News from January 16-20, 2002

DC Circuit Rules in CALEA Cost Recovery Case
1/18. The U.S. Court of Appeals (DCCir) issued its opinion in USTA v. FBI, a case regarding the cost recovery and notice of required capacity provisions of the CALEA. The Appeals Court affirmed the District Court's grant of summary judgment on the USTA's cost recovery claim, but reversed and remanded on the notice claim.
CALEA. Congress passed the Communications Assistance for Law Enforcement Act (CALEA), 47 U.S.C. § 1001 et seq., in 1994 to enable law enforcement authorities to maintain their existing wiretap capabilities in new telecommunications devices. The Congress had cell phones in mind. The CALEA provides that wireline, cellular, and broadband PCS carriers must make their equipment capable of certain surveillance functions. The CALEA has since been implemented in a manner that expands surveillance capabilities beyond those provided in the statute, thereby increasing the financial burden on communications carriers, and hence, their customers.
CALEA: § 1002. This section of the CALEA addresses the required capability of carriers to conduct electronic surveillance. It is not at issue in the case. However, it is the subject of a proceeding before the Federal Communications Commission (FCC). See, August 15, 2000, opinion of the U.S. Court of Appeals (DCCir) in USTA v. FCC, 227 F.3d 450. See also, the FCC's CALEA information page.
CALEA: § 1003. This section, which is the subject of this case, addresses the required capacity of telecommunications carriers to conduct electronic surveillance. That is, it goes to the "actual number of communication interceptions, pen registers, and trap and trace devices ..." and the "maximum capacity required to accommodate all of the communication interceptions, pen registers, and trap and trace devices ..." It requires the Attorney General (in this case his designate is the FBI) to publish a notice in the Federal Register of the actual number and maximum capacity that he estimates that government agencies authorized to conduct electronic surveillance may conduct and use simultaneously.
CALEA: § 1008. This section covers allocation of costs associated with compliance with the CALEA. It provides, among other things, that the Attorney General "may agree, subject to the availability of appropriations, to pay the telecommunications carrier for the additional reasonable costs of making compliance with such assistance capability requirements reasonably achievable".
FBI Rules. The FBI published its final notice [94 pages in PDF] implementing § 1003 on March 12, 1998. See, Federal Register, March 12, 1998, Vol. 63, No. 48, at Pages 12218 - 112310.
District Court. The U.S. Telecom Association (USTA), a trade association of about 1400 telephone companies, filed its original complaint in U.S. District Court (DC) on August 19, 1998, against the FBI and others alleging that this final notice violated the cost recovery provisions of the CALEA by erroneously defining the class of modifications for which carriers might be eligible for reimbursement. The USTA also alleged that the FBI's concept of the notices of required capacity misread the statute in a variety of ways, each increasing the carriers' burdens and their risks of being found noncompliant. The District Court consolidated this case with a similar case filed by the Cellular Telecommunications Industry Association (CTIA). The District Court granted summary judgment in favor of the FBI on all issues.
Appeals Court. A three judge panel of the DC Circuit affirmed the District Court on the reimbursement scheme, finding that the FBI correctly defined the modifications required to be reimbursed. However, the Court of Appeals reversed on the notice of required capacity issue, and instructed the District Court to remand the case.
Note Regarding Pen Registers and Trap and Trace Devices. These are both old telephone industry concepts. Pen registers are devices that record telephone numbers that are dialed or punched. Trap and trace devices record the telephone numbers of incoming calls. It is also noteworthy that on October 26, 2001, President Bush signed HR 3162, the USA PATRIOT Act. It expanded law enforcement agencies' authority with respect to the use of pen registers and trap and trace devices. Prior law covered "wire" communications. The USA PATRIOT Act provides that the concept of a pen register is expanded from merely capturing phone numbers, to capturing routing and addressing information in any electronic communications, including Internet communications. The Act similarly expands the concept of trap and trace devices.
Note Regarding Privacy. The claims plead in the complaint, and ruled upon by the District and Appeals Courts, in this case, pertain to cost recovery and notices of required capacity. However, the statute implicates fundamental notions of individual privacy. Hence, in addition to industry groups (such as the USTA and CTIA), groups that advocate privacy rights (such as the Center for Democracy and Technology (CDT), the Electronic Privacy Information Center (EPIC), and others), have also opposed the FBI's and FCC's implementation of the CALEA.
1/18. The U.S. Court of Appeals (DCCir) issued its opinion in Pharmachemie v. Barr Laboratories, a Hatch Waxman Amendments case involving tamoxifen, a breast cancer drug. The District Court granted summary judgment to Pharmachemie. Subsequently, Pharmachemie lost its court challenge to the underlying patent. Hence, the Appeals Court dismissed the appeal for lack of jurisdiction, vacated the judgment of the District Court, and remanded the case with instructions to dismiss the complaint.
