News from January 6-10, 2002

Andersen Destroyed Electronic Records
1/10. Andersen stated that it "has notified the U.S. Securities and Exchange Commission and the U.S. Department of Justice, and is also notifying congressional committees and other agencies investigating the Enron collapse, that in recent months individuals in the firm involved with the Enron engagement disposed of a significant but undetermined number of electronic and paper documents and correspondence relating to the Enron engagement." See, Andersen release.
Rep. Billy Tauzin (R-LA), Chairman of the House Energy and Commerce Committee, stated in a release that "This is a deeply troubling development. It should never have happened. While Andersen has assured the Committee that it will work vigorously to retrieve all electronic documents, we may never know if all of the relevant records were recovered. ... our Committee will get to the bottom of this debacle."
See also, transcript of press conference of President Bush.
Attorney General John Ashcroft stated in a release that he and his Chief of Staff, David Ayres, "have recused themselves in all matters arising out of allegations of misconduct by Enron Corporation ..."
SEC Official Addresses E-Marketing and Data and Communications Backup
1/10. Paul Roye, Director, Securities and Exchange Commission's Division of Investment Management, gave a speech to the Practicing Law Institute in New York City titled "Understanding Securities Products of Insurance Companies". He addressed many issues, including the use of the Internet to market variable products, and the need for backup data and communications systems to ensure business continuity if terrorists strike.
Internet Marketing. He stated that "the variable products industry is characterized by innovative products and rapid growth" and that "the internet is emerging as a new distribution medium for variable insurance products."
He continued that "Several firms are building annuity supermarkets to service online investors and financial advisers. These firms are not only providing educational information, but access to variable products; in some cases, allowing investors to compare several annuity contracts side by side."
He also addressed "electronic only" variable annuities, in which the offeror does not provide paper copies of any document relating to the annuity contract.
Terrorism and Data and Communications Backup. Roye stated that "the year's single most significant change occurred on September 11th. ... Never again will we take our security for granted. And never again will we turn a blind eye to the threat of terrorism. Never again will the financial services industry take its communications systems, its record storage facilities and its back office infrastructure for granted. September 11th heightened our awareness of the importance, indeed the necessity, of having back-up systems and disaster recovery/ business continuity plans in place."
He also cautioned that "our Inspections Office has committed to making contingency planning a focus of future inspections. When they come knocking, our inspections staff will ask for a copy of contingency plans and likely will ask questions about alternative physical facilities, back-up records storage and back-up communications systems."
Novell Settles with Infringers
1/10. Novell announced that it settled its lawsuit against Cableware Technology, Inc. and MJ Systems, Inc. Novell filed a complaint in U.S. District Court (CDCal) against these defendants alleging that they produced counterfeit Novell software and labels, illegally repackaged Novell software, and distributed stolen software. Novell stated that the terms of the settlement include a permanent injunction, and a cash payment of $750,000, which it has received. See, Novell release.
USPTO Announces Top 10 Patent Recipients
1/10. The U.S. Patent and Trademark Office (USPTO) announced the top ten private sector recipients of patents in 2001. They are, in order, IBM, NEC, Canon, Micron, Samsung, Matsushita, Sony, Hitachi, Mitsubishi, and Fujitsu. IBM was issued 3,411 patents -- up from 2,886 in 2000. See, USPTO release.
Nick Donofrio, IBM's SVP for technology and manufacturing, stated that "One of the biggest myths of 2001 was that innovation was dying along with the bust ... The fact is that innovation is thriving in the research and development labs of corporate America and companies around the world, as this year's patent results confirm," See, IBM release.
Fourth Circuit Dismisses Domain Name Appeal as Moot
1/10. The U.S. Court of Appeals (4thCir) issued its opinion in Heathmount v., a domain name dispute. The plaintiff is Heathmount, a Canadian corporation. It filed a complaint in U.S. District Court (EDVa) in which it plead an in rem action against two domain names pursuant to the Anticybersquatting Consumer Protection Act, 15 U.S.C.A. § 1125(d). It alleged bad faith registration of domain names that included its trademarks. This is an interlocutory appeal on jurisdictional and constitutional issues. However, the plaintiff has since abandoned the trademarks, and moved to dismiss the complaint. The Appeals Court dismissed the appeal as moot.
