News from January 11-15, 2002

TechNet Makes Broadband Policy Recommendations
1/15. The Technology Network (TechNet) released a document [PDF] titled "A National Imperative: Universal Availability of Broadband by 2010" in which it calls on policy makers to "make broadband a national priority and to set a goal of making an affordable 100 megabits per second broadband connection available to 100 million American homes and small businesses by 2010." The report also lists numerous policy recommendations.
SEC Fines BellSouth
1/15. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (NDGa) against Bellsouth alleging violations of federal securities laws. The SEC also instituted a related administrative proceeding against BellSouth. Both proceedings pertain to BellSouth's actions and omissions relating to its Latin American subsidiaries in Venezuela (Telcel) and Nicaragua (Telefonia Celular de Nicaragua). See also, SEC litigation release and order instituting administrative proceeding.
The SEC found in its order that BellSouth violated §§ 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. It further ordered BellSouth to cease and desist from committing any further violations. These sections are the "books and records" and "internal controls" provisions, respectively, of the Foreign Corrupt Practices Act (FCPA). The SEC found that "Telcel created false books and records by improperly recording the falsely documented, unsubstantiated payments to the offshore companies as bona fide services. In addition, Telcel's internal controls failed to detect the unsubstantiated payments for a period of at least two years."
The SEC also found that Telefonia created false books and records by improperly recording payments to the wife of a Nicaraguan legislator as "consulting services".
BellSouth consented to the entry of this cease and desist order. It also consented to entry of judgment in the court proceeding directing it to pay a $150,000 civil penalty.
FCC Sets Comment Deadlines in Rule Making Proceedings
1/15. The Federal Communications Commission (FCC) published a notice in the Federal Register in which it set deadlines for public comments in response to its notice of proposed rulemaking (NPRM) regarding the appropriate regulatory requirements for incumbent local exchange carriers' (ILECs') provision of broadband telecommunications services. The FCC adopted this NPRM at its December 12 meeting. Comments are due March 1, 2002; and reply comments are due April 1, 2002. This is CC Docket No. 01-337. See, Federal Register, January 15, 2002, Vol. 67, No. 10, at Pages 1945 - 1947.
1/15. The Federal Communications Commission (FCC) published a notice in the Federal Register in which it set deadlines for public comments in response to its notice of proposed rulemaking (NPRM) regarding its unbundling analysis under § 251 of the Communications Act and the identification of specific unbundling requirements for incumbent local exchange carriers (ILECs). The FCC adopted this NPRM at its December 12 meeting. Comments are due March 18, 2002; reply comments are due April 30, 2002. This is CC Docket No. 01-338. See, Federal Register, January 15, 2002, Vol. 67, No. 10, at Page 1947 - 1953.
EPIC Files FOIA Suit Seeking LEAs' Records Re Purchase of Personal Data
1/15. The Electronic Privacy Information Center (EPIC) filed a complaint in U.S. District Court (DC) against the Department of Justice (DOJ) and the Department of the Treasury (DOT) alleging violation of the Freedom of Information Act (FOIA), 5 U.S.C. § 552. The complaint alleges that the EPIC submitted FOIA requests for records pertaining to the purchase of personal information from the private sector by law enforcement agencies that are a part of the DOJ or DOT, including the Federal Bureau of Investigation (FBI) and Internal Revenue Service (IRS). The complaint further alleges that the DOJ and DOT failed to respond fully to the FOIA requests. The EPIC seeks an order directing the DOJ and DOT to disclose the requested records in their entireties.
The complaint references an article in the Wall Street Journal reporting that federal law enforcement agency "employees had electronic access to citizens' assets, phone numbers, driving records, and other personal information from their desktop computers."
The complaint further states that "The use of private sector databases of personal information enables the government to obtain detailed information on citizens while avoiding the creation of files that would implicate protections provided under the Privacy Act ..." See, 5 U.S.C. § 552a.
The EPIC seeks to compel the various law enforcement agencies that are a part of the DOJ and DOT to produce "all records relating to transactions, communications, and contracts concerning businesses that sell individuals' personal information."
Chris Hoofnagle, who is listed as lead counsel for the EPIC in the complaint, stated in a release that "Through the mining of public records and the purchase of credit reporting data, private sector companies are amassing troves of personal information on citizens for the government ... Serious questions exist involving citizen access to profiles, their accuracy, and the potential for misuse of personal information."
People and Appointments
1/15. Jonathan Aberman joined the Washington DC office of the law firm of Fenwick & West as a partner. David Dutil joined the firm as an associate in the Washington DC office. Aberman focuses on representing companies in biotechnology, computer software, Internet services, and other industries. He previously was a partner in the Northern Virginia office of the law firm of Pillsbury Winthrop. See, F&W release.
