News from August 11-15, 2002

IRS Loses More Computers, Jeopardizes Taxpayer Info
8/15. The Treasury Inspector General for Tax Administration (TIGTA) completed an audit report that found that the Internal Revenue Service (IRS) cannot physically locate many of its computers, and that it cannot ensure that taxpayer e-file data was removed from the computers. This is the latest in a string of reports documenting loss of computers by federal agencies.
Sen. Charles Grassley (R-IA) wrote to Office of Management and Budget (OMB) Director Mitch Daniels on August 15 to state that "the federal government has discovered core competency of losing computers".
This audit report focuses only on the IRS's Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs.
Sen. Grassley also wrote a letter to IRS Commissioner Charles Rossotti on August 15 regarding this loss of computers. He wrote that "the report reveals, among other things, that IRS 1) cannot physically account for computers provided to volunteers and 2) did not ensure that taxpayer e-file data was removed from volunteer computers at the end of the 2001 filing season."
Sen. Grassley added that "TIGTA's conclusions are disturbing, to say the least. From my read of the audit report, it appears that IRS neither knows how many computers in total it loaned to VITA and TCE volunteers nor the disposition of the computers it does know it loaned to the same volunteers. As far as I can tell, potentially thousands of computers in the VITA/TCE program are unaccounted for."
Sen. Grassley is the ranking Republican on the Senate Finance Committee, which oversees the Treasury Department and its components, which include the IRS and the Customs Service. He is also a senior member of the Senate Judiciary Committee, which oversees the Department of Justice (DOJ) and its components, including the Federal Bureau of Investigation (FBI).
Sen. Grassley also wrote in his letter to Mitch Daniels that "In recent days we have seen Inspectors Generals' reports of the Federal Bureau of Investigation (FBI) and Customs Service having thousands of computers that are lost, stolen or missing. Earlier in the summer we learned in another Inspector General report that the Internal Revenue Service (IRS) had approximately 2,300 computers that were lost or stolen. I'm worried that just as dryers have the knack of making socks disappear the federal government has discovered a core competency of losing computers."
He also addressed the latest report regarding losses at the IRS's VITA/TCE programs. He wrote that "this report states that the situation is so poor that the IRS does not even know how many computers are missing".
He also stated that the report concludes that the IRS does not know how many taxpayer returns have been compromised. He wrote that "it is particularly disturbing that sensitive taxpayer information that was on these computers was not adequately protected. Again, the situation is so bad that TIGTA cannot even determine the number of the 1.1 million tax returns prepared under VITA/TCE in Filing Season 2001 that may be in jeopardy".
Sen. Grassley added that "Information on tax forms is regarded as a prime target for identity thieves, including names, social security numbers, income, employment and bank details."
Sen. Grassley has been pressuring the agencies that his Committees oversee to report and remedy rampant computer losses. He has also addressed computer losses at the DOJ, FBI, Customs Service, and IRS.
The Treasury Inspector General for Tax Administration (TIGTA) released a report on November 29, 2001, titled "Management Advisory Report: Review of Lost or Stolen Sensitive Items of Inventory at the Internal Revenue Service". This report stated that "For the past 3 years, the IRS reported approximately 2,300 missing computers".
See also, letter of January 7, 2002, from Sen. Charles Grassley (R-IA) to Mitch Daniels, and story titled "Sen. Grassley Condemns IRS for 2,300 Missing Computers" in TLJ Daily E-Mail Alert No. 342, January 9, 2002.
See also, TLJ story titled "Customs Service Loses 2,251 Computers", August 8, 2002, and TLJ story titled "FBI Loses 317 Laptops", August 5, 2002.
Treasury Department Withholds Report on Network Security Weaknesses at IRS
8/15. The Treasury Inspector General for Tax Administration (TIGTA) completed, but did not release, an audit report titled "Persistent Security Weaknesses at Internet Connections Can Be Traced to a Lack of Policies and Procedures".
The TIGTA stated that it has "has designated this report as Limited Official Use (LOU) ... Because this document has been designated LOU, it may only be made available to those officials who have a need to know the information contained within this report in the performance of their official duties. This report must be safeguarded and protected from unauthorized disclosure ..."
The report is dated August 2002. It is Reference Number: 2002-20-145. See, TIGTA release [PDF].