GAO Releases Report on Delays in Export Licensing
1/10. The General Accounting Office (GAO) released a report [PDF] titled "Export Controls: Reengineering Business Processes Can Improve Efficiency of State Department License Reviews". This report concluded that "License applicants have long complained that they cannot predict how long a license review may take and are frustrated by delays. Although licensing officers and license reviewers require time to deliberate and ensure that license decisions are appropriate, a substantial number of applications become stalled between reviews by licensing officers and reviewers. Improving efficiency, predictability, and timeliness of the process may be achieved with relatively small changes in guidelines and procedures." The report was prepared at the request of Sen. Daniel Akaka (D-HI) and Sen. James Inhofe (R-OK), the Chairman and ranking Republican on the Senate Armed Services Committee's Subcommittee on Readiness and Management Support.
Securities Fraud
1/10. The SEC filed a civil complaint in U.S. District Court (SDFl) against Global Datatel, Inc., Richard Baker (Global's CEO), Mario Habib (President of Global's subsidiary, eHOLA), and Stuart Bocker, alleging violation of federal securities laws. The complaint alleges that Global, Baker and Habib disseminated false and misleading information about Global and eHOLA via the Internet, and by other methods. Global is a Nevada Corporation located in Delray Beach, Florida. It was a computer systems integrator and Internet service provider operating in Central and South America. It filed a Chapter 7 bankruptcy petition on October 2, 2001. eHOLA purported to provide Internet service in Central and South America. See, SEC release.
People and Appointments
1/10. The U.S. Telecom Association (USTA) today announced that it has hired three people: Daniel Phythyon, John Abel, and Patricia Cole. Daniel Phythyon will be SVP, Law and Policy. He was previously an attorney with the Washington DC law firm of Wilmer Cutler & Pickering. Before that he was Chief of the FCC's Wireless Telecommunications Bureau. Before that, he was Director of the FCC's Office of Legislative and Intergovernmental Affairs. He has also worked as the National Association of Broadcasters' top Congressional lobbyists, and as Majority Staff Counsel to the Senate Commerce Committee's Communications Subcommittee. John Abel will be SVP, Membership, Marketing and Business Development. Patricia Cole will be SVP, Chief Financial Officer. In addition, Tom Amontree, who joined the USTA last summer, was named SVP, Strategic Communications. See, USTA release.
1/10. Michael Ferrante was named Chief of the FCC's Wireless Telecommunications Bureau's Commercial Wireless Division's Licensing & Technical Analysis Branch. This branch is responsible for processing and issuing the licenses for all commercial mobile radio services (CMRS). See, FCC release [PDF].
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1/10. Motient Corporation filed a Chapter 11 bankruptcy petition with the U.S. Bankruptcy Court (EDVa). Motient operates a two way wireless packet data network that is used by Blackberry devices. See, Motient release.
1/10. The USPTO announced that it will launch a television and radio ad campaign in five media markets to counter the flood of deceptive advertising aimed at independent inventors. It will also run ads in print magazines. See, USPTO release.
Sen. Baucus Comments on Trade, WTO Round, and TPA
1/9. Sen. Max Baucus (D-MT) wrote a commentary titled "Doha and Beyond: The Role of Congress in a New Trade Round" for the January issue of the State Department publication titled "Economic Perspectives". Sen. Baucus is Chairman of the Senate Finance Committee, which has jurisdiction over many trade related matters.
Representatives of more than 140 countries met in Doha, Qatar, late last year and agreed to launch a new round of World Trade Organization (WTO) talks. Sen. Baucus listed several issues involved in the next round of WTO talks that are of concern to the Congress, including antidumping and countervailing duty laws, environmental protection, antitrust, and protection of intellectual property.
"The consensus that was struck at Doha," said Baucus, "is a significant blueprint for expanding trade and creating an integrated global economy. The substance of this blueprint, however, points to the continuing need for the United States Congress to play an active and forward looking role in developing U.S. trade policy."
He stated that "the U.S. Constitution grants Congress, not the president or the administrative branch, the power to regulate trade. The administration may do the actual negotiating, but responsibility for making sure that trade agreements reflect the broad needs of the American people lies ultimately in the hands of the Congress. If negotiations are to move forward, Congress needs to be assured that its concerns are reflected in the U.S. agenda, particularly when contentious issues arise."
Antidumping. Sen. Baucus stated that many members of Congress support antidumping and countervailing duty laws. He elaborated that "Industries ranging from steel to semiconductors to a variety of agricultural sectors have been victimized by dumped and subsidized exports from a number of countries".
Environment. He also said that trade agreements must address the environment. He added that "any trade agreement that does not explicitly acknowledge this important connection will most likely face an extremely difficult time being ratified by the Congress."