Appeals Courts Rule in Trademark Case
1/18. The U.S. Court of Appeals (5thCir) issued its opinion in Waco International v. KHK Scaffolding, a case involving ex parte seizure orders in trademark infringement cases. The Appeals Court affirmed the District Court.
PR China, WTO Obligations, and Export Controls
1/18. Representatives of the State and Commerce Departments gave their assessments of the People's Republic of China's likely compliance with its World Trade Organization (WTO) obligations at a U.S.-China Commission event. A Defense Department representative also addressed export controls.
Shaun Donnelly, Acting Assistant Secretary of State for the Bureau of Economic and Business Affairs, predicted that "There will likely be bumps in the road to implementation for the Chinese Government. Government officials may have difficulty meeting deadlines for certain measures. Local officials initially may not be able to fully grasp the depth of changes needed. There may be pockets of resistance within China to full implementation of painful changes in areas like agricultural liberalization or intellectual property protection." See, transcript.
William Lash, Assistant Secretary of Commerce for Market Access and Compliance, testified that "I personally believe that the leadership of China is earnest in its commitments to play by the rules of the WTO system, even with the enormous structural challenges that WTO membership entails domestically." See, transcript.
Lash also addressed what the U.S. is doing to assist China in its reform efforts. He stated that "We have already initiated a series of training programs for Chinese officials on WTO related issues of concern to U.S. business. Our first team traveled to Beijing and Shanghai in the fall of 2000 to review China's future WTO obligations in areas like standards, intellectual property rights and anti dumping requirements with Chinese officials and the resident U.S. business community. In early 2001, a half dozen sessions were held in Washington for Chinese officials, on topics ranging from e-commerce regulation to corporate mergers and acquisitions, to WTO anti-dumping rules. Subsequently, China Team officers traveled to China with the American National Standards Institute for seminars in Beijing and Xian, organized Intellectual Property Rights Enforcement Training sessions in Shenyang, Hangzhou, and Xiamen, and conducted information technology and semiconductor seminars in Beijing."
Lisa Bronson, Deputy Under Secretary of Defense for Technology Security Policy and Counterproliferation, focused on export controls. She stated that PR China has a "poor record" on proliferation. See, transcript.
She elaborated that "China's modernization program appears to be focusing on ``pockets of excellence,´´ where advances in select technologies can be leveraged for disproportionate benefit in a potential conflict. Several such ``pockets´´ include: preemptive long range precision strike capabilities; information dominance; command and control; and integrated air defense. In support of these efforts, Beijing has identified the development of an indigenous microelectronics industry as one of its highest priorities. A cutting edge domestic microelectronics sector will support both military and commercial modernization in China. China's increasing emphasis on development of very large scale integrated circuits will have direct application in future military systems, for example, advanced phased array radars."
"China is both a problematic proliferator and the largest potential future market for the U.S.", said Bronson. "The challenge of China is striking the balance between the desire to successfully compete in a vast untapped commercial market and the need to protect national security, including through effective nonproliferation. Our policies and practices must strive to minimize transfers of technologies that could contribute to potentially threatening modernization efforts. Our focus is already on the areas Beijing has identified as its ``pockets of excellence,´´ but we need to continually be vigilant in the licensing process for new areas where our high technology might be exploited to our detriment."
However, she added that "If a commodity is widely available, and not amenable to multilateral controls, then export controls may not be the best tool for addressing a national security or proliferation concern."
FCC Tentatively Fines SBC $6 Million
1/18. The Federal Communications Commission (FCC) released a Notice of Apparent Liability (NAL) proposing that SBC be fined $6 Million for non-compliance with a competition related condition imposed by the FCC in approving license transfers in connection with the 1999 merger of SBC and Ameritech. The NAL states that "it appears that SBC failed to offer shared transport in the former Ameritech states under terms and conditions substantially similar to those that it offered in Texas as of August 27, 1999, in violation of the SBC/Ameritech Merger Order." See also, FCC release.
SBC disputes the FCC's NAL. It stated in a release that "SBC has met our obligations under the SBC/Ameritech Merger Conditions to provide competitors with shared access to our networks in the Ameritech region and elsewhere. That's one reason why CLECs are serving 12 million access lines in our territory."
Eli Lilly Settles with FTC over Inadvertent E-Mail
1/18. The Federal Trade Commission (FTC) initiated an administrative proceeding against Eli Lilly alleging violation of the Federal Trade Commission Act (FTCA) in connection with Eli Lilly's accidental disclosure of of personal information of subscribers to an e-mail remainder service. See, administrative complaint [PDF]. The FTC and Eli Lilly simultaneously entered into a proposed settlement agreement under which Eli Lilly agrees to "establish and maintain an information security program for the protection of personally identifiable information". See, Agreement Containing Consent Order [PDF].