1/15. Jerry Blackstock joined the litigation section of the Atlanta office of the law firm of Hunton & Williams. He was previously Chair of the Litigation Department of the law firm of Powell Goldstein Frazer & Murphy. See, H&W release.
More News
1/15. President Bush gave a speech in New Orleans, Louisiana, in which he advocated passage of legislation giving the President trade promotion authority, also known as fast track authority.
1/15. The Communications for Coordinated Assistance and Response to Emergencies Alliance (Comcare) released a report titled "The E-Safety Program To Make Americans Safer". See also, executive summary. The report offers a set of policy recommendations for improving emergency communications. It recommends more wireless and wireline capacity; continued deployment of E-911 service, and its extension to automobiles; and federal funding for training, education, and research. It also recommends that "first responders and their supporting agencies could be connected to each other through a national emergency electronic registry, data sharing systems, mapping, and other applications that could send real time emergency information to and from multiple agencies."
1/15. The U.S. Court of Appeals (FedCir) issued its opinion in EZ Dock v. Schaffer Systems, an patent infringement case involving interpretation of the on sale bar. The U.S. District Court (DMinn) held that EZ Dock's  U.S. Patent No. 5,281,055 invalid under the on sale bar, codified at 35 U.S.C. § 102(b). The Court of Appeals reversed and remanded.
Third Circuit Rules in Sherman § 2 Antitrust Case
1/14. The U.S. Court of Appeals (3rdCir) issued its divided opinion in Lepage's v. 3M, an antitrust case involving transparent tape. The majority reversed a District Court order denying 3M judgment as a matter of law on a Sherman Act Section 2 claim. The dissenter wrote that the majority's opinion "would weaken § 2 of the Sherman Act to the point of impotence ... a consummation greatly to be desired by the behemoths of industry, such as Microsoft ..."
Background. LePage filed a complaint in U.S. District Court (EDPenn) against 3M alleging violation of antitrust law. It alleged, among other things, that 3M used its monopoly over its Scotch tape brand to gain a competitive advantage in the private label tape portion of the transparent tape market in the U.S. through the use of 3M's multi-tiered bundled rebate structure, which offered higher rebates when customers purchased products in a number of 3M's different product lines.
The jury returned a verdict in favor of 3M on unlawful agreements in restraint of trade and exclusive dealing, and against 3M on monopolization and attempted monopolization claims under Section 2 of the Sherman Act. 3M filed motions for judgment as a matter of law (JMOL) and for a new trial. The District Court granted 3M's motion for JMOL on the attempted maintenance of monopoly power claim, but denied 3M's motion JMOL in all other respects, and denied the motion for a new trial. The District Court entered a judgment for trebled damages of $68,486,679. The present appeal followed.
Appeals Court. The Appeals Court affirmed the order granting the motion for JMOL of law with respect to the attempted maintenance of monopoly claim, but reversed the order denying the motion for JMOL in all other respects. Hence, the case was remanded to the District Court with instructions to enter judgment in favor of 3M. Judge Morton Greenberg wrote the opinion of the Court, in which Judge Samuel Alito joined.
Dissent. Judge Dolores Sloviter wrote a long and stirring dissent. She wrote that "the majority applies reasoning that would weaken § 2 of the Sherman Act to the point of impotence. While that may be a consummation greatly to be desired by the behemoths of industry, such as Microsoft or 3M, it would be an incalculable loss to business generally and to the consumer. Section 2, the provision of the antitrust laws designed to curb the excesses of monopolists and near monopolists, is the equivalent in our economic sphere of the guarantees of free and unhampered elections in the political sphere. Just as democracy can thrive only in a free political system unhindered by outside forces, so also can market capitalism survive only if those with market power are kept in check."
5th Circuit Denies Rehearing in PSLRA Class Certification Case
1/14. The U.S. Court of Appeals (5thCir) issued its opinion in Berger v. Compaq denying Berger's petition for rehearing en banc. This is a case involving the heightened class certification requirements under the Private Securities Litigation Reform Act of 1995 (PSLRA). A three judge panel of the Court of Appeals issued its original opinion on July 25, 2001 reversing the District Court's class certification order. See, 257 F.3d 475.
District Court. Mark Berger and others filed a complaint in U.S. District Court (SDTex) against Compaq and some of its directors alleging violations of §§ 10(b) and 20(a) of the Securities and Exchange Act of 1934 (15 U.S.C. §§ 78j(b) and 78t(a)), and Rule 10b-5 thereunder (17 C.F.R. § 240.10b-5). Berger and others sought class action status. The District Court certified a plaintiff class and appointed class representatives.