Antitrust and IPR. Sen. Baucus also said that the next WTO round would affect both U.S. antitrust and IPR laws. He stated that "Work on competition policy holds the potential for reshaping the antitrust system that has evolved over more than a hundred years. Negotiations on intellectual property could undermine protections that the United States has sought to make an integral part of the world trading system."
Trade Promotion Authority. He concluded that "If the president is to be granted TPA in the new year, Congress and the administration need to work together to make sure that the negotiations reflect the concerns expressed by a vast majority of Americans by making sure that trade is both free and fair."
See also, commentary by James Zumwalt titled "How WTO Membership Affects China", in the same State Department publication. Zumwalt, who is Economic Minister Counselor, at the U.S. Embassy in Beijing, wrote that "China will take on the obligations of numerous existing WTO agreements covering all aspects of trade, such as agriculture, import licensing, trade related aspects of intellectual property rights, technical barriers to trade, and trade related investment measures." He also wrote that "WTO membership will make China even more attractive to foreign investors. And more money invested in China means more high paying jobs, more government tax receipts, and more technology transfers. China's WTO commitments will facilitate increased competition in every sector of the economy. Chinese consumers will be the direct beneficiaries as competition encourages a larger range of choices, lower prices, and higher quality, not to mention a greater awareness of and appreciation for intellectual property rights and consumer rights."
See also, commentary by Grant Aldonas, Under Secretary of Commerce for International Trade, titled "Open Trade: Greater Opportunities for All Countries".
Asst. Commerce Sec. Mehlman Addresses Broadband Issues
1/9. Bruce Mehlman, Assistant Secretary of Commerce for Technology Policy, gave a speech at a Federal Communications Bar Association (FCBA) lunch titled "Broadband, When? A View from the Administration." The Bush administration, said Mehlman, believes that broadband technologies will provide many benefits, and it wants to facilitate its deployment and adoption; however, the administration is not yet ready to announce a broadband policy.
Mehlman did not take a position on many current broadband related debates, such as HR 1542, the Tauzin Dingell bill. However, he offered his review of what the major federal and local issues are. He listed the key federal issues as unbundled network element (UNE) regulations, forced access to broadband platforms, cable and spectrum ownership caps, building access, spectrum allocation, prices for access to federal rights of way, and enforcement penalties. He listed the key state and local issues as prices for access to rights of way, tower siting regulations, building codes, zoning regulations, historic preservation rules, and taxation of broadband deployment.
Mehlman reviewed the division of responsibilities between the various components of the Department of Commerce. He said that the National Telecommunications and Information Administration (NTIA), which is headed by Nancy Victory, has spectrum management responsibilities. In the area of broadband policy, the NTIA is taking the lead on supply side issues. The Office of Technology Policy, which Mehlman heads, is taking the lead on demand side issues.
Scott Harris, Co-chair of the FCBA's Online Communications Committee, and organizer of the luncheon, asked Mehlman about what the Department of Commerce is doing about state and local roadblocks to broadband deployment. Harris commended the FCC, but added that when "you get to the states, it's like dealing with French bureaucrats." Mehlman said that the NTIA is leading on this topic; it is developing a set of "best practices" that "will enable broadband deployment within a state." Mehlman also said that some states are "prioritizing bandwidth", while some "other states haven't gotten it yet." He did not name any states.
Mehlman listed several reasons why the administration supports broadband deployment. These include promoting economic growth through costs savings and increased productivity, improving health care through such things as 24-7 patient monitoring and expert consultations for remote areas, improving education through distance learning, increasing access to information about government, and providing more online government services.
He also said that deployment and use of broadband services has taken on added importance since the events of September 11. He stated that broadband technologies could improve homeland defense through "cockpit monitoring" and "biometric security". He elaborated that you "need a high speed data network to bounce it off the latest database".
Mehlman also said that broadband would facilitate "emergency information distribution", such as getting video to FEMA officials before they have people on site at disaster locations. He also said that broadband is important for "off site data backup", so that if buildings are destroyed, data is not lost. Finally, he said that "video conferencing will allow continued economic output with reduced travel".
Mehlman concluded by stating that "technology development is the key" to broadband deployment and adoption. He listed several examples. Consumer technology has to become more "plug and play". Applications must be developed to drive consumer demand. Wireless broadband technologies must be developed. And, digital rights management (DRM) challenges must be addressed.