IRS Seeks John Doe Summonses for Credit Card Records
8/15. The Department of Justice (DOJ) and Treasury Department announced that the DOJ filed a petition in U.S. District Court (SDFl) seeking "approval to serve a John Doe summons on MasterCard for records on transactions using credit cards issued by banks in over 30 tax haven countries for 1999-2001." See, Treasury release.
The DOJ stated in a release that "The petition filed today seeks records relating to the years 1999, 2000 and 2001, of cards issued by banks in more than 30 countries. The 30 countries include Liechtenstein, Switzerland and numerous Caribbean nations, such as Belize, Bermuda, and St. Kitts and Nevis. Recently, a federal court in San Francisco authorized the IRS to serve a summons on Visa International for records of cards issued by banks in those same 30 countries."
Music Companies Sue Internet Backbone Companies to Block Access to Pirate Site in PRChina
8/15. Thirteen music companies filed a complaint in U.S. District Court (SDNY) against four Internet backbone companies seeking an order requiring the defendants to block access to the Internet protocol addresses assigned to the Listen4ever servers in the People's Republic of China. The complaint, which does not name Listen4ever as a defendant, alleges that Listen4ever operates a web site that engages in infringement of the music companies' copyrighted sound recording by making them available for download. Plaintiffs also filed a motion for preliminary injunction. See, full story.
DOJ Settles Antitrust Suit Against MathWorks
8/15. The Department of Justice (DOJ) announced that it filed a proposed settlement with the U.S. District Court (EDVa) in its action against MathWorks and Wind River Systems. The DOJ filed a complaint on June 21, 2002, alleging violation of Section 1 of the Sherman Act.
The complaint alleged that MathWorks and Wind River were competitors in the development and sale of dynamic control system design software tools, and that they entered into an agreement that gave MathWorks the exclusive right to sell Wind River's MATRIXx products and required Wind River to stop its own development and marketing. See, DOJ June 21 release.
The DOJ announced in an August 15 release that the DOJ had "sought a judicially enforced sale of the MATRIXx product line. The proposed settlement ensures that an independent trustee will direct the attempted sale under court supervision."
The DOJ previously settled with Wind River Systems.
Bush Addresses Homeland Security Bill
8/15. President Bush gave a speech at Mt. Rushmore, South Dakota, in which he addressed, among other things, legislation to create a new Department of Homeland Security. The House passed the bill before leaving for the August recess. The Senate recessed without taking action.
He said that "I called upon Congress to join me in the creation of a Department of Homeland Security. And we're making some progress on the Department of Homeland Security. But I'm a little worried about some of the noise I hear. I don't want our hands tied so we cannot do the number one job you expect, which is to protect the homeland."
He continued that "I need to be able to ship resources without a time consuming approval process. If you're trying to defend the homeland, if you need to act quickly in response to a threat, we need to be able to move resources. We're not trying to do away with congressional authority. We're trying to have the capacity to respond to the needs of the American people. Unfortunately, the bill in the Senate right now won't let me do that."
People and Appointments
8/15. Federal Bureau of Investigation (FBI) Director Robert Mueller appointed Bruce Gebhardt as Deputy Director of the FBI, the second highest ranking position in the FBI. Gebhardt is currently the Executive Assistant Director for Criminal Investigations, with oversight for all criminal and cyber investigations. See, FBI release.
8/15. Dale Watson, Executive Assistant Director for Counterterrorism / Counterintelligence at the Federal Bureau of Investigation (FBI), will retire. See, DOJ release.
8/15. James Ziglar wrote a letter [PDF] to President Bush stating that he will resign as Commissioner of the Department of Justice's (DOJ) Immigration and Naturalization Service (INS) "no later than December 31, 2002".
More News
8/15. The U.S. Court of Appeals (FedCir) issued its opinion in Bionx Implants v. Linvatec, a patent infringement case involving a surgical fastener that is used to repair tears in the meniscus of the knee. The Appeals Court vacated and remanded the District Court's summary judgment of noninfringement.
8th Circuit Rules States Cannot Bar Municipalities From Providing Telecom Services
8/14. The U.S. Court of Appeals (8thCir) issued its opinion [11 pages in PDF] in Missouri Municipal League v. FCC, vacating an FCC order denying a request that it preempt a Missouri statute that prohibits political subdivisions of the state from offering telecommunications services. It held that the term "any entity" in 47 U.S.C. § 253(a) includes political subdivisions of states. This ruling creates a conflict between the District of Columbia Circuit and the 8th Circuit.