Eli Lilly is a pharmaceutical company. It offered an e-mail reminder service regarding use of the drug Prozac. On one occasion it sent an e-mail reminder to 669 subscribers to the service using the "To:" method of addressing the e-mail, rather than the "BCC:" method. The ACLU submitted a letter complaint to the FTC.
Eli Lilly had published a privacy policy that stated, among other things, that "Our Web sites have security measures in place, including the use of industry standard secure socket layer encryption (SSL), to protect the confidentiality of any of Your Information that you volunteer".
The complaint alleges that Eli Lilly "has not employed measures and has not taken steps appropriate under the circumstances to maintain and protect the privacy and confidentiality of personal information obtained from or about consumers through its and Web sites." The complaint further alleges that this constituted unfair or deceptive acts or practices in or affecting commerce in violation of Section 5(a) of the FTCA.
FTC Commissioner Orson Swindle wrote a concurring statement. He stated that "Lilly's unfortunate and unintended disclosure of prescription drug users' personal information has given us all the opportunity to evaluate how to improve upon security practices for confidential information."
Eli Lilly did not admit wrongdoing. The consent order contains no fine. Eli Lilly is represented by Karen Silverman of the law firm of Latham & Watkins. There is a thirty day period for public comments on the proposed consent order, before it is given final approval. See also, FTC release and FTC analysis.
PPI Advocates Greater Use of IT to Fight Terrorism
1/18. The Progressive Policy Institute (PPI) released two papers that call on government to increase the use of information technology to prevent terrorist attacks and to facilitate coordination between local, state, and national law enforcement authorities. The two papers are Using Technology to Detect and Prevent Terrrorism [PDF], by Shane Ham and Robert Atkinson, and The State and Local Role in Domestic Defense [PDF], by John Cohen and John Hurson.
Ham and Atkinson argue in their paper that "The information technology revolution that transformed our economy has also given us the tools, infrastructure, and commercial capabilities to make domestic defense easier, less expensive, and more effective, making all Americans safer."
The Ham Atkinson paper continues that "Technology has revolutionized the economy with dramatic productivity improvements and an array of new communications and information processing tools. We must bring that same revolution to domestic defense, to gain maximum security and public confidence with minimum investment. The IT revolution has given us many tools -- wireless data networks, encryption, powerful miniature computer chips, the global Internet, data mining software, and many more -- that weren’t available for domestic security just a few years ago. Now that we have these tools, it is time to roll them out to make our nation safer."
Data Sharing. The paper recommends the use of "improved data sharing, combining criminal records and intelligence information from a variety of federal, state, and local agencies that can be accessed wirelessly to identify wanted criminals and suspected terrorists when they encounter law enforcement or attempt to enter secure facilities."
Digital Surveillance. The paper also calls for increased use of "digital surveillance, extending longstanding principles of law enforcement and surveillance to the Internet by permitting surveillance of email and other electronic data while preserving traditional safeguards on searches by government agents".
The paper continues that "The recent antiterrorism legislation signed by President Bush extended many of those surveillance techniques to their Internet counterparts, but unfortunately there is still a good deal of unjustified concern about the new technologies developed for law enforcement over the Internet."
Carnivore. The paper advocates the use of two recently developed tools, DCS 1000, which is also known as Carnivore, and Magic Lantern. It describes DCS 1000 as a "device ... installed, by court order, at Internet service providers to search email traffic. (Contrary to popular belief, the system does not search through the email of every customer looking for suspicious content.) By looking only for certain specific recipients or keywords in email sent by suspects, DCS 1000 saves time for agents by letting them focus their efforts on the e-mails that are most relevant, even though they would be entitled by court order to read all of the email that DCS 1000 searches." (Parentheses in original.)
Magic Lantern. The paper states that "Magic Lantern and other ``key logging´´ programs allow agents with search warrants to record every keystroke on a targeted computer. Reading the keystrokes can give agents passwords, which are critical when criminals are using strong encryption for their data and communications."
The Ham Atkinson paper concludes that "Without tools such as these, the old system of wiretapping is rendered all but useless -- criminals will simply use Internet chats and encrypted e-mails rather than telephones."
Shane Ham and the other authors spoke at an event for the release of the two papers. He stated that "the fight over the USA PATRIOT Act is not over yet. We are going to be arguing about that for a long time." Robert Atkinson stated that "I think that the civil libertarian community is actively organizing opposition to virtually any sort of expansion or modernization of our law enforcement and intelligence system through technology. And, the way they are doing it is by preying upon fears, by using overblown rhetoric, like ``smart cards will turn America into a Nazi, show us your papers, police state´´. ... Privacy is not an absolute standard. We trade it off every single day when we have to show our drivers license at the airport ... So, I think we can address -- we can deploy all of these technologies without really really damaging or hurting privacy."