People and Appointments
1/9. President Bush announced his intent to nominate Walter Lukken to be a Commissioner of the Commodity Futures Trading Commission (CFTC) for a five year term expiring April 13, 2005. He has been a member of the staff of the Senate Agriculture Committee since 1997. Before that, he was a Legislative Assistant to Sen. Richard Lugar (R-IN). See, White House release.
1/9. Intel announced the appointment of 16 vice presidents, including two assistant general counsel. Bruce Sewell is vice president, Legal, and assistant general counsel. He manages the team that provides legal advisory services to the Intel Architecture Group. David Shannon, is vice president, Legal, and assistant general counsel. He is responsible for the legal advisory services for the Intel Communications Group and the Wireless Communications and Computing Group. See, Intel release.
1/9. California Governor Gray Davis appointed three people to the Technology, Trade and Commerce Agency. He named Nelson Chan to be Deputy Secretary of the International Trade and Investment Division, Keith Bovetti to be Assistant Secretary of the International Trade and Investment Division, and Gregory Davis to be Regional Office Director of the Office of Export Development.
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1/9. The California Court of Appeal (2/1) issued its opinion [PDF] in Kirkland v. Superior Court of LA County, holding that "transcripts of testimony given before the SEC in the course of an investigation are discoverable in civil litigation where, as here, the party from whom discovery is sought has possession of or ready access to the documents and transcripts."
1/9. The U.S. Court of Appeals (FedCir) heard oral argument in Fantasy Sports v., No. 01-1217, an appeal from the U.S. District Court (EDVa). This is a patent infringement case regarding U.S. Patent 4,918,603, titled "Computerized Statistical Football Game". (D.C. No. 99-CV-2131103; opinion at F. Supp. 2d 886 (E.D.Va. 2000).)
1/9. The U.S. Court of Appeals (FedCir) heard oral argument in ManTech Telecommunications v. US, No. 01-5090.
1/9. The SEC filed a civil complaint in U.S. District Court (DNeb) against David Guenthner and Jay Samuelson alleging violation of federal securities laws. The complaint alleges that David Guenthner, the CFO of InaCom Corp., and Jay Samuelson, InaCom's assistant controller, submitted SEC 10-Q forms that improperly accrued unallocated, general reserves, then reversed $7.1 million of these reserves into income. InaCom was a computer reseller, specializing in purchasing computers from major manufacturers and customizing them for corporate end users. It filed a Chapter 11 bankruptcy petition on June 16, 2000, and ceased its operations.
FCC Backs Away from Enforcing Indecency Rule
1/8. The Federal Communications Commission (FCC) released an order [PDF] in which it rescinded a previous Notice of Apparent Liability (NAL) of a radio station for broadcasting apparent indecent music. One FCC Commissioner, Michael Copps, criticized the retreat.
The order rescinds a NAL of radio station KKMG FM in Colorado. 18 U.S.C. § 1464 provides that "Whoever utters any obscene, indecent, or profane language by means of radio communication shall be fined under this title or imprisoned not more than two years, or both." An FCC rule, codified at 47 C.F.R. § 73.3999, implements this prohibition. The music lyrics at issue are reproduced in ¶ 8 of the order.
In the just released order, the FCC's Enforcement Bureau concluded that "we disagree with our initial analysis and we now conclude that the material at issue was not patently offensive under contemporary community standards for the broadcast medium. Accordingly, we conclude that the licensee did not violate the applicable statute or our indecency rule, and that no sanction is warranted".
Commissioner Copps issued a statement: "On June 1, 2001, the FCC’s Enforcement Bureau issued a Notice of Apparent Liability concerning the broadcast of an edited version of “The Real Slim Shady.” It was a controversial finding. Today the Bureau rescinds this finding. In a matter of this importance, I believe the Commissioners themselves, rather than the Bureau, should be making the decision about whether to reverse the initial finding. Issues of indecency on the people’s airwaves are important to millions of Americans; they are important to me. I believe they merit, indeed compel, Commissioner level action."
SEC Official Addresses Data Backup, Communications, and Terrorism
1/8. Annette Nazareth, Director of the Securities & Exchange Commission's (SEC's) Division of Market Regulation, gave a speech to The Bond Market Association Legal and Compliance Conference. She addressed the necessity of frequent off site data backup and redundant communications for securities market participants in light of new terrorist threats.
She stated that "my sense is that most now recognize the need for more rigorous plans that address problems of wider geographic scope and longer duration. For many, the September 11 attacks made clear the possibility of a large scale regional disaster. Thus, there seems to be consensus that business continuity planning needs to adapt -- to plan for events of wider scope and, in general, become more robust and resilient."