Appeals Court. Defendants sought interlocutory review of the certification order, on the grounds that it failed to meet requirements of the PSLRA. Congress passed the PSLRA in 1995 to insulate defendants from abusive suits, particularly technology related companies with volatile stock prices. The Appeals Court held that the District Court "improperly shifted the burden of proof to the defendants by adopting a presumption that the class representatives and their counsel are adequate in the absence of specific proof to the contrary. Second, it applied an impermissibly lax standard for adequacy that ignores the PSLRA's mandate that class representatives, and not lawyers, must direct and control the litigation."
Petition for Rehearing. On petition for rehearing the plaintiffs argued that the Court's original opinion created an additional, independent requirement for the adequacy standard for class certification under FRCP 23 by reading the provisions of the PSLRA into FRCP 23(a)(4). In denying rehearing, the Appeals Court wrote: "This we have not done, nor have we changed the law of this circuit regarding the standard for conducting a rule 23(a)(4) adequacy inquiry. Rather, we mean to emphasize that Congress enacted the "lead plaintiff" provisions of the PSLRA, 15 U.S.C. § 78u-4(a)(3)(B), to direct courts to appoint, as lead plaintiff, the most sophisticated investor available and willing so to serve in a putative securities class action."
WTO Appellate Body Affirms FSC Decision
1/14. The Appellate Body of the World Trade Organization (WTO) issued its report [PDF] holding that the U.S. tax regime regarding extraterritorial income violates the WTO obligations of the U.S.
The Foreign Sales Corporation (FSC) tax regime, and its replacement legislation passed in late 2000, benefit U.S. companies, such as Microsoft, Cisco, and Motorola, that sell products abroad. The FSC tax scheme allowed a portion of a U.S. taxpaying firm's foreign source income to be exempt from U.S. income tax. The European Union (EU) filed a complaint about the FSC scheme with the WTO, alleging that it was a prohibited export subsidy. A WTO dispute settlement panel sided with the EU in 1999, and the WTO Appellate Body upheld its findings in early 2000. As a consequence, the Congress passed the Foreign Sales Corporation Repeal and Extraterritorial Income Exclusion Act of 2000, which preserved the benefits to U.S. exporters. The EU again filed a complaint. And again, a WTO panel sided with the EU. And now, that finding has been affirmed.
U.S. Trade Representative Robert Zoellick stated in a release that "We are disappointed with the outcome ... Given prior decisions, we knew this would be an uphill struggle, but we believed it was important to make our case for a level playing field on tax rules. The United States respects its WTO obligations, which serve America's interests, and we intend to continue to seek to cooperate with the EU in order to manage and resolve this dispute."
Zoellick added that "This is an especially sensitive dispute that, at its core, raises questions of a level playing field with regard to tax policy ... We will be consulting closely with Congress and affected U.S. interests regarding next steps."
Zoellick and U.S. exporters argue that there is an unlevel playing field because most nations have a territorial tax regime, under which they tax the income of corporations within their territory. The U.S. has a global tax regime dating back to the 19th Century. American corporations are taxed by the United States government for their domestic and foreign income. That is, under the basic rules, if an American corporation sells its products in France, the U.S. taxes the income. However, if a French corporation sells its products in the U.S., France does not tax the income of the corporation operating in the U.S.
This puts U.S. corporations at a competitive disadvantage with respect to their foreign competitors when competing in a global economy. Hence, Congress has enacted various exceptions to the general rule, through such methods as the foreign tax credit, the Domestic International Sales Corporation (DISC), the Foreign Sales Corporation (FSC), and finally, the bill passed in 2000. U.S. exporters, and their supporters in Congress and the administration, argue that this is simply leveling the playing field between U.S. and European companies.
In contrast, the EU contends that by giving tax breaks to U.S. exporters, the U.S. is, in effect, subsidizing exports, in violation of its trade agreements.
EU Trade Commissioner Pascal Lamy stated in a release that "We now have a definitive legal ruling on the FSC case. Of course I'm pleased that the WTO has confirmed what we always believed. We have made a point of handling this dispute in a very reasonable manner. Now it is up to the US to comply with the WTO's findings and to settle this matter for once and for all. As to how, we look forward to rapid US proposals."
It is possible that Europe might now retaliate by imposing high tariffs on the products of U.S. companies. Neither Europe nor the U.S. seek a trade war, and the EU is likely pursuing the FSC issue to obtain a bargaining chip to use in other trade negotiations. However, if there were a trade war, Europe would likely target U.S. technology and aircraft companies.