Missouri Statutes, Section 392.410(7), provides that, subject to certain enumerated exceptions, "No political subdivision of this state shall provide or offer for sale, either to the public or to a telecommunications provider, a telecommunications service or telecommunications facility used to provide a telecommunications service for which a certificate of service authority is required pursuant to this section."
Various municipalities and municipal organizations filed a petition with the Federal Communications Commission (FCC) asking that it preempt this statute for being in violation of 47 U.S.C. § 253(a).
47 U.S.C. § 253(a) provides that "No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." (Emphasis added.)
The FCC denied the request to preempt by Memorandum Opinion and Order [18 pages in PDF] released on January 12, 2001. (This is CC Docket No. 98-122.) The FCC wrote that "We do not preempt the enforcement of HB 620 to the extent that it limits the ability of municipalities or municipally owned utilities, acting as political subdivisions of the state of Missouri, from providing telecommunications services or facilities. As we found in the Texas Preemption Order, the term ``any entity´´ in section 253(a) of the Act was not intended to include political subdivisions of the state, but rather appears to prohibit restrictions on market entry that apply to independent entities subject to state regulation."
The FCC added that "municipal entry into telecommunications could raise issues regarding taxpayer protection from economic risks of entry, as well as questions concerning possible regulatory bias when a municipality acts as both a regulator and a competitor."
Former Commissioners William Kennard, Gloria Tristani and Susan Ness wrote that they concurred, with reluctance, because they felt constrained by the Texas precedent.
The municipal parties then filed a petition for review with the U.S. Court of Appeals (8thCir). Southwestern Bell and the State of Missouri intervened in support of the FCC order. The National Association of Telecommunications Officers and Advisors (NATOA) and the United Telecom Council supported the municipal parties, as amici curiae.
The Appeals Court vacated the FCC order, and remanded. It reasoned that "The dispute hinges on the meaning of the phrase ``any entity´´ in § 253 of the Act. More precisely, do the words ``any entity´´ plainly include municipalities and so satisfy the Gregory plain statement rule? We hold that they do."
(The Supreme Court held in Gregory v. Ashcroft, that a court must not construe a federal statute to preempt traditional state powers unless Congress has made its intention to do so unmistakably clear in the language of the statute.)
The Appeals Court concluded "that because municipalities fall within the ordinary definition of the term ``entity,´´ and because Congress gave that term expansive scope by using the modifier "any," individual municipalities are encompassed within the term ``any entity´´ as used in § 253(a)."
Conflict with the DC Circuit. This is not the first time municipalities have sought to have a state statute preempted under Section 253. The FCC considered, and rejected, such a challenge arising in the state of Texas. The FCC, by a Memorandum Opinion and Order, also known as the Texas Preemption Order, declined to preempt a Texas statute that is very similar to the Missouri statute. The City of Abilene and others filed a petition for review with the U.S. Court of Appeals (DCCir). The DC Circuit issued its opinion in 1999 upholding the FCC order. (See, City of Abilene v. FCC, 164 F.3d 49.)
The Eighth Circuit, in the present case, addressed the DC Circuit opinion. It wrote bluntly, "we do not find City of Abilene to be persuasive."
Judge Robert Wollman wrote the opinion for the 8th Circuit. Judge Raymond Randolph wrote the opinion for the DC Circuit.
6th Circuit Affirms District Court Cellular Tower Variance Order
8/14. The U.S. Court of Appeals (6thCir) issued its opinion in New Par v. City of Saginaw, affirming a District Court order compelling a local zoning board to grant New Par a variance to allow it to construct a cell tower, pursuant to 47 U.S.C. § 332.
Background. New Par, which does business as Verizon Wireless, provides cellular telephone service in the Detroit, Michigan area, including in the City of Saginaw. New Par sought to fill in a gap in its coverage area by constructing a new cellular tower in Saginaw. In March 2000, New Par submitted an application for a building permit for 150 foot tall cellular telephone monopole on a parcel of property owned by New Par. The property was zoned light industrial, but was smaller than the minimum size for light industrial use. Hence, New Par sought a variance from the Saginaw Zoning Board of Appeals from the minimum size requirements. Saginaw denied the request. It issued a written order which did not explain its reasons, other than that it was based "on the facts presented and the Board's determination".