She stated that it is important for securities market participants to maintain "an adequate ``desktop´´ recovery strategy -- one that contemplates the movement of, at minimum, core employees to fully functional backup office space ..."
She also addressed data backup strategies. "Market participants also realized the importance of maintaining current copies of records and software at their backup facilities (or other secure location). Some firms had been in the practice of sending records offsite only at weekly or monthly intervals. As a result, when they lost their primary offices, they had to devote substantial resources to reconstruct records that had not yet been transferred to their backup facilities. Many of these firms now intend to ship records offsite more frequently, perhaps daily or even several times per day."
Nazareth also stressed the importance of redundant communications facilities. "A crucial lesson learned from the events of September 11 -- but one not entirely within the control of the securities industry -- is the importance of connectivity and the need to ensure that an organization has truly redundant telecom arrangements."
She continued that "Many firms thought they had achieved redundancy in their communications systems, by making arrangements with multiple telecom providers, only to discover that the lines of all those providers went through the same Verizon switching facility -- which happened to be located next to the World Trade Center. Others had taken the time to map their telecom lines to assure diverse routing, only to find out that their telecom providers had rerouted some of those lines - and eliminating that diversity -- without telling them, or contracted out the service to other providers already in use by the firm. Going forward, the securities industry must assure that diverse routing is acquired and maintained, so that truly redundant communications systems are created."
San Jose Company Sentenced for Wire Fraud
1/8. Advanced Computer Link, Inc., was sentenced in U.S. District Court (NDCal) for one count of wire fraud in violation of 18 U.S.C. § 1343. ACL, a San Jose based exporter of computer components, engaged in a double invoicing scheme to defraud the British and Irish governments of value added taxes. Judge Ronald Whyte imposed a sentence requiring ACL to pay a fine of $140,000.
The U.S. Attorneys Office stated in a release that "it would prepare invoices for computer equipment exported to companies in the United Kingdom and Ireland listing a fraudulently low price. This invoice was presented by British and Irish purchasing companies to Customs officials in those countries to be used to compute Value Added Tax ("VAT") owed on the importation of those products, thereby allowing the purchasing companies to defraud the British and Irish governments of tax due and owing on merchandise imported from ACL. Once VAT had been assessed, ACL would send a second invoice to the purchasing British and Irish companies reflecting the true value of the goods, and thereby receive payment for the full market price of the merchandise sold."
Lawrence Livermore Hacker Pleads Guilty
1/8. Benjamin Breuninger plead guilty in U.S. District Court (NDCal) to one count of unauthorized access of a protected computer and recklessly causing damage, in violation of 18 U.S.C. § 1030(a)(5)(B).
The U.S. Attorneys Office stated in release that "Breuninger admitted that, on November 3, 1999, without authorization, he intentionally gained access to the Lawrence Livermore National Lab's unclassified computer network. Once he obtained access to the computer system, he placed software programs on the system that gave him further control of the system as well as continued access. Over the next 10 days, he re-entered the system several times and, among other things, downloaded budget material from the laboratory's computer network." Sentencing is scheduled for April 12, 2002 before Judge Lowell Jensen.
Federal Circuit Rules in Patent Cases
1/8. The U.S. Court of Appeals (FedCir) issued its opinion in Rheox v. Entact, a patent infringement case. Rheox is the assignee of U.S. Patent No. 5,162,600, titled "Method of Treating Lead Contaminated Soil". It filed a complaint in U.S. District Court (DNJ) against Entact alleging patent infringement. The District Court granted summary judgment to Entact. The Appeals Court affirmed.
1/8. The U.S. Court of Appeals (FedCir) issued its opinion in Talbert Fuel Systems Patents v. Unocal, a patent infringement case. Talbert Fuel Systems Patents is the owner of U.S. Patent No. 5,015,356 titled "Hydrocarbon Fuel Systems". Unocal is the owner of U.S. Patent No. 5,288,393 titled "Gasoline Fuel". Talbert filed a complaint in U.S. District Court (CDCal) against Unocal alleging patent infringement. The District Court granted summary judgment of noninfringement, and declined to declare an interference under 35 U.S.C. § 291. The Court of Appeals affirmed.
People and Appointments
1/8. Republican John Sullivan won a special Congressional election in Oklahoma to replace Rep. Steve Largent (R-OK), who will step down on February 15 to run for Governor of Oklahoma. Rep. Largent is a member of the House Commerce Committee and its Telecom and Internet Subcommittee. He is one of the leaders of the opposition to HR 1542, the Tauzin Dingell bill, on the Committee. See, roll call votes of April 26, 2001, TLJ Daily E-Mail Alert No. 175 (April 27, 2001), and roll call votes of May 9, 2001.