The Ham Atkinson paper also recommends the use of smart ID cards "with biometric identifiers, adding chips containing thumbprint scans or other biometric data to driver’s licenses, as well as standardized security features for preventing forgery and fraud". The paper also recommends the use of smart visas and face recognition technologies.
Legislative Recommendations. The paper then calls upon Congress to assist in funding the deployment of these new technologies. The report also states that "Congress should mandate that any standardization efforts by the state motor vehicle agencies include upgrading all ID cards to smart cards. In addition, Congress should provide matching grants to state agencies to deploy hardware that can read smart cards, and should fund pilot programs for states that seek to integrate multiple functions into the smart cards, such as voter registration.  The paper also recommends that Congress pass S 1749, the Enhanced Border Security and Visa Entry Reform Act of 2001, a smart visa bill. It also recommends that Congress boost funding to deploy technology hardware to border agents.
Atkinson also called for a Chief Information Officer for Homeland Defense, to see that new technologies are deployed quickly and efficiently.
Finally, Atkinson argued that there would be economic benefits to use of these technologies. For example, he stated: "Those of you who followed the digital signatures act a few years ago in Congress -- it was passed with great whoopla -- that now all Americans would now be able to sign documents on line digitally. It hasn't happened. It won't happen. It won't happen until most Americans have a way to authenticate themselves on line through some sort of PKI system. If we were to give every American a smart card, a chip card, biometric, on their driver's license, overnight we would jump start this market place."
Cohen and Hurson argue in their paper, The State and Local Role in Domestic Defense [PDF], that "we must redefine our concept of national security. We can no longer afford to think of national security as the sole province of the military, or even the federal government’s intelligence, law enforcement, and border control agencies. Keeping America safe from terrorists and responding when they elude our defenses is also the urgent task of state and local law enforcement and response agencies."
They also argue that "our approach to domestic defense must be national and seamless. To this end, we must improve information sharing with our front line law enforcement officers ..."
The PPI is a Washington DC based think tank affiliated with the Democratic Leadership Council, which is also known as the New Democrats. Robert Atkinson is VP of the PPI and Director of the PPI's Technology & New Economy Project. Shane Ham is a Senior Policy Analyst at PPI's Technology & New Economy Project. John Cohen is the Director of the PPI's Community Crime Fighting Project.
Computer Crime
1/18. Michael Logan plead guilty in U.S. District Court (NDCal) to unauthorized access to a protected computer causing damage in violation of 18 U.S.C. § 1030(a)(5)(C). Logan stated in his written Plea Agreement [PDF] that he "intentionally accessed a computer of Catholic Healthcare West (CHW) without authorization. I thereafter sent electronic mail (e-mail) to approximately 30,000 employees and associates of CHW which purported to be from a named employee of CHW and which contained insulting statements about that named employee and other CHW employees." Sentencing is scheduled for April 26, 2002. See also, September 25, 2001, Indictment, and January 18, 2002, release.
People and Appointments
1/18. David Dorman resigned from the Board of Directors of the 3Com Corporation, effective immediately. He is President of AT&T Corporation. See, 3Com release.
Commissioner O'Leary Addresses FTC Merger Policy
1/17. Federal Trade Commission (FTC) Commissioner Thomas O'Leary gave a speech in Paris, France, titled "The Essential Stability of Merger Policy in the United States". He reviewed the history of merger policy in the U.S. He argues that the popular conception about merger policy swinging like a pendulum is incorrect. He argues that the Reagan revolution in merger policy had been in the making since the late 1960s, and that there was no 1990s counter reaction. Rather, he paints a picture of continuity and stability in policy over the last 20 years.
O'Leary also reflected on the FTC's recent review of the merger of AOL and Time Warner. He stated that "Had it gone to trial, a case like AOL/Time Warner could also have raised some interesting vertical issues relating to the potential for strategic behavior, as well as issues of non-price competition. The AOL/Time Warner transaction was a vertical combination at three distinct levels: (i) media entertainment of various kinds, in which one wing of Time Warner had arguably the broadest portfolio in the world; (ii) internet service, in which AOL was the dominant ``narrowband´´ provider with the arguable potential to become the dominant ``broadband´´ company; and (iii) cable services, for which another wing of Time Warner was the dominant -- and often exclusive -- provider in approximately 20% of the country."
O'Leary continued that "Consistent with Chicago school learning, the Commission focused on the possible horizontal competitive effects of each of these three levels as a result of the vertical combination. However, we considered not only the possible impact of total foreclosure, but also the impact of strategies short of foreclosure suggested by post Chicago theories. In this connection, we considered whether traditional ``market share´´ statistics could adequately capture the potential for strategic deployment of Time Warner's entertainment portfolio."
