News from April 11-15, 2002

Sen. Hollings and the FTC
4/15. Federal Trade Commission (FTC) Chairman Timothy Muris issued a statement regarding recent statements made by Sen. Ernest Hollings (D-SC). Muris stated that "A press report indicates that Senator Ernest F. Hollings of the Senate Appropriations Committee is considering suspending funding for the salaries of all of the Commissioners and the senior staff of the Federal Trade Commission. Although this step would not affect the salaries of the vast majority of employees at the FTC, it essentially would eliminate the Commission's ability to enforce the laws under its jurisdiction. ... I am surprised that Senator Hollings, being such a strong advocate of consumer protection, would consider a measure that would virtually eliminate the FTC's ability to protect consumers."
Sen. Hollings is Chairman of both the Senate Commerce Committee, which oversees that FTC, and the Senate Appropriations Committee's Subcommittee on Commerce, Justice, State and the Judiciary, which funds the FTC. He objects to the Memorandum of Agreement between the FTC and the Department of Justice's Antitrust Division which provides for the allocation of all antitrust matters in specific industries to one agency or the other, based largely on each agency's predominant expertise.
In particular, Sen. Hollings objects to the allocation of the media and entertainment industries, including cable services, satellite services, television and radio broadcasting, publishing, newspapers, magazines, movies, movie theaters and upstream video distribution, to the DOJ. The Sen. Hollings' Commerce Committee does not oversee the DOJ.
Supreme Court Grants Certiorari in Trademark Case
4/15. The Supreme Court of the U.S. granted a petition for writ of certiorari in Moseley v. Victoria's Secret, a trademark case. At issue is whether the plaintiff in a lawsuit for violation of the Federal Trademark Dilution Act (FTDA) must show actual economic loss. See, Order List [PDF] at page 2.
Victoria's Secret filed a complaint in U.S. District Court (WDKent) against Victor Moseley alleging trademark infringement and violation of the FTDA, 15 U.S.C. § 1125(c), in connection with his use of the name "Victor's Little Secret" for a lingerie and adult toy business. The District Court granted summary judgment to Moseley on the federal trademark infringement claims, finding that Victoria's Secret had not provided sufficient evidence to establish a likelihood of confusion between the two marks. The District Court also found that the Victor's Little Secret mark both blurred and tarnished the Victoria's Secret mark under the FTDA and enjoined Moseley from making further use of the Victor's Little Secret mark.
Moseley appealed the District Court's FTDA ruling. The U.S. Court of Appeals (6thCir) issued its opinion on July 30, 2001, affirming the District Court. It held that economic harm may be inferred.
The Supreme Court's review will resolve the differences between various circuits on this issue. See, for example, Nabisco v. PF Brands, 191 F.3d 208 (2d Cir. 1999) and Ringling Bros. Barnum & Bailey v. Utah, 170 F.3d 449 (4th Cir. 1999).
Supreme Court Denies Certiorari in CALLS Case
4/15. The Supreme Court of the U.S. denied a petition for writ of certiorari in NASUCA v. FCC. This case pertains to the Federal Communications Commission's (FCC's) Coalition for Affordable Local and Long Distance Service (CALLS) Order. See, Order List [PDF] at page 2.
The CALLS Order provides for an interstate access charge and universal service regime. It was adopted by the FCC on May 31, 2000. See, text version (without footnotes) and MS Word version. On September 10, 2001, the the U.S. Court of Appeals (5thCir) issued its opinion in Texas Office of Public Utility Counsel v. FCC affirming in part, and reversing in part, the FCC CALLS Order.
NASUCA is the National Association of State Utility Consumer Advocates, an organization of 42 offices of utility ratepayer advocates in 40 states and the District of Columbia.
Copyright Lawyer Barbie
4/15. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Christian v. Mattel, a case regarding Rule 11 sanctions and the bringing of frivolous copyright infringement suits.
District Court. Plaintiff filed a complaint in U.S. District Court (CDCal) against Mattel alleging copyright infringement by its Barbie doll. The District Court found the claim to be frivolous and ordered plaintiff, pursuant to Federal Rule of Civil Procedure 11, to pay Mattel $501,565 in attorneys' fees.
The Rule. FRCP 11 provides, in part, that "By presenting to the court (whether by signing, filing, submitting, or later advocating) a pleading, written motion, or other paper, an attorney or unrepresented party is certifying to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances ... (2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; (3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery".
Appeals Court. The Appeals Court vacated and remanded. It ruled that the District Court's Rule 11 finding that the complaint was frivolous was not an abuse of discretion. It further stated that the Plaintiff's conduct was "egregious". However, it vacated and remanded for further proceedings because the record was not clear regarding whether the order was also based upon conduct outside of the pleadings, such as in oral argument, at a meeting of counsel, and at a deposition. The Court held that Rule 11 sanctions may only be based upon pleadings.
