FRCA's constitutionality, applying the reduced constitutional protection standard for commercial speech articulated by the Supreme Court in the Dun & Bradstreet case.
Fed Circuit Rules in Patent Infringement Case
10/23. The U.S. Court of Appeals (FedCir) issued its opinion in Scaltech v. Retec/Tetra, a patent infringement case involving waste recycling technology. Scaltech is the holder of U.S. Patent No. 5,443,717, titled "Recycle of Waste Streams". It filed a complaint in U.S. District Court (SDTex) against Retec alleging infringement. The present appeal, from judgment on remand, involves the issue of whether the claims of this patent are invalid under 35 U.S.C. § 102(b) because the claimed invention was offered for sale more than one year before the filing of the patent application. The Appeals Court affirmed the District Court's summary judgment of invalidity.
Antitrust News: Newport News Shipbuilding
10/23. The Department of Justice filed a complaint in U.S. District Court (DDC) to block the proposed acquisition of Newport News Shipbuilding (NNS) by General Dynamics. NNS makes nuclear powered aircraft carriers and submarines for the U.S. Navy, and services ships for the U.S. Navy.
"This merger would give General Dynamics a permanent monopoly in nuclear submarines and would substantially lessen competition in surface combatants," said Charles James, Assistant Attorney General in charge of the Antitrust Division. "Our armed forces need the most innovative and highest quality products to protect our county. This merger to monopoly would reduce innovation and, ultimately, the quality of the products supplied to the military, while raising prices to the U.S. military and to U.S. taxpayers." See, DOJ release.
NNS stated that it "was notified by the Department of Defense (DOD) of its decision to recommend to the Department of Justice (DOJ) approval of the Northrop Grumman ... offer to acquire Newport News Shipbuilding and its decision to recommend not approving the merger agreement between Newport News Shipbuilding and General Dynamics ...". See, NNS release.
Antitrust News: Pillsbury
10/23. The Federal Trade Commission (FTC) stated that it "met today in closed session to consider an enforcement action against the proposed acquisition by General Mills, Inc. of The Pillsbury Company from Diageo plc. The Commission considered whether to direct staff to formulate a proposed consent agreement incorporating the latest settlement terms offered by the parties. The Commission's 2-2 vote resulted in no action being taken at this time. The Commission also considered whether to authorize staff to seek a preliminary injunction. Again, the Commission's 2-2 vote resulted in no action being taken at this time." See also, statement of Commissioner Anthony, statement of Commissioner Thompson, and statement of Commissioners Swindle and Leary. See also, FTC release.
Antitrust News: Rum
10/23. The Federal Trade Commission (FTC) announced that it authorized its staff to seek a preliminary injunction to block Diageo plc's and Pernod Ricard S.A.'s joint acquisition of Vivendi Universal S.A.'s Seagram Wine and Spirits business." See, FTC release.
People and Appointments
10/23. The Senate confirmed by unanimous votes four persons to be U.S. District Court Judges: James Payne (Northern Eastern and Western Districts of Oklahoma), Karen Caldwell (Kentucky), Laurie Camp (Nebraska), Claire Eagan (Oklahoma).
10/23. The Senate confirmed Phillip Bond to be Under Secretary of Commerce for Technology.
10/23. The Senate confirmed John Marburger to be Director of the Office of Science and Technology Policy.
10/23. The Senate confirmed Jay Bybee to be an Assistant Attorney General. He will head the Office of Legal Counsel (OLC). Most recently, he has been a law professor at the University of Nevada Law School. Prior to that he was a professor at Louisiana State University Law School from 1991 to 1998. He was an Associate Counsel to former President Bush. Prior to that he worked at the Department of Justice in the Office of Legal Policy and then in the Civil Division. And before that he was an associate in Washington DC law firm of Sidley & Austin.
10/23. President Bush nominated Arden Bement to be Director of the National Institute of Standards and Technology (NIST). See, release.
10/23. The Business Software Alliance (BSA) named Mario Correa to be its Director of Internet and Network Security Policy. This is a new position, responsible for managing BSA's global policies for Internet and IT security related issues, including cyber crime and cyber terrorism, computer privacy and encryption. Prior to joining the BSA in 1998, Correa was an assistant to Rep. Connie Morella (R-MD).
10/23. The Intellectual Property Owners Association (IPO) named John Maxin of National Semiconductor to be Chairman of the IPO Insurance Committee. It also named Anthony Chavez of Exxon Mobil to be Chairman of the IPO Standards Setting Committee.
10/23. AT&T appointed William Schleyer to be P/CEO of its broadband services unit, AT&T Broadband. He replaces Daniel Somers, who retired. See, AT&T release.
New SEC Chairman Addresses Accountants
10/22. Securities and Exchange Commission (SEC) Chairman Harvey Pitt gave a speech in Miami Beach, Florida, to the American Institute of Certified Public Accountants (AICPA) Governing Council in which he touched on reforming the financial disclosure model in light of new technologies and the Internet.
Pitt stated that "It is axiomatic that comprehensible information is the lifeblood of strong and vibrant markets. The time is right for us to step back and rethink our financial disclosure model, with an eye toward simplifying it so that everyone can understand the fundamentals of every company and find absolute comparability from firm to firm. Technology will play a very exciting role in this process.
"As we have seen in the post September 11 world, the Internet is capable of disseminating critical information quickly. It is inherently customized: users can find as much or as little information as they want and quickly. Information is there and it is powerful. In rethinking our existing disclosure system, we should consider how technology can put information into investors' hands more promptly and help investors sort through material in a user friendly way," said Pitt.