He concluded that "The interesting thing to me, as a participant in the decision, was the sophistication of the economic arguments advanced in support of, and in opposition to, the merger. This was not a dispute between adherents of ``pre Chicago,´´ ``Chicago´´ and ``Post Chicago´´ theories; it was a dispute between people who largely shared the same economic philosophy but had very different opinions about what was likely to happen in fast moving industries with little history to draw on for guidance."
O'Leary was appointed to the FTC in 1999 by former President Clinton. He was previously a partner in the Washington DC office of the law firm of Hogan & Hartson, focusing on antitrust and trade practices law.
Representatives Seek Stricter Enforcement of Telecom Act
1/17. Six Members of the House of Representatives wrote a letter [PDF] to Federal Communications Commission (FCC) Chairman Michael Powell requesting better enforcement of the provisions of the Telecom Act of 1996 regarding nondiscriminatory provisioning of unbundled network elements and special access services.
The six wrote that "We are concerned that the ILECs have not take all of their obligations under the Telecommunications Act of 1996 seriously. It appears that American consumers are suffering as a result. Congress enacted the 1996 Act in order to bring innovative voice and data services to all Americans from a multitude of service providers at reasonable prices. Without better enforcement of the Act, we may soon regress to the days of monopoly telecommunications."
The letter pertains to two pending Notice of Proposed Rulemakings (NPRMs), numbered CC Docket No. 01-318 and CC Docket No. 01-321. The six signatories are Rep. Steve Largent (R-OK), Rep. Bart Stupak (D-MI), Rep. Chris Cannon (R-UT), Rep. Karen McCarthy (D-MO), Rep. Anna Eshoo (D-CA), and Rep. Joe Pitts (R-PA).
AOL TW Reports on Status of IM Interoperability
1/17. AOL Time Warner submitted to the Federal Communications Commission (FCC) its second progress report [PDF] on the interoperability of instant messaging (IM) systems. These reports are required by the FCC's January 22, 2001, order approving the merger of AOL and Time Warner.
AOL Time Warner wrote that "it has continued to make progress in this area. ... AOL has completed development and testing of an initial prototype gateway server designed to translate basic text based IMs and presence information between the internal protocol used by AOL Instant Messenger ("AIM") and one that is based on the protocol that the Internet Engineering Task Force's ("IETF") SIP for Instant Messaging and Presence Leverage ("SIMPLE") Working Group is designing. Then, AOL conducted a server to server interoperability trial with Lotus Development Corporation ("Lotus")."
AOLTW also stated that this trial was conducted under "tightly controlled circumstances". The gateway server "was not designed to be scalable in order to handle large amounts of traffic, nor was it designed to address security threats such as distributed denial of service attacks, data hijacking, identity spoofing, namespace discovery, and spam." It concluded, "There remains, however, much work to be done."
First Circuit Rules in Music Copyright Case
1/17. The U.S. Court of Appeals (1stCir) issued its opinion in Ortiz Gonzalez v. Fonovisa, a pair of cases involving music copyright infringement. The Appeals Court affirmed the District Court. It held that a distributor can be liable for copyright infringement where the plaintiff has not established that the producer was guilty of copyright infringement.
Appeals Courts Rule in Generic Drug Cases
1/17. The U.S. Court of Appeals (FedCir) issued its opinion in Biovail v. Andrx, an Abbreviated New Drug Application (ANDA) case. The District Court shortened the statutory 30 month delay of approval of Andrx's pending ANDA and ordered that the ANDA be approved by the FDA. The Appeals Court vacated the judgment and remanded.
FTC and DOJ Postpone Antitrust Reorganization Announcement
1/17. Charles James, Assistant Attorney General in charge of the Antitrust Division, and Timothy Muris, Chairman of the Federal Trade Commission (FTC), had scheduled a press conference for January 17 to "unveil an agreement between the two agencies concerning clearance procedures for antitrust investigations". See, notice. However, the event was cancelled.
FCC Announces Reorganization
1/17. The Federal Communications Commission (FCC) announced the adoption of an order containing a reorganization plan. The FCC issued a short release, but not the order.
The FCC release states that a new "Media Bureau will be responsible for the policy and licensing programs for media services, including cable television, broadcast television and radio. It will handle matters pertaining to multichannel video programming distribution, broadcast radio and television, direct broadcast satellite service policy, and associated matters." It will be "comprised of staff and functions from the current Mass Media Bureau and Cable Services Bureau ..."
The FCC stated that a new "Wireline Competition Bureau will be responsible for the policy programs of communications common carriers and ancillary operations (other than wireless telecommunications services). It will conduct rulemakings, resolve waiver petitions and adjudications, determine the lawfulness of carrier tariffs, act on applications for authorizations, administer accounting requirements for incumbent local exchange carriers, review carrier performance, and administer reporting requirements." It will be "comprised of staff and functions from the current Common Carrier Bureau ..."