Obiter Dictum. Barbie fans may be interested that Judge Margaret McKeown also wrote that while Barbie is "so perfect in her sculpture and presentation, and so comfortable in every setting", she "could not have imagined herself in the middle of Rule 11 proceedings."
Trade Promotion Authority News
4/15. President Bush gave a speech in Cedar Rapids, Iowa, on behalf of Rep. Greg Ganske (R-IA), who is running for the Senate. President Bush stated that "the President needs what's called trade promotion authority. I need the ability to negotiate trade agreements all around the world. There are some in Washington, D.C. who want to build walls and protection around America. But a confident nation is one that tears those walls down."
Donald Evans, the Secretary of Commerce, and several Republican Senators are scheduled to hold a press conference in the Capitol Building on Tuesday morning, April 16, to pressure Senate Majority Leader Tom Daschle to schedule a vote on trade promotion authority legislation.
Rep. Boehlert Addresses Cyber Security Funding
4/15. Rep. Sherwood Boehlert (R-NY), Chairman of the House Science Committee, gave a speech at the Rochester Institute of Technology, in Rochester, New York. He addressed, among other things, federal funding for cyber security research and education.
"Congress will also have to see that the research needed to wage the war on terrorism -- and indeed all research, which in some ways is the same thing -- receives adequate funding," said Rep. Boehlert. "I've made a particular point of focusing on the research needed to improve cyber security -- which can be easy to overlook because, so far, the nation has been spared a spectacular attack on our computer and computer networks. But we are vulnerable to such an attack -- actually increasingly vulnerable as more and more of the systems on which we depend on for basic necessities -- water, electricity, fuel -- rely on computer networks."
He continued that "despite our dependence on these systems, neither the federal government nor the private sector has devoted much money or attention to cyber security research. The result is that cyber security is a small field, largely lacking in fresh ideas and fresh recruits."
Rep. Boehlert then discussed HR 3394, a bill sponsored by Rep. Boehlert and others titled the "Cyber Security Research and Development Act". The House passed this bill on February 7, 2002 by a vote of 400-12.
Rep. Boehlert stated that this bill would "pump almost $900 million into this field over the next five years. Under the bill, the National Science Foundation and the National Institute of Standards and Technology would create new cyber security programs to fund university industry research centers; undergraduate and masters curricula; doctoral and post doctoral fellowships; and grants for senior researchers in related fields. All of this should help foster new ideas and attract a cadre of researchers to the field."
Sen. Dorgan Opposes Trade Promotion Authority
4/15. Sen. Byron Dorgan (D-ND) spoke in the Senate in opposition to legislation that would grant the President Trade Promotion Authority (TPA), which is also known as fast track authority.
He stated that "Senator Daschle, the majority leader, has now promised that before the Memorial Day recess, the Senate will be considering the administration's request for trade promotion authority; that is a euphemism for fast track. Fast track authority allows an administration to negotiate a trade agreement somewhere and bring it back to the Congress, and Congress is told: ``You are not able to change a decimal point, a period, or a punctuation mark. You must vote up or down on an expedited basis on that agreement. No changes, no amendments. No opportunity to make any alterations at all.´´ That is called fast track."
Sen. Dorgan said that "it is a fundamentally undemocratic proposition." He elaborated that  "the Constitution says -- article I, section 8 -- the Congress shall have the power to regulate commerce with foreign nations. That is the Congress that said that. The Constitution says that the Congress has that power, not the President."
He also quipped that "Will Rogers said ... that the United States of America has never lost a war and never won a conference. He surely must have been talking about our trade negotiators." See, Cong. Rec., April 15, 2002, at S2639-2640.
Sen. Charles Grassley (R-IA), responded. He stated that "We had the pleasure of bringing up a bill that had the support by a vote of 18 to 3 of the Senate Finance Committee. That was about 4 months ago and we still don't have any commitment from the leadership to bring this critical, bipartisan trade legislation to the floor by a date certain, so we can plan on that date and be ready for one of the most important issues to come before Congress this year and eventually vote on it."
He continued that "We have had several offers: that this bill would come up sometime this spring; one time it was in March; another time, it was soon after the Easter recess; now it is maybe sometime before Memorial Day. There is a great deal of uncertainty. During this period of uncertainty, we lose opportunities for the United States to be a leader in global trade negotiation."
DOJ Recommends Approval of Verizon NJ Long Distance Application
4/15. The Department of Justice's Antitrust Division submitted its evaluation [PDF] to the Federal Communications Commission (FCC) recommending approval of Verizon's Section 271 application to provide in region interLATA services in the state of New Jersey.