FCC Releases Annual Report on Video Programming
1/14. The Federal Communications Commission (FCC) released its 8th Annual Report [122 pages in PDF] on the status competition in the market for the delivery of video programming. The report finds that "competitive alternatives continue to develop. Cable television still is the dominant technology for the delivery of video programming to consumers in the MVPD marketplace, although its market share continues to decline. As of June 2001, 78 percent of MVPD subscribers received their video programming from a franchised cable operator, compared to 80 percent a year earlier."
It further found that "The total number of subscribers to both cable and non-cable MVPDs continues to increase. A total of 88.3 million households subscribe to multichannel video programming services as of June 2001, up 4.6 percent over the 84.4 million households subscribing to MVPDs in June 2000."
The report also states that "The most significant convergence of service offerings continues to be the pairing of Internet service with other service offerings. There is evidence that a wide variety of companies throughout the communications sector are providing multiple services, including data access. Cable operators continue to expand the broadband infrastructure that permits them to offer high-speed Internet access. The most popular way to access the Internet over cable is still through the use of a cable modem and personal computer ..."
Internet Securities Fraud
1/14. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (SDCal) against three individuals and four related entities alleging violation of § 17(a) of the Securities Act of 1933, § 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The complaint alleges that the defendants engaged in an Internet based "pump and dump" scheme. The complaint alleges that defendants acquired stocks, touted them in a web site named Red Hot Stocks, and then sold them. See, SEC release.
People and Appointments
1/14. Laurence Meyer submitted his resignation Monday as a member of the Board of Governors of the Federal Reserve System, effective the last day of his term, January 31, 2002. See, FRB release.
1/14. Robert Auchter was named a partner in the law firm of Robins, Kaplan, Miller & Ciresi. He works in the intellectual property section of the Washington DC office. He focuses on patent litigation, counseling and prosecution involving consumer and industrial electronics, electronic power technology, medical devices and instruments, semiconductor processing, semiconductor devices and circuits, aerospace technology, satellite communications, interactive voice technologies, telecommunications, computer hardware and software, and other technologies. See, release.
1/14. Stephen Hill joined the Washington DC office of the law firm of Howrey Simon Arnold & White as a partner in the antitrust practice group. He was previously a partner in the Washington DC office of the law firm of Sidley & Austin. See, Howrey release.
1/14. Hogan & Hartson, a Washington DC based law firm, and Squadron Ellenoff Plesent & Sheinfeld, a law firm based in New York City and Los Angeles, announced that they will merge. See, H&H release.
1/14. The law firm of Morrison & Foerster announced that 14 attorneys have been elevated to partner. The list includes Hector Gallegos (who is in the Litigation, IP, and Computer & Software sections in the firm's Los Angeles office), Heike Fischer (Corporate and IP, Palo Alto), Erik Olson (Litigation and IP, Palo Alto), Erica Wilson (Litigation, Palo Alto), Eric Acker (Litigation and IP, San Diego), Rosemary Tarlton (IP, San Francisco), and Thomas Treffert (IP, San Francisco). See, MoFo release.

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1/14. President Bush gave a speech in Aurora, Missouri, in which he addressed economic issues. He stated that "the role of government is not to create wealth. The role of government is to create an environment in which people are willing to take risk, an environment in which people are willing to risk capital, an environment that heralds the entrepreneur and the small business person." He defended tax cuts and free trade.
1/14. The Federal Communications Commission (FCC) published a notice in the Federal Register of its final rule regarding spectrum aggregation limits for commercial mobile radio services (CMRS). The FCC eliminated the CMRS spectrum cap rule effective January 1, 2003; it also raised the cap to 55 MHz in all markets until the sunset date, and eliminated the cellular cross interest rule in Metropolitan Statistical Areas (MSAs), but retained the rule in Rural Service Areas (RSAs). The FCC first announced this action on November 8, 2001. See, November 8 release [PDF]. See also, Federal Register, January 14, 2002, Vol. 67, No. 9, at Pages 1626 - 1643.
1/14. The Securities and Exchange Commission (SEC) released an order in which it censured KPMG, for engaging in improper professional conduct because it purported to serve as an independent accounting firm for an audit client at the same time that it had made substantial financial investments in the client. The SEC found that KPMG violated the auditor independence rules by engaging in such conduct. KPMG consented to the SEC’s order without admitting or denying the SEC’s findings. See, SEC release.
1/14. The U.S. District Court (DDC) issued its opinion [PDF] in U.S ex rel. Fisher v. Network Software Associates, a case involving the six year statute of limitations of the False Claims Act.