Statute. 47 U.S.C. § 332 provides, at § 332(c)(7)(A) that "Except as provided in this paragraph, nothing in this chapter shall limit or affect the authority of a State or local government or instrumentality thereof over decisions regarding the placement, construction, and modification of personal wireless service facilities." § 332(c)(7)(B) then provides limitations to this general rule. § 332(c)(7)(B)(ii) prevents state and local governments from unreasonably discriminating among providers, and from prohibiting the provision of service. However, this case involves the "in writing" and "substantial evidence" requirements of § 332(c)(7)(B)(iii), which provides that "Any decision by a State or local government or instrumentality thereof to deny a request to place, construct, or modify personal wireless service facilities shall be in writing and supported by substantial evidence contained in a written record."
District Court. New Par filed a complaint in the U.S. District Court (EDMich) alleging that the Board's denial of its request for a variance violated Section 332, violated New Par's substantive due process rights, and constituted a regulatory taking. The District Court granted summary judgment to New Par on the grounds that it failed to meet the "substantial evidence" requirement of Section 332. It held that Saginaw met the "in writing" requirement. The Court did not address the two other causes of actions. The Court also issued an injunction ordering Saginaw to grant the variance. Saginaw appealed.
Appeals Court. The Appeals Court affirmed the District Court's grant of summary judgment and injunction order. However, it went further in its reasoning. It held that Saginaw violated both the "in writing" requirement, and the "substantial evidence" requirement.
The Appeals Court adopted a definition of "in writing". It wrote that "We hold that for a decision by a State or local government or instrumentality thereof denying a request to place, construct, or modify personal wireless service facilities to be ``in writing´´ for the purposes of 47 U.S.C. § 332(c)(7)(B)(iii), it must (1) be separate from the written record; (2) describe the reasons for the denial; and (3) contain a sufficient explanation of the reasons for the denial to allow a reviewing court to evaluate the evidence in the record that supports those reasons." The Appeals Court added that "Board's order denying New Par's variance request was separate from the written record, but it did not contain any explanation of the reasons for the denial."
The Court also held that Saginaw failed to meet the "substantial evidence" requirement, and that an injunction order (as opposed to a remand order) was appropriate.
FTC Requires MSC.Software to License Nastran Software Royalty Free
8/14. The Federal Trade Commission (FTC) issued an administrative complaint against MSC Software Corporation alleging violations of Section 5 of the Federal Trade Commission Act (FTCA) and Section 7 of the Clayton Act in connection with its 1999 acquisitions of Universal Analytics, Inc. (UAI) and Computerized Structural Analysis & Research Corp. (CSAR). The FTC also entered into an Agreement Containing Consent Order [22 pages PDF].
This proceeding is titled "In the Matter of MSC.Software". It is FTC Docket No. 9299. The FTC did not publish a copy of the complaint in its web site. Rather, it described the allegations in a press release. See also, MSC Software release.
MSC sells simulation software, and related services and systems. The FTC stated that MSC was the dominant supplier of Nastran software, which is an engineering simulation software program used in the aerospace and automotive industries, with an estimated 90% of worldwide revenue; UAI and CSAR each had sales of about 5% of worldwide revenue. MSC then acquired UAI and CSAR.
Under the terms of the proposed agreement, MSC must divest at least one copy of its current advanced Nastran software, including the source code. The divestiture will be through royalty free, perpetual, non-exclusive licenses to one or two acquirers who must be approved by the FTC.
FTC Commissioner Mozelle Thompson wrote a concurring statement. He wrote that "I voted to accept the agreement; however, I am concerned that industry and the private bar do not mistakenly make too much of the fact that the Commission did not require an up-front buyer for this licensing divestiture. As a general rule, the Commission is more likely to require that parties present up-front buyers for assets when divesting less than an ongoing business. In this unique case, however, the Commission decided to resolve its concerns about MSC.Software's two consummated acquisitions by accepting an order requiring a prompt divestiture to restore lost competition, instead of potentially delaying relief further by first forcing MSC.Software to negotiate an asset sale to a potential buyer."