1/8. Casey Carter was named Director of the Securities and Exchange Commission's (SEC's) Office of Legislative Affairs. She is currently the acting Director. She previously worked in legislative affairs at the Comptroller of the Currency and the Resolution Trust Corporation. See, SEC release.
1/8. Christi Harlan was named Director of the Securities and Exchange Commission's (SEC's) Office of Public Affairs. She was previously the Communications Director for the Senate Committee on Banking, Housing and Urban Affairs. See, SEC release.
1/8. Jay Alexander joined the law firm of Fulbright & Jaworski as a senior counsel in the firm's Washington DC office. He focuses on patent litigation matters involving satellite communications, cellular telephones, semiconductor manufacturing processes, computer software, and gene sequencing. He previously worked in the Washington DC office of the law firm of Kirkland & Ellis. See, F&J release.
More News
1/8. The FCC extended the deadline to file reply comments in its proceeding regarding cross ownership of broadcast stations and newspapers. The new deadline is February 15, 2002. This is MM Docket No. 01-235. See, notice in Federal Register, January 8, 2002, Vol. 67, No. 5, at Pages 828 - 829.
1/8. The Supreme Court heard oral argument in Festo Corporation v. Shoketsu Kinzoku Koygo Kabushiki, No. 00-1543, a case regarding the doctrine of equivalents in patent law.
1/8. President Bush signed HR 1, the No Child Left Behind Act of 2001, a bill pertaining to education. See, Bush speech.
1/8 The Securities and Exchange Commission (SEC) cautioned that "filings and other documents mailed to the Commission are being received on a delayed basis." However, "Filings made electronically on the Commission’s EDGAR system have not been affected." See, SEC notice.
USTR Zoellick Praises Daschle Statements on TPA
1/7. The U.S. Trade Representative (USTR), Robert Zoellick, who is pushing the Congress to grant the President trade promotion authority, praised Sen. Tom Daschle's (D-SD) January 4 speech. Daschle said "I support fast track and intend to bring it up for a vote in the full Senate early this year."
Zoellick stated in a release that "I'm pleased to see that Senate Majority Leader Daschle has established a high priority for prompt Senate approval of Trade Promotion Authority."
Zoellick continued that "Majority Leader Daschle has called for inclusion of measures such as Trade Adjustment Assistance. The Administration recognizes that effective adjustment assistance must be a key component of America's trade strategy. I look forward to working constructively with the Senate Leadership on Trade Promotion Authority to ensure a vote on the Senate floor early in the new session."
Sen. Grassley Complains About 2,300 Missing Computers at IRS
1/7. Sen. Charles Grassley (R-IA), the ranking Republican on the Senate Finance Committee, sent a letter to Mitch Daniels, Director of the Office of Management and Budget (OMB), regarding missing computers at the Internal Revenue Service (IRS). The Treasury Inspector General for Tax Administration (TIGTA) released a report dated November 29, 2001, titled "Management Advisory Report: Review of Lost or Stolen Sensitive Items of Inventory at the Internal Revenue Service". This report states that "For the past 3 years, the IRS reported approximately 2,300 missing computers".
Sen. Grassley wrote that "the TIGTA report underscores what appears to be a carefree attitude by the IRS about losing computers purchased with taxpayer money -- the IRS doesn't even know how many of the computers are lost, stolen or damaged. Nor, does there appear to be any serious effort to hold accountable those responsible for the missing computers. Let me be clear that the 2,300 missing computers covers only a three-year period."
"Sadly, all this from the IRS -- an agency that requires taxpayers to show every receipt -- can't find 2,300 computers. The IRS wouldn't accept from a taxpayer the non-answer it has given regarding the missing 2,300 computers," wrote Grassley.
"Just as a taxpayer would be held accountable for missing receipts, so must the IRS be held accountable for missing 2,300 computers. It is my view that serious consideration should be given to placing a limitation on the IRS' budget until there is real improvement -- not real promises -- in inventory management."
The TIGTA report states that there are "2,332 missing laptop computers, microcomputers, and micro servers for the past 3 years. " Furthermore, "As of September 30, 2001, the IRS reported that it had approximately 163,000 laptop computers, microcomputers, and micro servers in its inventory."