This was Pitt's first formal speech as Chairman of the SEC. He used it to reach out to accountants, a group often criticized by former SEC Chairman Arthur Levitt. Pitt stated that "I have been privileged to represent this fine organization and each of the Big Five accounting firms that are among its members. Predicated on that experience, I know that the profession is comprised of individuals who are committed to our disclosure system, and who are critical partners with us in making financial disclosures meaningful. Somewhere along the way, accountants became afraid to talk to the SEC, and the SEC appeared to be unwilling to listen to the profession. Those days are ended."
Commerce Secretary Urges Senate to Extend Net Tax Ban
10/22. Secretary of Commerce Donald Evans released a statement in which he encouraged the Senate to pass an extension of the moratorium on access taxes and on new and discriminatory Internet taxes. The House passed HR 1552, the Internet Non- Discrimination Act, on October 16 by a unanimous voice vote. This bill extends the current moratorium for two years. The current ban, which was enacted in the 1998 Internet Tax Freedom Act, expired on October 21. Said Evans, "we urge Senators to extend the bipartisan moratorium as soon as possible."
Evans continued: "During the campaign, the President expressed his desire to see a five-year extension of the existing moratorium on multiple or discriminatory Internet taxation, and the continued ban on Internet access taxes. We have reiterated that desire recently. But whether for five years or two, the most important thing is to extend the moratorium. I commend the U.S. House of Representatives for its expeditious handling of this issue, and I look forward to working with Congress on tax simplification efforts. Right now, however, we need to say no to new taxes and extend the Internet moratorium for at least two years. In a time of uncertainty, we must continue to reassure consumers, businesses, and markets that we continue to create the right environment for growth."
DOJ Seeks to Block SunGard's Purchase of Comdisco's Availability Solutions
10/22. The U.S. Department of Justice filed a complaint in U.S. District Court (DDC) against SunGard and Comdisco seeking to block SunGard's purchase of Comdisco's Availability Solutions business for $825 Million. Comdisco, which has filed for protection in the U.S. Bankruptcy Court, announced the sale on October 12. See, release. Availability Solutions provides disaster protection and relief to keep computer systems accessible in disasters and other disruptions.
SunGard Ch/CEO James Mann said in an October 22 release that "We believe that the government's case is without merit, and we look forward to proving that in court. This transaction is procompetitive, since it will assure that there is a strong independent business continuity vendor to compete against the hardware giants with enhanced services and reduced costs."
Mann added that "in light of the recent attacks on America's infrastructure, it is contrary to public policy for the government to oppose a transaction that obviously will strengthen the ability of SunGard and Comdisco to service the nation's disaster recovery needs. Now more than ever, our country needs a vital and capable business continuity industry. With Comdisco in bankruptcy and its Availability Solutions division continuing to support companies devastated by the terrible events of September 11th, a prompt resolution of this antitrust challenge is critical."
Comdisco filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court (NDIll) in July. The sale of Availability Solutions is also subject to approval by the Bankruptcy Court.
WTO Meeting in Doha Scheduled to Proceed
10/22. World Trade Organization (WTO) Director General Mike Moore issued this statement about the WTO's 4th Ministerial Conference, scheduled to take place in Doha, Qatar, on November 9-13: "We are going ahead. I am confident with the planning and preparations here in Doha. If something seismic or catastrophic happens we will reconsider. But we're planning to come here to Doha in just over two weeks time".
10/22. Patrick Pohlen joined the Silicon Valley office of the law firm of Latham & Watkins as a partner in its Venture and Technology Practice Group. He was previously Chief Operating Officer of 12 Entrepreneuring. Prior to that he was a partner at the law firm of Cooley Godward. See, release.
10/22. Covington & Burling announced that seven attorneys have joined its London office as associates, including Sinan Utku, who focuses on intellectual property licensing, copyright policy and enforcement for the software industry, the drafting of original patent applications, patent prosecution, drafting patent opinions, technology transfers and U.S. export controls, and client counseling, especially in the areas of Internet law and U.S. patent law. See, release [PDF].
More News
10/22. The U.S. Court of Appeals (6thCir) issued its opinion in Herman Miller v. Palazzetti Imports and Exports, a dispute between furniture companies over designs of lounge chairs and ottomans. Plaintiff prevailed in the District Court on its trademark infringement and dilution, unfair competition, and right of publicity claims. The District Court dismissed its trade dress infringement and dilution and false advertising claims. The Court of Appeals affirmed in part and reversed in part.
10/22. A grand jury of the U.S. District Court (DMD) returned a four count indictment against Misbah Khan alleging knowingly causing the transmission of a computer command which intentionally caused damage to  computers, intentionally accessing computers without authorization and obtaining information from that computer, knowingly and with intent to defraud possessing fifteen or more unauthorized access devices (credit card account numbers), and causing the use of unauthorized access devices to obtain things of value of more than $1,000. Khan, a resident of Karachi, Pakistan, hacked the computers of the American Israel Public Affairs Committee, a pro Israel public affairs group based in Washington DC. See, CCIPS release. The indictment and arrest warrant were issued in the U.S. But, Misbah Khan is not in the U.S.
Internet Tax Moratorium Expires
10/21. The moratorium on new and discriminatory Internet taxes contained in the Internet Tax Freedom Act expired.

Go to News Briefs from October 16-20, 2001.