|News from August
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)
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
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).
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
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
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
The report is dated August 2002. It is Reference Number: 2002-20-145. See, TIGTA release
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
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
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
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".
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
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
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
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
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
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
The Eighth Circuit, in the present case, addressed the DC Circuit opinion. It
wrote bluntly, "we do not find City of Abilene to be
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
8/14. The U.S.
Court of Appeals (6thCir) issued its opinion
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".
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
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
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
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.
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
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
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
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
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
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
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
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
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."
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
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
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.
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
SEC Chairman Warns Legal Profession to Avoid Mistakes of
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
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?"
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.