However, the evaluation also states that "several questions remain for the Commission to resolve. Although Verizon's reduction of hot cut NRCs appears to respond to the concern expressed in the Department’s Evaluation of its first New Jersey application, it is unclear whether this reduction will remain in effect for a sufficient period of time. Moreover, issues have been raised regarding nondiscriminatory access to Verizon's OSS in New Jersey. The Department therefore recommends that the Commission approve Verizon's second application for Section 271 authority in New Jersey subject to the Commission’s satisfying itself as to the pricing and OSS issues discussed above." (Footnote omitted.)
Charles James, Assistant Attorney General in charge of the Antitrust Division, had this to say: "Verizon appears to have generally succeeded in opening its local markets in New Jersey to competition ... Competitors have made progress in penetrating the business market in New Jersey, and the Department believes there are no material obstacles to residential competition in the state. Questions however, remain about parts of Verizon's OSS that may merit continuing attention by the FCC." See, DOJ release.
The evaluation was prepared by Nancy Goodman, Chief of the Telecommunications and Media Enforcement Section. This is WC Docket No. 02-67.
FCC Fines SBC for Refusal to Provide Sworn Statement Re DSL Technology
4/15. The Federal Communications Commission (FCC) issued a Forefeiture Order in which it found that SBC Communications violated an FCC Enforcement Bureau (EB) order requiring SBC to provide sworn verification of the truth and accuracy of answers to a letter of inquiry (LOI) that the EB issued. The Order fines SBC $100,000.
The Order states that the EB sent "SBC an LOI directing SBC to provide answers to several questions regarding possible discrimination by SBC in its provisioning and maintenance of digital subscriber line (``DSL´´) technology and possible misrepresentations by SBC to the Bureau. The Bureau further directed SBC to verify the veracity of its answers by providing a sworn statement attesting to the truth and accuracy of the responses."
The Order continues that SBC provided answers, but without the requisite sworn statement. Further, SBC "disclosed to Bureau staff that it had intentionally refused to provide the sworn statement and that it did not intend to comply with that aspect of the Bureau's order when requested".
The order was adopted by the FCC by a 4-0 vote. It was released on April 15. It is numbered FCC 02-112. See also, FCC release.
SEC Sues Offshore Internet Gambling Casino for Fraud
4/15. The Securities and Exchange Commission (SEC) filed a complaint in U.S. District Court (SDFl) against The Gaming Factory and others alleging fraud in violation of federal securities laws.
The complaint states that the defendants are The Gaming Factory, Inc., a Florida corporation, The Gaming Factory, Inc., a Panamanian corporation, and two individuals. The complaint states that defendants have used a web site, and telephone solicitations, to offer and sell securities in a purported offshore Internet gambling casino.
The complaint states that the securities are unregistered, in violation of Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c), and that defendants have made numerous false and misleading statements in connection with the offer and sale of securities, in violation of Section 17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a)(1), Section 17(a)(2) and (3) of the Securities Act, 15 U.S.C. §§ 77(q)(a)(2) and 77(q)(a)(3), Section 10b of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.
This is D.C. No. Case No. 02-80331-CIV. It has been assigned to Judge Middlebrooks. See also, SEC release.
Intel and Intergraph Settle One Lawsuit
4/15. Intel and Intergraph announced that they have settled a lawsuit pending in the U.S. District Court (NDAlabama). Intel stated in a release that "Under terms of the settlement, the companies have signed a cross license agreement; Intergraph will transfer ownership of certain unrelated patents to Intel and Intel will pay Intergraph $300 million." Another lawsuit pending in the U.S. District Court (EDTex) will proceed. See also, Intergraph release.
DOJ Files Amicus Curiae Memorandum in Microsoft Case
4/15. The Department of Justice's Antitrust Division filed a pleading in the Microsoft antitrust case titled "Memorandum Amicus Curiae of the United States Regarding Microsoft Corporation's Motion for Dismissal of the Non-Settling States' Demand for Equitable Relief".
Microsoft filed a motion to dismiss the non-settling States' demand for equitable relief on February 26, 2002. It argued in its memorandum in support that "the non-settling States are limited to seeking redress for state- specific injuries caused by Microsoft's conduct. They cannot displace the United States in its role of establishing national competition policy."
The DOJ pleading states that "Microsoft's motion raises a number of important questions concerning the limits of the non-settling States' legal standing as parens patriae. The movement of some States into the field of antitrust enforcement with respect to national or international markets, and their demands for relief that will affect competition and consumers outside of their borders, raise issues that have not been fully developed in the jurisprudence."
However, it adds that "the United States finds no definitive case law that would require granting the relief Microsoft seeks as a matter of law. Rather ... we believe that the law requires the Court to take cognizance of many of the issues Microsoft raises in the exercise of the Court's equitable discretion."
People and Appointments
4/15. Former Justice of the Supreme Court of the U.S. Byron White died.
4/15. The Senate approved the nomination of Terrence O'Brien to be a judge of the U.S. Court of Appeals (10thCir).
More News
4/15. The General Accounting Office (GAO) released a letter [PDF] to Rep. Dick Armey (R-TX) regarding federal funding for selected surveillance technologies.