Computer Chips v. Corn Chips
8/14. President Bush gave a speech at a McCallum for Governor luncheon in Milwaukee, Wisconsin. He stated that "For the first time in a long time I now have what's called trade promotion authority. And I understand good trade policy will yield good jobs. If you're confident about something, you try to promote it. I'm confident about the American people's ability to out produce anybody in the world. ... I'm confident that our high tech entrepreneurs are the best in the world. I'm confident that we can compete with a level playing field. I intend to use trade promotion authority to sell U.S. products abroad, which will be good for high paying jobs here in America."
Bush elaborated on this subject in a speech in Des Moines, Iowa. He said that "Farmers are, I'm sure, skeptical when they hear about trade. After all, the agriculture sector had been kind of a part of trade negotiations. Then when times got tough, they just kind of tossed the farmers aside, said they'd rather focus on computer chips than corn chips. But those days have changed. Those days have changed. See, I understand you start with strength when it comes to playing the American hand. I understand that if you're interested in economic security for every American, you do what you're good at. And what we're good at is growing food and hogs and cattle. And it's my job and the job of this administration, now that I've got trade promotion authority to do everything we can to knock down the barriers so you can be selling your products all over the world."
After a lengthy discussion of export of farm products and farm equipment, he concluded, "You see, trade is not only good for the farmers and ranchers, the entrepreneurs and the high tech people. Trade is good for the working people here in America, and I intend to make America a free trading nation."
He did not mention U.S. steel tariffs.
People and Appointments
8/14. Guy Lewis was named Director of the Executive Office for United States Attorneys (EOUSA) of the Department of Justice (DOJ). He was previously the U.S. Attorney for the Southern District of Florida. See, DOJ release.
8/14. Keith Lourdeau was named Chief of the Federal Bureau of Investigation's (FBI) Cyber Crime Section, Cyber Division. Lourdeau has been with the FBI since 1986, most recently as Assistant Special Agent in Charge of the St. Louis Division. See, FBI release.
8/14. Thomas Richardson was named Assistant Director of the Federal Bureau of Investigation's (FBI) Investigative Technologies Division. Richardson has been with the FBI since 1975. See, FBI release.
8/14. Craig Sherman and Mark Handfelt joined the law firm of Wilson Sonsini as partners in its Kirkland, Washington office. Sherman was previously Managing Director of Venture Law Group's Pacific Northwest office. See, release.
More News
8/14. Qwest announced that "it believes that the U. S. Attorney's Office is investigating various matters that also are subject to the investigation by the Denver Regional Office of the Securities and Exchange Commission (SEC). Qwest has previously disclosed investigations under way by the SEC, Congress and the U. S. Attorney's office in Denver. The U. S. Attorney's office has requested that Qwest make presentations similar to those made by the company to the SEC on these matters." See, Qwest release.
8/14. The U.S. Court of Appeals (FedCir) issued its opinion in Bayer v. Carlsbad Technology, a patent case involving antibiotic ciprofloxacin. The Appeals Court affirmed the District Court holding regarding the expiration date of the patent at issue.
7th Circuit Rules on Use of Trademarked Terms in HTML Meta Tags
8/13. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Promatek v. Equitrak, a trademark case involving HTML metatags. The Appeals Court affirmed a District Court injunction. See, full story.
Charles James Discusses Antitrust Activities
8/13. Charles James gave a speech titled "Rediscovering Coordinated Effects" to a bar group in Washington DC. He reviewed the activities of the Antitrust Division in the last year. He then concluded with a discussion of coordinated effects analysis. James is an Assistant Attorney General in charge of the Department of Justice's Antitrust Division.
James stated that the number of Hart Scott Rodino transactions is way down, and that "The telecommunications and technology sectors have been particularly slow".
He also referenced several technology related matters. For example, he said that "since June 2001, the Division has successfully challenged 18 of the 19 transactions it had deemed anticompetitive. The Division was unsuccessful in seeking to block the Sungard/ Comdisco merger, a transaction the Division asserted was likely substantially to lessen competition in the market for shared hotsite disaster recovery services."
He also said that "this past April, we announced a proposed settlement of a gun jumping complaint against Computer Associates and Platinum Technology, alleging violations of both Section 7A of the Clayton Act and the Sherman Act."
He also briefly touched on the Microsoft case. He said that "the big news this past year in the non-merger area has been our settlement of the Microsoft case. The settlement, together with hearings on separate remedial proposals being advanced by a group of dissident states, is under review by the Court."