1/14. The U.S. Attorneys Office for the Eastern District of Virginia formed a Computer Hacking and Intellectual Property (CHIP) unit. The unit will be comprised of six Assistant United States Attorneys. The Eastern District of Virginia includes the tech heavy northern Virginia suburbs of Washington DC. See, release.
1/14. The U.S. Court of Appeals (2ndCir) issued its opinion in 20th Century Fox v. Marvel, a contract and Lanham Act case regarding the rights of trademark licensees.
1/14. The U.S. Court of Appeals (DCCir) heard oral argument in Sinclair Broadcast Group v. FCC, No. 01-1079.
1/14. The U.S. Court of Appeals (DCCir) heard oral argument in COMSAT Corp v. FCC, No. 00-1458.
BellSouth Chairman Wants Regulatory Relief
1/13. BellSouth Chairman & CEO Duane Ackerman gave a speech in Amelia Island, Florida, in which he advocated changes to the regulatory environment in which phone companies and other communications companies operate. He wants deregulation of DSL service. He also discussed a regulatory model in which competition would be facilities based, rather than based on the requirement that the incumbent phone companies, such as BellSouth, provide unbundled networks elements to competitors.
He stated that "I see four basic observations about the reigning regulatory model. By that I mean the model, applied to the wireline segment of the communications industry, a model that continues to constrain residential retail prices while creating a wholesale market of UNEs, UNE-p in particular, priced at TELRIC."
He elaborated: "First, the reigning model does not protect consumers. Second, it has distorted the investment of CLECs and ILECs -- to the detriment of consumers; its most visible and serious outcome being the glut of capital it enticed into high-speed, wireline facilities to serve businesses in metro areas. It discourages competitors from investing in their own facilities. Third, by distorting investment, it contributed heavily to the current capital scarcity in the industry; these capital woes turned out to be one of the substantive drivers of America's economic slowdown. Fourth, this regulatory model slows the delivery of advanced services to consumers, especially in under-served areas. The upshot of these four observations is plain: A new regulatory model is needed."
He stated that a new regulatory model is also warranted because technologies and markets have changed dramatically since passage of the Telecom Act of 1996. Wireless competes with wireline phone service. Data is a major portion of network traffic. Computers and the Internet are now a part of communications. Cable broadband competes with DSL.
Court Rejects Settlement Agreement in Private Antitrust Actions Against Microsoft
1/11. The U.S. District Court (DMd), Judge Frederick Motz presiding, rejected the proposed Settlement Agreement between Microsoft and plaintiffs in over 100 private antitrust class action lawsuits against it alleging that it overpriced its products. Under the proposed Settlement Agreement, Microsoft would have provided $1 Billion in cash, training, support and software to over 12,500 public schools. These cases may now be litigated.
Tom Burt, Deputy General Counsel for Microsoft, stated in a release that "While we are confident that Microsoft ultimately will prevail in these lawsuits, we are disappointed that we have missed this opportunity to improve education for disadvantaged children while resolving litigation ... Microsoft went the extra mile to make this settlement work. We sought input from educators to fully address issues regarding the independence of the education foundation that was a key part of the proposed settlement. We also made modifications to the original agreement to ensure that schools would have the option to use the software and platform of their choice. Microsoft is always open to looking for reasonable ways to resolve litigation. We will review the courts opinion and at the same time move forward with the next steps in the litigation".
In contrast, Ed Black, a Microsoft critic, and P/CEO of the Computer & Communications Industry Association (CCIA), stated in a release that "By attempting to buy their way out of legal trouble with the ‘donation’ of Microsoft products and hardware to schools, they sought only to leverage a market that had been the one of the few Microsoft has struggled to dominate: education."
Greenspan Addresses Effects of Technology and Terrorism on Economy
1/11. Federal Reserve Board Chairman Alan Greenspan gave a speech at the Bay Area Council Conference in San Francisco, California, titled "The Economy". He stated that "immediately prior to September 11, there were tentative signs that some sectors of the U.S. economy had begun to stabilize ..." However, "That hope was decisively dashed by the tragic events of early September. Adding to the intense forces weighing on asset prices and economic activity before September 11 were new sources of uncertainty and risk that began to press down on global demand for goods and services."
Greenspan elaborated that recent economic weakness has resulted in part from retrenchment in the technology sector. "We had already observed a coincident deceleration in activity among the world economies over the past year, owing apparently, at least in part, to the retrenchment in the high technology sector. The global nature of most technology industries and the global reach of the capital markets in which the firms in these industries are valued and funded appears to have fostered a greater synchronousness in world activity in this cycle, seemingly broader than has generally been the case."