On the other hand, the TIGTA report minimizes the threat of loss of classified data, and unauthorized access to IRS networks. The report states that "The IRS reported that to its knowledge, no lost or stolen computers contained classified data. The IRS’ policy is that no classified data be maintained on employees' computers."
The report continues that "The IRS does not use any modems that would be termed an “internal secure modem.” Therefore, access to IRS networks through any missing computers is unlikely. To gain access to IRS networks or internal database systems, one must first be able to logon to the computer itself. This entails the use of a username and password. Second, once into the IRS’ intranet, one would not only have to go through an additional logon process for a given system, but would also have to be recognized by that system as a person authorized to gain access."
Rep. Dingell Asks FCC to Investigate AT&T USF Billing
1/7. Rep. John Dingell (D-MI) wrote a letter to Federal Communications Commission (FCC) Chairman Michael Powell and the other Commissioners regarding "AT&T's recent announcement that it increased its universal service line-item fee to 11.5% of the monthly bill for residential customers". Universal service requirements, which are codified at 47 U.S.C. § 254, provide for subsidies for telecommunications services in rural and high cost areas. Universal service is also the basis of the FCC's e-rate program for schools and libraries.
Dingell wrote that AT&T asserts that this change is made necessary by the FCC's Universal Service Fund (USF) formula. However, noting that "current USF factor is only 6.9% of revenues", Dingell added that AT&T's claim is "puzzling at best".
Dingell continued that "irrespective of the rate charged, no carrier should be permitted by law to collect from its customers for the universal service line-item fee more than it actually contributes to the fund. It appears that AT&T may be padding its pockets by doing just this. Such behavior would seriously jeopardize the E-rate program for public schools and libraries, as well as the affordability of basic telephone services for rural and low-income consumers."
Dingell concluded by asking the FCC to "perform an investigation of the books and records of AT&T to determine whether the company in fact has collected more from its customers for this line-item fee than it has actually paid to the Government." See also, Dingell release.
Steve Davis, Qwest SVP for policy & law, stated in a release that "AT&T's agenda is clear -- spend millions of dollars to keep Qwest out of the long distance business while skimming billions of dollars from unsuspecting customers through price hikes ... AT&T will continue to increase long distance prices until they have to compete with Qwest. It's that simple".
Supreme Court Denies Cert in Reciprocal Compensation Case
1/7. The Supreme Court denied certiorari in Global Naps v. FCC, a case regarding reciprocal compensation for ISP bound traffic. See, January 7 Order List [PDF] at page 3.
On February 20, 2001, the U.S. Court of Appeals (DC Cir) issued its opinion upholding a Federal Communications Commission (FCC) Memorandum Opinion and Order (FCC 99-381) regarding reciprocal compensation for Internet Service Provider (ISP) bound traffic. Global Naps is a competitive local exchange carrier (CLEC) that provides phone service in Massachusetts. Bell Atlantic (now Verizon) filed a complaint with the FCC alleging illegal tariffs by Global Naps. The FCC released its order on Dec. 2, 1999, which ruled the tariff to be illegal. Global Naps then filed a Petition for Review with the Court of Appeals. The Appeals Court denied the petition and upheld the order. The Supreme Court's denial of certiorari lets stand the Appeals Court's ruling, and the FCC Order. 
Fed Circuit Vacates Sanctions Order in Patent Infringement Action
1/7. The U.S. Court of Appeals (FedCir) issued its opinion in Antonious and Finnegan Henderson v. Spalding, reversing a District Court award of sanctions against the law firm of Finnegan Henderson (FH).
FH is a large law firm specializing in intellectual property law. It was the attorney for Anthony Antonious in a patent infringement action. Antonious filed a complaint (prepared by FH) in U.S. District Court (DMd) against Spalding alleging infringement of a patent pertaining to golf club design. The District Court granted defendants' motions for summary judgment. Spalding also sought sanctions under FRCP 11(c) against both Antonious and FH for failure to conduct a reasonable prefiling factual investigation. The District Court awarded sanctions. The Appeals Court vacated the sanctions order.
Supreme Court Denies Cert in Surveillance Camera Case
1/7. The Supreme Court denied certiorari in Consolidated Freightways v. Cramer, thereby letting stand an Appeals Court opinion which reversed a District Court dismissal of a privacy action. See, January 7 Order List [PDF].
Facts. Consolidated Freightways (CF), a trucking company, installed hidden cameras and microphones in employee bathrooms, in violation of the California criminal code.