He next addressed some of the Antitrust Division's ongoing work. He stated that "we have launched a number of important joint venture investigations involving, among other things, on-line media, financial services and electronic air passenger ticketing. Joint ventures are a high priority for the Division, in part because we believe that many firms are turning to joint ventures as an alternative to full-out mergers, and in part because joint ventures are an important way in which competitors interact with each other in emerging markets."
DOJ FTC Merger Review Agreement. James also discussed his attempt to agree with the Federal Trade Commission (FTC) Chairman Timothy Muris to divide responsibility for merger reviews. The two issued a Memorandum of Agreement in January 2002 concerning clearance procedures for merger reviews and other antitrust matters. The agreement attempted to define, by industry, which transactions would be reviewed by which agency. The agreement was dropped following opposition from, and threats of appropriations cuts by, Sen. Ernest Hollings (D-SC). See, story titled "DOJ & FTC Abandon Merger Review Agreement Under Threat from Sen. Hollings" in TLJ Daily E-Mail Alert No. 436, May 22, 2002.
James stated that "Our landmark but ill fated clearance agreement with the FTC also was part of our process of procedural reform in the merger area. By reducing the time spent in clearance disputes, more time could be spent on actual investigations during the first HSR waiting period. During its brief life, the agreement had reduced clearance to a one day process, and for the first time in decades eliminated all pending clearance disputes. The agreement itself did not change or alter substantive antitrust enforcement, nor did it transfer industry responsibility from one agency to the other. It merely institutionalized in advance the results that should have been dictated by the pre-existing, experience based system."
He concluded that "Much to our disappointment, the agreement had to be voided in May of this year due to the threat of budgetary reprisals against the agencies. Chairman Muris and I, however, remain committed to improving the efficiency and effectiveness of the clearance process. Nevertheless, despite our best efforts, in recent weeks, the average time for clearing matters to the agencies has risen to five days."
Coordinated Effects Analysis. James concluded with a general discussion of coordinated effects and unilateral effects. He said that "we will renew the focus on coordinated effects analysis". He also stated that "unilateral effects should not be the theory of choice simply by default. If we reach too quickly for unilateral effects theories to the exclusion of meaningful coordinated effects analysis, we might miss important cases that should be brought or craft our relief too narrowly in cases that we actually pursue."
He stated that there is a team of lawyers and economists at the Antitrust Division studying coordinated effects. He also stated that "Revisiting the various factors that potentially might affect coordination, and providing additional insight into how such factors might interact with each other, will assist our staffs in identifying solid coordinated effects cases and allow us to more readily develop the evidence we need to prove them in court."
He also rhetorically asked, but did not answer, several questions. He stated: "The age old questions of merger policy still persist. When exactly do market conditions become ripe for coordination and why does this particular merger matter in creating such conditions? Is it enough to demonstrate that the merger will eliminate important constraints upon coordination, or must the government go much further to present a much more detailed story as to how some specific form of post-merger coordination is more likely to occur? What must the government prove and to what level of certainty?"
See also, speech on coordinated effects on April 24, 2002, by Deputy Assistant Attorney General William Kolasky.
Bush Addresses Broadband Deployment
8/13. President Bush spoke about broadband deployment at an event in Waco, Texas. He stated that "In order to make sure the economy grows, we must bring the promise of broadband technology to millions of Americans. My administration is promoting investment in broadband. We will continue to work to prevent new access taxes on broadband technology. If you want something to be used more, you don't tax it. And broadband technology is going to be incredibly important for us to stay on the cutting edge of innovation here in America. The Federal Communications Commission is focusing on policies to encourage high speed Internet service for every home and every business in America. The private sector will deploy broadband. But government at all levels should remove hurdles that slow the pace of deployment." See, transcript.
Bush Addresses Trade Policy
8/13. President Bush spoke about trade policy at an event in Waco, Texas. He stated that "In order to make sure that we continue to grow our economy, we need to be aggressive when it comes to trade policy. Zoellick mentioned to me, he said they're all looking to me. They may be looking to me, Zoellick, I'm looking to you. You're the Trade Representative, you've now got the tools, go out there and start negotiating free trade agreements around the world."  See, transcript.