The FCC release states that the "International Bureau will be realigned along functional lines, with consolidation of the international policy and spectrum rulemaking functions, and intergovernmental and regional leadership and planning functions, which are currently distributed throughout the Bureau."
The FCC release also states that the "Enforcement Bureau will handle pole attachment complaints and some multichannel video and cable television services complaints currently handled in the Cable Services Bureau. It will also handle common carrier audit functions."
SEC Chairman Addresses Regulation of Accounting
1/17. Securities and Exchange Commission (SEC) Chairman Harvey Pitt released a statement titled "Regulation of the Accounting Profession". He wrote that "Over the last decade or so, this Country's vaunted system of disclosure, financial reporting, corporate governance and accounting practices has shown serious signs of failing to keep up with the needs of today's investors, our economy, and new technology that makes rapid communications not only possible but essential. The latest example – a most tragic and unprecedented one – is the failure of Enron." He stated that the SEC would "erect a system that will restore public confidence in the integrity of the accounting profession."
State Dept. Official Addresses Export Controls and China
1/17. Vann Van Diepen, the Acting Deputy Assistant Secretary of State for Nonproliferation Controls, testified before the U.S. China Commission regarding export controls and the PR of China. He stated that "China is a focus of our export control policy because it is a growing regional military power and because Chinese entities have been involved in proliferation related activities. The Administration applies strong export controls on both dual-use items and munitions with the goal of not contributing to nuclear, missile, CBW and other military programs of concern in China or elsewhere."
He added that "Our policy also allows us to treat flexibly areas where the technology is widely available as commodity items or physically impractical to control, such as low-level computers or encryption, thus helping U.S. companies to compete in China on a level playing field. The Administration continually reviews export control policies for China and other countries in an effort to take into account the realities of the market and technology." See, transcript.
FCC Reviews Policies and Procedures
1/17. The Federal Communications Commission (FCC) held a meeting at which it reviewed FCC policies and procedures.
NIPC Cautions Internet Content Providers
1/17. The FBI's National Infrastructure Protection Center (NIPC) issued an advisory in which it cautioned Internet content providers against publishing in web sites "details on critical infrastructures, emergency response plans and other data of potential use to persons with criminal intent".
The advisory elaborates that "Search engines and similar technologies have made arcane and seemingly isolated information quickly and easily retrievable to anyone with access to the Internet. The National Infrastructure Protection Center (NIPC) has received reporting that infrastructure related information, available on the Internet, is being accessed from sites around the world."
People and Appointments
1/17. Edmond Thomas will be appointed Chief of the FCC's Office of Engineering and Technology (OET). He has previously held jobs at Bell Atlantic/NYNEX, AT&T, and a subsidiary of Philips Electronics. See, FCC release.
1/17. Allan Singer was promoted to SVP of Programming of AT&T Broadband and President of Satellite Services, Inc., a subsidiary that manages the acquisition of video programming services. See, AT&T release.
1/17. Frances Preston, P/CEO of BMI, renewed her contract through 2004. See, BMI release.
1/17. The Securities Industry Association (SIA) announced changes to its Board of Directors. Stephen Lessing, who is currently a board member, will replace Stanley O'Neal as Vice Chairman. Three new members of the board are David Denison, James Gorman and Seth Waugh. Lessing is Managing Director of Lehman Brothers Holding. Denison is President of the Institutional Brokerage Group at Fidelity Investments. Gorman is EVP of the U.S. Private Client Group at Merrill Lynch. Seth Waugh is CEO of Corporate and Investment Banking - Americas at Deutsche Bank Securities. See, SIA release.
More News
1/17. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Brown v. MCI WorldCom, a case regarding the filed rate doctrine. William Brown filed a class action complaint in the U.S. District Court (CDCal) against MCI WorldCom alleging overcharging for phone services. The District Court dismissed his complaint, holding that his suit was barred by the filed rate doctrine. (That is, no one may bring a judicial challenge to the validity of a filed tariff, or to enforce any rate other than the rate established by the filed tariff.) The Appeals Court reversed, on the grounds that Brown's complaint only seeks to enforce an existing tariff approved by the FCC.
1/17. Verizon filed a Section 271 application with the Federal Communications Commission (FCC) to provide in region interLATA services in the state of Vermont. See, Verizon release. Verizon has already won approval to provide long distance services in other states, including New York, Massachusetts, Connecticut, and Pennsylvania. It also has applications pending for Rhode Island and New Jersey.
1/17. The FBI's National Infrastructure Protection Center (NIPC) published in its web site the January issue [PDF] of Cyber Notes.