Now, Greenspan sees signs of economic stability, which he attributes to the use of new information technologies. He explained that "indications of stabilization, similar in many respects to those observed in the period immediately preceding September 11, have been appearing with greater frequency. A possible significant contributor to this emergence of stability -- if that is what it is -- may be the very technologies that have fostered coincident global weakness: those that have substantially improved access of business decision makers to real time information."
He added that "Today, businesses have large quantities of data available virtually in real time. As a consequence, they address and resolve economic imbalances more rapidly than in the past."
Greenspan also stated that "the evidence strongly suggests that new technologies will present ample opportunities to earn enhanced rates of return. Indeed, anecdotal reports from businesses around the country suggest that the exploitation of available networking and other information technologies was only partially completed when the cyclical retrenchment of the past year began. Many business managers are still of the view, according to a recent survey of purchasing managers, that less than half of currently available new, and presumably profitable, supply chain technologies have been put into use."
However, he also cautioned that "While these opportunities remain abundant, they will now play out against the backdrop of a major uncertainty that we all must deal with these days -- the specter of further terrorist incidents on American soil."
Appeals Court Affirms FCC Broadband PCS Spectrum Auction Order
1/11. The U.S. Court of Appeals (DCCir) issued its opinion in High Plains Wireless v. FCC, affirming an order of the Federal Communications Commission (FCC) regarding the auction of broadband PCS licenses. The Appeals Court addressed several issues, including the FCC's rule against collusion in auctions, standing to challenge FCC auction orders, and the effect of ex parte communications by Members of Congress.
Background. The FCC allocated 120 MHz of spectrum for broadband personal communications services (PCS). It divided the spectrum into blocks: three of 30 MHz each (known as the A, B, and C blocks) and three of 10 MHz each (D, E, and F). It also divided spectrum geographically. Licenses for the C, D, E, and F blocks were established for each of 493 Basic Trading Areas (BTAs). For example, the FCC established BTAs for both Lubbock and Amarillo, Texas. The FCC then auctioned licenses for use of this spectrum, with open (auction participants became aware of each others' bids as they were cast), simultaneous (all 493 BTAs were open for bidding at the same time), and ascending auctions. The FCC also has an anti collusion rule.
High Plains and Mercury (now known as Tritel Communications) both sought broadband PCS licenses in west Texas. Both bid in the FCC F block license auctions for Lubbock, and in the D and F block auctions for Amarillo. High Plains was the successful bidder for the F block license in Amarillo. Mercury was the successful bidder for the F block license in Lubbock.
Reflexive Bidding and the Anti Collusion Rule. Mercury used a bidding tactic known as reflexive bidding, in which it sought to deter others from bidding in certain markets. It communicated this by including the BTA numbers for specific markets in its dollar bids. The FCC's BTA number for Lubbock is 013; its BTA number for Amarillo is 264. Mercury placed bids in which the last three numbers of bids for a license in one market corresponded to the BTA for another market.
The Appeals Court wrote: "In one round of the auction, for example, Mercury bid $1,375,013 on the F block license in Lubbock, "013" being the BTA for Amarillo; after High Plains bid again for the F block license in Lubbock, Mercury bid $1,615,264 on the F block license in Amarillo, "264" being the BTA for Lubbock. ... By repeatedly thus encoding its bids, Mercury was able to warn High Plains that if High Plains did not stop bidding, then Mercury would drive up the price of the F block license in Amarillo. ... The message was not lost on High Plains, which stopped bidding for the F block license in Lubbock."
High Plains filed an emergency motion to disqualify Mercury from the auction on the grounds that it violated the FCC's anti collusion rule. The FCC did not rule on this motion. High Plains later filed a motion to deny the award of licenses to Mercury. The FCC granted licenses to Mercury.
The Court of Appeals wrote that the question of "whether reflexive bidding violated the rule against collusion appears to have been an unsettled -- indeed, an unasked -- question before the DEF auction. In this circumstance it was not unreasonable for the Commission to have deemed the rule ambiguous with respect to whether reflexive bidding was prohibited."
Ex Parte Communications by Members of Congress. At least 27 Members of Congress inquired of the FCC about Mercury's licenses and the delay in their award. The Appeals Court wrote that the FCC's ex parte communications rule is violated if communications are both "directed to the merits or outcome of a proceeding" and "not served on the parties." It wrote that since none of the communications in this matter met both criteria, there was no violation of the rule.
Standing. The Appeals Court also addressed whether or not it had standing to hear this matter. The Appeals Court held that High Plains had standing to challenge the award of the F block license in Lubbock, because it had bid on that. However, High Plains lacked standing to challenge the award of licenses other than the F block license in Lubbock, on which it had not bid.