4/15. The Copyright Office (CO) published a notice in the Federal Register stating that it will hold "a public roundtable discussion concerning issues raised in the course of an ongoing rulemaking proceeding to adopt requirements for giving copyright owners reasonable notice of the use of their works for sound recordings under the section 114 and 112 statutory licenses and for how records of such use shall be kept and made available to copyright owners." Requests to attend or participate must be submitted by close of business on Monday, May 6, 2002. See, Federal Register, April 15, 2002, Vol. 67, No. 72, at Pages 18148 - 18149.
4/15. The Supreme Court's Order List [PDF] of April 15, at page 22, contains the following item: "D-2295 IN THE MATTER OF DISCIPLINE OF MALCOLM BRUCE WITTENBERG Malcolm Bruce Wittenberg, of Oakland, California, is suspended from the practice of law in this Court, and a rule will issue, returnable within 40 days, requiring him to show cause why he should not be disbarred from the practice of law in this Court." On September 4, 2001, Wittenberg plead guilty in U.S. District Court (NDCal) to one count of insider trading, in violation of 15 U.S.C. §§ 78j and 78ff. The Plea Agreement [PDF] states that Wittenberg learned of a pending merger of Sun Microsystems and Forte Software in the course of his representation of Forte, and then traded in Forte stock. The plea agreement also states that Wittenberg at all relevant times was a partner in the law firm of Crosby Heafey Roach & May.
4/15. The Federal Election Commission (FEC) released a list of witnesses for its April 17 hearing on proposed voluntary standards for computerized voting systems.
4/15. The Bureau of Export Administration (BXA) published a notice in the Federal Register that its Information Systems Technical Advisory Committee (ISTAC) will hold a two day meeting on April 24 and 25. The ISTAC advises the Office of the Assistant Secretary for Export Administration on technical questions that affect the level of export controls applicable to information systems equipment and technology. The meeting will be open to the public in part, and closed to the public in part. The open agenda includes a presentation on web based remote hardware management, a presentation on microelectro- mechanical (MEMS) technology and applications, and a presentation on battery and fuel cell technology. See, Federal Register, April 15, 2002, Vol. 67, No. 72, at Page 18165.
Trade Promotion Authority News
4/12. Sen. Orrin Hatch (R-UT) spoke in the Senate regarding trade promotion authority (TPA). He said that "It is my hope that the majority leader will give us a date certain when the Senate will have the opportunity to act on this important legislation. I hope that we pass TPA before Memorial Day."
TPA, which is also known as fast track, would give the President authority to negotiate trade agreements which can only be voted up or down, but not amended, by the Congress. TPA would strengthen the bargaining position of the President, and the U.S. Trade Representative (USTR), in trade negotiations with other nations. It would benefit U.S. industries, including technology industries, that export their products.
The House passed its TPA bill, HR 3005, the Bipartisan Trade Promotion Authority Act of 2001, by a roll call vote of 215 to 214, on December 6, 2001. The Senate Finance Committee passed its version of the bill later in December. Senate Majority Leader Tom Daschle has yet to schedule the bill for consideration by the full Senate.
Sen. Hatch extolled the virtues of free trade at length. He also commented on amendments to the bill. He stated that "I recognize that the reality is that the Senate will in all likelihood also act favorably on Trade Adjustment Assistance legislation -- TAA -- or the TPA bill will stall. So be it. I am for both TPA and TAA in any order, tied or untied. But let me be clear, I am not for a loaded up TAA bill with health care provisions." See, Cong. Rec., April 12, 2002, at S2627-8.
TAA is provided for in Chapter 12 of the Trade Act of 1974, 19 U.S.C. § 2101, et seq. See also, the Department of Labor's Employment and Training Administration's summary of TAA.
Also on April 12, Rep. Anna Eshoo (D-CA) and other 25 other House Democrats wrote a letter to President Bush regarding TPA and TAA.
They wrote that "While we strongly support trade, we understand that there are inevitable shifts in our economy that can result in displaced workers who need assistance and retraining to re-enter the job market. When TAA was established in 1962 the federal government committed itself to assisting workers dislocated by international trade." They continued that "As cosponsors of H.R. 3670, we urge you to embrace fundamental changes to TAA. Our bill would broaden TAA eligibility to include coverage for secondary workers."
Twenty-one of the Members who signed the letter voted against HR 3005, the House TPA bill: Rep. Anna Eshoo (D-CA), Rep. Adam Smith (D-WA), Rep. Zoe Lofgren (D-CA), Rep. Sam Farr (D-CA), Rep. Peter Visclosky (D-IN), Rep. George Miller (D-CA), Rep. Harold Ford (D-TN), Rep. Jane Harman (D-CA), Rep. Karen Thurman (D-FL), Rep. Lucille Allard (D-CA), Rep. Robert Brady (D-PA), Rep. James Barcia (D-MI), Rep. Silvestre Reyes (D-TX), Mike Honda (D-CA), Rep. Corrinne Brown (D-FL), Rep. David Wu (D-OR), Rep. Ellen Tauscher (D-CA), Rep. Ron Kind (D-WI), Rep. David Price (D-NC), and Rep. Dale Kildee (D-MI).