1/17. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in USA v. Guagliardo, an appeal from a conviction and sentencing in a pormography case. The noteworthy aspect of this case is the Appeals Court's reasoning that copying files onto a computer disk manufactured abroad satisfies the interstate or foreign commerce element of the offense. Thomas Guagliardo sold an Iomega disk to an undercover law enforcement officer. He had copied onto that disk images that constitute child pormography. Guagliardo argued that this evidence did not meet the statutory requirement that it "was produced using materials that have been mailed, or shipped or transported in interstate or foreign commerce by any means, including by computer." The prosecution argued that since he copied the images onto an Iomega disk that was manufactured in another country, the statute's interstate or foreign commerce requirement was satisfied. Both the District Court and the Appeals Court agreed with the prosecution.
Supreme Court Holds FCC Can Set Rates for Pole Attachments for Broadband Internet and Wireless
1/16. The Supreme Court issued its opinion [PDF] in NCTA v. Gulf Power, the pole attachments case. It reversed the decision of the U.S. Court of Appeals (11thCir). The Supreme Court held that the Federal Communications Commission (FCC) can set rates that cable companies pay for access to the utility poles of phone companies for lines that provide both cable TV and high speed Internet access. The opinion also covers rates paid by wireless telecommunications companies.
Introduction. Justice Anthony Kennedy wrote the opinion of the Court. He began with the observation that "Since the inception of cable television, cable companies have sought the means to run a wire into the home of each subscriber. They have found it convenient, and often essential, to lease space for their cables on telephone and electric utility poles. Utilities, in turn, have found it convenient to charge monopoly rents." The Pole Attachments Act prevented the charging of monopoly rents by instructing the FCC to set rates for pole attachments by cable TV companies and telecommunications providers. This case addresses the question of whether the FCC continues to have authority to set rates when the lines used by the cable companies provide both new broadband Internet access services and old fashioned one way programming.
Section 224. Congress has addressed the question of pole attachments in several bills, which are now codified at 47 U.S.C. § 224. § 224(b)(1) provides, in part, that the FCC "shall regulate the rates, terms, and conditions for pole attachments to provide that such rates, terms, and conditions are just and reasonable, and shall adopt procedures necessary and appropriate to hear and resolve complaints concerning such rates, terms, and conditions." Sec. 224(a)(4), in turn, defines the term ''pole attachment'' as "any attachment by a cable television system or provider of telecommunications service to a pole, duct, conduit, or right-of-way owned or controlled by a utility."
Proceedings Below. The FCC asserted in an order that Section 224 applies to traditional cable TV service, as well as to commingled TV and Internet service. However, pole owning utilities petitioned the U.S. Courts of Appeal for review of this FCC order. The 11th Circuit sided with the phone companies. Cable companies then petitioned the U.S. Supreme Court for writ of certiorari. The Supreme Court agreed to hear this case.
Broadband Internet Service. Justice Kennedy wrote (in Part II of the opinion) that "No one disputes that a cable attached by a cable television company, which provides only cable television service, is an attachment ``by a cable television system.´´ If one day its cable provides high-speed Internet access, in addition to cable television service, the cable does not cease, at that instant, to be an attachment ``by a cable television system.´´ The addition of a service does not change the character of the attaching entity -- the entity the attachment is ``by.´´ And this is what matters under the statute. This is our own, best reading of the statute, which we find unambiguous."
Justice Kennedy added that "Even if a cable company is a common carrier because it provides telephone service, of course, the attachment might still fall under the second half of the ``pole attachments´´ definition: ``any attachment . . . by a provider of telecommunications service.´´ "
Justice Kennedy also noted that the FCC's order did not determine whether broadband Internet access services over cable are a "cable service" within the meaning of Title 47. However, Kennedy continued that it was not necessary to resolve this question to reach a decision in the present case.
Wireless Telecommunications Services. Justice Kennedy wrote (in Part III of the opinion) that "A provider of wireless telecommunications service is a ``provider of telecommunications service,´´ so its attachment is a ``pole attachment.´´ "
Dissent. Justice Clarence Thomas wrote a separate opinion, in which Justice Souter joined. Thomas concurred with the analysis in Part III of the opinion, regarding wireless service. However, he wrote that "The Court's conclusion in Part II of its opinion that the Act gives the FCC the authority to regulate rates for attachments providing commingled cable television service and high-speed Internet access may be correct as well. Nevertheless, because the FCC failed to engage in reasoned decisionmaking before asserting jurisdiction over attachments transmitting these commingled services, I cannot agree with the Court that the judgment below should be reversed and the FCC's decision on this point allowed to stand. Instead, I would vacate the Court of Appeals' judgment and remand the cases to the FCC with instructions that the Commission clearly explain the specific statutory basis on which it is regulating rates for attachments that provide commingled cable television service and high-speed Internet access. Such a determination would require the Commission to decide at long last whether high-speed Internet access provided through cable wires constitutes cable service or telecommunications service or falls into neither category."