Judge Douglas Ginsburg wrote the opinion of the Court affirming the FCC. Judges Edwards and Sentelle joined.
Third Circuit Affirms in In Re Ikon Securities Litigation
1/11. The U.S. Court of Appeals (3rdCir) issued its opinion in In Re Ikon Office Solutions Securities Litigation, a case involving scienter is class action securities litigation.
This is a class action suit against Ernst & Young, the accounting firm for Ikon, alleging violation of § 10(b) of the Securities Exchange Act, and Rule 10b-5 thereunder. Plaintiffs allege that Ernst & Young issued an unqualified audit report approving Ikon's financial statements for FY 1997 knowing that they overstated pre-tax income or, even if Ernst & Young did not have actual knowledge of the overstatement, it recklessly performed its audit.
The U.S. District Court (EDPa) granted summary judgment to Ernst & Young on the grounds that plaintiffs failed to raise a genuine issue of material fact with respect to two elements of a prima facie 10(b) claim: scienter (that Ernst harbored an intent to deceive or acted with reckless disregard for the truth and accuracy of Ikon's financial disclosures) and causation (that the inflated value of Ikon's stock price dropped when the market reevaluated the security after a corrective disclosure). The Appeals Court affirmed on the issue of scienter. It did not address the issue of causation.
Federal Circuit Rules on Priority in Patent Interferences
1/11. The U.S. Court of Appeals (FedCir) issued its opinion in Brown v. Barbacid, an appeal from a priority decision in a patent interference proceeding. A divided Appeals Court reversed.
This is a case involving an interference between U.S. Patent No. 5,185,248, of which Mariano Barbacid is an inventor, and Squib is the assignee, and U.S. patent application Serial No. 07/937,893, of which Michael Brown is an applicant. Both the Barbacid patent and the Brown application claim an assay for identifying new anti cancer compounds that inhibit farnesyl transferase (FT), an enzyme involved in the control of cell growth. The USPTO Board of Patent Appeals and Interferences awarded priority to Barbacid. The Appeals Court reversed. Judge Rader wrote the opinion of the Court. Judge Newman dissented.
Federal Circuit Rules in HRT v. Astechnologies
1/11. The U.S. Court of Appeals (FedCir) issued its opinion in HR Technologies v. Astechnologies, a patent infringement action involving a process for preparing glass fiber containing polymer sheet. H.R. Technologies (HRT) filed a complaint in U.S. District Court (EDMich) against Astechnologies alleging infringement of its U.S. Patent No. 5,665,185. Astechnologies counterclaimed alleging noninfringement, unfair competition in violation of the Lanham Act, and various state claims. The District Court dismissed without prejudice. Astechnologies appealed. It sought dismissal with prejudice. The Appeals Court affirmed the dismissal without prejudice. However, it reversed the dismissal of Astechnologies' counterclaims. Hence, the judgment of the District Court was affirmed in part, vacated in part, and remanded.
FCC Applies Ban on Unsolicited Faxes to Foreign Faxer
1/11. The Federal Communications Commission (FCC) released a Forefeiture Order imposing a $1,107,500 fine against 21st Century Fax for faxing unsolicited advertisements to consumers in violation of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227, and FCC rules, 47 C.F.R. § 64.1200(a)(3). See, FCC release.
Section 227(b) provides that "... It shall be unlawful for any person within the United States ... to use any telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine ..." 21st Century Fax argued that the statute did not apply to it because its faxes originated in the United Kingdom. The FCC wrote that "the term ``person´´ in Section 227(b)(1) includes the individual who actually performs the faxing as well as the corporate entity on whose behalf he or she is acting." The FCC noted that 21st Century Fax maintains offices, employees and agents in the U.S., and hence, is "within the United States" within the meaning of the statute.
21st Century Fax also argued that the TCPA violates the First Amendment. The FCC rejected this argument, noting that the U.S. Court of Appeals (9thCir) has ruled to the contrary. See, Destination Ventures v. FCC, 46 F.3d 54 (1995).
GAO Reports on Software Acquisition Problems at DLA
1/11. The General Accounting Office (GAO) released a report [49 pages in PDF] titled "Information Technology: Inconsistent Software Acquisition Processes at the Defense Logistics Agency Increase Project Risks".
The GAO wrote that the Defense Logistics Agency (DLA) "relies on software intensive systems to support this work. An important determinant of the quality of software intensive systems, and thus DLA's mission performance, is the quality of the processes used to acquire these systems."
The GAO concluded that the "DLA does not have mature software acquisition processes across the agency, Moreover, DLA does not have a software process improvement program in place to effectively strengthen its corporate software acquisition processes." The GAO report recommends "establishing a framework for long-term institution software process improvement."