Only five of the signers voted in favor of passage: Rep. Ken Bentsen (D-TX), Rep. Jim Davis (D-FL), Rep. James Moran (D-VA), Rep. Baron Hill (D-IN), and Rep. Cal Dooley (D-CA).
On April 10, Sen. Evan Bayh (D-IN), Sen. Richard Durbin (D-IL), and Sen. Mark Dayton (D-MN) introduced S 2088, an untitled bill to provide for industry wide certification for trade adjustment assistance. It was referred to the Senate Finance Committee.
NTIA Director Addressed 3G, Broadband, and ICANN Issues
4/12. National Telecommunications and Information Administration (NTIA) Director Nancy Victory gave a speech to the Federal Communications Bar Association (FCBA) in Washington DC. She reviewed the responsibilities of the NTIA, and listed the NTIA's priorities regarding spectrum management, broadband deployment, and the Internet Corporation for Assigned Names and Numbers (ICANN).
3G Wireless Services. Third generation (3G) wireless services are intended to bring broadband Internet access to portable devices. Victory stated that "With the FCC and DoD, NTIA is in the midst of conducting an assessment of the viability of making certain spectrum (1710-1770 and 2110-2170 MHz) available for 3G. We are looking into the extent to which the spectrum can be shared or cleared, the time frame for doing so and the cost. We hope to complete this assessment within the next two months. ...We will also continue to try to identify and urge the elimination of outdated and unnecessary regulations that limit the ability of existing licensees to maximize the use of their spectrum."
Broadband Deployment. Victory stated that "We in the Administration continue to be focused on how to remove obstacles to broadband deployment and how to ensure the development of sustained competition in the broadband marketplace. ... We have already identified rights of way regulation reform as an important issue and are working with industry, the states and localities to underscore best practices and eliminate worst ones."
ICANN. Finally, Victory addressed the ICANN. She said that "The creation of ICANN as a private sector entity to administer the global Internet has often been referred to as ``the great experiment.´´ ICANN has accomplished a great deal in its first few years of existence, yet all would agree that the road has been far from smooth. ICANN is now in the process of re-examining its mission and its structure. NTIA will participate in this process both through its contractual relationship with ICANN and through its membership in ICANN's Government Advisory Committee. NTIA's goal in doing so is to ensure that the Internet remains stable and secure, and that the mechanism for managing the Internet is sustainable over the long term."
EMC Sues Hitachi for Patent Infringement
4/12. EMC Corporation filed a complaint [PDF] in U.S. District Court (DMass) against Hitachi alleging patent infringement. EMC, a Massachusetts based provider of storage systems, software and services, alleges in its complaint that Hitachi infringed its U.S. Patent Nos. 6,101,497, 6,092,066, 5,544,347, 5,742,792, 5,909,692, and 6,108,748, which pertain to EMC's Symmetrix Remote Data Facility (SRDF) and TimeFinder software products, data migration, and the storage of mainframe data. EMC also filed a complaint [PDF] with the U.S. International Trade Commission. See also, EMC release.
People and Appointments
4/12. The Senate confirmed five U.S. Attorneys: Michael Shelby (Southern District of Texas), Jane Boyle (Northern District of Texas), Matthew Orwig (Eastern District of Texas), James Comey (Southern District of New York), and Thomas Marino (Middle District of Pennsylvania).
4/12. National Telecommunications and Information Administration (NTIA) Director Nancy Victory announced that Jack Zinman will join the NTIA as her Senior Advisor on May 1. He has worked at the Federal Communications Commission (FCC) since 1997, most recently in the Common Carrier Bureau on universal service issues, and before that, in the Wireless Telecommunications Bureau on spectrum issues. See, Victory speech.
4/12. AT&T announced the appointment of Donald Teague to lead its sales team providing communications and professional services to the civil branch of the federal government. See, AT&T release.
More News
4/12. Verizon announced that it notified the Maryland Public Service Commission (PSC) that it plans to file a Section 271 application with the Federal Communications Commission (FCC) to offer in region interLATA services in the state of Maryland. Verizon seeks the Maryland PSC's support for providing long distance services.
4/12. Computer Associates International (CAI) stated in a release that "it has been informed that previously disclosed inquiries by the United States Attorney's Office and Securities and Exchange Commission are preliminary, that no one has been identified as a target, and that no conclusions have been reached." CAI stated also that "it continues to believe that its accounting for revenues from multiyear software licensing agreements, which it had consistently applied since the early 1980s, was proper. Recognizing such revenue up front was not only required by GAAP but also consistent with the practice of most software companies even today."