Bush also addressed the trade promotion authority (also known as fast track) bill which he signed earlier this month. "We're back at the bargaining table as a result of getting the Trade Promotion Authority vote out of the United States Congress. It is essential that we move aggressively, because trade means jobs. More trade means higher incomes for American workers. Listen, a confident nation is one which opens up markets. A nation which isn't confident is one that closes its markets, and puts walls around."
Bush concluded that "I'm confident. I'm confident in the American entrepreneurs, I'm confident in our high tech industry, I'm confident in our farmers and ranchers. I'm confident that when we compete, we're the best in the world, and therefore I want to trade. I want to open up those markets. I want to level those playing fields. Open trade is good for American workers and American families."
GAO Reports on Internet Cigarette Sales
8/13. The General Accounting Office (GAO) released a report [60 pages in PDF] titled "Internet Cigarette Sales: Giving ATF Investigative Authority May Improve Reporting and Enforcement".
The report identified 147 web site addresses for Internet cigarette vendors based in the United States. It also concluded that most do not comply with the Jenkins Act, 15 U.S.C. §§ 375-378, which requires that any person who sells and ships cigarettes across a state line to a buyer, other than a licensed distributor, to report the sale to the buyer's state tobacco tax administrator.
This GAO report recommends that "To improve the federal government's efforts in enforcing the Jenkins Act and promoting compliance with the act by Internet cigarette vendors, which may lead to increased state tax revenues from cigarette sales, the Congress should consider providing ATF with primary jurisdiction to investigate violations of the Jenkins Act".
The report was prepared for Rep. John Conyers (D-MI) and Rep. Marty Meehan (D-MA). Rep. Meehan has also sponsored legislation to regulate Internet tobacco sales. See, TLJ story titled "Rep. Meehan Introduces Bill to Ban Internet Sales of Tobacco to Minors", September 27, 1999.
People and Appointments
8/13. Douglass Maynard joined the law firm of Akin Gump as a partner in the litigation practice group in the New York City office. He focuses libel and media law, complex commercial cases and white collar matters. He was previously associate general counsel at Time Inc. Before that, he was an assistant U.S. attorney in the Southern District of New York. See, release.
More News
8/13. The U.S. Patent and Trademark Office (USPTO) announced that it will discontinue paper publication of the Official Gazette of the United States Patent and Trademark Office - Patents after the September 24, 2002 issue. See, USPTO release.
8/13. The U.S. Court of Appeals (FedCir) issued its opinion in Abbott Laboratories v. TorPharm, a patent infringement case involving TorPharm's attempt to introduce a generic version of Abbott's Depakote, an anticonvulsant medication used to treat epilepsy, migraine headaches and bipolar disorder. The Appeals Court affirmed the District Court's rulings on validity and enforceability of the patent in suit, but vacated the grant of summary judgment of infringement, and remanded.
Sens. Baucus and Grassley Propose Working Group on ETI/FSC
8/12. Sen. Max Baucus (D-MT) and Sen. Charles Grassley (R-IA) wrote a letter [PDF] to U.S. Trade Representative (USTR) Robert Zoellick and Deputy Secretary of the Treasury Kenneth Dam regarding the Extraterritorial Income Exclusion Act (ETI).
The two Senators, who are the Chairman and ranking Republican on the Senate Finance Committee (SFC), asked the two administration officials to join them in a "legislative executive, bicameral, bipartisan working group" to address the ETI issue in September.
The World Trade Organization (WTO) has ruled that the ETI, and its predecessor, the Foreign Sales Corporation Act (FSC), constitute illegal export subsidies. These tax regimes greatly benefit U.S. companies that export their products, including high tech exporters. The U.S. unsuccessfully argued to the WTO that the U.S. has a global tax system, while European nations have territorial tax systems, that this puts U.S. exporters at a competitive advantage, and that tax regimes such as ETI and FSC that exempt certain foreign source income from taxation merely level the playing field.
Sens. Baucus and Grassley wrote that "we appreciate that you believe we need to promptly advance legislation which has a high probability of enactment. Since the European Union may be authorized to impose substantial retaliatory duties against American exports, a failure to resolve this issue could prove costly for the American workers, farmers, businesses, and consumers. Given the legislative and dispute settlement posture of this matter, we believe it is important to show progress toward compliance."