The report was prepared for Sen. Carl Levin (D-MI) and Sen. John Warner (R-VA), the Chairman and ranking Republican on the Senate Armed Services Committee, and Rep. Bob Stump (R-AZ) and Rep. Ike Skelton (D-MO), the Chairman and ranking Democrat on the House Armed Services Committee.
Qualcomm Asserts UWB Prevents GPS Enabled PCS Phones from Reporting Location
1/11. Qualcomm submitted a statement [25 pages in PDF] to the Federal Communications Commission (FCC) in which it argued that its tests show that ultra wideband (UWB) devices interfere with the Global Positioning System (GPS) devices in GPS enabled PCS phones, thus preventing them from complying with E-911 requirements.
Qualcomm wrote that its tests show "that close proximity of UWB devices to GPS enabled wireless phones will prevent the location of wireless callers to 911 from being determined in compliance with the Commission's E-911 mandate. The presence of UWB emissions within the GPS spectrum significantly raises the noise floor of the GPS sensor to the extent that it will render the GPS device useless in reporting position information to Public Safety Answering Points (PSAPs), and hence it will not be possible to meet the safety of life system requirements embodied in the Commission's E-911 rules in the face of UWB emissions."
UWB devices, which use very narrow pulses with very wide bandwidths, have potential applications in both radar and communications technologies. This is ET Docket No. 98-253.
Commerce Committee Investigates Andersen's Destruction of Enron Records
1/11. Rep. Billy Tauzin (R-LA) and Rep. James Greenwood (R-PA) wrote a letter to Andersen CEO Joseph Berardino regarding "thousands of other responsive documents [that] were knowingly destroyed by Andersen employees working on the Enron engagement".
Rep. Tauzin is Chairman of the House Energy and Commerce Committee. Rep. Greenwood is Chairman of the Commerce Committee's Subcommittee on Oversight and Investigations.
The letter requests information about Andersen employees who have worked on the Enron audit engagement, information about Andersen's destruction of paper and electronic records, and copies of reconstructed or retrieved documents.
People and Appointments
1/11. President Bush announced his intent to appoint three more Members of the President's National Security Telecommunications Advisory Committee (NSTAC): Thomas Casey (Global Crossing), Christopher Galvin (Ch/CEO of Motorola), and Edward Whitacre (Ch/CEO of SBC Communications). See, current list of NSTAC Members. See also, White House release.
1/11. Mark Schneider rejoined the Washington DC office of the law firm of Sidley & Austin. Until January 11, he was Associate General Counsel for the Federal Communications Commission (FCC), focusing on spectrum issues. Before that, he was Senior Legal Advisor to former FCC Commissioner Susan Ness, focusing on wireless and international telecommunications issues. And before that, he was a partner at Sidley & Austin, where he focused on representing clients before the FCC. See, FCC release.
1/11. President Bush announced his intent to nominate Donald Prophete to be General Counsel of the Equal Employment Opportunity Commission. He has been Senior Attorney and Director of the Law Department for Labor and Employment for Sprint since 1997. See, White House release.
1/11. Jon Dudas was named Deputy Director of the U.S. Patent and Trademark Office (USPTO). Dudas was previously Senior Floor Director for the Speaker of the House, Rep. Dennis Hastert (R-IL). Prior to that, he served as the Deputy General Counsel and Staff Director for the House Judiciary Committee, and Counsel to the Courts and Intellectual Property Subcommittee. USPTO Director James Rogan was previously a member of these committees.
More News
1/11. The National Telecommunications and Information Administration (NTIA) published in its web site copies [PDF and MS word] of the "NTIA Manual of Regulations & Procedures for Federal Radio Frequency Management (January 2000 Edition with January/ May/ September 2001 Revisions)".
1/11. The Drug Enforcement Administration (DEA) published a notice in the Federal Register of its intent to conduct performance verification testing of public key infrastructure (PKI) enabled controlled substance orders. See, Federal Register, January 11, 2002, Vol. 67, No. 8, at Pages 1507 - 1508.
1/11. The Food and Drug Administration (FDA) published a notice in the Federal Register announcing the availability of the guidance titled "General Principles of Software Validation." This document provides guidance to medical device manufacturers and FDA staff concerning requirements for validating software used in medical devices, in device production, or in implementing the manufacturer's quality system. See, Federal Register, January 11, 2002, Vol. 67, No. 8, at Pages 1482 - 1488.
1/11. The U.S. Customs Service announced that Space System/ Loral has agreed to pay a $20 Million fine for allegedly passing licensable technology to China to improve its missile guidance systems. See, release.

Go to News Briefs from January 6-10, 2002.