SEC Sues Xerox for Financial Fraud
4/11. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (SDNY) against Xerox alleging that Xerox "defrauded investors" in violation of federal securities laws. The complaint states that "In a scheme directed and approved by its senior management, Xerox disguised its true operating performance by using undisclosed accounting maneuvers -- most of which were improper -- that accelerated the recognition of equipment revenue by over $3 billion and increased earnings by approximately $1.5 billion." The SEC also announced that it simultaneously entered into a settlement agreement with Xerox.
The complaint states that Xerox used "one-time actions," "one-offs," "accounting opportunities" and "accounting tricks". It states that "Xerox falsely portrayed itself as a business meeting its competitive challenges and increasing its earnings every quarter. Many of these accounting actions violated the established standards of generally accepted accounting principles (``GAAP´´). All of them should have been disclosed to investors in a timely fashion because, singly and collectively, they constituted a significant departure from Xerox's past accounting practices and misled investors about the quality of the earnings being reported."
Count 1 of the complaint alleges fraud in violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Count 2 alleges violation of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1, 13a-13, and 12b-20, regarding the filing with the SEC of annual and quarterly reports. Count 3 alleges violation of Section 13(b) of the Exchange Act and Exchange Act Rule 13b2-1, regarding the keeping of books, records, and accounts.
The complaint requests an injunction against further violation of federal securities laws, an order requiring Xerox to restate its financial results for the periods 1997 through 2000, and an order "requiring Xerox's Board of Directors to appoint a special committee comprised entirely of outside directors which, within 30 days after the entry of such order, shall retain a qualified consultant, not unacceptable to the Commission, to perform a complete review of Xerox's material internal accounting controls and policies. ..."
The SEC also announced that "Without admitting or denying the allegations of the complaint, Xerox consented to the entry of a Final Judgment that permanently enjoins the company from violating the antifraud, reporting and recordkeeping provisions of the federal securities laws ... . In addition, Xerox agreed to pay a $10 million civil penalty and to restate its financial results for the years 1997 through 2000.  Xerox also agreed to have its board of directors appoint a committee composed entirely of outside directors to review the company's material internal accounting controls and policies." See. SEC release.
Anne Mulcahy, Xerox Chairman and CEO, stated in a release that "The settlement with the Commission effectively resolves Xerox's outstanding issues with the SEC ... Xerox today is a stronger company with a new management team that has taken all the right steps to turn our business around. With the SEC matters now behind us, we are better positioned to continue fortifying our business through operational improvements and future growth opportunities -- creating enhanced value for our customers and shareholders."
FCC Issues Order on Remand in CALEA Proceeding
4/11. The Federal Communications Commission (FCC) released an Order on Remand [59 pages in PDF] in the proceeding titled "In the matter of Communications Assistance for Law Enforcement Act". This is CC Docket No. 97-213. The order was adopted on April 5, but not released until April 11.
The Congress passed the CALEA in 1994 to allow law enforcement authorities to maintain their wiretap capabilities in new telecom devices, by requiring carriers to make their wireline, cellular, and broadband PCS equipment capable of certain surveillance functions. In August 1999 the FCC issued an Order implementing and expanding the requirements placed on carriers. Several parties filed Petitions for Review. On August 15, 2000 the U.S. Court of Appeals (DC Cir.) released its opinion vacating parts of the FCC order, and remanding the matter to the FCC. See, USTA v. FCC, 227 F.3d 450.
House Committee Holds Hearing on USPTO Budget and Operations
4/11. The House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property held an oversight hearing titled "The U.S. Patent and Trademark Office: Operations and Fiscal Year 2003 Budget".
Members of the Subcommittee and witnesses from the American Intellectual Property Law Association (AIPLA), the Intellectual Property Owners Association (IPO), and an employees' union used the occasion to criticize the continuing diversion of USPTO user fees to fund other government programs.
Rep. Howard Coble (R-NC), the Chairman of the Committee, said in his opening statement that "it pains me that we must continue to address the ongoing diversion of agency funds to other government programs." He added that "I am a realist, and realistically speaking, I do not believe that the appropriators will cede their authority to control PTO funding in the near future."
Rep. Zoe Lofgren (D-CA) stated that this amounts to a tax on invention. She added that "taxing the engine for the economy is a crazy thing to do." Rep. Darrell Issa (R-CA) questioned whether "it would be inappropriate to tax a constitutional obligation of government."
Rep. John Conyers (D-MI), the ranking Democrat on the full Committee, did not attend the hearing, but submitted a statement for the record. He stated that "the PTO takes no money from taxpayers; instead, it is fully funded by user fees and generates approximately $1 billion per year in revenues from those fees. This success has been an Achilles’ heel – appropriators take advantage of the revenues and treat the PTO as a cash cow, diverting hundreds of millions of dollars of fees every year for other government programs. That diversion is making it exceedingly difficult for the PTO to hire or even retain qualified examiners."