Trial Court. Employees and others filed two complaints in California Superior Court alleging violation of privacy based upon state law. CF removed both cases to the U.S. District Court (CDCal), where they were consolidated. CF argued that § 301 of the Labor Management Relations Act (LMRA) preempted the state law action because the plaintiffs were subject to a collective bargaining agreement (CBA). The trial court dismissed as to all plaintiffs, except those who were not employees of CF.
Appeals Court. The U.S. Court of Appeals (9thCir) issued an en banc opinion [PDF] on June 15, 2001, reversing the District Court. It held that since the CBA did not cover privacy claims, there could be no preemption. However, the Court continued that "when an employer's surreptitious surveillance constitutes a per se violation of established state privacy laws, the employees affected thereby may bring an action for invasion of privacy regardless of the terms of the collective bargaining agreement governing their employment."
Court Denies Microsoft's Request for Trial Delay
1/7. The U.S. District Court (DC), Judge Colleen Kotelly presiding, denied Microsoft' motion to amend the scheduling order (to delay the trial date) in the government antitrust lawsuit. Nine of the state plaintiffs have not joined in the settlement agreement negotiated by Microsoft, the Department of Justice, and the other state plaintiffs. (This is Civil Action No. 98-1233 (CKK).)
SEC Shuts Down 17 Year Old's Internet Stock Fraud Operation
1/7. The Securities and Exchange Commission (SEC) filed its original civil complaint in U.S. District Court (SDNY) against Invest Better 2001 and John Does 1 through 10 on December 13, 2001, alleging the unregistered and fraudulent sale of securities over the Internet. At that time, the SEC did not know the identity of the principals behind the operation. See, Dec 13 release. On January 7, the SEC identified Cole Bartiromo, a 17 year old resident of Mission Viejo, California, as a principal in Invest Better 2001 (IB2001).
The SEC filed an amended complaint naming Bartiromo. Also, the District Court issued a partial final judgment and order, on consent, which permanently enjoins Bartiromo and IB2001, directs the return of funds obtained from investors, freezes Bartiromo's and IB2001's assets, directs Bartiromo and IB2001 to provide an accounting, and grants other relief. See, January 7 release.
Bariromo used a web site and MSN bulletin board to offer securities at guaranteed exorbitant returns on short term investments. The SEC announced that it has located $900,000 in ill gotten gains. The Director of the SEC's Enforcement Division, Stephen Cutler, stated in a release that "just about anyone -- even a 17 year old high school student -- can mastermind a securities fraud over the Internet."
People and Appointments
1/7. Mary Jo White stepped down as the U.S. Attorney for the Southern District of New York. The incoming USA, James Comey, was sworn in as her replacement. However, he has yet to be confirmed by the Senate.
1/7. Bob Biersack was named Deputy Press Officer at the Federal Election Commission (FEC). He replaces Sharon Snyder, who retired. Biersack has been in the Data Systems Development Division (DSDD) at the FEC since 1983, specializing in analysis and web posting of campaign finance data. He has also worked on the design and implementation of the FEC's electronic filing program and Internet accessible database. See, FEC release.
1/7. BT Group announced the appointment to its board of three new directors: John Nelson (retiring chairman of Credit Suisse First Boston (Europe) Ltd), Carl Symon (former senior executive with the IBM), and Margaret Jay. Helen Alexander, June de Moller, John Weston, and Neville Isdell will retire from the board. See, BT release.
1/7. Daniel Pascucci joined the San Diego office of the law firm of Fish & Richardson as a principal. He previously was a partner at Gray Cary Ware & Freidenrich. He focuses on complex class action and technology litigation involving telecommunications and Internet law. See, F&R release.
1/7. Robert Zinkham was named chairman of the Venable law firm's business division, encompassing all of the firm's specialty business practice subdivisions. See, release.
1/7. Patricia Russo was named P/CEO of Lucent Technologies. She succeeds Henry Schacht who will become chairman. Russo most recently was P/COO of Eastman Kodak Company. Before that, she was one of the founding executives of Lucent when it was spun off from AT&T in 1996. See, Lucent release.
More News
1/7. The Supreme Court denied certiorari in Tacoma v. Qwest, No. 01-596. See, January 7 Order List [PDF] at page 3.
1/7. USinternetworking Inc. filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court (DMd). The Annapolis, Maryland, based company sells iMAP services. See, USI release.
1/7. The FBI's National Infrastructure Protection Center (NIPC) published in its web site a copy of its CyberNotes: 2001 Year End Summary [84 pages in PDF].

Go to News Briefs from January 1-5 2002.