Both Dam and Zoellick testified before a SFC hearing on ETI/FSC on July 30. See, Dam's prepared testimony [PDF or HTML] and Zoellick's prepared testimony [PDF or HTML].
SEC Chairman Warns Legal Profession to Avoid Mistakes of Accounting Profession
8/12. Securities and Exchange Commission (SEC) Chairman Harvey Pitt gave a speech in Washington DC to a bar group. He talked about his experiences in his first year in office, and new parameters for the way lawyers representing public companies appear and practice before the SEC. He stated that lawyers must represent corporate and shareholder interests, not the interests of corporate managers.
He stated that "The Sarbanes Oxley Act should alert this group that, in addition to auditors and corporate leaders, Congress believes lawyers representing public companies also have responsibilities requiring governmental definition. Most lawyers blanch at that notion. The relationship between lawyers and clients is often intensely personal, similar in some respects to the relationship between priest and penitent in the confessional. Lawyers are zealously supposed to guard, defend and promote the interests of their clients. To do that, clients must feel comfortable confiding in their lawyers. Efforts to impose governmental controls on how lawyers fulfill their responsibilities, some argue, can infringe upon the willingness of clients to confide in their lawyers, and curtail their ability to receive the benefits that flow from an unfettered lawyer client dialogue."
Pitt continued, "But, the merits of that concern, if any, apply to individual representations, not the representation of public companies. Lawyers for public companies represent the company as a whole and its shareholder wners, not the managers who hire and fire them. This should be self evident, but recent events indicate some corporate lawyers have lost sight of this axiom, a form of professional blindness that isn't new."
Pitt concluded that "lawyers who represent public companies must use their legal acumen to pursue only those goals whose sole purpose is to further legitimate corporate interests, not the interests of individual managers -- even if management's individual goals arguably are supportable by a literal reading of the law."
Pitt stated that this means that "When a corporation hires a lawyer, the lawyer represents the corporation and its shareholders. Being ever mindful of this answer can help protect lawyers from the fate visited upon the accounting profession. While management has the power to hire or fire lawyers who represent a corporation, lawyers must ask themselves -- as well as management -- how what they're being asked to do is intended to further the company's and shareholders' interests. Corporate lawyers must be vigilant and protect against conflicts arising between management and shareholders. Most corporate lawyers recognize and fulfill that duty -- but the profession, as a whole, must hold this duty paramount."
DOJ Official Addresses International Competition Network
8/12. William Kolasky gave a speech titled "Can the International Competition Network Help Tame the Growing Multinational Merger Thicket?"
The International Competition Network (ICN) was formed last October by the Department of Justice's Antitrust Division and Federal Trade Commission (FTC) and thirteen other competition agencies from other jurisdictions. It now includes 63 jurisdictions.
Kolasky said that the ICN exists to "provide support for new competition agencies both in enforcing their laws and in building a strong competition culture in their countries", and "to promote greater convergence among these authorities around sound competition principles by working together, and with stakeholders in the private sector, to develop best practice recommendations for antitrust enforcement and competition advocacy that could then be implemented voluntarily by the member agencies."
Kolasky is the Deputy Assistant Attorney General in charge of international antitrust and policy enforcement for the Department of Justice's Antitrust Division. He was previously a partner in the Washington DC office of the law firm of Wilmer Cutler & Pickering. He was appointed to the DOJ in October 2001. See, DOJ release.
People and Appointments
8/12. California Gov. Gray Davis appointed James Kleinberg to be a Judge of the Santa Clara County Superior Court. Kleinberg is a partner in the Silicon Valley office of the law firm of Bingham McCutchen (formerly McCutchen, Doyle Brown & Enersen). He is a trial lawyer who focuses on intellectual property, securities, antitrust, and trade regulation. His intellectual property cases have involved the Internet, web design and filtering technologies, semiconductors, security systems for automated teller machines, computer disk drives, and market research studies.
8/12. James Gilmore joined the law firm of Kelley Drye & Warren as a partner in the firm's Washington DC office. He will focus on corporate and technology law. Gilmore is a former Governor and Attorney General of the state of Virginia, and a former Republican National Committee Chairman. He is also the Chairman of the Advisory Panel to Assess Domestic Response Capabilities for Terrorism Involving Weapons of Mass Destruction, which is also known as the Gilmore Commission.

Go to News from August 6-10, 2002.