The AIPLA's Michael Kirk stated in his prepared testimony that "To date, approximately $700,000,000 in patent and trademark fees paid by USPTO users have been diverted from, rescinded, or made unavailable to the USPTO. The result is that longer delays in obtaining protection for valuable new technologies and marketing efforts are increasing the uncertainty in the marketplace, and are diminishing the value of the rights ultimately obtained."
Rep. Howard Berman (D-CA), the ranking Democrat on the Subcommittee, introduced humor into the discussion. He questioned USPTO Director James Rogan about the diversion of fees. Rogan, a Republican, was a member of the Subcommittee until he lost his re-election bid in 2000. Rep. Berman, a Democrat, asked Rogan whether the diversion of fees violates the Republican Contract with America. Rogan responded: "Thank you for asking that question."
Rogan offered the following explanation of the administration's FY2003 budget proposal for the USPTO in his prepared testimony: "It would give the USPTO the largest increase in its funding history. The President’s budget request would allow us to spend $1.365 billion of the fee revenues we expect to generate, an increase of $237 million or 21.2% over the FY 2002 enacted level. Of the $1.527 billion in revenues we expect to collect next year, $1.265 billion will be available to us in FY 2003. In addition, we will have access to $100 million carried forward from FY 2002. In effect, the President’s budget provides the USPTO with the equivalent of 100 percent of our traditional fees, plus an additional $45 million. This additional funding will enable us to: (1) hire 950 patent examiners; (2) transform trademarks to a fully electronic operation by 2004; and (3) implement the President's management agenda, including e-government, outsourcing, and workforce restructuring. In order to fund the USPTO's and the President's priorities, the budget request includes a one-time surcharge on both patent and trademark fees that will generate an additional $207 million in FY 2003. A 19.3 percent surcharge will apply to all patent statutory fees, including the filing, issue, maintenance, extension, appeal and revival fees.  Discounted fee rates for independent inventors and small businesses will remain in effect. For trademarks, a 10.3 percent surcharge will apply to the initial filing and post registration fees."
The hearing also focused on reducing patent pendency, improving patent quality, attracting and retaining patent examiners, electronic filings, and the possibility of converting the USPTO into a government corporation. See also, prepared testimony of Colleen Kelley (National Treasury Employees Union) and John Williamson (IPO).
Ways and Means Committee Holds Hearing on Trade Relations with Russia
4/11. The House Ways and Means Committee's Subcommittee on Trade held a hearing on normal trade relations with Russia.
Peter Allgeier, a Deputy U.S. Trade Representative, stated in his prepared testimony that "A key part of Russia's broader economic reform program is achieving membership in the World Trade Organization (WTO). President Putin has made WTO membership and integration into the global trading system a top priority, seeing this as part of Russia's economic reform program that is aimed at achieving sustainable growth, promoting high tech industry, attracting international investment, and raising living standards for the Russian people."
Allgeier continued that, "Of course, intensifying our efforts to work with Russia on WTO accession does not mean that we will welcome Russia's entry into the WTO on any terms. We are negotiating with Russia to increase market access for U.S. exports -- in goods, services and agriculture -- and we will work with other WTO members and the Congress to ensure that the Russian Government implements the many rules of the WTO. Russia must follow through with its stated plans to make comprehensive changes to its legal and regulatory system in a number of areas ... protection of intellectual property. Some of these changes are already underway, but it is up to the Russian Government to pass new laws and ensure that the laws in place are fully enforced in a manner consistent with the international trading system."
He also stated that "In the services area, we are continuing to push hard for increased access in telecommunications, distribution and financial services."
Allgeier also addressed Jackson Vanik. He sated that "To close out the history books of the Cold War, the President has urged the Congress to finally end Jackson Vanik's application to Russia. The Jackson Vanik Amendment was drafted twenty-eight years ago to bring about free emigration. We believe that the Amendment has served this purpose in Russia -- Russia has been in full compliance with Jackson Vanik's emigration provisions since 1994. Continued application of Jackson Vanik, however, is an indication to Russia that they continue to be suspect and viewed as a Cold War adversary."
Alan Larson, Under Secretary of State for Economic, Business, and Agricultural Affairs, also testified in support of terminating the application of Jackson Vanik amendment of the 1974 Trade Act to Russia. See, prepared testimony.
Rep. Tom Lantos (D-CA) also testified in support of "graduating the Russia Federation from the provisions of the Jackson Vanik Amendment and granting it Permanent Normal Trade Relations (PNTR)." See, prepared testimony.
See also, prepared testimony of other witnesses: Thomas Pickering (U.S. Russia Business Council), Robert Liuzzi (Ad Hoc Committee of Domestic Nitrogen Producers), Wayne Wood (American Farm Bureau Federation), Harold Luks (NCSJ), and Richard Edlin (Greenberg Traurig).