FCC Chairman Michael Powell stated in a release that "I am pleased by the Supreme Court's decision upholding the FCC's authority to set rates for attachments to telephone and electric poles. It is important that the Court rejected an interpretation of the Communications Act that could have raised the rates that consumers pay for high-speed Internet access services and derailed the broadband revolution."
FRB Vice Chair Addresses Affect of Tech on Economy
1/16. Federal Reserve Board Vice Chairman Roger Ferguson gave a speech in Denver, Colorado, to the Economic Club of Colorado titled "Developments in the U.S. Economy: Review and Outlook".
He stated that "Booming investment in the 1990s owed importantly to steep declines in prices of high-tech equipment, which largely reflected rapid technical progress. About half a percentage point of the increase in productivity growth in the 1995-99 period can be attributed to this so-called capital deepening. I believe that technological progress will continue to drive down information technology costs in the coming years. Moreover, businesses have reaffirmed their intentions to improve productivity by substituting cost-saving high-tech capital for labor."
Verizon CEO Advocates ILEC Deregulation
1/16. Verizon President and Co-CEO Ivan Seidenberg gave a speech to the U.S. Chamber of Commerce in Washington DC in which he argued for less regulation of services provided by Verizon.
He stated that "Unlike those of Microsoft or AOL Time Warner or AT&T Comcast, our regulated assets are subject to a long list of price regulations, sharing obligations, and separate subsidiary requirements that put us on an unequal footing in the marketplace and remove the incentives for investing in new technologies."
He continued that "Traditional policies have shifted value, growth and innovation away from the incumbent telephone companies to less-constrained segments of the industry. And, since they are based largely on resale and the forced sharing of telephone company assets, they do little to promote the robust competition among multiple technologies and service providers that would benefit American consumers and businesses."
He concluded that "It's time to take down the ``do not enter´´ signs at the entrance to the broadband future. ... Now it's time for the FCC, along with the Congress, to take action to open the gates to broadband investment and let us put our resources to work where they can do the most good for America."
Seidenberg also advocated passage of legislation giving the President trade promotion authority. He also advocated legislation that would provide incentives and tax breaks for businesses that reinvest in lower Manhattan.
People and Appointments
1/16. Paul Otellini was named President and Chief Operating Officer of Intel. See, Intel release.
1/16. Lawrence Ricciardi, IBM's general counsel, will retire in July, 2002.
1/16. Evelyn Sroufe rejoined the law firm of Perkins Coie as a partner in the firm's Corporate Finance Group in the Seattle office. She was previously President and CEO of The WebSea Group, Inc., a Seattle based consulting firm to technology companies. Before that, she worked for Visio, and for Microsoft after it acquired Visio. See, PC release.
More News
1/16. The Department of Justice published in its web site a redacted copy of its brief filed with the U.S. Court of Appeals (10thCir) in USA v. American Airlines, an antitrust case involving Section 2 of the Sherman Act, (15 U.S.C. § 2). At issue is whether American violated Section 2 of the Sherman Act by adding money losing capacity to drive lower cost competitors out of four of American's Dallas Fort Worth Airport.
1/16. The Federal Communications Commission (FCC) extended the deadline, from February 1 to March 8, for submitting comments in response to its Further Notice of Proposed Rulemaking regarding the current state of the market for local and advanced telecommunications services in multi tenant environments. See, FCC notice of extension of deadline [PDF]. This is WT Docket No. 99-217.
1/16. The FBI's National Information Protection Center (NIPC) released a report titled "Best Practices for Wireless Fidelity (802.11b) Network Vulnerabilities". It warns that "Computer security experts have successfully intercepted and broken the security built into the IEEE 802.11b Wireless Local Area Network (WLAN) standard. The software tools used to exploit the vulnerability are simple to use and available on the Internet as freeware." It refers 802.11b users to a set of best practices recommended by the Wireless Ethernet Compatibility Alliance (WECA).
1/16. The USPTO published in its web site the January issue of USPTO Today [PDF].
1/16. Sen. Ted Kennedy (R-MA) gave a speech [PDF] in Washington DC in which he advocated delaying tax cuts enacted by the Congress last year. Sen. Charles Grassley (R-IA), the ranking Republican on the Senate Finance Committee, responded in a release that "If the Democrats succeed in raising taxes, they'll cost even more Americans their jobs. I believe the American people will oppose Senator Kennedy's bad idea, and it won't gain traction in the Senate."
1/16. The European Commission stated that it "has cleared the acquisition by KPNQwest NV of the European operations of Global TeleSystems Inc. (GTS), a US-based telecommunications operator. The Commission's review has shown that the markets concerned, which range from data communications services to Internet connectivity and access, would remain sufficiently competitive." See, release.

Go to News Briefs from January 11-15, 2002.