Senate Judiciary Committee Holds Hearing on Judicial Nominees
4/11. The Senate Judiciary Committee held a hearing on several pending judicial nominees: Jeffrey Howard (to be a judge of the U.S. Court of Appeals for the First Circuit), Percy Anderson (U.S.D.C., Central District of California), John Walter (U.S.D.C., Central District of California), Michael Baylson (U.S.D.C., Eastern District of Pennsylvania), William Griesbach (U.S.D.C., District of Wisconsin), Joan Lancaster (U.S.D.C., District of Minnesota), and Cynthia Rufe (U.S.D.C., Eastern District of Pennsylvania).
These nominees received bipartisan praise from members of the Committee, and from Senators and Representatives who came to testify on their behalf.
Jeffrey Howard is a former U.S. Attorney for New Hampshire, former New Hampshire Attorney General, and failed gubernatorial candidate. Michael Baylson, who has been nominated for the Eastern District of Pennsylvania, is a partner in the law firm of Duane Morris. He represented GTE and Bell Atlantic in merger related proceedings before the Pennsylvania Public Utility Commission. The merged entity is now named Verizon.
John Walter, one of the two nominees for the Central District of California (Los Angeles), is a partner with the law firm of Walter Finestone & Richter. The other, Percy Anderson, is a partner with the law firm of Sonnenschein Nath & Rosenthal.
Sen. Orrin Hatch (R-UT), the ranking Republican on the Committee, also used the hearing to criticize delays by the Democratic majority in confirming President Bush's nominees. "The Committee's unwillingness to move more expeditiously on these nominations is exacerbating the circuit court vacancy crisis that exists in America today. Nearly one in five circuit court seats is vacant".
SEC Adopts Internet Related Rule Proposals
4/11. The Securities and Exchange Commission (SEC) adopted by votes of 3-0 two Internet related items regarding web site access to periodic SEC filings, and online investment advisors.
First, the SEC announced in a release that it "will issue for comment its proposals to accelerate the periodic report filing dates for domestic issuers and to require disclosure concerning Web site access to these reports." In particular, the SEC proposals would "require companies subject to the accelerated filing deadlines to disclose in their Form 10-K filings how investors can access company filings."
Companies would be required to disclose four items: "Whether it makes its periodic reports available free of charge on its Web site no later than the same day such material is electronically filed with or furnished to the Commission", "If the company does not make its filings available on its Web site, the reasons why", "Disclosure of the company's Web site address, if it has one", and "Other information regarding availability of the company's filings, including whether the company will provide electronic or paper copies of its filings free of charge upon request."
Second, the SEC "will issue its proposed rule amendments that would allow online investment advisers to register with the Commission, relieving them of the time and costs associated with state by state registration for public comment. The amendments would apply to Internet based advisers that provide substantially all of their investment advice through interactive Web sites where clients can enter their personal financial information and receive personalized investment advice based on a series of computer algorithms."
The SEC explained that since "online investment advisers typically do not manage client assets, they are currently ineligible for SEC registration, which requires that advisers manage at least $25 million. As a result, according to SEC staff cost benefit analysis, Internet based firms may need to spend $50,000 a year to register in every state and comply with varying state law requirements. In recommending the proposed amendments to the Commission, the Division noted that the demand for Internet based investment advice could grow in the next several years as employers respond to the increasing demand for independent advice from their pension plan participants.
Trade Promotion Authority
4/11. Deputy Treasury Secretary Kenneth Dam released a statement regarding trade promotion authority. He stated that "One week ago, President Bush made a major statement calling on the United States Senate to bring Trade Promotion Authority (TPA) to the Senate floor by April 22. ... We view Trade Promotion Authority -- the ability for the executive branch to negotiate the details of trade agreements and then submit them to Congress for approval in a simple up or down vote as an essential legislative component of our free trade strategy."
People and Appointments
4/11. The Senate Judiciary Committee voted 19-0 to confirm three judges: Terrence O'Brien (U.S. Court of Appeals for the Tenth Circuit), Lance Africk (U.S. District Court for the Eastern District of Louisiana), and Legrome Davis (U.S. District Court for the Eastern District of Pennsylvania). These nominees still require confirmation by the full Senate.
More News
4/11. The Senate Judiciary Committee held an executive business meeting on Thursday, April 11. The Committee had scheduled a vote on S 2031, Intellectual Property Protection Restoration Act of 2002, sponsored by Sen. Patrick Leahy (D-VT) and Sen. Sam Brownback (R-KS). However, at the request of Sen. Orrin Hatch (R-UT), the matter was held over. The purpose of this bill is to prevent states from infringing patents, copyrights and trademarks. It would prevent states from recovering damages for infringement of state owned intellectual property, unless they have first waive their 11th Amendment sovereign immunity from suits against them for their infringement of the intellectual property of others.

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